Spec Com - Viii

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INSOLVENCY LAW ACT 1956

ACT NO. 1956AN ACT PROVIDING FOR THE SUSPENSIONOF PAYMENTS, THE RELIEF OF INSOLVENTDEBTORS, THE PROTECTION OF CREDITORS,AND THE PUNISHMENT OF FRAUDULENTDEBTORS

CHAPTER ITITLE AND GENERAL SUBJECT OF THE ACT

SECTION 1. This Act shall be known and may becited as The Insolvency Law, and in accordancewith its provisions every insolvent debtor may bepermitted to suspend payments or be dischargedfrom his debts and liabilities.

CHAPTER IISUSPENSION OF PAYMENTS

SECTION 2. Petition. The debtor who,possessing sufficient property to cover all hisdebts, be it an individual person, be it a sociedador corporation, foresees the impossibility ofmeeting them when they respectively fall due,may petition that he be declared in the state ofsuspension of payments by the court, or the

judge thereof in vacation, of the province or ofthe city in which he has resided for six monthsnext preceding the filing of his petition.

He shall necessarily annex to his petition aschedule and inventory in the form provided insections fifteen, sixteen, and seventeen of thisAct, in addition to the statement of his assets andliabilities and the proposed agreement herequests of his creditors.

SECTION 3. Meeting of Creditors; Injunction. Upon receiving and filing the petition with theschedule and documents mentioned in the nextpreceding section, the court, or the judge thereofin vacation, shall make an order calling a meetingof creditors to take place in not less than twoweeks nor more than eight weeks from the dateof such order. Said order shall designate the day,

hour, and place of meeting of said creditors aswell as a newspaper of general circulationpublished in the province or city in which thepetition is filed, if there be one, and if there benone, in a newspaper which, in the judgment ofthe judge, will best give notice to the creditors ofthe said debtor, and in the newspaper sodesignated said order shall be published as often

as may be prescribed by the court or the judgethereof.

Said order shall further contain an absoluteinjunction forbidding the petitioning debtor fromdisposing in any manner of his property, exceptin so far as concerns the ordinary operations ofcommerce or of industry in which the petitioner isengaged, and, furthermore, from making any

payments outside of the necessary or legitimateexpenses of his business or industry, so long asthe proceedings relative to the suspension ofpayments are pending, and said proceedings forthe purposes of this Act shall be considered tohave been instituted from the date of the filing ofthe petition.

SECTION 4. Publication order; Deposit. A copy ofsaid order shall immediately be published by theclerk of said court, in the newspaper designatedtherein, for the number of times and in the formprescribed by the court or the judge thereof, and

the clerk of said court shall cause a copy of saidorder to be delivered personally or to be sentforthwith by registered mail, postage prepaid, toall creditors named in the schedule. There shallbe deposited in addition to the sum of twenty-four Philippine pesos, which shall be paid to theclerk for the filing and registration of the petition,including all proceedings until the expediente iscompleted, an amount sufficient to defray allexpense of publication ordered by the court,necessary postage, and ten centavos for eachcopy, to be delivered personally or mailed to thecreditors, which last-named sum is hereby

constituted the legal fee of the clerk for thepersonal delivery or mailing required by thissection.

SECTION 5. Creditors cited to appear. Onlycreditors included in the schedule filed by thedebtor shall be cited to appear and take part inthe meeting mentioned in section three, and theyshall be notified upon delivery or transmission tothem of a copy of the order calling the meeting toappear at same with the written evidences oftheir respective claims, without which they shallnot be admitted.

SECTION 6. Pending Execution. If any executionbe pending against the debtor it shall not beconsolidated with this proceeding, but the coursethereof shall be suspended before sale ofproperty is made thereunder, provided the debtormakes a request therefor to the court beforewhich the proceeding for suspension of paymentsis pending, unless the execution be against

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property especially mortgaged which is herebyexempted from the least the provisions of thissection. The suspension ordered by virtue of thissection shall lapse when three months shall havepassed without the proposed agreement beingaccepted by the creditors or as soon as it isdenied. No creditor and the other than thosementioned in section nine shall sue or instituteproceedings to collect his claim from the debtorfrom the moment that suspension of payments isapplied for and while the proceedings arepending.

SECTION 7. Creditors may be represented at themeeting by one or more lawyers or by any personauthorized by power of attorney, which documentshall be presented and be attached to the record.

Persons appearing for more than one creditorshall have only one personal vote, but the claimspresented by them shall be taken intoconsideration for the purpose of arriving at the

majority of the amount represented.

SECTION 8. Creditors necessary to hold ameeting; Meeting; Minutes of the meeting. Thepresence of the creditors representing at leastthree-fifths the liabilities shall be necessary forholding a meeting. The meeting shall be held onthe day and at the hour and place designated,the judge, or commissioner deputized by himwhen he is absent from the province where themeeting is held, acting as president and the clerkas secretary thereof, subject to the followingrules:

(a) The clerk shall prepare for insertion in theminutes of the meeting a statement of thepersons present and their claims; the judge, or, indefault thereof, the commissioner, shall examinethe written evidences of the claims and thepowers of attorney, if any. If the persons presentwho have complied with the foregoing rulesrepresent at least three-fifths of the liabilities, the

judge or commissioner shall declare the meetingopen for business.

(b) The petition of the debtor, the schedule of

debts and of property, the statement of assetsand liabilities, and the proposed agreement filedthere- with shall be read forthwith by the clerk,and the discussion shall be opened.

(c) The debtor may modify his proposition orpropositions in view of the result of the debate, orinsist upon the ones already made, and the judgeor commissioner, without further discussion, shall

clearly and succinctly place these severalpropositions before the meeting for a votethereupon.

(d) The vote shall be taken by a call of names andshall be inserted in and the minutes; a majorityvote shall rule.

(e) To form a majority it is necessary -

1. That two-thirds of the creditors voting uniteupon the same position.

2. That the claims represented by said majorityvote amount to at least three-fifths of the totalliabilities of the debtor mentioned in the petition.

(f) After the result of the voting has beenannounced, all protests made against themajority vote shall be drawn up, and there shallbe inserted therein the proposition orpropositions voted upon, which, after having

been read and approved, shall be signed by thejudge or commissioner together with all personstaking part in the voting; if any such persons shalbe unable to write, any person present shall sign,at their request, and the clerk shall certify to allof the above.

SECTION 9. Persons who may refrain from voting. Persons having claims for personal labor,maintenance, expenses of last illness and funeralof the wife or children of the debtor, incurred inthe sixty days immediately preceding the filing ofthe petition, and persons having legal or

contractual mortgages, may refrain fromattending the meeting and from voting therein.Such persons shall not be bound by anyagreement determined upon at such meeting, butif they should join in the voting they shall bebound in the same manner as are the othercreditors.

SECTION 10. Rejection of agreement. Theproposed agreement shall be deemed rejected ifthe number of creditors required for holding ameeting do not attend thereat, or if the twomajorities mentioned in rule (e) of section eight

are not in favor thereof, even if the negative voteitself does not receive such majorities.

SECTION 11. Termination of proceedings withoutrecourse; Court hearing. If the decision of themeeting be negative as regards the proposedagreement or if no decision is had in default ofsuch number or of such majorities, theproceeding shall be terminated without recourse

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and the parties concerned shall be at liberty toenforce the rights which may correspond to them.If the decision is favorable to the debtor it may beobjected to within ten days following the date ofthe meeting by any creditor who attended themeeting and who dissented from and protestedagainst the vote of the majority. The oppositionor objection to the decision of the majorityfavorable to the debtor shall be proceeded withas in any other incidental motion, the debtor andthe creditors who shall appear declaring theirpurpose to sustain the decision of the meetingbeing the defendants. The court shall hear andpass upon such objection as soon as possible in asummary manner, and in its order, which shall befinal, it shall declare whether or not the decisionof the meeting is valid. In case that the decisionof the meeting is held to be null, the court shalldeclare the proceeding terminated and theparties concerned at liberty to exercise the rightswhich may correspond to them; and in case thedecision of the meeting is declared valid, or whenno opposition or objection to said decision hasbeen presented, the court shall order that theagreement be carried out and the personsconcerned shall be bound by the decision of themeeting. The court may also issue all orderswhich may be proper to enforce the agreementon motion of any of the parties litigant. The orderdirecting the agreement to be made effectiveshall be binding upon all creditors included in theschedule of the debtor who may have beenproperly summoned, but not upon creditorsmentioned in section nine who failed to attendthe meeting or refrained from voting therein, andtheir rights shall not be affected by the

agreement unless they may have expressly orimpliedly consented thereto.

SECTION 12. The causes for which objection maybe made to the decision of the meeting shall be -

(a) Defects in the call for the meeting, in theholding thereof, and in and the deliberations hadthereat which prejudice the rights of thecreditors;

(b) Fraudulent connivance between one or more

creditors and in debtor to vote in favor of theproposed agreement;

(c) Fraudulent conveyance of claims for thepurpose of obtaining a majority.

