Facts:

In the case of Asia Banking Corporation vs. Asuncion Nable Jose and Lichauco & Co., Inc., decided on March 31, 1928, the plaintiff, Asia Banking Corporation, is a foreign banking corporation duly organized under the laws of New York, USA, and operates a branch office in Manila, Philippines. The defendants are Asuncion Nable Jose, an unmarried resident of Manila, and Lichauco & Co., Inc., a domestic corporation also based in Manila. The dispute revolves around a public document executed on December 17, 1921, where Lichauco Corporation, indebted to the Bank for P146,242.11, agreed to deliver 37.5% of the sugar produced from two haciendas—Sevitanan and Sapangbalen—to secure the debt, with Nable Jose being aware of this agreement.

The Lichauco Corporation was managed by Faustino Lichauco, whose family was closely related to Nable Jose. On January 16, 1922, the defendants allegedly conspired to defraud the Bank by executing a fictitious deed transferring property to Nable Jo

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Facts:

Parties and Institutional Background

• Plaintiff: Asia Banking Corporation, a foreign banking institution organized under New York law, duly licensed to transact business in the Philippine Islands with a branch office in Manila.
• Defendants:
• Asuncion Nable Jose – An individual of legal age, resident of Manila, with familial ties to the Lichauco family.
• Lichauco & Co., Inc. – A domestic corporation with its principal office in Manila, managed and controlled by members of the Lichauco family.

Contractual Obligations and the Debt Arrangement

• On December 17, 1921, the Lichauco Corporation, as registered owner of the haciendas “Sevitanan” and “Sapangbalen”, executed a public document (Exhibit A) to secure a debt of P146,242.11 owed to the Bank.
• The security arrangement stipulated that 37 1/2 percent of the sugar crop from the haciendas would be delivered to the Bank until full payment was made.
• The contract and its terms were known to the defendant, Nable Jose.

Family and Corporate Relationships

• The Lichauco Corporation was essentially a family enterprise organized around 1914, with key shareholders including Faustino Lichauco, Luisa Fernandez (his wife), Cornelia B. Lichauco, Tomas Lichauco, and a minor shareholder, Jose Barbaza.
• Management was exclusively under Faustino Lichauco.
• Family ties were significant, as Nable Jose was connected by blood and marriage to the Lichauco family, notably being the sister of Amparo Nable Jose who married Zacarias Lichauco (brother of Faustino Lichauco).

Alleged Fraudulent Transactions and the Deed at Issue

• On January 16, 1922, individuals acting for and on behalf of the Lichauco Corporation—including Faustino Lichauco, Luisa Fernandez, Cornelia B. Lichauco, Tomas Lichauco, and Jose Barbaza—conspired with Nable Jose to execute a simulated and fictitious deed (Exhibit B).
• The deed purportedly conveyed part of the haciendas to Nable Jose, falsely alleging that P70,000 had been delivered by her on August 2, 1920 from a loan by the Philippine Sugar Estates Development Co., Ltd.
• In reality, the P70,000 was never delivered to the corporation, and the alleged consideration was both fictitious and grossly inadequate compared to the actual value of the property.

Subsequent Judicial Proceedings and Enforcement Actions

• As a result of Lichauco Corporation’s refusal to deliver sugar under Exhibit A, the Bank filed a complaint in the Court of First Instance of Manila for the recovery of its claim, eventually obtaining a judgment in January 1923 against the corporation with interest.
• Execution of the judgment led to a sheriff’s sale in July 1923, where the Bank bid P70,000 on the property; however, the fraudulent deed recorded in favor of Nable Jose impaired the registration of the Bank’s deed.
• The Bank contended that the unauthorized conveyance by the Lichauco Corporation to Nable Jose created a cloud upon its title and prejudiced its rights as a creditor.

Defendant’s Responsive Filings and Counterclaims

• The Lichauco Corporation filed an answer, denying the allegations in a general and specific manner.
• Nable Jose, in her answer (filed October 1923 and amended in April 1926), denied the claims and asserted, as a special defense, that the judgment against Lichauco & Co., Inc. arose from collusion between the Bank and the corporation.
• She asserted that the actual debt was only about P70,000 and that she acquired an undivided share (23/25) of the rural estate, as evidenced by Transfer Certificate of Title No. 454.
• Further, she counterclaimed that the Bank’s actions in enforcing the sheriff’s sale—in effect, misidentifying her property as that of the insolvent Lichauco Corporation—had caused her irreparable damages amounting to P370,000.

Evidentiary Matters Concerning Inadequate Consideration and Insolvency

• Multiple agreements, including a mortgage executed on November 12, 1921, and a consequential deed on January 16, 1922, reveal that the actual consideration for the 410 hectares of land was grossly inadequate—amounting effectively to about P34,000 when adjusted for the P36,000 value of shares received.
• Evidence established that the real market value of the property ranged between P250,000 and P600,000.
• Testimonies and corporate records indicated that Lichauco Corporation was insolvent at the time of these transactions, with its assets encumbered, thereby failing to satisfy the creditors’ full claims.

Legal and Factual Emphasis on Fraud

• The Bank argued that the series of transactions were executed in a state of corporate insolvency and were imbued with fraudulent intent, designed to defraud the Bank and hinder other creditors.
• Reliance was placed on Article 1292 of the Civil Code regarding payments and transactions made during insolvency that are not enforceable at the time they are made.
• The evidence of a deliberate disparity between the real value of the property and the consideration received substantiated claims of fraud.

Issue:

Authority and Corporate Capacity

• Did the board of directors or other officers of Lichauco & Co., Inc. have the power to hypothecate, convey, or ratify the conveyance of the real estate in question to Nable Jose?

Validity of the Deed Executed on January 16, 1922

• Does the deed (Exhibit B) validly transfer title to the haciendas to Nable Jose against the rights of creditors, given the evidence of it being simulated and fictitious?

Fraudulence and Simulated Nature of the Transactions

• Were the mortgage, the alleged execution of a security instrument for P70,000, and the ensuing deed fraudulent, simulated, or fictitious, particularly as all transactions occurred during the period of the corporation’s insolvency?
• Can the actions be attributed to a conspiracy intended to defraud the Bank and other creditors?

Inadequacy of Consideration and Its Fraudulent Implications

• Is the gross disparity between the actual market value of the haciendas and the nominal consideration (P70,000 or effectively P34,000 for the land) a basis to declare the conveyance fraudulent as to creditors?

Legality of Execution Amid Insolvency

• Was the payment and execution of the deed, occurring while the Lichauco Corporation was insolvent and under unenforceable obligations, valid under the law, particularly with respect to Article 1292 of the Civil Code?

Appropriateness of the Lower Court’s Judgment

• Did the Court of First Instance err in directing relief to Nable Jose and quashing the Bank’s claims by failing to properly assess the fraudulent and inequitable nature of the transactions?

Ruling:

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Ratio:

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Doctrine:

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