EMILIO GASTON, PLAINTIFF AND APPELLEE, VS. JOSE HERNAEZ AND ELEUTERIA CHONG VELOSO, DEFENDANTS AND APPELLANTS.

This is an action brought by the plaintiff in the Court of First
Instance of Occidental Negros for the annulment of the deed of sale
Exhibit A executed by the defendant in favor of his co-defendant on
August 17 and 19, 1925, whereby he conveyed to the latter all his
rights, interests and participation in the hereditary estate of his
deceased father Rosendo Hernaez, for the amount of P170,875, and to
recover from the said defendants alleged damages in the sum of P20,000.

The defendants appealed from the judgment rendered by the trial court, the dispositive part of which reads as follows:

“Wherefore,
the court renders judgment in this case holding that the transfer made
by the defendant Jose Hernaez to his co-defendant Eleuteria Chong
Veloso of his rights, interests and participation in the intestate
estate of his deceased father Mr. Rosendo Hernaez, is null and void and
without force and effect, and that said rights, interests and
participation of Jose Hernaez in the intestate estate in question did
not thereby pass to the defendant Eleuteria Chong Veloso on the ground
that it was made with the intention to defraud the plaintiff herein,
with the costs of this suit against the defendants. So ordered.”

In its decision the trial court summarizes all the facts established by the evidence presented, as follows:

“1.
That on September 17, 1920, Emilio Gaston, as joint and several surety,
signed a deed executed by Jose Hernaez in favor of the firm Warner,
Barnes and Co., for a loan of P30,040.12 payable on May 30, 1921.

“2. That on January 21, 1921, Emilio Gaston, as joint and several
surety, likewise signed another deed in favor of the Philippine
National Bank for a loan obtained by Jose Hernaez, in the sum of P8,000
payable on April 21, 1921.

“3. That when the aforesaid
obligations fell due, Jose Hernaez failed to settle them. Whereupon the
creditors Warner, Barnes and Co., and the Philippine National Bank
brought actions against said Jose Hernaez and his guarantor Emilio
Gaston, which were docketed as: Civil Case No. 5584 of the Court of
First Instance of Iloilo, entitled Warner, Barnes and Co. vs.
Jose Hernaez and Emilio Gaston, and Civil Case No. 4146 of the Court of
First Instance of Occidental Negros, entitled the Philippine National
Bank vs. Jose Hernaez and Emilio Gaston.

“4. That
on March 23, 1926, judgment was rendered in civil case No. 5584 of the
Court of First Instance of Iloilo, the dispositive part of which reads
as follows: ‘This court hereby renders judgment in this case in favor
of the plaintiff firm, sentencing the defendants to pay to it jointly
and severally “the principal sum of P19,575.84, Philippine currency,
plus interest at 9 per cent per annum on the original debt of
P30,040.12 from May 1, 1920, to August 3, 1921; on the sum of
P22,016.72 from August 3, 1921, to March 15, 1923; on the sum of
P21,016.72 from March 15, 1923, to February 4, 1924, and on the
aforesaid principal sum of P19,575.84 from February 4, 1924, until
fully paid, with the costs of this suit, without prejudice to the right
of the defendants to discuss the liability of one another between
themselves” ‘;

“5. That on July 31, 1926, judgment was
also rendered in said case No. 5584, relative to Emilio Gaston’s
cross-complaint against Jose Hernaez, the dispositive part of which
reads follows:

“Wherefore, judgment is rendered in favor of
the cross-complainant Emilio Gaston against the cross-defendant Jose
Hernaez, sentencing the latter to pay to said Emilio Gaston the
principal sum of P19,575.84, Philippine currency, plus interest at 9
per cent per annum on the original debt of P30,040.12 from May 1, 1920,
to August 3, 1921; on the sum of P22,016.72 from August 3, 1921, to
March 15, 1923; on the sum of P21,016.72 from March 15, 1923, to
February 4, 1924; and on the aforesaid principal sum of P19,575.84 from
February 4, 1924, until fully paid, with the costs of this suit. It is
to be understood, however, that any sum which may be collected from the
defendant Jose Hernaez by virtue of the execution upon the judgment
rendered in favor of Warner, Barnes and Co. in said Civil Case No. 5584
wherein Warner, Barnes and Co. is the plaintiff and Jose Hernaez and
Emilio Gaston are defendants, shall be credited on account of this
judgment;

