Title
Chartered Bank of India vs. Imperial
Case
G.R. No. 17222
Decision Date
Mar 15, 1921
PNB sued to recover mortgaged goods; insolvency declared same day. Court upheld PNB's right to proceed independently, dismissing creditors' challenge to attachment during insolvency.
chartered bank of india
imperial
dispute
A

Case Summary (G.R. No. 17222)

Attachment and Subsequent Insolvency Proceedings

On December 7, 1920, the Philippine National Bank brought an action in the Court of First Instance of the City of Manila to compel delivery of the mortgaged goods and to enforce the bank’s secured credit. The bank’s counsel immediately requested, in writing, issuance of a writ ordering the sheriff to seize the goods described in the affidavit attached to the complaint. After the bank posted the required bond, the court issued the order under its seal, and the sheriff seized and took actual possession on December 8, 1920 of the personal property described in the affidavit, stored at the warehouse of Umberto de Poli.
On the same day, December 8, 1920, within the ensuing twenty-four-hour period, 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 seeking the declaration of insolvency of Umberto de Poli under Act No. 1956. De Poli consented to the petition, admitting all allegations and waiving the right to oppose. The court issued an order declaring him insolvent and directing the sheriff to take charge and possession of the debtor’s property, real and personal, along with books, documents, and effects, with custody governed by the law and subject to further orders or appointment of an assignee.
Because the sheriff had already attached the mortgaged goods pursuant to the attachment suit, the court later described the seized goods as being in the sheriff’s possession and custody by virtue of both: first, the seizure order in case No. 19235, and second, the insolvency order in case No. 19240 directing the sheriff to hold the insolvent’s property pending insolvency administration.

Motion to Annul Attachment and Order Denying Relief

The two cases were then being handled by different branches of the Court of First Instance: Pedro Concepcion presided over one branch for case No. 19235, while C. A. Imperial presided over another branch for case No. 19240. On December 9, 1920, the three banks and company moved in case No. 19235 for reconsideration and annulment of the writ of attachment issued at the instance of the Philippine National Bank. They also prayed that further proceedings be suspended pending determination, in the insolvency proceeding, of the debtor’s discharge.
Their grounds were that the goods were then in the sheriff’s custody as provisional assignee of the insolvent’s property; that the complaint indicated probable provability under the Insolvency Law; and that it was not alleged that the goods had been in the plaintiff’s possession, implying—according to their theory—that attempts to take possession under the attachment writ amounted to a confession of the absence of a valid pledge.
By agreement, Hon. C. A. Imperial took cognizance of the motion and denied it on December 16, 1920, directing that the attachment case follow its usual course. The order also instructed the sheriff to dispose of the seized property strictly in accordance with the law governing manual delivery of personal property. It further required that the sheriff deliver the goods seized to the Philippine National Bank within the statutory time—unless the defendants exercised the right conferred by section 267 of Act No. 190 within one day and no third person asserted a claim under section 270. In addition, the same day, the judge issued another order disposing of a petition by Macleod & Co. to enjoin the sheriff from seizing or transferring the goods or from interfering with them until final delivery to the assignee.

Petition for Certiorari and Injunction in the Supreme Court

Having obtained the insolvency order the day prior, on December 17, 1920 the same banking creditors—now petitioners—filed in this Court a petition for certiorari and injunction against Hon. C. A. Imperial and the Philippine National Bank. They alleged that the December 16 order permitting continuation of the attachment suit and directing delivery and disposition of the merchandise and effects seized was beyond the jurisdiction of the insolvency court. They further averred that enforcement would cause irreparable damage to the petitioners and other creditors and that no plain, speedy, and adequate remedy existed.
They prayed, first, for issuance of certiorari to annul the December 16 order; second, for injunction forbidding respondents from carrying on the attachment proceedings, especially levy under the attachment; and third, for a preliminary injunction pending resolution. A preliminary writ of injunction was issued by a justice of this Court after bond was posted, and respondents were summoned to show cause. The Philippine National Bank appeared and asked for dissolution of the preliminary injunction. The case was argued on written submissions and submitted for decision.

