G.R. No. L-27944, May 28, 1974.
IN THE MATTER OF THE ESTATE OF MINDANAO MOTOR LINE, INC., An Insolvent Debtor, appellee, JESUS MORAZA, as President and General Manager, petitioner, vs. EPIFANIO ALFORQUE, IGNACIO ALBA, FEDERICO BALUYOT, JOSE BENEMERITO, ANTONIO BORRE, ET AL., intervenors-appellants.

FACTS

On August 15, 1956, the fifty-three (53) appellants (Alforque, et al.) filed a complaint against Mindanao Motor Line, Inc. (the company) in the Court of First Instance (CFI) of Davao (Civil Case No. 2051) for payment of overtime compensation. The CFI of Davao rendered judgment on December 23, 1957, ordering the company to pay the appellants P157,560.79 as unpaid overtime compensation, attorney’s fees, and costs. The Court of Appeals affirmed but decreed that the company may present evidence of overtime compensation already paid, and remanded the case to the CFI of Davao for that purpose. Upon remand, the Davao court set the case for hearing on June 15, 1966. On June 7, 1966, the company sought a postponement, and the hearing was reset. However, on June 15, 1966, the company filed a petition for voluntary insolvency in the CFI of Cebu (Special Proceeding No. 2660-R). The schedule annexed to the petition named only two creditors with small payable accounts (P1,200 and P1,000) and intentionally omitted the appellants. On June 18, 1966, the CFI of Cebu declared the company insolvent, ordered the sheriff to take possession of its properties, and directed publication of notice to creditors. On the same day, the company sent the appellants a copy of the June 18 order, which they received on June 27, 1966. Meanwhile, on June 24, 1966, the CFI of Cebu ordered the suspension of the proceedings in Civil Case No. 2051. The appellants moved to intervene, suspend the election of an assignee, and dismiss the insolvency proceedings, arguing the petition was pro forma, filed in bad faith to evade their award, and failed to include them as creditors. The insolvency court declared an assignee elected on August 13, 1966. The court later granted the motion to intervene on November 18, 1966, but on December 27, 1966, denied the motion to dismiss and the motion for reconsideration of the assignee’s appointment. The appellants’ motion for reconsideration was denied on March 21, 1967, prompting the present appeal.

ISSUE

1. Whether the insolvency proceedings should be dismissed for the company’s failure to include the appellants as creditors in the schedule as required by the Insolvency Law.
2. Whether the appeal was perfected on time.

RULING

1. Yes, the insolvency proceedings must be dismissed. The Supreme Court held that the company’s omission of the appellants from the schedule annexed to its petition for insolvency was not a minor defect but a fatal one that vitiated the entire proceedings. The company’s explanation that it considered the appellants’ claim “merely inchoate” was rejected. The Court emphasized that the appellants’ right to overtime compensation had already been finally adjudged in their favor by the CFI of Davao and affirmed by the Court of Appeals; only the exact amount remained for arithmetical determination. Section 15 of the Insolvency Law requires a full and true statement of all debts and liabilities, including an outline of facts giving rise to a cause of action. The appellants not only had a cause of action but a final judgment award for a substantial sum (P157,560.79). Their intentional exclusion deprived them of personal notice and their right to vote in the election of an assignee, allowing only two small creditors to elect the assignee. The circumstances—filing the petition on the very day evidence was to be presented in the Davao case, after securing a postponement—demonstrated gross bad faith to defeat the law’s objectives and evade payment. The subsequent notification of the appellants on June 27, 1966, did not cure the defect, as the harm had already been inflicted by the declaration of insolvency on June 18, 1966. Consequently, the order suspending the Davao case was null and void for lack of personal notice to the appellants, who were intentionally omitted.
2. Yes, the appeal was perfected on time. The Court rejected the company’s argument that the appeal was time-barred because the order of June 18, 1966, declaring insolvency had become final. It ruled that said order was a complete and absolute nullity as to the appellants due to lack of personal notice caused by their intentional omission. The orders appealed from were the order of December 27, 1966 (denying the motion to dismiss and motion for reconsideration of the assignee’s appointment) and the order of March 21, 1967 (denying reconsideration). The appellants received the December 27 order on January 31, 1967, filed a motion for reconsideration on February 28, 1967, received the denial on April 7, 1967, and filed their notice of appeal and appeal bond promptly thereafter. Thus, the appeal was perfected on time.
ACCORDINGLY, the Supreme Court set aside the orders appealed from and rendered judgment dismissing Special Proceeding No. 2660-R of the CFI of Cebu. Costs were imposed against the appellee company.