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EXHIBIT 3
Case 3:23-cv-01034-GMM Document 47-4 Filed 04/24/23 Page 1 of 7
De Jesus Diaz v. Carrero, 1982 JTS 59 (1982)
112 D.P.R. 631, 12 P.R. Offic. Trans. 786
© 2023 Thomson Reuters. No claim to original U.S. Government Works.
1
Texto original en espanol
1982 JTS 59, 112 D.P.R. 631, 1982 WL
210626 (P.R.), 12 P.R. Offic. Trans. 786
Santos DE JESÚS DÍAZ and the Marital Community
constituted by him and his wife Diómedes Ortiz Pérez,
and Edgardo de Jesús Ortiz, Plaintiffs and Appellants,
v.
Carlos M. CARRERO, The Succession of
Epifanio Ocasio et al., Defendants and Appellees.
Supreme Court of Puerto Rico.
No. R-82-76.
Decided April 21, 1982.
1.
FRAUD
--
ACTIONS
--
EVIDENCE
--
PRESUMPTIONS.
A creditor's action to attack the fraudulent and simulated acts
of his debtor, which tend to create an apparent insolvency
of the latter, is not restrained by the presumption of fraud
of art. 1249 of the Civil Code--presumptions juris tantum
regarding alienations without a consideration, and for a
valuable consideration after an unfavorable judgment is
rendered or a writ of attachment is issued--because they are
not a bar to proving the existence of fraud through other
means, whose weighing, as a matter of fact, is an exclusive
concern of the trial court.
2. ID. -- ID. -- ID. -- INFERENCE OF FRAUD -- IN
GENERAL.
When determining if the acts of a debtor have been made in
fraud of creditors, without the pertinent legal presumptions,
once the basic fact is verified, the question is left to the good
sense of the trier, upon which must weigh the most powerful
indication of fraud, such as haste in the alineation, the debtor's
insolvency, the relation of kinship, closeness or trust with the
acquirer, the state of the business of the conveyor owner and
of the judicial claims pending against him.
3. CONTRACTS -- FRAUDULENT CONVEYANCES
-- TRANSFERS AND TRANSACTIONS INVALID --
KNOWLEDGE AND INTENT OF GRANTEE -- IN
GENERAL.
For the purposes of art. 1243(3) of the Civil Code--which
provides that contracts executed in fraud of creditors may
be rescinded when they may not otherwise collect what
is due them--the debtor's insolvency *787 and the fraud
must concur. Insolvency supposes that the patrimony is not
sufficient to satisfy all the debts weighing upon it; fraud does
not require evidence of the purpose or aim of the debtor to
harm his creditors, it suffices to show that he knew about the
results produced.
4. FRAUD -- ACTIONS -- EVIDENCE -- SUFFICIENCY --
IN GENERAL.
The general rule that fraud is not presumed only means
that the one affirming it must prove it with reasonable
certainty, with preponderance of evidence that satisfies the
trier's conscience.
5. CONTRACTS -- FRAUDULENT CONVEYANCES
-- TRANSFERS AND TRANSACTIONS INVALID --
GROUNDS OF INVALIDITY IN GENERAL -- BADGES
OF FRAUD -- FAMILY RELATION.
The intimate relationship between debtor and acquirer is
not sufficient by itself to declare an act or contract to be
prejudicial to creditors, but it does constitute a suspicious
circumstance that, together with others, may lead the fair and
rational weighing of the evidence to a declaration of nullity,
and at least to shift the burden of proof from plaintiff to the
person acquiring directly from the debtor.
6. ID. -- ID. -- REMEDIES OF CREDITORS AND
PURCHASERS -- REMEDIES ON GROUND OF
NULLITY OF TRANSFER -- IN GENERAL.
The Paulian action of rescission and the action for radical or
absolute nullity are basically different. The former is the case
of a debtor who has alienated truly but fraudulently, while
the latter is the case of the debtor who seems to carry out an
alienation that does not really exist or is different from the one
actually carried out.
Synopsis
JUDGMENT of Ronaldo Rodríguez Ossorio, Judge
(Bayamón), dismissing an action on nullity of mortgage and
fraud of creditors. Reversed.
