ENTRE CATALÁN, ARAGONÈS E CASTELLANO
1. Introducció
Take note of Section 37, which provides that if any person, who knows of the pending or imminent insolvency proceedings concerning the debtor, embezzles or disposes of any of the property of the insolvent, he shall be liable for a penalty equal to double the value of the property embezzled or disposed. The penalty will go to the estate of the insolvent.
This relates only to embezzlement of the debtor’s property, and not to assignments of credit made by the creditors behind each other’s backs.
What is a dividend in insolvency?
It is a part of the fund arising from the assets of the estate of the insolvent debtor, rightfully allocated to a creditor entitled to a share in the fund. It is paid by the assignee only upon order of the court.
Õ According to JPSP, if you’re a creditor, you may not want to do involuntary insolvency because there are a lot of costs – assignee’s fees, legal costs, etc. It might be better is you could obtain a global settlement. (I don’t know, though, what “global” means.)
V. CLASSIFICATION AND PREFERENCE OF CREDITORS
Disregard the rules in Sec. 48-50 of the Insolvency Law. The applicable rules are those under the Civil Code on Concurrence and Preference of Credits (Articles 2236-2251).
But take note of Section 48, which provides that property found among the property of the insolvent debtor but which are not really owned by him should be taken out of the proceedings.
Examples are property held in trust or as a lessor or usufructuary, etc. After taking them out, apply the rules under the Civil Code.
VI. PARTNERSHIPS AND CORPORATIONS
Who may petition for declaration of insolvency of a partnership?
In case of voluntary insolvency, the petition may be filed by all or any of the partners.
In case of involuntary insolvency, the petition may be filed by three or more creditors of the partnership or one or more of the partners.
Which properties are covered in insolvency proceedings?
1. All the property of the partnership; and
2. All the separate property of each of the general partners, except a. separate properties of limited partners; and
b. properties which are exempt by law
Can a partnership be declared insolvent even if the partners constituting the same are solvent?
Yes. A partnership may be declared insolvent notwithstanding the solvency of the partners constituting it. The creditors of the partnership, after first exhausting its assets, may proceed against the solvent general partners who are proportionately liable with their separate property.
What happens to the partnership when any of the partners becomes insolvent?
The partnership is automatically dissolved by the insolvency of any partner or of the partnership (Art. 1830, Civil Code).
What is the benefit given by the Insolvency Law to partnerships?
Partnerships get a discharge from the obligations, if they apply for one. In contrast, corporations do not get a discharge.
Why doesn’t the law give corporations a discharge?
Corporations do not get a discharge because their creditors can only go after the assets of the corporation. The creditors cannot collect any deficiency from the stockholders. If the
stockholders want a fresh start, they can just put up a new corporation and start with a clean slate. There is no need to get a discharge in order to have a fresh start.
But if it’s a partnership, and the assets of the partnership are not enough to cover its liabilities, the creditors can still go after the general partners for the deficiency. This is why it makes sense to give them a discharge.
How do you distribute the net proceeds of the properties of the partnership?
1. The net proceeds of the partnership property shall be used to pay the debts of the partnership.
2. The net proceeds of the individual estate of each partner shall be used to pay individual debts.
3. If there is any surplus in the property of any general partner after paying his individual debts, a proportionate part of this surplus will be added to the partnership assets and will be used to pay partnership debts.
4. If there is any surplus in the property of the partnership, the surplus shall be added to the assets of the individual partners in proportion to their interests in the partnership.
What is the effect of a declaration that a corporation is insolvent?
The property and assets of the corporation will be distributed to the creditors. Unlike in partnership, the property of the stockholders of the corporation cannot be used to pay the creditors of the corporation. However, the corporation will not be allowed to get a discharge.
VII. PROOF OF DEBTS
What are the debts which may be proved (collected) against the estate of the insolvent debtor?
