III.

CLASSSIFICATION OF BANKS

B. Relationship Between the Bank and Depositor

Gullas vs. PNB GR. No.

L-43191
Maclaring Lucman vs. GR. No.
Alimatar Malawi 159794
Serrano vs. Central GR. No.
Bank L-30511
Guingona vs. The City of GR. No.
Manila L-60033
Consolidated Bank and GR. No.
Trust Corp. vs. CA 138569
E. Survivorship Agreement

Vitug vs. CA GR. No.

82027
G. Exceptions to Bank Secrecy

BSB Group, Inc. vs Go GR. No.

168644
Ejercito vs. GR. No.
Sandiganbayan 157294-95
Marquez vs. Disierto GR. No.
135882
Union Bank of Phils vs. GR. No.
CA 134699
Republic vs Eugenio GR. No.
174629
H. Foreign Currency Deposit

Intengan vs CA GR. No.

128996
Salvacion vs. Central GR. No.
Page 1 of 69
 Bank 94723
China Banking Corp vs GR. No.
CA 140687
G.R. No. 43191, November 13, 1935
PAULINO GULLAS, PLAINTIFF AND APPELLANT, VS. THE PHILIPPINE NATIONAL BANK, DEFENDANT
AND APPELLANT.

DECISION
MALCOLM, J.:
Both parties to this case appealed from a judgment of the Court of First Instance of Cebu, which sentenced the
defendant to return to the account of the plaintiff the sum of P509, with legal interest and costs, the plaintiff to
secure damages in the amount of P10,000 more or less, and the defendant to be absolved totally from the
amended complaint. As it is conceded that the plaintiff has already received the sum represented by the United
States treasury warrant, which is in Question, the appeal will thus determine the amount, if any, which should be
paid, to the plaintiff by the defendant.

The parties to the case are Paulino Gullas and the Philippine National Bank. The first named is a member of the
Philippine Bar, resident in the City of Cebu. The second named is a banking corporation with a branch in the same
city. Attorney Gullas has had a current account with the bank.

It appears from the record that on August 2, 1933, the Treasurer of the United States for the United States
Veterans Bureau issued a warrant in the amount of $361, payable to the order of Francisco Sabectoria Bacos.
Paulino Gullas and Pedro Lopez signed as indorsers of this check. Thereupon it was cashed by the Philippine
National Bank. Subsequently the treasury warrant was dishonored by the Insular Treasurer.

At that time the outstanding balance of Attorney Gullas on the books of the bank was P509. Against this balance he
had issued certain checks which could not be paid when the money was sequestered by the bank. On August 20,
1933, Attorney Gullas left his residence for Manila.

The bank on learning of the dishonor of the treasury warrant sent notices by mail to Mr. Gullas which could not be
delivered to him at that time because he was in Manila. In the bank's letter of August 21, 1933, addressed to
Messrs. Paulino Gullas and Pedro Lopez, they were informed that the United States Treasury warrant No. 20175 in
the name of Francisco Sabectoria Bacos for $361 or P722, the payment for which had been received has been
returned by our Manila office with the notation that the payment of his check has been stopped by the Insular
Treasurer. "In view of this therefore we have applied the outstanding balances of your current accounts with us to
the part payment of the foregoing check", namely, Mr. Paulino Gullas P509. On the return of Attorney Gullas to
Cebu on August 31, 1933, notice of dishonor was received and the unpaid balance of the United States Treasury
warrant was immediately paid by him.

As a consequence of these happenings, two occurrences transpired which inconvenienced Attorney Gullas. In the
first place, as above indicated, checks including one for his insurance were not paid because of the lack of funds
standing to his credit in the bank. In the second place, periodicals in the vicinity gave prominence to the news to
the great mortification of Gullas.

A variety of incidental questions have been suggested on the record which it can be taken for granted as having
been adversely disposed of in this opinion. The main issues are two, namely, (1) as to the right of the Philippine
National Bank to apply a deposit to the debt of a depositor to the bank, and (2) as to the amount of damages, if
any, which should be awarded Gullas,

The Civil Code contains provisions regarding compensation (set off) and deposit. (Articles 1195 et seq., 1758 et
seq.) These portions of Philippine law provide that compensation shall take place when two persons are reciprocally
creditor and debtor of each other (Civil Code, article 1195). In this connection, it has been held that the relation
existing between a depositor and a bank is that of creditor and debtor. (Fulton Iron Works Co. vs. China Banking
Corporation [1930], 55 Phil., 208; San Carlos Milling Co. vs. Bank of the Philippine Islands and China Banking
Corporation [1933], 59 Phil., 59.)

The Negotiable Instruments Law contains provisions establishing the liability of a general indorser and giving the
procedure for notice of dishonor. The general indorser of a negotiable instrument engages that if it be dishonored

Page 2 of 69
and the necessary proceedings of dishonor be duly taken, he will pay the amount thereof to the holder. (Negotiable
Instruments Law, sec. 66.) In this connection, it has been held by a long line of authorities that notice of dishonor
is necessary in order to charge an indorser and that the right of action against him does not accrue until the notice
is given. (Asia Banking Corporation vs. Javier [1923], 44 Phil., 777; 5 Uniform Laws Annotated.)

As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to
it on the part of a depositor. In Louisiana, however, a civil law jurisdiction, the rule is denied, and it is held that a
bank has no right, without an order from or special assent of the depositor to retain out of his deposit an amount
sufficient to meet his indebtedness. The basis of the Louisiana doctrine is the theory of confidential contracts
arising from irregular deposits, e. g.f the deposit of money with a banker. With freedom of selection and1 after full
consideration, we have decided to adopt the general rule in preference to the minority rule as more in harmony
with modern banking practice. (1 Morse on Banks and Banking, 5th ed., sec. 324; Garrison vs. Union Trust
Company, [1905], 111 A. S, R.,,407; Louisiana Civil Code Annotated, arts. 2207 et seq.; Gordon & Gomila vs.
Muchler [1882], 34 L. Ann., 604; 8 Manresa, Comentarios al Codigo Civil Espanol, 4th ed., 359 et seq.; 11
Manresa, pp. 694 et seq.)

Starting, therefore, from the premise that the Philippine National Bank had with respect to the deposit of Gullas a
right of set off, we next consider if that remedy was enforced properly. The fact we believe is undeniable that prior
to the mailing of notice of dishonor, and without waiting for any action by Gullas, the bank made use of the money
standing in his account to make good for the treasury warrant. At this point recall that Gullas was merely an
indorser and had issued checks in good faith.

As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a third party, it
has been held that he has a right of action against the bank for its refusal to pay such a check in the absence of
notice to him that the bank has applied the funds so deposited in extinguishment of past due claims held against
him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.) The decision cited represents the minority
doctrine, for on principle it would seem that notice is not necessary to a maker because the right is based on the
doctrine that the relationship is that of creditor and debtor. However this may be, as to an indorser the situation is
different, and notice should actually have been given him in order that he might protect his interests.

We accordingly are of the opinion that the action of the bank was prejudicial to Gullas. But to follow up that
statement with others proving exact damages is not so easy. For instance, for alleged libelous articles the bank
would not be primarily liable. The same remark could be made relative to the loss of business which Gullas claims
but which could not be traced definitely to this occurrence. Also Gullas having eventually been reimbursed lost little
through the actual levy by the bank on his funds. On the other hand, it was not agreeable for one to draw checks
in all good faith, then, leave for Manila, and on return find that those checks had not been cashed because of the
action taken by the bank. That caused a disturbance in Gullas' finances, especially with reference to his insurance,
which was injurious to him. All facts and circumstances considered, we are of the opinion that Gullas should be
awarded nominal damages because of the premature action of the bank against which Gullas had no means of
protection, and have finally determined that the amount should be P250.

Agreeable to the foregoing, the errors assigned by the parties will in the main be overruled, with the result that the
judgment of the trial court will be modified by sentencing the defendant to pay the plaintiff the sum of and the-
costs of both instances.

Villa-Real, Imperial, Butte, and Goddard, JJ., concur.

Judgment modified.
G.R. NO. 159794, December 19, 2006
MACLARING M. LUCMAN, IN HIS CAPACITY AS THE MANAGER OF THE LAND BANK OF THE
PHILIPPINES, MARAWI CITY, PETITIONER, VS. ALIMATAR MALAWI, ABDUL- KHAYER PANGCOGA,
SALIMATAR SARIP, LOMALA CADAR, ALIRIBA S. MACARAMBON AND ABDUL USMAN, RESPONDENTS.

DECISION
TINGA, J.:
This is a petition for review challenging the decision of the trial court, affirmed by the Court of Appeals, granting
the petition for mandamus filed by herein respondents, Barangay Chairm0en (or Punong Barangay) of several
barangays in the province of Lanao del Sur.

The petition for mandamus filed by respondents before the trial court is rooted in their claim that they were
deprived of their Internal Revenue Allotment (IRA) for the 2 nd and 3rd quarters of 1997. Respondents further
alleged that these same funds were released by petitioner as Manager of Land Bank of the Philippines (LBP), the
depositary bank, to third persons.
Page 3 of 69
There were originally six (6) petitioners when the Petition for Mandamus with Prayer for Writ of Preliminary
Mandatory Injunction was filed by now respondents before the court of origin. They were Alimatar Malawi,
Abdulkhayr Pangcoga, Salimatar Sarip, Lomala Cadar, Aliriba S. Macarambon and Abdul Usman who were the
incumbent barangay chairmen of Bubong Ngingir (Kabasaran), Ilian, Linindingan, Mapantao-Ingod, Paigoay and
Rangiran, respectively, all from the Municipality of Pagayawan, Lanao del Sur. [1] All of them were the incumbent
barangay chairmen of their respective barangays prior to the 12 May 1997 barangay elections. The elections on 12
May 1997 in the aforesaid barangays resulted in a failure of elections. Thereafter, the special elections held in
these barangays likewise resulted in a failure of elections. [2] Consequently, respondents remained in office in a
holdover capacity pursuant to the provisions of Sec. 1 of

R.A. No. 6679[3] and Comelec Resolution No. 2888 dated February 5, 1997. [4]

Beginning with the second quarter of 1997, LBP was selected as the government depository bank for the IRAs of
the abovementioned barangays.[5] Being a new government depositary bank for the IRA funds, the authorized
public officials had to open new accounts in behalf of their government units with the proper LBP branch from
which they could withdraw the IRAs.[6]

After the failed 12 May 1997 elections, respondents attempted to open their respective barangays' IRA bank
accounts but were refused by petitioner because respondents needed to show their individual certifications showing
their right to continue serving as Barangay Chairmen and the requisite Municipal Accountant's Advice giving
respondents the authority to withdraw IRA deposits. [7] The requirement for the Accountant's Advice stemmed from
Commission on Audit Circular No. 94-004.[8]

Respondents were eventually allowed to open accounts for their barangays except for Lomala Cadar and Abdul
Usman of barangays Mapantao-Ingud and Rangiran, respectively, because the accounts for these barangays were
previously opened by two persons who presented themselves as the duly proclaimed Barangay Chairmen for these
same barangays.[9]

In any event, all respondents were not allowed to withdraw the IRA funds from the opened accounts, owing to the
absence of the requisite Accountant's Advice. [10]

Then on 4 August 1997, five (5) other persons presented themselves before petitioner as the newly proclaimed
Punong Barangays of the five barangays concerned, [11] each of them presenting a certification of his election as
Punong Barangay issued by the provincial director of the DILG-ARMM and another Certification issued by the Local
Government Operations Officer attesting, among others, to the revocation of the certification previously issued to
respondents.[12] Without verifying the authenticity of the certifications presented by these third persons, petitioner
proceeded to release the IRA funds for the 2nd and 3rd quarters of 1997 to them.[13]

Respondents thus filed on 11 August 1997 a special civil action for Mandamus with Application for Preliminary
Mandatory Injunction docketed as Civil Case No. 11-106, to compel petitioner to allow them to open and maintain
deposit accounts covering the IRAs of their respective barangays and to withdraw therefrom. [14] The case was
raffled to the Regional Trial Court (RTC) of Lanao del Sur, Branch 11. [15]

At the trial respondents Sarip, Cadar, Pangcoga and Usman testified that they were duly elected chairpersons of
their respective barangays and continued as such in a holdover capacity until their re-election on 30 August 1997.
They testified further that despite presenting the corresponding documents, petitioner refused to allow the
withdrawal of the funds.[16]

Respondent Macarambon testified that he was the incumbent chairperson of Barangay Paigoay prior to the 12 May
1997 elections and that due to the failure of elections, he continued to occupy his position in a holdover capacity
until he was succeeded by his wife upon the latter's election to the same post. He testified on petitioner's refusal to
release the money to him despite his submission of the Accountant's Advice. [17]

For failure to appear at the scheduled hearing on 20 April 1999, petitioner was held as in default and respondents
were allowed to present evidence ex parte. Petitioner's Motion for Reconsideration of the Order declaring him as in
default was granted.[18]

After failing again to appear on the given time for him to adduce evidence, another Order was issued wherein
petitioner was deemed to have waived his right to present evidence. The Order was lifted on petitioner's Motion for
Reconsideration. Instead of presenting evidence, petitioner filed on 10 November 1999 a Motion to Dispense or
Waive Presentation of Evidence wherein he represented that the prayers in the complaint had already been
complied with.[19] The RTC granted petitioner's motion through an Order dated 24 September 1999. [20]

Thereafter, the RTC rendered a Decision[21] dated 8 October 1999 commanding petitioner to pay respondents,
Page 4 of 69
except respondent Alimatar Malawi who failed to testify, the IRAs of their respective barangays "even without the
Accountant's Advice."[22] The dispositive portion of the Decision reads, to wit:
WHEREFORE, premises all considered, the instant petition is hereby granted. Accordingly, Mr. Maclaring M.
Lucman, Manager of the Land Bank of the Philippines, Marawi City branch, is hereby ordered to pay the following:
[23]

1. Aliriba Macarambon, the 2nd Quarter IRA of Paigoay, Pagayawan in the sum of P48,200.00;
2. Salimatar Sarip of Linindingan the

2nd Quarter IRA - 3rd Quarter IRA -

- - P54,220.00 - - P54,220.00
3. Lomala S. Cadar of Mapantao the

2nd Quarter IRA - 3rd Quarter IRA -

- - P54,320.00 - - P54,320.00
4. Abdulkhay Pangcoga of Ilian the

2nd Quarter IRA - - 3rd Quarter IRA -

- P53, 361.00 - - P53,361.00
5. Abdul Usman of Rangiran the

2nd Quarter IRA - 3rd Quarter IRA -

- - P51,185.00 - - P51,185.00
even without the Accountant's Advice and the subsequent IRAs until their term of office shall have expired.

SO ORDERED.[24]
The RTC gave no credence to petitioner's assertion of payment to the rightful barangay officers, there having been
no testimonial or documentary evidence proferred in substantiation thereof. [25] It considered petitioner's refusal to
present evidence as a "silence" that equates to an admission of respondents' allegations. [26] Furthermore, the RTC
relied on the testimonies and certifications adduced by respondents in holding that they were occupying their
positions in a holdover capacity[27]and that by virtue thereof, they had "the perfect right to continue performing the
duties and functions of their positions including the withdrawal of funds of their respective barangays." [28]

The Court of Appeals[29] affirmed the RTC's Decision in toto. Hence, this petition.

Petitioner argues that respondents have no cause of action against him since they failed to present valid
certifications showing their respective right to continue serving as Punong Barangay as well as the requisite
Municipal Accountant's Advice. Petitioner also asserts that the LBP Marawi Branch had already released the
contested IRAs to the Barangay Treasurers who were acting in conjunction with the duly recognized Punong
Barangays, thereby making the petition for mandamus moot and academic. [30] These are factual issues that are
generally beyond the review of this Court.

Petitioner adds that respondents have no legal personality to institute the petition for mandamus in their own
names since the IRAs rightfully belong to the respective barangays and not to them and that their respective
barangays already received the claimed IRAs in this instant case. [31]

For the proper adjudication of the present petition, two related core issues have to be resolved. First, what is the
cause of action alleged in the initiatory pleading filed by respondents before the trial court? Second, are there
indispensable parties which were not impleaded?

Although the pleading filed before the lower court was denominated as a Petition for Mandamus With Prayer For
Writ of Preliminary Injunction, the allegations thereof indicate that it is an action for specific performance,
particularly to compel petitioner to allow withdrawal of funds from the accounts of the barangays headed by
respondents with the LBP, Marawi Branch. Thus, the Petition alleged:
"12. Despite the opening of deposit accounts for the barangays mentioned in the preceding paragraph, respondent,
without any valid or lawful cause, failed and refused, and still fails and refuses, to allow the withdrawal of the funds

Page 5 of 69
or IRA of the said barangays as evidenced by the WITHDRAWAL CHECKS (attached as Annexes "D" to "D-3"
hereof) of said barangays which were refused payment when presented to the Land Bank on August 4, 1997." [32]
From the records of the case, it appears that the shares of the barangays in the IRA had already been remitted by
the Department of Budget and Management (DBM) to the LBP Marawi Branch where they were kept in the
accounts opened in the names of the barangays.

By virtue of the deposits, there exists between the barangays as depositors and LBP a creditor-debtor relationship.
Fixed, savings, and current deposits of money in banks and similar institutions are governed by the provisions
concerning simple loan.[33] In other words, the barangays are the lenders while the bank is the borrower.

This Court elucidated on the matter in Guingona, Jr., et al. v. The City Fiscal of Manila, et al., [34] citing Serrano v.
Central Bank of the Philippines,[35] thus:
Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of
bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by
the law on loans (Art. 1980, Civil Code; Gullas v. Phil. National Bank, 62 Phil. 519). Current and savings deposits
are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interest
with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The
respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit
is failure to pay its obligation as a debtor and not a breach of trust arising from a depository's failure to return
the subject matter of the deposit. (Emphasis supplied.) [36]
The relationship being contractual in nature, mandamus is therefore not an available remedy since mandamus does
not lie to enforce the performance of contractual obligations. [37]

This brings us to the second core issue.

The IRA funds for which the bank accounts were created belong to the barangays headed by respondents. The
barangays are the only lawful recipients of these funds. Consequently, any transaction or claim involving these
funds can be done only through the proper authorization from the barangays as juridical entities.

The determination, therefore, of whether or not the IRA funds were unlawfully withheld or improperly released to
third persons can only be determined if the barangays participated as parties to this action. These questions cannot
be resolved with finality without the involvement of the barangays. After all, these controversies involve funds
rightfully belonging to the barangays. Hence, the barangays are indispensable parties in this case.

An indispensable party is defined as parties-in-interest without whom there can be no final determination of an
action.[38] The nature of an indispensable party was thoroughly discussed in Arcelona v. Court of Appeals,[39] to
quote:
An indispensable party is a party who has such an interest in the controversy or subject matter that a final
adjudication cannot be made, in his absence, without injuring or affecting that interest, a party who has not only
an interest in the subject matter of the controversy, but also has an interest of such nature that a final decree
cannot be made without affecting his interest or leaving the controversy in such a condition that its final
determination may be wholly inconsistent with equity and good conscience. It has also been considered that an
indispensable party is a person in whose absence there cannot be a determination between the parties already
before the court which is effective, complete, or equitable. Further, an indispensable party is one who must be
included in an action before it may properly go forward.

A person is not an indispensable party, however, if his interest in the controversy or subject matter is separable
from the interest of the other parties, so that it will not necessarily be directly or injuriously affected by a decree
which does complete justice between them. Also, a person is not an indispensable party if his presence would
merely permit complete relief between him and those already parties to the action, or if he has no interest in the
subject matter of the action. It is not a sufficient reason to declare a person to be an indispensable party that his
presence will avoid multiple litigation.[40]
In Arcelona, the Court also dwelt on the consequences of failure to include indispensable parties in a case,
categorically stating that the presence of indispensable parties is a condition for the exercise of juridical power [41]
and when an indispensable party is not before the court, the action should be dismissed. [42] The absence of an
indispensable party renders all subsequent actions of the court null and void for want of authority to act, not only
as to the absent parties but even as to those present. [43]

The joinder of indispensable parties is mandatory. Without the presence of indispensable parties to the suit, the
judgment of the court cannot attain real finality. Strangers to a case are not bound by the judgment rendered by
the court.[44]

Clearly, this case was not initiated by the barangays themselves. Neither did the barangay chairmen file the suit in
Page 6 of 69
representation of their respective barangays. Nothing from the records shows otherwise. On this score alone, the
case in the lower court should have been dismissed.

Even if the barangays themselves had filed the case, still it would not prosper. The case involves government funds
and as such, any release therefrom can only be done in accordance with the prevailing rules and procedures.

The Government Accounting and Auditing Manual (GAAM) provides that the local treasurers shall maintain the
depositary accounts in the name of their respective local government units with banks. [45] Under the Local
Government Code, the treasurer is given the power, among others, to: (1) keep custody of barangay funds and
properties; and (2) disburse funds in accordance with the financial procedures provided by the Local Government
Code.[46] The same manual defines disbursements as constituting all cash paid out during a given period either in
currency or by check.[47]

Sec. 344 of the Local Government Code further provides for the following requirements in cases of disbursements,
to wit:
Sec. 344. No money shall be disbursed unless the local budget officer certifies to the existence of appropriation
that has been legally made for the purpose, the local accountant has obligated said appropriation, and the local
treasurer certifies to the availability of funds for the purpose. Vouchers and payrolls shall be certified to and
approved by the head of the department or office who has administrative control of the fund concerned, as to the
validity, propriety, and legality of the claim involved. Except in cases of disbursements involving regularly recurring
administrative expenses xxx approval of the disbursement voucher by the local chief executive himself shall be
required whenever local funds are disbursed.
Thus, as a safeguard against unwarranted disbursements, certifications are required from: (a) the local budget
officer as to the existence and validity of the appropriation; (b) the local accountant as to the legal obligation
incurred by the appropriation; (c) the local treasurer as to the availability of funds; and (d) the local department
head as to the validity, propriety and legality of the claim against the appropriation. [48]

Further, the GAAM provides for the basic requirements applicable to all classes of disbursements that shall be
complied with, to wit:
a) Certificate of Availability of Fund.–Existence of lawful appropriation, the unexpended balance of which, free
from other obligations, is sufficient to cover the expenditure, certified as available by an accounting officer or any
other official required to accomplish the certificate.

Use of moneys appropriated solely for the specific purpose for which appropriated, and for no other, except when
authorized by law or by a corresponding appropriating body.

b) Approval of claim or expenditure by head of office or his duly authorized representative.

c) Documents to establish validity of claim. – Submission of documents and other evidences to establish the
validity and correctness of the claim for payment.

d) Conformity of the expenditure to existing laws and regulations.

e) Proper accounting treatment.[49]

This prescribed legal framework governing the release and disbursement of IRA funds to the respective barangays
disabuses from the notion that a barangay chairman, relying solely on his authority as a local executive, has the
right to demand physical possession of the IRA funds allocated by the national government to the barangay. The
right to demand for the funds belongs to the local government itself through the authorization of their Sanggunian.
[50]

One final note. There is no conclusive proof from the records showing that the IRA funds for the 2nd and 3rd
quarters of the barangays concerned remitted by the DBM had already been

withdrawn from the LBP Marawi Branch. Considering the implications of this action of possibly depriving several
local government units of their IRAs, the Court took the initiative to request the COMELEC to issue certifications on
who were the duly elected chairmen of the barangays concerned. The COMELEC issued to this Court a list of the
elected barangay chairmen which confirmed the re-election of respondents as barangay chairmen of their
respective barangays.[51] If withdrawals were indeed made, whether by the respondents or by impostors, the
matter deserves to be investigated since public funds are involved. Accordingly, we refer the matter to the
Department of Interior and Local Government (DILG) for investigation and appropriate action.

WHEREFORE, premises considered, the petition is GRANTED. The assailed Decisions of the Court of Appeals and
the Regional Trial Court are REVERSED and SET ASIDE. The Petition for Mandamus filed before the Regional Trial
Page 7 of 69
Court is ordered DISMISSED.

The alleged withdrawals of deposits representing the Internal Revenue Allotments for the 2nd and 3rd Quarters of
1997 of the barangays concerned from the Land Bank of the Philippines, Marawi Branch, are referred to the DILG
for investigation and appropriate action. The DILG is hereby DIRECTED to INFORM the Court of the result of its
investigation within thirty (30) days from the completion thereof.

No pronouncement as to costs.

SO ORDERED.
G.R. No. L-30511, February 14, 1980
MANUEL M. SERRANO, PETITIONER, VS. CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF
MANILA: EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA
RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA,
VICTORIA RAMOS TANJUATCO, AND TEOFILO TANJUATCO, RESPONDENTS.

DECISION
CONCEPCION, JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of joint and
solidary liability to the amount of Three Hundred Fifty Thousand Pesos, with interest, against respondent Central
Bank of the Philippines and Overseas Bank of Manila and its stockholders, on the alleged failure of the Overseas
Bank of Manila to return the time deposits made by petitioner and assigned to him, on the ground that respondent
Central Bank failed in its duty to exercise strict supervision over respondent Overseas Bank of Manila to protect
depositors and the general public.[1] Petitioner also prays that both respondent banks be ordered to execute the
proper and necessary documents to constitute all properties listed in Annex "7" of the Answer of respondent
Central Bank of the Philippines in G.R. No. L-29352, entitled "Emerito M. Ramos, et al. vs. Central Bank of the
Philippines," into a trust fund in favor of petitioner and all other depositors of respondent Overseas Bank of Manila.
It is also prayed that the respondents be prohibited permanently from honoring, implementing, or doing any act
predicated upon the validity or efficacy of the deeds of mortgage, assignment, and/or conveyance or transfer of
whatever nature of the properties listed in Annex "7" of the Answer of respondent Central Bank in G.R. No. 29352.
[2]

A sought for ex-parte preliminary injunction against both respondent banks was not given by this Court.

