G.R. No. 28495 , March 31, 1928
ASIA BANKING CORPORATION, plaintiff-appellant, vs. ASUNCION NABLE JOSE and LICHAUCO & CO., INC., defendants-appellees.

FACTS

Asia Banking Corporation (Bank) obtained a judgment against Lichauco & Co., Inc. (Corporation) for a debt of P146,242.11. To satisfy the judgment, the Bank caused the sheriff to levy upon and sell two haciendas (“Sevitanan” and “Sapangbalen”) registered in the Corporation’s name. The Bank purchased the properties at the sheriff’s sale for P70,000. However, the Bank was unable to register its sheriff’s deed because, prior to the levy, the Corporation had executed a deed (Exhibit B) conveying the same haciendas to Asuncion Nable Jose (Nable Jose) for a stated consideration of P70,000. The Bank filed this action to annul the deed to Nable Jose, alleging it was a simulated and fraudulent conveyance executed without consideration while the Corporation was insolvent, for the purpose of hindering the Bank’s collection of its debt. Nable Jose claimed the conveyance was legitimate, based on a pre-existing debt the Corporation owed her.

ISSUE

Whether the deed of conveyance (Exhibit B) from Lichauco & Co., Inc. to Asuncion Nable Jose is fraudulent and void as against the creditor, Asia Banking Corporation.

RULING

YES, the conveyance was fraudulent and voidable. The Supreme Court found that the consideration for the deed was grossly inadequate, as the properties were worth at least P300,000 but were conveyed for only P70,000. More critically, the Court found that at the time of the conveyance (and even before), the Corporation was insolvent. The alleged payment of the P70,000 debt by the Corporation to Nable Jose was made while the corporation was insolvent and was for an obligation that was due and enforceable at that time. Such a payment constitutes a fraudulent conveyance under Article 1292 of the Civil Code, which voids payments made by a debtor while in a state of insolvency for obligations not yet due, or to the detriment of other creditors.

However, the Court recognized that a portion of the consideration (P34,000) represented a legitimate pre-existing debt owed by the Corporation to Nable Jose. Therefore, the Court rendered a conditional judgment: The deed to Nable Jose was declared void, but she was granted an equitable lien on the properties for P34,000 with interest. The Bank was given the option to pay Nable Jose this amount by a specified date. Upon such payment, Nable Jose would be required to convey the properties to the Bank, the sheriff’s deed in favor of the Bank would be registered, and the deed to Nable Jose would be cancelled. If the Bank failed to pay, the consequences of its failure would be determined. No costs were awarded.