SECTION 13. Failure of debtor to performagreement. If the debtor fails wholly or in partto perform the agreement decided upon at the

meeting of the creditors, all the rights which thecreditors had against the debtor before theagreement shall revest in them. In such case thedebtor may be made subject to the bankruptcyand insolvency proceedings in the mannerestablished by the following chapters of this Act:

CHAPTER IIIVOLUNTARY INSOLVENCY

SECTION 14.Application. An insolvent debtor,owing debts exceeding in amount the sum of onethousand pesos, may apply to be discharged fromhis debts and liabilities by petition to the Court ofFirst Instance of province or city in which he hasresided for six months next preceding the filing ofsuch petition. In his petition he shall set forth hisof residence, the period of his residence thereinimmediately prior to filing said petition, hisinability to pay all his debts in full, his willingnessto surrender all his property, estate, and effectsnot exempt from execution for the benefit of his

creditors, and an application to be adjudged aninsolvent. He shall annex to his petition aschedule and inventory in the form herein-afterprovided. The filing of such petition shall be anact of insolvency.

SECTION 15. Statement of debts and liabilities. Said schedule must contain a full and truestatement of all his debts and liabilities, togetherwith a list of all those to whom, to the best of hisknowledge and belief, said debts or liabilities aredue, the place of residence of his creditors andthe sum due each the nature of the indebtedness

or liability and whether founded on writtensecurity, obligation, contract or otherwise, thetrue cause and consideration thereof, the timeand place when and where such indebtedness orliability accrued, a declaration of any existingpledge, lien, mortgage, judgment, or othersecurity for the payment of the debt or liability,and an outline of the facts giving rise or whichmight give rise to a cause of action against suchinsolvent debtor.

SECTION 16. Description of real and personalproperty. Said inventory must contain, besides

the creditors, an accurate description of all thereal and personal property, estate, and effects ofthe petitioner, including his homestead, if any,together with a statement of the value of eachitem of said property, estate, and effects and itslocation, and a statement of the incumbrancesthereon. All property exempt by law fromexecution 2 shall be set out in said inventory witha statement of its valuation, location, and the

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incumbrances thereon, if any. The inventory shallcontain an outline of the facts giving rise, orwhich might give rise, to a right of action in favorof the insolvent debtor.

SECTION 17. Verification, form of. The petition,schedule, and inventory must be verified by theaffidavit of the petitioner, annexed thereto, andshall be in form substantially as follows: I,

_______________, do solemnly swear that theschedule and inventory now delivered by mecontain a full, correct, and true discovery of allmy debts and liabilities and of all goods, effects,estate, and property of whatever kind or class tome in any way belonging. The inventory alsocontains a full, true and correct statement of alldebts owing or due to me, or to any person orpersons in trust for me and of all securities andcontracts whereby any money may hereafterbecome due or payable to me or by or throughwhich any benefit or advantage whatever mayaccrue to me or to my use, or to any other person

or persons in trust for me. The schedule containsa clear outline of the facts giving rise, or whichmight give rise, to a cause of action against me,and the inventory contains an outline of the factsgiving rise, or which might give rise, to any causeof action in my favor. I had no lands, money,stock, or estate, reversion, or expectancy, orproperty of any kind, except that set forth in saidinventory. I have no instance created oracknowledged a debt for a greater sum than Ihonestly and truly owe. I have not, directly orindirectly, concealed, fraudulently sold, orotherwise fraudulently disposed of, any part ofmy real or personal property, estate, effects, orrights of action, and I have not in any waycompounded with any of my creditors in order tosecure such creditors, or to receive or to acceptany profit or advantage therefrom, or to defraudor deceive in any manner any creditor to whom Iam indebted. So help me God.

SECTION 18. Order of court declaring petitionerinsolvent; Publication notice. Upon receivingand filing said petition, schedule, and inventory,the court, or the judge thereof in vacation, shallmake an order declaring the petitioner insolvent,

and directing the sheriff of the province or city inwhich the petition is filed to take possession of,and safely keep, until the appointment of areceiver or assignee, all the deeds, vouchers,books of account, papers, notes, bonds, bills, andsecurities of the debtor, and all his real andpersonal property, estate, and effects, exceptsuch as may be by law exempt from execution. 3Said order shall further forbid the payment to the

debtor of any debts due to him and the deliveryto the debtor, or to any person for him, and thetransfer of any property by him, and shall furtherappoint a time and place for a meeting of thecreditors to choose an assignee of the estate.Said order shall designate a newspaper of generacirculation published in the province or city inwhich the petition is filed, if there be one, and ifthere be none, in a newspaper which, in theopinion of the judge, will best give notice to thecreditors of the said insolvent, and in thenewspaper so designated said order shall bepublished 4 as often as may be prescribed by thecourt or the judge The time appointed for theelection of an assignee shall not be less than two,nor more than eight, weeks from the date of theorder of adjudication. Upon the granting of saidorder all civil proceedings pending against saidinsolvent shall be stayed. When a receiver isappointed, or an assignee chosen, as provided inthis Act, the sheriff shall thereupon deliver tosuch receiver or assignee chosen, as provided inthis Act, the sheriff shall thereupon deliver tosuch receiver or assignee, as the case may be, allthe property, assets, and belongings of theinsolvent which have come into his possession,and he shall be allowed and paid ascompensation for his services the same expensesand fees as would by law be collectible if theproperty had been levied upon and safely keptunder attachment.

SECTION 19. Publication of order. A copy of saidorder shall immediately be published by the clerkof said court, in the newspaper designatedtherein, for the number of times and asprescribed by the court or the judge thereof, anda copy of said order shall be delivered personallyor sent by the clerk forthwith by registered mail,postage prepaid, to all creditors named in theschedule. There shall be deposited, in addition totwenty-four pesos, which shall be received by theclerk on commencing such proceedings, a sum ofmoney sufficient to defray the expense of thepublication ordered by the court, necessarypostage, and ten centavos for each copy, to bedelivered personally or mailed to the creditors,which last-named sum is hereby constituted thelegal fee of the clerk for the personal delivery ormailing required by this section.

CHAPTER IVINVOLUNTARY INSOLVENCY

SECTION 20. Petition; Acts of insolvency. Anadjudication of insolvency may be made on thepetition of three or more creditors, residents of

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the Philippine Islands whose credits or demandsaccrued in the Philippine Islands, and the amountof which credits or demands are in the aggregatenot less than one thousand pesos: Provided, Thatnone of said creditors has become a creditor byassignments, however made, within thirty daysprior to the filing of said petition. Such petitionmust be filed in the Court of First Instance of theprovince or city in which the debtor resides or hashis principal place of business, and must beverified by at least three of the petitioners. Thefollowing shall be considered acts of insolvency,and the petition for insolvency shall set forth oneor more of insolvency such acts: (1) That suchperson is about to depart or has departed fromthe Philippine Islands, with intent to defraud hiscreditors; (2) that being absent from thePhilippine Islands, with intent to defraud hiscreditors, he remains absent; (3) that he concealshimself to avoid the service of legal process forpurpose of hindering or delaying or defrauding hiscreditors; (4) that he conceals, or is removing,any of his property to avoid its being attached ortaken on legal process; (5) that he has sufferedhis property to remain under attachment or legalprocess for three days for the purpose ofhindering or delaying or defrauding his creditors;(6) that he has confessed or offered to allow

judgment in favor of any creditor or claimant forthe purpose of hindering or delaying ordefrauding any creditor or claimant; (7) that hehas willfully suffered judgment to be takenagainst him by default for the purpose ofhindering or delaying or defrauding his creditors;(8) that he has suffered or procured his propertyto be taken on legal process with intent to give a

preference to one or more of his creditors andthereby hinder, delay, or defraud any one of hiscreditors; (9) that he has made any assignment,gift, sale, conveyance, or transfer of his estate,property, rights, or credits with intent to delay,defraud, or hinder his creditors; (10) that he has,in contemplation of insolvency, made anypayment, gift, grant, sale conveyance, or transferof his estate, property, rights, or credits; (11) thatbeing a merchant or tradesman he has generallydefaulted in the payment of his currentobligations for a period of thirty days; (12) thatfor a period of thirty days he has failed, after

demand, to pay any moneys deposited with himor received by him in a fiduciary capacity; and(13) that an execution having been issuedagainst him on final judgment for money, he shallhave been found to be without sufficient propertysubject to execution to satisfy the judgment. Thepetitioners may, from time to time, by leave ofthe court, amend and or amendments to relateback to and be received as embraced in the

original petition. The said petition shall beaccompanied by a bond, 6 approved by the court,with at least two sureties, in such penal sum asthe court shall direct, conditioned that if thepetition in insolvency be dismissed by the court,or withdrawn by the petitioner, or if the debtorshall not be declared an insolvent, the petitionerswill pay to the debtor alleged in the petition to beinsolvent all costs, expenses, and damagesoccasioned by the proceedings dent, the ininsolvency, together with a reasonable counselfee to be fixed by the court. The court may, uponmotion, direct the filing of an additional bond,with different sureties, when deemed necessary.