Rubén Rivera Ramos for appellants. Félix M. Cifredo
Camacho for appellee Carlos M. Carrero. The other appellees
did not appear.
*789 Judgment of Ronaldo Rodríguez
Ossorio, Judge, Bayamón Part
Review
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De Jesus Diaz v. Carrero, 1982 JTS 59 (1982)
112 D.P.R. 631, 12 P.R. Offic. Trans. 786
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MR. JUSTICE DIAZ CRUZ delivered the opinion of the
Court.
In an action for damages filed on July 12, 1973, by
appellants--De Jesús Díaz, his wife Diómedes Ortiz, and their
son Edgardo de Jesús Ortiz--against Epifanio Ocasio and
his wife Amparo Ferrao, the latter were served with process
on July 30, 1973. On August 9, 1973, said defendants filed
their appearance by motion, through their counsel Ramón
León Malavé, admitting that they received “at their home a
copy of the complaint and of the summons served by Mr.
Luis Ramos,” but attacking the sufficiency of the summons
as to the husband and a minor son. The aforesaid motion
was filed on August 13, 1973, at the office of the Clerk
of the Superior Court of Bayamón, and on the following
day, August 14, 1973, the defendant spouses, Ocasio and
Ferrao, appeared before their own attorney in the damages
action, with Ramón León Malavé, this time acting as a Notary
Public, and executed deed *790 No. 6, entitled “Execution
of Mortgage Secured by Promissory Notes,” wherein they
stated that they were the record owners of a parcel of land
with an area of one and a half cuerdas in Barrio Buena Vista
of Bayamón, where they have erected two dwellings and a
business establishment made of concrete and cement blocks,
plus two wooden structures used as business premises, and
now leased; that to “obtain credit,” on that same day they
had issued twelve (12) promissory notes to bearer, each one
for a $10,000 principal with interest at 8% per annum and
a common maturity date: August 14, 1977, for a total of
$120,000, without specifying a liquid amount for costs and
attorney's fees in case of foreclosure; and they executed a
mortgage to secure the payment of the aforesaid twelve notes.
From the findings of the court, the admissions, and other
evidence in the record, it appears that on August 24, 1977, the
Bayamón Part rendered a judgment in the case for damages,
ordering the defendant spouses to pay $10,000 to the then and
now plaintiffs, plus interest at the legal rate. The defendant
and judgment debtor, Epifanio Ocasio, died one year after
the judgment had been rendered, and the promissory notes,
about which at no time are there any documents stating that
they have been circulated by the defendant debtors, appeared
after the decedent's death in possession of Carlos M. Carrero,
a brother-in-law of widow and debtor Amparo Ferrao. The
issuance of the twelve mortgage notes exhausted the estate
of the defendants held liable in the judgment for damages,
Epifanio Ocasio and Amparo Ferrao, for which reason
plaintiffs De Jesús-Ortiz have not been able to foreclose it in
spite of the efforts *791 made with the Ocasio Succession
and the holder of the obligations, Carrero, for which reason
the former filed a complaint on December 20, 1979, to collect
their credit, in which complaint they alleged that the issuance
of the twelve promissory notes and the execution of the
$120,000 mortgage to secure it, as well as their delivery by
the debtors to Carrero, the brother-in-law, was a simulation
directed to injure the creditors, and carried out “with the sole
purpose of thwarting the ends of justice and avoiding the
payment of any judgment rendered in due time.” Carrero, the
holder of the promissory notes, answered to this that “between
cash advance and collateral securities,” the succession of
Epifanio Ocasio owes him $34,762.77; that he has legal
possession, and that his “actions of giving financial aid to
[the succession] is the result of a legitimate and humanitarian
act”; and that the promissory notes are “security for the credit
given” by him to the succession. (Underscore supplied.) At
the pretrial conference, he said that the defense theory against
the action of nullity was that he had legitimate possession of
the promissory notes; and that plaintiffs' action on nullity of
the mortgage is barred by the statute of limitations; and when
informing about his documentary evidence he did not even
mention one notarial deed in support of the nearly $35,000 he
says the succession owes him. 1
*792 The case on nullity of mortgage and fraud to the
creditors was called to trial, and only Carrero appeared.
