RADIOLA-TOSHIBA PHILIPPINES INC., THROUGH ITS ASSIGNEE-IN-INSOLVENCY VICENTE J. CUNA, PETITIONER, VS. THE INTERMEDIATE APPELLATE COURT, HON. LEONARDO I. CRUZ, AS JUDGE OF THE RE…

Radiola-Toshiba Philippines versus Intermediate Appellate Court

The Case

This is a petition for certiorari brought by Radiola-Toshiba Philippines, Incorporated, acting through its assignee-in-insolvency, against the Intermediate Appellate Court and the presiding judge of the insolvency court. The petitioner asks the Supreme Court to reverse the appellate court's refusal to compel the insolvency court to give due course to an attachment and execution sale that the petitioner had won in a separate collection suit. The case matters because it fixes the reach of the insolvency assignee's title over attached property, and it teaches the exact cut-off periods that separate a valid attachment from one dissolved by insolvency.

Procedural History

Three creditors filed a petition for the involuntary insolvency of the spouses Carlos Gatmaytan and Teresita Gatmaytan before the Court of First Instance of Pampanga and Angeles City. The insolvency court took cognizance of the petition and forbade the payment of debts and the transfer of the debtors' property. Judgment declaring the spouses insolvent came later, and an assignee was elected and confirmed.

Meanwhile, in a collection suit before the Court of First Instance of Rizal, Branch Two, at Pasig, the petitioner obtained a writ of preliminary attachment over two parcels of land registered in the debtors' names, and after judgment and execution the sheriff sold the properties at public auction to the petitioner as highest bidder. When the insolvency court refused to give effect to that attachment and sale, the petitioner went to the Intermediate Appellate Court on certiorari and mandamus. The appellate court denied the petition in March 1986 and denied reconsideration in July 1986. The petitioner then came to the Supreme Court by petition for certiorari.

Facts

In February 1980, in its collection suit for the proceeds of television sets and other appliances, the petitioner posted an attachment bond and obtained a writ of preliminary attachment. On March 4, 1980, the sheriff levied on the two parcels of land covered by the transfer certificates of title in the names of the Gatmaytan spouses.

On July 2, 1980, more than four months after the levy, three creditors filed the petition for involuntary insolvency against the same spouses. The insolvency court forbade the payment of debts and the transfer of the debtors' property, and counsel for the creditors notified the sheriff and the petitioner's counsel that the levied properties should be preserved until the petition was finally determined. In December 1980, judgment was rendered in the collection suit in the petitioner's favor. The judgment became final, a writ of execution issued, and in May 1981 the sheriff sold the attached properties at auction to the petitioner as highest bidder. In September 1982, the court ordered the consolidation of ownership in the petitioner, but the sheriff refused to issue a final certificate of sale.

In April 1983, the insolvency court declared the spouses insolvent. The petitioner moved for a final certificate of sale, and the creditors opposed, insisting that the properties belonged to the insolvency estate. The insolvency court denied the petitioner's motion and directed it to participate in the creditors' meeting under the assignee. The appellate court upheld that refusal, and the petitioner elevated the matter to the Supreme Court.

Issues

• Whether or not certiorari is a remedy designated for the correction of errors of jurisdiction only.
• Whether or not the refusal of the courts to enforce the petitioner's lien arising from a levy of attachment not made within one month next preceding the commencement of the insolvency proceeding is grave abuse of discretion.
• Whether or not the levy on attachment in favor of the petitioner is dissolved by the insolvency proceedings against the respondent spouses commenced four months after that attachment.

Applicable Provisions

Section 32 of the Insolvency Law provides:

As soon as an assignee is elected or appointed and qualified, the clerk of the court shall, by an instrument under his hand and 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 shall relate back to the acts upon 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 shall operate to vest in the assignee all of the estate of the insolvent debtor not exempt by law from execution. It shall 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 shall set aside any judgment entered by default or consent of the debtor within thirty days immediately prior to the commencement of the insolvency proceedings.

This is the provision that fixes the cut-off: only attachments levied within one month before the insolvency proceeding are dissolved, and the petitioner's levy falls well outside that window.

Section 79 of the same law provides:

When an attachment has been made and is not dissolved before the commencement of proceedings in insolvency, or is dissolved by an undertaking given by the defendant, if the claim upon which the attachment suit was commenced is proved against the estate of the debtor, the plaintiff may prove the legal costs and disbursements of the suit, and of the keeping of the property, and the amount thereof shall be a preferred debt.

The private respondents rely on this provision, but the Court reads it as addressing a different situation and therefore in no conflict with Section 32.

Ruling

On the first issue, the Court did not sustain the narrow view that certiorari corrects only errors of jurisdiction. It held that the insolvency court's refusal to give due course to the attachment and execution amounted to a grave abuse of discretion amounting to want of jurisdiction, which is correctible by certiorari.

On the second and third issues, which the Court treated together as the main issue, it ruled in the petitioner's favor. The levy was made in March 1980; the insolvency proceeding began in July 1980, more than four months later. Section 32 is clear that only attachments levied within one month next preceding the commencement of the insolvency proceeding are dissolved. The Court put the rule this way:

It shall dissolve any attachment levied within one month next preceding the commencement of the insolvency proceedings.

The Court stressed that there is a cut-off period, one month in attachment cases and thirty days in judgments entered in actions commenced prior to the insolvency proceedings. It found no conflict between Section 32 and Section 79, and added that even if a conflict existed, courts should adopt a construction giving effect to every part of the statute, expressed in the maxim ut magis valeat quam pereat, meaning that construction is to be sought which gives effect to the whole statute and its every word.

The Court also held that the sheriff's sale in execution could not be considered a fraudulent transfer or preference under Section 70 of the Insolvency Law, because Sections 32 and 70 contemplate only acts and transactions occurring within thirty days prior to the commencement of the proceedings. Finally, the properties were never placed under the jurisdiction of the insolvency court so as to be made available for the claims against the Gatmaytans; the refusal to honor the attachment and execution was a freezing of property outside that court's jurisdiction.

Doctrine

Under Section 32 of the Insolvency Law, the assignee's title relates back to the commencement of the insolvency proceedings and vests in the assignee all the debtor's property, even property then attached on mesne process. But the assignment dissolves only those attachments levied within one month next preceding the commencement of the insolvency proceedings, and vacates only judgments in actions commenced within thirty days immediately prior. An attachment levied outside those cut-off periods survives the insolvency and is not dissolved. Section 79 does not enlarge that rule; it governs the plaintiff's right to prove costs as a preferred debt where the attachment is not dissolved or is dissolved by an undertaking. Acts and transactions outside the thirty-day period fall outside the operation of Sections 32 and 70. A court that refuses to give effect to such a surviving attachment commits grave abuse of discretion amounting to want of jurisdiction, correctible by certiorari.

Disposition

The Supreme Court reversed and set aside the decision of the Intermediate Appellate Court, gave due course to the attachment and execution sale in the collection suit, and ordered the petitioner's ownership of the two parcels of land consolidated in its name.

Remember This

Memorize the cut-off: an attachment is dissolved by insolvency only if levied within one month next preceding the commencement of the proceedings, and a judgment is vacated only if entered in an action commenced within thirty days immediately prior. Examiners use this case to test the interplay of Sections 32, 70, and 79 of the Insolvency Law, and to test when grave abuse of discretion is correctible by certiorari.