SECTION 21. Order to debtor to show cause. Upon the filing of such creditors petition, thecourt or a judge shall issue an order requiringsuch debtor to show cause, at a time and place tobe fixed by said court or judge, why he should notbe adjudged an insolvent debtor; and at the sametime, or thereafter, upon good cause shown

therefor, said court or judge may make an orderforbidding the payment of any debts, and thedelivery of any the court property belonging tosuch debtor to him or to any other person for hisbenefit or the transfer of any property by him.

SECTION 22. Copies served on debtor. A copy ofsaid petition, with a copy of the order to showshall be served on the debtor, in the samemanner as is provided by law for the service ofsummons in civil actions, but such shall be madeat least five days before the time fixed for thehearing: Provided, That if, for any reason, the

service is not made, the order may be renewed,and the time and place of hearing changed bysupplemental order of the court. Whenever thedebtor on whom service is to be made resides outof the Philippine Islands; or has departed from thePhilippine Islands; or can not, after due diligence,be found within the Philippine Islands; or concealshimself to avoid the service of the order to showcause, or any other process or orders in thematter; or is a foreign corporation having nomanaging or business agent, cashier, or secretarywithin the Philippine Islands upon whom servicecan be made, and such facts are shown to the

court or a judge thereof, shall make an order thatthe service of such order, or other process, bemade by publication, in the same manner, andwith the same effect, as service of summons bypublication in ordinary civil actions.

SECTION 23.Answer to petition. At the timefixed for the hearing of said order to show cause,or at another time to which such hearing may be

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adjourned, the debtor must answer the petition,or may demur for the same causes as areprovided for demurrer in other cases by the Codeof Civil Procedure. If he demur and the demurrerbe overruled, the debtor shall immediatelyanswer the petition. Such answer shall contain aspecific denial of the material allegations of thepetition controverter by him, and shall be swornto; and the issues raised thereon shall bepromptly tried and disposed of. If, upon such trial,the issues are found in favor of the respondent,the proceedings shall be dismissed, and therespondent shall be allowed all costs, counselfees, expenses, and damages sustained byreason of the proceedings therein. Counsel fees,costs, expenses, and damages shall be fixed andallowed by the court.

SECTION 24. Default; Payments to debtor. If therespondent shall make default, or if, after trial,the issues are found in favor of the petitioners,the court shall make an order adjudging that said

respondent is and was, at the time of filing thepetition, an insolvent debtor and that the debtorwas guilty of the acts and things charged in thepetition, or such of them as the court may find tobe true; and shall require said debtor, within suchtime as the court may designate, not to exceedthree days, to file in court the schedule andinventory provided for in sections fifteen andsixteen of this Act, duly verified as required of apetitioning debtor: 10 Provided, That in theaffidavit of the insolvent, touching his propertyand its disposition, he shall not be required toswear that he has not made any fraudulentpreference or committed any other act in conflictwith the provisions of this Act; but he may do so ifhe desires. Said order shall further direct thesheriff of the province or city where theinsolvency petition is filed, or the receiver, if onehas been theretofore appointed, to takepossession of and safely keep, until theappointment of an assignee, all the deeds,vouchers, books of account, papers, notes, bills,bonds and securities of the debtor, and all hisreal and personal property, estate and effects,except such as may be by law exempt fromexecution. 11 Said order shall further forbid thepayment to the debtor of any debts due to him,and the delivery to the debtor, or to any personfor him, of any property belonging to him, andthe transfer of any property by him, and shallfurther appoint a time and place for a meeting ofthe creditors to choose an assignee of the estate.Said order shall designate a newspaper of generalcirculation published in the province or city inwhich the petition is filed, if there be one, and ifthere be none, in a newspaper which, in the

opinion of the judge, will best give notice to thecreditors of the said insolvent, and in thenewspaper so designated said order shall bepublished 12 as often as may be prescribed bythe court or the judge thereof. The timeappointed for the election of an assignee shall notbe less than two nor more than eight weeks fromthe date of the order of adjudication. Upon thegranting of said order, all civil proceedingspending against the said insolvent shall bestayed. When an assignee is chosen as providedin this Act, the sheriff or receiver, if there be one,shall thereupon deliver to such assignee all theproperty, estate, and belongings of the insolvent,which have come into his possession, and heshall be allowed and paid as compensation for hisservices the same expenses and fees as would bylaw be collectible if the property had been leviedupon and safely kept under attachment.

SECTION 25. Publication and service of order. Acopy of the order provided for in the last

preceding section of this Act shall immediately bepublished by the clerk of said court in thenewspaper designated therein for the number oftimes and as prescribed by the court or the judgethereof, and upon the filing, at any time beforethe date set for such meeting, of the schedulerequired by said last preceding section, a copy ofsaid order shall be delivered personally or sent bythe clerk forthwith by registered mail, postageprepaid, to all creditors named in said schedule. Ifsaid schedule is not filed prior to the day fixed forthe election of an assignee, publication of saidorder as herein required shall be of itselfsufficient notice to the creditors of the time andplace appointed for the election of an assignee.No order of adjudication upon creditors petitionshall be entered unless there be first deposited,in addition to the cost of commencing saidproceedings, a sum of money sufficient to defraythe expense of the publication ordered by thecourt, necessary postage, and ten centavos foreach copy to be delivered personally or mailed tothe creditors, which last-named sum is herebyconstituted the legal fee of the clerk for thepersonal delivery or mailing required by thissection.

SECTION 26.Absentee debtors; Sheriff to takepossession. In all cases where the debtorresides out of the Philippine Islands; or hasdeparted from the Philippine Islands; or can not,after due diligence, be found within the PhilippineIslands; or conceals himself to avoid service ofthe order to show cause, or any other preliminaryprocess or orders in the matter; or is a foreign

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corporation having no managing or businessagent, cashier, or secretary within the PhilippineIslands upon whom service or orders and processcan be made, and it therefore becomesnecessary to obtain service of process and orderto show cause, as provided in section twenty-twoof this Act, then the petitioning creditors, uponsubmitting the affidavits requisite to procure anorder of publication, and presenting a bond indouble the amount of the aggregate sum of theirclaims against the debtor, shall be entitled to anorder of the court directing the sheriff of theprovince or city in which the matter is pending totake into his custody a sufficient amount ofproperty of the debtor to satisfy the demands ofthe petitioning creditors and the costs of theproceedings. Upon receiving such order of thecourt to take into custody property of the debtor,it shall be the duty of the sheriff to takepossession of the property and effects of thedebtor, not exempt from execution, 13 to anextent sufficient to cover the amount providedfor, and to prepare, within three days from thetime of taking such possession, a completeinventory of all the property so taken, and toreturn it to the court as soon as completed. Thetime for taking the inventory and making returnthereof may be extended for good cause shownto the court or a judge thereof. The sheriff shallalso prepare a schedule of the names andresidences of the creditors, and the amount dueeach, from the books of the debtor, or from suchother papers or data of the debtor available asmay come to his possession, and shall file suchschedule list of creditors and inventory with theclerk of the court.

SECTION 27.All property taken to be held for allcreditors; Appeal bonds; Exceptions to sureties. In all cases where property is taken into custodyby the sheriff, as provided in the precedingsection, if it does not embrace all the propertyand effects of the debtor not exempt fromexecution, any other creditor or creditors of thedebtor, upon giving bond to be approved by thecourt in double the amount of their claims, singlyor jointly, shall be entitled to similar orders, andto like action, by the sheriff, until all claims beprovided for, if there be sufficient property oreffects. All property taken into custody by thesheriff by virtue of the giving of any such bondsshall be held by him for the benefit of all creditorsof the debtor whose claims shall be duly proved,and as provided, in this Act. The bonds providedfor in this and the preceding section to procurethe order for custody of the property and effectsof the debtor, shall be conditioned that if, uponfinal hearing of the petition in insolvency, the

court shall find in favor of the petitioners, suchbonds and all of them shall be void; if thedecision be in favor of the debtor, theproceedings shall be dismissed, and the debtor,his heirs, administrators, executors, or assigns,shall be entitled to recover such sum of money asshall be sufficient to cover the damagessustained by him, not to exceed the amount ofthe respective bonds. Such damages shall befixed and allowed by the court. If either thepetitioners or the debtor shall appeal from thedecision of the court, upon final hearing of thepetition the appellant shall be required to givebond to the successful party in a sum double theamount of the value of the property incontroversy, and for the costs of the proceedings.Such bond shall be approved by the court.

Any person interested in the estate may exceptto the sufficiency of the sureties on such bond orbonds. When excepted to, the petitionerssureties, upon notice to the person excepting of

not less than two nor more than five days, mustjustify as to their sufficiency; and upon failure tojustify, or if others in their place fail to justify atthe time and place appointed, the judge shallissue an order vacating the order to take theproperty of the debtor into the custody of thesheriff, or denying the appeal, as the case maybe.