Undisputed pertinent facts are:

On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6% interest, of
One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank of Manila. [3] Concepcion
Maneja also made a time deposit, for one year with 6-1/2% interest, on March 6, 1967, of Two Hundred Thousand
Pesos (P200,000.00) with the same respondent Overseas Bank of Manila. [4]

On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to petitioner
Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of Manila. [5]

Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent
Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a single one of the time deposit
certificates was honored by respondent Overseas Bank of Manila. [6]

Respondent Central Bank admits that it is charged with the duty of administering the banking system of the
Republic and it exercises supervision over all banks doing business in the Philippines, but denies the petitioner's
allegation that the Central Bank has the duty to exercise a most rigid and stringent supervision of banks, implying
that respondent Central Bank has to watch every move or activity of all banks, including respondent Overseas
Bank of Manila. Respondent Central Bank claims that as of March 12, 1965, the Overseas Bank of Manila, while
operating, was only on a limited degree of banking operations since the Monetary Board decided in its Resolution
No. 322, dated March 12, 1965, to prohibit the Overseas Bank of Manila from making new loans and investments
in view of its chronic reserve deficiencies against its deposit liabilities. This limited operation of respondent
Overseas Bank of Manila continued up to 1968. [7]

Respondent Central Bank also denied that it is a guarantor of the permanent solvency of any banking institution as
claimed by petitioner. It claims that neither the law nor sound banking supervision requires respondent Central
Bank to advertise or represent to the public any remedial measures it may impose upon chronic delinquent banks
as such action may inevitably result to panic or bank "runs". In the years 1966-1967, there were no findings to
declare the respondent Overseas Bank of Manila as insolvent. [8]
Page 8 of 69
Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and his pre-
decessor in interest Concepcion Maneja when their time deposits were made in 1966 and 1967 with the respondent
Overseas Bank of Manila as during that time the latter was not an insolvent bank and its operation as a banking
institution was being salvaged by the respondent Central Bank. [9]

Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by respondent
Overseas Bank of Manila as additional collaterals to respondent Central Bank of the Philippines for the former's
overdrafts and emergency loans were acquired through the use of depositors' money, including that of the
petitioner and Concepcion Maneja.[10]

In G.R. No. L-29352, entitled "Emerito M. Ramos, et al. vs. Central Bank of the Philippines," a case was filed by the
petitioner Ramos, wherein respondent Overseas Bank of Manila sought to prevent respondent Central Bank from
closing, declaring the former insolvent, and liquidating its assets. Petitioner Manuel Serrano in this case, filed on
September 6, 1968, a motion to intervene in G.R. No. L-29352, on the ground that Serrano had a real and legal
interest as depositor of the Overseas Bank of Manila in the matter in litigation in that case. Respondent Central
Bank in G.R. No. L-29352 opposed petitioner Manuel Serrano's motion to intervene in that case, on the ground that
his claim as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First Instance,
and if this Court were to allow Serrano to intervene as depositor in G.R. No. L-29352, thousands of other
depositors would follow and thus cause an avalanche of cases in this Court. In the resolution dated October 4,
1968, this Court denied Serrano's motion to intervene. The contents of said motion to intervene are substantially
the same as those of the present petition.[11]

This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and executory on March
3, 1972, favorable to the respondent Overseas Bank of Manila, with the dispositive portion to wit:
"WHEREFORE, the writs prayed for in the petition are hereby granted and respondent Central Bank's resolution
Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing, direct the
suspension of its operation, and ordering the liquidation of said bank) are hereby annulled and set aside; and said
respondent Central Bank of the Philippines is directed to comply with its obligations under the Voting Trust
Agreement, and to desist from taking action in violation therefor. Costs against respondent Central Bank of the
Philippines."[12]
Because of the above decision, petitioner in this case filed a motion for judgment in this case, praying for a
decision on the merits, adjudging respondent Central Bank jointly and severally liable with respondent Overseas
Bank of Manila to the petitioner for the P350,000 time deposit made with the latter bank, with all interests due
therein; and declaring all assets assigned or mortgaged by the respondents Overseas Bank of Manila and the
Ramos groups in favor of the Central Bank as trust funds for the benefit of petitioner and other depositors. [13]

By the very nature of the claims and causes of action against respondents, they in reality are recovery of time
deposits plus interest from respondent Overseas Bank of Manila, and recovery of damages against respondent
Central Bank for its alleged failure to strictly supervise the acts of the other respondent Bank and protect the
interests of its depositors by virtue of the constructive trust created when respondent Central Bank required the
other respondent to increase its collaterals for its overdrafts and emergency loans, said collaterals allegedly
acquired through the use of depositors money. These claims should be ventilated in the Court of First Instance of
proper jurisdiction as We already pointed out when this Court denied petitioner's motion to intervene in G.R. No. L-
29352. Claims of these nature are not proper in actions for mandamus and prohibition as there is no shown clear
abuse of discretion by the Central Bank in its exercise of supervision over the other respondent Overseas Bank of
Manila, and if there was, petitioner here is not the proper party to raise that question, but rather the Overseas
Bank of Manila, as it did in G.R. No. L-29352. Neither is there anything to prohibit in this case, since the
questioned acts of the respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of
Manila), which petitioner here intends to use as his basis for claims of damages against respondent Central Bank,
had been accomplished a long time ago.

Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when the petitioner
claimed that there should be created a constructive trust in his favor when the respondent Overseas Bank of Manila
increased its collaterals in favor of respondent Central Bank for the former's overdrafts and emergency loans, since
these collaterals were acquired by the use of depositors' money.

Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of
bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on
loans.[14] Current and savings deposits are loans to a bank because it can use the same. The petitioner here in
making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of the
respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of the
respondent Bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of trust
arising from a depositary's failure to return the subject matter of the deposit.
Page 9 of 69
WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.

SO ORDERED.

CONCURRING OPINION

AQUINO, J.:

I concur in the result. The petitioner prayed that the Central Bank be ordered to pay his time deposits of
P350,000, plus interests, which he could not recover from the distressed Overseas Bank of Manila, and to declare
all the assets assigned or mortgaged by that bank and the Ramos group to the Central Bank as trust properties for
the benefit of the petitioner and other depositors.

The petitioner has no causes of action against the Central Bank to obtain those reliefs. They cannot be granted in
petitioner's instant original actions in this Court for mandamus and prohibition. It is not the Central Bank's
ministerial duty to pay petitioner's time deposits or to hold the mortgaged properties in trust for the depositors of
the Overseas Bank of Manila. The petitioner has no cause of action for prohibition, a remedy usually available
against any tribunal, board, corporation or person exercising judicial or ministerial functions.

Since the Overseas Bank of Manila was found to be insolvent and the Superintendent of Banks was ordered to take
over its assets preparatory to its liquidation under section 29 of Republic Act No. 265 (p. 197, Rollo, Manifestation
of September 19, 1973), petitioner's remedy is to file his claim in the liquidation proceeding (Central Bank vs.
Morfe, L-38427, March 12, 1975, 63 SCRA 114; Hernandez vs. Rural Bank of Lucena, Inc., L-29791, January 10,
1978, 81 SCRA 75).
G.R. No. L-60033, April 04, 1984
TEOFISTO GUINGONA JR., ANTONIO I. MARTIN, AND TERESITA SANTOS, PETITIONERS, VS. THE CITY
FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA AND CLEMENT
DAVID, RESPONDENTS.

DECISION
MAKASIAR, ACTG. C.J.:
This is a petition for prohibition and injunction with a prayer for the immediate issuance of restraining order and/or
writ of preliminary injunction filed by petitioners on March 26, 1982.
On March 31, 1982, by virtue of a court resolution issued by this Court on the same date, a temporary restraining
order was duly issued ordering the respondents, their officers, agents, representatives and/or person or persons
acting upon their (respondents') orders or in their place or stead to refrain from proceeding with the preliminary
investigation in Case No. 81-31938 of the Office of the City Fiscal of Manila (pp. 47-48, rec.). On January 24, 1983,
private respondent Clement David filed a motion to lift restraining order which was denied in the resolution of this
Court dated May 18, 1983.
As can be gleaned from the above, the instant petition seeks to prohibit public respondents from proceeding with
the preliminary investigation of I.S. No. 81-31938, in which petitioners were charged by private respondent
Clement David, with estafa and violation of Central Bank Circular No. 364 and related regulations regarding foreign
exchange transactions principally, on the ground of lack of jurisdiction in that the allegations of the charged, as
well as the testimony of private respondent's principal witness and the evidence through said witness, showed that
petitioners' obligation is civil in nature.
For purposes of brevity, We hereby adopt the antecedent facts narrated by the Solicitor General in its Comment
dated June 28, 1982, as follows:
"On December 23, 1981, private respondent David filed I.S. No. 81-31938 in the Office of the City Fiscal of Manila,
which case was assigned to respondent Lota for preliminary investigation (Petition, p. 8).
"In I.S. No. 81-31938, David charged petitioners (together with one Robert Marshall and the following directors of
the Nation Savings and Loan Association, Inc., namely Homero Gonzales, Juan Merino, Flavio Macasaet, Victor
Gomez, Jr., Perfecto Mañalac, Jaime V. Paz, Paulino B. Dionisio, and one John Doe) with estafa and violation of
Central Bank Circular No. 364 and related Central Bank regulations on foreign exchange transactions, allegedly
committed as follows (Petition, Annex 'A'):
"'From March 20, 1979 to March, 1981, David invested with the Nation Savings and Loan Association, (hereinafter
called NSLA) the sum of P1,145,546.20 on time deposits, P13,531.94 on savings account deposits (jointly with his
sister, Denise Kuhne), US$10,000.00 on time deposit, US$15,000.00 under a receipt and guarantee of payment
and US$50,000.00 under a receipt dated June 8, 1980 (all jointly with Denise Kuhne); that David was induced into
making the aforestated investments by Robert Marshall, an Australian national, who was allegedly a close associate
Page 10 of 69
of petitioner Guingona Jr., then NSLA President, petitioner Martin, then NSLA Executive Vice-President of NSLA and
petitioner Santos, then NSLA General Manager; that on March 21, 1981 NSLA was placed under receivership by the
Central Bank, so that David filed claims therewith for his investments and those of his sister; that on July 22, 1981
David received a report from the Central Bank that only P305,821.92 of those investments were entered in the
records of NSLA; that, therefore, the respondents in I.S. No. 81-31938 misappropriated the balance of the
investments, at the same time violating Central Bank Circular No. 364 and related Central Bank regulations on
foreign exchange transactions; that after demands, petitioner Guingona Jr. paid only P200,000.00, thereby
reducing the amounts misappropriated to P959,078.14 and US$75,000.00.'
"Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex 'B') in which they stated the
following:
"'That Martin became President of NSLA in March 1978 (after the resignation of Guingona, Jr.) and served as such
until October 30, 1980, while Santos was General Manager up to November 1980; that because NSLA was urgently
in need of funds and at David's' insistence, his investments were treated as special accounts with interests above
the legal rate, and recorded in separate confidential documents only a portion of which were to be reported
because he did not want the Australian government to tax his total earnings (nor) to know his total investments;
that all transactions with David were recorded except the sum of US$15,000.00 which was a personal loan of
Santos; that David's check for US$50,000.00 was cleared through Guingona, Jr.'s dollar account because NSLA did
not have one, that a draft of US$30,000.00 was placed in the name of one Paz Roces because of a pending
transaction with her; that the Philippine Deposit Insurance Corporation had already reimbursed David within the
legal limits; that majority of the stockholders of NSLA had filed Special Proceedings No. 82-1695 in the Court of
First Instance to contest its (NSLA's) closure; that after NSLA was placed under receivership, Martin executed a
promissory note in David's favor and caused the transfer to him of a nine and one-half (9 1/2) carat diamond ring
with a net value of P510,000.00; and, that the liabilities of NSLA to David were civil in nature.'
"Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex 'C') stated the following:
"'That he had no hand whatsoever in the transactions between David and NSLA since he (Guingona Jr.) had
resigned as NSLA president in March 1978, or prior to those transactions; that he assumed a portion of the
liabilities of NSLA to David because of the latter's insistence that he placed his investments with NSLA because of
his faith in Guingona, Jr.; that in a Promissory Note dated June 17, 1981 (Petition, Annex "D") he (Guingona, Jr.)
bound himself to pay David the sums of P668,307.01 and US$37,500.00 in stated installments; that he (Guingona,
Jr.) secured payment of those amounts with second mortgages over two (2) parcels of land under a deed of
Second Real Estate Mortgage (Petition, Annex "E") in which it was provided that the mortgage over one (1) parcel
shall be cancelled upon payment of one-half of the obligation to David; that he (Guingona, Jr.) paid P200,000.00
and tendered another P300,000.00 which David refused to accept, hence, he (Guingona, Jr.) filed Civil Case No. Q-
33865 in the Court of First Instance of Rizal at Quezon City, to effect the release of the mortgage over one (1) of
the two parcels of land conveyed to David under second mortgages.'
"At the inception of the preliminary investigation before respondent Lota, petitioners moved to dismiss the charges
against them for lack of jurisdiction because David's claims allegedly comprised a purely civil obligation which was
itself novated. Fiscal Lota denied the motion to dismiss (Petition, p. 8).
"But, after the presentation of David's principal witness, petitioners filed the instant petition because: (a) the
production of the Promissory Notes, Banker's Acceptance, Certificates of Time Deposits and Savings Account
allegedly showed that the transactions between David and NSLA were simple loans, i.e., civil obligations on the
part of NSLA which were novated when Guingona, Jr. and Martin assumed them; and (b) David's principal witness
allegedly testified that the duplicate originals of the aforesaid instruments of indebtedness were all on file with
NSLA, contrary to David's claim that some of his investments were not recorded (Petition, pp. 8-9).
"Petitioners alleged that they did not exhaust available administrative remedies because to do so would be futile
(Petition, p. 9)" [pp. 153-157, rec.].
As correctly pointed out by the Solicitor General, the sole issue for resolution is whether public respondents acted
without jurisdiction when they investigated the charges (estafa and violation of CB Circular No. 364 and related
regulations regarding foreign exchange transactions) subject matter of I.S. No. 81-31938.
There is merit in the contention of the petitioners that their liability is civil in nature and therefore, public
respondents have no jurisdiction over the charge of estafa.
A casual perusal of the December 23, 1981 affidavit-complaint filed in the Office of the City Fiscal of Manila by
private respondent David against petitioners Teopisto Guingona, Jr., Antonio I. Martin and Teresita G. Santos,
together with one Robert Marshall and the other directors of the Nation Savings and Loan Association, will show
that from March 20, 1979 to March, 1981, private respondent David, together with his sister, Denise Kuhne,
invested with the Nation Savings and Loan Association the sum of P1,145,546.20 on time deposits covered by
Bankers Acceptances and Certificates of Time Deposits and the sum of P13,531.94 on savings account deposits
covered by passbook nos. 6-632 and 29-742, or a total of P1,159,078.14 (pp. 15-16, rec.). It appears further that
private respondent David, together with his sister, made investments in the aforesaid bank in the amount of
US$75,000.00 (p. 17, rec.).

Page 11 of 69
Moreover, the records reveal that when the aforesaid bank was placed under receivership on March 21, 1981,
petitioners Guingona and Martin, upon the request of private respondent David, assumed the obligation of the bank
to private respondent David by executing on June 17, 1981 a joint promissory note in favor of private respondent
acknowledging an indebtedness of P1,336,614.02 and US$75,000.00 (p. 80, rec.). This promissory note was based
on the statement of account as of June 30, 1981 prepared by the private respondent (p. 81, rec.). The amount of
indebtedness assumed appears to be bigger than the original claim because of the added interest and the inclusion
of other deposits of private respondent's sister in the amount of P116,613.20.
Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to divide the said indebtedness, and
petitioner Guingona executed another promissory note antedated to June 17, 1981 whereby he personally
acknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02) and US$37,500.00 (1/2 of US$75,000.00)
in favor of private respondent (p. 25, rec.). The aforesaid promissory notes were executed as a result of deposits
made by Clement David and Denise Kuhne with the Nation Savings and Loan Association.
Furthermore, the various pleadings and documents filed by private respondent David before this Court indisputably
show that he has indeed invested his money on time and savings deposits with the Nation Savings and Loan
Association.
It must be pointed out that when private respondent David invested his money on time and savings deposits with
the aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not a contract of
deposit. Thus, Article 1980 of the New Civil Code provides that:
"Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by
the provisions concerning simple loan."
In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114, 119 [1975], We said:
"It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are not true
deposits. They are considered simple loans and, as such, are not preferred credits (Art. 1980 Civil Code; In re
Liquidation of Mercantile Bank of China: Tan Tiong Tick vs. American Apothecaries Co., 65 Phil. 414; Pacific Coast
Biscuit Co. vs. Chinese Grocers Association, 65 Phil. 375; Fletcher American National Bank vs. Ang Cheng Lian, 65
Phil. 385; Pacific Commercial Co. vs. American Apothecaries Co., 65 Phil. 429; Gopoco Grocery vs. Pacific Coast
Biscuit Co., 65 Phil. 443)."
This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines (96 SCRA 96, 102 [1980])
that:
"Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of
bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on
loans (Art. 1980, Civil Code; Gullas vs. Phil. National Bank, 62 Phil. 519). Current and savings deposits are loans
to a bank because it can use the same. The petitioner here in making time deposits that earn interests with
respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The
respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is
failure to pay its obligation as a debtor and not a breach of trust arising from a depositary's failure to return the
subject matter of the deposit" (Italics supplied).
Hence, the relationship between the private respondent and the Nation Savings and Loan Association is that of
creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank upon the
perfection of the contract and it can make use of the amount deposited for its banking operations, such as to pay
interests on deposits and to pay withdrawals. While the Bank has the obligation to return the amount deposited, it
has, however, no obligation to return or deliver the same money that was deposited. And, the failure of the Bank
to return the amount deposited will not constitute estafa through misappropriation punishable under Article 315,
par. 1(b) of the Revised Penal Code, but it will only give rise to civil liability over which the public respondents have
no jurisdiction.
WE have already laid down the rule that:
"In order that a person can be convicted under the above-quoted provision, it must be proven that he has the
obligation to deliver or return the same money, goods or personal property that he received. Petitioners had no
such obligation to return the same money, i.e., the bills or coins, which they received from private respondents.
This is so because as clearly stated in criminal complaints, the related civil complaints and the supporting sworn
statements, the sums of money that petitioners received were loans.
"The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.
"'Art. 1933. -- By the contract of loan, one of the parties delivers to another, either something not consumable so
that the latter may use the same for a certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind
and quality shall be paid, in which case the contract is simply called a loan or mutuum.
"'Commodatum is essentially gratuitous.
"'Simple loan may be gratuitous or with a stipulation to pay interest.

Page 12 of 69
"'In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to
the borrower.
"'Art. 1953. -- A person who receives a loan of money or any other fungible thing acquires the ownership thereof,
and is bound to pay to the creditor an equal amount of the same kind and quality.'
"It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to
commodatum, the borrower acquires ownership of the money, goods or personal property borrowed. Being the
owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will not be considered
misappropriation thereof" (Yam vs. Malik, 94 SCRA 30, 34 [1979]; Italics supplied).
But even granting that the failure of the bank to pay the time and savings deposits of private respondent David
would constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal Code, nevertheless any incipient
criminal liability was deemed avoided, because when the aforesaid bank was placed under receivership by the
Central Bank, petitioners Guingona and Martin assumed the obligation of the bank to private respondent David,
thereby resulting in the novation of the original contractual obligation arising from deposit into a contract of loan
and converting the original trust relation between the bank and private respondent David into an ordinary debtor-
creditor relation between the petitioners and private respondent. Consequently, the failure of the bank or
petitioners Guingona and Martin to pay the deposits of private respondent would not constitute a breach of trust
but would merely be a failure to pay the obligation as a debtor.
Moreover, while it is true that novation does not extinguish criminal liability, it may however, prevent the rise of
criminal liability as long as it occurs prior to the filing of the criminal information in court. Thus, in Gonzales vs.
Serrano (25 SCRA 64, 69 [1968]) We held that:
"As pointed out in People vs. Nery, novation prior to the filing of the criminal information -- as in the case at bar --
may convert the relation between the parties into an ordinary creditor-debtor relation, and place the complainant
in estoppel to insist on the original transaction or 'cast doubt on the true nature' thereof."
Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA 578, 580-581[1983]), this Court
reiterated the ruling in People vs. Nery (10 SCRA 244 [1964]), declaring that:
"The novation theory may perhaps apply prior to the filing of the criminal information in court by the state
prosecutors because up to that time the original trust relation may be converted by the parties into an ordinary
creditor-debtor situation, thereby placing the complainant in estoppel to insist on the original trust. But after the
justice authorities have taken cognizance of the crime and instituted action in court, the offended party may no
longer divest the prosecution of its power to exact the criminal liability, as distinguished from the civil. The crime
being an offense against the state, only the latter can renounce it (People vs. Gervacio, 54 Off. Gaz. 2898; People
vs. Velasco, 42 Phil. 76; U.S. vs. Montañes, 8 Phil. 620).
"It may be observed in this regard that novation is not one of the means recognized by the Penal Code whereby
criminal liability can be extinguished; hence, the role of novation may only be to either prevent the rise of criminal
liability or to cast doubt on the true nature of the original basic transaction, whether or not it was such that its
breach would not give rise to penal responsibility, as when money loaned is made to appear as a deposit, or other
similar disguise is resorted to (cf. Abeto vs. People, 90 Phil. 581; U.S. vs. Villareal, 27 Phil. 481)."
In the case at bar, there is no dispute that petitioners Guingona and Martin executed a promissory note on June
17, 1981 assuming the obligation of the bank to private respondent David; while the criminal complaint for estafa
was filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear that novation occurred long
before the filing of the criminal complaint with the Office of the City Fiscal.
Consequently, as aforestated, any incipient criminal liability would be avoided but there will still be a civil liability
on the part of petitioners Guingona and Martin to pay the assumed obligation.
Petitioners herein were likewise charged with violation of Section 3 of Central Bank Circular No. 364 and other
related regulations regarding foreign exchange transactions by accepting foreign currency deposit in the amount of
US$75,000.00 without authority from the Central Bank. They contend however, that the US dollars intended by
respondent David for deposit were all converted into Philippine currency before acceptance and deposit into Nation
Savings and Loan Association.
Petitioners' contention is worthy of belief for the following reasons:
1. It appears from the records that when respondent David was about to make a deposit of a bank draft issued in
his name in the amount of US$50,000.00 with the Nation Savings and Loan Association, the same had to be
cleared first and converted into Philippine currency. Accordingly, the bank draft was endorsed by respondent David
to petitioner Guingona, who in turn deposited it to his dollar account with the Security Bank and Trust Company.
Petitioner Guingona merely accommodated the request of the Nation Savings and Loan Association in order to clear
the bank draft through his dollar account because the bank did not have a dollar account. Immediately after the
bank draft was cleared, petitioner Guingona authorized Nation Savings and Loan Association to withdraw the same
in order to be utilized by the bank for its operations.
2. It is safe to assume that the U.S. dollars were converted first into Philippine pesos before they were accepted
and deposited in Nation Savings and Loan Association, because the bank is presumed to have followed the ordinary
course of the business which is to accept deposits in Philippine currency only, and that the transaction was regular
Page 13 of 69
and fair, in the absence of a clear and convincing evidence to the contrary (see paragraphs p and q, Sec. 5, Rule
131, Rules of Court).
3. Respondent David has not denied the aforesaid contention of herein petitioners despite the fact that it was
raised in petitioners' reply filed on May 7, 1982 to private respondent's comment and in the July 27, 1982 reply to
public respondents' comment and reiterated in petitioners' memorandum filed on October 30, 1982, thereby
adding more support to the conclusion that the US$75,000.00 were really converted into Philippine currency before
they were accepted and deposited into Nation Savings and Loan Association. Considering that this might adversely
affect his case, respondent David should have promptly denied petitioners' allegation.
In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no clear
showing that they engaged in foreign exchange transactions, We hold that the public respondents acted without
jurisdiction when they investigated the charges against the petitioners. Consequently, public respondents should be
restrained from further proceeding with the criminal case for to allow the case to continue, even if the petitioners
could have appealed to the Ministry of Justice, would work great injustice to petitioners and would render
meaningless the proper administration of justice.
While as a rule, the prosecution in a criminal offense cannot be the subject of prohibition and injunction, this Court
has recognized the resort to the extraordinary writs of prohibition and injunction in extreme cases, thus:
"On the issue of whether a writ of injunction can restrain the proceedings in Criminal Case No. 3140, the general
rule is that 'ordinarily, criminal prosecution may not be blocked by court prohibition or injunction.' Exceptions,
however, are allowed in the following instances:
"'1. for the orderly administration of justice;
"'2. to prevent the use of the strong arm of the law in an oppressive and vindictive manner;
"'3. to avoid multiplicity of actions;
"'4. to afford adequate protection to constitutional rights;
"'5. in proper cases, because the statute relied upon is unconstitutional or was held invalid’" (Primicias vs.
Municipality of Urdaneta, Pangasinan, 93 SCRA 462, 469-470 [1979]; citing Ramos vs. Torres, 25 SCRA 557
[1968]; and Hernandez vs. Albano, 19 SCRA 95, 96 [1967]).
Likewise, in Lopez vs. The City Judge, et al. (18 SCRA 616, 621-622 [1966]), We held that:
"The writs of certiorari and prohibition, as extraordinary legal remedies, are in the ultimate analysis, intended to
annul void proceedings; to prevent the unlawful and oppressive exercise of legal authority and to provide for a fair
and orderly administration of justice. Thus, in Yu Kong Eng vs. Trinidad, 47 Phil. 385, We took cognizance of a
petition for certiorari and prohibition although the accused in the case could have appealed in due time from the
order complained of, our action in the premises being based on the public welfare and the advancement of public
policy. In Dimayuga vs. Fajardo, 43 Phil. 304, We also admitted a petition to restrain the prosecution of certain
chiropractors although, if convicted, they could have appealed. We gave due course to their petition for the orderly
administration of justice and to avoid possible oppression by the strong arm of the law. And in Arevalo vs.
Nepomuceno, 63 Phil. 627, the petition for certiorari challenging the trial court's action admitting an amended
information was sustained despite the availability of appeal at the proper time."
WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY RESTRAINING ORDER PREVIOUSLY ISSUED
IS MADE PERMANENT. COSTS AGAINST THE PRIVATE RESPONDENT.
SO ORDERED.
G.R. No. 138569, September 11, 2003
THE CONSOLIDATED BANK AND TRUST CORPORATION, PETITIONER, VS. COURT OF APPEALS AND L.C.
DIAZ AND COMPANY, CPA'S, RESPONDENTS.

DECISION
CARPIO, J.:
The Case

Before us is a petition for review of the Decision [1] of the Court of Appeals dated 27 October 1998 and its
Resolution dated 11 May 1999. The assailed decision reversed the Decision [2] of the Regional Trial Court of Manila,
Branch 8, absolving petitioner Consolidated Bank and Trust Corporation, now known as Solidbank Corporation
("Solidbank"), of any liability. The questioned resolution of the appellate court denied the motion for
reconsideration of Solidbank but modified the decision by deleting the award of exemplary damages, attorney's
fees, expenses of litigation and cost of suit.
The Facts

Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private respondent L.C.
Page 14 of 69
Diaz and Company, CPA's ("L.C. Diaz"), is a professional partnership engaged in the practice of accounting.

Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as Savings Account No.
S/A 200-16872-6.

On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya ("Macaraya"), filled up a savings (cash)
deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz,
Ismael Calapre ("Calapre"), to deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank
passbook.

Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller
acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips. Teller No.
6 stamped the deposit slips with the words "DUPLICATE" and "SAVING TELLER 6 SOLIDBANK HEAD OFFICE." Since
the transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left the
passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to Solidbank to retrieve the
passbook, Teller No. 6 informed him that "somebody got the passbook." [3] Calapre went back to L.C. Diaz and
reported the incident to Macaraya.

Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya, together
with Calapre, went to Solidbank and presented to Teller No. 6 the deposit slip and check. The teller stamped the
words "DUPLICATE" and "SAVING TELLER 6 SOLIDBANK HEAD OFFICE" on the duplicate copy of the deposit slip.
When Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got the passbook but she could
not remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook,
Teller No. 6 answered that someone shorter than Calapre got the passbook. Calapre was then standing beside
Macaraya.

Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for P90,000 drawn
on Philippine Banking Corporation ("PBC"). This PBC check of L.C. Diaz was a check that it had "long closed." [4] PBC
subsequently dishonored the check because of insufficient funds and because the signature in the check differed
from PBC's specimen signature. Failing to get back the passbook, Macaraya went back to her office and reported
the matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.

The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz ("Diaz"), called up
Solidbank to stop any transaction using the same passbook until L.C. Diaz could open a new account. [5] On the
same day, Diaz formally wrote Solidbank to make the same request. It was also on the same day that L.C. Diaz
learned of the unauthorized withdrawal the day before, 14 August 1991, of P300,000 from its savings account.
The withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz
and Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo
received the P300,000.

In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan ("Ilagan") and one
Roscon Verdazola with Estafa through Falsification of Commercial Document. The Regional Trial Court of Manila
dismissed the criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August 1992.

On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money. Solidbank
refused.

On 25 August 1992, L.C. Diaz filed a Complaint [7] for Recovery of a Sum of Money against Solidbank with the
Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered on 28 December 1994 a decision
absolving Solidbank and dismissing the complaint.

L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of Appeals issued its Decision
reversing the decision of the trial court.