Absent were all the members of the defendant succession,
who did not answer the complaint, and were held in default. 2
At the close of plaintiffs' evidence, the trial court dismissed
their complaint (Rule 39.2 of Civil ProcedureRule 39.2 of
Civil Procedure) on two grounds: 1st that plaintiffs lack a
cause of action to attack the mortgage deed on the grounds
that it was null and void and because the creditors had
committed fraud because they were not the creditors of the
mortgagor spouses at the time of the execution; and 2nd that
the action brought, taken as a rescissory action, was time-
barred under art. 37 of the former Mortgage Law of 1893 (30
L.P.R.A. § 62) which set a term of one year from the time of
the execution of the deed.
Appellee Carrero filed an opposition to the issuance of the
writ. It adds nothing to the court's conclusions, except that it is
the first reference to the insufficiency *793 of the evidence
that would establish in principle the right of plaintiffs to a
remedy, and shifts the onus probandi to the defendant holder
of the promissory notes. We decide pursuant to Rule 50 of our
Rules.
The opening of the just remedy in cases of fraud of creditors
has been the route along which modern law has evolved,
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geared toward the strengthening of the legal duty contained
in art. 1811 of the Civil Code: the debtor is liable for the
fulfillment of his obligations with all his present and future
property; art. 1064 of the Civil Code: after having attached the
property of which the debtor may be in possession, creditors
may attack the acts which the latter may have performed in
fraud of their right; in art. 1250: any person who may have
acquired in bad faith things alienated in fraud of creditors
must indemnify them for the damages the alienation may have
caused them when it is impossible for him to return them;
and in the presumption laid down in art. 585: a gift shall
always be presumed as having been made to defraud creditors
when at the time it is bestowed the donor does not reserve to
himself sufficient property to pay the debts contracted prior
thereto; and in those of art. 1249: contracts by virtue of which
the debtor alienates property for a good consideration are
presumed to be in fraud of creditors. Alienations for valuable
consideration are also presumed to be fraudulent when they
are made by those persons against whom condemnatory
judgment had been rendered at any level or against whom an
order for the attachment of property had been issued.
The traditional procedural remedy has been the rescissory
action, known as Paulian action or action for revocation,
provided in paragraph 3 of art. 1243 of the *794 Code:
contracts executed in fraud of creditors may be rescinded
when the latter cannot otherwise recover what is due to them.
[1] But the creditor's case to attack fraudulent or simulated
acts which tend to create an apparent insolvency is not
confined to the presumption of fraud of art. 1249 which, as
the Supreme Court of Spain has declared, are independent
and do not preclude that through other probatory means the
existence of the same may be declared, whose appreciation
as a matter of fact is of the exclusive competence of the
trier below at first instance. 3 These two presumptions juris
tantum regarding alienations for a good consideration and
for a valuable consideration, respectively, do not exhaust the
possible cases of fraud, for there are many more reasons
vitiating a contract with fraud; for, as Manresa says, “the
ways and means of bad faith are quite difficult to foresee
and pinpoint beforehand and, in any case, delimiting them
would have the inconvenience of favoring the former with
impunity if it knew how to give a different appearance from
those foreseen by the lawmaker.” 8 Comentarios al Código
Civil Español 688 (4th ed. 1929). 4
*795 [2] When the trier exercises his point of view, free from
the imposition of the legal presumption, once the basic fact is
verified, the question is left to the good sense 5 of the trier,
upon which must weigh the most powerful indication of fraud,
such as haste in the alienation, the debtor's insolvency, the
relation of kinship, closeness or trust with the acquirer, the
state of the business of the conveyor owner and of the judicial
claims pending against him. Castán Tobeñas agrees that fraud
may be proved by means different from those established in
art. 1.297 (1249 in Puerto Rico) and that the determination of
fraud, as a matter of fact, is incumbent upon the trial court. 3
Derecho Civil Español 238 (10th ed. 1967). 6
*796 [3] According to Díez-Picazo, art. 1.291 (1243 P.R.)
requires two conditions for the transaction to be rescinded:
it must have been executed in “fraud of creditors” and
they “may not otherwise recover what is due them,” two
presuppositions of the rescissory action, insolvency of the
debtor and fraud. Insolvency supposes that the patrimony
is not sufficient to satisfy all the debts weighing upon it;
fraud does not require evidence of the purpose or aim of the
debtor to harm his creditors, it suffices to show that he knew
about the results produced. 1 Fundamentos del Derecho Civil
Patrimonial 744-745 (1st ed. 1979).