SECTION 28. Sale under execution. If, in anycase, proper affidavits and bonds are presentedto the court or a judge thereof, asking for andobtaining an order of publication and an order for

the custody of the property of the debtor, asprovided in sections twenty-six and twenty-sevenof this Act, and thereafter the petitioners shallmake it appear satisfactorily to the court or a

judge thereof that the interest of the parties tothe proceedings will be subserved by a salethereof, the court may order such property to besold in the same manner as property is soldunder execution, 15 the proceeds to be depositedin the court to abide the result of theproceedings.

CHAPTER V

ASSIGNEES

SECTION 29. Election; Creditors holding security. No creditor shall be entitled to vote for theelection of an assignee unless he shall have filedhis claim in the office of the clerk of the court inwhich the proceedings are pending at least twodays prior to the time appointed for suchelection. All claims shall contain a statement

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showing the amount and nature of the claim andsecurity, if any. The claim shall be verified by theclaimant, or his duly authorized agent orattorney. No claim barred by the statute oflimitations 16 shall be proved or allowed againstthe estate of an insolvent debtor for any purpose.Any person interested in the estate of theinsolvent may file exceptions to the legality ofgood faith of any claim, by setting forthspecifically in writing his interest in the estate,and the grounds of his objection to such claim.Such exceptions shall be verified by the affidavitof the party objecting, or his duly authorizedagent or attorney, and the affidavit shall set outthat such exceptions are not made for thepurpose of delay and are made in good faith inthe best interests of said estate. Exceptions toany claim must be filed with the clerk of the courtat least one day before the time appointed for theelection of an assignee, and such exceptions shallbe heard and disposed of by the court, onaffidavit or other evidence, in a summarymanner, before the election of an assignee. Nocreditor or claimant who holds any mortgage,pledge, or lien of any kind whatever as securityfor the payment of his claim or attachment orexecution on property of the debtor dulyrecorded and not dissolved under this Act shall bepermitted to vote at the election of the assigneeany part of his secured claim unless he shall firsthave the value of such security fixed as providedsection fifty-nine of this Act, or shall surrender tothe sheriff or receiver of the estate of theinsolvent, if there be a receiver, all such property,or assign such lien to such sheriff or receiver. Thesurrender or assignment of such security or lien

shall be for the benefit of all creditors of theestate of the insolvent. The value of suchsecurity, if fixed by the court, shall be so fixed atleast one day before the day appointed for theelection of an assignee, in which event theclaimant may prove his demand as provided inthis section for any unsecured balance, subject tothe filing of exceptions as in all other claims.

SECTION 30. Election of assignee in open court. At a meeting of the creditors in open court or, ifthe court is not in session, in the presence of the

judge or the clerk of the court, those beingentitled to vote, as provided by section twenty-nine, shall proceed to the election of an assignee.

The majority of the creditors who have proventheir claims, such majority being both in numberand amount, must concur for the election of anassignee. The clerk of the court shall keep aminute of the deliberations of said creditors, andof the election and appointment of the assignee,and enter the same upon the records of the

court, and, in the absence of the judge, shall senda copy of such record to him at the place wherehe may be found. The assignee shall file, withinfive days, unless the time be extended by thecourt, with the clerk, a bond, in an amount to befixed by the court, to the Government of thePhilippine Islands, with two or more sufficientsureties, approved by the court, and conditionedupon the faithful performance of the dutiesdevolving upon him. The bond shall not be voidupon the first recovery, but may be sued uponfrom time to time by any person aggrieved, in hisown name, until the whole penalty be exhausted.

The sureties on such bond may be required tojustify as to their sufficiency upon the applicationof any party interested.

SECTION 31.Appointment of assignee by court. If, on the day appointed for the meeting, creditorsdo not attend, or fail or refuse to elect anassignee, or if, after election, the assignee shallfail to qualify within the proper time, or if a

vacancy occurs by death or otherwise, the courtshall appoint an assignee and fix the amount ofhis bond.

SECTION 32. Transfer of property to assignee. As soon as an assignee is elected or appointedand qualified, the clerk of the court shall, by aninstrument under his hand and seal of the court,assign and convey to the assignee all the realand personal property, estate, and effects of thedebtor with all his deeds, books, and papersrelating thereto, and such assignment shall relateback to the commencement of the proceedings in

insolvency, and shall relate back to the acts uponwhich the adjudication was founded, and byoperation of law shall vest the title to all suchproperty, estate, and effects in the assignee,although the same is then attached on mesneprocess, as the property of the debtor. Suchassignment shall operate to vest in the assigneeall of the estate of the insolvent debtor notexempt by law from execution. 17 It shall alsodissolve any attachment levied within one monthnext preceding the commencement of theinsolvency proceedings and vacate and set asideany judgment entered in any action commenced

within thirty days immediately prior to thecommencement of insolvency proceedings andshall vacate and set aside any execution issuedthereon and shall vacate and set aside any

judgment entered by default or consent of thedebtor within thirty days immediately prior to thecommencement of the insolvency proceedings.

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SECTION 33. Recovery and action of assignee. The assignee shall have the right to recover allthe state debts, and effects of said insolvent. If,at the time of the commencement of proceedingsin insolvency, an action is pending in the name ofthe debtor, for the recovery of a debtor otherthing which might or ought to pass to theassignee by the assignment, the assignee shallbe allowed and admitted to prosecute the action,in like manner and with like effect as if it hadbeen originally commenced by him. If there areany rights of action in favor of the insolvent fordamages, on any account, for which an action isnot pending, the assignee shall have the right toprosecute the same with the same effect as theinsolvent might have done himself if noproceedings in insolvency had been instituted. Ifany action or proceeding in which the insolvent isdefendant is pending at the time of theadjudication, the assignee may defend the samein the same manner and with like effect as itmight have been defended by the insolvent. In asuit prosecuted or defended by the assignee, acertified copy of the assignment made to himshall be conclusive evidence of his authority tosue or defend.

SECTION 34. Registration of assignment toassignee. The assignee shall, within one monthafter the making of the assignment to him, causethe same to be recorded in every province or citywithin the Philippine Islands where any realestate owned by the debtor is situated, and therecord of such assignment, or a duly certifiedcopy thereof, shall be conclusive evidencethereof in all courts. If the schedule and inventoryrequired by this Act have not been filed by thedebtor the assignee shall, within one month afterhis election, prepare and file such schedule andinventory from the best information he canobtain, and shall thereupon personally delivernotice or send same by registered mail, postageprepaid, to all creditors named in such schedule,whose claims have not been filed, to forthwithprove their demands.

SECTION 35. Resignation of assignee. Anyassignee may at any time, by writing filed in

court, resign his appointment, having first settledhis accounts and delivered up all the deeds,vouchers, books of account, notes, bills, bonds,and securities of the debtor and all his real andpersonal property, estate, and effects to suchsuccessor as the court shall appoint: Provided,

That if, in the discretion of the court, thecircumstances of the case require it, upon goodcause being shown, the court may, at any time

before such settlement of account and delivery ofthe estate shall have been completed, revoke theappointment of such assignee and appointanother in his stead. The liability of the outgoingassignee, or of the sureties on his bond, shall notbe in any manner discharged, released, oraffected by such appointment of another in hisstead.

SECTION 36. The said assignee shall have power:

1. To sue and recover all the estate, assets,debts, and claims, belonging to or due to suchdebtor; and no set-off or counterclaim shall beallowed in any such for debts contracted by theinsolvent within thirty days immediatelypreceding the filing of the petition of insolvencyexcept in case of creditors specified in sectionfifty of this Act.

2. To take in to his possession all the estate ofsuch debtor except property exempt by law from

execution, 18 whether attached or delivered tohim, or afterwards discovered, and all books,vouchers, evidence of indebtedness, andsecurities belonging to the same.

3. In case of a nonresident or absconding orconcealed debtor, to demand and receive ofevery sheriff who shall have attached any of theproperty of such debtor, or who shall have in hispossession any moneys arising from the sale ofsuch property, all such property and moneys, onpaying him his lawful costs and charges forattaching and keeping the same.

4. From time to time to sell at public auction afteradvertisement in the manner provided bysubsections (1), (2), and (3) of section fourhundred and fifty-four of the Code of CivilProcedure, 19 upon order of the court, any of theestate, real and personal, which has come intohis possession, and which is vested in him assuch assignee, and on such sales to execute thenecessary conveyances and bills of sale.

5. To redeem all valid mortgages and conditionalcontracts, and all valid pledges of personalproperty, and to satisfy any judgments whichmay be an incumbrance on any property sold byhim; or to sell such property, subject to suchmortgage, contracts, pledges, judgments, orliens.

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6. To settle all matters and accounts betweensuch debtor and his creditors subject to theapproval of the court.

7. Under the order of the court or judgeappointing him, to compound with any personindebted to such debtor, and thereupondischarge all demands against such person.

