G.R. No.

L-38427 March 12, 1975

CENTRAL BANK OF THE H!L!!NE" a# L$%&$'a(or o) (h* F!+EL!T, "A-!NG" BANK, petitioner,
vs.
HONORABLE ./+GE .E"/" . MORFE, a# r*#$'$01 .&'1* o) Bra0ch 2!!!, Co&r( o) F$r#( !0#(a0c* o) Ma0$3a, "4o&#*#
A/G/"TO a0' A+ELA!+A A+!LLA a0' "4o&#*# MARCELA a0' .OB EL!5E",respondents.
F.E. Evangelista and Agapito S. Fajardo for petitioner.
Juan C. Nabong, Jr. for respondent Spouses Augusto and Adelaida Padilla.
Albert R. Palacio for respondent spouses Marcela and Job Elies.

A6/!NO, J.:+.wph!1
This case involves the question of whether a final judgment for the payment of a time deposit in a savings bank which judgment
was obtained after the bank was declared insolvent, is a preferred claim against the bank. The question arises under the
following facts:
On February !,"#" the $onetary %oard found the Fidelity &avings %ank to be insolvent. The %oard directed the
&uperintendent of %anks to take charge of its assets, forbade it to do business and instructed the 'entral %ank (egal 'ounsel to
take legal actions )*esolution +o. ,-./.
On 0ecember ", "#" the %oard involved to seek the court1s assistant and supervision in the liquidation of the ban The
resolution implemented only on 2anuary 3-, "43, when his 'entral %ank of the 5hilippines filed the corresponding petition for
assistance and supervision in the 'ourt of First 6nstance of $anila )'ivil 'ase +o. !#..- assigned to %ranch 7666/.
5rior to the institution of the liquidation proceeding but after the declaration of insolvency, or, specifically, sometime in Marc!,
"#$", the spouses 2ob 8li9es and $arcela 5. 8li9es filed a complaint in the 'ourt of First 6nstance of $anila against the Fidelity
&avings %ank for the recovery of the sum of 5-., -!: as the balance of their time deposits )'ivil 'ase +o. !3-3. assigned to
%ranch 6/.
6n the judgment rendered in that case on 0ecember ,, "43 the Fidelity &avings %ank was ordered to pay the 8li9es spouses
the sum of 5-.,-!: plus accumulated interest.
6n another case, assigned to %ranch 777 of the 'ourt of First 6nstance of $anila, the spouses ;ugusta ;. 5adilla and ;delaida
5adilla secured on ;pril :, "43 a judgment against the Fidelity &avings %ank for the sums of 5!.,... as the balance of their
time deposits, plus interests, 54.,... as moral and e<emplary damages and 5",#.. as attorney1s fees )'ivil 'ase +o. !:3..
where the action was filed on &eptember #, "4/.
6n its orders of ;ugust 3., "4, and February 3-, "4:, the lower court )%ranch 7666 having cogni9ance of the liquidation
proceeding/, upon motions of the 8li9es and 5adilla spouses and over the opposition of the 'entral %ank, directed the latter as
liquidator, to pay their time deposits as preferred judg%ents, evidenced b& final judg%ents, within the meaning of article
33::):/)b/ of the 'ivil 'ode, if there are enough funds in the liquidator1s custody in e<cess of the credits more preferred under
section ,. of the 'entral %ank (aw in relation to articles 33:: and 33- of the 'ivil 'ode.
From the said order, the 'entral %ank appealed to this 'ourt by certiorari. 6t contends that the final judgments secured by the
8li9es and 5adilla spouses do not enjoy any preference because )a/ they were rendered after the Fidelity &avings %ank was
declared insolvent and )b/ under the charter of the 'entral %ank and the =eneral %anking (aw, no final judgment can be validly
obtained against an insolvent bank.
