1
SECOND DIVISION was found that with the use of two (2) companies in which they have personal financial
[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.
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
interest, namely Torrance Development Corporation and Global Pacific Corporation, they
managed or caused existing bank clients/depositors to divert their money from Citibank, N.A.,
such as those placed in peso and dollar deposits and money placements, to products offered
by other companies that were commanding higher rate of yields. This was done by first
transferring bank clients monies to Torrance and Global which in turn placed the monies of
the bank clients in securities, shares of stock and other certificates of third parties. It also
appeared that out of these transactions, Mr. Dante L. Santos and Ms. Marilou Genuino
derived substantial financial gains.
5.1 In the course of the investigation, I was able to determine that the bank clients which Mr.
Santos and Ms. Genuino helped/caused to divert their deposits/money placements with
Citibank, NA. to Torrance and Global (their family corporations) for subsequent investment in
securities, shares of stocks and debt papers in other companies were as follows:
b) Carmen Intengan
d) Rosario Neri
i) Rita Brawner
All the above persons/parties have long standing accounts with Citibank, N.A. in
savings/dollar deposits and/or in trust accounts and/or money placements.
As evidence, Lim annexed bank records purporting to establish the deception practiced
by Santos and Genuino. Some of the documents pertained to the dollar deposits of
petitioners Carmen Ll. Intengan, Rosario Ll. Neri, and Rita P. Brawner, as follows:
a) Annex A-6[7] - an Application for Money Transfer in the amount of US
$140,000.00, executed by Intengan in favor of Citibank $ S/A No. 24367796, to be
debited from her Account No. 22543341;
b) Annex A-7[8] - a Money Transfer Slip in the amount of US $45,996.30, executed
by Brawner in favor of Citibank $ S/A No. 24367796, to be debited from her
Account No. 22543236; and
c) Annex A-9[9] - an Application for Money Transfer in the amount of US
$100,000.00, executed by Neri in favor of Citibank $ S/A No. 24367796, to be
debited from her Account No. 24501018.
In turn, private respondent Joven Reyes, vice-president/business manager of the Global
Consumer Banking Group of Citibank, admits to having authorized Lim to state the names of
the clients involved and to attach the pertinent bank records, including those of petitioners.
[10]
He states that private respondents Aziz Rajkotwala and William Ferguson, Citibank, N.A.

Global Consumer Banking Country Business Manager and Country Corporate Officer,
respectively, had no hand in the disclosure, and that he did so upon the advice of counsel.
In his memorandum, the Solicitor General described the scheme as having been conducted in
this manner:
First step: Santos and/or Genuino would tell the bank client that they knew of financial
products of other companies that were yielding higher rates of interests in which the bank
client can place his money. Acting on this information, the bank client would then authorize
the transfer of his funds from his Citibank account to the Citibank account of
either Torrance or Global.
The transfer of the Citibank clients deposits was done through the accomplishment of either
an Application For Managers Checks or a Term Investment Application in favor of Global
or Torrance that was prepared/filed by Genuino herself.
Upon approval of the Application for Managers Checks or Term Investment Application, the
funds of the bank client covered thereof were then deposited in the Citibank accounts
of Torrance and/or Global.
Second step: Once the said fund transfers had been effected, Global and/or Torrance would
then issue its/ their checks drawn against its/their Citibank accounts in favor of the other
companies whose financial products, such as securities, shares of stocks and other
certificates, were offering higher yields.
Third step: On maturity date(s) of the placements made by Torrance and/or Global in the
other companies, using the monies of the Citibank client, the other companies would then.
return the placements to Global and/or Torrance with the corresponding interests earned.
Fourth step: Upon receipt by Global and/or Torrance of the remittances from the other
companies, Global and/or Torrance would then issue its/their own checks drawn against their
Citibank accounts in favor of Santos and Genuino.
The amounts covered by the checks represent the shares of Santos and Genuino in the
margins Global and/or Torrance had realized out of the placements [using the diverted
monies of the Citibank clients] made with the other companies.
Fifth step: At the same time, Global and/or Torrance would also issue its/their check(s) drawn
against its/their Citibank accounts in favor of the bank client.
The check(s) cover the principal amount (or parts thereof) which the Citibank client had
previously transferred, with the help of Santos and/or Genuino, from his Citibank account to
the Citibank account(s) of Global and/or Torrance for placement in the other companies, plus
2
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 Lims affidavit.
In due time, Lim and Reyes filed their respective counter-affidavits. [12] In separate
Memoranda dated March 8, 1994 and March 15, 1994 2nd Assistant Provincial Prosecutor
Hermino T. Ubana, Sr. recommended the dismissal of petitioners complaints. The
recommendation was overruled by Provincial Prosecutor Mauro M. Castro who, in a
Resolution dated August 18, 1994,[13] directed the filing of informations against private
respondents for alleged violation of Republic Act No. 1405, otherwise known as the Bank
Secrecy Law.
Private respondents counsel then filed an appeal before the Department of Justice
(DOJ). On November 17, 1994, then DOJ Secretary Franklin M. Drilon issued a
Resolution[14]ordering, inter alia, the withdrawal of the aforesaid informations against private
respondents. Petitioners motion for reconsideration [15] was denied by DOJ Acting Secretary
Demetrio G. Demetria in a Resolution dated March 6, 1995.[16]
Initially, petitioners sought the reversal of the DOJ resolutions via a petition
for certiorari and mandamus filed with this Court, docketed as G.R. No. 119999-
120001. However, the former First Division of this Court, in a Resolution dated June 5, 1995,
[17]
referred the matter to the Court of the Appeals, on the basis of the latter tribunals
concurrent jurisdiction to issue the extraordinary writs therein prayed for. The petition was
docketed as CA-G.R. SP No. 37577 in the Court of Appeals.
On July 8, 1996, the Court of Appeals rendered judgment dismissing the petition in CA-
G.R. SP No. 37577 and declared therein, as follows:
Clearly, the disclosure of petitioners deposits was necessary to establish the allegation
that Santos and Genuino had violated Section 31 of the Corporation Code in acquiring any
interest adverse to the corporation in respect of any matter which has been reposed in him in
confidence. To substantiate the alleged scheme of Santos and Genuino, private respondents
had to present the records of the monies which were manipulated by the two officers which
included the bank records of herein petitioners.
Although petitioners were not the parties involved in IS. No. 93-8469, their accounts were
relevant to the complete prosecution of the case against Santos and Genuino and the
respondent DOJ properly ruled that the disclosure of the same falls under the last exception
of R.A. No. 1405. That ruling is consistent with the principle laid down in the case of Mellon
Bank, N.A. vs. Magsino (190 SCRA 633) where the Supreme Court allowed the testimonies on
the bank deposits of someone not a party to the case as it found that said bank deposits were

material or relevant to the allegations in the complaint. Significantly, therefore, as long as the
bank deposits are material to the case, although not necessarily the direct subject matter
thereof, a disclosure of the same is proper and falls within the scope of the exceptions
provided for by R.A. No. 1405.
Moreover, the language of the law itself is clear and cannot be subject to different
interpretations. A reading of the provision itself would readily reveal that the exception or in
cases where the money deposited or invested is the subject matter of the litigation is not
qualified by the phrase upon order of competent Court which refers only to cases of bribery
or dereliction of duty of public officials.
Petitioners motion for reconsideration was similarly denied in a Resolution dated April
16, 1997. Appeal was made in due time to this Court.
The instant petition was actually denied by the former Third Division of this Court in a
Resolution[18] dated July 16, 1997, on the ground that petitioners had failed to show that a
reversible error had been committed. On motion, however, the petition was reinstated [19] and
eventually given due course.[20]
In assailing the appellate courts findings, petitioners assert that the disclosure of their
bank records was unwarranted and illegal for the following reasons:
I.
IN BLATANT VIOLATION OF R.A. NO. 1405, PRIVATE RESPONDENTS ILLEGALLY MADE
DISCLOSURES OF PETITIONERS CONFIDENTIAL BANK DEPOSITS FOR THEIR SELFISH
ENDS IN PROSECUTING THEIR COMPLAINT IN IS. NO. 93-8469 THAT DID NOT INVOLVE
PETITIONERS.
II.
PRIVATE RESPONDENTS DISCLOSURES DO NOT FALL UNDER THE FOURTH EXCEPTION OF
R.A. NO. 1405 (i.e., in cases where the money deposited or invested is the subject
matter of the litigation), NOR UNDER ANY OTHER EXCEPTION:
(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)
3
EVEN ASSUMING ARGUENDO THAT THERE IS A LITIGATION INVOLVING
PETITIONERS DEPOSITS AS THE SUBJECT MATTER THEREOF, PRIVATE
RESPONDENTS DISCLOSURES OF PETITIONERS DEPOSITS ARE NEVERTHELESS
ILLEGAL FOR WANT OF THE REQUISITE COURT ORDER, IN VIOLATION OF R.A. NO.
1405.
III.
THEREFORE, PETITIONERS ARE ENTITLED TO PROSECUTE PRIVATE RESPONDENTS FOR
VIOLATIONS OF R.A. NO. 1405 FOR HAVING ILLEGALLY DISCLOSED PETITIONERS
CONFIDENTIAL BANK DEPOSITS AND RECORDS IN IS. NO. 93-8469.
Apart from the reversal of the decision and resolution of the appellate court as well as
the resolutions of the Department of Justice, petitioners pray that the latter agency be
directed to issue a resolution ordering the Provincial Prosecutor of Rizal to file the
corresponding informations for violation of Republic Act No. 1405 against private
respondents.
The petition is not meritorious.
Actually, this case should have been studied more carefully by all concerned. The finest
legal minds in the country - from the parties respective counsel, the Provincial Prosecutor, the
Department of Justice, the Solicitor General, and the Court of Appeals - all appear to have
overlooked a single fact which dictates the outcome of the entire controversy. A circumspect
review of the record shows us the reason. The accounts in question are U.S. dollar deposits;
consequently, the applicable law is not Republic Act No. 1405 but Republic Act (RA) No.
6426,known as the Foreign Currency Deposit Act of the Philippines, section 8 of which
provides:
Sec. 8. Secrecy of Foreign Currency Deposits.- All foreign currency deposits authorized under
this Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits
authorized under Presidential Decree No. 1034, are hereby declared as and considered of an
absolutely confidential nature and, except upon the written permission of the depositor, in no
instance shall such foreign currency deposits be examined, inquired or looked into by any
person, government official bureau or office whether judicial or administrative or legislative
or any other entity whether public or private: Provided, however, that said foreign currency
deposits shall be exempt from attachment, garnishment, or any other order or process of any
court, legislative body, government agency or any administrative body whatsoever. [21] (italics
supplied)
Thus, under R.A. No. 6426 there is only a single exception to the secrecy of foreign
currency deposits, that is, disclosure is allowed only upon the written permission of the
depositor. Incidentally, the acts of private respondents complained of happened before the
enactment on September 29, 2001 of R.A. No. 9160 otherwise known as the Anti-Money
Laundering Act of 2001.

