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No. L-38427. March 12, 1975.

* declaration of insolvency and the filing of the P70,000 as mo ral and exemplary damages and
CENTRAL BANK OF THE PHILIPPINES as petition for judicial assistance and supervision, P9,600 as attorney’s fees (Civil
Liquidator of the FIDELITY SAVINGS BANK, were able to secure judgments for the pay ment 116
petitioner, vs.HONORABLE JUDGE JESUS P. of their time deposits. 116 SUPREME COURT REPORTS
MORFE, as Presiding Judge of Bran ch XIII, APPEAL by certiorari from the orders of the Court ANNOTATED
Court of First Instance of Manila, Spouses of First Instance of Manila. Central Bank of the Philippines vs.
Spouses MARCELA and JOB ELIZES, AQUINO, J.: Case No. 84200 where the action was filed on
respondents. This case involves the question of whether a final September 6, 1971).
Mercantile law; Banks; Deposits; Loans; Bank judgment for the payment of a time deposit in a In its orders of August 20, 1973 and February 25,
deposits are simple loans.—It should be noted savings bank, which judgment was obtained after 1974 , the lower court (Branch XIII having
that fixed, savings, and current deposits of the bank was declared in solv ent, is a preferred cognizance of the liquidation proceeding), upon
money in banks and similar institutions are not claim aga inst the bank. The question arises motions of the Elizes and Padilla spouses and
true deposits. They are considered simple loans under the following facts: over the opposition of the Central Bank, directed
and, as such, are not preferred credits. On February 18, 1969 the Monetary Board found the latter, as liquidator, to pay their time deposits
Same; Same; Same; Central Bank the Fidelity Savings Bank to be insolvent. The as preferred credits, evidenced by final
Act; Insolvency laws;Preference of Board directed th e Superintendent of Banks to judgments, within the meaning of article
credits; Where a suit for recovery of a bank take charge of its assets, forbade it to do 2244(14)(b) of the Civil Code, if there are enough
deposit was filed after the bank has been business, and instructed the Central Bank Legal fu nds in the liquidator’s custody in excess of the
declared insolvent by the Central Bank, a Counsel to take appropriate legal actions credits mo re preferred under section 30 of the
judgment in favor of the depositor cannot be (Resolution No. 350). Central Bank Law in relation to articles 2244 and
considered a preferred credit under Article On December 9, 1969 the Board resolved to 2251 of the Civil Code.
22H(H)(b ) of the Civil Code.—The Board in its seek the court’s assistance and supervision in From the said order, the Central Bank appealed
Resolution No. 350 dated February 18, 1969 the liquidation of the bank. The resolution was to this Court by certiorari. It contends that the
banned the Fidelity Savings Bank from doing implemented only on January 25, 1972 when the final judgments secured by the Elizes a nd
business. It took charge of the bank’s assets. Central Bank of the Philippines filed the Padilla spouses do not enjoy any preference
Evidently , one purpose in prohibiting the corresponding petition for assistance and because (a) they were rendered after the Fidelity
insolvent bank from doing business is to prevent supervision in the Court of First Instance of Savings Bank was declared insolvent and (b)
some depositors from having an undue or Manila (Civil Case No. 86005 assigned to Branch under the charter of the Central Bank and the
fraudulent preference over other creditors and XIII). General Banking Law, no final judgment can be
depositors. That purpose would be nullified if, as Prior to th e institution of th e liquidation validly obtained against an insolvent bank .