On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration of Solidbank.
The appellate court, however, modified its decision by deleting the award of exemplary damages and attorney's
fees.
The Ruling of the Trial Court

In absolving Solidbank, the trial court applied the rules on savings account written on the passbook. The rules
state that "possession of this book shall raise the presumption of ownership and any payment or payments made
by the bank upon the production of the said book and entry therein of the withdrawal shall have the same effect as
if made to the depositor personally."[9]

Page 15 of 69
At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the passbook, he also
presented a withdrawal slip with the signatures of the authorized signatories of L.C. Diaz. The specimen signatures
of these persons were in the signature cards. The teller stamped the withdrawal slip with the words "Saving Teller
No. 5." The teller then passed on the withdrawal slip to Genere Manuel ("Manuel") for authentication. Manuel
verified the signatures on the withdrawal slip. The withdrawal slip was then given to another officer who compared
the signatures on the withdrawal slip with the specimen on the signature cards. The trial court concluded that
Solidbank acted with care and observed the rules on savings account when it allowed the withdrawal of P300,000
from the savings account of L.C. Diaz.

The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the signatures on the
withdrawal slip were forged. The trial court admonished L.C. Diaz for not offering in evidence the National Bureau
of Investigation ("NBI") report on the authenticity of the signatures on the withdrawal slip for P300,000. The trial
court believed that L.C. Diaz did not offer this evidence because it is derogatory to its action.

Another provision of the rules on savings account states that the depositor must keep the passbook "under lock
and key."[10] When another person presents the passbook for withdrawal prior to Solidbank's receipt of the notice of
loss of the passbook, that person is considered as the owner of the passbook. The trial court ruled that the
passbook presented during the questioned transaction was "now out of the lock and key and presumptively ready
for a business transaction."[11]

Solidbank did not have any participation in the custody and care of the passbook. The trial court believed that
Solidbank's act of allowing the withdrawal of P300,000 was not the direct and proximate cause of the loss. The trial
court held that L.C. Diaz's negligence caused the unauthorized withdrawal. Three facts establish L.C. Diaz's
negligence: (1) the possession of the passbook by a person other than the depositor L.C. Diaz; (2) the
presentation of a signed withdrawal receipt by an unauthorized person; and (3) the possession by an unauthorized
person of a PBC check "long closed" by L.C. Diaz, which check was deposited on the day of the fraudulent
withdrawal.

The trial court debunked L.C. Diaz's contention that Solidbank did not follow the precautionary procedures
observed by the two parties whenever L.C. Diaz withdrew significant amounts from its account. L.C. Diaz claimed
that a letter must accompany withdrawals of more than P20,000. The letter must request Solidbank to allow the
withdrawal and convert the amount to a manager's check. The bearer must also have a letter authorizing him to
withdraw the same amount. Another person driving a car must accompany the bearer so that he would not walk
from Solidbank to the office in making the withdrawal. The trial court pointed out that L.C. Diaz disregarded these
precautions in its past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter of
authorization or any communication with Solidbank that the money be converted into a manager's check.

The trial court further justified the dismissal of the complaint by holding that the case was a last ditch effort of L.C.
Diaz to recover P300,000 after the dismissal of the criminal case against Ilagan.

The dispositive portion of the decision of the trial court reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint.

The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount of Thirty
Thousand Pesos (P30,000.00) as attorney's fees.

With costs against plaintiff.

SO ORDERED.[12]
The Ruling of the Court of Appeals

The Court of Appeals ruled that Solidbank's negligence was the proximate cause of the unauthorized withdrawal of
P300,000 from the savings account of L.C. Diaz. The appellate court reached this conclusion after applying the
provision of the Civil Code on quasi-delict, to wit:
Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a) damages
suffered by the plaintiff; (b) fault or negligence of the defendant, or some other person for whose acts he must
respond; and (c) the connection of cause and effect between the fault or negligence of the defendant and the
damage incurred by the plaintiff.

The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300,000 allowed
Page 16 of 69
the withdrawal without making the necessary inquiry. The appellate court stated that the teller, who was not
presented by Solidbank during trial, should have called up the depositor because the money to be withdrawn was a
significant amount. Had the teller called up L.C. Diaz, Solidbank would have known that the withdrawal was
unauthorized. The teller did not even verify the identity of the impostor who made the withdrawal. Thus, the
appellate court found Solidbank liable for its negligence in the selection and supervision of its employees.

The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its messenger and its
messenger in leaving the passbook with the teller, Solidbank could not escape liability because of the doctrine of
"last clear chance." Solidbank could have averted the injury suffered by L.C. Diaz had it called up L.C. Diaz to
verify the withdrawal.

The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good father of
a family. The business and functions of banks are affected with public interest. Banks are obligated to treat the
accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship
with their clients. The Court of Appeals found Solidbank remiss in its duty, violating its fiduciary relationship with
L.C. Diaz.

The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one entered.
1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-appellant the sum of
Three Hundred Thousand Pesos (P300,000.00), with interest thereon at the rate of 12% per annum from
the date of filing of the complaint until paid, the sum of P20,000.00 as exemplary damages, and
P20,000.00 as attorney's fees and expenses of litigation as well as the cost of suit; and
2. Ordering the dismissal of defendant-appellee's counterclaim in the amount of P30,000.00 as attorney's
fees.
SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but modified the
award of damages. The appellate court deleted the award of exemplary damages and attorney's fees. Invoking
Article 2231[14] of the Civil Code, the appellate court ruled that exemplary damages could be granted if the
defendant acted with gross negligence. Since Solidbank was guilty of simple negligence only, the award of
exemplary damages was not justified. Consequently, the award of attorney's fees was also disallowed pursuant to
Article 2208 of the Civil Code. The expenses of litigation and cost of suit were also not imposed on Solidbank.

The dispositive portion of the Resolution reads as follows:

WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with modification by deleting
the award of exemplary damages and attorney's fees, expenses of litigation and cost of suit.

SO ORDERED.[15]
Hence, this petition.
The Issues

Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER THE LOSS
BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE IT
ALLOWED THE WITHDRAWAL OF P300,000.00 TO RESPONDENT'S MESSENGER EMERANO ILAGAN, SINCE
THERE IS NO AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR
IS THERE ANY BANKING LAW, WHICH MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP THE
DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT.
II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING
THAT PETITIONER BANK'S TELLER HAD THE LAST OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN
IT IS UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON THE WITHDRAWAL SLIP ARE
GENUINE AND PRIVATE RESPONDENT'S PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE
RESPONDENT WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO
ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL DOCUMENTS.
III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST DITCH EFFORT OF
PRIVATE RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE
SAME FROM ITS EMPLOYEE EMERANO ILAGAN.
IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED AGAINST PETITIONER
UNDER ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING THAT PETITIONER BANK'S
NEGLIGENCE WAS ONLY CONTRIBUTORY.[16]
Page 17 of 69
The Ruling of the Court

The petition is partly meritorious.

Solidbank's Fiduciary Duty under the Law

The rulings of the trial court and the Court of Appeals conflict on the application of the law. The trial court pinned
the liability on L.C. Diaz based on the provisions of the rules on savings account, a recognition of the contractual
relationship between Solidbank and L.C. Diaz, the latter being a depositor of the former. On the other hand, the
Court of Appeals applied the law on quasi-delict to determine who between the two parties was ultimately
negligent. The law on quasi-delict or culpa aquiliana is generally applicable when there is no pre-existing
contractual relationship between the parties.

We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.

The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. [17]
Article 1980 of the Civil Code expressly provides that "x x x savings x x x deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan." There is a debtor-creditor relationship
between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends
the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement between
the bank and the depositor is the contract that determines the rights and obligations of the parties.

The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No.
8791 ("RA 8791"),[18] which took effect on 13 June 2000, declares that the State recognizes the "fiduciary nature of
banking that requires high standards of integrity and performance." [19] This new provision in the general banking
law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of
Simex International v. Court of Appeals,[20] holding that "the bank is under obligation to treat the accounts of
its depositors with meticulous care, always having in mind the fiduciary nature of their relationship." [21]

This fiduciary relationship means that the bank's obligation to observe "high standards of integrity and
performance" is deemed written into every deposit agreement between a bank and its depositor. The fiduciary
nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family.
Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or
contract, and absent such stipulation then the diligence of a good father of a family. [22] Section 2 of RA 8791
prescribes the statutory diligence required from banks - that banks must observe "high standards of integrity and
performance" in servicing their depositors. Although RA 8791 took effect almost nine years after the unauthorized
withdrawal of the P300,000 from L.C. Diaz's savings account, jurisprudence [23] at the time of the withdrawal
already imposed on banks the same high standard of diligence required under RA No. 8791.

However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and
its depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the
depositor is failure to pay a simple loan, and not a breach of trust. [24] The law simply imposes on the bank a
higher standard of integrity and performance in complying with its obligations under the contract of simple loan,
beyond those required of non-bank debtors under a similar contract of simple loan.

The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept
deposits to enrich depositors but to earn money for themselves. The law allows banks to offer the lowest possible
interest rate to depositors while charging the highest possible interest rate on their own borrowers. The interest
spread or differential belongs to the bank and not to the depositors who are not cestui que trust of banks. If
depositors are cestui que trust of banks, then the interest spread or income belongs to the depositors, a situation
that Congress certainly did not intend in enacting Section 2 of RA 8791.
Solidbank's Breach of its Contractual Obligation

Article 1172 of the Civil Code provides that "responsibility arising from negligence in the performance of every kind
of obligation is demandable." For breach of the savings deposit agreement due to negligence, or culpa contractual,
the bank is liable to its depositor.

Calapre left the passbook with Solidbank because the "transaction took time" and he had to go to Allied Bank for
another transaction. The passbook was still in the hands of the employees of Solidbank for the processing of the
deposit when Calapre left Solidbank. Solidbank's rules on savings account require that the "deposit book should be
carefully guarded by the depositor and kept under lock and key, if possible." When the passbook is in the
possession of Solidbank's tellers during withdrawals, the law imposes on Solidbank and its tellers an even higher
degree of diligence in safeguarding the passbook.

Page 18 of 69
Likewise, Solidbank's tellers must exercise a high degree of diligence in insuring that they return the passbook only
to the depositor or his authorized representative. The tellers know, or should know, that the rules on savings
account provide that any person in possession of the passbook is presumptively its owner. If the tellers give the
passbook to the wrong person, they would be clothing that person presumptive ownership of the passbook,
facilitating unauthorized withdrawals by that person. For failing to return the passbook to Calapre, the authorized
representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high degree of
diligence in safeguarding the passbook, and in insuring its return to the party authorized to receive the same.

In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant was
at fault or negligent. The burden is on the defendant to prove that he was not at fault or negligent. In contrast, in
culpa aquiliana the plaintiff has the burden of proving that the defendant was negligent. In the present case, L.C.
Diaz has established that Solidbank breached its contractual obligation to return the passbook only to the
authorized representative of L.C. Diaz. There is thus a presumption that Solidbank was at fault and its teller was
negligent in not returning the passbook to Calapre. The burden was on Solidbank to prove that there was no
negligence on its part or its employees.

Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with
whom Calapre left the passbook and who was supposed to return the passbook to him. The record does not
indicate that Teller No. 6 verified the identity of the person who retrieved the passbook. Solidbank also failed to
adduce in evidence its standard procedure in verifying the identity of the person retrieving the passbook, if there is
such a procedure, and that Teller No. 6 implemented this procedure in the present case.

Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command
responsibility. The defense of exercising the required diligence in the selection and supervision of employees is not
a complete defense in culpa contractual, unlike in culpa aquiliana.[25]

The bank must not only exercise "high standards of integrity and performance," it must also insure that its
employees do likewise because this is the only way to insure that the bank will comply with its fiduciary duty.
Solidbank failed to present the teller who had the duty to return to Calapre the passbook, and thus failed to prove
that this teller exercised the "high standards of integrity and performance" required of Solidbank's employees.
Proximate Cause of the Unauthorized Withdrawal

Another point of disagreement between the trial and appellate courts is the proximate cause of the unauthorized
withdrawal. The trial court believed that L.C. Diaz's negligence in not securing its passbook under lock and key
was the proximate cause that allowed the impostor to withdraw the P300,000. For the appellate court, the
proximate cause was the teller's negligence in processing the withdrawal without first verifying with L.C. Diaz. We
do not agree with either court.

Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening
cause, produces the injury and without which the result would not have occurred. [26] Proximate cause is determined
by the facts of each case upon mixed considerations of logic, common sense, policy and precedent. [27]

L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in possession of
the passbook while it was processing the deposit. After completion of the transaction, Solidbank had the
contractual obligation to return the passbook only to Calapre, the authorized representative of L.C. Diaz.
Solidbank failed to fulfill its contractual obligation because it gave the passbook to another person.

Solidbank's failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the
impostor who took possession of the passbook. Under Solidbank's rules on savings account, mere possession of
the passbook raises the presumption of ownership. It was the negligent act of Solidbank's Teller No. 6 that gave
the impostor presumptive ownership of the passbook. Had the passbook not fallen into the hands of the impostor,
the loss of P300,000 would not have happened. Thus, the proximate cause of the unauthorized withdrawal was
Solidbank's negligence in not returning the passbook to Calapre.

We do not subscribe to the appellate court's theory that the proximate cause of the unauthorized withdrawal was
the teller's failure to call up L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to call up L.C. Diaz
to confirm the withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this effect. Even the
agreement between Solidbank and L.C. Diaz pertaining to measures that the parties must observe whenever
withdrawals of large amounts are made does not direct Solidbank to call up L.C. Diaz.

There is no law mandating banks to call up their clients whenever their representatives withdraw significant
amounts from their accounts. L.C. Diaz therefore had the burden to prove that it is the usual practice of Solidbank
to call up its clients to verify a withdrawal of a large amount of money. L.C. Diaz failed to do so.

Page 19 of 69
Teller No. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. Prior to the
withdrawal of P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC check, which later bounced.
The impostor apparently deposited a large amount of money to deflect suspicion from the withdrawal of a much
bigger amount of money. The appellate court thus erred when it imposed on Solidbank the duty to call up L.C. Diaz
to confirm the withdrawal when no law requires this from banks and when the teller had no reason to be suspicious
of the transaction.

Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since Ilagan was
also a messenger of L.C. Diaz, he was familiar with its teller so that there was no more need for the teller to verify
the withdrawal. Solidbank relies on the following statements in the Booking and Information Sheet of Emerano
Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of P90,000
which he deposited in favor of L.C. Diaz and Company. After successfully withdrawing this large sum of money,
accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired a taxicab in the amount of
P1,000 to transport him (Ilagan) to his home province at Bauan, Batangas. Ilagan extravagantly and lavishly spent
his money but a big part of his loot was wasted in cockfight and horse racing. Ilagan was apprehended and meekly
admitted his guilt.[28] (Emphasis supplied.)
L.C. Diaz refutes Solidbank's contention by pointing out that the person who withdrew the P300,000 was a certain
Noel Tamayo. Both the trial and appellate courts stated that this Noel Tamayo presented the passbook with the
withdrawal slip.

We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the P300,000. The
Court is not a trier of facts. We find no justifiable reason to reverse the factual finding of the trial court and the
Court of Appeals. The tellers who processed the deposit of the P90,000 check and the withdrawal of the P300,000
were not presented during trial to substantiate Solidbank's claim that Ilagan deposited the check and made the
questioned withdrawal. Moreover, the entry quoted by Solidbank does not categorically state that Ilagan
presented the withdrawal slip and the passbook.
Doctrine of Last Clear Chance

The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is
appreciably later than that of the other, or where it is impossible to determine whose fault or negligence caused
the loss, the one who had the last clear opportunity to avoid the loss but failed to do so, is chargeable with the
loss.[29] Stated differently, the antecedent negligence of the plaintiff does not preclude him from recovering
damages caused by the supervening negligence of the defendant, who had the last fair chance to prevent the
impending harm by the exercise of due diligence. [30]

We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach of contract due
to negligence in the performance of its contractual obligation to L.C. Diaz. This is a case of culpa contractual,
where neither the contributory negligence of the plaintiff nor his last clear chance to avoid the loss, would
exonerate the defendant from liability.[31] Such contributory negligence or last clear chance by the plaintiff merely
serves to reduce the recovery of damages by the plaintiff but does not exculpate the defendant from his breach of
contract.[32]
Mitigated Damages

Under Article 1172, "liability (for culpa contractual) may be regulated by the courts, according to the
circumstances." This means that if the defendant exercised the proper diligence in the selection and supervision of
its employee, or if the plaintiff was guilty of contributory negligence, then the courts may reduce the award of
damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing a withdrawal slip signed by its
authorized signatories to fall into the hands of an impostor. Thus, the liability of Solidbank should be reduced.

In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held the depositor guilty of
contributory negligence, we allocated the damages between the depositor and the bank on a 40-60 ratio.
Applying the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual damages awarded
by the appellate court. Solidbank must pay the other 60% of the actual damages.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Solidbank
Corporation shall pay private respondent L.C. Diaz and Company, CPA's only 60% of the actual damages awarded
by the Court of Appeals. The remaining 40% of the actual damages shall be borne by private respondent L.C. Diaz
and Company, CPA's. Proportionate costs.
SO ORDERED.
G.R. NO. 82027, March 29, 1990

Page 20 of 69
ROMARICO G. VITUG, PETITIONER, VS. THE HONORABLE COURT OF APPEALS AND ROWENA FAUSTINO-
CORONA, RESPONDENTS.

DECISION
SARMIENTO, J.:
This case is a chapter in an earlier suit decided by this Court [1] involving the probate of the two wills of the late
Dolores Luchangco Vitug, who died in New York, U.S.A., on November 10, 1980, naming private respondent
Rowena Faustino-Corona executrix. In our said decision, we upheld the appointment of Nenita AIonte as co-special
administrator of Mrs. Vitug's estate with her (Mrs. Vitug's) widower, petitioner Romarico G. Vitug, pending
probate.

On January 13, 1985, Romarico G. Vitug filed a motion asking for authority from the probate court to sell certain
shares of stock and real properties belonging to the estate to cover allegedly his advances to the estate in the sum
or P667,731.66, plus interests, which he claimed were personal funds. As found by the Court of Appeals,[2] the
alleged advances consisted of P58,147.40 spent for the payment of estate tax, P518,834.27 as deficiency estate
tax, and P90,749.99 as "increment thereto."[3] According to Mr. Vitug, he withdrew the sums of P518.834.27 and
P90,749.99 from savings account No. 35342-038 of the Bank of America, Makati, Metro Manila.

On April 12, 1985, Rowena Corona opposed the motion to sell on the ground that the same funds withdrawn from
savings account No. 35342-038 were conjugal partnership properties and part of the estate, and hence, there was
allegedly no ground for reimbursement. She also sought his ouster for failure to include the sums in question for
inventory and for "concealment of funds belonging to the estate.” [4]

Vitug insists that the said funds are his exclusive property having acquired the same through a survivorship
agreement executed with his late wife and the bank on June 19, 1970. The agreement provides:

We hereby agree with each other and with the BANK OF AMERICAN NATIONAL TRUST AND SAVINGS
ASSOCIATION (hereinafter referred to as the BANK), that all money now or hereafter deposited by us or any or
either of us with the BANK in our joint savings current account shall be the property of all or both of us and shall
be payable to and collectible or withdrawable by either or any of us during our lifetime, and after the death of
either or any of us shall belong to and be the sole property of the survivor or survivors, and shall be payable to and
collectible or withdrawable by such survivor or survivors.

We further agree with each other and the BANK that the receipt or check of either, any or all of us during our
lifetime, or the receipt or check of the survivor or survivors, for any payment or withdrawal made for our above–
mentioned account shall be valid and sufficient release and discharge of the BANK for such payment or withdrawal.
[5]

The trial court[6] upheld the validity of this agreement and granted "the motion to sell some of the estate of Dolores
L. Vitug, the proceeds of which shall be used to pay the personal funds of Romarico Vitug in the total sum of
P667,731.66 x x x."[7]

On the other hand, the Court of Appeals, in the petition for certiorari filed by the herein private respondent, held
that the above-quoted survivorship agreement constitutes a conveyance mortis causa which "did not comply with
the formalities of a valid will as prescribed by Article 805 of the Civil Code," [8] and secondly, assuming that it is a
mere donation inter vivos, it is a prohibited donation under the provisions of Article 133 of the Civil Code. [9]

The dispositive portion of the decision or the Court of Appeals states:

WHEREFORE, the order of respondent Judge dated November 26, 1985 (Annex II, petition) is hereby set aside
insofar as it granted private respondent's motion to sell certain properties of the estate of Dolores L. Vitug for
reimbursement of his alleged advances to the estate, but the same order is sustained in all other respects. In
addition, respondent Judge is directed to include provisionally the deposits in Savings Account No. 35342-038 with
the Bank of America, Makati, in the inventory of actual properties possessed by the spouses at the time of the
decedent's death. With costs against private respondent.[10]
In his petition, Vitug, the surviving spouse, assails the appellate court's ruling on the strength of our decisions in
Rivera v. People’s Bank and Trust Co.[11] and Macam v. Gatmaitan[12] in which we sustained the validity of
"survivorship agreements" and considering them as aleatory contracts. [13]

The petition is meritorious.

The conveyance in question is not, first or all, one of mortis causa, which should be embodied in a will. A will has
been defined as "a personal, solemn, revocable and free act by which a capacitated person disposes of his property
and rights and declares or complies with duties to take effect after his death." [14] In other words, the bequest or
Page 21 of 69
device must pertain to the testator. [15] In this case, the monies subject of savings account No. 35342-038 were in
the nature of conjugal funds. In the case relied on, Rivera v. People’s Bank and Trust Co.,[16] we rejected claims
that a survivorship agreement purports to deliver one party's separate properties in favor of the other, but simply,
their joint holdings:
xxx xxx xxx

xxx Such conclusion is evidently predicated on the assumption that Stephenson was the exclusive owner of the
funds deposited in the bank, which assumption was in turn based on the facts (1) that the account was originally
opened in the name of Stephenson alone and (2) that Ana River ”served only as housemaid of the deceased.” But
it not infrequently happens that a person deposits money in the bank in the name of another; and in the instant
case it also appears that Ana Rivera served her master for about nineteen years without actually receiving her
salary from him. The fact that subsequently Stephenson transferred the account to the name of himself and/or
Ana Rivera and executed with the latter the survivorship agreement in question although there was no relation of
kinship between them but only that of master and servant, nullifies the assumption that Stephenson was the
exclusive owner of the bank account. In the absence, then, of clear proof to the contrary, we must give full faith
and credit to the certificate of deposit which recites in effect that the funds in question belonged to Edgar
Stephenson and Ana Rivera; that they were joint (and several) owners thereof; and that either of them could
withdraw any part or the whole of said account during the lifetime of both, and the balance, if any, upon the death
of either, belonged to the survivor.[17]
xxx xxx xxx

In Macam v. Gatmaitan,[18] it was held:

xxx xxx xxx

This Court is of the opinion that Exhibit C, is an aleatory contract whereby, according to article 1790 of the Civil
Code, one of the parties or both reciprocally bind themselves to give or do something as an equivalent for that
which the other party is to give or do in case of the occurrence of an event which is uncertain or will happen at an
indeterminate time. As already stated, Leonarda was the owner of the house and Juana of the Buick automobile
and most of the furniture. By virtue of Exhibit C, Juana would become the owner of the house in case Leonarda
died first, and Leonarda would become the owner of the automobile and the furniture if Juana were to die first. In
this manner Leonarda and Juana reciprocally assigned their respective property to one another conditioned upon
who might die first, the time of death determining the event upon which the acquisition of such right by the one or
the other depended. This contract, as any other contract, is binding upon the parties thereto. Inasmuch as
Leonarda had died before Juana, the latter thereupon acquired the ownership of the house, in the same manner as
Leonarda would have acquired the ownership of the automobile and of the furniture if Juana had died first. [19]
xxx xxx xxx
There is no showing that the funds exclusively belonged to one party, and hence it must be presumed to be
conjugal, having been acquired during the existence of the marital relations. [20]

Neither is the survivorship agreement a donation inter vivos, for obvious reasons, because it was to take effect
after the death of one party. Secondly, it is not a donation between the spouses because it involved no
conveyance of a spouse's own properties to the other.

It is also our opinion that the agreement involves no modification of the conjugal partnership, as held by the Court
of Appeals,[21] by "mere stipulation,”[22] and that it is no "cloak"[23] to circumvent the law on conjugal property
relations. Certainly, the spouses are not prohibited by law to invest conjugal property, say, by way of a joint and
several bank account, more commonly denominated in banking parlance as an "and/or" account. In the case at
bar, when the spouses Vitug opened savings account No. 35342-038, they merely put what rightfully belonged to
them in a money-making venture. They did not dispose of it in favor of the other which would have arguably been
sanctionable as a prohibited donation. And since the funds were conjugal, it can not be said that one spouse could
have pressured the other in placing his or her deposits in the money pool.

The validity of the contract seems debatable by reason of its "survivor-take-all" feature, but in reality, that contract
imposed a mere obligation with a term, the term being death. Such agreements are permitted by the Civil Code.
[24]

Under Article 2010 of the Code:

ART. 2010. By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do
something in consideration of what the other shall give or do upon the happening of an event which is uncertain, or
which is to occur at an indeterminate time.

Page 22 of 69
Under the aforequoted provision, the fulfillment of an aleatory contract depends on either the happening of an
event which is (1)"uncertain,” or (2) "which is to occur at an indeterminate time." A survivorship agreement, the
sale of a sweepstake ticket, a transaction stipulating on the value of currency, and insurance have been held to fall
under the first category, while a contract for life annuity or pension under Article 2021, et sequenta, has been
categorized under the second.[25] In either case, the element of risk is present. In the case at bar, the risk was the
death of one party and survivorship of the other.

However, as we have warned:

xxx xxx xxx

But although the survivorship agreement is per se not contrary to law its operation or effect may be violative of the
law. For instance, if it be shown in a given case that such agreement is a mere cloak to hide an inofficious
donation, to transfer property in fraud of creditors, or to defeat the legitime of a forced heir, it may be assailed and
annulled upon such grounds. No such vice has been imputed and established against the agreement involved in
this case.[26]

xxx xxx xxx

There is no demonstration here that the survivorship agreement had been executed for such unlawful purposes, or
as held by the respondent court, in order to frustrate our laws on wills, donations, and conjugal partnership.

The conclusion is accordingly unavoidable that Mrs. Vitug having predeceased her husband, the latter has acquired
upon her death a vested right over the amounts under savings account No. 35342-038 of the Bank of America.
Insofar as the respondent court ordered their inclusion in the inventory of assets left by Mrs. Vitug, we hold that
the court was in error. Being the separate property of petitioner, it forms no more part of the estate of the
deceased.

WHEREFORE, the decision of the respondent appellate court, dated June 29, 1987, and its resolution, dated
February 9, 1988, are SET ASIDE.

No costs.

SO ORDERED.
G.R. No. 168644, February 16, 2010
BSB GROUP, INC., REPRESENTED BY ITS PRESIDENT, MR. RICARDO BANGAYAN, PETITIONER, VS.
SALLY GO A.K.A. SALLY GO-BANGAYAN, RESPONDENT.

DECISION
PERALTA, J.:
This is a Petition for Review under Rule 45 of the Rules of Court assailing the Decision of the Court of Appeals in
CA-G.R. SP No. 87600[1] dated April 20, 2005, which reversed and set aside the September 13, 2004 [2] and
November 5, 2004[3] Orders issued by the Regional Trial Court of Manila, Branch 36 [4] in Criminal Case No. 02-
202158 for qualified theft. The said orders, in turn, respectively denied the motion filed by herein respondent Sally
Go for the suppression of the testimonial and documentary evidence relative to a Security Bank account, and
denied reconsideration.

The basic antecedents are no longer disputed.

