(GR

No 60705) INTEGRATED REALTY CORP & RAUL SANTOS (petitioners) vs PHILIPPINE NATIONAL BANK, OVERSEAS BANK OF MANILA & CA (respondents)
(GR No 60907) OVERSEAS BANK OF MANILA (petitioner) vs CA, IRC AND RAUL SANTOS
Regalado, J
June 28, 1989

Doctrine
While it is true that under Art 1956 of the Civil Code no interest shall be due unless it has been expressly stipulated in writing, this applies
only to interest for the use of money. It does not comprehend interests paid as damages. Legal interest, in the nature of damages for noncompliance with an obligation to pay a sum of money, is recoverable from the date of judicial or extrajudicial demand.
Summary
Santos and IRC made two time deposits with OBM amounting to P700k. They used the time deposits as a security for the P700k loan and/or
credit line obtained from PNB. A Deed of Assignment was later executed in favor of PNB. OBM failed to pay PNB upon the maturity date of
the time deposits. Thus, PNB filed a complaint to collect from IRC, Santos and OBM. The Court held that IRC and Santos are still liable to pay
because the deed of assignment cannot be considered a payment. As a general rule, it will only constitute payment if there was an express
agreement on the part of the creditor, which was lacking in this case. OBM, on the other hand, is not liable to pay the interests on the two
time deposits during the suspension of its operations. However, it is liable for the damages incurred due to the delay in payment because
OBMs operations were not yet suspended at the time of demand; hence, no valid reason for the non-compliance.
Facts

Santos made two time deposits with defendant OBM in the amount of P500k and P200k (P700k total)
Defendant IRC, through its president Santos applied for a loan and/or credit line in the amount of P700k with plaintiff bank. To secure
the loan, Santos executed a Deed of Assignment of the two time deposits in favor of PNB. OBM gave its conformity to the assignment.
OBM, after the due dates of the time deposit certificates, failed to pay PNB. Thus, PNB demanded payment from IRC and Santos and also
from OBM. IRC and Santos, however, denied liability and alleged that the obligation was deemed paid with the irrevocable assignment of
the time deposit certificates.
Therefore, PNB filed a complaint to collect from IRC and Santos the loan of P700k with interest as well as attorneys fees. It also
impleaded OBM as a defendant to compel it to redeem and pay the time deposit certificates with interest.
OBM initially denied knowledge of the time deposit certificates alleging that those do not appear in their books of account. it eventually
acknowledged the time deposits and admitted that their failure to pay was due to its distressed financial situation. As a defense, it
alleged that it does not have the capacity to pay by reason of its insolvency.
Trial court ruled in favor of PNB and order IRC and Santos to pay the P700k loan plus interest. It also ordered OBM to pay IRC and
Santos whatever amounts the latter will pau to the plaintiff with interest from the date of payment
CA modified the decision and deleted the portion of the judgment ordering OBM to pay IRC and Santos.

Ratio/Issues

I.

Whether the liability of IRC and Santos with PNB should be deemed to have been paid by virtue of the deed of assignment by the
former in favor of PNB NO
(1) The court agrees with the CA that the deed of assignment does not constitute payment of their obligation. It will only be
considered a payment if there was an express agreement on the part of the creditor to receive it as such. Hence, IRC and
Santos are still liable to pay the amount.
(2) It would not have been necessary on the part of IRC and Santos to execute promissory noted in favor of PNB if the assignment
of the time deposits was intended as an absolute conveyance. In this case, the deed of assignment is actually pledge.
(3) Elements of a contract of pledge:
a. That it be constituted to secure the fulfillment of a principal obligation
b. That the pledgor be the absolute owner of the thing pledged
c. That the persons constituting the pledge have the free disposal of the property and in the absence thereof, that they be
legally authorized for the purpose.
(4) In this case, the requirements have been satisfied. The additional requirement that the thing pledged must be placed in the
possession of the creditor was also complied with by the execution of the deed of assignment in favor of PNB
(5) It must also be noted that Santos, as assignor, made a express undertaking1 that he would remain liable for any outstanding
balance of his obligation should PNB fail to collect the assigned sums. The term for any cause whatsoever is broad enough to
include the present situation.

