1

SECOND DIVISION

monies in the products of Citibank, NA., such as peso and dollar deposits,
mortgage backed securities and money placements, among others.

[G.R. No. 128996. February 15, 2002]

CARMEN LL. INTENGAN, ROSARIO LL. NERI, and RITA P.
BRAWNER, petitioners,
vs.
COURT
OF
APPEALS,
DEPARTMENT OF JUSTICE, AZIZ RAJKOTWALA, WILLIAM
FERGUSON, JOVEN REYES, and VIC LIM, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari, seeking the reversal of
the Decision[1] dated July 8, 1996 of the former Fifteenth Division[2] of the
Court of Appeals in CA-G.R. SP No. 37577 as well as its
Resolution[3] 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 144 [5] of the Corporation Code against
two (2) of its officers, Dante L. Santos and Marilou Genuino. Attached to
the complaint was an affidavit[6] 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

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:
b) Carmen Intengan
d) Rosario Neri
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:

2
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.

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 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.

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.

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.

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.

3
In due time, Lim and Reyes filed their respective counter-affidavits.
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.
[12]

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 Resolution[14]ordering, inter alia, the withdrawal
of the aforesaid informations against private respondents. Petitioners
motion for reconsideration[15] 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.
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 Resolution [18] 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 reinstated [19] 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:

4
(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 AntiMoney 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:

5
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 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.
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.
SO ORDERED.

6
Facts:
On September 21, 1993, Citibank filed a complaint for violation of section
31 in relation to section 144 of the Corporation Code against two (2) of its
officers, Dante L. Santos and Marilou Genuino. Attached to the complaint
was an affidavit executed by private respondent Vic Lim, a vice-president
of Citibank

The SC held that since the deposits involved therein are foreign currency
deposits, there is no violation here of Secrecy of Bank Deposit Act but of
the Foreign Currency Deposit Act. If the case was filed in violation of FCDA,
the court may give due course to case for Citibank violated FCDA because
there was no written permission from the petitioners. Further, the case can
no longer be re-filed because the action has already prescribed.

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.

Addendum:

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
Petitioners aver that respondents violated RA 1405.
Issue: Whether or not Respondents are liable for violation of Secrecy of
Bank Deposits Act, RA 1405.
Held:
No. 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, However,
applying Act No. 3326, the offense prescribes in eight years, therefore, per
available records, private respondents may no longer be haled before the
courts for violation of Republic Act No. 6426.
Intengan, et al vs CA
Citibank sued two of its officers for violation of the Corp Code contending
that these officers are persuading their clients to transfer their dollar
deposits to competitor banks because the latter gives higher interests. A
complaint was filed by Mr. Lim in behalf of Citibank and such complaint
includes an affidavit containing the names and the amount allegedly
transferred from Citibank to other banks. Because of the affidavit, the
petitioners are now complaining against Citibank claiming that it is in
violation of the Secrecy of Bank Deposit Act.

There are now 2 exceptions for which a bank may disclose foreign currency
deposits: upon the written assent or permission of the depositor; and in
cases covered by the Anti-Money Laundering Act

7
GSIS Headquarters, Financial Center
Roxas Boulevard, Pasay City

FIRST DIVISION
GOVERNMENT SERVICE INSURANCE
SYSTEM,
Petitioner,

G.R. No. 189206

Promulgated:

-versusJune 8, 2011
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.,
Respondents.
x ----------------------------------------------------------------------------------------x
DECISION
PEREZ, J.:
The subject of this petition for certiorari is the Decision[1] 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

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, 7 th 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, 2-Ka, 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, Eulijiro, 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 12 th 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

8
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 GOVERNMENT SERVICE INSURANCE
Principal SYSTEM
General Insurance Fund
By: By:
CAPT. RODRIGO A. SILVERIO AMALIO A. MALLARI
President Senior Vice-President
General Insurance Group
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

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]

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.

The RTC issued a subpoena decus tecum on 21 November 2002.[7] A motion

The Banks filed a complaint before the RTC of Makati against Domsat

to quash was filed by the banks on three grounds: 1) the subpoena is

[5]

and GSIS.

unreasonable, oppressive and does not establish the relevance of the

documents sought; 2) request for the documents will violate the Law on

In the course of the hearing, GSIS requested for the issuance of

Secrecy of Bank Deposits; and 3) GSIS failed to advance the reasonable

a subpoena duces tecum to the custodian of records of Westmont Bank to

cost of production of the documents. [8] Domsat also joined the banks

produce the following documents:

motion to quash through its Manifestation/Comment. [9] On 9 April 2003, the

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)

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

9
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.

right to inquire into what happened to such deposit can not

be suppressed.[14]
The Court of Appeals addressed these issues in seriatim.

WHEREFORE, for lack of merit the motion is DENIED. [10]

The Court of Appeals resorted to a liberal interpretation of the rules to

On 26 June 2003, another Order was issued by the RTC denying the motion

the

for reconsideration filed by the banks.

avoid miscarriage of justice when it allowed the filing and acceptance of

second

motion

for

reconsideration. The

appellate

court

also

On 1 September 2003 however,

underscored the fact that GSIS did not raise the defect of lack of notice in

the trial court granted the second motion for reconsideration filed

its opposition to the second motion for reconsideration. The appellate court

by the banks. The previous subpoenas issued were consequently quashed.

held that failure to timely object to the admission of a defective motion is

[11]

[12]

The trial court invoked the ruling in Intengan v. Court of Appeals,

[13]

where it was ruled that foreign currency deposits are absolutely

considered a waiver of its right to do so.

confidential and may be examined only when there is a written permission

The Court of Appeals declared that Domsats deposit in Westmont Bank is

from the depositor. The motion for reconsideration filed by GSIS was

covered by Republic Act No. 6426 or the Bank Secrecy Law. We quote the

denied on 30 December 2003.

pertinent portion of the Decision:

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.
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

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

10
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 above-said 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

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

contemplated by Republic Act No. 6426.

deposit with Westmont Bank cannot be examined and in finding that the

The Court of Appeals however upheld the issuance of subpoena praying for

procedurally acceptable.[17]

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

banks second motion for reconsideration in Civil Case No. 99-1853 is

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

therefrom and how much remains therein.

in the ordinary course of law. That action is not a substitute for a lost

On 29 February 2008, the Court of Appeals rendered the assailed Decision,

judgment

the decretal portion of which reads:

WHEREFORE,
the
petition
is
partially
GRANTED. Accordingly, the assailed Order dated December

appeal in general; it is not allowed when a party to a case fails to appeal a

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. [20]

11
Yet, even if this procedural infirmity is discarded for the broader interest of

The Banks counter the arguments of GSIS as a mere rehash of its previous

justice, the petition sorely lacks merit.

arguments before the Court of Appeals. They justify the issuance of

the subpoena as an interlocutory matter which may be reconsidered

GSIS insists that Domsats deposit with Westmont Bank can be examined

anytime and that the pro forma rule has no application to interlocutory

and inquired into. It anchored its argument on Republic Act No. 1405 or the

orders.

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

It appears that only GSIS appealed the ruling of the Court of Appeals

litigation. GSIS asserts that the subject matter of the litigation is the U.S.

pertaining to the quashal of the subpoena for the production of Domsats

$11 Million obtained by Domsat from the Banks to supposedly finance the

bank ledger with Westmont Bank. Since neither Domsat nor the Banks

lease of a Russian satellite from Intersputnik. Whether or not it should be

interposed an appeal from the other portions of the decision, particularly

held liable as a surety for the principal amount of U.S. $11 Million, GSIS

for the production of applications for cashiers or managers checks by

contends, is contingent upon whether Domsat indeed utilized the amount

Domsat through Westmont Bank, as well as a copy of an agreement and/or

to

Bond

contract and/or memorandum between Domsat and/or Philippine Agila

Agreement. Hence, GSIS argues that the whereabouts of the U.S. $11

Satellite and Intersputnik for the acquisition and/or lease of a Gorizon

Million is the subject matter of the case and the disclosure of bank deposits

satellite, the latter became final and executory.

lease

Russian

satellite

as

agreed

in

the

Surety

relating to the U.S. $11 Million should be allowed.

GSIS

invokes

Republic

Act

No.

1405

to

justify

the

issuance

of

GSIS also contends that the concerted refusal of Domsat and the banks to

the subpoena while the banks cite Republic Act No. 6426 to oppose it. The

divulge the whereabouts of the U.S. $11 Million will greatly prejudice and

core issue is which of the two laws should apply in the instant case.

burden the GSIS pension fund considering that a substantial portion of this
fund is earmarked every year to cover the surety bond issued.

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

Lastly, GSIS defends the acceptance by the trial court of the second motion

Republic Act No. 7653 in 1993. It now reads:

for reconsideration filed by the banks on the grounds that it is pro

the instant case because the Domsat deposit is a foreign currency deposit,

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.

thus covered by Republic Act No. 6426. Under said law, only the consent of

Section 8 of Republic Act No. 6426, which was enacted in 1974, and

the depositor shall serve as the exception for the disclosure of his/her

amended by Presidential Decree No. 1035 and later by Presidential Decree

deposit.

No. 1246, provides:

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

12
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 nondisclosure 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 subpoenawas 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.
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]

13
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 herebyAFFIRMED.

Bank secrecy; foreign currency deposits. (J. Abad)

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 theeconomic
development of the country. 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. 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.
Therefore, it is beyond cavil that Republic Act No. 6426 applies in this
case.

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.

14
EN BANC

ii.) has given foreign currency depositors an undue favor or a class

privilege in violation of the equal protection clause of the Constitution;

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, petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, CHINA BANKING
CORPORATION and GREG BARTELLI y NORTHCOTT, respondents.
TORRES, JR., J.:
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
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;

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

15
P100,000.00, a Writ of Preliminary Attachment was issued by the trial court
on February 28, 1989.

The cited provision is absolute in application. It does not admit of any

exception, nor has the same been repealed nor amended.

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.

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.

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:
This is in reply to your letter dated April 25, 1989 regarding your inquiry on
Section 113, CB Circular No. 960 (1983).

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.

16
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)

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

17
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. 12-14)
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 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. "Nakikipagareglo po sa mga pulis," Karen added. "The policeman told him to just
explain at the precinct. (Id., p. 20)

18
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 SubStation 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).
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 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,

19
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 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.

20
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:

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.
. . . 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:

21
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 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;

22
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

and justice to prevail. "Ninguno non deue enriquecerse tortizeramente 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.
SO ORDERED.
FACTS:

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

Greg Bartelli, an American tourist, was arrested for committing four counts
of rape and serious illegal detention against Karen Salvacion. Police
recovered from him several dollar checks and a dollar account in the China
Banking Corp. He was, however, able to escape from prison. In a civil case
filed against him, the trial court awarded Salvacion moral, exemplary and
attorneys fees amounting to almost P1,000,000.00.
Salvacion tried to execute the judgment on the dollar deposit of Bartelli
with the China Banking Corp. but the latter refused arguing that Section 11

23
of Central Bank Circular No. 960 exempts foreign currency deposits from
attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body
whatsoever. Salvacion therefore filed this action for declaratory relief in the
Supreme Court.
ISSUE: Should Section 113 of Central Bank Circular No. 960 and Section 8
of Republic Act No. 6426, as amended by PD 1246, otherwise known as the
Foreign Currency Deposit Act be made applicable to a foreign transient?
HELD: NO.
The provisions of Section 113 of Central Bank Circular No. 960 and PD No.
1246, insofar as it amends Section 8 of Republic Act 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 the civil case and to release to petitioners the dollar deposit of
Bartelli in such amount as would satisfy the judgment.

Supreme Court ruled that the questioned law makes futile the favorable
judgment and award of damages that Salvacion and her parents fully
deserve. It then proceeded to show that the economic basis for the
enactment of RA No. 6426 is not anymore present; and even if it still exists,
the questioned law still denies those entitled to due process of law for
being unreasonable and oppressive. The intention of the 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.
The SC adopted the comment of the Solicitor General who argued that the
Offshore Banking System and the Foreign Currency Deposit System were
designed to draw deposits from foreign lenders and investors and,
subsequently, to give the latter protection. However, 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. Considering that Bartelli is just a tourist or a transient, he 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.

Further, the SC said: 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.
NOTES:
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.

Facts:
On February 4-7, 1989, Greg Bartelli y Northcott, an American tourist,
detained and repeatedly raped Karen Salvacion, a 12-year old the victim,
in the apartment of the accused in Makati City. That, on the 4th day of
detention, Karen was finally found by the policemen after a neighbor heard
her crying and screaming for help. The accused was immediately arrested
within the premises of the building, and eventually brought to Makati
Municipal Jail. After thorough investigation and medical examination, the
victim, as represented by her parents, together with the Fiscal filed
criminal cases against Greg Bartelli y Northcott for Serious Illegal
Detention and for Four (4) counts of Rape. The petitioners also filed a
separate civil action for damages with preliminary attachment against the
accused that had several dollar accounts in COCOBANK and China Banking

24
Corporation. On February 24, 1989, the day there was a hearing for
Bartellis petition for bail the latter escaped from jail. The deputy sheriff
served Notice of Garnishment on China Banking Corporation but the latter
declined to furnish a copy as it invoked R.A. No. 1405. The sheriff again
sent a letter stating that the garnishment did not violate the bank secrecy
law as it was legally made by virtue of a court order but China Banking
Corporation invoked
Section 113 of Central Bank Circular No. 960, that dollar accounts are
exempt from attachment, garnishment, or any other order or process of
any court, legislative body, government agency or any administrative
body, whatsoever
. The Central Bank sent a reply after a demand from the court asking if the
Section 113 of Central Bank Circular No.960 is absolute in nature of which
it replied in affirmative. After the accused was declared in default, the
court rendered a judgment in favor of the petitioners based on the heinous
acts of the accused and the grave effects on social, moral and
psychological aspects on the part of the petitioners. China Banking
Corporation refused the Writ of Execution of the court. Thus; Petitioners file
a Petition for Relief in the Supreme Court.
Issues: Whether the dollar accounts of the Accused is absolutely exempt
from attachment, garnishment or any other order or process of any court?
Held:
While it is true that the protective cloak of confidentiality over foreign
deposit accounts would better encourage the inflow of foreign currency
deposits, lending capacity of the government and would help financial
stability and the national development, what would be the relief of
someone claiming damages against a person with foreign deposit
accounts? More so against a person who heinously and feloniously
committed an offense in the territory of the Philippines? As in this case, the
accused deemed liable for the damages based of the heinous acts
according to the testimonies of the victim and the witnesses. It is the duty
of the government to encourage foreign currency deposits and to comply
by giving confidentiality but in the correct argument of the Solicitor
General, foreign currency deposits of a tourist or transient is not the one
encouraged by PD Nos. 1034 and 1305 on the ground that said accounts is
temporary and only for a short period of time. The application of the law
depends on the extent of its justice. If we rule Section 113 of Central Bank
Circular No.960which 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 foreign transient ,
injustice would result especially to a citizen aggrieved by a foreign guest
like accused Greg Bartelli. Article 10 of the New Civil Code 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 . Simply
stated, when the statute is ambiguous, this is one of those fundamental
solutions that would respond to vehement urge of conscience.
It would be unthinkable that Section 113 of CB circular 960 would be used
as a device by the accused for wrong doing, and in so doing, acquitting the
guilty as the expense of the innocent. The 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 Section8 of RA 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 RTC Makati, and to RELEASE to petitioners
the dollar deposit of respondent Greg Bartelli y Nothcott in such amount as
would satisfy the judgment.

