Lee vs. Bangkok Bank Public Company, Limited

A real estate mortgage is not an "alienation by onerous title" that triggers the presumption of fraud under Article 1387 of the Civil Code, and such presumption does not apply to registered lands if the prior judgment or attachment is unregistered.

Midas Diversified Export Corporation (MDEC) and Manila Home Textile, Inc. (MHI), corporations owned by the Lee family, obtained credit lines from Bangkok Bank, guaranteed by the Lee family. MDEC also obtained a loan from Asiatrust Development Bank. Upon MDEC's default on the Asiatrust loan, Samuel Lee mortgaged his Antipolo properties to Asiatrust in early 1998. Subsequently, the Lee corporations filed a petition for suspension of payments with the SEC, listing the Antipolo properties as assets. Bangkok Bank later filed a collection suit, obtained a writ of attachment, and discovered Asiatrust's prior mortgage. Asiatrust foreclosed on the properties.

• Credit Facilities and Guarantees: MDEC and MHI obtained credit lines from Bangkok Bank in 1995 and 1996, secured by guarantees from the Lee family. MDEC also obtained a loan from Asiatrust in 1996.
• Execution of the REM: Upon MDEC's default on the Asiatrust loan in 1997, negotiations led to Samuel Lee mortgaging his Antipolo properties to Asiatrust. The REM was notarized and annotated on the titles on February 23, 1998.
• SEC Petition and Suspension Order: On February 16, 1998, the Lee corporations filed a petition for suspension of payments with the SEC, including the Antipolo properties in the list of assets. The SEC issued a suspension order on February 20, 1998.
• Attachment and Foreclosure: Bangkok Bank filed a collection suit on March 12, 1998, and obtained a writ of preliminary attachment, discovering Asiatrust's prior REM. Asiatrust foreclosed the properties on April 15, 1998, and consolidated the titles on April 30, 1999. Bangkok Bank did not redeem the properties.
• Rescission Action: Bangkok Bank filed the rescission action on July 20, 1999, alleging fraud under Article 1387 and violation of the SEC suspension order.

• Exhaustion of Legal Remedies: Bangkok Bank cannot maintain an action to rescind the REM without exhausting legal remedies, particularly by failing to redeem the foreclosed properties.
• SEC Jurisdiction over Private Properties: Properties owned by private individuals are not covered by an SEC suspension order, which applies only to corporations, partnerships, and associations.
• Absence of Fraud: A surety or guarantor executing a REM in favor of one creditor prior to a suspension of payments petition does not commit fraud, especially where the mortgagee acted in good faith and the REM secured a pre-existing obligation.

• Estoppel: Petitioners are estopped from claiming the Antipolo properties are outside the SEC suspension order because their counsel previously argued the foreclosure was illegal due to the suspension order.
• Presumption of Fraud: The execution of the REM is presumed fraudulent under Article 1387 because it was made by a person against whom a writ of attachment had been issued (SBC's writ in January 1998).
• Violation of Suspension Order: The REM and foreclosure violated the SEC suspension order, which covered the properties listed in the petition.

• Exhaustion of Remedies: Whether Bangkok Bank can maintain an action to rescind the REM despite its failure to exhaust all legal remedies to satisfy its claim.
• SEC Suspension Order: Whether properties owned by private individuals should be covered by a suspension order issued by the SEC in an action for suspension of payments.
• Fraud under Art. 1387: Whether a surety or guarantor is guilty of defrauding creditors for executing a REM in favor of one creditor prior to the filing of a Petition for Suspension of Payments.

• Exhaustion of Remedies: The action for rescission was proper despite the failure to redeem, as Bangkok Bank had no other legal remedy to satisfy its claim; however, the action fails on the merits due to the absence of fraud.
• SEC Suspension Order: Private properties are not subject to the SEC suspension order. The SEC's jurisdiction over suspension of payments under PD 902-A is limited to corporations, partnerships, and associations, not private individuals or their assets, even if listed in the corporate petition.
• Fraud under Art. 1387: No fraud was established. The presumption of fraud under Article 1387 does not apply because (1) the prior writ of attachment by SBC was not registered on the titles, and (2) a real estate mortgage is not an "alienation by onerous title" but merely a lien. Furthermore, Asiatrust acted in good faith, precluding rescission under Article 1385.

