REPUBLIC ACT No.

1405
AN ACT PROHIBITING DISCLOSURE OF OR INQUIRY INTO, DEPOSITS WITH ANY BANKING
INSTITUTION AND PROVIDING PENALTY THEREFOR.
Section 1. It is hereby declared to be the policy of the Government to give encouragement to the people to
deposit their money in banking institutions and to discourage private hoarding so that the same may be properly
utilized by banks in authorized loans to assist in the economic development of the country.
Section 2. 1 All deposits of whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined,
inquired or looked into by any person, government official, bureau or office, except upon written permission of
the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction
of duty of public officials, or in cases where the money deposited or invested is the subject matter of the
litigation.
Section 3. It shall be unlawful for any official or employee of a banking institution to disclose to any person
other than those mentioned in Section two hereof any information concerning said deposits.
Section 4. All Acts or parts of Acts, Special Charters, Executive Orders, Rules and Regulations which are
inconsistent with the provisions of this Act are hereby repealed.
Section 5. Any violation of this law will subject offender upon conviction, to an imprisonment of not more than
five years or a fine of not more than twenty thousand pesos or both, in the discretion of the court.
Section 6. This Act shall take effect upon its approval.
Approved: September 9, 1955

Footnote
1

This Section and Section 3 were both amended by PD No. 1792 issued January 16, 1981, PD 1792 was
expressly repealed by Sec 135 of R.A. No. 7653, approved June 14, 1993. The original sections 2 and 3
of R.A. No.1405 are hereby reproduced for reference, as follows; "Sec 2 All deposits of whatever nature
with banks or banking institutions in the Philippines including investments in bonds issued by the
Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered
as of an absolutely confidential nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written per-mission of the depositor, or in cases of
impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public
officials. or in cases where the money deposited or invested is the subject matter of the litigation," "Sec.
3. It shall be unlawful for any official or employee of a banking institution to disclose to any person
other than those mentioned in Section two hereof any information concerning said deposits."

PRESIDENTIAL DECREE No. 1792

AMENDING REPUBLIC ACT NO. 1405
WHEREAS, under existing legal framework, the Central Bank has the authority to examine all records of banks
in the discharge of its responsibilities under the Central Bank Charter;
WHEREAS, the prohibition against inquiry into bank deposits adversely delimits the examining authority of the
Central Bank.
WHEREAS, limited examination powers operate against effective supervision of banks and endangers the
safety of deposits which may affect the public's faith in the banking system.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers in
me vested by the Constitution, do hereby decree and make the following part of the law of the land;
Section 1. Section 2 of Republic Act No. 1405 is hereby amended to read as follows:
Section 2. All deposits of whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined,
inquired or looked into by any person, government official, bureau or office, except when the examination is
made in the course of a special or general examination of a bank and is specifically authorized by the Monetary
Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity has
been or is being committed and that it is necessary to look into the deposit to establish such fraud or irregularity,
or when the examination is made by an independent auditor hired by the bank to conduct its regular audit
provided that the examination is for audit purposes only and the results thereof shall be for the exclusive use of
the bank, or upon written permission of the depositor, or in cases of impeachment, or upon order of a competent
court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or
invested is the subject matter of the litigation.
Section 2. Section 3 of the same Act is hereby amended to read as follows:
Section 3. It shall be unlawful for any official or employee of a bank to disclose to any person other than those
mentioned in Section Two hereof, or for an independent auditor hired by a bank to conduct its regular audit to
disclose to any person other than a bank director, official or employee authorized by the bank, any information
concerning said deposits.
Section 3. This Decree shall take effect immediately.
Done in the City of Manila, this 16th day of January, in the year of Our Lord, nineteen hundred and eighty-one

[G.R. No. 109563. July 9, 1996]

PHILIPPINE NATIONAL BANK, vs. COURT OF APPEALS, MARIA AMOR BASCOS and MARCIANO BASCOS.
This is a petition seeking review of the decision dated August 10, 1992, of the Eight Division of the Court of Appeals and
its resolution dated March 25, 1993, both rendered in CA-G.R. CV No. 27653, which affirmed the decision of the
Regional Trial Court (RTC) of San Jose City (Branch 38).
The facts are as follows:
On June 4, 1979, private respondent spouses Maria Amor and Marciano Bascos obtained a loan from the Philippine
National Bank in the amount of P15,000.00 evidenced by a promissory note and secured by a real estate mortgage.
The promissory note contained the following stipulation:
For value received, I/we, [private respondents] jointly and severally promise to pay to the ORDER of the PHILIPPINE
NATIONAL BANK, at its office in San Jose City, Philippines, the sum of FIFTEEN THOUSAND ONLY (P15,000.00),
Philippine Currency, together with interest thereon at the rate of 12 % per annum until paid, which interest rate the Bank
may at any time without notice, raise within the limits allowed by law, and I/we also agree to pay jointly and severally
____% per annum penalty charge, by way of liquidated damages should this note be unpaid or is not renewed on due
dated.
Payment of this note shall be as follows:
*THREE HUNDRED SIXTY FIVE DAYS* AFTER DATE
On the reverse side of the note the following condition was stamped:
All short-term loans to be granted starting January 1, 1978 shall be made subject to the condition that any and/or all
extensions hereof that will leave any portion of the amount still unpaid after 730 days shall automatically convert the
outstanding balance into a medium or long-term obligation as the case may be and give the Bank the right to charge the
interest rates prescribed under its policies from the date the account was originally granted.
To secure payment of the loan the parties executed a real estate mortgage contract which provided:
(k) INCREASE OF INTEREST RATE:
The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which may
have been advanced by the MORTGAGEE, in accordance with the provision hereof, shall be subject during the life of this
contract to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe
for its debtors.
On December 12, 1980, PNB extended the period of payment of the loan to June 5, 1981, thus converting the loan from a
short-term to a medium-term loan, i.e., a loan which matured over two to five years. PNB also increased the rate of
interest per annum, first to 14%, effective December 1, 1979; then to 22% effective February 21, 1983; to 22.5% effective
June 20, 1983; to 23% from November 2, 1983; to 25% effective March 2, 1984; and finally to 28% from April 10, 1984.
Because private respondents defaulted in paying their obligation, the Provincial Sheriff of Nueva Ecija scheduled the
extrajudicial foreclosure of the mortgage on June 15, 1984 to pay private respondents' indebtedness which, according to
PNB, had increased from P15,000.00 to P35,125.84, plus 28% annual interest.
Private respondents brought suit against PNB, its Branch Manager Jetro Godoy, and the Provincial Sheriff of Nueva Ecija
Numeriano Y. Galang (1) for a declaration of nullity of C.B. Monetary Board Resolution No. 2126 dated November 29,
1979 (embodied in C.B. Circular No. 705 dated December 1, 1979), which increased the ceiling on the interest rate of
secured and unsecured loans to 16% per annum and 14% per annum, respectively, on the ground that it was contrary to
the Usury Law, good morals, public policy, customs and traditions, social justice, due process and the equal protection
clause of the Constitution; and (2) for a declaration that the interest rate increases on their loan were contrary to Art. 1959
of the Civil Code which provides that interest due and unpaid shall not earn interest. Pending final determination of the
case, private respondents asked that the auction sale be enjoined.
PNB filed an answer with compulsory counterclaim. It alleged that private respondents had no cause of action because
1-a of the Usury Law, as amended by P.D. No. 1684, did not limit the number of times the interest could be increased
and that private respondents were estopped from questioning the increases because they failed to object to the same. PNB
asked that the complaint be dismissed and that private respondents be ordered to pay P35,125.84, plus interest from April
10, 1984, until the obligation was fully paid, attorney's fees and moral damages in such amount as may be determined by
the court.
On June 13, 1984 private respondents deposited with the clerk of court P8,000.00 and on January 15, 1985 P2,000.00, in
partial payment of their loan.
3

On June 15, 1990, the RTC rendered a decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
1.
There having [sic] no evidence against the defendants Jetro Godoy, and the Provincial Sheriff of Nueva Ecija,
Numeriano Galang, the case against them is dismissed;
2.
The increase in interest rates based on the escalation clauses in the Promissory Note and the Real Estate
Mortgage, par. K, being contrary to Sec. 3, P.D. No. 116 are declared null and void, that henceforth, the defendant PNB is
hereby directed to desist from enforcing the increased rate of interest more than TWELVE (12%) per cent on plaintiffs'
loan;
3.
The compulsory counterclaim of the defendants is also dismissed;
4.
On the other hand, the plaintiffs can settle their unpaid obligation with the defendant PNB at the interest rate of
TWELVE (12%) per cent per annum computed from the inception of the loan until the same is fully paid; advances made
by the PNB for insurance premiums and penalties added; and the 10,000.00 paid to and defendant bank to be credited as
payment by the plaintiffs;
5.
Plaintiffs' claim for damages is, likewise, dismissed; and
6.
The parties shall each bear out [sic] the expenses incurred by them.
SO ORDERED.
The RTC invalidated the stipulations in the promissory note and the real estate mortgage, which authorized PNB to
increase the interest rate, on the ground that there was no corresponding stipulation that the interest rate would be reduced
in the event the law reduced the applicable maximum rate as provided under P.D. No. 1684; that P.D. No. 116, which sets
a ceiling of 12% interest on secured loans, is a "law," which should prevail over Circular No. 705, used by PNB to
increase the interest; that collection of the increased interest sanctions unjust enrichment contrary to Art. 22 of the Civil
Code; and that the promissory note and real estate mortgage were contracts of adhesion which should be interpreted in
favor of private respondents.
PNB appealed. However, the Court of Appeals affirmed the trial court's decision. The appellate court held that the
escalation clause in the promissory note could not be given effect because of the absence of a provision for a de-escalation
in the event a reduction of interest was ordered by law. In addition it held that pursuant to the escalation clause any
increase in interest must be within "the limits allowed by law" but C.B. circulars, on the basis of which PNB increased the
interest, could not be considered "laws."
PNB moved for a reconsideration. As its motion was denied, it filed this petition. PNB's argument is that the Court of
Appeals erred in applying 2 of P.D. No. 1684, which makes the validity of an escalation clause turn on the presence of a
de-escalation clause, to the promissory note and the real estate mortgage in this case. PNB contends that the two had been
executed on June 4, 1979, before the effectivity of P.D. No. 1684 on March 17, 1980.
To begin with, PNB's argument rests on a misapprehension of the import of the appellate court's ruling. The Court of
Appeals nullified the interest rate increases not because the promissory note did not comply with P.D. No. 1684 by
providing for a de-escalation, but because the absence of such provision made the clause so one-sided as to make it
unreasonable.
That ruling is correct. It is in line with our decision in Banco Filipino Savings & Mortgage Bank v. Navarro that although
P.D. 1684 is not to be retroactively applied to loans granted before its effectivity, there must nevertheless be a deescalation clause to mitigate the one-sideness of the escalation clause. Indeed because of concern for the unequal status of
borrowers vis-a-vis the banks, our cases after Banco Filipino have fashioned the rule that any increase in the rate of
interest made pursuant to an escalation clause must be the result of agreement between the parties.
Thus in Philippine national Bank v. Court of Appeals, two promissory notes authorized PNB to increase the stipulated
interest per annum within the limits allowed by law at any time depending on whatever policy [PNB] may adopt in the
future; Provided, that the interest rate on this note shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board." The real estate mortgage likewise provided:
The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which may
have been advanced by the MORTGAGEE, in accordance with the provisions hereof, shall be subject during the life of
this contract to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may
prescribe for its debtors.
Pursuant to these clauses, PNB successively increased the interest from 18% to 32%, then to 41% and then to 48%. This
Court declared the increases unilaterally imposed by PNB to be in violation of the principle of mutuality as embodied in
4

Art. 1308 of the Civil Code, which provides that "[t]he contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them." As the Court explained:
In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality
between the parties based on their essential equality. A contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc.,
21 SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB and the private respondent
gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan,
that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would
have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal
footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave it" (Qua vs. Law
Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of
justice must protect against abuse and imposition.
A similar ruling was made in Philippine National Bank v. Court of Appeals. The credit agreement in that case provided:
The BANK reserves the right to increase the interest rate within the limits allowed by law at any time depending on
whatever policy it may adopt in the future: Provided, that the interest rate on this accommodation shall be
correspondingly decreased in the event that the applicable maximum interest is reduced by law or by the Monetary Board
....
As in the first case, PNB successively increased the stipulated interest so that what was originally 12% per annum
became, after only two years, 42%. In declaring the increases invalid, we held:
We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right to
unilaterally upwardly adjust the interest on private respondents' loan. That would completely take away from private
respondents the right to assent to an important modification in their agreement, and would negate the element of mutuality
in contracts.
Only recently we invalidated another round of interest increases decreed by PNB pursuant to a similar agreement it had
with other borrowers:
[W]hile the Usury Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in the said circular could possibly
be read as granting respondent bank carte blanche authority to raise interest rates to levels which would either enslave its
borrowers or lead to a hemorrhaging of their assets.
In this case no attempt was made by PNB to secure the conformity of private respondents to the successive increases in
the interest rate. Private respondents' assent to the increases can not be implied from their lack of response to the letters
sent by PNB, informing them of the increases. For as stated in one case, no one receiving a proposal to change a contract
is obliged to answer the proposal.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
G.R. No. L-18343
September 30, 1965
PHILIPPINE NATIONAL BANK and EDUARDO Z. ROMUALDEZ, in his capacity as President of the
Philippine National Bank, plaintiffs-appellants,
vs.
EMILIO A. GANCAYCO and FLORENTINO FLOR, Special Prosecutors of the Dept. of Justice, defendantsappellees.
Ramon B. de los Reyes and Zoilo P. Perlas for plaintiffs-appellants.
Villamor & Gancayco for defendants-appellees.
REGALA, J.:
The principal question presented in this case is whether a bank can be compelled to disclose the records of accounts of a
depositor who is under investigation for unexplained wealth.
This question arose when defendants Emilio A. Gancayco and Florentino Flor, as special prosecutors of the Department of
Justice, required the plaintiff Philippine National Bank to produce at a hearing to be held at 10 a.m. on February 20, 1961
the records of the bank deposits of Ernesto T. Jimenez, former administrator of the Agricultural Credit and Cooperative
5

Administration, who was then under investigation for unexplained wealth. In declining to reveal its records, the plaintiff
bank invoked Republic Act No. 1405 which provides:
SEC. 2. All deposits of whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired
or looked into by any person, government official, bureau or office, except upon written permission of the
depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of
duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation.
The plaintiff bank also called attention to the penal provision of the law which reads:
SEC. 5. Any violation of this law will subject the offender upon conviction, to an imprisonment of not more than
five years or a fine of not more than twenty thousand pesos or both, in the discretion of the court.
On the other hand, the defendants cited the Anti-Graft and Corrupt Practices Act (Republic Act No. 3019) in support of
their claim of authority and demanded anew that plaintiff Eduardo Z. Romualdez, as bank president, produce the records
or he would be prosecuted for contempt. The law invoked by the defendant states:
SEC. 8. Dismissal due to unexplained wealth. If in accordance with the provisions of Republic Act Numbered
One thousand three hundred seventy-nine, a public official has been found to have acquired during his
incumbency, whether in his name or in the name of other persons, an amount of property and/or money
manifestly out of proportion to his salary and to his other lawful income, that fact shall be a ground for dismissal
or removal. Properties in the name of the spouse and unmarried children of such public official may be taken into
consideration, when their acquisition through legitimate means cannot be satisfactorily shown. Bank deposits
shall be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the
contrary.
Because of the threat of prosecution, plaintiffs filed an action for declaratory judgment in the Manila Court of First
Instance. After trial, during which Senator Arturo M. Tolentino, author of the Anti-Graft and Corrupt Practices Act
testified, the court rendered judgment, sustaining the power of the defendants to compel the disclosure of bank accounts of
ACCFA Administrator Jimenez. The court said that, by enacting section 8 of, the Anti-Graft and Corrupt Practices Act,
Congress clearly intended to provide an additional ground for the examination of bank deposits. Without such provision,
the court added prosecutors would be hampered if not altogether frustrated in the prosecution of those charged with
having acquired unexplained wealth while in public office.1awphl.nt
From that judgment, plaintiffs appealed to this Court. In brief, plaintiffs' position is that section 8 of the Anti-Graft Law
"simply means that such bank deposits may be included or added to the assets of the Government official or employee for
the purpose of computing his unexplained wealth if and when the same are discovered or revealed in the manner
authorized by Section 2 of Republic Act 1405, which are (1) Upon written permission of the depositor; (2) In cases of
impeachment; (3) Upon order of a competent court in cases of bribery or dereliction of duty of public officials; and (4) In
cases where the money deposited or invested is the subject matter of the litigation."
In support of their position, plaintiffs contend, first, that the Anti-Graft Law (which took effect on August 17, 1960) is a
general law which cannot be deemed to have impliedly repealed section 2 of Republic Act No. 1405 (which took effect on
Sept. 9, 1955), because of the rule that repeals by implication are not favored. Second, they argue that to construe section
8 of the Anti-Graft Law as allowing inquiry into bank deposits would be to negate the policy expressed in section 1 of
Republic Act No. 1405 which is "to give encouragement to the people to deposit their money in banking institutions and
to discourage private hoarding so that the same may be utilized by banks in authorized loans to assist in the economic
development of the country."
Contrary to their claim that their position effects a reconciliation of the provisions of the two laws, plaintiffs are actually
making the provisions of Republic Act No. 1405 prevail over those of the Anti-Graft Law, because even without the latter
law the balance standing to the depositor's credit can be considered provided its disclosure is made in any of the cases
provided in Republic Act No. 1405.
The truth is that these laws are so repugnant to each other than no reconciliation is possible. Thus, while Republic Act No.
1405 provides that bank deposits are "absolutely confidential ... and [therefore] may not be examined, inquired or looked
into," except in those cases enumerated therein, the Anti-Graft Law directs in mandatory terms that bank deposits "shall
be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contrary." The
6

only conclusion possible is that section 8 of the Anti-Graft Law is intended to amend section 2 of Republic Act No. 1405
by providing additional exception to the rule against the disclosure of bank deposits.
Indeed, it is said that if the new law is inconsistent with or repugnant to the old law, the presumption against the intent to
repeal by implication is overthrown because the inconsistency or repugnancy reveals an intent to repeal the existing law.
And whether a statute, either in its entirety or in part, has been repealed by implication is ultimately a matter of legislative
intent. (Crawford, The Construction of Statutes, Secs. 309-310. Cf. Iloilo Palay and Corn Planters Ass'n v. Feliciano, G.R.
No. L-24022, March 3, 1965).
The recent case of People v. De Venecia, G.R. No. L-20808, July 31, 1965 invites comparison with this case. There it was
held:
The result is that although sec. 54 [Rev. Election Code] prohibits a classified civil service employee from aiding
any candidate, sec. 29 [Civil Service Act of 1959] allows such classified employee to express his views on current
political problems or issues, or to mention the name of his candidate for public office, even if such expression of
views or mention of names may result in aiding one particular candidate. In other words, the last paragraph of sec.
29 is an exception to sec. 54; at most, an amendment to sec. 54.
With regard to the claim that disclosure would be contrary to the policy making bank deposits confidential, it is enough to
point out that while section 2 of Republic Act 1405 declares bank deposits to be "absolutely confidential," it nevertheless
allows such disclosure in the following instances: (1) Upon written permission of the depositor; (2) In cases of
impeachment; (3) Upon order of a competent court in cases of bribery or dereliction of duty of public officials; (4) In
cases where the money deposited is the subject matter of the litigation. Cases of unexplained wealth are similar to cases of
bribery or dereliction of duty and no reason is seen why these two classes of cases cannot be excepted from the rule
making bank deposits confidential. The policy as to one cannot be different from the policy as to the other. This policy
express the motion that a public office is a public trust and any person who enters upon its discharge does so with the full
knowledge that his life, so far as relevant to his duty, is open to public scrutiny.
WHEREFORE, the decision appealed from is affirmed, without pronouncement as to costs.
G.R. No. L-34964 January 31, 1973
CHINA BANKING CORPORATION and TAN KIM LIONG, petitioners-appellants,
vs.
HON. WENCESLAO ORTEGA, as Presiding Judge of the Court of First Instance of Manila, Branch VIII, and
VICENTE G. ACABAN, respondents-appellees.
Sy Santos, Del Rosario and Associates for petitioners-appellants.
Tagalo, Gozar and Associates for respondents-appellees.
MAKALINTAL, J.:
The only issue in this petition for certiorari to review the orders dated March 4, 1972 and March 27, 1972, respectively,
of the Court of First Instance of Manila in its Civil Case No. 75138, is whether or not a banking institution may validly
refuse to comply with a court process garnishing the bank deposit of a judgment debtor, by invoking the provisions of
Republic Act No. 1405. *
On December 17, 1968 Vicente Acaban filed a complaint in the court a quo against Bautista Logging Co., Inc., B & B
Forest Development Corporation and Marino Bautista for the collection of a sum of money. Upon motion of the plaintiff
the trial court declared the defendants in default for failure to answer within the reglementary period, and authorized the
Branch Clerk of Court and/or Deputy Clerk to receive the plaintiff's evidence. On January 20, 1970 judgment by default
was rendered against the defendants.
To satisfy the judgment, the plaintiff sought the garnishment of the bank deposit of the defendant B & B Forest
Development Corporation with the China Banking Corporation. Accordingly, a notice of garnishment was issued by the
Deputy Sheriff of the trial court and served on said bank through its cashier, Tan Kim Liong. In reply, the bank' cashier
invited the attention of the Deputy Sheriff to the provisions of Republic Act No. 1405 which, it was alleged, prohibit the
disclosure of any information relative to bank deposits. Thereupon the plaintiff filed a motion to cite Tan Kim Liong for
contempt of court.
In an order dated March 4, 1972 the trial court denied the plaintiff's motion. However, Tan Kim Liong was ordered "to
inform the Court within five days from receipt of this order whether or not there is a deposit in the China Banking
7

Corporation of defendant B & B Forest Development Corporation, and if there is any deposit, to hold the same intact and
not allow any withdrawal until further order from this Court." Tan Kim Liong moved to reconsider but was turned down
by order of March 27, 1972. In the same order he was directed "to comply with the order of this Court dated March 4,
1972 within ten (10) days from the receipt of copy of this order, otherwise his arrest and confinement will be ordered by
the Court." Resisting the two orders, the China Banking Corporation and Tan Kim Liong instituted the instant petition.
The pertinent provisions of Republic Act No. 1405 relied upon by the petitioners reads:
Sec. 2. All deposits of whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of absolutely confidential nature and may not be examined,
inquired or looked into by any person, government official, bureau or office, except upon written
permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of
bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the
subject matter of the litigation.
Sec 3. It shall be unlawful for any official or employee of a banking institution to disclose to any person
other than those mentioned in Section two hereof any information concerning said deposits.
Sec. 5. Any violation of this law will subject offender upon conviction, to an imprisonment of not more
than five years or a fine of not more than twenty thousand pesos or both, in the discretion of the court.
The petitioners argue that the disclosure of the information required by the court does not fall within any of the four (4)
exceptions enumerated in Section 2, and that if the questioned orders are complied with Tan Kim Liong may be criminally
liable under Section 5 and the bank exposed to a possible damage suit by B & B Forest Development Corporation.
Specifically referring to this case, the position of the petitioners is that the bank deposit of judgment debtor B & B Forest
Development Corporation cannot be subject to garnishment to satisfy a final judgment against it in view of the
aforequoted provisions of law.
We do not view the situation in that light. The lower court did not order an examination of or inquiry into the deposit of B
& B Forest Development Corporation, as contemplated in the law. It merely required Tan Kim Liong to inform the court
whether or not the defendant B & B Forest Development Corporation had a deposit in the China Banking Corporation
only for purposes of the garnishment issued by it, so that the bank would hold the same intact and not allow any
withdrawal until further order. It will be noted from the discussion of the conference committee report on Senate Bill No.
351 and House Bill No. 3977, which later became Republic Act 1405, that it was not the intention of the lawmakers to
place bank deposits beyond the reach of execution to satisfy a final judgment. Thus:
Mr. MARCOS. Now, for purposes of the record, I should like the Chairman of the Committee on Ways
and Means to clarify this further. Suppose an individual has a tax case. He is being held liable by the
Bureau of Internal Revenue for, say, P1,000.00 worth of tax liability, and because of this the deposit of
this individual is attached by the Bureau of Internal Revenue.
Mr. RAMOS. The attachment will only apply after the court has pronounced sentence declaring the
liability of such person. But where the primary aim is to determine whether he has a bank deposit in order
to bring about a proper assessment by the Bureau of Internal Revenue, such inquiry is not authorized by
this proposed law.
Mr. MARCOS. But under our rules of procedure and under the Civil Code, the attachment or garnishment
of money deposited is allowed. Let us assume, for instance, that there is a preliminary attachment which
is for garnishment or for holding liable all moneys deposited belonging to a certain individual, but such
attachment or garnishment will bring out into the open the value of such deposit. Is that prohibited by this
amendment or by this law?
Mr. RAMOS. It is only prohibited to the extent that the inquiry is limited, or rather, the inquiry is made
only for the purpose of satisfying a tax liability already declared for the protection of the right in favor of
the government; but when the object is merely to inquire whether he has a deposit or not for purposes of
taxation, then this is fully covered by the law.
Mr. MARCOS. And it protects the depositor, does it not?
Mr. RAMOS. Yes, it protects the depositor.
Mr. MARCOS. The law prohibits a mere investigation into the existence and the amount of the deposit.
Mr. RAMOS. Into the very nature of such deposit.
8

Mr. MARCOS. So I come to my original question. Therefore, preliminary garnishment or attachment of

the deposit is not allowed?
Mr. RAMOS. No, without judicial authorization.
Mr. MARCOS. I am glad that is clarified. So that the established rule of procedure as well as the
substantive law on the matter is amended?
Mr. RAMOS. Yes. That is the effect.
Mr. MARCOS. I see. Suppose there has been a decision, definitely establishing the liability of an
individual for taxation purposes and this judgment is sought to be executed ... in the execution of that
judgment, does this bill, or this proposed law, if approved, allow the investigation or scrutiny of the bank
deposit in order to execute the judgment?
Mr. RAMOS. To satisfy a judgment which has become executory.
Mr. MARCOS. Yes, but, as I said before, suppose the tax liability is P1,000,000 and the deposit is half a
million, will this bill allow scrutiny into the deposit in order that the judgment may be executed?
Mr. RAMOS. Merely to determine the amount of such money to satisfy that obligation to the
Government, but not to determine whether a deposit has been made in evasion of taxes.
xxx xxx xxx
Mr. MACAPAGAL. But let us suppose that in an ordinary civil action for the recovery of a sum of
money the plaintiff wishes to attach the properties of the defendant to insure the satisfaction of the
judgment. Once the judgment is rendered, does the gentleman mean that the plaintiff cannot attach the
bank deposit of the defendant?
Mr. RAMOS. That was the question raised by the gentleman from Pangasinan to which I replied that
outside the very purpose of this law it could be reached by attachment.
Mr. MACAPAGAL. Therefore, in such ordinary civil cases it can be attached?
Mr. RAMOS. That is so.
(Vol. II, Congressional Record, House of Representatives, No. 12, pp. 3839-3840, July 27, 1955).
It is sufficiently clear from the foregoing discussion of the conference committee report of the two houses of Congress
that the prohibition against examination of or inquiry into a bank deposit under Republic Act 1405 does not preclude its
being garnished to insure satisfaction of a judgment. Indeed there is no real inquiry in such a case, and if the existence of
the deposit is disclosed the disclosure is purely incidental to the execution process. It is hard to conceive that it was ever
within the intention of Congress to enable debtors to evade payment of their just debts, even if ordered by the Court,
through the expedient of converting their assets into cash and depositing the same in a bank.
WHEREFORE, the orders of the lower court dated March 4 and 27, 1972, respectively, are hereby affirmed, with costs
against the petitioners-appellants.
G.R. No. 107303 February 21, 1994
EMMANUEL C. OATE and ECON HOLDINGS CORPORATION vs. HON. ZUES C. ABROGAR, as Presiding
Judge of Branch 150 of the Regional Trial Court of Makati, and SUN LIFE ASSURANCE COMPANY OF
CANADA.
G.R. No. 107491 February 21, 1994
BRUNNER DEVELOPMENT CORPORATION, vs. HON. ZUES C. ABROGAR, as Presiding Judge of Branch
150 of the Regional Trial Court of Makati, and SUN LIFE ASSURANCE COMPANY OF CANADA, respondents.
These are separate petitions for certiorari with a prayer for temporary restraining order filed by Emmanuel C. Oate and
Econ Holdings Corporation (in G.R. No. 107303), and Brunner Development Corporation (in G.R. No. 107491), both of
which assail several orders issued by respondent Judge Zues C. Abrogar in Civil Case No. 91-3506.
The pertinent facts are as follows: On December 23, 1991, respondent Sun Life Assurance Company of Canada (Sun Life,
for brevity) filed a complaint for a sum of money with a prayer for the immediate issuance of a writ of attachment against
petitioners, and Noel L. Dio, which was docketed as Civil Case No. 91-3506 and raffled to Branch 150 of the RTC
Makati, presided over by respondent Judge. The following day, December 24, 1991, respondent Judge issued an order
granting the issuance of a writ of attachment, and the writ was actually issued on December 27, 1991.
9

On January 3, 1992, upon Sun Life's ex-parte motion, the trial court amended the writ of attachment to reflect the alleged
amount of the indebtedness. That same day, Deputy Sheriff Arturo C. Flores, accompanied by a representative of Sun
Life, attempted to serve summons and a copy of the amended writ of attachment upon petitioners at their known office
address at 108 Aguirre St., Makati but was not able to do so since there was no responsible officer to receive the same. 1
Nonetheless, Sheriff Flores proceeded, over a period of several days, to serve notices of garnishment upon several
commercial banks and financial institutions, and levied on attachment a condominium unit and a real property belonging
to petitioner Oate.
Summons was eventually served upon petitioners on January 9, 1992, while defendant Dio was served with summons on
January 16, 1992.
On January 21, 1992, petitioners filed an "Urgent Motion to Discharge/Dissolve Writ of Attachment." That same day, Sun
Life filed an ex-parte motion to examine the books of accounts and ledgers of petitioner Brunner Development
Corporation (Brunner, for brevity) at the Urban Bank, Legaspi Village Branch, and to obtain copies thereof, which motion
was granted by respondent Judge. The examination of said account took place on January 23, 1992. Petitioners filed a
motion to nullify the proceedings taken thereat since they were not present.
On January 30, 1992, petitioners and their co-defendants filed a memorandum in support of the motion to discharge
attachment. Also on that same day, Sun Life filed another motion for examination of bank accounts, this time seeking the
examination of Account No. 0041-0277-03 with the Bank of Philippine Islands (BPI) which, incidentally, petitioners
claim not to be owned by them and the records of Philippine National Bank (PNB) with regard to checks payable to
Brunner. Sun Life asked the court to order both banks to comply with the notice of garnishment.
On February 6, 1992, respondent Judge issued an order (1) denying petitioners' and the co-defendants' motion to discharge
the amended writ of attachment, (2) approving Sun Life's additional attachment, (3) granting Sun Life's motion to
examine the BPI account, and (4) denying petitioners' motion to nullify the proceedings of January 23, 1992.
On March 12, 1992, petitioners filed a motion for reconsideration of the February 6, 1992 order. On September 6, 1992,
respondent Judge denied the motion for reconsideration.
Hence, the instant petitions. Petitioners' basic argument is that respondent Judge had acted with grave abuse of discretion
amounting to lack or in excess of jurisdiction in (1) issuing ex parte the original and amended writs of preliminary
attachment and the corresponding notices of garnishment and levy on attachment since the trial court had not yet acquired
jurisdiction over them; and (2) allowing the examination of the bank records though no notice was given to them.
We find both petitions unmeritorious.
Petitioners initially argue that respondent Judge erred in granting Sun Life's prayer for a writ of preliminary attachment on
the ground that the trial court had not acquired jurisdiction over them. This argument is clearly unavailing since it is wellsettled that a writ of preliminary attachment may be validly applied for and granted even before the defendant is
summoned or is heard from. 2 The rationale behind this rule was stated by the Court in this wise:
A preliminary attachment may be defined, paraphrasing the Rules of Court, as the provisional remedy in
virtue of which a plaintiff or other proper party may, at the commencement of the action or any time
thereafter, have the property of the adverse party taken into the custody of the court as security for the
satisfaction of any judgment that may be recovered. It is a remedy which is purely statutory in respect of
which the law requires a strict construction of the provisions granting it. Withal no principle, statutory or
jurisprudential, prohibits its issuance by any court before acquisition of jurisdiction over the person of the
defendant.
Rule 57 in fact speaks of the grant of the remedy "at the commencement of the action or at any time
thereafter." The phrase "at the commencement of the action," obviously refers to the date of the filing of
the complaint which, as abovepointed out, its the date that marks "the commencement of the action;"
and the reference plainly is to a time before summons is served on the defendant or even before summons
issues. What the rule is saying quite clearly is that after an action is properly
commenced by the filing of the complaint and the payment of all requisite docket and other fees the
plaintiff may apply for and obtain a writ of preliminary attachment upon fulfillment of the pertinent
requisites laid down by law, and that he may do so at any time, either before or after service of summons
on the defendant. And this indeed, has been the immemorial practice sanctioned by the courts: for the
plaintiff or other proper party to incorporate the application for attachment in the complaint or other
appropriate pleading (counterclaim, cross-claim, third-party claim) and for the Trial Court to issue the
10

writ ex-parte at the commencement of the action if it finds the application otherwise sufficient in form
and substance. 3
Petitioners then contended that the writ should have been discharged since the ground on which it was issued fraud in
contracting the obligation was not present. This cannot be considered a ground for lifting the writ since this delves into
the very complaint of the Sun Life. As this Court stated in Cuatro v. Court of Appeals: 4
Moreover, an attachment may not be dissolved by a showing of its irregular or improper issuance if it is
upon a ground which is at the same time the applicant's cause of action in the main case since an
anomalous situation would result if the issues of the main case would be ventilated and resolved in a mere
hearing of the motion (Davao Light and Power Co., Inc. vs. Court of Appeals, supra, The Consolidated
Bank and Trust Corp. (Solidbank) vs. Court of Appeals, 197 SCRA 663 [1991]).
In the present case, one of the allegation in petitioner's complaint below is that the defendant spouses
induced the plaintiff to grant the loan by issuing postdated checks to cover the installment payments and a
separate set of postdated checks for payment of the stipulated interest (Annex "B"). The issue of fraud,
then, is clearly within the competence of the lower court in the main action. 5
The fact that a criminal complaint for estafa filed by Sun Life against the petitioners was dismissed by the Provincial
Prosecutor of Rizal for Makati on April 21, 1992 and was upheld by the Provincial Prosecutor on July 13, 1992 is of no
moment since the same can be indicative only of the absence of criminal liability, but not of civil liability. Besides, Sun
Life had elevated the case for review to the Department of Justice, where the case is presently pending.
Finally, petitioners argue that the enforcement of the writ was invalid since it undisputedly preceded the actual service of
summons by six days at most. Petitioners cite the decisions in Sievert vs. Court of Appeals, et al. 6 and BAC
Manufacturing and Sales Corp. vs. Court of Appeals, et al., 7 wherein this Court held that enforcement of the writ of
attachment can not bind the defendant in view of the failure of the trial court to acquire jurisdiction over the defendant
through either summons or his voluntary appearance.
We do not agree entirely with petitioners. True, this Court had held in a recent decision that the enforcement of writ of
attachment may not validly be effected until and unless proceeded or contemporaneously accompanied by service of
summons. 8
But we must distinguish the case at bar from the Sievert and BAC Manufacturing cases. In those two cases, summons was
never served upon the defendants. The plaintiffs therein did not even attempt to cause service of summons upon the
defendants, right up to the time the cases went up to this Court. This is not true in the case at bar. The records reveal that
Sheriff Flores and Sun Life did attempt a contemporaneous service of both summons and the writ of attachment on
January 3, 1992, but we stymied by the absence of a responsible officer in petitioners' offices. Note is taken of the fact that
petitioners Oate and Econ Holdings admitted in their answer 9 that the offices of both Brunner Development Corporation
and Econ Holdings were located at the same address and that petitioner Oate is the President of Econ Holdings while
petitioner Dio is the President of Brunner Development Corporation as well as a stockholder and director of Econ
Holdings.
Thus, an exception to the established rule on the enforcement of the writ of attachment can be made where a previous
attempt to serve the summons and the writ of attachment failed due to factors beyond the control of either the plaintiff or
the process server, provided that such service is effected within a reasonable period thereafter.
Several reasons can be given for the exception. First, there is a possibility that a defendant, having been alerted of
plaintiffs action by the attempted service of summons and the writ of attachment, would put his properties beyond the
reach of the plaintiff while the latter is trying to serve the summons and the writ anew. By the time the plaintiff may have
caused the service of summons and the writ, there might not be any property of the defendant left to attach.
Second, the court eventually acquired jurisdiction over the petitioners six days later. To nullify the notices of garnishment
issued prior thereto would again open the possibility that petitioners would transfer the garnished monies while Sun Life
applied for new notices of garnishment.
Third, the ease by which a writ of attachment can be obtained is counter-balanced by the ease by which the same can be
discharged: the defendant can either make a cash deposit or post a counter-bond equivalent to the value of the property
attached. 10 The petitioners herein tried to have the writ of attachment discharged by posting a counter-bond, the same was
denied by respondent Judge on the ground that the amount of the counter-bond was less than that of Sun Life's bond.
II.
11

