IN THE MATTER OF THE INVOLUNTARY INSOLVENCY OF RAFAEL FERNANDEZ. CU UNJIENG E HIJOS, PETITIONER, VS. L. P. MITCHELL, RESPONDENT. DURAN, LIM & TUASON, APPELLANTS.

This is an appeal from an order issued by the Court of First Instance
of Manila adjudging Attorneys Duran, Lim & Tuason, counsel for Cu
Unjieng e Hijos, guilty of contempt of court and imposing upon them a
fine of P100.

While L. P. Mitchell was acting as assignee
for the insolvent estate of Rafael Fernandez pursuant to authority
conferred by the Court of First Instance of Manila and which
accordingly had become the insolvency court, without the permission of
this court Cu Unjieng e Hijos began an action in the Court of First
Instance of Pampanga against the assignee to foreclose a mortgage
executed by the insolvent Fernandez. Simultaneously with the filing of
the complaint, upon an ex parte petition without notice to
the assignee, the Court of First Instance of Pampanga named a receiver
for the property. Thereafter, the presiding judge in Pampanga took no
action disrespectful to the insolvency court, but counsel for Cu
Unjieng e Hijos, although afforded an opportunity to follow the
suggestion of the insolvency court, declined to do so. The order of
contempt followed in due course.

The sole assignment of
error relied upon in this court is predicated on two propositions. The
first is addressed to the observation of the Manila Judge that the
action of the attorneys for Cu Unjieng e Hijos in instituting the
foreclosure suit in the Court of First Instance of Pampanga without
first obtaining the leave of the insolvency court did not constitute
contempt of court. The second proposition is predicated on the argument
that a precedent having been established in what is known as the Teague
case, an attorney who attempts to follow this precedent should not be
charged with contempt of court. Relative to these propositions, we
cannot agree with the trial court as to the first, and as to the second
it can be accepted as disclosing the good faith of the attorneys and as
partially purging their contempt. Considering the unsettled condition
of the jurisprudence on the real issue, we prefer to base our decision
on broader grounds and to decide that issue. The question is, if after
a mortgage debtor has been declared insolvent and the insolvency court
has acquired control of his estate, a separate foreclosure proceeding
may be validly instituted to foreclose the mortgage without the
knowledge and prior consent of the insolvency court. A decision on this
question calls for the reexamination of the applicable decisions of
this court.

The basic decision is found in De Amuzategui vs.
Macleod ([1915], 33 Phil., 80). Therein, the court after quoting
sections 18 and 60 of the Insolvency Law, laid down the following
rules: (1) With the declaration of insolvency the courts in insolvency
acquire jurisdiction over all the property of the insolvent, and of all
claims by and against him, to the exclusion of every other court, and
(2) an action begun in the Court of First Instance by a creditor of the
insolvent either against the insolvent directly or against the assignee
for the recovery of his claim or to compel payment thereof by the
assignee will be dismissed on motion of the assignee, and (the
plaintiff relegated to the insolvency proceedings for his relief. This
doctrine was partially shaken and an exception was attempted to be
engrafted in the case of Chartered Bank of India, Australia and China vs.
Imperial and National Bank ([1921], 48 Phil., 931). However, the
holding of the majority in this case loses force when it is ascertained
that it was a decision of only three members of the court, a fourth
member giving a pro forma concurrence in the result in order
that there might be an early determination of the matter, and the fifth
member dissenting. Thereafter, in Unson and Lacson vs. Abeto
([1924], 47 Phil., 42), it was held in a decision written by Justice
Street, the member of the court who had concurred in the result in the
Chartered Bank of India, Australia and China vs. Imperial and
National Bank case, with the concurrence of six other members, that
upon the making of a declaration of bankruptcy against a corporation a
damage suit pending against it should be stayed upon the application of
the assignee or of any creditor until leave of the court of bankruptcy
is obtained. It was said that this rule is not changed either by the
fact that an attachment has been sued out by the plaintiff in the
action against the corporation or that a cross-complaint has been filed
for it in the cause. This latter observation has particular importance
for it has had the effect of destroying whatever authority remained
from the views expressed in the Chartered Bank of India, Australia and
China vs. Imperial and National Bank case, supra. We have, therefore, to conclude that the decision in the De Amuzategui vs. Macleod case, supra, still speaks with undiminished force, and that the true rule is as therein stated and as confirmed in Unson and Lacson vs. Abeto, supra.