*epublic ;ct +o. 3#- provides:t'(.)*!+,-)
&8'. 3". Proceeding upon insolvenc&.>?henever upon e<amination by the &uperintendent or his e<aminers
or agents into the condition of any banking institution, it shall be disclosed that the condition of the same is one
of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it
shall be the duty of the &uperintendent forthwith, in writing to inform the $onetary %oard of the facts, and the
%oard, upon finding the statements of the &uperintendent to be true, shall forthwith forbid the institution to do
business in the 5hilippines and shall take charge of its assets and proceeds according to law.
The $onetary %oard shall thereupon determine within thirty days whether the institution may be reorgani9ed or
otherwise placed in such a condition so that it may be permitted to resume business with safety to its creditors
and shall prescribe the conditions under which such resumption of business shall take place. 6n such case the
e<penses and fees in the administration of the institution shall be determined by the %oard and shall be paid to
the 'entral %ank out of the assets of such banking institution.
;t any time within ten days after the $onetary %oard has taken charge of the assets of any banking institution,
such institution may apply to the 'ourt of First 6nstance for an order requiring the $onetary %oard to show
cause why it should not be enjoined from continuing such charge of its assets, and the court may direct the
%oard to refrain from further proceedings and to surrender charge of its assets.
6f the $onetary %oard shall determine that the banking institution cannot resume business with safety to its
creditors, it shall, by the Office of the &olicitor =eneral, file a petition in the 'ourt of First 6nstance reciting the
proceedings which have been taken and praying the assistance and supervision of the court in the liquidation
of the affairs of the same. The &uperintendent shall thereafter, upon order of the $onetary %oard and under the
supervision of the court and with all convenient speed, convert the assets of the banking institution to money.
&8'. ,.. .istribution of assets.>6n case of liquidation of a banking institution, after payment of the costs of the
proceedings, including reasonable e<penses and fees of the 'entral %ank to be allowed by the court, the
'entral %ank shall pay the debts of such institution, under the order of the court, in accordance with their legal
priority.
The =eneral %anking ;ct, *epublic ;ct +o. ,,4, provides:t'(.)*!+,-)
&8'. !-. ;ny director or officer of any banking institution who receives or permits or causes to be received in
said bank any deposit, or who pays out or permits or causes to be paid out any funds of said bank, or who
transfers or permits or causes to be transferred any securities or property of said bank, after said bank
becomes insolvent, shall be punished by fine of not less than one thousand nor more than ten thousand pesos
and by imprisonment for not less than two nor more than ten years.
The 'ivil 'ode provides:t'(.)*!+,-)
;*T. 33,4. 6nsolvency shall be governed by special laws insofar as they are not inconsistent with this 'ode. )n/
;*T. 33::. ?ith reference to other property, real and personal, of the debtor, the following claims or credits
shall be preferred in the order named:
<<< <<< <<<
):/ 'redits which, without special privilege, appear in )a/ a public instrument@ or )b/ in a final judgment, if they
have been the subject of litigation. These credits shall have preference among themselves in the order of
priority of the dates of the instruments and of the judgments, respectively. )"3:a/
;*T. 33-. Those credits which do not enjoy any preference with respect to specific property, and those which
enjoy preference, as to the amount not paid, shall be satisfied according to the following rules:
)/ 6n the order established in article 33::@
)3/ 'ommon credits referred to in article 33:- shall be paid pro rata regardless of dates. )"3"a/
The trial court or, to be e<act, the liquidation court noted that there is no provision in the charter of the 'entral %ank in the
=eneral %anking (aw )*epublic ;cts +os. 3#- and ,,4, respectively/ which suspends or abates civil actions against an
insolvent bank pending in courts other than the liquidation court. 6t reasoned out that, because such actions are not suspended,
judgments against insolvent banks could be considered as preferred credits under article 33::):/)b/ of the 'ivil 'ode. 6t further
noted that, in contrast with the 'entral ;ct, section ! of the 6nsolvency (aw provides that upon the issuance by the court of an
order declaring a person insolvent Aall civil proceedings against the said insolvent shall be stayed.A
The liquidation court directed the 'entral %ank to honor the writs of e<ecution issued by %ranches 6 and 777 for the
enforcement of the judgments obtained by the 8li9es and 5adilla spouses. 6t suggested that, after satisfaction of the judgment
the 'entral %ank, as liquidator, should include said judgments in the list of preferred credits contained in the A5roject of
0istributionA Awith the notation Aalready paidA A
On the other hand, the 'entral %ank argues that after the $onetary %oard has declared that a bank is insolvent and has ordered
it to cease operations, the %oard becomes the trustee of its assets Afor the equal benefit of all the creditors, including the
depositorsA. The 'entral %ank cites the ruling that Athe assets of an insolvent banking institution are held in trust for the equal
benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by an attachment,
e<ecution or otherwiseA )*ohr vs. &tanton Trust B &avings %ank, 4# $ont. 3:!, 3:- 5ac. ":4/.