A case for violation of Republic Act No. 6426 should have been the proper case brought
against private respondents. Private respondents Lim and Reyes admitted that they had
disclosed details of petitioners dollar deposits without the latters written permission. It does
not matter if that such disclosure was necessary to establish Citibanks case against Dante L.
Santos and Marilou Genuino. Lims act of disclosing details of petitioners bank records
regarding their foreign currency deposits, with the authority of Reyes, would appear to
belong to that species of criminal acts punishable by special laws, called malum
prohibitum. In this regard, it has been held that:
While it is true that, as a rule and on principles of abstract justice, men are not and should
not be held criminally responsible for acts committed by them without guilty knowledge and
criminal or at least evil intent xxx, the courts have always recognized the power of the
legislature, on grounds of public policy and compelled by necessity, the great master of
things, to forbid in a limited class of cases the doing of certain acts, and to make their
commission criminal without regard to the intent of the doer. xxx In such cases no judicial
authority has the power to require, in the enforcement of the law, such knowledge or motive
to be shown. As was said in the case of State vs. McBrayer xxx:
It is a mistaken notion that positive, willful intent, as distinguished from a mere intent, to
violate the criminal law, is an essential ingredient in every criminal offense, and that where
there is the absence of such intent there is no offense; this is especially so as to statutory
offenses. When the statute plainly forbids an act to be done, and it is done by some person,
the law implies conclusively the guilty intent, although the offender was honestly mistaken as
to the meaning of the law he 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
4
Internal Revenue shall prescribe after five years. Violations penalized by municipal ordinances
shall prescribe after two months.
Violations of the regulations or conditions of certificates of public convenience issued by the
Public Service Commission shall prescribe after two months.
SEC. 2. Prescription shall begin to run from the day of the commission of the violation of the
law, and if the same be not known at the time, from the discovery thereof and the institution
of judicial proceedings for its investigation and punishment.
The prescription shall be interrupted when proceedings are instituted against the guilty
person, and shall begin to run again if the proceedings are dismissed for reasons not
constituting jeopardy.
A violation of Republic Act No. 6426 shall subject the offender to imprisonment of not
less than one year nor more than five years, or by a fine of not less than five thousand pesos
nor more than twenty-five thousand pesos, or both. [24] Applying Act No. 3326, the offense
prescribes in eight years.[25] Per available records, private respondents may no longer be haled
before the courts for violation of Republic Act No. 6426. Private respondent Vic Lim made the
disclosure in September of 1993 in his affidavit submitted before the Provincial Fiscal. [26] In
her complaint-affidavit,[27] Intengan stated that she learned of the revelation of the details of
her foreign currency bank account on October 14, 1993. On the other hand, Neri asserts that
she discovered the disclosure on October 24, 1993.[28] As to Brawner, the material date
is January 5, 1994.[29] Based on any of these dates, prescription has set in.[30]
The filing of the complaint or information in the case at bar for alleged violation of
Republic Act No. 1405 did not have the effect of tolling the prescriptive period. For it is the
filing of the complaint or information corresponding to the correct offense which produces
that effect.[31]
It may well be argued that the foregoing disquisition would leave petitioners with no
remedy in law. We point out, however, that the confidentiality of foreign currency deposits
mandated by Republic Act No. 6426, as amended by Presidential Decree No. 1246, came into
effect as far back as 1977. Hence, ignorance thereof cannot be pretended. On one hand, the
existence of laws is a matter of mandatory judicial notice; [32] on the other, ignorantia legis
non excusat.[33] Even during the pendency of this appeal, nothing prevented the petitioners
from filing a complaint charging the correct offense against private respondents. This was not
done, as everyone involved was content to submit the case on the basis of an alleged
violation of Republic Act No. 1405 (Bank Secrecy Law), however, incorrectly invoked. [34]
WHEREFORE, the petition is hereby DENIED. No pronouncement as to costs.
SO ORDERED.
Facts:
On September 21, 1993, Citibank filed a complaint for violation of section 31 in relation to
 5

section 144 of the Corporation Code against two (2) of its officers, Dante L. Santos and Addendum:
Marilou Genuino. Attached to the complaint was an affidavit executed by private respondent
Vic Lim, a vice-president of Citibank There are now 2 exceptions for which a bank may disclose foreign currency deposits: upon
the written assent or permission of the depositor; and in cases covered by the Anti-Money
As evidence, Lim annexed bank records purporting to establish the deception practiced by Laundering Act
Santos and Genuino. Some of the documents pertained to the dollar deposits of petitioners
Carmen Ll. Intengan, Rosario Ll. Neri, and Rita P. Brawner.

In turn, private respondent Joven Reyes, vice-president/business manager of the Global

Consumer Banking Group of Citibank, admits to having authorized Lim to state the names of
the clients involved and to attach the pertinent bank records, including those of petitioners

Petitioners aver that respondents violated RA 1405.

Issue: Whether or not Respondents are liable for violation of Secrecy of Bank Deposits Act,
RA 1405.

Held:

No. The accounts in question are U.S. dollar deposits; consequently, the applicable law is not
Republic Act No. 1405 but Republic Act (RA) No. 6426, known as the Foreign Currency
Deposit Act of the Philippines, However, applying Act No. 3326, the offense prescribes in
eight years, therefore, per available records, private respondents may no longer be haled
before the courts for violation of Republic Act No. 6426.

Intengan, et al vs CA

Citibank sued two of its officers for violation of the Corp Code contending that these officers
are persuading their clients to transfer their dollar deposits to competitor banks because the
latter gives higher interests. A complaint was filed by Mr. Lim in behalf of Citibank and such
complaint includes an affidavit containing the names and the amount allegedly transferred
from Citibank to other banks. Because of the affidavit, the petitioners are now complaining
against Citibank claiming that it is in violation of the Secrecy of Bank Deposit Act.

The SC held that since the deposits involved therein are foreign currency deposits, there is no
violation here of Secrecy of Bank Deposit Act but of the Foreign Currency Deposit Act. If the
case was filed in violation of FCDA, the court may give due course to case for Citibank violated
FCDA because there was no written permission from the petitioners. Further, the case can no
longer be re-filed because the action has already prescribed.
 6

FIRST DIVISION Roxas Boulevard, Pasay City

G(16) GIF Bond 027461

GOVERNMENT SERVICE INSURANCE G.R. No. 189206
SYSTEM,
SURETYBOND
Petitioner,
Promulgated:
KNOW ALL MEN BY THESE PRESENTS:
-versus-
June 8, 2011
That we, DOMSAT HOLDINGS, INC., represented by its President as
THE HONORABLE 15TH DIVISION OF THE COURT
PRINCIPAL, and the GOVERNMENT SERVICE INSURANCE SYSTEM, as
OF APPEALS and INDUSTRIAL BANK OF KOREA,
Administrator of the GENERAL INSURANCE FUND, a corporation duly
TONG YANG MERCHANT BANK, HANAREUM
organized and existing under and by virtue of the laws of the Philippines,
BANKING CORP., LAND BANK OF THE
with principal office in the City of Pasay, Metro Manila, Philippines as
PHILIPPINES, WESTMONT BANK and DOMSAT
SURETY, are held and firmly bound unto the OBLIGEES: LAND BANK OF
HOLDINGS, INC.,
THE PHILIPPINES, 7th Floor, Land Bank Bldg. IV. 313 Sen. Gil J. Puyat
Respondents.
Avenue, Makati City; WESTMONT BANK, 411 Quintin Paredes St.,
x ----------------------------------------------------------------------------------------x Binondo, Manila: TONG YANG MERCHANT BANK, 185, 2-Ka, Ulchi-ro,
DECISION Chungk-ku, Seoul, Korea; INDUSTRIAL BANK OF KOREA, 50, 2-Ga, Ulchi-ro,
Chung-gu, Seoul, Korea; and FIRST MERCHANT BANKING CORPORATION,
199-40, 2-Ga, Euliji-ro, Jung-gu, Seoul, Korea, in the sum, of US $ ELEVEN
PEREZ, J.:
MILLION DOLLARS ($11,000,000.00) for the payment of which sum, well
and truly to be made, we bind ourselves, our heirs, executors,
The subject of this petition for certiorari is the Decision[1] of the Court of Appeals in CA-G.R. administrators, successors and assigns, jointly and severally, firmly by
SP No. 82647 allowing the quashal by the Regional Trial Court (RTC) of Makati of these presents.
a subpoena for the production of bank ledger. This case is incident to Civil Case No. 99-1853,
THE CONDITIONS OF THE OBLIGATION ARE AS FOLLOWS:
which is the main case for collection of sum of money with damages filed by Industrial Bank
of Korea, Tong Yang Merchant Bank, First Merchant Banking Corporation, Land Bank of the WHEREAS, the above bounden PRINCIPAL, on the 12 th day of December, 1996
Philippines, and Westmont Bank (now United Overseas Bank), collectively known as the entered into a contract agreement with the aforementioned OBLIGEES to fully and
faithfully Guarantee the repayment of the principal and interest on the loan
Banks against Domsat Holdings, Inc. (Domsat) and the Government Service Insurance System
granted the PRINCIPAL to be used for the financing of the two (2) year lease of a
(GSIS). Said case stemmed from a Loan Agreement, [2] whereby the Banks agreed to lend Russian Satellite from INTERSPUTNIK, in accordance with the terms and conditions
United States (U.S.) $11 Million to Domsat for the purpose of financing the lease and/or of the credit package entered into by the parties.
purchase of a Gorizon Satellite from the International Organization of Space Communications
This bond shall remain valid and effective until the loan including interest
(Intersputnik).[3]
has been fully paid and liquidated, a copy of which contract/agreement is
hereto attached and made part hereof;
The controversy originated from a surety agreement by which Domsat obtained a surety bond
from GSIS to secure the payment of the loan from the Banks. We quote the terms of the WHEREAS, the aforementioned OBLIGEES require said PRINCIPAL to give a
[4] good and sufficient bond in the above stated sum to secure the full and
Surety Bond in its entirety.
faithful performance on his part of said contract/agreement.
NOW, THEREFORE, if the PRINCIPAL shall well and truly perform and fulfill
Republic of the Philippines all the undertakings, covenants, terms, conditions, and agreements
GOVERNMENT SERVICE INSURANCE SYSTEM stipulated in said contract/agreements, then this obligation shall be null
GENERAL INSURANCE FUND and void; otherwise, it shall remain in full force and effect.
GSIS Headquarters, Financial Center

