G.R. No. 146555 ; July 3, 2007
JOSE C. CORDOVA, Petitioner, vs. REYES DAWAY LIM BERNARDO LINDO ROSALES LAW OFFICES, ATTY. WENDELL CORONEL and the SECURITIES AND EXCHANGE COMMISSION, Respondents.

FACTS

Petitioner Jose C. Cordova purchased Celebrity Sports Plaza Incorporated (CSPI) shares from Philippine Underwriters Finance Corporation (Philfinance), which were held in custodian banks for his benefit. In 1981, Philfinance was placed under SEC receivership, with private respondents appointed as liquidators. In 1991, without petitioner’s knowledge or SEC authority, the liquidators withdrew and sold the CSPI shares, commingling the proceeds with Philfinance’s assets. Petitioner discovered the sale in 1996 and filed a complaint with the SEC in 1997, seeking the return of his shares. Meanwhile, the SEC approved a 15% recovery rate for Philfinance’s creditors.
The SEC initially dismissed but later granted petitioner’s claim, recognizing his ownership of the shares. However, since the shares were already sold, the SEC converted his status to an ordinary creditor, entitling him only to 15% of the shares’ value (₱5,062,500) without legal interest. The Court of Appeals affirmed this decision, prompting petitioner to elevate the case to the Supreme Court.

ISSUE

The primary issue is whether petitioner, whose wrongfully sold shares were commingled with the assets of a corporation under liquidation, is entitled to recover their full value as a preferred creditor or is limited to the pro-rata share allotted to ordinary creditors.

RULING

The Supreme Court denied the petition, affirming the rulings of the SEC and CA. The Court held that while petitioner was the unquestioned owner of the shares, their unauthorized sale and the integration of the proceeds into Philfinance’s general assets transformed his claim. Once the shares were converted into cash and mixed with the corporate assets under custodia legis, specific recovery became impossible. Consequently, petitioner’s claim was properly classified as that of an ordinary creditor in the liquidation proceedings.
The legal logic is grounded in the principle of equality among creditors in insolvency proceedings. When a corporation is under receivership or liquidation, its assets are held in custodia legis for the benefit of all creditors. No single creditor can be given preference to the detriment of others; the rule is equality in equity. Since petitioner chose to file his claim within the liquidation proceedings, he subjected himself to the same terms and conditions binding all other claimants. Therefore, he is only entitled to the same 15% pro-rata distribution, not the full value of the shares or preferred status. The deletion of legal interest was also upheld as proper, as an award of interest would unfairly prejudice other creditors awaiting distribution.