G.R. Nos.

L-43697 and L-442200 March 31, 1938

In re Liquidaion o! he Mercani"e #an$ o! %hina,
G&'&%& GR&%(R) *G&'&%&+, (, -L., claimants-appellants,
vs.
'-%I.I% %&-/, #I/%0I, %&., (, -L., oppositors-appellees.
A.M. Zarate for appellants Gopoco Grocery et al.
Laurel, Del Rosario and Sabido for appellant Tiong-Cui Gion.
Ross, La!rence and Selp for appellees "acific Coast #iscuit Co. et al.
$usebio %rense and Car&elino G. Al'endia for appellees Cinese Grocers Asso. et al.
Marcelo (ubla for appellees Ang Ceng Lian et al.
1I-2, J.:
On petition of the Bank Commissioner who alleged to have found, after an investigation, that the Mercantile Bank of China could
not continue operating as such without running the risk of suffering losses and prejudice its depositors and customers; and that
with the requisite approval of the corresponding authorities, he had taken charge of all the assets thereof; the Court of irst
!nstance of Manila declared the said "ank in liquidation; approved all the acts theretofore e#ecuted "$ the commissioner;
prohi"ited the officers and agents of the "ank from interfering with said commissioner in the possession of the assets thereof, its
documents, deed, vouchers, "ooks of account, papers, memorandum, notes, "ond, "onds and accounts, o"ligations or
securities and its real and personal properties; required its creditors and all those who had an$ claim against it, to present the
same in writing "efore the commissioner within ninet$ da$s; and ordered the pu"lication, as was in fact done, of the order
containing all these provisions, for the two consecutive weeks in two news-papers of general circulation in the Cit$ of Manila, at
the e#penses of the aforesaid "ank. %fter these pu"lications, and within the period of ninet$ da$s, the following creditors, among
others, presented their presented their claims&
'iong Chui (ion, (opoco (rocer$, 'an )ocko, *oo + )o + Co., ,$ (uan -uat and )a Bella 'onde.a.
!. 'he claim of 'iong Chui (ion is for the sum of /01,234.25. -e alleged that he deposited said sum in the "ank under
liquidation on current account.
!!. 'he claim of (opoco (rocer$ 6(opoco7 is for the sum of /8,9:2.83 plus /8;1. !t descri"ed its claim as follows&
Balance due on open account su"ject to check /8,925.94
!nterest on c<a 8,4:
8,9:2.83
,uret$ deposit 8;1.11
!!!. 'he claim of 'an )ocko is for the sum of /5,;28.21, and he descri"es it in turn as follows&
Balance due on open account su"ject to check )-
549
/5,;01.88
,avings account =o. 04; 6foreign7 with Mercantile
Bank of China )-0;00 %mo$ >04,111,11 !nterest
on said ,avings %ccount =o. 04; 3.22
!nterest on checking a<c 01.48
5,;28.21
!?. 'he claim of *oo + )o + Co. is for the sum of /;,952.33 and is set out in its written claim appearing in the record on
appeal as follows&
Balance due on open su"ject to check )-384 /;,9;0.10
!nterest on checking a<c 00.:5
;,952.3:
?. 'he claim of ,$ (uan -uat is for the sum of /;,2:2.33 and the descri"ed it as follows&
Balance due on open account su"ject to check )-
503
/;,228.:8
!nterest on checking a<c 3.48
;,2:2.33
?!. 'he claim of )a Bella 'onde.a is for the sum of /0,902.59, also descri"ed as follows&
Balance due on open account su"ject to check /0901.49
!nterest on account 2.21
0,902.59
'o "etter resolve not onl$ these claims "ut also the man$ others which were presented against the "ank, the lower court, on @ul$
04, 09:2, appointed ulgencio Borromeo as commissioner and referee to receive the evidence which the interested parties ma$
desire to present; and the commissioner and referee thus named, after qualif$ing for the office and receiving the evidence
presented to him, resolved the aforesaid si# claims "$ recommending that the same "e considered as an ordinar$ credit onl$,
and not as a preferred credit as the interested parties wanted, "ecause the$ were at the same time de"tors of the "ank.