25
EN BANC
a.
JOSEPH VICTOR G. EJERCITO,
Petitioner,

G.R. Nos. 157294-95

.
Promulgated:

b.

- versus -

c.
November 30, 2006

SANDIGANBAYAN (SPECIAL DIVISION) AND

PEOPLE OF THEPHILIPPINES,
Respondents.

d.
5.

x--------------------------------------------------x
DECISION
6.
CARPIO MORALES, J.:
The present petition for certiorari under Rule 65 assails the Sandiganbayan
Resolutions dated February 7 and 12, 2003 denying petitioner Joseph Victor
G. Ejercitos Motions to Quash Subpoenas Duces Tecum/Ad Testificandum,
and

Resolution

dated March

11,

2003 denying

his

Motion

for

Reconsideration of the first two resolutions.

the Philippines v. Joseph Ejercito Estrada, et al., for plunder, defined and

Trust Agreement dated January 1999:

Trustee: Joseph Victor C. Ejercito
Nominee: URBAN BANK-TRUST DEPARTMENT
Special Private Account No. (SPAN) 858; and
Ledger of the SPAN # 858.

II. For Savings Account No. 0116-17345-9

SPAN No. 858
1.
2.

Signature Cards; and

Statement of Account/Ledger

III. Urban Bank Managers Check and their corresponding Urban Bank
Managers Check Application Forms, as follows:
1.

The three resolutions were issued in Criminal Case No. 26558, People of

Bank of Commerce MC # 0256254 in the

amount of P2,000,000.00;
Urban bank Corp. MC # 34181 dated November
8, 1999 in the amount of P10,875,749.43;
Urban Bank MC # 34182 dated November 8,
1999 in the amount of P42,716,554.22;
Urban Bank Corp. MC # 37661 dated November
23, 1999 in the amount of P54,161,496.52;

2.

penalized in R.A. 7080, AN ACT DEFINING AND PENALIZING THE CRIME OF

3.

PLUNDER.

4.

MC # 039975 dated
of P70,000,000.00;
MC # 039976 dated
of P2,000,000.00;
MC # 039977 dated
of P2,000,000.00;
MC # 039978 dated
of P1,000,000.00;

January 18, 2000 in the amount

January 18, 2000 in the amount
January 18, 2000 in the amount
January 18, 2000 in the amount

In above-stated case of People v. Estrada, et al., the Special Prosecution

Panel[1] filed on January 20, 2003 before the Sandiganbayan a Request for

The Special Prosecution Panel also filed on January 20, 2003, a Request for

Issuance of Subpoena Duces Tecum for the issuance of a subpoena

Issuance of Subpoena Duces Tecum/Ad Testificandum directed to the

directing the President of Export and Industry Bank (EIB, formerly Urban

authorized representative of Equitable-PCI Bank to produce statements of

Bank) or his/her authorized representative to produce the following

account pertaining to certain accounts in the name of Jose Velarde and to

documents during the hearings scheduled on January 22 and 27, 2003:

testify thereon.

I.

For Trust Account No. 858;

1.
Account Opening Documents;
2.
Trading Order No. 020385 dated January 29, 1999;
3.
Confirmation Advice TA 858;
4.
Original/Microfilm copies, including the dorsal side, of the
following:

The Sandiganbayan granted both requests by Resolution of January 21,

2003 and subpoenas were accordingly issued.

26
can only harm the economy, a consequence that may have
been overlooked. There appears to have been deplorable
connivance.

The Special Prosecution Panel filed still another Request for Issuance of
Subpoena Duces Tecum/Ad Testificandum dated January 23, 2003 for the
President of EIB or his/her authorized representative to produce the same

I hope and pray, Your Honors, that I will be given time to

retain the services of a lawyer to help me protect my rights
and those of every banking depositor. But the one I have in
mind is out of the country right now.

documents subject of the Subpoena Duces Tecum dated January 21, 2003
and to testify thereon on the hearings scheduled on January 27 and 29,
2003 and subsequent dates until completion of the testimony. The request

May I, therefore, ask your Honors, that in the meantime,

the issuance of the subpoena be held in abeyance for at
least ten (10) days to enable me to take appropriate legal
steps in connection with the prosecutions request for the
issuance of subpoena concerning my accounts. (Emphasis
supplied)

was likewise granted by the Sandiganbayan. A Subpoena Duces Tecum/Ad

Testificandum was accordingly issued on January 24, 2003.
Petitioner, claiming to have learned from the media that the Special
Prosecution Panel had requested for the issuance of subpoenas for the
examination of bank accounts belonging to him, attended the hearing of

From the present petition, it is gathered that the accounts referred to by

the case on January 27, 2003 and filed before the Sandiganbayan a letter

petitioner in his above-quoted letter are Trust Account No. 858 and Savings

of even date expressing his concerns as follows, quotedverbatim:

Account No. 0116-17345-9.[2]

Your Honors:
It is with much respect that I write this court relative to the
concern
of
subpoenaing the
undersigneds bank
account which I have learned through the media.
I am sure the prosecution is aware of our banking secrecy
laws everyone supposed to observe. But, instead of
prosecuting those who may have breached such laws, it
seems it is even going to use supposed evidence which I
have reason to believe could only have been illegally
obtained.
The prosecution was not content with a general request. It
even lists and identifies specific documents meaning
someone else in the bank illegally released confidential
information.

In open court, the Special Division of the Sandiganbayan, through

Associate Justice Edilberto Sandoval, advised petitioner that his remedy
was to file a motion to quash, for which he was given up to 12:00 noon the
following day, January 28, 2003.
Petitioner, unassisted by counsel, thus filed on January 28, 2003 a Motion
to Quash Subpoena Duces Tecum/Ad Testificandum praying that the
subpoenas previously issued to the President of the EIB dated January 21
and January 24, 2003 be quashed.[3]
In his Motion to Quash, petitioner claimed that his bank accounts are
covered by R.A. No. 1405 (The Secrecy of Bank Deposits Law) and do not

If this can be done to me, it can happen to anyone. Not

that anything can still shock our family. Nor that I have
anything to hide. Your Honors.

fall under any of the exceptions stated therein. He further claimed that the

But, I am not a lawyer and need time to consult one on a

situation that affects every bank depositor in the country
and should interest the bank itself, the Bangko Sentral ng
Pilipinas, and maybe the Ombudsman himself, who may
want to investigate, not exploit, the serious breach that

earlier illegal disclosure thereof by the EIB and the Philippine Deposit

specific identification of documents in the questioned subpoenas, including

details on dates and amounts, could only have been made possible by an
Insurance Corporation (PDIC) in its capacity as receiver of the then Urban
Bank.

27
The disclosure being illegal, petitioner concluded, the prosecution in the

The subpoenas prayed for in both requests were issued by the

case may not be allowed to make use of the information.

Sandiganbayan on January 31, 2003.

Before the Motion to Quash was resolved by the Sandiganbayan, the

On February 7, 2003, petitioner, this time assisted by counsel, filed an

prosecution filed another Request for the Issuance of Subpoena Duces

Urgent Motion to Quash Subpoenae Duces Tecum/Ad Testificandum praying

Tecum/Ad Testificandum dated January 31, 2003, again to direct the

that the subpoena datedJanuary 31, 2003 directed to Aurora Baldoz be

President of the EIB to produce, on the hearings scheduled on February 3

quashed for the same reasons which he cited in the Motion to Quash [4] he

and 5, 2003, the same documents subject of the January 21 and 24, 2003

had earlier filed.

subpoenas with the exception of the Bank of Commerce MC #0256254 in

the amount of P2,000,000 as Bank of Commerce MC #0256256 in the

On the same day, February 7, 2003, the Sandiganbayan issued a

amount of P200,000,000 was instead requested. Moreover, the request

Resolution

covered the following additional documents:

Tecum/Ad Testificandum datedJanuary 28, 2003.

IV. For Savings Account No. 1701-00646-1:

1. Account Opening Forms;
2. Specimen Signature Card/s; and
3. Statements of Account.

petitioners

Motion

to Quash

Subpoenae

Duces

Subsequently or on February 12, 2003, the Sandiganbayan issued a

Resolution denying petitioners Urgent Motion to Quash Subpoena Duces
Tecum/Ad Testificandum dated February 7, 2003.

The prosecution also filed a Request for the Issuance of Subpoena Duces
Tecum/Ad Testificandum bearing the same date, January 31, 2003, directed
to Aurora C. Baldoz, Vice President-CR-II of the PDIC for her to produce the
following documents on the scheduled hearings on February 3 and 5, 2003:
1. Letter of authority dated November 23, 1999 re: SPAN
[Special Private Account Number] 858;
2. Letter of authority dated January 29, 2000 re: SPAN 858;

Petitioners Motion for Reconsideration dated February 24, 2003 seeking a

reconsideration of the Resolutions of February 7 and 12, 2003 having been
denied by Resolution of March 11, 2003, petitioner filed the present
petition.
Raised as issues are:
1.

Whether petitioners Trust Account No. 858 is covered by

the term deposit as used in R.A. 1405;

2.

Whether petitioners Trust Account No. 858 and Savings

Account No. 0116-17345-9 are excepted from the protection
of R.A. 1405; and

3.

Whether the extremely-detailed information contained in

the Special Prosecution Panels requests for subpoena was
obtained through a prior illegal disclosure of petitioners bank
accounts, in violation of the fruit of the poisonous tree
doctrine.

3. Letter of authority dated April 24, 2000 re: SPAN 858;

4. Urban Bank check no. 052092 dated April 24, 2000 for
the amount of P36, 572, 315.43;
5. Urban Bank check no. 052093 dated April 24, 2000 for
the amount of P107,191,780.85; and
6. Signature Card Savings Account
9. (Underscoring supplied)

denying

No. 0116-17345-

28
Respondent People posits that Trust Account No. 858 [5] may be inquired

Account No. 858, was, therefore, intended not merely to remain with the

into, not merely because it falls under the exceptions to the coverage of

bank but to be invested by it elsewhere. To hold that this type of account is

R.A. 1405, but because it is not even contemplated therein. For, to

not protected by R.A. 1405 would encourage private hoarding of funds that

respondent People, the law applies only to deposits which strictly means

could otherwise be invested by banks in other ventures, contrary to the

the money delivered to the bank by which a creditor-debtor relationship is

policy behind the law.

created between the depositor and the bank.

Section 2 of the same law in fact even more clearly shows that the term
The contention that trust accounts are not covered by the term deposits,

deposits was intended to be understood broadly:

as used in R.A. 1405, by the mere fact that they do not entail a creditorSECTION 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 caseswhere
the
money
deposited or invested is the subject matter of the
litigation. (Emphasis and underscoring supplied)

debtor relationship between the trustor and the bank, does not lie. An
examination of the law shows that the term deposits used therein is to be
understood broadly and not limited only to accounts which give rise to a
creditor-debtor relationship between the depositor and the bank.
The policy behind the law is laid down in Section 1:
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. (Underscoring
supplied)

The phrase of whatever nature proscribes any restrictive interpretation of

deposits. Moreover, it is clear from the immediately quoted provision that,
generally, the law applies not only to money which is deposited but also to

If the money deposited under an account may be used by banks for

those which are invested. This further shows that the law was not intended

authorized loans to third persons, then such account, regardless of

to apply only to deposits in the strict sense of the word. Otherwise, there

whether it creates a creditor-debtor relationship between the depositor and

would have been no need to add the phrase or invested.

the bank, falls under the category of accounts which the law precisely
seeks to protect for the purpose of boosting the economic development of

Clearly, therefore, R.A. 1405 is broad enough to cover Trust Account No.

the country.

858.

Trust Account No. 858 is, without doubt, one such account. The Trust

The protection afforded by the law is, however, not absolute, there being

Agreement between petitioner and Urban Bank provides that the trust

recognized exceptions thereto, as above-quoted Section 2 provides. In the

account covers deposit, placement or investment of funds by Urban

present case, two exceptions apply, to wit: (1) the examination of bank

Bank for and in behalf of petitioner.

accounts is upon order of a competent court in cases of bribery or

[6]

The money deposited under Trust

29
dereliction of duty of public officials, and (2) the money deposited or

An examination of the overt or criminal acts as described in Section 1(d) of

invested is the subject matter of the litigation.