Petitioner, the BSB Group, Inc., is a duly organized domestic corporation presided by its herein representative,
Ricardo Bangayan (Bangayan). Respondent Sally Go, alternatively referred to as Sally Sia Go and Sally Go-
Bangayan, is Bangayan's wife, who was employed in the company as a cashier, and was engaged, among others,
to receive and account for the payments made by the various customers of the company.

In 2002, Bangayan filed with the Manila Prosecutor's Office a complaint for estafa and/or qualified theft[5] against
respondent, alleging that several checks[6] representing the aggregate amount of P1,534,135.50 issued by the
company's customers in payment of their obligation were, instead of being turned over to the company's coffers,
indorsed by respondent who deposited the same to her personal banking account maintained at Security Bank and
Trust Company (Security Bank) in Divisoria, Manila Branch. [7] Upon a finding that the evidence adduced was
uncontroverted, the assistant city prosecutor recommended the filing of the Information for qualified theft against
respondent.[8]

Page 23 of 69
Accordingly, respondent was charged before the Regional Trial Court of Manila, Branch 36, in an Information, the
inculpatory portion of which reads:
That in or about or sometime during the period comprised (sic) between January 1988 [and] October 1989,
inclusive, in the City of Manila, Philippines, the said accused did then and there willfully, unlawfully and feloniously
with intent [to] gain and without the knowledge and consent of the owner thereof, take, steal and carry away cash
money in the total amount of P1,534,135.50 belonging to BSB GROUP OF COMPANIES represented by RICARDO
BANGAYAN, to the damage and prejudice of said owner in the aforesaid amount of P1,534,135.50, Philippine
currency.

That in the commission of the said offense, said accused acted with grave abuse of confidence, being then
employed as cashier by said complainant at the time of the commission of the said offense and as such she was
entrusted with the said amount of money.

Contrary to law.[9]

Respondent entered a negative plea when arraigned. [10] The trial ensued. On the premise that respondent had
allegedly encashed the subject checks and deposited the corresponding amounts thereof to her personal banking
account, the prosecution moved for the issuance of subpoena duces tecum /ad testificandum against the respective
managers or records custodians of Security Bank's Divisoria Branch, as well as of the Asian Savings Bank (now
Metropolitan Bank & Trust Co. [Metrobank]), in Jose Abad Santos, Tondo, Manila Branch. [11] The trial court granted
the motion and issued the corresponding subpoena. [12]

Respondent filed a motion to quash the subpoena dated November 4, 2003, addressed to Metrobank, noting to the
court that in the complaint-affidavit filed with the prosecutor, there was no mention made of the said bank
account, to which respondent, in addition to the Security Bank account identified as Account No. 01-14-006,
allegedly deposited the proceeds of the supposed checks. Interestingly, while respondent characterized the
Metrobank account as irrelevant to the case, she, in the same motion, nevertheless waived her objection to the
irrelevancy of the Security Bank account mentioned in the same complaint-affidavit, inasmuch as she was
admittedly willing to address the allegations with respect thereto. [13]

Petitioner, opposing respondent's move, argued for the relevancy of the Metrobank account on the ground that the
complaint-affidavit showed that there were two checks which respondent allegedly deposited in an account with
the said bank.[14] To this, respondent filed a supplemental motion to quash, invoking the absolutely confidential
nature of the Metrobank account under the provisions of Republic Act (R.A.) No. 1405. [15] The trial court did not
sustain respondent; hence, it denied the motion to quash for lack of merit. [16]

Meanwhile, the prosecution was able to present in court the testimony of Elenita Marasigan (Marasigan), the
representative of Security Bank. In a nutshell, Marasigan's testimony sought to prove that between 1988 and
1989, respondent, while engaged as cashier at the BSB Group, Inc., was able to run away with the checks issued
to the company by its customers, endorse the same, and credit the corresponding amounts to her personal deposit
account with Security Bank. In the course of the testimony, the subject checks were presented to Marasigan for
identification and marking as the same checks received by respondent, endorsed, and then deposited in her
personal account with Security Bank.[17] But before the testimony could be completed, respondent filed a Motion to
Suppress,[18] seeking the exclusion of Marasigan's testimony and accompanying documents thus far received,
bearing on the subject Security Bank account. This time respondent invokes, in addition to irrelevancy, the
privilege of confidentiality under R.A. No. 1405.

The trial court, nevertheless, denied the motion in its September 13, 2004 Order. [19] A motion for reconsideration
was subsequently filed, but it was also denied in the Order dated November 5, 2004. [20] These two orders are the
subject of the instant case.

Aggrieved, and believing that the trial court gravely abused its discretion in acting the way it did, respondent
elevated the matter to the Court of Appeals via a petition for certiorari under Rule 65. Finding merit in the petition,
the Court of Appeals reversed and set aside the assailed orders of the trial court in its April 20, 2005 Decision. [21]
The decision reads:
WHEREFORE, the petition is hereby GRANTED. The assailed orders dated September 13, 2004 and November 5,
2004 are REVERSED and SET ASIDE. The testimony of the SBTC representative is ordered stricken from the
records.

SO ORDERED.[22]

With the denial of its motion for reconsideration, [23] petitioner is now before the Court pleading the same issues as
those raised before the lower courts.
Page 24 of 69
In this Petition[24] under Rule 45, petitioner averred in the main that the Court of Appeals had seriously erred in
reversing the assailed orders of the trial court, and in effect striking out Marasigan's testimony dealing with
respondent's deposit account with Security Bank. [25] It asserted that apart from the fact that the said evidence had
a direct relation to the subject matter of the case for qualified theft and, hence, brings the case under one of the
exceptions to the coverage of confidentiality under R.A. 1405. [26] Petitioner believed that what constituted the
subject matter in litigation was to be determined by the allegations in the information and, in this respect, it
alluded to the assailed November 5, 2004 Order of the trial court, which declared to be erroneous the limitation of
the present inquiry merely to what was contained in the information. [27]

For her part, respondent claimed that the money represented by the Security Bank account was neither relevant
nor material to the case, because nothing in the criminal information suggested that the money therein deposited
was the subject matter of the case. She invited particular attention to that portion of the criminal Information
which averred that she has stolen and carried away cash money in the total amount of P1,534,135.50. She
advanced the notion that the term "cash money" stated in the Information was not synonymous with the checks
she was purported to have stolen from petitioner and deposited in her personal banking account. Thus, the checks
which the prosecution had Marasigan identify, as well as the testimony itself of Marasigan, should be suppressed
by the trial court at least for violating respondent's right to due process. [28] More in point, respondent opined that
admitting the testimony of Marasigan, as well as the evidence pertaining to the Security Bank account, would
violate the secrecy rule under R.A. No. 1405. [29]

In its reply, petitioner asserted the sufficiency of the allegations in the criminal Information for qualified theft, as
the same has sufficiently alleged the elements of the offense charged. It posits that through Marasigan's
testimony, the Court would be able to establish that the checks involved, copies of which were attached to the
complaint-affidavit filed with the prosecutor, had indeed been received by respondent as cashier, but were,
thereafter, deposited by the latter to her personal account with Security Bank. Petitioner held that the checks
represented the cash money stolen by respondent and, hence, the subject matter in this case is not only the cash
amount represented by the checks supposedly stolen by respondent, but also the checks themselves. [30]

We derive from the conflicting advocacies of the parties that the issue for resolution is whether the testimony of
Marasigan and the accompanying documents are irrelevant to the case, and whether they are also violative of the
absolutely confidential nature of bank deposits and, hence, excluded by operation of R.A. No. 1405. The question
of admissibility of the evidence thus comes to the fore. And the Court, after deliberative estimation, finds the
subject evidence to be indeed inadmissible.

Prefatorily, fundamental is the precept in all criminal prosecutions, that the constitutive acts of the offense must be
established with unwavering exactitude and moral certainty because this is the critical and only requisite to a
finding of guilt. [31] Theft is present when a person, with intent to gain but without violence against or intimidation
of persons or force upon things, takes the personal property of another without the latter's consent. It is qualified
when, among others, and as alleged in the instant case, it is committed with abuse of confidence. [32] The
prosecution of this offense necessarily focuses on the existence of the following elements: (a) there was taking of
personal property belonging to another; (b) the taking was done with intent to gain; (c) the taking was done
without the consent of the owner; (d) the taking was done without violence against or intimidation of persons or
force upon things; and (e) it was done with abuse of confidence. [33] In turn, whether these elements concur in a
way that overcomes the presumption of guiltlessness, is a question that must pass the test of relevancy and
competency in accordance with Section 3[34] Rule 128 of the Rules of Court.

Thus, whether these pieces of evidence sought to be suppressed in this case î º the testimony of Marasigan, as well
as the checks purported to have been stolen and deposited in respondent's Security Bank account î º are relevant,
is to be addressed by considering whether they have such direct relation to the fact in issue as to induce belief in
its existence or non-existence; or whether they relate collaterally to a fact from which, by process of logic, an
inference may be made as to the existence or non-existence of the fact in issue. [35]

The fact in issue appears to be that respondent has taken away cash in the amount of P1,534,135.50 from the
coffers of petitioner. In support of this allegation, petitioner seeks to establish the existence of the elemental act of
taking by adducing evidence that respondent, at several times between 1988 and 1989, deposited some of its
checks to her personal account with Security Bank. Petitioner addresses the incongruence between the allegation
of theft of cash in the Information, on the one hand, and the evidence that respondent had first stolen the checks
and deposited the same in her banking account, on the other hand, by impressing upon the Court that there
obtains no difference between cash and check for purposes of prosecuting respondent for theft of cash. Petitioner
is mistaken.

In theft, the act of unlawful taking connotes deprivation of personal property of one by another with intent to gain,
and it is immaterial that the offender is able or unable to freely dispose of the property stolen because the
deprivation relative to the offended party has already ensued from such act of execution. [36] The allegation of theft
Page 25 of 69
of money, hence, necessitates that evidence presented must have a tendency to prove that the offender has
unlawfully taken money belonging to another. Interestingly, petitioner has taken pains in attempting to draw a
connection between the evidence subject of the instant review, and the allegation of theft in the Information by
claiming that respondent had fraudulently deposited the checks in her own name. But this line of argument works
more prejudice than favor, because it in effect, seeks to establish the commission, not of theft, but rather of some
other crime î º probably estafa.

Moreover, that there is no difference between cash and check is true in other instances. In estafa by conversion,
for instance, whether the thing converted is cash or check, is immaterial in relation to the formal allegation in an
information for that offense; a check, after all, while not regarded as legal tender, is normally accepted under
commercial usage as a substitute for cash, and the credit it represents in stated monetary value is properly
capable of appropriation. And it is in this respect that what the offender does with the check subsequent to the act
of unlawfully taking it becomes material inasmuch as this offense is a continuing one. [37] In other words, in
pursuing a case for this offense, the prosecution may establish its cause by the presentation of the checks
involved. These checks would then constitute the best evidence to establish their contents and to prove the
elemental act of conversion in support of the proposition that the offender has indeed indorsed the same in his own
name.[38]

Theft, however, is not of such character. Thus, for our purposes, as the Information in this case accuses
respondent of having stolen cash, proof tending to establish that respondent has actualized her criminal intent by
indorsing the checks and depositing the proceeds thereof in her personal account, becomes not only irrelevant but
also immaterial and, on that score, inadmissible in evidence.

We now address the issue of whether the admission of Marasigan's testimony on the particulars of respondent's
account with Security Bank, as well as of the corresponding evidence of the checks allegedly deposited in said
account, constitutes an unallowable inquiry under R.A. 1405.

It is conceded that while the fundamental law has not bothered with the triviality of specifically addressing privacy
rights relative to banking accounts, there, nevertheless, exists in our jurisdiction a legitimate expectation of
privacy governing such accounts. The source of this right of expectation is statutory, and it is found in R.A. No.
1405,[39] otherwise known as the Bank Secrecy Act of 1955. [40]

R.A. No. 1405 has two allied purposes. It hopes to discourage private hoarding and at the same time encourage
the people to deposit their money in banking institutions, so that it may be utilized by way of authorized loans and
thereby assist in economic development. [41] Owing to this piece of legislation, the confidentiality of bank deposits
remains to be a basic state policy in the Philippines. [42] Section 2 of the law institutionalized this policy by
characterizing as absolutely confidential in general all deposits of whatever nature with banks and other financial
institutions in the country. It declares:
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.

Subsequent statutory enactments [43] have expanded the list of exceptions to this policy yet the secrecy of bank
deposits still lies as the general rule, falling as it does within the legally recognized zones of privacy. [44] There is, in
fact, much disfavor to construing these primary and supplemental exceptions in a manner that would authorize
unbridled discretion, whether governmental or otherwise, in utilizing these exceptions as authority for unwarranted
inquiry into bank accounts. It is then perceivable that the present legal order is obliged to conserve the absolutely
confidential nature of bank deposits.[45]

The measure of protection afforded by the law has been explained in China Banking Corporation v. Ortega.[46] That
case principally addressed the issue of whether the prohibition against an examination of bank deposits precludes
garnishment in satisfaction of a judgment. Ruling on that issue in the negative, the Court found guidance in the
relevant portions of the legislative deliberations on Senate Bill No. 351 and House Bill No. 3977, which later
became the Bank Secrecy Act, and it held that the absolute confidentiality rule in R.A. No. 1405 actually aims at
protection from unwarranted inquiry or investigation if the purpose of such inquiry or investigation is merely to
determine the existence and nature, as well as the amount of the deposit in any given bank account. Thus,
x x x The lower court did not order an examination of or inquiry into the deposit of B&B Forest Development
Corporation, as contemplated in the law. It merely required Tan Kim Liong to inform the court whether or not the
defendant B&B Forest Development Corporation had a deposit in the China Banking Corporation only for purposes
of the garnishment issued by it, so that the bank would hold the same intact and not allow any withdrawal until
further order. It will be noted from the discussion of the conference committee report on Senate Bill No. 351 and
Page 26 of 69
House Bill No. 3977which later became Republic Act No. 1405, that it was not the intention of the lawmakers to
place banks deposits beyond the reach of execution to satisfy a final judgment. Thus:
x x x Mr. Marcos:Now, for purposes of the record, I should like the Chairman of the Committee on Ways and Means
to clarify this further. Suppose an individual has a tax case. He is being held liable by the Bureau of Internal
Revenue [(BIR)] or, say, P1,000.00 worth of tax liability, and because of this the deposit of this individual [has
been] attached by the [BIR].

Mr. Ramos: The attachment will only apply after the court has pronounced sentence declaring the liability of such
person. But where the primary aim is to determine whether he has a bank deposit in order to bring
about a proper assessment by the [BIR], such inquiry is not allowed by this proposed law.

Mr. Marcos: But under our rules of procedure and under the Civil Code, the attachment or garnishment of money
deposited is allowed. Let us assume for instance that there is a preliminary attachment which is for garnishment or
for holding liable all moneys deposited belonging to a certain individual, but such attachment or garnishment will
bring out into the open the value of such deposit. Is that prohibited by... the law?

Mr. Ramos:It is only prohibited to the extent that the inquiry... is made only for the purpose of satisfying a tax
liability already declared for the protection of the right in favor of the government; but when the object is
merely to inquire whether he has a deposit or not for purposes of taxation, then this is fully covered by
the law. x x x

Mr. Marcos: The law prohibits a mere investigation into the existence and the amount of the deposit.

Mr. Ramos: Into the very nature of such deposit. x x x[47]

In taking exclusion from the coverage of the confidentiality rule, petitioner in the instant case posits that the
account maintained by respondent with Security Bank contains the proceeds of the checks that she has
fraudulently appropriated to herself and, thus, falls under one of the exceptions in Section 2 of R.A. No. 1405 î º
that the money kept in said account is the subject matter in litigation. To highlight this thesis, petitioner avers,
citing Mathay v. Consolidated Bank and Trust Co.,[48] that the subject matter of the action refers to the physical
facts; the things real or personal; the money, lands, chattels and the like, in relation to which the suit is
prosecuted, which in the instant case should refer to the money deposited in the Security Bank account. [49] On the
surface, however, it seems that petitioner's theory is valid to a point, yet a deeper treatment tends to show that it
has argued quite off-tangentially. This, because, while Mathay did explain what the subject matter of an action is,
it nevertheless did so only to determine whether the class suit in that case was properly brought to the court.

What indeed constitutes the subject matter in litigation in relation to Section 2 of R.A. No. 1405 has been pointedly
and amply addressed in Union Bank of the Philippines v. Court of Appeals, [50] in which the Court noted that the
inquiry into bank deposits allowable under R.A. No. 1405 must be premised on the fact that the money deposited
in the account is itself the subject of the action.[51] Given this perspective, we deduce that the subject matter of
the action in the case at bar is to be determined from the indictment that charges respondent with the offense, and
not from the evidence sought by the prosecution to be admitted into the records. In the criminal Information filed
with the trial court, respondent, unqualifiedly and in plain language, is charged with qualified theft by abusing
petitioner's trust and confidence and stealing cash in the amount of P1,534,135.50. The said Information makes no
factual allegation that in some material way involves the checks subject of the testimonial and documentary
evidence sought to be suppressed. Neither do the allegations in said Information make mention of the supposed
bank account in which the funds represented by the checks have allegedly been kept.

In other words, it can hardly be inferred from the indictment itself that the Security Bank account is the ostensible
subject of the prosecution's inquiry. Without needlessly expanding the scope of what is plainly alleged in the
Information, the subject matter of the action in this case is the money amounting to P1,534,135.50 alleged to
have been stolen by respondent, and not the money equivalent of the checks which are sought to be admitted in
evidence. Thus, it is that, which the prosecution is bound to prove with its evidence, and no other.

It comes clear that the admission of testimonial and documentary evidence relative to respondent's Security Bank
account serves no other purpose than to establish the existence of such account, its nature and the amount kept in
it. It constitutes an attempt by the prosecution at an impermissible inquiry into a bank deposit account the privacy
and confidentiality of which is protected by law. On this score alone, the objection posed by respondent in her
motion to suppress should have indeed put an end to the controversy at the very first instance it was raised before
the trial court.

In sum, we hold that the testimony of Marasigan on the particulars of respondent's supposed bank account with
Security Bank and the documentary evidence represented by the checks adduced in support thereof, are not only
incompetent for being excluded by operation of R.A. No. 1405. They are likewise irrelevant to the case, inasmuch
as they do not appear to have any logical and reasonable connection to the prosecution of respondent for qualified
Page 27 of 69
theft. We find full merit in and affirm respondent's objection to the evidence of the prosecution. The Court of
Appeals was, therefore, correct in reversing the assailed orders of the trial court.

A final note. In any given jurisdiction where the right of privacy extends its scope to include an individual's financial
privacy rights and personal financial matters, there is an intermediate or heightened scrutiny given by courts and
legislators to laws infringing such rights. [52] Should there be doubts in upholding the absolutely confidential nature
of bank deposits against affirming the authority to inquire into such accounts, then such doubts must be resolved
in favor of the former. This attitude persists unless congress lifts its finger to reverse the general state policy
respecting the absolutely confidential nature of bank deposits. [53]

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 87600 dated April
20, 2005, reversing the September 13, 2004 and November 5, 2004 Orders of the Regional Trial Court of Manila,
Branch 36 in Criminal Case No. 02-202158, is AFFIRMED.

SO ORDERED.
G.R. NOS. 157294-95, November 30, 2006
JOSEPH VICTOR G. EJERCITO, PETITIONER, VS. SANDIGANBAYAN (SPECIAL DIVISION) AND PEOPLE
OF THE PHILIPPINES, RESPONDENTS.

DECISION
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. Ejercito's 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 three resolutions were issued in Criminal Case No. 26558, "People of the Philippines v. Joseph Ejercito Estrada,
et al.," for plunder, defined and penalized in R.A. 7080, "AN ACT DEFINING AND PENALIZING THE CRIME OF
PLUNDER."

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 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
the following documents during the hearings scheduled on January 22 and 27, 2003:
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:
a. Bank of Commerce MC # 0256254 in the amount of P2,000,000.00;
b. Urban bank Corp. MC # 34181 dated November 8, 1999 in the amount of P10,875,749.43;
c. Urban Bank MC # 34182 dated November 8, 1999 in the amount of P42,716,554.22;
d. Urban Bank Corp. MC # 37661 dated November 23, 1999 in the amount of P54,161,496.52;
5. Trust Agreement dated January 1999:
Trustee: Joseph Victor C. Ejercito
Nominee: URBAN BANK-TRUST DEPARTMENT
Special Private Account No. (SPAN) 858; and
6. Ledger of the SPAN # 858.
II. For Savings Account No. 0116-17345-9
SPAN No. 858
1. Signature Cards; and
2. Statement of Account/Ledger
III. Urban Bank Manager's Check and their corresponding Urban Bank Manager's Check Application Forms, as
follows:
1. MC # 039975 dated January 18, 2000 in the amount of P70,000,000.00;
2. MC # 039976 dated January 18, 2000 in the amount of P2,000,000.00;
3. MC # 039977 dated January 18, 2000 in the amount of P2,000,000.00;
Page 28 of 69
 4. MC # 039978 dated January 18, 2000 in the amount of P1,000,000.00;
The Special Prosecution Panel also filed on January 20, 2003, 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 of January 21, 2003 and subpoenas were accordingly
issued.

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
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 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 the case on
January 27, 2003 and filed before the Sandiganbayan a letter of even date expressing his concerns as follows,
quoted verbatim:
Your Honors:

It is with much respect that I write this court relative to the concern of subpoenaing the undersigned's 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.

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.

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

xxxx

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.

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 prosecution's request for
the issuance of subpoena concerning my accounts. (Emphasis supplied)
From the present petition, it is gathered that the "accounts" referred to by petitioner in his above-quoted letter are
Trust Account No. 858 and Savings Account No. 0116-17345-9.[2]

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 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.

Page 29 of 69
The disclosure being illegal, petitioner concluded, the prosecution in the case may not be allowed to make use of
the information.

Before the Motion to Quash was resolved by the Sandiganbayan, the prosecution filed another Request for the
Issuance of Subpoena Duces Tecum/Ad Testificandum dated January 31, 2003, again to direct the President of the
EIB to produce, on the hearings scheduled on February 3 and 5, 2003, the same documents subject of the January
21 and 24, 2003 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 amount of P200,000,000 was instead requested. Moreover,
the request covered the following additional documents:
IV. For Savings Account No. 1701-00646-1:
1. Account Opening Forms;
2. Specimen Signature Card/s; and
3. Statements of Account.
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;
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 No. 0116-17345-9. (Underscoring supplied)
The subpoenas prayed for in both requests were issued by the Sandiganbayan on January 31, 2003.

On February 7, 2003, petitioner, this time assisted by counsel, filed an Urgent Motion to Quash Subpoenae Duces
Tecum/Ad Testificandum praying that the subpoena dated January 31, 2003 directed to Aurora Baldoz be quashed
for the same reasons which he cited in the Motion to Quash [4] he had earlier filed.

On the same day, February 7, 2003, the Sandiganbayan issued a Resolution denying petitioner's Motion to Quash
Subpoenae Duces Tecum/Ad Testificandum dated January 28, 2003.

Subsequently or on February 12, 2003, the Sandiganbayan issued a Resolution denying petitioner's Urgent
Motion to Quash Subpoena Duces Tecum/Ad Testificandum dated February 7, 2003.

Petitioner's 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 petitioner's Trust Account No. 858 is covered by the term "deposit" as used in R.A. 1405;
2. Whether petitioner's 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 Panel's requests for
subpoena was obtained through a prior illegal disclosure of petitioner's bank accounts, in violation of the
"fruit of the poisonous tree" doctrine.
Respondent People posits that Trust Account No. 858 [5] may be inquired into, not merely because it falls under the
exceptions to the coverage of R.A. 1405, but because it is not even contemplated therein. For, to respondent
People, the law applies only to "deposits" which strictly means the money delivered to the bank by which a
creditor-debtor relationship is created between the depositor and the bank.

The contention that trust accounts are not covered by the term "deposits," as used in R.A. 1405, by the mere fact
that they do not entail a creditor-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)

Page 30 of 69
If the money deposited under an account may be used by banks for authorized loans to third persons, then such
account, regardless of whether it creates a creditor-debtor relationship between the depositor and the bank, falls
under the category of accounts which the law precisely seeks to protect for the purpose of boosting the economic
development of the country.

Trust Account No. 858 is, without doubt, one such account. The Trust Agreement between petitioner and Urban
Bank provides that the trust account covers "deposit, placement or investment of funds" by Urban Bank for and in
behalf of petitioner.[6] The money deposited under Trust Account No. 858, was, therefore, intended not merely to
remain with the bank but to be invested by it elsewhere. To hold that this type of account is not protected by R.A.
1405 would encourage private hoarding of funds that could otherwise be invested by banks in other ventures,
contrary to the policy behind the law.

Section 2 of the same law in fact even more clearly shows that the term "deposits" was intended to be understood
broadly:
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.
(Emphasis and 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
those which are invested. This further shows that the law was not intended to apply only to "deposits" in the strict
sense of the word. Otherwise, there would have been no need to add the phrase "or invested."

Clearly, therefore, R.A. 1405 is broad enough to cover Trust Account No. 858.

The protection afforded by the law is, however, 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.

Petitioner contends that since plunder is neither bribery nor dereliction of 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.
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 ill-gotten 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)
An examination of the "overt or criminal acts as described in Section 1(d)" of R.A. No. 7080 would make the
similarity between plunder and bribery even more pronounced since bribery is essentially included among these
criminal acts. Thus Section 1(d) states:
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 receiving, directly or indirectly, any commission, gift, share, percentage, kickbacks or any other
Page 31 of 69
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 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 petitioner's 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 petitioner's definition of the phrase 'subject matter of the action' is consistent with
the term 'subject matter of the litigation', as the latter is used in the Bank Deposits Secrecy Act.

In Mellon Bank, N.A. 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 Court's 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 have been transferred. Trust Account No. 858 and
Savings Account No. 0116-17345-9 in the name of petitioner fall under this description and must thus be part of
the subject matter of the litigation.

In a further attempt to show that the subpoenas issued by the Sandiganbayan are invalid and may not be
Page 32 of 69
enforced, petitioner contends, as earlier stated, that the information found therein, given their "extremely detailed"
character, could only have been obtained by the Special Prosecution Panel through an illegal disclosure by the bank
officials concerned. Petitioner thus claims that, following the "fruit of the poisonous tree" doctrine, the subpoenas
must be quashed.

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.

Petitioner's attempt to make the exclusionary rule applicable to the instant case fails. R.A. 1405, it bears noting,
nowhere provides that an unlawful examination of bank accounts shall render the evidence obtained therefrom
inadmissible in evidence. Section 5 of R.A. 1405 only states that "[a]ny violation of this law will subject the
offender upon conviction, to an imprisonment of not more than five years or a fine of not more than twenty
thousand pesos or both, in the discretion of the court."

The case of U.S. v. Frazin,[11] involving the Right to Financial Privacy Act of 1978 (RFPA) of the United States, is
instructive.
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.

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

How the Ombudsman conducted his inquiry into the bank accounts of petitioner is recounted by respondent People
of the Philippines, viz:
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 Tecum addressed 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 subpoena
did not single out account 858.

xxxx

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 non-availability of bank records as to the other accounts
named in the subpoena. (Attachments "2", "2-1" and "2-b)

Page 33 of 69
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 dated February 21, 2001:
1. 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;
2. Report of Unregularized TAFs & TDs for UR COIN A & B Placements of Various Branches as of February 29,
2000 and as of December 16, 1999; and
3. Trading Orders Nos. A No. 78102 and A No. 078125.
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.

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")

The Office of the Ombudsman then requested for the manger's 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
manager's 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 petitioner's 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.

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

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)
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].

Banco Filipino involved subpoenas duces tecum issued by the Office of the Ombudsman, then known as the
Tanodbayan,[18] in the course of its preliminary investigation of a charge of violation of the Anti-Graft and
Corrupt Practices Act.