According to the scientific doctrine--Castán Tobeñas
reiterates--the intention to harm the creditors (animus
nocendi) need not be present and proved; it suffices that
it be known beforehand that, with the act to be performed,
the debtor makes it impossible for the creditor to collect his
credit. (Underscore in the original.) Op. cit. at 238.
[4] Our case law goes hand in hand with the above doctrine. In
Carrasquillo v. Lippitt & Simonpietri, Inc., *797 98 P.R.R.
646, 649 (1970), and in
García López v. Méndez García,
102 D.P.R. 383, 386 (1974), we abandoned the classification
of “solid”, “clear and convincing”, and “unquestionable”
evidence set forth in Texas Co. (P.R.), Inc. v. Estrada, 50
P.R.R. 709, 713-714 (1936), to note that the general rule that
fraud is not presumed only means that the one affirming it
must prove it with reasonable certainty, with preponderance
of evidence that satisfies the trier's conscience. In this way,
the obstacle requiring a higher degree of evidence, which
served no other purpose but to give to the agent of fraud
a special protection other defendants do not have, was
eliminated. In Roig Comm. Bank v. Portela, 52 P.R.R. 626
(1938), when emphasizing the difference between the Paulian
rescissory action and the action for radical nullity based
on the simulation, which is never time-barred, we consider
fraudulent and harmful to the creditors the alienations made
by the debtor soon after the execution of a mere promissory
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note that substituted others that were due and unpaid. In
harmony with the trend that promotes the elimination of fraud,
without having it determined by mere conjectures, this Court
has held:
We have considered the complaint and although it is
nominally entitled as one in “rescission” of a contract, we
have come to the conclusion that it should be regarded as
one seeking primarily to set aside or undo a transaction
entered into fictitiously by the plaintiff's debtor and
others with the fraudulent intent to prevent the plaintiff
from recovering. The lower court was not without some
justification in applying what it considered to be the only
statute under which the action could be brought, but we feel
that its decision on this particular point should be reversed.
Courts primarily exist in order to provide a remedy for
a legal wrong. It is especially true in cases of fraud,
where sympathy should be with the defrauded, so that his
rightful *798 remedy should not be withheld on some
truly technical ground, such as the improper title to his
action, where it appears that the complaint sets up sufficient
facts from which to establish a definite cause of action in
his favor. At 630-31.
We ratified the rule of analyzing every situation without
technical and procedural ties, in order to expose the instance
of fraud if the evidence so inclines the honest conscience
and good sense of the trier of facts, when we held that it
is not an indispensable requirement to a plaintiff's cause of
action to annul a fraudulent conveyance that the debt or
obligation was due or demandable on the date when the
alleged alienation was carried out; it was held that the surety
sued for damages for a wrongful attachment became a debtor
of the person affected by the attachment, with a juridical duty
to redress, and that the condition of creditor was fixed from
the time the bond was given in his behalf on a date prior
to that of the conveyance whose nullity was being asserted,
and notwithstanding the lack of a judicial finding on the
wrongfulness of the attachment at such an early stage; and
reiterating the expression in Roig Comm. Bank, supra, that
in cases of fraud the trier's sympathy--rather the judge's free
inclination--should be with the defrauded person, and that the
former should overcome the technical obstacle, we held:
The principal function of judicial tribunals is to afford an
adequate legal remedy for repairing any injury that may
have been unlawfully caused to a party resorting to them
for relief. Ubi jus, ibi remedium. Greater still must be the
zeal and care of the courts in the performance of such a
high function when it is sought to prosecute or to prevent
fraud and simulation. Castellón v. Padín, 60 P.R.R. 369,
375 (1942).