R.A. No. 7080 would make the similarity between plunder and bribery even
more pronounced since bribery is essentially included among these

Petitioner contends that since plunder is neither bribery nor dereliction of

criminal acts. Thus Section 1(d) states:

duty, his accounts are not excepted from the protection of R.A.
1405. Philippine National Bank v. Gancayco[7] holds otherwise:
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 expresses the notion 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.

d) Ill-gotten wealth means any asset, property, business

enterprise or material possession of any person within the
purview of Section Two (2) hereof, acquired by him directly
or indirectly through dummies, nominees, agents,
subordinates and or business associates by any
combination or series of the following means or similar
schemes.
1) Through misappropriation, conversion, misuse, or
malversation of public funds or raids on the public
treasury;
2) By

Undoubtedly, cases for plunder involve unexplained wealth. Section 2 of

R.A. No. 7080 states so.
SECTION 2. Definition of the Crime of Plunder;
Penalties. Any public officer who, by himself or in
connivance with members of his family, relatives by affinity
or consanguinity, business associates, subordinates or
other persons, amasses, accumulates or acquires illgotten wealth through a combination or series of overt or
criminal acts as described in Section 1(d) hereof, in the
aggregate amount or total value of at least Seventy-five
million pesos (P75,000,000.00), shall be guilty of the crime
of plunder and shall be punished by life imprisonment
with perpetual absolute disqualification from holding any
public office. Any person who participated with said public
officer in the commission of plunder shall likewise be
punished. In the imposition of penalties, the degree of
participation and the attendance of mitigating and
extenuating circumstances shall be considered by the
court. The court shall declare any and all ill-gotten wealth
and their interests and other incomes and assets including
the properties and shares of stock derived from the deposit
or investment thereof forfeited in favor of the
State. (Emphasis and underscoring supplied)

receiving,
directly
or
indirectly,
any
commission, gift, share, percentage, kickbacks
or any other form of pecuniary benefit from
any person and/or entity in connection with
any government contract or project or by
reason of the office or position of the public
officer concerned;

3) By the illegal or fraudulent conveyance or disposition of

assets belonging to the National Government or any
of its subdivisions, agencies or instrumentalities or
government-owned or -controlled corporations and
their subsidiaries;
4) By obtaining, receiving or accepting directly or indirectly
any shares of stock, equity or any other form of
interest or participation including promise of future
employment in any business enterprise or
undertaking;
5) By establishing agricultural, industrial or commercial
monopolies
or
other
combinations
and/or
implementation of decrees and orders intended to
benefit particular persons or special interests; or
6) By taking undue advantage of official position, authority,
relationship, connection or influence to unjustly
enrich himself or themselves at the expense and to

30
the damage and prejudice of the Filipino people and
the Republic of the Philippines. (Emphasis supplied)

Indeed, all the above-enumerated overt acts are similar to bribery

such that, in each case, it may be said that no reason is seen why these
two classes of cases cannot be excepted from the rule making bank
deposits confidential.[8]
The crime of bribery and the overt acts constitutive of plunder are crimes
committed by public officers, and in either case the noble idea 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 applies with equal force.
Plunder being thus analogous to bribery, the exception to R.A. 1405
applicable in cases of bribery must also apply to cases of plunder.
Respecting petitioners claim that the money in his bank accounts is not the
subject matter of the litigation, the meaning of the phrase subject matter
of the litigation as used in R.A. 1405 is explained in Union Bank of the
Philippines v. Court of Appeals,[9] thus:
Petitioner contends that the Court of Appeals confuses the
cause of action with the subject of the action. In Yusingco
v. Ong Hing Lian, petitioner points out, this Court
distinguished the two concepts.
x x x 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 petitioners 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. v. Magsino , 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:
x x x Section 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 deposited was the very thing in dispute. x x
x (Emphasis and underscoring supplied)
The plunder case now pending with the Sandiganbayan necessarily
involves an inquiry into the whereabouts of the amount purportedly
acquired illegally by former President Joseph Estrada.
In light then of this Courts pronouncement in Union Bank, the subject
matter of the litigation cannot be limited to bank accounts under the name
of President Estrada alone, but must include those accounts to which the
money purportedly acquired illegally or a portion thereof was alleged to

31
have been transferred. Trust Account No. 858 and Savings Account No.
0116-17345-9 in the name of petitioner fall under this description and

Petitioners attempt to make the exclusionary rule applicable to the instant

must thus be part of the subject matter of the litigation.

case fails. R.A. 1405, it bears noting, nowhere provides that an unlawful
examination of bank accounts shall render the evidence obtained

In a further attempt to show that the subpoenas issued by the

therefrom inadmissible in evidence. Section 5 of R.A. 1405 only states that

Sandiganbayan are invalid and may not be enforced, petitioner contends,

[a]ny violation of this law will subject the offender upon conviction, to an

as earlier stated, that the information found therein, given their extremely

imprisonment of not more than five years or a fine of not more than twenty

detailed character, could only have been obtained by the Special

thousand pesos or both, in the discretion of the court.

Prosecution Panel through an illegal disclosure by the bank officials

concerned. Petitioner thus claims that, following the fruit of the poisonous

The case of U.S. v. Frazin,[11] involving the Right to Financial Privacy Act of

tree doctrine, the subpoenas must be quashed.

1978 (RFPA) of the United States, is instructive.

Petitioner further contends that even if, as claimed by respondent People,

the extremely-detailed information was obtained by the Ombudsman from
the bank officials concerned during a previous investigation of the charges
against President Estrada, such inquiry into his bank accounts would itself
be illegal.
Petitioner relies on Marquez v. Desierto[10] where the Court held:
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. (Underscoring supplied)

As no plunder case against then President Estrada had yet been filed
before a court of competent jurisdiction at the time the Ombudsman
conducted an investigation, petitioner concludes that the information
about his bank accounts were acquired illegally, hence, it may not be
lawfully used to facilitate a subsequent inquiry into the same bank
accounts.

Because the statute, when properly construed, excludes a

suppression remedy, it would not be appropriate for us to
provide one in the exercise of our supervisory powers over
the administration of justice. Where Congress has both
established a right and provided exclusive remedies for its
violation, we would encroach upon the prerogatives of
Congress were we to authorize a remedy not provided for
by statute. United States v. Chanen, 549 F.2d 1306, 1313
(9th Cir.), cert. denied, 434 U.S. 825, 98 S.Ct. 72, 54
L.Ed.2d 83 (1977).
The same principle was reiterated in U.S. v. Thompson:[12]
x x x When Congress specifically designates a remedy for
one of its acts, courts generally presume that it engaged in
the necessary balancing of interests in determining what
the appropriate penalty should be. See Michaelian, 803
F.2d at 1049 (citing cases); Frazin, 780 F.2d at 1466.
Absent a specific reference to an exclusionary rule, it is not
appropriate for the courts to read such a provision into the
act.
Even assuming arguendo, however, that the exclusionary rule applies in
principle to cases involving R.A. 1405, the Court finds no reason to apply
the same in this particular case.

32
of February 29, 2000 and as of December 16,
1999; and
Trading Orders Nos. A No. 78102 and A No.
078125.

Clearly, the fruit of the poisonous tree doctrine[13] presupposes a violation

of law. If there was no violation of R.A. 1405 in the instant case, then there

3.

would be no poisonous tree to begin with, and, thus, no reason to apply the
doctrine.

Trading Order A No. 07125 is filed in two copies a

white copy which showed set up information; and a
yellow
copy
which
showed
reversal
information. Both copies have been reproduced
and are enclosed with this letter.

How the Ombudsman conducted his inquiry into the bank accounts of
petitioner is recounted by respondent People of the Philippines, viz:

We are continuing our search for other records and

documents pertinent to your request and we will
forward to you on Friday, 23 February 2001, such
additional records and documents as we might find
until then. (Attachment 4)

x x x [A]s early as February 8, 2001, long before the issuance of

the Marquez ruling, the Office of the Ombudsman, acting
under the powers granted to it by the Constitution and R.A.
No. 6770, and acting on information obtained from various
sources, including impeachment (of then Pres. Joseph
Estrada) related reports, articles and investigative journals,
issued a Subpoena Duces Tecumaddressed to Urban
Bank. (Attachment 1-b) It should be noted that the
description of the documents sought to be produced at
that time included that of numbered accounts 727, 737,
747, 757, 777 and 858 and included such names as Jose
Velarde, Joseph E. Estrada, Laarni Enriquez, Guia Gomez,
Joy Melendrez, Peachy Osorio, Rowena Lopez, Kevin or
Kelvin Garcia. The subpoenadid not single out account 858.
Thus, on February 13, 2001, PDIC, as receiver of Urban Bank,
issued a certification as to the availability of bank
documents relating to A/C 858 and T/A 858 and the nonavailability of bank records as to the other accounts named
in the subpoena. (Attachments 2, 2-1 and 2-b)
Based on the certification issued by PDIC, the Office of the
Ombudsman
on February
16,
2001 again
issued
a Subpoena Duces Tecum directed to Ms. Corazon dela Paz,
as Interim Receiver, directing the production of documents
pertinent to account A/C 858 and T/C 858. (Attachment 3)
In compliance with the said subpoena dated February 16, 2001,
Ms. Dela Paz, as interim receiver, furnished the Office of
the Ombudsman certified copies of documents under cover
latter datedFebruary 21, 2001:
1.
2.

Transaction registers dated 7-02-99, 8-16-99,

9-17-99, 10-18-99, 11-22-99, 1-07-00, 04-03-00
and 04-24-00;
Report of Unregularized TAFs & TDs for UR
COIN A & B Placements of Various Branches as

The Office of the Ombudsman then requested for the

mangers checks, detailed in the Subpoena Duces
Tecum dated March 7, 2001. (Attachment 5)
PDIC again complied with the said Subpoena Duces
Tecum dated March 7, 2001 and provided copies of the
managers checks thus requested under cover letter
dated March 16, 2001.(Attachment 6)[14] (Emphasis in the
original)
The Sandiganbayan credited the foregoing account of respondent People.
[15]

The Court finds no reason to disturb this finding of fact by the

Sandiganbayan.
The Marquez ruling notwithstanding, the above-described examination by
the Ombudsman of petitioners bank accounts, conducted before a case
was filed with a court of competent jurisdiction, was lawful.
For the Ombudsman issued the subpoenas bearing on the bank accounts
of petitioner about four months before Marquez was promulgated on June
27, 2001.
While

judicial

interpretations

of

statutes,

such

as

that

made

in Marquez with respect to R.A. No. 6770 or the Ombudsman Act of 1989,
are deemed part of the statute as of the date it was originally passed, the
rule is not absolute.

33
Columbia Pictures, Inc. v. Court of Appeals[16] teaches:

As

the

subpoenas

subject

of Banco

Filipino were

issued

during

preliminary investigation, in effect this Court upheld the power of the

It is consequently clear that a judicial interpretation
becomes a part of the law as of the date that law was
originally passed, subject only to the qualification
that when a doctrine of this Court is overruled and a
different view is adopted, and more so when there is
a reversal thereof, the new doctrine should be
applied prospectively and should not apply to parties
who relied on the old doctrine and acted in good faith.
(Emphasis and underscoring supplied)

Tandobayan under P.D. 1630 to issue subpoenas duces tecum for bank
documents prior to the filing of a case before a court of competent
jurisdiction.
Marquez, on the other hand, practically reversed this ruling in Banco
Filipino despite the fact that the subpoena power of the Ombudsman under
R.A. 6770 was essentially the same as that under P.D. 1630. Thus Section

When this Court construed the Ombudsman Act of 1989, in light of the
Secrecy of Bank Deposits Law in Marquez, that before an in camera
inspection may be allowed there must be a pending case before a court of
competent jurisdiction, it was, in fact, reversing an earlier doctrine found
in Banco Filipino Savings and Mortgage Bank v. Purisima[17].

15 of R.A. 6770 empowers the Office of the Ombudsman to

(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;

Banco Filipino involved subpoenas duces tecum issued by the Office of the

A comparison of this provision with its counterpart in Sec. 10(d) of P.D.

Ombudsman,

of

1630 clearly shows that it is only more explicit in stating that the power of

its preliminary investigation of a charge of violation of the Anti-Graft

the Ombudsman includes the power to examine and have access to bank

and Corrupt Practices Act.

accounts and records which power was recognized with respect to the

then

known

as

the

Tanodbayan, [18] in

the

course

Tanodbayan through Banco Filipino.

While the main issue in Banco Filipino was whether R.A. 1405 precluded
the Tanodbayans issuance of subpoena duces tecum of bank records in the
name of persons other than the one who was charged, this Court, citing
P.D. 1630,

[19]

Section 10, the relevant part of which states:

The Marquez ruling that there must be a pending case in order for the
Ombudsman to validly inspect bank records in camera thus reversed a
prevailing doctrine.[21] Hence, it may not be retroactively applied.
The Ombudsmans inquiry into the subject bank accounts prior to the filing

(d) He may issue a subpoena to compel any person to

appear, give sworn testimony, or produce documentary or
other evidence the Tanodbayan deems relevant to a matter
under his inquiry,
held that The power of the Tanodbayan to issue subpoenae ad
testificandum and subpoenae duces tecum at the time in question
is not disputed, and at any rate does not admit of doubt.[20]

of any case before a court of competent jurisdiction was therefore valid at

the time it was conducted.
Likewise, the Marquez ruling that the account holder must be notified to be
present during the inspection may not be applied retroactively to the
inquiry of the Ombudsman subject of this case. This ruling is not a judicial
interpretation either of R.A. 6770 or R.A. 1405, but a judge-made law
which, as People v. Luvendino[22] instructs, can only be given prospective
application:

34
Rowena Lopez, Kevin or Kelvin Garcia, 727, 737, 747, 757,
777 and 858. (Emphasis and underscoring supplied)

x x x The doctrine that an uncounselled waiver of the

right to counsel is not to be given legal effect was
initially a judge-made one and was first announced
on 26 April 1983 inMorales v. Enrile and reiterated
on 20 March 1985 in People v. Galit. x x x

The information on the existence of Bank Accounts bearing number 858

was, according to respondent People of the Philippines, obtained from
various sources including the proceedings during the impeachment of

While the Morales-Galit doctrine eventually became part of

Section 12(1) of the 1987 Constitution, that doctrine
affords no comfort to appellant Luvendino for the
requirements
and
restrictions
outlined
in Morales and Galit have no retroactive effect and
do not reach waivers made prior to 26 April 1983 the
date of promulgation of Morales. (Emphasis supplied)

President Estrada, related reports, articles and investigative journals. [23] In

the absence of proof to the contrary, this explanation proffered by
respondent must be upheld. To presume that the information was obtained
in violation of R.A. 1405 would infringe the presumption of regularity in the
performance of official functions.