in this case, after the bank is declared insolvent, proceeding but after the declaration of Republic Act No. 265 provides:
suits by some depositors could be maintained insolvency, or, specifically, sometime in Ma rch , “SEC. 29. Proceedings upon insolvency.—
and judgments would be rendered for the 197 1,the spouses Job Elizes and Marcela P. Whenever, upon examination by the
payment of their deposits and then such Elizes filed a comp laint in the Court of First Superintendent or his examiners or agents into
judgments would be considered preferred credits Instance of Manila against the Fidelity Savings the condition of any banking institution, it shall be
under article 2244(14)(b) of the Civil Code. Bank for the recovery of the sum of P50,584 as disclosed that the condition of the same is one of
Same; Same; Same; Same; Same; A non- the balance of their time deposits (Civil Case No. insolvency , or that its continuance in business
preferred credit cannot be raised to that category 82520 assigned to Branch I). would involve probable loss to its depositors or
simply because a depositor, taking advantage of In th e ju dg men t rend ered in th at case o n creditors, it shall be the duty of the
long interval of time between declaration of Decemb er 13 , 197 2 the Fidelity Savings Bank Superintendent forthwith, in writing, to inform the
insolvency and filing of judicial assistance, was was ordered to pay the Elizes spouses the sum Mo netary Board of the facts, and the Board,
able to secure a judgment for payment of his of P50,584 plus accumulated interest. upon finding the statements of the
deposit.—Considering that the deposits in In another case, assigned to Branch XXX of the Superintendent to be true, shall forthwith forbid
question, in their inception, were not preferred Court of First Instance of Manila, the spouses the institution to do business in the Philippines
credits, it does not seem logical and just that they Augusto A. Padilla and Adelaida Padilla secured and shall take charge of its assets and proceeds
should be raised to the category of preferred on April 14, 1972 a judgment against the Fidelity according to law.
credits simply because the depositors, taking Savings Bank for the sums of P80,000 as the “The Monetary Board shall thereupon determine
advantage of the long interval between the balance of their time deposits, plus interests, within thirty day s whether the institution may be
reorganized or otherwise placed in such a than one thousand nor more than ten thousand and XX X for the enforcement of the judgments
condition so that it may be permitted to resume pesos and by imprisonment for n ot less than two obtained by the Elizes and Padilla spouses. It
business with safety to its creditors and shall nor more than ten y ears.” suggested that, after satisfaction of the
prescribe the conditions under which such The Civil Code provides: judgments, the Central Bank, as liquidator,
resumption of business shall take place. In such “ART. 2237. Insolvency shall be governed by should include said judgments in the list of pr
case the expenses and fees in the administration special laws insofar as they are not inconsistent eferred credits contained in the “Project of
of the institution shall be determined by the Board with this Code, (n) Distribution” “with the notation ‘already paid’ “.
and shall be paid to the Central Bank out of the “ART. 2244. With reference to other property , On the other hand, the Central Bank argues that
assets of such banking institution. real and personal, of the debtor, the following after the Monetary Board has declared that a
“At any time within ten days after the Monetary claims or credits shall be preferred in the order bank is insolvent and has ordered it to cease
Board has taken charge of the assets of any named: operations, the Board becomes the trustee of its
banking institution, such institution may apply to xxx xxx xxx xxx assets “for the equal benefit of all the creditors,
the Court of First Instance for an order requiring (14) Credits which, without special privilege, including the depositors”. The Central Bank cites
the Monetary Board to show cause why it should appear in (a) a public instrument; or (b) in a final the ruling that “the assets of an insolvent banking
not be enjoined from continuing such charge of judgment, if they have been the subject of institution are held in trust for the equal benefit of
its assets, and the court may direct the litigation. These credits shall have preference all creditors, and after its ins olvency, one cannot
117 among themselves in the order of priority of the obtain an advantage or a preference over
VOL. 63, MARCH 12, 1975 117 dates of the instruments and of the judgments, another by an attachment, execution or
Central Bank of the Philippines vs. respectively . (1924a) otherwise” (Rohr vs. Stanton Trust & Savings
Morfe “ART. 2251. Those credits which do not enjoy Bank, 76 Mont. 248, 245 Pac. 947).
Board to refrain from further proceedings and to any preference with respect to specific property , The stand of the Central Bank is that all
surrender charge of its assets. and those which enjoy preference, as to the depositors an d creditors of the insolvent bank
“If the Monetary Board shall determine that the amount not paid, shall be satisfied according to should file their actions with the liquidation court.
banking institution cannot resume business with the following rules: In support of that view it cites the provision that
safety to its creditors, it shall, by the Solicitor 118 the Insolvency Law does not apply to banks (last
General, file a petition in the Court of First 118 SUPREME COURT REPORTS sentence, sec. 52 of Act No. 1956).
