Radiola-Toshiba Philippines, Inc. vs. The Intermediate Appellate Court

Under Section 32 of the Insolvency Law, an attachment levied more than one month before the commencement of insolvency proceedings is not dissolved by those proceedings; the insolvency court cannot interfere with the disposition of attached properties that were never placed under its jurisdiction, and its refusal to give due course to a prior attachment and execution sale is grave abuse of discretion amounting to want of jurisdiction, correctable by certiorari.

Radiola-Toshiba Philippines, Inc. was a creditor of Carlos and Teresita Gatmaytan under a final judgment in Civil Case No. 35946, while the Gatmaytans were the subject of an involuntary insolvency proceeding in Special Proceeding No. 1548. Emilio C. Patino was elected assignee-in-insolvency of the Gatmaytans, and Vicente J. Cuna acted as assignee-in-insolvency of Radiola-Toshiba. The governing statute is the Insolvency Law (Act No. 1956, as amended), particularly Sections 32, 70, and 79, which define the effect of insolvency proceedings on prior attachments, judgments, and transfers. The dispute concerns the priority and survival of a pre-existing attachment and execution sale against the insolvent estate.

On March 4, 1980, at 3:00 P.M., a levy on attachment was made in favor of Radiola-Toshiba Philippines, Inc. on two parcels of land registered in the names of spouses Carlos Gatmaytan and Teresita Gatmaytan under TCT Nos. 18905 and 40430 of the Registry of Deeds of Angeles City, per Entry No. 7216. The attachment had been issued by the Court of First Instance of Rizal, Branch II, Pasig, Metro Manila, on February 15, 1980, upon Radiola's application as plaintiff in Civil Case No. 35946, a collection suit for the proceeds of television sets and other appliances, and Radiola posted a bond of P350,000.00.

On July 2, 1980, three creditors filed a petition for involuntary insolvency of the Gatmaytans, docketed as Special Proceeding No. 1548 before the Court of First Instance (now Regional Trial Court) of Pampanga and Angeles City. On July 9, 1980, the insolvency court issued an order taking cognizance of the petition and forbidding payment of any debts, delivery of any property owing and belonging to the debtors, or transfer of any property by or for the debtors, upon petitioners' posting a bond. Counsel for the creditors informed the Sheriff of Angeles City of the order and, on March 26, 1981, communicated with Radiola's counsel that the personal and real property levied upon or attached should be preserved until final determination of the insolvency petition.

On December 10, 1980, the Court of First Instance of Rizal rendered judgment in Civil Case No. 35946 in favor of Radiola, ordering the Gatmaytans and their co-defendant Peoples Appliance Center, Inc. to pay jointly and severally P721,825.91 plus 14% interest per annum from October 12, 1979 until fully paid, P20,000.00 as attorney's fees, and costs. The judgment became final and executory; a writ of execution issued on March 18, 1981; and on May 4, 1981, the Sheriff of Angeles City sold the attached properties at public auction to Radiola as highest bidder, with a certificate of sale issued in its favor. On September 21, 1982, the court ordered consolidation of ownership in Radiola, but the Sheriff of Angeles City refused to issue a final certificate of sale.

On April 12, 1983, the creditors filed a second urgent motion for issuance of an insolvency order and resolution of the case, alleging that in November 1982 they had filed an urgent motion; that on December 2, 1982 they moved to prohibit the city sheriff from disposing the debtors' properties; that on January 18, 1983 a Bulletin Today news item reported Radiola-Toshiba had shut down its factory; and that in March 1983 they investigated the properties and found some had been transferred to Radiola. Radiola opposed the motion on April 15, 1983, particularly the prayer to annotate the insolvency order on transfer certificates of title already issued in its name. On April 22, 1983, judgment was rendered declaring the Gatmaytans insolvent. On April 28, 1983, Radiola filed a supplemental opposition and moved to direct the sheriff to issue a final certificate of sale for the properties covered by TCT Nos. 18905 and 40430 in its favor.