'he evidence adduced and the ver$ admissions of the said interested parties in fact show that 6a7 the claimant 'iong Chui (ion,
while he was a creditor of the Mercantile Bank of China in the sum of /01,234.25 which he deposited on current account, was
also a de"tor not onl$ in the sum of /;::.5; "ut also in the sum of /;;8.55, the amount of a draft which he accepted, plus
interest thereon and the protest fees paid therefor; 6"7 the claimant (opoco (rocer$ 6(opoco7 had a current account in the "ank
in the sum of /4,:92.83, "ut it is inde"ted to it, in 'urn, in the sum of >2,::8.31, the amount of certain drafts which it had
accepted; 6c7 the claimant 'an )ocko had a deposit of /5,;28.21, "ut he owed >0,:53.91, the amount of a draft which he also
accepted; 6d7 the claimant *oo + )o + Co. had a deposit of /;,952.33, "ut it was inde"ted in the sum of >:,8;8.38, the amount
also of certain drafts accepted "$ it; 6e7 the claimants ,$ (uan -uat and ,$ Aia had a deposit of /;,2:2.33, "ut the$ owed the
sum of >:,015.:5, for two drafts accepted "$ them and alread$ due; and 6f7 the claimant )a Bella 'onde.a had, in turn, a deposit
of /0,902.59, "ut it was, in turn, inde"ted in the sum of >4;4.81 including interest and other e#penses, the amount of two drafts
drawn upon and accepted "$ it.
'he lower court approved all the recommendations of 'he commissioner and referee as to claims of the si# appellants as
follows; 607 'o approve the claim of 'iong Chui (ion 6/01,234.257 "ut onl$ as an ordinar$ credit, minus the amount of the draft
for /;;8.55; 627 to approve the claim of (opoco (rocer$ 6(opoco7 "ut also as an ordinar$ credit onl$ 6/4,:35.94 according to
the referee7, minus its o"ligation amounting to >2,::8.31 or /8,;;9.;1; 6:7 to approve the claim of 'an )ocko "ut as an ordinar$
credit onl$ 6/5,;01.88 according to the referee7, deducting therefrom his o"ligation amounting to >0,:53.91 or /2,545.31; to
approve the claim of *oo + )o + Co. "ut onl$ as an ordinar$ credit 6/;,9;0.10 according to the referee7. after deducting its
o"ligation to the "ank, amounting to >:,8;8.38 or /;,929.;3; 647 to approve the claim of ,$ (uan -uat "ut onl$ as an ordinar$
credit 6/;,228.:8 according to the referee7, after deducting his o"ligation amounting to >:,015.:57 or /;,208.58; and, finall$, 6;7
to approve the claim of la Bella 'onde.a "ut also as an ordinar$ credit onl$ 60,905.41 according to the referee7, after deducting it
o"ligation amounting to >4;4.81 or /0,0:1.31; "ut he e#pressl$ refused to authoriBe the pa$ment of the interest "$ reason of
impossi"ilit$ upon the ground set out in the decision. =ot agreea"le to the decision of the lower court, each of the interested
parties appealed therefrom and thereafter filed their respective "riefs.
'iong Chui (ion argues in his "rief filed in case in (. C. =o. 882211, that the lower court erred&
0. !n holding that his deposit of /01,234.25 in the Mercantile Bank of China, constitutes an ordinar$ credit onl$ and not a
preferred credit.
2. !n holding as preferred credits the drafts and checks issued "$ the "ank under liquidation in pa$ment of the drafts
remitted to it for collection from merchants residing in the countr$, "$ foreign entities or "anks; and in not holding that
the deposits on current account in said "ank should enjo$ preference over said drafts and checks; and
:. !n holding that the amount of /;::.5; 6which should "e understood as /;;8.557, which the claimant owes to the
"ank under liquidation, "e deducted from his current account deposit therein, amounting to /01,234.25, upon the
distri"ution of the assets of the "ank among its various creditors, instead of holding that, after deducting the aforesaid
sum of /;::.5; 6should "e /;;8.557 from his aforesaid deposit, there "e turned over to him the "alance together with
the dividends or shares then corresponding to him, on the "asis of said amount.
'he other five claimants, that is, (opoco (rocer$ 'an )ocko, *oo + )o + Co., ,$ (uan -uat and )a Bella 'onde.a, in turn
argue in the "rief the$ jointl$ filed in case (. C. =o. 8:;95, that the lower court erred&
0. !n not first deducting from their respective deposits in the "ank under liquidation, whose pa$ment the$ claim, their
respective o"ligation thereto.
2. !n not holding that their claims constitute a preferred credit.