“6. That on September 2, 1927, judgment was rendered in case No. 4146 of this court, Philippine National Bank vs. Jose Hernaez and Emilio Gaston, the dispositive part of which reads as follows: ‘Wherefore, judgment is rendered: (a)
On the complaint, sentencing the defendants to pay to the plaintiff
jointly and severally the sum of P8,000, with legal interest thereon
from April 21, 1921, until fully paid, with costs; (b)
ordering that execution of this judgment be made first on property of
the defendant Jose Hernaez, if any, and in the absence thereof upon
that of Emilio Gaston; and (c) on the cross-complaint,
sentencing the cross-defendant Jose Hernaez to reimburse and pay the
said cross-complainant Emilio Gaston the whole amount of this judgment
or part thereof as may be paid by him or levied on his property through
execution, with the costs’;

“7. That when the judgment in
favor of Warner, Barnes and Co. and that in favor of the Philippine
National Bank were executed, the provincial sheriff could not locate
any property belonging to the defendant Jose Hernaez to satisfy the
judgment debts;

“8. That inasmuch as no property of Jose
Hernaez could be found, the plaintiffs proceeded against Emilio Gaston
who made arrangements with the firm Warner, Barnes and Co. and with the
Philippine National Bank for the payment of said judgments, so that
Emilio Gaston is now directly liable therefor to the said firm Warner,
Barnes and Co. and to the Philippine National Bank. As a matter of fact
he has already paid to Warner, Barnes and Co. the sum of P10,000,
notwithstanding the fact that the plaintiff herein, Emilio Gaston, had
not in the least been benefited by the loan obtained by Jose Hernaez
from the firm Warner, Barnes and Co. and from the Philippine National
Bank;

“9. That Emilio Gaston exerted every effort to
locate properties of the principal obligor Jose Hernaez but found that
the latter has nothing left inasmuch as those which he had at the time
of the execution were encumbered and all his hereditary rights in the
estate of Rosendo Hernaez had been conveyed by him to Mrs. Eleuteria
Ch. Veloso (Exhibit A), for the sum of P170,875;

“10. That
in the project of partition presented in the intestate proceedings of
the deceased Rosendo Hernaez and approved by the court on January 5,
1927, the hacienda ‘Panaogao’ and another property of 21
hectares, 70 ares and 49 centares which, subject to the usufruct of
Mrs. Teofila Conlu Vda. de Hernaez, were adjudicated to Jose Hernaez
who bound himself to pay by long installments the total amount of the
indebtedness contracted by the intestate estate of the deceased Rosendo
Hernaez, in favor of the Talisay-Silay Milling Co., Inc. (Exhibits E
and F);

“11. That in view of the transfer by Jose Hernaez
in her favor, it was made to appear in the intestate proceedings of
Rosendo Hernaez that Eleuteria Chong Veloso was an interested party
therein as assignee of the hereditary rights of said Jose Hernaez,
which were subject to whatever claim the intestate estate might have
against the said assignor Jose Hernaez (Exhibt D);

“12.
That at the time Jose Hernaez transferred all his rights, interests and
participation in the intestate estate of his deceased father Rosendo
Hernaez to his co-defendant and mother-in-law Mrs. Eleuteria Chong
Veloso, on August 17, 1925 (Exhibit A), there were pending against said
Jose Hernaez two unsatisfied judgments: one for P2,800, which was
rendered by the Court of First Instance of Manila on August 15, 1922,
in Civil Case No. 21818, entitled ‘The Philippine Automobile Exchange,
Inc., vs. Jose Hernaez’ (Exhibit JJ-1), and another for P4,180,
with interest thereon at 10 per cent per annum, which was rendered by
the Court of First Instance of Manila on January 6, 1925, in Civil Case
No. 24915, entitled Teal and Co., Inc., vs. Jose Hernaez’ (Exhibit H-1);

“13.
That at the time Jose Hernaez assigned his hereditary rights to his
co-defendant and mother-in-law Eleuteria Chong Veloso, three other
complaints were also pending against him, aside from the aforesaid two
cases which had already been decided and pending execution, to wit:
Civil Case No. 5584 of the Court of First Instance of Iloilo, entitled
Warner, Barnes and Co., Ltd. vs. Jose Hernaez and Emilio Gaston
(Exhibit B), for the sum of P38,100.48; Civil Case No. 5727 of the
Court of First Instance of Iloilo, entitled Walter A. Smith vs.
Jose Hernaez, for P1,712.36, filed in January, 1925 (Exhibit 1); and
Civil Case No. 27786 of the Court of First Instance of Manila, entitled
Salmon, Dexter and Co. vs. Jose Hernaez, for the sum of P1,000, filed on March 18, 1925 (Exhibit JJ-4);

