Fepruary 5, 1990 OFFICIAL GAZETTE 1137 [SP Nos, 07116 & 07318. June 26, 1987! DEVELOPMENT BANK OF THE PHILIPPINES, petitioner and appellant, vs. THE Honor- ABLE JUDGE OF THE REGIONAL TRIAL CourT OF MANILA, BRANCH XXV, ET AL., respondents and appellees; UNION Giass & CONTAINER CORPORATION ‘vs. ANTONIO YU, respondent and appellee. 1. BuLK Sates Law (Act 3952); MEANING AND Score of THE TERMS “Goons” AND “Mun- CHANDISE”; SECS. 2, 3 AND 4 THEREOP.—The terms “goods” and “merchandise” as used in the above provisions (Sees. 2, 8 and 4) have acquired a fixed meaning. They refer to things and articles which are kept for sale by a merchant. Likewise, the term “fixtures” has been interpreted to mean the chattels which merchants usually possess and annex to the premises which are occupied by them in order to enable the latter to store, handle and display their goods and wares (24 Am. Jur, 363). These technical terms convey the intention that the Bulk Sales Law applies to merchants who are in the business of selling goods and wares and similar mer- chandise, hence, the said law was held not to apply'to a sale of assets by a manufacturer since the nature of his business does not partake of merchandise (Cooney “vs. Sweat, 188 Ga. 511, cited in Agbayani, Commercial Laws of the, Philippines, 1978 ed., Vol. II, p. 679). 2. Ip.; A MANUFACTURER oF A Propuct’ (GLASS) Oty on Speciric Onpers or For 4 Parti CULAR CLIENT, 18 Nor CONSIDERED A MER- cHANDISER—In the case at bar, there is undisputed evidence that Pioneer Glass Manufacturing Corp. manufactures glass only on specific orders; that it does not sell directly to consumers but manufactures Its produets only for particular clients. It can- not be said therefore that Pioneer is a mer- chandiser. 3. Ip.; Ip.; CONVEYANCES OF Assets (SUCH AS LANDS, BUILDINGS, EQUIPMENT, MACHINERIES) Wuick Axe Nor Srock-1x-Trape, Axe OUT simp THE Amarr or THE BULK ‘Sgus Law.— In the dacion en pago between Pioneer and DBP, the former ‘coded, transferred and conveyed the bulk of its corporate assets to extinguish its outstanding obligations to DBP in the total amount of about 62.2 million 0334518 pesos. The subject matter of the deed cession were therefore assets, not stock-in- trade, of which it had none. Such conve is clearly outside the ambit of the Sales Law. 4. Ip.; FRAUDULENT TRANSACTIONS; Test IN Deter- MINING WHETHER A PARTICULAR TRANSACTION on CONVEYANCE IS FRAUDULENT.—As to whe- ther a transaction is fraudulent, the usual test is whether it accomplishes a fraudulent result, taking into account all circumstances attending the said transaction. Thus, a fraudulent conveyance has been defined as a transaction by means of which the owner of real or personal property, his sought to place the land ér goods beyond the reach of his creditors, or which operates to the prejudice of their Inval ox’ ecnigabl or a conveyance which operates to the pre- judice of the legal or equitable rights of other persons, including subsequent purcha- sers “(24 Am. Jur., See. 2, p. 162). Among the various elements considered which may or may/not) indicate the existence of fraud are the intention of the parties the financial eonditicn of the transferor, the consieration of the transfer and the relationshin of the parties involved (Ibid., Sec. 8, p. 166). PETITION FOR REVIEW of the judgment of the Regional Trial Court of Manila, Branch XXV- Emeterio C. Cui, J. Bulk viehts, The facts are stated in the opinion of the Court. Lorenzo G. Timbol, Bonifacio M. Abad cnd Teresita H, Nicolas for petitioner and appellant Development Bank of the Philip- pines. Sycip, Salazar, Feliciano and Hernandez for petitioner and appellant Union Glass & Container Corporation, Remedios C. Balbin for respondents and appellees, Futg, J.: Consolidated petitions filed by the Deve- lopment Bank of the Philippines (CA-GR. SP No. 07116) and the Union Glass and Container: Corporation (CA-G.R. SP No. 07813) for the review of the decision dated1138 Tune 26, 1985 of the Regional Trial Court, Branch XXV, Manila, affirming in toto the decision dated July 12, 1984 of the Metro- politan Trial Court, Branch XXVIII, Manila, in Civil Case No. 83384. The antecedent facts of thé case are as follows: On February 21, 1988, Antonio Yu, * doing business under the name and style of “Ancar Equipment Parts” and “Tonicar,” as plain- tiff, instituted an action against Pioneer Glass Manufacturing Corporation (Pioneer, for brevity). Development Bank of the Philippines (DBP, for short) and Union Glass and Container Corporation (or Union) as defendants.? Docketed as Civil Case No. 83384, the complaint alleged, in part, that during the period from October 21, 1977 to March 22, 1978, PIONEER pur- chased from plaintiff equipment parts worth 7,019.00 which upon demand, PIONEER failed or refused to pay; that without informing plaintiff, PIONEER trans- ferred all its assets to defendant DBP in a “deed of cession of property in payment of obligation” or dacion en pago dated March 31, 1978; that DBP in turn sold these assets to defendant UNION in an agreement entered into prior to March 31, 1978; that the transfer of assets to DBP is fraudulent, hence, void by reason’ of which plaintiff suffered actual and other damages. Plaintiff prayed for judgment in the following sums: 7,019.00 as principal obligation plus 12% interest per annum from March 1978, until fuil; b. Consequential, moral and exemplary damages the amount of which will be proved during the hearing; €. 