001.

Fidelity Savings and Mortgage Bank v Cenzon1

April 5, 1990
Regalado, J.
Topic: The Philippine Financial System; Certain Constituents; Universal and Commercial
Banks; Certain Basic Units; Regular Banking Unit (RBU)

SV: Sps Santiago deposited P100K with Fidelity Savings Bank. Because of the finding that Fidelity was
in a state of insolvency, the Monetary Board issued Resolution 350 on Feb 18, 1969 forbidding Fidelity
to do business in the Phils and instructing the Acting Superintendent of Banks to take charge of the
Banks assets. Because the liquidation proceedings was still pending, Sps Santiago demanded for the
payment of their deposits, but Fidelity wasnt able to do so. Sps. Santiago instituted an action for sum
of money with damages against the Bank. RTC ordered Fidelity to pay Sps. Santiago the amount of the
deposit with interest + damages.

The Court ruled that Fidelity should only be ordered to pay the amount of the deposit without interest
or damages. What enables a bank to pay stipulated interest on money deposited with it is that thru the
other aspects of its operation it is able to generate funds to cover the payment of such interest.
Consequently, 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. Damages shouldnt be awarded in this case
because there was no showing of bad faith or fraud on the part of the Bank.

FACTS:

- The Sps Santiago deposited a total of P100K with Fidelity Savings Bank
On May 16, 1968, Sps Santiago deposited P50K with Fidelity Savings under a savings
account. Another P50k was deposited on June 6, 1968 under a time deposit.

- 18 Feb 1969: After finding out from the Superintendent of Banks that the condition of
Fidelity Savings is one of insolvency, the Monetary Board (MB) issued a Resolution No. 350,
deciding to forbid Fidelity Savings Bank to do business in the Phils and to instruct the Acting
Superintendent of Banks to take charge of the Banks assets.
Since then, the Superintendent of Banks (now designated as Director, Department of
Commercial and Savings Bank) has been taking charge of the assets of Fidelity
Savings.

- 10 Oct 1969: The Philippine Deposit Insurance Corporation paid Sps Santiago the amount
of P10K on the aggregate deposits pursuant to RA 5517, thereby leaving a P90K balance.

- The MB issued Resolution No. 2124 directing the liquidation of Fidelity Savings.
Subsequently, the Liquidation Court promulgated the Bank Rules and regulations to govern
the liquidation of the affairs of Fidelity Savings, prescribing the rules on the conversion of the
Bank's assets into money, processing of claims against it and the manner and time of
distributing the proceeds from the assets of the Bank.
Since the liquidation proceedings had not yet been terminated and was still pending,
Sps Santiago sent demand letters to Fidelity Savings, asking for the immediate
payment of the savings and time deposits.

- Sps Santiago instituted an action for sum of money with damages against petitioners
Fidelity Savings et al.
1 FIDELITY SAVINGS AND MORTGAGE BANK, petitioner, vs. HON. PEDRO D. CENZON, in his
capacity as Presiding Judge of the Court of First Instance of Manila (Branch XL) and SPOUSES
TIMOTEO AND OLIMPIA SANTIAGO, respondents.
- [RTC] ordered Fidelity to pay Sps Santiago their deposit with accrued interest + moral and
exemplary damages and attys fees.

- Fidelity Savings assigned error in the judgment of the lower court.

ISSUES:

1. Should an insolvent bank like Fidelity Savings be adjudged to pay interest on

unpaid deposits even after its closure by the Central Bank? (NO)

- It is settled jurisprudence that a banking institution which has been declared insolvent and
subsequently ordered closed by the Central Bank of the Philippines cannot be held liable to
pay interest on bank deposits which accrued during the period when the bank is actually
closed and non-operational.
[Overseas Bank of Manila v CA] What enables a bank to pay stipulated interest on
money deposited with it is that thru the other aspects of its operation it is able to
generate funds to cover the payment of such interest.
o Unless a bank can lend money, engage in international transactions, acquire
foreclosed mortgaged properties or their proceeds and generally engage in
other banking and financing activities from which it can derive income, it is
inconceivable how it can carry on as a depository obligated to pay stipulated
interest.
o Consequently, 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.

- It is manifest that Fidelity Savings cannot be held liable for interest of bank deposits which
accrued from the time it was prohibited by the Central Bank to continue with its banking
operations. In this case, it was when Resolution No. 350 was issued on 18 Feb 1969.
The Central Bank order allowing the claims of depositors and creditors to earn
interest up the date of its closure is in line with this doctrine.

2. Should an insolvent Bank be adjudged to pay moral and exemplary damages,

attys fees, and costs when insolvency is caused? (NO)

- There was no fraud or bad faith on the part of the bank in accepting the deposits of Sps
Santiago. It cannot be even faulted for not immediately returning the amount claimed by the
Santiagos, considering that the demand to pay and the civil case were filed several months
after the Central Bank ordered its closure.
By that time, Fidelity Savings was no longer in a position to comply with its
oblligations to its creditors. Even trial court had to admit that petitioner failed to pay
the Sps Santiago because it was already insolvent.

- There is also no basis for the award of exemplary damages which is supposed to serve as
warning to other banks from dissipating assets in anomalous transactions. This allegation of
anomalous real estate transactions by the Bank was not proven and there was no evidence
in support thereof.

- In the absence of fraud, bad faith, malice or wanton attitude, petitioner bank may,
therefore, not be held responsible for damages which may be reasonably attributed to the
non-performance of the obligation.

Judgment MODIFIED. Bank is liable to pay interest only until 18 Feb 1969. Awards of
damages and attys fees are deleted.
Digest by Krys