*799 [5] From the intimate relation between debtor and
his first acquirer, a fact which shows up in many simulated
or fictitious contracts for the fraud of creditors, this Court
held both in the Texas Co., ante, and in Nine v. Avilés, 53
P.R.R. 471, 476 (1938), that, even though when isolated it
is not sufficient to declare an act or conduct fraudulent, it
does constitute a suspicious circumstance that, together with
others, may lead the fair and rational weighing of the evidence
to a declaration of nullity, 7 and at least to shift the burden
of proof from plaintiff to the person acquiring directly from
the debtor.
[6] Castán establishes the limits between the Paulian actions
of rescission and the action for radical or absolute nullity,
which is particularly relevant to the case at bar:
Finally, though in practice the Paulian one is sometimes
confused with the action to declare simulation (because
one and the *800 other constitute a remedy granted
to the creditors to revoke the acts of the debtor that
make it impossible for them to collect their credits), they
are fundamentally different, for the one for simulation
is an action for nullity or inexistence. The case of the
Paulian action is the case of the debtor who has truly
but fraudulently alienated (as a rule, to replace something
easily attachable with securities that are easy to conceal)
while the one of the action for simulation is that of the
debtor who seems to carry out an alienation that does not
really exist or is different from the one actually carried out.
Next to this essential difference by reason of the nature
of each one of these actions, there are among them other
differences depending on the people that may exercise
them, to the requirements required therefor, to the effects
they produce, and to the bar by the statute of limitations.
3 Derecho Civil Español, Común y Foral 234 (10th ed.
1967).
In the light of the preceding legal theory, there is no doubt
that appellants established a prima facie case of nullity of
actions and presumption of fraud of creditors that shifts the
burden of proof to defendant-appellee Carrero. The hasty
manner in which the debtors, Mr. and Mrs. Ocasio Ferrao--
who had already been served with a copy of the complaint for
damages--appeared before their own attorney in his capacity
as a notary exactly one day after filing with the court, not
an answer on the merits of the subject of litigation, but an
allegation of insufficient service of process; the admittedly
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close relationship of Carrero and the mortgagors; the lack
of proportion in the amount of $120,000 that encumbered
the only property of the debtors, consisting of 1 1/2 cuerda
and buildings in a Bayamón rural area; the possible lack of
negotiability of said obligations where no specific quantity is
secured for costs and attorney's fees in case of foreclosure;
the fact that they were not negotiated or placed in circulation,
but rather that the twelve promissory notes appeared in the
brother-in-law's *801 possession--their common maturity
in a four-year term made them all but unredeemable--; his
admission that he has not even one notarial instrument where
Ocasio or his successor recognize the whole or part of the
$35,000 that he says he gave them, part in cash and the
other part as collaterals of bonds for humanitarian reasons of
helping one's neighbor; the silence of the debtor succession,
which was found in default and was absent on the day of
the trial, all these are circumstances and facts that point
to the existence of fraud to harm creditors, which form a
presumption or establish a prima facie state of fraudulent
conduct, of fraud of the law that skirts the juridical duty of
paying what is due through an indirect way that is grosso
modo a subterfuge.
The court below erred in deciding that plaintiffs--who at the
time of the execution of the fraudulent mortgage did not
have a judgment in their favor, but a complaint filed--were
not creditors of Mr. and Mrs. Ocasio-Ferrao, a result of its
confusing this action of radical nullity because of inexistence
of contract with the action for rescission governed by the
presumption of art. 1249 of the Civil Code. For the same
reason and others, the trier erred in declaring the action
time-barred by the one-year period of art. 62 of the former
Mortgage Law. 30 L.P.R.A. § 62. Both this and its successor,
art. 108 of the new Law, 30 L.P.R.A. § 2358, limit their effect
to the actions for rescission, and even in these exclude from
their protection the first acquirer in the fraudulent relation.
Castán, op. cit. at 242-243; 4-1 José R. Vélez Torres, Curso
de Derecho Civil 289 (1981). The action brought by the
appellants is not the so-called Paulian or rescissory action,
but the one for absolute nullity *802 that has no time limit.