On February 3, 1984, acting on Radiola's motion claiming ownership of certain real properties by virtue of foreclosure proceedings in Civil Case No. 35946, the insolvency court confirmed the election of Emilio C. Patino as assignee, directed him to post a P30,000.00 bond and take his oath, set a creditors' meeting on March 9, 1984, and dissolved the receivership. On May 18, 1984, the Regional Trial Court, Branch CLII, Pasig, Metro Manila, in Civil Case No. 35946, ordered the Sheriff of Angeles City to issue within seven days a final deed of sale over the two parcels covered by TCT Nos. 18905 and 40430 in favor of Radiola. On May 30, 1984, the creditors opposed Radiola's motion as improper and premature, arguing that the properties had been brought to the jurisdiction of the insolvency court for determination of the assets available for distribution and that the insolvency court lacked jurisdiction over matters pending before a coordinate court. On July 13, 1984, the insolvency court denied Radiola's motion dated May 28, 1984 and directed it to participate in the creditors' meeting. The Intermediate Appellate Court found as undisputed that the levy on attachment was made on March 4, 1980, while the insolvency proceeding was commenced on July 2, 1980, more than four months after the attachment.

• Certiorari for Grave Abuse of Discretion: Petitioner argued that certiorari is not limited to errors of jurisdiction; the refusal of the courts to enforce its lien arising from a levy of attachment not made within one month next preceding the commencement of the insolvency proceeding constituted grave abuse of discretion.
• Survival of Prior Attachment: Petitioner contended that because the levy on attachment was made on March 4, 1980, while the insolvency proceeding commenced on July 2, 1980, more than four months later, its lien overrode the insolvency proceeding and was not dissolved under Section 32 of the Insolvency Law.
• No Conflict with Section 79: Petitioner maintained that Section 79, relied upon by private respondents, does not conflict with Section 32; Section 32 sets a cut-off period of one month for attachments and thirty days for judgments, while Section 79 provides for the right of a plaintiff whose attachment is not dissolved before insolvency or is dissolved by undertaking.
• Statutory Construction: Petitioner argued that even if a conflict existed, the statute should be construed to give effect to every part, under the maxim ut magis valeat quam pereat.
• No Fraudulent Transfer: Petitioner argued that the sheriff's sale in execution of the judgment in its favor cannot be considered a fraudulent transfer or preference under Section 70 of the Insolvency Law.
• Lack of Insolvency Court Jurisdiction: Petitioner argued that the properties in question were never placed under the jurisdiction of the insolvency court so as to be made available for payment of claims, and that the denial to give due course to the attachment and execution froze disposition of properties not within that court's jurisdiction.

• Bad Faith and Section 79: Private respondents, relying on Section 79 and the fact that petitioner and its counsel had full knowledge of the insolvency proceedings, argued that the subsequent certificate of sale issued in favor of petitioner over the subject properties was issued in bad faith, in violation of law, and inequitable to the insolvent debtors' creditors; under Section 79, petitioner should not be entitled to transfer of the properties in its name.
• Improper and Premature Motion: The creditors opposed petitioner's motion as improper and premature because it treated matters foreign to the insolvency proceedings.
• Jurisdiction Over Properties: The creditors argued that the properties covered by TCT Nos. 18905 and 40430 were brought to the jurisdiction of the insolvency court for determination of the assets available for distribution to approved credits/liabilities of the insolvents.
• Coordinate Court: The creditors theorized that the insolvency court was devoid of jurisdiction to grant a motion referring to matters involved in a case pending before a coordinate court in another jurisdiction.

• Dissolution of Attachment: Whether the levy on attachment in favor of petitioner is dissolved by the insolvency proceedings against respondent spouses commenced four months after said attachment.
• Certiorari for Errors of Jurisdiction: Whether certiorari is a remedy designated for the correction of errors of jurisdiction only.
• Grave Abuse of Discretion: Whether the refusal of the courts to enforce the lien of petitioner arising from a levy of attachment not made within one month next preceding the commencement of the insolvency proceeding is grave abuse of discretion.
• Jurisdiction Over Attached Properties: Whether the properties covered by TCT Nos. 18905 and 40430 were placed under the jurisdiction of the insolvency court so as to be made available for payment of claims against the Gatmaytans.

