G.R. No. 43689. March 31, 1938
IN RE LIQUIDATION OF MERCANTILE BANK OF CHINA. PACIFIC COMMERCIAL COMPANY, FISHER FLOURING MILLS CO., INC., AND CARNATION COMPANY, CLAIMANTS AND APPELLANTS, VS. AMERICAN APOTHEC…
IMPERIAL, J.:
the case of the Liquidation of the Mercantile Bank of China, instituted
in the Court of First Instance of Manila, Pacific Commercial Co.,
Fisher Flouring Mills Co., Inc., and Carnation Company filed claims
asking that the Bank Commissioner pay them the amount of the various
drafts which they forwarded to the said bank for collection from
various persons and entities. The said drafts represented the values of
the merchandise which the creditors had remitted to the drawees, and
were forwarded to the Mercantile Bank of China with instructions that
the latter collect their amounts and send the same to them, and not to
deliver either the merchandise or the bills of lading and other
documents accompanying the same until the said drafts have been paid.
Overstepping its powers, the Mercantile Bank of China delivered the
merchandise and the bills of lading and other documents without
collecting the amount of the drafts, and with the exception of certain
amounts which it paid on account, it did not turn over to the claimants
the amount thereof. Passing upon the claims, the commissioner appointed
by the court approved them and recommended their payment, or the
payment of their balances, and in general recommended that the credits
be considered preferred.
In connection with these claims, it
happened that some of the drawees who had accepted the drafts, named
Tan Tiong Tick, Cheng Bang Yek (Chung Lin), Go Poco Grocery Co., Co Ban
Ling & Co Ban Kiat, Victoriano Tan Layco and Sy Guan Juat &
Co., were at the same time creditors of the Mercantile Bank of China
because they had in their favor balances in their current account and
savings deposits with said bank. The commissioner set off these
balances against the credits which the bank had against the aforesaid
depositors and the recommendation thus made was approved by the court.
Pacific Commercial Co., Fisher Flouring Mills Company, Inc., and
Carnation Company appealed from that part of the decision of the court
which declares the claims filed by the said depositors as preferred
credits, consisting of the balances in their favor in their current
account and savings deposits in the Mercantile Bank of China. The first
two corporations likewise appealed from the other portions of the
decision holding that the credits of the aforesaid depositors should be
set off against their indebtedness for the amount of the drafts drawn
upon them and sent to the bank for collection, or, in other words,
against the claims of the herein appellants; and, finally, they also
appealed because the court did not order the payment to the appellants
of the amounts to be deducted from the dividends of the aforesaid
depositors in payment of the drafts drawn upon them and forwarded to
the bank for collection.
- The court approved the
recommendation of the commissioner to the effect that the balances in
favor of the claimants-depositors, coming from their current account
and savings deposits, be set off against their indebtedness to the bank
for the amount of the drafts which were drawn upon them by the herein
appellants and forwarded to the aforesaid bank for collection. To this
part of the decision is addressed the first assignment of error of the
appellants.We hold that the appellants’ contention is
not well-founded. In the case entitled, Liquidation of the Mercantile
Bank of China. Tan Tiong Tick vs.
American Apothecaries Co. (G. R. No. 43682), recently decided, we held
that the credits against the bank for current account and savings
deposits should be set off against those which the bank may have
against the depositors. We then said:“3. The commissioner set off the claims of the appellant against what
the bank had against him. The court approved this set off over the
objection of the appellant. The appellees contend that the set off does
not lie in this case because otherwise it would prejudice them and the
other creditors in the liquidation. We hold that the court’s ruling is
not error. ‘It may be stated as a general rule that when a depositor is
indebted to a bank, and the debts are mutual—that is, between the same
parties and in the same right—the bank may apply the deposit, or such
portion thereof as may be necessary, to the payment of the debt due it
by the depositor, provided there is no express agreement to the
contrary and the deposit is not specifically applicable to some other
particular purpose,’ (7 Am. Jur., par. 629, p. 455; United States vs. Butterworth-Judson Corp., 267 U. S., 387; National Bank vs. Morgan, 207 Ala., 65; Bank of Guntersville vs. Crayter, 199 Ala., 599; Tatum vs. Commercial Bank & T. Co., 193 Ala., 120; Desha Bank & T. Co. vs. Quilling, 118 Ark., 114; Holloway vs. First Nat. Bank, 45 Idaho, 746; Wyman vs. Ft. Dearborn Nat. Bank, 181 Ill., 279; Niblack vs. Park Nat. Bank, 169 Ill., 517; First Nat. Bank vs. Stapf., 165 Ind., 162; Bedford Bank vs.