1. All debts due and payable at the time of the adjudication of insolvency;
2. All debts existing at the time of the adjudication of insolvency but not payable until a future time.
3. Any debt of the insolvent arising from his liability as indorser, surety, bail or
guarantor, where such liability became absolute after the adjudication of insolvency but before the final dividend shall have been declared;
4. Other contingent debts and liabilities contracted by the insolvent if the contingency shall happen before the order of final dividend; and
5. Any claim for reimbursement of a person who has answered, in whole or in part, for the insolvent’s debt as bail, surety, or guarantor or otherwise.
What is a contingent claim?
It is a claim in which the liability depends on a future and uncertain event. For example, the claim of a surety is a contingent claim because the surety can only claim reimbursement from the principal debtor once he himself has paid the obligation. But before the surety pays the principal obligation, he has no claim for reimbursement against the principal debtor.
A claim based on a contingency which has not happened at the time of the pendency of the proceedings cannot be proved in the proceedings, since there is no real claim yet. But, if the contingency happens after the termination of the proceedings, the creditor can still claim from the debtor. The discharge granted the debtor from his existing debts does not cover those debts that could not have been proved in the insolvency proceedings.
What happens to obligations of the insolvent debtor that arise after the commencement of the proceedings?
These debts cannot be proved in the proceedings. But the creditor can still collect from the debtor, since the discharge given to the debtor cannot apply to claims that could not have been proved in the insolvency proceedings.
Which debts cannot be proved at the insolvency proceedings?
1. Those barred by prescription;
2. Claims of secured creditors unless they waive the right to foreclose or surrender the security;
3. Claims of creditors who hold an attachment or execution on property of the debtor, provided that this was issued at least 30 days before the institution of the insolvency proceedings;
4. Claims on account of which a fraudulent preference was made or given;
5. Support
6. Damages arising out of a tort
Can a creditor set up compensation/offset his own debts against the insolvent debtor?
This is the case of Uy-Tong v. Silva. Compensation can be set up against the insolvent debtor but only for those debts which arose at least 30 days before the filing of the insolvency
proceedings. If the claim arose within the 30-day period before the filing of the petition, there can be no compensation. The rule on preferences would be disregarded if the set-off were allowed. It would, in effect, give the one claiming compensation undue preference over other creditors.
VIII. COMPOSITIONS
What is composition?Composition is an agreement, made upon a sufficient consideration, between the insolvent or financially embarrassed debtor and all of his creditors whereby the creditors agree to accept a dividend less than the amount of their claims, for the sake of getting paid sooner.
What are the requisites?
1. The offer of the terms of composition must be made after the filing in court of the schedule of property and submission of the list of creditors;
2. The offer must be accepted in writing by a double majority of the creditors – majority of the number of creditors representing a majority of the claims;
3. It must be made after depositing the consideration to be paid and the cost of the proceedings;
4. The court must approve the terms of the composition.
When can composition be set aside?
It can be challenged by any party in interest within six months after it has been confirmed on the ground of fraud.
IX. DISCHARGE
What is discharge?Discharge is the privilege given to the insolvent, freeing him from all liabilities proved during the insolvency proceedings.
Is the discharge automatically given to the insolvent debtor?
No. The debtor must ask for it within three months to one year after he is adjudicated insolvent.
Which debts are released by discharge?
1. All those set forth in the schedule; and
2. All those which were or might have been proved against the estate in the insolvency proceedings.
Which debts are not released?
1. Taxes
2. Debts arising from any act of swindling (because you don’t reward a person who violated a law or a trust)
3. Debts of a surety, guarantor, indorser, or any person liable for the same debt, for or with the insolvent debtor (This is because the discharge only benefits the principal debtor, not his co-debtors or guarantors).
4. Debts of a corporation 5. Claims for support
6. Debts which were not proved and could not have been proved during the insolvency proceedings
7. Debts arising from tort 8. Claims of secured creditors
9. Debts which were not yet existing at the time of the discharge 10. Contingent claims
When can the petition to get a discharge be denied?
The debtor cannot get a discharge if he is in bad faith or does acts to the prejudice of his creditors.