When there is simulation, there is no rescission, but nullity. 2
Roca Sastre, Derecho Hipotecario 700 (6th ed. 1968); Roig
Comm. Bank v. Portela, supra; cf. González et al. v. Fumero
et al., 38 P.R.R. 497 (1928); García López v. Méndez García,
supra at 395. Plaintiffs' evidence has rebutted the presumption
of innocence, honesty, and purity, a congenital but fragile
quality of men's actions.
For the foregoing reasons, the petition is granted, the
judgment under review is reversed, and the case is remanded
to the court below for further proceedings consistent with this
opinion.
Footnotes
1
We quote:
“Documentary evidence:
Plaintiff:
.......
.......
Defendant (Codefendant Carlos M. Carrero)
1. Savings passbook
2. Receipts of the Succession
3. Court documents in cases of bond
4. Any other shall be timely notified.”
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2
Pursuant to Rule 45.1 of Civil ProcedureRule 45.1 of Civil Procedure, the entry of default has the effect of
admitting the averments set forth in the affirmative defenses, but the trial judge considered it his duty to relieve
them of said result after verifying the averments. This was not necessary, inasmuch as the documentary
evidence admitted without objection, (record of the case where a judgment was entered in 1977, promissory
notes and mortgage deeds), and Carrero's admissions in the record established a prima facie case of fraud
and fraudulent conduct.
3
Judgments of May 31, 1928; March 18, 1929, and February 23, 1934.
4
And regarding this amplitude and the varied proofs of fraud, he adds:
“There is, therefore, a broad scope in this matter, and an infinite number of presumptions ab homine may
be alleged, with the logical difference, regarding the legal ones, that with the base fact credited in the
latter, the application of the precepts of the Code or of the Mortgage Law is imposed on the trier, under
penalty of estimating said presumptions weakened by evidence to the contrary, which is very difficult;
and on the other hand, for the other presumptions of fraud not established by law, he enjoys the ordinary
broadness as to the appreciation of the base fact and of its relation with the fraud, of which it is supposed
to be a sample. The scope of the power of the courts to reject these particular presumptions is so broad
as to admit them, and is recognized by the Judgment of March 21, 1900.” At 688.
5
Judgment of July 10, 1896. Manresa, op. cit. at 688-689.
6
Diez-Picazo also acknowledges two hypotheses: one when the creditor's fraudulent conduct fits one of the
typical models of the Paulian or revocation action; and the other when the debtor's subterfuge or swindling
of property to avoid paying his debts follows a peculiar course of evading law and duty. He says:
“The creditor's protection against the debtor's fraud may be established along two different lines. The first
is done through the institution of the typical actions of objective defense and protection of the creditors'
interests (action for revocation, rescission, and Paulian action). The second, a subsidiary of the former, is
produced through the application of the general rule of inadmissibility of the fraud of the law; the purpose
of using it is to try to obtain the irrelevancy and inefficacy of all those acts of the debtor that, without
fitting within the framework of the typical actions for revocation, are presided by a conscious plan to
harm the creditor's right and at the same time they entail a circunventio legis; under a supposed law of
coverage, the rule providing for the universal liability of the debtor's patrimony is sought to be broken
(art. 1911 Civil Code [1811 P.R.]): in other words, the legal order may react by classifying as fraud of
the law the debtor's acts done with the purpose of damaging the credit.” 1 Fundamentos del Derecho
Civil Patrimonial 741 (1979).
7
Going back to 27 C.J. § 717, in Texas Co. v. Estrada, supra at 716, this Court adopted the following quote,
a predecessor of the remission of the facts to the power to weigh that prevails today:
“‘Where the parties to the transfer are related to each other, this fact in connection with other facts may
be sufficient to raise a presumption of fraud and shift the burden of proof to the transferee to show
good faith on his part in accepting the transfer; and it has been held that only slight evidence is required
to shift the burden of showing the good faith of the transaction. A presumption of fraud is raised and
the burden of proof of showing good faith impose on the transferee where, in connection with the facts
of relationship, other facts appear such as the insolvency or embarrassed circumstances of the party
making the transfer.’ (Italics ours.)”
End of Document
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