• Dissolution of Attachment: No. Section 32 of the Insolvency Law dissolves only attachments levied within one month next preceding the commencement of insolvency proceedings; the levy was made on March 4, 1980, while insolvency commenced on July 2, 1980, more than four months later.
• Certiorari for Errors of Jurisdiction: No. Certiorari is not confined to errors of jurisdiction; grave abuse of discretion amounting to want of jurisdiction is correctable by certiorari.
• Grave Abuse of Discretion: Yes. The denial by the insolvency court to give due course to the attachment and execution in Civil Case No. 35946 constituted grave abuse of discretion amounting to want of jurisdiction.
• Jurisdiction Over Attached Properties: No. The properties were never placed under the jurisdiction of the insolvency court so as to be made available for payment of claims; the insolvency court's denial froze disposition of properties not within its jurisdiction.

• Dissolution of Attachment: Section 32 provides that the assignee's assignment relates back to commencement and vests title to the debtor's estate in the assignee although the property is then attached on mesne process. It also provides that the assignment shall dissolve any attachment levied within one month next preceding the commencement of insolvency proceedings and vacate judgments in actions commenced within thirty days prior. The Intermediate Appellate Court found undisputed that the levy on attachment was made on March 4, 1980 and the insolvency proceeding commenced on July 2, 1980, more than four months later. Because the attachment was outside the one-month cut-off, it was not dissolved and petitioner's lien overrode the insolvency proceeding. Section 79, which private respondents invoked, provides that where an attachment has been made and is not dissolved before commencement of insolvency, or is dissolved by an undertaking, and the claim is proved against the estate, the plaintiff may prove legal costs and disbursements and the amount as a preferred debt. It does not conflict with Section 32. Even if conflict existed, statutory construction requires giving effect to every part of the statute under ut magis valeat quam pereat. The sheriff's sale in execution was not a fraudulent transfer or preference under Section 70; Velayo vs. Shell Co. of the Philippines held that Sections 32 and 70 contemplate only acts and transactions occurring within 30 days prior to commencement of insolvency, and acts outside that period cannot be considered within their operation.
• Certiorari for Errors of Jurisdiction: The denial by the insolvency court to give due course to the attachment and execution in Civil Case No. 35946 constituted a freezing of the disposition of subject properties by the former court, which were not within the insolvency court's jurisdiction. This was grave abuse of discretion amounting to want of jurisdiction, correctable by certiorari. Thus, certiorari was not limited to errors of jurisdiction in the narrow sense.
• Grave Abuse of Discretion: The insolvency court's refusal to enforce petitioner's lien and its denial to give due course to the attachment and execution amounted to grave abuse of discretion. The properties were not within its jurisdiction, and the denial effectively froze their disposition.
• Jurisdiction Over Attached Properties: Petitioner correctly argued that the properties in question were never placed under the jurisdiction of the insolvency court so as to be made available for payment of claims filed against the Gatmaytans in the insolvency proceedings. The insolvency court therefore could not interfere with the disposition of those properties by the court that had issued the attachment and execution.

• Cut-off rule on attachments under Section 32 of the Insolvency Law — Under Section 32, the assignee's assignment relates back to the commencement of insolvency and vests in the assignee all the insolvent's estate, even property then attached on mesne process. However, only attachments levied within one month next preceding the commencement of insolvency proceedings are dissolved; judgments entered in actions commenced within thirty days immediately prior are vacated. Applied: the levy was made on March 4, 1980, while insolvency commenced on July 2, 1980, more than four months later; the attachment survived.
• No conflict between Sections 32 and 79 of the Insolvency Law — Section 32 governs the dissolution of attachments and vacation of judgments within the statutory cut-off periods; Section 79 governs the right of a plaintiff to prove legal costs and disbursements as a preferred debt where an attachment is not dissolved before insolvency or is dissolved by an undertaking. Applied: the provisions operate harmoniously and Section 79 did not defeat petitioner's prior lien.
• Ut magis valeat quam pereat — Where a statute is susceptible of more than one interpretation, courts should adopt a construction that gives effect to every part of the statute and renders its provisions operative and harmonious. Applied: even if Sections 32 and 79 appeared to conflict, they should be construed to give effect to both.
• Grave abuse of discretion amounting to want of jurisdiction correctable by certiorari — A court's denial that freezes the disposition of properties not within its jurisdiction, and interferes with a coordinate court's attachment and execution, is grave abuse of discretion amounting to want of jurisdiction, correctable by certiorari. Applied: the insolvency court's denial was reversed.
• Jurisdictional limitation of insolvency courts over properties not placed under their jurisdiction — Properties not placed under the jurisdiction of the insolvency court cannot be made available for payment of claims in the insolvency proceedings, and the insolvency court cannot interfere with their disposition by another court. Applied: TCT Nos. 18905 and 40430 were never placed under the insolvency court's jurisdiction.
• Fraudulent transfer or preference under Section 70 of the Insolvency Law — Sections 32 and 70 contemplate only acts and transactions occurring within 30 days prior to the commencement of insolvency proceedings; acts outside that period cannot be considered within their operation. Applied: the sheriff's sale in execution in favor of petitioner was not a fraudulent transfer or preference.