The same doctrine has been upheld by the Supreme Court of the United States in the recent case of Isaacs vs. Hobbs Tie & Timber Co. ([1931], 282 U. S., 734), wherein that court made use of the following language:

“Upon
adjudication (of bankruptcy), title to the bankrupt’s property vests in
the trustee with actual or constructive possession, and is placed in
the custody of the bankruptcy court. (Mueller vs. Nugent, 184
U. S., 1, 14; 46 Law. ed., 405, 411; 22 S. Ct., 269.) The title and
right to possession of all property owned and possessed by the bankrupt
vests in the trustee as of the date of the filing of the petition in
bankruptcy, no matter whether situated within or without the district
in which the court sits. (Robertson vs. Howard, 229 U. S., 254, 259, 260; 57 Law. ed., 1174, 1177; 33 S. Ct., 854; T. E. Wells & Co. vs. Sharp, 125 C. C. A., 609; 208 Fed., 393; Galbraith vs.
Robson-Hilliard Grocery Co., 133 C. C. A., 46; 216 Fed., 842; 32 Am.
Bankr. Rep., 752.) It follows that the bankruptcy court has exclusive
jurisdiction to deal with the property of the bankrupt estate. It may
order a sale of real estate lying outside the district. (Robertson vs. Howard, 229 U. S., 254, 259, 260; 57 Law. ed., 1174, 1177; 33 S. Ct., 854, supra; Re
Wilka [D. C.], 131 Fed., 1004.) When this jurisdiction has attached the
court’s possession cannot be affected by actions brought in other
courts. (White vs. Schloerb, 178 U. S., 542; 44 Law. ed., 1183; 20 S. Ct., 1007; Murphy vs. John Hofman Co., 211 U. S., 562; 53 Law. ed., 327; 29 S. Ct., 154; Dayton vs.
Stanard, 241 U. S., 588; 60 Law. ed., 1190; 36 S. Ct., 695.) This is
but an application of the well recognized rule that when a court of
competent jurisdiction takes possession of property through its
officers, this withdraws the property from the jurisdiction of all
other courts which, though of concurrent jurisdiction, may not disturb
that possession; and that the court originally acquiring jurisdiction
is competent to hear and determine all questions respecting title,
possession and control of the property. (Murphy vs. John Hofman Co., 211 U. S., 562; 53 Law. ed., 327; 29 S. Ct., 154, supra; Wabash R. Co. vs. Adelbert College, 208 U. S., 38; 52 Law. ed., 379; 28 S. Ct., 182; Harkin vs.
Brundage, 276 U. S., 36; 72 Law. ed., 457; 48 S. Ct., 268.) Thus, while
valid liens existing at the time of the commencement of a bankruptcy
proceeding are preserved, it is solely within the power of a court of
bankruptcy to ascertain their validity and amount and (to decree the
method of their liquidation. (Ex parte City Bank, 3 How., 292; 11 Law. ed., 451; Houston vs. City Bank, 6 How., 486; 12 Law. ed., 526; Ray vs. Norseworthy, 23 Wall., 128; 23 Law. ed., 116; Re Wilka [D. C.], 131 Fed., 1004, supra; Nisbet vs.
Federal Title & T. Co., 144 C. C. A., 54; 229 Fed., 644.) The
exercise of this function necessarily forbids interference with it by
foreclosure proceedings in other courts, which save for the bankruptcy
proceeding would be competent to that end.”

In the case of Straton vs. New ([1931], 283 U. S., 318), the Supreme Court of the United States again reaffirmed the principles of the Isaacs vs. Hobbs case, supra, in the following language:

“Though
a lien be not discharged by bankruptcy, its owner may not, without the
bankruptcy court’s permission, institute proceedings in a state court
to enf6rce it, since his so doing might interfere with the orderly
administration of the estate. Thus a mortgagee will be restrained from
instituting or proceeding further in a foreclosure action, begun after
the date of the petition in bankruptcy.”

The precise ground for the lower court’s order is likewise of moment.
The action of counsel in securing the appointment of a receiver in the
Pampanga court had the effect of dispossessing the assignee, an officer
of the insolvency court, from retaining control over the insolvent
estate. As the possession of the assignee is that of the court, any
person who without leave intentionally interferes with such possession
necessarily commits a contempt of court and is liable to punishment
therefor. The principle carries over to the action of an attorney on
whose advice the receiver’s possession is in any way disturbed and
makes the attorney equally guilty of contempt with his client.

Notwithstanding the foregoing pronouncements which are principally
intended to clarify the status of Philippine jurisprudence, we are
inclined to deal leniently with the respondent attorneys. They may have
been misled by the Teague precedent in the lower court. The decision of
this court in Chartered Bank of India, Australia and China vs. Imperial and National Bank, supra,
may have induced them to think that a similar result might be obtained
in this case. We entertain no doubt that the uncertainty regarding the
proper rule having been cleared up, and the attorneys knowing that the
insolvency court has exclusive powers which must be maintained, the
attorneys found in contempt in ignoring the law as interpreted by this
court will be the first to uphold the law. A nominal fine will serve
the purpose of vindicating the authority of the insolvency court and
will not be unfair to the respondent attorneys.

We rule that
after the mortgage debtor has been declared insolvent and the
insolvency court has acquired control of his estate, no separate
foreclosure proceeding may be validly instituted to foreclose the
mortgage without the knowledge and previous consent of the insolvency
court. We further rule that Attorneys Duran, Lim & Tuason were
properly found in technical contempt of court. Giving application to
these two rules, the order of the trial court will be affirmed, except
that the fine imposed will be fixed at P1, without special
pronouncement as to the costs in this instance.

Avanceña, C. J., Villa-Real, Hull, and Imperial, JJ., concur.