While the main issue in Banco Filipino was whether R.A. 1405 precluded the Tanodbayan's 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:
(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]

As the subpoenas subject of Banco Filipino were issued during a preliminary investigation, in effect this Court
Page 34 of 69
upheld the power of the 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 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;
A comparison of this provision with its counterpart in Sec. 10(d) of P.D. 1630 clearly shows that it is only more
explicit in stating that the power of the Ombudsman includes the power to examine and have access to bank
accounts and records which power was recognized with respect to the Tanodbayan through Banco Filipino.

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 Ombudsman's inquiry into the subject bank accounts prior to the filing 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:
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 in Morales v. Enrile and reiterated
on 20 March 1985 in People v. Galit. x x x

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

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

Page 35 of 69
Ombudsman, this Court, in avoidance of what would be a time-wasteful and circuitous way of administering justice,
[24]
upholds the challenged subpoenas.

Respecting petitioner's 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 pertaining to petitioner's Trust Account No. 858 and Savings Account No. 0116-17345-9
for the following reasons:

1. 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 petitioner's
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 petitioner's 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.

The Sandiganbayan is hereby directed, consistent with this Court's ruling in Marquez v. Desierto, to notify
petitioner as to the date the subject bank documents shall be presented in court by the persons subpoenaed.

SO ORDERED.

Panganiban, C.J., Puno, Quisumbing, Austria-Martinez, Corona, Tinga, and Velasco, Jr., JJ., concur.
Ynares-Santiago, Sandoval-Gutierrez, and Garcia, JJ., join the dissenting opinion.
Carpio, J., No part - prior inhibition.
Callejo, Sr., J., Pls. see my concurring opinion.
Azcuna, J., I take no part - my former law office acted as counsel for a party.
Chico-Nazario, J., No part.
G.R. No. 135882, June 27, 2001
LOURDES T. MARQUEZ, IN HER CAPACITY AS BRANCH MANAGER, UNION BANK OF THE PHILIPPINES,
PETITIONERS, VS. HON. ANIANO A. DESIERTO, (IN HIS CAPACITY AS OMBUDSMAN, EVALUATION AND
PRELIMINARY INVESTIGATION BUREAU, OFFICE OF THE OMBUDSMAN, ANGEL C. MAYOR-ALGO, JR.,
MARY ANN CORPUZ-MANALAC AND JOSE T. DE JESUS, JR., IN THEIR CAPACITIES AS CHAIRMAN AND
MEMBERS OF THE PANEL, RESPECTIVELY, RESPONDENTS.

DECISION
PARDO, J.:
In the petition at bar, petitioner seeks to--
a. Annul and set aside, for having been issued without or in excess of jurisdiction or with grave abuse of discretion
amounting to lack of jurisdiction, respondents’ order dated September 7, 1998 in OMB-0-97-0411, In Re: Motion to
Cite Lourdes T. Marquez for indirect contempt, received by counsel of September 9, 1998, and their order dated
October 14, 1998, denying Marquez’s motion for reconsideration dated September 10, 1998, received by counsel
on October 20, 1998.

b. Prohibit respondents from implementing their order dated October 14, 1998, in proceeding with the hearing of
Page 36 of 69
the motion to cite Marquez for indirect contempt, through the issuance by this Court of a temporary restraining
order and/or preliminary injunction.[1]

The antecedent facts are as follows:

Sometime in May 1998, petitioner Marquez received an Order from the Ombudsman Aniano A. Desierto dated April
29, 1998, to produce several bank documents for purposes of inspection in camera relative to various accounts
maintained at Union Bank of the Philippines, Julia Vargas Branch, where petitioner is the branch manager. The
accounts to be inspected are Account Nos. 011-37270, 240-020718, 245-30317-3 and 245-30318-1, involved in a
case pending with the Ombudsman entitled, Fact-Finding and Intelligence Bureau (FFIB) v. Amado Lagdameo, et.
al. The order further states:
“It is worth mentioning that the power of the Ombudsman to investigate and to require the production and
inspection of records and documents is sanctioned by the 1987 Philippine Constitution, Republic Act No. 6770,
otherwise known as the Ombudsman Act of 1989 and under existing jurisprudence on the matter. It must be noted
that R. A. 6770 especially Section 15 thereof provides, among others, the following powers, functions and duties of
the Ombudsman, to wit:
x x x

(8) Administer oaths, issue subpoena and subpoena duces tecum and take testimony in any investigation or
inquiry, including the power to examine and have access to bank accounts and records;

(9) Punish for contempt in accordance with the Rules of Court and under the same procedure and with the same
penalties provided therein.

Clearly, the specific provision of R.A. 6770, a later legislation, modifies the law on the Secrecy of Bank Deposits
(R.A. 1405) and places the office of the Ombudsman in the same footing as the courts of law in this regard.” [2]

The basis of the Ombudsman in ordering an in camera inspection of the accounts is a trail of managers checks
purchased by one George Trivinio, a respondent in OMB-0-97-0411, pending with the office of the Ombudsman.

It would appear that Mr. George Trivinio, purchased fifty one (51) Managers Checks (MCs) for a total amount of
P272.1 Million at Traders Royal Bank, United Nations Avenue branch, on May 2 and 3, 1995. Out of the 51 MCs,
eleven (11) MCs

in the amount of P70.6 million, were deposited and credited to an account maintained at the Union Bank, Julia
Vargas Branch.[3]

On May 26, 1998, the FFIB panel met in conference with petitioner Lourdes T. Marquez and Atty. Fe B. Macalino at
the bank’s main office, Ayala Avenue, Makati City. The meeting was for the purpose of allowing petitioner and Atty.
Macalino to view the checks furnished by Traders Royal Bank. After convincing themselves of the veracity of the
checks, Atty. Macalino advised Ms. Marquez to comply with the order of the Ombudsman. Petitioner agreed to an
in camera inspection set on June 3, 1998.[4]

However, on June 4, 1998, petitioner wrote the Ombudsman explaining to him that the accounts in question
cannot readily be identified and asked for time to respond to the order. The reason forwarded by petitioner was
that “despite diligent efforts and from the account numbers presented, we can not identify these accounts since
the checks are issued in cash or bearer. We surmised that these accounts have long been dormant, hence are not
covered by the new account number generated by the Union Bank system. We therefore have to verify from the
Interbank records archives for the whereabouts of these accounts.” [5]

The Ombudsman, responding to the request of the petitioner for time to comply with the order, stated: “firstly, it
must be emphasized that Union Bank, Julia Vargas Branch was the depositary bank of the subject Traders Royal
Bank Manager’s Checks (MCs), as shown at its dorsal portion and as cleared by the Philippine Clearing House, not
the International Corporate Bank.

Notwithstanding the fact that the checks were payable to cash or bearer, nonetheless, the name of the
depositor(s) could easily be identified since the account numbers x x x where said checks were deposited are
identified in the order.

Even assuming that the accounts xxx were already classified as “dormant accounts,” the bank is still required to
preserve the records pertaining to the accounts within a certain period of time as required by existing banking
rules and regulations.

Page 37 of 69
And finally, the in camera inspection was already extended twice from May 13, 1998 to June 3, 1998, thereby
giving the bank enough time within which to sufficiently comply with the order.” [6]

Thus, on June 16, 1998, the Ombudsman issued an order directing petitioner to produce the bank documents
relative to the accounts in issue. The order states:
Viewed from the foregoing, your persistent refusal to comply with Ombudsman’s order is unjustified, and is merely
intended to delay the investigation of the case. Your act constitutes disobedience of or resistance to a lawful order
issued by this office and is punishable as Indirect Contempt under Section 3(b) of R.A. 6770. The same may also
constitute obstruction in the lawful exercise of the functions of the Ombudsman which is punishable under Section
36 of R.A. 6770.[7]

On July 10, 1998, petitioner together with Union Bank of the Philippines, filed a petition for declaratory relief,
prohibition and injunction[8] with the Regional Trial Court, Makati City, against the Ombudsman.

The petition was intended to clear the rights and duties of petitioner. Thus, petitioner sought a declaration of her
rights from the court due to the clear conflict between R. A. No. 6770, Section 15 and R. A. No. 1405, Sections 2
and 3.

Petitioner prayed for a temporary restraining order (TRO) because the Ombudsman and other persons acting under
his authority were continuously harassing her to produce the bank documents relative to the accounts in question.
Moreover, on June 16, 1998, the Ombudsman issued another order stating that unless petitioner appeared before
the FFIB with the documents requested, petitioner manager would be charged with indirect contempt and
obstruction of justice.

In the meantime,[9] on July 14, 1998, the lower court denied petitioner’s prayer for a temporary restraining order
and stated thus:
“After hearing the arguments of the parties, the court finds the application for a Temporary Restraining Order to be
without merit.

“Since the application prays for the restraint of the respondent, in the exercise of his contempt powers under
Section 15 (9) in relation to paragraph (8) of R.A. 6770, known as “The Ombudsman Act of 1989”, there is no
great or irreparable injury from which petitioners may suffer, if respondent is not so restrained. Respondent should
he decide to exercise his contempt powers would still have to apply with the court. x x x Anyone who, without
lawful excuse x x x refuses to produce documents for inspection, when thereunto lawfully required shall be subject
to discipline as in case of contempt of Court and upon application of the individual or body exercising the power in
question shall be dealt with by the Judge of the First Instance (now RTC) having jurisdiction of the case in a
manner provided by law (section 580 of the Revised Administrative Code). Under the present Constitution only
judges may issue warrants, hence, respondent should apply with the Court for the issuance of the warrant needed
for the enforcement of his contempt orders. It is in these proceedings where petitioners may question the propriety
of respondent’s exercise of his contempt powers. Petitioners are not therefore left without any adequate remedy.

“The questioned orders were issued with the investigation of the case of Fact-Finding and Intelligence Bureau vs.
Amado Lagdameo, et. el., OMB-0-97-0411, for violation of R.A. 3019. Since petitioner failed to show prima facie
evidence that the subject matter of the investigation is outside the jurisdiction of the Office of the Ombudsman, no
writ of injunction may be issued by this Court to delay this investigation pursuant to Section 14 of the Ombudsman
Act of 1989.”[10]

On July 20, 1998, petitioner filed a motion for reconsideration based on the following grounds:
a. Petitioners’ application for Temporary Restraining Order is not only to restrain the Ombudsman from
exercising his contempt powers, but to stop him from implementing his Orders dated April 29,1998 and
June 16,1998; and
b. The subject matter of the investigation being conducted by the Ombudsman at petitioners’ premises is
outside his jurisdiction.[11]

On July 23, 1998, the Ombudsman filed a motion to dismiss the petition for declaratory relief [12] on the ground that
the Regional Trial Court has no jurisdiction to hear a petition for relief from the findings and orders of the
Ombudsman, citing R. A. No. 6770, Sections 14 and 27. On August 7, 1998, the Ombudsman filed an opposition to
petitioner’s motion for reconsideration dated July 20, 1998. [13]

On August 19, 1998, the lower court denied petitioner’s motion for reconsideration, [14] and also the Ombudsman’s
motion to dismiss.[15]

Page 38 of 69
On August 21, 1998, petitioner received a copy of the motion to cite her for contempt, filed with the Office of the
Ombudsman by Agapito B. Rosales, Director, Fact Finding and Intelligence Bureau (FFIB). [16]

On August 31, 1998, petitioner filed with the Ombudsman an opposition to the motion to cite her in contempt on
the ground that the filing thereof was premature due to the petition pending in the lower court. [17] Petitioner
likewise reiterated that she had no intention to disobey the orders of the Ombudsman. However, she wanted to be
clarified as to how she would comply with the orders without her breaking any law, particularly R. A. No. 1405. [18]

Respondent Ombudsman panel set the incident for hearing on September 7, 1998. [19] After hearing, the panel
issued an order dated September 7, 1998, ordering petitioner and counsel to appear for a continuation of the
hearing of the contempt charges against her. [20]

On September 10, 1998, petitioner filed with the Ombudsman a motion for reconsideration of the above order. [21]
Her motion was premised on the fact that there was a pending case with the Regional Trial Court, Makati City, [22]
which would determine whether obeying the orders of the Ombudsman to produce bank documents would not
violate any law.

The FFIB opposed the motion,[23] and on October 14, 1998, the Ombudsman denied the motion by order the
dispositive portion of which reads:
“Wherefore, respondent Lourdes T. Marquez’s motion for reconsideration is hereby DENIED, for lack of merit. Let
the hearing of the motion of the Fact Finding Intelligence Bureau (FFIB) to cite her for indirect contempt be
intransferrably set to 29 October 1998 at 2:00 o’clock p.m. at which date and time she should appear personally to
submit her additional evidence. Failure to do so shall be deemed a waiver thereof.” [24]

Hence, the present petition.[25]

The issue is whether petitioner may be cited for indirect contempt for her failure to produce the documents
requested by the Ombudsman. And whether the order of the Ombudsman to have an in camera inspection of the
questioned account is allowed as an exception to the law on secrecy of bank deposits (R. A. No. 1405).

An examination of the secrecy of bank deposits law (R. A. No. 1405) would reveal the following exceptions:
1. Where the depositor consents in writing;
2. Impeachment case;
3. By court order in bribery or dereliction of duty cases against public officials;
4. Deposit is subject of litigation;
5. Sec. 8, R. A. No. 3019, in cases of unexplained wealth as held in the case of PNB vs. Gancayco [26]

The order of the Ombudsman to produce for in camera inspection the subject accounts with the Union Bank of the
Philippines, Julia Vargas Branch, is based on a pending investigation at the Office of the Ombudsman against
Amado Lagdameo, et. al. for violation of R. A. No. 3019, Sec. 3 (e) and (g) relative to the Joint Venture Agreement
between the Public Estates Authority and AMARI.

We rule that before an in camera inspection may be allowed, there must be a pending case before a court of
competent jurisdiction. Further, the account must be clearly identified, the inspection limited to the subject matter
of the pending case before the court of competent jurisdiction. The bank personnel and the account holder must be
notified to be present during the inspection, and such inspection may cover only the account identified in the
pending case.

In Union Bank of the Philippines v. Court of Appeals, we held that “Section 2 of the Law on Secrecy of Bank
Deposits, as amended, declares bank deposits to be “absolutely confidential” except:
(1) In an examination made in the course of a special or general examination of a bank that is specifically
authorized by the Monetary Board after being satisfied that there is reasonable ground to believe that a bank
fraud or serious irregularity has been or is being committed and that it is necessary to look into the deposit
to establish such fraud or irregularity,
(2) In an examination made by an independent auditor hired by the bank to conduct its regular audit provided
that the examination is for audit purposes only and the results thereof shall be for the exclusive use of the
bank,
(3) Upon written permission of the depositor,
(4) In cases of impeachment,

Page 39 of 69
(5) Upon order of a competent court in cases of bribery or dereliction of duty of public officials, or
(6) In cases where the money deposited or invested is the subject matter of the litigation” [27]

In the case at bar, there is yet no pending litigation before any court of competent authority. What is existing is an
investigation by the office of the Ombudsman. In short, what the Office of the Ombudsman would wish to do is to
fish for additional evidence to formally charge Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there
was no pending case in court which would warrant the opening of the bank account for inspection.

Zones of privacy are recognized and protected in our laws. The Civil Code provides that "[e]very person shall
respect the dignity, personality, privacy and peace of mind of his neighbors and other persons" and punishes as
actionable torts several acts for meddling and prying into the privacy of another. It also holds a public officer or
employee or any private individual liable for damages for any violation of the rights and liberties of another person,
and recognizes the privacy of letters and other private communications. The Revised Penal Code makes a crime of
the violation of secrets by an officer, the revelation of trade and industrial secrets, and trespass to dwelling.
Invasion of privacy is an offense in special laws like the Anti-Wiretapping Law, the Secrecy of Bank Deposits
Act, and the Intellectual Property Code.[28]

IN VIEW WHEREOF, we GRANT the petition. We order the Ombudsman to cease and desist from requiring Union
Bank Manager Lourdes T. Marquez, or anyone in her place to comply with the order dated October 14, 1998, and
similar orders. No costs.

SO ORDERED.
G.R. No. 134699, December 23, 1999
UNION BANK OF THE PHILIPPINES, PETITIONER, VS. COURT OF APPEALS AND ALLIED BANK
CORPORATION, RESPONDENTS.

DECISION
KAPUNAN, J.:
Section 2 of the Law on Secrecy of Bank Deposits,[1] as amended, declares bank deposits to be “absolutely
confidential” except:
(1) In an examination made in the course of a special or general examination of a bank that is specifically
authorized by the Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud
or serious irregularity has been or is being committed and that it is necessary to look into the deposit to establish
such fraud or irregularity,

(2) In an examination made by an independent auditor hired by the bank to conduct its regular audit
provided that the examination is for audit purposes only and the results thereof shall be for the exclusive use of
the bank,

(3) Upon written permission of the depositor,

(4) In cases of impeachment,

(5) Upon order of a competent court in cases of bribery or dereliction of duty of public officials, or

(6) In cases where the money deposited or invested in the subject matter of the litigation.
Whether or not the case at bar falls under the last exception is the issue in the instant petition.

The facts are not disputed.

On March 21, 1990, a check (Check No. 11669677) dated March 31, 1990 in the amount of One Million Pesos
(P1,000,000.00) was drawn against Account No. 0111-01854-8 with private respondent Allied Bank payable to the
order of one Jose Ch. Alvarez. The payee deposited the check with petitioner Union Bank who credited the
P1,000,000.00 to the account of Mr. Alvarez. On May 21, 1990, petitioner sent the check for clearing through the
Philippine Clearing House Corporation (PCHC). When the check was presented for payment, a clearing discrepancy
was committed by Union Bank’s clearing staff when the amount of One Million Pesos (P1,000,000.00) was
erroneously “under-encoded” to One Thousand Pesos (P1,000.00) only.

Petitioner only discovered the under-encoding almost a year later. Thus, on May 7, 1991, Union Bank Notified
Allied Bank of the discrepancy by way of a charge slip for Nine Hundred Ninety-Nine Thousand Pesos
(P999,000.00) for automatic debiting against the account of Allied Bank. The latter, however, refused to accept the
Page 40 of 69
charge slip “since [the] transaction was completed per your [Union Bank’s] original instruction and client’s account
is now insufficiently funded.”

Subsequently, Union Bank filed a complaint against Allied Bank before the PCHC Arbitration Committee (Arbicom),
praying that:
… judgment be rendered in favor of plaintiff against defendant sentencing it to pay plaintiff:

1. The sum of NINE HUNDRED NINETY-NINE THOUSAND PESOS (P999,000.00);

2. The sum of THREE HUNDRED SIXTY-ONE AND FOUR HUNDRED EIGHTY AND 20/XX P361,480.20 as of October
9, 1991 representing reimbursements for opportunity losses and interest at the rate of 24% per annum arising
from actual losses sustained by plaintiff as of May 21, 1990;

3. The amount for attorney’s fees at the rate of 25% of any and all sums due;

4. Penalty Charges at the rate of 1/8 of 1% of P999,000.00 from May 22, 1990 until payment thereof.

5. Exemplary and punitive damages against the defendant in such amounts as may be awarded by this Tribunal in
order to serve a lesson to all member-Banks under the PCHC umbrella to striclty comply with the provisions
thereof;

6. The costs of suit which includes filing fee in addition to litigation expenses which shall be proven in the course
of arbitration.

7. Such other damages thay may be awarded by this Tribunal. [2]

Thereafter, Union Bank filed in the Regional Trial court (RTC) of Makati a petition for the examination of Account
No. 111-01854-8. Judgment on the arbitration case was held in abeyance pending the resolution of said petition.

Upon motion of private respondent, the RTC dismissed Union Bank’s petition. The RTC held that:
The case of the herein petitioner does not fall under any of the foregoing exceptions to warrant a disclosure of or
inquiry into the ledgers/books of account of Allied Checking Account No. 111-01854-8. Needless to say, the
complaint filed by herein petitioner against Allied Banking Corporation before the Philippine Clearing House
Corporation (PCHC) Arbitration Committee and docketed therein as Arb[i]com Case No. 91-068 (Annex “A”,
petition) is not one for bribery or dereliction of duty of public officials much less is there any showing that the
subject matter thereof is the money deposited in the account in question. Petitioner’s complaint primarily hing[e]s
on the alleged deliberate violation by Allied Bank Corporation of the provisions of the PCHC Rule Book, Sec. 25[.]3,
and as principal reliefs, it seeks for [sic] the recovery of amounts of money as a consequence of an alleged under-
coding of check amount to P1,000,000.00 and damage[s] by way of loss of interest income. [3]
The Court of Appeals affirmed the dismissal of the petition, ruling that the case was not one where the money
deposited is the subject matter of the litigation.
Petitioner collecting bank itself in its complaint filed before the PCHC, Arbicom Case No. 91-068, clearly stated that
its “cause of action against defendant arose from defendant’s deliberate violation of the provisions of the PCHC
Rule Book, Sec. 25.3, specifically on Under-Encoding of check amouting to P1,000,000.00 drawn upon defendant’s
Tondo Branch which was deposited with plaintiff herein on May 20, 1990, xxx which was erroneously encoded at
P1,000.00 which defendant as the receiving bank thereof, never called nor notified the plaintiff of the error
committed thus causing actual losses to plaintiff in the principal amount of P999,000.00 exclusive of opportunity
losses and interest.”

Furthermore, a reading of petitioner collecting bank’s complaint in the Arbicom case shows that its thrust is
directed against respondent drawee bank’s alleged failure to inform the former of the under-encoding when Sec.
25.3 of the PCHC Rule Book is clear that it is receiving bank’s (respondent drawee bank herein) duty and obligation
to notify the erring bank (petitioner collecting bank herein) of any such under-encoding of any check amount
submitted for clearing within the member banks of the PCHC not later than 10:00 a.m. of the following clearing
day and prays that respondent drawee bank be held liable to petitioner collecting bank for penalties in view of the
latter’s violation of the notification requirement.

Prescinding from the above, we see no cogent reason to depart from the time-honored general banking rule that
all deposits of whatever nature with banks are considered of absolutely confidential nature and may not be
examined, inquired or looked into by any person, government official, bureau or office and corollarily, that it is
unlawful for any official or employee of a bank to disclose to any person any information concerning deposits.

Nowhere in petitioner collecting bank’s complaint filed before the PCHC does it mention of the amount it seeks to
Page 41 of 69
recover from Account No. 0111-018548 itself, but speaks of P999,000.00 only as an incident of its alleged
opportunity losses and interest as a result of its own employee’s admitted error in encoding the check.

The money depositied in Account No. 0111-018548 is not the subject matter of the litigation in the Arbicom case
for as clearly stated by petitioner itself, it is the alleged violation by respondent of the rules and regulations of the
PCHC.[4]
Union Bank is now before this Court insisting that the money deposited in Account No. 0111-01854-8 is the subject
matter of the litigation Petitioner cites the case of Mathay vs. Consolidated Bank and Trust Company, [5] where we
defined “subject matter of the action,” thus:
xxx By the phrase “subject matter of the action” is meant “the physical facts, the things real or personal, the
money, lands, chattels, and the like, in relation to which the suit is prosecuted, and not the delict or wrong
committed by the defendant.”
Petitioner contends that the Court of Appeals confuses the “cause of action” with the “subject of the action.” In
Yusingco vs. Ong Hing Lian,[6] petitioner points out, this Court distinguished the two concepts.
xxx “The cause of action is the legal wrong threatened or committed, while the object of the action is to prevent or
redress the wrong by obtaining some legal relief; but the subject of the action is neither of these since it is not the
wrong or the relief demanded, the subject of the action is the matter or thing with respect to which the controversy
has arisen, concerning which the wrong has been done, and this ordinarily is the property, or the contract and its
subject matter, or the thing in dispute.”
The argument is well taken. We note with approval the difference between the “subject of the action” from the
“cause of action.” We also find petitioner’s definition of the phrase “subject matter of the action” is consistent with
the term “subject matter of the litigation,” as the latter is used in the Bank Deposits Secrecy Act.

In Mellon Bank, N.A. vs. Magsino,[7] where the petitioner bank inadvertently caused the transfer of the amount of
US$1,000,000.00 instead of only US$1,000.00, the Court sanctioned the examination of the bank accounts where
part of the money was subsequently caused to be deposited:
… 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 wherabouts of the illegally acquired
amount extends to whatever is concealed by being held or recorded in the name of persons other than the one
responsible for the illegal acquisition.

Clearly, Mellon Bank involved a case where the money deposited was the subject matter of the litigation since the
money so deposited was the very thing in dispute. This, however, is not the case here.

Petitioner’s theory is that private respondent Allied Bank should have informed petitioner of the under-encoding
pursuant to the provisions of Section 25.3.1 of the PCHC Handbook, which states:
25.3.1. The Receiving Bank should inform the erring Bank about the under-encoding of amount not later than
10:00 A.M. of the following clearing day.
Failing in that duty, petitioner holds private respondent directly liable for the P999,000.00 and other damages. It
does not appear that petitioner is seeking reimbursement from the account of the drawer. This much is evident in
petitioner’s complaint before the Arbicom.
xxx plaintiff’s cause of action against defendant arose from defendant’s deliberate violation of the provisions of the
PCHC Rule Book, Sec. 25.3, specifically on Under-Encoding of check amounting to P1,000,000.00 drawn upon
defendant’s Tondo Branch which was deposited with plaintiff herein sometime on May 20, 1990. From the check
amount of P1,000,000.00, it was instead erroneously encoded at P1,000.00 which defendant as the receiving bank
thereof, never called nor notified the plaintiff of the error committed thus causing actual losses to plaintiff in the
principal amount of P999,000.00 exclusive of opportunity losses and interest thereon whatsoever. xxx [8]
Petitioner even requested private respondent’s Branch Manager for reimbursement from private respondent’s
account through the automatic debiting system.
2.7. On May 6, 1991, plaintiff’s Senior Vice-President, Ms. ERLINDA V. VALENTON wrote defendant’s Tondo
Branch Manager, Mr. RODOLFO JOSE on the incident and requested assistance in facilitating correction of the
erroneous coding with request for reimbursement thru the industry’s automatic debiting of defendant’s account…. [9]

Further, petitioner rejected private respondent’s proposal that the drawer issue postdated checks in favor of
petitioner since the identity and credit standing of the depositor were unknown to petitioner.
2.9. On May 23, 1991, defendant’s Branch Manager, the same Mr. Rodolfo Jose wrote plaintiff’s Ms. Erlinda
Valenton again insisting on the execution of the Quitclaim and Release in favor of defendant as the Branch has
endeavored to negotiate with its client for the collection of such amount. Upon a reading of the terms of the
Quitclaim and Release being proposed by defendant, the unmistakable fact lies that again defendant attempts for
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the second time to take advantage of plaintiff’s plight by indicating that the terms of the payment of the principal
amount of P999,000.00 is by way of several personal postdated checks up to March 21, 1992 from a person whose
identity is not even disclosed to plaintiff….

To an ordinary person aggrieved already by having been taken advantage of for 620 days more or less, the
proposal of defendant could not be acceptable for the reason that aside from the interest lost already for the use of
its money by another party, no assurance is made as to the actual collection thereof from a party whose credit
standing, the recipient is not at all aware of…. [10]
Petitioner also believed that it had no privity with the depositor:
2.12. Plaintiff then replied to defendant’s letter by requesting that in lieu of the post-dated checks from
defendant’s client with whom plaintiff has no privity whatsoever, if the defendant could tender the full payment of
the amount of P999,000.00 in defendant’s own Manager’s check and that plaintiff is willing to forego its further
claims for interest and losses for a period of 620 days, more or less…. [11]
The following argument adduced by petitioner in the Arbicom case leaves no doubt that petitioner is holding private
respondent itself liable for the discrepancy:
Defendant by its acceptance thru the clearing exchange of the check deposit from its client cannot be said to be
free from any liability for the unpaid portion of the check amount considering that defendant as the drawee bank,
is remiss in its duty of verifying possible technicalities on the face of the check.

