FIRST DIVISION

[G.R. No. 144169. March 28, 2001.]

KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY
STEVEN KHE , petitioners, vs . COURT OF APPEALS, HON. TEOFILO
GUADIZ, RTC 147, MAKATI CITY and PHILAM INSURANCE CO., INC. ,
respondents.

DECISION

KAPUNAN , J : p

Before the Court is a Petition for Review on Certiorari under Rule 45, seeking to set
aside the decision of the Court of Appeals dated April 10, 2000 and its resolution dated
July 11, 2000 denying the motion for reconsideration of the aforesaid decision. The
original complaint that is the subject matter of this case is an accion pauliana — an action
led by Philam Insurance Company, Inc. (respondent Philam) to rescind or annul the
donations made by petitioner Khe Hong Cheng allegedly in fraud of creditors. The main
issue for resolution is whether or not the action to rescind the donations has already
prescribed. While the first paragraph of Article 1389 of the Civil Code states: "The action to
claim rescission must be commenced within four years . . ." the question is, from which
point or event does this prescriptive period commence to run? EScIAa

The facts are as follows:

Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines. It
appears that on or about October 4, 1985, the Philippine Agricultural Trading Corporation
shipped on board the vessel M/V PRINCE ERIC, owned by petitioner Khe Hong Cheng,
3,400 bags of copra at Masbate, Masbate, for delivery to Dipolog City, Zamboanga del
Norte. The said shipment of copra was covered by a marine insurance policy issued by
American Home Insurance Company (respondent Philam's assured). M/V PRINCE ERIC,
however, sank somewhere between Negros Island and Northeastern Mindanao, resulting in
the total loss of the shipment. Because of the loss, the insurer, American Home, paid the
amount of P354,000.00 (the value of the copra) to the consignee.
Having been subrogated into the rights of the consignee, American Home instituted
Civil Case No. 13357 in the Regional Trial Court (RTC) of Makati, Branch 147 to recover the
money paid to the consignee, based on breach of contract of carriage. While the case was
still pending, or on December 20, 1989, petitioner Khe Hong Cheng executed deeds of
donations of parcels of land in favor of his children, herein co-petitioners Sandra Joy and
Ray Steven. The parcel of land with an area of 1,000 square meters covered by Transfer
Certi cate of Title (TCT) No. T-3816 was donated to Ray Steven. Petitioner Khe Hong
Cheng likewise donated in favor of Sandra Joy two (2) parcels of land located in Butuan
City, covered by TCT No. RT-12838. On the basis of said deeds, TCT No. T-3816 was
cancelled and in lieu thereof, TCT No. T-5072 was issued in favor of Ray Steven and TCT
No. RT-12838 was cancelled and in lieu thereof, TCT No. RT-21054 was issued in the name
of Sandra Joy.

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 The trial court rendered judgment against petitioner Khe Hong Cheng in Civil Case
No. 13357 on December 29, 1993, four years after the donations were made and the TCTs
were registered in the donees' names. The decretal portion of the aforesaid decision
reads:
"Wherefore, in view of the foregoing, the Court hereby renders judgment in
favor of the plaintiff and against the defendant, ordering the latter to pay the
former:
1) the sum of P354,000.00 representing the amount paid by the plaintiff to
the Philippine Agricultural Trading Corporation with legal interest at 12%
from the time of the filing of the complaint in this case;

2) the sum of P50,000.00 as attorney's fees;

3) the costs. 1

After the said decision became nal and executory, a writ of execution was
forthwith, issued on September 14, 1995. Said writ of execution, however, was not served.
An alias writ of execution was, thereafter, applied for and granted in October 1996. Despite
earnest efforts, the sheriff found no property under the name of Butuan Shipping Lines
and/or petitioner Khe Hong Cheng to levy or garnish for the satisfaction of the trial court's
decision. When the sheriff, accompanied by counsel of respondent Philam, went to Butuan
City on January 17, 1997, to enforce the alias writ of execution, they discovered that
petitioner Khe Hong Cheng no longer had any property and that he had conveyed the
subject properties to his children.
On February 25, 1997, respondent Philam led a complaint with the Regional Trial
Court of Makati City, Branch 147, for the rescission of the deeds of donation executed by
petitioner Khe Hong Cheng in favor of his children and for the nulli cation of their titles
(Civil Case No. 97-415). Respondent Philam alleged, inter alia, that petitioner Khe Hong
Cheng executed the aforesaid deeds in fraud of his creditors, including respondent Philam.
2

