Fidelity Savings and Mortgage Bank vs. Hon. Pedro D. Cenzon, in his capacity as Arsenio Lopez, Jr.
Arsenio Lopez, Jr., Bibiana Lacuna, Jose Morales, Leon Cusi, Pilar Pobre-
Presiding judge of the CFI Manila and Spouses Timoteo and Olimpia Santiago
G.R. No. L-46208. April 5, 1990.
Ponente: Regalado, J.
Note: Respondent spouses filed a collection case against the petitioner bank. So I
referred the spouses as respondent-plaintiff and the bank as petitioner-defendant.
Facts:
 Respondent-plaintiff spouses are presently residing at No. 480 C. de la Paz
Street, Sta. Elena, Marikina, Rizal. In 1968, the spouses made 2 deposits,
which amounted to 100k, on 2 different dates with the petitioner-defendant
bank:
a. May 16, 1968, 50k under a savings account; and
b. July 6, 1968, another 50k but under a certificate of time deposit
 But later in Feb. 18, 1969, the Monetary Board, after finding the report of the
Superintendent of Banks that the condition of the petitioner-defendant bank
is one of insolvency, it issued Resolution No. 350 and decided:
a. To forbid the Fidelity Savings Bank to do business in the Philippines;
b. To instruct the Acting Superintendent of Banks to take charge, in the
name of the Monetary Board, of the Bank's assets
 Next day or on Feb. 19, 1969, the Superintendent of Banks took charge, in
the name of the Monetary Board, of the assets of petitioner-defendant bank
and up to this date, the Superintendent of Banks (now designated as Director,
Department of Commercial and Savings Banks) has been taking charge of the
assets of petitioner-defendant bank.
 As a result, in October 10, 1969 the Philippine Deposit Insurance Corporation
paid the respondent-plaintiff spouses 10k on the aggregate deposits of 100k
pursuant to R.A. No. 5517, thereby leaving a deposit balance of 90k.
 In Dec. 9, 1969, the Monetary Board issued its Resolution No. 2124 directing
the liquidation of the affairs of petitioner-defendant bank.
 In Jan. 25, 1972, the OSG filed a “petition for assistance and supervision in
liquidation" of the affairs of the petitioner-defendant bank with the CFI.
 In Oct. 3, 1972, the Liquidation Court promulgated the Bank Rules and
Regulations to govern the liquidation of the affairs of petitioner-defendant
bank, 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.
 The liquidation proceedings have not been terminated and is still pending up
to the present. This prompted the respondent-plaintiff spouses to send
demand letters to the defendants (The names stated here), demanding the
immediate payment of their savings and time deposits.
 To no avail, they filed this case for sum of money with damages against
petitioner-defendant bank, BSP, Eusebio Lopez, Jr., Arsenio Lopez, Sr.,
Cusi and Ernani A. Pacana.
 On motion of respondent spouses, as plaintiffs, the amended complaint was
dismissed w/o prejudice against defendants Jose Morales, Leon Cusi, Pilar
Pobre-Cusi and Ernani Pacana.
 Later in Dec. 3, 1976, RTC dismissed the complaint as against defendants
BSP, Eusebio Lopez, Jr., Arsenio Lopez, Jr., Arsenio Lopez, Sr. and Bibiana
Lacuna.
 Bibiana Lacuna was a defendant because she was an AVP of the defendant
bank. (I don’t know why there were many defendants, maybe because they
were corporate officers as well of petitioner-defendant bank)
 RTC ruled in favor of the respondent-plaintiff spouses (In the collection case)
and ordered the petitioner-defendant bank to pay the former 90k w/ accrued
interest, 30k as exemplary damages, 10k as attorney’s fees.
Issue:
1. WON an insolvent bank like petitioner-defendant bank may be adjudged to
pay interest on unpaid deposits even after its closure by the Central Bank by
reason of insolvency w/o violating NCC provisions on preference of credits;
and
2. WON an insolvent bank like petitioner-defendant bank may be adjudged to
pay moral and exemplary damages, attorney's fees and costs when the
insolvency is caused by the anomalous real estate transactions w/o violating
NCC provisions on preference of credits.
Held:
1. NO. Jurisprudence provides that a banking institution which has been
declared insolvent and subsequently ordered closed by the BSP cannot be
held liable to pay interest on bank deposits which accrued during the period
when the bank is actually closed and non-operational:
a. The Overseas Bank of Manila vs. CA and Tony Tapia – It’s common
knowledge that 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. 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. Conventional wisdom dictates this inexorable fair and
just conclusion. And it can be said that all who deposit money in banks
are aware of such a simple economic proposition. 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, f. Lastly, the Court ruled that the decision here would not be violative of
the Central Bank; the NCC provisions on preference and concurrence of credits. As the
b. Ruling above was reiterated in The Overseas Bank of Manila vs. CA and RTC ruled, “this order of payment should not be understood as raising
Julian Cordero, Integrated Realty Corporation, et al. vs. PNB, et al. and these deposits to the category of preferred credits of the petitioner-
the Overseas Bank of Manila vs. CA, et al; defendant bank but shall be paid in accordance with the Bank
Liquidation Rules and Regulations embodied in the Oct. 3, 1972 Order
c. Hence, it is obvious that petitioner-defendant bank cannot be held liable of the CFI Manila.
for interest on bank deposits which accrued from the time it was
prohibited by the Central Bank to continue with its banking operations,
that is, when Resolution No. 350 to that effect was issued on Feb. 18,
1969;
d. The order of the BSP as receiver/liquidator of petitioner-defendant bank
allowing the claims of depositors and creditors to earn interest up to the
date of its closure on Feb. 18, 1969 is in line with the doctrine laid down
in the cases cited;

2. NO. The RTC found, and it is not disputed, that there was no fraud or bad
faith on petitioner-defendant bank’s part and the other defendants in
accepting the deposits of respondent-plaintiff spouses:

a. Petitioner-defendant bank could not even be faulted in not immediately

returning the amount claimed by the spouses considering that the demand
to pay was made and a civil case was filed in the RTC several months
after the Central Bank had ordered petitioner's closure. By that time,
petitioner-defendant bank was no longer in a position to comply with its
obligations to its creditors, including the spouses;
b. Even the RTC had to admit that petitioner-defendant bank failed to pay
respondents because it was already insolvent. Further, this case is not one
of the specified or analogous cases wherein moral damages may be
recovered;
c. Hence, there’s no valid basis for the award of exemplary damages which
is supposed to serve as a warning to other banks from dissipating their
assets in anomalous transactions;
d. The spouses did not prove, and neither was there a finding made by the
RTC, that petitioner-defendant bank actually engaged in anomalous real
estate transactions. The same were raised only during the testimony of
the bank examiner of the Central Bank, but no documentary evidence
was ever presented. Hence, RTC erred in imposing exemplary damages
upon petitioner-defendant bank since, in contracts, 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 may be awarded;
e. In the absence of fraud, bad faith, malice or wanton attitude, petitioner-
defendant bank may not be held responsible for damages which may be
reasonably attributed to the non-performance of the obligation;