In fine, the subpoenas issued by the Ombudsman in this case were legal,
hence, invocation of the fruit of the poisonous tree doctrine is misplaced.
AT ALL EVENTS, even if the challenged subpoenas are quashed, the
Ombudsman is not barred from requiring the production of the same
documents

based

solely

on

information

obtained

by

it

from

sources independent of its previous inquiry.

In particular, the Ombudsman, even before its inquiry, had already
possessed information giving him grounds to believe that (1) there are
bank accounts bearing the number 858, (2) that such accounts are in the
custody of Urban Bank, and (3) that the same are linked with the bank
accounts of former President Joseph Estrada who was then under
investigation for plunder.
Only with such prior independent information could it have been possible
for the Ombudsman to issue the February 8, 2001 subpoena duces
tecum addressed to the President and/or Chief Executive Officer of Urban
Bank, which described the documents subject thereof as follows:
(a) bank records and all documents relative thereto
pertaining to all bank accounts (Savings, Current, Time
Deposit, Trust, Foreign Currency Deposits, etc) under
the account names of Jose Velarde, Joseph E. Estrada,
Laarni Enriquez, Guia Gomez, Joy Melendrez, Peach Osorio,

Thus, with the filing of the plunder case against former President Estrada
before the Sandiganbayan, the Ombudsman, using the above independent
information, may now proceed to conduct the same investigation it earlier
conducted, through which it can eventually obtain the same information
previously disclosed to it by the PDIC, for it is an inescapable fact that the
bank records of petitioner are no longer protected by R.A. 1405 for the
reasons already explained above.
Since conducting such an inquiry would, however, only result in the
disclosure of the same documents to the Ombudsman, this Court, in
avoidance of what would be a time-wasteful and circuitous way of
administering justice,[24] upholds the challenged subpoenas.
Respecting petitioners claim that the Sandiganbayan violated his right to
due process as he was neither notified of the requests for the issuance of
the subpoenas nor of the grant thereof, suffice it to state that the defects
were cured when petitioner ventilated his arguments against the issuance
thereof through his earlier quoted letter addressed to the Sandiganbayan
and when he filed his motions to quash before the Sandiganbayan.
IN SUM, the Court finds that the Sandiganbayan did not commit grave
abuse of discretion in issuing the challenged subpoenas for documents

35
pertaining to petitioners Trust Account No. 858 and Savings Account No.
0116-17345-9 for the following reasons:

The Sandiganbayan is hereby directed, consistent with this Courts

ruling in Marquez v. Desierto, to notify petitioner as to the date the subject

1. These accounts are no longer protected by the Secrecy of Bank Deposits

bank documents shall be presented in court by the persons subpoenaed.

Law, there being two exceptions to the said law applicable in this case,
namely: (1) the examination of bank accounts is upon order of a competent

SO ORDERED.

court in cases of bribery or dereliction of duty of public officials, and (2) the
money

deposited

or

invested

is

the

subject

matter

of

the

litigation. Exception (1) applies since the plunder case pending against
former President Estrada is analogous to bribery or dereliction of duty,
while exception (2) applies because the money deposited in petitioners
bank accounts is said to form part of the subject matter of the same
plunder case.
2. The fruit of the poisonous tree principle, which states that once the
primary source (the tree) is shown to have been unlawfully obtained, any
secondary or derivative evidence (the fruit) derived from it is also
inadmissible, does not apply in this case. In the first place, R.A. 1405 does
not provide for the application of this rule. Moreover, there is no basis for
applying the same in this case since the primary source for the detailed
information

regarding

petitioners

bank

accounts

the

investigation

previously conducted by the Ombudsman was lawful.

3. At all events, even if the subpoenas issued by the Sandiganbayan were
quashed, the Ombudsman may conduct on its own the same inquiry into
the subject bank accounts that it earlier conducted last February-March
2001, there being a plunder case already pending against former President
Estrada. To quash the challenged subpoenas would, therefore, be pointless
since the Ombudsman may obtain the same documents by another
route. Upholding the subpoenas avoids an unnecessary delay in the
administration of justice.
WHEREFORE, the petition is DISMISSED. The Sandiganbayan Resolutions
dated February 7 and 12, 2003 and March 11, 2003 are upheld.

RA 1405 does not provide for the application of this rule. At all events, the
Ombudsman is not barred from requiring the production of documents
based solely on information obtained by it from sources independentof its
previous inquiry.
Facts:
Joseph Victor G. Ejercito is the owner of Trust Account No. 858 which was
originally opened at Urban Bank but which is now maintained at Export and
Industry Bank, which is the purchaser and owner now of the former Urban
Bank and Urbancorp Investment, Inc. He is also the owner of Savings
Account No. 0116-17345-9 which was originally opened at Urban Bank but
which is now maintained at Export and Industry Bank, the purchaser and
owner of the former Urban Bank and Urbancorp Investment, Inc.
Estrada was subsequently charged with Plunder. The Sandiganbayan a
Request for Issuance of Subpoena Duces Tecum for the issuance of a
subpoena directing the President of Export and Industry Bank (EIB,
formerly Urban Bank) or his/her authorized representative to produce
various document related to the investigation.
The Special Prosecution Panel also filed a Request for Issuance of
Subpoena Duces Tecum/Ad Testificandum directed to the authorized
representative of Equitable-PCI Bank to produce statements of account
pertaining to certain accounts in the name of Jose Velarde and to testify
thereon.
The Sandiganbayan granted both requests by Resolution and subpoenas
were accordingly issued. The Special Prosecution Panel filed still another
Request for Issuance of Subpoena Duces Tecum/Ad Testificandum for the
President of EIB or his/her authorized representative to produce the same
documents subject of the first Subpoena Duces Tecum and to testify
thereon on the hearings scheduled and subsequent dates until completion
of the testimony. The request was likewise granted by the Sandiganbayan.

36
A Subpoena Duces Tecum/Ad Testificandum was accordingly issued.
Ejercito filed various motions to quash the various Subpoenas Duces
Tecum/Ad Testificandum previously issued. In his Motion to Quash, he
claimed that his bank accounts are covered by R.A. No. 1405 (The Secrecy
of Bank Deposits Law) and do not fall under any of the exceptions stated
therein. He further claimed that the specific identification of documents in
the questioned subpoenas, including details on dates and amounts, could
only have been made possible by an earlier illegal disclosure thereof by the
EIB and the Philippine Deposit Insurance Corporation (PDIC) in its capacity
as receiver of the then Urban Bank. The disclosure being illegal, he
concluded, the prosecution in the case may not be allowed to make use of
the information. Before the motion was resolved by the Sandiganbayan,
the prosecution filed another
Issue: Whether or not a Trust Account is covered by the term deposit
as used in R.A. 1405;
Held:
R.A. 1405 is broad enough to cover Trust Account No. 858. However, the
protection afforded by the law is not absolute. There being recognized
exceptions thereto, as above-quoted Section 2 provides. In the present
case, two exceptions apply, to wit: (1) the examination of bank accounts is
upon order of a competent court in cases of bribery or dereliction of duty of
public officials, and (2) the money deposited or invested is the subject
matter of the litigation. Ejercito contends that since plunder is neither
bribery nor dereliction of duty, his accounts are not excepted from the
protection of R.A. 1405.
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
expresses the notion 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. Undoubtedly, cases
for plunder involve unexplained wealth. The crime of bribery and the overt
acts constitutive of plunder are crimes committed by public officers, noble
idea 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 applies with equal force.

Also, the plunder case now pending with the Sandiganbayan necessarily
involves an inquiry into the whereabouts of the amount purportedly
acquired illegally by former President Joseph Estrada. Republic Act No.
1405 allows the disclosure of bank deposits in cases where the money
deposited is the subject matter of the litigation. Hence, these accounts are
no longer protected by the Secrecy of Bank Deposits Law, there being two
exceptions to the said law applicable in this case, namely: (1)the
examination of bank accounts is upon order of a competent court in cases
of bribery or dereliction of duty of public officials, and (2)the money
deposited or invested is the subject matter of the litigation. Exception (1)
applies since the plunder case pending against former President Estrada is
analogous to bribery or dereliction of duty, while exception (2) applies
because the money deposited in Ejercitos bank accounts is said to form
part of the subject matter of the same plunder case. The fruit of the
poisonous tree doctrine or the exclusionary rule is inapplicable in cases of
unlawful examination of bank accounts.

37
EN BANC
G.R. No. L-21146

February 14 the court issued ex parte a writ of preliminary injunction to

such effect.

September 20, 1965

RURAL BANK OF LUCENA, INC., petitioner,

vs.
HON. FRANCISCO ARCA, as Judge of the Court of First Instance of
Manila, Branch 1, and CENTRAL BANK OF THE
PHILIPPINES, respondents.
REYES, J.B.L., J.:
The Rural Bank of Lucena, Inc., a banking corporation organized under
Republic Act No. 720, instituted, on June 22, 1961, in the Court of First
Instance of Manila (Civil Case No. 47345) an action to collect damages and
to enjoin the Central Bank from enforcing Resolution No. 928 of its
Monetary Board, finding that the Rural Bank of Lucena (Lucena for short),
through its officers, directors, and employees, had committed acts
substantially prejudicial to the Government, depositors, and creditors, and
directing Lucena to reorganize its board of directors; to refrain from
granting or renewing loans, or accept new deposits, and not to issue drafts
or make disbursements without the approval of the supervising Central
Bank examiners, and threatening Lucena that its management would be
taken over if the latter should fail to comply with the resolution. After issue
joined and trial of the case, and while the litigation was still undecided by
the Court of First Instance, the Monetary Board, having been informed that
the Director of its Department of Rural Banks recommended the liquidation
of the Rural Bank of Lucena, adopted on February 2, 1962 its Resolution
No. 122 (Petition, Annex "C")
To request the Solicitor General, pursuant to Section 29 of Republic
Act No. 265, to file a petition in the proper courts for the liquidation
of the affairs of the Rural Bank of Lucena, Inc.
Notice was given by Central Bank officials, on February 10, 1962 that the
Lucena bank was temporarily closed pending final decision of the Court,
and that business be transacted with Central Bank representatives only.
Two days later (February 12, 1962), the Lucena bank filed suit in the Court
of First Instance of Quezon (Tayabas) annual Resolution 122 of the
Monetary Board (Case No. 6471) and enjoin its enforcement; and on

On the same day, the Court of First Instance of Manila, per Judge, now
Court of Appeals Justice, Magno Gatmaitan of Branch XIV, decided Case No.
47345, enjoining enforcement of Resolution No. 928 of the Monetary
Board, for having been issued without the prior hearing prescribed by
section 10 of the Rural Bank Act, and ordering the Central Bank to pay
P5,000.00 damages and costs. The Central Bank appealed.
Upon the other hand, the Court of First Instance of Quezon Province, in its
Case No. 6741, on February, 24, 1962, dissolved its preliminary injunction
against the enforcement of Resolution 122 of the Monetary Board. Other
than filing a motion for reconsideration (ultimately denied on January 9,
1963) the Lucena bank took no other steps to prosecute the case it had
filed.
On the 31st of March 1962, invoking section 29 of Republic Act 265, the
Central Bank, as liquidator, petitioned the Court of First Instance of Manila
for assistance in the liquidation of the Lucena bank (Civil Case No. 50019).
Upon motion, and after hearing the parties, Judge Arca issued on
interlocutory order on March 28, 1963, the dispositive portion of which is to
the following effect (Petition, Annex "D"):
The Rural Bank of Lucena thru its duly authorized officers or
representatives, is hereby ordered to turn over to the Central Bank,
thru its duly authorized representative, within a period of five (5)
days from receipt of copy of this order, the physical possession of
all of said Rural Bank of Lucena's assets, properties and papers.
Should the Rural Bank of Lucena or its officers fail to comply with
the above order within the period indicated herein, the Central
Bank, thru its authorized representatives, is hereby authorized to
take actual and physical possession of all said assets, properties
and papers of the Rural Bank of Lucena, duly inventoried in the
presence of the Provincial Fiscal, the Provincial Commander, the
Provincial Treasurer, and the Provincial Auditor of Quezon province,
or their duly authorized representatives.
The Rural Bank of Lucena resorted to this Court on certiorari, claiming that
Judge Arca gravely abused his discretion in issuing the above order, in that

38
(a) it interferes with the immediately executory judgment of Judge
Gatmaitan in Case No. 47345 of the Court of First Instance of
Manila;
(b) Section 29 of the Central Bank Act (R.A. 265) does not apply;
(c) there was no prior valid take over of assets nor due hearing of
the liquidated Bank;
(d) Judge Gatmaitan's decision constitutes a judicial review of the
Monetary Board's action that cannot be nullified by the challenged
order of Judge Area; and
(e) the turn over should not be ordered before trial on the
merits.1awphl.nt
This Court issued a temporary restraining order until April 25, 1963, but the
same was not renewed when it expired.
We see no irreconcilable conflict between section 10 (as amended) of
Republic Act No. 720 (Rural Banks Act) and section 29 of Republic Act No.
265 (Central Bank Act). The former provides in substance as follows:
The director of the Department of the Central Bank designated by
the Monetary Board to supervise Rural Banks ... upon proof that the
Rural Bank or its board of directors or officers are conducting and
managing the affairs of the bank in a manner contrary to laws,
orders, instructions, rules and regulations promulgated by the
Monetary Board or in any manner substantially prejudicial to the
interests of the government, depositors or creditors, to take over
the management of such bank when specifically authorized to do
so by the Monetary Board after due hearing until a new board of
directors and officers are elected and qualified. ...
It is easily seen that what this section authorized is the take over of the
management by the Central Bank, until the governing body of the
offending Rural Bank is recognized with a view to assuring compliance by it
with the laws and regulations.
Upon the other hand, section 29 6f the Central Bank Act (R. A. 265) has in
view a much more drastic step, the liquidation of a rural bank by taking

over its assets and converting them into money to pay off its creditors.
Said section prescribes:
SEC. 29. Proceedings upon insolvency. Whenever, upon
examination by the Superintendent or his examiners or agents into
the condition of any banking institution, it shall be disclosed that
the condition of the same is one of insolvency, or that its
continuance in business would involve probable loss to its
depositors or creditors, it shall be the duty of the Superintendent
forthwith, in writing, to inform the Monetary Board of the facts, and
the Board, upon finding the statement of the Superintendent to be
true, shall forthwith forbid the institution to do business in the
Philippines and shall take charge of its assets and proceeds
according to law.
The Monetary Board shall thereupon determine within thirty days
whether the institution may be reorganized or otherwise placed in
such a condition so that it may be permitted to resume business
with safety to its creditors and shall prescribe the conditions under
which such resumption of business shall take place. In such case
the expenses and fee in the administration of the institution shall
be determined by the Board and shall be paid to the Central Bank
out of the assets of such banking institution.
At any time within ten days after the Monetary Board has taken
charge of the assets of any banking institution, such institution
may apply to the Court of First Instance for an order requiring the
Monetary Board to show cause why it should not be enjoined from
continuing such charge of its assets, and the court may direct the
Board to refrain from further proceedings and to surrender charge
of its assets.
If the Monetary Board shall determine that the banking institution
cannot resume business with safety to its creditors, it shall, by the
Solicitor General, file a petition in the Court of First Instance
reciting the proceedings which have been taken and praying the
assistance and supervision of the court in the liquidation of the
affairs of the same. The Superintendent shall thereafter, upon
order of the Monetary Board and under the supervision of the court
and with all convenient speed, convert the assets of the banking
institution to money.