• Presumption of Fraud in Registered Lands — The presumption of fraud under Article 1387 does not apply to registered lands if the prior judgment or attachment is not registered or annotated on the title. Absent registration, a subsequent mortgagee is not bound by the presumption of fraud.
• Mortgage as Alienation — A real estate mortgage is not an "alienation by onerous title" under Article 1387. Alienation requires a complete transfer of property, whereas a mortgage merely creates a lien or security interest without transferring ownership.
• Good Faith of Third Persons in Rescission — Under Article 1385, rescission cannot take place when the property is legally in the possession of a third person who did not act in bad faith. The third party mortgagee is presumed in good faith, and the burden of proving bad faith rests on the party alleging it.
• SEC Jurisdiction over Suspension of Payments — Under PD 902-A, the SEC's jurisdiction over suspension of payment petitions is limited to corporations, partnerships, and associations. Private individuals cannot file such petitions, and their private properties cannot be placed under the SEC's jurisdiction or suspension order, even if listed in the corporate petition.

• "Where the judgment rendered against the defendant x x x has not been entered in the records of the register of deeds, relative to an immovable belonging to the judgment debtor, the subsequent sale of said property by the latter, shall not be rescinded upon the ground of fraud, unless the complicity of the buyer in the fraud imputed to said vendor is established by other means than the presumption of fraud x x x." — The Court applied this principle to hold that the unregistered SBC attachment prevented the application of the presumption of fraud against Asiatrust.
• "A mortgage does not contemplate a transfer or an absolute conveyance of a real property. It is 'an interest in land created by a written instrument providing security for the performance of a duty or the payment of a debt.'" — This clarified that a mortgage falls outside the scope of "alienation by onerous title" under Article 1387.
• "Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith." — Applied to protect Asiatrust's rights as a mortgagee in good faith and subsequent purchaser at the foreclosure sale.

• Chung Ka Bio v. Intermediate Appellate Court, 163 SCRA 534 (1988) — Followed. The Court reiterated that the SEC has no jurisdiction over private individuals in suspension of payment cases.
• Abaya v. Enriquez, 101 Phil. 1210 (1957) — Followed. The Court applied the rule that the presumption of fraud under Article 1387 does not apply to registered lands if the prior judgment or attachment is unregistered.
• Siguan v. Lim, 318 SCRA 725 (1999) — Followed. The Court cited the requisites for an accion pauliana, emphasizing the need for fraud on the part of the debtor and complicity or bad faith on the part of the third person.

• Article 1381(3), Civil Code — Defines rescissible contracts, including those undertaken in fraud of creditors when the latter cannot otherwise collect their claims. The Court found this inapplicable due to the lack of fraud.
• Article 1385, Civil Code — Provides that rescission shall not take place when the property is legally in the possession of third persons acting in good faith. The Court applied this to protect Asiatrust.
• Article 1387, Civil Code — Presumes fraud in alienations by onerous title made by persons against whom a judgment or attachment has been issued. The Court held this presumption inapplicable because the attachment was unregistered and a mortgage is not an alienation.
• Sections 3 and 5(d), Presidential Decree No. 902-A — Vest the SEC with jurisdiction over petitions for suspension of payments by corporations, partnerships, or associations. The Court interpreted this to exclude private individuals and their properties.
• Section 78, Republic Act No. 337 (General Banking Act) — Provides a one-year redemption period for mortgaged real estate sold extrajudicially. The Court noted Bangkok Bank's failure to redeem within this period.
• Section 27, Rule 39, Rules of Court — Enumerates persons entitled to redeem real property sold, including creditors with subsequent liens. Bangkok Bank was identified as a redemptioner but failed to exercise its right.

Renato C. Corona (Chief Justice, Chairperson), Teresita J. Leonardo-De Castro, Mariano C. Del Castillo, Jose Portugal Perez.