Petitioners' second ground assail the acts of respondent Judge in allowing the examination of Urban Banks' records and in
ordering that the examination of the bank records of BPI and PNB as invalid since no notice of said examinations were
ever given them. Sun Life grounded its requests for the examination of the bank accounts on Section 10, Rule 57 of the
Rules of Court, which provided, to wit:
Sec. 10. Examination of party whose property is attached and persons indebted to him or controlling his
property; delivery of property to officer. Any person owing debts to the party whose property is
attached or having in his possession or under his control any credit or other personal property belonging
to such party, may be required to attend before the court in which the action is pending, or before a
commissioner appointed by the court and be examined on oath respecting the same. The party whose
property is attached may also be required to attend for the purpose of giving information respecting his
property, and may be examined on oath. The court may, after such examination, order personal property
capable of manual delivery belonging to him, in the possession of the person so required to attend before
the court, to be delivered to the clerk or court, sheriff, or other proper officer on such terms as may be
just, having reference to any lien thereon or claim against the same, to await the judgment in the action.
It is clear from the foregoing provision that notice need only be given to the garnishee, but the person who is holding
property or credits belonging to the defendant. The provision does not require that notice be furnished the defendant
himself, except when there is a need to examine said defendant "for the purpose of giving information respecting his
property.
Furthermore, Section 10 Rule 57 is not incompatible with Republic Act No. 1405, as amended, "An Act Prohibiting
Disclosure or Inquiry Into, Deposits With Any Banking Institution and Providing Penalty Therefore," for Section 2
therefore provides an exception "in cases where the money deposited or invested is the subject matter of the litigation."
The examination of the bank records is not a fishing expedition, but rather a method by which Sun Life could trace the
proceeds of the check it paid to petitioners.
WHEREFORE, the instant petitions are hereby DISMISSED. The temporary restraining order issued on June 28, 1993 is
hereby lifted.
G.R. No. 134699 December 23, 1999
UNION BANK OF THE PHILIPPINES, vs. COURT OF APPEALS and ALLIED BANK CORPORATION.
Sec. 2 of the Law on Secrecy of Bank Deposits, 1 as amended, declares bank deposits to be "absolutely confidential"
except:
(1) In an examination made in the course of a special or general examination of a bank that is specifically authorized by
the Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity
has been or is being committed and that it is necessary to look into the deposit to establish such fraud or irregularity,
(2) In an examination made by an independent auditor hired by the bank to conduct its regular audit provided that the
examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank,
(3) Upon written permission of the depositor,
(4) In cases of impeachment,
(5) Upon order of a competent court in cases of bribery or dereliction of duty of public officials, or
(6) In cases where the money deposited or invested is the subject matter of the litigation.
Whether or not the case at bar falls under the last exception is the issue in the instant petition.
The facts are not disputed.
On March 21, 1990, a check (Check No. 11669677) dated March 31, 1990 in the amount of One Million Pesos
(P1,000,000.00) was drawn against Account No. 0111-01854-8 with private respondent Allied Bank payable to the order
of one Jose Ch. Alvarez. The payee deposited the check with petitioner Union Bank who credited the P1,000,000.00 to the
account of Mr. Alvarez. On May 21, 1990, petitioner sent the check for clearing through the Philippine Clearing House
Corporation (PCHC). When the check was presented for payment, a clearing discrepancy was committed by Union Bank's
clearing staff when the amount of One Million Pesos (P1,000,000.00) was erroneously "under-encoded" to One Thousand
Pesos (P1,000.00) only.
Petitioner only discovered the under-encoding almost a year later. Thus, on May 7, 1991, Union Bank notified Allied
Bank of the discrepancy by way of a charge slip for Nine Hundred Ninety-Nine Thousand Pesos (P999,000.00) for
12

automatic debiting against of Allied Bank. The latter, however, refused to accept the charge slip "since [the] transaction
was completed per your [Union Bank's] original instruction and client's account is now insufficiently funded."
Subsequently, Union Bank filed a complaint against Allied Bank before the PCHC Arbitration Committee (Arbicom),
praying that:
. . . judgment be rendered in favor of plaintiff against defendant sentencing it to pay plaintiff:
1. The sum of NINE HUNDRED NINETY-NINE THOUSAND PESOS (P999,000.00);
2. The sum of THREE HUNDRED SIXTY-ONE AND FOUR HUNDRED EIGHTY AND 20/XX
P361,480.20 as of October 9, 1991 representing reimbursements for opportunity losses and interest at the
rate of 24% per annum arising from actual losses sustained by plaintiff as of May 21, 1990;
3. The amount for attorney's fees at the rate of 25% of any and all sums due;
4. Penalty Charges at the rate of 1/8 of 1% of P999,000.00 from May 22, 1990 until payment thereof.
5. Exemplary and punitive damages against the defendant in such amounts as may be awarded by this
Tribunal in order to serve a lesson to all member-Banks under the PCHC umbrella to strictly comply with
the provisions thereof;
6. The costs of suit which includes filing fee in addition to litigation expenses which shall be proven in
the course of arbitration.
7. Such other damages that may be awarded by this Tribunal. 2
Thereafter, Union Bank filed in the Regional Trial Court (RTC) of Makati a petition for the examination of Account No.
111-01854-8. Judgment on the arbitration case was held in abeyance pending the resolution of said petition.
Upon motion of private respondent, the RTC dismissed Union Bank's petition. The RTC held that:
The case of the herein petitioner does not fall under any of the foregoing exceptions to warrant a
disclosure of or inquiry into the ledgers/books of account of Allied Checking Account No. 111-01854-8.
Needless to say, the complaint filed by herein petitioner against Allied Banking Corporation before the
Philippine Clearing House Corporation (PCHC) Arbitration Committee and docketed therein as
Arb[i]com Case No. 91-068 (Annex "A", petition) is not one for bribery or dereliction of duty of public
officials much less is there any showing that the subject matter thereof is the money deposited in the
account in question. Petitioner's complaint primarily hing[e]s on the alleged deliberate violation by Allied
Bank Corporation of the provisions of the PCHC Rule Book, Sec. 25[.]3, and as principal reliefs, it seeks
for [sic] the recovery of amounts of money as a consequence of an alleged under-coding of check amount
to P1,000,000.00 and damage[s] by way of loss of interest income. 3
The Court of Appeals affirmed the dismissal of the petition, ruling that the case was not one where the money deposited is
the subject matter of the litigation.
Petitioner collecting bank itself in its complaint filed before the PCHC, Arbicom Case No. 91-068, clearly
stated that its "cause of action against defendant arose from defendant's deliberate violation of the
provisions of the PCHC Rule Book, Sec. 25.3, specifically on Under-Encoding of check amounting to
P1,000,000.00 drawn upon defendant's Tondo Branch which was deposited with plaintiff herein on May
20, 1990, . . . which was erroneously encoded at P1,000.00 which defendant as the receiving bank thereof,
never called nor notified the plaintiff of the error committed thus causing actual losses to plaintiff in the
principal amount of P999,000.00 exclusive of opportunity losses and interest."
Furthermore, a reading of petitioner collecting bank's complaint in the Arbicom case shows that its thrust
is directed against respondent drawee bank's alleged failure to inform the former of the under-encoding
when Sec. 25.3 of the PCHC Rule Book is clear that it is receiving bank's (respondent drawee bank
herein) duty and obligation to notify the erring bank (petitioner collecting bank herein) of any such underencoding of any check amount submitted for clearing within the member banks of the PCHC not later
than 10:00 a.m. of the following clearing day and prays that respondent drawee bank be held liable to
petitioner collecting bank for penalties in view of the latter's violation of the notification requirement.
Prescinding from the above, we see no cogent reason to depart from the time-honored general banking
rule that all deposits of whatever nature with banks are considered of absolutely confidential nature and
may not be examined, inquired or looked into by any person, government official, bureau or office and
corollarily, that it is unlawful for any official or employee of a bank to disclose to any person any
information concerning deposits.
13

Nowhere in petitioner collecting bank's complaint filed before the PCHC does it mention of the amount it
seeks to recover from Account No. 0111-018548 itself, but speaks of P999,000.00 only as an incident of
its alleged opportunity losses and interest as a result of its own employee's admitted error in encoding the
check.
The money deposited in Account No. 0111-018548 is not the subject matter of the litigation in the
Arbicom case for as clearly stated by petitioner itself, it is the alleged violation by respondent of the rules
and regulations of the PCHC. 4
Union Bank is now before this Court insisting that the money deposited in Account No. 0111-01854-8 is the subject
matter of the litigation Petitioner cites the case of Mathay vs. Consolidated Bank and Trust Company, 5 where we defined
"subject matter of the action," thus:
. . . By the phrase "subject matter of the action" is meant "the physical facts, the things real or personal,
the money, lands, chattels, and the like, in relation to which the suit is prosecuted, and not the delict or
wrong committed by the defendant."
Petitioner contends that the Court of Appeals confuses the "cause of action" with the "subject of the action." In Yusingco
vs. Ong Hing Lian, 6 petitioner points out, this Court distinguished the two concepts.
. . . The cause of action is the legal wrong threatened or committed, while the object of the action is to
prevent or redress the wrong by obtaining some legal relief; but the subject of the action is neither of
these since it is not the wrong or the relief demanded, the subject of the action is the matter or thing with
respect to which the controversy has arisen, concerning which the wrong has been done, and this
ordinarily is the property, or the contract and its subject matter, or the thing in dispute.
The argument is well taken. We note with approval the difference between the "subject of the action" from the "cause of
action." We also find petitioner's definition of the phrase "subject matter of the action" is consistent with the term "subject
matter of the litigation," as the latter is used in the Bank Deposits Secrecy Act.
In Mellon Bank, N.A. vs. Magsino, 7 where the petitioner bank inadvertently caused the transfer of the amount of
US$1,000,000.00 instead of only US$1,000.00, the Court sanctioned the examination of the bank accounts where part of
the money was subsequently caused to be deposited:
. . . Sec. 2 of [Republic Act No. 1405] allows the disclosure of bank deposits in cases where the money
deposited is the subject matter of the litigation. Inasmuch as Civil Case No. 26899 is aimed at recovering
the amount converted by the Javiers for their own benefit, necessarily, an inquiry into the whereabouts of
the illegally acquired amount extends to whatever is concealed by being held or recorded in the name of
persons other than the one responsible for the illegal acquisition.
Clearly, Mellon Bank involved a case where the money deposited was the subject matter of the litigation since the money
so deposited was the very thing in dispute. This, however, is not the case here.
Petitioner's theory is that private respondent Allied Bank should have informed petitioner of the under-encoding pursuant
to the provisions of Section 25.3.1 of the PCHC Handbook, which states:
25.3.1. The Receiving Bank should inform the erring Bank about the under-encoding of amount not later
than 10:00 A.M. of the following clearing day.
Failing in that duty, petitioner holds private respondent directly liable for the P999,000.00 and other damages. It
does not appear that petitioner is seeking reimbursement from the account of the drawer. This much is evident in
petitioner's complaint before the Arbicom.
. . . plaintiff's cause of action against defendant arose from defendant's deliberate violation of the
provisions of the PCHC Rule Book, Sec. 25.3, specifically on Under-Encoding of check amounting to
P1,000,000.00 drawn upon defendant's Tondo Branch which was deposited with plaintiff herein sometime
on May 20, 1990. From the check amount of P1,000,000.00, it was instead erroneously encoded at
P1,000.00 which defendant as the receiving bank thereof, never called nor notified the plaintiff of the
error committed thus causing actual losses to plaintiff in the principal amount of P999,000.00 exclusive
of opportunity losses and interest thereon whatsoever. . . . 8
Petitioner even requested private respondent's Branch Manager for reimbursement from private respondent's
account through the automatic debiting system.
2.7. On May 6, 1991, plaintiff's Senior Vice-President, Ms. ERLINDA V. VALENTON wrote defendant's
Tondo Branch Manager, Mr. RODOLFO JOSE on the incident and requested assistance in facilitating
14

correction of the erroneous coding with request for reimbursement thru the industry's automatic debiting
of defendant's account. . . . 9
Further, petitioner rejected private respondent's proposal that the drawer issue postdated checks in favor of
petitioner since the identity and credit standing of the depositor were unknown to petitioner.
2.9. On May 23, 1991, defendant's Branch Manager, the same Mr. Rodolfo Jose wrote plaintiff's Ms.
Erlinda Valenton again insisting on the execution of the Quitclaim and Release in favor of defendant as
the Branch has endeavored to negotiate with its client for the collection of such amount. Upon a reading
of the terms of the Quitclaim and Release being proposed by defendant, the unmistakable fact lies that
again defendant attempts for the second time to take advantage of plaintiffs plight by indicating that the
terms of the payment of the principal amount of P999,000.00 is by way of several personal postdated
checks up to March 21, 1992 from a person whose identify is not even disclosed to plaintiff. . . .
To an ordinary person aggrieved already by having been taken advantage of for 620 days more or less, the
proposal of defendant could not be acceptable for the reason that aside from the interest lost already for
the use of its money by another party, no assurance is made as to the actual collection thereof from a party
whose credit standing, the recipient is not at all aware of. . . . 10
Petitioner also believed that it had no privity with the depositor:
2.12. Plaintiff then replied to defendant's letter by requesting that in lieu of the post-dated checks from
defendant's client with whom plaintiff has no privity whatsoever, if the defendant could tender the full
payment of the amount of P999,000.00 in defendant's own Manager's check and that plaintiff is willing to
forego its further claims for interest and losses for a period of 620 days, more or less. . . . 11
The following argument adduced by petitioner in the Arbicom case leaves no doubt that petitioner is holding private
respondent itself liable for the discrepancy:
Defendant by its acceptance thru the clearing exchange of the check deposit from its client cannot be said
to be free from any liability for the unpaid portion of the check amount considering that defendant as the
drawee bank, is remiss in its duty of verifying possible technicalities on the face of the check.
Since the provisions of the PCHC Rule Book has so imposed upon the defendant being the Receiving
Bank of a discrepant check item to give that timely notification and defendant failing to comply with such
requirement, then it can be said that defendant is guilty of negligence. He who is guilty of negligence in
the performance of its [sic] duty is liable for damages. (Art. 1170, New Civil Code.)
Art. 1172 of the Civil Code provides that:
"Responsibility arising from negligence in the performance of every kind of obligation is
also demandable, but such liability may be regulated by the courts, according to the
circumstances.["] 12
Petitioner points to its prayer in its complaint to show that it sought reimbursement from the drawer's account. The prayer,
however, does not specifically state that it was seeking recovery of the amount from the depositor's account. Petitioner
merely asked that "judgment be rendered in favor of plaintiff against defendant sentencing it to pay plaintiff: 1. The sum
of NINE HUNDRED NINETY-NINE THOUSAND PESOS (P999,000.00). . . . 13
On the other hand, the petition before this Court reveals that the true purpose for the examination is to aid petitioner in
proving the extent of Allied Bank's liability:
Hence, the amount actually debited from the subject account becomes very material and germane to
petitioner's claim for reimbursement as it is only upon examination of subject account can it be proved
that indeed a discrepancy in the amount credited to petitioner was committed, thereby, rendering
respondent Allied Bank liable to petitioner for the deficiency. The money deposited in aforesaid account
is undeniably the subject matter of the litigation since the issue in the Arbicom case is whether respondent
Bank should be held liable to petitioner for reimbursement of the amount of money constituting the
difference between the amount of the check and the amount credited to petitioner, that is, P999,000.00,
which has remained deposited in aforesaid account.
On top of the allegations in the Complaint, which can be verified only by examining the subject bank
account, the defense of respondent Allied Bank that the reimbursement cannot be made since client's
account is not sufficiently funded at the time petitioner sent its Charge Slip, bolsters petitioner's
contention that the money in subject account is the very subject matter of the pending Arbicom case.
15

Indeed, to prove the allegations in its Complaint before the PCHC Arbitration Committee, and to rebut
private respondent's defense on the matter, petitioner needs to determine:
1. how long respondent Allied Bank had wilfully or negligently allowed the difference of P999,000.00 to
be maintained in the subject account without remitting the same to petitioner;
2. whether indeed the subject account was no longer sufficiently funded when petitioner sent its charge
slip for reimbursement to respondent bank on May 7, 1991; and
3. whether or not respondent Allied Bank's actuations in refusing to immediately reimburse the
discrepancy was attended by good or bad faith.
In other words, only a disclosure of the pertinent details and information relating to the transactions
involving subject account will enable petitioner to prove its allegations in the pending Arbicom
case. . . . . 14
In short, petitioner is fishing for information so it can determine the culpability of private respondent and the amount of
damages it can recover from the latter. It does not seek recovery of the very money contained in the deposit. The subject
matter of the dispute may be the amount of P999,000.00 that petitioner seeks from private respondent as a result of the
latter's alleged failure to inform the former of the discrepancy; but it is not the P999,000.00 deposited in the drawer's
account. By the terms of R.A. No. 1405, the "money deposited" itself should be the subject matter of the litigation.
That petitioner feels a need for such information in order to establish its case against private respondent does not, by itself,
warrant the examination of the bank deposits. The necessity of the inquiry, or the lack thereof, is immaterial since the case
does not come under any of the exceptions allowed by the Bank Deposits Secrecy Act.
WHEREFORE, the petition is DENIED.

[G.R. No. 135882. June 27, 2001]

LOURDES T. MARQUEZ, in her capacity as Branch Manager, Union Bank of the Philippines, petitioners, vs. HON.
ANIANO A. DESIERTO, (in his capacity as OMBUDSMAN, Evaluation and Preliminary Investigation Bureau, Office of
the Ombudsman, ANGEL C. MAYOR-ALGO, JR., MARY ANN CORPUZ-MANALAC and JOSE T. DE JESUS, JR.,
in their capacities as Chairman and Members of the Panel, respectively, respondents.
In the petition at bar, petitioner seeks to-a. Annul and set aside, for having been issued without or in excess of jurisdiction or with grave abuse of discretion
amounting to lack of jurisdiction, respondents order dated September 7, 1998 in OMB-0-97-0411, In Re: Motion to
Cite Lourdes T. Marquez for indirect contempt, received by counsel of September 9, 1998, and their order dated
October 14, 1998, denying Marquezs motion for reconsideration dated September 10, 1998, received by counsel on
October 20, 1998.
b. Prohibit respondents from implementing their order dated October 14, 1998, in proceeding with the hearing of the
motion to cite Marquez for indirect contempt, through the issuance by this Court of a temporary restraining order
and/or preliminary injunction.
The antecedent facts are as follows:
Sometime in May 1998, petitioner Marquez received an Order from the Ombudsman Aniano A. Desierto dated April 29,
1998, to produce several bank documents for purposes of inspection in camera relative to various accounts maintained at
Union Bank of the Philippines, Julia Vargas Branch, where petitioner is the branch manager. The accounts to be
inspected are Account Nos. 011-37270, 240-020718, 245-30317-3 and 245-30318-1, involved in a case pending with the
Ombudsman entitled, Fact-Finding and Intelligence Bureau (FFIB) v. Amado Lagdameo, et. al. The order further states:
It is worth mentioning that the power of the Ombudsman to investigate and to require the production and inspection of
records and documents is sanctioned by the 1987 Philippine Constitution, Republic Act No. 6770, otherwise known as the
Ombudsman Act of 1989 and under existing jurisprudence on the matter. It must be noted that R. A. 6770 especially
Section 15 thereof provides, among others, the following powers, functions and duties of the Ombudsman, to wit:
x
x
x
(8) Administer oaths, issue subpoena and subpoena duces tecum and take testimony in any investigation or inquiry,
including the power to examine and have access to bank accounts and records;
(9) Punish for contempt in accordance with the Rules of Court and under the same procedure and with the same penalties
provided therein.
16

Clearly, the specific provision of R.A. 6770, a later legislation, modifies the law on the Secrecy of Bank Deposits (R.A.
1405) and places the office of the Ombudsman in the same footing as the courts of law in this regard.
The basis of the Ombudsman in ordering an in camera inspection of the accounts is a trail of managers checks purchased
by one George Trivinio, a respondent in OMB-0-97-0411, pending with the office of the Ombudsman.
It would appear that Mr. George Trivinio, purchased fifty one (51) Managers Checks (MCs) for a total amount of P272.1
Million at Traders Royal Bank, United Nations Avenue branch, on May 2 and 3, 1995. Out of the 51 MCs, eleven (11)
MCs
in the amount of P70.6 million, were deposited and credited to an account maintained at the Union Bank, Julia Vargas
Branch.
On May 26, 1998, the FFIB panel met in conference with petitioner Lourdes T. Marquez and Atty. Fe B. Macalino at the
banks main office, Ayala Avenue, Makati City. The meeting was for the purpose of allowing petitioner and Atty.
Macalino to view the checks furnished by Traders Royal Bank. After convincing themselves of the veracity of the checks,
Atty. Macalino advised Ms. Marquez to comply with the order of the Ombudsman. Petitioner agreed to an in camera
inspection set on June 3, 1998.
However, on June 4, 1998, petitioner wrote the Ombudsman explaining to him that the accounts in question cannot readily
be identified and asked for time to respond to the order. The reason forwarded by petitioner was that despite diligent
efforts and from the account numbers presented, we can not identify these accounts since the checks are issued in cash or
bearer. We surmised that these accounts have long been dormant, hence are not covered by the new account number
generated by the Union Bank system. We therefore have to verify from the Interbank records archives for the
whereabouts of these accounts.
The Ombudsman, responding to the request of the petitioner for time to comply with the order, stated: firstly, it must be
emphasized that Union Bank, Julia Vargas Branch was the depositary bank of the subject Traders Royal Bank Managers
Checks (MCs), as shown at its dorsal portion and as cleared by the Philippine Clearing House, not the International
Corporate Bank.
Notwithstanding the fact that the checks were payable to cash or bearer, nonetheless, the name of the depositor(s) could
easily be identified since the account numbers x x x where said checks were deposited are identified in the order.
Even assuming that the accounts xxx were already classified as dormant accounts, the bank is still required to preserve
the records pertaining to the accounts within a certain period of time as required by existing banking rules and regulations.
And finally, the in camera inspection was already extended twice from May 13, 1998 to June 3, 1998, thereby giving
the bank enough time within which to sufficiently comply with the order.
Thus, on June 16, 1998, the Ombudsman issued an order directing petitioner to produce the bank documents relative to
the accounts in issue. The order states:
Viewed from the foregoing, your persistent refusal to comply with Ombudsmans order is unjustified, and is merely
intended to delay the investigation of the case. Your act constitutes disobedience of or resistance to a lawful order issued
by this office and is punishable as Indirect Contempt under Section 3(b) of R.A. 6770. The same may also constitute
obstruction in the lawful exercise of the functions of the Ombudsman which is punishable under Section 36 of R.A. 6770.
On July 10, 1998, petitioner together with Union Bank of the Philippines, filed a petition for declaratory relief, prohibition
and injunction with the Regional Trial Court, Makati City, against the Ombudsman.
The petition was intended to clear the rights and duties of petitioner. Thus, petitioner sought a declaration of her rights
from the court due to the clear conflict between R. A. No. 6770, Section 15 and R. A. No. 1405, Sections 2 and 3.
Petitioner prayed for a temporary restraining order (TRO) because the Ombudsman and other persons acting under his
authority were continuously harassing her to produce the bank documents relative to the accounts in question. Moreover,
on June 16, 1998, the Ombudsman issued another order stating that unless petitioner appeared before the FFIB with the
documents requested, petitioner manager would be charged with indirect contempt and obstruction of justice.
In the meantime, on July 14, 1998, the lower court denied petitioners prayer for a temporary restraining order and stated
thus:
After hearing the arguments of the parties, the court finds the application for a Temporary Restraining Order to be
without merit.
Since the application prays for the restraint of the respondent, in the exercise of his contempt powers under Section 15
(9) in relation to paragraph (8) of R.A. 6770, known as The Ombudsman Act of 1989, there is no great or irreparable
injury from which petitioners may suffer, if respondent is not so restrained. Respondent should he decide to exercise his
17

contempt powers would still have to apply with the court. x x x Anyone who, without lawful excuse x x x refuses to
produce documents for inspection, when thereunto lawfully required shall be subject to discipline as in case of contempt
of Court and upon application of the individual or body exercising the power in question shall be dealt with by the Judge
of the First Instance (now RTC) having jurisdiction of the case in a manner provided by law (section 580 of the Revised
Administrative Code). Under the present Constitution only judges may issue warrants, hence, respondent should apply
with the Court for the issuance of the warrant needed for the enforcement of his contempt orders. It is in these proceedings
where petitioners may question the propriety of respondents exercise of his contempt powers. Petitioners are not
therefore left without any adequate remedy.
The questioned orders were issued with the investigation of the case of Fact-Finding and Intelligence Bureau vs. Amado
Lagdameo, et. el., OMB-0-97-0411, for violation of R.A. 3019. Since petitioner failed to show prima facie evidence that
the subject matter of the investigation is outside the jurisdiction of the Office of the Ombudsman, no writ of injunction
may be issued by this Court to delay this investigation pursuant to Section 14 of the Ombudsman Act of 1989.
On July 20, 1998, petitioner filed a motion for reconsideration based on the following grounds:
a. Petitioners application for Temporary Restraining Order is not only to restrain the Ombudsman from exercising his
contempt powers, but to stop him from implementing his Orders dated April 29,1998 and June 16,1998; and
b. The subject matter of the investigation being conducted by the Ombudsman at petitioners premises is outside his
jurisdiction.
On July 23, 1998, the Ombudsman filed a motion to dismiss the petition for declaratory relief on the ground that the
Regional Trial Court has no jurisdiction to hear a petition for relief from the findings and orders of the Ombudsman, citing
R. A. No. 6770, Sections 14 and 27. On August 7, 1998, the Ombudsman filed an opposition to petitioners motion for
reconsideration dated July 20, 1998.
On August 19, 1998, the lower court denied petitioners motion for reconsideration, and also the Ombudsmans motion to
dismiss.
On August 21, 1998, petitioner received a copy of the motion to cite her for contempt, filed with the Office of the
Ombudsman by Agapito B. Rosales, Director, Fact Finding and Intelligence Bureau (FFIB).
On August 31, 1998, petitioner filed with the Ombudsman an opposition to the motion to cite her in contempt on the
ground that the filing thereof was premature due to the petition pending in the lower court. Petitioner likewise reiterated
that she had no intention to disobey the orders of the Ombudsman. However, she wanted to be clarified as to how she
would comply with the orders without her breaking any law, particularly R. A. No. 1405.
Respondent Ombudsman panel set the incident for hearing on September 7, 1998. After hearing, the panel issued an order
dated September 7, 1998, ordering petitioner and counsel to appear for a continuation of the hearing of the contempt
charges against her.
On September 10, 1998, petitioner filed with the Ombudsman a motion for reconsideration of the above order. Her motion
was premised on the fact that there was a pending case with the Regional Trial Court, Makati City, which would
determine whether obeying the orders of the Ombudsman to produce bank documents would not violate any law.
The FFIB opposed the motion, and on October 14, 1998, the Ombudsman denied the motion by order the dispositive
portion of which reads:
Wherefore, respondent Lourdes T. Marquezs motion for reconsideration is hereby DENIED, for lack of merit. Let the
hearing of the motion of the Fact Finding Intelligence Bureau (FFIB) to cite her for indirect contempt be intransferrably
set to 29 October 1998 at 2:00 oclock p.m. at which date and time she should appear personally to submit her additional
evidence. Failure to do so shall be deemed a waiver thereof.
Hence, the present petition.
The issue is whether petitioner may be cited for indirect contempt for her failure to produce the documents requested by
the Ombudsman. And whether the order of the Ombudsman to have an in camera inspection of the questioned account is
allowed as an exception to the law on secrecy of bank deposits (R. A. No. 1405).
An examination of the secrecy of bank deposits law (R. A. No. 1405) would reveal the following exceptions:
1. Where the depositor consents in writing;
2. Impeachment case;
3. By court order in bribery or dereliction of duty cases against public officials;
4. Deposit is subject of litigation;
5. Sec. 8, R. A. No. 3019, in cases of unexplained wealth as held in the case of PNB vs. Gancayco
18

The order of the Ombudsman to produce for in camera inspection the subject accounts with the Union Bank of the
Philippines, Julia Vargas Branch, is based on a pending investigation at the Office of the Ombudsman against Amado
Lagdameo, et. al. for violation of R. A. No. 3019, Sec. 3 (e) and (g) relative to the Joint Venture Agreement between the
Public Estates Authority and AMARI.
We rule that before an in camera inspection may be allowed, there must be a pending case before a court of competent
jurisdiction. Further, the account must be clearly identified, the inspection limited to the subject matter of the pending case
before the court of competent jurisdiction. The bank personnel and the account holder must be notified to be present
during the inspection, and such inspection may cover only the account identified in the pending case.
In Union Bank of the Philippines v. Court of Appeals, we held that Section 2 of the Law on Secrecy of Bank
Deposits, as amended, declares bank deposits to be absolutely confidential except:
(1) In an examination made in the course of a special or general examination of a bank that is specifically authorized by the
Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity has
been or is being committed and that it is necessary to look into the deposit to establish such fraud or irregularity,
(2) In an examination made by an independent auditor hired by the bank to conduct its regular audit provided that the
examination is for audit purposes only and the results thereof shall be for the exclusive use of the bank,
(3) Upon written permission of the depositor,
(4) In cases of impeachment,
(5) Upon order of a competent court in cases of bribery or dereliction of duty of public officials, or
(6) In cases where the money deposited or invested is the subject matter of the litigation
In the case at bar, there is yet no pending litigation before any court of competent authority. What is existing is an
investigation by the office of the Ombudsman. In short, what the Office of the Ombudsman would wish to do is to fish for
additional evidence to formally charge Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending
case in court which would warrant the opening of the bank account for inspection.
Zones of privacy are recognized and protected in our laws. The Civil Code provides that "[e]very person shall respect the
dignity, personality, privacy and peace of mind of his neighbors and other persons" and punishes as actionable torts
several acts for meddling and prying into the privacy of another. It also holds a public officer or employee or any private
individual liable for damages for any violation of the rights and liberties of another person, and recognizes the privacy of
letters and other private communications. The Revised Penal Code makes a crime of the violation of secrets by an officer,
the revelation of trade and industrial secrets, and trespass to dwelling. Invasion of privacy is an offense in special laws
like the Anti-Wiretapping Law, the Secrecy of Bank Deposits Act, and the Intellectual Property Code.
IN VIEW WHEREOF, we GRANT the petition. We order the Ombudsman to cease and desist from requiring Union
Bank Manager Lourdes T. Marquez, or anyone in her place to comply with the order dated October 14, 1998, and similar
orders. No costs.

REPUBLIC ACT No. 6426

AN ACT INSTITUTING A FOREIGN CURRENCY DEPOSIT SYSTEM IN THE PHILIPPINES, AND
FOR OTHER PURPOSES.
Section 8. Secrecy of foreign currency deposits. All foreign currency deposits authorized under this Act, as
amended by PD No. 1035, as well as foreign currency deposits authorized under PD No. 1034, are hereby
declared as and considered of an absolutely confidential nature and, except upon the written permission of the
depositor, in no instance shall foreign currency deposits be examined, inquired or looked into by any person,
government official, bureau or office whether judicial or administrative or legislative, or any other entity
whether public or private; Provided, however, That said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative body, government agency or any
administrative body whatsoever. (As amended by PD No. 1035, and further amended by PD No. 1246, prom.
Nov. 21, 1977.)