8. To recover from any person receiving aconveyance, gift transfer, payment, orassignment, made contrary to any provision ofthis Act, the property thereby transferred orassigned; or in case a redelivery of the propertycan not be had, to recover the value thereof withdamages for the detention.

SECTION 37. Embezzlement, etc. If any person,before the assignment is made, having notice ofthe commencement of the proceedings ininsolvency, or having reason to believe thatinsolvency proceedings are about to be

commenced, embezzles or disposes of any of themoneys, goods, chattels, or effects of theinsolvent, he is chargeable therewith, and liableto an action by the assignee for double the valueof the property so embezzled or disposed of, tobe recovered for the benefit of the insolventsestate.

SECTION 38. Penalties and forfeitures. Thesame penalties, forfeitures, and proceedings bycitation, examination, and commitment shallapply on behalf of an assignee against personssuspected of having concealed, embezzled,

conveyed away, or disposed of any property ofthe debtor, or of having possession or knowledgeof any deeds, conveyances, bonds, contracts, orother writings which relate to any interest of thedebtor in any real or personal estate as providedin the case of estates of deceased persons insections seven hundred and nine to sevenhundred and thirteen, inclusive, of the Code ofCivil Procedure.

SECTION 39. Conversion of property into money. The assignee shall as speedily as possibleconvert the estate, real and personal, into

money. He shall keep a regular account of allmoneys received by him as assignee, to whichevery creditor or other person interested thereinmay, at all reasonable times, have access. Noprivate sale of any property of the estate of aninsolvent debtor shall be valid unless made underthe order of the court, upon a petition in writing,which shall set forth the facts showing the sale tobe necessary. Upon filing the petition, notice of

the hearing thereof of at least ten days shall begiven by publication and mailing, in the samemanner as is provided in section nineteen of thisAct. If it appears that a private sale is for the bestinterests of the estate, the court shall order it tobe made.

SECTION 40. Perishable property. In all caseswhen it appears to the satisfaction of the court

that the estate of the debtor, or any part thereof,is of a perishable nature, or is liable to deterioratein value, or is disproportionately expensive tokeep, and that the insolvents estate will suffer ifsufficient time elapses for the giving of notice,the court may order the same to be sold in suchmanner and at such time as may be deemedmost expedient, under the direction of the sheriffreceiver, or assignee, as the case may be, whoshall hold the funds received in place of theproperty sold until further order of the court.

SECTION 41. Outstanding debts, etc. due estate.

Outstanding debts, or other property due orbelonging to the estate, which can not becollected and received by the assignee withoutunreasonable or inconvenient delay or expense,may be sold and assigned in like manner as theremainder of the estate. If there are any rights ofaction for damages in favor of the insolvent priorto the commencement of the insolvencyproceedings, the same may, with the approval ofthe court, be compromised.

SECTION 42. Expenses and commissions; Divisionof compensation. Assignees shall be allowed all

necessary expenses in the care, management,and settlement of the estate, and shall beentitled to charge and receive for their servicescommissions upon all sums of money coming totheir hands and accounted for by them, asfollows: For the first thousand pesos, at the rateof seven per centum; for all above that sum andnot exceeding ten thousand pesos, at the rate offive per centum; and for all above that sum, atthe rate of four per centum: Provided, however,

That if the person acting as assignee was receiverof the property of the estate pending the electionof an assignee, any compensation allowed him as

such receiver shall be deducted from thecompensation to which he otherwise would beentitled as such assignee:And provided further,further That if there should be two or moreassignees the court shall order an equitabledivision of the compensation herein provided,and if for any reason an assignees term iscompleted before the final settlement of theestate and a successor is appointed the court

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shall not allow to any such assignee prior to thesettlement of the estate an amount exceedingfour per centum of the sums of money cominginto his hands. Upon the final settlement of theestate an equitable distribution of thecompensation of the assignees shall be made.

SECTION 43. Filing of accounts with vouchers,statements, etc.; Decisions of court upon claims;

Additional accounts. At the expiration of threemonths from the appointment of the assignee inany case, or as much earlier as the court maydirect, a time and place shall be fixed by thecourt at which the assignee shall file just and trueaccounts of all his receipts and payments withproper vouchers, verified by his oath and astatement of the property outstanding, specifyingthe causes of its outstanding, also what debts orclaims are yet undetermined, and stating whatsum remains in his possession, and shallaccompany the same with an affidavit that noticeby registered mail has been given to all creditors

named in the schedule filed by the debtor or theassignee that said accounts will be heard at atime specified in such notice, which time shall notbe less than two nor more than eight weeks fromthe filing of such accounts. At the hearing thecourt shall audit the accounts of the assignee,and any person interested may appear and fileexceptions thereto and contest the same. Thecourt shall thereupon confirm said accounts ifthey shall be found to be correct, or order thesame corrected if errors shall be found therein.

The court shall also, in such hearing, determinethe property which must be deducted from theestate as anothers, under the provisions ofsection forty-eight of this Act, and the right of theclaimants to participate in the dividend, and mayorder a dividend paid to those creditors whoseclaims have been proven and allowed. Thedecision of the court theretofore rendered as towhether any claimant was entitled to vote for anassignee shall not be conclusive upon the right ofthe claimant to share in such dividend; but allclaimants who were so allowed to vote shallparticipate in such dividend unless objectionswere filed to the same prior to such hearing. Ifany such objections have been filed against anyclaim, or if any claimant was refused the right tovote, the court shall determine said objectionsand the rights of all such claimants in suchhearing and refuse or allow the same before thedeclaration of a dividend. Thereafter, furtheraccounts, statements, and dividends shall bemade in like manner as often as occasionrequires: Provided, however, That it shall be theduty of the assignee to file his final accountwithin one year from the date of the order of

adjudication, unless the court, after notice tocreditors, shall grant further time, upon asatisfactory showing that great loss and wastewould result to the estate by reason of theconversion of the property into money within saidtime, or that it has been impossible to do so byreason of litigation.

SECTION 44. Motion to require accounts, filing of.

The court may at any time, upon the motion ofany two or more creditors, require the assigneeto file his account in the manner and upon givingthe notice specified in the preceding section, andif he has funds subject to distribution he may berequired to distribute them without delay.

SECTION 45. Rights of creditors late in provingclaims. Whenever any dividend has been dulydeclared, the distribution of it shall not be stayedor affected by reason of debts beingsubsequently proved, but any creditor provingsuch a debt shall be entitled to a dividend equal

to those already received by the other creditorsbefore any further dividend is made to the latter,if the failure to prove such claim shall not haveresulted from his own neglect.

SECTION 46. Failure, neglect or refusal byassignee. Should the assignee refuse or neglectto render his accounts as required by sectionsforty-three and forty-four of this Act, or refuse orneglect to pay over a dividend when he shallhave, in the opinion of the court, sufficient fundsfor that purpose, or shall neglect or mismanagethe estate in any manner whatever or violate any

of the provisions of this Act, the court shallimmediately discharge such assignee from histrust, and shall appoint another in his place. Theassignee so discharged shall forthwith deliverover to the assignee appointed by the court allthe funds, property, books, vouchers, orsecurities belonging to the insolvent, and he shallnot be entitled for his services to thecompensation provided in section forty-two.

SECTION 47. Final account. Preparatory to thesettlement of the estate, the assignee shall filehis final account in the court, accompanying the

same with an affidavit that a notice by registeredmail has been given to all creditors who haveproved their claims, that he will apply for asettlement of his account and for a dischargefrom all liability as assignee at a time specified insuch notice, which time shall not be less than twonor more than eight weeks from such filing. Atthe hearing the court shall audit the account, andany person interested may appear and file

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exceptions in writing and contest the same. Thecourt thereupon shall settle the account, andorder a dividend of any portion of the estate, ifany, remaining undistributed, and shall dischargethe assignee, subject to compliance with theorder of the court, from all liability as assignee toany creditor of the insolvent.

CHAPTER VI

CLASSIFICATION AND PREFERENCE OFCREDITORS

SECTION 48. Property not belonging to insolvent;Dowry; Paraphernalia property. Merchandise,effects, and any other kind of property foundamong the property of the insolvent, theownership of which has not been conveyed tohim by a legal and irrevocable title, shall beconsidered to be the property of other personsand shall be placed at the disposal of its lawfulowners on order of the court made at the hearingmentioned in section forty-three or at any

ordinary hearing, if the assignee or any creditorwhose right in the estate of the insolvent hasbeen established shall petition in writing for suchhearing and the court in its discretion shall soorder, the creditors, however, retaining suchrights in said property as belong to the insolvent,and subrogating him whenever they shall havecomplied with all obligations concerning saidproperty.

The following shall be included in this section:

1. Dowry property inestimado and such property

estimado which may remain in the possession ofthe husband where the receipt thereof is a matterof record in a public instrument registered underthe provisions of sections twenty-one and twenty-seven of the Code of Commerce in force.

