In re Liquidation of the Mercantile Bank of China. Gopoco Grocery (Gopoco) et al. vs.

Pacific Coast
Biscuit Co., et al., G.R. No. 43697 and 44200, March 31, 1938 (65

Phil 443)

Facts :The Bank Commissioner, on petition, found, after an investigation, that the Mercantile Bank of
China could not continue operating as such without running the risk of suffering losses and prejudicing
its depositors and customers. With the requisite approval of the corresponding authorities, he took
charge of all the assets thereof. The CFI of Manila declared the said bank in liquidation; approved all the
acts theretofore executed by the commissioner; prohibited the officers and agents of the bank from
interfering with said commissioner in the possession of the assets thereof, its documents, deeds,
vouchers, books of account, papers, memorandums, notes, bonds, bonds and accounts, obligations or
securities and its real and personal properties; required its creditors and all those who had any claim
against it, to present the same in writing before the commissioner within ninety days; and ordered the
publication, as was in fact done, of the order containing all these provisions, for two consecutive weeks
in two newspapers of general circulation in the City of Manila, at the expense of the aforesaid bank.
After these publications, and within the period of ninety days, the following creditors, among others,
presented their claims: Tiong Chui Gion, Gopoco Grocery, Tan Locko, Woo & Lo & Co., Sy Guan Huat,
and La Bella Tondeña.

To better resolve not only these claims but also the many others which were presented against the
bank, the lower court, on July 15, 1932, appointed Fulgencio Borromeo as commissioner and referee to
receive the evidence which the interested parties may desire to present; and the commissioner and
referee thus named, after qualifying for the office and receiving the evidence presented to him, resolved
the aforesaid six claims by recommending that the same be considered as an ordinary credit only, and
not as a preferred credit as the interested parties wanted, because they were at the same time debtors
of the bank. The lower court approved all the recommendations of the commissioner and referee.

Not agreeable to the decision of the lower court, each of the interested parties appealed therefrom.

Issue: Whether bank deposits are considered preferred credits.

Held: No. Affirmed.

Ratio: The parties themselves admit that the bank had been paying them interest and that even now the
bank owes them interest which should have been paid to them before it was declared in a state of
liquidation. This fact undoubtedly destroys the character which they would impress upon their deposits
on current account, and nullifies their contention that

the same be considered as irregular deposits, because the payment of interest only takes place in the
case of loans. On the other hand, as we stated with respect to the claim of Tan Tiong Tick (In re
Liquidation of Mercantile Bank of China, G. R. No. 43682), the provisions of the Code of Commerce, and
not those of the Civil Code, are, applicable to cases of the nature of those at bar, which have to do with
parties who are both merchants. (Articles 303 and 309, Code of Commerce.) We 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, properly so-called, and are converted into simple commercial loans because, in cases of such
deposits, the bank has made use thereof in the ordinary course of its transactions as an institution
engaged in the banking business, not because it so wishes, but precisely because of the authority
deemed to have been granted to it by the appellants to enable them to collect the interest which they
had been and they are now collecting, and by virtue further of the authority granted to it by section 125
of the Corporation Law (Act No. 1459), as amended by Acts Nos. 2003 and 3610 and section 9 of the
Banking Law (Act No. 3154), without considering of course the provisions of article 1768 of the Civil
Code. Wherefore, it is Held that the deposits on current account of the appellants in the bank under
liquidation, with the right on their part to collect interest, have not created and could not create a
juridical relation between them except that of creditors and debtor, they being the creditors and the
bank the debtor.

The question of set-off raised by them cannot be resolved except in the same way that we resolved a
like question in the said case, G. R. No. 43672, entitled "In re Liquidation of Mercantile Bank of China.
Tan Tiong Tick, claimant." It is proper that set- offs be made, inasmuch as the appellants and the bank
being reciprocally debtors and creditors, the same is only just and according to law (art. 1195, Civil
Code), particularly as none of the appellants falls within the exceptions mentioned in section 58 of the
Insolvency Law (Act No. 1956) which states, “(i)n all cases of mutual debts and mutual credits between
the parties, the account between them shall be stated, and one debt set off against the other, and the
balance only shall be allowed and paid. But no set-off or counterclaim shall be allowed of a claim in its
nature not provable against the estate: Provided, That no set-off or counterclaim shall be allowed in
favor of any debtor to the insolvent of a claim purchased by or transferred to such debtor within thirty
days immediately preceding the filing, or after the filing of the petition by or against the insolvent.”

The question of whether they are entitled to interest should be resolved in the same way that we
resolved the case of the claimant Tan Tiong Tick. The circumstances in these two cases are certainly the
same as those in the said case with reference to the said question. the Mercantile Bank of China owes to
each of the appellants the interest claimed by them, corresponding to the year ending December 4,
1931, the date it was declared in a state of liquidation, but not those which the appellants claim should
be earned by their deposits after said date and until the full amounts thereof are paid to them. And with
respect to the question of set-off, this should be deemed made, of course, as of the date when the
Mercantile Bank of China was declared in a state of liquidation, that is, on December 4, 1931, for then
there was already a reciprocal concurrence of debts, with respect to said bank and the appellants.