19

G.R. No. 189206

June 8, 2011
GOVERNMENT SERVICE INSURANCE SYSTEM, vs. THE HONORABLE 15th DIVISION OF THE COURT
OF APPEALS and INDUSTRIAL BANK OF KOREA, TONG YANG MERCHANT BANK, HANAREUM
BANKING CORP., LAND BANK OF THE PHILIPPINES, WESTMONT BANK and DOMSAT HOLDINGS,
INC.
The subject of this petition for certiorari is the Decision1 of the Court of Appeals in CA-G.R. SP No. 82647 allowing the
quashal by the Regional Trial Court (RTC) of Makati of a subpoena for the production of bank ledger. This case is
incident to Civil Case No. 99-1853, which is the main case for collection of sum of money with damages filed by
Industrial Bank of Korea, Tong Yang Merchant Bank, First Merchant Banking Corporation, Land Bank of the Philippines,
and Westmont Bank (now United Overseas Bank), collectively known as "the Banks" against Domsat Holdings, Inc.
(Domsat) and the Government Service Insurance System (GSIS). Said case stemmed from a Loan Agreement,2 whereby
the Banks agreed to lend United States (U.S.) $11 Million to Domsat for the purpose of financing the lease and/or
purchase of a Gorizon Satellite from the International Organization of Space Communications (Intersputnik).3
The controversy originated from a surety agreement by which Domsat obtained a surety bond from GSIS to secure the
payment of the loan from the Banks. We quote the terms of the Surety Bond in its entirety.4
Republic of the Philippines
GOVERNMENT SERVICE INSURANCE SYSTEM
GENERAL INSURANCE FUND
GSIS Headquarters, Financial Center
Roxas Boulevard, Pasay City
G(16) GIF Bond 027461
SURETYBOND
KNOW ALL MEN BY THESE PRESENTS:
That we, DOMSAT HOLDINGS, INC., represented by its President as PRINCIPAL, and the GOVERNMENT SERVICE
INSURANCE SYSTEM, as Administrator of the GENERAL INSURANCE FUND, a corporation duly organized and existing under
and by virtue of the laws of the Philippines, with principal office in the City of Pasay, Metro Manila, Philippines as SURETY, are held
and firmly bound unto the OBLIGEES: LAND BANK OF THE PHILIPPINES, 7th Floor, Land Bank Bldg. IV. 313 Sen. Gil J. Puyat
Avenue, Makati City; WESTMONT BANK, 411 Quintin Paredes St., Binondo, Manila: TONG YANG MERCHANT BANK, 185, 2Ka, Ulchi-ro, Chungk-ku, Seoul, Korea; INDUSTRIAL BANK OF KOREA, 50, 2-Ga, Ulchi-ro, Chung-gu, Seoul, Korea; and FIRST
MERCHANT BANKING CORPORATION, 199-40, 2-Ga, Euliji-ro, Jung-gu, Seoul, Korea, in the sum, of US $ ELEVEN MILLION
DOLLARS ($11,000,000.00) for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors,
administrators, successors and assigns, jointly and severally, firmly by these presents.
THE CONDITIONS OF THE OBLIGATION ARE AS FOLLOWS:
WHEREAS, the above bounden PRINCIPAL, on the 12th day of December, 1996 entered into a contract agreement with the
aforementioned OBLIGEES to fully and faithfully
Guarantee the repayment of the principal and interest on the loan granted the PRINCIPAL to be used for the financing of the two (2)
year lease of a Russian Satellite from INTERSPUTNIK, in accordance with the terms and conditions of the credit package entered
into by the parties.
This bond shall remain valid and effective until the loan including interest has been fully paid and liquidated,
a copy of which contract/agreement is hereto attached and made part hereof;
WHEREAS, the aforementioned OBLIGEES require said PRINCIPAL to give a good and sufficient bond in the above stated sum to
secure the full and faithful performance on his part of said contract/agreement.
NOW, THEREFORE, if the PRINCIPAL shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions,
and agreements stipulated in said contract/agreements, then this obligation shall be null and void; otherwise, it shall remain in full
force and effect.
WITNESS OUR HANDS AND SEALS this 13th day of December 1996 at Pasay City, Philippines.
DOMSAT HOLDINGS, INC.
Principal

GOVERNMENT SERVICE INSURANCE SYSTEM

General Insurance Fund

By:

By:

CAPT. RODRIGO A. SILVERIO

President

AMALIO A. MALLARI
Senior Vice-President
General Insurance Group

20

When Domsat failed to pay the loan, GSIS refused to comply with its obligation reasoning that Domsat did not use the
loan proceeds for the payment of rental for the satellite. GSIS alleged that Domsat, with Westmont Bank as the conduit,
transferred the U.S. $11 Million loan proceeds from the Industrial Bank of Korea to Citibank New York account of
Westmont Bank and from there to the Binondo Branch of Westmont Bank.5 The Banks filed a complaint before the RTC
of Makati against Domsat and GSIS.
In the course of the hearing, GSIS requested for the issuance of a subpoena duces tecum to the custodian of records of
Westmont Bank to produce the following documents:
1. Ledger covering the account of DOMSAT Holdings, Inc. with Westmont Bank (now United Overseas Bank),
any and all documents, records, files, books, deeds, papers, notes and other data and materials relating to the
account or transactions of DOMSAT Holdings, Inc. with or through the Westmont Bank (now United Overseas
Bank) for the period January 1997 to December 2002, in his/her direct or indirect possession, custody or control
(whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise;
2. All applications for cashiers/ managers checks and bank transfers funded by the account of DOMSAT
Holdings, Inc. with or through the Westmont Bank (now United Overseas Bank) for the period January 1997 to
December 2002, and all other data and materials covering said applications, in his/her direct or indirect
possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of
Records or otherwise;
3. Ledger covering the account of Philippine Agila Satellite, Inc. with Westmont Bank (now United Overseas
Bank), any and all documents, records, files, books, deeds, papers, notes and other data and materials relating to
the account or transactions of Philippine Agila Satellite, Inc. with or through the Westmont bank (now United
Overseas Bank) for the period January 1997 to December 2002, in his/her direct or indirect possession, custody or
control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise;
4. All applications for cashiers/managers checks funded by the account of Philippine Agila Satellite, Inc. with or
through the Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002, and all
other data and materials covering said applications, in his/her direct or indirect possession, custody or control
(whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise. 6
The RTC issued a subpoena decus tecum on 21 November 2002.7 A motion to quash was filed by the banks on three
grounds: 1) the subpoena is unreasonable, oppressive and does not establish the relevance of the documents sought; 2)
request for the documents will violate the Law on Secrecy of Bank Deposits; and 3) GSIS failed to advance the reasonable
cost of production of the documents.8 Domsat also joined the banks motion to quash through its
Manifestation/Comment.9 On 9 April 2003, the RTC issued an Order denying the motion to quash for lack of merit. We
quote the pertinent portion of the Order, thus:
After a careful consideration of the arguments of the parties, the Court did not find merit in the motion.
The serious objection appears to be that the subpoena is violative of the Law on Secrecy of Bank Deposit, as amended.
The law declares bank deposits to be "absolutely confidential" except: x x x (6) In cases where the money deposited or
invested is the subject matter of the litigation.
The case at bench is for the collection of a sum of money from defendants that obtained a loan from the plaintiff. The loan
was secured by defendant GSIS which was the surety. It is the contention of defendant GSIS that the proceeds of the loan
was deviated to purposes other than to what the loan was extended. The quashal of the subpoena would deny defendant
GSIS its right to prove its defenses.
WHEREFORE, for lack of merit the motion is DENIED.10
On 26 June 2003, another Order was issued by the RTC denying the motion for reconsideration filed by the banks.11 On 1
September 2003 however, the trial court granted the second motion for reconsideration filed by the banks. The previous
subpoenas issued were consequently quashed.12 The trial court invoked the ruling in Intengan v. Court of Appeals,13
where it was ruled that foreign currency deposits are absolutely confidential and may be examined only when there is a
written permission from the depositor. The motion for reconsideration filed by GSIS was denied on 30 December 2003.
Hence, these assailed orders are the subject of the petition for certiorari before the Court of Appeals. GSIS raised the
following arguments in support of its petition:
I.

21

Respondent Judge acted with grave abuse of discretion when it favorably considered respondent banks (second) Motion
for Reconsideration dated July 9, 2003 despite the fact that it did not contain a notice of hearing and was therefore a mere
scrap of paper.
II.
Respondent judge capriciously and arbitrarily ignored Section 2 of the Foreign Currency Deposit Act (RA 6426) in ruling
in his Orders dated September 1 and December 30, 2003 that the US$11,000,000.00 deposit in the account of respondent
Domsat in Westmont Bank is covered by the secrecy of bank deposit.
III.
Since both respondent banks and respondent Domsat have disclosed during the trial the US$11,000,000.00 deposit, it is no
longer secret and confidential, and petitioner GSIS right to inquire into what happened to such deposit can not be
suppressed.14
The Court of Appeals addressed these issues in seriatim.
The Court of Appeals resorted to a liberal interpretation of the rules to avoid miscarriage of justice when it allowed the
filing and acceptance of the second motion for reconsideration. The appellate court also underscored the fact that GSIS
did not raise the defect of lack of notice in its opposition to the second motion for reconsideration. The appellate court
held that failure to timely object to the admission of a defective motion is considered a waiver of its right to do so.
The Court of Appeals declared that Domsats deposit in Westmont Bank is covered by Republic Act No. 6426 or the Bank
Secrecy Law. We quote the pertinent portion of the Decision:
It is our considered opinion that Domsats deposit of $11,000,000.00 in Westmont Bank is covered by the Bank Secrecy
Law, as such it cannot be examined, inquired or looked into without the written consent of its owner. The ruling in Van
Twest vs. Court of Appeals was rendered during the effectivity of CB Circular No. 960, Series of 1983, under Sec. 102
thereof, transfer to foreign currency deposit account or receipt from another foreign currency deposit account, whether for
payment of legitimate obligation or otherwise, are not eligible for deposit under the System.
CB Circular No. 960 has since been superseded by CB Circular 1318 and later by CB Circular 1389. Section 102 of
Circular 960 has not been re-enacted in the later Circulars. What is applicable now is the decision in Intengan vs. Court of
Appeals where the Supreme Court has ruled that the under R.A. 6426 there is only a single exception to the secrecy of
foreign currency deposits, that is, disclosure is allowed only upon the written permission of the depositor. Petitioner,
therefore, had inappropriately invoked the provisions of Central Bank (CB) Circular Nos. 343 which has already been
superseded by more recently issued CB Circulars. CB Circular 343 requires the surrender to the banking system of foreign
exchange, including proceeds of foreign borrowings. This requirement, however, can no longer be found in later circulars.
In its Reply to respondent banks comment, petitioner appears to have conceded that what is applicable in this case is CB
Circular 1389. Obviously, under CB 1389, proceeds of foreign borrowings are no longer required to be surrendered to the
banking system.
Undaunted, petitioner now argues that paragraph 2, Section 27 of CB Circular 1389 is applicable because Domsats
$11,000,000.00 loan from respondent banks was intended to be paid to a foreign supplier Intersputnik and, therefore,
should have been paid directly to Intersputnik and not deposited into Westmont Bank. The fact that it was deposited to the
local bank Westmont Bank, petitioner claims violates the circular and makes the deposit lose its confidentiality status
under R.A. 6426. However, a reading of the entire Section 27 of CB Circular 1389 reveals that the portion quoted by the
petitioner refers only to the procedure/conditions of drawdown for service of debts using foreign exchange. The abovesaid provision relied upon by the petitioner does not in any manner prescribe the conditions before any foreign currency
deposit can be entitled to the confidentiality provisions of R.A. 6426.15
Anent the third issue, the Court of Appeals ruled that the testimony of the incumbent president of Westmont Bank is not
the written consent contemplated by Republic Act No. 6426.
The Court of Appeals however upheld the issuance of subpoena praying for the production of applications for cashiers or
managers checks by Domsat through Westmont Bank, as well as a copy of an Agreement and/or Contract and/or
Memorandum between Domsat and/or Philippine Agila Satellite and Intersputnik for the acquisition and/or lease of a
Gorizon Satellite. The appellate court believed that the production of these documents does not involve the examination of
Domsats account since it will never be known how much money was deposited into it or withdrawn therefrom and how
much remains therein.
On 29 February 2008, the Court of Appeals rendered the assailed Decision, the decretal portion of which reads:
22

WHEREFORE, the petition is partially GRANTED. Accordingly, the assailed Order dated December 30, 2003 is hereby
modified in that the quashal of the subpoena for the production of Domsats bank ledger in Westmont Bank is upheld
while respondent court is hereby ordered to issue subpoena duces tecum ad testificandum directing the records custodian
of Westmont Bank to bring to court the following documents:
a) applications for cashiers or managers checks by respondent Domsat through Westmont Bank from January
1997 to December 2002;
b) bank transfers by respondent Domsat through Westmont Bank from January 1997 to December 2002; and
c) copy of an agreement and/or contract and/or memorandum between respondent Domsat and/or Philippine Agila
Satellite and Intersputnik for the acquisition and/or lease of a Gorizon satellite.
No pronouncement as to costs.16
GSIS filed a motion for reconsideration which the Court of Appeals denied on 19 June 2009. Thus, the instant petition
ascribing grave abuse of discretion on the part of the Court of Appeals in ruling that Domsats deposit with Westmont
Bank cannot be examined and in finding that the banks second motion for reconsideration in Civil Case No. 99-1853 is
procedurally acceptable.17
This Court notes that GSIS filed a petition for certiorari under Rule 65 of the Rules of Court to assail the Decision and
Resolution of the Court of Appeals. Petitioner availed of the improper remedy as the appeal from a final disposition of the
Court of Appeals is a petition for review under Rule 45 and not a special civil action under Rule 65.18 Certiorari under
Rule 65 lies only when there is no appeal, nor plain, speedy and adequate remedy in the ordinary course of law. That
action is not a substitute for a lost appeal in general; it is not allowed when a party to a case fails to appeal a judgment to
the proper forum.19 Where an appeal is available, certiorari will not prosper even if the ground therefor is grave abuse of
discretion. Accordingly, when a party adopts an improper remedy, his petition may be dismissed outright.20lauuphil
Yet, even if this procedural infirmity is discarded for the broader interest of justice, the petition sorely lacks merit.
GSIS insists that Domsats deposit with Westmont Bank can be examined and inquired into. It anchored its argument on
Republic Act No. 1405 or the "Law on Secrecy of Bank Deposits," which allows the disclosure of bank deposits in cases
where the money deposited is the subject matter of the litigation. GSIS asserts that the subject matter of the litigation is
the U.S. $11 Million obtained by Domsat from the Banks to supposedly finance the lease of a Russian satellite from
Intersputnik. Whether or not it should be held liable as a surety for the principal amount of U.S. $11 Million, GSIS
contends, is contingent upon whether Domsat indeed utilized the amount to lease a Russian satellite as agreed in the
Surety Bond Agreement. Hence, GSIS argues that the whereabouts of the U.S. $11 Million is the subject matter of the
case and the disclosure of bank deposits relating to the U.S. $11 Million should be allowed.
GSIS also contends that the concerted refusal of Domsat and the banks to divulge the whereabouts of the U.S. $11 Million
will greatly prejudice and burden the GSIS pension fund considering that a substantial portion of this fund is earmarked
every year to cover the surety bond issued.
Lastly, GSIS defends the acceptance by the trial court of the second motion for reconsideration filed by the banks on the
grounds that it is pro forma and did not conform to the notice requirements of Section 4, Rule 15 of the Rules of Civil
Procedure.21
Domsat denies the allegations of GSIS and reiterates that it did not give a categorical or affirmative written consent or
permission to GSIS to examine its bank statements with Westmont Bank.
The Banks maintain that Republic Act No. 1405 is not the applicable law in the instant case because the Domsat deposit is
a foreign currency deposit, thus covered by Republic Act No. 6426. Under said law, only the consent of the depositor
shall serve as the exception for the disclosure of his/her deposit.
The Banks counter the arguments of GSIS as a mere rehash of its previous arguments before the Court of Appeals. They
justify the issuance of the subpoena as an interlocutory matter which may be reconsidered anytime and that the pro forma
rule has no application to interlocutory orders.
It appears that only GSIS appealed the ruling of the Court of Appeals pertaining to the quashal of the subpoena for the
production of Domsats bank ledger with Westmont Bank. Since neither Domsat nor the Banks interposed an appeal from
the other portions of the decision, particularly for the production of applications for cashiers or managers checks by
Domsat through Westmont Bank, as well as a copy of an agreement and/or contract and/or memorandum between Domsat
and/or Philippine Agila Satellite and Intersputnik for the acquisition and/or lease of a Gorizon satellite, the latter became
final and executory.
23

GSIS invokes Republic Act No. 1405 to justify the issuance of the subpoena while the banks cite Republic Act No. 6426
to oppose it. The core issue is which of the two laws should apply in the instant case.
Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first amended by Presidential Decree No. 1792 in 1981
and further amended by Republic Act No. 7653 in 1993. It now reads:
Section 2. All deposits of whatever nature with banks or banking institutions in the Philippines including investments in
bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby
considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment, or
upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money
deposited or invested is the subject matter of the litigation.
Section 8 of Republic Act No. 6426, which was enacted in 1974, and amended by Presidential Decree No. 1035 and later
by Presidential Decree No. 1246, provides:
Section 8. Secrecy of Foreign Currency Deposits. All foreign currency deposits authorized under this Act, as amended
by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, are
hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of the
depositor, in no instance shall foreign currency deposits be examined, inquired or looked into by any person, government
official, bureau or office whether judicial or administrative or legislative or any other entity whether public or private;
Provided, however, That said foreign currency deposits shall be exempt from attachment, garnishment, or any other order
or process of any court, legislative body, government agency or any administrative body whatsoever. (As amended by PD
No. 1035, and further amended by PD No. 1246, prom. Nov. 21, 1977.)
On the one hand, Republic Act No. 1405 provides for four (4) exceptions when records of deposits may be disclosed.
These are under any of the following instances: a) upon written permission of the depositor, (b) in cases of impeachment,
(c) upon order of a competent court in the case of bribery or dereliction of duty of public officials or, (d) when the money
deposited or invested is the subject matter of the litigation, and e) in cases of violation of the Anti-Money Laundering Act
(AMLA), the Anti-Money Laundering Council (AMLC) may inquire into a bank account upon order of any competent
court.22 On the other hand, the lone exception to the non-disclosure of foreign currency deposits, under Republic Act No.
6426, is disclosure upon the written permission of the depositor.
These two laws both support the confidentiality of bank deposits. There is no conflict between them. Republic Act No.
1405 was enacted for the purpose of giving encouragement to the people to deposit their money in banking institutions
and to discourage private hoarding so that the same may be properly utilized by banks in authorized loans to assist in the
economic development of the country.23 It covers all bank deposits in the Philippines and no distinction was made
between domestic and foreign deposits. Thus, Republic Act No. 1405 is considered a law of general application. On the
other hand, Republic Act No. 6426 was intended to encourage deposits from foreign lenders and investors.24 It is a special
law designed especially for foreign currency deposits in the Philippines. A general law does not nullify a specific or
special law. Generalia specialibus non derogant.25 Therefore, it is beyond cavil that Republic Act No. 6426 applies in this
case.
Intengan v. Court of Appeals affirmed the above-cited principle and categorically declared that for foreign currency
deposits, such as U.S. dollar deposits, the applicable law is Republic Act No. 6426.
In said case, Citibank filed an action against its officers for persuading their clients to transfer their dollar deposits to
competitor banks. Bank records, including dollar deposits of petitioners, purporting to establish the deception practiced by
the officers, were annexed to the complaint. Petitioners now complained that Citibank violated Republic Act No. 1405.
This Court ruled that since the accounts in question are U.S. dollar deposits, the applicable law therefore is not Republic
Act No. 1405 but Republic Act No. 6426.
The above pronouncement was reiterated in China Banking Corporation v. Court of Appeals,26 where respondent accused
his daughter of stealing his dollar deposits with Citibank. The latter allegedly received the checks from Citibank and
deposited them to her account in China Bank. The subject checks were presented in evidence. A subpoena was issued to
employees of China Bank to testify on these checks. China Bank argued that the Citibank dollar checks with both
respondent and/or her daughter as payees, deposited with China Bank, may not be looked into under the law on secrecy of
foreign currency deposits. This Court highlighted the exception to the non-disclosure of foreign currency deposits, i.e., in
the case of a written permission of the depositor, and ruled that respondent, as owner of the funds unlawfully taken and
which are undisputably now deposited with China Bank, he has the right to inquire into the said deposits.
24

Applying Section 8 of Republic Act No. 6426, absent the written permission from Domsat, Westmont Bank cannot be
legally compelled to disclose the bank deposits of Domsat, otherwise, it might expose itself to criminal liability under the
same act.27
The basis for the application of subpoena is to prove that the loan intended for Domsat by the Banks and guaranteed by
GSIS, was diverted to a purpose other than that stated in the surety bond. The Banks, however, argue that GSIS is in fact
liable to them for the proper applications of the loan proceeds and not vice-versa. We are however not prepared to rule on
the merits of this case lest we pre-empt the findings of the lower courts on the matter.
The third issue raised by GSIS was properly addressed by the appellate court. The appellate court maintained that the
judge may, in the exercise of his sound discretion, grant the second motion for reconsideration despite its being pro forma.
The appellate court correctly relied on precedents where this Court set aside technicality in favor of substantive justice.
Furthermore, the appellate court accurately pointed out that petitioner did not assail the defect of lack of notice in its
opposition to the second motion of reconsideration, thus it can be considered a waiver of the defect.
WHEREFORE, the petition for certiorari is DISMISSED. The Decision dated 29 February 2008 and 19 June 2009
Resolution of the Court of Appeals are hereby AFFIRMED.
G.R. No. 128996
February 15, 2002
CARMEN LL. INTENGAN, ROSARIO LL. NERI, and RITA P. BRAWNER, vs. COURT OF APPEALS,
DEPARTMENT OF JUSTICE, AZIZ RAJKOTWALA, WILLIAM FERGUSON, JOVEN REYES, and VIC LIM,
Before us is a petition for review on certiorari, seeking the reversal of the Decision1 dated July 8, 1996 of the former
Fifteenth Division2 of the Court of Appeals in CA-G.R. SP No. 37577 as well as its Resolution3 dated April 16, 1997
denying petitioners motion for reconsideration. The appellate court, in its Decision, sustained a resolution of the
Department of Justice ordering the withdrawal of informations for violation of Republic Act No. 1405 against private
respondents.
The facts are:
On September 21, 1993, Citibank filed a complaint for violation of section 31,4 in relation to section 1445 of the
Corporation Code against two (2) of its officers, Dante L. Santos and Marilou Genuino. Attached to the complaint was an
affidavit6 executed by private respondent Vic Lim, a vice-president of Citibank. Pertinent portions of his affidavit are
quoted hereunder:
2.1 Sometime this year, the higher management of Citibank, N.A. assigned me to assist in the investigation of certain
anomalous/highly irregular activities of the Treasurer of the Global Consumer Group of the bank, namely, Dante L.
Santos and the Asst. Vice President in the office of Mr. Dante L. Santos, namely Ms. Marilou (also called Malou)
Genuino. Ms. Marilou Genuino apart from being an Assistant Vice President in the office of Mr. Dante L. Santos also
performed the duties of an Account Officer. An Account Officer in the office of Mr. Dante L. Santos personally attends to
clients of the bank in the effort to persuade clients to place and keep their monies in the products of Citibank, NA., such as
peso and dollar deposits, mortgage backed securities and money placements, among others.
xxx
xxx
xxx
4.1 The investigation in which I was asked to participate was undertaken because the bank had found records/evidence
showing that Mr. Dante L. Santos and Ms. Malou Genuino, contrary to their disclosures and the aforementioned bank
policy, appeared to have been actively engaged in business endeavors that were in conflict with the business of the bank.
It was found that with the use of two (2) companies in which they have personal financial interest, namely Torrance
Development Corporation and Global Pacific Corporation, they managed or caused existing bank clients/depositors to
divert their money from Citibank, N.A., such as those placed in peso and dollar deposits and money placements, to
products offered by other companies that were commanding higher rate of yields. This was done by first transferring bank
clients monies to Torrance and Global which in turn placed the monies of the bank clients in securities, shares of stock
and other certificates of third parties. It also appeared that out of these transactions, Mr. Dante L. Santos and Ms. Marilou
Genuino derived substantial financial gains.
5.1 In the course of the investigation, I was able to determine that the bank clients which Mr. Santos and Ms. Genuino
helped/caused to divert their deposits/money placements with Citibank, NA. to Torrance and Global (their family
corporations) for subsequent investment in securities, shares of stocks and debt papers in other companies were as
follows:
25

xxx
b) Carmen Intengan
xxx
d) Rosario Neri
xxx
i) Rita Brawner
All the above persons/parties have long standing accounts with Citibank, N.A. in savings/dollar deposits and/or in trust
accounts and/or money placements.
As evidence, Lim annexed bank records purporting to establish the deception practiced by Santos and Genuino. Some of
the documents pertained to the dollar deposits of petitioners Carmen Ll. Intengan, Rosario Ll. Neri, and Rita P. Brawner,
as follows:
a) Annex "A-6"7 - an "Application for Money Transfer" in the amount of US $140,000.00, executed by Intengan
in favor of Citibank $ S/A No. 24367796, to be debited from her Account No. 22543341;
b) Annex "A-7"8 - a "Money Transfer Slip" in the amount of US $45,996.30, executed by Brawner in favor of
Citibank $ S/A No. 24367796, to be debited from her Account No. 22543236; and
c) Annex "A-9"9 - an "Application for Money Transfer" in the amount of US $100,000.00, executed by Neri in
favor of Citibank $ S/A No. 24367796, to be debited from her Account No. 24501018.
In turn, private respondent Joven Reyes, vice-president/business manager of the Global Consumer Banking Group of
Citibank, admits to having authorized Lim to state the names of the clients involved and to attach the pertinent bank
records, including those of petitioners.10 He states that private respondents Aziz Rajkotwala and William Ferguson,
Citibank, N.A. Global Consumer Banking Country Business Manager and Country Corporate Officer, respectively, had
no hand in the disclosure, and that he did so upon the advice of counsel.
In his memorandum, the Solicitor General described the scheme as having been conducted in this manner:
First step: Santos and/or Genuino would tell the bank client that they knew of financial products of other companies that
were yielding higher rates of interests in which the bank client can place his money. Acting on this information, the bank
client would then authorize the transfer of his funds from his Citibank account to the Citibank account of either Torrance
or Global.
The transfer of the Citibank clients deposits was done through the accomplishment of either an Application For
Managers Checks or a Term Investment Application in favor of Global or Torrance that was prepared/filed by Genuino
herself.
Upon approval of the Application for Managers Checks or Term Investment Application, the funds of the bank client
covered thereof were then deposited in the Citibank accounts of Torrance and/or Global.
Second step: Once the said fund transfers had been effected, Global and/or Torrance would then issue its/ their checks
drawn against its/their Citibank accounts in favor of the other companies whose financial products, such as securities,
shares of stocks and other certificates, were offering higher yields.
Third step: On maturity date(s) of the placements made by Torrance and/or Global in the other companies, using the
monies of the Citibank client, the other companies would then. return the placements to Global and/or Torrance with the
corresponding interests earned.
Fourth step: Upon receipt by Global and/or Torrance of the remittances from the other companies, Global and/or Torrance
would then issue its/their own checks drawn against their Citibank accounts in favor of Santos and Genuino.
The amounts covered by the checks represent the shares of Santos and Genuino in the margins Global and/or Torrance
had realized out of the placements [using the diverted monies of the Citibank clients] made with the other companies.
Fifth step: At the same time, Global and/or Torrance would also issue its/their check(s) drawn against its/their Citibank
accounts in favor of the bank client.
The check(s) cover the principal amount (or parts thereof) which the Citibank client had previously transferred, with the
help of Santos and/or Genuino, from his Citibank account to the Citibank account(s) of Global and/or Torrance for
placement in the other companies, plus the interests or earnings his placements in other companies had made less the
spreads made by Global, Torrance, Santos and Genuino.
The complaints which were docketed as I.S. Nos. 93-9969, 93-10058 and 94-1215 were subsequently amended to include
a charge of estafa under Article 315, paragraph 1(b)11 of the Revised Penal Code.
26

As an incident to the foregoing, petitioners filed respective motions for the exclusion and physical withdrawal of their
bank records that were attached to Lims affidavit.
In due time, Lim and Reyes filed their respective counter-affidavits.12 In separate Memoranda dated March 8, 1994 and
March 15, 1994 2nd Assistant Provincial Prosecutor Hermino T. Ubana, Sr. recommended the dismissal of petitioners
complaints. The recommendation was overruled by Provincial Prosecutor Mauro M. Castro who, in a Resolution dated
August 18, 1994,13 directed the filing of informations against private respondents for alleged violation of Republic Act
No. 1405, otherwise known as the Bank Secrecy Law.
Private respondents counsel then filed an appeal before the Department of Justice (DOJ). On November 17, 1994, then
DOJ Secretary Franklin M. Drilon issued a Resolution14 ordering, inter alia, the withdrawal of the aforesaid informations
against private respondents. Petitioners motion for reconsideration15 was denied by DOJ Acting Secretary Demetrio G.
Demetria in a Resolution dated March 6, 1995.16
Initially, petitioners sought the reversal of the DOJ resolutions via a petition for certiorari and mandamus filed with this
Court, docketed as G.R. No. 119999-120001. However, the former First Division of this Court, in a Resolution dated June
5, 1995,17 referred the matter to the Court of the Appeals, on the basis of the latter tribunals concurrent jurisdiction to
issue the extraordinary writs therein prayed for. The petition was docketed as CA-G.R. SP No. 37577 in the Court of
Appeals.
On July 8, 1996, the Court of Appeals rendered judgment dismissing the petition in CA-G.R. SP No. 37577 and declared
therein, as follows:
Clearly, the disclosure of petitioners deposits was necessary to establish the allegation that Santos and Genuino had
violated Section 31 of the Corporation Code in acquiring "any interest adverse to the corporation in respect of any matter
which has been reposed in him in confidence." To substantiate the alleged scheme of Santos and Genuino, private
respondents had to present the records of the monies which were manipulated by the two officers which included the bank
records of herein petitioners.
Although petitioners were not the parties involved in IS. No. 93-8469, their accounts were relevant to the complete
prosecution of the case against Santos and Genuino and the respondent DOJ properly ruled that the disclosure of the same
falls under the last exception of R.A. No. 1405. That ruling is consistent with the principle laid down in the case of Mellon
Bank, N.A. vs. Magsino (190 SCRA 633) where the Supreme Court allowed the testimonies on the bank deposits of
someone not a party to the case as it found that said bank deposits were material or relevant to the allegations in the
complaint. Significantly, therefore, as long as the bank deposits are material to the case, although not necessarily the
direct subject matter thereof, a disclosure of the same is proper and falls within the scope of the exceptions provided for
by R.A. No. 1405.
xxx
xxx
xxx
Moreover, the language of the law itself is clear and cannot be subject to different interpretations. A reading of the
provision itself would readily reveal that the exception "or in cases where the money deposited or invested is the subject
matter of the litigation" is not qualified by the phrase "upon order of competent Court" which refers only to cases of
bribery or dereliction of duty of public officials.
Petitioners motion for reconsideration was similarly denied in a Resolution dated April 16, 1997. Appeal was made in
due time to this Court.
The instant petition was actually denied by the former Third Division of this Court in a Resolution18 dated July 16, 1997,
on the ground that petitioners had failed to show that a reversible error had been committed. On motion, however, the
petition was reinstated19 and eventually given due course.20
In assailing the appellate courts findings, petitioners assert that the disclosure of their bank records was unwarranted and
illegal for the following reasons:
I.
IN BLATANT VIOLATION OF R.A. NO. 1405, PRIVATE RESPONDENTS ILLEGALLY MADE DISCLOSURES
OF PETITIONERS CONFIDENTIAL BANK DEPOSITS FOR THEIR SELFISH ENDS IN PROSECUTING THEIR
COMPLAINT IN IS. NO. 93-8469 THAT DID NOT INVOLVE PETITIONERS.
II.
PRIVATE RESPONDENTS DISCLOSURES DO NOT FALL UNDER THE FOURTH EXCEPTION OF R.A. NO.
1405 (i.e., "in cases where the money deposited or invested is the subject matter of the litigation"), NOR UNDER ANY
OTHER EXCEPTION:
27

