G.R. No. 32701 , August 26, 1930
Government of the Philippine Islands vs. China Banking Corporation et al.

FACTS

The case involves the involuntary insolvency of Mariano Velasco & Co. The Government of the Philippine Islands, through the Postal Savings Bank, filed a claim for the balance of a mortgage credit against the insolvent estate. The government argued that this claim should be considered a preferred credit under Section 50(c) of the Insolvency Law ( Act No. 1956 ), as it represented an indebtedness to the Insular Government. The lower court, however, ruled against the government’s claim of preference. The government appealed, contending that the Postal Savings Bank is an instrumentality of the state, and thus debts owed to it are debts owed to the government.

ISSUE

Whether the claim of the Postal Savings Bank against Mariano Velasco & Co. for the balance of a mortgage credit constitutes a preferred credit under Section 50(c) of the Insolvency Law as an indebtedness to the Insular Government.

RULING

No. The Supreme Court affirmed the lower court’s decision, holding that the Postal Savings Bank, although a division of the Bureau of Posts and managed by government officials, possesses a distinct personality from the Insular Government. Its funds are not government funds but are held in trust for specific purposes related to its banking operations. Debts contracted in favor of the Postal Savings Bank arise from its ordinary banking activities and are not debts in favor of the Insular Government itself. Therefore, the claim does not qualify as a preferred credit under Section 50(c) of the Insolvency Law. The Court also noted that the preference under that provision applies only to debts pertaining to the government in its sovereign capacity, not those arising from commercial or private transactions.