1. INSOLVENCY; ACTION TO RECOVER DEBT; GENERAL RULE; EXCEPCION. — While the general rule is that all actions pending against a debtor, adjudged insolvent in an insolvency proceeding, must be suspended upon the adjudication of insolvency, yet, to this general rule there is an exception, and that is that the action of a creditor holding a mortgage, pledge or lien, or who has obtained an attachment or execution upon the property mortgaged for the security of his credit, is exempt from the operation of this rule, and the court has no power to suspend said action or dissolve said attachment, unless the creditor voluntarily delivers or assigns said property, security or lien to the sheriff or assignee for the benefit of all the creditors of the insolvent.

2. ID.; UNSECURED CREDITOR. — The provisions of the Insolvency Law (Act No. 1956) relative to suspension of all actions commenced against the insolvent refer to actions brought by unsecured creditors who may prove their debts in the insolvency proceeding, but not to actions instituted by secured creditors who are not allowed to make such proof unless they surrender the property given them as security for the benefit of all the creditors.

3. ID.; SECURED CREDITOR; PROCEEDING FOR MANUAL DELIVERY. — A creditor holding a mortgage on personal property of the debtor, deposited in his warehouse, brings an action to obtain possession of the property mortgaged, which is attached at the instance of said creditor. Then other creditors of the same debtor immediately commence involuntary insolvency proceedings against the debtor and the latter is adjudged insolvent. Held: That the action bought by the mortgage creditor may follow its usual course and the court has no power to suspend said action, nor to interfere in any manner with the property attached at the instance of the creditor holding a special mortgage on said property.

On December 7, 1920, the Philippine National Bank brought suit in the Court of First Instance of the City of Manila against Umberto de Poli, Henry Hunter Bayne, and J. G. Lawrence, to compel the defendants to deliver to it the goods and merchandise described in the mortgage executed on the dates mentioned in the complaint, to secure the payment of the sum of P662,000, plus P4,000 as damages. Immediately after the filing of said complaint, the attorney for the bank asked the clerk of the court, in writing, to issue a writ ordering the sheriff to seize the goods described in the affidavit attached to said complaint, and to that end the plaintiff gave bond in the sum of P1,324,000. Said order having been issued under the seal of the court, the sheriff proceeded on the next day, the 8th, with the seizure and attachment of the personal property, or, to be more exact, of the goods and merchandise described in said affidavit and stored at the time in the warehouse of the defendant Umberto de Poli, of which goods and merchandise the sheriff took actual possession.

On the same day, December 8th, within twenty-four hours after the sheriff had seized and taken possession of said merchandise, the Chartered Bank of India, Australia and China, the Hongkong & Shanghai Banking Corporation and W. F. Stevenson & Co., Ltd., filed a petition in the office of the clerk of the court in which they asked that, after a hearing and the proper legal proceedings, the defendant Umberto de Poli be declared insolvent under the provisions of Act No. 1956. The latter consented to the petition and admitted each and every allegation thereof, waiving his right to be heard and to file any opposition thereto. By virtue of what has just been related, the Court of First Instance issued an order declaring Umberto de Poli to be in a state of insolvency and commanding the sheriff to take charge and possession of all property, real and personal, and of all the effects, books, documents and belongings of the debtor, except those exempt by law from execution, and to keep them in his custody in accordance with law until further orders of the court or until an assignee should be appointed. The sheriff complied therewith, and also took possession of the goods and merchandise which had already been attached by him in the action instituted by the Philippine National Bank against Umberto de Poli. Therefore, as stated by the court in one of its orders, a copy of which appears in the record, the goods and merchandise included in the affidavit attached to the complaint of the Philippine National Bank were in the possession and under the custody of the sheriff of the court, by virtue of said orders which are as follows, to wit, the order of seizure issued by the clerk under the seal of the court by virtue of the petition presented by counsel for the Philippine National Bank, as plaintiff, in case No. 19235, initiated by said complaint, and mortgage creditor of Umberto de Poli, and the order issued by the same court in the insolvency proceedings, case No. 19240, by which the same officer was ordered to take charge of all the property, real and personal, books, and all other personal property of the insolvent, and to keep them in his custody until further orders or until an assignee should be appointed in accordance with the Bankruptcy or Insolvency Law.