2. Paraphernalia property which the wife mayhave acquired by inheritance, legacy, or donationwhether remaining in the form in which it wasreceived or subrogated or invested in otherproperty, provided that such investment orsubrogation has been registered in the registromercantile in accordance with the provisions of

the sections of the Code of Commerce mentionedin the next preceding paragraph.

3. Property and effects deposited with thebankrupt, or administered, leased, rented, or heldin usufruct by him.

4. Merchandise in the possession of the bankrupt,on commission, for purchase, sale, forwarding, ordelivery.

5. Bills of exchange or promissory notes withoutendorsement or other expression transferringownership remitted to the insolvent for collection

6. Money remitted to the insolvent, otherwise

than on current account, and which is in hispossession for delivery to a definite person in thename and for the account of the remitter or forthe settlement of claims which are to be met atthe unsolvents domicile.

7. Amounts due the insolvent for sales ofmerchandise on commission, and bills ofexchange and promissory notes derivedtherefrom in his possession, even when the sameare not made payable to the owner of themerchandise sold, provided it is proven that forthe obligation to the insolvent is derived

therefrom and that said bills of exchange andpromissory notes were in the possession of theinsolvent for account of the owner of themerchandise to be cashed and remitted, in duetime, to the said owner; all of which shall be alegal presumption when the amount involved inany such sale shall not have been credited on thebooks of both the owner of the merchandise andof the insolvent.

8. Merchandise bought on credit by the insolventso long as the actual delivery thereof has notbeen made to him at his store or at any other

place stipulated for such delivery, andmerchandise the bills of lading or shippingreceipts of which have been sent him after thesame has been loaded by order of the purchaserand for his account and risk.

In all cases arising under this paragraphassignees may retain the merchandise sopurchased or claim it for the creditors by payingthe price thereof to the vendor.

9. Goods or chattels wrongfully taken, converted,or withheld by the insolvent if still existing in hispossession or the amount of the value thereof.

SECTION 49. Creditors sharing pro rata. Allcreditors, except those whose claims arementioned in the next following section, whosedebts are duly proved and allowed shall beentitled to share in the property and estateprorata, after the property belonging to other

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persons referred to in the last in precedingsection has been deducted therefrom, withoutpriority or preference whatever: Provided, Thatany debt proved by any person liable as bail,surety, guarantor, or otherwise, for the debtor,shall not be paid to the person so proving thesame until satisfactory evidence shall beproduced of the payment of such debt by suchperson so liable, and the share to which suchdebt would be entitled may be paid into court, orotherwise held, for the benefit of the partyentitled thereto, as the court may direct.

SECTION 50. The following are the preferredclaims which shall be paid in the order named:

(a) Legal expenses, and expenses incurred in theadministration of the insolvents estate for thecommon interest of the creditors when properlyauthorized and approved by the court;

(b) Necessary funeral expenses of the debtor, or

of his wife, or children who are under theirparental authority and have no property of theirown, when approved by the court;

(c) Debts, taxes and assessments due the InsularGovernment;

(d) Debts, taxes, and assessments due to anyprovince or provinces of the Philippine Islands;

(e) Debts, taxes, and assessments due to anymunicipality or municipalities of the PhilippineIslands;

(f) Debts for personal services rendered theinsolvent by clerks laborers, or domestic servantsduring the sixty days immediately preceding thecommencement

CHAPTER VIIPARTNERSHIPS & CORPORATIONS

SECTION 51. Partnerships. A partnership, duringthe continuation of the partnership business, orafter its dissolution and before the final

settlement thereof, may be adjudged insolvent,either on the petition of the partners or any oneof them, or on the petition of three or morecreditors of the partnership, qualified as providedin section twenty of this Act, in either of whichcases the court shall issue an order in the mannerprovided by this Act, upon which all the propertyof the partnership, and also all the separateproperty of each of the partners, if they are

liable, shall be taken, excepting such partsthereof as may be exempt by law; and allcreditors of the partnership, and the separatecreditors of each partner, shall be allowed toprove their respective claims; and the assigneeshall be chosen by the creditors of thepartnership, and shall also keep separateaccounts of the property of the partnership, andof the separate estate of each member thereof.

The expenses of the proceedings shall be paidfrom the partnership property and the individualproperty of the partners in such proportions asthe court shall determine. The net proceeds ofthe partnership property shall be appropriated tothe payment of the partnership debts and the netproceeds of the individual estate of each partnerto the payment of his individual debts. Shouldany surplus remain of the property of any partnerafter paying his individual debts, such surplusshall be added to the partnership assets and beapplied to the payment of the partnership debts.Should any surplus of the partnership propertyremain after paying the partnership debts, suchsurplus shall be added to the assets of theindividual partners in the proportion of theirrespective interests in the partnership. Certificateof discharge shall be granted or refused to eachpartner as the same would or ought to be if theproceedings had been by or against him aloneunder this Act; and in all other respects theproceedings as to the partners shall beconducted in like manner as if they had beencommenced and prosecuted by or against oneperson alone. If such partners reside in differentprovinces, the court in which the petition is firstfiled shall retain exclusive jurisdiction over the

case. If the petition to be filed by less than all thepartners of a partnership those partners who donot join in the petition shall be ordered to showcause why they, as individuals, and saidpartnership, should not be adjudged to beinsolvent, in the same manner as other debtorsare required to show cause upon a creditorspetition, as in this Act provided; and no order ofadjudication shall be made in said proceedingsuntil after the hearing of said order to showcause.

SECTION 52. Corporations and sociedadesanonimas; Banking. The provisions of this Actshall apply to corporations and sociedadesanonimas, and upon the petition of any officer ofany corporation or sociedad anonima, dulyauthorized by the vote of the board of directorsor trustees, at a meeting specially called for thatpurpose, or by the assent in writing of a majorityof the directors or trustees as the case may be, orupon a creditors petition made and presented in

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the manner provided in respect to debtors, of thelike proceedings shall be had and taken as areprovided in the case of debtors: Provided, That incase the articles of association or by-laws of anycorporation the or sociedad anonima provide amethod for such proceedings, such method shallbe followed. All the provisions of this Act whichapply to the debtor, or set forth his duties,examination, and liabilities, or prescribepenalties, or relate to fraudulent conveyances,payments, and assignments, apply to each andevery officer of any corporation or sociedadanonima in relation to the same mattersconcerning the corporation. Whenever anycorporation is declared insolvent, its property andassets shall be distributed to the creditors; due atbut no discharge shall be granted to anycorporation. The provisions of this Act shall notapply to corporations engaged principally in thebanking business, 26 or to any other corporationas to which there is any special provision of lawfor its liquidation in case of insolvency.

CHAPTER VIIIPROOF OF DEBTS

SECTION 53. Class of debts. All debts due andpayable from the debtor at the time of theadjudication of insolvency, and all debts thenexisting but not payable until a future time, adiscount being made if no interest is payable bythe terms of the contract, may be proved againstthe estate of the debtor.

SECTION 54. Commercial paper. If the debtor is

bound as indorser, surety, bail, or guarantor,upon any bill, bond, note, or other specialty orcontract, or for any debt any person, and hisliability shall not have become absolute until afterthe adjudication of insolvency, the creditor mayprove the same after such liability shall havebecome fixed, and before the final dividend shallhave been declared.

SECTION 55. Contingent debts. In all cases ofcontingent debts and contingent liabilities,contracted by the debtor, and not hereinotherwise provided for, the creditor may make

claim therefor and have his claim allowed, withthe right to share in the dividends, if thecontingency shall happen before the order of thefinal dividend; or he may, at any time, apply tothe court to have the present value of the debt orliability ascertained and liquidated, which shall bedone in such manner as the court shall order, andit shall be allowed for the amount so ascertained.

SECTION 56. Bail, surety, etc., for the debtor. Any person liable as bail, surety, or guarantor, orotherwise, for the debtor, who shall have paid thedebt, or any part thereof, in discharge of thewhole, shall be entitled to prove such debt, or tostand in the place of the creditor, if he shall haveproved the same, although such payments shallhave been made after the proceedings ininsolvency were commenced; and any person soliable for the debtor, and who has not paid thewhole of said debt, but is still liable for the same,or any part thereof, may, if the creditor shall failor omit to prove such debt, prove the same in thename of the creditor.

SECTION 57. Rents and periodical payments. Where the debtor is liable to pay rent, or otherdebt falling due at fixed and stated periods, thecreditor may prove, for a proportionate partthereof up to the time of the insolvency, as if thesame became due from day to day, and not atsuch fixed and stated periods.

SECTION 58. Mutual debts and credits. In allcases of mutual debts and mutual creditsbetween the parties, the account between themshall be stated, and one debt set off against theother, and the balance only shall be allowed of aclaim in its nature not provable against theestate: Provided, That no set-off or counterclaimshall be allowed in favor of any debtor to theinsolvent of a claim purchased by or transferredto such debtor within thirty days immediatelypreceding the filing, or after the filing of thepetition by or against the insolvent.

