BIR Ruling

August 31, 1956 The Provincial Fiscal Sts. Cruz, Laguna S i r : Reference is made to your letter dated July 2, 1956, relative to the proof of claim which you filed in the voluntary insolvency proceedings now pending in the Court of First Instance of Laguna, Bian Branch, covering the tax liability of the Bian Transportation Company, as requested in our letter dated June 16, 1956. casia In our said letter dated June 16, 1956, we informed you about the contract or lease entered into between the Bian Transportation Company as lessor, and the Laguna Tayabas Bus Company and the Batangas Transportation on Company as lessees, and a contract of assignment of rentals whereby the monthly rentals to be realized by the lessor in the said contract or lease were assigned to the Government in satisfaction of the tax liability of the lessor amounting to P40,160.93, which has been reduced to P35,160.93. Certified copies of these two documents are hereto attached. Pursuant to these contracts, some of the monthly rentals have already become due and payable and, as an assignee in the above insolvency proceedings has been elected, these rentals may now be in the hands of the said assignee, which is supposed to take possession of all properties of the insolvent debtor for the benefit of all or its creditors, in accordance with the provisions of the insolvency law. However, it is the considered opinion of this Office that the aforesaid accrued rentals and all subsequent rentals and all to be due in accordance with the two contracts mentioned above, cannot be held lawfully by the assignee for the benefit of all the creditors of the insolvent debtor, inasmuch as the said debtor has previously assigned the same to the Government in settlement of its tax obligation to the latter. This is so because the assignee's title to the said rentals is no better than the insolvent debtor's title thereto. " Assignee's title no better than insolvent's Under the provision of the Bankruptcy Act, the trustee in bankruptcy is vested with no better right or title to the bankrupt's property than belonged to the bankrupt at the time when the trustee's title accrued. (York Mfg. Co. vs. Cassel, 201 U.S. 344.) He takes the title to the bankrupt's property subject to all equities, liens, or incumbrances, whether created by operation of law or by act of the bankrupt, which existed against the property in the hands of the bankrupt, except such attachments and transfer as the law avoids. (Mitsui Bussan Kaisha vs. Hongkong & Shanghai Bank, 36 Phil. 27; Cook vs. Tullis, 18 Wall. 332.) In other words, the assignee takes the property in the same plight and condition that the bankrupt held it. (Giberson vs. Jureidini Bros., 44 Phil. 216.)" (Tolentino's Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. II, Seventh Edition, p. 576). Hence, if the insolvent debtor is no longer entitled to the aforesaid rentals as the same were already assigned by it to the Government, it follows that the assignee in insolvency is not entitled to hold the said rentals for the benefit of all the creditors in the instant insolvency proceedings. Moreover, Section 68 of the Insolvency Law provides that "no tax or assessment due the Insular Government or any provincial or municipal government, whether proved or not as provided in this Act, shall be discharged. . . ." Consequently, even if the insolvent debtor in this case is discharged from its debts, such discharge will not affect its tax liability involved herein. In view thereof, it is requested that necessary representations be made with the Court to order the assignee in insolvency to deliver to the Government, the accrued rentals already in his possession as well as all subsequent rentals to be delivered to him by the aforesaid lessees. It will be appreciated if this Office can be informed of your action taken hereon. aisadc Very respectfully, (SGD.) SILVERIO BLAQUERA Collector of Internal Revenue