Serrano vs. Central Bank of the Philippines

All kinds of bank deposits—fixed (time), savings, and current—are irregular deposits and are to be treated as loans to the bank, governed by the law on loans pursuant to Article 1980 of the Civil Code. A depositor who places funds in a time deposit that earns interest is in reality a creditor of the bank, not a conventional depositor; the bank’s failure to honor the time deposit is a failure to pay its obligation as a debtor and does not give rise to a constructive trust over assets the bank may have transferred to its central bank as collateral.

Manuel M. Serrano made time deposits totaling P350,000 with the Overseas Bank of Manila (OBM) in 1966 and 1967. At that time, OBM was operating under a limited degree of banking due to chronic reserve deficiencies; the Monetary Board had prohibited it from making new loans and investments in 1965 but had not declared it insolvent. When Serrano and his predecessor in interest demanded encashment, OBM failed to pay. The Central Bank subsequently attempted to close and liquidate OBM. In a related case (G.R. No. L-29352), OBM successfully challenged the Central Bank’s closure orders. Serrano sought to intervene in that case as a depositor, but intervention was denied on the ground that his claim should be prosecuted in the Court of First Instance. He then commenced this original petition directly in the Supreme Court.

• The Time Deposits: On October 13, 1966 and December 12, 1966, petitioner Manuel M. Serrano made time deposits of P150,000.00, for one year at 6% interest, with respondent Overseas Bank of Manila. On March 6, 1967, Concepcion Maneja (married to Felixberto M. Serrano) made a further time deposit of P200,000.00, for one year at 6½% interest, with the same bank. On August 31, 1968, Concepcion Maneja assigned and conveyed her P200,000.00 time deposit to petitioner Serrano.

• Failure to Pay: Despite repeated demands for encashment made from December 6, 1967 through March 4, 1968, none of the time deposit certificates was honored by Overseas Bank of Manila.

• Condition of Overseas Bank of Manila: As early as March 12, 1965, the Monetary Board had prohibited Overseas Bank of Manila from making new loans and investments because of chronic reserve deficiencies against its deposit liabilities. The bank operated under this limited degree of banking until 1968, but during the years 1966-1967 there were no findings declaring it insolvent; the Central Bank was attempting to salvage its operations.

• Central Bank’s Measures: The Central Bank required Overseas Bank of Manila to increase its collateral for overdrafts and emergency loans. These collateral properties were later listed in Annex “7” of the Central Bank’s answer in G.R. No. L-29352, a case where the Ramos group (stockholders of OBM) sought to prevent the Central Bank from closing and liquidating the bank.

• Prior Intervention Denied: Petitioner Serrano sought to intervene in G.R. No. L-29352 as a depositor with a real and legal interest in the matter. The Central Bank opposed intervention on the ground that his claim should be ventilated in the Court of First Instance, and that allowing one depositor to intervene would spur an avalanche of similar interventions. In a resolution dated October 4, 1968, the Supreme Court denied Serrano’s motion to intervene.

• Decision in G.R. No. L-29352: On October 4, 1971, the Supreme Court rendered a decision in G.R. No. L-29352 favorable to Overseas Bank of Manila, annulling the Central Bank’s resolutions that prohibited OBM from participating in clearing, directed the suspension of its operations, and ordered its liquidation; the Central Bank was directed to comply with its obligations under a Voting Trust Agreement. That decision became final and executory on March 3, 1972.

• Petitioner’s Motion in the Present Case: In light of the decision in G.R. No. L-29352, petitioner Serrano filed a motion for judgment in the instant case, praying that the Central Bank be held jointly and severally liable with OBM for the P350,000.00 time deposits plus interest, and that all assets assigned or mortgaged by OBM and the Ramos group to the Central Bank be declared trust funds for the benefit of petitioner and other depositors.

• Constructive Trust: Petitioner argued that the properties given by Overseas Bank of Manila to the Central Bank as additional collateral for overdrafts and emergency loans were acquired through the use of depositors’ money, including his own; therefore a constructive trust was created in his favor and that of other depositors.

• Strict Supervision and Guarantor Role: Petitioner maintained that the Central Bank had a duty to exercise the most rigid and stringent supervision over respondent Overseas Bank of Manila to protect depositors and the general public, and that the Central Bank’s failure in this duty rendered it jointly and solidarily liable with the failed bank.

• Mandatory Relief: Petitioner prayed that both respondent banks be ordered to execute the proper documents to constitute all listed properties into a trust fund for depositors, and that respondents be permanently prohibited from honoring or implementing any deed of mortgage, assignment, or transfer of those properties.

• Central Bank — Scope of Supervisory Duty: Respondent Central Bank admitted its duty to administer the banking system and exercise supervision over all banks but denied that this duty obliged it to watch every move or activity of every bank, or that it was the guarantor of the permanent solvency of any banking institution. It argued that neither law nor sound banking supervision required it to publicly advertise remedial measures taken against chronic delinquent banks, as such disclosure could precipitate panic or bank runs.

• Central Bank — No Insolvency at Material Time: The Central Bank pointed out that in 1966-1967 there were no findings to declare Overseas Bank of Manila insolvent; the bank was merely operating on a limited basis pursuant to Monetary Board Resolution No. 322 of March 12, 1965.