Instance reciting the proceedings which have ANNOTATED It also invokes the provision penalizing a director
been taken and pray ing the assistance and Central Bank of the Philippines vs. or officer of a bank who disburses, or allows
supervision of the court in the liquidation of the Morfe disbursement, of the funds of the bank after it
affairs of the same. The Superintendent shall (1)In the order established in article 2244; becomes in solv ent (Sec. 85 , General Banking
thereafter, upon order of the Monetary Board and (2)Common credits referred to in article 2245 Act, Republic Act No. 337). It cites th e ruling that
under the supervision of the court and with all shall be paid pro roto regardless of dates. “a creditor of an insolvent state bank in the hands
convenient speed, convert the assets of the (1929a)” of a liquidator who recovered a judgment against
banking institution to money. The trial court or, to be exact, th e liquidation it is not entitled to a preference for (by) the mere
“SEC. 30. Distribution of assets.—In case of court noted that there is no provision in th e fact that he is a judgment creditor” (Thomas H.
liquidation of a banking institution, after pay ment charter of th e Central Bank and in the General Briggs & Sons, Inc. vs. Allen, 207 N. Carolina 10,
of the costs of the proceedings, including Banking Law (Republic Acts Nos. 265 and 337, 175 S. E. 838, Braver, Liquidation of Fin ancial
reasonable expenses and fees of the Central respectively) which suspends or abates civil Institutions, p. 922).
Bank to be allowed by the court, the Central Bank actions ag ain st an in so lv en t b ank p e nd ing It should be noted that fixed, savings, and current
shall pay the debts of such institution, under the in co ur ts o ther th an th e liquidation court. It deposits of money in banks and similar
order of the court, in accordance with their legal reasoned out that, because such actions are not institutions are not true deposits. They are
priority .” suspended, judgments against insolvent banks considered simple loans and, as such, are not
The General Banking Act, Republic Act No. 337, could be considered as preferred credits under preferred credits (Art. 1980, Civil Code; In re
provides: article 2244 (14)(b ) of the Civil Code. It further Liquidation of Mercantile Bank of Ch ina: Tan
“SEC. 85. Any director or officer of any banking noted that, in contrast with the Central Bank Act, Tiong Tick vs. American Apothecaries Co., 65
institution who receives or permits or causes to section 18 of the Insolvency Law provides that Phil. 414; Pacific Coast Biscuit Co. vs. Chinese
be received in said bank any deposit, or who pay upon the issuance by the court of an order Grocers Association, 65 Phil. 375; Fletcher
s out or permits or causes to be paid out any declaring a person insolv ent, “all civil American National Bank vs. Ang Cheng Lian, 65
funds of said bank, or who transfers or permits or proceedings against the said in solvent shall be Phil. 385; Pacific Commercial Co. vs. American
causes to be transferred any securities or stayed”. Apothecaries Co., 65 Phil. 429; Gopoco Grocery
property of said bank, after said bank becomes The liquidation court directed the Central Bank to vs. Pacific Co ast Biscuit Co., 65 Phil. 443).
insolvent, shall be punished by fine of not less honor the writs of execution issued by Branches I
The aforequoted section 29 of the Central Bank’s Savings Bank of Great Falls closed its doors to Considering that the deposits in question, in their
charter explicitly provides th at when a bank is business on July 9, 1923. On November 7, 1924 inception, were not preferred credits, it does not
found to be insolvent, the Monetary Board sh all the bank (then already under liquidation) issued seem logical and just that they should be raised
forbid it to do busin ess and shall take charge of to W illiam Rohr a certificate stating that he was to the category of preferred credits simply
its assets. The Board in its Resolution No. 350 entitled to claim from the bank $1,191.72 and that because the depositors, taking advantage of the
dated February 18, 1969 banned the Fidelity Sav he was entitled to dividends th ereon. Later, Rohr long interval between the declaration of insolv
ings Bank from doing business. It took charge of sued the bank for the payment of his claim. The ency and the filing of the petition for judicial
the bank’s assets. Evidently, one purpose in bank demurred to the complaint. The trial court assistance and supervision, were able to secure
prohibiting the in solvent bank from doing sustained the demurrer. Rohr appealed. In judgments for the payment of their time deposits.