Acoam, 125 Ind., 584.) The situation referred to by the appellees is
inevitable because section 1631) of the Revised Administrative Code, as
amended by Act No. 3519, provides that the Bank Commissioner shall
reduce the assets of the bank into cash and this cannot be done without
first liquidating individually the accounts of the debtors of said
bank, and in making this individual liquidation the debtors are
entitled to set off, by way of compensation, their claims against the
bank.” - Tan Tiong Tick,
Chung Lin (Cheng Bang Yek), Go Poco Grocery and Co Ban Lin & Co Ban
Kiat are the drawees who accepted for payment the drafts drawn by the
Pacific Commercial Co., and Sy Guan Juat & Co. is likewise the
drawee who accepted for payment the draft drawn by Fisher Flouring
Mills Co., Inc., the respective amounts of which are $6,353.75,
$2,112.85, $1,016.83, $2,101.47 and $525, in United States currency,
plus their corresponding interest due. These drawees refused to pay the
bank the amounts of the drafts drawn and accepted by them because they
are, in turn, the creditors of the bank as a result of their current
account and savings deposits. The court did not order in its decision
that the aforesaid sums of money, plus interest, be deducted from the
dividends which the said depositors may earn, and that they be turned
over to the appellants. This omission is the basis of the second and
third assignments of error. We hold that the appellants’ contention is
meritorious. The appellants being the owners of the amounts of the
drafts, inasmuch as the Mercantile Bank of China merely acted as their
representative or agent and the title to said drafts did not pass to
it, it is obvious that any amount which may be collected on account of
said drafts and their interest should be turned over to the appellants
in satisfaction of their credits. “As a general rule, checks and other
papers deposited in a bank for collection remain the property of the
depositor, and the bank performs the service of collection as his
agent, even though it is authorized to apply the proceeds on a debt of
the owner.” (7 C. J., sec. 245, pp. 597, 598; Richardson vs. New Orleans Coffee Co., 102 Fed., 785; Philadelphia vs. Eckels, 98 Fed., 485; Commercial Nat. Bank vs. Armstrong, 148 U. S., 50; St. Louis, etc R. Co. vs. Johnston, 133 U. S., 566; Ward vs. Smith, 13 Law. ed., 207; Carpenter vs.
National Shawmut Bank, 187 Fed., 1.) “In collecting drafts and other
instruments deposited with specific instructions to collect and remit
the proceeds to the depositor, the bank acts as agent throughout the
undertaking; and such instructions bind those to whom they are
addressed or who know of them, but no other parties.” (7 C. J., sec.
256, p. 605; Boone County Nat. Bank vs. Latimer, 67 Fed., 27; Crown Point First Nat. Bank vs.
Richmond First Nat. Bank, 76 Ind., 561; 40 Am. Rep., 261.) As to the
interest, the rate should be the legal one, that is, six per cent per
annum, in American money as the principal is of this currency, and
should be paid from the time the drawees were in default until the
principal has been totally paid. -
Contrary to the recommendation of the commissioner that the credits of
the depositors-claimants Tan Tiong Tick, Chung Lin (Cheng Bang Yek), Go
Poco Grocery, Co Ban Ling & Co Ban Kiat and Sy Guan Juat & Co.
be considered as ordinary credits, the court declared them preferred in
connection with the other credits approved. The appellants excepted to
this portion of the decision and assign it as the fourth error
committed.In the case of the Liquidation of the Mercantile Bank of China, Tan Tiong Tick vs.
American Apothecaries Co. (G. R. No. 43682), recently decided, we held
that the current account and savings deposits are not preferred credits
under the existing and applicable law. On this point we then said:“The Code of Commerce contains express provisions regulating deposits
of the nature under consideration, and they are articles 303 to 310.