(1)
PETITIONERS DEPOSITS ARE NOT INVOLVED IN ANY LITIGATION BETWEEN PETITIONERS AND
RESPONDENTS. THERE IS NO LITIGATION BETWEEN THE PARTIES, MUCH LESS ONE INVOLVING
PETITIONERS DEPOSITS AS THE SUBJECT MATTER THEREOF.
(2)
EVEN ASSUMING ARGUENDO THAT THERE IS A LITIGATION INVOLVING PETITIONERS
DEPOSITS AS THE SUBJECT MATTER THEREOF, PRIVATE RESPONDENTS DISCLOSURES OF
PETITIONERS DEPOSITS ARE NEVERTHELESS ILLEGAL FOR WANT OF THE REQUISITE COURT
ORDER, IN VIOLATION OF R.A. NO. 1405.
III.
THEREFORE, PETITIONERS ARE ENTITLED TO PROSECUTE PRIVATE RESPONDENTS FOR VIOLATIONS
OF R.A. NO. 1405 FOR HAVING ILLEGALLY DISCLOSED PETITIONERS CONFIDENTIAL BANK DEPOSITS
AND RECORDS IN IS. NO. 93-8469.
Apart from the reversal of the decision and resolution of the appellate court as well as the resolutions of the Department of
Justice, petitioners pray that the latter agency be directed to issue a resolution ordering the Provincial Prosecutor of Rizal
to file the corresponding informations for violation of Republic Act No. 1405 against private respondents.
The petition is not meritorious.
Actually, this case should have been studied more carefully by all concerned. The finest legal minds in the country - from
the parties respective counsel, the Provincial Prosecutor, the Department of Justice, the Solicitor General, and the Court
of Appeals - all appear to have overlooked a single fact which dictates the outcome of the entire controversy. A
circumspect review of the record shows us the reason. The accounts in question are U.S. dollar deposits; consequently, the
applicable law is not Republic Act No. 1405 but Republic Act (RA) No. 6426, known as the "Foreign Currency Deposit
Act of the Philippines," section 8 of which provides:
Sec. 8. Secrecy of Foreign Currency Deposits.- All foreign currency deposits authorized under this Act, as amended by
Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, are
hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of the
depositor, in no instance shall such foreign currency deposits be examined, inquired or looked into by any person,
government official bureau or office whether judicial or administrative or legislative or any other entity whether public or
private: Provided, however, that said foreign currency deposits shall be exempt from attachment, garnishment, or any
other order or process of any court, legislative body, government agency or any administrative body whatsoever.21 (italics
supplied)
Thus, under R.A. No. 6426 there is only a single exception to the secrecy of foreign currency deposits, that is, disclosure
is allowed only upon the written permission of the depositor. Incidentally, the acts of private respondents complained of
happened before the enactment on September 29, 2001 of R.A. No. 9160 otherwise known as the Anti-Money Laundering
Act of 2001.
A case for violation of Republic Act No. 6426 should have been the proper case brought against private respondents.
Private respondents Lim and Reyes admitted that they had disclosed details of petitioners dollar deposits without the
latters written permission. It does not matter if that such disclosure was necessary to establish Citibanks case against
Dante L. Santos and Marilou Genuino. Lims act of disclosing details of petitioners bank records regarding their foreign
currency deposits, with the authority of Reyes, would appear to belong to that species of criminal acts punishable by
special laws, called malum prohibitum. In this regard, it has been held that:
While it is true that, as a rule and on principles of abstract justice, men are not and should not be held criminally
responsible for acts committed by them without guilty knowledge and criminal or at least evil intent xxx, the courts have
always recognized the power of the legislature, on grounds of public policy and compelled by necessity, "the great master
of things," to forbid in a limited class of cases the doing of certain acts, and to make their commission criminal without
regard to the intent of the doer. xxx In such cases no judicial authority has the power to require, in the enforcement of the
law, such knowledge or motive to be shown. As was said in the case of State vs. McBrayer xxx:
It is a mistaken notion that positive, willful intent, as distinguished from a mere intent, to violate the criminal law, is an
essential ingredient in every criminal offense, and that where there is the absence of such intent there is no offense; this is
especially so as to statutory offenses. When the statute plainly forbids an act to be done, and it is done by some person, the
law implies conclusively the guilty intent, although the offender was honestly mistaken as to the meaning of the law he
28

violates. When the language is plain and positive, and the offense is not made to depend upon the positive, willful intent
and purpose, nothing is left to interpretation.22
Ordinarily, the dismissal of the instant petition would have been without prejudice to the filing of the proper charges
against private respondents. The matter would have ended here were it not for the intervention of time, specifically the
lapse thereof. So as not to unduly prolong the settlement of the case, we are constrained to rule on a material issue even
though it was not raised by the parties. We refer to the issue of prescription.
Republic Act No. 6426 being a special law, the provisions of Act No. 3326,23 as amended by Act No. 3763, are
applicable:
SECTION 1. Violations penalized by special acts shall, unless otherwise provided in such acts, prescribe in accordance
with the following rules: (a) after a year for offences punished only by a fine or by imprisonment for not more than one
month, or both: (b) after four years for those punished by imprisonment for more than one month, but less than two years;
(c) after eight years for those punished by imprisonment for two years or more, but less than six years; and (d) after twelve
years for any other offence punished by imprisonment for six years or more, except the crime of treason, which shall
prescribe after twenty years: Provided, however, That all offences against any law or part of law administered by the
Bureau of Internal Revenue shall prescribe after five years. Violations penalized by municipal ordinances shall prescribe
after two months.
Violations of the regulations or conditions of certificates of public convenience issued by the Public Service Commission
shall prescribe after two months.
SEC. 2. Prescription shall begin to run from the day of the commission of the violation of the law, and if the same be not
known at the time, from the discovery thereof and the institution of judicial proceedings for its investigation and
punishment.
The prescription shall be interrupted when proceedings are instituted against the guilty person, and shall begin to run
again if the proceedings are dismissed for reasons not constituting jeopardy.1wphi1
A violation of Republic Act No. 6426 shall subject the offender to imprisonment of not less than one year nor more than
five years, or by a fine of not less than five thousand pesos nor more than twenty-five thousand pesos, or both.24 Applying
Act No. 3326, the offense prescribes in eight years.25 Per available records, private respondents may no longer be haled
before the courts for violation of Republic Act No. 6426. Private respondent Vic Lim made the disclosure in September of
1993 in his affidavit submitted before the Provincial Fiscal.26 In her complaint-affidavit,27 Intengan stated that she learned
of the revelation of the details of her foreign currency bank account on October 14, 1993. On the other hand, Neri asserts
that she discovered the disclosure on October 24, 1993.28 As to Brawner, the material date is January 5, 1994.29 Based on
any of these dates, prescription has set in.30
The filing of the complaint or information in the case at bar for alleged violation of Republic Act No. 1405 did not have
the effect of tolling the prescriptive period. For it is the filing of the complaint or information corresponding to the correct
offense which produces that effect.31
It may well be argued that the foregoing disquisition would leave petitioners with no remedy in law. We point out,
however, that the confidentiality of foreign currency deposits mandated by Republic Act No. 6426, as amended by
Presidential Decree No. 1246, came into effect as far back as 1977. Hence, ignorance thereof cannot be pretended. On
one hand, the existence of laws is a matter of mandatory judicial notice;32 on the other, ignorantia legis non excusat.33
Even during the pendency of this appeal, nothing prevented the petitioners from filing a complaint charging the correct
offense against private respondents. This was not done, as everyone involved was content to submit the case on the basis
of an alleged violation of Republic Act No. 1405 (Bank Secrecy Law), however, incorrectly invoked.34
WHEREFORE, the petition is hereby DENIED. No pronouncement as to costs

D. Secrecy of Bank Deposits Under the Anti-Money Laundering Law (RA 9160)
R.A. 9160: The Anti-Money Laundering Act of 2001 was promulgated primarily to allow the examination of
bank accounts suspected to be sourced from illegal activities but which otherwise are protected from
examination or freezing under existing laws on secrecy of bank deposits.
R.A. 1405 (An Act Prohibiting Disclosure of or Inquiry into Deposits with any Banking Institution and
Providing Penalty Therefor) was promulgated forty-six years ago to encourage people to deposit their money
in banking institutions and to discourage private hoarding so that these private funds may be properly utilized to
29

assist in the economic development of the country. Under said law, all deposits of whatever natures which are
deposited with banks or banking institutions are considered as of an absolutely confidential nature.
Examination of the account is allowed only by way of exception in four (4) cases:
a) upon written permission of the depositor;
b) in cases of impeachment;
c) upon order of a competent court in cases of bribery or dereliction of duty of public officials; or
d) in cases where the money deposited is the subject matter of the litigation.
Similarly, R.A. 6426 (An Act Instituting Foreign Currency Deposit System in the Philippines, and for Other
Purposes) promulgated on April 4, 1972 extended the veil of absolute confidentiality and immunity from
examination to foreign currency deposits with authorized Philippines banks and banking institutions.
With the passage of time and the phenomenon referred to as globalization, these laws originally promulgated
with a noble purpose were taken advantage of to conceal illegal banking activities such that the Philippines was
cited as among the money laundering centers of Asia. Hence international pressure was imposed to goad our
government into passing an anti-money laundering law.
The key to a proper appreciation of the law is in its definition of terms, particularly:
a) Covered Institutions
b) Covered Transactions and c) Unlawful Activity.
The term covered institutions embraces any institution supervised or regulated by either the Banko Sentral ng
Pilipinas (BSP) or the Insurance Commission and any institution or entity dealing in currency, commodities or
financial derivatives supervised or regulated by the Securities & Exchange Commission.
Covered Transaction is a single, series or combination of transactions involving a total amount in excess of
P4M or its equivalent in foreign currency.
Expressly excluded are transactions involving a person, who at the time of the transaction was a properly
identified client and the amount is commensurate with the business or financial capacity of the client or those
with an underlying legal or trade obligation.
Unlawful Activity refers to any act or omission involving the following crimes/offenses:
1. Kidnapping for ransom;
2. Specified provisions of the Dangerous Drugs Act of 1972;
3. Specified provisions of the Anti-Graft and Corrupt Practices Act;
4. Plunder
5. Robbery and Extortion
6. Jueteng and Masiao;
7. Piracy on the high seas;
8. Qualified theft;
9. Swindling
10. Smuggling;
11. Violations of the Electronic Commerce Act of 2000 (R.A. 8792);
12. Hijacking and other violations under Republic Act No. 6235 destructive arson and murder, acts
perpetrated by terrorists;
13. Fraudulent practices and other violations of Securities Regulation Code of 2000; and
14. Felonies or offenses of a similar nature that is punishable under the penal laws of other countries.
Accordingly, the crime of money laundering is defined as one whereby the proceeds of an unlawful activity are
transacted and made to appear as having originated from a legitimate source. Specifically it is committed by:
a. Any person knowing that any monetary instrument or property represented, involves, or relates to the
proceeds of any unlawful activity, transacts or attempts to transact, said monetary instrument or
property.
30

b.

Any person knowing that any monetary instrument or property involves the proceeds of any unlawful
activity, perform any act as a result of which he facilitates the offense of money laundering referred to in
paragraph (a) above.
c. Any person knowing that any monetary instrument or property is required under this Act to be disclosed
and filed with the Anti-Monetary Laundering Council (AMLC), fails to do so.
Other significant provisions:
a. Any person may be simultaneously charged with and convicted of both a violation of R.A. 9160 and the
crime embraced with the definition of unlawful activity.
b. The formation of an Anti-Money Laundering Council composed of the Governor of the BSP, the
Commissioner of the Insurance Commission of the Chairman of the SEC.
Notably, the law requires that the AMLC must act unanimously in the discharge of its functions. Hence, a
vacancy in any of the enumerated offices or absence of any such member will render the AMLC ineffective.
c. The AMLC is authorized to, upon determination of probable cause, issue of a freeze order which shall
be effective for at least fifteen (15) days and except for the Court of Appeals and the Supreme Court no
court shall issue a TRO or writ of injunction against a freeze order issued by the AMLC.
d. The AMLC is also authorized to inquire into or examine any particular deposit or investment with a
covered institution but upon order of a competent court. Hence, while the AMLC has powers to freeze a
suspected account, it cannot examine same without aprior court order.
e. The penalty for the crime of transacting or attempting to transact a money laundering activity ranges
from 7 to 14 years and a fine of not less that P3M but not more than double the value of the monetary
instrument.
4 7 years imprisonment and a fine of at least P1.5M but to exceed P3M for facilitating the offense
of money laundering.
6 months 4 years ora fine of not less than P100,000.00 but not more than P500,000 for failure to
disclose a money laundering activity.
f. To allay fears of the lawmakers themselves that the law may in the future be used against them (as in
the case of the crime of plunder which ERAP is charged with), a safeguard provision was inserted. R.A.
9160 cannot be used for political persecution and no case for violation of R.A. 9160 may be filed during
an election period
.
By and large, the passage of the law (R.A. 9160) is a significant development. The law has several defects but
what do you expect when the passage of said law was fast-tracked (very like instant noodles) and extensive
debates and deliberations on the bill discouraged and avoided just so both houses of congress are able to meet
the deadline.
But at least some procedure, however crude, has been put in place as will hopefully deter the use of Philippine
banks (and other financial/insurance institutions) as laundry
centers.
E. Garnishment
G.R. No. 84526 January 28, 1991
PHILIPPINE COMMERCIAL & INDUSTRIAL BANK and JOSE HENARES, vs. THE HON. COURT OF
APPEALS and MARINDUQUE MINING AND INDUSTRIAL CORPORATION
This is a petition for review on certiorari which assails both the resolution 1 dated June 27, 1988 of the Court of Appeals 2
which reconsidered and set aside its earlier decisions 3 dated February 26, 1988 reversing the decision 4 of the trial court
and the subsequent resolution 5 dated August 3, 1988 which denied the petitioners' motion for reconsideration. The
dispositive portion of the resolution in question dated June 27, 1988 reads as follows:
31

xxx xxx xxx

For the reasons above adduced, We are constrained to reconsider Our aforesaid decision and to set it aside
and in lieu thereof hereby enter another decision AFFIRMING the decision dated January 15, 1985 of the
Regional Trial Court of Manila, Branch 11, in Civil Case No. 103100 entitled "Marinduque Mining and
Industrial Corporation (MMIC) vs. Philippine Commercial and Industrial Bank, et al." 6
The undisputed facts 7 as gathered from the findings of the trial court are as follows:
The instant case originated from an action 8 filed with the National Labor Relations Commission (NLRC) by a group of
laborers who obtained therefrom a favorable judgment for the payment of backwages amounting to P205,853.00 against
the private respondent.
On April 26, 1976, the said Commission issued a writ of execution directing the Deputy Sheriff of Negros Occidental, one
Damian Rojas, to enforce the aforementioned judgment. The pertinent portion of the said writ reads as follows:
xxx xxx xxx
Further, you are to collect from same respondent the total amount of P205,853.00 as their backwage (sic)
for twelve (12) months and then turn over said amount to this commission for further disposition. In case
you fail to collect said amount in cash, you are to cause the satisfaction of the same on the movable or
immovable properties of the respondent not exempt from execution. (Exhs. G, G-1 and G-3, also Exh. 3;
Emphasis supplied). 9
Accordingly, on April 28, 1976, the aforenamed deputy sheriff went to the mining site of the private respondent and
served the writ of execution on the persons concerned, but nothing seemed to have happened thereat.
Thereafter, the Sheriff prepared on his own a Notice of Garnishment dated April 29, 1976 addressed to six (6) banks, all
located in Bacolod City, one of which being the petitioner herein, directing the bank concerned to immediately issue a
check in the name of the Deputy Provincial Sheriff of Negros Occidental in an amount equivalent to the amount of the
garnishment and that proper receipt would be issued therefor.
Incidentally, the house lawyer of the private respondent, Atty. Rexes V. Alejano, acting on a tip regarding the existence of
the said notice of garnishment, communicated with the bank manager, the petitioner Jose Henares, verbally at first at
around 2:00 o'clock in the afternoon of that day, April 29, 1976, and later confirmed in a formal letter received by the
petitioner Henares at about 5:00 o'clock of that same day, requesting the withholding of any release of the deposit of the
private respondent with the petitioner bank.
Meanwhile, at about 9:30 in the morning of April 29, 1976, the deputy sheriff presented the Notice of Garnishment and
the Writ of Execution attached therewith to the petitioner Henares and later in the afternoon, demanded from the latter,
under pain of contempt, the release of the deposit of the private respondent.
The petitioner Henares, upon knowing from the Acting Provincial Sheriff that there was no restraining order from the
National Labor Relations Commission and on the favorable advice of the bank's legal counsel, issued a debit memo for
the full balance of the private respondent's account with the petitioner bank. Thereafter, he issued a manager's check in the
name of the Deputy Provincial Sheriff of Negros Occidental for the amount of P37,466.18, which was the exact balance
of the private respondent's account as of that day.
On the following day, April 30, 1976, at about 1:00 o'clock in the afternoon, the deputy sheriff returned to the bank in
order to encash the check but before the actual encashment, the petitioner Henares once again inquired about any existing
restraining order from the NLRC and upon being told that there was none, the latter allowed the said encashment.
On July 6, 1976, the private respondent, then plaintiff, filed a complaint before the Regional Trial Court of Manila,
Branch II, against the petitioners and Damian Rojas, the Deputy Provincial Sheriff of Negros Occidental, then defendants,
alleging that the former's current deposit with the petitioner bank was levied upon, garnished, and with undue haste
unlawfully allowed to be withdrawn, and notwithstanding the alleged unauthorized disclosure of the said current deposit
and unlawful release thereof, the latter have failed and refused to restore the amount of P37,466.18 to the former's account
despite repeated demands.
Both the petitioners and the Deputy Sheriff filed their respective answers denying the material averments of the said
complaint and alleged that their actuations were all in accordance with law and likewise filed counterclaims for damages,
including a cross-claim of the former against the latter. The third-party complaint of the petitioners against the forty-nine
(49) laborers in the NLRC case was, however, dismissed for failure of the sheriff to serve summons upon the latter.
On January 23, 1982, after several postponements, the pre-trial was finally conducted and terminated with only the
petitioners and the private respondent participating, through their respective counsel.
32

On January 15, 1985, the trial court rendered its judgment in favor of the private respondent, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the three (3) defendants
by ordering the latter to pay, jointly and severally, the plaintiff the following amounts, to wit:
(a) the sum of P37,466.18, with interest thereon at the rate of 12% per annum from date of first demand
on April 29, 1976 until the amount shall have been fully and completely restored and paid;
(b) the sum of P10,000.00 as attorney's fees.
Defendants are ordered to pay, jointly and severally, double costs. 10
xxx xxx xxx
On appeal, the respondent court in a decision dated February 26, 1988, first reversed the said judgment of the lower court,
but however, on the motion for reconsideration filed by the private respondent, subsequently annulled and set aside its
said decision in the resolution dated June 27, 1988. On August 3, 1988, the respondent court denied the petitioner's own
motion for reconsideration.
Hence, this petition.
The petitioners raise two issues, 11 to wit:
1. Whether or not petitioners had legal basis in releasing the garnished deposit of private respondent to the
sheriff.
2. Whether or not petitioners violated Republic Act No. 1405, otherwise known as the Secrecy of Bank
Deposits Act, when they allowed the sheriff to garnish the deposit of private respondent.
The petition is impressed with merit.
The crux of the instant controversy boils down to the question of whether or not a bank is liable for releasing its
depositor's funds on the strength of the notice of garnishment made by the deputy sheriff pursuant to a writ of execution
issued by the National Labor Relations Commission (NLRC).
The respondent court in its questioned resolution dated June 27, 1988, held that the petitioners were liable, in this wise:
In the case at bar, defendant-appellant PCIB, despite vigorous objections from plaintiff-appellee, with
indecent haste disclosed and released the deposit of plaintiff-appellee on the strength of a mere notice of
garnishment which the Honorable Supreme Court ruled upon is no authority for the release of the deposit,
thus:
In the second place, the mere garnishment of funds belonging to a party upon order of the
court does not have the effect of delivering the money garnished to the sheriff or to the
party in whose favor the attachment is issued. The fund is retained by the garnishee or the
person holding the money for the defendant.
The garnishee, or one in whose hands property is attached or garnished, is universally
regarded as charged with its legal custody pending outcome of the attachment or
garnishment unless, by local statute and practice, he is permitted to surrender or pay the
garnished property or funds into court, to the attaching officer, or to a receiver or trustee
appointed to receive them. (5 Am. Jur. 14)
The effect of the garnishment, therefore, was to require the Philippine Trust Company,
holder of the funds of the Luzon Surety Co., to set aside said amount from the funds of
the Luzon Surety Co., and keep the same subject to the final orders of the Court. In the
case at bar there was never an order to deliver the full amount garnished to the plaintiffappellee; all that was ordered to be delivered after the judgment had become final was the
amount found by the Court of Appeals to be due. The balance of the amount garnished,
therefore, remained all the time in the possession of the bank as part of the funds of the
Luzon Surety Co. although the same could not be disposed of by the owner. (De la Rama
vs. Villarosa, et al., L-17927, June 29, 1963, 8 SCRA 413, 418-419; Emphasis supplied).
12

The above-mentioned contention citing De la Rama is not exactly on all fours with the facts of the case at bar. In De la
Rama, the amount garnished was not actually taken possession of by the sheriff, even from the time of garnishment,
because the judgment debtor was able to appeal to the Court of Appeals and obtain from the Court an injunction
prohibiting execution of the judgment.
33

On the other hand, nowhere in the record of the present case is there any evidence of an appeal by the private respondent
from the decision of the NLRC or the existence of any restraining order to prevent the release of the private respondent's
deposit to the deputy sheriff at the time of the service of the notice of garnishment and writ of execution to the petitioners.
On the contrary, the uncontroverted statements in the deposition of the petitioner Henares that he had previously sought
the advice of the bank's counsel and that he had checked twice with the Acting Provincial Sheriff who had informed him
of the absence of any restraining order, belie any allegation of undue and indecent haste in the release of the said deposit
in question.
The cases more in point to the present controversy are the recent decisions in Engineering Construction Inc. v. National
Power Corporation 13 and Rizal Commercial Banking Corporation (RCBC) vs. De Castro 14 where the Court absolved
both garnishees, MERALCO and RCBC, respectively, from any liability for their prompt compliance in the release of
garnished funds,
The rationale behind Engineering Construction, Inc. and which was quoted in Rizal Commercial Banking Corporation is
persuasive
xxx xxx xxx
But while partial restitution is warranted in favor of NPC, we find that the Appellate Court erred in not
absolving MERALCO, the garnishee, from its obligations to NPC with respect to the payment to ECI of
P1,114,543.23, thus in effect subjecting MERALCO to double liability. MERALCO should not have been
faulted for its prompt obedience to a writ of garnishment. Unless there are compelling reasons such as: a
defect on the face of the writ or actual knowledge on the part of the garnishee of lack of entitlement on
the part of the garnisher, it is not incumbent upon the garnishee to inquire or to judge for itself whether or
not the order for the advance execution of a judgment is valid.
Section 8, Rule 57 of the Rules of Court provides:
Effect of attachment of debts and credits. All persons having in their possession or
under their control any credits or other similar personal property belonging to the party
against whom attachment is issued, or owing any debts to the same, at the time of service
upon them of a copy of the order of attachment and notice as provided in the last
preceding section, shall be liable to the applicant of the amount of such credits, debts or
other property, until the attachment be discharged, or any judgment recovered by him be
satisfied, unless such property be delivered or transferred, or such debts be paid, to the
clerk, sheriff or other proper officer of the court issuing the attachment.
Garnishment is considered as a specie of attachment for reaching credits belonging to the judgment debtor
and owing to him from a stranger to the litigation. Under the above-cited rule, the garnishee [the third
person] is obliged to deliver the credits, etc. to the proper officer issuing the writ and "the law exempts
from liability the person having in his possession or under his control any credits or other personal
property belonging to the defendant, . . . if such property be delivered or transferred, . . . to the clerk,
sheriff, or other officer of the court in which the action is pending."
Applying the foregoing to the case at bar, MERALCO, as garnishee, after having been judicially
compelled to pay the amount of the judgment represented by funds in its possession belonging to the
judgment debtor or NPC, should be released from all responsibilities over such amount after delivery
thereof to the sheriff. The reason for the rule is self evident. To expose garnishees to risks for obeying
court orders and processes would only undermine the administration of justice. (Emphasis ours.) 15
xxx xxx xxx
Moreover, there is no issue concerning the indebtedness of the petitioner bank to the private respondent since the latter
has never denied the existence of its deposit with the former, the said deposit being considered a credit in favor of the
depositor against the bank. 16 We therefore see no application for Sec. 39, Rule 39 of the Rules of Court invoked by the
private respondent as to necessitate the "examination of the debtor of the judgment debtor." 17
Rather, we find the immediate release of the funds by the petitioners on the strength of the notice of garnishment and writ
of execution, whose issuance, absent any patent defect, enjoys the presumption of regularity, sufficiently supported by
Sec. 41, Rule 39 of the Rules of Court which reads:
xxx xxx xxx
34

After an execution against property has issued, a person indebted to the judgment debtor, may pay to the
officer holding the execution the amount of his debt or so much thereof as may be necessary to satisfy the
execution, and the officer's receipt shall be a sufficient discharge for the amount so paid or directed to be
credited by the judgment creditor on the execution.
xxx xxx xxx
Finally, we likewise take cognizance of the subject of the judgment sought to be enforced in the writ of execution in
question, namely, laborers' backwages. We believe that the petitioners should rather be commended for having acted with
urgent dispatch despite attempts by the private respondent, as with so many scheming employers, to frustrate or
unjustifiably delay the prompt satisfaction of final judgments which often result in undue prejudice to the legitimate
claims of labor.
With regard to the second issue, we find no violation whatsoever by the petitioners of Republic Act No. 1405, otherwise
known as the Secrecy of Bank Deposits Act. The Court in China Banking Corporation vs. Ortega 18 had the occasion to
dispose of this issue when it stated, thus:
It is clear from the discussion of the conference committee report on Senate Bill No. 351 and House Bill
No. 3977, which later became Republic Act 1405, that the prohibition against examination of or inquiry
into a bank deposit under Republic Act 1405 does not preclude its being garnished to insure satisfaction
of a judgment. Indeed there is no real inquiry in such a case, and if existence of the deposit is disclosed
the disclosure is purely incidental to the execution process. It is hard to conceive that it was ever within
the intention of Congress to enable debtors to evade payment of their just debts, even if ordered by the
Court, through the expedient of converting their assets into cash and depositing the same in a bank.
Since there is no evidence that the petitioners themselves divulged the information that the private respondent had an
account with the petitioner bank and it is undisputed that the said account was properly the object of the notice of
garnishment and writ of execution carried out by the deputy sheriff, a duly authorized officer of the court, we can not
therefore hold the petitioners liable under R.A. 1405.
While the general rule is that the findings of fact of the appellate court are binding on this Court, the said rule however
admits of exceptions, such as when the Court of Appeals clearly misconstrued and misapplied the law, drawn from the
incorrect conclusions of fact established by evidence and otherwise at certain conclusions which are based on
misapprehension of facts, 19 as in the case at bar.
The petitioners are therefore absolved from any liability for the disclosure and release of the private respondent's deposit
to the custody of the deputy sheriff in satisfaction of the final judgment for the laborers' backwages.
WHEREFORE, the petition is GRANTED and the challenged Resolutions dated June 27, 1988 and August 13, 1988 of
the Court of Appeals are hereby ANNULLED and SET ASIDE and its Decision dated February 26, 1988 dismissing the
complaint is hereby REINSTATED. With costs against the private respondent.
G.R. No. 94723 August 21, 1997
KAREN E. SALVACION, minor, thru Federico N. Salvacion, Jr., father and Natural Guardian, and Spouses
FEDERICO N. SALVACION, JR., and EVELINA E. SALVACION, vs. CENTRAL BANK OF THE
PHILIPPINES, CHINA BANKING CORPORATION and GREG BARTELLI y NORTHCOTT, respondents.
In our predisposition to discover the "original intent" of a statute, courts become the unfeeling pillars of the status quo.
Ligle do we realize that statutes or even constitutions are bundles of compromises thrown our way by their framers.
Unless we exercise vigilance, the statute may already be out of tune and irrelevant to our day.
The petition is for declaratory relief. It prays for the following reliefs:
a.) Immediately upon the filing of this petition, an Order be issued restraining the respondents from
applying and enforcing Section 113 of Central Bank Circular No. 960;
b.) After hearing, judgment be rendered:
1.) Declaring the respective rights and duties of petitioners and respondents;
2.) Adjudging Section 113 of Central Bank Circular No. 960 as contrary to the provisions of the
Constitution, hence void; because its provision that "Foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative body, government agency
or any administrative body whatsoever
35

i.) has taken away the right of petitioners to have the bank deposit of defendant Greg
Bartelli y Northcott garnished to satisfy the judgment rendered in petitioners' favor in
violation of substantive due process guaranteed by the Constitution;
ii.) has given foreign currency depositors an undue favor or a class privilege in violation
of the equal protection clause of the Constitution;
iii.) has provided a safe haven for criminals like the herein respondent Greg Bartelli y
Northcott since criminals could escape civil liability for their wrongful acts by merely
converting their money to a foreign currency and depositing it in a foreign currency
deposit account with an authorized bank.
The antecedent facts:
On February 4, 1989, Greg Bartelli y Northcott, an American tourist, coaxed and lured petitioner Karen Salvacion, then
12 years old to go with him to his apartment. Therein, Greg Bartelli detained Karen Salvacion for four days, or up to
February 7, 1989 and was able to rape the child once on February 4, and three times each day on February 5, 6, and 7,
1989. On February 7, 1989, after policemen and people living nearby, rescued Karen, Greg Bartelli was arrested and
detained at the Makati Municipal Jail. The policemen recovered from Bartelli the following items: 1.) Dollar Check No.
368, Control No. 021000678-1166111303, US 3,903.20; 2.) COCOBANK Bank Book No. 104-108758-8 (Peso Acct.); 3.)
Dollar Account China Banking Corp., US$/A#54105028-2; 4.) ID-122-30-8877; 5.) Philippine Money (P234.00) cash;
6.) Door Keys 6 pieces; 7.) Stuffed Doll (Teddy Bear) used in seducing the complainant.
On February 16, 1989, Makati Investigating Fiscal Edwin G. Condaya filed against Greg Bartelli, Criminal Case No. 801
for Serious Illegal Detention and Criminal Cases Nos. 802, 803, 804, and 805 for four (4) counts of Rape. On the same
day, petitioners filed with the Regional Trial Court of Makati Civil Case No. 89-3214 for damages with preliminary
attachment against Greg Bartelli. On February 24, 1989, the day there was a scheduled hearing for Bartelli's petition for
bail the latter escaped from jail.
On February 28, 1989, the court granted the fiscal's Urgent Ex-Parte Motion for the Issuance of Warrant of Arrest and
Hold Departure Order. Pending the arrest of the accused Greg Bartelli y Northcott, the criminal cases were archived in an
Order dated February 28, 1989.
Meanwhile, in Civil Case No. 89-3214, the Judge issued an Order dated February 22, 1989 granting the application of
herein petitioners, for the issuance of the writ of preliminary attachment. After petitioners gave Bond No. JCL (4) 1981 by
FGU Insurance Corporation in the amount of P100,000.00, a Writ of Preliminary Attachment was issued by the trial court
on February 28, 1989.
On March 1, 1989, the Deputy Sheriff of Makati served a Notice of Garnishment on China Banking Corporation. In a
letter dated March 13, 1989 to the Deputy Sheriff of Makati, China Banking Corporation invoked Republic Act No. 1405
as its answer to the notice of garnishment served on it. On March 15, 1989, Deputy Sheriff of Makati Armando de
Guzman sent his reply to China Banking Corporation saying that the garnishment did not violate the secrecy of bank
deposits since the disclosure is merely incidental to a garnishment properly and legally made by virtue of a court order
which has placed the subject deposits in custodia legis. In answer to this letter of the Deputy Sheriff of Makati, China
Banking Corporation, in a letter dated March 20, 1989, invoked Section 113 of Central Bank Circular No. 960 to the
effect that the dollar deposits or defendant Greg Bartelli are exempt from attachment, garnishment, or any other order or
process of any court, legislative body, government agency or any administrative body, whatsoever.
This prompted the counsel for petitioners to make an inquiry with the Central Bank in a letter dated April 25, 1989 on
whether Section 113 of CB Circular No. 960 has any exception or whether said section has been repealed or amended
since said section has rendered nugatory the substantive right of the plaintiff to have the claim sought to be enforced by
the civil action secured by way of the writ of preliminary attachment as granted to the plaintiff under Rule 57 of the
Revised Rules of Court. The Central Bank responded as follows:
May 26, 1989
Ms. Erlinda S. Carolino
12 Pres. Osmena Avenue
South Admiral Village
Paranaque, Metro Manila
Dear Ms. Carolino:
36

This is in reply to your letter dated April 25, 1989 regarding your inquiry on Section 113, CB Circular
No. 960 (1983).
The cited provision is absolute in application. It does not admit of any exception, nor has the same been
repealed nor amended.
The purpose of the law is to encourage dollar accounts within the country's banking system which would
help in the development of the economy. There is no intention to render futile the basic rights of a person
as was suggested in your subject letter. The law may be harsh as some perceive it, but it is still the law.
Compliance is, therefore, enjoined.
Very truly yours,
(SGD) AGAPITO S. FAJARDO
Director 1
Meanwhile, on April 10, 1989, the trial court granted petitioners' motion for leave to serve summons by publication in the
Civil Case No. 89-3214 entitled "Karen Salvacion, et al. vs. Greg Bartelli y Northcott." Summons with the complaint was
a published in the Manila Times once a week for three consecutive weeks. Greg Bartelli failed to file his answer to the
complaint and was declared in default on August 7, 1989. After hearing the case ex-parte, the court rendered judgment in
favor of petitioners on March 29, 1990, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering the
latter:
1. To pay plaintiff Karen E. Salvacion the amount of P500,000.00 as moral damages;
2. To pay her parents, plaintiffs spouses Federico N. Salvacion, Jr., and Evelina E. Salvacion the amount
of P150,000.00 each or a total of P300,000.00 for both of them;
3. To pay plaintiffs exemplary damages of P100,000.00; and
4. To pay attorney's fees in an amount equivalent to 25% of the total amount of damages herein awarded;
5. To pay litigation expenses of P10,000.00; plus
6. Costs of the suit.
SO ORDERED.
The heinous acts of respondent Greg Bartelli which gave rise to the award were related in graphic detail by the trial court
in its decision as follows:
The defendant in this case was originally detained in the municipal jail of Makati but was able to escape
therefrom on February 24, 1989 as per report of the Jail Warden of Makati to the Presiding Judge,
Honorable Manuel M. Cosico of the Regional Trial Court of Makati, Branch 136, where he was charged
with four counts of Rape and Serious Illegal Detention (Crim. Cases Nos. 802 to 805). Accordingly, upon
motion of plaintiffs, through counsel, summons was served upon defendant by publication in the Manila
Times, a newspaper of general circulation as attested by the Advertising Manager of the Metro Media
Times, Inc., the publisher of the said newspaper. Defendant, however, failed to file his answer to the
complaint despite the lapse of the period of sixty (60) days from the last publication; hence, upon motion
of the plaintiffs, through counsel, defendant was declared in default and plaintiffs were authorized to
present their evidence ex parte.
In support of the complaint, plaintiffs presented as witnesses the minor Karen E. Salvacion, her father,
Federico N. Salvacion, Jr., a certain Joseph Aguilar and a certain Liberato Madulio, who gave the
following testimony:
Karen took her first year high school in St. Mary's Academy in Pasay City but has recently transferred to
Arellano University for her second year.
In the afternoon of February 4, 1989, Karen was at the Plaza Fair Makati Cinema Square, with her friend
Edna Tangile whiling away her free time. At about 3:30 p.m. while she was finishing her snack on a
concrete bench in front of Plaza Fair, an American approached her. She was then alone because Edna
Tangile had already left, and she was about to go home. (TSN, Aug. 15, 1989, pp. 2 to 5)
The American asked her name and introduced himself as Greg Bartelli. He sat beside her when he talked
to her. He said he was a Math teacher and told her that he has a sister who is a nurse in New York. His
sister allegedly has a daughter who is about Karen's age and who was with him in his house along
Kalayaan Avenue. (TSN, Aug. 15, 1989, pp. 4-5)
37