• "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 statutory language from Section 32 states the cut-off rule that controlled the case: only attachments levied within one month before insolvency are dissolved.
• "The provision of the above-quoted Section 32, of the Insolvency Law is very clear — that attachments dissolved are those levied within one (1) month next preceding the commencement of the insolvency proceedings and judgments vacated and set aside are judgments entered in any action, including judgment entered by default or consent of the debtor, where the action was filed within thirty (30) days immediately prior to the commencement of the insolvency proceedings." — This passage is the Court's ratio on why petitioner's earlier attachment was not dissolved by the insolvency proceeding.
• "In the case of Velayo vs. Shell Co. of the Philippines (100 Phil. 187, [1956]), this Court ruled that Sections 32 and 70 contemplate only acts and transactions occurring within 30 days prior to the commencement of the proceedings in insolvency and, consequently, all other acts outside of the 30-day period cannot possibly be considered as coming within the orbit of their operation." — This excerpt anchors the Court's holding that the execution sale was not a fraudulent transfer or preference under Section 70.
• "Hence, the denial by respondent insolvency court to give due course to the attachment and execution of Civil Case No. 35946 of the CFI of Rizal constitutes a freezing of the disposition of subject properties by the former which were not within its jurisdiction; undeniably, a grave abuse of discretion amounting to want of jurisdiction, correctable by certiorari." — This is the Court's conclusion on the certiorari and grave abuse of discretion issue.

• Javellana vs. Tayo, 6 SCRA 1042 [1962] — Cited for the rule of statutory construction that where a statute is susceptible of more than one interpretation, the court should adopt a reasonable and beneficial construction that renders its provisions operative and effective and harmonious with each other.
• Velayo vs. Shell Co. of the Philippines, 100 Phil. 187 [1956] — Cited as controlling precedent for the proposition that Sections 32 and 70 of the Insolvency Law contemplate only acts and transactions occurring within 30 days prior to the commencement of insolvency proceedings; acts outside that period cannot be considered within their operation. Applied to hold that the sheriff's sale in execution was not a fraudulent transfer or preference.

• Section 32, Insolvency Law (Act No. 1956, as amended) — Provides that the assignee's assignment relates back to the commencement of insolvency and vests title to the debtor's estate in the assignee although the property is then attached on mesne process; it dissolves any attachment levied within one month next preceding the commencement of insolvency proceedings and vacates judgments entered in actions commenced within thirty days immediately prior. Applied: the attachment was levied more than four months before insolvency, so it was not dissolved.
• Section 79, Insolvency Law (Act No. 1956, as amended) — Provides that when an attachment has been made and is not dissolved before the commencement of insolvency, or is dissolved by an undertaking given by the defendant, and the claim upon which the attachment suit was commenced is proved against the estate, the plaintiff may prove legal costs and disbursements and the amount as a preferred debt. Applied: it did not conflict with Section 32 and did not defeat petitioner's prior lien.
• Section 70, Insolvency Law (Act No. 1956, as amended) — Cited in connection with fraudulent transfers or preferences. Applied: the sheriff's sale in execution of the judgment in petitioner's favor was not a fraudulent transfer or preference because Sections 32 and 70 contemplate only acts and transactions occurring within 30 days prior to the commencement of insolvency proceedings.

Fernan, C.J., Gutierrez, Jr., Feliciano, and Davide, Jr., JJ., concurred.