ARSENIO DE LA PAZ AND CLAUDIA MANIO, PETITIONERS, VS. MARIO F. GARCIA, ASSIGNEE OF THE INSOLVENT ENRIQUE GATBONTON AND THE COURT OF APPEALS, RESPONDENTS.

This is a petition to review the
decision of the Court of Appeals. The facts are summarized in the following
portion of the appealed decision:

“It appears that on July 21,
1952, insolvent Enrique Gatbonton and his wife Maria
Manio executed a deed of absolute sale whereby they
sold three parcels of land in question [situated in the barrios of Cebu, Mataas-na-Kahoy and Bangad, Cabanatuan City] in favor
of Patria Belmonte Anonas,
the deed having been duly recorded in the registry of deeds of Nueva Ecija and the corresponding
titles issued in the latter’s name. On the same date both parties entered into a
so-called memorandum-agreement by virtue of which the insolvent and his wife
were given until December 31, 1952, the right to repurchase parcels of land for
P10,000, the memorandum agreement appearing in a private document. On
October 16,
1952,
before the period for repurchase had expired, Patria Belmonte Anonas sold by way of
absolute sale for the sum of P9000 the three parcels of land in question in
favor of appellants who are brothers-in-law of insolvent [insolvent’s wife,
Maria Manio, being a sister of petitioner Claudia
Manio]. Said insolvent and his wife, on their part,
executed on September 2,
1952, a
deed of absolute sale for P3,500 of the two-story
residential house in question [situated at 37 Sanciangco Street, Cabanatuan City in favor of
appellants.”

To this narration should be added
the fact that on October 21,
1952,
that is, five days after the supposed sale of the lands to petitioners, Enrique
Gatbonton filed a petition for voluntary insolvency.
Respondent Mario S. Garcia was subsequently appointed assignee in the insolvency
case.

On December 10,
1952,
respondent Garcia filed this case in the Court of Nueva Ecija to recover from
petitioners the ownership and possession of the lands and the house. He alleged
that the redemption of the lands was made by the insolvent through petitioners
“to prevent the said three parcels of land from coming into the hands of the
assignees x x x or prevent
the same from being distributed ratably among the creditors of the insolvent, or
defeat the object of, or hinder, delay or obstruct the operation of this
insolvency proceedings, and Arsenio de la Paz and
Claudia Manio [petitioners] knew at the time of the
transfer of the said three parcels of land that Enrique Gatbonton was insolvent or in contemplation of insolvency
and the transfer of the said parcels of land was not made in the ordinary and
usual course of business of the said Enrique Gatbonton.” Respondent Garcia averred that the transfer of
the house to petitioners was made for the same purpose.

On the other hand, petitioners
contended that the transfers of the parcels of land from the insolvent to Patria
Belmonte Anonas and thence
to them were made in good faith and for valuable consideration and were recorded
in the registry of deeds and that, in fact, titles were issued to Anonas and to them.

Simplicio Lising
likewise intervened but it is unnecessary to detail here his claim since it was
dismissed by the trial court whose decision became final when Lising failed to file a brief in the Court of
Appeals.

After hearing, the lower court
declared the transfers null and void.

Petitioners appealed to the Court
of Appeals but they again lost. Hence this appeal. Petitioners’ arguments are
based on Civil Code provisions on rescissible
contracts. Thus they contend –

(1) That under article 1381(3) a
sale may be rescinded if it is in fraud of creditors but that since petitioners
derived their title not from the insolvent but from Patria Belmonte Anonas, the sale to them
can not be rescinded without first rescinding the sale to Anonas.

(2) That the sale to Anonas cannot be rescinded without making her a party to
this action.

(3) That the sale to petitioners
cannot be rescinded because it has not been shown that the creditors of the
insolvent cannot recover in any other way, as required by article
1383.

(4) That, pursuant to article
1385, the appellate court should have ordered the return of the price which
petitioners paid for the lands and the house, with interest, because rescission
requires mutual restitution.