The two cases being at this stage, the first of which was taken cognizance of by the Honorable Pedro Concepcion, who presided over one branch of said court, and the second by the Honorable C. A. Imperial, who presided over another branch, the Chartered Bank of India, Australia and China, the Hongkong & Shanghai Banking Corporation, and W. F. Stevenson & Co., Ltd., on December 9 presented a motion in case No. 19235, praying for the reconsideration and annulment of the writ of attachment issued against Umberto de Poli in said case upon the petition of the Philippine National Bank, and that all further proceedings in the case be suspended until a decision should have been rendered by the court as to the discharge of the insolvent debtor according to the procedure established by law, 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; that upon the face of the complaint presented by the Philippine National Bank it was probable that the debt contracted by Umberto de Poli was among those subject to the Insolvency Law; 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 Honorable C. A. Imperial having, by agreement of the parties, taken cognizance of the two cases, passed upon the motion above mentioned presented by the creditors of Umberto de Poli and issued an order, dated the 16th of December, denying the same upon the grounds therein stated, and ordering the sheriff to dispose of the property seized at the instance of the Philippine National Bank, strictly in accordance with the provisions of law relating to manual delivery of personal property; that said case No. 19235, instituted by the Philippine National Bank against U. de Poli Et. Al., should follow its usual course; and finally, that inasmuch as four of the five days mentioned in section 267 of Act No. 190 had already elapsed, the sheriff should deliver to the plaintiff bank the goods seized by him if, within one day, the defendants did not make use of the right given them by said section and no claim was presented by any third person in accordance with section 270 of the same Act. Said judge on the same day entered another order of a like tenor, disposing of a petition presented by Macleod & Co., a registered partnership and unsecured creditor of U. de Poli, in which it prayed for an order enjoining the sheriff from seizing or transferring the goods or merchandise in question, which were then in the warehouse of said De Poli, or any other property belonging to him, or from interfering with them until they should finally be delivered to the assignee in insolvency.

Because of the facts above stated, the Chartered Bank of India, Australia and China, the Hongkong & Shanghai Banking Corporation and W. F. Stevenson & Co., Ltd., upon whose petition Umberto de Poli was declared insolvent in case No. 19240, on the following day, December 17, presented in this court a petition for a writ of certiorari and injunction against the Honorable C. A. Imperial and the Philippine National Bank, wherein the facts above mentioned and other matters in relation thereto were set forth, and it was alleged that the order of the lower court, for the continuation of the proceedings instituted by the Philippine National Bank and the delivery to the latter of the merchandise and effects seized, was beyond the jurisdiction of the court presided over by the respondent judge; that should it be enforced, irreparable damage would result to the petitioners and other creditors of the insolvent, and that the petitioners had no other plain, speedy and adequate remedy. Wherefore they prayed: (a) That a writ of certiorari be issued against the respondent judge and that after proper proceedings the said order of December 16 be annulled; (b) that an injunction be issued forbidding the respondents and each of them to carry on the proceedings in said attachment suit, case No. 19235, especially the levying of the attachment issued therein; and, lastly, that pending said proceedings a preliminary writ of injunction be issued enjoining the enforcement of the writ of attachment and the order already mentioned.

The preliminary writ of injunction applied for was issued by one of the Justices of this court after the filing of a bond, and the respondents were summoned to appear within the time granted them to show cause why the writ of certiorari and injunction applied for should not be granted. The Philippine National Bank appeared, as ordered, and asked that said preliminary writ of injunction be dissolved. The case was then argued and submitted to this court, the parties having filed written arguments in support of their respective contentions.

This court has repeatedly declared that a writ of certiorari will not issue unless it clearly appears that the court against which it is directed has acted without or in excess of its jurisdiction; that if a court has jurisdiction over the subject-matter of the suit and the persons of the parties, the decisions upon all questions relating to the cause are decisions within its jurisdiction and no matter how erroneous and irregular they may be they cannot be corrected by means of certiorari. The decisions of this court are numerous, Herrera v. Barretto and Joaquin (25 Phil., 245), being among them, in which a careful study and discussion of the remedy and the doctrine on certiorari and injunction are made. In said case this court briefly enumerates the cases submitted to and decided by it up to that date, upon petitions of this nature, and it concludes by saying that a complete and detailed examination of all the cases decided by this court on certiorari and injunction fully support the proposition that the decision of a Court of First Instance, which has jurisdiction over the persons of the parties and the subject-matter of the suit, cannot be corrected by means of certiorari, however erroneous it may be, but by appeal. In the same case it was declared that jurisdiction should be distinguished from the exercise of jurisdiction and that the power to decide a case, and not the decision therein rendered, is what constitutes jurisdiction.

