Case Digest: Oria vs McMicking, 21 Phil 243

Oria vs McMicking, 21 Phil 243

Subject: Obligations and Contracts

FACTS

Gutierrez Hermanos filed an action for recovery of a sum of money against Oria Hermanos & Co. and herein plaintiff filed an action for recovery also for the same defendant.

Before the institution of the suits, members of the Company dissolved their relations and entered a liquidation.

Tomas Oria y Balbas acting in behalf of his co-owners entered into a contract with the herein plaintiff for the purpose of transferring and selling all the property which the Oria Hermanos & Co. owned and among the goods stated on that instrument was the steamship Serpantes and which the subject of this litigation.

When the Trail Court resolved the action for recovery filed by Gutierrez Hermanos and judgment was in his favor, The sheriff demanded to Tomas Oria y Balbas to make payment, but the latter said there were no funds to pay the same.

The sheriff then levied on the steamer, took possession of the same and announced it for public auction.

Herein plaintiff claimed that he is the owner of the steamer by virtue of the selling of all the properties of the said Company.

ISSUE

Whether or not the contract be rescinded.

RULING

Yes, the contract may be rescinded as being in fraud of creditors.

Under Article 1387, all contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation. Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated and need not have been obtained by the party seeking rescission.

In this case, at the time of said sale the value of the assets of Oria Hermanos & Co., as stated by the partners themselves, was P274,000. The vendee of said sale was a son of Tomas Oria y Balbas and a nephew of the other two persons heretofore mentioned which said three brothers together constituted all the members of said company. The plaintiff is a young man of 25 years old and has no property before the said selling. The court had laid down the rules in determining whether a there has been fraud prejudicing creditors: 1) consideration of conveyance is fictitious; 2) transfer was made while the suit against him (Tomas Oria y Balbas) was pending; 3) sale by insolvent debtor; 4) evidence of insolvency; 5) transfer of all properties; 6) the sale was made between father and son; 7) and the failure of the vendee to take exclusive possession of the property. The case at bar shows every one of the badges of fraud.