Petitioners, in our opinion, have
missed the point. The decision of the Court of Appeals is based not on the Civil
Code but on the Insolvency Law (Act No. 1956) which declares certain transfers
to be fraudulent and regards them not merely rescissible but absolutely null and void. Respondent Garcia
brought this suit on the theory that the purchase of the properties by
petitioners on October 16, 1952 was in reality redemption by Enrique Gatbonton who, only five days later, was to file a petition
for voluntary insolvency, and that this scheme was resorted to in an effort to
place the properties beyond the reach of Gatbonton’s
creditors. This theory was upheld by the appellate court. This is clear from the
following passage of its decision:

“[A]ppellants contend that the sale of the three parcels of land
under controversy in favor of Patria Belmonte Anonas was made by the insolvent in good faith and for a
valuable consideration several months before he was declared insolvent by the
lower court. Appellee [respondent Garcia] maintains,
however, that it appearing that on October 20, 1952, Enrique Gatbonton had petitioned for voluntary insolvency, the
transaction was fraudulent considering the circumstances surrounding the same.
We agree with appellee in this respect. x x x” The Court of Appeals likewise
held the transfer of the house fraudulent for having been made within 30 days of
the filing of a petition for insolvency.

It is clear, therefore, that the
provisions of the Civil Code on rescissible contracts
(which assume the validity of the contract) cannot be invoked since, as already
stated, the Insolvency Law regards the contracts void. Consequently, it is idle
to talk of restitution, exhaustion of the debtor’s properties, sources of title,
etc. on which petitioners elaborate arguments are based. Nor is the presence of
Patria Belmonte Anonas
indispensable in this proceedings. The rule is very well explained by Moran
thus:

“In an action for rescission of
sale because of non-payment of price, or for annulment of a sale of property,
the vendee is an indispensable party. In action for recovery of property against
a person who purchased it from another who in turn acquired it from others by
the same means or by donation or otherwise, these predecessors of defendants are
indispensable parties should the transfers, if not voided, be binding upon
plaintiff. But, where the transfers are immaterial to plaintiff’s title he
having taken no part in any one of them, transferors are not indispensable or
necessary parties, although they may be joined by defendant by a third party
complaint to enforce the warranty for eviction.” (1 Moran 148-149
[1963])

Here, respondent Garcia brought
the action as assignee who took no part in the alleged transactions between
petitioners and their transferors or predecessors. As such, he could bring this
action even against petitioners only as the parties in possession of the
properties.

This brings us to the heart of
the matter. Section 70 of the Insolvency Law considers as fraudulent any
transfer of properties made by the insolvent within 30 days of the filing by or
against him of a petition for insolvency, unless the transfer is for valuable
pecuniary consideration and is made in good faith. In holding the transfer of
the lands and the house in question void for being fraudulent, the Court of
Appeals said:

“In the first place, appellant
Claudia Manio and Maria Manio, insolvent’s wife, are sisters. In the second place,
Patria Belmonte Anonas
allegedly purchased the three parcels of land from the insolvent for P10,000 and
yet she sold them to appellants for P9000 only at a time when the period of
repurchase by the insolvent and his wife had not expired. In the third place, it
was indeed a rare coincidence that Patria Belmonte
Anonas should have sold the parcels of land originally
belonging to the insolvent and his wife to the latter’s brother-in-law and half
sister for an amount less then what she had paid when she acquired them. In the
fourth place, if the purpose of the sale made by the insolvent was perfectly
legal, we see no reason why in the same date he and Patria Belmonte Anonas had to execute a
private document known as memorandum agreement so as to give the former an
option to repurchase the parcels of land. By so doing, we believe that the
insolvent and appellants wanted to hide the real purpose of the transaction,
which could have been no other than to prevent the insolvent’s creditors from
taking hold of the parcels of land in question. That this was the real purpose
is strengthened by the fact that one Miguel Veneracion
who had deposited palay in the insolvent ‘s warehouse
found himself without his palay as he did not see it
anymore when he went there and instead saw insolvent’s wife and her sister,
appellant Claudia Manio, who informed him that they
were looking for buyers for the parcels of land in question in order to settle
with all claimants and depositors of the insolvent out of the proceeds of the
sale after paying the credit of Patria Belmonte Anonas in the amount of P10,000. Later on Veneracion found out, however, that the parcels of lands
were transferred to appellants.

“As to the sale of the two-story
residential house, appellants claim that it could not have been in fraud of
creditors since it was executed on September 2, 1952, beyond the 30-day period
from the filing of the petition for insolvency. Such a claim merits no serious
consideration it appearing that the deed of sale was recorded in the registry of
deeds on October 15, 1952, that is, only six days before the petition for
voluntary insolvency was filed by Enrique Gatbonton.”