The first and the second to the last of the said articles are as
follows:” ‘Art. 303. In order that a deposit may be considered commercial, it is necessary—
” ‘1. That the depositary, at least, be a merchant. ”
‘2. That the things deposited be commercial objects. ”
‘3. That the deposit constitute in itself a commercial transaction, or
be made by reason or as a consequence of commercial transactions.“‘ART. 309. Whenever, with the consent of the depositor, the depositary
disposes of the articles on deposit either for himself or for his
business, or for transactions intrusted to him by the former, the
rights and obligations of the depositary and of the depositor shall
cease, and the rules and provisions applicable to the commercial loans,
commission, or contract which took the place of the deposit shall be
observed.’“In
accordance with article 309, the so-called current account and savings
deposits have lost the character of deposits properly so-called, and
are converted into simple commercial loans, because the bank disposed
of the funds deposited by the claimant for its ordinary transactions
and for the banking business in which it was engaged. That the bank had
the authority of the claimant to make use of the money deposited on
current and savings accounts is deducible from the fact that the bank
has been paying interest on both deposits, and the claimant himself
asks that he be allowed interest up to the time when the bank ceased
its operations. Moreover, according to sections 125 of the Corporation
Law and 9 of Act No. 3154, said bank is authorized to make use of the
current account, savings, and fixed deposits provided it retains in its
treasury a certain percentage of the amounts of said deposits. Said
sections read:” ‘Sec.
125. Every such commercial banking corporation shall at all times have
on hand in lawful money of the Philippine Islands or of the United
States, an amount equal to at least eighteen per centum of the
aggregate amount of its deposits in current accounts which are payable
on demand and of its fixed deposits coming due within thirty days. Such
commercial banking corporation shall also at all times maintain reserve
equal in amount to at least five per centum of its total savings
deposits. The said reserve may be maintained in the form of lawful
money of the Philippine Islands or of the United States, or in bonds
issued or guaranteed by the Government of the Philippine Islands or of
the United States. * * *” ‘The percentage of reserve to deposits in the case of the Philippine
National Bank and the Bank of the Philippine Islands is hereby fixed at
eighteen per centum of demand deposits and fixed deposits payable
within thirty days and five per centum of savings deposits, in the same
manner as is prescribed in this section for commercial banking
corporations in general, which reserve against savings deposits may
consist of Philippine Government or United States Government bonds.” ‘Sec. 9. Every bank organized under this Act shall at all times have
on hand, in lawful money of the Philippine Islands or of the United
States, an amount equal to at least twenty per centum of the aggregate
amount of its deposits. The term “lawful money of the Philippine
Islands” shall include the Treasury certificates authorized by Act
Numbered Three thousand and fifty-eight, and the term “lawful money of
the United States” shall include gold and silver certificates of the
United States and bank notes issued by the Federal Reserve Banks.’“Therefore
the bank, without the necessity of the claimant’s consent, was by law
authorized to dispose of the deposits, subject to the limitation
indicated.“We, therefore, conclude that the law applicable to the appellant’s
claims is the Code of Commerce and that his current and savings
accounts have been converted into simple commercial loans.“2. The next point to decide is the applicable law, if any, to
determine the preference of the appellant’s credits, considering that
there happens to be other creditors. Section V of Title I of Book IV of
the Code of Commerce contains provisions relative to the right of
creditors in case of bankruptcy and to their respective gradation, but
these provisions have been repealed by section 524 of the Code of Civil
Procedure reading as follows:” ‘Sec. 524. No new proceedings to be instituted.—No
new bankruptcy proceedings shall be instituted until a new bankruptcy
law shall come into force in the Islands. All existing laws and orders
relating to bankruptcy and proceedings therein are hereby repealed: Provided, That nothing in this section shall be deemed in any manner to affect pending litigation in bankruptcy proceedings.’“The
Philippine Legislature subsequently enacted Act No. 1956, also known as
the Insolvency Law, which took effect on May 20, 1909, containing
provisions regarding preference of credits; but its section 52 provides
that all the provisions of the law shall not apply to corporations
engaged principally in the banking business, and among them should be
understood included the Mercantile Bank of China. Said sections
provide:” ‘Sec. 48.