Once granted, when may a discharge be revoked?
A discharge may be revoked by the court if a creditor can prove that it was fraudulently obtained. The creditor must file the petition to revoke it within one year from the date of the discharge.
X. FRAUDULENT PREFERENCES AND TRANSFERS
What is a preferential transfer?It is a parting with the property of the insolvent for the benefit of a creditor with the result that the estate of the insolvent is diminished and other creditors are prejudiced.
What is a fraudulent preference?
It is a disposition of property by the debtor under the following conditions:
1. he is insolvent or is in contemplation of insolvency;
2. the transaction is made within 30 days before the filing of the petition for insolvency;
3. it is made with a view to giving preference to any creditor;
4. the person receiving a benefit has reason to believe that the debtor is insolvent and that the transfer is made in order to defeat or prejudice the rights of other creditors.
What is a fraudulent conveyance/transfer?
It is any disposition of property made by the insolvent within one month before the filing of the petition for insolvency, except for valuable consideration in good faith.
What is the status of the fraudulent conveyance?
If made within 30 days before the filing of insolvency proceedings, the transfer is void.
If made after the filing of insolvency proceedings, it is rescissible for being in fraud of creditors.
Another remedy of the creditors is to file a criminal complaint against the insolvent debtor.
Is there a presumption of fraud?
There is a rebuttable presumption that a conveyance is fraudulent when:
1. it is not made in the usual and ordinary cause of business of the debtor; or 2. it is made under a confession of judgment.
Within 30 days before the filing of the petition for insolvency, Debtor sells a car worth P1M to Buyer for 900K. Is this a fraudulent conveyance?
No. There is a fair exchange of value, so the transaction does not really prejudice the creditors.
DEPOSIT
CHAPTER 1 DEPOSIT IN GENERAL AND ITS DIFFERENT KINDS
Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract.What is the contract of deposit?
It is the receipt by a person of a thing belonging to another with the obligation of safely keeping it and of returning it.
Õ It is essential that the depositary is not the owner of the property deposited.
What are the characteristics of the contract of deposit?
1. Real contract – Deposit is perfected by the delivery of the subject matter
2. Unilateral if the deposit is gratuitous – because only the depositary has an obligation;
Bilateral if the deposit is for compensation – gives rise to obligations on the part of both the depositary and the depositor.
What is the principal purpose of the contract of deposit?
The principal purpose is the safekeeping of the thing delivered. If safekeeping is merely an accessory or secondary obligation, it is not a deposit, but another contract, such as
commodatum, lease, or agency.
What is the subject matter in deposit?
Only movables can be the subject matter of deposit. If you leave a kid a Gymboree or at Kids at Work, it’s not a deposit, but maybe a contract of service.
JPSP Examples:
1. You park your car at the car park of Powerplant. Is it a contract of deposit? No, because the purpose is not safekeeping. The purpose is merely convenience, so that you have a place to leave your car while you shop or watch a movie or go to school.
2. You park your car at the Dela Rosa car park. Is it a contract of deposit? Still, no, even if, unlike the car park of Powerplant, the sole reason for the existence of the Dela Rosa car park is for people to leave their cars there. It’s still not a deposit because the purpose is not safekeeping. People who park there just want the space. It’s a short-term lease of space.
So, legally, it is not a deposit. And even for practical purposes, it should not be treated as a deposit. If it were a deposit, if the car is lost, the owner of the car park (the
depositary) will shoulder the loss. The direct result of this is that parking fees will go up because it would have to cover insurance costs in addition to the regular parking fee.
Deposit distinguished from Simple Loan (mutuum)
DEPOSIT SIMPLE LOAN
property (if deposit is judicial)
Only money and any other fungible thing
Deposit distinguished from Commodatum
DEPOSIT COMMODATUM
PURPOSE Safekeeping Transfer of use of the subject
matter GRATUITOUS? May be gratuitous, may be
onerous
Always gratuitous SUBJECT MATTER In extra-judicial deposit, only
movables
Both movable and immovable property