39
Considering that section 27 of the Rural Banks law (R.A. No. 720) expressly
declares that
The provisions of Republic Acts numbered 265 and 337, in so far as
applicable and not in conflict with any provision of this Act, are
hereby made a part of this Act.
we find no room for questioning the applicability of section 29 of Republic
Act No. 265 (Central Bank Act) to rural banks organized under Republic Act
720, whenever the Monetary Board should find that the rural bank affected
is insolvent, or that its continuance in business would involve probable loss
to its depositors or creditors, and that it cannot resume business with
safety.
It follows that on the assumption that under section 10 of the Rural Banks
Act the Monetary Board may not take over the management of a rural bank
without giving the latter a hearing, i.e., an opportunity to rebut the charge
that it has contravened applicable laws, rules and regulations to the
substantial prejudice of the government, its depositors and creditors, such
a previous hearing is nowhere required by section 29 of the Central Bank
Law. Manifestly, whether a rural bank's "continuance in business would
involve probable loss" to its clients or creditors and that it "cannot resume
business with safety," is a matter of appreciation and judgment that the
law entrusts primarily to the Monetary Board. Equally apparent is that if
the rural bank affected is in the condition previously adverted to, every
minute of delay in securing its assets from dissipation inevitably increases
the danger to the creditors. For this reason, the statute has provided for a
subsequent judicial review of the Monetary Board, in lieu of a previous
hearing.
In point of fact, the petitioner Rural Bank of Lucena did file a petition
(Annex "G") for judicial review in the Court of First Instance of Quezon
Province, dated February 12, 1962, and challenged the validity of
Resolution No. 122 of the Monetary Board (Case No. 6471) ; but the Court
of First Instance of Quezon dissolved the preliminary injunction issued in
that case and allowed Resolution No. 122 to take effect, without any steps
being taken for a review of such action. This being the case, and in view of
the manifest reluctance the Lucena bank's officials to comply with the
Monetary Board's resolution, the Central Bank had cause to seek judicial
assistance for the discharge of its duties as liquidator.

The petitioner rural bank seems to take the view that the proceedings had
before Judge Gatmaitan in Case No. 47345, Branch XIV, of the Court of First
Instance of Manila constituted the judicial review required by section 29 of
Republic Act No. 265, the Central Bank Act. Such a stand is untenable, for
the case tried and decided by Judge Gatmaitan concerned an attempt by
the Central Bank to take over management under section 10 of the Rural
Banks law (R.A. No. 720) in connection with the Monetary Board's
resolution No. 928 of June 16, 1961. Even more conclusive is the
consideration that said action (Case No. 47345) was filed on June 22, 1961,
and could not possibly be a judicial review of the Resolution No. 122
adopted eight months later, on February 2, 1962. A review cannot precede
the adoption of the resolution being reviewed. This proposition requires no
demonstration.
The narrated events also rebut the contention that the order of Judge Area,
issued on March 28, 1963, in Case No. 50019, constitutes unlawful
interference with the enforcement of Judge Gatmaitan's decision of
February 14, 1962, the issues involved being different in each case. As
heretofore pointed out one involved a take over of management under
section 10 of the Rural Banks Act, and the other a seizure of assets and
liquidation under section 29 of the Central Bank law (R.A. 265).
Nor can the proceedings before Judge Area be deemed judicial review of
the 1962 resolution No. 122 of the Monetary Board, if only because by law
(section 29, R. A. 265) such review must be asked within 10 days from
notice of the resolution of the Board. Between the adoption of Resolution
No. 122 and the challenged order of Judge Arca, more than one year had
elapsed. Hence, the validity of the Monetary Board's resolution can no
longer be litigated before Judge Arca, whose role under the fourth
paragraph of section 29 is confined to assisting and supervising the
liquidation of the Lucena bank.
Whether or not the Central Bank acted with arbitrariness or bad faith in
decreeing that circumstances called for the liquidation of the Lucena Rural
Bank, and should be answerable in damages, should be threshed out and
determined, not by Judge Arca but in Case No. 6471 of the Court of First
Instance of Quezon Province, which was filed within the 10-day period
prescribed by the Central Bank law, and which appears to be still pending,
unless the Lucena bank had abandoned such litigation, a fact that we need
not decide at present. Suffice it to say that Judge Arca had no reason to
inquire into the merits of the case before issuing the disputed order
requiring the surrender of the assets and papers of the Lucena bank,

40
because: (1) neither the statute (sec. 29, R.A. 265) nor the constitutional
requirement of due process demand that the correctness of the Monetary
Board's resolution to stop operation and proceed to the liquidation of the
Lucena Rural Bank should first be adjudged before making the resolution
effective, it being enough that a subsequent judicial review by provided
(section 29, R.A. 265; 12 Am. Jur. 305, sec. 611; Bourjois vs. Chapman, 301
U.S. 183, 81 Law Ed. 1027, 1032; American Surety Co. vs. Baldwin, 77 Law
Ed. 231, 86 ALR 307; Wilson vs. Standefer, 46 Law Ed. 612); (2) the period
for asking such judicial review had elapsed with excess between the
adoption of the Monetary Board Resolution No. 122 and the filing of the
case by the Central Bank in the Court of First Instance of Manila; (3) the
correctness of said resolution had already been put in issue before the
Court of Quezon Province; (4) because the latter court had refused to stop
implementation of the Resolution of the Monetary Board when it dissolved
its own preliminary injunction; and (5) because the Lucena Bank had
apparently acquiesced in the action taken by the Court of Quezon Province,
since the rural bank had not sought that the action of the Quezon court be
set aside by a higher court.
IN VIEW OF THE FOREGOING, the writ applied for is denied with costs
against the petitioner Lucena Rural Bank, Inc.

41
SECOND DIVISION

of P939,737.32 plus stipulated interest; the sum equivalent to 15%

of the amount due as attorney's fees; and costs of suit.

G.R. No. 73884 September 24, 1987

The counterclaim is dismissed, for lack of merit.
SPOUSES ROMEO LIPANA and MILAGROS LIPANA, petitioners,
vs.
DEVELOPMENT BANK OF RIZAL, respondent.
PARAS, J.:
This is a petition for review on certiorari of the August 30, 1985 Order of
the Regional Trial Court of Pasig denying petitioners' Motion to Lift Stay of
Execution in Civil Case No. 50802.
During the period from 1982 to January, 1984, herein petitioners opened
and maintained both time and savings deposits with the herein respondent
Development Bank of Rizal all in the aggregate amount of P939,737.32.
When some of the Time Deposit Certificates matured, petitioners were not
able to cash them but instead were issued a manager's check which was
dishonored upon presentment. Demands for the payment of both time and
savings deposits having failed, on March 14, 1984, petitioners filed with
the Regional Trial Court of Pasig a Complaint With Prayer For Issuance of a
Writ of Preliminary Attachment for collection of a sum of money with
damages, docketed therein as Civil Case No. 50802 (Record, pp. 3-11).

Meanwhile, on August 10, 1984, the Monetary Board, in its Resolution No.
1009, finding that the condition of respondent bank was one of insolvency
and that its continuance in business would result in probable loss to its
depositors and creditors, decided to place it under receivership (Rollo, p.
84).
On December 7, 1984, petitioners filed a Motion for Execution Pending
Appeal (Rcd., pp. 91-93), which was opposed by respondent bank (Ibid., p.
94-96). On December 27, 1984, petitioners filed their Reply to the
opposition (Ibid., pp. 98-101), to which respondent bank filed its Rejoinder
on January 1, 1985 (Ibid., pp. 102-105).
In an order dated January 29, 1985, respondent judge ordered the issuance
of a writ of execution (Ibid., p. 106).
On February 11, 1985, respondent bank filed a Motion for Reconsideration
of order dated January 29, 1985 and to Stay Writ of Execution (Ibid., pp.
109-110), opposed by petitioners (Ibid., p. 111) but in an Order dated
March 6, 1985, respondent judge stayed the execution (Ibid., p. 113).

Respondent Judge, in an Order dated March 19, 1984 (Ibid., p. 19-21),

ordered the issuance of a writ of attachment, and pursuant thereto, a writ
of attachment dated March 20, 1984 was issued in favor of the petitioners
(Ibid., p. 33).

On August 7, 1985, petitioners filed a Motion to Lift Stay of Execution (Ibid.,

pp. 119-122), opposed by respondent bank (Ibid., pp. 123-127), and in an
Order dated August 30, 1985, respondent judge denied the said motion
(Ibid., p. 130). Hence, the instant petition (Rollo, pp. 8-17).

On June 27, 1984, respondent bank filed its Answer (Ibid., p. 58-61).

The Second Division of the Court, in a resolution dated May 5, 1986,

resolved to require the respondent to comment (Ibid., p. 52). In compliance
therewith, respondent bank filed its Comment on June 9, 1986 (Ibid., pp.
53-58).

On July 23, 1984, petitioners filed a Motion For Judgment on the Pleadings
(Ibid., pp. 68-73), opposed by respondent bank (Ibid., pp. 74-76), but
respondent judge, in a Decision dated November 13, 1984, rendered
judgment in favor of petitioners. The dispositive portion of the said
Decision, reads:
IN VIEW OF ALL THE FOREGOING, the Court renders judgment in
favor of the plaintiffs, ordering the defendant to pay the total sum

The petition was given due course in a resolution dated August 11, 1986,
and the parties were required to file their respective memoranda (Ibid., p.
61). In compliance therewith, petitioners filed their Memorandum on
September 19, 1986 (Ibid., p. 63-75), while respondent bank filed its
Memorandum on September 25, 1986 (Ibid., pp. 76-83), and the case was

42
considered submitted for deliberation in the Resolution dated October 8,
1986 (Ibid., p. 88)

which could render the execution of the judgment unjust (Cabrias vs. Adil,
135 SCRA 354).

Petitioners raised the following issues:

In the instant case, the stay of the execution of judgment is warranted by

the fact that respondent bank was placed under receivership. To execute
the judgment would unduly deplete the assets of respondent bank to the
obvious prejudice of other depositors and creditors, since, as aptly stated
in Central Bank of the Philippines vs. Morfe (63 SCRA 114), after the
Monetary Board has declared that a bank is insolvent and has ordered it to
cease operations, the Board becomes the trustee of its assets for the equal
benefit of all the creditors, including depositors. The assets of the insolvent
banking institution are held in trust for the equal benefit of all creditors,
and after its insolvency, one cannot obtain an advantage or a preference
over another by an attachment, execution or otherwise.

1. Respondent judge cannot legally stay execution of

judgement that has already become final and executory;
2. The placing under receivership by the Central Bank of
the respondent bank, long after the complaint was filed
removed it from the application of the doctrine in
Re: Central Bank vs. Morfe (63 SCRA 113);
3. The filing of the complaint for a sum of money With
damages against respondent bank and the subsequent
attachment of its property in Pasig, Metro Manila long
before the receivership took place render inapplicable the
doctrine laid down by this Honorable Supreme Court in the
said Morfe case;

Moreover, it will be noted that respondent bank was placed under

receivership on August 10, 1984, and the Decision of respondent judge is
dated November 13, 1984. Accordingly, in line with the ruling in the
aforesaid Morfe case, which reads:
The circumstance that the Fidelity Savings Bank, having stopped
operations since February 19, 1969, was forbidden to do business
(and that ban would include the payment of time deposits) implies
that suits for the payment of such deposits were prohibited. What
was directly prohibited should not be encompassed indirectly. ...

4. The indefinite stay of execution without a ruling as to

how long it will last, amounts to deprivation of petitioners
of their property without due process of law.
The instant petition is without merit.
I.
The main issue in this case is whether or not respondent judge could
legally stay execution of judgment that has already become final and
executory.
The answer is in the affirmative.
The rule that once a decision becomes final and executory, it is the
ministerial duty of the court to order its execution, admits of certain
exceptions as in cases of special and exceptional nature where it becomes
imperative in the higher interest of justice to direct the suspension of its
execution (Vecine vs. Geronimo, 59 O.G. 579); whenever it is necessary to
accomplish the aims of justice (Pascual vs. Tan, 85 Phil. 164); or when
certain facts and circumstances transpired after the judgment became final

petitioners 'complaint should have been dismissed.

