Short answer. Yes. Article 1388 of the Civil Code provides that whoever acquires in bad faith property alienated to defraud creditors must indemnify those creditors for the damages they suffered whenever, due to any cause, it is impossible to return the property. Knowing the transfer was fraudulent removes any protection a buyer might otherwise have.
What the law says
Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them.
Civil Code, Article 1388 — Bad-Faith Acquirer's Liability. Read the full provision →
Bad faith negates the buyer's normal protections
Philippine law gives creditors a remedy called the accion pauliana — the right to rescind fraudulent transfers that prejudice them. A buyer who acquired property in good faith and for value is normally protected from rescission. Article 1388 removes that protection when the buyer knew about the fraud: "Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them." If the property can still be returned, the creditor may seek its return. If not, the bad-faith buyer pays instead.
When you cannot return the property
The indemnity obligation under Article 1388 is triggered when return is impossible for any reason — not only when you deliberately disposed of the property. If the property was destroyed, consumed, transferred to a good-faith buyer, merged with other property beyond separation, or simply cannot be located or recovered, the impossibility standard is met. The phrase "due to any cause" means you cannot escape the obligation by arguing that the impossibility was not your fault.
Multiple transfers: the order of liability
Article 1388 also addresses a chain of fraudulent transfers: "If there are two or more alienations, the first acquirer shall be liable first, and so on successively." This means that in a scheme where the debtor sells to Person A, who then sells to Person B, and both knew about the fraud, the creditor goes after Person A first. If Person A cannot satisfy the obligation, liability moves to Person B. The rule prevents a bad-faith buyer from sheltering behind a later transfer.
What damages the creditor can recover
The damages owed under Article 1388 are the damages the creditor suffered on account of the alienation. This typically means the value of the property that was fraudulently transferred — since it is that asset which should have been available to satisfy the creditor's claim. Additional consequential damages may also be recoverable depending on the facts. The creditor will need to establish the value of the property at the relevant time and show that the fraudulent transfer actually impaired their ability to collect what they were owed.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Y-1 Leisure Philippines, Inc., Yats International Ltd. and Y-1 Clubs and Resorts, Inc., vs. James Yu, G.R. No. 207161, September 8, 2015 — read the decision on LawPhil →