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FIDELITY SAVINGS AND MORTGAGE BANK vs. JUDGE PEDRO D. CENZON et. Al.PARTIES OF THE CASEPetitioner: FIDELITY SAVINGS AND MORTGAGE BANKRespondents: JUDGE PEDRO D. CENZON, (CFI Manila, Br. 40) and SPOUSES TIMOTEO & OLIMPIASANTIAGO

NATURE OF THE CASEPeti t ion for review on certior ari under Rule 45

This petition seeks to review the decision of Judge Cenzon in Civil Case No. 84800, orderingpetitioner Fidelity Savings and Mortgage Bank to pay private respondents the following amounts: (a)P90,000.00 with accrued interest in accordance with Exhibits A and B until fully paid; (b) P30,000,00 asexemplary damages; and (c) P10,000.00 as and for attorney's fees.

FACTS OF THE CASEHerein private respondents are husband and wife who deposited with the defendant Fidelity

Savings Bank the amount of FIFTY THOUSAND PESOS (P50,000.00) under Savings Account No. 16-0536; that likewise, and another FIFTY THOUSAND PESOS (P50,000.00) under Certificate of TimeDeposit No. 0210; that the aggregate amount of deposits of the petitioners with Fidelity Savings and

Mortgage Bank is ONE HUNDRED THOUSAND PESOS (P100,000.00);On February 18, 1969, petitioner Fidelity Savings Bank was placed under insolvency. On

February 19, 1969 and up to the date that the petition for review is filed with the Supreme Court, theSuperintendent of Banks has been taking charge of the assets of defendant Fidelity Savings andMortgage Bank In pursuant to Resolution No. 350, as issued by the Monetary Board;

On October 10, 1969 the PDIC paid the plaintiffs the amount of TEN THOUSAND PESOS(P10,000.00) on the aggregate deposits of P100,000.00 pursuant to Republic Act No. 5517, therebyleaving a deposit balance of P90,000.00;

On December 9, 1969, the Monetary Board issued its Resolution No. 2124 directing theliquidation of the affairs of defendant Fidelity Savings Bank;

On January 25, 1972, the OSG filed a "Petition for Assistance and Supervision in Liquidation" ofthe affairs of Fidelity Savings and Mortgage Bank. The liquidation proceeding has not been terminatedand is still pending up to the time that the petition is filed before the Supreme Court;

On October 3, 1972, the Liquidation Court promulgated the Bank Rules and Regulations togovern the liquidation of the affairs of defendant Fidelity Savings and Mortgage Bank;

The petitioners through their counsel, sent demand letters to respondents, demanding theimmediate payment of the aforementioned savings and time deposits;

On August 10, 1973, private respondents instituted action for a sum of money with damagesagainst Fidelity Savings and Mortgage Bank et.al.The case against other defendants was dismissed.

ISSUES OF THE CASE(PURE QUESTIONS OF LAW)1. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may be adjudged to payinterest on unpaid deposits even after its closure by the Central Bank by reason of insolvency without violating the provisions of the Civil Code on preference of credits; and2. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may be adjudged to paymoral and exemplary damages, attorney's fees and costs when the insolvency is caused by theanomalous real estate transactions without violating the provisions of the Civil Code on preference of

credits.

RULING OF THE SUPREME COURTOn the First Issue:

It is settled jurisprudence that a banking institution which has been declared insolvent andsubsequently ordered closed by the Central Bank of the Philippines cannot be held liable to payinterest on bank deposits which accrued during the period when the bank is actually closed andnon-operational.

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In this case, it is manifest that petitioner cannot be held liable for interest on bank deposits whichaccrued from the time it was prohibited by the Central Bank to continue with its banking operations, thatis, when Resolution No. 350 to that effect was issued on February 18, 1969.

Cited the case of Overseas Bank of Manila vs.Court of Appeals and Tony D.Tapia, wherein theSupreme Court ruled that:

It should be deemed read into every contract of deposit with a bank that the obligation to pay interest on thedeposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority,

the Central Bank.

On the Second Issue

The Supreme Court likewise find the awards of moral and exemplary damages and attorney'sfees to be erroneous.

1. As to mora l damages:

There was no fraud or bad faith on the part of petitioner bank and the other defendants inaccepting the deposits of private respondents. Petitioner bank could not even be faulted in notimmediately returning the amount claimed by private respondents considering that the demand to paywas filed in the trial court several months after the Central Bank had ordered petitioner's closure. By thattime, petitioner bank was no longer in a position to comply with its obligations to its creditors, includingherein private respondents.

2. As to exemplary damages:

There is no valid basis for the award of exemplary damages which is supposed to serve as awarning to other banks from dissipating their assets in anomalous transactions. It was not proven byprivate respondents, and neither was there a categorical finding made by the trial court, that petitionerbank actually engaged in anomalous real estate transactions. The same were raised only during thetestimony of the bank examiner of the Central Bank, but no documentary evidence was ever presented insupport thereof.

It was error for the lower court to impose exemplary damages upon petitioner bank since, incontracts, such sanction requires that the offending party acted in a wanton, fraudulent, reckless,oppressive or malevolent manner. Neither does this case present the situation where attorney's fees maybe awarded.

3. Not violative of the legal prov isions on preference and concur rence of credit

Because the Trial Court in its decision, ruled that:But this order of payment should not be understood as raising these deposits to the category of preferredcredits of the defendant Fidelity Savings and Mortgage Bank but shall be paid in accordance with the BankLiquidation Rules and Regulations embodied in the Order of CFI Manila, Br. 13 dated October 3, 1972

Dispositive Portion:Fidelity Savings and Mortgage Bank is declared liable to pay private respondents Timoteo and

Olimpia Santiago the sum of P90,000.00, with accrued interest until February 18, 1969. The awards formoral and exemplary damages, and attorney's fees are DELETED.