3,000.00 as and for attorney's fees; and d. Costs of suit.” ) Defendant UNION filed a motion to dismiss on April 19, 1983 on grounds of lack of * Herein private respondent, * DBP and UNION are,both petitioners herein, the former in SP No, 07116 and the latter in SP No, 07813, OFFICIAL GAZETTE VoL. 86, No. § cause of action and lack of jurisdiction over the subject matter of the action. Defendant PIONEER filed its answer with counterclaim on April 29, 1983. While it acknowledged indebtedness to the plaintift on the purchase of the equipment parts, it interposed the affirmative defenses that by virtue of the dacion en pago in favor of DBP, its business operations had ceased; that the cession of its assets was made Imown, to all its creditor; and that by virtue of Board of Governors Res. No. 3509, DBP agreed to assume its obligations to creditors including the plaintiff under a payment scheme which is pending implementation, Defendant DBP likewise filed an answer with counterclaim under date of June 9, 1983. Denying the material allegations of the complaint, the bank interposed as affir- mative defenses lack of cause of action in that the complaint does not allege that the goods sold to PIONEER were among those ceded to DBP; that the bank is not privy to the sale between. plaintiff and PIONEER; that plaintiff holds no lien over PIONEER’s properties transferred to DBP; that rather, DBP has a mortgage lien over the said properties; and that the validity of the dacion en pago being placed in issue, the action is one incapable of pecuniary estima- tion, hence, outside the jurisdiction of the Metropolitan Trial Court. The bank followed with a comment and motion filed on July 27, 1988 praying for a preliminary hearing of its affirmative defense of lack of jurisdiction as a motion to dismiss, jointly with the hearing of defendant UNION‘s motion to dismiss. Plaintiff opposed this comment and motion, while defendant PIONEER opposed the motion to dismiss of co-defendant UNION. On August 25, 1983, the trial court issued an order denying the two motions to dis- miss complaint, on the ground that said motions are prohibited pleadings under Section 15, of the Rule on Summary Pro- cedure, A motion to reconsider the aboveFepruary 5, 1990 order was likewise denied on September 12, 1983. On October 14, 1983” UNION filed its answer with counterclaim traversing the material allegations of the complaint and alleging ag affirmative defense lack of cause of action. Pursuant to the Rule on Summary Pro- cedure, the parties filed their respective position papers. Thereafter, on July 12, 1984, the trial court rendered a decision in favor of plaintiff with the following decre- tal portion: “WHEREFORE, decision is hereby rendered, order- ing the defend: Pioneer Glass, Development Bank of the Philippines and Union Glass, jointly and severally liable to pay the plaintiff the amount ‘of 7,019.00 plus 12% interest per annum from March 1978, until the same is fully paid; attorney's fees in the amount of P1,000.00 and to pay the costs of this suit. So ORDERED.” On appeal to the Regional Trial Court, the said decision was affirmed in its entirety. Hence, the instant recourse. ‘Two issues are raised in common by both petitioners: first, that the cause of action is incapable of pecuniary estimation citing Section 19 (1) of BP 129, hence, the Metropolitan Trial Court has no jurisdic- tion; and second, that the Bulk Sales Law (Act No, 3952) does not cover the convey- ance in question. In addition to the foregoing issues, Union denies any liability to private re- spondent Yu on the ground that there is no privity of contract between Union and Yu. or assuming the applicability of the Bulk Sales Law, no liability attaches to the former. . On the othor hand, it is the submis of DBP that there being no proof that the unpaid merchandise purchased by Pioneer were among those transferred to the Bank, the latter is not liable for the unpaid price thereof. It is further contended that jt ig not proper to award Yu a sum equiva- OFFICIAL GAZETTE 1139 lent to 12% interest on the principal obli- gation from March 1978. We will first discuss the issue of juris- diction, As correctly settled by the trial court: “As to the jurisdiction of this Court, the dec- aration of nullity of the transaction of the trans- fer to the Development Bank of the Philippines