Doctrine on Certiorari: Jurisdiction Versus Error of Judgment

The Court reiterated its settled doctrine that a writ of certiorari issues only when it clearly appears that the lower court acted without or in excess of jurisdiction. The Court emphasized that where a court has jurisdiction over the subject matter and the parties, its erroneous or irregular decisions within that jurisdiction cannot be corrected by certiorari; the proper mode is appeal. The opinion invoked prior jurisprudence, including Herrera vs. Barretto and Joaquin (25 Phil., 245), which had discussed remedies and the distinction between jurisdiction and the exercise of jurisdiction. It stressed that “jurisdiction” lies in the power to decide the case, not in the correctness of the decision.

Applying these principles, the Court held that the Court of First Instance of Manila, through Hon. C. A. Imperial, had jurisdiction over both case No. 19235 (attachment and delivery to enforce the mortgage through chattel mortgage law and the provisions on manual delivery of personal property) and case No. 19240 (insolvency). It further held that it was within this jurisdiction for the insolvency-involved judge to act on the motion presented by the creditors themselves, a fact the Court treated as a corroborated acknowledgment of jurisdiction since the creditors had earlier filed the insolvency petition and later invoked the court’s authority in the manner reflected by their motion.

Substantive Issue: Effect of Insolvency on Mortgagee’s Attachment Suit

Petitioners’ core theory was that, upon adjudication of insolvency, all civil proceedings against the insolvent should be stayed, and that the sheriff, under the insolvency law, should take charge of all property and, upon appointment of an assignee, turn it over to the assignee, such that the attachment suit should not proceed to delivery and disposition. The Court recognized general insolvency principles and cited the Insolvency Law’s relevant sections, particularly sections 24, 32, and 60, which petitioners had invoked.

The Court accepted that insolvency administration operated as a “universal” proceeding and that section 24 provided for publication and seizure by the sheriff and stayed pending proceedings upon adjudication. It likewise acknowledged that section 32 provided for conveyance of the insolvent’s property to the assignee and for dissolving attachment within a defined period preceding insolvency, vacating certain judgments, and setting aside executions and default or consent judgments within defined pre-adjudication periods. The Court also recognized section 60 as containing a general rule restricting creditors from prosecuting actions to final judgment after commencement of insolvency until the determination of discharge, subject to staying such suits upon application and to a proviso allowing proceedings to judgment when the amount due is in dispute, while execution remains stayed.

Mortgagee’s Rights as a Recognized Exception and the Role of Sections 29 and 59

The Court then focused on the statutory framework governing creditors who hold mortgages, pledges, liens, or recorded attachments/executions that are not dissolved under the Insolvency Law. It explained that creditors in involuntary insolvency may vote at the election of an assignee after filing a claim (as provided in section 29), but that mortgagees and secured lienholders are restricted from voting in the manner prescribed unless they surrender the secured property or assign the lien, because section 29 and section 59 recognize the creditor’s ability to preserve security without becoming a full participant in insolvency administration.

The Court reasoned that the law “respects” the right of such creditors to refrain from intervening in insolvency proceedings, preserve recorded security, and retain the mortgaged/pledged property, because the assignee and the insolvency court have no power to dispose of such security or dissolve such attachment without the creditor’s voluntary surrender or assignment for the benefit of all creditors. It explained the consequences under section 59: a mortgagee or pledgee who does surrender property may prove only for the unsecured balance after deducting the value of the security as fixed by agreement or by judicial determination; otherwise, the creditor is not allowed to prove any part of the debt. The Court further relied on the last paragraph of section 59, which directs the assignee to deliver the mortgaged property back to the creditor if it was not sold or its value fixed. This, in the Court’s view, demonstrated legislative intent that secured mortgagees are not automatically divested of their real right on the specific property.

Interpreting Section 60 in Harmony With the Entire Insolvency Act

Petitioners pressed the latter portion of section 60 to argue that actions by creditors whose debts are provable cannot proceed to final judgment pending the discharge question. The Court acknowledged the impression supporting petitioners’ view but held that the proper interpretation required harmonizing section 60






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