Petitioners subsequently led their answer to the complaint a quo. They moved for
its dismissal on the ground that the action had already prescribed. They posited that the
registration of the deeds of donation on December 27, 1989 constituted constructive
notice and since the complaint a quo was led only on February 25, 1997, or more than
four (4) years after said registration, the action was already barred by prescription. 3
Acting thereon, the trial court denied the motion to dismiss. It held that respondent
Philam's complaint had not yet prescribed. According to the trial court, the prescriptive
period began to run only from December 29, 1993, the date of the decision of the trial
court in Civil Case No. 13357. 4
On appeal by petitioners, the CA a rmed the trial court's decision in favor of
respondent Philam. The CA declared that the action to rescind the donations had not yet
prescribed. Citing Articles 1381 and 1383 of the Civil Code, the CA basically ruled that the
four year period to institute the action for rescission began to run only in January 1997,
and not when the decision in the civil case became nal and executory on December 29,
1993. The CA reckoned the accrual of respondent Philam's cause of action on January
1997, the time when it rst learned that the judgment award could not be satis ed
because the judgment creditor, petitioner Khe Hong Cheng, had no more properties in his
name. Prior thereto, respondent Philam had not yet exhausted all legal means for the
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 satisfaction of the decision in its favor, as prescribed under Article 1383 of the Civil Code.
5

The Court of Appeals thus denied the petition for certiorari led before it, and held
that the trial court did not commit any error in denying petitioners' motion to dismiss. Their
motion for reconsideration was likewise dismissed in the appellate court's resolution
dated July 11, 2000.
Petitioners now assail the aforesaid decision and resolution of the CA alleging that:
I
PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN GRAVE ABUSE OF
DISCRETION WHEN IT DENIED THE PETITION TO DISMISS THE CASE BASED ON
THE GROUND OF PRESCRIPTION. cHSIAC

II
PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT
PRESCRIPTION BEGINS TO RUN WHEN IN JANUARY 1997 THE SHERIFF WENT
TO BUTUAN CITY IN SEARCH OF PROPERTIES OF PETITIONER FELIX KHE
CHENG TO SATISFY THE JUDGMENT IN CIVIL CASE NO. 13357 AND FOUND OUT
THAT AS EARLY AS DEC. 20, 1989, PETITIONERS KHE CHENG EXECUTED THE
DEEDS OF DONATIONS IN FAVOR OF HIS CO-PETITIONERS THAT THE ACTION
FOR RESCISSION ACCRUED BECAUSE PRESCRIPTION BEGAN TO RUN WHEN
THESE DONATIONS WERE REGISTERED WITH THE REGISTER OF DEEDS IN
DECEMBER 1989, AND WHEN THE COMPLAINT WAS FILED ONLY IN FEBRUARY
1997, MORE THAN FOUR YEARS HAVE ALREADY LAPSED AND THEREFORE, IT
HAS ALREADY PRESCRIBED. 6

Essentially, the issue for resolution posed by petitioners is this: When did the four
(4) year prescriptive period as provided for in Article 1389 of the Civil Code for respondent
Philam to file its action for rescission of the subject deeds of donation commence to run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, "The action to claim rescission
must be commenced within four years." Since this provision of law is silent as to when the
prescriptive period would commence, the general rule, i.e, from the moment the cause of
action accrues, therefore, applies. Article 1150 of the Civil Code is particularly instructive:
ARTICLE 1150. The time for prescription for all kinds of actions, when
there is no special provision which ordains otherwise, shall be counted from the
day they may be brought.

Indeed, this Court enunciated the principle that it is the legal possibility of bringing
the action which determines the starting point for the computation of the prescriptive
period for the action. 7 Article 1383 of the Civil Code provides as follows:
ARTICLE 1383. 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.

