Regalado vs. Luchsinger & Co.

A judgment in a criminal case is not conclusive in a subsequent civil action upon a party who was neither a party to the criminal case nor a successor in interest by title subsequent to its commencement. Moreover, a sale of property by a debtor for valuable consideration after a final condemnatory judgment or after a writ of execution has been levied is presumed fraudulent under the last paragraph of Article 1297 of the Civil Code; that presumption is not overcome where the consideration is manifestly inadequate and the debtor lacks other unencumbered assets sufficient to pay the debt.

Jose Regalado owed money to Luchsinger & Co. In 1896, Luchsinger & Co. obtained a judgment against him and procured a writ of attachment over a warehouse he owned; the judgment was affirmed by the Royal Audiencia of Manila in 1897. While the attachment stood, Jose sold the same warehouse in 1900 to his son, Pedro Regalado. Luchsinger & Co. later sought to execute on the warehouse to satisfy the debt. Pedro Regalado then filed the present action, asserting ownership and seeking to bar the execution. Jose Regalado had meanwhile been prosecuted for estafa in connection with that sale, but was acquitted on the sole ground that no evidence showed the attachment had been recorded in the registry of property.

• Parties and prior debt: Luchsinger & Co. were creditors of Jose Regalado. They had obtained a final condemnatory judgment against him in 1896, which was affirmed on appeal by the Royal Audiencia of Manila in 1897. In connection with that suit, a writ of attachment had been issued and levied upon a warehouse belonging to Jose.

• Alleged sale from father to son: In 1900, Jose Regalado sold the same warehouse to his son, Pedro Regalado, the plaintiff in this action, who claimed to have paid 15,000 pesos for it.

• Criminal prosecution for estafa: Jose Regalado was prosecuted for estafa based on the allegation that he had sold the warehouse to his son while representing it as free from incumbrances, when in truth it was encumbered by the attachment. The Supreme Court acquitted him (United States vs. Jose Regalado, 1 Phil. Rep. 125), holding strictly that there was no evidence the attachment had ever been recorded in the registry of property and therefore no incumbrance existed. The question of actual fraud or deceit was not passed upon.

• Evidence regarding the recording of the attachment: The registry books had been lost or destroyed. Luchsinger & Co. presented a witness who testified positively that the court had issued an order for the recording of the attachment and that the registrar of property had returned the order duly complied with, which return the witness had seen. To rebut this, Pedro Regalado introduced a statement from the former clerk of the Court of First Instance to the effect that he had drafted the final judgment and that it was his custom to note every proceeding in the final judgment; that judgment contained no reference to the recording. The trial court found as a fact that the attachment had been recorded.

• Value of the warehouse and adequacy of consideration: After evaluating the evidence, the trial court determined the warehouse was worth at least 25,000 pesos in 1900—10,000 pesos more than the 15,000 pesos Pedro claimed to have paid. The Supreme Court agreed this conclusion was supported by the weight of the evidence, and further noted that it was improbable Pedro had 15,000 pesos or any significant sum to pay for the property at the time of the sale.

• Other property of the debtor: Pedro Regalado contended that his father possessed other assets from which Luchsinger & Co. could collect their debt, consisting chiefly of debts owed to Jose by third persons, all created before 1888. The most substantial of these was a 10,000-peso claim then in litigation. Both the trial court and the Supreme Court concluded that none of these purported assets constituted realizable property available for satisfaction of the debt, either at the time of the sale or at the time of trial.

• Conclusive effect of the criminal acquittal: Pedro Regalado argued that the judgment in the criminal case for estafa, which held that the writ of attachment had never been recorded, was conclusive upon Luchsinger & Co. and could not be relitigated in this civil action.

• Insufficiency of evidence of recording: He maintained that the evidence presented by the defendants was insufficient to prove that the attachment had actually been recorded in the registry of property, and that the trial court therefore erred in so finding.

• Sale not fraudulent; subsidiarity of rescission: He contended that the sale was valid and not fraudulent, having been made for valuable consideration. Furthermore, he claimed that an action to rescind a fraudulent alienation is merely subsidiary under Article 1291 of the Civil Code and cannot be maintained because his father, Jose Regalado, had other property from which the defendants could have recovered their debt.

• Non-applicability of the criminal judgment: Luchsinger & Co. countered that Pedro Regalado was not a party to the criminal case and could not claim the benefit of its judgment as res judicata; therefore, the question of whether the attachment had been recorded remained open for determination.

• Sufficiency of the evidence of recording: They relied on the positive testimony regarding the issuance and return of the recording order to establish that the attachment had been duly noted in the registry.

• Fraudulent character of the sale: They asserted that the sale fell squarely under the presumption of fraud established in the second paragraph of Article 1297 of the Civil Code because a final condemnatory judgment and a writ of execution had both been issued before the alienation. They further maintained that Jose Regalado had no other property with which to satisfy the judgment debt.

• Res judicata effect of criminal acquittal: Whether the judgment acquitting Jose Regalado of estafa on the ground that the attachment was not recorded constituted a conclusive adjudication binding upon Luchsinger & Co. in this subsequent civil action brought by Pedro Regalado.

• Proof of recording: Whether the evidence was sufficient to support the trial court’s finding that the attachment in favor of Luchsinger & Co. had been recorded in the registry of property.

