Timoteo Unson, et al. vs.

Quirico Abeto, et
al.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-23108 December 18, 1924

TIMOTEO UNSON and CLARA LACSON DE UNSON, petitioners,

Wm. J. Rohde and Felipe Ysmael for petitioners.

STREET, J.:

This is an original application for the writ of mandamus in this court whereby Timoteo
Unson and his wife, Clara Lacson de Unson, seek to compel the Honorable Quirico
Abeto, Judge of the Court of First Instance of Capiz, to proceed with the trial of a cause
wherein the plaintiffs are seeking to recover damages for breach of contract from
the Central Capiz, a corporation organized under the laws of the Philippine Islands, and
having its principal office in the City of Iloilo. The cause is now before us for a
determination of the questions presented upon the petition and the answer of the
respondents.

It appears that on or about August 10, 1921, the petitioners instituted in the Court of
First Instance of Capiz an action to recover damages in a large amount for alleged
breach of contract on the part of the Central Capiz, the corporation defendant in said
action. To the complaint in said cause the corporation answered, denying the liability set
forth in the complaint and exhibiting a cross-complaint by which it sought in turn to
recover damages of the plaintiffs in a large amount. In connection with its complaint in
said action the plaintiffs procured an attachment to be levied on real property belonging
to the defendant corporation, and said attachment has not been dissolved. More than a
year after the action above referred to had been instituted, but before said cause had
come to trial, the corporation defendant filed a petition in the Court of First Instance of
Iloilo, asking that it be declared a voluntary insolvent. In response to this petition the
Iloilo court declared said defendant an insolvent, and one Walter A. Smith, a resident of
Iloilo, was appointed assignee in insolvency of said corporation. Thereafter the attorney
representing the plaintiffs in the litigation pending in Capiz appeared before the
respondent judge and asked that the assignee in insolvency be substituted as defendant
instead of the corporation, the original defendant. This motion was granted on October
28, 1922, and the name of the assignee was thereupon substituted as defendant.

It will be noted that the proceedings in the insolvency are pending in the Court of First
Instance at Iloilo, while the damage suit to which reference has been made is pending in
the court of Capiz, in which province the property of the insolvent corporation appears
to be located.

It does not appear that the court having jurisdiction of the insolvency has made any
order to restrain the prosecution of the damage suit against the insolvent, or its
assignee, in the Capiz court, and the plaintiffs are desirous or prosecuting said action to
judgment. Nevertheless the respondent judge presiding in the Capiz court, on
September 26, 1924, made an order suspending the hearing of the case until an order
should be obtained from the judge presiding in the court at Iloilo, authorizing the
prosecution of the cause to judgment. This order is made the basis of the present
petition, it being claimed by the petitioners that it is the duty of the Capiz court to
permit the litigation to proceed to judgment, in the absence of an order from the Iloilo
court inhibiting the proceeding.

The two provisions of the Insolvency Law (Act No. 1956) most directly pertinent to the
discussion are these:

SEC. 18 (in part). Upon the granting of said order," i. e., adjudication of
insolvency, "all civil proceedings pending against the said insolvent shall be
stayed.

SEC. 60 (in part). No creditor whose debt is provable under this Act shall be
allowed, after the commencement of proceedings in insolvency, to prosecute to
final judgment any action therefor against the debtor until the question of the
debtor's discharge shall have been determined, and any such suit or proceeding
shall, upon the application of the debtor or of any creditor, or the assignee, be
stayed to await the determination of the court on the question of
discharge: Provided, That if the amount due the creditor is in dispute, the suit, by
leave of the court in insolvency, may proceed to judgment for the purpose of
ascertaining the amount due, which amount, when adjudged, may be allowed in
the insolvency proceedings, but execution shall be stayed as aforesaid.

Under these provisions it is impossible to declare the respondent judge in error, for in
staying the cause he has obeyed the simple mandate of the law. It may be admitted that
the adjudication in insolvency does not operate ipso facto as a stay of proceedings
against the insolvent. The author of the treatise on Bankruptcy in Corpus Juris says that
the proper practice appears to be that the application for the stay should be made in the
court in which the action is pending (7 C.J., 349); but it is not questioned that the court
before which the insolvency proceeding is pending itself has jurisdiction to stay an
action in another court.
The words quoted above from section 60 contemplate that the request for the stay may
come either from the insolvent himself, his assignee, or from any one or more of the
creditors; but no provision is made in the law with reference to the precise form in
which the application shall be made. In the case before us it appears from the order
which gave rise to this petition that the attorney for the assignee had raised a question
as to the competency of the court to proceed with the trial. From this it is evident that
the assignee desired that a stay should be granted, and it cannot be said that the action
taken was objectionable as being merely gratuitous.