The American asked Karen what was her favorite subject and she told him it's Pilipino. He then invited
her to go with him to his house where she could teach Pilipino to his niece. He even gave her a stuffed toy
to persuade her to teach his niece. (Id., pp. 5-6)
They walked from Plaza Fair along Pasong Tamo, turning right to reach the defendant's house along
Kalayaan Avenue. (Id., p. 6)
When they reached the apartment house, Karen noticed that defendant's alleged niece was not outside the
house but defendant told her maybe his niece was inside. When Karen did not see the alleged niece inside
the house, defendant told her maybe his niece was upstairs, and invited Karen to go upstairs. (Id., p. 7)
Upon entering the bedroom defendant suddenly locked the door. Karen became nervous because his niece
was not there. Defendant got a piece of cotton cord and tied Karen's hands with it, and then he undressed
her. Karen cried for help but defendant strangled her. He took a packing tape and he covered her mouth
with it and he circled it around her head. (Id., p. 7)
Then, defendant suddenly pushed Karen towards the bed which was just near the door. He tied her feet
and hands spread apart to the bed posts. He knelt in front of her and inserted his finger in her sex organ.
She felt severe pain. She tried to shout but no sound could come out because there were tapes on her
mouth. When defendant withdrew his finger it was full of blood and Karen felt more pain after the
withdrawal of the finger. (Id., p. 8)
He then got a Johnson's Baby Oil and he applied it to his sex organ as well as to her sex organ. After that
he forced his sex organ into her but he was not able to do so. While he was doing it, Karen found it
difficult to breathe and she perspired a lot while feeling severe pain. She merely presumed that he was
able to insert his sex organ a little, because she could not see. Karen could not recall how long the
defendant was in that position. (Id. pp. 8-9)
After that, he stood up and went to the bathroom to wash. He also told Karen to take a shower and he
untied her hands. Karen could only hear the sound of the water while the defendant, she presumed, was in
the bathroom washing his sex organ. When she took a shower more blood came out from her. In the
meantime, defendant changed the mattress because it was full of blood. After the shower, Karen was
allowed by defendant to sleep. She fell asleep because she got tired crying. The incident happened at
about 4:00 p.m. Karen had no way of determining the exact time because defendant removed her watch.
Defendant did not care to give her food before she went to sleep. Karen woke up at about 8:00 o'clock the
following morning. (Id., pp. 9-10)
The following day, February 5, 1989, a Sunday, after a breakfast of biscuit and coke at about 8:30 to 9:00
a.m. defendant raped Karen while she was still bleeding. For lunch, they also took biscuit and coke. She
was raped for the second time at about 12:00 to 2:00 p.m. In the evening, they had rice for dinner which
defendant had stored downstairs; it was he who cooked the rice that is why it looks like "lugaw". For the
third time, Karen was raped again during the night. During those three times defendant succeeded in
inserting his sex organ but she could not say whether the organ was inserted wholly.
Karen did not see any firearm or any bladed weapon. The defendant did not tie her hands and feet nor put
a tape on her mouth anymore but she did not cry for help for fear that she might be killed; besides, all the
windows and doors were closed. And even if she shouted for help, nobody would hear her. She was so
afraid that if somebody would hear her and would be able to call the police, it was still possible that as she
was still inside the house, defendant might kill her. Besides, the defendant did not leave that Sunday,
ruling out her chance to call for help. At nighttime he slept with her again. (TSN, Aug. 15, 1989, pp. 1214)
On February 6, 1989, Monday, Karen was raped three times, once in the morning for thirty minutes after
a breakfast of biscuits; again in the afternoon; and again in the evening. At first, Karen did not know that
there was a window because everything was covered by a carpet, until defendant opened the window for
around fifteen minutes or less to let some air in, and she found that the window was covered by styrofoam
and plywood. After that, he again closed the window with a hammer and he put the styrofoam, plywood,
and carpet back. (Id., pp. 14-15)
That Monday evening, Karen had a chance to call for help, although defendant left but kept the door
closed. She went to the bathroom and saw a small window covered by styrofoam and she also spotted a
38

small hole. She stepped on the bowl and she cried for help through the hole. She cried: "Maawa no po
kayo so akin. Tulungan n'yo akong makalabas dito. Kinidnap ako!" Somebody heard her. It was a
woman, probably a neighbor, but she got angry and said she was "istorbo". Karen pleaded for help and
the woman told her to sleep and she will call the police. She finally fell asleep but no policeman came.
(TSN, Aug. 15, 1989, pp. 15-16)
She woke up at 6:00 o'clock the following morning, and she saw defendant in bed, this time sleeping. She
waited for him to wake up. When he woke up, he again got some food but he always kept the door locked.
As usual, she was merely fed with biscuit and coke. On that day, February 7, 1989, she was again raped
three times. The first at about 6:30 to 7:00 a.m., the second at about 8:30 9:00, and the third was after
lunch at 12:00 noon. After he had raped her for the second time he left but only for a short while. Upon
his return, he caught her shouting for help but he did not understand what she was shouting about. After
she was raped the third time, he left the house. (TSN, Aug. 15, 1989, pp. 16-17) She again went to the
bathroom and shouted for help. After shouting for about five minutes, she heard many voices. The voices
were asking for her name and she gave her name as Karen Salvacion. After a while, she heard a voice of a
woman saying they will just call the police. They were also telling her to change her clothes. She went
from the bathroom to the room but she did not change her clothes being afraid that should the neighbors
call for the police and the defendant see her in different clothes, he might kill her. At that time she was
wearing a T-shirt of the American because the latter washed her dress. (Id., p. 16)
Afterwards, defendant arrived and he opened the door. He asked her if she had asked for help because
there were many policemen outside and she denied it. He told her to change her clothes, and she did
change to the one she was wearing on Saturday. He instructed her to tell the police that she left home and
willingly; then he went downstairs but he locked the door. She could hear people conversing but she
could not understand what they were saying. (Id., p. 19)
When she heard the voices of many people who were conversing downstairs, she knocked repeatedly at
the door as hard as she could. She heard somebody going upstairs and when the door was opened, she saw
a policeman. The policeman asked her name and the reason why she was there. She told him she was
kidnapped. Downstairs, he saw about five policemen in uniform and the defendant was talking to them.
"Nakikipag-areglo po sa mga pulis," Karen added. "The policeman told him to just explain at the
precinct. (Id., p. 20)
They went out of the house and she saw some of her neighbors in front of the house. They rode the car of
a certain person she called Kuya Boy together with defendant, the policeman, and two of her neighbors
whom she called Kuya Bong Lacson and one Ate Nita. They were brought to Sub-Station I and there she
was investigated by a policeman. At about 2:00 a.m., her father arrived, followed by her mother together
with some of their neighbors. Then they were brought to the second floor of the police headquarters. (Id.,
p. 21)
At the headquarters, she was asked several questions by the investigator. The written statement she gave
to the police was marked as Exhibit A. Then they proceeded to the National Bureau of Investigation
together with the investigator and her parents. At the NBI, a doctor, a medico-legal officer, examined her
private parts. It was already 3:00 in the early morning of the following day when they reached the NBI.
(TSN, Aug. 15, 1989, p. 22) The findings of the medico-legal officer has been marked as Exhibit B.
She was studying at the St. Mary's Academy in Pasay City at the time of the incident but she subsequently
transferred to Apolinario Mabini, Arellano University, situated along Taft Avenue, because she was
ashamed to be the subject of conversation in the school. She first applied for transfer to Jose Abad Santos,
Arellano University along Taft Avenue near the Light Rail Transit Station but she was denied admission
after she told the school the true reason for her transfer. The reason for their denial was that they might be
implicated in the case. (TSN, Aug. 15, 1989, p. 46)
xxx xxx xxx
After the incident, Karen has changed a lot. She does not play with her brother and sister anymore, and
she is always in a state of shock; she has been absent-minded and is ashamed even to go out of the house.
(TSN, Sept. 12, 1989, p. 10) She appears to be restless or sad, (Id., p. 11) The father prays for
P500,000.00 moral damages for Karen for this shocking experience which probably, she would always
39

recall until she reaches old age, and he is not sure if she could ever recover from this experience. (TSN,
Sept. 24, 1989, pp. 10-11)
Pursuant to an Order granting leave to publish notice of decision, said notice was published in the Manila Bulletin once a
week for three consecutive weeks. After the lapse of fifteen (15) days from the date of the last publication of the notice of
judgment and the decision of the trial court had become final, petitioners tried to execute on Bartelli's dollar deposit with
China Banking Corporation. Likewise, the bank invoked Section 113 of Central Bank Circular No. 960.
Thus, petitioners decided to seek relief from this Court.
The issues raised and the arguments articulated by the parties boil down to two:
May this Court entertain the instant petition despite the fact that original jurisdiction in petitions for declaratory relief rests
with the lower court? Should Section 113 of Central Bank Circular No. 960 and Section 8 of R.A. 6426, as amended by
P.D. 1246, otherwise known as the Foreign Currency Deposit Act be made applicable to a foreign transient?
Petitioners aver as heretofore stated that Section 113 of Central Bank Circular No. 960 providing that "Foreign currency
deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever." should be adjudged as unconstitutional on the grounds that:
1.) it has taken away the right of petitioners to have the bank deposit of defendant Greg Bartelli y Northcott garnished to
satisfy the judgment rendered in petitioners' favor in violation of substantive due process guaranteed by the Constitution;
2.) it has given foreign currency depositors an undue favor or a class privilege in violation of the equal protection clause
of the Constitution; 3.) it has provided a safe haven for criminals like the herein respondent Greg Bartelli y Northcott
since criminals could escape civil liability for their wrongful acts by merely converting their money to a foreign currency
and depositing it in a foreign currency deposit account with an authorized bank; and 4.) The Monetary Board, in issuing
Section 113 of Central Bank Circular No. 960 has exceeded its delegated quasi-legislative power when it took away: a.)
the plaintiffs substantive right to have the claim sought to be enforced by the civil action secured by way of the writ of
preliminary attachment as granted by Rule 57 of the Revised Rules of Court; b.) the plaintiffs substantive right to have the
judgment credit satisfied by way of the writ of execution out of the bank deposit of the judgment debtor as granted to the
judgment creditor by Rule 39 of the Revised Rules of Court, which is beyond its power to do so.
On the other hand, respondent Central Bank, in its Comment alleges that the Monetary Board in issuing Section 113 of
CB Circular No. 960 did not exceed its power or authority because the subject Section is copied verbatim from a portion
of R.A. No. 6426 as amended by P.D. 1246. Hence, it was not the Monetary Board that grants exemption from attachment
or garnishment to foreign currency deposits, but the law (R.A. 6426 as amended) itself; that it does not violate the
substantive due process guaranteed by the Constitution because a.) it was based on a law; b.) the law seems to be
reasonable; c.) it is enforced according to regular methods of procedure; and d.) it applies to all members of a class.
Expanding, the Central Bank said; that one reason for exempting the foreign currency deposits from attachment,
garnishment or any other order or process of any court, is to assure the development and speedy growth of the Foreign
Currency Deposit System and the Offshore Banking System in the Philippines; that another reason is to encourage the
inflow of foreign currency deposits into the banking institutions thereby placing such institutions more in a position to
properly channel the same to loans and investments in the Philippines, thus directly contributing to the economic
development of the country; that the subject section is being enforced according to the regular methods of procedure; and
that it applies to all foreign currency deposits made by any person and therefore does not violate the equal protection
clause of the Constitution.
Respondent Central Bank further avers that the questioned provision is needed to promote the public interest and the
general welfare; that the State cannot just stand idly by while a considerable segment of the society suffers from economic
distress; that the State had to take some measures to encourage economic development; and that in so doing persons and
property may be subjected to some kinds of restraints or burdens to secure the general welfare or public interest.
Respondent Central Bank also alleges that Rule 39 and Rule 57 of the Revised Rules of Court provide that some
properties are exempted from execution/attachment especially provided by law and R.A. No. 6426 as amended is such a
law, in that it specifically provides, among others, that foreign currency deposits shall be exempted from attachment,
garnishment, or any other order or process of any court, legislative body, government agency or any administrative body
whatsoever.
For its part, respondent China Banking Corporation, aside from giving reasons similar to that of respondent Central Bank,
also stated that respondent China Bank is not unmindful of the inhuman sufferings experienced by the minor Karen E.
Salvacion from the beastly hands of Greg Bartelli; that it is only too willing to release the dollar deposit of Bartelli which
40

may perhaps partly mitigate the sufferings petitioner has undergone; but it is restrained from doing so in view of R.A. No.
6426 and Section 113 of Central Bank Circular No. 960; and that despite the harsh effect of these laws on petitioners,
CBC has no other alternative but to follow the same.
This Court finds the petition to be partly meritorious.
Petitioner deserves to receive the damages awarded to her by the court. But this petition for declaratory relief can only be
entertained and treated as a petition for mandamus to require respondents to honor and comply with the writ of execution
in Civil Case No. 89-3214.
This Court has no original and exclusive jurisdiction over a petition for declaratory relief. 2 However, exceptions to this
rule have been recognized. Thus, where the petition has far-reaching implications and raises questions that should be
resolved, it may be treated as one for mandamus. 3
Here is a child, a 12-year old girl, who in her belief that all Americans are good and in her gesture of kindness by teaching
his alleged niece the Filipino language as requested by the American, trustingly went with said stranger to his apartment,
and there she was raped by said American tourist Greg Bartelli. Not once, but ten times. She was detained therein for four
(4) days. This American tourist was able to escape from the jail and avoid punishment. On the other hand, the child,
having received a favorable judgment in the Civil Case for damages in the amount of more than P1,000,000.00, which
amount could alleviate the humiliation, anxiety, and besmirched reputation she had suffered and may continue to suffer
for a long, long time; and knowing that this person who had wronged her has the money, could not, however get the award
of damages because of this unreasonable law. This questioned law, therefore makes futile the favorable judgment and
award of damages that she and her parents fully deserve. As stated by the trial court in its decision,
Indeed, after hearing the testimony of Karen, the Court believes that it was undoubtedly a shocking and
traumatic experience she had undergone which could haunt her mind for a long, long time, the mere recall
of which could make her feel so humiliated, as in fact she had been actually humiliated once when she
was refused admission at the Abad Santos High School, Arellano University, where she sought to transfer
from another school, simply because the school authorities of the said High School learned about what
happened to her and allegedly feared that they might be implicated in the case.
xxx xxx xxx
The reason for imposing exemplary or corrective damages is due to the wanton and bestial manner
defendant had committed the acts of rape during a period of serious illegal detention of his hapless victim,
the minor Karen Salvacion whose only fault was in her being so naive and credulous to believe easily that
defendant, an American national, could not have such a bestial desire on her nor capable of committing
such a heinous crime. Being only 12 years old when that unfortunate incident happened, she has never
heard of an old Filipino adage that in every forest there is a
snake, . . . . 4
If Karen's sad fate had happened to anybody's own kin, it would be difficult for him to fathom how the incentive for
foreign currency deposit could be more important than his child's rights to said award of damages; in this case, the
victim's claim for damages from this alien who had the gall to wrong a child of tender years of a country where he is a
mere visitor. This further illustrates the flaw in the questioned provisions.
It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time when the country's economy was in a
shambles; when foreign investments were minimal and presumably, this was the reason why said statute was enacted. But
the realities of the present times show that the country has recovered economically; and even if not, the questioned law
still denies those entitled to due process of law for being unreasonable and oppressive. The intention of the questioned law
may be good when enacted. The law failed to anticipate the iniquitous effects producing outright injustice and inequality
such as the case before us.
It has thus been said that
But I also know, 5 that laws and institutions must go hand in hand with the progress of the human mind.
As that becomes more developed, more enlightened, as new discoveries are made, new truths are
disclosed and manners and opinions change with the change of circumstances, institutions must advance
also, and keep pace with the times. . . We might as well require a man to wear still the coat which fitted
him when a boy, as civilized society to remain ever under the regimen of their barbarous ancestors.
In his Comment, the Solicitor General correctly opined, thus:
41

The present petition has far-reaching implications on the right of a national to obtain redress for a wrong
committed by an alien who takes refuge under a law and regulation promulgated for a purpose which does
not contemplate the application thereof envisaged by the alien. More specifically, the petition raises the
question whether the protection against attachment, garnishment or other court process accorded to
foreign currency deposits by PD No. 1246 and CB Circular No. 960 applies when the deposit does not
come from a lender or investor but from a mere transient or tourist who is not expected to maintain the
deposit in the bank for long.
The resolution of this question is important for the protection of nationals who are victimized in the forum
by foreigners who are merely passing through.
xxx xxx xxx
. . . Respondents China Banking Corporation and Central Bank of the Philippines refused to honor the
writ of execution issued in Civil Case No. 89-3214 on the strength of the following provision of Central
Bank Circular No. 960:
Sec. 113. Exemption from attachment. Foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.
Central Bank Circular No. 960 was issued pursuant to Section 7 of Republic Act No. 6426:
Sec. 7. Rules and Regulations. The Monetary Board of the Central Bank shall promulgate
such rules and regulations as may be necessary to carry out the provisions of this Act
which shall take effect after the publication of such rules and regulations in the Official
Gazette and in a newspaper of national circulation for at least once a week for three
consecutive weeks. In case the Central Bank promulgates new rules and regulations
decreasing the rights of depositors, the rules and regulations at the time the deposit was
made shall govern.
The aforecited Section 113 was copied from Section 8 of Republic Act NO. 6426, as amended by P.D.
1246, thus:
Sec. 8. Secrecy of Foreign Currency Deposits. All foreign currency deposits
authorized under this Act, as amended by Presidential Decree No. 1035, as well as
foreign currency deposits authorized under Presidential Decree No. 1034, are hereby
declared as and considered of an absolutely confidential nature and, except upon the
written permission of the depositor, in no instance shall such foreign currency deposits be
examined, inquired or looked into by any person, government official, bureau or office
whether judicial or administrative or legislative or any other entity whether public or
private: Provided, however, that said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.
The purpose of PD 1246 in according protection against attachment, garnishment and other court process
to foreign currency deposits is stated in its whereases, viz.:
WHEREAS, under Republic Act No. 6426, as amended by Presidential Decree No. 1035,
certain Philippine banking institutions and branches of foreign banks are authorized to
accept deposits in foreign currency;
WHEREAS, under the provisions of Presidential Decree No. 1034 authorizing the
establishment of an offshore banking system in the Philippines, offshore banking units
are also authorized to receive foreign currency deposits in certain cases;
WHEREAS, in order to assure the development and speedy growth of the Foreign
Currency Deposit System and the Offshore Banking System in the Philippines, certain
incentives were provided for under the two Systems such as confidentiality of deposits
subject to certain exceptions and tax exemptions on the interest income of depositors who
are nonresidents and are not engaged in trade or business in the Philippines;
WHEREAS, making absolute the protective cloak of confidentiality over such foreign
currency deposits, exempting such deposits from tax, and guaranteeing the vested rights
42

of depositors would better encourage the inflow of foreign currency deposits into the
banking institutions authorized to accept such deposits in the Philippines thereby placing
such institutions more in a position to properly channel the same to loans and investments
in the Philippines, thus directly contributing to the economic development of the country;
Thus, one of the principal purposes of the protection accorded to foreign currency deposits is "to assure
the development and speedy growth of the Foreign Currency Deposit system and the Offshore Banking in
the Philippines" (3rd Whereas).
The Offshore Banking System was established by PD No. 1034. In turn, the purposes of PD No. 1034 are
as follows:
WHEREAS, conditions conducive to the establishment of an offshore banking system,
such as political stability, a growing economy and adequate communication facilities,
among others, exist in the Philippines;
WHEREAS, it is in the interest of developing countries to have as wide access as
possible to the sources of capital funds for economic development;
WHEREAS, an offshore banking system based in the Philippines will be advantageous
and beneficial to the country by increasing our links with foreign lenders, facilitating the
flow of desired investments into the Philippines, creating employment opportunities and
expertise in international finance, and contributing to the national development effort.
WHEREAS, the geographical location, physical and human resources, and other positive
factors provide the Philippines with the clear potential to develop as another financial
center in Asia;
On the other hand, the Foreign Currency Deposit system was created by PD. No. 1035. Its purposes are as
follows:
WHEREAS, the establishment of an offshore banking system in the Philippines has been
authorized under a separate decree;
WHEREAS, a number of local commercial banks, as depository bank under the Foreign
Currency Deposit Act (RA No. 6426), have the resources and managerial competence to
more actively engage in foreign exchange transactions and participate in the grant of
foreign currency loans to resident corporations and firms;
WHEREAS, it is timely to expand the foreign currency lending authority of the said
depository banks under RA 6426 and apply to their transactions the same taxes as would
be applicable to transaction of the proposed offshore banking units;
It is evident from the above [Whereas clauses] that the Offshore Banking System and the Foreign
Currency Deposit System were designed to draw deposits from foreign lenders and investors (Vide
second Whereas of PD No. 1034; third Whereas of PD No. 1035). It is these deposits that are induced by
the two laws and given protection and incentives by them.
Obviously, the foreign currency deposit made by a transient or a tourist is not the kind of deposit
encouraged by PD Nos. 1034 and 1035 and given incentives and protection by said laws because such
depositor stays only for a few days in the country and, therefore, will maintain his deposit in the bank
only for a short time.
Respondent Greg Bartelli, as stated, is just a tourist or a transient. He deposited his dollars with
respondent China Banking Corporation only for safekeeping during his temporary stay in the Philippines.
For the reasons stated above, the Solicitor General thus submits that the dollar deposit of respondent Greg
Bartelli is not entitled to the protection of Section 113 of Central Bank Circular No. 960 and PD No. 1246
against attachment, garnishment or other court processes. 6
In fine, the application of the law depends on the extent of its justice. Eventually, if we rule that the questioned Section
113 of Central Bank Circular No. 960 which exempts from attachment, garnishment, or any other order or process of any
court, legislative body, government agency or any administrative body whatsoever, is applicable to a foreign transient,
injustice would result especially to a citizen aggrieved by a foreign guest like accused Greg Bartelli. This would negate
Article 10 of the New Civil Code which provides that "in case of doubt in the interpretation or application of laws, it is
presumed that the lawmaking body intended right and justice to prevail. "Ninguno non deue enriquecerse tortizeramente
43

con dano de otro." Simply stated, when the statute is silent or ambiguous, this is one of those fundamental solutions that
would respond to the vehement urge of conscience. (Padilla vs. Padilla, 74 Phil. 377).
It would be unthinkable, that the questioned Section 113 of Central Bank No. 960 would be used as a device by accused
Greg Bartelli for wrongdoing, and in so doing, acquitting the guilty at the expense of the innocent.
Call it what it may but is there no conflict of legal policy here? Dollar against Peso? Upholding the final and executory
judgment of the lower court against the Central Bank Circular protecting the foreign depositor? Shielding or protecting the
dollar deposit of a transient alien depositor against injustice to a national and victim of a crime? This situation calls for
fairness against legal tyranny.
We definitely cannot have both ways and rest in the belief that we have served the ends of justice.
IN VIEW WHEREOF, the provisions of Section 113 of CB Circular No. 960 and PD No. 1246, insofar as it amends
Section 8 of R.A. No. 6426 are hereby held to be INAPPLICABLE to this case because of its peculiar circumstances.
Respondents are hereby REQUIRED to COMPLY with the writ of execution issued in Civil Case No. 89-3214, "Karen
Salvacion, et al. vs. Greg Bartelli y Northcott, by Branch CXLIV, RTC Makati and to RELEASE to petitioners the dollar
deposit of respondent Greg Bartelli y Northcott in such amount as would satisfy the judgment.

IV. Deposit Insurance (RA 3591 as amended)

SECTION 4. As used in this Act - (Renumbered from Sec. 3 by R.A. 9302, 12 August 2004)
a. The term Board of Directors means the Board of Directors of the Corporation.
b. The term Bank and Banking Institution shall be synonymous and interchangeable and shall include
banks, commercial banks, savings bank, mortgage banks, rural banks, development banks, cooperative
banks, stock savings and loan associations and branches and agencies in the Philippines of foreign banks
and all other corporations authorized to perform banking functions in the Philippines. (As amended by
R.A. 7400, 13
April 1992)
c. The term receiver includes a receiver, commission, person or other agency charged by law with the
duty to take charge of the assets and liabilities of a bank which has been forbidden from doing business
in the Philippines, as well as the duty to gather, preserve and administer such assets and liabilities for the
benefit of the depositors and creditors of said bank, and to continue into liquidation whenever authorized
under this Act or other laws, and to dispose of the assets and to wind up the affairs of such bank. (As
amended by R.A. 7400, 13 April 1992)
d. The term insured bank means any bank the deposits of which are insured in accordance with the
provisions of this Act.
e. The term non-insured bank means any bank the deposits of which are not insured.
f. The term deposit means the unpaid balance of money or its equivalent received by a bank in the usual
course of business and for which it has given or is obliged to give credit to a commercial, checking,
savings, time or thrift account, or issued in accordance with Bangko Sentral rules and regulations and
other applicable laws, together with such other obligations of a bank, which, consistent with banking
usage and practices, the Board of Directors shall determine and prescribe by regulations to be deposit
liabilities of the bank: Provided, That any obligation of a bank which is payable at the office of the bank
located outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as
part of the total deposits or of insured deposit: Provided, further, That, subject to the approval of the
Board of Directors, any insured bank which is incorporated under the laws of the Philippines which
maintains a branch outside the Philippines may elect to include for insurance its deposit obligations
payable only at such branch.
44

The Corporation shall not pay deposit insurance for the following accounts or transactions, whether
denominated, documented, recorded or booked as deposit by the bank:
1. Investment products such as bonds and securities, trust accounts, and other similar instruments;
2. Deposit accounts or transactions which are unfunded, or that are fictitious or fraudulent;
3. Deposit accounts or transactions constituting, and/or emanating from, unsafe and unsound
banking practice/s, as determined by the Corporation, in consultation with the BSP, after due
notice and hearing, and publication of a cease and desist order issued by the Corporation against
such deposit accounts or transactions; and
4. Deposits that are determined to be the proceeds of an unlawful activity as defined under
Republic Act 9160, as amended.
The actions of the Corporation taken under this section shall be final and executory, and may not be
restrained or set aside by the court, except on appropriate petition for certiorari on the ground that the
action was taken in excess of jurisdiction or with such grave abuse of discretion as to amount to a lack or
excess of jurisdiction. The petition for certiorari may only be filed within thirty (30) days from notice of
denial of claim for deposit insurance. (As amended by P.D. 1940, 27 June 1984; R.A. 7400, 13 April
1992; R.A. 9302, 12 August 2004; R.A. 9576, 29 April 2009)
g. The term insured deposit means the amount due to any bona fide depositor for legitimate deposits in
an insured bank net of any obligation of the depositor to the insured bank as of the date of closure, but
not to exceed Five Hundred Thousand Pesos (P500,000.00).2 Such net amount shall be determined
according to such regulations as the Board of Directors may prescribe. In determining such amount due
to any depositor, there shall be added together all deposits in the bank maintained in the same right and
capacity for his benefit either in his own name or in the name of others. A joint account regardless of
whether the conjunction "and," "or," "and/or" is used, shall be insured separately from any individuallyowned deposit account: Provided, That (1) If the account is held jointly by two or more natural persons,
or by two or more juridical persons or entities, the maximum insured deposit shall be divided into as
many equal shares as there are individuals, juridical persons or entities, unless a different sharing is
stipulated in the document of deposit, and (2) if the account is held by a juridical person or entity jointly
with one or more natural persons, the maximum insured deposit shall be presumed to belong entirely to
such juridical person or entity: Provided, further, That the aggregate of the interest of each co-owner
over several joint accounts, whether owned by the same or different combinations of individuals,
juridical persons or entities, shall likewise be subject to the maximum insured deposit of Five Hundred
Thousand Pesos (P500,000.00): Provided, furthermore, That the provisions of any law to the contrary
notwithstanding, no owner/holder of any negotiable certificate of deposit shall be recognized as a
depositor entitled to the rights provided in this Act unless his name is registered as owner/holder thereof
in the books of the issuing bank: Provided, finally, That, in case of a condition that threatens the
monetary and financial stability of the banking system that may have systemic consequences, as defined
in section 17 hereof, as determined by the Monetary Board, the maximum deposit insurance cover may
be adjusted in such amount, for such a period, and/or for such deposit products, as may be determined
by a unanimous vote of the Board of Directors in a meeting called for the purpose and chaired by the
Secretary of Finance, subject to the approval of the President of the Philippines. (As amended by R.A.
9302, 12 August 2004; R.A. 9576, 2009)

45

h. The term transfer deposit means a deposit in an insured bank made available to a depositor by the
Corporation as payment of insured deposit of such depositor in a closed bank and assumed by another
insured bank.
i. The term trust funds means funds held by an insured bank in a fiduciary capacity and includes without
being limited to, funds held as trustee, executor, administrator, guardian or agent.
SECTION 5. The deposit liabilities of any bank or banking institution, which is engaged in the business of
receiving deposits as herein defined on the effective date of this Act, or which thereafter may engage in the
business of receiving deposits, shall be insured with the Corporation. (As amended by R.A. 6037, 04 August
1969; renumbered from Sec. 4 by R.A. 9302, 12 August 2004)
[G.R. No. 118917. December 22, 1997]
PHILIPPINE DEPOSIT INSURANCE CORPORATION, vs. COURT OF APPEALS, ROSA AQUERO,
GERARD YU, ERIC YU, MINA YU, ELIZABETH NGKAION, MERLY CUESCANO, LETICIA TAN, FELY
RUMBANA, LORNA ACUB, represented by their Attorney-in-Fact, JOHN FRANCIS COTAACO.
Petitioner Philippine Deposit Insurance Corporation (PDIC) seeks the reversal of the decision of the Court of Appeals
affirming with modification the decision of the Regional Trial Court holding petitioner liable for the value of thirteen (13)
certificates of time deposit (CTDs) in the possession of private respondents.
The facts, as found by the Court of Appeals, are as follows:
On September 22, 1983, plaintiffs-appellees invested in money market placements with the Premiere Financing
Corporation (PFC) in the sum of P10,000.00 each for which they were issued by the PFC corresponding promissory notes
and checks. On the same date (September 22, 1983), John Francis Cotaoco, for and in behalf of plaintiffs-appellees, went
to the PFC to encash the promissory notes and checks, but the PFC referred him to the Regent Saving Bank (RSB).
Instead of paying the promissory notes and checks, the RSB, upon agreement of Cotaoco, issued the subject 13 certificates
of time deposit with Nos. 09648 to 09660, inclusive, each stating, among others, that the same certifies that the bearer
thereof has deposited with the RSB the sum of P10,000.00; that the certificate shall bear 14% interest per annum; that the
certificate is insured up to P15,000.00 with the PDIC; and that the maturity date thereof is on November 3, 1983 (Exhs.
B, B-1 to B-12).
On the aforesaid maturity dated (November 3, 1983), Cotaoco went to the RSB to encash the said certificates. Thereat,
RSB Executive Vice President Jose M. Damian requested Cotaoco for a deferment or an extension of a few days to enable
the RSB to raise the amount to pay for the same (Exh. D). Cotaoco agreed. Despite said extension, the RSB still failed
to pay the value of the certificates. Instead, RSB advised Cotaoco to file a claim with the PDIC.
Meanwhile, on June 15, 1984, the Monetary Board of the Central Bank issued Resolution No. 788 (Exh. 2, Records, p.
159) suspending the operations of the RSB. Eventually, the records of RSB were secured and its deposit liabilities were
eventually determined. On December 7, 1984, the Monetary Board issued Resolution No. 1496 (Exh. 1) liquidating the
RSB. Subsequently, a masterlist or inventory of the RSB assets and liabilities was prepared. However, the certificates of
time deposit of plaintiffs-appellees were not included in the list on the ground that the certificates were not funded by the
PFC or duly recorded as liabilities of RSB.
On September 4, 1984, plaintiffs-appellees filed with the PDIC their respective claims for the amount of the certificates
(Exhs. C, C-1, to C-12). Sabina Yu, James Ngkaion, Elaine Ngkaion and Jeffrey Ngkaion, who have similar claims
on their certificates of time deposit with the RSB, likewise filed their claims with the PDIC. To their dismay, PDIC
refused the aforesaid claims on the ground that the Traders Royal Bank Check No. 299255 dated September 22, 1983 for
the amount of P125,846.07 (Exh. B) issued by PFC for the aforementioned certificates was returned by the drawee bank
for having been drawn against insufficient funds; and said check was not replaced by the PFC, resulting in the
cancellation of the certificates as indebtedness or liabilities of RSB.
Consequently, on March 31, 1987, private respondents filed an action for collection against PDIC, RSB and the Central
Bank.
On September 14, 1987, the trial court, declared the Central Bank in default for failing to file an answer.
On May 29, 1989, the trial court rendered its decision ordering the defendants therein to pay plaintiffs, jointly and
severally, the amount corresponding to the latters certificates of time deposit.
46