Merchandise, effects, and any other kind of property found among the
property of the insolvent, the ownership of which has not been conveyed
to him by a legal and irrevocable title, shall be considered to be the
property of other persons and shall be placed at the disposal of its
lawful owners on order of the court made at the hearing mentioned in
section forty-three or at any ordinary hearing, if the assignee or any
creditor whose right in the estate of the insolvent has been
established shall petition in writing for such hearing and the court in
its discretion shall so order, the creditors, however, retaining such
rights in said property as belong to the insolvent, and subrogating him
whenever they shall have complied with all obligations concerning said
property.” ‘The following shall be included in this section:
” ‘1. Dowry property inestimado and such property estimado
which may remain in the possession of the husband where the receipt
thereof is a matter of record in a public instrument registered under
the provisions of sections tweny-one and twenty-seven of the Code of
Commerce in force.” ‘2. Paraphernal property which the
wife may have acquired by inheritance, legacy, or donation whether
remaining in the form in which it was received or subrogated or
invested in other property, provided that such investment or
subrogation has been registered in the registro mercantil in accordance with the provision of the sections of the Code of Commerce mentioned in the next preceding paragraph.” ‘3. Property and effects deposited with the bankrupt, or administered, leased, rented, or held in usufruct by him.
” ‘4. Merchandise in the possession of the bankrupt, on commission, for purchase, sale, forwarding, or delivery.
“‘5.
Bills of exchange or promissory notes without indorsement or other
expression transferring ownership remitted to the insolvent for
collection and all others acquired by him for the account of another
person, drawn or indorsed to the remitter direct.” ‘6.
Money remitted to the insolvent, otherwise than on current account, and
which is in his possession for delivery to a definite person in the
name and for the account of the remitter or for the settlement of
claims which are to be met at the insolvent’s domicile.”
‘7. Amounts due the insolvent for sales of merchandise on commission,
and bills of exchange and promissory notes derived therefrom in his
possession, even when the same are not made payable to the owner of the
merchandise sold, provided it is proven that the obligation to the
insolvent is derived therefrom and that said bills of exchange and
promissory notes were in the possession of the insolvent for account of
the owner of the merchandise to be cashed and remitted, in due time, to
the said owner; all of which shall be a legal presumption when the
amount involved in any such sale shall not have been credited on the
books of both the owner of the merchandise and of the insolvent.”
‘8. Merchandise bought on credit by the insolvent so long as the actual
delivery thereof has not been made to him at his store or at any other
place stipulated for such delivery, and merchandise the bills of lading
or shipping receipts of which have been sent him after the same has
been loaded by order of the purchaser and for his account and risk.”
‘In all cases arising under this paragraph assignees may retain the
merchandise so purchased or claim it for the creditors by paying the
price thereof to the vendor.” ‘9. Goods or chattels
wrongfully taken, converted, or withheld by the insolvent if still
existing in his possession or the amount of the value thereof.” ‘Sec. 49. All creditors, except those whose claims are mentioned in
the next following section, whose debts are duly proved and allowed
shall be entitled to share in the property and estate pro rata,
after the property belonging to other persons referred to in the last
preceding section has been deducted therefrom, without priority or
preference whatever: Provided, That any debt proved by any
person liable as bail, surety, guarantor, or otherwise, for the debtor,
shall not be paid to the person so proving the same until satisfactory
evidence shall be produced of the payment of such debt by such person
so liable, and the share to which such debt would be entitled may be
paid into court, or otherwise held, for the benefit of the party
entitled thereto, as the court may direct.” ‘Sec. 50. The following are the preferred claims which shall be paid in the order named:
” ‘(a)
Necessary funeral expenses of the debtor, or of his wife, or children
who are under their parental authority and have no property of their
own, when approved by the court;“‘ (b) Debts
due for personal services rendered the insolvent by employees,
laborers, or domestic servants immediately preceding the commencement
of proceedings in insolvency;” ‘(c)
Compensation due the laborers or their dependents under the provisions
of Act Numbered Thirty-four hundred and twenty-eight, known as the
Workmen’s Compensation Act, as amended by Act Numbered Thirty-eight
hundred and twelve, and under the provisions of Act Numbered Eighteen
hundred and seventy-four, known as the Employers’ Liability Act, and of
other laws providing for payment of indemnity for damages in cases of
labor accidents;” ‘(d) Legal expenses, and
expenses incurred in the administration of the insolvent’s estate for
the, common interest of the creditors, when properly authorized and
approved by the court;” ‘(e) Debts, taxes, and assessments due the Insular Government;
” ‘(f) Debts, taxes, and assessments due to any province or provinces of the Philippine Islands;
” ‘(g) Debts, taxes, and assessments due to any municipality or municipalities of the Philippine Islands;
” ‘All other creditors shall be paid pro rata.'” (As amended by Act No. 3962.)