It is thus apparent that an action to rescind or an accion pauliana must be of last

resort, availed of only after all other legal remedies have been exhausted and have been
proven futile. For an accion pauliana to accrue, the following requisites must concur:
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 1) That the plaintiff asking for rescission, has a credit prior to the
alienation, although demandable later; 2) That the debtor has made a subsequent
contract conveying a patrimonial benefit to a third person; 3) That the creditor has
no other legal remedy to satisfy his claim, but would bene t by rescission of the
conveyance to the third person; 4) That the act being impugned is fraudulent; 5)
That the third person who received the property conveyed, if by onerous title, has
been an accomplice in the fraud. 8 (Emphasis ours)

We quote with approval the following disquisition of the CA on the matter:

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. For as
long as the creditor still has a remedy at law for the enforcement of his claim
against the debtor, the creditor will not have any cause of action against the
creditor for rescission of the contracts entered into by and between the debtor and
another person or persons. Indeed, an accion pauliana presupposes a judgment
and the issuance by the trial court of a writ of execution for the satisfaction of the
judgment and the failure of the Sheriff to enforce and satisfy the judgment of the
court. It presupposes that the creditor has exhausted the property of the debtor.
The date of the decision of the trial court against the debtor is immaterial. What is
important is that the credit of the plaintiff antedates that of the fraudulent
alienation by the debtor of his property. After all, the decision of the trial court
against the debtor will retroact to the time when the debtor became indebted to
the creditor. 9

Petitioners, however, maintain that the cause of action of respondent Philam against
them for the rescission of the deeds of donation accrued as early as December 27, 1989,
when petitioner Khe Hong Cheng registered the subject conveyances with the Register of
Deeds. Respondent Philam allegedly had constructive knowledge of the execution of said
deeds under Section 52 of Presidential Decree No. 1529, quoted infra, as follows:
SECTION 52. Constructive knowledge upon registration. — Every
conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or
entry affecting registered land shall, if registered, led or entered in the O ce of
the Register of Deeds for the province or city where the land to which it relates
lies, be constructive notice to all persons from the time of such registering, ling,
or entering. THAICD

Petitioners argument that the Civil Code must yield to the Mortgage and
Registration Laws is misplaced, for in no way does this imply that the speci c provisions
of the former may be all together ignored. To count the four year prescriptive period to
rescind an allegedly fraudulent contract from the date of registration of the conveyance
with the Register of Deeds, as alleged by the petitioners, would run counter to Article 1383
of the Civil Code as well as settled jurisprudence. It would likewise violate the third
requisite to le an action for rescission of an allegedly fraudulent conveyance of property,
i.e., the creditor has no other legal remedy to satisfy his claim.
An accion pauliana thus presupposes the following: 1) A judgment; 2) the issuance
by the trial court of a writ of execution for the satisfaction of the judgment, and 3) the
failure of the sheriff to enforce and satisfy the judgment of the court. It requires that the
creditor has exhausted the property of the debtor. The date of the decision of the trial
court is immaterial. What is important is that the credit of the plaintiff antedates that of the
fraudulent alienation by the debtor of his property. After all, the decision of the trial court
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 against the debtor will retroact to the time when the debtor became indebted to the
creditor.
Tolentino, a noted civilist, explained:
". . . [T]herefore, credits with suspensive term or condition are excluded,
because the accion pauliana presupposes a judgment and unsatis ed execution,
which cannot exist when the debt is not yet demandable at the time the rescissory
action is brought. Rescission is a subsidiary action, which presupposes that the
creditor has exhausted the property of the debtor which is impossible in credits
which cannot be enforced because of a suspensive term or condition.

While it is necessary that the credit of the plaintiff in the accion pauliana
must be prior to the fraudulent alienation, the date of the judgment enforcing it is
immaterial. Even if the judgment be subsequent to the alienation, it is merely
declaratory with retroactive effect to the date when the credit was constituted." 1 0

These principles were reiterated by the Court when it explained the requisites of an
accion pauliana in greater detail, to wit:
"The following successive measures must be taken by a creditor before he
may bring an action for rescission of an allegedly fraudulent sale: (1) exhaust the
properties of the debtor through levying by attachment and execution upon all the
property of the debtor, except such as are exempt from execution; (2) exercise all
the rights and actions of the debtor, save those personal to him (accion
subrogatoria); and (3) seek rescission of the contracts executed by the debtor in
fraud of their rights (accion pauliana). Without availing of the rst and second
remedies, i.e., exhausting the properties of the debtor or subrogating themselves
in Francisco Bareg's transmissible rights and actions . petitioners simply
undertook the third measure and led an action for annulment of sale . This
cannot be done." 1 1 (Emphasis ours)
In the same case, the Court also quoted the rationale of the CA when it upheld the
dismissal of the accion pauliana on the basis of lack of cause of action:
"In this case, plaintiff's appellants had not even commenced an action
against defendants-appellees Bareng for the collection of the alleged
indebtedness. Plaintiffs-appellants had not even tried to exhaust the property of
defendants-appellees Bareng. Plaintiffs-appellants, in seeking the rescission of
the contracts of sale entered into between defendants-appellees, failed to show
and prove that defendants-appellees Bareng had no other property, either at the
time of the sale or at the time this action was led, out of which they could have
collected this (sic) debts." (Emphasis ours)

Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe
Hong Cheng had executed the deeds of donation in favor of his children, the complaint
against Butuan Shipping Lines and/or petitioner Khe Hong Cheng was still pending before
the trial court. Respondent Philam had no inkling, at the time, that the trial court's judgment
would be in its favor and further, that such judgment would not be satis ed due to the
deeds of donation executed by petitioner Khe Hong Cheng during the pendency of the
case. Had respondent Philam led his complaint on December 27, 1989, such complaint
would have been dismissed for being premature. Not only were all other legal remedies for
the enforcement of respondent Philam's claims not yet exhausted at the time the deeds of
donation were executed and registered. Respondent Philam would also not have been able
to prove then that petitioner Khe Hong Cheng had no more property other than those
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 covered by the subject deeds to satisfy a favorable judgment by the trial court. DCAHcT

It bears stressing that petitioner Khe Hong Cheng even expressly declared and
represented that he had reserved to himself property su cient to answer for his debts
contracted prior to this date:
"That the DONOR further states, for the same purpose as expressed in the
next preceding paragraph, that this donation is not made with the object of
defrauding his creditors having reserved to himself property su cient to answer
his debts contracted prior to this date". 1 2

As mentioned earlier, respondent Philam only learned about the unlawful

conveyances made by petitioner Khe Hong Cheng in January 1997 when its counsel
accompanied the sheriff to Butuan City to attach the properties of petitioner Khe Hong
Cheng. There they found that he no longer had any properties in his name. It was only then
that respondent Philam's action for rescission of the deeds of donation accrued because
then it could be said that respondent Philam had exhausted all legal means to satisfy the
trial court's judgment in its favor. Since respondent Philam led its complaint for accion
pauliana against petitioners on February 25, 1997, barely a month from its discovery that
petitioner Khe Hong Cheng had no other property to satisfy the judgment award against
him, its action for rescission of the subject deeds clearly had not yet prescribed.
A nal point. Petitioners now belatedly raise on appeal the defense of improper
venue claiming that respondent Philam's complaint is a real action and should have been
led with the RTC of Butuan City since the property subject matter of the donations are
located therein. Su ce it to say that petitioners are already deemed to have waived their
right to question the venue of the instant case. Improper venue should be objected to as
follows 1) in a motion to dismiss led within the time but before the ling of the answer; 1 3
or 2) in the answer as an a rmative defense over which, in the discretion of the court, a
preliminary hearing may be held as if a motion to dismiss had been led. 1 4 Having failed
to either le a motion to dismiss on the ground of improper of venue or include the same
as an a rmative defense in their answer, petitioners are deemed to have their right to
object to improper venue.
WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit.
SO ORDERED.
Davide, Jr., C.J., Pardo and Ynares-Santiago, JJ., concur.
Puno, J., is on official leave.

Footnotes
1. Rollo, p. 106-107.
2. Id., at 50-55.
3. Id., at 57-60.
4. Id., at 70-71.
5. Id., at 44-47.
6. Id., at 16.
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 7. Constancia C. Tolentino vs. CA, et al., 162 SCRA 66, 72.
8. Siguan vs. Lim, 318 SCRA 725, 735, quoting TOLENTINO, ARTHUR M., CIVIL CODE OF
THE PHILIPPINES 576 (1991); citing 8 Manresa 756, 2 Castan 543-555, and 3 Camus
207.
9. See Note 1, at 44-45.
10. Tolentino, New Civil Code, Volume IV, 1973, ed., at p. 543.

11 Adorable vs. CA, 319 SCRA 201, 207 ( 1999).

12 Annex "K".
13. Section 1, Rule 16, 1997 Rules of Court.
14. Section 6, Rule 16, 1997 Rules of Court.

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