“14. That after the defendant Jose Hernaez had transferred all his
rights, interests and participation in the intestate estate of his
deceased father Rosendo Hernaez to his mother-in-law and co-defendant
Eleuteria Chong Veloso, several complaints were filed against him, to
wit: Hoskyn & Co. vs. Jose Hernaez (Civil Case No. 6101 of the Court of First Instance of Iloilo), filed on September 2, 1925 (Exhibit K); D. W. Fry vs. Jose Hernaez (Civil Case No. 28853 of the Court of First Instance of Manila), filed on October 8,1925 (Exhibit JJ-8); Lizares vs.
Hernaez (Civil Case No. 6328 of the Court of First Instance of Iloilo),
filed in January, 1926 (Exhibit J); Pacific Commercial Co. vs.
Jose Hernaez (Civil Case No. 6391 of the Court of First Instance of
Iloilo), filed in May, 1926 (Exhibit L); Philippine National Bank vs.
Jose Hernaez (Civil Case No. 4146 of the Court of First Instance of
Occidental Negros), filed on May 31, 1927 (Exhibit F); Luneta Motor Co.
vs. Jose Hernaez (Civil Case No. 31858 of the Court of First
Instance of Manila), filed on May 28, 1927 (Exhibit JJ-12); Philippine
National Bank vs. Jose Hernaez et al. (Civil Case No. 4147 of
the Court of First Instance of Occidental Negros, filed on May 31, 1927
(Exhibit GG); Philippine National Bank vs. Jose Hernaez (Civil
Case No. 4148 of the Court of First Instance of Occidental Negros),
filed on May 31, 1927 (Exhibit II); Philippine National Bank vs.
Jose Hernaez (Civil Case No. 4149 of the Court of First Instance of
Occidental Negros), filed on June 4, 1927 (Exhibit HH). The total
amount involved in the foregoing actions is more or less around
P168,000.

“15. That the judgments entered in the
foregoing nine cases had not yet been satisfied at the date of the
trial of this case on the ground that no attachable property belonging
to the defendant Jose Hernaez could be found.”

From the foregoing facts the trial court arrived at the following conclusions:

“From
the testimony of Jose Hernaez himself and all the evidence presented,
consisting of complaints and judgments rendered against him, it may be
inferred that he owed more than half a million pesos, excluding
interest thereon, at the time he assigned his hereditary rights in the
intestate estate of his deceased father Mr. Rosendo Hernaez. His
liabilities, therefore, exceeded his assets, for although he attempted
to prove that he still had several properties with which he intended to
pay off other obligations then pending at the time he made such
assignment, the truth is that all said properties remaining at the time
he assigned his hereditary rights were encumbered. The creditors, who
held judgments against him together with those who obtained judgments
later, could not touch said properties on the ground that the
encumbrances thereon were so great that it would not have benefited
them at all to have said properties sold at public auction for the
reason that the proceeds of such sale would not have been sufficient to
defray even the expenses incurred therein, which happened in the
execution of the judgment in favor of Warner, Barnes and Co. wherein
the rights of Hernaez in the hacienda ‘Bayusan’ were sold for only P20 inasmuch as the hacienda in question had been mortgaged to the Philippine National Bank for P12,000.

“Jose
Hernaez attempted to prove that at the time he assigned his hereditary
rights, he was in possession of some chattels such as horses, carabaos,
cattle, trucks, tractors, and a portable railway, but during the
cross-examination it was found that many of these properties were in
the name of his wife and others were already conveyed by him to other
relatives. Furthermore, the planting that he claimed to have done on
the hacienda was in the name of his wife.

“Therefore,
in view of all the evidence presented, the conclusion of the court, as
hereinbefore stated, is that after Jose Hernaez had assigned his
hereditary rights in the estate of his deceased father Mr. Rosendo
Hernaez to his mother-in-law, the herein defendant Mrs. Eleuteria Ch,
Veloso, he had no more property left with which to satisfy his other
creditors, even in small amounts, thus rendering him to a state of
insolvency.

