CALTEX v. PNOC SHIPPING, GR NO.

150711, The Regional Trial Court of Manila, Branch 12,

2006-08-10 issued a writ of execution in favor of Caltex.
Facts: However, the judgment was not satisfied because
of the prior foreclosure of LUSTEVECO's
On 6 July 1979, PSTC and Luzon Stevedoring properties.
Corporation ("LUSTEVECO") entered into an
Agreement of Assumption of Obligations Caltex subsequently learned of the Agreement
between PSTC and LUSTEVECO. Caltex sent
The Agreement provides that PSTC shall assume successive demands to PSTC asking for the
all the obligations of LUSTEVECO with respect to satisfaction of the judgment rendered by the CFI.
the claims enumerated in Annexes "A" and "B"
PSTC requested for the copy of the records of AC-
("Annexes") of the Agreement. G.R. CV No. 62613. Later, PSTC informed Caltex
The Agreement also provides that PSTC shall that... it was not a party to AC-G.R. CV No. 62613
control the conduct of any litigation pending or and thus, PSTC would not pay LUSTEVECO's
which may be filed with respect to the claims in the judgment debt. PSTC advised Caltex to demand
Annexes. satisfaction of the judgment directly from
LUSTEVECO.
The Agreement further provides that LUSTEVECO
shall deliver to PSTC all papers and records of... On 5 February 1992, Caltex filed a complaint for
the claims in the Annexes. sum of money against PSTC.

Finally, the Agreement provides that LUSTEVECO On 1 June 1994, the trial court rendered its
appoints and constitutes PSTC as its attorney-in- Decision, the dispositive portion of which reads:
fact to demand and receive any claim out of the WHEREFORE, in view of the foregoing, judgment
countersuits and counterclaims arising from the is hereby rendered in favor of the plaintiff, ordering
claims in the Annexes. defendant to pay plaintiff the sums due the latter in
Among the actions enumerated in the Annexes is the decision rendered by the Court of Appeals in
Caltex (Phils.), Inc. v. Luzon Stevedoring CA-G.R. No. 62613, CALTEX vs. LUSTEVECO
Corporation PSTC appealed the trial court's Decision.
The case was an appeal from the Decision by the... In its 31 May 2001 Decision, the Court of Appeals
then Court of First Instance of Manila (CFI) found the appeal meritorious. The Court of Appeals
directing LUSTEVECO to pay Caltex P103,659.44 ruled that Caltex has no personality to sue PSTC.
with legal interest from the filing of the action until The Court of Appeals held that non-compliance
full payment. with the Agreement could only be questioned by
In its 12 November 1985 Decision,[5] the IAC the signatories to the contract,... namely,
affirmed with modification the Decision of the CFI. LUSTEVECO and PSTC.

The dispositive portion of the Decision reads: The Court of Appeals stated that LUSTEVECO and
PSTC are the only parties who can file an action to
WHEREFORE, the decision appealed from is enforce the Agreement. The Court of Appeals
hereby MODIFIED and judgment is rendered considered fatal the omission of LUSTEVECO, the
ordering the defendant [LUSTEVECO] to pay real party in interest, as a party defendant in the
plaintiff [Caltex]: case.
(a) P126,771.22 under the first cause of action, The Court of Appeals further ruled that Caltex is
with legal interest until fully paid; not a beneficiary of a stipulation pour autrui
(b) P103,659.44 under the second cause of action because there is no stipulation in the Agreement
with legal interest until fully paid; which clearly and deliberately favors Caltex.

(c) 10% of the sums due as and for attorney's fees; Issues:

(d) costs of the suit. The issues in this case are:

