CORDOVA v.
REYES DAWAY LIM BERNARDO LINDO ROSALES LAW OFFICES, (2007)
Common Credits, Art. 2245, Art. 2251
The Civil Code provisions on concurrence and preference of credits are applicable to the liquidation proceedings.
Facts: Sometime in 1977 and 1978, petitioner Jose C. Cordova bought from Philippine Underwriters Finance
Corporation (Philfinance) certificates of stock of Celebrity Sports Plaza Incorporated (CSPI) and shares of stock of
various other corporations. He was issued a confirmation of sale.4 The CSPI shares were physically delivered by
Philfinance to the former Filmanbank5 and Philtrust Bank, as custodian banks, to hold these shares in behalf of and
for the benefit of petitioner.6
On June 18, 1981, Philfinance was placed under receivership by public respondent Securities and Exchange
Commission (SEC). Thereafter, private respondents Reyes Daway Lim Bernardo Lindo Rosales Law Offices and Atty.
Wendell Coronel (private respondents) were appointed as liquidators.7 Sometime in 1991, without the knowledge and
consent of petitioner and without authority from the SEC, private respondents withdrew the CSPI shares from the
custodian banks.8 On May 27, 1996, they sold the shares to Northeast Corporation and included the proceeds thereof
in the funds of Philfinance. Petitioner learned about the unauthorized sale of his shares only on September 10, 1996.9
He lodged a complaint with private respondents but the latter ignored it10 prompting him to file, on May 6, 1997,11 a
formal complaint against private respondents 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 Philfinances creditors and investors.12 On
May 13, 1997, the liquidators began the process of settling the claims against Philfinance, from its assets.13
On April 14, 1998, the SEC rendered judgment dismissing the petition. However, it reconsidered this decision in a
resolution dated September 24, 1999 and granted the claims of petitioner. It held that petitioner was the owner of the
CSPI shares by virtue of a confirmation of sale (which was considered as a deed of assignment) issued to him by
Philfinance. But since the shares had already been sold and the proceeds commingled with the other assets of
Philfinance, petitioners status was converted into that of an ordinary creditor for the value of such shares. Thus, it
ordered private respondents to pay petitioner the amount of P5,062,500 representing 15% of the monetary value of
his CSPI shares plus interest at the legal rate from the time of their unauthorized sale.
On October 27, 1999, the SEC issued an order clarifying its September 24, 1999 resolution. While it reiterated its
earlier order to pay petitioner the amount of P5,062,500, it deleted the award of legal interest. It clarified that it never
meant to award interest since this would be unfair to the other claimants.
On appeal, the CA affirmed the SEC. It agreed that petitioner was indeed the owner of the CSPI shares but the
recovery of such shares had become impossible. It also declared that the clarificatory order merely harmonized the
dispositive portion with the body of the resolution. Petitioners motion for reconsideration was denied.
Issue: Was petitioner a preferred or ordinary creditor under these provisions?
Petitioner argues that he was a preferred creditor because private respondents illegally withdrew his shares from the
custodian banks and sold them without his knowledge and consent and without authority from the SEC. He
quotes Article 2241 (2) of the Civil Code:
With reference to specific movable property of the debtor, the following claims or liens shall be preferred:
(2) 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;
He asserts that, as a preferred creditor, he was entitled to the entire monetary value of his shares.
Held: Petitioners argument is incorrect. Article 2241 refers only to specific movable property. His claim was for
the payment of money, which is generic property and not specific or determinate. Petitioners CSPI shares were
specific or determinate movable properties. But after they were sold, the money raised from the sale became
generic and were commingled with the cash and other assets of Philfinance. 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. This means that once a certain amount is added to the cash balance, one can no longer
pinpoint the specific amount included which then becomes part of a whole mass of money.
Considering that petitioner did not fall under any of the provisions applicable to preferred creditors, he was deemed
an ordinary creditor under Article 2245:
Credits of any other kind or class, or by any other right or title not comprised in the four preceding articles, shall
enjoy no preference.
This being so, Article 2251 (2) states that:
Common credits referred to in Article 2245 shall be paid pro rata regardless of dates.
Like all the other ordinary creditors or claimants against Philfinance, he was entitled to a rate of recovery of only 15%
of his money claim.
