Strong & Trowbridge v. Van Buskirk-Crook Company
REITERATIONFacts
The Antecedents: Several creditors of the defendant, an anonymous society, brought an action to recover their demands. A receiver was appointed by agreement of the parties, who collected assets amounting to P33,000. Subsequently, the judge issued an order directing a 20 percent dividend payable to the plaintiffs and another order directing a like dividend to other admitted creditors who had not intervened, recovered judgments, or brought independent actions. Procedural History: The plaintiffs objected and excepted to the order of distribution to general creditors who had recovered no judgments. The Court of First Instance issued an order appointing a receiver and subsequent orders in the receivership. The Petition: The plaintiffs appealed the order of distribution of dividends to general creditors who had not obtained judgments.
Issue(s)
Whether the order directing a dividend to general creditors who had not recovered judgments was proper. Whether the appointment of a receiver and subsequent orders in the receivership were valid.
Ruling
The Supreme Court ruled that the order of distribution to general creditors who had not recovered judgments was improper. It also held that the order appointing a receiver and all subsequent orders in the receivership were without warrant and void. The plaintiffs were granted execution against the fund in court and liberty to take proceedings against any fund paid out to general creditors under the second order of distribution.
Ratio Decidendi
On the propriety of the order directing a dividend to general creditors: The Court held that the order of distribution to general creditors who had not recovered judgments was manifestly improper. It reiterated the principle established in Peterson vs. Newberry that in the absence of a bankruptcy act, preferences in payment among creditors are regulated by article 1924 of the Civil Code. According to this article, judgment creditors must be paid in full before any dividend is paid to general creditors. The plaintiffs, as judgment creditors, were entitled to be paid in full before any distribution to other admitted creditors who had not obtained judgments. On the validity of the appointment of a receiver and subsequent orders: The Court found that the appointment of a receiver and all subsequent orders in the receivership were without warrant and void. Citing Bonaplata vs. Ambler, the Court stated that the appointment of a receiver of an insolvent debtor was a violation of section 524 of the Code of Civil Procedure, which prohibited new bankruptcy proceedings until a new bankruptcy law was in force. Furthermore, in an action for debt not in aid of a lien upon specific property, a plaintiff, before the return of an unsatisfied execution, has no such interest in the defendant's property as to authorize the appointment of a receiver under section 174 of the same code. Therefore, these orders were null and void, and the plaintiffs were not deprived of the benefit of their exception to the order of distribution despite their consent to the appointment and participation in subsequent orders.
Main Doctrine
In the absence of a bankruptcy act, preferences in payment among creditors are regulated by Article 1924 of the Civil Code, wherein judgment creditors must be paid in full before any dividend is paid to general creditors. Orders appointing a receiver and subsequent orders in receivership, made without warrant and void, do not deprive parties of their right to except to an improper order of distribution.