WITNESS OUR HANDS AND SEALS this 13 th day of December 1996 at Pasay City,
Philippines.
DOMSAT HOLDINGS, INC GOVERNMENT SERVICE INSURANCE
Principal SYSTEM
General Insurance Fund
By: By:
CAPT. RODRIGO A. SILVERIO AMALIO A. MALLARI
President Senior Vice-President
General Insurance Group
When Domsat failed to pay the loan, GSIS refused to comply with its obligation reasoning that
Domsat did not use the loan proceeds for the payment of rental for the satellite. GSIS alleged
that Domsat, with Westmont Bank as the conduit, transferred the U.S. $11 Million loan
proceeds from the Industrial Bank of Korea to Citibank New York account of Westmont Bank
and from there to the Binondo Branch of Westmont Bank. [5] The Banks filed a complaint
before the RTC of Makati against Domsat and GSIS.
In the course of the hearing, GSIS requested for the issuance of a subpoena duces tecum to
the custodian of records of Westmont Bank to produce the following documents:
1. Ledger covering the account of DOMSAT Holdings, Inc. with Westmont
Bank (now United Overseas Bank), any and all documents, records, files, books,
deeds, papers, notes and other data and materials relating to the account or
transactions of DOMSAT Holdings, Inc. with or through the Westmont Bank (now
United Overseas Bank) for the period January 1997 to December 2002, in his/her
direct or indirect possession, custody or control (whether actual or constructive),
whether in his/her capacity as Custodian of Records or otherwise;
2. All applications for cashiers/ managers checks and bank transfers
funded by the account of DOMSAT Holdings, Inc. with or through the Westmont
Bank (now United Overseas Bank) for the period January 1997 to December 2002,
and all other data and materials covering said applications, in his/her direct or
indirect possession, custody or control (whether actual or constructive), whether in
his/her capacity as Custodian of Records or otherwise;
3. Ledger covering the account of Philippine Agila Satellite, Inc. with
Westmont Bank (now United Overseas Bank), any and all documents, records, files,
books, deeds, papers, notes and other data and materials relating to the account or
transactions of Philippine Agila Satellite, Inc. with or through the Westmont bank
(now United Overseas Bank) for the period January 1997 to December 2002, in
his/her direct or indirect possession, custody or control (whether actual or
constructive), whether in his/her capacity as Custodian of Records or otherwise;
7
4. All applications for cashiers/managers checks funded by the account of
Philippine Agila Satellite, Inc. with or through the Westmont Bank (now United
Overseas Bank) for the period January 1997 to December 2002, and all other data
and materials covering said applications, in his/her direct or indirect possession,
custody or control (whether actual or constructive), whether in his/her capacity as
Custodian of Records or otherwise.[6]
The RTC issued a subpoena decus tecum on 21 November 2002.[7] A motion to quash was filed
by the banks on three grounds: 1) the subpoena is unreasonable, oppressive and does not
establish the relevance of the documents sought; 2) request for the documents will violate
the Law on Secrecy of Bank Deposits; and 3) GSIS failed to advance the reasonable cost of
production of the documents.[8] Domsat also joined the banks motion to quash through its
Manifestation/Comment.[9] On 9 April 2003, the RTC issued an Order denying the motion to
quash for lack of merit. We quote the pertinent portion of the Order, thus:
After a careful consideration of the arguments of the parties, the Court
did not find merit in the motion.
The serious objection appears to be that the subpoena is violative of the
Law on Secrecy of Bank Deposit, as amended. The law declares bank
deposits to be absolutely confidential except: x x x (6) In cases where the
money deposited or invested is the subject matter of the litigation.
The case at bench is for the collection of a sum of money from
defendants that obtained a loan from the plaintiff. The loan was secured
by defendant GSIS which was the surety. It is the contention of defendant
GSIS that the proceeds of the loan was deviated to purposes other than
to what the loan was extended. The quashal of the subpoena would deny
defendant GSIS its right to prove its defenses.
WHEREFORE, for lack of merit the motion is DENIED. [10]
On 26 June 2003, another Order was issued by the RTC denying the motion for
reconsideration filed by the banks. [11] On 1 September 2003 however, the trial court granted
the second motion for reconsideration filed by the banks. The previous subpoenas issued
were consequently quashed.[12] The trial court invoked the ruling in Intengan v. Court of
Appeals,[13] where it was ruled that foreign currency deposits are absolutely confidential and
may be examined only when there is a written permission from the depositor. The motion for
reconsideration filed by GSIS was denied on 30 December 2003.

Hence, these assailed orders are the subject of the petition for certiorari before the Court of
Appeals. GSIS raised the following arguments in support of its petition:
I.
Respondent Judge acted with grave abuse of discretion when it favorably
considered respondent banks (second) Motion for Reconsideration dated
July 9, 2003 despite the fact that it did not contain a notice of hearing and
was therefore a mere scrap of paper.
II.
Respondent judge capriciously and arbitrarily ignored Section 2 of the
Foreign Currency Deposit Act (RA 6426) in ruling in his Orders dated
September 1 and December 30, 2003 that the US$11,000,000.00 deposit
in the account of respondent Domsat in Westmont Bank is covered by the
secrecy of bank deposit.
III.
Since both respondent banks and respondent Domsat have disclosed
during the trial the US$11,000,000.00 deposit, it is no longer secret and
confidential, and petitioner GSIS right to inquire into what happened to
such deposit can not be suppressed.[14]
The Court of Appeals addressed these issues in seriatim.
The Court of Appeals resorted to a liberal interpretation of the rules to avoid miscarriage of
justice when it allowed the filing and acceptance of the second motion for
reconsideration. The appellate court also underscored the fact that GSIS did not raise the
defect of lack of notice in its opposition to the second motion for reconsideration. The
appellate court held that failure to timely object to the admission of a defective motion is
considered a waiver of its right to do so.
The Court of Appeals declared that Domsats deposit in Westmont Bank is covered by
Republic Act No. 6426 or the Bank Secrecy Law. We quote the pertinent portion of the
Decision:
It is our considered opinion that Domsats deposit of $11,000,000.00 in
Westmont Bank is covered by the Bank Secrecy Law, as such it cannot be
examined, inquired or looked into without the written consent of its
owner. The ruling in Van Twest vs. Court of Appeals was rendered during
the effectivity of CB Circular No. 960, Series of 1983, under Sec. 102
8
thereof, transfer to foreign currency deposit account or receipt from
another foreign currency deposit account, whether for payment of
legitimate obligation or otherwise, are not eligible for deposit under the
System.
CB Circular No. 960 has since been superseded by CB Circular 1318 and
later by CB Circular 1389. Section 102 of Circular 960 has not been re-
enacted in the later Circulars. What is applicable now is the decision
in Intengan vs. Court of Appeals where the Supreme Court has ruled that
the under R.A. 6426 there is only a single exception to the secrecy of
foreign currency deposits, that is, disclosure is allowed only upon the
written permission of the depositor. Petitioner, therefore, had
inappropriately invoked the provisions of Central Bank (CB) Circular Nos.
343 which has already been superseded by more recently issued CB
Circulars. CB Circular 343 requires the surrender to the banking system of
foreign exchange, including proceeds of foreign borrowings. This
requirement, however, can no longer be found in later circulars.
In its Reply to respondent banks comment, petitioner appears to have
conceded that what is applicable in this case is CB Circular
1389. Obviously, under CB 1389, proceeds of foreign borrowings are no
longer required to be surrendered to the banking system.
Undaunted, petitioner now argues that paragraph 2, Section 27 of CB
Circular 1389 is applicable because Domsats $11,000,000.00 loan from
respondent banks was intended to be paid to a foreign supplier
Intersputnik and, therefore, should have been paid directly to
Intersputnik and not deposited into Westmont Bank. The fact that it was
deposited to the local bank Westmont Bank, petitioner claims violates the
circular and makes the deposit lose its confidentiality status under R.A.
6426. However, a reading of the entire Section 27 of CB Circular 1389
reveals that the portion quoted by the petitioner refers only to the
procedure/conditions of drawdown for service of debts using foreign
exchange. The above-said provision relied upon by the petitioner does
not in any manner prescribe the conditions before any foreign currency
deposit can be entitled to the confidentiality provisions of R.A. 6426. [15]
Anent the third issue, the Court of Appeals ruled that the testimony of the
incumbent president of Westmont Bank is not the written consent contemplated by Republic
Act No. 6426.
The Court of Appeals however upheld the issuance of subpoena praying for the production of
applications for cashiers or managers checks by Domsat through Westmont Bank, as well as a
copy of an Agreement and/or Contract and/or Memorandum between Domsat and/or
Philippine Agila Satellite and Intersputnik for the acquisition and/or lease of a Gorizon
Satellite. The appellate court believed that the production of these documents does not