It cannot be disputed that the Court of First Instance of Manila, or rather the Honorable Judge C. A. Imperial, who presided over one of the branches of said court, having taken cognizance of case No. 19235, brought by the Philippine National Bank against Umberto de Poli for the recovery of the merchandise which had been mortgaged to it as security for the payment of P662,000 and to enforce payment of said credit in the manner provided by Act No. 1508, on chattel mortgages, in connection with the provisions of sections 262 to 272 of the Code of Civil Procedure, concerning manual delivery of personal property; and said court, having also taken cognizance of case No. 19240, commenced by the herein petitioners for the declaration of insolvency of the same Umberto de Poli, had jurisdiction over the persons and the subject-matter, respectively, of each of said cases. He had full jurisdiction to act upon all the petitions which might be presented in either case, issuing proper order, and this is the more so because the petitioners themselves, the Chartered Bank of India, Australia and China, the Hongkong & Shanghai Banking Corporation, and W. F. Stevenson & Co., Ltd., who were parties to the suit and had instituted the insolvency proceedings against U. de Poli, presented the motion of December 9, 1920, upon which the order of the 16th of the same month was issued, and which order the petitioners themselves now pretend to have been issued by the court without jurisdiction in case No. 19235 brought by the Philippine National Bank against U. de Poli; and the act itself of the petitioners’ making that motion in said case was a clear acknowledgment of the jurisdiction of said court to issue said order.

If the respondent judge had decided said motion of the petitioners in insolvency, as well as that of the other creditor Macleod & Go., in a manner favorable to them, that is, by annulling the writ of attachment issued at the instance of the Philippine National Bank against U. de Poli, and ordering the suspension of the proceedings in case No. 19235, to await the final outcome of the insolvency proceedings No. 19240, in which it had jurisdiction over the persons of the parties and the subject-matter thereof, would said creditors have filed the petition in this court for certiorari and injunction on the ground of lack of jurisdiction of the court? Certainly not. They would have admitted said jurisdiction, because as a matter of fact and according to themselves the court had jurisdiction. Then, as the court must also have had jurisdiction to deny the motion of the creditors, any error that the court might have committed should be corrected not by certiorari and injunction, but by an ordinary appeal.

Nevertheless, the plaintiffs argue that as Umberto de Poli was declared insolvent, and as all civil proceedings against him should have been suspended from the moment of the adjudication of insolvency, and as the sheriff should have taken possession of all the property, credits, and documents of the insolvent, and upon the appointment of an assignee, according to Act No. 1956, turned them over to the latter, the respondent judge, in violation of said law, exceeded his jurisdiction in issuing the order of December 16, 1920, whereby the sheriff of the court was directed to dispose of the property seized at the instance of the Philippine National Bank, in conformity with the provisions of law concerning manual delivery of personal property, and case No. 19235 was allowed to follow its course, in which case said attachment was issued and levied.

As a general rule, proceedings of a universal character, such as bankruptcy and insolvency, and testamentary and intestate proceedings, also include proceedings of a particular nature that are related to the subject-matter thereof. In accordance with this rule, Act No. 1956, that is to say, the Insolvency Law, contains provisions of this character, among which sections 24, 32 and 60 may be mentioned, which are cited by the petitioners.

The first of said sections, namely, 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 and provides that, upon the issuance of such order, all the proceedings pending against the insolvent shall be stayed. Again, 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; and by operation of law shall vest the title to all such property, estate and effects in the assignee, although the same is then attached on mesne process as the property of the debtor, such assignment operating to vest in the assignee all of the estate of the insolvent debtor not exempt by law from execution. The same section 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.

It is also true that section 60 of said Act No. 1956 contains, among others, the provision quoted in the memorandum presented by the petitioners in these proceedings, to wit, 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.

But it is also true that 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 9, chapter 2, of said Act, in regulating the meeting of creditors to be held after the presentation and filing of the debtor’s petition for suspension of payments, provides that creditors holding legal or contractual mortgages may abstain from attending the meeting and from voting therein; and it is further provided that "Such persons shall not be bound by any agreement determined upon at such meeting, but if they should join in the voting they shall be bound in the same manner as are the other creditors." Therefore, it is evident that it is optional with the mortgage creditor of a debtor, who may have applied for suspension of payments, to take part in the respective proceedings; whether he should be bound or not, like the other creditors, by what is agreed upon in the meeting, pending said proceedings, depends absolutely upon him; and, finally, that at this stage of the proceedings, the court cannot suspend the course of the execution issued at the instance of the mortgage creditor against the property of the debtor especially mortgaged by him to secure his debt, although said debtor should so petition the court in the proceeding for suspension of payments.