insofar as the plaintiff is concerned is merely incidental to the proceedings., The principal aetion is still the recovery of the sum of P7,019.00 which is within the jurisdiction of this court.” A reading of the complaint in Civil Case No. 83384 confirms that the cause of action is one of collection of a sum of money wherein judgment is prayed, ordering the defendants therein to pay the plaintiff the siim of P7,019.00 with interest, consequcn- tial, moral and exemplary damages and attorney's fees. What is rather pivotal in the instant petitions is the issue of the applicability or non-applicability of the Bulk Sales Law to the conveyance in question, resolution of this issue is crucial because if the said law is applicable and there is a violation thereof, it is for this court to determine the extent of liability of each of the peti- tioners to private respondent Yu. ‘The pertinent provisions of the Bulk Sales Law read as follows: “Section 2. Any sale, transfer, mortgage or assignment of a stock of goods, wares, merchandise, provisions, or materials otherwise than in the ordinary course of trade and the regular prosecu- tion of the business of the vendor, mortgagor, transferor, or assignor, or any sale, transfer, mortgage, or assignment of all, or substantially all, of the business or trade theretofore conducted by the vendor, mortgagor, transferor, or assignor, or of all or substantially all, of the fixtures and equipment used in and about the business of the vendor, mortgagor, transferor, or assignor, shall be deemed to be a sale and transfer in bulk,in contemplation of this Act: Provided, however. That if such vendor, mortgagor, transferor, or assignor, produces and delivers a written waiver of the provisions of this Act from his creditors as shown by verified statements, then, and in that case, the. provisions of this section shall not apply.1140 Section 8. It shall be the duty of every person who shall sell, mortgage, transfer, or assign any stock of goods, wares, merchandise, provisions or materials in bulk, for eash or on credit, before receiving from the vendee, mortgagee, or his or its agent or representative any part of the pur- chase price thereof, or any promissory note, memo- randum, or other evidence therefor, to deliver to such vende, mortgagee, or agent, or if the vendee, mortgagee, or agent be a corporation, then to the president, vice-president, treasurer, secretary oF manager of said corporation, ar if such vendee or mortgagee be a partnership firm, then to a member thereof, a written statement, sworn to substantially as hereinafter provided, of the names and addresses of all ereditors to whom said vendor or mortgagor may be indebted, together with the amount of indebtedness due or owing, or to become due or owing by said vendor or mortgagor to each of said ereditors, which statement shall be veri fied by an oath to the following effect: * * * Section 4. Whenever any person shall sell, mort- gage transfer, or assign any stock of goods, wares, merchandise, provision or materials, in bulk, for cash or on credit, and shall receive any part of the purchase price, or any promissory note, or other evidence of indebtedness for said purchase price or advance upon mortgage, without having first delivered to the vendee or mortgagee or to his or its agent or representative, the sworn state- ment provided for in Section three hereof, and without applying the purchase or mortgsge money of the said property to the pro rata payment of the bona fide claim or claims of the creditors of the vendor or mortgagor, as shown upon such statement, he shall be deemed to have: violated this Act, and any such sale, transfer or mortgage shall be fraudulent and void.” The terms “goods” and “merchandise” as used in the above provisions have acquired a fixed meaning. They refer to things and articles which are kept for sale by a merchant. Likewise, the term “fix- tures” has been interpreted to mean the chattels which merchants usually possess and annex to the premises which are occu- pied by them in order to enable the latter to store, handle and display their goods and wares'. These technical terms convey the intention that the Bulk Sales Law 24 Am Jur. 863, OFFICIAL GAZETTE VoL. 86, No, ‘ applies to merchants who are in the bay, ness of selling goods and wares and din, merchandise, hence, the said law was jg, not to apply to a sale of assets by a ny. nufacturer since the nature of his busing, does not partake of merchandising, « In our jurisdiction, this Court has yy, equivocally ruled in People vs. Wong Sy Tung ® that the sale of a foundry shop purely manufacturing coneern—togethe, with its goodwill and credits is not eon, templated nor covered by the Bulk Sale Law. In the words of this Court: “What was sold was the shop itself, togetp, with the goodwill, credits, equipments, tools ang machineries thereof, including a Dodge true, which are not the