involve the examination of Domsats account since it will never be known how much money
was deposited into it or withdrawn therefrom and how much remains therein.
On 29 February 2008, the Court of Appeals rendered the assailed Decision, the decretal
portion of which reads:
WHEREFORE, the petition is partially GRANTED. Accordingly, the assailed
Order dated December 30, 2003 is hereby modified in that the quashal of
the subpoena for the production of Domsats bank ledger in Westmont
Bank is upheld while respondent court is hereby ordered to
issue subpoena duces tecum ad testificandum directing the records
custodian of Westmont Bank to bring to court the following documents:
a) applications for cashiers or managers checks by respondent Domsat
through Westmont Bank from January 1997 to December 2002;
b) bank transfers by respondent Domsat through Westmont Bank from
January 1997 to December 2002; and
c) copy of an agreement and/or contract and/or memorandum
between respondent Domsat and/or Philippine Agila Satellite and
Intersputnik for the acquisition and/or lease of a Gorizon satellite.
No pronouncement as to costs.[16]
GSIS filed a motion for reconsideration which the Court of Appeals denied on 19 June
2009. Thus, the instant petition ascribing grave abuse of discretion on the part of the Court of
Appeals in ruling that Domsats deposit with Westmont Bank cannot be examined and in
finding that the banks second motion for reconsideration in Civil Case No. 99-1853 is
[17]
procedurally acceptable.
This Court notes that GSIS filed a petition for certiorari under Rule 65 of the Rules of Court to
assail the Decision and Resolution of the Court of Appeals. Petitioner availed of the improper
remedy as the appeal from a final disposition of the Court of Appeals is a petition for review
under Rule 45 and not a special civil action under Rule 65. [18] Certiorari under Rule 65 lies only
when there is no appeal, nor plain, speedy and adequate remedy in the ordinary course of
law. That action is not a substitute for a lost appeal in general; it is not allowed when a party
to a case fails to appeal a judgment to the proper forum. [19] Where an appeal is
available, certiorari will not prosper even if the ground therefor is grave abuse of discretion.
9
Accordingly, when a party adopts an improper remedy, his petition may be dismissed
outright.[20]
Yet, even if this procedural infirmity is discarded for the broader interest of justice, the
petition sorely lacks merit.
GSIS insists that Domsats deposit with Westmont Bank can be examined and inquired into. It
anchored its argument on Republic Act No. 1405 or the Law on Secrecy of Bank Deposits,
which allows the disclosure of bank deposits in cases where the money deposited is the
subject matter of the litigation. GSIS asserts that the subject matter of the litigation is the U.S.
$11 Million obtained by Domsat from the Banks to supposedly finance the lease of a Russian
satellite from Intersputnik. Whether or not it should be held liable as a surety for the principal
amount of U.S. $11 Million, GSIS contends, is contingent upon whether Domsat indeed
utilized the amount to lease a Russian satellite as agreed in the Surety Bond
Agreement. Hence, GSIS argues that the whereabouts of the U.S. $11 Million is the subject
matter of the case and the disclosure of bank deposits relating to the U.S. $11 Million should
be allowed.
GSIS also contends that the concerted refusal of Domsat and the banks to divulge the
whereabouts of the U.S. $11 Million will greatly prejudice and burden the GSIS pension fund
considering that a substantial portion of this fund is earmarked every year to cover the surety
bond issued.
Lastly, GSIS defends the acceptance by the trial court of the second motion for
reconsideration filed by the banks on the grounds that it is pro forma and did not conform to
the notice requirements of Section 4, Rule 15 of the Rules of Civil Procedure. [21]
Domsat denies the allegations of GSIS and reiterates that it did not give a categorical or
affirmative written consent or permission to GSIS to examine its bank statements with
Westmont Bank.
The Banks maintain that Republic Act No. 1405 is not the applicable law in the instant case
because the Domsat deposit is a foreign currency deposit, thus covered by Republic Act No.
6426. Under said law, only the consent of the depositor shall serve as the exception for the
disclosure of his/her deposit.
 10

The Banks counter the arguments of GSIS as a mere rehash of its previous arguments before examined, inquired or looked into by any person, government official,
bureau or office whether judicial or administrative or legislative or any
the Court of Appeals. They justify the issuance of the subpoena as an interlocutory matter
other entity whether public or private; Provided, however, That said
which may be reconsidered anytime and that the pro forma rule has no application to foreign currency deposits shall be exempt from attachment, garnishment,
interlocutory orders. 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.)
It appears that only GSIS appealed the ruling of the Court of Appeals pertaining to
the quashal of the subpoena for the production of Domsats bank ledger with Westmont
On the one hand, Republic Act No. 1405 provides for four (4) exceptions when records of
Bank. Since neither Domsat nor the Banks interposed an appeal from the other portions of
deposits may be disclosed. These are under any of the following instances: a) upon written
the decision, particularly for the production of applications for cashiers or managers checks
permission of the depositor, (b) in cases of impeachment, (c) upon order of a competent
by Domsat through Westmont Bank, as well as a copy of an agreement and/or contract
court in the case of bribery or dereliction of duty of public officials or, (d) when the money
and/or memorandum between Domsat and/or Philippine Agila Satellite and Intersputnik for
deposited or invested is the subject matter of the litigation, and e) in cases of violation of the
the acquisition and/or lease of a Gorizon satellite, the latter became final and executory.
Anti-Money Laundering Act (AMLA), the Anti-Money Laundering Council (AMLC) may inquire
into a bank account upon order of any competent court. [22] On the other hand, the lone
GSIS invokes Republic Act No. 1405 to justify the issuance of the subpoena while the banks
exception to the non-disclosure of foreign currency deposits, under Republic Act No. 6426, is
cite Republic Act No. 6426 to oppose it. The core issue is which of the two laws should apply
disclosure upon the written permission of the depositor.
in the instant case.

These two laws both support the confidentiality of bank deposits. There is no conflict
Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first amended by
between them. Republic Act No. 1405 was enacted for the purpose of giving encouragement
Presidential Decree No. 1792 in 1981 and further amended by Republic Act No. 7653 in
to the people to deposit their money in banking institutions and to discourage private
1993. It now reads:
hoarding so that the same may be properly utilized by banks in authorized loans to assist in
the economic development of the country. [23] It covers all bank deposits in the Philippines and
Section 2. All deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds issued by no distinction was made between domestic and foreign deposits.Thus, Republic Act No. 1405
the Government of the Philippines, its political subdivisions and its is considered a law of general application. On the other hand, Republic Act No. 6426 was
instrumentalities, are hereby considered as of an absolutely confidential intended to encourage deposits from foreign lenders and investors. [24] It is a special law
nature and may not be examined, inquired or looked into by any person,
designed especially for foreign currency deposits in the Philippines. A general law does not
government official, bureau or office, except upon written permission of
the depositor, or in cases of impeachment, or upon order of a competent nullify a specific or special law. Generalia specialibus non derogant.[25] Therefore, it is beyond
court in cases of bribery or dereliction of duty of public officials, or in cavil that Republic Act No. 6426 applies in this case.
cases where the money deposited or invested is the subject matter of the
litigation.
Intengan v. Court of Appeals affirmed the above-cited principle and categorically declared
Section 8 of Republic Act No. 6426, which was enacted in 1974, and amended by Presidential
that for foreign currency deposits, such as U.S. dollar deposits, the applicable law is
Decree No. 1035 and later by Presidential Decree No. 1246, provides:
Republic Act No. 6426.