II.

Whether the one and one-half percent interest imposed by PNB is illegal NO
(1) It was presumably done in accordance with ordinary banking procedures. IRC and Santos failed to overcome such presumption
of regularity as to business transactions.
(2) Furthermore, they are estopped from questioning its validity for the first time in this petition.

III.

Whether OBM should be held liable for interests on the time deposits of IRC and Santos from the time it ceased operations until it
resumed its business NO
(1) It should be deemed read into every contract of deposit 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.
(2) Thus, the bank is exempted from paying the interests during the whole period of factual stoppage of its operations by orders of
the CB. In addition, this exemption should also be applicable to all other obligations of the bank which could not be paid during
the period of its actual complete closure.

IV.

Whether OBM should reimburse them for whatever amounts they may be adjudged to pay PNB by way of compensation for
damages incurred, pursuant to Art 1170 and 2201 of the Civil Code YES
(1) At the time the PNB demanded from OBM payment of the amounts due on the time deposits which matured in January 11,
1968 and February 6, 1968, there was no obstacle yet which would prevent OBMs faithful compliance. It was only on July 31,
1968 when OBM was excluded from clearing with the CB. In addition, OBMs operations were suspended only on August 2,
1968 (few months after the demand was made)

Stipulation in the Deed of assignment It is also understood that herein assignor/s shall remain liable for any outstanding balance of his/their obligation if the Bank is unable to actually
receive or collect the above assigned sums, monies, or properties resulting from any agreements, orders or decisions of the court or for any other cause whatsoever.

(2)
(3)
(4)

Held

For having incurred in delay, OBM should be liable for damages. When Santos invested his money in time deposits, it should be
considered a simple loan or mutuum, not a contract of deposit.
While it is true that under Art 1956 of the Civil Code no interest shall be due unless it has been expressly stipulated in writing,
this applies only to interest for the use of money. It does not comprehend interests paid as damages.
The applicable rule is that legal interest, in the nature of damages for non-compliance with an obligation to pay a sum of
money, is recoverable from the date of judicial or extrajudicial demand. In this case, the measure of such damages shall be the
interest agreed upon in the certificates of deposit (6.5%).

Judgments is rendered ordering:

1. Integrated Realty Corporation and Raul L. Santos to pay Philippine National Bank, jointly and severally, the total amount of seven
hundred thousand pesos (P700,000.00), with interest thereon at the rate of nine percent (9%) per annum from the maturity dates of
the two promissory notes on January 11 and February 6, 1968, respectively, plus one and one-half percent (114%) additional interest
per annum effective February 28, 1968 and additional penalty interest of one percent (1%) per annum of the said amount of seven
hundred thousand pesos (P700,000.00) from the time of maturity of said loan up to the time the said amount of seven hundred
thousand pesos (P700,000.00) is fully paid to Philippine National Bank.
2. 0 Integrated Realty Corporation and Raul L. Santos to pay solidarily Philippine National Bank ten percent (10%) of the amount of
seven hundred thousand pesos (P700,000.0) as and for attorney's fees.
3. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos the sum of seven hundred thousand pesos
(P700,000.00) due under Time Deposit Certificates Nos. 2308 and 2367, with interest thereon of six and one-half percent (61/2%)
per annum from their dates of issue on January 11, 1967 and February 6, 1967, respectively, until the same are fully paid, except
that no interest shall be paid during the entire period of actual cessation of operations by Overseas Bank of Manila;
4. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos six and one-half per cent (6 1/2%) interest in the
concept of damages on the principal amounts of said certificates of time deposit from the date of extrajudicial demand by PNB on
March 1, 1968, plus legal interest of six percent (6%) on said interest from April 6, 1968, until full payment thereof, except during the
entire period of actual cessation of operations of said bank.
5. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L, Santos ten thousand pesos (P10,000.00) as and for
attorney's fees.

Prepared by: Yen Mercado [Credit | Vasquez]