stock of merchandise, gio wares, provisions or materials in bulk, contemplate in the aforequoted section 3 of Act. 3952, ‘Meaning of “merchandise” —Merchandiy means something that is sold everyday, and, constantly going out of the store and beng replaced by other goods, (Boise Credit Ma ‘Assoc. ve. Ellis, 26 Ida. 438, Pac. 6.) It mux, ‘be construed to mean such things as are usually bought and sold in trade by merchants.” (Pa. ples’ Sav. Bank ve, Van Allsburg, 165 Mic, 524, 181 NAW. 101) ‘Meaning of “stock”—The common use of te term “stock” when applied to goods in a me. antile house refers to those which are kept fr sale’ (Albretcht vs. Cudihee, 87 Wash 206, 9 Pac. 628; IX Tolentino’s Commercial Law, 4 ed., pp. 1267-8.) Undoubtedly, a ‘foundry shop’, with its goodvil and credits, which does not sell merchandise, bt whose main business is to manufacture iron wis or processes or casts metals (Webster's New lit Dict., 2nd ed.), is not included in the said Lex? (People ve. Wong Sau Tung, C.A. GR No, 9771-2 In the case at bar, there is undisputed evidence that Pioneer Glass Manufacturing Corp. manufactures glass only on specifi orders; that it does not sell directly t» consumers but manufactures its producls “Cooney v. Sweat, 133 Ga. 511, cited in Agbayat, Commercial Laws of the Philippines, 1978 Vol. II, p. 679. 50 Off. Gaz., No. 10, p. 4867, 4869.Fepruary 5, 1990 only for particular clients.° It cannot be said therefore that Pioneer is a merchan- diser. This is not all. In the dacion en pago between Pioneer and DBP, the former ceded, transferred and conveyed the bulk of its corporate assets to extinguish its outstanding obligations to DBP in the total amount of about 63.2 million pesos. Spe- cifically, what was conveyed were: * * © The parcels of land, together with all the buildings and improvements thereon belonging to and registered in the name of PIONEER, covered by TCT Nos, T-37095, T-37096, T-37097, T-37098, T-37099, T-37100, T-37101, T- (Lot_615-A; Area; 1,797 sq. m.). T-37102, T-37103, T-37104, ‘T-37105, T-87106, T-37107, T-87141, T-29065, 'T-90280, and T-30281, all of Cavite Registry and TCT Nos. 34172 and 56302, both of Occidental Negros Registry, as well as all the machinery and equipment, office and communication equipment and ‘transportation equipment all installed in, erected on/or found within the plant premises in Rosario, Cavite and/or silica mines in Sagay, Negros Occi- dental, and which are all more particularly enu- merated and described in the attached Annex “A”." The subject matter of the deed of cession were therefore assets, not stock-in-trade, of which it had none. Such conveyance is clearly outside the ambit of the Bulk Sales Law, -Of course this is not to say, that the foregoing conveyance in favor of a preferred creditor such as DBP could not be the subject of inquiry by this Court as to wheth- er or not it is a transaction resorted to in fraud of creditors, for after all, Pioneer has readily admitted its indebtedness to Yu for merchandise delivered to it for the last time on March 22, 1978 or more than a week before the execution of the dacion en pago. ’ As to whether a transaction is fraudulent, the usual test is whether it accomplishes “Testimony of Felix Hofil President of Pioneer Glass, April 26, 1984, as cited in Memo- randum of DBP, pp. 404-405, Record. *Dacion en pago, p. 187, Record. Also covered were several parcels of land in the name of Hofilefia Agricultural Corporation, ¢o-mortgagor. OFFICIAL GAZETTE 1141 a fraudulent result, taking into account all circumstances attending the said transac- tion. Thus, a fraudulent conveyance has been defined ag a transaction by means of which the owner of real or personal prop- erty has sought to place the land or goods beyond the reach of his creditors, or which operates to the prejudice of their legal or equitable rights, or a conveyance which operates to the prejudice of the legal or equitable rights of other persons, including subsequent purchasers. * Among the various elements considered which may or may not indicate the exis- tence of fraud are the intention of the parties, the financial condition of the transferor, the consideration of the transfer, and the relationship of the parties involved. *° In the instant case, it is significant to note that the transferor, Pioneer, is a mort- gagor-debtor of the transferee, DBP, indebt- ed to the latter for various financing accommodations extended to it by DBP in connection with the establishment and operation of Pioneer Glass Manufacturing Corp. in Rosario, Cavite, the repayment of which was secured by a first mortgage on the corporate assets of Pioneer as principal mortgagor, and certain real properties in the name of Holifefia Agricultural Corpo- ration" as co-mortgagor. It goes without saying that the transferee, DBP, is a secured creditor by way of a first mortgage on the transferor’s assets. There is, there- fore, nothing