TIMOTEO UNSON AND CLARA LACSON DE UNSON, PETITIONERS, VS. HONORABLE QUIRICO ABETO, JUDGE OF FIRST INSTANCE OF SEVENTEENTH JUDICIAL DISTRICT, CENTRAL CAPIZ, AND WALTER A. SMITH, …

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
ever 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
of 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 a 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.

Johns, J., concurring:

I concur in the result of denying the writ only.