II.
It is the contention of petitioners, however, that the placing under
receivership of respondent bank long after the filing of the complaint
removed it from the doctrine in the said Morfe case.
This contention is untenable. The time of the filing of the complaint is
immaterial. It is the execution that win obviously prejudice the other
depositors and creditors. Moreover, as stated in the said Morfe case, the
effect of the judgment is only to fix the amount of the debt, and not give
priority over other depositors and creditors.
III.

43
Anent the contention of petitioners that the attachment of one of the
properties of respondent bank was erased by virtue of the delayed
receivership is to expand the power of the Central Bank, Suffice it to say
that in the case ofCentral Bank of the Philippines, et al. vs. Court of
Appeals, et al. (Resolution of this Court dated September 17, 1984 in G.R.
No. 33302), wherein the original plaintiff Algue Inc. was able to obtain a
writ of preliminary attachment against the original defendant Island
Savings Bank, this Court refused to recognize any preference resulting
from such attachment and ruled that after a declaration of insolvency, the
remedy of the depositors is to intervene in the liquidation proceedings.
IV.
It is also contended by the petitioners that the indefinite stay of execution
without ruling as to how long it will last, amounts to a deprivation of their
property without due process of law.
Said contention, likewise, is devoid of merit. Apart from the fact that the
stay of execution is not only in accordance with law but is also supported
by jurisprudence, such staying of execution is not without a time limit. In
fact, the Monetary Board, in its resolution No. 4-33 approved the liquidation
of respondent bank on April 26, 1985 and ordered, among others, the filing
of a petition in the Regional Trial Court praying for assistance of said court
in the liquidation of the bank. (Rollo, p. 81). The staying of the writ of
execution will be lifted after approval by the liquidation court of the project
of distribution, and the liquidator or his deputy will authorize payments to
all claimants concerned in accordance with the approved project of
distribution.
PREMISES CONSIDERED, the instant petition is hereby DISMISSED.

Facts: Petitioners opened and maintained both time and savings deposits
with the respondent Development Bank of Rizal. When some of the time
deposit certificates matured, petitioners were not able to cash them but
instead were issued a managers check which was dishonored upon
presentment. Demands for the payment of both time and savings deposits
have failed. Hence, petitioners filed with the RTC a collection suit with
prayer for issuance of a writ of preliminary attachment which was granted
by the court. The RTC rendered judgment in favor of petitioners.
Meanwhile, the Monetary Board placed the respondent bank under
receivership. Subsequently, the motion for execution pending appeal filed
by petitioners was granted by the court but was also stayed by the trial
judge. The motion filed by petitioners to lift the stay order having been
denied, this petition was filed.

Issue: Whether or not respondent judge could legally stay execution of

judgment that has already become final and executor

Held: In the instant case, the stay of the execution of judgment is

warranted by the fact that respondent bank was placed under receivership.
To execute the judgment would unduly deplete the assets of respondent
bank to the obvious prejudice of other depositors and creditors, since, as
aptly stated in Central Bank of the Philippines vs. Morfe (63 SCRA 114),
after the Monetary Board has declared that a bank is insolvent and has
ordered it to cease operations, the Board becomes the trustee of its assets
for the equal benefit of all the creditors, including depositors. The assets of
the insolvent banking institution are held in trust for the equal benefit of all
creditors, and after its insolvency, one cannot obtain an advantage or a
preference over another by an attachment, execution or otherwise.

SO ORDERED.
After the Monetary Board has declared that a bank is insolvent and has
ordered it to cease operations, the Board becomes the trustee of its assets
for the equal benefit of all the creditors, including depositors. To execute
the judgment would unduly deplete the assets of respondent bank to the
obvious prejudice of other depositors and creditors.

After the Monetary Board has declared that a bank is insolvent and has
ordered it to cease operations, the Board becomes the trustee of its assets
for the equal benefit of all the creditors, including depositors. The assets of
the insolvent banking institution are held in trust for the equal benefit of all
creditors, and after its insolvency, one cannot obtain an advantage or a
preference over another by an attachment, execution or otherwise. To
execute the judgment would unduly deplete the assets of respondent bank
to the obvious prejudice of other depositors and creditors.

44
Can a final and executory judgment against an insolvent bank be stayed?

Yes, after the Monetary Bank has declared that a bank is insolvent and has
ordered it to cease operations, the assets of the insolvent bank are held in
trust for the equal benefit of all creditors. One cannot obtain an advantage
or preference over another by attachment, execution or otherwise. The
final judgment against the bank should be stayed as to execute the
judgment would unduly deplete the assets of the banks to the obvious
prejudice of other depositors and creditors. (Lipana v. Development
Bank of Rizal, G.R. No. L-73884, Sept. 24, 1987)

45
THIRD DIVISION
G.R. No. 97218 May 17, 1993
PROVIDENT SAVINGS BANK, petitioner,
vs.
COURT OF APPEALS, Former SPECIAL EIGHTH DIVISION and
WILSON CHUA, respondents.
MELO, J.:
The error, if error it be, of respondent Court of Appeals which petitioner
seeks to rectify via the petitioner forcertiorari before us refers to
respondent court's major conclusion arrived at in CA-G.R. CV No. 21312
(Javellana (P), Kalalo, Dayrit, JJ) barring petitioner from foreclosing the
subject realty on account of prescription. Petitioner begs to differ, insisting
that the period during which it was placed under receivership by the
Central Bank is akin to a caso fortuito and should not thus be reckoned
against it.
Both petitioner and private respondent accepted the synthesized factual
backdrop formulated by respondent court, to wit:
This an appeal by both plaintiff and defendant from the decision of
the Regional Trial Court of the National Capital Judicial 29
September 1988, in Civil Case No. 977-NW, which directed plaintiffappellant to pay defendant-appellant the personal obligation of the
spouses Guarin to defendant-appellant in the amount of
P62,500.00, together with the interest, penalties, and bank charges
due thereon, and ordering defendant-appellant thereafter to: (1)
release the real estate mortgage executed by the spouses Lorenzo
K. Guarin and Liwayway J. Guarin in favor of defendant bank on 16
February 1967; (2) return to surrender to plaintiff-appellant, as
successor-in-interest of the spouses Guarin, the latter's Owner's
Duplicate of Title No. 177014; (3) pay plaintiff-appellant
P20,000.00 as and for attorney's fees; and, (4) pay the costs of
suit.
The established fact are:

On 16 February 1967, the spouses Lorenzo K. Guarin and

Liwayway J. Guarin (Guarins) obtained a loan from
defendant-appellant in the amount of P62,500.00 payable
on or before 20 June 1967. As security for the loan, they
executed a real estate mortgage in favor of defendantappellant over a parcel of land covered by TCT No. 177014.
(Exhs. C and D).
In September, 1972, defendant-appellant was placed under
receivership by the Central Bank of the Philippines until 27
July 1981 when the receivership was set aside by the
Honorable Supreme Court.
On 11 December 1984, Lorenzo K. Guarin, in reply to the
letter of latter's counsel informing that the mortgaged
property would be sold at public auction on 27 December
1984, assured he and his wife had every intention of
paying their obligation and requesting for a recomputation
of their account and a postponement of the foreclosure
sale. (Exh. 1).
On 10 February 1986, the Guarins received a Statement of
Account from defendant-appellant showing two
outstanding accounts as of 15 February 1986. One was
account of Lorenzo K. Guarin in the amount of
P591,088.80, and the other was the account of L.K. Guarin
Manufacturing Co., Inc. in the amount of P6,287,380.27
(Attachment to Exh. 2)
On 26 February 1986, Lorenzo K. Guarin wrote defendantappellant stating that he was ready and willing to pay his
obligation in the total amount of P591,088.80 as
recomputed by defendant-appellant whenever defendantappellant was already to receive the payment and inquiring
as to when his mortgaged title would be available for him
to pick up. (Exh. 2)
Defendant-appellant replied on 27 February 1986 that
Lorenzo K. Guarin may make payment at its office in
Makati, Metro Manila, but that the mortgaged title could
not be released to him even after the payment of the
obligation of P591,088.80 as it also served as security for

46
the indebtedness of L.Y. Guarin Manufacturing Co., Inc., to
defendant-appellant which was undertaken by Lorenzo K.
Guarin in his personal capacity and as president of the
corporation. (Exh. 3)
On 20 May 1986, plaintiff-appellant wrote defendantappellant saying that the mortgaged property of the
Guarins had been offered to him as payment of the
judgment he obtained against the Guarins in Civil Case No.
Q-47465 entitled, "Wilson Chua vs. Lorenzo K. Guarin", and
requesting for defendant-appellant's conformity to the
assignment and expressing his willingness to pay for the
obligation of Mr. Guarin so that the title could be released
by defendant-appellant. (Exh. 4)
On 10 July 1986, the Guarins and plaintiff-appellant
executed a Deed of Absolute Sale With Assumption of
Mortgaged whereby the Guarins sold the mortgaged
property to Guarins sold the appellant for the sum of
P250,000.00 and plaintiff-appellant undertook to assume
the mortgaged obligation of the Guarins with defendantappellant which as of 15 February 1985 amounted to
P591,088.80.(Exh. B).
On 5 August 1986, plaintiff-appellant informed defendantappellant that as a result of the judgment in Civil Case No.
Q-47645, the mortgaged property had been sold to him by
the Guarins, as evidenced by the Deed of Sale enclosed for
guidance and information of defendant-appellant. He
requested that he be allowed to pay the loan secured by
the mortgaged, otherwise, he would be constrained to
bring the matter to court. (Exh. 5) In reply, defendantappellant, on 11 August 1986, informed plaintiff-appellant
that his request could be granted if he would settle the
obligation of L.K. Guarin Manufacturing Co., Inc., as well
and defendant-appellant's letter to Mr. Guarin dated 27
February 1986. (Exh. 6)
On 3 August 1987, counsel for plaintiff-appellant addressed
a letter to defendant-appellant informing that plaintiffappellant had purchased the mortgaged property from the
Guarin's and requesting that the owner's copy of TCT No.

177014 in the possession of defendant-appellant be

released to him so that he can register the sale and have
the title to the property transferred in his name. He
likewise, informed defendant-appellant that it had lost
whatever right or action had against the Guarins because
of prescription. (Exh. E) Defendant-appellant replied on 10
August 1987 stating the reasons why they could not
comply with plaintiff-appellant's demands. (Exh. F)
On 21 August 1986, plaintiff-appellant filed a complaint
against defendant-appellant to compel the latter to: (1)
release the real estate mortgaged executed by the Guarins
in favor of defendant-appellant on 16 February 1967; (2)
return or surrender to plaintiff-appellant, as successor-ininterest of the Guarins, the latter's owner's duplicate of TCT
No. 177014; and (3) pay plaintiff-appellant P2,750,000.00
as actual and/or consequential damages, moral damages
as may be proved during the trial, exemplary damages as
may be reasonably assessed by the court, and attorney's
fees of P50,00.00. Defendant-appellant answered the
complaint thereof and setting up special and affirmative
defenses. After trial, judgment was rendered as stated in
the opening paragraph hereof from which both parties
appealed . . . . (pp. 35-37, Rollo.)
Concerning the challenge posed by Provident Saving Bank against the
personality of Wilson Chua to initiate the action to compel the release of
the real estate mortgage and the delivery of the owner's duplicate copy of
the certificate of title, respondent court noted that Wilson Chua can be
considered a real-property-in-interest because he is the successor-ininterest of the Guarins who is naturally entitled to the realty as against the
so-called right of Provident Savings Bank, as mortgagee, to foreclose the
mortgage which had become stale through sheer lapse of time. The matter
of novation in the form of substitution of the debtor without corresponding
acquiesence of the mortgagee was viewed by respondent court to be
legally inconsequential due to the demeanor of the mortgagee-bank in
requiring Wilson Chua to pay the indebtedness of Lorenzo Guarin, posterior
to the change of obligors, which act was construed as equivalent to
consent.
To the question of whether petitioner can still foreclose the subject realty,
respondent court gave a negative response on account of the absence of

