In liquidation proceedings, a preferred creditor is entitled to the entire monetary value of his claim. One of the preferred credits under the Civil Code (Article 2241 [2]) is a claim 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. But in this case of Tony, his claim was not considered as preferred. Let’s find out why.
Sometime in 1977 and 1978, Tony bought from PFC, certificates of stocks of a Sports Club (CSPI) and of various other corporations amounting to P33,750,000. After issuing sales confirmation, the CSPI shares were delivered to two banks as custodians to hold these shares for and in behalf of Tony.
On June 18, 1981 however, PFC was placed under receivership by the SEC which appointed the law firm of Wally as liquidators. Sometime in 1991, without the knowledge and consent of Tony and without authority from SEC, the law firm withdrew the CSPI certificates from the custodian banks. On May 27, 1996, the liquidation lawyers sold the shares to NCC and included the proceeds of sale in the funds of PFC.
When Tony learned about the unauthorized sale of his shares on September 10, 1996, he lodged a complaint with the law firm but the latter ignored it. Meanwhile, on April 18, 1997, the SEC already approved a 15% rate of recovery for PFC creditors and investors. This prompted Tony to file a formal petition in the receivership proceedings with the SEC on May 6, 1997. Thereafter, or on May 13, 1997, the liquidators began the process of settling the claims against PFC from its assets.
On September 24, 1999, the SEC ruled on Tony’s claim. It held that Tony 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 PFC. But since the shares had already been sold and the proceeds commingled with the other assets of PFC, Tony’s status was converted into that of an ordinary creditor for the value of such shares. Thus it ordered the liquidator to pay Tony only the amount of P5, 062,500 representing 15% of the monetary value of his CSPI shares.
Tony questioned this ruling. He contended that he should be considered a preferred (and secured) creditor entitled to the full value of the CSPI shares and not merely 15% thereof. Tony said that he is a preferred creditor because the liquidators illegally withdrew said stock certificates without his knowledge and consent and without authority of the SEC, citing the aforementioned Article 2241 of the Civil Code. Was Tony correct?
No. Article 2241 refers only to specific movable property. Undoubtedly, his CSPI shares are specific and 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 PFC. 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 the whole mass of money.
It thus became impossible to identify the exact proceeds of the sale of CSPI shares since they could no longer be particularly designated nor distinctly segregated from the assets of PFC. Tony’s only remedy was to file a claim on the whole mass of these assets, to which unfortunately all of the other creditors and investors of PFC had claims. His claim was for the payment of money and like all the other ordinary creditors or claimants, he was entitled to only 15% of his money claim.
But Tony has a cause of action against the liquidators for their bad faith and unauthorized acts and the resulting damage caused to him when they sold the subject shares without authority from the SEC (Cordova vs. Reyes et. al. G.R. 146555, July 3, 2007).
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