One of the rights every creditor in involuntary insolvency proceeding has, and which are regulated by chapter 4 of said Act No. 1956, is that of voting at the election of an assignee, after filing his claim in the office of the clerk of the insolvency court at least two days prior to the time appointed for such election (sec. 29). By the exercise of this right, the creditor becomes a party to the involuntary insolvency proceeding. He acquires the right to be represented, with the other creditors in said proceeding, by the assignee elected, who also is the representative of the insolvent debtor and the administrator of the property pertaining to him. Said creditor also acquires the right to collect what the insolvent owes him, after the property of the insolvent is properly classified in accordance with the provisions of the same law.

Now, section 29 of chapter 5, dealing with assignees, provides that "No creditor or claimant who holds any mortgage, pledge, or lien of any kind whatever as security for the payment of his claim or attachment or execution on property of the debtor duly recorded and not dissolved under this Act shall be permitted to vote at the election of the assignee any part of his secured claim unless he shall first have the value of such security fixed as provided in section 59 of this Act, or shall surrender to the sheriff or receiver of the estate of the insolvent, if there be a receiver, all such property, or assign such lien to such sheriff or receiver," and "The surrender or assignment of such security or lien shall be for the benefit of all creditors of the estate of the insolvent."cralaw virtua1aw library

Section 59, chapter 8, of said Act, above cited, which treats of proof of debts, provides as follows:jgc:chanrobles.com.ph

"When a creditor has a mortgage, or pledge of real or personal property of the debtor, or a lien thereon, for securing the payment of a debt owing to him from the debtor, or an attachment or execution on property of the debtor duly recorded and not dissolved under this Act, he shall be admitted as a creditor for the balance of the debt only, after deducting the value of such property, such value to be ascertained by agreement between him and the receiver, if any, and if no receiver, then upon such sum as the court or a judge thereof may decide to be fair and reasonable, before the election of an assignee, or by a sale thereof, to be made in such manner as the court or judge thereof shall direct; or the creditor may release or convey his claim to the receiver, if any, or if no receiver then to the sheriff, before the election of an assignee, or to the assignee if an assignee has been elected, upon such property, and be admitted to prove his whole debt. If the value of the property exceeds the sum for which it is so held as security, the assignee may release to the creditor the debtor’s right of redemption thereon on receiving such excess; or he may sell the property, subject to the claim of the creditor thereon, and in either case the assignee and creditor, respectively, shall execute all deeds and writings necessary or proper to consummate the transaction. 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."cralaw virtua1aw library

It is therefore, clear and evident that the law recognizes and respects the right of a creditor holding a mortgage, pledge or lien of any kind, attachment or execution on the property of the debtor, recorded and not dissolved under said Act, to refrain from voting at the election of an assignee and, consequently, to preserve said right; to refrain from taking part or intervening in the insolvency proceedings, 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 o 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.

If the creditor surrenders his security to the receiver or to the sheriff before the election of the assignee, or to the assignee if one has been elected, he may also be admitted to prove his whole credit with the same effect as if he were one of the creditors and a party to the insolvency proceedings; but even in this case the right which the law grants a creditor under these circumstances on account of the security he has in his favor is of such a nature that if, as stated in section 59, the value of the property assigned or surrendered by him exceeds the amount for which it is held as security, the assignee may release to the creditor the debtor’s right of redemption on receiving such excess, or he may sell the property subject to the claim of the creditor, and in either case the assignee and the creditor, respectively, shall execute the deeds and documents necessary to consummate the transaction.

Therefore, if after payment of the value of the property mortgaged there remains a balance in favor of the debtor adjudged insolvent, said creditor ceases to be a party in the insolvency proceedings after receiving the full payment of his credit and the execution of the necessary documents. This again shows that it was not the intention of the law, and it could not have provided, that a creditor, holding a mortgage, pledge or lien of any kind to secure the payment of his credit or an attachment or execution upon the property of the debtor, duly recorded and not dissolved under the same Act, should be deprived or dispossessed of said property and of the security in his favor, so as to include it, against his will or without any application having been made by him to that effect, in the estate o