Cordova vs. Reyes Daway Lim Bernardo Lindo Rosales Law Offices

A claimant whose specific shares are sold by a liquidator without authority and whose proceeds are commingled with the assets of the corporation under liquidation becomes an ordinary creditor for the monetary value of the shares, entitled only to pro rata recovery; Article 2241 does not make him a preferred creditor because his claim is for generic money, and no legal interest is due absent a loan, forbearance, or delay.

Philfinance was under SEC liquidation in a proceeding governed by P.D. 902-A, where claims against a corporation under receivership are administered collectively and the Civil Code’s concurrence and preference rules govern distribution. Cordova was a purchaser of CSPI shares from Philfinance, while private respondents were the liquidators in that proceeding.

Jose C. Cordova bought certificates of stock of Celebrity Sports Plaza Incorporated and shares of stock of various other corporations from Philippine Underwriters Finance Corporation sometime in 1977 and 1978, and Philfinance issued him a confirmation of sale. The CSPI shares were physically delivered by Philfinance to the former Filmanbank, which later became Pilipinas Bank, and Philtrust Bank, as custodian banks, to hold them in behalf of and for the benefit of Cordova.

On June 18, 1981, Philfinance was placed under receivership by the SEC. Private respondents Reyes Daway Lim Bernardo Lindo Rosales Law Offices and Atty. Wendell Coronel were thereafter appointed as liquidators.

Sometime in 1991, without Cordova’s knowledge and consent and without authority from the SEC, private respondents withdrew the CSPI shares from the custodian banks. On May 27, 1996, they sold the shares to Northeast Corporation and included the proceeds in Philfinance’s funds. Cordova learned of the unauthorized sale only on September 10, 1996.

He lodged a complaint with private respondents, but they ignored it, prompting him to file on May 6, 1997 a formal complaint in the receivership proceedings with the SEC for the return of the shares. Meanwhile, on April 18, 1997, the SEC approved a 15% rate of recovery for Philfinance’s creditors and investors, and on May 13, 1997 the liquidators began settling claims against Philfinance from its assets.

The SEC and the CA found that Cordova owned the CSPI shares, that private respondents had withdrawn and sold them without SEC authority, and that the proceeds had been commingled with Philfinance’s assets. Cordova manifested before the CA that the SEC, as liquidator, had paid him ₱5,062,500 on November 17, 1999, representing 15% of ₱33,750,000.

• Preferred Creditor Status: Petitioner argued that he was a preferred creditor under Article 2241(2) of the Civil Code because private respondents illegally withdrew his CSPI shares from the custodian banks and sold them without his knowledge and consent and without authority from the SEC; as a preferred creditor, he claimed entitlement to the entire monetary value of the shares.
• Legal Interest: Petitioner argued that he was entitled to 12% legal interest per annum under Article 2209 of the Civil Code from the time he was deprived of the shares until fully paid.

• Legal Interest: Respondent SEC argued that awarding interest to petitioner would give him an unfair advantage or preference over the other creditors.

• Creditor Status: Whether petitioner became a creditor of Philfinance after his CSPI shares were sold and the proceeds were commingled with Philfinance’s assets.
• Preferred Creditor Status: Whether petitioner should be considered a preferred (and secured) creditor of Philfinance.
• Recoverable Amount: Whether petitioner can recover the full value of his CSPI shares or merely 15% thereof like other ordinary creditors.
• Legal Interest: Whether petitioner is entitled to legal interest.

• Creditor Status: Yes. Once the shares were sold and the proceeds commingled with Philfinance’s assets, petitioner’s demand became a pecuniary claim for the value of the shares, making him a creditor in the liquidation.
• Preferred Creditor Status: No. Article 2241 applies only to claims against specific movable property; petitioner’s claim was for money, which is generic property, so he was not a preferred creditor.
• Recoverable Amount: Only 15%. As an ordinary creditor under Article 2245, petitioner was entitled to pro rata payment under Article 2251(2), like the other ordinary creditors.
• Legal Interest: No. The amount owing was not a loan or forbearance and there was no delay in payment; the Eastern Shipping Lines rules did not justify interest, and payment of ₱5,062,500 extinguished the obligation.