Section 8. Secrecy of Foreign Currency Deposits. All foreign currency

deposits authorized under this Act, as amended by Presidential Decree
No. 1035, as well as foreign currency deposits authorized under
Presidential Decree No. 1034, are hereby declared as and considered of
an absolutely confidential nature and, except upon the written permission
of the depositor, in no instance shall foreign currency deposits be
In said case, Citibank filed an action against its officers for persuading their clients to transfer
their dollar deposits to competitor banks. Bank records, including dollar deposits of
petitioners, purporting to establish the deception practiced by the officers, were annexed to
the complaint. Petitioners now complained that Citibank violated Republic Act No. 1405. This
 11

Court ruled that since the accounts in question are U.S. dollar deposits, the applicable law Bank secrecy; foreign currency deposits. (J. Abad)
therefore is not Republic Act No. 1405 but Republic Act No. 6426.
Republic Act No. 1405 was enacted for the purpose of giving encouragement to the people to
The above pronouncement was reiterated in China Banking Corporation v. Court of Appeals, deposit their money in banking institutions and to discourage private hoarding so that the
[26]
where respondent accused his daughter of stealing his dollar deposits with Citibank. The same may be properly utilized by banks in authorized loans to assist in theeconomic
latter allegedly received the checks from Citibank and deposited them to her account in China development of the country. It covers all bank deposits in the Philippines and no distinction
was made between domestic and foreign deposits. Thus, Republic Act No. 1405 is considered
Bank. The subject checks were presented in evidence. A subpoenawas issued to employees of
a law of general application. On the other hand, Republic Act No. 6426 was intended to
China Bank to testify on these checks. China Bank argued that the Citibank dollar checks with
encourage deposits from foreign lenders and investors. It is a special law designed especially
both respondent and/or her daughter as payees, deposited with China Bank, may not be
for foreign currency deposits in the Philippines. A general law does not nullify a specific or
looked into under the law on secrecy of foreign currency deposits. This Court highlighted the
special law. Generalia specialibus non derogant. Therefore, it is beyond cavil that Republic Act
exception to the non-disclosure of foreign currency deposits, i.e., in the case of a written
No. 6426 applies in this case.
permission of the depositor, and ruled that respondent, as owner of the funds unlawfully
taken and which are undisputably now deposited with China Bank, he has the right to inquire Applying Section 8 of Republic Act No. 6426, absent the written permission from Domsat,
into the said deposits. Westmont Bank cannot be legally compelled to disclose the bank deposits of Domsat,
otherwise, it might expose itself to criminal liability under the same act.
Applying Section 8 of Republic Act No. 6426, absent the written permission from Domsat,
Westmont Bank cannot be legally compelled to disclose the bank deposits of Domsat,
otherwise, it might expose itself to criminal liability under the same act. [27]

The basis for the application of subpoena is to prove that the loan intended for Domsat by the
Banks and guaranteed by GSIS, was diverted to a purpose other than that stated in the surety
bond. The Banks, however, argue that GSIS is in fact liable to them for the proper applications
of the loan proceeds and not vice-versa. We are however not prepared to rule on the merits
of this case lest we pre-empt the findings of the lower courts on the matter.

The third issue raised by GSIS was properly addressed by the appellate court. The appellate
court maintained that the judge may, in the exercise of his sound discretion, grant the second
motion for reconsideration despite its being pro forma. The appellate court correctly relied
on precedents where this Court set aside technicality in favor of substantive
justice. Furthermore, the appellate court accurately pointed out that petitioner did not assail
the defect of lack of notice in its opposition to the second motion of reconsideration, thus it
can be considered a waiver of the defect.

WHEREFORE, the petition for certiorari is DISMISSED. The Decision dated 29 February 2008
and 19 June 2009 Resolution of the Court of Appeals are herebyAFFIRMED.

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.
TORRES, JR., J.:
In our predisposition to discover the "original intent" of a statute, courts become the
unfeeling pillars of the status quo. Ligle do we realize that statutes or even constitutions are
bundles of compromises thrown our way by their framers. Unless we exercise vigilance, the
statute may already be out of tune and irrelevant to our day.
The petition is for declaratory relief. It prays for the following reliefs:
a.) Immediately upon the filing of this petition, an Order be issued restraining the
respondents from applying and enforcing Section 113 of Central Bank Circular No. 960;
b.) After hearing, judgment be rendered:
1.) Declaring the respective rights and duties of petitioners and respondents;
2.) Adjudging Section 113 of Central Bank Circular No. 960 as contrary to the provisions of the
Constitution, hence void; because its provision that "Foreign currency deposits shall be
exempt from attachment, garnishment, or any other order or process of any court, legislative
body, government agency or any administrative body whatsoever
i.) has taken away the right of petitioners to have the bank deposit of defendant Greg Bartelli
y Northcott garnished to satisfy the judgment rendered in petitioners' favor in violation of
substantive due process guaranteed by the Constitution;
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.
12
The antecedent facts:
On February 4, 1989, Greg Bartelli y Northcott, an American tourist, coaxed and lured
petitioner Karen Salvacion, then 12 years old to go with him to his apartment. Therein, Greg
Bartelli detained Karen Salvacion for four days, or up to February 7, 1989 and was able to
rape the child once on February 4, and three times each day on February 5, 6, and 7, 1989.
On February 7, 1989, after policemen and people living nearby, rescued Karen, Greg Bartelli
was arrested and detained at the Makati Municipal Jail. The policemen recovered from
Bartelli the following items: 1.) Dollar Check No. 368, Control No. 021000678-1166111303,
US 3,903.20; 2.) COCOBANK Bank Book No. 104-108758-8 (Peso Acct.); 3.) Dollar Account
China Banking Corp., US$/A#54105028-2; 4.) ID-122-30-8877; 5.) Philippine Money (P234.00)
cash; 6.) Door Keys 6 pieces; 7.) Stuffed Doll (Teddy Bear) used in seducing the complainant.
On February 16, 1989, Makati Investigating Fiscal Edwin G. Condaya filed against Greg Bartelli,
Criminal Case No. 801 for Serious Illegal Detention and Criminal Cases Nos. 802, 803, 804,
and 805 for four (4) counts of Rape. On the same day, petitioners filed with the Regional Trial
Court of Makati Civil Case No. 89-3214 for damages with preliminary attachment against Greg
Bartelli. On February 24, 1989, the day there was a scheduled hearing for Bartelli's petition
for bail the latter escaped from jail.
On February 28, 1989, the court granted the fiscal's Urgent Ex-Parte Motion for the Issuance
of Warrant of Arrest and Hold Departure Order. Pending the arrest of the accused Greg
Bartelli y Northcott, the criminal cases were archived in an Order dated February 28, 1989.
Meanwhile, in Civil Case No. 89-3214, the Judge issued an Order dated February 22, 1989
granting the application of herein petitioners, for the issuance of the writ of preliminary
attachment. After petitioners gave Bond No. JCL (4) 1981 by FGU Insurance Corporation in the
amount of P100,000.00, a Writ of Preliminary Attachment was issued by the trial court on
February 28, 1989.
On March 1, 1989, the Deputy Sheriff of Makati served a Notice of Garnishment on China
Banking Corporation. In a letter dated March 13, 1989 to the Deputy Sheriff of Makati, China
Banking Corporation invoked Republic Act No. 1405 as its answer to the notice of
garnishment served on it. On March 15, 1989, Deputy Sheriff of Makati Armando de Guzman
sent his reply to China Banking Corporation saying that the garnishment did not violate the
secrecy of bank deposits since the disclosure is merely incidental to a garnishment properly
and legally made by virtue of a court order which has placed the subject deposits in custodia
legis. In answer to this letter of the Deputy Sheriff of Makati, China Banking Corporation, in a
letter dated March 20, 1989, invoked Section 113 of Central Bank Circular No. 960 to the
effect that the dollar deposits or defendant Greg Bartelli are exempt from attachment,
garnishment, or any other order or process of any court, legislative body, government agency
or any administrative body, whatsoever.

This prompted the counsel for petitioners to make an inquiry with the Central Bank in a letter
dated April 25, 1989 on whether Section 113 of CB Circular No. 960 has any exception or
whether said section has been repealed or amended since said section has rendered
nugatory the substantive right of the plaintiff to have the claim sought to be enforced by the
civil action secured by way of the writ of preliminary attachment as granted to the plaintiff
under Rule 57 of the Revised Rules of Court. The Central Bank responded as follows:
May 26, 1989
Ms. Erlinda S. Carolino
12 Pres. Osmena Avenue
South Admiral Village
Paranaque, Metro Manila
Dear Ms. Carolino:
This is in reply to your letter dated April 25, 1989 regarding your inquiry on Section 113, CB
Circular No. 960 (1983).
The cited provision is absolute in application. It does not admit of any exception, nor has the
same been repealed nor amended.
The purpose of the law is to encourage dollar accounts within the country's banking system
which would help in the development of the economy. There is no intention to render futile
the basic rights of a person as was suggested in your subject letter. The law may be harsh as
some perceive it, but it is still the law. Compliance is, therefore, enjoined.
Very truly yours,
(SGD) AGAPITO S. FAJARDO
Director 1
Meanwhile, on April 10, 1989, the trial court granted petitioners' motion for leave to serve
summons by publication in the Civil Case No. 89-3214 entitled "Karen Salvacion, et al. vs.
Greg Bartelli y Northcott." Summons with the complaint was a published in the Manila Times
once a week for three consecutive weeks. Greg Bartelli failed to file his answer to the
complaint and was declared in default on August 7, 1989. After hearing the case ex-parte, the
court rendered judgment in favor of petitioners on March 29, 1990, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant,
ordering the latter:
13
1. To pay plaintiff Karen E. Salvacion the amount of P500,000.00 as moral damages;
2. To pay her parents, plaintiffs spouses Federico N. Salvacion, Jr., and Evelina E. Salvacion the
amount of P150,000.00 each or a total of P300,000.00 for both of them;
3. To pay plaintiffs exemplary damages of P100,000.00; and
4. To pay attorney's fees in an amount equivalent to 25% of the total amount of damages
herein awarded;
5. To pay litigation expenses of P10,000.00; plus
6. Costs of the suit.
SO ORDERED.
The heinous acts of respondent Greg Bartelli which gave rise to the award were related in
graphic detail by the trial court in its decision as follows:
The defendant in this case was originally detained in the municipal jail of Makati but was able
to escape therefrom on February 24, 1989 as per report of the Jail Warden of Makati to the
Presiding Judge, Honorable Manuel M. Cosico of the Regional Trial Court of Makati, Branch
136, where he was charged with four counts of Rape and Serious Illegal Detention (Crim.
Cases Nos. 802 to 805). Accordingly, upon motion of plaintiffs, through counsel, summons
was served upon defendant by publication in the Manila Times, a newspaper of general
circulation as attested by the Advertising Manager of the Metro Media Times, Inc., the
publisher of the said newspaper. Defendant, however, failed to file his answer to the
complaint despite the lapse of the period of sixty (60) days from the last publication; hence,
upon motion of the plaintiffs, through counsel, defendant was declared in default and
plaintiffs were authorized to present their evidence ex parte.
In support of the complaint, plaintiffs presented as witnesses the minor Karen E. Salvacion,
her father, Federico N. Salvacion, Jr., a certain Joseph Aguilar and a certain Liberato Madulio,
who gave the following testimony:
Karen took her first year high school in St. Mary's Academy in Pasay City but has recently
transferred to Arellano University for her second year.
In the afternoon of February 4, 1989, Karen was at the Plaza Fair Makati Cinema Square, with
her friend Edna Tangile whiling away her free time. At about 3:30 p.m. while she was finishing
her snack on a concrete bench in front of Plaza Fair, an American approached her. She was
then alone because Edna Tangile had already left, and she was about to go home. (TSN, Aug.
15, 1989, pp. 2 to 5)