The stand of the 'entral %ank is that all depositors and creditors of the insolvent bank should file their actions with the
liquidation court. 6n support of that view it cites the provision that the 6nsolvency (aw does not apply to banks )last sentence,
sec. -3 of ;ct +o. "-#/.
6t also invokes the provision penali9ing a director officer of a bank who disburses, or allows disbursement, of the funds of the
bank after it becomes insolvent )&ec. !-, =eneral %anking ;ct, *epublic ;ct +o. ,,4/. 6t cites the ruling that Aa creditor of an
insolvent state bank in the hands of a liquidator who recovered a judgment against it is not entitled to a preference for )by/ the
mere fact that he is a judgment creditorA )Thomas C. %riggs B &ons, 6nc. vs. ;llen, 3.4 +. 'arolina ., 4- &. 8. !,!, %raver
(iquidation of Financial 6nstitutions, p. "33/.
6t should be noted that fi<ed, savings, and current deposits of money in banks and similar institutions are not true deposits. They
are considered simple loans and, as such, are not preferred credits );rt. "!., 'ivil 'ode@ 6n re (iquidation of $ercantile %ank of
'hina: Tan Tiong Tick vs. ;merican ;pothecaries 'o., #- 5hil. ::@ 5acific 'oast %iscuit 'o. vs. 'hinese =rocers ;ssociation,
#- 5hil. ,4-@ Fletcher ;merican +ational %ank vs. ;ng 'heng (ian, #- 5hil. ,!-@ 5acific 'ommercial 'o. vs. ;merican
;pothecaries 'o., #- 5hil. :3"@ =opoco =rocery vs. 5acific 'oast %iscuit 'o., #- 5hil. ::,/.
The aforequoted section 3" of the 'entral %ank1s charter e<plicitly provides that when a bank is found to be insolvent, the
$onetary %oard shall forbid it to do business and shall take charge of its assets. The %oard in its *esolution +o. ,-. dated
February !,"#" banned the Fidelity &avings %ank from doing business. 6t took charge of the bank1s assets. 8vidently, one
purpose in prohibiting the insolvent bank from doing business is to prevent some depositors from having an undue or fraudulent
preference over other creditors and depositors.
That purpose would be nullified if, as in this case, after the bank is declared insolvent, suits by some depositors could be
maintained and judgments would be rendered for the payment of their deposits and then such judgments would be considered
preferred credits under article 33:: ):/ )b/ of the 'ivil 'ode.
?e are of the opinion that such judgments cannot be considered preferred and that article 33::):/)b/ does not apply to
judgments for the payment of the deposits in an insolvent savings bank which were obtained after the declaration of insolvency.
; contrary rule or practice would be productive of injustice, mischief and confusion. To recogni9e such judgments as entitled to
priority would mean that depositors in insolvent banks, after learning that the bank is insolvent as shown by the fact that it can no
longer pay withdrawals or that it has closed its doors or has been enjoined by the $onetary %oard from doing business, would
rush to the courts to secure judgments for the payment of their deposits.
6n such an eventuality, the courts would be swamped with suits of that character. &ome of the judgments would be default
judgments. 0epositors armed with such judgments would pester the liquidation court with claims for preference on the basis of
article 33::):/)b/. (ess alert depositors would be prejudiced. That inequitable situation could not have been contemplated by
the framers of section 3".