• Central Bank — No Constructive Trust: The Central Bank denied that a constructive trust was created in favor of petitioner when time deposits were made because the bank was not insolvent at that time and its operations were being salvaged. It also claimed no knowledge that the properties furnished as additional collateral were acquired with depositors’ money.

• Procedural Objection: The Central Bank contended that petitioner’s claim as a depositor should properly be ventilated in the Court of First Instance, not in an original action for mandamus and prohibition before the Supreme Court.

• Nature of Bank Deposits and Constructive Trust: Whether a time deposit creates a conventional depositor-depositary relationship such that assets a bank pledges as collateral to the Central Bank are impressed with a constructive trust for the depositor’s benefit.

• Central Bank’s Supervisory Liability: Whether the Central Bank’s duty of supervision over banks makes it jointly and solidarily liable with a bank for the latter’s failure to return time deposits.

• Propriety of Mandamus and Prohibition: Whether a depositor’s claim for recovery of time deposits and for declaration of a trust can be enforced through an original petition for mandamus and prohibition in the Supreme Court.

• Nature of Bank Deposits and Constructive Trust: Bank deposits are in the nature of irregular deposits; they are really loans because they earn interest. All kinds of bank deposits—whether fixed (time), savings, or current—are to be treated as loans and governed by the law on loans under Article 1980 of the Civil Code. The depositor is in reality a creditor of the bank, not a conventional depositor, and the bank is the debtor. The bank’s failure to honor the time deposit certificate is a failure to pay its obligation as a debtor and does not constitute a breach of trust arising from a depositary’s failure to return the subject matter of the deposit. Consequently, no constructive trust arose over the properties mortgaged or assigned by OBM to the Central Bank as collateral for emergency loans.

• Central Bank’s Supervisory Liability: The petition disclosed no clear abuse of discretion by the Central Bank in its supervisory function. Even if an abuse existed, petitioner was not the proper party to raise that question—the Overseas Bank of Manila itself had litigated that issue in G.R. No. L-29352. The Central Bank owes no ministerial duty to pay a depositor’s time deposit or to hold mortgaged properties in trust for depositors.

• Propriety of Mandamus and Prohibition: The claims were, in substance, for recovery of time deposits with interest from OBM and for damages against the Central Bank. Such claims must be ventilated in the Court of First Instance of proper jurisdiction. They are not proper subjects of an original action for mandamus (no ministerial duty was shown) or prohibition (the challenged acts of dissolving and liquidating OBM had long been carried out and there remained nothing to prohibit). After OBM was found insolvent and the Superintendent of Banks was ordered to take over its assets for liquidation under Section 29 of Republic Act No. 265, petitioner’s proper remedy was to file his claim in the liquidation proceedings.

• Bank Deposit as Loan / Irregular Deposit — Under Article 1980 of the Civil Code, fixed, savings, and current deposits of money in banks shall be governed by the provisions on simple loan. A bank deposit is an irregular deposit: the bank acquires ownership of the funds deposited, and the depositor becomes a creditor of the bank for the amount. The bank’s obligation to return the deposit is an ordinary debt, not a depositary’s duty to restore a specific thing. Hence, failure to honor a time deposit is a breach of a debtor’s obligation, not a breach of trust, and no constructive trust arises over assets the bank may have transferred to a regulator as collateral for accommodation.

• Mandatory Conditions for Mandamus — Actual claims for recovery of a sum of money and damages are outside the scope of a petition for mandamus and prohibition absent a clear showing of a ministerial duty neglected.

• “Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans. Current and savings deposit are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of trust arising from depositary’s failure to return the subject matter of the deposit.” — This passage articulates the core ratio decidendi that defines the legal character of bank deposits under Philippine law and negates the constructive trust theory.

• Gullas vs. Philippine National Bank, 62 Phil. 519 — Cited as authority for the proposition that all kinds of bank deposits are loans governed by the law on loans, pursuant to Article 1980 of the Civil Code.

• Central Bank vs. Morfe, L-38427, March 12, 1975, 63 SCRA 114 — Cited in the concurring opinion for the rule that a depositor’s remedy in an insolvent bank’s liquidation is to file a claim in the liquidation proceeding.

• Article 1980, Civil Code of the Philippines — Prescribes that fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. Applied to the time deposits made by petitioner and his predecessor, it meant they stood as creditors of the bank, not as trust beneficiaries, and the bank’s failure to pay was a simple default on a debt.

• Section 29, Republic Act No. 265 (Central Bank Act) — Provides for the takeover and liquidation of an insolvent bank by the Superintendent of Banks. Under this provision, petitioner’s remedy after the insolvency of OBM was to file his claim in the liquidation proceeding.

Antonio and Abad Santos, JJ., concurred. Barredo (Chairman), J., concurred in the judgment on the basis of Justice Aquino’s concurring opinion. Justice Aquino filed a separate concurring opinion emphasizing that (a) petitioner had no cause of action against the Central Bank for the reliefs sought; (b) mandamus and prohibition do not lie because the Central Bank had no ministerial duty to pay the time deposits or hold properties in trust; and (c) following the insolvency of OBM, petitioner’s proper remedy was to file a claim in the liquidation proceedings under Section 29 of Republic Act No. 265.