47
proof to indicate that the bank was precluded from collecting indebtedness
while it was under receivership from September, 1972 until July 20,1981.
Thus, there was no legal interruption of the pres-criptive period to speak
of, said respondent court, which intervened between June 20, 1967, the
date the mortgage matured, and June 20, 1977 the last day within which
petitioner could have foreclosed the mortgage.
Respondent court did not also heed the suggestion of the petitioner bank
to interpret Wilson Chua's assumption of the mortgage on July 10, 1986 as
tantamount to an explicit acknowledgement that the obligation was
outstanding and had not yet prescribed.
As a result of these observations, respondent court reversed the decision
of the trial court insofar as it ordered Wilson Chua to pay the sum of
P591,088.80 to the bank and affirmed the other dispositions made the
court of origin (p. 42, Rollo).
Following the unfavorable judgment, the bank filed a motion for
reconsideration and a motion for new trial premised on newly discovered
evidence relative to a statement of account unearthed by the bank's
liaison officer from the loose folders on October 18, 1990 which it believed
to be of legal significance to the case. But respondent court was
unperturbed, observing that the vital piece of document could have been
located in the course of trial had the slightest degree of prudence been
exercised, considering that the statement of account sprouted the same
day the liaison officer was advised to take an inventory of the records ( p.
45, Rollo).
Hence, the petitioner at bar.
Consistent with its theory premised on fuerza major, petitioner insists that
it can not be blamed for not lifting a finger, so speak, during the period
when it was enjoined by the Central Bank on September 15, 1972 from
transacting business until this Court affirmed on July 27,1981 the decision
of the Court of Appeals annulling the proscription against petitioner
in Central Bank vs. Court of Appeals (106 SCRA 143 [1981]. We are not
unaware of the rule laid down in Teal Motor Co. vs. Court of First Instance
of Manila (51 Phil. 549 [1928]; Martin, Commentaries and Jurisprudence on
the Philippine Commercial Laws, 1986 Revised ed., p.125) that the
appointment of a receiver does not dissolve the corporation nor does it
interfere with the exercise of its corporate rights. But this principles is, of
course, applicable to a situation where there is no restraint imposed on the

corporation, unlike in the case at bar where petitioner Provident Savings

Bank was specifically forbidden and immobilized from doing business in the
Philippines on September 15, 1972 through Monetary Board Resolution No.
1766 until 1981 when the decision in Central Bank vs. Court of
Appeals (supra, at p. 150) was rendered. The question which immediately
crops up is whether a foreclose proceeding falls within the purview of the
phrase "doing business". In Mentholatum Co., Inc., et al. vs. Mangaliman,
et al. (72 Phil. 524 [1941]; Moreno, Philippine Law Dictionary, Second ed.,
1972, p. 186), the term was construed by Justice Laurel to refer to:
. . . a continuity of commercial dealings and arrangements,
and contemplates to that extent, the exercise of some of
the words or the normally incident to, and in progressive
prosecution of, the purpose ands object of its
organizations. (p. 528; emphasis supplied.)
Withal, we believe that a foreclose is deemed embraced by the phrase
"doing business" as a preparatory measure to acquiring or holding property
for petitioner as a saving bank under Section 34 of the General Banking
Act. Like any other banking institution, petitioner is vested with the usual
attributes and powers of a corporation under Section 36 of the Corporation
Code (Vitug, Pandect of Commercial Law and Jurisprudence, 1990 ed., p.
475). The prerogative of a bank to foreclose is implicit from and is even
necessary to enforce collection of secured debts under Section 36(11) and
45 of the Corporation Code, in conjunction with Section 29 of the General
Banking Act (6 Fletcher, 206; Agbayani, Commentaries and Jurisprudence
on the Commercial Laws of the Philippines, 1990 ed., p. 325).
When a bank is prohibited to do business by the Central Bank and a
receiver is appointed for such bank, that bank would not be able to do new
business, i.e., to grant new loans or to accept new deposits. However, the
receiver of the bank is obliged to collect debts owing to the bank, which
debts form part of the assets of the bank. The receiver must assemble the
assets and pay the obligation of the bank under receivership, and take
steps to prevent dissipation of such assets. Accordingly, the the receiver of
the bank is obliged to collect pre-existing debts due to the bank, and in
connection therewith, to foreclose mortgages securing debts. This is not to
ignore The Philippine Trust Co. vs. HSBC (67 Phil. 204 [1939], for in that
case, the Court simply rejected the objections of certain creditors to the
report of a receiver, that is, objections that the receiver did not report the
collection made before the beginning of his receivership. It would follow
that the bank is bound by the acts, or failure to act, of the receiver. At the

48
same time, the receiver is liable to the bank for culpable or negligent
failure to collect the assets of such bank and to safeguard said assets.
Having arrived at the conclusion that the foreclosure is part of bank's
business activity which could not have been pursued by the receiver then
because of the circumstances discussed in the Central Bank case, we are
thus convinced that the prescriptive period was legally interrupted
by fuerza mayor in 1972 on account on the prohibition imposed by the
Monetary Board against petitioner from transacting business, until the
directive of the board was nullified in 1981. Indeed, the period during
which the obligee was prevented by a caso fortuito from enforcing his right
is not reckoned against him (Article 1154, New Civil Code). When
prescription is interrupted, all the benefits acquired so far from the
possession cease and when prescription starts anew, it will be entirely a
new one. This concept should not be equated with suspension where the
past period is included in the computation being added to the period after
prescription is resumed (4 Tolentino, Commentaries and Jurisprudence on
the Civil Code of the Philippines, 1991 ed., pp. 18-19). Consequently, when
the closure of was set aside in 1981, the period of ten years within which
to foreclose under Article 1142 of the New Civil Code began to run again
and, therefore, the action filed on August 21, 1986 to compel petitioner to
release the mortgage carried with it the mistaken notion that petitioner's
own suit foreclosure had prescribed. What exacerbates the situation is the
letter of private respondent requesting petitioner on August 6, 1986 that
private respondent be allowed to pay the loan secured by the mortgage as
the result of the Deed of Sale executed by the Guarins in his favor on July
10, 1986 (pp. 36-37, Rollo). In point of law, this written communication is
synonymous to an express acknowledgment of the obligation and had the
effect of interrupting the prescription for the second time (Article 1155,
New Civil Code; Osmea vs. Rama, 14 Phil. 99 [1909]; 4 Tolentino, supra at
p. 50). And this piece of document necessarily estops private respondent
from setting up prescription vis-a-vis his unfounded supposition that
acknowledgment of the debt is of no moment because the right of the
petitioner to foreclose had long prescribed in 1977 (p. 13, Petition; p. 7,
Comment; pp. 19 and 58, Rollo).
Contrary to respondent court's prescription of the existence of novation,
the evidence at hand does not buttress a finding along this line from the
mere fact that petitioner supposedly did not question the substitution
when the bank reacted to private respondent's offer to pay the loan (p.
39, Rollo). What seems to have escaped respondent court's attention was
the condition imposed by the petitioner that it will grant private

respondent's request if the latter will also shoulder the obligation incurred
by Lorenzo Guarin in his capacity as president of the corporation
(p.37, Rollo). The consent of the petitioner to the substitution, as creditor,
was thus erroneously appreciated.
With the conclusions reached, we need not discuss the other issues raised
in the petition.
WHEREFORE, the petition is hereby GRANTED. The decision dated August
31, 1990, including the resolution dated February 6, 1991 of respondent
court are hereby set aside and another one entered dismissing Wilson
Chua's complaint. No special pronouncement is made to costs.

49
FIRST DIVISION
G.R. No. 141297

October 8, 2001

DOMINGO R. MANALO, petitioner,

vs.
COURT OF APPEALS (Special Twelfth Division) and PAIC SAVINGS
AND MORTGAGE BANK, respondents.
PUNO, J.:
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 Sale3 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 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

50
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."

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

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.

Hence, this appeal, where petitioner raises and argues the following legal
issues:
"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.

51
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

52
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:
"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

53
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 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.

54
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
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/predecessor-ininterest 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, 50viz.:
"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.

55
SO ORDERED.

Facts: Villanueva Enterprises, represented by its president, Therese

Villanueva Vargas, obtained a loan of three million pesos and one million
pesos 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 mortgageover two parcels of land registered under her
name. One of the lots is the subject of the present case. S. Villanueva
Enterprises failed to settle its loan obligation.

Accordingly, respondent instituted extrajudicial foreclosure proceedings

over the mortgaged lots and acquired the same as the highest bidder. After
the lapse of one year, title was consolidated in respondents name for
failure of Vargas to redeem. The Central Bank of the Philippines filed a
petition for assistance in the liquidation of the respondent PAIC with the
Regional Trial Court. After a few years, respondent petitioned the
RegionalTrialCourtofPasayCity for the issuance of a writ of possession for
the subject property. However, during the pendency of civil case for the
issuance of a writ of possession, Vargas executed a deed of absolute sale
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. Later, Armando Angsico, as buyer
of the property, assigned his rights therein to petitioner. The court
subsequently issued the writ of possession but Villanueva Enterprises and
Vargas moved for its quashal. 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. Both motions were
denied by the court. Court of Appeals upheld the order of the lower court.
Hence this petition.

Issue: Whether or not the jurisdiction for the issuance of the writ of
possession filed by the respondent bank is vested solely on the liquidation
court.

Held: No. 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.

Although the law provides that all claims against the insolvent bank should
be filed in the liquidation proceeding, such 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. Moreover, 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. 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.

56
THIRD DIVISION
Respondents
HEIRS
OF
ZOILO
PRIMITIVA ESPIRITU,
Petitioners,

ESPIRITU

AND

G.R. No. 169617

Present:

Spouses Maximo and

Paz Landrito (Spouses Landrito)

herein represented by their son and attorney-in-fact, Zoilo Landrito.

On 5

September

1986,

Spouses Landrito loaned

are

[3]

from

the

Spouses Espiritu the amount of P350,000.00 payable in three months. To

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
CHICO-NAZARIO, and
NACHURA, JJ.

- versus -

SPOUSES MAXIMO LANDRITO AND PAZ

LANDRITO,
Represented
by
ZOILO
LANDRITO, as their Attorney-in-Fact,
Re s p o n d e n t s .

secure the loan, the Spouses Landritoexecuted a real estate mortgage over
a five hundred forty (540) square meter lot located in Alabang, Muntinlupa,
covered by Transfer Certificate of Title No. S-48948, in favor of the
Spouses Espiritu. From the P350,000.00 that the Landritos were supposed
to receive, P17,500.00 was deducted as interest for the first month which
was equivalent to five percent of the principal debt, and P7,500.00 was

Promulgated:

April 4, 2007
x--------------------------------------------------x

further deducted as service fee. Thus, they actually received a net amount
of P325,000.00. The agreement, however, provided that the principal
indebtedness earns interest at the legal rate.[4]
After three months, when the debt became due and demandable,

DECISION

the Spouses Landrito were unable to pay the principal, and had not been
able to make any interest payments other than the amount initially

CHICO-NAZARIO, J.:

deducted from the proceeds of the loan. On 29 December 1986, the loan
agreement was extended to 4 January 1987 through an Amendment of

This is a petition for Review on Certiorari under Rule 45 of the Rules of

Real Estate Mortgage. The loan was restructured in such a way that the

Court assailing the Decision of the Court of Appeals,

dated 31 August

unpaid interest became part of the principal, thus increasing the principal

2005, reversing the Decision rendered by the trial court on 13 December

to P385,000. The new loan agreement adopted all other terms and

1995. The Court of Appeals, in its assailed Decision, fixed the interest rate

conditions contained in first agreement.[5]

[1]

of the loan between the parties at 12% per annum, and ordered the
Spouses Zoilo and Primitiva Espiritu (Spouses Espiritu)

to reconvey the

Due to the continued inability of the Spouses Landritos to settle

subject property to the Spouses Landrito conditioned upon the payment of

their obligations with the Spouses Espiritu, the loan agreement was

the loan.

renewed three more times. In all these subsequent renewals, the same
terms and conditions found in the first agreement were retained. On 29

Petitioners DULCE, BENLINDA, EDWIN, CYNTHIA, AND MIRIAM ANDREA, all

July 1987, the principal was increased to P507,000.00 inclusive of running

surnamed ESPIRITU, are the only children and legal heirs of the

interest. On 11 March 1988, it was increased to P647,000.00. And on 21

Spouses Zoilo andPrimitiva Espiritu, who both died during the pendency of

October 1988, the principal was increased to P874,125.00.[6] At the hearing

the case before the Honorable Court of Appeals.

before the trial court, ZoiloEspiritu testified that the increase in the

[2]

57
principal in each amendment of the loan agreement did not correspond to

The trial court dismissed the complaint and upheld the validity of the

the amount delivered to the Spouses Landrito. Rather, the increase in the

foreclosure sale. The trial court ordered in its Decision, dated 13 December

principal had been due to unpaid interest and other charges.

1995:[11]

The

debt

remained

Spouses Espiritu foreclosed

1990. During

the

auction

the

unpaid. As
mortgaged

sale,

the

[7]

consequence,

property

property

on 31

was

sold

WHEREFORE, all the foregoing premises considered, the

herein complaint is hereby dismissed forthwith.

the

October
to

Without pronouncements to costs.

the

Spouses Espiritu as the lone bidder. On 9 January 1991, the Sheriffs

The Spouses Landrito appealed to the Court of Appeals pursuant to

Certificate of Sale was annotated on the title of the mortgaged property,

giving the Spouses Landritountil 8 January 1992 to redeem the property.

[8]

Rule 41 of the 1997 Rules of Court. In its Decision dated 31 August 2005,
the Court of Appeals reversed the trial courts decision, decreeing that the

property

five percent (5%) interest imposed by the Spouses Espiritu on the first

although they alleged that they negotiated for the redemption of the

month and the varying interest rates imposed for the succeeding months

property as early as 30 October 1991.While the negotiated price for the

contravened the provisions of the Real Estate Mortgage contract which

land

the

provided that interest at the legal rate, i.e., 12% per annum, would be

Spouses Espiritu from time to time. Spouses Landrito allegedly tendered

imposed. It also ruled that although the Usury Law had been rendered

two managers checks and some cash, totaling P1,800,000.00 to the

ineffective by Central Bank Circular No. 905, which, in effect, removed the

Spouses Espiritu on 13 January 1992, but the latter refused to accept the

ceiling rates prescribed for interests, thus, allowing parties to freely

same. They also alleged that the SpousesEspiritu increased the amount

stipulate thereon, the courts may render void any stipulation of interest

demanded to P2.5 Million and gave them until July 1992 to pay the said

rates which are found iniquitous or unconscionable. As a result, the Court

amount. However, upon inquiry, they found out that on 24 June 1992, the

of Appeals set the interest rate of the loan at the legal rate, or 12% per

Spouses Espiritu had already executed an Affidavit of Consolidation of

annum.[12]

The

started

Spouses Landrito failed

at P1,595,392.79,

it

to

was

redeem

the

allegedly

subject

increased

by

Ownership and registered the mortgaged property in their name, and that
Furthermore,

the Register of Deeds of Makatihad already issued Transfer Certificate of

the

held

proper

the

Spouses Espiritu before Branch 146 of the Regional Trial Court of Makati.

for reconveyance remained as a remedy available to a landowner whose

Among the allegations in their Complaint, they stated that the

property was wrongfully registered in anothers name since the subject

provided

by

still

action

action for annulment or reconveyance of title, with damages against the

period

is

the

remedy. Even if the Spouses Landrito failed to redeem the property within

Spouses Espiritu, as creditors and mortgagees, imposed interest rates that

Spouses Landrito,

that

the Spouses Landrito, represented by their son ZoiloLandrito, filed an

redemption

the

Appeals

for reconveyance,

[9]

by

of

Title No. 179802 in the name of the Spouses Espiritu. On 9 October 1992,

one-year

filed

Court

law,

the

property has not yet passed to an innocent purchaser for value. [13]

are shocking to ones moral senses.[10]

In the decretal portion of its Decision, the Court of Appeals ruled [14]:

action

58
WHEREFORE, the instant appeal is hereby GRANTED. The
assailed Decision dated December 13, 1995 of the Regional
Trial Court of Makati, Branch 146 in Civil Case No. 92-2920
is hereby REVERSED and SET ASIDE, and a new one is
hereby entered as follows: (1) The legal rate of 12% per
annum is hereby FIXED to be applied as the interest of the
loan; and (2) Conditioned upon the payment of the loan,
defendants-appellees spouses Zoilo and Primitiva Espiritu a
re hereby ordered to reconvey Transfer Certificate of Title
No.
S-48948
to
appellant
spouses Maximo and
Paz Landrito.
The case is REMANDED to the Trial Court for the above
determination.
Hence, the present petition. The following issues were raised:[15]
I
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING
AND SETTING ASIDE THE DECISION OF THE TRIAL COURT
AND ORDERING HEREIN PETITIONERS TO RECONVEY
TRANSFER CERTIFICATE OF TITLE NO. 18918 TO HEREIN
RESPONDENTS, WITHOUT ANY FACTUAL OR LEGAL BASIS
THEREFOR.
II
THE HONORABLE COURT OF APPEALS ERRED IN FINDING
THAT HEREIN PETITIONERS UNILATERALLY IMPOSED ON
HEREIN RESPONDENTS THE ALLEGEDLY UNREASONABLE
INTERESTS ON THE MORTGAGE LOANS.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT
CONSIDERING THAT HEREIN RESPONDENTS ATTORNEY-INFACT IS NOT ARMED WITH AUTHORITY TO FILE AND
PROSECUTE THIS CASE.

