Case Digest for Chartered Bank of India v CA, Study notes of Law

Download Case Digest for Chartered Bank of India v CA and more Study notes Law in PDF only on Docsity! CHARTERED BANK OF INDIA v. CA. IMPERIAL and PHILIPPINE NATIONAL BANK G.R. No. L-17222, March 15, 1921 Provisos, Exceptions and Saving Clauses ARAULLO, J.: FACTS: The Philippine National Bank filed a petition in the CFI Manila to compel Umberto de Poli et al. to deliver to them the goods and merchandise described in the mortgage and to secure the payment of the sum of P662,000, plus P4,000 as damages. As a result, the sheriff has seized the goods described. Within 24 hours after the sheriff has taken possession of said goods, petitioner bank filed a petition to declare Umberto de Poli insolvent under the provisions of Act No.1956 and was granted. The court ordered the sheriff to take possession of the goods and merchandise which had already been attached by him in the action instituted by the PNB against de Poli. Petitioners pray for the reconsideration and annulment of the writ of attachment issued against de Poli in the petition by PNB. They argue since de Poli was declared insolvent, all civil proceedings against him should have been suspended from the moment of the adjudication of insolvency until a decision to discharge the debtor according to procedure established by law has been rendered. They supported their motion on the grounds that the goods attached were then in the possession of the sheriff of Manila, as provisional assignee of the property of the insolvent; as alleged in the face of the complaint, it was probable that the debt contracted by Umberto de Poli was among those subject to the Insolvency Law (Act 1956); that it was not there alleged that the goods described in said complaint had at any time been in the possession of the plaintiff, and that the attempts made by the latter to take possession of them under the writ of attachment constituted in themselves a confession that no valid contract of pledge of said goods had ever been executed. The presiding judge proceeded with the case and denied the motion. Petitioner filed a writ for certiorari citing that the lower court went beyond their jurisdiction and should the delivery of the merchandise to PNB resume, it would cause irreparable damage to petitioners and other creditors. They invoke the provisions of Act No.1956. Among which are the following: Section 24 prescribes the proceedings to be followed subsequent to the order adjudicating the involuntary insolvency of the debtor, such as the publication thereof and the seizure of all property and belongings of the insolvent by the sheriff. Section 32 states that as soon as an assignee is elected or appointed and has qualified, the clerk of the court shall, by an instrument under his hand and the seal of the court, assign and convey to the assignee all the real and personal property, estate, and effects of the debtor with all his deeds, books, and papers relating thereto, and such assignment shall relate back to the commencement of the proceedings in insolvency and to the acts upon which the adjudication was founded. It further provides that the assignment shall also dissolve any attachment levied within one month next preceding the commencement of the insolvency proceedings, and vacate and set aside any judgment entered in any action commenced within thirty days immediately prior to the commencement of insolvency proceedings, and any execution issued thereon and any judgment entered by default or consent of the debtor within thirty days immediately prior to the commencement of the insolvency proceedings. Section 60 contains that that no creditor whose debt is provable under said Act shall be allowed, after the commencement of insolvency proceedings, 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 disputes the suit, by leave of the court in insolvency, may proceed to judgment for the purpose of ascertaining the amount due, which amount, when determined, may be allowed in the insolvency proceedings, but execution shall be stayed as aforesaid. ISSUES: Should the respondent judge suspend the proceedings on the case filed by PNB until the decision on the case filed for insolvency upon the debtor has been rendered? NO. RULING: Although creditors should be treated equally in the distribution of goods of an insolvent, PNB is a preferred creditor for having a secured holding such as mortgage, lien or pledge. To construe a provision without reference to its first part, would result to an absurd and unreasonable situation where his rights are preserved but he cannot participate in the election of an assignee in an insolvency proceeding, or surrender a property delivered to him as security of said lien for the benefit of all creditors of the insolvent. In the same Act No.1956 there is an exception to said general rule, as well as to the provision therein contained based on said rule, to wit: In the first sections of said Act, contained in chapter 2 thereof, which relate to suspension of payments, it is provided that the course of all executions pending against the debtor shall be suspended before the sale is made thereunder, provided the debtor makes a request therefor to the court in which the proceeding for suspension of payments is pending, unless the execution be against property especially mortgaged (sec. 6) which is exempt from the provisions of said section and, in the concluding part of said section, while it is prohibited for creditors other than those mentioned in section 9 to sue or institute any action for the collection of their debts from the moment that suspension of payments is applied for and while the proceedings are pending, exception is made in favor of those mentioned in said section 9, among whom are the creditors holding legal or contractual mortgages. Section 59, chapter 8, of said Act, above cited, which treats of proof of debts, provides as follows: "When a creditor has a mortgage, XXX.. If the property is not sold or released, and delivered up, or its value fixed, the creditor shall not be allowed to prove any part of his debt, but the assignee shall deliver to the creditor all such property upon which the creditor holds a mortgage, pledge, or lien, or upon which he has an attachment or execution." The law recognizes and respects the right of a creditor holding a mortgage, and to retain the property mortgaged to him and the respective security or lien, the court having no power even if the debtor is adjudged insolvent, to dispose of said property, security or lien and cede or transfer them to the sheriff or assignee by virtue of said adjudication; nor dissolve any attachment levied upon said properties in order to effect said transfer or assignment, as stated in sections 24 and 32 above mentioned, so long as the creditor does not voluntarily deliver or assign said property, security or lien for the benefit of all the creditors of the insolvent. This is because that delivery or assignment converts the mortgagee or pledge or creditor having an attachment levied upon the properties given as security for his credit, — who is allowed to refrain from intervening in the insolvency proceedings and exempted from the effect of the agreement reached therein, — into a party to the insolvency proceedings, but only with respect to the balance of the debt found to be due him after deducting therefrom the proceeds of the sale of said property, or the value fixed in the manner provided in said section 59, in which case, as stated in the last part of section 29, said creditor may prove his claim for any unsecured balance subject to the filing of exceptions as in all other claims.