MANUEL ORIA vs.

JOSE McMICKING, as sheriff of the city of Manila,

GUTIERREZ HERMANOS, MIGUEL GUTIERREZ DE CELIS, DANIEL PEREZ, and
LEOPOLDO CRIADO

FACTS:

1. Gutierrez Hermanos brought an action against Oria Hermanos & Co. for the recovery of sum of
money and apparently, Manuel Oria began another action against Hermanos for the recovery of a
certain amount of money.

2. Subsequent to the beginning of those actions, Oria Hermanos & Co., agreement of co-partnership has
expired, thus it dissolved their relations and entered into liquidation.

3. Tomas Oria, on behalf of his other co-owners, sold and transferred to his son, Manuel Oria, all of the
property of the said firm.

4. And among the goods transferred by was the steamship Serantes, which is the subject of the present
litigation.

5. And at the time of the sale Manuel does not owned any property or business. He was merely a student
without assets and without gainful occupation.

6. 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.

7. Manuel knew that at the time of the sale, 2 suits had already been instituted against the company
whose assets he was buying and he well knew that if the cases should be decided against the
company, judgment would be paid out of the property he was taking over or they would not be paid at
all.

8. CFI ruled in favor of Hermanos in the case filed by Manuel Oria against the former.

9. The judgment was affirmed and execution was then issued.

10. Jose McMicking, as the sheriff of Manila, demanded that Tomas Oria, as liquidator of the firm make
payment of the said judgment, to which he replied that there were no funds with which to pay the
same.

11. Thereupon McMicking levied upon the steamer Serantes, took possession of the same, and
announced it for sale at public auction.

12. But three days before the sale, Manuel Oria claimed to be the owner of the said steamship by reason
of the sale to him by Oria Hermanos & Co.
13. However, McMicking proceeded with the sale of the steamship. And at the sale, it was sold to
Hermanos being the highest bidder.

14. Manuel Oria then filed action to recover said steamship on the ground that he is the owner of said
steamer by reason of the sale. Gutierrez, however, contends that the sale is fraudulent as against
Oria’s creditors and that the transfer of the steamship in question was void as to said creditors.

ISSUE: Whether or not the sale in question was fraudulent thus void.

RULING:
Yes. The sale is fraudulent and void. Thus, Gutierrez Hermanos, insofar as necessary, is permitted to the
collection of the judgment.

 The record fails to disclose any sufficient reason for the reversal of the finding.

 SC pointed out that the sale was without consideration, considering that it was sold to an
impecunious (penniless) and vocationless youth who knew nothing about the business he received
and whose management skills was unknown, without a penny being paid down, without any
security whatsoever.

 SC held that the sale was an unusual proceeding devoid of care and caution, and outside the well-
defined lines of ordinary business transactions.

 SC opined that, in determining whether or not a certain conveyance is fraudulent, the question in
every case 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.

 The test as to whether or not a conveyance is fraudulent is, does it prejudice the rights of the
creditors?

 SC laid down in this case certain rules, which the courts called as Badges of Fraud to determine
when the transaction is fraudulent in character:
1. The fact that the consideration of the conveyance is fictitious or is inadequate.
2. A transfer made by a debtor after suit has been begun and while it is pending against him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent
or greatly embarrassed financially.
6. The fact that the transfer is made between father and son, when there are present other of
the mentioned circumstances.
7. The failure of the vendee to take exclusive possession of all the property.
 In the present case, all badges of fraud were present and the sale prejudice the rights of the
creditors.

 The sale left the creditors substantially without recourse with nothing to satisfy its claims. Because
the property of the company is gone, its income is gone, the business itself is likely to fail, the
property is being dissipated, and is depreciating in value.

 Since the records shows that there was no property with which the judgment in question could be
paid, Hermanos was obliged to resort to and levy upon the steamer in suit.

 And there was no proof that Manuel was the owner or entitled to the possession of the steamer at
the time of the levy and sale. Thus, Hermanos had the right to make the levy