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 Bank’s assets. Because the liquidation proceedings
was still pending, Sps Santiago demanded for the payment of their deposits, but Fidelity wasn’t 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 shouldn’t 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 Bank’s
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.

- [RTC] ordered Fidelity to pay Sps Santiago their deposit with accrued interest + moral and exemplary
damages and atty’s fees.

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

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.
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, atty’s 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 atty’s fees are
deleted.

Digest by Krys