Since the provisions of the PCHC Rule Book has so imposed upon the defendant being the Receiving Bank of a
discrepant check item to give that timely notification and defendant failing to comply with such requirement, then
it can be said that defendant is guilty of negligence. He who is guilty of negligence in the performance of its [sic]
duty is liable for damages. (Art. 1170, New Civil Code.)
Art. 1172 of the Civil Code provides that:

“Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such
liability may be regulated by the courts, according to the circumstances.[”] [12]

Petitioner points to its prayer in its complaint to show that it sought reimbursement from the drawer’s account. The
prayer, however, does not specifically state that it was seeking recovery of the amount from the depositor’s
account. Petitioner merely asked that “judgment be rendered in favor of plaintiff against defendant sentencing it to
pay plaintiff: 1. The sum of NINE HUNDRED NINETY-NINE THOUSAND PESOS (P999,000.00)….” [13]

On the other hand, the petition before this court reveals that the true purpose for the examination is to aid
petitioner in proving the extent of Allied Bank’s liability:
Hence, the amount actually debited from the subject account becomes very material and germane to petitioner’s
claim for reimbursement as it is only upon examination of subject account can it be proved that indeed a
discrepancy in the amount credited to petitioner was committed, thereby, rendering respondent Allied Bank liable
to petitioner for the deficiency. The money deposited in aforesaid account is undeniably the subject matter of the
litigation since the issue in the Arbicom case is whether respondent Bank should be held liable to petitioner for
reimbursement of the amount of money constituting the difference between the amount of the check and the
amount credited to petitioner, that is, P999,000.00, which has remained deposited in aforesaid account.

On top of the allegations in the complaint, which can be verified only by examining the subject bank account, the
defense of respondent Allied Bank that the reimbursement cannot be made since client’s account is not sufficiently
funded at the time petitioner sent its Charge Slip, bolsters petitioner’s contention that the money in subject
account is the very subject matter of the pending Arbicom case.

Indeed, to prove the allegations in its Complaint before the PCHC Arbitration Committee, and to rebut private
respondent’s defense on the matter, petitioner needs to determine:

1. how long respondent Allied Bank had willfully or negligently allowed the difference of P999,000.00 to be
maintained in the subject account without remitting the same to petitioner;

2. whether indeed the subject account was no longer sufficiently funded when petitioner sent its charge slip for
reimbursement to respondent bank on May 7, 1991; and

3. whether or not respondent Allied Bank’s actuations in refusing to immediately reimburse the discrepancy was
attended by good or bad faith.

In other words, only a disclosure of the pertinent details and information relating to the transactions involving
subject account will enable petitioner to prove its allegations in the pending Arbicom case. xxx [14]

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In short, petitioner is fishing for information so it can determine the culpability of private respondent and the
amount of damages it can recover from the latter. It does not seek recovery of the very money contained in the
deposit. The subject matter of the dispute may be the amount of P999,000.00 that petitioner seeks from private
respondent as a result of the latter’s alleged failure to inform the former of the discrepancy; but it is not the
P999,000.00 deposited in the drawer’s account. By the terms of R.A. No. 1405, the “money deposited” itself should
be the subject matter of the litigation.

That petitioner feels a need for such information in order to establish its case against private respondent does not,
by itself, warrant the examination of the bank deposits. The necessity of the inquiry, or the lack thereof, is
immaterial since the case does not come under any of the exceptions allowed by the Bank Deposits Secrecy Act.

WHEREFORE, the petition is DENIED.

SO ORDERED.
G.R. No. 174629, February 14, 2008
REPUBLIC OF THE PHILIPPINES, Represented by THE ANTI-MONEY LAUNDERING COUNCIL (AMLC),
Petitioner, vs. HON. ANTONIO M. EUGENIO, JR., AS PRESIDING JUDGE OF RTC, MANILA, BRANCH 34,
PANTALEON ALVAREZ and LILIA CHENG, Respondents.

DECISION
TINGA, J,:
The present petition for certiorari and prohibition under Rule 65 assails the orders and resolutions issued by two
different courts in two different cases. The courts and cases in question are the Regional Trial Court of Manila,
Branch 24, which heard SP Case No. 06-114200 [1] and the Court of Appeals, Tenth Division, which heared CA-G.R.
SP No. 95198.[2] Both cases arose as part of the aftermath of the ruling of this Court in Agan v. PIATCO[3] nullifying
the concession agreement awarded to the Philippine International Airport Terminal Corporation (PIATCO) over the
Ninoy Aquino International Airport – International Passenger Terminal 3 (NAIA 3) Project.
I.

Following the promulgation of Agan, a series of investigations concerning the award of the NAIA 3 contracts to
PIATCO were undertaken by the Ombudsman and the Compliance and Investigation Staff (CIS) of petitioner Anti-
Money Laundering Council (AMLC). On 24 May 2005, the Office of the Solicitor General (OSG) wrote the AMLC
requesting the latter’s assistance “in obtaining more evidence to completely reveal the financial trail of corruption
surrounding the [NAIA 3] Project,” and also noting that petitioner Republic of the Philippines was presently
defending itself in two international arbitration cases filed in relation to the NAIA 3 Project. [4] The CIS conducted an
intelligence database search on the financial transactions of certain individuals involved in the award, including
respondent Pantaleon Alvarez (Alvarez) who had been the Chairman of the PBAC Technical Committee, NAIA-IPT3
Project.[5] By this time, Alvarez had already been charged by the Ombudsman with violation of Section 3(j) of R.A.
No. 3019.[6] The search revealed that Alvarez maintained eight (8) bank accounts with six (6) different banks. [7]

On 27 June 2005, the AMLC issued Resolution No. 75, Series of 2005, [8] whereby the Council resolved to authorize
the Executive Director of the AMLC “to sign and verify an application to inquire into and/or examine the [deposits]
or investments of Pantaleon Alvarez, Wilfredo Trinidad, Alfredo Liongson, and Cheng Yong, and their related web of
accounts wherever these may be found, as defined under Rule 10.4 of the Revised Implementing Rules and
Regulations;” and to authorize the AMLC Secretariat “to conduct an inquiry into subject accounts once the Regional
Trial Court grants the application to inquire into and/or examine the bank accounts” of those four individuals. [9] The
resolution enumerated the particular bank accounts of Alvarez, Wilfredo Trinidad (Trinidad), Alfredo Liongson
(Liongson) and Cheng Yong which were to be the subject of the inquiry. [10] The rationale for the said resolution was
founded on the cited findings of the CIS that amounts were transferred from a Hong Kong bank account owned by
Jetstream Pacific Ltd. Account to bank accounts in the Philippines maintained by Liongson and Cheng Yong. [11] The
Resolution also noted that “[b]y awarding the contract to PIATCO despite its lack of financial capacity, Pantaleon
Alvarez caused undue injury to the government by giving PIATCO unwarranted benefits, advantage, or preference
in the discharge of his official administrative functions through manifest partiality, evident bad faith, or gross
inexcusable negligence, in violation of Section 3(e) of Republic Act No. 3019.” [12]

Under the authority granted by the Resolution, the AMLC filed an application to inquire into or examine the
deposits or investments of Alvarez, Trinidad, Liongson and Cheng Yong before the RTC of Makati, Branch 138,
presided by Judge (now Court of Appeals Justice) Sixto Marella, Jr. The application was docketed as AMLC No. 05-
005.[13] The Makati RTC heard the testimony of the Deputy Director of the AMLC, Richard David C. Funk II, and
received the documentary evidence of the AMLC. [14] Thereafter, on 4 July 2005, the Makati RTC rendered an Order
(Makati RTC bank inquiry order) granting the AMLC the authority to inquire and examine the subject bank accounts
of Alvarez, Trinidad, Liongson and Cheng Yong, the trial court being satisfied that there existed “[p]robable cause
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[to] believe that the deposits in various bank accounts, details of which appear in paragraph 1 of the Application,
are related to the offense of violation of Anti-Graft and Corrupt Practices Act now the subject of criminal
prosecution before the Sandiganbayan as attested to by the Informations, Exhibits C, D, E, F, and G.” [15] Pursuant
to the Makati RTC bank inquiry order, the CIS proceeded to inquire and examine the deposits, investments and
related web accounts of the four.[16]

Meanwhile, the Special Prosecutor of the Office of the Ombudsman, Dennis Villa-Ignacio, wrote a letter dated 2
November 2005, requesting the AMLC to investigate the accounts of Alvarez, PIATCO, and several other entities
involved in the nullified contract. The letter adverted to probable cause to believe that the bank accounts “were
used in the commission of unlawful activities that were committed” in relation to the criminal cases then pending
before the Sandiganbayan.[17] Attached to the letter was a memorandum “on why the investigation of the
[accounts] is necessary in the prosecution of the above criminal cases before the Sandiganbayan.” [18]

In response to the letter of the Special Prosecutor, the AMLC promulgated on 9 December 2005 Resolution No. 121
Series of 2005,[19] which authorized the executive director of the AMLC to inquire into and examine the accounts
named in the letter, including one maintained by Alvarez with DBS Bank and two other accounts in the name of
Cheng Yong with Metrobank. The Resolution characterized the memorandum attached to the Special Prosecutor’s
letter as “extensively justif[ying] the existence of probable cause that the bank accounts of the persons and
entities mentioned in the letter are related to the unlawful activity of violation of Sections 3(g) and 3(e) of Rep. Act
No. 3019, as amended.”[20]

Following the December 2005 AMLC Resolution, the Republic, through the AMLC, filed an application [21] before the
Manila RTC to inquire into and/or examine thirteen (13) accounts and two (2) related web of accounts alleged as
having been used to facilitate corruption in the NAIA 3 Project. Among said accounts were the DBS Bank account of
Alvarez and the Metrobank accounts of Cheng Yong. The case was raffled to Manila RTC, Branch 24, presided by
respondent Judge Antonio Eugenio, Jr., and docketed as SP Case No. 06-114200.

On 12 January 2006, the Manila RTC issued an Order (Manila RTC bank inquiry order) granting the Ex Parte
Application expressing therein “[that] the allegations in said application to be impressed with merit, and in
conformity with Section 11 of R.A. No. 9160, as amended, otherwise known as the Anti-Money Laundering Act
(AMLA) of 2001 and Rules 11.1 and 11.2 of the Revised Implementing Rules and Regulations.” [22] Authority was
thus granted to the AMLC to inquire into the bank accounts listed therein.

On 25 January 2006, Alvarez, through counsel, entered his appearance [23] before the Manila RTC in SP Case No.
06-114200 and filed an Urgent Motion to Stay Enforcement of Order of January 12, 2006. [24] Alvarez alleged that
he fortuitously learned of the bank inquiry order, which was issued following an ex parte application, and he
argued that nothing in R.A. No. 9160 authorized the AMLC to seek the authority to inquire into bank accounts ex
parte.[25] The day after Alvarez filed his motion, 26 January 2006, the Manila RTC issued an Order [26] staying the
enforcement of its bank inquiry order and giving the Republic five (5) days to respond to Alvarez’s motion.

The Republic filed an Omnibus Motion for Reconsideration [27] of the 26 January 2006 Manila RTC Order and likewise
sought to strike out Alvarez’s motion that led to the issuance of said order. For his part, Alvarez filed a Reply and
Motion to Dismiss[28] the application for bank inquiry order. On 2 May 2006, the Manila RTC issued an Omnibus
Order[29] granting the Republic’s Motion for Reconsideration, denying Alvarez’s motion to dismiss and reinstating “in
full force and effect” the Order dated 12 January 2006. In the omnibus order, the Manila RTC reiterated that the
material allegations in the application for bank inquiry order filed by the Republic stood as “the probable cause for
the investigation and examination of the bank accounts and investments of the respondents.” [30]

Alvarez filed on 10 May 2006 an Urgent Motion[31] expressing his apprehension that the AMLC would immediately
enforce the omnibus order and would thereby render the motion for reconsideration he intended to file as moot
and academic; thus he sought that the Republic be refrained from enforcing the omnibus order in the meantime.
Acting on this motion, the Manila RTC, on 11 May 2006, issued an Order [32] requiring the OSG to file a
comment/opposition and reminding the parties that judgments and orders become final and executory upon the
expiration of fifteen (15) days from receipt thereof, as it is the period within which a motion for reconsideration
could be filed. Alvarez filed his Motion for Reconsideration [33] of the omnibus order on 15 May 2006, but the motion
was denied by the Manila RTC in an Order [34] dated 5 July 2006.

On 11 July 2006, Alvarez filed an Urgent Motion and Manifestation [35] wherein he manifested having received
reliable information that the AMLC was about to implement the Manila RTC bank inquiry order even though he was
intending to appeal from it. On the premise that only a final and executory judgment or order could be executed or
implemented, Alvarez sought that the AMLC be immediately ordered to refrain from enforcing the Manila RTC bank
inquiry order.

On 12 July 2006, the Manila RTC, acting on Alvarez’s latest motion, issued an Order [36] directing the AMLC “to
refrain from enforcing the order dated January 12, 2006 until the expiration of the period to appeal, without any
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appeal having been filed.” On the same day, Alvarez filed a Notice of Appeal [37] with the Manila RTC.

On 24 July 2006, Alvarez filed an Urgent Ex Parte Motion for Clarification.[38] Therein, he alleged having learned
that the AMLC had began to inquire into the bank accounts of the other persons mentioned in the application for
bank inquiry order filed by the Republic.[39] Considering that the Manila RTC bank inquiry order was issued ex parte,
without notice to those other persons, Alvarez prayed that the AMLC be ordered to refrain from inquiring into any
of the other bank deposits and alleged web of accounts enumerated in AMLC’s application with the RTC; and that
the AMLC be directed to refrain from using, disclosing or publishing in any proceeding or venue any information or
document obtained in violation of the 11 May 2006 RTC Order. [40]

On 25 July 2006, or one day after Alvarez filed his motion, the Manila RTC issued an Order [41] wherein it clarified
that “the Ex Parte Order of this Court dated January 12, 2006 can not be implemented against the deposits or
accounts of any of the persons enumerated in the AMLC Application until the appeal of movant Alvarez is finally
resolved, otherwise, the appeal would be rendered moot and academic or even nugatory.” [42] In addition, the AMLC
was ordered “not to disclose or publish any information or document found or obtained in [v]iolation of the May 11,
2006 Order of this Court.”[43] The Manila RTC reasoned that the other persons mentioned in AMLC’s application
were not served with the court’s 12 January 2006 Order. This 25 July 2006 Manila RTC Order is the first of the four
rulings being assailed through this petition.

In response, the Republic filed an Urgent Omnibus Motion for Reconsideration [44] dated 27 July 2006, urging that it
be allowed to immediately enforce the bank inquiry order against Alvarez and that Alvarez’s notice of appeal be
expunged from the records since appeal from an order of inquiry is disallowed under the Anti money Laundering
Act (AMLA).

Meanwhile, respondent Lilia Cheng filed with the Court of Appeals a Petition for Certiorari, Prohibition and
Mandamus with Application for TRO and/or Writ of Preliminary Injunction [45] dated 10 July 2006, directed against
the Republic of the Philippines through the AMLC, Manila RTC Judge Eugenio, Jr. and Makati RTC Judge Marella, Jr..
She identified herself as the wife of Cheng Yong[46] with whom she jointly owns a conjugal bank account with
Citibank that is covered by the Makati RTC bank inquiry order, and two conjugal bank accounts with Metrobank
that are covered by the Manila RTC bank inquiry order. Lilia Cheng imputed grave abuse of discretion on the part
of the Makati and Manila RTCs in granting AMLC’s ex parte applications for a bank inquiry order, arguing among
others that the ex parte applications violated her constitutional right to due process, that the bank inquiry order
under the AMLA can only be granted in connection with violations of the AMLA and that the AMLA can not apply to
bank accounts opened and transactions entered into prior to the effectivity of the AMLA or to bank accounts
located outside the Philippines.[47]

On 1 August 2006, the Court of Appeals, acting on Lilia Cheng’s petition, issued a Temporary Restraining Order [48]
enjoining the Manila and Makati trial courts from implementing, enforcing or executing the respective bank inquiry
orders previously issued, and the AMLC from enforcing and implementing such orders. On even date, the Manila
RTC issued an Order[49] resolving to hold in abeyance the resolution of the urgent omnibus motion for
reconsideration then pending before it until the resolution of Lilia Cheng’s petition for certiorari with the Court of
Appeals. The Court of Appeals Resolution directing the issuance of the temporary restraining order is the second of
the four rulings assailed in the present petition.

The third assailed ruling[50] was issued on 15 August 2006 by the Manila RTC, acting on the Urgent Motion for
Clarification[51] dated 14 August 2006 filed by Alvarez. It appears that the 1 August 2006 Manila RTC Order had
amended its previous 25 July 2006 Order by deleting the last paragraph which stated that the AMLC “should not
disclose or publish any information or document found or obtained in violation of the May 11, 2006 Order of this
Court.”[52] In this new motion, Alvarez argued that the deletion of that paragraph would allow the AMLC to
implement the bank inquiry orders and publish whatever information it might obtain thereupon even before the
final orders of the Manila RTC could become final and executory. [53] In the 15 August 2006 Order, the Manila RTC
reiterated that the bank inquiry order it had issued could not be implemented or enforced by the AMLC or any of its
representatives until the appeal therefrom was finally resolved and that any enforcement thereof would be
unauthorized.[54]

The present Consolidated Petition[55] for certiorari and prohibition under Rule 65 was filed on 2 October 2006,
assailing the two Orders of the Manila RTC dated 25 July and 15 August 2006 and the Temporary Restraining Order
dated 1 August 2006 of the Court of Appeals. Through an Urgent Manifestation and Motion [56] dated 9 October
2006, petitioner informed the Court that on 22 September 2006, the Court of Appeals hearing Lilia Cheng’s petition
had granted a writ of preliminary injunction in her favor. [57] Thereafter, petitioner sought as well the nullification of
the 22 September 2006 Resolution of the Court of Appeals, thereby constituting the fourth ruling assailed in the
instant petition.[58]

The Court had initially granted a Temporary Restraining Order [59] dated 6 October 2006 and later on a
Supplemental Temporary Restraining Order[60] dated 13 October 2006 in petitioner’s favor, enjoining the
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implementation of the assailed rulings of the Manila RTC and the Court of Appeals. However, on respondents’
motion, the Court, through a Resolution[61] dated 11 December 2006, suspended the implementation of the
restraining orders it had earlier issued.

Oral arguments were held on 17 January 2007. The Court consolidated the issues for argument as follows:
1. Did the RTC-Manila, in issuing the Orders dated 25 July 2006 and 15 August 2006 which deferred the
implementation of its Order dated 12 January 2006, and the Court of Appeals, in issuing its Resolution dated 1
August 2006, which ordered the status quo in relation to the 1 July 2005 Order of the RTC-Makati and the 12
January 2006 Order of the RTC-Manila, both of which authorized the examination of bank accounts under Section
11 of Rep. Act No. 9160 (AMLA), commit grave abuse of discretion?
(a) Is an application for an order authorizing inquiry into or examination of bank accounts or investments under
Section 11 of the AMLA ex-parte in nature or one which requires notice and hearing?

(b) What legal procedures and standards should be observed in the conduct of the proceedings for the issuance of
said order?

(c) Is such order susceptible to legal challenges and judicial review?

2. Is it proper for this Court at this time and in this case to inquire into and pass upon the validity of the 1 July
2005 Order of the RTC-Makati and the 12 January 2006 Order of the RTC-Manila, considering the pendency of CA
G.R. SP No. 95-198 (Lilia Cheng v. Republic) wherein the validity of both orders was challenged? [62]
After the oral arguments, the parties were directed to file their respective memoranda, which they did, [63] and the
petition was thereafter deemed submitted for resolution.
II.

Petitioner’s general advocacy is that the bank inquiry orders issued by the Manila and Makati RTCs are valid and
immediately enforceable whereas the assailed rulings, which effectively stayed the enforcement of the Manila and
Makati RTCs bank inquiry orders, are sullied with grave abuse of discretion. These conclusions flow from the
posture that a bank inquiry order, issued upon a finding of probable cause, may be issued ex parte and, once
issued, is immediately executory. Petitioner further argues that the information obtained following the bank inquiry
is necessarily beneficial, if not indispensable, to the AMLC in discharging its awesome responsibility regarding the
effective implementation of the AMLA and that any restraint in the disclosure of such information to appropriate
agencies or other judicial fora would render meaningless the relief supplied by the bank inquiry order.

Petitioner raises particular arguments questioning Lilia Cheng’s right to seek injunctive relief before the Court of
Appeals, noting that not one of the bank inquiry orders is directed against her. Her “cryptic assertion” that she is
the wife of Cheng Yong cannot, according to petitioner, “metamorphose into the requisite legal standing to seek
redress for an imagined injury or to maintain an action in behalf of another.” In the same breath, petitioner argues
that Alvarez cannot assert any violation of the right to financial privacy in behalf of other persons whose bank
accounts are being inquired into, particularly those other persons named in the Makati RTC bank inquiry order who
did not take any step to oppose such orders before the courts.

Ostensibly, the proximate question before the Court is whether a bank inquiry order issued in accordance with
Section 10 of the AMLA may be stayed by injunction. Yet in arguing that it does, petitioner relies on what it posits
as the final and immediately executory character of the bank inquiry orders issued by the Manila and Makati RTCs.
Implicit in that position is the notion that the inquiry orders are valid, and such notion is susceptible to review and
validation based on what appears on the face of the orders and the applications which triggered their issuance, as
well as the provisions of the AMLA governing the issuance of such orders. Indeed, to test the viability of petitioner’s
argument, the Court will have to be satisfied that the subject inquiry orders are valid in the first place. However,
even from a cursory examination of the applications for inquiry order and the orders themselves, it is evident that
the orders are not in accordance with law.
III.

A brief overview of the AMLA is called for.

Money laundering has been generally defined by the International Criminal Police Organization (Interpol) `as “any
act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have
originated from legitimate sources.”[64] Even before the passage of the AMLA, the problem was addressed by the
Philippine government through the issuance of various circulars by the Bangko Sentral ng Pilipinas. Yet ultimately,
legislative proscription was necessary, especially with the inclusion of the Philippines in the Financial Action Task
Force’s list of non-cooperative countries and territories in the fight against money laundering. [65] The original AMLA,
Republic Act (R.A.) No. 9160, was passed in 2001. It was amended by R.A. No. 9194 in 2003.

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Section 4 of the AMLA states that “[m]oney laundering is a crime whereby the proceeds of an unlawful activity as
[defined in the law] are transacted, thereby making them appear to have originated from legitimate sources.” [66]
The section further provides the three modes through which the crime of money laundering is committed. Section
7 creates the AMLC and defines its powers, which generally relate to the enforcement of the AMLA provisions and
the initiation of legal actions authorized in the AMLA such as civil forefeiture proceedings and complaints for the
prosecution of money laundering offenses. [67]

In addition to providing for the definition and penalties for the crime of money laundering, the AMLA also
authorizes certain provisional remedies that would aid the AMLC in the enforcement of the AMLA. These are the
“freeze order” authorized under Section 10, and the “bank inquiry order” authorized under Section 11.

Respondents posit that a bank inquiry order under Section 11 may be obtained only upon the pre-existence of a
money laundering offense case already filed before the courts. [68] The conclusion is based on the phrase “upon
order of any competent court in cases of violation of this Act,” the word “cases” generally understood as referring
to actual cases pending with the courts.

We are unconvinced by this proposition, and agree instead with the then Solicitor General who conceded that the
use of the phrase “in cases of” was unfortunate, yet submitted that it should be interpreted to mean “in the event
there are violations” of the AMLA, and not that there are already cases pending in court concerning such violations.
[69]
If the contrary position is adopted, then the bank inquiry order would be limited in purpose as a tool in aid of
litigation of live cases, and wholly inutile as a means for the government to ascertain whether there is sufficient
evidence to sustain an intended prosecution of the account holder for violation of the AMLA. Should that be the
situation, in all likelihood the AMLC would be virtually deprived of its character as a discovery tool, and thus would
become less circumspect in filing complaints against suspect account holders. After all, under such set-up the
preferred strategy would be to allow or even encourage the indiscriminate filing of complaints under the AMLA with
the hope or expectation that the evidence of money laundering would somehow surface during the trial. Since the
AMLC could not make use of the bank inquiry order to determine whether there is evidentiary basis to prosecute
the suspected malefactors, not filing any case at all would not be an alternative. Such unwholesome set-up should
not come to pass. Thus Section 11 cannot be interpreted in a way that would emasculate the remedy it has
established and encourage the unfounded initiation of complaints for money laundering.

Still, even if the bank inquiry order may be availed of without need of a pre-existing case under the AMLA, it does
not follow that such order may be availed of ex parte. There are several reasons why the AMLA does not generally
sanction ex parte applications and issuances of the bank inquiry order.
IV.

It is evident that Section 11 does not specifically authorize, as a general rule, the issuance ex parte of the bank
inquiry order. We quote the provision in full:
SEC. 11. Authority to Inquire into Bank Deposits. ― Notwithstanding the provisions of Republic Act No.
1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other laws, the AMLC may
inquire into or examine any particular deposit or investment with any banking institution or non bank financial
institution upon order of any competent court in cases of violation of this Act, when it has been established
that there is probable cause that the deposits or investments are related to an unlawful activity as
defined in Section 3(i) hereof or a money laundering offense under Section 4 hereof, except that no
court order shall be required in cases involving unlawful activities defined in Sections 3(i)1, (2) and
(12).

To ensure compliance with this Act, the Bangko Sentral ng Pilipinas (BSP) may inquire into or examine any deposit
of investment with any banking institution or non bank financial institution when the examination is made in the
course of a periodic or special examination, in accordance with the rules of examination of the BSP. [70] (Emphasis
supplied)
Of course, Section 11 also allows the AMLC to inquire into bank accounts without having to obtain a judicial order
in cases where there is probable cause that the deposits or investments are related to kidnapping for ransom, [71]
certain violations of the Comprehensive Dangerous Drugs Act of 2002, [72] hijacking and other violations under R.A.
No. 6235, destructive arson and murder. Since such special circumstances do not apply in this case, there is no
need for us to pass comment on this proviso. Suffice it to say, the proviso contemplates a situation distinct from
that which presently confronts us, and for purposes of the succeeding discussion, our reference to Section 11 of
the AMLA excludes said proviso.

In the instances where a court order is required for the issuance of the bank inquiry order, nothing in Section 11
specifically authorizes that such court order may be issued ex parte. It might be argued that this silence does not
preclude the ex parte issuance of the bank inquiry order since the same is not prohibited under Section 11. Yet this
argument falls when the immediately preceding provision, Section 10, is examined.
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SEC. 10. Freezing of Monetary Instrument or Property. ― The Court of Appeals, upon application ex
parte by the AMLC and after determination that probable cause exists that any monetary instrument or property is
in any way related to an unlawful activity as defined in Section 3(i) hereof, may issue a freeze order which shall
be effective immediately. The freeze order shall be for a period of twenty (20) days unless extended by the
court.[73]
Although oriented towards different purposes, the freeze order under Section 10 and the bank inquiry order under
Section 11 are similar in that they are extraordinary provisional reliefs which the AMLC may avail of to effectively
combat and prosecute money laundering offenses. Crucially, Section 10 uses specific language to authorize an ex
parte application for the provisional relief therein, a circumstance absent in Section 11. If indeed the legislature
had intended to authorize ex parte proceedings for the issuance of the bank inquiry order, then it could have easily
expressed such intent in the law, as it did with the freeze order under Section 10.