The American asked her name and introduced himself as Greg Bartelli. He sat beside her
when he talked to her. He said he was a Math teacher and told her that he has a sister who is
a nurse in New York. His sister allegedly has a daughter who is about Karen's age and who
was with him in his house along Kalayaan Avenue. (TSN, Aug. 15, 1989, pp. 4-5)
The American asked Karen what was her favorite subject and she told him it's Pilipino. He
then invited her to go with him to his house where she could teach Pilipino to his niece. He
even gave her a stuffed toy to persuade her to teach his niece. (Id., pp. 5-6)
They walked from Plaza Fair along Pasong Tamo, turning right to reach the defendant's house
along Kalayaan Avenue. (Id., p. 6)
When they reached the apartment house, Karen noticed that defendant's alleged niece was
not outside the house but defendant told her maybe his niece was inside. When Karen did
not see the alleged niece inside the house, defendant told her maybe his niece was upstairs,
and invited Karen to go upstairs. (Id., p. 7)
Upon entering the bedroom defendant suddenly locked the door. Karen became nervous
because his niece was not there. Defendant got a piece of cotton cord and tied Karen's hands
with it, and then he undressed her. Karen cried for help but defendant strangled her. He took
a packing tape and he covered her mouth with it and he circled it around her head. (Id., p. 7)
Then, defendant suddenly pushed Karen towards the bed which was just near the door. He
tied her feet and hands spread apart to the bed posts. He knelt in front of her and inserted
his finger in her sex organ. She felt severe pain. She tried to shout but no sound could come
out because there were tapes on her mouth. When defendant withdrew his finger it was full
of blood and Karen felt more pain after the withdrawal of the finger. (Id., p. 8)
He then got a Johnson's Baby Oil and he applied it to his sex organ as well as to her sex organ.
After that he forced his sex organ into her but he was not able to do so. While he was doing
it, Karen found it difficult to breathe and she perspired a lot while feeling severe pain. She
merely presumed that he was able to insert his sex organ a little, because she could not see.
Karen could not recall how long the defendant was in that position. (Id. pp. 8-9)
After that, he stood up and went to the bathroom to wash. He also told Karen to take a
shower and he untied her hands. Karen could only hear the sound of the water while the
defendant, she presumed, was in the bathroom washing his sex organ. When she took a
shower more blood came out from her. In the meantime, defendant changed the mattress
because it was full of blood. After the shower, Karen was allowed by defendant to sleep. She
fell asleep because she got tired crying. The incident happened at about 4:00 p.m. Karen had
no way of determining the exact time because defendant removed her watch. Defendant did
not care to give her food before she went to sleep. Karen woke up at about 8:00 o'clock the
following morning. (Id., pp. 9-10)
14
The following day, February 5, 1989, a Sunday, after a breakfast of biscuit and coke at about
8:30 to 9:00 a.m. defendant raped Karen while she was still bleeding. For lunch, they also
took biscuit and coke. She was raped for the second time at about 12:00 to 2:00 p.m. In the
evening, they had rice for dinner which defendant had stored downstairs; it was he who
cooked the rice that is why it looks like "lugaw". For the third time, Karen was raped again
during the night. During those three times defendant succeeded in inserting his sex organ but
she could not say whether the organ was inserted wholly.
Karen did not see any firearm or any bladed weapon. The defendant did not tie her hands
and feet nor put a tape on her mouth anymore but she did not cry for help for fear that she
might be killed; besides, all the windows and doors were closed. And even if she shouted for
help, nobody would hear her. She was so afraid that if somebody would hear her and would
be able to call the police, it was still possible that as she was still inside the house, defendant
might kill her. Besides, the defendant did not leave that Sunday, ruling out her chance to call
for help. At nighttime he slept with her again. (TSN, Aug. 15, 1989, pp. 12-14)
On February 6, 1989, Monday, Karen was raped three times, once in the morning for thirty
minutes after a breakfast of biscuits; again in the afternoon; and again in the evening. At first,
Karen did not know that there was a window because everything was covered by a carpet,
until defendant opened the window for around fifteen minutes or less to let some air in, and
she found that the window was covered by styrofoam and plywood. After that, he again
closed the window with a hammer and he put the styrofoam, plywood, and carpet back. (Id.,
pp. 14-15)
That Monday evening, Karen had a chance to call for help, although defendant left but kept
the door closed. She went to the bathroom and saw a small window covered by styrofoam
and she also spotted a small hole. She stepped on the bowl and she cried for help through
the hole. She cried: "Maawa no po kayo so akin. Tulungan n'yo akong makalabas
dito. Kinidnap ako!" Somebody heard her. It was a woman, probably a neighbor, but she got
angry and said she was "istorbo". Karen pleaded for help and the woman told her to sleep
and she will call the police. She finally fell asleep but no policeman came. (TSN, Aug. 15, 1989,
pp. 15-16)
She woke up at 6:00 o'clock the following morning, and she saw defendant in bed, this time
sleeping. She waited for him to wake up. When he woke up, he again got some food but he
always kept the door locked. As usual, she was merely fed with biscuit and coke. On that day,
February 7, 1989, she was again raped three times. The first at about 6:30 to 7:00 a.m., the
second at about 8:30 9:00, and the third was after lunch at 12:00 noon. After he had raped
her for the second time he left but only for a short while. Upon his return, he caught her
shouting for help but he did not understand what she was shouting about. After she was
raped the third time, he left the house. (TSN, Aug. 15, 1989, pp. 16-17) She again went to the
bathroom and shouted for help. After shouting for about five minutes, she heard many
voices. The voices were asking for her name and she gave her name as Karen Salvacion. After
a while, she heard a voice of a woman saying they will just call the police. They were also
telling her to change her clothes. She went from the bathroom to the room but she did not

change her clothes being afraid that should the neighbors call for the police and the
defendant see her in different clothes, he might kill her. At that time she was wearing a T-shirt
of the American because the latter washed her dress. (Id., p. 16)
Afterwards, defendant arrived and he opened the door. He asked her if she had asked for help
because there were many policemen outside and she denied it. He told her to change her
clothes, and she did change to the one she was wearing on Saturday. He instructed her to tell
the police that she left home and willingly; then he went downstairs but he locked the door.
She could hear people conversing but she could not understand what they were saying. (Id.,
p. 19)
When she heard the voices of many people who were conversing downstairs, she knocked
repeatedly at the door as hard as she could. She heard somebody going upstairs and when
the door was opened, she saw a policeman. The policeman asked her name and the reason
why she was there. She told him she was kidnapped. Downstairs, he saw about five
policemen in uniform and the defendant was talking to them. "Nakikipag-areglo po sa mga
pulis," Karen added. "The policeman told him to just explain at the precinct. (Id., p. 20)
They went out of the house and she saw some of her neighbors in front of the house. They
rode the car of a certain person she called Kuya Boy together with defendant, the policeman,
and two of her neighbors whom she called Kuya Bong Lacson and one Ate Nita. They were
brought to Sub-Station I and there she was investigated by a policeman. At about 2:00 a.m.,
her father arrived, followed by her mother together with some of their neighbors. Then they
were brought to the second floor of the police headquarters. (Id., p. 21)
At the headquarters, she was asked several questions by the investigator. The written
statement she gave to the police was marked as Exhibit A. Then they proceeded to the
National Bureau of Investigation together with the investigator and her parents. At the NBI, a
doctor, a medico-legal officer, examined her private parts. It was already 3:00 in the early
morning of the following day when they reached the NBI. (TSN, Aug. 15, 1989, p. 22) The
findings of the medico-legal officer has been marked as Exhibit B.
She was studying at the St. Mary's Academy in Pasay City at the time of the incident but she
subsequently transferred to Apolinario Mabini, Arellano University, situated along Taft
Avenue, because she was ashamed to be the subject of conversation in the school. She first
applied for transfer to Jose Abad Santos, Arellano University along Taft Avenue near the Light
Rail Transit Station but she was denied admission after she told the school the true reason for
her transfer. The reason for their denial was that they might be implicated in the case. (TSN,
Aug. 15, 1989, p. 46).
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
15
experience which probably, she would always recall until she reaches old age, and he is not
sure if she could ever recover from this experience. (TSN, Sept. 24, 1989, pp. 10-11)
Pursuant to an Order granting leave to publish notice of decision, said notice was published in
the Manila Bulletin once a week for three consecutive weeks. After the lapse of fifteen (15)
days from the date of the last publication of the notice of judgment and the decision of the
trial court had become final, petitioners tried to execute on Bartelli's dollar deposit with
China Banking Corporation. Likewise, the bank invoked Section 113 of Central Bank Circular
No. 960.
Thus, petitioners decided to seek relief from this Court.
The issues raised and the arguments articulated by the parties boil down to two:
May this Court entertain the instant petition despite the fact that original jurisdiction in
petitions for declaratory relief rests with the lower court? Should Section 113 of Central Bank
Circular No. 960 and Section 8 of R.A. 6426, as amended by P.D. 1246, otherwise known as
the Foreign Currency Deposit Act be made applicable to a foreign transient?
Petitioners aver as heretofore stated that Section 113 of Central Bank Circular No. 960
providing that "Foreign currency deposits shall be exempt from attachment, garnishment, or
any other order or process of any court, legislative body, government agency or any
administrative body whatsoever." should be adjudged as unconstitutional on the grounds
that: 1.) it has taken away the right of petitioners to have the bank deposit of defendant Greg
Bartelli y Northcott garnished to satisfy the judgment rendered in petitioners' favor in
violation of substantive due process guaranteed by the Constitution; 2.) it has given foreign
currency depositors an undue favor or a class privilege in violation of the equal protection
clause of the Constitution; 3.) it has provided a safe haven for criminals like the herein
respondent Greg Bartelli y Northcott since criminals could escape civil liability for their
wrongful acts by merely converting their money to a foreign currency and depositing it in a
foreign currency deposit account with an authorized bank; and 4.) The Monetary Board, in
issuing Section 113 of Central Bank Circular No. 960 has exceeded its delegated quasi-
legislative power when it took away: a.) the plaintiffs substantive right to have the claim
sought to be enforced by the civil action secured by way of the writ of preliminary
attachment as granted by Rule 57 of the Revised Rules of Court; b.) the plaintiffs substantive
right to have the judgment credit satisfied by way of the writ of execution out of the bank
deposit of the judgment debtor as granted to the judgment creditor by Rule 39 of the Revised
Rules of Court, which is beyond its power to do so.
On the other hand, respondent Central Bank, in its Comment alleges that the Monetary
Board in issuing Section 113 of CB Circular No. 960 did not exceed its power or authority
because the subject Section is copied verbatim from a portion of R.A. No. 6426 as amended
by P.D. 1246. Hence, it was not the Monetary Board that grants exemption from attachment
or garnishment to foreign currency deposits, but the law (R.A. 6426 as amended) itself; that it
does not violate the substantive due process guaranteed by the Constitution because a.) it

