G.R. No. L-47275; May 21, 1941
VOLUNTARY INSOLVENCY OF “TE CE CHIAN & CO., INC.” GERMAN LIMJAP, ET AL., oppositors-appellees.

FACTS

On September 9, 1935, Te Ce Chian & Co., Inc., through its manager Cu Tu Chang, filed a petition for voluntary insolvency in the Court of First Instance of Manila (Civil Case No. 48782), alleging it could not meet its obligations. The court declared the corporation insolvent on September 21, 1935. Subsequently, stockholders and creditors, including German Limjap and others, filed motions for reconsideration. They alleged ignorance of the proceedings and claimed the manager’s purpose was to avoid liability from a criminal complaint for misappropriating funds from a predecessor partnership. They also contended the corporation was solvent. A hearing was held where evidence was presented. Before the court could decide, the petitioner corporation moved to dismiss its own application on January 7, 1936, citing that a new, properly authorized petition for voluntary insolvency had been filed on December 12, 1935 (Civil Case No. 41979). The trial court denied the motion to dismiss and, on February 4, 1936, rendered judgment finding the corporation was not insolvent and set aside its September 21, 1935 declaration of insolvency. The corporation appealed.

ISSUE

1. Whether the trial court could entertain oppositions to a petition for voluntary insolvency filed by a corporation under section 52 of Act No. 1956 and pass upon the actual solvency or insolvency of the corporation.
2. Whether the trial court erred in not allowing the amendment and in refusing the dismissal of the petition in Civil Case No. 48782.

RULING

1. Yes. The Supreme Court held that under section 52 of Act No. 1956, a petition for voluntary insolvency by a corporation must exhibit its actual insolvency and the required authorization by the board of directors. The financial condition of the petitioner and the authority of the officer filing the petition are necessarily involved. The court must exercise sound judgment based on evidence submitted. A petitioner must establish its allegations to entitle it to an adjudication of insolvency. Conversely, any stockholder with knowledge of the corporation’s solvent condition or the lack of authority of the filing officer may move for the dismissal of the petition or to vacate a declaration of insolvency.
2. No. The Supreme Court found no error in the trial court’s refusal to dismiss the petition. The motion for dismissal was interposed belatedly, after motions for reconsideration had been filed by stockholders and evidence had been taken. The lower court correctly held that it could not simply dismiss the case without making a pronouncement on the issues raised, especially those involving section 52. The court’s final action to set aside the decree of insolvency based on the evidence was also motivated by a desire to avoid multiplicity of suits. The Supreme Court affirmed the trial court’s factual findings as supported by the record.
The judgment of the lower court was affirmed.