Case Summary (G.R. No. 189206)
Procedural History
Petitioner filed a petition for review on certiorari to the Supreme Court challenging the Court of Appeals (CA) affirmance of the SEC’s liquidation rulings. The SEC initially dismissed petitioner’s claim but later, by resolution, recognized petitioner’s ownership of the shares and converted his remedy into a monetary claim, awarding 15% of the value of the shares. The SEC issued a clarificatory order deleting an award of legal interest. The CA affirmed the SEC’s decision and clarificatory order. The Supreme Court denied the petition.
Factual Background
In 1977–1978 petitioner purchased CSPI certificates of stock and other shares from Philfinance and received confirmations of sale. Philfinance delivered petitioner’s CSPI certificates to custodian banks to hold for his benefit. Philfinance was placed under SEC receivership on June 18, 1981, and private respondents were appointed as liquidators. In 1991 private respondents withdrew the CSPI certificates from the custodian banks without petitioner’s knowledge or SEC authority, and on May 27, 1996 sold the CSPI shares to Northeast Corporation. The proceeds were commingled with Philfinance’s assets. Petitioner learned of the sale on September 10, 1996, initially complained to the liquidators, and later filed a formal claim in the SEC liquidation proceedings on May 6, 1997. The SEC had approved a 15% rate of recovery for Philfinance’s claimants in April 1997. The SEC ultimately granted petitioner a claim equivalent to 15% of the monetary value of his shares (P5,062,500) and deleted any award of legal interest; the CA affirmed. Petitioner received payment on November 17, 1999.
Legal Issues Presented
- Whether petitioner should be considered a preferred (secured) creditor of Philfinance.
- Whether petitioner is entitled to recover the full monetary value of the CSPI shares or only the pro rata 15% recovery applicable to ordinary creditors.
- Whether petitioner is entitled to legal interest on the claim.
Ownership, Unauthorized Disposal, and Custodia Legis
The Supreme Court accepted that petitioner was the owner of the CSPI shares by virtue of the confirmation of sale issued by Philfinance. It also found that private respondents withdrew and sold the certificates without petitioner’s consent and without SEC authority. However, because the shares were sold and the proceeds were admittedly commingled into Philfinance’s assets, returning the specific certificates became impossible. The Court applied the doctrine that assets of an entity under receivership or liquidation are in custodia legis, and that pending claims are suspended and must be litigated in the liquidation proceedings before the SEC, resulting in equality among creditors.
From Specific (Determinate) to Generic (Money) — Conversion into a Claim
The Court analyzed the legal effect of the sale and commingling: while shares of stock are specific, determinate movable properties, the proceeds of sale are money — a generic thing that, once added to a cash mass and commingled, can no longer be specifically identified or segregated. When the specific property could not be returned and its proceeds were integrated into the estate, petitioner’s remedial right became a pecuniary claim for the value of the shares. Under liquidation procedures and applicable jurisprudence, such a claim is to be treated as a claim for payment and adjudicated in the liquidation process.
Characterization under Civil Code Rules on Concurrence and Preference
Petitioner contended he was a preferred creditor under Article 2241(2) (claims arising from misappropriation, breach of trust or malfeasance on movables, money or securities obtained by public officials). The Court rejected this argument because Article 2241’s preferences apply to specific movable property, whereas petitioner’s claim was for money — a generic claim — after conversion. The Court held petitioner did not fall within the enumerated preferred categories and therefore was an ordinary creditor under Article 2245. Pursuant to Article 2251(2), common credits are to be paid pro rata regardless of dates, which justified treating petitioner identically to other ordinary creditors and limiting recovery to the established 15% rate applicable in the Philfinance liquidation.
Claim for Interest and Damages Analysis
The Court applied the guidelines from Eastern Shipping Lines regarding awarding interest and damages. It concluded petitioner was not entitled to 12% legal interest from demand because the obligation was not a loan or forbearance of money. Similarly, petitioner was not entitled to 6% legal interest under Article 2209 because that provision pertains to delay in payment of a sum of money, which was not the operative situation here given the conversion and liquidation context. The SEC’s deletion of interest in its clarificatory order was thus consistent with principles of equality among creditors; awarding interest to petitioner would have conferred an unfair preference over other claimants. The Court noted the amount awarded (P5,062,500) had been paid, extinguishing the SEC’s obligation under Article 1231 (payment extinguishes obligations).
Remedies Agains
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Facts
- In 1977 and 1978, 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), and was issued confirmations of sale.
