G.R. No. 146555 - Cordova vs. Reyes, Daway, Lim, Bernardo, Lindo, Rosales Law Offices

Case Summary (G.R. No. 146555)

Timeline and Applicable Law

Shares purchased: 1977-1978
Philfinance placed under receivership by SEC: June 18, 1981
Unauthorized withdrawal and sale of CSPI shares: 1991 and May 27, 1996 respectively
Petitioner files formal complaint with SEC: May 6, 1997
SEC resolution dismissing then reconsidering the complaint: April 14, 1998 and September 24, 1999
Court of Appeals decision affirming SEC ruling: 2000
Supreme Court decision: July 3, 2007
Applicable Law: 1987 Philippine Constitution; Civil Code provisions on obligations and preferences among creditors; Presidential Decree No. 902-A on receivership and liquidation

Ownership and Custodianship of CSPI Shares

Jose C. Cordova was issued a confirmation of sale by Philfinance upon his purchase of CSPI shares, confirming his ownership. The shares were physically delivered and held by custodian banks (Filmanbank, later Pilipinas Bank, and Philtrust Bank) in trust for petitioner. This custodianship arrangement was procedural to safeguard the shares during the receivership of Philfinance.

Illegal Withdrawal and Sale of Shares by Liquidators

In 1991, the private respondents, appointed as liquidators by the SEC, unauthorizedly withdrew the CSPI shares from the custodian banks without the petitioner’s consent or SEC authority. Subsequently, in 1996, these shares were sold to Northeast Corporation, and the proceeds were merged into the general funds of Philfinance.

Petitioner’s Claim and SEC Proceedings

Upon learning of the unauthorized sale in September 1996, petitioner filed a complaint demanding the return of the shares. The liquidators ignored his demand, prompting him to file a formal complaint during Philfinance’s liquidation proceedings at the SEC. The SEC initially dismissed the complaint but later reversed the dismissal, acknowledging petitioner’s ownership of the shares but recognizing the impossibility of their return due to the prior sale and commingling of proceeds with Philfinance’s assets.

Status of Petitioner as Creditor

The SEC and Court of Appeals concurred that petitioner’s ownership of the CSPI shares was undisputed; however, because the shares had already been sold and their proceeds mingled with other assets, petitioner’s effective remedy was a claim to the monetary value of those shares. This converted his status from shareholder to an ordinary creditor entitled to payment from the liquidation funds. The Court emphasized the custodia legis principle, which protects all assets under receivership from individual claims or attachments, ensuring equitable treatment of creditors.

Nature of the Claim and Applicability of Civil Code Provisions

The transition from specific property (the shares) to generic, commingled money resulted in petitioner’s claim being classified as a monetary demand or “claim” within the liquidation context. Pursuant to PD 902-A and relevant jurisprudence, a claim is broadly defined as a right to payment, secured or unsecured, fixed or contingent. Consequently, petitioner became a claimant equal to other creditors, subject to the liquidation’s general rules on asset distribution.

Preference Among Creditors and Rejection of Preference Status

Petitioner claimed preference status citing Article 2241(2) of the Civil Code, which grants preference to claims arising from misappropriation or breach of trust involving specific movable property. The Supreme Court rejected this argument, holding that once the shares were sold and converted into money, the claim became a generic monetary claim, not a specific property right warranting preference. Petitioner was therefore classified as an ordinary creditor under Article 2245, entitled only to pro rata distribution alongside other common creditors pursuant to Article 2251(2).

Recovery Rate and Extent of Petitioner’s Entitlement

The SEC had previously approved a 15% rate of recovery for Philfinance’s creditors, which included petitioner. The Court upheld that petitioner was entitled only to 15% of the monetary value of the CSPI shares, aligning with the distribution provided to other ordinary creditors under the liquidation.

Issue of Legal Interest on the Monetary Claim

Petitioner sought 12% annual legal interest on the monetary award from the time of deprivation. The Court held that petitioner was not entitled to such interest because the obligation was not a loan or forbearance of money, which under Article 2209 of the Civil Code and relevant jurisprudence, is the predicate for interest recovery. The Court further stated that awarding interest would have given petitioner an unfair advantage over other creditors and that the amount awarded had already been paid in full.

Extinguishment of Obligation and Potential Separate Action

Case Syllabus (G.R. No. 146555)

Facts of the Case

Petitioner Jose C. Cordova purchased certificates of stock of Celebrity Sports Plaza Incorporated (CSPI) and shares of other corporations from Philippine Underwriters Finance Corporation (Philfinance) in 1977-1978.
Petitioner received confirmation of sale documents evidencing ownership of these shares.
The CSPI shares were physically delivered by Philfinance to custodian banks (former Filmanbank and Philtrust Bank) for holding on petitioner's behalf.
On June 18, 1981, Philfinance was placed under receivership by the Securities and Exchange Commission (SEC).
Private respondents (law office and attorney) were appointed liquidators of Philfinance.
In 1991, without petitioner's consent or SEC authority, the private respondents withdrew the CSPI shares from the custodian banks.
On May 27, 1996, private respondents sold the CSPI shares to Northeast Corporation and commingled the proceeds with Philfinance’s funds.
Petitioner discovered the unauthorized sale on September 10, 1996, and his complaint to private respondents was ignored.
Petitioner filed a formal complaint with the SEC in receivership proceedings for the return of the shares on May 6, 1997.
On April 18, 1997, the SEC approved a 15% recovery rate for Philfinance’s creditors and investors.
The liquidators began claim settlement efforts on May 13, 1997.
On April 14, 1998, the SEC dismissed petitioner’s complaint, but on reconsideration dated September 24, 1999, the SEC granted petitioner’s claim acknowledging ownership but treating petitioner as an ordinary creditor entitled only to 15% of the shares’ monetary value.
The SEC’s order was clarified on October 27, 1999, removing the award of legal interest.
The Court of Appeals (CA) affirmed the SEC ruling, citing impossibility of return and equality among creditors.
Petitioner’s motion for reconsideration was denied, leading to this petition before the Supreme Court.

Issues Presented

Whether petitioner is a preferred (secured) or ordinary creditor of Philfinance.
Whether petitioner is entitled to recover the full value of the CSPI shares or only 15% thereof as with other creditors.
Whether petitioner is entitled to legal interest on the amount awarded.

Ownership and Status of the Shares

It is undisputed that petitioner was the original owner of the CSPI shares as evidenced by the confirmation of sale.
The private respondents acted without authority or consent when withdrawing and selling the shares.
The proceeds from the sale were commingled with the assets of Philfinance.

Conversion to Creditor Status and Legal Consequences

Due to the sale and commingling of proceeds, petitioner’s status was converted from owner of specific shares to a claimant or creditor for the monetary value of those shares.
The SEC and the CA agreed that the return of the shares was impossible.
Petitioner’s monetary claim became part of the generic mass of assets under Philfinance’s receivership.
As a claimant, petitioner was bound by the terms and conditions applicable to all claimants in the liquidation pro