:. !n holding that the drafts and checks issued "$ the "ank under liquidation in pa$ment of the drafts remitted to it "$
foreign entitles and "anks for collection from the certain merchant residing in the countr$, are preferred credits; and in
not holding that the deposits made "$ each of them enjo$ preference over said drafts and checks, and
8. !n den$ing their motion for a new trial "ase on the proposition that the appealed decision is not in accordance with
law and is contrar$ to the evidence adduced at the trial.
'he questions raised "$ the appellant in case (. C. =o. 88211 and "$ appellants in case (.C. 8:;95 "eing identical in nature,
we "elieve it practical and proper to resolve said questions jointl$ in one decision. Before proceeding, however, it is convenient
to note that the commissioner and referee, classif$ing the various claims presented against the "ank, placed under one group
those partaking of the same nature, the classification having resulted in si# groups.
!n the first group he included all the claims for current account, savings and fi#ed deposits.
!n the second group he included the claims for checks or drafts sold "$ the "ank under liquidation and not paid "$ the agents or
"anks in whose favor the$ had "een issued.
!n the third group he included the claims checks or drafts issued "$ the "ank under liquidation in pa$ment or reim"ursement of
the drafts or goods remitted to it for collection, from resident merchants and entitles, "$ foreign "anks and entities.
!n the fourth group he included the claims for drafts or securities to "e collected from resident merchants and entities to "e
collected from resident merchants and entities which were pending collection on the date pa$ments were suspended.
!n the fifth group he included the claims of certain depositors or creditors of the "ank who were at the same time de"tors thereof;
and he considered of this class the claims of the appellants in these two cases, and
!n the si#th group he included the other claims different in nature from the of the aforesaid five claims.
!. =ow, then, should the appellantsD deposits on current account in the "ank now under liquidation "e considered preferred
credits, and not otherwise, or should the$ "e considered ordinar$ credits onl$E 'he appellants contend that the$ are preferred
credits onl$E 'he appellants contend that the$ are preferred credits "ecause the$ are deposits in contemplation of law, and as
such should "e returned with the corresponding interest thereon. !n support thereof the$ cite Manresa 600 Manresa, Civil Code,
page ;;:7, and what has "een insinuated in the case of Rogers 's. S&it, #ell ) Co. 601 /hil., :097, citing the said commentator
who maintains that, notwithstanding the provisions of articles 05;5 and 05;3 and others of the aforesaid Code, from which it is
inferred that the so-called irregular deposits no longer e#ist, the fact is that said deposits still e#ist. %nd the$ contend and argue
that what the$ had in the "ank should "e considered as of this character. But it happens that the$ themselves admit that the
"ank owes them interest which should have "een paid to them "efore it was declared in a state of liquidation. 'his fact
undou"tedl$ destro$s the character which the$ nullifies their contention that the same "e considered as irregular deposits,
"ecause the pa$ment of interest onl$ takes place in the case of loans. On the other hand, as we stated with respect to the claim
of 'an 'iong 'ick 6*n re )iquidation of Mercantile Bank of China, (.C. =o. 8:;327, the provisions of the Code of Commerce, and
not those of the Civil Code, are applica"le to cases of the nature of those at "ar, which have to do with parties who are "oth
merchants. 6%rticles :1: and :19, Code of Commerce.7 *e there said, and it is not amiss to repeat now, that the so-called
current account and savings deposits have lost their character of deposits, properl$ so-called and are converti"le into simple
commercial loans "ecause, in cases of such deposits, the "ank has made use thereof in the ordinar$ course of its transactions
as an institution engaged in the "anking "usiness, not "ecause it so wishes, "ut precisel$ "ecause of the authorit$ deemed to
have "een granted to it "$ the appellants to ena"le them to collect the interest which the$ had "een and the$ are now collecting,
and "$ virtue further of the authorit$ granted to it "$ section 024 of the Corporation )aw 6%ct =o. 08497, as amended "$ %cts
=os. 211: and :;01 and section 9 of the Banking )aw 6%ct =o. :0487, without considering of course the provisions of article
05;3 of the Civil Code. *herefore, it is held that the deposits on current account of the appellants in the "ank under liquidation,
with the right on their right on their part to collect interest, have not created and could not create a juridical relation "etween
them e#cept that of creditors and de"tor, the$ "eing the creditors and the "ank the de"tor.
*hat has so far "een said resolves adversel$ the contention of the appellants, the question raised in the first and second
assigned errors 'iong Chui (ion in case (. C. =o. 88211, and the appellantsD second and third assigned errors in case (. C.
=o. 8:;95.
