An action for rescission of a contract in fraud of creditors (accion pauliana) is subsidiary in nature and cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same; the complaint for accion pauliana must allege that the creditor has exhausted all properties of the debtor and has no other legal remedy.

Anchor Savings Bank (ASB) had an existing loan with Ciudad Transport Services, Inc. (CTS), its president Henry H. Furigay, and his wife Gelinda C. Furigay. When CTS and the Furigays defaulted on their loan obligation, ASB filed a complaint for sum of money. While this collection case was pending, the Furigay spouses donated several of their registered properties to their minor children, Hegem and Herriette Furigay. ASB, believing this donation was made to defraud creditors, subsequently filed a separate action for rescission of the deed of donation.

• On April 21, 1999, Anchor Savings Bank (ASB) filed a complaint for sum of money and damages against Ciudad Transport Services, Inc. (CTS), its president Henry H. Furigay, and his wife Gelinda C. Furigay (Civil Case No. 99-865, RTC Makati).
• On November 7, 2003, the RTC Makati rendered a decision in favor of ASB in Civil Case No. 99-865, ordering the defendants to pay Php8,695,202.59 plus interest, penalty charges, liquidated damages, attorney's fees, and costs.
• While Civil Case No. 99-865 was pending, specifically on March 8, 2001, the Sps. Furigay executed a Deed of Donation transferring their registered properties in Alaminos, Pangasinan, to their minor children, Hegem G. Furigay and Herriette C. Furigay.
• New Transfer Certificates of Title (TCT Nos. 21743, 21742, 21741, and 21740) were issued in the names of the children.
• ASB, claiming the donation was made in fraud of creditors, filed a Complaint for Rescission of Deed of Donation, Title and Damages on October 14, 2005, against the Sps. Furigay and their children (Civil Case No. A-3040, RTC Alaminos).
• ASB alleged in its complaint for rescission that the donation was intended to deprive ASB from going after the subject properties to answer for the Furigays' due and demandable obligation.

• The Court of Appeals erred in dismissing the action for rescission on the ground that ASB failed to allege in its complaint that it had resorted to all other legal remedies to satisfy its claim, as this is a matter to be proved during trial, not necessarily alleged.
• The action for rescission had not yet prescribed, asserting that the four-year prescriptive period should be counted from September 2005, when ASB discovered the fraudulent donation, not from the registration of the deed of donation.
• The dismissal of the complaint without giving ASB the opportunity to present evidence deprived it of its right to due process.

• The RTC Alaminos failed to acquire jurisdiction over their persons due to improper service of summons.
• The RTC Alaminos failed to acquire jurisdiction over the subject matter due to ASB's failure to pay the necessary legal fees.
• ASB's action for rescission had already prescribed.

• Whether the Court of Appeals correctly dismissed ASB's complaint for rescission of the deed of donation on the ground that the action was premature due to ASB's failure to allege in its complaint that it had resorted to all legal remedies to obtain satisfaction of its claim.

• The Supreme Court denied ASB's petition and affirmed the Court of Appeals' decision dismissing the complaint for rescission.
• The Court reiterated that an action for rescission (accion pauliana) is subsidiary in nature; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same, as provided in Article 1383 of the Civil Code.
• For an accion pauliana to prosper, the creditor must have exhausted the properties of the debtor through levying by attachment and execution, exercised all rights and actions of the debtor (accion subrogatoria), and only then seek rescission of contracts executed by the debtor in fraud of their rights.
• The complaint for accion pauliana must allege ultimate facts constituting these prerequisites, including the fact that the creditor has no other legal remedy to satisfy their claim.
• ASB's complaint failed to allege that it had exhausted all properties of CTS, Henry H. Furigay, and Genilda C. Furigay, or their transmissible rights and actions, before filing the action for annulment (rescission) of the donation.
• The Court cited Khe Hong Cheng vs. Court of Appeals, which established that an accion pauliana accrues only when the creditor discovers that he has no other legal remedy for the satisfaction of his claim against the debtor, presupposing a judgment, a writ of execution, and failure of the sheriff to satisfy the judgment.
• The four-year prescriptive period for accion pauliana commences not from the date of registration of the deed sought to be rescinded, nor from the date the trial court rendered its decision in the collection case, but from the day it becomes clear that there are no other legal remedies by which the creditor can satisfy their claims.
• The failure to make a sufficient allegation of a cause of action in the complaint, including the exhaustion of other remedies for an accion pauliana, warrants its dismissal.

• Cause of Action — An act or omission by which a party violates the right of another. Its elements are: (1) a right in favor of the plaintiff; (2) an obligation on the part of the defendant to respect or not to violate such right; and (3) an act or omission by the defendant in violation of such right or constituting a breach of the obligation. The Court held that ASB's complaint failed to sufficiently allege all elements of a cause of action for accion pauliana, specifically the exhaustion of other remedies.
• Accion Pauliana (Action for Rescission) — A subsidiary remedy available to creditors to impugn acts which the debtor may have done to defraud them. It cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. The Court applied this by emphasizing that ASB had to first exhaust other legal remedies against the debtors before it could file an action to rescind the donation, and this exhaustion must be alleged in the complaint.
• Subsidiary Nature of Rescission — An action for rescission under Article 1381(3) of the Civil Code is a remedy of last resort, available only after all other legal remedies have been exhausted and proven futile. The Court ruled that ASB's action was premature because it did not allege or prove that it had no other legal means to obtain reparation.
• Prescription of Accion Pauliana — The four-year prescriptive period for an action to rescind a fraudulent contract (accion pauliana) under Article 1389 of the Civil Code commences from the day it has become clear that there are no other legal remedies by which the creditor can satisfy their claims, not from the date of the fraudulent contract's registration. The Court, citing Khe Hong Cheng, clarified this point, although the primary basis for dismissal was prematurity, not prescription.
• Sufficiency of Complaint (Failure to State a Cause of Action) — The test for sufficiency is whether, admitting the facts alleged in the complaint, the court can render a valid judgment according to the plaintiff's prayer. The inquiry is confined to the four corners of the complaint. The Court found ASB's complaint insufficient because it failed to allege the prerequisite exhaustion of remedies for an accion pauliana.