business is to prevent some depositors from affirming the order sustaining the demurrer, the _______________
** “It must be borne in mind that the predominant
having an undue or fraudulent preference over Supreme Court of Montana said:
other creditors an d depositors. “The general principle of equity that the assets of policy of the insolvent sy stem is intended to
That purpose would be nu llified if, as in this an insolvent are to be distributed ratably among secure an equality among creditors, and to
case, after the bank is declared insolvent, suits general creditors applies with full force to the prohibit all preferences except such as are
by some depositors could be maintained and distribution of the assets of a bank. A general expressly permitted. When, therefore, doubtful or
judgments would be rendered for the payment o f depositor of a bank is merely a general creditor, ambiguous provisions of the enactments making
th eir d eposits an d th en su ch ju dg men ts wou and, as such, is not entitled to any preference or up the sy stem are to be construed, that
ld be con sid ered p r eferred cred its un d er priority over other general creditors. interpretation which best comports with and gives
article 22 44(14 )(b ) of th e Civ il Code. “The assets of a bank in process of liquidation effect to the ultimate and controlling purpose of
We are of the opinion that such judgments are held in trust for the equal benefit of all the statute must be adopted and applied, rather
cannot be considered preferred and that article creditors, and one cannot be permitted to obtain than one which totally, or even partially , defeat
2244(14)(b) does not apply to judgments for the an advantage or preference over another by an or thwart that design. And this is but another way
payment of the deposits in an insolvent savings attachment, execution or otherwise. A disputed of say ing that preferences which do not clearly
bank which were obtained after the declaration of claim of a creditor may be adjudicated, but those and unequivocally appear to be authorized ought
insolvency. whose claims are recognized and admitted may not to be created by mere construction, since the
A contrary rule or practice would be productive of not successfully maintain action thereon. So to tendency of all preferences is to frustrate, to
injustice, mischief and confusion. To recognize permit would defeat the very purpose of the some extent, equality among creditors, and thus
such judgments as entitled to priority would mean liquidation of a bank whether being voluntarily to disturb the very policy which lies at the root of
that depositors in insolvent banks, after learning accomplished or through the intervention of a all the insolvent laws.” (Roberts vs. Edie, 85 Md.
that the bank is insolvent as shown by the fact receiver. 181, 36 Atl. 820, 822).
that it can no lo nger pay withdrawals or that it xxx xxx xxx “When control of a bank for liquidation purposes
has closed its doors or has been enjoined by the “The available assets of such a bank are held in is taken b y the superintendent of banks, the
Monetary Board from doing business, would rush trust, and so conserved that each depositor or question of preference creates in reality a
to the courts to secure judgments other creditor shall receive payment or dividend controversy between the depositor claiming a
120 according to the amount of his debt, and that preference and the other depositors who are
120 SUPREME COURT REPORTS none of equal class shall receive any advantage general creditors, inasmuch as the assets in
ANNOTATED or preference over another.” which all are to participate are diminished to the
Central Bank of the Philippines vs. And with respect to a national bank under extent of whatever preferences are allowed. The
Morfe voluntary liquidation, the court noted in creation of preferences, generally speaking,
for the payment of their deposits. the Rohr case that the assets of such a bank should therefore be discouraged except in cases
In such an ev entu ality, the courts wou ld be “become a trust fund, to be administered for the where the right thereto is clearly established. As
swamped with suits of that character. Some of 121 said in Cavin v. Gleason, 105 N. Y. 256, at page
the judgments would be default judgments. VOL. 63 , MARCH 12, 1975 121 262, 11 N.E. 504, 506:
Depositors ar med with such judgments would Central Bank of the Philippines vs. The equitable doctrine that, as between
pester the liquidation court with claims for Morfe creditors, equality is equity,admits, so far as we
preference on the basis of article 2244(14)(b). benefit of all creditors pro rata, and, while the know, of no exception founded on the greater
Less alert depositors would be prejudiced. That bank retains its corporate existence, and may be supposed sacredness of one debt, or that it arose
ineq uitable situation could not have been sued, the effect of a judgment obtained against it out of a violation of duty , or that its loss i nvolves
contemplated by the framers of section 29. by a creditor is only to fix the amount of debt He greater apparent hardship in one case than
The Rohr case (supra)supplies some illu min can acquire no lien which will give him any another, unless it appears, in addition, that there
ation on the disposition of the instant case. It preference or advantage over other general is some specific recognized equity founded on
appears in that case that the Stanton Trust & creditors.” (245 Pac. 249).** some agreement, or the relation of the debt to the
assigned property , which entitles the claimant, It is noteworthy that in the trial court’s order of v. Union Savings Bank & Trust Co. of Davenport,
according to equitable principles, to preferential October 3, 1972, which contain s the Bank 220 Iowa 712, 263 N.W. 495).
pay ment’ “. (Ramisch vs. Fulton, 41 Ohio App. Liquidation Rules and Regulations, it indicated in “Where judgment was rendered against bank
443, 180 N.E. 735). Step III the proced ure for processing the claims after bank was in custody of liquidator, judgment
122 against the inso lvent bank. In Step IV, the court creditor was not entitled to preference because of
122 SUPREME COURT REPORTS directed the Central Ban k, as liquidator, to judgment” (Thomas H. Briggs & Sons, Inc. vs.
ANNOTATED submit a Project of Distribution wh ich should Allen, 207 N. C. 10, 175 S. E. 838).
Central Bank of the Philippines vs. include “a list of th e preferred credits to be paid 123
Morfe in full in the order of priorities established in VOL. 63 , MARCH 13, 1975 123
The judicial declaration that the said deposits Articles 2241 , 2242, 2243, 2246 and 2247” of the Lichauco vs. Court of Appeals
were payable to the depositors, as indisputably Civil Code (note that article 2244 was not Notes.—Under the old Civil Code, one class of
they were due, could not have given the Elizes mentioned). There is no cogent reason why the creditors could exclude the creditors of the lower
and Padilla spouses a priority over the other Elizes and Padilla spouses should not adhere to order until the claims of the former were fully
depositors whose deposits were likewise th e procedure outlined in th e said rules and satisfied out of the proceeds of the sale of the
indisputably due and owing from the insolvent regulations. real property subject of the preference and could
bank but who did not want to incur litigation WHEREFORE, the lower court’s orders of Au even exhaust the proceeds if necessary. In
expenses in securing a judgment for the payment gust 20, 1973 and February 25, 19 74 are contrast, under the system of prio rities of the
of the deposits. reversed and set aside. No costs. new Civil Code, only taxes enjoy a similar
The circumstance that the Fid elity S avings SO ORDERED. absolute preference. All th e re maining thirteen
Bank, having stopped operations since February Makalintal, classes of preferred creditors under article 2242
19, 1969, was forbidden to do business (and that C.J., Fernando, Barredo, and Fernandez, JJ. enjoy no priority among themselves, but must be
ban would include the payment of time deposits) Antonio, J., did not take part. paid pro rata, or in proportion to the amount of
implies that suits for th e payment of such Orders reversed and set aside. the respective credits. (Barretto vs. Villanueva, 1
deposits were prohibited. What was directly _______________ SCRA 289).
prohibited should not be encompassed indirectly. “Ordinary deposit becomes bank’s money and ——o0o——
(See Maurello vs. Broadway Bank & Trust Co. of creates debtor-creditor relation, precluding
Paterson, 176 Atl. 391, 114 N. J.L. 167). preference as against bank’s receiver.” (Andrew