GR 43697; (March, 1938) (Digest)
G.R. No. 43697 and 442200, March 31, 1938
In re Liquidation of the Mercantile Bank of China, GOPOCO GROCERY (GOPOCO), ET AL., claimants-appellants, vs. PACIFIC COAST BISCUIT CO., ET AL., oppositors-appellees.
FACTS
The Mercantile Bank of China was placed under liquidation by the court. Several creditors, including Tiong Chui Gion, Gopoco Grocery, Tan Locko, Woo & Lo & Co., Sy Guan Huat, and La Bella Tondeña, filed claims for deposits they had in the bank on current or savings accounts. However, each of these claimants was also a debtor of the bank for amounts due on drafts they had accepted. The bank’s liquidator and the lower court treated the claimants’ deposits as ordinary credits, not preferred credits, and allowed the bank’s claims against them to be set off against their deposits. The claimants appealed, arguing their deposits should be considered preferred credits and that the set-off should not apply, or if it did, it should be done in a manner more favorable to them, including payment of interest.
ISSUE
1. Whether the claimants’ deposits in the bank constitute preferred credits.
2. Whether the claimants’ obligations to the bank can be set off against their deposit claims.
3. How and when such set-off should be made, and whether the claimants are entitled to interest on their deposits.
RULING
1. No, the deposits are ordinary credits. The Supreme Court held that the claimants’ deposits are not preferred credits. They are considered ordinary credits in the bank’s liquidation, ranking equally with other general creditors.
2. Yes, set-off is proper. The Court ruled that set-off or compensation is applicable. Since both the bank and the claimants are mutually debtors and creditors of each other, their reciprocal obligations can be extinguished by compensation under Articles 1195 and 1196 of the Civil Code.
3. The set-off is deemed made as of the date of the declaration of liquidation, and interest is allowed only until that date. The legal compensation took effect on December 4, 1931, the date the bank was declared in liquidation, as that was when the reciprocal concurrence of debts existed. The claimants are entitled to interest on their deposits only up to that date, not thereafter. The Court modified the lower court’s decision by specifying the exact amounts for each claimant’s deposit (including interest up to December 4, 1931) and the corresponding obligation to be set off against it, ordering the set-off to be computed as of that date.
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