• Creditor Status: The SC began from the undisputed ownership of Cordova over the CSPI shares. Private respondents, as liquidators, illegally withdrew the certificates from the custodian banks without Cordova’s knowledge and consent and without SEC authority, then sold them to Northeast Corporation and added the proceeds to Philfinance’s assets. The SEC held that return of the shares was no longer possible because they had been sold and the proceeds were admittedly commingled with Philfinance’s assets; Cordova was therefore a claimant for their value and an ordinary creditor as to that value. The CA agreed, explaining that the certificates had been alienated and the proceeds had been transmuted into corporate assets under custodia legis, ready for distribution to creditors and investors. The SC agreed. Cordova had the right to demand return, but the sale made that impossible, so he sought the monetary value. His shares were specific or determinate movable property, but after sale the money became generic and was commingled with Philfinance’s cash and other assets; the exact proceeds could no longer be identified or segregated. His only remedy was a claim on the whole mass of assets, to which other creditors and investors also had claims. Under Finasia, a “claim” in liquidation under Section 6(c) of P.D. 902-A refers to debts or demands of a pecuniary nature, an assertion of a right to have money paid, including a right to payment whether liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, legal or equitable, secured or unsecured. Cordova’s demand for the value of his shares was pecuniary, so he was a creditor.
• Preferred Creditor Status: The Civil Code provisions on concurrence and preference of credits apply to liquidation proceedings. Cordova invoked Article 2241(2), which gives preference with reference to specific movable property of the debtor for claims arising from misappropriation, breach of trust, or malfeasance by public officials committed in the performance of their duties, on the movables, money or securities obtained by them. The SC rejected this because Article 2241 refers only to specific movable property. Cordova’s claim was for payment of money, which is generic property and not specific or determinate. He did not fall under any provision on preferred creditors; under Article 2245, credits of any other kind or class or by any other right or title not comprised in the preceding articles enjoy no preference. He was therefore an ordinary creditor.
• Recoverable Amount: Because Cordova was an ordinary creditor, Article 2251(2) governed: common credits referred to in Article 2245 shall be paid pro rata regardless of dates. The SEC had approved a 15% rate of recovery for Philfinance’s creditors and investors. Like all other ordinary creditors or claimants against Philfinance, Cordova was entitled to a rate of recovery of only 15% of his money claim. The SC noted that he had already received ₱5,062,500 representing 15% of ₱33,750,000.
• Legal Interest: The SEC argued that awarding interest would give Cordova an unfair advantage or preference over other creditors. Cordova claimed 12% legal interest per annum under Article 2209 from the time he was deprived of the shares until full payment. The SC applied Eastern Shipping Lines. Under those guidelines, 12% per annum from demand is due when the obligation breached consists in the payment of a sum of money, i.e., a loan or forbearance of money; 6% per annum may be imposed at the court’s discretion when an obligation not constituting a loan or forbearance is breached, and no interest is adjudged on unliquidated claims unless the demand can be established with reasonable certainty. Cordova was not entitled to 12% because the amount owing to him was not a loan or forbearance of money. He was not entitled to 6% under Article 2209 because that provision applies only when there is delay in the payment of a sum of money, and this was not the case. He himself manifested before the CA that the SEC had already paid him ₱5,062,500 representing 15% of ₱33,750,000. He was not entitled to interest under law and current jurisprudence. Since he had received that amount, the obligation of the SEC as liquidator of Philfinance was totally extinguished under Article 1231.

• Custodia legis and equality in equity — Assets of an institution under receivership or liquidation are deemed in custodia legis in the hands of the receiver or liquidator and are exempt from garnishment, levy, attachment, or execution; all creditors stand on equal footing, and no one may be given preference by paying one or some ahead of others. The SC applied this to Philfinance’s assets after the CSPI proceeds were commingled, treating Cordova’s claim as part of the collective liquidation rather than a special preference.
• Claim in liquidation proceedings — Under Section 6(c) of P.D. 902-A, as construed in Finasia, a “claim” refers to debts or demands of a pecuniary nature, meaning the assertion of a right to have money paid; it includes a right to payment whether liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, legal or equitable, secured or unsecured. The SC applied this to Cordova’s demand for the monetary value of his sold shares.
• Specific or determinate thing vs. generic thing — A determinate thing is a concrete, particularized object indicated by its own individuality; money is a generic thing designated merely by its class or genus without particular designation or physical segregation from others of the same class. Shares of stock are specific movable property, but once sold and converted into money commingled with other funds, the proceeds become generic and cannot be pinpointed. The SC used this to deny Cordova a preferred claim over the exact proceeds.
• Concurrence and preference of credits — Article 2241 preferred claims with reference to specific movable property do not cover a claim for generic money; Article 2245 treats credits not comprised in the preferred-credit articles as ordinary; Article 2251(2) requires common credits to be paid pro rata regardless of dates. The SC applied these rules to hold Cordova an ordinary creditor entitled only to 15%.
• Legal interest under Eastern Shipping Lines — The guidelines distinguish 12% per annum for a breached obligation to pay a sum of money that is a loan or forbearance, 6% per annum for a breached obligation not constituting a loan or forbearance when damages are awarded at the court’s discretion, and no interest on unliquidated claims unless the demand is established with reasonable certainty. The SC applied these rules to deny Cordova interest because his claim was not a loan or forbearance and there was no delay.
• Payment extinguishes obligation — Under Article 1231 of the Civil Code, obligations are extinguished by payment or performance. The SC applied this after Cordova received ₱5,062,500, holding that the SEC’s obligation as liquidator was totally extinguished.
• Liability of unauthorized liquidators — The SC noted that where liquidators sell a claimant’s shares without SEC authority, the claimant has a cause of action against them for bad faith and the resulting damage, separate from his ordinary claim in the liquidation.