- The CSPI shares were physically delivered by Philfinance to Filmanbank (later Pilipinas Bank) and Philtrust Bank as custodian banks to hold the shares for petitioner’s benefit.
- On June 18, 1981, Philfinance was placed under receivership by the Securities and Exchange Commission (SEC). Private respondents Reyes Daway Lim Bernardo Lindo Rosales Law Offices and Atty. Wendell Coronel were later appointed as liquidators.
- In or about 1991, without petitioner’s knowledge or consent and without SEC authority, private respondents withdrew the CSPI share certificates from the custodian banks.
- On May 27, 1996, private respondents sold the CSPI shares to Northeast Corporation and included the sale proceeds in Philfinance’s funds.
- Petitioner learned of the unauthorized sale on September 10, 1996, and after private respondents ignored his complaint, he filed a formal complaint on May 6, 1997 in the SEC receivership/liquidation proceedings seeking return of the shares or their monetary equivalent.
- On April 18, 1997, the SEC approved a 15% rate of recovery for Philfinance’s creditors and investors; on May 13, 1997, the liquidators began settling claims from Philfinance’s assets.
- The SEC initially dismissed petitioner’s petition on April 14, 1998, but on reconsideration in a September 24, 1999 resolution granted petitioner’s claim, recognizing his ownership of the CSPI shares via the confirmation of sale (treated as deed of assignment), and ordered private respondents to pay P5,062,500 representing 15% of the monetary value of his shares plus legal interest from time of unauthorized sale.
- On October 27, 1999, the SEC issued a clarificatory order reiterating payment of P5,062,500 but deleting the award of legal interest, explaining that awarding interest would be unfair to other claimants.
- The Court of Appeals (CA) affirmed the SEC: it agreed petitioner was owner of the shares but recovery of the certificates was impossible because they had been sold and the proceeds commingled; it held the clarificatory order harmonized the dispositive portion with the body of the resolution.
- Petitioner’s motion for reconsideration to the CA was denied.
Procedural History
- Petition for review on certiorari filed with the Supreme Court under Rule 45 from CA decision dated July 31, 2000 and CA resolution dated December 27, 2000 in CA-G.R. SP No. 55311.
- SEC had been impleaded as public respondent; in the Supreme Court’s resolution dated July 8, 2002, the SEC was considered as liquidator in place of private respondents whose appointment had expired.
- The Supreme Court received and reviewed the records, including the SEC resolutions and CA decision; private respondents could not be located and did not file pleadings before the Court.
Issues Presented
- Whether petitioner should be considered a preferred (secured) creditor of Philfinance.
- Whether petitioner can recover the full monetary value of his CSPI shares or only 15% thereof like other ordinary creditors.
- Whether petitioner is entitled to legal interest.
Parties’ Contentions (as presented)
- Petitioner:
- Asserts ownership of CSPI shares and contends private respondents illegally withdrew and sold the shares without his knowledge/consent or SEC authority.
- Argues he should be a preferred creditor under Article 2241(2) of the Civil Code for claims arising from misappropriation, breach of trust or malfeasance, entitling him to the full monetary value of the shares.
- Claims entitlement to 12% legal interest per annum under Article 2209 of the Civil Code from the time he was deprived of the shares until full payment.
- SEC and CA:
- Acknowledge petitioner’s ownership but find return of specific shares impossible because they were sold and proceeds commingled.
- Treat petitioner as a claimant whose remedy is a money claim in the liquidation proceedings and therefore an ordinary creditor entitled to the same pro rata recovery as other common creditors.
- Assert awarding interest would unfairly advantage petitioner over other creditors; the SEC’s clarificatory order removed the award of legal interest.
Legal and Factual Determinations by the Courts Below
- Ownership:
- Both the SEC and the CA held petitioner to be the owner of the CSPI shares by virtue of the confirmation of sale treated as a deed of assignment.
- Impossibility of Specific Recovery:
- Certificates had been alienated/transferred to Northeast Corporation (May 27, 1996); proceeds were commingled and became indistinguishable from Philfinance’s cash/assets held in custodia legis, making return of the identical shares impossible.
- Conversion to Money Claim:
- Once sold, the specific/determinate shares ceased to exist as such; the proceeds were generic money commingled with other assets. Petitioner’s remedy shifted to a claim for the monetary value of the shares in the liquidation proceedings.
- Treatment as Ordinary Creditor:
- Because petitioner’s claim was for money (a generic thing) and not for specific property, Article 2241(2) (preferred claims relat