was based on a law; b.) the law seems to be reasonable; c.) it is enforced according to regular
methods of procedure; and d.) it applies to all members of a class.
Expanding, the Central Bank said; that one reason for exempting the foreign currency
deposits from attachment, garnishment or any other order or process of any court, is to
assure the development and speedy growth of the Foreign Currency Deposit System and the
Offshore Banking System in the Philippines; that another reason is to encourage the inflow of
foreign currency deposits into the banking institutions thereby placing such institutions more
in a position to properly channel the same to loans and investments in the Philippines, thus
directly contributing to the economic development of the country; that the subject section is
being enforced according to the regular methods of procedure; and that it applies to all
foreign currency deposits made by any person and therefore does not violate the equal
protection clause of the Constitution.
Respondent Central Bank further avers that the questioned provision is needed to promote
the public interest and the general welfare; that the State cannot just stand idly by while a
considerable segment of the society suffers from economic distress; that the State had to
take some measures to encourage economic development; and that in so doing persons and
property may be subjected to some kinds of restraints or burdens to secure the general
welfare or public interest. Respondent Central Bank also alleges that Rule 39 and Rule 57 of
the Revised Rules of Court provide that some properties are exempted from
execution/attachment especially provided by law and R.A. No. 6426 as amended is such a law,
in that it specifically provides, among others, that foreign currency deposits shall be
exempted from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever.
For its part, respondent China Banking Corporation, aside from giving reasons similar to that
of respondent Central Bank, also stated that respondent China Bank is not unmindful of the
inhuman sufferings experienced by the minor Karen E. Salvacion from the beastly hands of
Greg Bartelli; that it is only too willing to release the dollar deposit of Bartelli which may
perhaps partly mitigate the sufferings petitioner has undergone; but it is restrained from
doing so in view of R.A. No. 6426 and Section 113 of Central Bank Circular No. 960; and that
despite the harsh effect of these laws on petitioners, CBC has no other alternative but to
follow the same.
This Court finds the petition to be partly meritorious.
Petitioner deserves to receive the damages awarded to her by the court. But this petition for
declaratory relief can only be entertained and treated as a petition for mandamus to require
respondents to honor and comply with the writ of execution in Civil Case No. 89-3214.
This Court has no original and exclusive jurisdiction over a petition for declaratory
relief. 2 However, exceptions to this rule have been recognized. Thus, where the petition has
far-reaching implications and raises questions that should be resolved, it may be treated as
one for mandamus. 3
16
Here is a child, a 12-year old girl, who in her belief that all Americans are good and in her
gesture of kindness by teaching his alleged niece the Filipino language as requested by the
American, trustingly went with said stranger to his apartment, and there she was raped by
said American tourist Greg Bartelli. Not once, but ten times. She was detained therein for
four (4) days. This American tourist was able to escape from the jail and avoid punishment.
On the other hand, the child, having received a favorable judgment in the Civil Case for
damages in the amount of more than P1,000,000.00, which amount could alleviate the
humiliation, anxiety, and besmirched reputation she had suffered and may continue to suffer
for a long, long time; and knowing that this person who had wronged her has the money,
could not, however get the award of damages because of this unreasonable law. This
questioned law, therefore makes futile the favorable judgment and award of damages that
she and her parents fully deserve. As stated by the trial court in its decision,
Indeed, after hearing the testimony of Karen, the Court believes that it was
undoubtedly a shocking and traumatic experience she had undergone which could
haunt her mind for a long, long time, the mere recall of which could make her feel
so humiliated, as in fact she had been actually humiliated once when she was
refused admission at the Abad Santos High School, Arellano University, where she
sought to transfer from another school, simply because the school authorities of
the said High School learned about what happened to her and allegedly feared that
they might be implicated in the case.
The reason for imposing exemplary or corrective damages is due to the wanton and
bestial manner defendant had committed the acts of rape during a period of
serious illegal detention of his hapless victim, the minor Karen Salvacion whose only
fault was in her being so naive and credulous to believe easily that defendant, an
American national, could not have such a bestial desire on her nor capable of
committing such a heinous crime. Being only 12 years old when that unfortunate
incident happened, she has never heard of an old Filipino adage that in every forest
there is a
snake, . . . . 4
If Karen's sad fate had happened to anybody's own kin, it would be difficult for him to fathom
how the incentive for foreign currency deposit could be more important than his child's rights
to said award of damages; in this case, the victim's claim for damages from this alien who had
the gall to wrong a child of tender years of a country where he is a mere visitor. This further
illustrates the flaw in the questioned provisions.
It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time when the
country's economy was in a shambles; when foreign investments were minimal and
presumably, this was the reason why said statute was enacted. But the realities of the present
times show that the country has recovered economically; and even if not, the questioned law
still denies those entitled to due process of law for being unreasonable and oppressive. The
intention of the questioned law may be good when enacted. The law failed to anticipate the
iniquitous effects producing outright injustice and inequality such as the case before us.

It has thus been said that
But I also know, 5 that laws and institutions must go hand in hand with the progress
of the human mind. As that becomes more developed, more enlightened, as new
discoveries are made, new truths are disclosed and manners and opinions change
with the change of circumstances, institutions must advance also, and keep pace
with the times. . . We might as well require a man to wear still the coat which fitted
him when a boy, as civilized society to remain ever under the regimen of their
barbarous ancestors.
In his Comment, the Solicitor General correctly opined, thus:
The present petition has far-reaching implications on the right of a national to
obtain redress for a wrong committed by an alien who takes refuge under a law and
regulation promulgated for a purpose which does not contemplate the application
thereof envisaged by the alien. More specifically, the petition raises the question
whether the protection against attachment, garnishment or other court process
accorded to foreign currency deposits by PD No. 1246 and CB Circular No. 960
applies when the deposit does not come from a lender or investor but from a mere
transient or tourist who is not expected to maintain the deposit in the bank for
long.
The resolution of this question is important for the protection of nationals who are
victimized in the forum by foreigners who are merely passing through.
. . . Respondents China Banking Corporation and Central Bank of the Philippines
refused to honor the writ of execution issued in Civil Case No. 89-3214 on the
strength of the following provision of Central Bank Circular No. 960:
Sec. 113. Exemption from attachment. Foreign currency deposits shall be exempt
from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever.
Central Bank Circular No. 960 was issued pursuant to Section 7 of Republic Act No. 6426:
Sec. 7. Rules and Regulations. The Monetary Board of the Central Bank shall
promulgate such rules and regulations as may be necessary to carry out the
provisions of this Act which shall take effect after the publication of such rules and
regulations in the Official Gazette and in a newspaper of national circulation for at
least once a week for three consecutive weeks. In case the Central Bank
promulgates new rules and regulations decreasing the rights of depositors, the
rules and regulations at the time the deposit was made shall govern.
17
The aforecited Section 113 was copied from Section 8 of Republic Act NO. 6426, as amended
by P.D. 1246, thus:
Sec. 8. Secrecy of Foreign Currency Deposits. All foreign currency deposits
authorized under this Act, as amended by Presidential Decree No. 1035, as well as
foreign currency deposits authorized under Presidential Decree No. 1034, are
hereby declared as and considered of an absolutely confidential nature and, except
upon the written permission of the depositor, in no instance shall such foreign
currency deposits be examined, inquired or looked into by any person, government
official, bureau or office whether judicial or administrative or legislative or any
other entity whether public or private: Provided, however, that said foreign
currency deposits shall be exempt from attachment, garnishment, or any other
order or process of any court, legislative body, government agency or any
administrative body whatsoever.
The purpose of PD 1246 in according protection against attachment, garnishment
and other court process to foreign currency deposits is stated in its whereases, viz.:
WHEREAS, under Republic Act No. 6426, as amended by Presidential
Decree No. 1035, certain Philippine banking institutions and branches of
foreign banks are authorized to accept deposits in foreign currency;
WHEREAS, under the provisions of Presidential Decree No. 1034
authorizing the establishment of an offshore banking system in the
Philippines, offshore banking units are also authorized to receive foreign
currency deposits in certain cases;
WHEREAS, in order to assure the development and speedy growth of the
Foreign Currency Deposit System and the Offshore Banking System in the
Philippines, certain incentives were provided for under the two Systems
such as confidentiality of deposits subject to certain exceptions and tax
exemptions on the interest income of depositors who are nonresidents
and are not engaged in trade or business in the Philippines;
WHEREAS, making absolute the protective cloak of confidentiality over
such foreign currency deposits, exempting such deposits from tax, and
guaranteeing the vested rights of depositors would better encourage the
inflow of foreign currency deposits into the banking institutions
authorized to accept such deposits in the Philippines thereby placing such
institutions more in a position to properly channel the same to loans and
investments in the Philippines, thus directly contributing to the economic
development of the country;