The Ro!r case )supra/ supplies some illumination on the disposition of the instant case. 6t appears in that case that the &tanton
Trust B &avings %ank of =reat Falls closed its doors to business on 2uly ", "3,. On +ovember 4,"3: the bank )then already
under liquidation/ issued to ?illiam *ohr a certificate stating that he was entitled to claim from the bank D,".43 and that he
was entitled to dividends thereon. (ater, *ohr sued the bank for the payment of his claim. The bank demurred to the complaint.
The trial court sustained the demurrer. *ohr appealed. 6n affirming the order sustaining the demurrer, the &upreme 'ourt of
$ontana said:t'(.)*!+,-)
The general principle of equity that the assets of an insolvent are to he distributed ratably among general
creditors applies with full force to the distribution of the assets of a bank. ; general depositor of a bank is
merely a general creditor, and, as such, is not entitled to any preference or priority over other general creditors.
The assets of a bank in process of liquidation are held in trust for the equal benefit of all creditors, and one
cannot be permitted to obtain an advantage or preference over another by an attachment, e<ecution or
otherwise. ; disputed claim of a creditor may be adjudicated, but those whose claims are recogni9ed and
admitted may not successfully maintain action thereon. &o to permit would defeat the very purpose of the
liquidation of a bank whether being voluntarily accomplished or through the intervention of a receiver.
<<< <<< <<<
The available assets of such a bank are held in trust, and so conserved that each depositor or other creditor
shall receive payment or dividend according to the amount of his debt, and that none of equal class shall
receive any advantage or preference over another.
;nd with respect to a national bank under voluntary liquidation, the court noted in the Ro!r case that the assets of such a bank
Abecome a trust fund, to be administered for the benefit of all creditors pro rata and, while the bank retains its corporate
e<istence, and may be sued, the effect of a judgment obtained against it by a creditor is only to fi/ t!e a%ount of debt. 0e can
ac+uire no lien ,!ic! ,ill give !i% an& preference or advantage over ot!er general creditors. )3:- 5ac. 3:"/. 7
'onsidering that the deposits in question, in their inception, were not preferred credits, it does not seem logical and just that they
should be raised to the category of preferred credits simply because the depositors, taking advantage of the long interval
between the declaration of insolvency and the filing of the petition for judicial assistance and supervision, were able to secure
judgments for the payment of their time deposits.
The judicial declaration that the said deposits were payable to the depositors, as indisputably they were due, could not have
given the 8li9es and 5adilla spouses a priority over the other depositors whose deposits were likewise indisputably due and
owing from the insolvent bank but who did not want to incur litigation e<penses in securing a judgment for the payment of the
deposits.
The circumstance that the Fidelity &avings %ank, having stopped operations since February ", "#", was forbidden to do
business )and that ban would include the payment of time deposits/ implies that suits for the payment of such deposits were
prohibited. ?hat was directly prohibited should not be encompassed indirectly. )&ee $aurello vs. %roadway %ank B Trust 'o. of
5aterson 4# ;tl. ,", : +.2.(. #4/.
6t is noteworthy that in the trial court1s order of October ,, "43, which contains the %ank (iquidation *ules and *egulations, it
indicated in step 666 the procedure for processing the claims against the insolvent bank. 6n &tep 6E, the court directed the 'entral
%ank, as liquidator, to submit a 5roject of 0istribution which should include Aa list of the preferred credits to be paid in full in the
order of priorities established in ;rticles 33:, 33:3, 33:,, 33:# and 33:4A of the 'ivil 'ode )note that article 33:: was not
mentioned/. There is no cogent reason why the 8li9es and 5adilla spouses should not adhere to the procedure outlined in the
said rules and regulations.
?C8*8FO*8, the lower court1s orders of ;ugust 3., "4, and February 3-, "4: are reversed and set aside. +o costs.
&O O*08*80.