153. Oria v.

Mcmicking
G.R. No. 7003 | 18 January 1912 | Moreland, J.
Aggy | Topic: Badges of Fraud (Art. 1387)

Doctrine:
Test of whether or not a certain conveyance is fraudulent:
“Whether the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors, or
whether it conserves to the debtor a special right” (Does it prejudice the rights of creditors?)

Facts:
1. In August 1909 and March 1910, Gutierrez Hermanos brought 2 actions against Oria Hermanos
& Co. (OHC) for the recovery of sums of money. (1) Case 7289 - P147,204.28 and (2) Case 7719
- P12,318.57.
2. On or about April 1910, the members of OHC dissolved their partnership and entered into liquidation
on account of the expiration of the term of the partnership as stated in their agreement.
3. On June 1910, Tomas Oria (managing partner), acting for himself and on behalf of his co-owners,
entered into a contract with Manuel Oria Gonzales (plaintiff) for the purpose of selling and
transferring to Manuel all the property owned by OHC.
a. The consideration of the sale is P274,000 to be paid in installments within a period of 12
years. (to pay not less than P10,000 per year)
b. Manuel was prohibited from alienating, transferring, or mortgaging the property, either wholly
or in part, without written authorization of Tomas Oria, so long as the consideration of the
sale is not fully satisfied.
4. Case 7719 filed by Gutierrez was resolved by CFI in favor of Gutierrez. SC affirmed.
a. The sheriff immediately demanded Tomas Orias to make the payment of the said judgment.
Tomas replied that there were no fund.
b. Sheriff, then, levied the steamship, Serantes, took possession of it, and announced it for
sale at a public auction.
c. Manuel presented to the sheriff a written statement claiming to be the owner of the steamship
by reason of the sale to him by OHC.
d. Sheriff required Gutierrez to present a bond for his protection. After having done so, sheriff
proceeded to the sale of the steamship. Gutierrez became the purchaser since he’s the
highest bidder.
5. Manuel filed this present action seeking the (1) issuance of preliminary action to prevent the sale of
the steamship, (2) declaration that he is the owner of said property and is entitled to the possession
of the same, and (3) Gutierrez be required to restore the property to Manuel, plus damages of
P10,000.
a. Gutierrez contends that the sale was fraudulent as against the creditors of OHC and that the
transfer is void as to such creditors.
b. Manuel argues that OHC had sufficient other property to pay the judgment of Gutierrez.
6. CFI ruled in favor of Gutierrez and the complaint was dismissed.

Issue/Holding:
W/N the sale from Oria Hermanos & Co to Manuel Oria is fraudulent and void? – YES. It was done in
fraud of OHC’s creditors.
• In determining whether or not a certain conveyance of property is fraudulent, the question is
whether the conveyance was a bona fide transaction or a trick and contrivance to defeat
creditors, or whether it conserves to the debtor a special right.
• It is not sufficient that it is founded on good consideration or is made with bona fide intent. It
must have BOTH elements (good consideration & bona fide intent).
 • SC laid down the rules in determining the • SC noted the facts of the case which are relevant
fraudulent character of a transaction. The as to the issue of fraud:
following are circumstances which courts have
denominated as badges of fraud:

o The fact that the consideration of the
conveyance is fictitious or is inadequate.
o A transfer made by a debtor after suit has
been begun and while it is pending
against him.
o A sale upon credit by an insolvent debtor.
o Evidence of large indebtedness or
complete insolvency.
o The transfer of all or nearly all of his
property by a debtor, especially when he
is insolvent or greatly embarrassed
financially.
o The fact that the transfer is made
between father and son; when there are
present other of the above
circumstances.
o The failure of the vendee to take
exclusive possession of all the property.
o Consideration was only P274,000 which
was the same value of the assets of OHC
at the time of sale.
o At the time of sale, there was an action
pending against OHC for the aggregate
amount of P160,000.
o Nothing of value seems to have been
delivered by Manuel in consideration of
the sale and no security whatsoever was
provided.
o Manuel is only 25 years old and was
merely a student without assets and
without gainful occupation.
o Manuel was the son of Tomas Oria.
o Manuel was aware that there was a case
pending against OHC at the time of sale.
o Prohibition in the contract against sale
until full satisfaction of the consideration
of P274,000 was not a security.

• All of the badges mentioned are present in the case at bar.

• SC also noted that the turning over of a business to an “impecunious and vocationless youth”
who knew absolutely nothing about the business he received is unusual, so devoid of care and
caution, and so wholly outside of the well-defined lines of ordinary business transactions.
(TRANSLATION: it’s a big BS.)
• The sale was fraudulent and void as to Gutierrez in so far as was necessary to permit the
collection of its judgment.
• Lastly, SC held that Gutierrez had the right to levy and test the validity of the sale, without first
annulling the sale. He may attack the sale by ignoring it and seizing under his execution the
property which is the subject of the sale.
• (I think what SC is saying is that Gutierrez can rescind the sale hanggang sa amount lang nung
credit niya. And that pweds niya diretso ilevy and attack yung validity ng sale kahit na hindi siya
magfile ng action for annulment of sale)

Ruling:
CFI judgment is affirmed.