• "Petitioner is seeking the return of his CSPI shares which, for the present, is no longer possible, considering that the same had already been sold by the respondents, the proceeds of which are ADMITTEDLY commingled with the assets of Philfinance." — The SC quoted the SEC’s finding to explain why Cordova could no longer recover the shares themselves and had to claim their value in the liquidation.
• "Unlike shares of stock, money is a generic thing. It is designated merely by its class or genus without any particular designation or physical segregation from all others of the same class." — The SC used this distinction to hold that the sale proceeds could not be traced and that Cordova’s claim had become a money claim.
• "Article 2241 refers only to specific movable property. His claim was for the payment of money, which, as already discussed, is generic property and not specific or determinate." — This is the core reason the SC rejected Cordova’s preferred-creditor argument under Article 2241(2).
• "Under this ruling, petitioner was not entitled to legal interest of 12% per annum (from demand) because the amount owing to him was not a loan or forbearance of money." — The SC applied Eastern Shipping Lines to deny the 12% interest Cordova claimed under Article 2209.

• Finasia Investments and Finance Corporation vs. CA, G.R. No. 107002, 7 October 1994, 237 SCRA 446 — Followed for the definition of “claim” in liquidation proceedings under Section 6(c) of P.D. 902-A.
• Eastern Shipping Lines, Inc. vs. CA, G.R. No. 97412, 12 July 1994, 234 SCRA 78 — Followed for the guidelines on legal interest; applied to deny interest.
• Gaisano Cagayan, Inc. vs. Insurance Company of North America, G.R. No. 147839, 8 June 2006, 490 SCRA 286 — Cited for the definition of money as a generic thing.
• De Leon vs. Soriano, 87 Phil. 193 (1950) — Cited for the definition of a determinate thing.
• Development Bank of the Philippines vs. CA, 415 Phil. 538 (2001) — Cited to support that the Civil Code provisions on concurrence and preference of credits apply to liquidation proceedings.
• President of Philippine Deposit Insurance Corporation vs. Reyes, G.R. No. 154973, 21 June 2005, 460 SCRA 473 — Cited for the rule that Article 2209 applies only when there is delay in the payment of a sum of money.
• Araneta vs. CA, G.R. No. 95253, 10 July 1992, 211 SCRA 390 — Cited for the SEC’s jurisdiction in the Philfinance liquidation to decide questions concerning title or right of possession to assets in custodia legis.

• Article 2241(2), Civil Code — Provides a preferred claim with reference to specific movable property of the debtor for claims arising from misappropriation, breach of trust, or malfeasance by public officials committed in the performance of their duties, on the movables, money or securities obtained by them. The SC held it inapplicable because Cordova’s claim was for generic money, not specific movable property.
• Article 2245, Civil Code — Provides that credits of any other kind or class, or by any other right or title not comprised in the four preceding articles, enjoy no preference. The SC applied it to classify Cordova as an ordinary creditor.
• Article 2251(2), Civil Code — Provides that common credits referred to in Article 2245 shall be paid pro rata regardless of dates. The SC applied it to limit Cordova to the 15% rate of recovery.
• Article 2209, Civil Code — Provides for legal interest of six percent per annum when the debtor incurs delay in the payment of a sum of money, absent stipulation. The SC held it inapplicable because there was no delay in payment.
• Article 1231, Civil Code — Provides that obligations are extinguished by payment or performance. The SC applied it after Cordova received ₱5,062,500.
• Article 22, Civil Code — Provides that every person who through an act or performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground shall return the same. The SC cited it in support of Cordova’s right to demand the return of his shares before the sale made return impossible.
• Section 6(c), P.D. 902-A — Provides for suspension of all actions for claims against corporations under management or receivership and supplies the context for the SEC’s liquidation jurisdiction. The SC used it, through Finasia, to define “claim” and treat Cordova’s demand as a pecuniary claim in the liquidation.
• Rule 45, Rules of Court — Governs the petition for review on certiorari filed by Cordova. The SC resolved the case on that mode of review.