Amendment of Real Estate Mortgage, the interest rate imposed was,

likewise, unspecified. During his testimony, Zoilo Espiritu admitted that the
increase in the principal in each of the Amendments of the Real Estate
Mortgage consists of interest and charges. The Spouses Espiritu alleged
that the parties had agreed on the interest and charges imposed in
connection with the loan, hereunder enumerated:
1. P17,500.00 was the interest charged for the first
month and P7,500.00 was imposed as service fee.
2. P35,000.00 interest
and
charges,
or
the
difference between the P350,000.00 principal in the Real
Estate
Mortgage
dated 5
September
1986 and
the P385,000.00 principal in the Amendment of the Real
Estate Mortgage dated 29 December 1986.
3. P132,000.00 interest
and
charges,
or the
difference between the P385,000.00 principal in the
Amendment of the Real Estate Mortgage dated 29
December 1986 and the P507,000.00 principal in the
Amendment of the Real Estate Mortgage dated 29 July
1987.
4. P140,000.00 interest and charges, or the
difference between the P507,000.00 principal in the
Amendment of the Real Estate Mortgage dated 29 July
1987 and the P647,000.00 principal in the Amendment of
the Real Estate Mortgage dated 11 March 1988.
5. P227,125.00 interest and charges, or the
difference between the P647,000.00 principal in the
Amendment of the Real Estate Mortgage dated 11 March
1988 and the P874,125 principal in the Amendment of the
Real Estate Mortgage dated 21 October 1988.
The total interest and charges amounting to P559,125.00 on the original
principal of P350,000 was accumulated over only two years and one

The petition is without merit.

month. These charges are not found in any written agreement between the
parties. The records fail to show any computation on how much interest

The Real Estate Mortgage executed between the parties specified

was charged and what other fees were imposed. Not only did lack of

that the principal indebtedness shall earn interest at the legal rate. The

transparency characterize the aforementioned agreements, the interest

agreement contained no other provision on interest or any fees or charges

rates and the service charge imposed, at an average of 6.39% per month,

incident to the debt. In at least three contracts, all designated as

are excessive.

59
In enacting Republic Act No. 3765, known as the Truth in Lending

a P60,000.00 loan was likewise equitably reduced to a 1% monthly interest

Act, the State seeks to protect its citizens from a lack of awareness of the

or 12% per annum. In Ruiz v. Court of Appeals,[20] the Court found a 3%

true cost of credit by assuring the full disclosure of such costs. Section 4, in

monthly

connection

of P1,050,000.00 to be excessive and reduced the interest to a 1% monthly

with

Section

3(3)[16] of

the

said

law,

gives

detailed

enumeration of the specific information required to be disclosed, among

interest

imposed

on

four

separate

loans

with

total

interest or 12% per annum.

which are the interest and other charges incident to the extension of
credit. Section 6[17] of the same law imposes on anyone who willfully

In declaring void the stipulations authorizing excessive interest and

violates these provisions, sanctions which include civil liability, and a fine

charges, the Court declared that although the Usury Law was suspended

and/or imprisonment.

by Central Bank Circular No. 905, s. 1982, effective on 1 January 1983, and
consequently parties are given a wide latitude to agree on any interest

Although any action seeking to impose either civil or criminal

rate, nothing in the said Circular grants lenders carte blancheauthority to

liability had already prescribed, this Court frowns upon the underhanded

raise interest rates to levels which will either enslave their borrowers or

manner in which the SpousesEspiritu imposed interest and charges, in

lead to a hemorrhaging of their assets.[21]

connection with the loan. This is aggravated by the fact that one of the
creditors, Zoilo Espiritu, a lawyer, is hardly in a position to plead ignorance

Stipulation authorizing iniquitous or unconscionable interests

of the requirements of the law in connection with the transparency of

are contrary to morals, if not against the law. Under Article 1409 of the

credit transactions. In addition, the Civil Code clearly provides that:

Civil Code, these contracts are inexistent and void from the beginning.
They cannot be ratified nor the right to set up their illegality as a defense

Article 1956. No interest shall be due unless it has been

stipulated in writing.

be waived.[22] The nullity of the stipulation on the usurious interest does

not, however, affect the lenders right to recover the principal of the loan.

The omission of the Spouses Espiritu in specifying in the contract the

interest rate which was actually imposed, in contravention of the law,
manifested bad faith.

[23]

Nor would it affect the terms of the real estate mortgage. The right to

foreclose the mortgage remains with the creditors, and said right can be
exercised upon the failure of the debtors to pay the debt due. The debt due
is to be considered without the stipulation of the excessive interest. A legal

In several cases, this Court has been known to declare null and
void stipulations on interest and charges that were found excessive,

interest of 12% per annum will be added in place of the excessive interest
formerly imposed.

iniquitous, and unconscionable. In the case of Medel v. Court of Appeals,

[18]

the

Court

declared

an

interest

a P500,000.00 loan to be excessive,

rate

of

5.5%

per

month

on

iniquitous, unconscionable and

exorbitant.Even if the parties themselves agreed on the interest rate and

stipulated the same in a written agreement, it nevertheless declared such
stipulation as void and ordered the imposition of a 12% yearly interest
rate. In Spouses Solangon v.

Salazar,[19] 6%

monthly

interest

on

While the terms of the Real Estate Mortgage remain effective, the
foreclosure proceedings held on 31 Ocotber 1990 cannot be given effect. In
the Notice of SheriffsSale[24] dated 5 October 1990, and in the Certificate of
Sale[25] dated 31 October 1990, the amount designated as mortgage
indebtedness
letter

[26]

amounted

dated 12

to P874,125.00. Likewise,

December

in

the

1989, Zoilo Espiritu demanded

demand
from

the

Spouses Landrito the amount of P874,125.00 for the unpaid loan. Since the

60
debt due is limited to the principal of P350,000.00 with 12% per annum as

without the iniquitous interest imposed, no foreclosure proceedings may be

legal

amount

instituted. A judgment ordering a foreclosure sale is conditioned upon a

of P874,125.00 cannot be considered as a valid demand for payment. For

finding on the correct amount of the unpaid obligation and the failure of

an obligation to become due, there must be a valid demand. [27] Nor can the

the debtor to pay the said amount.[31] In this case, it has not yet been

foreclosure proceedings be considered valid since the total amount of the

shown that the Spouses Landrito had already failed to pay the correct

indebtedness

pegged

amount of the debt and, therefore, a foreclosure sale cannot be conducted

at P874,125.00 which included interest and which this Court now nullifies

in order to answer for the unpaid debt. The foreclosure sale conducted

for

foreclosure

upon their failure to pay P874,125 in 1990 should be nullified since the

proceedings were considered valid, this would result in an inequitable

amount demanded as the outstanding loan was overstated; consequently

situation wherein the Spouses Landrito will have their land foreclosed for

it has not been shown that the mortgagors the Spouses Landrito, have

failure to pay an over-inflated loan only a small part of which they were

failed to pay their outstanding obligation. Moreover, if the proceeds of the

obligated to pay.

sale together with its reasonable rates of interest were applied to the

interest,

being

the

previous

during

excessive,

the

demand

foreclosure

iniquitous

and

for

payment

of

proceedings
exorbitant. If

the

was
the

obligation, only a small part of its original loans would actually remain
Moreover, it is evident from the facts of the case that despite
considerable effort on their part, the Spouses Landrito failed to redeem the

outstanding, but because of the unconscionable interest rates, the larger

part corresponded to said excessive and iniquitous interest.

mortgaged property because they were unable to raise the total amount,
which was grossly inflated by the excessive interest imposed. Their

As a result, the subsequent registration of the foreclosure sale cannot

attempt to redeem the mortgaged property at the inflated amount

transfer any rights over the mortgaged property to the Spouses Espiritu.

ofP1,595,392.79, as early as 30 October 1991, is reflected in a letter, which

The registration of the foreclosure sale, herein declared invalid, cannot vest

creditor-mortgagee Zoilo Landrito acknowledged

by

title over the mortgaged property. The Torrens system does not create or

affixing his signature herein. [28]They also attached in their Complaint copies

vest title where one does not have a rightful claim over a real property. It

of two checks in the amounts of P770,000.00 and P995,087.00, both

only confirms and records title already existing and vested. It does not

dated 13

the

permit one to enrich oneself at the expense of another. [32] Thus, the decree

Spouses Espiritu.[29] Lastly, the Spouses Espiritu even attached in their

of registration, even after the lapse of one (1) year, cannot attain the

exhibits a copy of a handwritten letter, dated 27 January 1994, written by

status of indefeasibility.

January

1992,

which

were

to

allegedly

have

received

refused

by

Paz Landrito, addressed to the Spouses Espiritu, wherein the former offered
to pay the latter the sum of P2,000,000.00.[30] In all these instances, the

Significantly, the records show that the property mortgaged was purchased

Spouses Landrito had tried, but failed, to pay an amount way over the

by the Spouses Espiritu and had not been transferred to an innocent

indebtedness they were supposed to pay i.e., P350,000.00 and 12%

purchaser for value. This means that an action for reconveyance may still

interest per annum. Thus, it is only proper that the Spouses Landrito be

be availed of in this case.[33]

given the opportunity to repay the real amount of their indebtedness.

Registration of property by one person in his or her name, whether by
Since the Spouses Landrito, the debtors in this case, were not

mistake or fraud, the real owner being another person, impresses upon the

given an opportunity to settle their debt, at the correct amount and

title so acquired the character of a constructive trust for the real owner,

61
which would justify an action for reconveyance.[34] This is based on Article

The Special Power of Attorney [37] dated 30 September 1992 was executed

1465 of the Civil Code which states that:

by Maximo Landrito, Jr., with the conformity of Paz Landrito, in connection

with the mortgaged property. It authorized Zoilo Landrito:

Art. 1465. If property acquired through mistakes or fraud,

the person obtaining it is, by force of law, considered a
trustee of an implied trust for benefit of the person from
whom the property comes.
The action for reconveyance does not prescribe until after a period of ten
years from the date of the registration of the certificate of sale since the
action

would

be

based

on

implied

trust. [35] Thus,

the

action

for reconveyance filed on 31 October 1992, more than one year after the

2. To make, sign, execute and deliver corresponding

pertinent contracts, documents, agreements and other
writings of whatever nature or kind and to sue or file
legal action in any court of the Philippines, to collect,
ask demands, encash checks, and recover any and all sum
of monies, proceeds, interest and other due accruing,
owning, payable or belonging to me as such owner of the
afore-mentioned property. (Emphasis provided.)

Sheriffs Certificate of Sale was registered on 9 January 1991, was filed

within the prescription period.

Zoilo Landritos authority to file the case is clearly set forth in the Special
Power of Attorney. Furthermore, the records of the case unequivocally show

It should, however, be reiterated that the provisions of the Real Estate

that Zoilo Landritofiled the reconveyance case with the full authority of his

Mortgage are not annulled and the principal obligation stands. In addition,

mother, Paz Landrito, who attended the hearings of the case, filed in her

the interest is not completely removed; rather, it is set by this Court at

behalf, without making any protest. [38] She even testified in the same case

12% per annum. Should the Spouses Landrito fail to pay the principal, with

on 30 August 1995. From the acts of Paz Landrito, there is no doubt that

its recomputed interest which runs from the time the loan agreement was

she had authorized her son to file the action for reconveyance, in her

entered into on 5 September 1986 until the present, there is nothing in this

behalf, before the trial court.

Decision

which

prevents

the

Spouses Espiritu from

foreclosing

the

mortgaged property.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This

Court AFFIRMS the assailed Decision of the Court of Appeals, promulgated

The last issue raised by the petitioners is whether or not Zoilo Landrito was

on 31 August 2005, fixing the interest rate of the loan between the parties

authorized to file the action for reconveyance filed before the trial court or

at 12% per annum, and ordering the Spouses Espiritu to reconvey the

even to file the appeal from the judgment of the trial court, by virtue of the

subject property to the Spouses Landritoconditioned upon the payment of

Special Power of Attorney dated 30 September 1992. They further noted

the loan together with herein fixed rate of interest. Costs against the

that the trial court and the Court of Appeals failed to rule on this issue. [36]

petitioners. SO ORDERED.