• "The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the actions which the debtor may have done to defraud them." (Quoting Article 1177 of the New Civil Code)
• "An action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same." (Quoting Article 1383 of the New Civil Code)
• "An accion pauliana accrues only when the creditor discovers that he has no other legal remedy for the satisfaction of his claim against the debtor other than an accion pauliana. The accion pauliana is an action of a last resort." (Quoting the CA's disquisition, which itself referenced Khe Hong Cheng)
• "From the foregoing, it is clear that the four-year prescriptive period commences to run neither from the date of the registration of the deed sought to be rescinded nor from the date the trial court rendered its decision but from the day it has become clear that there are no other legal remedies by which the creditor can satisfy his claims." (Quoting Khe Hong Cheng vs. Court of Appeals)
• "Nothing is more settled than the rule that in a motion to dismiss for failure to state a cause of action, the inquiry is into the sufficiency, not the veracity, of the material allegations."

• Khe Hong Cheng vs. Court of Appeals (G.R. No. 144169, March 28, 2001, 407 Phil. 1058) — Cited extensively to explain the nature of accion pauliana, its requisites, and particularly when the cause of action accrues and the prescriptive period begins to run (i.e., when the creditor discovers no other legal remedy exists). This case was pivotal in the Court's reasoning that ASB's action was premature.
• Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc. (G.R. No. 87434, August 5, 1992, 212 SCRA 194) — Referenced for the principle that all essential elements of a cause of action must be in existence and all valid conditions precedent must be complied with before an action can properly be commenced.
• Adorable v. Court of Appeals (377 Phil. 210 (1999)) — Cited in relation to the successive measures a creditor must take before resorting to accion pauliana (exhaustion of debtor's property, accion subrogatoria, then accion pauliana).
• First Bancorp, Inc. v. Court of Appeals (525 Phil. 309 (2006)) — Cited for the test of sufficiency of facts alleged in a complaint.
• Philippine Daily Inquirer v. Alameda (G.R. No. 160604, March 28, 2008, 550 SCRA 199) — Cited for the consequence of failing to make a sufficient allegation of a cause of action, which warrants dismissal.
• Soloil, Inc. v. Philippine Coconut Authority (G.R. No. 174806, August 11, 2010, 628 SCRA 185) — Cited for the definition of when a cause of action arises.
• Central Philippines University v. Court of Appeals (316 Phil. 616 (1995)) — Cited for the definition of when a cause of action arises.
• Balo v. Court of Appeals (508 Phil. 224 (2005)) — Cited for the rule that in a motion to dismiss for failure to state a cause of action, the inquiry is into the sufficiency, not veracity, of material allegations.
• Acuña v. Batac Producers Cooperative Marketing Association, Inc. (126 Phil. 896 (1967)) — Cited for the principle that the inquiry in a motion to dismiss for failure to state a cause of action is confined to the four corners of the complaint.

• Rule 45 of the 1997 Rules of Civil Procedure — The procedural basis for ASB's petition for review on certiorari to the Supreme Court.
• Rule 2, Section 1 of the Revised Rules of Court — States that every ordinary civil action must be based on a cause of action. Referenced to establish the necessity of a valid cause of action for ASB's complaint.
• Rule 2, Section 2 of the Revised Rules of Court — Defines a cause of action. Referenced to analyze if ASB's allegations met the elements of a cause of action for accion pauliana.
• New Civil Code, Article 1177 — Provides that creditors, after pursuing the debtor's property, may exercise the debtor's rights and actions (accion subrogatoria) and impugn acts done by the debtor to defraud them (accion pauliana). This article establishes the subsidiary nature of accion pauliana.
• New Civil Code, Article 1381(3) — Enumerates contracts undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them as rescissible. This is the substantive basis for an accion pauliana.
• New Civil Code, Article 1383 — States that an action for rescission is subsidiary and cannot be instituted except when the party suffering damage has no other legal means to obtain reparation. This was a core provision supporting the dismissal of ASB's complaint as premature.
• New Civil Code, Article 1387 — Discusses presumptions of fraud in alienations by a debtor. While relevant to the merits of fraud, the case was decided on the prematurity of the action.
• New Civil Code, Article 1389 — Provides that the action to claim rescission must be commenced within four years. The Court clarified, citing Khe Hong Cheng, when this period commences for accion pauliana.
• New Civil Code, Article 1150 — States that the time for prescription for all kinds of actions, when there is no special provision, shall be counted from the day they may be brought. Referenced in the discussion of the prescriptive period for accion pauliana.
• Presidential Decree No. 1529, Section 52 — (Property Registration Decree) Regarding constructive notice upon registration. This was mentioned in the context of respondents' argument on prescription, which the Court ultimately found secondary to the issue of prematurity and the proper reckoning point for prescription in accion pauliana cases.