SO ORDERED.[6] Whether PSTC is bound by the Agreement when it

assumed all the obligations of LUSTEVECO; and
The Decision of the IAC became final and
executory. Whether Caltex is a real party in interest to file an
action to recover from PSTC the judgment debt
against LUSTEVECO.
Ruling: knowledge of its creditors. Caltex now has no other
means of enforcing the judgment debt except
The petition is meritorious. against PSTC.
Caltex May Recover from PSTC Under the Terms If PSTC refuses to honor its written commitment to
of the Agreement assume the obligations of LUSTEVECO, there will
Caltex may recover the judgment debt from PSTC be fraud on the creditors of LUSTEVECO.
not because of a stipulation in Caltex's favor but PSTC agreed to take over, and in fact took over, all
because the Agreement provides that PSTC shall the assets of LUSTEVECO upon its express
assume all the obligations of LUSTEVECO. written commitment to pay all obligations of
In this case, LUSTEVECO transferred, conveyed LUSTEVECO pertaining to those assets, including
and assigned to PSTC all of LUSTEVECO's specifically the claim of Caltex.
business, properties and assets pertaining to its
tanker and bulk business "together with all the LUSTEVECO no longer informed its creditors of
obligations relating to the said business, properties the transfer of all of its assets presumably because
and assets." PSTC committed to pay all such creditors. Such
transfer, leaving the claims of creditors...
When PSTC assumed all the properties, business unenforceable against the debtor, is fraudulent and
and assets of LUSTEVECO pertaining to rescissible.
LUSTEVECO's tanker and bulk business, PSTC
also assumed all of LUSTEVECO's obligations To allow PSTC now to welsh on its commitment is
pertaining to such business. to sanction a fraud on LUSTEVECO's creditors.
The assumption of obligations was stipulated not In this case, PSTC was aware of the pendency of
only in the Agreement of the case between Caltex and LUSTEVECO. PSTC
assumed LUSTEVECO's obligations, including
Assumption of Obligations but also in the specifically any obligation that might arise from
Agreement of Transfer. The Agreement specifically Caltex's suit against LUSTEVECO. The Agreement
mentions the case between LUSTEVECO and transferred the unencumbered assets of
Caltex
LUSTEVECO to PSTC, making any money
The Agreement provides that PSTC may demand judgment in favor of Caltex unenforceable against
and receive any... claim out of counter-suits or LUSTEVECO.
counterclaims arising from the actions enumerated
in the Annexes. To allow PSTC to renege on its obligation under
the Agreement will allow PSTC to defraud Caltex.
PSTC is bound by the Agreement. PSTC cannot
accept the benefits without assuming the If PSTC does not assume the obligations of
obligations under the same Agreement. PSTC LUSTEVECO as PSTC had committed under the
cannot repudiate its commitment to assume the Agreement, the creditors of LUSTEVECO could no
obligations after taking over the assets for that will longer collect the debts of LUSTEVECO. The
amount to defrauding the creditors of assignment becomes a fraud on the part of PSTC,
LUSTEVECO. because PSTC would then have inveigled
LUSTEVECO to... transfer the assets on the
It will also result in failure of consideration since the promise to pay LUSTEVECO's creditors.
assumption of obligations is part of the
consideration for the transfer of the assets from Principles:
LUSTEVECO to PSTC. Failure of consideration will
Disposition of all or substantially all assets
revert the assets to LUSTEVECO for the benefit of
the creditors of LUSTEVECO. The disposition of all or substantially all of the
assets of a corporation is allowed under Section 40
Thus, PSTC cannot escape from its undertaking to
of Batas Pambansa Blg. 68, otherwise known as
assume the obligations of LUSTEVECO as stated
The Corporation Code of the Philippines
in the Agreement.
("Corporation Code"). Section 40 provides:
Here, Caltex could not enforce the judgment debt
SEC. 40. Sale or other disposition of assets. â"€
against LUSTEVECO. The writ of execution could
Subject to the provisions of existing laws on illegal
not be satisfied because LUSTEVECO's remaining
combinations and monopolies, a corporation may,
properties had been foreclosed by lienholders. In
by a majority vote of its board of directors, or
addition, all of LUSTEVECO's business, properties
trustees, sell, lease, exchange, mortgage, pledge
and assets pertaining to its tanker... and bulk
or... otherwise dispose of all or substantially all of
business had been assigned to PSTC without the
its property and assets, including its goodwill, upon Evidence of large indebtedness or complete
such terms and conditions and for such insolvency.
consideration, which may be money, stocks, bonds
or other instruments for the payment of money or The transfer of all or nearly all of his property by a
other property or consideration, as its... board of debtor, especially when he is insolvent or greatly
directors or trustees may deem expedient, when embarrassed financially.
authorized by the vote of the stockholders The fact that the transfer is made between father
representing at least two-thirds (2/3) of the and son, when there are present other of the
outstanding capital stock; or in case of non-stock above circumstances.
corporation, by the vote of at least two-thirds (2/3)
of the members, in a... stockholders' or members' The failure of the vendee to take exclusive
meeting duly called for the purpose. Written notice possession of all the property.
of the proposed action and of the time and place of Fraud of creditors
the meeting shall be addressed to each
stockholder or member at his place of residence as Article 1313 of the Civil Code provides that
shown on the books of the corporation and "[c]reditors are protected in cases of contracts
deposited to the... addressee in the post office with intended to defraud them." Further, Article 1381 of
postage prepaid, or served personally: Provided, the Civil Code provides that contracts entered into
That any dissenting stockholder may exercise his in fraud of creditors may be rescinded when the
appraisal right under the conditions provided in this creditors cannot in any manner... collect the claims
Code. due them.[16] Article 1381 applies to contracts
where the creditors are not parties, for such
A sale or other disposition shall be deemed to contracts are usually made without their
cover substantially all the corporate property and knowledge. Thus, a creditor who is not a party to a
assets, if thereby the corporation would be contract can sue to rescind the... contract to
rendered incapable of continuing the business or prevent fraud upon him. Or, the same creditor can
accomplishing the purposes for which it was instead choose to enforce the contract if a specific
incorporated. provision in the contract allows him to collect his
Transfer should not prejudice creditors of the assignor claim, and thus protect him from fraud.

While the Corporation Code allows the transfer of Novation

all or substantially all the properties and assets of a The Agreement, under Article 1291 of the Civil
corporation, the transfer should not prejudice the Code,[17] is also a novation of LUSTEVECO's
creditors of the assignor. The only way the transfer obligations by substituting the person of the debtor.
can proceed without prejudice to the creditors is to Under Article 1293 of the Civil Code, a novation
hold the... assignee liable for the obligations of the which consists in substituting a new debtor in place
assignor. The acquisition by the assignee of all or of the... original debtor cannot be made without the
substantially all of the assets of the assignor consent of the creditor.[18] Here, since the
necessarily includes the assumption of the Agreement novated the debt without the
assignor's liabilities,[10] unless the creditors who knowledge and consent of Caltex, the Agreement
did not consent to... the transfer choose to rescind cannot prejudice Caltex. Thus, the assets that
the transfer on the ground of fraud.[11] To allow an LUSTEVECO transferred to PSTC in...
assignor to transfer all its business, properties and consideration, among others, of the novation, or
assets without the consent of its creditors and the value of such assets, remain even in the hands
without requiring the assignee to assume the of PSTC subject to execution to satisfy the
assignor's obligations... will defraud the creditors. judgment claim of Caltex.
The assignment will place the assignor's assets
beyond the reach of its creditors.
Badges of fraud

In Oria v. McMicking, the Court enumerated the

badges of fraud as follows:
The fact that the consideration of the conveyance
is fictitious or is inadequate.
A transfer made by a debtor after suit has been
begun and while it is pending against him.
A sale upon credit by an insolvent debtor.