irregular or even illegal in a transaction between the two which aims to extinguish the outstanding obligation due to the mortgagee. It is a fact that the loans and forbearances granted to Pioneer were legal and valid contracts, and a deed of cession or dacion en pago is a valid and legal means of extinguishing an obli- *24 Am. Jur., Sec. 2, p. 162. " Ibid., See. 8, p. 166. *Dacion de Pago, p. 186, Record1142 gation (Art. 1255, Civil Code). This transaction is different and a far cry from a fraudulent: one, where there is no real indebtedness and the transferor merely simulates a conveyance of his assets in favor of another in order to put it out of the reach of his creditors. It is definitely not so in the case at bar. It must be noted that by virtue of the dacion dn pago, ownership and possession over the conveyed assets passed to DBP and thereafter, all operations of Pioneer glass had ceased totally, not only in its manufacturing plant in Rosario, Cavite, but also in its silica mines located in Negros Occidental. The fact that the dacion en pago includes all of the debtor’s property does not necessarily render the transaction fraudulent because if the conveyance has been made for the purpose of paying the transferor’s debts, the fact that it compre- hends all of its property is evidence of good rather than bad faith.!? And neither does the negative financial condition of Pioneer at that time be indicative of a fraudulent conveyance since the execution of the deed of cession in favor of DBP is a customary method of payment of debts to government financial institutions. It bears emphasis that contrary to the findings of the trial court, there was no concealment of the fact that private re- spondent Yu was an existing small trade creditor of Pioneer. DBP was furnished a list of all such small creditors and the former, in Resolution No. 3509 of its Board of Governors, provided for a liquidation schedule for paying all such other creditors. The concurrence of the foregoing circum- stances convinces this Court that there are no badges of fraud in the execution of the dacion en pago. Inevitably and logically, the legal conse- quences of the foregoing disquisition is that 24 Am. Jur, Sec. 18, p. 175, OFFICIAL GAZETTE Vou. 86, No, ' private respondent cannot go against t feree DBP for the unpaid Obligations , Pioneer, And neither does he haye course against the second purchaser, her petitioner Union. There is merit in the argument of Dap (citing Section 26 of Commonwealth No. 4591) that since the corporate of Pioneer are covered by a first mortgag in its favor, such properties are exeny from attachment by an unsecured creditn, stich as herein private respondent. This , significant for, being exempt proper, Pioneer's corporate assets are not suscep tible of fraudulent alienation’ and credito, have ordinarily no right to complain of the disposition made of it, since they can be prejudiced thereby or claim that it iy a fraud upon them. * It is our considered view that the trial court as well as respondent Regional Tria) Court had misinterpreted the applicable law, The error must, therefore, be rectified. WHEREFORE, the “decision of the Metro. politan Trial Court dated July 12, 1984, ag affirmed by the memorandum decision dated June 26, 1985 of respondent Regional trial Court is hereby MODIFIED and judgment is hereby rendered ordering only defendant Pioneer Glass Manufacturing Corporation to pay the plaintiff, Antonio D. Yu, the * An Act Creating the Agricultural and Indu. trial Bank (re-named Rehabilitation Finance Cor poration under R.A. 85 on October 29, 1946, now known as the Development Bank of the Philippines under R.A. 2081). Section 26 thereof CA. 458 reads: “Securities on loans granted by the Agri- cultural and Industrial Bank shall not be subject to attachment nor can they be included in the of insolvent persons or institutions, unles all debts and obligations of the debtor to the Agricultural and Industrial Bank have been pre viously paid, including accrued interest, collection exnenses, and other charges. “24 Am, Jur, See. 109, p. 259.le FEBRUARY 5, 1990 amount of P7,019.00 plus 12% interest from July 12, 1984 until the same is fully paid; attorney's fees in the amount of P1,000.00; and to pay the costs. ‘So ORDERED. Victoriano and Reyes, M.T., JJ, concur. Judgment modified, ATTESTATION E hereby attest that this decision was reached after due consultation among the members of this Division in accordance with OFFICIAL GAZETTE 1143 the provisions of Section 18, Article VIII of the Constitution. (Sgd.) Oscar R. VicToRIANO Associate Justice Chairman, Second Division CERTIFICATION I hereby certify that this decision wag reached after due consultation among the members of the Division in accordance with Section 13, Article VIII of the Constitution and the Division Chairman's attestation. (Sgd.) Carouina C. Grifo-AQuino Presiding Justice