!!. %s to the third and first errors attri"uted to lower court "$ 'iong Chui (ion in his case, and "$ the other appellants in theirs,
respectivel$, it should "e stated that the question of set-off raised "$ them cannot "e resolved a like question in the said case, (.
C. =o. 8:;32, entitled F*n re )iquidation of Mercantile Bank of China. 'an 'iong 'ick, claimant.F !t is proper that set-offs "e made,
inasmuch as the appellants and the "ank "eing reciprocall$ de"tors and creditors, the same is onl$ just and according to law
6art. 0094, Civil Code7, particularl$ as none of the appellants falls within the e#ceptions mentioned in section 43 of the !nsolvenc$
)aw 6%ct =o. 094;7, reading&
,GC. 43. !n all cases of mutual de"ts and mutual credits "etween the parties, the account "etween them shall "e stated, and
one de"t set off against the other, and the "alance onl$ shall "e allowed and paid. But no set-off or counterclaim shall "e allowed
of a claim in its nature not prova"le against the estate& /rovided, 'hat no set-off on counterclaim shall "e allowed in favor of an$
de"tor to the insolvent of a claim purchased "$ or transferred to such de"tor within thirt$ da$s immediatel$ preceding the filing,
or after the filing of the petition "$ or against the insolvent.
!t has "een said with much "asis "$ Morse, in his work on Bank and Banking 6;th ed., vol. 0, pages 55; and 5387 that&
'he rules of law as to the right of set-off "etween the "ank and its depositors are not different from those applica"le to other
parties. 6/age 55;.7
*here the "ank itself stops pa$ment and "ecomes insolvent, the customer ma$ avail himself in set-off against his inde"tedness
to the "ank of an$ inde"tedness of the "ank to himself, as, for e#ample, the "alance due him on his deposit account. 6/age
538.7
But if set-offs are proper in these cases, when and how should the$ "e made, considering that the appellants ask for the
pa$ment of interestE %re the$ "$ an$ chance entitled to interestE !f the$ are, when and until what time should the$ "e paid the
sameE
'he question of whether the$ are entitled to interest should "e resolved in the same wa$ that we resolved the case of the
claimant 'an 'iong 'ick in the said case, (. C. =o. 8:;32. 'he circumstances in these two cases are certainl$ the same as
those in the said case with reference to the said question. 'he Mercantile Bank of China owes to each of the appellants the
interest claimed "$ them, corresponding to the $ear ending Hecem"er 8, 09:0, the date it was declared in a state of liquidation,
"ut not which the appellants claim should "e earned "$ their deposits after said date and until the full amounts thereof are paid
to them. %nd with respect to the question of set-off, this should "e deemed made, of course, as of the date when the Mercantile
Bank of China was declared in a state of liquidation, that is, on Hecem"er 8, 09:0, for then there was alread$ a reciprocal
concurrence of de"ts, with respect to said "ank and the appellants. 6%rts. 0094 and 009; of the Civil Code; 3 Manresa, 8th ed.,
p. :;0.7
!!!. *ith respect to the fourth assigned error of the appellants in case (. C. =o. 8:;95, we hold, in view of the considerations set
out in resolving the other assignments of errors, that the lower court properl$ denied the motion for new trial of said appellants.
!n view of the foregoing, we modif$ the appealed judgments "$ holding that the deposits claimed "$ the appellants, and declared
"$ the lower court to "e ordinar$ credits are for the following amounts& /01,234.25 of 'iong Chui (ion; /4,:35.94 of (opoco
(rocer$ 6(opoco7; /5,;01.88 of 'an )ocko; /;9;0.10 of *oo + )o + Co.; /;,228.:8 of ,$ (uan -uat; and /0,905.41 of )a
Bella 'onde.a, plus their corresponding interest up to Hecem"er 8, 09:0; that their o"ligations to the "ank under liquidation
which should "e set off against said deposits, are respectivel$ for the following amounts& /;;8.55 of 'iong Chui (ion; /8,;;9.;1
of (opoco (rocer$ 6(opoco7; /2,545.31 of 'an )ocko; /;,929.;3 of *oo + )o + Co.; /;,208.58 of ,$ -uat; and /0,0:1.31 of
)a Bella 'ode.a; and we order that the set-offs in question "e made in the manner stated in this decision, that is, as of the date
alread$ indicated, Hecem"er 8, 09:0. !n all other respects, we affirm the aforesaid judgments, without special pronouncement
as to costs. ,o ordered.