The language of the provisions quoted is explicit and clearly evinces a purpose on the
part of the legislature to require all claims against the insolvent to be determined in the
insolvency proceeding (De Krafft vs. Velez, 34 Phil., 854). The only exception expressly
recognized in the statute is contained in the proviso, which permits the action against
the assignee to proceed to judgment for the purpose of ascertaining the amount due, but
this course can only be pursued where leave of the court in insolvency is obtained.

The principal contention made for the petitioners in this court appears to be based upon
the circumstance that the insolvent in this case is a corporation and it is expressly
declared in the closing words of section 52 of the Insolvency Law that "Whenever any
corporation is declared insolvent, its property and assets shall be distributed to the
creditors; but no discharge shall be granted to any corporation." From the circumstance
that the corporation cannot be finally discharged from its debts the conclusion is
deduced that the action should not be stayed. In support of this contention the attorney
for the petitioners cites certain passages from various American treatises on
Bankruptcy, in which it is declared that the dischargeability of the debt supplies the
criterion for determining whether the action should be stayed or not. (7 C.J., 349; 1
Collier on Bankruptcy, 13th ed., sec. 11, par. B, pp. 400-1.) But it will be noted that these
authorities are all based upon the existing American Bankruptcy Law of 1898 which
declares in effect that only suits upon dischargeable debts shall be stayed. Under our
statute the provability of a claim, not its dischargeability, supplies the criterion for
determining whether an action thereon shall be stayed; and of course a claim for
damages against a corporation is a provable claim.

It should not be forgotten that under the existing American Bankruptcy Law a
corporation may be discharged from its debts, and actions against corporations must be
stayed to the same extent as actions against persons. The adoption of the rule contended
for by the attorneys for the petitioners would therefore in effect lead to a departure from
American practice upon the very point as to which we are asked to adopt it.

Before dismissing the phase of the case which we have been discussing, we should
perhaps add that the question whether the respondent judge should have stayed the
action pending in his court is not a question of jurisdiction at all but rather a question as
to whether the court should obey the express mandate of the statute on a mere point of
practice. The Capiz court undoubtedly had, and has, jurisdiction over the cause; and in
case the insolvency court shall give the plaintiffs leave to proceed the litigation will be
resumed.
But it is insisted that the action should not have been stayed for the reason that the
petitioners have acquired a lien by attachment, and American authority is cited in
support of this proposition. (Tennessee Producer Marble Co. vs. Grant, 135 Fed., 322.)
But the trouble is that the American doctrine on this point is based precisely upon the
words of the American Bankruptcy Act which provide for a stay of any action founded
upon a claim from which a discharge would be a release; and we are thus conducted
back to the same error which underlies the petitioners' contention upon the point
already discussed. In this jurisdiction it is the provability of the claim that determines
whether the action should be stayed; and it is quite evident that the plaintiffs' claim for
damages is a provable claim notwithstanding the fact that a preliminary attachment has
been sued out in connection with the institution of the action.

It is true that under section 59 and related provisions of the Insolvency Law (Act No.
1956) the plaintiffs have an election to prove their claim in insolvency (in which case the
attachment lien must be surrendered) or to maintain their rights under the attachment,
in which case it is made the duty of the assignee to surrender to them the property
which has been attached.

We are not unmindful of the embarrassment which might result to the plaintiffs if the
court having charge of the insolvency proceeding should adopt a dilatory and
obstructive attitude, but it is not to be assumed that such will be the case. On the
contrary that court, when the matter is properly brought before it, will doubtless see the
necessity of allowing the plaintiffs' action to proceed to judgment, not only for the
purpose of determining whether a lawful claim exists but whether the attachment was
lawfully sued out; for even supposing that the plaintiffs have a just cause of action for
damages, nevertheless if they should fail to sustain the ground of attachment, the
provisional lien would be lost and the attached property would then be available as part
of the general funds of the insolvent for distribution among all its creditors alike.

For the reasons stated, the petition must be denied; and it is so ordered, with costs.

Johnson, Malcolm, Avanceña, Villamor, Ostrand, and Romualdez, JJ., concur.

Separate Opinions

JOHNS, J., concurring:

I concur in the result of denying the writ only.