Oria vs. McMicking

MANUEL ORIA, plaintiff & appellant, vs. JOSE MCMICKING, sheriff of the City of Manila, Gutierrez Hermanos, Miguel Gutierrez de Celis, Daniel Perez & Leopoldo Criado, defendants & appellees. [1912] ⇒ Case #1:August 1909: Gutierrez Hermanos (GH) brought an action vs Oria Hermanos (OH) to recover P147,204.28. ⇒ Case #2: March 1910: GH instituted another action vs OH to recover P12,318.57. ⇒ OH, on account of the expiration of their agreement of co-partnership dissolved their relations & entered into liquidation. OH partners are brothers Tomas Oria, Casimiro Oria & Adolfo Fuster Roble. Tomas, acting for himself & on behalf of his other partners, entered into a contract w/his son, Manuel Oria, for the purpose of selling & transferring to Manuel, his heirs & assigns all properties of OH. 1. Purchase price: P274k to be paid in installments w/in 12 yrs. Payment must not be less than P10k/year w/the balance settled at the end of the 12yr-period. During the last 6 yrs., Manuel will pay an interest of 3%/yr on the price stipulated/part thereof unpaid at such time, provided that there is a mutual obligation & interest payable annually. 2. Manuel will pay the 3 partners P150.00/month while they remain in the Philippines. 3. Manuel can’t sell, alienate, transfer or mortgage, wholly or partially the vessels, real estate & branch stores properties w/o written authorization of Tomas as liquidator of the firm while the sale is not fully satisfied. 4. Manuel cedes gratuitously a dwelling house in Laoang to be used by Tomas as a liquidation office for 2 yrs. 5. Tomas & Adolfo engage & undertake to place their personal services at the disposal of Manuel in the management & conduct of the property & business sold during the time that they are in the Philippines & for a maximum period of 12 yrs. ⇒ Case #2 was decided ordering OH to pay GH. Sheriff demanded that Tomas, as liquidator, make the payment of the said judgment. Since there were no more funds to pay the same, the sheriff levied upon steamer Serantes & announced its sale at public auction. Manuel wrote a letter 3 days before the sale, claiming that he was the rightful owner of the steamer w/c was sold to him by OH. Sheriff proceeded w/the sale wherein GH subsequently bought the steamer. Thus, Manuel instituted this action. ⇒ Lower Court: Case was dismissed & judgment in favor of defendants & against Manuel was rendered. Issue & Ratio: WON the sale from OH to Manuel was valid as against GH, a creditor of the company. – NO. ⇒ At the time of the sale, the value of the assets of OH was P274k. When the sale was made, actions were pending against OH by one single creditor for the aggregate sum of P160k. ⇒ Buyer was Tomas’ son & nephew of the other partners.

⇒ Nothing of value seems to be delivered by Manuel in consideration of the sale nor did he give any security for the payments provided for. ⇒ Buyer was 25 yrs old, w/no pretense that he owned any property/business at the time of the sale. He was merely a student w/o assets & w/o gainful occupation. ⇒ Manuel knew that at the time of the sale, 2 suits had already been instituted against the company whose assets he was buying & he well knew that if the cases should be decided against OH, judgment would be paid out of the property he was taking over or they would not be paid at all. ⇒ Sale was w/o consideration considering that it was sold to an impecunious (penniless) & vocationless youth who knew nothing about the business he received & whose management skills was unknown, w/o a penny being paid down, w/o any security whatever. It is an unusual proceeding devoid of care & caution & outside the well-defined lines of ordinary business transactions, as to startle any person interested in the concern. ⇒ OH would not have made a similar contract w/a stranger. ⇒ Prohibition in the contract against the sale of certain properties by Manuel offers no protection whatsoever to the creditors of OH. It was not a security since the parties can waive & release it at pleasure.

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Question to ask would be: whether the conveyance was a bona fide transaction or a trick & contrivance to defeat creditors or whether it conserves to the debtor a special right or does it prejudice the rights of creditors. Sale must be founded on good consideration AND made with a bona fide intent. Defect in either element, even if contract is good between the parties, would make it voidable as to creditors. Whatever fraud creates, justice will destroy. All 7 badges of fraud are present in this case: a. The fact that the consideration of the conveyance is fictitious or is inadequate. b. A transfer made by a debtor after suit has been begun and while it is pending against him. c. A sale upon credit by an insolvent debtor. d. Evidence of large indebtedness or complete insolvency. e. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially. f. The fact that the transfer is made between father and son, when there are present other of the above circumstances. g. The failure of the vendee to take exclusive possession of all the property. ⇒ The sale left the creditors w/o recourse with nothing to satisfy their claims at the end of the long wait. Declaring the sale

fraudulent & void as to GH was proper in so far as necessary to permit the collection of its judgment. No proof that Manuel was the owner/entitled to the possession of the steamer at the time of the levy & sale or that he was damaged thereby. Thus, GH had the rt to make the levy & test the validity of the sale in that way w/o first resorting to a direct action to annul the sale. Creditor may attack the sale by ignoring it & seizing under his execution the property/necessary portion thereof, w/c is the subject of the sale. Holding: Judgment affirmed.