TEOFILO ORSAL, ET AL., PLAINTIFFS AND APPELLANTS, VS. AURELIO ALISBO, ET AL., DEFENDANTS AND APPELLEES.

Orsal versus Alisbo

The Case

This is a civil action for the recovery of a criminal indemnity and for the rescission of a sale alleged to have been made in fraud of creditors. The parents of Teresita Orsal, whose daughter was killed by a funeral car driven by Jose Mogat, sued the spouses Aurelio Alisbo, owners of the car, on their subsidiary liability, and sued Montano Medel, the buyer of the spouses' properties, to set aside that sale. The case matters because it joins two questions every reviewee must master: the subsidiary liability of an employer under the Revised Penal Code, and the requisites for rescinding a sale on the ground of fraud under the Civil Code, including the badges of fraud and the complicity of the buyer.

Procedural History

Jose Mogat was prosecuted and convicted of homicide through reckless imprudence in the criminal case, and the decision ordered him to indemnify the parents of the deceased. After that decision became final, execution was issued against him but was returned unsatisfied because of his insolvency. The spouses Orsal then brought a civil action before the Court of First Instance of Negros Occidental against the spouses Alisbo and Montano Medel, seeking to recover the indemnity from the spouses on their subsidiary liability and to obtain the rescission of the sale of their properties to Medel as made in fraud of creditors. The parties submitted a stipulation of facts and presented no oral evidence. The trial court rendered judgment ordering the spouses Alisbo to pay the plaintiffs the sum of 6,342 pesos, plus costs, but dismissed the complaint as to Medel for lack of evidence that he acted in bad faith or that the sale in his favor was made without consideration. The plaintiffs brought the case to the Supreme Court on purely questions of law.

Facts

On February 8, 1956, Jose Mogat, while driving a funeral car belonging to the spouses Aurelio Alisbo, ran over Teresita Orsal and caused her death. Mogat was prosecuted and convicted of homicide through reckless imprudence, and was sentenced to imprisonment for one year and to pay the parents of Teresita 6,000 pesos as indemnity and 342 pesos as actual damages.

The criminal decision was rendered on January 18, 1957, and became final. Execution was issued against Mogat for the indemnity of 6,342 pesos, but it was returned unsatisfied because of his insolvency. Aurelio Alisbo, the owner of the car, received in due time a copy of the decision through his counsel. On April 10, 1957, the spouses Alisbo sold all the properties belonging to their business to Montano Medel, including two lots in Bacolod City covered by a Torrens title, leaving nothing that could be levied upon to satisfy their subsidiary liability.

On May 4, 1957, the spouses Orsal brought this action. The defendants answered that the funeral business no longer belonged to the spouses Alisbo because it had been sold to Medel, that Aurelio Alisbo had become merely its manager, that the sale was for valuable consideration and without intent to defraud, that the sale could not be considered fraudulent under Article 1387 of the new Civil Code because no judgment had been rendered or attachment issued against the spouses at the time of the sale, and that Medel was a purchaser in good faith and for value.

Issues

• Whether or not the spouses Alisbo are subsidiarily liable for the indemnity awarded in the criminal case against their driver.
• Whether or not the sale of all their properties to Montano Medel was made in fraud of creditors.
• Whether or not the buyer, Montano Medel, may be considered a purchaser in bad faith, so that the sale may be rescinded as to him.

Applicable Provisions

Article 1381 of the new Civil Code provides:

Contracts undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them may be rescinded.

This is the source of the action to rescind the sale made by the debtor spouses.

Article 1387 of the new Civil Code provides:

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.

This presumption of fraud is what the plaintiffs invoke against the sale, and what the defendants say does not apply because no judgment had been rendered against the spouses themselves.

Article 103 of the Revised Penal Code, which the Court applies, fixes the subsidiary liability of employers for the civil liability of their employees arising from crimes committed in the discharge of their duties.

Ruling

On the first issue, the Court held that the spouses Alisbo, as owners of the car, are subsidiarily liable for the indemnity awarded to the plaintiffs, and that the trial court did not err in ordering them to pay 6,342 pesos. Although strictly speaking they were not parties in the criminal case, the Court held that in substance and effect they were, because of the subsidiary liability imposed upon them by law. The Court quoted its earlier ruling:

It is true that an employer, strictly speaking, is not a party in a criminal case instituted against his employee but in substance and effect he is considering the subsidiary liability imposed upon him by law.

And it added the stronger pronouncement that the judgment of conviction, absent collusion between the defendant and the offended party, should bind the person subsidiarily liable, so that the employer becomes subsidiarily liable upon his driver's conviction and upon proof of the latter's insolvency.

On the second issue, the Court held that the spouses acted in bad faith and to defraud their creditors when they disposed of all their properties in favor of Medel, knowing full well that their driver had already been ordered to pay the indemnity for which they are subsidiarily liable. The Court applied the badges of fraud laid down in Oria versus McMicking, and found at least three present: the transfer was made after the spouses knew of the judgment of indemnity against their insolvent driver; they transferred all their properties, leaving nothing to levy upon; and Aurelio Alisbo continued as manager of the business after the sale, an indication of a mere scheme to circumvent their civil liability, especially since there was no clear evidence that the consideration was actually paid.

On the third issue, the Court held that the complicity of the buyer in the fraud must be established by means other than the presumption under Article 1387, following Abaya versus Enriquez. Finding no clear proof of such direct complicity beyond the suspicious circumstances constituting badges of fraud, the Court set aside the dismissal as to Medel and remanded the case to give the parties an opportunity to present evidence on the character in which Medel bought the properties, so that no undue harshness be committed against the purchaser if the sale be rescinded merely on the strength of those circumstances.

Doctrine

First, an employer is subsidiarily liable for the civil liability of his employee convicted of a crime committed in the discharge of his duties, and the judgment of conviction binds the employer as though he were a party, absent collusion between the accused and the offended party. Second, a sale of all the debtor's properties made after he learns of a judgment for which he is subsidiarily liable, leaving nothing to levy upon, is presumed fraudulent under Article 1387 and is a badge of fraud. Third, the rescission of an onerous sale on the ground of fraud requires proof of the buyer's complicity in the fraud by means other than the presumption under Article 1387; the badges of fraud may incriminate the purchaser, but the case must be remanded where the evidence of complicity is insufficient.

Disposition

The decision appealed from was modified: the portion dismissing the complaint as to Montano Medel was set aside, the rest of the decision was affirmed, and the case was remanded to the lower court for further proceedings, without pronouncement as to costs.

Remember This

The single line worth memorizing is that the employer, though not a party to the criminal case against his employee, is in substance and effect a party because of his subsidiary liability, and the conviction binds him. Examiners use this case to test the subsidiary liability of employers under Article 103 of the Revised Penal Code and the requisites of rescission for fraud of creditors under Articles 1381 and 1387 of the Civil Code, including the badges of fraud and the need to prove the buyer's complicity.