“Having arrived at this conclusion, the court
believes it unnecessary to analyze the other evidence presented for the
purpose of proving that the assignment made by Jose Hernaez in favor of
his mother-in-law, Mrs. Eleuteria Ch. Veloso, was fraudulent and
intended to prejudice his creditors, inasmuch as the law establishes
the presumption that alienations for valuable considerations, made by a
person against whom any judgment in any instance has been previously
rendered, or against whom any writ of attachment has been issued, are
fraudulent. This presumption is corroborated by other evidence which
clearly shows the existence of such intent to defraud creditors one of
whom is the herein plaintiff, who, actuated by no other consideration
than friendship, tried to extend a helping hand to Jose Hernaez by
acting as a joint and several surety in order that the latter might
obtain loans of considerable amounts. Such evidence proves that when
the defendant Jose Hernaez assigned his hereditary rights there was not
only a final judgment rendered against him but also three other actions
pending involving the aggregate sum of P40,812.84, and that after the
assignment in question was made, numerous other complaints were filed,
involving an aggregate amount of P168,000. All of the judgments
rendered in these cases against Jose Hernaez have not been satisfied on
the ground that he has no property.

“The court is of the
opinion that the defense set up by Jose Hernaez, to the effect that
after the assignment he still had properties from the proceeds of which
he expected to pay off his obligations, has failed, inasmuch as it has
been proven by a preponderance of evidence that the properties in
question did not belong to him. According to his own testimony the
planting on the haciendas ‘Bagtic’ and ‘Panaogao’ was done by
his wife; the automobile was in his wife’s name and the carabaos have
been sold, so that however great the efforts exerted by the creditors
to have their judgments satisfied, they found no property belonging to
Hernaez. Wherefore, the court concludes that after the assignment,
Hernaez became absolutely insolvent. From this state of affairs coupled
with the legal presumption that the alienation was made in fraud of
creditors, which presumption is based on the fact that when the
defendant Jose Hernaez assigned all his hereditary rights in the
intestate estate of his deceased father to his mother-in-law and
co-defendant Mrs. Eleuteria Chong Veloso, there were two unsatisfied
final judgments and several pending complaints against him and that
after the assignment in question numerous complaints involving the
enormous sum of P168,000 were filed against him, and adding to this
fact the statement made by Hernaez himself to the plaintiff that he had
no more property left after the assignment by him of his hereditary
rights, the court concludes that the alienation made under the deed
Exhibit A is fraudulent.”

From a careful
examination of all the evidence of record, it has been found that all
the facts and conclusions as stated in the decision are correct and,
therefore, need no further comment. It is evident that the assignment
made by the defendant in favor of his co-defendant, who is his
mother-in-law, carries with it the presumption of fraud established by
article 1297 of the Civil Code. Furthermore, the records show that
several civil actions for the recovery of certain sums of money were
pending against said defendant at the time of the execution of the deed
of sale, Exhibit A, in which actions the judgments rendered later could
not be executed nor satisfied on the ground that he did not have any
property of any value worthy of mention. When the said defendant
assigned his aforesaid participation to his mother-in-law, he knew
perfectly well that it was the only property of value which he was to
receive and that he had no other means with which to settle his
personal obligations, including the two in which the plaintiff had
acted as surety. All of these circumstances, together with the
sufficiently strong indications that the alleged sale was without
actual consideration or cause, show conclusively that the contract in
question was fictitious and executed for the sole purpose of defrauding
his creditors.

The appellants contend that the question
raised relative to the validity of the transfer under consideration
already constitutes res judicata on the alleged ground that it
was approved in the intestate proceedings of the deceased Rosendo
Hernaez, and that, the co-defendant Eleuteria Chong Veloso received all
the inheritance corresponding to the defendant with the approval of the
court. It is obvious that the doctrine invoked is not applicable to the
case at bar on the following grounds: (1) That the defendants did not
set up such defense in their answers and only allege it for the first
time in this appeal; (2) that the plaintiff did not intervene nor was a
necessary party in the aforesaid special proceedings (sec. 306 [2] of
the Code of Civil Procedure), and no question relative to the validity
of such transfer had ever even been intimated, much less discussed, or
decided therein; and (3) that the transfer in question is vitiated by
the existence therein of the fatal defect of fraud which prevents the
courts of justice from sanctioning the act already performed.

The foregoing considerations decide all the assignments of error stated
in the appellants’ brief, and finding that the judgment appealed from
is in accordance with the law and supported by the evidence, it is
hereby affirmed in toto, with the costs against the appellants. So ordered.

Malcolm, Villa-Real, Abad Santos, and Hull, JJ., concur.