SECTION 59. Mortgages, pledges, liens, etc.;Release or sale by assignee. When a creditorhas a mortgage, or pledge of real or personalproperty of the debtor, or a lien thereon, forsecuring the payment of a debt owing to himfrom the debtor, or an attachment or executionon property of the debt or duly recorded and notdissolved under this Act, he shall be admitted asa creditor for the balance of the debt only, afterdeducting the value of such property, such valueto be ascertained by agreement between him andthe receiver, if any, and if no receiver, then upon

such sum as the court or a judge thereof maydecide to be fair and reasonable, before theelection of an assignee, or by a sale thereof, to bemade in such manner as the court or judgethereof shall direct; or the creditor may release orconvey his claim to the receiver, if any, or if noreceiver then to the sheriff, before the election ofan assignee, or to the assignee if an assignee hasbeen elected, upon such property, and be

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admitted to prove his whole debt. If the value ofthe property exceeds the sum for which it is soheld as security, the assignee may release to thecreditor the debtors right of redemption thereonon receiving such excess; or he may sell theproperty, subject to the claim of the creditorthereon, and in either case the assignee andcreditor, respectively, shall execute all deeds andwritings necessary or proper to consummate thetransaction. If the property is not sold orreleased, and delivered up, or its value fixed, thecreditor shall not be allowed to prove any part ofhis debt, but the assignee shall deliver to thecreditor all such property upon which the creditorholds a mortgage, pledge, or lien, or upon whichhe has an attachment or execution.

SECTION 60. Creditors proving claims cannot use;Stay of action. No creditor, proving his debt orclaim, shall be allowed to maintain any suittherefor against the debtor, but shall be deemedto have waived all right of action and suit against

him, and all proceedings already commenced, orany unsatisfied judgment already obtainedthereon, shall be deemed to be discharged andsurrendered thereby; and after the debtorsdischarge, upon proper application and proof tothe court having jurisdiction, all such proceedingsshall be, dismissed, and such unsatisfied

judgments satisfied of record: Provided, That novalid lien existing in good faith thereunder shallbe thereby affected. A creditor proving his debtor claim shall not be held to have waived his rightof action or suit against the debtor when adischarge has have been refused or theproceedings have been determined to thewithout a discharge. No creditor whose debt isprovable under this Act shall be allowed, after thecommencement of proceedings in insolvency, toprosecute to final judgment any action thereforagainst the debtor until the question of thedebtors discharge shall have been determined,and any such suit proceeding shall, upon theapplication of the debtor or of any creditor, or theassignee, be stayed to await the determination ofthe 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, mayproceed to judgment for purpose of ascertainingthe amount due, which amount, when adjudged,may be allowed in the insolvency proceedings,but execution shall be stayed aforesaid.

SECTION 61. Preferences knowingly acceptedcontrary to this Act. Any person who shall haveaccepted any preference, having reasonablecause to believe that the same was made or

given by the debtor contrary to any provision ofthis Act, shall not be allowed to prove the debt orclaim on account of which the preference wasmade or given, nor shall he receive any dividendthereon, until he shall have surrendered to theassignee all property, money, benefit, oradvantage received by him under suchpreference.

SECTION 62. Examinations under oath by court. The court may, upon the application of theassignee, or of any creditor, or without anyapplication, before or after adjudication ininsolvency, examine upon oath the debtor inrelation to his property and his estate and mayexamine any other person tending or makingproof of claims, and may subpoena witnesses togive evidence relating to such matters. Allexaminations of witnesses shall be had anddepositions shall be taken in accordance with andin the same manner as is provided by the Code ofCivil Procedure. 27

CHAPTER IXCOMPOSITIONS

SECTION 63. When confirmation filed. Aninsolvent may offer terms of composition to hiscreditors after, but not before, he has filed incourt a schedule of his property and list of hiscreditors as provided in this Act. An applicationfor the confirmation of a composition may be filedin the insolvency court after, but not before, ithas been accepted in writing by a majority innumber of all creditors whose claims have been

allowed, which number must represent a majorityin amount of such claims and after theconsideration to be paid by the insolvent to hiscreditors and the money necessary to pay alldebts which have priority and the costs ofproceedings have been deposited in such placeas shall be designated by and subject to the orderof the court. A time shall be fixed by the court forthe hearing upon an application for theconfirmation of a composition, and for thehearing of such objections as may be made to itsconfirmation. The court shall confirm acomposition if satisfied that (1) it is for the best

interest of the creditors; (2) that the insolvent hasnot been guilty of any of the acts, or of a failureto perform any of the duties, which would createa bar to his discharge; and (3) that the offer andits acceptance are in good faith, and have notbeen made or procured except as hereinprovided, or by any means, promises, or actsherein forbidden. Upon the confirmation of acomposition the consideration shall be distributed

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as the judge shall direct, and the case dismissed,and the title to the insolvents property shallrevest in him. Whenever a composition is notconfirmed, the estate in insolvency shall beadministered as herein provided. The court may,upon application of a party in interest, filed at anytime within six months after the composition hasbeen confirmed, set the same aside, andreinstate the case if it shall be made to appearupon a trial that fraud was practiced in theprocuring of such composition, and that theknowledge thereof has come to the petitionersince the confirmation of such composition.

CHAPTER XDISCHARGE

SECTION 64. Discharge. At any time after theexpiration of three months from the adjudicationof insolvency, but not later than one year fromsuch adjudication, unless the property of theinsolvent has not been converted unto money,

the debtor may apply to the court for a dischargefrom his debts, and the court shall thereuponorder notice to be given to all creditors who haveproved their debts to appear on a day appointedfor that purpose and show cause why a dischargeshould not be granted to the debtor; said noticeshall be given by registered mail and bypublication 28 at least once a week, for sixweeks, in a newspaper published in the provinceor city, or, if there be none, in a newspaperwhich, in the opinion of the judge, will best givenotice to the creditors of the said insolvent:Provided, That if no debts have been proven,

such notice shall not be required.

SECTION 65. Invalid discharge. No dischargeshall be granted, or if granted shall be valid, (1) ifthe debtor shall have sworn falsely in his affidavitannexed to his petition, schedule, or inventory, orupon any examination in the course of theproceedings in insolvency, in relation to anymaterial fact concerning his estate or his debts orto any other material fact; or (2) if he hasconcealed any part of his estate or effects, or anybooks or writing relating thereto; or (3) if he hasbeen guilty of fraud or willful neglect in the care

or custody of his property or in the delivery to theassignee of the property belonging to him at thetime of the presentation of his petition andinventory, excepting such property as he ispermitted to retain under the provisions of thisAct; or (4) if, within one month before thecommencement of such proceedings, he hasprocured his real estate, goods, moneys, orchattels to be attached or seized on execution; or

(5) if he has destroyed, mutilated, altered, orfalsified any of his books, documents, papers,writings, or securities, or has made, or been privyto the making of, any false or fraudulent entry inany book of account or other document withintent to defraud his creditors; or (6) if he hasgiven any fraudulent preference, contrary to theprovisions of this Act, or has made any fraudulentpayment, gift, transfer, conveyance, orassignment of any part of his property, or hasadmitted a false or fictitious debt against hisestate; or (7) if, having knowledge that anyperson has proven such false or fictitious debt, hehas not disclosed the same to his assignee withinone month after such knowledge; or (8) if, beinga merchant or tradesman, he has not kept properbooks of account in Arabic numerals and inaccordance with the provisions of the Code ofCommerce; or (9) if he, or any other person onhis account, or in his behalf, has influenced theaction of any creditor, at any stage of theproceedings, by any pecuniary consideration orobligation; or (10) if he has, in contemplation ofbecoming insolvent, made any pledge, payment,transfer, assignment, or conveyance of any partof his property, directly or indirectly, absolutely oconditionally, for the purpose of preferring anycreditor or person having a claim against him, orwho is, or may be, under liability for him, or forthe purpose of preventing the property fromcoming into the hands of the assignee, or ofbeing distributed under this Act in satisfaction ofhis debts; or (11) if he has been convicted of anymisdemeanor under this Act, or has been guilty offraud contrary to the true intent of this Act; or(12) in case of voluntary insolvency, has received

the benefit of this or any other Act of insolvencyor bankruptcy within six years next preceding hisapplication for discharge; or (13) if insolvencyproceedings in which he could have applied for adischarge are pending by or against him in theCourt of First Instance of any other province orcity in the Philippine Islands. Before anydischarge is granted, the debtor shall take andsubscribe an oath to the effect that he has notdone, suffered, or been privy to any act, matter,or thing specified in this Act as grounds forwithholding such discharge or as invalidatingsuch discharge, if granted.

SECTION 66. Any creditor opposing the dischargeof a debtor shall file his objections thereto,specifying the grounds of his opposition, andafter the debtor has filed and served his answerthereto which pleadings shall be verified, thecourt shall try the issue or issues raised,according to the practice provided by law in civilactions.