Even more tellingly, the current language of Sections 10 and 11 of the AMLA was crafted at the same time,
through the passage of R.A. No. 9194. Prior to the amendatory law, it was the AMLC, not the Court of Appeals,
which had authority to issue a freeze order, whereas a bank inquiry order always then required, without exception,
an order from a competent court.[74] It was through the same enactment that ex parte proceedings were introduced
for the first time into the AMLA, in the case of the freeze order which now can only be issued by the Court of
Appeals. It certainly would have been convenient, through the same amendatory law, to allow a similar ex parte
procedure in the case of a bank inquiry order had Congress been so minded. Yet nothing in the provision itself, or
even the available legislative record, explicitly points to an ex parte judicial procedure in the application for a bank
inquiry order, unlike in the case of the freeze order.

That the AMLA does not contemplate ex parte proceedings in applications for bank inquiry orders is confirmed by
the present implementing rules and regulations of the AMLA, promulgated upon the passage of R.A. No. 9194. With
respect to freeze orders under Section 10, the implementing rules do expressly provide that the applications for
freeze orders be filed ex parte,[75] but no similar clearance is granted in the case of inquiry orders under Section
11.[76] These implementing rules were promulgated by the Bangko Sentral ng Pilipinas, the Insurance Commission
and the Securities and Exchange Commission, [77] and if it was the true belief of these institutions that inquiry
orders could be issued ex parte similar to freeze orders, language to that effect would have been incorporated in
the said Rules. This is stressed not because the implementing rules could authorize ex parte applications for inquiry
orders despite the absence of statutory basis, but rather because the framers of the law had no intention to allow
such ex parte applications.

Even the Rules of Procedure adopted by this Court in A.M. No. 05-11-04-SC [78] to enforce the provisions of the
AMLA specifically authorize ex parte applications with respect to freeze orders under Section 10 [79] but make no
similar authorization with respect to bank inquiry orders under Section 11.

The Court could divine the sense in allowing ex parte proceedings under Section 10 and in proscribing the same
under Section 11. A freeze order under Section 10 on the one hand is aimed at preserving monetary instruments
or property in any way deemed related to unlawful activities as defined in Section 3(i) of the AMLA. The owner of
such monetary instruments or property would thus be inhibited from utilizing the same for the duration of the
freeze order. To make such freeze order anteceded by a judicial proceeding with notice to the account holder would
allow for or lead to the dissipation of such funds even before the order could be issued.

On the other hand, a bank inquiry order under Section 11 does not necessitate any form of physical seizure of
property of the account holder. What the bank inquiry order authorizes is the examination of the particular deposits
or investments in banking institutions or non-bank financial institutions. The monetary instruments or property
deposited with such banks or financial institutions are not seized in a physical sense, but are examined on
particular details such as the account holder’s record of deposits and transactions. Unlike the assets subject of the
freeze order, the records to be inspected under a bank inquiry order cannot be physically seized or hidden by the
account holder. Said records are in the possession of the bank and therefore cannot be destroyed at the instance
of the account holder alone as that would require the extraordinary cooperation and devotion of the bank.

Interestingly, petitioner’s memorandum does not attempt to demonstrate before the Court that the bank inquiry
order under Section 11 may be issued ex parte, although the petition itself did devote some space for that
argument. The petition argues that the bank inquiry order is “a special and peculiar remedy, drastic in its name,
and made necessary because of a public necessity… [t]hus, by its very nature, the application for an order or
inquiry must necessarily, be ex parte.” This argument is insufficient justification in light of the clear disinclination of
Congress to allow the issuance ex parte of bank inquiry orders under Section 11, in contrast to the legislature’s
clear inclination to allow the ex parte grant of freeze orders under Section 10.

Without doubt, a requirement that the application for a bank inquiry order be done with notice to the account
holder will alert the latter that there is a plan to inspect his bank account on the belief that the funds therein are
involved in an unlawful activity or money laundering offense. [80] Still, the account holder so alerted will in fact be
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unable to do anything to conceal or cleanse his bank account records of suspicious or anomalous transactions, at
least not without the whole-hearted cooperation of the bank, which inherently has no vested interest to aid the
account holder in such manner.
V.

The necessary implication of this finding that Section 11 of the AMLA does not generally authorize the issuance ex
parte of the bank inquiry order would be that such orders cannot be issued unless notice is given to the owners of
the account, allowing them the opportunity to contest the issuance of the order. Without such a consequence, the
legislated distinction between ex parte proceedings under Section 10 and those which are not ex parte under
Section 11 would be lost and rendered useless.

There certainly is fertile ground to contest the issuance of an ex parte order. Section 11 itself requires that it be
established that “there is probable cause that the deposits or investments are related to unlawful activities,” and it
obviously is the court which stands as arbiter whether there is indeed such probable cause. The process of
inquiring into the existence of probable cause would involve the function of determination reposed on the trial
court. Determination clearly implies a function of adjudication on the part of the trial court, and not a mechanical
application of a standard pre-determination by some other body. The word "determination" implies deliberation and
is, in normal legal contemplation, equivalent to "the decision of a court of justice." [81]

The court receiving the application for inquiry order cannot simply take the AMLC’s word that probable cause exists
that the deposits or investments are related to an unlawful activity. It will have to exercise its own determinative
function in order to be convinced of such fact. The account holder would be certainly capable of contesting such
probable cause if given the opportunity to be apprised of the pending application to inquire into his account; hence
a notice requirement would not be an empty spectacle. It may be so that the process of obtaining the inquiry order
may become more cumbersome or prolonged because of the notice requirement, yet we fail to see any
unreasonable burden cast by such circumstance. After all, as earlier stated, requiring notice to the account holder
should not, in any way, compromise the integrity of the bank records subject of the inquiry which remain in the
possession and control of the bank.

Petitioner argues that a bank inquiry order necessitates a finding of probable cause, a characteristic similar to a
search warrant which is applied to and heard ex parte. We have examined the supposed analogy between a search
warrant and a bank inquiry order yet we remain to be unconvinced by petitioner.

The Constitution and the Rules of Court prescribe particular requirements attaching to search warrants that are not
imposed by the AMLA with respect to bank inquiry orders. A constitutional warrant requires that the judge
personally examine under oath or affirmation the complainant and the witnesses he may produce, [82] such
examination being in the form of searching questions and answers. [83] Those are impositions which the legislative
did not specifically prescribe as to the bank inquiry order under the AMLA, and we cannot find sufficient legal basis
to apply them to Section 11 of the AMLA. Simply put, a bank inquiry order is not a search warrant or warrant of
arrest as it contemplates a direct object but not the seizure of persons or property.

Even as the Constitution and the Rules of Court impose a high procedural standard for the determination of
probable cause for the issuance of search warrants which Congress chose not to prescribe for the bank inquiry
order under the AMLA, Congress nonetheless disallowed ex parte applications for the inquiry order. We can discern
that in exchange for these procedural standards normally applied to search warrants, Congress chose instead to
legislate a right to notice and a right to be heard— characteristics of judicial proceedings which are not ex parte.
Absent any demonstrable constitutional infirmity, there is no reason for us to dispute such legislative policy
choices.
VI.

The Court’s construction of Section 11 of the AMLA is undoubtedly influenced by right to privacy considerations. If
sustained, petitioner’s argument that a bank account may be inspected by the government following an ex parte
proceeding about which the depositor would know nothing would have significant implications on the right to
privacy, a right innately cherished by all notwithstanding the legally recognized exceptions thereto. The notion that
the government could be so empowered is cause for concern of any individual who values the right to privacy
which, after all, embodies even the right to be “let alone,” the most comprehensive of rights and the right most
valued by civilized people.[84]

One might assume that the constitutional dimension of the right to privacy, as applied to bank deposits, warrants
our present inquiry. We decline to do so. Admittedly, that question has proved controversial in American
jurisprudence. Notably, the United States Supreme Court in U.S. v. Miller[85] held that there was no legitimate
expectation of privacy as to the bank records of a depositor. [86] Moreover, the text of our Constitution has not
bothered with the triviality of allocating specific rights peculiar to bank deposits.
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However, sufficient for our purposes, we can assert there is a right to privacy governing bank accounts in the
Philippines, and that such right finds application to the case at bar. The source of such right is statutory, expressed
as it is in R.A. No. 1405 otherwise known as the Bank Secrecy Act of 1955. The right to privacy is enshrined in
Section 2 of that law, to wit:
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. (Emphasis supplied)
Because of the Bank Secrecy Act, the confidentiality of bank deposits remains a basic state policy in the
Philippines.[87] Subsequent laws, including the AMLA, may have added exceptions to the Bank Secrecy Act, yet the
secrecy of bank deposits still lies as the general rule. It falls within the zones of privacy recognized by our laws. [88]
The framers of the 1987 Constitution likewise recognized that bank accounts are not covered by either the right to
information[89] under Section 7, Article III or under the requirement of full public disclosure [90] under Section 28,
Article II.[91] Unless the Bank Secrecy Act is repealed or amended, the legal order is obliged to conserve the
absolutely confidential nature of Philippine bank deposits.

Any exception to the rule of absolute confidentiality must be specifically legislated. Section 2 of the Bank Secrecy
Act itself prescribes exceptions whereby these bank accounts may be examined by “any person, government
official, bureau or office”; namely when: (1) upon written permission of the depositor; (2) in cases of
impeachment; (3) the examination of bank accounts is upon order of a competent court in cases of bribery or
dereliction of duty of public officials; and (4) the money deposited or invested is the subject matter of the
litigation. Section 8 of R.A. Act No. 3019, the Anti-Graft and Corrupt Practices Act, has been recognized by this
Court as constituting an additional exception to the rule of absolute confidentiality, [92] and there have been other
similar recognitions as well.[93]

The AMLA also provides exceptions to the Bank Secrecy Act. Under Section 11, the AMLC may inquire into a bank
account upon order of any competent court in cases of violation of the AMLA, it having been established that there
is probable cause that the deposits or investments are related to unlawful activities as defined in Section 3(i) of the
law, or a money laundering offense under Section 4 thereof. Further, in instances where there is probable cause
that the deposits or investments are related to kidnapping for ransom, [94] certain violations of the Comprehensive
Dangerous Drugs Act of 2002,[95] hijacking and other violations under R.A. No. 6235, destructive arson and murder,
then there is no need for the AMLC to obtain a court order before it could inquire into such accounts.

It cannot be successfully argued the proceedings relating to the bank inquiry order under Section 11 of the AMLA is
a “litigation” encompassed in one of the exceptions to the Bank Secrecy Act which is when “the money deposited
or invested is the subject matter of the litigation.” The orientation of the bank inquiry order is simply to serve as a
provisional relief or remedy. As earlier stated, the application for such does not entail a full-blown trial.

Nevertheless, just because the AMLA establishes additional exceptions to the Bank Secrecy Act it does not mean
that the later law has dispensed with the general principle established in the older law that “[a]ll deposits of
whatever nature with banks or banking institutions in the Philippines x x x are hereby considered as of an
absolutely confidential nature.”[96] Indeed, by force of statute, all bank deposits are absolutely confidential, and
that nature is unaltered even by the legislated exceptions referred to above. There is disfavor towards construing
these exceptions in such a manner that would authorize unlimited discretion on the part of the government or of
any party seeking to enforce those exceptions and inquire into bank deposits. If there are doubts in upholding the
absolutely confidential nature of bank deposits against affirming the authority to inquire into such accounts, then
such doubts must be resolved in favor of the former. Such a stance would persist unless Congress passes a law
reversing the general state policy of preserving the absolutely confidential nature of Philippine bank accounts.

The presence of this statutory right to privacy addresses at least one of the arguments raised by petitioner, that
Lilia Cheng had no personality to assail the inquiry orders before the Court of Appeals because she was not the
subject of said orders. AMLC Resolution No. 75, which served as the basis in the successful application for the
Makati inquiry order, expressly adverts to Citibank Account No. 88576248 “owned by Cheng Yong and/or Lilia G.
Cheng with Citibank N.A.,”[97] whereas Lilia Cheng’s petition before the Court of Appeals is accompanied by a
certification from Metrobank that Account Nos. 300852436-0 and 700149801-7, both of which are among the
subjects of the Manila inquiry order, are accounts in the name of “Yong Cheng or Lilia Cheng.” [98] Petitioner does
not specifically deny that Lilia Cheng holds rights of ownership over the three said accounts, laying focus instead
on the fact that she was not named as a subject of either the Makati or Manila RTC inquiry orders. We are
reasonably convinced that Lilia Cheng has sufficiently demonstrated her joint ownership of the three accounts, and
such conclusion leads us to acknowledge that she has the standing to assail via certiorari the inquiry orders
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authorizing the examination of her bank accounts as the orders interfere with her statutory right to maintain the
secrecy of said accounts.

While petitioner would premise that the inquiry into Lilia Cheng’s accounts finds root in Section 11 of the AMLA, it
cannot be denied that the authority to inquire under Section 11 is only exceptional in character, contrary as it is to
the general rule preserving the secrecy of bank deposits. Even though she may not have been the subject of the
inquiry orders, her bank accounts nevertheless were, and she thus has the standing to vindicate the right to
secrecy that attaches to said accounts and their owners. This statutory right to privacy will not prevent the courts
from authorizing the inquiry anyway upon the fulfillment of the requirements set forth under Section 11 of the
AMLA or Section 2 of the Bank Secrecy Act; at the same time, the owner of the accounts have the right to
challenge whether the requirements were indeed complied with.
VII.

There is a final point of concern which needs to be addressed. Lilia Cheng argues that the AMLA, being a
substantive penal statute, has no retroactive effect and the bank inquiry order could not apply to deposits or
investments opened prior to the effectivity of Rep. Act No. 9164, or on 17 October 2001. Thus, she concludes, her
subject bank accounts, opened between 1989 to 1990, could not be the subject of the bank inquiry order lest there
be a violation of the constitutional prohibition against ex post facto laws.

No ex post facto law may be enacted,[99] and no law may be construed in such fashion as to permit a criminal
prosecution offensive to the ex post facto clause. As applied to the AMLA, it is plain that no person may be
prosecuted under the penal provisions of the AMLA for acts committed prior to the enactment of the law on 17
October 2001. As much was understood by the lawmakers since they deliberated upon the AMLA, and indeed there
is no serious dispute on that point.

Does the proscription against ex post facto laws apply to the interpretation of Section 11, a provision which does
not provide for a penal sanction but which merely authorizes the inspection of suspect accounts and deposits? The
answer is in the affirmative. In this jurisdiction, we have defined an ex post facto law as one which either:
(1) makes criminal an act done before the passage of the law and which was innocent when done, and punishes
such an act;

(2) aggravates a crime, or makes it greater than it was, when committed;

(3) changes the punishment and inflicts a greater punishment than the law annexed to the crime when committed;

(4) alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the law
required at the time of the commission of the offense;

(5) assuming to regulate civil rights and remedies only, in effect imposes penalty or deprivation of a right for
something which when done was lawful; and

(6) deprives a person accused of a crime of some lawful protection to which he has become entitled,
such as the protection of a former conviction or acquittal, or a proclamation of amnesty. (Emphasis
supplied)[100]
Prior to the enactment of the AMLA, the fact that bank accounts or deposits were involved in activities later on
enumerated in Section 3 of the law did not, by itself, remove such accounts from the shelter of absolute
confidentiality. Prior to the AMLA, in order that bank accounts could be examined, there was need to secure either
the written permission of the depositor or a court order authorizing such examination, assuming that they were
involved in cases of bribery or dereliction of duty of public officials, or in a case where the money deposited or
invested was itself the subject matter of the litigation. The passage of the AMLA stripped another layer off the rule
on absolute confidentiality that provided a measure of lawful protection to the account holder. For that reason, the
application of the bank inquiry order as a means of inquiring into records of transactions entered into prior to the
passage of the AMLA would be constitutionally infirm, offensive as it is to the ex post facto clause.

Still, we must note that the position submitted by Lilia Cheng is much broader than what we are willing to affirm.
She argues that the proscription against ex post facto laws goes as far as to prohibit any inquiry into deposits or
investments included in bank accounts opened prior to the effectivity of the AMLA even if the suspect transactions
were entered into when the law had already taken effect. The Court recognizes that if this argument were to be
affirmed, it would create a horrible loophole in the AMLA that would in turn supply the means to fearlessly engage
in money laundering in the Philippines; all that the criminal has to do is to make sure that the money laundering
activity is facilitated through a bank account opened prior to 2001. Lilia Cheng admits that “actual money
launderers could utilize the ex post facto provision of the Constitution as a shield” but that the remedy lay with
Congress to amend the law. We can hardly presume that Congress intended to enact a self-defeating law in the
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first place, and the courts are inhibited from such a construction by the cardinal rule that “a law should be
interpreted with a view to upholding rather than destroying it.” [101]

Besides, nowhere in the legislative record cited by Lilia Cheng does it appear that there was an unequivocal intent
to exempt from the bank inquiry order all bank accounts opened prior to the passage of the AMLA. There is a cited
exchange between Representatives Ronaldo Zamora and Jaime Lopez where the latter confirmed to the former that
“deposits are supposed to be exempted from scrutiny or monitoring if they are already in place as of the time the
law is enacted.”[102] That statement does indicate that transactions already in place when the AMLA was passed are
indeed exempt from scrutiny through a bank inquiry order, but it cannot yield any interpretation that records of
transactions undertaken after the enactment of the AMLA are similarly exempt. Due to the absence of cited
authority from the legislative record that unqualifiedly supports respondent Lilia Cheng’s thesis, there is no cause
for us to sustain her interpretation of the AMLA, fatal as it is to the anima of that law.
IX.

We are well aware that Lilia Cheng’s petition presently pending before the Court of Appeals likewise assails the
validity of the subject bank inquiry orders and precisely seeks the annulment of said orders. Our current
declarations may indeed have the effect of preempting that0 petition. Still, in order for this Court to rule on the
petition at bar which insists on the enforceability of the said bank inquiry orders, it is necessary for us to consider
and rule on the same question which after all is a pure question of law.

WHEREFORE, the PETITION is DISMISSED. No pronouncement as to costs.

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

4.1 The investigation in which I was asked to participate was undertaken because the bank had found
records/evidence showing that Mr. Dante L. Santos and Ms. Malou Genuino, contrary to their disclosures and the
aforementioned bank policy, appeared to have been actively engaged in business endeavors that were in conflict
with the business of the bank. It was found that with the use of two (2) companies in which they have personal
financial interest, namely Torrance Development Corporation and Global Pacific Corporation, they managed or
caused existing bank clients/depositors to divert their money from Citibank, N.A., such as those placed in peso and
dollar deposits and money placements, to products offered by other companies that were commanding higher rate
of yields. This was done by first transferring bank clients’ monies to Torrance and Global which in turn placed the
monies of the bank clients in securities, shares of stock and other certificates of third parties. It also appeared that
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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:
xxx

b) Carmen Intengan

xxx

d) Rosario Neri

xxx

i) Rita Brawner

All the above persons/parties have long standing accounts with Citibank, N.A. in savings/dollar deposits and/or in
trust accounts and/or money placements.
As evidence, Lim annexed bank records purporting to establish the deception practiced by Santos and Genuino.
Some of the documents pertained to the dollar deposits of petitioners Carmen Ll. Intengan, Rosario Ll. Neri, and
Rita P. Brawner, as follows:
a) Annex “A-6”[7] - an “Application for Money Transfer” in the amount of US $140,000.00, executed by
Intengan in favor of Citibank $ S/A No. 24367796, to be debited from her Account No. 22543341;
b) Annex “A-7”[8] - a “Money Transfer Slip” in the amount of US $45,996.30, executed by Brawner in
favor of Citibank $ S/A No. 24367796, to be debited from her Account No. 22543236; and
c) Annex “A-9”[9] - an “Application for Money Transfer” in the amount of US $100,000.00, executed by
Neri in favor of Citibank $ S/A No. 24367796, to be debited from her Account No. 24501018.
In turn, private respondent Joven Reyes, vice-president/business manager of the Global Consumer Banking Group
of Citibank, admits to having authorized Lim to state the names of the clients involved and to attach the pertinent
bank records, including those of petitioners’. [10] He states that private respondents Aziz Rajkotwala and William
Ferguson, Citibank, N.A. Global Consumer Banking Country Business Manager and Country Corporate Officer,
respectively, had no hand in the disclosure, and that he did so upon the advice of counsel.

In his memorandum, the Solicitor General described the scheme as having been conducted in this manner:
First step: Santos and/or Genuino would tell the bank client that they knew of financial products of other
companies that were yielding higher rates of interests in which the bank client can place his money. Acting on this
information, the bank client would then authorize the transfer of his funds from his Citibank account to the Citibank
account of either Torrance or Global.

The transfer of the Citibank client’s deposits was done through the accomplishment of either an Application For
Manager’s Checks or a Term Investment Application in favor of Global or Torrance that was prepared/filed by
Genuino herself.

Upon approval of the Application for Manager’s Checks or Term Investment Application, the funds of the bank
client covered thereof were then deposited in the Citibank accounts of Torrance and/or Global.

Second step: Once the said fund transfers had been effected, Global and/or Torrance would then issue its/ their
checks drawn against its/their Citibank accounts in favor of the other companies whose financial products, such as
securities, shares of stocks and other certificates, were offering higher yields.

Third step: On maturity date(s) of the placements made by Torrance and/or Global in the other companies, using
the monies of the Citibank client, the other companies would then. return the placements to Global and/or
Torrance with the corresponding interests earned.

Fourth step: Upon receipt by Global and/or Torrance of the remittances from the other companies, Global and/or
Torrance would then issue its/their own checks drawn against their Citibank accounts in favor of Santos and
Genuino.

The amounts covered by the checks represent the shares of Santos and Genuino in the margins Global and/or
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Torrance had realized out of the placements [using the diverted monies of the Citibank clients] made with the
other companies.

Fifth step: At the same time, Global and/or Torrance would also issue its/their check(s) drawn against its/their
Citibank accounts in favor of the bank client.

The check(s) cover the principal amount (or parts thereof) which the Citibank client had previously transferred,
with the help of Santos and/or Genuino, from his Citibank account to the Citibank account(s) of Global and/or
Torrance for placement in the other companies, plus the interests or earnings his placements in other companies
had made less the spreads made by Global, Torrance, Santos and Genuino.
The complaints which were docketed as I.S. Nos. 93-9969, 93-10058 and 94-1215 were subsequently amended to
include a charge of estafa under Article 315, paragraph 1(b)[11] of the Revised Penal Code.

As an incident to the foregoing, petitioners filed respective motions for the exclusion and physical withdrawal of
their bank records that were attached to Lim’s affidavit.

In due time, Lim and Reyes filed their respective counter-affidavits. [12] In separate Memoranda dated March 8,
1994 and March 15, 1994 2nd Assistant Provincial Prosecutor Hermino T. Ubana, Sr. recommended the dismissal of
petitioners’ complaints. The recommendation was overruled by Provincial Prosecutor Mauro M. Castro who, in a
Resolution dated August 18, 1994,[13] directed the filing of informations against private respondents for alleged
violation of Republic Act No. 1405, otherwise known as the Bank Secrecy Law.

Private respondents’ counsel then filed an appeal before the Department of Justice (DOJ). On November 17, 1994,
then DOJ Secretary Franklin M. Drilon issued a 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 tribunal’s
concurrent jurisdiction to issue the extraordinary writs therein prayed for. The petition was docketed as CA-G.R.
SP No. 37577 in the Court of Appeals.

On July 8, 1996, the Court of Appeals rendered judgment dismissing the petition in CA-G.R. SP No. 37577 and
declared therein, as follows:
Clearly, the disclosure of petitioners’ deposits was necessary to establish the allegation that Santos and Genuino
had violated Section 31 of the Corporation Code in acquiring “any interest adverse to the corporation in respect of
any matter which has been reposed in him in confidence.” To substantiate the alleged scheme of Santos and
Genuino, private respondents had to present the records of the monies which were manipulated by the two officers
which included the bank records of herein petitioners.

Although petitioners were not the parties involved in IS. No. 93-8469, their accounts were relevant to the complete
prosecution of the case against Santos and Genuino and the respondent DOJ properly ruled that the disclosure of
the same falls under the last exception of R.A. No. 1405. That ruling is consistent with the principle laid down in
the case of Mellon Bank, N.A. vs. Magsino (190 SCRA 633) where the Supreme Court allowed the testimonies on
the bank deposits of someone not a party to the case as it found that said bank deposits were material or relevant
to the allegations in the complaint. Significantly, therefore, as long as the bank deposits are material to the case,
although not necessarily the direct subject matter thereof, a disclosure of the same is proper and falls within the
scope of the exceptions provided for by R.A. No. 1405.
xxx xxx xxx

Moreover, the language of the law itself is clear and cannot be subject to different interpretations. A reading of the
provision itself would readily reveal that the exception “or in cases where the money deposited or invested is the
subject matter of the litigation” is not qualified by the phrase “upon order of competent Court” which refers only to
cases of bribery or dereliction of duty of public officials.
Petitioners’ motion for reconsideration was similarly denied in a Resolution dated April 16, 1997. Appeal was made
in due time to this Court.

The instant petition was actually denied by the former Third Division of this Court in a 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]

Page 55 of 69
In assailing the appellate court’s 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:
(1)

PETITIONERS’ DEPOSITS ARE NOT INVOLVED IN ANY LITIGATION BETWEEN PETITIONERS AND RESPONDENTS.
THERE IS NO LITIGATION BETWEEN THE PARTIES, MUCH LESS ONE INVOLVING PETITIONERS’ DEPOSITS AS THE
SUBJECT MATTER THEREOF.
(2)

EVEN ASSUMING ARGUENDO THAT THERE IS A LITIGATION INVOLVING PETITIONERS’ DEPOSITS AS THE
SUBJECT MATTER THEREOF, PRIVATE RESPONDENTS’ DISCLOSURES OF PETITIONERS’ DEPOSITS ARE
NEVERTHELESS ILLEGAL FOR WANT OF THE REQUISITE COURT ORDER, IN VIOLATION OF R.A. NO. 1405.
III.

THEREFORE, PETITIONERS ARE ENTITLED TO PROSECUTE PRIVATE RESPONDENTS FOR VIOLATIONS OF R.A. NO.
1405 FOR HAVING ILLEGALLY DISCLOSED PETITIONERS’ CONFIDENTIAL BANK DEPOSITS AND RECORDS IN IS.
NO. 93-8469.
Apart from the reversal of the decision and resolution of the appellate court as well as the resolutions of the
Department of Justice, petitioners pray that the latter agency be directed to issue a resolution ordering the
Provincial Prosecutor of Rizal to file the corresponding informations for violation of Republic Act No. 1405 against
private respondents.

The petition is not meritorious.

Actually, this case should have been studied more carefully by all concerned. The finest legal minds in the country
- from the parties’ respective counsel, the Provincial Prosecutor, the Department of Justice, the Solicitor General,
and the Court of Appeals - all appear to have overlooked a single fact which dictates the outcome of the entire
controversy. A circumspect review of the record shows us the reason. The accounts in question are U.S. dollar
deposits; consequently, the applicable law is not Republic Act No. 1405 but Republic Act (RA) No. 6426, known as
the “Foreign Currency Deposit Act of the Philippines,” section 8 of which provides:
Sec. 8. Secrecy of Foreign Currency Deposits.- All foreign currency deposits authorized under this Act, as amended
by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No.
1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the written
permission of the depositor, in no instance shall such foreign currency deposits be examined, inquired or looked
into by any person, government official bureau or office whether judicial or administrative or legislative or any
other entity whether public or private: Provided, however, that said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative body, government agency or any
administrative body whatsoever.[21] (italics supplied)
Thus, under R.A. No. 6426 there is only a single exception to the secrecy of foreign currency deposits, that is,
disclosure is allowed only upon the written permission of the depositor. Incidentally, the acts of private
respondents complained of happened before the enactment on September 29, 2001 of R.A. No. 9160 otherwise
known as the Anti-Money Laundering Act of 2001.

