TOPIC Simple Loan/Mutuum

Art. 1956 – No interest shall be due unless it has been expressly stipulated in writing.
CASE NO. G.R. No. L-29352
CASE NAME Ramos v. Central Bank of the Philippines
MEMBER Antonio Alejandro T. Rebosa, Jr.

DOCTRINE
It should be deemed read into every contract of deposit with a bank that the obligation to pay interest on
the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted
authority, the Central Bank. (OBM v. Cordero)

Digest Maker’s Note:

I included a summary of important cases discussed or were the subject of the case that are not in the full text of the case. I lifted
these from different digests. Skip if you may, but I believe that it’s important to at least know what happened here before going to
the actual case.

RAMOS v. CB (1971) OBM v. TAPIA OBM v. CORDERO

In this case, the Central Bank is estopped
from closing its bank down. The conduct of
the Central Bank reveals a calculated attempt
to evade rehabilitating the Overseas Bank of
Manila (OBM) despite its promises. The
Central Bank may not now renege on its
representations and liquidate the OBM, to the
detriment of its stockholders, depositors and
other creditors, under the rule of promissory
estoppel. Hence, Central Bank is directed to
comply with its obligations under the voting
trust agreement, and to desist from taking
action in violation thereof.
Is the petitioner exempt from the payment
of interest on the private respondent’s time
deposit of P100,000.00 for the period that
its business operations were suspended by
the Central Bank?
The complete factual suspension of
petitioner’s operation as a bank disabled it to
commit itself to the payment of such interest.
What enables a bank to pay stipulated interest
on money deposited with it is that through the
other aspects of its operation it is able to
generate funds to cover the payment of such
interest. It is utterly unfair to award private
respondent his prayer for payment of interest
on his deposit during the period that petitioner
bank was not allowed by the Central Bank to
operate.
It should be deemed read into every contract
of deposit with a bank that the obligation to
pay interest on the deposit ceases the moment
the operation of the bank is completely
suspended by the duly constituted authority,
the Central Bank.
On July 20, 1967, private respondent opened
a one-year time deposit with petitioner bank
in the amount of P80,000.00 to mature on July
20, 1968 with interest at the rate of 6% per
annum. However, due to its distressed
financial condition, petitioner was unable to
pay Cordero his said time deposit together
with the interest. Cordero, however,
acknowledged a receipt of P73,840.00
representing the principal and interest as
computed by the Commercial Bank of
Manila.
Is the petitioner exempt from the payment of
interest on the private respondent’s time
deposit of P80,000.00 for the period that its
business operations were suspended by the
Central Bank? OBM’s refusal to pay was
not due to a willful and dishonest refusal
to comply with its obligation but to
restrictions imposed by the Central Bank.

RECIT-READY DIGEST
Central Bank promised to rehabilitate then Overseas Bank of Manila (OBM), now COMBANK. However,
Central Bank tried to evade its promise to help OBM. The Supreme Court directed Central Bank to comply
with its obligations under the voting trust agreement. (Ramos v. CB) OBM, after demand of collection for
the sum of P100,000 representing the value of its time deposit together with an interest because it hasn’t
resumed its normal operations yet. The Supreme Court held that OBM is exempt from the payment of
interest because obligation to pay interest on the deposit ceases the moment the operation of the bank is
completely suspended by the duly constituted authority, the Central Bank. (OBM v. Tapia)

Central Bank filed a MR against the Court’s ruling in OBM v. Cordero, upholding the Tapia ruling. The
Court still upheld its prior decision that OBM is still exempt from payment of interest. The Central Bank
failed to adduce any cogent argument to persuade the Court to reconsider its prior Resolution.

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FACTS
Pending final determination is Central Bank’s motion for reconsideration (OBM v. Cordero) which ruled:
- “applying the Tapia ruling as reaffirmed by the Court in OBM v. Vicente Cordero and OBM v.
Julian Cordero, that the bank is not liable for interest on the Central Bank loans and advances
during the period of its closure from Aug. 21, 1968 – Jan. 8, 1981)”

In OBM v. Tapia, the Court held that:

- “The obligation to pay interest on the deposit ceases the moment the operation of the bank is
completely suspended by the duly constituted authority, the Central Bank”
- “For the guidance of those who might be concerned, and so that unnecessary litigations may be
avoided from further clogging the dockets of the courts, that in the light of the considerations
expounded in the above opinion, the same formula that exempts petitioner from the payment of
interest to its depositors during the whole period of factual stoppage of its operations by order of
the Central Bank, modified in effect by the decision as well as the approval of a formula of
rehabilitation by this Court, should be, as a matter of consistency, applicable or followed in respect
to all other obligations of petitioner which could not be paid during the period of its actual complete
closure”

The parties have been extensively heard on the pending incident through their various pleadings and in oral
argument on Oct. 23, 1984 as well as in their memoranda in amplification of oral argument.

In 1981, OBM reopened business under its new corporation name, COMBANK. On April 13, 1981,
COMBANK paid Central Bank partial interests from August 1, 1968 to January 7, 1981 on the P63M
advances of the Central Bank to OBM. However, it refused further payment of interest when the Supreme
Court rendered its decision in OBM v. Tapia, which held that OBM was not liable for interest on deposits
during the time of its actual closure.

COMBANK claimed coverage by the said decision, as against the contrary position of the Central Bank.

ISSUE/S and HELD

1. W/N The Overseas Bank of Manila is exempt from paying interest on time deposits from the date
of suspension of its banking operations? – YES

RATIO
Central Bank failed to adduce any cogent argument to persuade the Court to reconsider its Resolution at
bar that the Tapia ruling as reaffirmed by the aforecited cases is fully applicable to the non-payment of
interest, during the period of the bank’s forcible closure, on loans and advances made by Central Bank.

Central Bank itself when it was then managing the Overseas Bank of Manila (now, COMBANK) under a
holding trust agreement held the same position in Yap v. OBM wherein it argued that:
- “In a suit against the receiver of a national bank for money loaned to the Bank while it was a going
concern, it was error to permit plaintiff to recover interest on the loan after the bank’s suspension
to force the Republic Bank to liquidate as an insolvent”.

It should be further noted that Central Bank when called upon to deal with commercial banks and extend
to the emergency loans and advances, deals with them not as an ordinary creditor engaged in business, but
as the ultimate monetary authority of government charged with the supervision and preservation of the
banking system.

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It is a significant development in this case that the GSIS has acquired ownership of 99.3% of the outstanding
capital stock of COMBANK. The Court’s decision that OBM should not be made to pay interest to the
Central Bank during period of closure of OBM as COMBANK, its successor, has been acquired by GSIS.

The COMBANK in its said manifestation makes of record that it has likewise entered into an agreement
with its sister government banking institution, the Philippine National Bank, that "both banks have agreed
to abide by the final resolution of this Honorable Court on the CB's pending Motion for Reconsideration,"
and that "COMBANK is represented in the above-captioned case by its General Counsel, the Government
Corporate Counsel who is also the legal counsel for the PNB and whose services were recently retained by
CB in connection with the controversy involving Banco Filipino and Governor Jose B. Fernandez, Jr." This
certainly makes moot any previous doubts raised during the oral argument that then Central Bank Governor
Jaime Laya may not have had the authority to enter into such agreement.