Both PDIC and RSB appealed. The Central Bank, on the other hand, filed a petition for certiorari, prohibition and
mandamus before the Court of Appeals praying that the writ of execution issued by the trial court against it be set aside.
On February 8, 1995, the Court of Appeals rendered its decision granting the Central Banks petition but dismissing the
appeals of PDIC and RSB. Hence, this petition by PDIC assigning the following errors:
I
THE CA ERRED IN HOLDING THAT THE SUBJECT CTDS ARE NEGOTIABLE INSTRUMENTS
II
THE CA ERRED INHOLDING THAT THE CTDS WERE ACQUIRED FOR VALUE AND CONSIDERATION
III
THE CA ERRED WHEN IT HELD THAT BECAUSE THE CTDS STATE THAT THESE WERE INSURED,
PETITIONER SHOULD BE HELD LIABLE FOR THE SAME.
We deal jointly with petitioners first and third assigned errors.
Relying on this Courts ruling in Caltex (Philippines), Inc. v. Court of Appeals and Security Bank and Trust Company, the
Court of Appeals concluded that the subject CTDs are negotiable. Petitioner, on the other hand, contends that the CTDs
are non-negotiable since they do not contain an unconditional promise or order to pay a sum in money are they made
payable to order or bearer, as required by Section 1 of the Negotiable Instruments Law.
Whether the CTDs in question are negotiable or not is, however, immaterial in the present case. The Philippine Deposit
Insurance Corporation was created by law and, as such, is governed primarily by the provisions of the special law creating
it. The liability of the PDIC for insured deposits therefore is statutory and, under Republic Act No. 3591, as amended,
such liability rests upon the existence of deposits with the insured bank, not on the negotiability or non-negotiability of the
certificates evidencing these deposits.
The authority for this conclusion finds support in decisions by American state courts applying their respective bank
guaranty laws. Invariably, the plaintiffs in these cases argued that the negotiability of the certificates of deposits in their
possession entitled them to be paid out of the bank guaranty fund, a contention that the courts uniformly rejected.
Thus, the plaintiffs in Fourth Nat. Bank of Wichita v. Wilson argued that:
x x x the court should hold the certificates to be guaranteed because they are negotiable instruments, and were acquired by
the present holders in due course; otherwise it is said certificates of deposit will be deprived of the quality of commercial
paper. Certificates of deposit have been regarded as the highest form of collateral. They are of wide currency in the
banking and business worlds, and are particularly useful to persons of small means, because they bear interest, and may be
readily cashed; therefore to deprive them of the benefit of the guaranty fund would be a calamity. x x x
The Supreme Court of Kansas, however, found the plaintiffs contention to be without merit, ruling thus:
x x x The argument confuses negotiability of commercial paper with statutory guaranty of deposits. The guaranty is
something extrinsic to all forms of evidence of bank obligation; and negotiability of instruments has no dependence on
existence or nonexistence of the guaranty.
x x x Whatever the status of the plaintiffs may be as holders in due course under the Negotiable Instruments Law, they
cannot be assignees of a deposit which was not made, and cannot be entitled to the benefit of a guaranty which did not
come into existence. x x x
In arriving at the above decision, the Kansas Supreme Court relied on its earlier ruling in American State Bank v. Foster,
which arose from the same facts as the Fourth National Bank case. There, the Court held:
x x x Even if the plaintiff were to be regarded as an innocent purchaser of the certificates as negotiable instruments, its
situation would be in no wise bettered so far as relate to a claim against the guaranty fund. The fund protects deposits
only. And if no deposit is made, or no deposit within the protection of the guaranty law, the transfer of a certificate
cannot impose a liability on the fund. xxx where a certificate of deposit is given under such circumstances that it is not
protected by the guaranty fund, although that fact is not indicated by anything on its face, its indorsement to an innocent
holder cannot confer that qualify upon it.
In like fashion did the Supreme Court of Nebraska brush aside a similar contention in State v. Farmers State Bank:
In this contention we think the appellants fail to distinguish between the liability of the maker of a negotiable instrument,
which rests upon the law pertaining to negotiable paper, and the liability of the guaranty fund, which is purely statutory.
The circumstances under which the guaranty fund may be liable are entirely apart from the law pertaining to negotiable
paper. A holder of a certificate of deposit in a bank who seeks to hold the guaranty fund liable for its payment must show
47

that the transaction leading up to the issuance of the certificate was such that the law holds the guaranty fund liable for its
payment. x x x
The Farmers State Bank ruling was reiterated by the Nebraska Supreme Court in State v. Home State Bank of Dunning
and in State v. Kilgore State Bank. The same ruling was adopted by the Supreme Court of South Dakota in Mildenstein v.
Hirning.
In the case at bar, the Court of Appeals initially found the subject CTDs to be negotiable. Subsequently, however,
respondent court deemed the issue immaterial, albeit for entirely different reasons.
x x x Besides, whether the certificates are negotiable or not is of no moment. The fact remains that the certificates
categorically state that their bearer [sic] have a deposit in the RSB; that the same will mature on November 3, 1993; and
that the certificates are insured by PDIC.
We disagree with respondent courts rationale. The fact that the certificates state that the certificates are insured by PDIC
does not ipso facto make the latter liable for the same should the contingency insured against arise. As stated earlier, the
deposit liability of PDIC is determined by the provisions of R.A. No. 3519, and statements in the certificates that the same
are insured by PDIC are not binding upon the latter.
x x x The mere fact that a certificate recites on its face that a certain sum has been deposited, or that officers of the bank
may have stated that the deposit is protected by the guaranty law, does not make the guaranty fund liable for payment, if
in fact a deposit has not been made xxx. The banks have nothing to do with the guaranty fund as such. It is a fund raised
by assessments against all state banks, administered by officers of the state to protect deposits in banks. x x x
We come now to petitioners second assigned error.
In order that a claim for deposit insurance with the PDIC may prosper, the law requires that a corresponding deposit be
placed in the insured bank. This is implicit from a reading of the following provisions of R.A. 3519:
SECTION 1. There is hereby created a Philippine Deposit Insurance Corporation. xxx which shall insure, as provided,
the deposits of all banks which are entitled to the benefits of insurance under this Act xxx. (Italics supplied).
xxx
SEC. 10 (a) xxx
xxx
( c) Whenever an insured bank shall have been closed on account of insolvency, payment of the insured deposits in such
bank shall be made by the Corporation as soon as possible xxx. (Italics supplied.)
A deposit as defined in Section 3(f) of R.A. No. 3591, may be constituted only if money or the equivalent of money is
received by a bank:
SEC. 3. As used in this Act(f) The term deposit means the unpaid balance of money or its equivalent received by a bank in the usual course of
business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account
or which is evidence by passbook, check and/or certificate of deposit printed or issued in accordance with Central Bank
rules and regulations and other applicable laws, together with such other obligations of a bank which, consistent with
banking usage and practices, the Board of Directors shall determine and prescribe by regulations to be deposit liabilities of
the Bank xxx. (Italics ours.)
Did RSB receive money or its equivalent when it issued the certificates of time deposit? The Court of Appeals, in
resolving who between RSB and PFC issued the certificates to private respondents, answered this question in the negative.
A perusal of the impugned decision, however, reveals that such finding is grounded entirely on speculation, and thus,
cannot bind this Court:
Equally unimpressive is the contention of PDIC and RSB that the certificates were issued to PFC which did not acquire
the same for value because the check issued by the latter for the certificates bounced for insufficiency of funds. First,
granting arguendo that the certificates were originally issued in favor of PFC, such issuance could only give rise to the
presumption that the amount stated in the certificates have been deposited to RSB. Had not PFC deposited the amount
stated therein, then RSB would have surely refused to issue the certificates certifying to such fact. Second, why did not
RSB demand that PFC pay the certificates or file a claim against PFC on the ground that the latter failed to pay for the
value of the certificates? It could very well be that the reason why RSB did not run after PFC for payment of the value of
the certificates was because the instruments were issued to the latter by RSB for value or were already paid to RSB by
plaintiffs-appellees. Third, if it is true at the time RSB issued the certificates to PFC, the instruments were paid for with
checks still to be encashed, then why did not RSB specifically state in the certificates that the validity thereof hinges on
48

the encashment of said check? Fourth, even if it is true that PFC did not deposit with or pay the RSB the amount stated in
the certificates, the latter is not be such reason freed from civil liability to plaintiffs-appellees. For, by issuing the
certificates, RSB bound itself to pay the amount stated therein to whoever is the bearer upon its presentment for
encashment. Truly, there is no reason to depart from the established principle that were a bank issues a certificate of
deposit acknowledging a deposit made with a third person or an officer of the bank, or with another bank representing it to
be the certificate of the bank, upon which assurance the depositor accepts it, the bank is liable for the amount of the
deposit (Michis, Banks and Banking, Vol. 5A, pp. 48-49, as cited in the Decision on p. 3 thereof).
Moreover, such finding totally ignores the evidence presented by defendants. Cardola de Jesus, RSB Deputy Liquidator,
testified that RSB received three (3) checks in consideration for the issuance of several CTDs, including the ones in
dispute. The first check amounted to P159,153.93, the second, P121,665.95, and the third, P125,846.07. In consideration
of the third check, private respondents received thirteen (13) certificates of deposit with Nos. 09648 to 09660, inclusive,
with a value of P10,000.00 each or a total of P130,000.00. To conform with the value of the third check, CTD No. 09648
was chopped, and only the sum of P5,846.07 was credited in favor of private respondents. The first two checks made
good in the clearing while the third was returned for being drawn against insufficient funds.
The check in question appears on the records as Exhibit 3 (for Regent), and is described in RSBs offer of evidence as
Traders Royal Bank Check No. 292555 dated September 22, 1983 covering the amount or P125,846.07 xxx issued by
Premiere Financing Corporation. At the back of said check are the words Refer to Drawer, indicating that the drawee
bank (Traders Royal Bank) refused to pay the value represented by said check. By reason of the checks dishonor, RSB
cancelled the corresponding as evidenced by an RSB ticket dated November 4, 1983.
These pieces of evidence convincingly show that the subject CTDs were indeed issued without RSB receiving any money
therefor. No deposit, as defined in Section 3 (f) of R.A. No. 3591, therefore came into existence. Accordingly, petitioner
PDIC cannot be held liable for value of the certificates of time deposit held by private respondents.
ACCORDINGLY, the instant petition is hereby GRANTED and the decision of the Court of Appeals REVERSED.
Petitioner is absolved from any liability to private respondents.
G.R. No. 141297
October 8, 2001
DOMINGO R. MANALO, vs. COURT OF APPEALS (Special Twelfth Division) and PAIC SAVINGS AND
MORTGAGE BANK.
This petition for certiorari seeks the review of the Decision of the Court of Appeals in C.A.-G.R. SP. No. 50341
promulgated December 23, 1999, which affirmed an Order issued by the Regional Trial Court, Branch 112, Pasay City, in
Civil Case No. 9011 dated December 9, 1998.
On July 19, 1983, S. Villanueva Enterprises, represented by its president, Therese Villanueva Vargas, obtained a loan of
three million pesos (P3,000,000.00) and one million pesos (P1,000,000.00) from the respondent PAIC Savings and
Mortgage Bank and the Philippine American Investments Corporation (PAIC), respectively. To secure payment of both
debts, Vargas executed in favor of the respondent and PAIC a Joint First Mortgage1 over two parcels of land registered
under her name. One of the lots, located in Pasay City with an area of nine hundred nineteen square meters (919 sq. m.)
and covered by TCT No. 6076, is the subject of the present case. Section 2 of the mortgage contract states that "the
properties mortgaged therein shall include all buildings and improvements existing on the mortgaged property at the time
of the execution of the mortgage contract and thereafter."2
S. Villanueva Enterprises defaulted in paying the amortizations due. Despite repeated demands from the respondent, it
failed to settle its loan obligation. Accordingly, respondent instituted extrajudicial foreclosure proceedings over the
mortgaged lots. On August 22, 1984, the Pasay City property was sold at a public auction to the respondent itself, after
tendering the highest bid. The respondent then caused the annotation of the corresponding Sheriff's Certificate of Sale 3 on
the title of the land on December 4, 1984. After the lapse of one year, or the statutory period extended by law to a
mortgagor to exercise his/her right of redemption, title was consolidated in respondent's name for failure of Vargas to
redeem.
On October 29, 1986, the Central Bank of the Philippines filed a Petition4 for assistance in the liquidation of the
respondent with the Regional Trial Court. The petition was given due course in an Order 5 dated May 19, 1987.
It appears that from the years 1986 to 1991, Vargas negotiated with the respondent (through its then liquidator, the Central
Bank) for the repurchase of the foreclosed property. The negotiations, however, fizzled out as Vargas cannot afford the
repurchase price fixed by the respondent based on the appraised value of the land at that time. On October 4, 1991, Vargas
49

filed a case for annulment of mortgage and extrajudicial foreclosure sale before Branch 116 of the Pasay City Regional
Trial Court. On July 22, 1993, the court rendered a decision6 dismissing the complaint and upholding the validity of the
mortgage and foreclosure sale. On appeal, the appellate court upheld the assailed judgment and declared the said mortgage
and foreclosure proceedings to be in accord with law.7 This decision of the Court of Appeals subsequently became final
and executory when we summarily dismissed Vargas' Petition for Review on Certiorari for having been filed beyond the
reglementary period.8
In the meantime, on June 22, 1992, respondent petitioned the Regional Trial Court, Branch 112, of Pasay City, herein
court a quo, for the issuance of a writ of possession for the subject property in Civil Case No. 9011. This is in view of the
consolidation of its ownership over the same as mentioned earlier. Vargas and S. Villanueva Enterprises, Inc. filed their
opposition thereto. After which, trial ensued.
During the pendency of Civil Case No. 9011 (for the issuance of a writ of possession), Vargas, on December 23, 1992,
executed a Deed of Absolute Sale9 selling, transferring, and conveying ownership of the disputed lot in favor of a certain
Armando Angsico. Notwithstanding this sale, Vargas, still representing herself to be the lawful owner of the property,
leased the same to petitioner Domingo R. Manalo on August 25, 1994. Pertinent provisions of the lease agreement10 state:
"3. (a) The lease is for a period of ten year lease (sic), involving 450 square meters, a portion of the above 919
square meter property.
x x x (d) The LESSEE has to introduce into the said 450 square meter premises improvements thereon (sic)
consisting of one story building to house a Karaoke Music Restaurant Business, which improvements constructed
thereof (sic), upon the termination of the lease contract, by said LESSEE be surrendered in favor of the LESSOR
(sic).''11
Later, on June 29, 1997, Armando Angsico, as buyer of the property, assigned his rights therein to petitioner.12
On April 21, 1998, the court a quo granted the petition for the issuance of the Writ of Possession.13 The writ was
subsequently issued on April 24, 1998, the pertinent portion of which reads:14
"NOW THEREFORE you are hereby commanded that you cause oppositors THERESE VILLANUEVA
VARGAS and S. VILLANUEVA ENTERPRISES, INC. and any and all persons claiming rights or title under
them, to forthwith vacate and surrender the possession of subject premises in question known as that parcel of
land and improvements covered by TCT No. 6076 of the Registry of Deeds of Pasay City; you are hereby further
ordered to take possession and deliver to the petitioner PAIC SAVINGS AND MORTGAGE BANK the subject
parcel of land and improvements."
Shortly, on May 8, 1998, S. Villanueva Enterprises and Vargas moved for its quashal.15 Thereafter on June 25, 1998,
petitioner, on the strength of the lease contract and Deed of Assignment made in his favor, submitted a Permission to File
an Ex-parte Motion to Intervene.16 It bears mentioning, however, that before petitioner sought intervention in the present
case, he had separately instituted a Complaint for Mandamus, docketed as Civil Case No. 98-0868 before another branch17
of the Pasay City RTC to compel PAIC Bank to allow him to repurchase the subject property.
On October 7, 1998, the court a quo denied the Motion to Quash and Motion to Intervene filed respectively by Vargas and
petitioner.18 A Motion for Reconsideration and a Supplemental Motion for Reconsideration were filed by the petitioner
which, however, were similarly denied on December 9, 1998.
Petitioner then sought relief with the Court of Appeals, filing therein a Petition for Certiorari. While this was awaiting
resolution, he entered into another lease agreement,19 this time with the respondent, represented by its liquidator, over the
same 450 sq. m. portion of the lot. The contract fixed a period of one month beginning January 28, 1999, renewable for
another month at the exclusive option of the lessor, respondent PAIC Bank.
On December 23, 1999, the appellate court rendered the impugned Decision, dismissing the petition, thus:
"All told, WE find the Order, subject of the instant Petition for Certiorari and Prohibition, to be not without
rational bases and we observe that the court a quo, in issuing its questioned Order, committed no grave abuse of
discretion amounting to lack of jurisdiction.
WHEREFORE, the Petition for Certiorari and Prohibition is hereby DISMISSED and the assailed December 9,
1998 Order is AFFIRMED in all respects.
SO ORDERED."20
Hence, this appeal, where petitioner raises and argues the following legal issues:

50

"I. Whether or not public respondent acted without or in excess of its jurisdiction and/or was patently in error
when it affirmed the denial of petitioner's motion for intervention, despite the fact that he has a legal interest,
being a lessee and an assignee of the property subject matter of this case.
II. Whether or not the public respondent committed grave abuse of discretion when it held that what are required
to be instituted before the liquidation court are those claims against the insolvent banks only considering that the
private respondent bank is legally dead due to insolvency and considering further that there is already a
liquidation court (Regional Trial Court of Makati, Branch 57, docketed as Spec. Pro. No. M-1280) which is
exclusively vested with jurisdiction to hear all matters and incidents on liquidation pursuant to Section 29,
Republic Act No. 265, otherwise known as The Central Bank Act, as amended.
III. Whether or not the public respondent committed grave abuse of discretion and/or was patently in error in
affirming the ruling of the trial court, totally disregarding the arguments raised in petitioner's supplemental motion
for reconsideration only through a minute order and without taking into consideration the fact that there is a
pending action in another court (RTC, Pasay City, Branch 231 ) which presents a prejudicial question to the case
at bar.
IV. Whether or not the petitioner is estopped from questioning private respondent's ownership when it entered
into a contract of lease involving the property in question."21
We will first resolve the jurisdictional and procedural questions raised by the petitioner.
I.
Petitioner postulates that the lower court should have dismissed respondent's "Ex-Parte Petition for Issuance of Writ of
Possession" in Civil Case No. P-9011 for want of jurisdiction over the subject matter of the claim. The power to hear the
same, he insists, exclusively vests with the Liquidation Court pursuant to Section 29 of Republic Act No. 265, otherwise
known as The Central Bank Act.22 He then cites our decision in Valenzuela v. Court of Appeals,23 where we held that "if
there is a judicial liquidation of an insolvent bank, all claims against the bank should be filed in the liquidation
proceeding." For going to another court, the respondent, he accuses, is guilty of forum shopping.
These contentions can not pass judicial muster. The pertinent portion of Section 29 states:
"x x x The liquidator designated as hereunder provided shall, by the Solicitor General, file a petition in the
Regional Trial Court reciting the proceedings which have been taken and praying the assistance of the court in the
liquidation of such institution. The court shall have jurisdiction in the same proceedings to assist in the
adjudication of disputed claims against the bank or non-bank financial intermediary performing quasi-banking
functions and the enforcement of individual liabilities of the stockholders and do all that is necessary to preserve
the assets of such institution and to implement the liquidation plan approved by the Monetary Board, x x x"24
(emphasis supplied.)
Petitioner apparently failed to appreciate the correct meaning and import of the above-quoted law. The legal provision
only finds operation in cases where there are claims against an insolvent bank. In fine, the exclusive jurisdiction of the
liquidation court pertains only to the adjudication of claims against the bank. It does not cover the reverse situation where
it is the bank which files a claim against another person or legal entity.
This interpretation of Section 29 becomes more obvious in the light of its intent. The requirement that all claims against
the bank be pursued in the liquidation proceedings filed by the Central Bank is intended to prevent multiplicity of actions
against the insolvent bank and designed to establish due process and orderliness in the liquidation of the bank, to obviate
the proliferation of litigations and to avoid injustice and arbitrariness.25 The lawmaking body contemplated that for
convenience, only one court, if possible, should pass upon the claims against the insolvent bank and that the liquidation
court should assist the Superintendents of Banks and regulate his operations.26
It then ought to follow that petitioner's reliance on Section 29 and the Valenzuela case is misplaced. The Petition for the
Issuance of a Writ of Possession in Civil Case No. 9011 is not in the nature of a disputed claim against the bank. On the
contrary, it is an action instituted by the respondent bank itself for the preservation of its asset and protection of its
property. It was filed upon the instance of the respondent's liquidator in order to take possession of a tract of land over
which it has ownership claims.
To be sure, the liquidator took the proper course of action when it applied for a writ in the Pasay City RTC. Act 3135,27
entitled An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed To Real Estate Mortgages,
mandates that jurisdiction over a Petition for Writ of Possession lies with the court of the province, city, or municipality
where the property subject thereof is situated. This is sanctioned by Section 7 of the said Act, thus:
51

"SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First
Instance of the province or place where the property or any part thereof is situated, to give him possession thereof
during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of
twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage
or without complying with the requirements of this Act x x x"28 (emphasis supplied)
Since the land subject of this controversy is located in Pasay City, then the city's RTC should rightly take cognizance of
the case, to the exclusion of other courts.
Anent petitioner's auxiliary contention that respondent should be held guilty of forum shopping for not filing the case in
the liquidation court, suffice it to state here that the doctrine only ponders situations where two (or more) cases are
pending before different tribunals.29 Well to point, we have laid down the yardstick to determine whether a party violated
the rule against forum shopping as where the elements of litis pendentia are present or where a final judgment in one case
will amount to res judicata in the other.30 Inasmuch as the case at bar is the only one filed by the respondent for the
issuance of a writ of possession over the subject property, there is no occasion for the doctrine to apply.
Petitioner next casts doubt on the capacity of the respondent to continue litigating the petition for the issuance of the writ.
He asserts that, being under liquidation, respondent bank is already a "dead" corporation that cannot maintain the suit in
the RTC. Hence, no writ may be issued in its favor.
The argument is devoid of merit. A bank which had been ordered closed by the monetary board retains its juridical
personality which can sue and be sued through its liquidator. The only limitation being that the prosecution or defense of
the action must be done through the liquidator.31 Otherwise, no suit for or against an insolvent entity would prosper. In
such situation, banks in liquidation would lose what justly belongs to them through a mere technicality.32
That the law allows a bank under liquidation to participate in an action can be clearly inferred from the third
paragraph of the same Section 29 of The Central Bank Act earlier quoted, which authorizes or empowers a
liquidator to institute actions, thus: "x x x and he (liquidator) may in the name of the bank or non-bank financial
intermediary performing quasi-banking functions and with the assistance of counsel as he may retain, institute
such actions as may be necessary in the appropriate court to collect and recover accounts and assets of such
institution or defend any action filed against the institution."33 (emphasis supplied.)
It is therefore beyond dispute that respondent was legally capacitated to petition the court a quo for the issuance of the
writ.
II.
Petitioner likewise proffers one other procedural obstacle, which is the pendency of Civil Case No. 98-0868 in Branch
231 of Pasay City RTC. The said action is the complaint he filed against the respondent for the latter to receive and accept
the redemption price of eighteen million pesos for the subject property. He argues that the primary issue therein
constitutes a prejudicial question in relation to the present case in that if the Court therein will grant petitioner's prayer,
then this will necessarily negate the possessory writ issued by the court a quo.
Again, we are not persuaded. A prejudicial question is one which arises in a case the resolution of which is a logical
antecedent of the issue involved therein, and the cognizance of which pertains to another tribunal.34 It generally comes
into play in a situation where a civil action and a criminal action are both pending and there exists in the former an issue
which must be preemptively resolved before the criminal action may proceed, because howsoever the issue raised in the
civil action is resolved would be determinative juris et de jure of the guilt or innocence of the accused in the criminal
case. The rationale behind the principle of prejudicial question is to avoid two conflicting decisions.35
Here, aside from the fact that Civil Case No. 98-0868 and the present one are both civil in nature and therefore no
prejudicial question can arise from the existence of the two actions,36 it is apparent that the former action was instituted
merely to frustrate the Court's ruling in the case at bar granting the respondent the right to possess the subject property. It
is but a canny and preemptive maneuver on the part of the petitioner to delay, if not prevent, the execution of a judgment
adverse to his interests. It bears stressing that the complaint for mandamus was filed only on May 7, 1998, sixteen days
after the lower court granted respondent's petition and thirteen days after it issued the writ. It cannot then possibly
prejudice a decided case.
At any rate, it taxes our imagination why the questions raised in Case No. 98-0868 must be considered determinative of
Case No. 9011. The basic issue in the former is whether the respondent, as the purchaser in the extra-judicial foreclosure
proceedings, may be compelled to have the property repurchased or resold to a mortgagor's successor-in-interest
(petitioner): while that in the latter is merely whether the respondent, as the purchaser in the extrajudicial foreclosure
52

proceedings, is entitled to a writ of possession after the statutory period for redemption has expired. The two cases,
assuming both are pending, can proceed separately and take their own direction independent of each other.
III.
Having disposed of the jurisdictional and procedural issues, we now come to the merits of the case. Petitioner seeks
intervention in this case by virtue of the lease agreement and the deed of assignment executed in his favor by the
mortgagor (Vargas) and an alleged buyer (Angsico) of the land, respectively. He posits that as a lessee and assignee in
possession of the foreclosed real estate, he automatically acquires interest over the subject matter of the litigation. This
interest is coupled with the fact that he introduced improvements thereon, consisting of a one-storey building which
houses a karaoke-music restaurant, allegedly to the tune of fifteen million pesos (P15,000,000.00). Enforcing the writ, he
adds, without hearing his side would be an injustice to him.
Intervention is a remedy by which a third party, not originally impleaded in the proceeding, becomes a litigant therein to
enable him to protect or preserve a right or interest which may be affected by such proceeding.37 The pertinent provision
is stated in Section 1, Rule 19 of the 1997 Rules of Civil Procedure, thus:
"SECTION 1. Who may intervene. A person who has a legal interest in the matter in litigation, or in the
success of either of the parties, or an interest against both, or is so situated as to be adversely affected by a
distribution or other disposition of property in the custody of the court or of an officer thereof may, with leave of
court, be allowed to intervene in the action. The court shall consider whether or not the intervention will unduly
delay or prejudice the adjudication of the rights of the original parties, and whether or not the intervenor's rights
may be fully protected in a separate proceeding."38
Intervention is not a matter of right but may be permitted by the courts only when the statutory conditions for the right to
intervene is shown.39 Thus, the allowance or disallowance of a motion to intervene is addressed to the sound discretion of
the court.40 In determining the propriety of letting a party intervene in a case, the tribunal should not limit itself to
inquiring whether "a person (1) has a legal interest in the matter in litigation; (2) or in the success of either of the parties;
(3) or an interest against both; (4) or when is so situated as to be adversely affected by a distribution or other disposition
of property in the custody of the court or of an officer thereof."41 Just as important, as we have stated in Big Country
Ranch Corporation v. Court of Appeals,42 is the function to consider whether or not the intervention will unduly delay or
prejudice the adjudication of the rights of the original parties, and whether or not the intervenor's rights may be fully
protected in a separate proceeding.
The period within which a person may intervene is also restricted. Section 2, Rule 19 of the 1997 Rules of Civil Procedure
requires:
"SECTION 2. Time to intervene. The motion to intervene may be filed at any time before the rendition of
judgment by the trial court, x x x"
After the lapse of this period, it will not be warranted anymore. This is because, basically, intervention is not an
independent action but is ancillary and supplemental to an existing litigation.43
Taking into account these fundamental precepts, we rule that the petitioner may not properly intervene in the case at bar.
His insistence to participate in the proceeding is an unfortunate case of too little, too late.
In the first place, petitioner's Ex-parte Permission to File a Motion to Intervene was submitted to the RTC only on June
25, 1998. At that stage, the lower court had already granted respondent's petition for the writ in an Order dated April 21,
1998. It had issued the Writ of Possession on April 24, 1998. Petitioner's motion then was clearly out of time, having been
filed only at the execution stage. For that reason alone, it must meet the consequence of denial. While it is true that on
May 8, 1998, Vargas and S. Villanueva Enterprises moved to quash the writ, that did not in any way affect the nature of
the RTC's Order as an adjudication on the merits. The issuance of the Order is in essence a rendition of judgment within
the purview of Section 2, Rule 19.
Allowing petitioner to intervene, furthermore, will serve no other purpose but to unduly delay the execution of the writ, to
the prejudice of the respondent. This cannot be countenanced considering that after the consolidation of title in the buyer's
name, for failure of the mortgagor to redeem, the writ of possession becomes a matter of right.44 Its issuance to a
purchaser in an extrajudicial foreclosure is merely a ministerial function.45 As such, the court neither exercises its official
discretion nor judgment.46 If only to stress the writ's ministerial character, we have, in previous cases, disallowed
injunction to prohibit its issuance,47 just as we have held that issuance of the same may not be stayed by a pending action
for annulment of mortgage or the foreclosure itself.48
53

Even if he anchors his intervention on the purported interest he has over the land and the improvements thereon,
petitioner, still, should not be allowed to do so. He admits that he is a mere lessee and assignee. Whatever possessory
rights he holds only emanate from that of Vargas, from whom he leased the lot, and from whom his assignor/predecessorin-interest bought it. Therein lies the precariousness of his title. Petitioner cannot validly predicate his supposed interest
over the property in litigation on that of Vargas, for the simple reason that as early as December 4, 1985, the latter has
already been stripped of all her rights over the land when she, as mortgagor, failed to redeem it. A mortgagor has only one
year within which to redeem her foreclosed real estate.49 After that period, she loses all her interests over it. This is in
consonance with Section 78 of the General Banking Act, 50 viz.:
"x x x In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is
security for any loan granted before the passage of this Act or the provisions of this Act, the mortgagor or debtor
whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of
an obligation to any bank, banking or credit institution, within the purview of this Act shall have the right, within
one year after the sale of the real estate mortgage as a result of the foreclosure of the respective mortgage, to
redeem the property by paying the amount fixed by the court in the order or execution x x x"51 (emphasis
supplied.)
Being herself bereft of valid title and rights, Vargas can not legitimately convey any to some other person. She could not
have lawfully sold the land to Angsico nor leased it to petitioner for her own account. It is axiomatic that one can not
transmit what one does not have.52 It ought to follow that petitioner could not have acquired any right or interest from
Vargas.
Withal, all is not lost for the petitioner. He can still fully protect his rights in Civil Case No. 98-0868 or the complaint for
mandamus he filed before Branch 231 of the Pasay City RTC. There, he can ventilate his side to a fuller extent as that
would be the more appropriate venue for elucidating whatever legal basis he alleges in compelling the respondent to sell
to him the currently disputed land.
IV.
This brings us to petitioner's final point. He briefly asserts that his act of entering into a lease contract with the respondent
should not affect his right to redeem the subject property.
The possible legal implication of the lease on the petitioner's act of trying to redeem the disputed lot is a question which,
in our opinion, can best be resolved in the mandamus complaint. Whether the agreement must be construed as a waiver on
his part of exercising his purported right of redemption is an issue best left for the court therein to decide. Whether by
acknowledging the legality of the respondent's claim and title over the land at the time of the execution of the contract, he
likewise perpetually barred himself from redeeming the same is a matter which can be addressed most aptly in that
pending action. Hence, there is presently no need for us to squarely rule on this ultimate point.
IN VIEW WHEREOF, finding no cogent reason to disturb the assailed Decision, the instant petition is hereby DENIED.

V. Unclaimed Balancs Law (Act No. 3936, as amended)

PRESIDENTIAL DECREE No. 679 April 2, 1975
AMENDING ACT NUMBERED THIRTY NINE HUNDRED AND THIRTY SIX, AN ACT REQUIRING BANKS,
TRUST CORPORATIONS, AND BUILDING AND LOAN ASSOCIATIONS, TO TRANSFER UNCLAIMED
BALANCES HELD BY THEM TO THE TREASURER OF THE PHILIPPINES AND FOR OTHER PURPOSES.
WHEREAS, Act No. 3936 requires the publication of a sworn statement of unclaimed balances in banks once a week of
three consecutive weeks in at least two newspapers of general circulation in the locality where the banks are situated, if
there be any, and if there is none, in the City of Manila, one in English and one in Spanish, the cost of which shall be paid
by the Bureau of Treasury, which shall be reimbursed out of the escheated funds;
WHEREAS, the law also provides for the publication of summons and a notice upon the commencement of the prescribed
judicial proceedings for the escheat of unclaimed balances;
54

WHEREAS, past experience has shown that the cost of publication required by law, the increase of which has been
substantial the past few years, is more than the aggregate amount of the unclaimed balances to be escheated, the average
amount of which is small;
WHEREAS, there is a felt need to simplify the procedure for the escheat of unclaimed balances for the purpose of
reducing the expenses therefor;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers in me vested
by the Constitution, do hereby decree and order:
Section 1. Sections 1, 2, 3, 4, and 5 of Act No. 3936 are hereby amended to read as follows:
"Sec. 1. "Unclaimed balances", within the meaning of this Act, shall include credits or deposits of money, bullion,
security or other evidence of indebtedness of any kind, and interest thereon with banks, buildings and loan associations,
and trust corporations, as hereinafter defined, in favor of any person known to be dead or who has not made further
deposits or withdrawals during the preceding ten years or more. Such unclaimed balances, together with the increase and
proceeds thereof, shall be deposited with the Treasurer of the Philippines to the credit of the Government of the Republic
of the Philippines to be used as the National Assembly may direct.
"Banks", "building and loan associations" and "trust corporations", within the meaning of this Act, shall refer to
institutions defined under Section two, thirty-nine and fifty-six, respectively, of Republic Act Numbered Three Hundred
Thirty Seven, otherwise known as the General Banking Act, as amended, whether organized under special charters or not.
"Sec. 2. Immediately after the taking effect of this Act and within the month of January of every odd year, all banks,
building and loan associations, and trust corporations shall forward to the Treasurer of the Philippines a statement, under
oath, of their respective managing officers, of all credits and deposits held by them in favor of persons known to be dead,
or who have not made further deposits or withdrawals during the preceding ten years or more, arranged in alphabetical
order according to the names of creditors and depositors, and showing:
"(a) The names and last known place of residence or post office addresses of the persons in whose favor such
unclaimed balances stand;
"(b) The amount and the date of the outstanding unclaimed balance and whether the same is in money or in
security, and if the latter, the nature of the same;
"(c) The date when the person in whose favor the unclaimed balance stands died, if known, or the date when he
made his last deposit or withdrawal; and
"(d) The interest due on such unclaimed balance, if any, and the amount thereof.
"A copy of the above sworn statement shall be posted in a conspicuous place in the premises of the bank, building and
loan association, or trust corporation concerned for at least sixty days from the date of filing thereof: Provided, That
immediately before filing the above sworn statement, the bank, building and loan association, and trust corporation shall
communicate with the person in whose favor the unclaimed balance stands at his last known place of residence or post
office address.
"It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time to time the existence of
unclaimed balances held by banks, building and loan associations, and trust corporations.