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SECTION 67. Discharge of debtor by court. If itshall appear to the court that the debtor has in allthings conformed to his duty under this Act, andthat he is entitled under the provisions thereof toreceive a discharge, the court shall grant him adischarge from all his debts, except ashereinafter provided, and shall give him acertificate thereof, under the seal of the court, insubstance as follows: In the Court of FirstInstance of the _____________, Philippine Islands.Whereas, ______________, has been duly adjudgedan insolvent under the Insolvency Law of thePhilippine Islands, and appears to haveconformed to all the requirements of law in thatbehalf, it is therefore ordered by the court thatsaid _______________ be forever discharged fromall debts and claims, which by said InsolvencyLaw are made provable against his estate, andwhich existed on the _______ day of _________, onwhich the petition of adjudication was filed by (oragainst) him, excepting such debts, if any, as areby said Insolvency Law excepted from theoperation of a discharge in insolvency. Givenunder my hand, and the seal of the court, this

____ day of ______________, anno Domini______________ Attest: ____________, clerk. (Seal)_____________, judge.

SECTION 68. Debts not released under this Act.No debt created by the fraud or embezzlement ofthe debtor, or by his defalcation as a publicofficer or while acting in a fiduciary capacity, shallbe discharged under this Act, but the debt maybe proved, and the dividend thereon shall be apayment on account of said debt. No dischargegranted under this Act shall release, discharge, oraffect any person liable for the same debt, for orwith the debtor, either as partner, jointcontractor, indorser, surety, or otherwise.

SECTION 69. Effect of discharge under this Act. A discharge, duly granted under this Act, shall,with the exceptions aforesaid, release the debtorfrom all claims, debts, liabilities, and demands setforth in his schedule, or which were or might havebeen proved against his estate in insolvency, andmay be pleaded by a simple averment that onthe day of its date such discharge was granted to

him, setting forth the same in full, and the sameshall be a complete bar to all suits brought onany such debts, claims, liabilities, or demands,and the certificate shall beprima facie evidencein favor of such fact and of the regularity of suchdischarge: Provided, however, That any creditorwhose debt was proved or provable against theestate in insolvency who shall see fit to contestthe validity of such discharge on the ground that

it was fraudulently obtained and who hasdiscovered the facts constituting the fraudsubsequent to the discharge, may, at any timewithin one year after the date thereof, apply tothe court which granted it to set it aside andannul the same.

CHAPTER XIFRAUDULENT PREFERENCES AND TRANSFERS

SECTION 70. If any debtor, being insolvent, or incontemplation of insolvency, within thirty daysbefore the filing of a petition by or against him,with a view to giving a preference to any creditoror person having a claim against him or who isunder any liability for him, procures any part ofhis property to be attached, sequestered, orseized on execution, or makes any payment,pledge, mortgage, assignment, transfer, sale, orconveyance of any part of his property, eitherdirectly or indirectly, absolutely or conditionally,to anyone, the person receiving such payment,

pledge, mortgage, assignment, transfer, sale, orconveyance, or to be benefited thereby, or bysuch attachment or seizure, having reasonablecause to believe that such debtor is insolvent,and that such attachment, sequestration, seizure,payment, pledge, mortgage, conveyance,transfer, sale, or assignment is made with a viewto prevent his property from coming to hisassignee in insolvency, or to prevent the samefrom being distributed ratably among hiscreditors, or to defeat the object of, or in any wayhinder, impede, or delay the operation of or toevade any of the provisions of this Act, such

attachment, sequestration, seizure, payment,pledge, mortgage, transfer, sale, assignment, orconveyance is void, and the assignee, or thereceiver, may recover the property, or the valuethereof, as assets of such insolvent debtor. Ifsuch payment, pledge, mortgage, conveyance,sale, assignment, or transfer is not made in theusual and ordinary course of business of thedebtor, or if such seizure is made under a

judgment which the debtor has confessed oroffered to allow, that fact shall be prima facieevidence of fraud. Any payment, pledge,mortgage, conveyance, sale, assignment, or

transfer of property of whatever character madeby the insolvent within one month before thefiling of a petition in insolvency by or against him,except for a valuable pecuniary considerationmade in good faith, shall be void. Allassignments, transfers, conveyances, mortgages,or incumbrances of real estate shall be deemed,under this section, to have been made at thetime the instrument conveying or affecting such

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realty was filed for record in the office of theregister of deeds of the province or city wherethe same is situated.

CHAPTER XIIPENAL PROVISIONS

SECTION 71.Acts of debtors punishable underthis Act. From and after the taking effect of this

Act, a debtor who commits any one of thefollowing acts shall, upon conviction thereof, bepunished by imprisonment for not less than threemonths nor more than five years for eachoffense:

1. If he shall, after the commencement ofproceedings in insolvency, secrete or conceal anyproperty belonging to his estate or part with,conceal, destroy, alter, mutilate, or falsify orcause to be concealed, destroyed, altered,mutilated, or falsified, any book, deed, document,or writing relating thereto, or remove, or cause to

be removed, the same or any part thereof, withthe intent to prevent it from coming into thepossession of the assignee in insolvency, or tohinder, impede, or delay his assignee inrecovering or receiving the same, or if he shallmake any payment, gift, sale, assignment,transfer, or conveyance of any propertybelonging to his estate, with like intent, or shallspend any part thereof in gaming; or if he shall,with intent to defraud willfully and fraudulentlyconceal from his assignee, or fraudulently ordesignedly omit from his schedule any propertyor effects whatsoever; or if, in any case of any

person having, to his knowledge or belief, proveda false or fictitious debt against his estate heshall fail to disclose the same to his assigneewithin one month after coming to the knowledgeor belief thereof; or if he shall attempt to accountfor any of his property by fictitious losses orexpenses;

2. If he shall, within three months beforecommencement of proceedings of insolvency,under the false pretense of carrying on businessand dealing in the ordinary course of trade,obtain on credit from any person any goods or

chattels with intent to defraud, or shall, withintent to defraud his creditors, pawn, pledge, ordispose of, otherwise than by bona fidetransactions in the ordinary way of his trade, anyof his goods and chattels which have beenobtained on credit and remain unpaid for, or shallhave suffered loss in any kind of gaming whensuch loss is one of the causes determining thecommencement of proceedings in insolvency, or

shall have sold at a loss or for less than thecurrent price any goods bought on credit and stillunpaid for, or shall have advanced payments tothe prejudice of his creditors;

3. If he shall, from and after the taking effect ofthis Act, during the proceedings for thesuspension of payments, secrete or conceal, ordestroy or cause to be destroyed or secreted any

property belonging to his estate; or if he shallsecrete, destroy, alter, mutilate, or falsify, orcause to be secreted, destroyed, altered,mutilated, or falsified, any book, deed, document,or writing relating thereto, or if he shall, withintent to defraud his creditors, make anypayment, sale, assignment, transfer, orconveyance of any property belonging to hisestate; or if he shall spend any part thereof ingaming; or if he shall falsely swear to theschedule and inventory exacted by paragraphtwo of section two as required by sections fifteen,sixteen and seventeen of this Act, with intent to

defraud his creditors; or if he shall violate orbreak in any manner whatsoever the injunctionissued by the court under section three of thisAct.

CHAPTER XIIIMISCELLANEOUS

SECTION 72. If any debtor shall die after the orderof adjudication, the proceedings shall becontinued and concluded in like manner and withlike validity and effect as if he had lived.

SECTION 73. Pending insolvency proceedings byor against any person, partnership, corporation,or sociedad anonima, no statute of limitationsshall run upon a claim of or against the estate ofthe debtor.

SECTION 74. Any creditor, at any stage of theproceedings, may be represented by his attorneyor duly authorized agent, and the attorney oragent, properly authorized, shall be entitled tovote at any creditors meeting as and for hisprincipal.

SECTION 75. Exempt property to be set apart. Itshall be the duty of the court having jurisdictionof the proceedings, upon petition and afterhearing, to exempt and set apart, for the use andbenefit of said insolvent, such real and personalproperty as is by law exempt from execution, andalso a homestead, as provided in section fourhundred and fifty-two of the Code of CivilProcedure; 32 but no such petition shall be heard

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as aforesaid until it is first proved that notice ofthe hearing of the application therefor has beenduly given by the clerk, by causing such notice tobe posted in at least three public places in theprovince or city at least ten days prior to the timeof such hearing, which notice shall set forth thename of said insolvent debtor, and the time andplace appointed for the hearing of suchapplication, and shall briefly indicate thehomestead sought to be exempted or theproperty sought to be set aside; and the decreemust show that such proof was made to thesatisfaction of the court, and shall be conclusiveevidence of that fact.

SECTION 76. Proceedings, how commenced. The filing of a petition by or against a debtorupon which, or upon an amendment of which, anorder of adjudication in insolvency may be made,shall be deemed to be the commencement of theproceedings in insolvency under this Act.

SECTION 77. Words used in this Act in thesingular include the plural, and in the plural, thesingular, and the word debtor includespartnerships, corporations and sociedadesanonimas.

SECTION 78. Appointment of receiver; Electionand qualificat

Spec Com - Viii

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