” ‘ART. 52. * * * The provisions of this Act shall not apply to
corporations engaged principally in the banking business, or to any
other corporation as to which there is any special provision of law for
its liquidation in case of insolvency.’“It
appears that even after the enactment of the Insolvency Law there was
no law in this jurisdiction governing the order or preference of
credits in cases of insolvency and liquidation of a bank. But the
Philippine Legislature subsequently enacted Act No. 3519, amending
various sections of the Revised Administrative Code, which took effect
on February 20, 1929, and section 1641 of this latter Code, as amended
by said Act, provides:” ‘Sec. 1641. Distribution of assets.—In
the case of the liquidation of a bank or banking institution, after
payment of the costs of the proceedings, including reasonable expenses,
commissions and fees of the Bank Commissioner, to be allowed by the
court, the Bank Commissioner shall pay the debts of the institution,
under decree of the court in the order of their legal priority.’“From
this section 1641 we deduce that the intention of the Philippine
Legislature, in providing that the Bank Commissioner shall pay the
debts of the company by virtue of an order of the court in the order of
their legal priority, was to enforce the provisions of sections 48, 49
and 50 of the Insolvency Law in the sense that they are made applicable
to cases of insolvency or bankruptcy and liquidation of banks. No other
deduction can be made from the phrase ‘in the order of their legal
priority’ employed by the law, for there being no law establishing any
priority in the order of payment of credits, the legislature could not
reasonably refer to any legislation upon the subject, unless the
interpretation above stated is accepted.“Examining now the claims of the appellant, it appears that none of
them falls under any of the cases specified by sections 48, 49 and 50
of the Insolvency Law; wherefore, we conclude that the appellant’s
claims, consisting of his current and savings accounts, are not
preferred credits.”
For the same reasons we hold that the credits of the aforesaid depositors are ordinary and not preferred.
The last assigned error is a sequel to the preceding ones, and it being
unsupported by any argument, we refrain from elaborating thereon.
In view of all the foregoing, the portions of the decision which are
the subject matter of this appeal are modified, and it is held and
decreed: (1) that the credits of Tan Tiong Tick, Chung Lin (Cheng Bang
Yek), Go Poco Grocery, Co Ban Ling & Co Ban Kiat and Sy Guan Juat
& Co., consisting of their current account and savings deposits in
the Mercantile Bank of China, should be set off against the credits of
the appellants, consisting of the amounts of the drafts drawn upon the
former, which amounts are those set out in subdivision 2 of this
decision; (2) that from the dividends to be paid to said depositors,
whose names have just been mentioned, there be deducted the credits or
claims of the appellants, plus interest thereon at the rate fixed by
this decision, and that they be delivered to the latter; and (3) that
the credits of the said depositors, consisting of current account and
savings deposits, are ordinary and should be paid by the Bank
Commissioner pro rata with the others of the same class, with
the costs of this instance to the named depositors-appellees and the
appellees who have appeared and filed their briefs, namely, Chinese
Grocers Association, Manila Lumbers Merchants Association, Benito
Gonzales and Marcos G. Y. Chiam. So ordered.
Avanceña, C. J., Villa-Real, Abad Santos, Diaz, and Horilleno, JJ., concur.