Petitioners dispute the finding
of fraud and argue that the relationship which the petitioners bear to the
insolvent, instead of justifying a finding of fraud, support the inference that
petitioners probably decided to buy the lands in question from Patria Belmonte Anonas to forestall the
possibility of their passing into the hands of other parties in the event Gatbonton was unable to repurchase his
properties.

It is true that in one case
(Flores v. Faustino, 55 Phil. 594 [1931]), this Court said that mere
relationship is not “necessarily fraud.” But relationship can be, when taken
together with other circumstances.^[1] Here the appellate court
did not consider relationship standing alone. The time between the supposed
purchase and the filing of the petition for insolvency; the price at which the
properties were sold; the sisters’ representation that they were looking for
buyers of the properties at a time when the properties were supposed to be no
longer the properties of the insolvent – it was in this context that
relationship was viewed as indicating fraud.

Petitioners try to explain the
difference between the price at which Patria Belmonte
Anonas supposedly bought the lands (P10,000) and the
price at which she sold them to petitioners (P9,000) by contending that as
owner, Anonas could even give the lands free as
donation. And, “for all we know, Gatbonton paid
valuable consideration for that right to redeem, and his consideration could be
the difference between P10,000 that Anonas paid him,
and the price of P9,000 that she received from appellants when she resold the
same lands to them.”

Suffice it to say that there is
absolutely no evidence that Anonas was motivated by
generosity in making a sale at a financial sacrifice. Nor is there evidence that
the difference between the price at which Anonas
bought the lands and the price at which she sold them to petitioners represents
the price paid for the right of redemption. This is merely a conjecture which
invites an equally plausible conjecture, namely, that the transaction between
the insolvent and Anonas was in truth a loan for
P9,000, the amount of P1,000 being interest in excess of that allowed by law.
This might explain why the insolvent’s right to redeem was embodied in a private
document. This might likewise explain the conduct of the sisters Maria and
Claudia Manio in offering the properties for sale when
at that time the same properties were supposed to be properties of Anonas. Indeed, the Civil Code states in article 1603 that
“In case of doubt, a contract purporting to be a sale with a right to repurchase
shall be construed as an equitable mortgage.”

And what of the transfer of the
insolvent’s house to petitioners? It is claimed that the sale was made on
September 2, 1952 and that for purposes of determining whether the transfer was
made within the 30 day period in section 70 of the Insolvency Law, that date and
not the date of registration of the sale (October 14, 1952) should be
considered. For this purpose, petitioners invoke Manalansan v. Manalang, G. R. No.
L-13646, July 26, 1960 for authority that “there is no registry of buildings in
this jurisdiction apart from the lands on which they stand, so that there is no
legal compulsion to register, as notice to third persons, transactions over or
dealings on buildings that do not belong to the owners of the lands on which
they stand.” There may indeed be no separate register for buildings, but this
does not mean that transactions regarding buildings may not be recorded in the
registry of deeds where the land, on which the buildings are erected, is
registered. And there may indeed be no legal duty to register such transactions,
but, if notwithstanding the absence of such a duty the vendee registers the sale
to him of a building, as the petitioners in this case did, then he cannot escape
the effects of the registration. (See Civ. Code arts.
708-709. Cf. Associated Ins. & Surety Co. v. Iya;
Iya v. Valino, 56 O.G. 948
[1957]). The appellate court correctly considered the date of registration of
the sale to petitioners in determining whether the sale is prohibited by the
Insolvency Law.

WHEREFORE, the decision appealed from is
affirmed, with costs against petitioners.

Concepcion, C.J., Reyes, J. B. L., Barrera,
Dizon, Makalintal, Bengzon, J. P., Zaldivar Sanchez
and Ruiz
Castro, JJ., concur .

^[1] See e.g., Oria v. McMicking, 21 Phil. 243
(1912) (“badges of fraud;” sale to a son and nephew); Alpuerto v. Perez Pastor, 38 Phil. 785 (1918) (sale to a
son-in-law); Gaston v. Hernaez, 58 Phil. 823 (1933)
(transfer to a mother-in-law); Regalado v. Luchsinger & Co., 5 Phil. 625 (1906) (sale to a son).