• Fraudulent character of the sale: Whether the sale of the warehouse by Jose Regalado to his son Pedro in 1900 was fraudulent as to the creditor Luchsinger & Co., and, if so, whether the subsidiary action to rescind the sale was proper given the alleged existence of other property belonging to the debtor.

• Res judicata effect of criminal acquittal: The criminal judgment was not binding upon Luchsinger & Co. in this civil suit. Under Section 306 of the Code of Civil Procedure, a judgment is conclusive “between the parties and their successors in interest” only. Pedro Regalado, who sought to invoke the criminal acquittal, was not a party to that criminal proceeding and did not derive his title from any party to it by a transfer subsequent to its commencement. The requisite identity of parties was absent; thus, the finding in the criminal case regarding the non-recording of the attachment could be relitigated.

• Proof of recording: The evidence preponderated in favor of the trial court’s finding that the attachment had been recorded. The defense witness testified positively that the order for recording had been issued and returned as complied with, and that he had seen the return. The sole countervailing evidence—a former clerk’s testimony about his drafting customs and the absence of a reference in the final judgment—did not outweigh that affirmative proof. The finding of fact was not disturbed.

• Fraudulent character of the sale: The sale was presumed fraudulent and the presumption was not overcome. The second paragraph of Article 1297 of the Civil Code provides that alienations for valuable consideration made after a condemnatory judgment or the issuance of a writ of seizure are presumed fraudulent. Here, a final judgment had been rendered against Jose Regalado in 1896, affirmed in 1897, and a writ of execution had been levied on the very warehouse sold. The evidence showed that the value of the warehouse was at least 25,000 pesos, considerably exceeding the 15,000 pesos Pedro allegedly paid; moreover, it was improbable that Pedro actually possessed the funds to make such a payment. Consequently, the presumption of fraud stood unrebutted. As to the claim of subsidiarity under Article 1291, the debtor’s alleged other assets consisted solely of old and largely uncollectible debts, one of which was in litigation. Neither at the time of the sale nor at trial did Jose Regalado possess sufficient available property to satisfy the judgment. The rescissory action was therefore proper.

• Conclusiveness of judgment — identity of parties requirement (Section 306, Code of Civil Procedure) — A judgment is conclusive only upon the parties to the action and their successors in interest by title subsequent to its commencement. A person who was neither a party nor a successor under such title cannot invoke the judgment as res judicata against another who was a party, even if the factual issues overlap.

• Presumption of fraud in alienations after judgment or writ of execution (Article 1297, Civil Code) — The second paragraph of Article 1297 establishes that alienations for valuable consideration executed by a debtor after a condemnatory judgment in any instance, or after a writ of seizure of property has been issued, are presumed fraudulent as to creditors. The burden shifts to the alienee to rebut the presumption. Inadequate consideration and the improbability that the transferee possessed the means to pay the stated price reinforce the presumption.

• Subsidiary nature of the accion pauliana (Article 1291, Civil Code) — An action to rescind a contract executed in fraud of creditors is subsidiary; it cannot be maintained if the debtor has other property sufficient to satisfy the debt. However, the alleged other property must be realizable and available. Uncollected debts that have been long outstanding or are in litigation do not constitute property that defeats the subsidiary action.

• “In view of this section, in order that the judgment in the criminal case upon this point should be binding and conclusive upon the parties, it was necessary for the plaintiff here to show that the parties in that case were the same as the parties in this case. This was not done. … He therefore does not come within the provisions of section 306, and that judgment is not a conclusive adjudication in his favor in this case.”

• “The sale by the father to the son, therefore, is presumed to have been fraudulent. That presumption of fraud has not been overcome by the evidence which has been presented in this case. … it is more than probable that at the time of the sale in question Pedro Regalado, the son, did not have 15,000 pesos, or any other sum of importance, with which to buy, or pay for this property.”

• “By the terms of article 1291 it is true that an action to set aside the contract on the ground that it is fraudulent as to creditors is subsidiary, and can not be maintained if the debtor has other property with which to pay the debt; but in this case we agree with the court below that the evidence shows that the father had no such other property, either at the time the sale was made or at the time this action was tried out of which the defendants could have collected this debt.”

• United States vs. Jose Regalado y Santa Ana, 1 Phil. Rep. 125 — The prior criminal case for estafa; the acquittal based on the non-recording of the attachment was distinguished and held not binding in the present civil suit due to lack of identity of parties.

• Pedro Regalado vs. Luchsinger & Co., 1 Phil. Rep. 619 — The first appeal in the same litigation; the earlier decision stated the underlying facts and was cited as the basis for the procedural posture of the case.

• Article 1297, Spanish Civil Code — Applied to create a presumption of fraud: the debtor’s alienation for valuable consideration after a condemnatory judgment or writ of seizure was presumed fraudulent; the presumption was not rebutted.

• Article 1291, Spanish Civil Code — Governed the subsidiary character of the rescissory action for fraud of creditors; the action was held proper because the debtor had no other realizable property.

• Section 306, Code of Civil Procedure — Defined the effect of judgments; the criminal judgment did not bind Luchsinger & Co. because the plaintiff was neither a party nor a successor in interest to a party by title subsequent to the commencement of that case.

Arellano, C.J., Torres, Johnson, and Carson, JJ., concurred.