55

"Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed balances, he shall commence an action or
actions in the name of the People of the Republic of the Philippines in the Court of First Instance of the province or city
where the bank, building and loan association or trust corporation is located, in which shall be joined as parties the bank,
building and loan association or trust corporation and all such creditors or depositors. All or any of such creditors or
depositors or banks, building and loan association or trust corporations may be included in one action. Service of process
in such action or actions shall be made by delivery of a copy of the complaint and summons to the president, cashier, or
managing officer of each defendant bank, building and loan association or trust corporation and by publication of a copy
of such summons in a newspaper of general circulation, either in English, in Filipino, or in a local dialect, published in the
locality where the bank, building and loan association or trust corporation is situated, if there be any, and in case there is
none, in the City of Manila, at such time as the court may order. Upon the trial, the court must hear all parties who have
appeared therein, and if it be determined that such unclaimed balances in any defendant bank, building and loan
association or trust corporation are unclaimed as hereinbefore stated, then the court shall render judgment in favor of the
Government of the Republic of the Philippines, declaring that said unclaimed balances have escheated to the Government
of the Republic of the Philippines and commanding said bank, building and loan association or trust corporation to
forthwith deposit the same with the Treasurer of the Philippines to credit of the Government of the Republic of the
Philippines to be used as the National Assembly may direct.
"At the time of issuing summons in the action above provided for, the clerk of court shall also issue a notice signed by
him, giving the title and number of said action, and referring to the complaint therein, and directed to all persons, other
than those named as defendants therein, claiming any interest in any unclaimed balance mentioned in said complaint, and
requiring them to appear within sixty days after the publication or first publication, if there are several, of such summons,
and show cause, if they have any, why the unclaimed balances involved in said action should not be deposited with the
Treasurer of the Philippines as in this Act provided and notifying them that if they do not appear and show cause, the
Government of the Republic of the Philippines will apply to the court for the relief demanded in the complaint. A copy of
said notice shall be attached to, and published with the copy of, said summons required to be published as above, and at
the end of the copy of such notice so published, there shall be a statement of the date of publication, or first publication, if
there are several, of said summons and notice. Any person interested may appear in said action and become a party
thereto. Upon the publication or the completion of the publication, if there are several, of the summons and notice, and the
service of the summons on the defendant banks, building and loan associations or trust corporations, the court shall have
full and complete jurisdiction in the Republic of the Philippines over the said unclaimed balances and over the persons
having or claiming any interest in the said unclaimed balances, or any of them, and shall have full and complete
jurisdiction to hear and determine the issues herein, and render the appropriate judgment thereon.
"Sec. 4. If the president, cashier or managing officer of the bank, building and loan association, or trust corporation
neglects or refuses to make and file the sworn statement required by this action, such bank, building and loan association,
or trust corporation shall pay to the Government the sum of five hundred pesos a month for each month or fraction thereof
during which such default shall continue.
"Sec. 5. Any bank, building and loan association or trust corporation which shall make any deposit with the Treasurer of
the Philippines in conformity with the provisions of this Act shall not thereafter be liable to any person for the same and
any action which may be brought by any person against in any bank, building and loan association, or trust corporation for
unclaimed balances so deposited with the Treasurer of the Philippines shall be defended by the Solicitor General without
cost to such bank, building and loan association or trust corporation."
Section 2. This Decree shall take effect immediately.
DONE in the City of Manila, this 2nd day of April, in the year of Our Lord, nineteen hundred and seventy-five.

56

VI. Anti-Money Laundering Act (RA 9160)

AN ACT DEFINING THE CRIME OF MONEY LAUNDERING, PROVIDING PENALTIES THEREFOR AND
FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
SECTION 1. Short Title. This Act shall be known as the "Anti-Money Laundering Act of 2001."
SEC. 2. Declaration of Policy. It is hereby declared the policy of the State to protect and preserve the integrity and
confidentiality of bank accounts and to ensure that the Philippines shall not be used as a money laundering site for the
proceeds of any unlawful activity. Consistent with its foreign policy, the State shall extend cooperation in transnational
investigations and prosecutions of persons involved in money laundering activities wherever committed.
SEC. 3. Definitions. For purposes of this Act, the following terms are hereby defined as follows:
(a) "Covered institution" refers to:
(1) banks, non-banks, quasi-banks, trust entities, and all other institutions and their subsidiaries and affiliates supervised
or regulated by the Bangko Sentral ng Pilipinas (BSP);
(2) insurance companies and all other institutions supervised or regulated by the Insurance Commission; and
(3) (i) securities dealers, brokers, salesmen, investment houses and other similar entities managing securities or rendering
services as investment agent, advisor, or consultant, (ii) mutual funds, close-end investment companies, common trust
funds, pre-need companies and other similar entities, (iii) foreign exchange corporations, money changers, money
payment, remittance, and transfer companies and other similar entities, and (iv) other entities administering or otherwise
dealing in currency, commodities or financial derivatives based thereon, valuable objects, cash substitutes and other
similar monetary instruments or property supervised or regulated by Securities and Exchange Commission and Exchange
Commission
(b) "Covered transaction" is a single, series, or combination of transactions involving a total amount in excess of Four
million Philippine pesos (Php4,000,000.00) or an equivalent amount in foreign currency based on the prevailing exchange
rate within five (5) consecutive banking days except those between a covered institution and a person who, at the time of
the transaction was a properly identified client and the amount is commensurate with the business or financial capacity of
the client; or those with an underlying legal or trade obligation, purpose, origin or economic justification.
It likewise refers to a single, series or combination or pattern of unusually large and complex transactions in excess of
Four million Philippine pesos (Php4,000,000.00) especially cash deposits and investments having no credible purpose or
origin, underlying trade obligation or contract.
(c) "Monetary instrument" refers to:
(1) coins or currency of legal tender of the Philippines, or of any other country;
(2) drafts, checks and notes;
(3) securities or negotiable instruments, bonds, commercial papers, deposit certificates, trust certificates, custodial receipts
or deposit substitute instruments, trading orders, transaction tickets and confirmations of sale or investments and money
market instruments; and
(4) other similar instruments where title thereto passes to another by endorsement, assignment or delivery.
(d) "Offender" refers to any person who commits a money laundering offense.
(e) "Person" refers to any natural or juridical person.
(f) "Proceeds" refers to an amount derived or realized from an unlawful activity.
(g) "Supervising Authority" refers to the appropriate supervisory or regulatory agency, department or office supervising or
regulating the covered institutions enumerated in Section 3(a).
(h) "Transaction" refers to any act establishing any right or obligation or giving rise to any contractual or legal
relationship between the parties thereto. It also includes any movement of funds by any means with a covered institution.
(i) "Unlawful activity" refers to any act or omission or series or combination thereof involving or having relation to the
following:
(1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended;
(2) Sections 3, 4, 5, 7, 8 and 9 of Article Two of Republic Act No. 6425, as amended, otherwise known as the Dangerous
Drugs Act of 1972;
(3) Section 3 paragraphs B, C, E, G, H and I of Republic Act No. 3019, as amended; otherwise known as the Anti-Graft
and Corrupt Practices Act;
(4) Plunder under Republic Act No. 7080, as amended;
57

(5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal Code, as amended;
(6) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602;
(7) Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree No. 532;
(8) Qualified theft under Article 310 of the Revised Penal Code, as amended;
(9) Swindling under Article 315 of the Revised Penal Code, as amended;
(10) Smuggling under Republic Act Nos. 455 and 1937;
(11) Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of 2000;
(12) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the
Revised Penal Code, as amended, including those perpetrated by terrorists against non-combatant persons and similar
targets;
(13) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as the Securities Regulation
Code of 2000;
(14) Felonies or offenses of a similar nature that are punishable under the penal laws of other countries.
SEC. 4. Money Laundering Offense. Money laundering is a crime whereby the proceeds of an unlawful activity are
transacted, thereby making them appear to have originated from legitimate sources. It is committed by the following:
(a) Any person knowing that any monetary instrument or property represents, involves, or relates to, the proceeds of any
unlawful activity, transacts or attempts to transact said monetary instrument or property.
(b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful activity,
performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in
paragraph (a) above.
(c) Any person knowing that any monetary instrument or property is required under this Act to be disclosed and filed with
the Anti-Money Laundering Council (AMLC), fails to do so.
SEC. 5. Jurisdiction of Money Laundering Cases. The regional trial courts shall have jurisdiction to try all cases on
money laundering. Those committed by public officers and private persons who are in conspiracy with such public
officers shall be under the jurisdiction of the Sandiganbayan.
SEC. 6. Prosecution of Money Laundering.
(a) Any person may be charged with and convicted of both the offense of money laundering and the unlawful activity as
herein defined.
(b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or
violation under this Act without prejudice to the freezing and other remedies provided.
SEC. 7. Creation of Anti-Money Laundering Council (AMLC). The Anti-Money Laundering Council is hereby
created and shall be composed of the Governor of the Bangko Sentral ng Pilipinas as chairman, the Commissioner of the
Insurance Commission and the Chairman of the Securities and Exchange Commission as members. The AMLC shall act
unanimously in the discharge of its functions as defined hereunder:
(1) to require and receive covered transaction reports from covered institutions;
(2) to issue orders addressed to the appropriate Supervising Authority or the covered institution to determine the true
identity of the owner of any monetary instrument or property subject of a covered transaction report or request for
assistance from a foreign State, or believed by the Council, on the basis of substantial evidence, to be, in whole or in part,
wherever located, representing, involving, or related to, directly or indirectly, in any manner or by any means, the
proceeds of an unlawful activity;
(3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the Solicitor General;
(4) to cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution of money
laundering offenses;
(5) to initiate investigations of covered transactions, money laundering activities and other violations of this Act;
(6) to freeze any monetary instrument or property alleged to be proceeds of any unlawful activity;
(7) to implement such measures as may be necessary and justified under this Act to counteract money laundering;
(8) to receive and take action in respect of, any request from foreign states for assistance in their own anti-money
laundering operations provided in this Act;
(9) to develop educational programs on the pernicious effects of money laundering, the methods and techniques used in
money laundering, the viable means of preventing money laundering and the effective ways of prosecuting and punishing
offenders; and
58

(10) to enlist the assistance of any branch, department, bureau, office, agency or instrumentality of the government,
including government-owned and -controlled corporations, in undertaking any and all anti-money laundering operations,
which may include the use of its personnel, facilities and resources for the more resolute prevention, detection and
investigation of money laundering offenses and prosecution of offenders.
SEC. 8. Creation of a Secretariat. The AMLC is hereby authorized to establish a secretariat to be headed by an
Executive Director who shall be appointed by the Council for a term of five (5) years. He must be a member of the
Philippine Bar, at least thirty-five (35) years of age and of good moral character, unquestionable integrity and known
probity. All members of the Secretariat must have served for at least five (5) years either in the Insurance Commission,
the Securities and Exchange Commission or the Bangko Sentral ng Pilipinas (BSP) and shall hold full-time permanent
positions within the BSP.
SEC. 9. Prevention of Money Laundering; Customer Identification Requirements and Record Keeping.
(a) Customer Identification. - Covered institutions shall establish and record the true identity of its clients based on official
documents. They shall maintain a system of verifying the true identity of their clients and, in case of corporate clients,
require a system of verifying their legal existence and organizational structure, as well as the authority and identification
of all persons purporting to act on their behalf.The provisions of existing laws to the contrary notwithstanding, anonymous
accounts, accounts under fictitious names, and all other similar accounts shall be absolutely prohibited. Peso and foreign
currency non-checking numbered accounts shall be allowed. The BSP may conduct annual testing solely limited to the
determination of the existence and true identity of the owners of such accounts.
(b) Record Keeping. - All records of all transactions of covered institutions shall be maintained and safely stored for five
(5) years from the dates of transactions. With respect to closed accounts, the records on customer identification, account
files and business correspondence, shall be preserved and safely stored for at least five (5) years from the dates when they
were closed.
(c) Reporting of Covered Transactions. - Covered institutions shall report to the AMLC all covered transactions within
five (5) working days from occurrence thereof, unless the Supervising Authority concerned prescribes a longer period not
exceeding ten (10) working days.
When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives,
agents, advisors, consultants or associates shall not be deemed to have violated Republic Act No. 1405, as amended;
Republic Act No. 6426, as amended; Republic Act No. 8791 and other similar laws, but are prohibited from
communicating, directly or indirectly, in any manner or by any means, to any person the fact that a covered transaction
report was made, the contents thereof, or any other information in relation thereto. In case of violation thereof, the
concerned officer, employee, representative, agent, advisor, consultant or associate of the covered institution, shall be
criminally liable. However, no administrative, criminal or civil proceedings, shall lie against any person for having made a
covered transaction report in the regular performance of his duties and in good faith, whether or not such reporting results
in any criminal prosecution under this Act or any other Philippine law.
When reporting covered transactions to the AMLC, covered institutions and their officers, employees, representatives,
agents, advisors, consultants or associates are prohibited from communicating, directly or indirectly, in any manner or by
any means, to any person, entity, the media, the fact that a covered transaction report was made, the contents thereof, or
any other information in relation thereto. Neither may such reporting be published or aired in any manner or form by the
mass media, electronic mail, or other similar devices. In case of violation thereof, the concerned officer, employee,
representative, agent, advisor, consultant or associate of the covered institution, or media shall be held criminally liable.
SEC. 10. Authority to Freeze. Upon determination that probable cause exists that any deposit or similar account is in
any way related to an unlawful activity, the AMLC may issue a freeze order, which shall be effective immediately, on the
account for a period not exceeding fifteen (15) days. Notice to the depositor that his account has been frozen shall be
issued simultaneously with the issuance of the freeze order. The depositor shall have seventy-two (72) hours upon receipt
of the notice to explain why the freeze order should be lifted. The AMLC has seventy-two (72) hours to dispose of the
depositors explanation. If it fails to act within seventy-two (72) hours from receipt of the depositors explanation, the
freeze order shall automatically be dissolved. The fifteen (15)-day freeze order of the AMLC may be extended upon order
of the court, provided that the fifteen (15)-day period shall be tolled pending the courts decision to extend the period.
No court shall issue a temporary restraining order or writ of injunction against any freeze order issued by the AMLC
except the Court of Appeals or the Supreme Court.
59

SEC. 11. Authority to Inquire into Bank Deposits. Notwithstanding the provisions of Republic Act No. 1405, as
amended; Republic Act No. 6426, as amended; Republic Act No. 8791, and other laws, the AMLC may inquire into or
examine any particular deposit or investment with any banking institution or non-bank financial institution upon order of
any competent court in cases of violation of this Act when it has been established that there is probable cause that the
deposits or investments involved are in any way related to a money laundering offense: Provided, That this provision shall
not apply to deposits and investments made prior to the effectivity of this Act.
SEC. 12. Forfeiture Provisions.
(a) Civil Forfeiture. - When there is a covered transaction report made, and the court has, in a petition filed for the purpose
ordered seizure of any monetary instrument or property, in whole or in part, directly or indirectly, related to said report,
the Revised Rules of Court on civil forfeiture shall apply.
(b) Claim on Forfeited Assets. - Where the court has issued an order of forfeiture of the monetary instrument or property
in a criminal prosecution for any money laundering offense defined under Section 4 of this Act, the offender or any other
person claiming an interest therein may apply, by verified petition, for a declaration that the same legitimately belongs to
him and for segregation or exclusion of the monetary instrument or property corresponding thereto. The verified petition
shall be filed with the court which rendered the judgment of conviction and order of forfeiture, within fifteen (15) days
from the date of the order of forfeiture, in default of which the said order shall become final and executory. This provision
shall apply in both civil and criminal forfeiture.
(c) Payment in Lieu of Forfeiture. - Where the court has issued an order of forfeiture of the monetary instrument or
property subject of a money laundering offense defined under Section 4, and said order cannot be enforced because any
particular monetary instrument or property cannot, with due diligence, be located, or it has been substantially altered,
destroyed, diminished in value or otherwise rendered worthless by any act or omission, directly or indirectly, attributable
to the offender, or it has been concealed, removed, converted or otherwise transferred to prevent the same from being
found or to avoid forfeiture thereof, or it is located outside the Philippines or has been placed or brought outside the
jurisdiction of the court, or it has been commingled with other monetary instruments or property belonging to either the
offender himself or a third person or entity, thereby rendering the same difficult to identify or be segregated for purposes
of forfeiture, the court may, instead of enforcing the order of forfeiture of the monetary instrument or property or part
thereof or interest therein, accordingly order the convicted offender to pay an amount equal to the value of said monetary
instrument or property. This provision shall apply in both civil and criminal forfeiture.
SEC. 13. Mutual Assistance among States.
(a) Request for Assistance from a Foreign State. - Where a foreign State makes a request for assistance in the investigation
or prosecution of a money laundering offense, the AMLC may execute the request or refuse to execute the same and
inform the foreign State of any valid reason for not executing the request or for delaying the execution thereof. The
principles of mutuality and reciprocity shall, for this purpose, be at all times recognized.
(b) Powers of the AMLC to Act on a Request for Assistance from a Foreign State. - The AMLC may execute a request for
assistance from a foreign State by: (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any
unlawful activity under the procedures laid down in this Act; (2) giving information needed by the foreign State within the
procedures laid down in this Act; and (3) applying for an order of forfeiture of any monetary instrument or property in the
court: Provided, That the court shall not issue such an order unless the application is accompanied by an authenticated
copy of the order of a court in the requesting State ordering the forfeiture of said monetary instrument or property of a
person who has been convicted of a money laundering offense in the requesting State, and a certification or an affidavit of
a competent officer of the requesting State stating that the conviction and the order of forfeiture are final and that no
further appeal lies in respect of either.
(c) Obtaining Assistance from Foreign States. - The AMLC may make a request to any foreign State for assistance in (1)
tracking down, freezing, restraining and seizing assets alleged to be proceeds of any unlawful activity; (2) obtaining
information that it needs relating to any covered transaction, money laundering offense or any other matter directly or
indirectly related thereto; (3) to the extent allowed by the law of the foreign State, applying with the proper court therein
for an order to enter any premises belonging to or in the possession or control of, any or all of the persons named in said
request, and/or search any or all such persons named therein and/or remove any document, material or object named in
said request: Provided, That the documents accompanying the request in support of the application have been duly
authenticated in accordance with the applicable law or regulation of the foreign State; and (4) applying for an order of
forfeiture of any monetary instrument or property in the proper court in the foreign State: Provided, That the request is
60

accompanied by an authenticated copy of the order of the regional trial court ordering the forfeiture of said monetary
instrument or property of a convicted offender and an affidavit of the clerk of court stating that the conviction and the
order of forfeiture are final and that no further appeal lies in respect of either.
(d) Limitations on Requests for Mutual Assistance. - The AMLC may refuse to comply with any request for assistance
where the action sought by the request contravenes any provision of the Constitution or the execution of a request is likely
to prejudice the national interest of the Philippines unless there is a treaty between the Philippines and the requesting State
relating to the provision of assistance in relation to money laundering offenses.
(e) Requirements for Requests for Mutual Assistance from Foreign States. - A request for mutual assistance from a
foreign State must (1) confirm that an investigation or prosecution is being conducted in respect of a money launderer
named therein or that he has been convicted of any money laundering offense; (2) state the grounds on which any person
is being investigated or prosecuted for money laundering or the details of his conviction; (3) give sufficient particulars as
to the identity of said person; (4) give particulars sufficient to identify any covered institution believed to have any
information, document, material or object which may be of assistance to the investigation or prosecution; (5) ask from the
covered institution concerned any information, document, material or object which may be of assistance to the
investigation or prosecution; (6) specify the manner in which and to whom said information, document, material or object
obtained pursuant to said request, is to be produced; (7) give all the particulars necessary for the issuance by the court in
the requested State of the writs, orders or processes needed by the requesting State; and (8) contain such other information
as may assist in the execution of the request.
(f) Authentication of Documents. - For purposes of this Section, a document is authenticated if the same is signed or
certified by a judge, magistrate or equivalent officer in or of, the requesting State, and authenticated by the oath or
affirmation of a witness or sealed with an official or public seal of a minister, secretary of State, or officer in or of, the
government of the requesting State, or of the person administering the government or a department of the requesting
territory, protectorate or colony. The certificate of authentication may also be made by a secretary of the embassy or
legation, consul general, consul, vice consul, consular agent or any officer in the foreign service of the Philippines
stationed in the foreign State in which the record is kept, and authenticated by the seal of his office.
(g) Extradition. - The Philippines shall negotiate for the inclusion of money laundering offenses as herein defined among
extraditable offenses in all future treaties.
SEC. 14. Penal Provisions.
(a) Penalties for the Crime of Money Laundering. The penalty of imprisonment ranging from seven (7) to fourteen (14)
years and a fine of not less than Three million Philippine pesos (Php 3,000,000.00) but not more than twice the value of
the monetary instrument or property involved in the offense, shall be imposed upon a person convicted under Section 4(a)
of this Act.
The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than One million five hundred
thousand Philippine pesos (Php1,500,000.00) but not more than Three million Philippine pesos (Php3,000,000.00), shall
be imposed upon a person convicted under Section 4(b) of this Act.
The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than One hundred thousand
Philippine pesos (Php100,000.00) but not more than Five hundred thousand Philippine pesos (Php500,000.00), or both,
shall be imposed on a person convicted under Section 4(c) of this Act.
(b) Penalties for Failure to Keep Records. The penalty of imprisonment from six (6) months to one (1) year or a fine of
not less than One hundred thousand Philippine pesos (Php100,000.00) but not more than Five hundred thousand
Philippine pesos (Php500,000.00), or both, shall be imposed on a person convicted under Section 9(b) of this Act.
(c) Malicious Reporting. Any person who, with malice, or in bad faith, reports or files a completely unwarranted or false
information relative to money laundering transaction against any person shall be subject to a penalty of six (6) months to
four (4) years imprisonment and a fine of not less than One hundred thousand Philippine pesos (Php100, 000.00) but not
more than Five hundred thousand Philippine pesos (Php500, 000.00), at the discretion of the court: Provided, That the
offender is not entitled to avail the benefits of the Probation Law.
If the offender is a corporation, association, partnership or any juridical person, the penalty shall be imposed upon the
responsible officers, as the case may be, who participated in the commission of the crime or who shall have knowingly
permitted or failed to prevent its commission. If the offender is a juridical person, the court may suspend or revoke its
license. If the offender is an alien, he shall, in addition to the penalties herein prescribed, be deported without further
proceedings after serving the penalties herein prescribed. If the offender is a public official or employee, he shall, in
61

addition to the penalties prescribed herein, suffer perpetual or temporary absolute disqualification from office, as the case
may be.
Any public official or employee who is called upon to testify and refuses to do the same or purposely fails to testify shall
suffer the same penalties prescribed herein.
(d) Breach of Confidentiality. The punishment of imprisonment ranging from three (3) to eight (8) years and a fine of not
less than Five hundred thousand Philippine pesos (Php500,000.00) but not more than One million Philippine pesos
(Php1,000,000.00), shall be imposed on a person convicted for a violation under Section 9(c).
SEC. 15. System of Incentives and Rewards. A system of special incentives and rewards is hereby established to be
given to the appropriate government agency and its personnel that led and initiated an investigation, prosecution and
conviction of persons involved in the offense penalized in Section 4 of this Act.
SEC. 16. Prohibitions Against Political Harassment. This Act shall not be used for political persecution or
harassment or as an instrument to hamper competition in trade and commerce.
No case for money laundering may be filed against and no assets shall be frozen, attached or forfeited to the prejudice of a
candidate for an electoral office during an election period.
SEC. 17. Restitution. Restitution for any aggrieved party shall be governed by the provisions of the New Civil Code.
SEC. 18. Implementing Rules and Regulations. Within thirty (30) days from the effectivity of this Act, the Bangko
Sentral ng Pilipinas, the Insurance Commission and the Securities and Exchange Commission shall promulgate the rules
and regulations to implement effectively the provisions of this Act. Said rules and regulations shall be submitted to the
Congressional Oversight Committee for approval.
Covered institutions shall formulate their respective money laundering prevention programs in accordance with this Act
including, but not limited to, information dissemination on money laundering activities and its prevention, detection and
reporting, and the training of responsible officers and personnel of covered institutions.
SEC. 19. Congressional Oversight Committee. There is hereby created a Congressional Oversight Committee
composed of seven (7) members from the Senate and seven (7) members from the House of Representatives. The
members from the Senate shall be appointed by the Senate President based on the proportional representation of the
parties or coalitions therein with at least two (2) Senators representing the minority. The members from the House of
Representatives shall be appointed by the Speaker also based on proportional representation of the parties or coalitions
therein with at least two (2) members representing the minority.
The Oversight Committee shall have the power to promulgate its own rules, to oversee the implementation of this Act,
and to review or revise the implementing rules issued by the Anti-Money Laundering Council within thirty (30) days from
the promulgation of the said rules.
SEC. 20. Appropriations Clause. The AMLC shall be provided with an initial appropriation of Twenty-five million
Philippine pesos (Php25,000,000.00) to be drawn from the national government. Appropriations for the succeeding years
shall be included in the General Appropriations Act.
SEC. 21. Separability Clause. If any provision or section of this Act or the application thereof to any person or
circumstance is held to be invalid, the other provisions or sections of this Act, and the application of such provision or
section to other persons or circumstances, shall not be affected thereby.
SEC. 22. Repealing Clause. All laws, decrees, executive orders, rules and regulations or parts thereof, including the
relevant provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791,
as amended and other similar laws, as are inconsistent with this Act, are hereby repealed, amended or modified
accordingly.
SEC. 23. Effectivity. This Act shall take effect fifteen (15) days after its complete publication in the Official Gazette or
in at least two (2) national newspapers of general circulation.
The provisions of this Act shall not apply to deposits and investments made prior to its effectivity.

62

VII. Truth Lending Act (RA 3765)

A. Purpose and Scheme of the Law
G.R. No. 91494 July 14, 1995
THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), vs. THE HONORABLE COURT
OF APPEALS, GEORGE AND GEORGE TRADE, INC., GEORGE KING TIM PUA and PUA KE SENG.
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court of the Decision of the Court of
Appeals in CA-G.R. CV No. 00922.
I
The factual antecedents, as found by the trial court and adopted by the Court of Appeals, are as follows:
On April 22, 1977, defendant George King Tim Pua, in his personal capacity, applied for, and was granted, by
plaintiff bank a loan for the sum of P500,000.00 for which he executed a promissory note (Exhibit 1) for the same
amount, payable on August 22, 1977.
On April 29, 1977, defendant George King Tim Pua, in his personal capacity applied for, and was granted, by the
plaintiff bank a loan for the sum of P400,000.00, for which he executed a promissory note (Exhibit 1-A) for the
same amount, payable on August 29, 1979.
On May 6, 1977, defendant George King Tim Pua, in his personal capacity, gain secured a loan from the plaintiff
for the sum of P400,000.00, for which he executed a promissory note (Exhibit 1-B) for the same amount, payable
on September 5, 1977.
On February 21, 1977, defendant George King Tim Pua, in his personal capacity, applied for, and was granted, by
the plaintiff bank three (3) separate loans in the amounts of P220,000.00, P450,000.00 and P65,000.00, for which
he executed three separate promissory notes (Exhibits 1-C to 1-E), payable on May 23, 1977.
On January 23, 1979, defendant George and George Trade Inc., through defendant George King Tim Pua,
obtained a loan of P300,000.00 from the plaintiff, for which defendant George King Tim Pua executed a
promissory note (Exhibit A) on behalf of defendant corporation, with defendants George King Tim Pua and Pua
Ke Seng as co-makers, which loan bears an interest of 13.23% per annum and is payable on June 22, 1979.
On April 19, 1979, defendant George and George Trade Inc., through defendant George King Tim Pua, applied
for, and was granted, another loan of P200,000.00 from the plaintiff bank, for which defendant George King Tim
Pua executed a promissory note (Exhibit B) on behalf of defendant corporation, with defendants George King
Tim Pua and Pua Ke Seng as co-makers, which loan bears an interest of 14% per annum and is payable on May
21, 1979.
On August 2, 1979, defendant George and George Trade Inc., through defendant George King Tim Pua, once
more secured a loan for P150,000.00, for which defendant George King Tim Pua executed a promissory note
(Exhibit C) on behalf of defendant corporation, with defendants George King Tim Pua and Pua Ke Seng as comakers, which loan bears an interest of 14% per annum and is payable on September 17, 1979.
The three promissory notes (Exhibits A, B and C) covering loans in the corporate account of defendant George
and George Trade Inc. provides (sic) also that in case of default of payment, the defendants agree to pay interest at
an increased rate of 14% per annum on the amount due, compounded monthly, until fully paid, as well as an
additional sum equivalent to 10% of the total amount due as and for attorney's fees in addition to expenses and
costs of suit, such amount to bear interest at the rate of 1% per month until paid.
Under the two promissory notes (Exhibits B and C), the defendants further bound themselves to pay a penalty at
the rate of 3% per annum on the amount due until fully paid.
In order to secure the payment of defendant George King Tim Pua's obligation with the plaintiff, he assigned unto
the latter the proceeds of a fire insurance policy issued by the Kerr Insurance Company in the amount of
P2,908,485.00
The proceeds of the insurance policy were subsequently paid to the plaintiff which applied the same to the
personal account of defendant George King Tim Pua. The personal account of defendant George King Tim Pua
was fully satisfied through the remittances of the fire insurance proceeds (Rollo, pp. 53-55).
According to petitioner bank, after it had deducted from the insurance proceeds the entirety of respondent George King
Tim Pua's personal account, there remained of the insurance proceeds the amount of P383,302.42. It then proceeded to
apply said amount to the unpaid loans of respondent George and George Trade, Inc. which amounted to P671,772.22 as of
September 7, 1979, thus leaving a balance of P288,469.80 of the loans.
63

Petitioner instituted on April 7, 1980 an action (Civil Case No. 130915) against private respondents before the then Court
of First Instance of Manila for the recovery of the unpaid balances on the three promissory notes, including attorney's fees
equivalent to 10% of the amount recoverable.
In their Answer with Special and Affirmative Defenses and Counterclaim, private respondents claimed that the loans had
been extinguished by way of payment through the assignment by respondent George King Tim Pua of the fire insurance
proceeds and that it was in fact petitioner which owed them by reason of its failure to return to the latter the balance of
said insurance proceeds.
No amicable settlement having been reached between the parties, trial ensued. On November 4, 1982, the trial court
rendered judgment, finding for petitioner. The dispositive portion of the decision reads:
PREMISES CONSIDERED, judgment is hereby rendered ordering defendants George and George Trade, Inc.,
George King Tim Pua and Pua Ke Seng, jointly and severally, to pay plaintiff, The Consolidated Bank and Trust
Corporation (Solidbank) the sum of P228,469.80, with interest thereon at the legal rate from March 28, 1980,
until the same is fully paid, and attorney's fees in the sum of P25,000.00, with costs of suit.
For lack of merit, the counterclaim filed by the defendants is dismissed (Rollo, p. 174).
On appeal by private respondents, the Court of Appeals reversed the decision of the trial court, decreeing as follows:
WHEREFORE, the decision appealed from herein is REVERSED, and plaintiff-appellee Consolidated Bank and
Trust Corporation (Solidbank) is instead ordered to pay appellant George King Tim Pua the amount of
P466,182.39, with legal interest thereon per annum from September 8, 1979 until said amount is fully paid, plus
P10,000.00 attorney's fees and the costs of this suit (Rollo, p. 14).
Failing to secure a reconsideration of said decision, petitioner is now before the Court on a petition for review on
certiorari.
Simply stated, the issue in this petition is whether private respondents are indebted to petitioners in the amount of
P288,469.80 as held by the then Court of First Instance of Manila or whether said private respondents are entitled to
reimbursement from petitioner in the amount of P466,182.39 as decreed by the Court of Appeals?
The issues raised are factual. As a general rule, the findings of the Court of Appeals upon factual questions are conclusive
and ought not to be disturbed. There are, however, exceptions to the rule. One of the exceptions is when the findings of
fact of the Court of Appeals are contrary to those of the trial court (Massive Construction, Inc. v. Intermediate Appellate
Court, 223 SCRA 1 [1993]).
In the instant case, the findings of fact of the Court of Appeals are contrary to the findings of the trial court. Under such
circumstance, this Court may review the findings of fact of the Court of Appeals and may scrutinize the evidence on
record.
The records show that respondent George King Tim Pua had two sets of accounts with petitioner bank: his personal
account and his account for George and George Trade, Inc. For his personal account, he obtained from petitioner on
different dates six separate loans with different due dates, viz:
Loan I
22-Apr-77

500,000.00
Payable August 22, 1977
Loan II
29-Apr-77

400,000.00
Payable August 29, 1977
Loan III
5/6/77

400000.00
Payable September 5, 1977
Loan IV
(a) 2/21/1977

220,000.00
(b)

450,000.00
(c)

65,000.00

Payable on May 3, 1977

735,000.00
TOTAL
2,035,000.00
============
64

All of these loans bore a 14% rate of interest, which was to be compounded monthly, in case of failure on the part
of respondent George King Tim Pua to pay on maturity. In which case, he further undertook to pay an additional
sum equivalent to 10% of the total amount due but in no case less than P200.00 as attorney's fees. The maturity
dates of the loans were extended up to either December 1 or December 5, 1977 and all interests were paid up to
March 5, 1978.
Under the account of George and George Trade, Inc., respondent George King Tim Pua, together with his comaker, respondent Pua Ke Seng, obtained the following loans:
Loan A

23-Jan-79

300,000.00
Payable June 22, 1979
Loan B

19-Apr-79

200,000.00
Payable May 21, 1979
Loan C

8/2/79

150,000.00
Payable Sept. 17, 1979

TOTA
P
650,000.00
L
============
The first loan bore an annual interest of 13.23%, which was to be increased to 14% in case of failure to pay on
due date, compounded monthly, until fully paid. An additional amount equivalent to 10% of the total amount but
not less than P200.00 was to be imposed in case of failure to pay on due date as attorney's fees. The second and
third loans bore an interest rate of 14% per annum and carried a penalty of 3% per annum on the amount due in
case of failure to pay on the date of maturity. An additional sum equivalent to 10% of the total amount due, but
not less than P200.00, was to be imposed as and for attorney's fees. Interest were paid on the loans up to their date
of maturity.
The records further show that payments were made as follows:
September 12, 1978
P
230,000.00
October 28, 1978
149,000.00
November 28, 1978
100,000.00
June 8, 1979
525,000.00
September 6, 1979
2,383,485.00

TOTAL
P
3,387,985.00
PAYMENTS
===========
Based on the foregoing figures, the accounts of respondents George King Tim Pua and George and George Trade,
Inc. with petitioner Bank should stand as of September 6, 1979, thus:
GEORGE KING TIM PUA
Loan I (Promissory Note No. 55658) P 500,000.00
14% interest, compounded monthly
Interest paid up to March 5, 1978
Add:
Interest, March 6 to Sept. 12, 1978 37,219.46