A case for violation of Republic Act No. 6426 should have been the proper case brought against private
respondents. Private respondents Lim and Reyes admitted that they had disclosed details of petitioners’ dollar
deposits without the latter’s written permission. It does not matter if that such disclosure was necessary to
establish Citibank’s case against Dante L. Santos and Marilou Genuino. Lim’s 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:

Page 56 of 69
While it is true that, as a rule and on principles of abstract justice, men are not and should not be held criminally
responsible for acts committed by them without guilty knowledge and criminal or at least evil intent xxx, the courts
have always recognized the power of the legislature, on grounds of public policy and compelled by necessity, “the
great master of things,” to forbid in a limited class of cases the doing of certain acts, and to make their commission
criminal without regard to the intent of the doer. xxx In such cases no judicial authority has the power to require,
in the enforcement of the law, such knowledge or motive to be shown. As was said in the case of State vs.
McBrayer xxx:

‘It is a mistaken notion that positive, willful intent, as distinguished from a mere intent, to violate the criminal law,
is an essential ingredient in every criminal offense, and that where there is the absence of such intent there is no
offense; this is especially so as to statutory offenses. When the statute plainly forbids an act to be done, and it is
done by some person, the law implies conclusively the guilty intent, although the offender was honestly mistaken
as to the meaning of the law he 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.

Page 57 of 69
SO ORDERED.
Supreme Court of the Philippines

343 Phil. 539

EN BANC
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.

DECISION
TORRES, JR., J.:
In our predisposition to discover the “original intent” of a statute, courts become the unfeeling pillars of the status
quo. Little 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 provision of the Constitution, hence
void; because its provision that “Foreign currency deposits shall be exempt from attachment, garnishment, or any
other order to 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;

ii.) has given foreign currency depositors an undue favor or a class privilege in violation of the equal protection
clause of the Constitution;

iii.) has provided a safe haven for criminals like the herein respondent Greg Bartelli y Northcott since criminals
could escape civil liability for their wrongful acts by merely converting their money to a foreign currency and
depositing it in a foreign currency deposit account with an authorized bank.

The antecedents 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.
Page 58 of 69
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 P100,000.00, a Writ of Preliminary Attachment was issued
by the trial court on February 28, 1989.

On March 1, 1989, the Deputy Sheriff of Makati served a Notice of Garnishment on China Banking Corporation. In a
letter dated March 13, 1989 to the Deputy Sheriff of Makati, China Banking Corporation invoked Republic Act No.
1405 as its answer to the notice of garnishment served on it. On March 15, 1989, Deputy Sheriff of Makati
Armando de Guzman sent his reply to China Banking Corporation saying that the garnishment did not violate the
secrecy of bank deposits since the disclosure is merely incidental to a garnishment properly and legally made by
virtue of a court order which has placed the subject deposits in custodia legis. In answer to this letter of the
Deputy Sheriff of Makati, China Banking Corporation, in a letter dated March 20, 1989, invoked Section 113 of
Central Bank Circular No. 960 to the effect that the dollar deposits of defendant Greg Bartelli are exempt from
attachment, garnishment, or any other order or process of any court, legislative body, government agency or any
administrative body, whatsoever.

This prompted the counsel for petitioners to make an inquiry with the Central Bank in a letter dated April 25, 1989
on whether Section 113 of CB Circular No. 960 has any exception or whether said section has been repealed or
amended since said section has rendered nugatory the substantive right of the plaintiff to have the claim sought to
be enforced by the civil action secured by way of the writ of preliminary attachment as granted to the plaintiff
under Rule 57 of the Revised Rules of Court. The Central Bank responded as follows:

“May 26, 1989

“Ms. Erlinda S. Carolino

12 Pres. Osmeña 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).

“The cited provision is absolute in application. It does not admit of any exception, nor has the same been repealed
nor amended.

“The purpose of the law is to encourage dollar accounts within the country’s banking system which would help in
the development of the economy. There is no intention to render futile the basic rights of a person as was
suggested in your subject letter. The law may be harsh as some perceive it, but it is still the law. Compliance is,
therefore, enjoined.

“Very truly yours,

(SGD) AGAPITO S. FAJARDO

Director”[1]

Meanwhile, on April 10, 1989, the trial court granted petitioners’ motion for leave to serve summons by publication
in the Civil Case No. 89-3214 entitled “Karen Salvacion. et al. vs. Greg Bartelli y Northcott.” Summons with the
complaint was 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;

Page 59 of 69
“3. To pay plaintiffs exemplary damages of P100,000.00; and

“4. To pay attorney’s fees in an amount equivalent to 25% of the total amount of damages herein awarded;

“5. To pay litigation expenses of P10,000.00; plus

“6. Costs of the suit.

“SO ORDERED.”

The heinous acts of respondents 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 witness the minor Karen E. Salvacion, her father, Federico N.
Salacion, Jr., a certain Joseph Aguilar and a certain Liberato Mandulio, 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 notices 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 Johnsons 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)
Page 60 of 69
“After that, he stood up and went to the bathroom to wash. He also told Karen to take a shower and he untied her
hands. Karen could only hear the sound of the water while the defendant, she presumed, was in the bathroom
washing his sex organ. When she took a shower more blood came out from her. In the meantime, defendant
changed the mattress because it was full of blood. After the shower, Karen was allowed by defendant to sleep. She
fell asleep because she got tired crying. The incident happened at about 4:00 p.m. Karen had no way of
determining the exact time because defendant removed her watch. Defendant did not care to give her food before
she went to sleep. Karen woke up at about 8:00 o’clock the following morning. (Id., pp. 9-10)

“The following day, February 5, 1989, a Sunday, after 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 those 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 a 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
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 na po kayo sa 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 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 bacause the latter washed her dress. (Id., p. 16)

“Afterwards, defendant arrived and opened the door. He asked her if she had asked for help because there were
many policemen outside and she denied it. He told her to change her clothes, and she did change to the one she
was wearing on Saturday. He instructed her to tell the police that she left home and willingly; then he went
downstairs but he locked the door. She could hear people conversing but she could not understand what they were
saying. (Id., p. 19)

“When she heard the voices of many people who were conversing downstairs, she knocked repeatedly at the door
as hard as she could. She heard somebody going upstairs and when the door was opened, she saw a policeman.
The policeman asked her name and the reason why she was there. She told him she was kidnapped. Downstairs,
he saw about five policemen in uniform and the defendant was talking to them. ‘Nakikipag-areglo po sa mga pulis,’
Karen added. “The policeman told him to just explain at the precinct. (Id., p. 20)

“They went out of the house and she saw some of her neighbors in front of the house. They rode the car of a
certain person she called Kuya Boy together with defendant, the policeman, and two of her neighbors whom she
called Kuya Bong Lacson and one Ate Nita. They were brought to Sub-Station I and there she was investigated by
Page 61 of 69
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 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 early morning, of the following day when they reached the NBI, (TSN, Aug. 15, 1989, p. 22) The
findings of the medico-legal officer has been marked as Exhibit B.

“She was studying at the St. Mary’s Academy in Pasay City at the time of the Incident but she subsequently
transferred to Apolinario Mabini, Arellano University, situated along Taft Avenue, because she was ashamed to be
the subject of conversation in the school. She first applied for transfer to Jose Abad Santos, Arellano University
along Taft Avenue near the Light Rail Transit Station but she was denied admission after she told the school the
true reason for her transfer. The reason for their denial was that they might be implicated in the case. (TSN, Aug.
15, 1989, p. 46)

xxx xxx xxx

“After the incident, Karen has changed a lot. She does not play with her brother and sister anymore, and she is
always in a state of shock; she has been absent-minded and is ashamed even to go out of the house. (TSN, Sept.
12, 1989, p. 10) She appears to be restless or sad. (Id., p. 11) The father prays for P500,000.00 moral damages
for Karen for this shocking experience which probably, she would always 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? She 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 n 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 criminal 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 plaintiff’s
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 plaintiff’s substantive right to
have the judgment credit satisfied by way of the writ of execution out of the bank deposit of the judgment debtor
as granted to the judgment creditor by Rule 39 of the Revised Rules of Court, which is beyond its power to do so.

On the other hand, respondent Central Bank, in its Comment alleges that the Monetary Board in issuing Section
113 of CB Circular No. 960 did not exceed its power or authority because the subject Section is copied verbatim
from a portion of R.A. No. 6426 as amended by P.D. 1246. Hence, it was not the Monetary Board that grants
exemption from attachment or garnishment to foreign currency deposits, but the law (R.A. 6426 as amended)
itself; that it does not violate the substantive due process guaranteed by the Constitution because a.) it was based
on a law; b.) the law seems to be reasonable; c.) it is enforced according to regular methods of procedure; and d.)
it applies to all members of a class.

Expanding, the Central Bank said; that one reason for exempting the foreign currency deposits from attachment,
garnishment or any other order process of any court, is to assure the development and speedy growth of the
Page 62 of 69
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 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 not 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 to 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.

The Court has no original and exclusive jurisdiction over a petition for declatory 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 indoubtedly a shocking and traumatic
experience she had undergone which could haunt her mind for a long, long time, the mere recall of which could
make her feel so humiliated, as in fact she had been actually humiliated once when she was refused admission at
the Abad Santos High School, Arellano University, where she sought to transfer from another school, simply
because the school authorities of the said High School learned about what happened to her and allegedly feared
that they might be implicated in the case.

xxx

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 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, xxx.”[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 right 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 mere visitor. This further illustrates the flaw in the questioned provisions.

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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 inquitous effects
producing outright injustice and inequality such as 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 allien. More specifically, the petition raises the question
whether the protection against attachment, garnishment or other court process accorded to foreign currency
deposits 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 who is not expected to maintain the deposit in the bank for long.

“The resolution of this question is important for the protection of nationals who are victimized in the forum by
foreigners who are merely passing through.

xxx

“xxx Respondents China Banking Corporation and Central Bank of the Philippines refused to honor the writ of
execution issued in Civil Case No. 89-3214 on the strength of the following provision of Central Bank Circular No.
960:
‘Sec. 113 Exemption from attachment. – Foreign currency deposits shall be exempt from attachment, garnishment,
or any other order or process of any court, legislative body, government agency or any administrative body
whatsoever.’
“Central Bank Circular No. 960 was issued pursuant to Section 7 of Republic Act No. 6426:
‘Sec. 7. Rules and Regulations. The Monetary Board of the Central Bank shall promulgate such rules and
regulations as may be necessary to carry out the provisions of this Act which shall take effect after the publication
of such rules and regulations in the Official Gazette and in a newspaper of national circulation for at least once a
week for three consecutive weeks. In case the Central Bank promulgates new rules and regulations decreasing the
rights of depositors, the rules and regulations at the time the deposit was made shall govern.”

“The aforecited Section 113 was copied from Section 8 of Republic Act No. 6426. As amended by P.D. 1246, thus:

‘Sec. 8. Secrecy of Foreign Currency Deposits. -- All foreign currency deposits authorized under this Act, as
amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential
Decree No. 1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the
written permission of the depositor, in no instance shall such foreign currency deposits be examined, inquired or
looked into by any person, government official, bureau or office whether judicial or administrative or legislative or
any other entity whether public or private: Provided, however, that said foreign currency deposits shall be exempt
from attachment, garnishment, or any other order or process of any court, legislative body, government agency or
any administrative body whatsoever.’
“The purpose of PD 1246 in according protection against attachment, garnishment and other court process to
foreign currency deposits is stated in its whereases, viz.:
‘WHEREAS, under Republic Act No. 6426, as amended by Presidential Decree No. 1035, certain Philippine banking
institutions and branches of foreign banks are authorized to accept deposits in foreign currency;

‘WHEREAS, under 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 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;
Page 64 of 69
‘WHEREAS, making absolute the protective cloak of confidentiality over such foreign currency deposits, exempting
such deposits from tax, and guaranteeing the vested right 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 purpose are as follows:
‘WHEREAS, the establishment of an offshore banking system in the Philippines has been authorized under a
separate decree;

‘WHEREAS, a number of local commercial banks, as depository bank under the Foreign Currency Deposit Act (RA
No. 6426), have the resources and managerial competence to more actively engage in foreign exchange
transactions and participate in the grant of foreign currency loans to resident corporations and firms;

‘WHEREAS, it is timely to expand the foreign currency lending authority of the said depository banks under RA
6426 and apply to their transactions the same taxes as would be applicable to transaction of the proposed offshore
banking units;’
“It is evident from the above [Whereas clauses] that the Offshore Banking System and the Foreign Currency
Deposit System were designed to draw deposits from foreign lenders and investors (Vide second Whereas of PD
No. 1034; third Whereas of PD No. 1035). It is these depositors 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 encourage by
PD Nos. 1034 and 1035 and given incentives and protection by said laws because such depositor stays only for a
few days in the country and, therefore, will maintain his deposit in the bank only for a short time.

“Respondent Greg Bartelli, as stated, is just a tourist or a transient. He deposited his dollars with respondent China
Banking Corporation only for safekeeping during his temporary stay in the Philippines.

“For the reasons stated above, the Solicitor General thus submits that the dollar deposit of respondent Greg
Bartelli is not entitled to the protection of Section 113 of Central Bank Circular No. 960 and PD No. 1246 against
attachment, garnishment or other court processes.” [6]
In fine, the application of the law depends on the extent of its justice. Eventually, if we rule that the questioned
Section 113 of Central Bank Circular No. 960 which exempts from attachment, garnishment, or any other order or
process of any court. Legislative body, government agency or any administrative body whatsoever, is applicable to
a foreign transient, injustice would result especially to a citizen aggrieved by a foreign guest like accused Greg
Bartelli. This would negate Article 10 of the New Civil Code which provides that “in case of doubt in the
interpretation or application of laws, it is presumed that the lawmaking body intended right and justice to prevail.
“Ninguno non deue enriquecerse tortizerzmente con damo 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

Page 65 of 69
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 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. 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.
G.R. NO. 140687, December 18, 2006
CHINA BANKING CORPORATION, PETITIONER, VS. THE HONORABLE COURT OF APPEALS AND JOSE
"JOSEPH" GOTIANUY AS SUBSTITUTED BY ELIZABETH GOTIANUY LO, RESPONDENTS

DECISION
CHICO-NAZARIO, J.:
A Complaint for recovery of sums of money and annulment of sales of real properties and shares of stock docketed
as CEB-21445 was filed by Jose "Joseph" Gotianuy against his son-in-law, George Dee, and his daughter, Mary
Margaret Dee, before the Regional Trial Court (RTC) of Cebu City, Branch 58.

Jose Gotianuy accused his daughter Mary Margaret Dee of stealing, among his other properties, US dollar deposits
with Citibank N.A. amounting to not less than P35,000,000.00 and US$864,000.00. Mary Margaret Dee received
these amounts from Citibank N.A. through checks which she allegedly deposited at China Banking Corporation
(China Bank). He likewise accused his son-in-law, George Dee, husband of his daughter, Mary Margaret, of
transferring his real properties and shares of stock in George Dee's name without any consideration. Jose
Gotianuy, died during the pendency of the case before the trial court. [1] He was substituted by his daughter,
Elizabeth Gotianuy Lo. The latter presented the US Dollar checks withdrawn by Mary Margaret Dee from his US
dollar placement with Citibank. The details of the said checks are:
1) CITIBANK CHECK NO. 69003194405412 dated September 29 1997 in the amount of US$5,937.52 payable to
GOTIANUY: JOSE AND/OR DEE: MARY MARGARET;

2) CITIBANK CHECK NO. 69003194405296 dated September 29 1997 in the amount of US$7,197.59 payable to
GOTIANUY: JOSE AND/OR DEE: MARY MARGARET;

3) CITIBANK CHECK NO. 69003194405414 dated September 29 1997 in the amount of US$1,198.94 payable to
GOTIANUY: JOSE AND/OR DEE: MARY MARGARET;

4) CITIBANK CHECK NO. 69003194405413 dated September 29 1997 in the amount of US$989.04 payable to
GOTIANUY: JOSE AND/OR DEE: MARY MARGARET;

5) CITIBANK CHECK NO. 69003194405297 dated October 01 1997 in the amount of US$766,011.97 payable to
GOTIANUY: JOSE AND/OR DEE: MARY MARGARET; and

6) CITIBANK CHECK NO. 69003194405339 dated October 09 1997 in the amount of US$83,053.10 payable to
GOTIANUY: JOSE AND/OR DEE: MARY MARGARET.[2]
Upon motion of Elizabeth Gotianuy Lo, the trial court[3] issued a subpoena to Cristota Labios and Isabel Yap,
employees of China Bank, to testify on the case. The Order of the trial court dated 23 February 1999, states:
Issue a subpoena ad testificandum requiring MS. ISABEL YAP and CRISTOTA LABIOS of China Banking Corporation,
Cebu Main Branch, corner Magallanes and D. Jakosalem Sts., Cebu City, to appear in person and to testify in the
hearing of the above entitled case on March 1, 1999 at 8:30 in the morning, with regards to Citibank Checks
(Exhs. "AAA" to "AAA-5") and other matters material and relevant to the issues of this case. [4]
China Bank moved for a reconsideration. Resolving the motion, the trial court issued an Order dated 16 April 1999
and held:
The Court is of the view that as the foreign currency fund (Exhs. "AAA" to "AAA-5") is deposited with the movant
China Banking Corporation, Cebu Main Branch, Cebu City, the disclosure only as to the name or in whose name the
said fund is deposited is not violative of the law. Justice will be better served if the name or names of the depositor
Page 66 of 69
of said fund shall be disclosed because such a disclosure is material and important to the issues between the
parties in the case at bar.

Premises considered, the motion for reconsideration is denied partly and granted partly, in the sense that Isabel
Yap and/or Cristuta Labios are directed to appear before this Court and to testify at the trial of this case on April
20, 1999, May 6 & 7, 1999 at 10:00 o'clock in the morning and only for the purpose of disclosing in whose name or
names is the foreign currency fund (Exhs. "AAA" to "AAA-5") deposited with the movant Bank and not to other
matters material and relevant to the issues in the case at bar. [5]
From this Order, China Bank filed a Petition for Certiorari[6] with the Court of Appeals. In a Decision[7] dated 29
October 1999, the Court of Appeals denied the petition of China Bank and affirmed the Order of the RTC.

In justifying its conclusion, the Court of Appeals ratiocinated:

From the foregoing, it is pristinely clear the law specifically encompasses only the money or funds in foreign
currency deposited in a bank. Thus, the coverage of the law extends only to the foreign currency deposit in the
CBC account where Mary Margaret Dee deposited the Citibank checks in question and nothing more.

It has to be pointed out that the April 16, 1999 Order of the court of origin modified its previous February 23, 1999
Order such that the CBC representatives are directed solely to divulge "in whose name or names is the foreign
currency fund (Exhs. "AAA" to "AAA-5") deposited with the movant bank." It precluded inquiry on "other materials
and relevant to the issues in the case at bar." We find that the directive of the court below does not contravene the
plain language of RA 6426 as amended by P.D. No. 1246.

The contention of petitioner that the [prescription] on absolute confidentiality under the law in question covers
even the name of the depositor and is beyond the compulsive process of the courts is palpably untenable as the
law protects only the deposits itself but not the name of the depositor. To uphold the theory of petitioner CBC is
reading into the statute "something that is not within the manifest intention of the legislature as gathered from the
statute itself, for to depart from the meaning expressed by the words, is to alter the statute, to legislate and not to
interpret, and judicial legislation should be avoided. Maledicta expositio quae corrumpit textum – It is a dangerous
construction which is against the words. Expressing the same principle is the maxim: Ubi lex non distinguit nec nos
distinguere debemos, which simply means that where the law does not distinguish, we should not make any
distinction." (Gonzaga, Statutes and their Construction, p. 75.)[8]
From the Decision of the Court of Appeals, China Bank elevated the case to this Court based on the following
issues:
I
THE HONORABLE COURT OF APPEALS HAS INTERPRETED THE PROVISION OF SECTION 8 OF R.A. 6426, AS
AMENDED, OTHERWISE KNOWN AS THE FOREIGN CURRENCY DEPOSIT ACT, IN A MANNER CONTRARY TO THE
LEGISLATIVE PURPOSE, THAT IS, TO PROVIDE ABSOLUTE CONFIDENTIALITY OF WHATEVER INFORMATION
RELATIVE TO THE FOREIGN CURRENCY DEPOSIT.
II

PRIVATE RESPONDENT IS NOT THE OWNER OF THE QUESTIONED FOREIGN CURRENCY DEPOSIT. THUS, HE
CANNOT INVOKE THE AID OF THE COURT IN COMPELLING THE DISCLOSURE OF SOMEONE ELSE'S FOREIGN
CURRENCY DEPOSIT ON THE FLIMSY PRETEXT THAT THE CHECKS (IN FOREIGN CURRENCY) HE HAD ISSUED MAY
HAVE ENDED UP THEREIN.
III

PETITIONER CAN RIGHTLY INVOKE THE PROVISION OF SEC. 8, R.A. 6426, IN BEHALF OF THE FOREIGN
CURRENCY DEPOSITOR, OWING TO ITS SOLEMN OBLIGATION TO ITS CLIENT TO EXERCISE EXTRAORDINARY
DILIGENCE IN THE HANDLING OF THE ACCOUNT. [9]
As amended by Presidential Decree No. 1246, the law reads:
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. (As amended by PD No. 1035, and further amended
by PD No. 1246, prom. Nov. 21, 1977) (Emphasis supplied.)

Page 67 of 69
Under the above provision, the law provides that all foreign currency deposits authorized under Republic Act No.
6426, as amended by Sec. 8, Presidential Decree No. 1246, Presidential Decree No. 1035, as well as foreign
currency deposits authorized under Presidential Decree No. 1034 are considered absolutely confidential in nature
and may not be inquired into. There is only one exception to the secrecy of foreign currency deposits, that is,
disclosure is allowed upon the written permission of the depositor.

This much was pronounced in the case of Intengan v. Court of Appeals,[10] where it was held that the only
exception to the secrecy of foreign currency deposits is in the case of a written permission of the depositor.

It must be remembered that under the whereas clause of Presidential Decree No. 1246 which amended Sec. 8 of
Republic Act No. 6426, the Foreign Currency Deposit System including the Offshore Banking System under
Presidential Decree 1034 were intended to draw deposits from foreign lenders and investors, and we quote:
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.
As to the deposit in foreign currencies entitled to be protected under the confidentiality rule, Presidential Decree
No. 1034,[11] defines deposits to mean funds in foreign currencies which are accepted and held by an offshore
banking unit in the regular course of business, with the obligation to return an equivalent amount to the owner
thereof, with or without interest.[12]

It is in this light that the court in the case of Salvacion v. Central Bank of the Philippines,[13] allowed the inquiry of
the foreign currency deposit in question mainly due to the peculiar circumstances of the case such that a strict
interpretation of the letter of the law would result to rank injustice. Therein, Greg Bartelli y Northcott, an American
tourist, was charged with criminal cases for serious illegal detention and rape committed against then 12 year-old
Karen Salvacion. A separate civil case for damages with preliminary attachment was filed against Greg Bartelli. The
trial court issued an Order granting the Salvacions' application for the issuance of a writ of preliminary attachment.
A notice of garnishment was then served on China Bank where Bartelli held a dollar account. China Bank refused,
invoking the secrecy of bank deposits. The Supreme Court ruled: "In fine, the application of the law depends on
the extent of its justice x x x It would be unthinkable, that the questioned law exempting foreign currency deposits
from attachment, garnishment, or any other order or process of any court, legislative body, government agency or
any administrative body whatsoever would be used as a device by an accused x x x for wrongdoing, and in so
doing, acquitting the guilty at the expense of the innocent. [14]

With the foregoing, we are now tasked to determine the single material issue of whether or not petitioner China
Bank is correct in its submission that the Citibank dollar checks with both Jose Gotianuy and/or Mary Margaret Dee
as payees, deposited with China Bank, may not be looked into under the law on secrecy of foreign currency
deposits. As a corollary issue, sought to be resolved is whether Jose Gotianuy may be considered a depositor who
is entitled to seek an inquiry over the said deposits.

The Court of Appeals, in allowing the inquiry, considered Jose Gotianuy, a co-depositor of Mary Margaret Dee. It
reasoned that since Jose Gotianuy is the named co-payee of the latter in the subject checks, which checks were
deposited in China Bank, then, Jose Gotianuy is likewise a depositor thereof. On that basis, no written consent
from Mary Margaret Dee is necessitated.

We agree in the conclusion arrived at by the Court of Appeals.

The following facts are established: (1) Jose Gotianuy and Mary Margaret Dee are co-payees of various Citibank
checks;[15] (2) Mary Margaret Dee withdrew these checks from Citibank; [16] (3) Mary Margaret Dee admitted in her
Answer to the Request for Admissions by the Adverse Party sent to her by Jose Gotianuy [17] that she withdrew the
funds from Citibank upon the instruction of her father Jose Gotianuy and that the funds belonged exclusively to the
latter; (4) these checks were endorsed by Mary Margaret Dee at the dorsal portion; and (5) Jose Gotianuy
discovered that these checks were deposited with China Bank as shown by the stamp of China Bank at the dorsal
side of the checks.

Thus, with this, there is no issue as to the source of the funds. Mary Margaret Dee declared the source to be Jose
Gotianuy. There is likewise no dispute that these funds in the form of Citibank US dollar Checks are now deposited
with China Bank.
Page 68 of 69
As the owner of the funds unlawfully taken and which are undisputably now deposited with China Bank, Jose
Gotianuy has the right to inquire into the said deposits.

A depositor, in cases of bank deposits, is one who pays money into the bank in the usual course of business, to be
placed to his credit and subject to his check or the beneficiary of the funds held by the bank as trustee. [18]

On this score, the observations of the Court of Appeals are worth reiterating:
Furthermore, it is indubitable that the Citibank checks were drawn against the foreign currency account with
Citibank, NA. The monies subject of said checks originally came from the late Jose Gotianuy, the owner of the
account. Thus, he also has legal rights and interests in the CBC account where said monies were deposited. More
importantly, the Citibank checks (Exhibits "AAA" to "AAA-5") readily demonstrate (sic) that the late
Jose Gotianuy is one of the payees of said checks. Being a co-payee thereof, then he or his estate can
be considered as a co-depositor of said checks. Ergo, since the late Jose Gotianuy is a co-depositor of the CBC
account, then his request for the assailed subpoena is tantamount to an express permission of a depositor for the
disclosure of the name of the account holder. The April 16, 1999 Order perforce must be sustained. [19] (Emphasis
supplied.)
One more point. It must be remembered that in the complaint of Jose Gotianuy, he alleged that his US dollar
deposits with Citibank were illegally taken from him. On the other hand, China Bank employee Cristuta Labios
testified that Mary Margaret Dee came to China Bank and deposited the money of Jose Gotianuy in Citibank US
dollar checks to the dollar account of her sister Adrienne Chu. [20] This fortifies our conclusion that an inquiry into
the said deposit at China Bank is justified. At the very least, Jose Gotianuy as the owner of these funds is entitled
to a hearing on the whereabouts of these funds.

All things considered and in view of the distinctive circumstances attendant to the present case, we are constrained
to render a limited pro hac vice ruling.[21] Clearly it was not the intent of the legislature when it enacted the law on
secrecy on foreign currency deposits to perpetuate injustice. This Court is of the view that the allowance of the
inquiry would be in accord with the rudiments of fair play, [22] the upholding of fairness in our judicial system and
would be an avoidance of delay and time-wasteful and circuitous way of administering justice. [23]

WHEREFORE, premises considered, the Petition is DENIED. The Decision of the Court of Appeals dated 29
October 1999 affirming the Order of the RTC, Branch 58, Cebu City dated 16 April 1999 is AFFIRMED and this
case is ordered REMANDED to the trial court for continuation of hearing with utmost dispatch consistent with the
above disquisition. No costs.

SO ORDERED.

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