Total P 537,219.46
Less: Payment September 12, 1978 230,000.00

Balance, September 12, 1978 P 307,219.46

Add:
65

Interest September 13 to Oct. 28, 1978

14%, compounded monthly 5,492.63

Total P 312,712.09
Less: Payment, October 28, 1978 149,500.00

Balance, October 28, 1978 P 163,212.09

Add:
Interest October 29 to Nov. 28, 1978
14%, compounded monthly 1,904.68

Total P 165,116.77
Less: Payment November 28, 1978 100,000.00

Balance, November 28, 1978 P 65,116.77

Add:
Interest November 29, 1978 to June 8,
1979, 14%, compounded monthly 4,962.35

Total P 70,079.12
Loan II (Promissory Note No. 55828) P 400,000.00
14% Interest, compounded monthly
Interest paid up to March 5, 1978
Add:
Interest March 6, 1978 to June 8, 1979 76,587.34

Total P 476,587.34
LOANS I and II, as of June 8, 1979
Loan I P 70,079.12
Loan II 476,587.34
P 546,666.46
Less: Payment, June 8, 1979 525,000.00

Balance, June 8, 1979 P 21,666.46

Loan III (Promissory Note No. 55991) P 400,000.00
14% Interest, compounded monthly
Interest paid up to March 7, 1978
Add:
Interest March 8, 1978 to Sept. 6, 1979 92,634.60

Total P 492,634.60
Loan IV (Promissory Note No. 54221) P 220,000.00
(Promissory Note No. 54222) 450,000.00
(Promissory Note No. 54223) 65,000.00
P 735,000.00
14% Interest, compounded monthly
Interest paid up to March 7, 1978
Add:
Interest March 8, 1978 to Sept. 6, 1979 170,216.17

Total P 905,216.17
66

LOANS II, III and IV, as of Sept. 6, 1979

Loan II P 21,666.46
Loan III 492,634.60
Loan IV 905,216.17 P 1,419,517.23
Less: Payment, September 6, 1979 2,383,485.00

BALANCE OF INSURANCE PROCEEDS P 963,967.77

GEORGE AND GEORGE TRADE, INC
Loan A (Promissory Note No. 790591) P 300,000.00
14% Interest, compounded monthly
Interest paid up to June 22, 1979
Add:
Interest from June 23, 1979 to
Sept. 6, 1979 8,691.63

Total P 308,691.63
Balance of Insurance Proceeds
after payment of Loan A P 655,276.14
Loan B (Promissory Note No. 792805) P 200,000.00
14% Interest per annum
Interest paid up to May 21, 1979
Add:
Interest from May 22, 1979 to
Sept. 6, 1979 8,208.22
Penalty of 3% per annum 1,831.07

Total P 210,039.29
Balance of Insurance Proceeds
after payment of Loan B P 445,236.85
Loan C (Promissory Note No. 794730) P 150,000.00
14% Interest per annum
Interest paid up to Sept. 17, 1979
Balance of Insurance Proceeds
after payment of all loans P 295,236.85
Less: Trust Receipts Obligations 291,620.00

Amount Refundable to
Respondent George King Tim Pua P 3,616.85
============
The 14% interest rate charged by petitioner was within the limits set by Section 3 of the Usury Law, as amended.
The charging of compounded interest has been held as proper as long as the payment thereof has been agreed
upon by the parties. In Mambulao Lumber Company v. Philippine National Bank, 22 SCRA 359 (1968), we ruled
that the parties may, by stipulation, capitalize the interest due and unpaid, which as added principal shall earn new
interest. In the instant case, private respondents agreed to the payment of 14% interest per annum, compounded
monthly, should they fail to pay the principal loan on the date of maturity.
As to handling charges, banks are authorized under Central Bank Circular
No. 504 to collect such charges on loans over P500,000.00 with a maturity of 730 days or less at the rate of 2%
per annum, on the principal or the outstanding balance thereof, whichever is lower; 1.75% on loans over
P500,000.00 but not over P1,000,000.00; 1.50% on loans over P1,000,000.00 but not over 2,000,000.00, etc.
Section 7 of the same Circular, however, provides that all banks and non-bank financial intermediaries authorized
to engage in quasi-banking functions are required to strictly adhere to the provisions of Republic Act No. 3765
67

otherwise known as the "Truth in Lending Act" and shall make the true and effective cost of borrowing an
integral part of every loan contract. The promissory notes signed by private respondents do not contain any
stipulation on the payment of handling charges. Petitioner bank cannot, therefore, charge private respondents such
handling charges.
The payment of penalty is sanctioned by law, although the penalty may be reduced by the courts if it is iniquitous
or unconscionable (Equitable Banking Corporation v. Liwanag, 32 SCRA 293 [1970]). The payment of penalty
was provided for under the terms and conditions of the promissory notes for Loans B and C of George and
George Trade, Inc. The penalty actually imposed, being only 3% per annum of the unpaid balance of the principal
of said Loan B, is considered reasonable and proper.
The same cannot, however, be said of the payment being insisted upon by petitioner of the attorney's fees
stipulated in all the promissory notes, consisting of 10% of the total amount due and payable. A stipulation
regarding the payment of attorney's fees is neither illegal nor immoral and is enforceable as the law between the
parties as long as such stipulation does not contravene law, good morals, good customs, public order or public
policy (Social Security Commission v. Almeda, 168 SCRA 474 [1988]; Reparations Commission v. Visayan
Packing Corporation, 193 SCRA 531 [1991]). As stated in the promissory notes, respondent George King Tim
Pua agreed to pay attorney's fees only "in addition to expenses and costs of suit." In other words, petitioner is
entitled to collect from respondent George King Tim Pua the attorney's fees agreed upon only in case it was
compelled to litigate with third persons or to incur expenses to protect its interest (China Airlines, Ltd. v.
Intermediate Appellate Court, 169 SCRA 226 [1989]; Songcuan v. Intermediate Appellate Court, 191 SCRA 28
[1990]). These conditions are not obtaining in the case at bench. There was no need for petitioner to litigate to
protect its interest inasmuch as private respondents had fully paid their obligations months before it filed the
complaint for recovery of sum of money. Neither has it been shown by competent proof that petitioner had to
engage the services of a lawyer or incur expenses in collecting the fire insurance proceeds from Kerr and
Company.
The "Tentative Computation" to which respondent George King Tim Pua allegedly affixed his initials to the item
"Attorney's Fees, 10%" cannot be taken as amending the stipulation contained in the promissory notes on the
payment of attorney's fees. The failure of said Tentative Computation to express the true intent and agreement of
the parties thereto was put in issue in the Amended Answer with Special and Affirmative Defenses and
Counterclaim filed by private respondents before the trial court. The corresponding testimony of respondent
George King Tim Pua that he did not understand the import of this item in the Tentative Computation remains
unrebutted.
The award of attorney's fees lies within the discretion of the court and depends upon the circumstances of each
case. However, the discretion of the court to award attorney's fees under Article 2208 of the Civil Code of the
Philippines demands factual, legal and equitable justification, without which the award is a conclusion without a
premise and improperly left to speculation and conjecture. It becomes a violation of the proscription against the
imposition of a penalty on the right to litigate (Universal Shipping Lines, Inc. v. Intermediate Appellate Court,
188 SCRA 170 [1990]). The reason for the award must be stated in the text of the court's decision. If it is stated
only in the dispositive portion of the decision, the same shall be disallowed. As to the award of attorney's fees
being an exception rather than the rule, it is necessary for the court to make findings of fact and law that would
bring the case within the exception and justify the grant of the award (Refractories Corporation of the Philippines
v. Intermediate Appellate Court, 176 SCRA 539 [1989]).
In this case, the Court of Appeals strictly followed the above-stated standard set by this Court. The award of
P10,000.00 as attorney's fees to private respondents was reasonable and justified as they were compelled to
litigate and incur expenses to protect their interest.
WHEREFORE, the Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the amount
which petitioner is ordered to reimburse respondent George King Tim Pua is reduced to THREE THOUSAND
SIX HUNDRED SIXTEEN & 65/100 PESOS (P3,616.65), with legal interest thereon from September 8, 1979
until said amount is fully paid. No pronouncement as to costs.

68

What is the policy behind the Truth in Lending Act?

The declared policy behind the law is to protect the people from lack of awareness of the true cost of credit by
assuring full disclosure of such cost, with a view of preventing the uninformed use of credit to the detriment of
the national economy.
Who are covered under the Truth in Lending Act?
The law covers any creditor, which is defined as any person engaged in the business of extending credit
(including any person who as a regular business practice make loans or sells or rents property or services on a
time, credit, or installment basis, either as principal or as agent) who requires as an incident to the extension of
credit, the payment of a finance charge.
In that definition, what is meant by credit?
It means any loan, mortgage, deed of trust, advance, or discount; any conditional sales contract; any contract to
sell, or sale or contract of sale of property or services, either for present or future delivery, under which part or
all of the price is payable subsequent to the making of such sale or contract; any rental-purchase contract; any
contract or arrangement for the hire, bailment, or leasing of property; any option, demand, lien, pledge, or other
claim against, or for the delivery of, property or money; any purchase, or other acquisition of, or any credit
upon the security of, any obligation of claim arising out of any of the foregoing; and any transaction or series of
transactions having a similar purpose or effect.
In the same definition, what is meant by a finance charge?
A finance charge includes interest, fees, service charges, discounts, and such other charges incident to the
extension of credit as may be prescribed by the Monetary Board of the Bangko Sentral ng Pilipinas through
regulations.
What are the information required to be furnished to the debtor or borrower?
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in connection with the
transaction but which are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on
the outstanding unpaid balance of the obligation.
When and how should these information be furnished to the debtor or borrower?
The information enumerated above must be disclosed to the debtor or borrower prior to the consummation of
the transaction. The information must be clearly stated in writing.
What is the effect on the obligation in case of violations to the Truth in Lending Act?
The contract or transaction remains valid or enforceable, subject to the penalties discussed below.
What are the penalties in case of violation?
1. Any creditor who violates the law is liable in the amount of P100 or in an amount equal to twice the finance
charged required by such creditor in connection with such
transaction, whichever is the greater, except that such liability shall not exceed P2,000 on any credit transaction.
The action must be brought within one year from the date of the occurrence of the violation.
2. The creditor is also liable for reasonable attorneys fees and court costs as determined by the court.
3. Any person who willfully violates any provision of this law or any regulation issued thereunder shall be fined
by not less than P1,00 or more than P5,000 or imprisonment of not less than 6 months, nor more than one year
or both. However, no punishment or penalty under this law shall apply to the Philippine Government or any
agency or any political subdivision thereof.
REPUBLIC ACT No. 3765
69

AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN CONNECTION WITH

EXTENSIONS OF CREDIT.
Section 1. This Act shall be known as the "Truth in Lending Act."
Section 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect its citizens from a lack of
awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the
uninformed use of credit to the detriment of the national economy.
Section 3. As used in this Act, the term
(1) "Board" means the Monetary Board of the Central Bank of the Philippines.
(2) "Credit" means any loan, mortgage, deed of trust, advance, or discount; any conditional sales contract; any
contract to sell, or sale or contract of sale of property or services, either for present or future delivery, under which
part or all of the price is payable subsequent to the making of such sale or contract; any rental-purchase contract;
any contract or arrangement for the hire, bailment, or leasing of property; any option, demand, lien, pledge, or
other claim against, or for the delivery of, property or money; any purchase, or other acquisition of, or any credit
upon the security of, any obligation of claim arising out of any of the foregoing; and any transaction or series of
transactions having a similar purpose or effect.
(3) "Finance charge" includes interest, fees, service charges, discounts, and such other charges incident to the
extension of credit as the Board may be regulation prescribe.
(4) "Creditor" means any person engaged in the business of extending credit (including any person who as a
regular business practice make loans or sells or rents property or services on a time, credit, or installment basis,
either as principal or as agent) who requires as an incident to the extension of credit, the payment of a finance
charge.
(5) "Person" means any individual, corporation, partnership, association, or other organized group of persons, or
the legal successor or representative of the foregoing, and includes the Philippine Government or any agency
thereof, or any other government, or of any of its political subdivisions, or any agency of the foregoing.
Section 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the
transaction, a clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations
prescribed by the Board, the following information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in connection with the
transaction but which are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on
the outstanding unpaid balance of the obligation.
Section 5. The Board shall prescribe such rules and regulations as may be necessary or proper in carrying out the
provisions of this Act. Any rule or regulation prescribed hereunder may contain such classifications and differentiations as
in the judgment of the Board are necessary or proper to effectuate the purposes of this Act or to prevent circumvention or
evasion, or to facilitate the enforcement of this Act, or any rule or regulation issued thereunder.
Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information
in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an
amount equal to twice the finance charged required by such creditor in connection with such transaction, whichever is the
greater, except that such liability shall not exceed P2,000 on any credit transaction. Action to recover such penalty may be
brought by such person within one year from the date of the occurrence of the violation, in any court of competent
jurisdiction. In any action under this subsection in which any person is entitled to a recovery, the creditor shall be liable
for reasonable attorney's fees and court costs as determined by the court.
(b) Except as specified in subsection (a) of this section, nothing contained in this Act or any regulation contained
in this Act or any regulation thereunder shall affect the validity or enforceability of any contract or transactions.

70

(c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined
by not less than P1,00 or more than P5,000 or imprisonment for not less than 6 months, nor more than one year or
both.
(d) No punishment or penalty provided by this Act shall apply to the Philippine Government or any agency or any
political subdivision thereof.
(e) A final judgment hereafter rendered in any criminal proceeding under this Act to the effect that a defendant
has willfully violated this Act shall be prima facie evidence against such defendant in an action or proceeding
brought by any other party against such defendant under this Act as to all matters respecting which said judgment
would be an estoppel as between the parties thereto.
Section 7. This Act shall become effective upon approval.

VIII. Consumer Act (RA 7394)

Republic Act No. 7394
April 13, 1992
THE CONSUMER ACT OF THE PHILIPPINES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled::
TITLE I. GENERAL PROVISIONS
Article 1. Short Title. This Act shall be known as the "Consumer Act of the Philippines."
Article 2. Declaration of Basic Policy. It is the policy of the State to protect the interests of the consumer,
promote his general welfare and to establish standards of conduct for business and industry. Towards this end,
the State shall implement measures to achieve the following objectives:
a) protection against hazards to health and safety;
b) protection against deceptive, unfair and unconscionable sales acts and practices;
c) provision of information and education to facilitate sound choice and the proper exercise of rights by
the consumer;
d) provision of adequate rights and means of redress; and
e) involvement of consumer representatives in the formulation of social and economic policies.
Article 145. Exempted Transaction. The foregoing requirements on consumer credit transactions shall not
apply to the following credit transactions:
a) those involving extension of credits for business or commercial purposes, or to the Government and
governmental agencies and instrumentalities, juridical entities or to organizations;
b) those in which the debtor is the one specifying the definite set of credit terms such as bank deposits,
insurance contracts, sale of bonds or analogous transactions.
RA 9372
Anti-Terror Law or Anti-Terrorism Law.
As properly known as the Human Security Act of 2007.
SEC. 27. Judicial Authorization Required to Examine Bank Deposits, Accounts, and Records. The provisions of
Republic Act No. 1405 as amended, to the contrary notwithstanding, the justices of the Court of Appeals designated as a
special court to handle anti-terrorism cases after satisfying themselves of the existence of probable cause in a hearing
called for that purpose that (1) a person charged with or suspected of the crime of terrorism or conspiracy to commit
terrorism, (2) of a judicially declared and outlawed terrorist organization, association, or group of persons, and (3) of a
member of such judicially declared and outlawed organization, association, or group of persons, may authorize in writing
any police or law enforcement officer and the members of his/her team duly authorized in writing by the anti-terrorism
council to: (a) examine, or cause the examination of, the deposits, placements, trust accounts, assets and records in a bank
or financial institution; and (b) gather or cause the gathering of any relevant information about such deposits, placements,
trust accounts, assets, and records from a bank or financial institution. the bank or financial institution concerned shall not
71

refuse to allow such examination or to provide the desired information, when so ordered by and served with the written
order of the Court of Appeals.
SEC. 28. Application to Examine Bank Deposits, Accounts, and Records. The written order of the Court of Appeals
authorizing the examination of bank deposits, placements, trust accounts, assets, and records: (1) of a person charged with
or suspected of the crime of terrorism or conspiracy to commit terrorism, (2) of any judicially declared and outlawed
terrorist organization, association, or group of persons, or (3) of any member of such organization, association, or group of
persons in a bank or financial institution, and the gathering of any relevant information about the same from said bank or
financial institution, shall only be granted by the authorizing division of the Court of Appeals upon an ex parte application
to that effect of a police or of a law enforcement official who has been duly authorized in writing to file such ex parte
application by the Anti-Terrorism Council created in Section 53 of this Act to file such ex parte application, and upon
examination under oath or affirmation of the applicant and the witnesses he may produce to establish the facts that will
justify the need and urgency of examining and freezing the bank deposits, placements, trust accounts, assets, and records:
(1) of the person charged with or suspected of the crime of terrorism or conspiracy to commit terrorism, (2) of a judicially
declared and outlawed terrorist organization, association or group of persons, or (3) of any member of such organization,
association, or group of persons.
SEC. 29. Classification and Contents of the Court Order Authorizing the Examination of Bank Deposits, Accounts, and
Records. The written order granted by the authorizing division of the Court of Appeals as well as its order, if any, to
extend or renew the same, the original ex parte application of the applicant, including his ex parte application to extend or
renew, if any, and the written authorizations of the Anti Terrorism Council, shall be deemed and are hereby declared as
classified information: Provided, That the person whose bank deposits, placements, trust accounts, assets, and records
have been examined, frozen, sequestered and seized by law enforcement authorities has the right to be informed of the
acts done by the law enforcement authorities in the premises or to challenge, if he or she intends to do so, the legality of
the interference. The written order of the authorizing division of the Court of Appeals designated to handle cases
involving terrorism shall specify: (a) the identity of the said: (1) person charged with or suspected of the crime of
terrorism or conspiracy to commit terrorism, (2) judicially declared and outlawed terrorist organization, association, or
group of persons, and (3) member of such judicially declared and outlawed organization, association, or group of persons,
as the case may be, whose deposits, placements, trust accounts, assets, and records are to be examined or the information
to be gathered; (b) the identity of the bank or financial institution where such deposits, placements, trust accounts, assets,
and records are held and maintained; (c) the identity of the persons who will conduct the said examination and the
gathering of the desired information; and, (d) the length of time the authorization shall be carried out.
SEC. 30. Effective Period of Court Authorization to Examine and Obtain Information on Bank Deposits, Accounts, and
Records. The authorization issued or granted by the authorizing division of the Court of Appeals to examine or cause
the examination of and to freeze bank deposits, placements, trust accounts, assets, and records, or to gather information
about the same, shall be effective for the length of time specified in the written order of the authorizing division of the
Court of Appeals, which shall not exceed a period of thirty (30) days from the date of receipt of the written order of the
authorizing division of the Court of Appeals by the applicant police or law enforcement official.
The authorizing division of the Court of Appeals may extend or renew the said authorization for another period, which
shall not exceed thirty (30) days renewable to another thirty (30) days from the expiration of the original period, provided
that the authorizing division of the Court of Appeals is satisfied that such extension or renewal is in the public interest,
and provided further that the application for extension or renewal, which must be filed by the original applicant, has been
duly authorized in writing by the Anti-Terrorism Council.
In case of death of the original applicant or in case he is physically disabled to file the application for extension or
renewal, the one next in rank to the original applicant among the members of the team named in the original written order
of the authorizing division of the Court of Appeals shall file the application for extension or renewal: Provided, That,
without prejudice to the liability of the police or law enforcement personnel under Section 19 hereof, the applicant police
or law enforcement official shall have thirty (30) days after the termination of the period granted by the Court of Appeals
as provided in the preceding paragraphs within which to file the appropriate case before the Public Prosecutors Office
for any violation of this Act.
If no case is filed within the thirty (30)-day period, the applicant police or law enforcement official shall immediately
notify in writing the person subject of the bank examination and freezing of bank deposits, placements, trust accounts,
assets and records. The penalty of ten (10) years and one day to twelve (12) years of imprisonment shall be imposed upon
72

the applicant police or law enforcement official who fails to notify in writing the person subject of the bank examination
and freezing of bank deposits, placements, trust accounts, assets and records.
Any person, law enforcement official or judicial authority who violates his duty to notify in writing as defined above shall
suffer the penalty of six (6) years and one day to eight (8) years of imprisonment.
SEC. 31. Custody of Bank Data and Information Obtained after Examination of Deposits, Placements, Trust Accounts,
Assets and Records. All information, data, excerpts, summaries, notes, memoranda, working sheets, reports, and other
documents obtained from the examination of the bank deposits, placements, trust accounts, assets and records of: (1) a
person charged with or suspected of the crime of terrorism or the crime of conspiracy to commit terrorism, (2) a judicially
declared and outlawed terrorist organization, association, or group of persons, or (3) a member of any such organization,
association, or group of persons shall, within forty-eight (48) hours after the expiration of the period fixed in the written
order of the authorizing division of the Court of Appeals or within forty-eight (48) hours after the expiration of the
extension or renewal granted by the authorizing division of the Court of Appeals, be deposited with the authorizing
division of the Court of Appeals in a sealed envelope or sealed package, as the case may be, and shall be accompanied by
a joint affidavit of the applicant police or law enforcement official and the persons who actually conducted the
examination of said bank deposits, placements, trust accounts, assets and records.
SEC. 32. Contents of Joint Affidavit. The joint affidavit shall state: (a) the identifying marks, numbers, or symbols of
the deposits, placements, trust accounts, assets, and records examined; (b) the identity and address of the bank or financial
institution where such deposits, placements, trust accounts, assets, and records are held and maintained; (c) the number of
bank deposits, placements, trust accounts, assets, and records discovered, examined, and frozen; (d) the outstanding
balances of each of such deposits, placements, trust accounts, assets; (e) all information, data, excerpts, summaries, notes,
memoranda, working sheets, reports, documents, records examined and placed in the sealed envelope or sealed package
deposited with the authorizing division of the Court of Appeals; (f) the date of the original written authorization granted
by the Anti-Terrorism Council to the applicant to file the ex parte application to conduct the examination of the said bank
deposits, placements, trust accounts, assets and records, as well as the date of any extension or renewal of the original
written authorization granted by the authorizing division of the Court of Appeals; and (g) that the items enumerated were
all that were found in the bank or financial institution examined at the time of the completion of the examination.
The joint affidavit shall also certify under oath that no duplicates or copies of the information, data, excerpts, summaries,
notes, memoranda, working sheets, reports, and documents acquired from the examination of the bank deposits,
placements, trust accounts, assets and records have been made, or, if made, that all such duplicates and copies are placed
in the sealed envelope or sealed package deposited with the authorizing division of the Court of Appeals.
It shall be unlawful for any person, police officer or custodian of the bank data and information obtained after
examination of deposits, placements, trust accounts, assets and records to copy, to remove, delete, expunge, incinerate,
shred or destroy in any manner the items enumerated above in whole or in part under any pretext whatsoever.
Any person who copies, removes, deletes, expunges incinerates, shreds or destroys the items enumerated above shall
suffer a penalty of not less than six (6) years and one day to twelve (12) years of imprisonment.
SEC. 33. Disposition of Bank Materials. The sealed envelope or sealed package and the contents thereof, which are
deposited with the authorizing division of the Court of Appeals, shall be deemed and are hereby declared classified
information, and the sealed envelope or sealed package shall not be opened and its contents shall not be divulged,
revealed, read, or used as evidence unless authorized in a written order of the authorizing division of the Court of Appeals,
which written order shall be granted only upon a written application of the Department of Justice filed before the
authorizing division of the Court of Appeals and only upon a showing that the Department of Justice has been duly
authorized in writing by the Anti-Terrorism Council to file the application, with notice in writing to the party concerned
not later than three (3) days before the scheduled opening, to open, reveal, divulge, and use the contents of the sealed
envelope or sealed package as evidence.
Any person, law enforcement official or judicial authority who violates his duty to notify in writing as defined above shall
suffer the penalty of six (6) years and one day to eight (8) years of imprisonment.
SEC. 34. Application to Open Deposited Bank Materials. The written application, with notice in writing to the party
concerned not later than three (3) days of the scheduled opening, to open the sealed envelope or sealed package shall
clearly state the purpose and reason: (a) for opening the sealed envelope or sealed package; (b) for revealing and
disclosing its classified contents; and, (c) for using the classified information, data, excerpts, summaries, notes,
memoranda, working sheets, reports, and documents as evidence.
73

SEC. 35. Evidentiary Value of Deposited Bank Materials. Any information, data, excerpts, summaries, notes,
memoranda, work sheets, reports, or documents acquired from the examination of the bank deposits, placements, trust
accounts, assets and records of: (1) a person charged or suspected of the crime of terrorism or the crime of conspiracy to
commit terrorism, (2) a judicially declared and outlawed terrorist organization, association, or group of persons, or (3) a
member of such organization, association, or group of persons, which have been secured in violation of the provisions of
this Act, shall absolutely not be admissible and usable as evidence against anybody in any judicial, quasi-judicial,
legislative, or administrative investigation, inquiry, proceeding, or hearing.
SEC. 36. Penalty for Unauthorized or Malicious Examination of a Bank or a Financial Institution. Any person,
police or law enforcement personnel who examines the deposits, placements, trust accounts, assets, or records in a bank or
financial institution of: (1) a person charged with or suspected of the crime of terrorism or the crime of conspiracy to
commit terrorism, (2) a judicially declared and outlawed terrorist organization, association, or group of persons, or (3) a
member of such organization, association, or group of persons, without being authorized to do so by the Court of Appeals,
shall be guilty of an offense and shall suffer the penalty of ten (10) years and one day to twelve (12) years of
imprisonment.
In addition to the liability attaching to the offender for the commission of any other offense, the penalty of ten (10) years
and one day to twelve (12) years of imprisonment shall be imposed upon any police or law enforcement personnel, who
maliciously obtained an authority from the Court of Appeals to examine the deposits, placements, trust accounts, assets, or
records in a bank or financial institution of: (1) a person charged with or suspected of the crime of terrorism or conspiracy
to commit terrorism, (2) a judicially declared and outlawed terrorist organization, association, or group of persons, or (3) a
member of such organization, association, or group of persons: Provided, That notwithstanding Section 33 of this Act, the
party aggrieved by such authorization shall upon motion duly filed be allowed access to the sealed envelope or sealed
package and the contents thereof as evidence for the prosecution of any police or law enforcement personnel who
maliciously procured said authorization.
SEC. 37. Penalty of Bank Officials and Employees Defying a Court Authorization. An employee, official, or a
member of the board of directors of a bank or financial institution, who refuses to allow the examination of the deposits,
placements, trust accounts, assets, and records of: (1) a person charged with or suspected of the crime of terrorism or the
crime of conspiracy to commit terrorism, (2) a judicially declared and outlawed terrorist organization, association, or
group of persons, or (3) a member of such judicially declared and outlawed organization, association, or group of persons
in said bank or financial institution, when duly served with the written order of the authorizing division of the Court of
Appeals, shall be guilty of an offense and shall suffer the penalty of ten (10) years and one day to twelve (12) years of
imprisonment.
SEC. 38. Penalty for False or Untruthful Statement or Misrepresentation of Material Fact in Joint Affidavits. Any
false or untruthful statement or misrepresentation of material fact in the joint affidavits required respectively in Section 12
and Section 32 of this Act shall constitute a criminal offense and the affiants shall suffer individually the penalty of ten
(10) years and one day to twelve (12) years of imprisonment.
SEC. 39. Seizure and Sequestration. The deposits and their outstanding balances, placements, trust accounts, assets,
and records in any bank or financial institution, moneys, businesses, transportation and communication equipment,
supplies and other implements, and property of whatever kind and nature belonging: (1) to any person suspected of or
charged before a competent Regional Trial Court for the crime of terrorism or the crime of conspiracy to commit
terrorism; (2) to a judicially declared and outlawed organization, association, or group of persons; or (3) to a member of
such organization, association, or group of persons shall be seized, sequestered, and frozen in order to prevent their use,
transfer, or conveyance for purposes that are inimical to the safety and security of the people or injurious to the interest of
the State.
The accused or a person suspected of may withdraw such sums as may be reasonably needed by the monthly needs of his
family including the services of his or her counsel and his or her familys medical needs upon approval of the court.
He or she may also use any of his property that is under seizure or sequestration or frozen because of his or her indictment
as a terrorist upon permission of the court for any legitimate reason.
Any person who unjustifiably refuses to follow the order of the proper division of the Court of Appeals to allow the
person accused of the crime of terrorism or of the crime of conspiracy to commit terrorism to withdraw such sums from
sequestered or frozen deposits, placements, trust accounts, assets and records as may be necessary for the regular
sustenance of his or her family or to use any of his or her property that has been seized, sequestered or frozen for
74

legitimate purposes while his or her case is pending shall suffer the penalty of ten (10) years and one day to twelve (12)
years of imprisonment.
SEC. 40. Nature of Seized, Sequestered and Frozen Bank Deposits, Placements, Trust Accounts, Assets and Records.
The seized, sequestered and frozen bank deposits, placements, trust accounts, assets and records belonging to a person
suspected of or charged with the crime of terrorism or conspiracy to commit terrorism shall be deemed as property held in
trust by the bank or financial institution for such person and the government during the pendency of the investigation of
the person suspected of or during the pendency of the trial of the person charged with any of the said crimes, as the case
may be and their use or disposition while the case is pending shall be subject to the approval of the court before which the
case or cases are pending.
SEC. 41. Disposition of the Seized, Sequestered and Frozen Bank Deposits, Placements, Trust Accounts, Assets and
Record. If the person suspected of or charged with the crime of terrorism or conspiracy to commit terrorism is found,
after his investigation, to be innocent by the investigating body, or is acquitted, after his arraignment or his case is
dismissed before his arraignment by a competent court, the seizure, sequestration and freezing of his bank deposits,
placements, trust accounts, assets and records shall forthwith be deemed lifted by the investigating body or by the
competent court, as the case may be, and his bank deposits, placements, trust accounts, assets and records shall be deemed
released from such seizure, sequestration and freezing, and shall be restored to him without any delay by the bank or
financial institution concerned without any further action on his part. The filing of any appeal on motion for
reconsideration shall not state the release of said funds from seizure, sequestration and freezing.
If the person charged with the crime of terrorism or conspiracy to commit terrorism is convicted by a final judgment of a
competent trial court, his seized, sequestered and frozen bank deposits, placements, trust accounts, assets and records shall
be automatically forfeited in favor of the government.
Upon his or her acquittal or the dismissal of the charges against him or her, the amount of Five Hundred Thousand Pesos
(P500,000.00) a day for the period in which his properties, assets or funds were seized shall be paid to him on the concept
of liquidated damages. The amount shall be taken from the appropriations of the police or law enforcement agency that
caused the filing of the enumerated charges against him or her.
SEC. 42. Penalty for Unjustified Refusal to Restore or Delay in Restoring Seized, Sequestered and Frozen Bank Deposits,
Placements, Trust Accounts, Assets and Records. Any person who unjustifiably refuses to restore or delays the
restoration of seized, sequestered and frozen bank deposits, placements, trust accounts, assets and records of a person
suspected of or charged with the crime of terrorism or conspiracy to commit terrorism after such suspected person has
been found innocent by the investigating body or after the case against such charged person has been dismissed or after he
is acquitted by a competent court shall suffer the penalty of ten (10) years and one day to twelve (12) years of
imprisonment.
SEC. 43. Penalty for the Loss, Misuse, Diversion or Dissipation of Seized, Sequestered and Frozen Bank Deposits,
Placements, Trust Accounts, Assets and Records. Any person who is responsible for the loss, misuse, diversion, or
dissipation of the whole or any part of the seized, sequestered and frozen bank deposits, placements, trust accounts, assets
and records of a person suspected of or charged with the crime of terrorism or conspiracy to commit terrorism shall suffer
the penalty of ten (10) years and one day to twelve (12) years of imprisonment.
SEC. 44. Infidelity in the Custody of Detained Persons. Any public officer who has direct custody of a detained
person under the provisions of this Act and who by his deliberate act, misconduct, or inexcusable negligence causes or
allows the escape of such detained person shall be guilty of an offense and shall suffer the penalty of: (a) twelve (12)
years and one day to twenty (20) years of imprisonment, if the detained person has already been convicted and sentenced
in a final judgment of a competent court; and (b) six (6) years and one day to twelve (12) years of imprisonment, if the
detained person has not been convicted and sentenced in a final judgment of a competent court.
SEC. 45. Immunity and Protection of Government Witnesses. The provisions of Republic Act No. 6981 (Witness
Protection, Security and Benefits Act) to the contrary notwithstanding, the immunity of government witnesses testifying
under this Act shall be governed by Sections 17 and 18 of Rule 119 of the Rules of Court: Provided, however, That said
witnesses shall be entitled to benefits granted to witnesses under said Republic Act No. 6981.
SEC. 46. Penalty for Unauthorized Revelation of Classified Materials. The penalty of ten (10) years and one day to
twelve (12) years of imprisonment shall be imposed upon any person, police or law enforcement agent, judicial officer or
civil servant who, not being authorized by the Court of Appeals to do so, reveals in any manner or form any classified
information under this Act.
75

SEC. 47. Penalty for Furnishing False Evidence, Forged Document, or Spurious Evidence. The penalty of twelve
(12) years and one day to twenty (20) years of imprisonment shall be imposed upon any person who knowingly furnishes
false testimony, forged document or spurious evidence in any investigation or hearing under this Act.
SEC. 48. Continuous Trial. In cases of terrorism or conspiracy to commit terrorism, the judge shall set the case for
continuous trial on a daily basis from Monday to Friday or other short-term trial calendar so as to ensure speedy trial.
SEC. 49. Prosecution Under This Act Shall Be a Bar to Another Prosecution Under the Revised Penal Code or Any
Special Penal Laws. When a person has been prosecuted under a provision of this Act, upon a valid complaint or
information or other formal charge sufficient in form and substance to sustain a conviction and after the accused had
pleaded to the charge, the acquittal of the accused or the dismissal of the case shall be a bar to another prosecution for any
offense or felony which is necessarily included in the offense charged under this Act.

76