Thus, one of the principal purposes of the protection accorded to foreign currency
deposits is "to assure the development and speedy growth of the Foreign Currency
Deposit system and the Offshore Banking in the Philippines" (3rd Whereas).
The Offshore Banking System was established by PD No. 1034. In turn, the purposes of PD No.
1034 are as follows:
WHEREAS, conditions conducive to the establishment of an offshore banking
system, such as political stability, a growing economy and adequate communication
facilities, among others, exist in the Philippines;
WHEREAS, it is in the interest of developing countries to have as wide access as
possible to the sources of capital funds for economic development;
WHEREAS, an offshore banking system based in the Philippines will be
advantageous and beneficial to the country by increasing our links with foreign
lenders, facilitating the flow of desired investments into the Philippines, creating
employment opportunities and expertise in international finance, and contributing
to the national development effort.
WHEREAS, the geographical location, physical and human resources, and other
positive factors provide the Philippines with the clear potential to develop as
another financial center in Asia;
On the other hand, the Foreign Currency Deposit system was created by PD. No. 1035. Its
purposes are as follows:
WHEREAS, the establishment of an offshore banking system in the Philippines has
been authorized under a separate decree;
WHEREAS, a number of local commercial banks, as depository bank under the
Foreign Currency Deposit Act (RA No. 6426), have the resources and managerial
competence to more actively engage in foreign exchange transactions and
participate in the grant of foreign currency loans to resident corporations and firms;
WHEREAS, it is timely to expand the foreign currency lending authority of the said
depository banks under RA 6426 and apply to their transactions the same taxes as
would be applicable to transaction of the proposed offshore banking units;
It is evident from the above [Whereas clauses] that the Offshore Banking System and the
Foreign Currency Deposit System were designed to draw deposits from
foreign lenders and investors (Vide second Whereas of PD No. 1034; third Whereas of PD No.
18
1035). It is these deposits that are induced by the two laws and given protection and
incentives by them.
Obviously, the foreign currency deposit made by a transient or a tourist is not the kind of
deposit encouraged by PD Nos. 1034 and 1035 and given incentives and protection by said
laws because such depositor stays only for a few days in the country and, therefore, will
maintain his deposit in the bank only for a short time.
Respondent Greg Bartelli, as stated, is just a tourist or a transient. He deposited his dollars
with respondent China Banking Corporation only for safekeeping during his temporary stay in
the Philippines.
For the reasons stated above, the Solicitor General thus submits that the dollar deposit of
respondent Greg Bartelli is not entitled to the protection of Section 113 of Central Bank
Circular No. 960 and PD No. 1246 against attachment, garnishment or other court processes. 6
In fine, the application of the law depends on the extent of its justice. Eventually, if we rule
that the questioned Section 113 of Central Bank Circular No. 960 which exempts from
attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever, is applicable to a foreign
transient, injustice would result especially to a citizen aggrieved by a foreign guest like
accused Greg Bartelli. This would negate Article 10 of the New Civil Code which provides that
"in case of doubt in the interpretation or application of laws, it is presumed that the
lawmaking body intended right and justice to prevail. "Ninguno non deue enriquecerse
tortizeramente con dano de otro." Simply stated, when the statute is silent or ambiguous, this
is one of those fundamental solutions that would respond to the vehement urge of
conscience. (Padilla vs. Padilla, 74 Phil. 377).
It would be unthinkable, that the questioned Section 113 of Central Bank No. 960 would be
used as a device by accused Greg Bartelli for wrongdoing, and in so doing, acquitting the
guilty at the expense of the innocent.
Call it what it may but is there no conflict of legal policy here? Dollar against Peso?
Upholding the final and executory judgment of the lower court against the Central Bank
Circular protecting the foreign depositor? Shielding or protecting the dollar deposit of a
transient alien depositor against injustice to a national and victim of a crime? This situation
calls for fairness against legal tyranny.
We definitely cannot have both ways and rest in the belief that we have served the ends of
justice.
IN VIEW WHEREOF, the provisions of Section 113 of CB Circular No. 960 and PD No. 1246,
insofar as it amends Section 8 of R.A. No. 6426 are hereby held to be INAPPLICABLE to this
case because of its peculiar circumstances. Respondents are hereby REQUIRED to COMPLY

with the writ of execution issued in Civil Case No. 89-3214, "Karen Salvacion, et al. vs. Greg
Bartelli y Northcott, by Branch CXLIV, RTC Makati and to RELEASE to petitioners the dollar
deposit of respondent Greg Bartelli y Northcott in such amount as would satisfy the
judgment.
SO ORDERED.
FACTS:
Greg Bartelli, an American tourist, was arrested for committing four counts of rape and
serious illegal detention against Karen Salvacion. Police recovered from him several dollar
checks and a dollar account in the China Banking Corp. He was, however, able to escape from
prison. In a civil case filed against him, the trial court awarded Salvacion moral, exemplary
and attorneys fees amounting to almost P1,000,000.00.
Salvacion tried to execute the judgment on the dollar deposit of Bartelli with the China
Banking Corp. but the latter refused arguing that Section 11 of Central Bank Circular No. 960
exempts foreign currency deposits from attachment, garnishment, or any other order or
process of any court, legislative body, government agency or any administrative body
whatsoever. Salvacion therefore filed this action for declaratory relief in the Supreme Court.
ISSUE: Should Section 113 of Central Bank Circular No. 960 and Section 8 of Republic Act No.
6426, as amended by PD 1246, otherwise known as the Foreign Currency Deposit Act be
made applicable to a foreign transient?
HELD: NO.
The provisions of Section 113 of Central Bank Circular No. 960 and PD No. 1246, insofar as it
amends Section 8 of Republic Act No. 6426, are hereby held to be INAPPLICABLE to this case
because of its peculiar circumstances. Respondents are hereby required to comply with the
writ of execution issued in the civil case and to release to petitioners the dollar deposit of
Bartelli in such amount as would satisfy the judgment.
Supreme Court ruled that the questioned law makes futile the favorable judgment and award
of damages that Salvacion and her parents fully deserve. It then proceeded to show that the
economic basis for the enactment of RA No. 6426 is not anymore present; and even if it still
exists, the questioned law still denies those entitled to due process of law for being
unreasonable and oppressive. The intention of the law may be good when enacted. The law
failed to anticipate the iniquitous effects producing outright injustice and inequality such as
the case before us.
19
The SC adopted the comment of the Solicitor General who argued that the Offshore Banking
System and the Foreign Currency Deposit System were designed to draw deposits from
foreign lenders and investors and, subsequently, to give the latter protection. However, the
foreign currency deposit made by a transient or a tourist is not the kind of deposit
encouraged by PD Nos. 1034 and 1035 and given incentives and protection by said laws
because such depositor stays only for a few days in the country and, therefore, will maintain
his deposit in the bank only for a short time. Considering that Bartelli is just a tourist or a
transient, he is not entitled to the protection of Section 113 of Central Bank Circular No. 960
and PD No. 1246 against attachment, garnishment or other court processes.
Further, the SC said: In fine, the application of the law depends on the extent of its justice.
Eventually, if we rule that the questioned Section 113 of Central Bank Circular No. 960 which
exempts from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever, is applicable to a
foreign transient, injustice would result especially to a citizen aggrieved by a foreign guest like
accused Greg Bartelli. This would negate Article 10 of the New Civil Code which provides that
in case of doubt in the interpretation or application of laws, it is presumed that the
lawmaking body intended right and justice to prevail.
NOTES:
On February 4, 1989, Greg Bartelli y Northcott, an American tourist, coaxed and lured
petitioner Karen Salvacion, then 12 years old to go with him to his apartment. Therein, Greg
Bartelli detained Karen Salvacion for four days, or up to February 7, 1989 and was able to
rape the child once on February 4, and three times each day on February 5, 6, and 7, 1989.
On February 7, 1989, after policemen and people living nearby, rescued Karen, Greg Bartelli
was arrested and detained at the Makati Municipal Jail. The policemen recovered from
Bartelli the following items: 1.) Dollar Check No. 368, Control No. 021000678-1166111303,
US 3,903.20; 2.) COCOBANK Bank Book No. 104-108758-8 (Peso Acct.); 3.) Dollar Account
China Banking Corp., US$/A#54105028-2; 4.) ID-122-30-8877; 5.) Philippine Money (P234.00)
cash; 6.) Door Keys 6 pieces; 7.) Stuffed Doll (Teddy Bear) used in seducing the complainant.
Facts:
On February 4-7, 1989, Greg Bartelli y Northcott, an American tourist, detained and
repeatedly raped Karen Salvacion, a 12-year old the victim, in the apartment of the accused
in Makati City. That, on the 4th day of detention, Karen was finally found by the policemen
after a neighbor heard her crying and screaming for help. The accused was immediately
arrested within the premises of the building, and eventually brought to Makati Municipal Jail.
 20

After thorough investigation and medical examination, the victim, as represented by her
parents, together with the Fiscal filed criminal cases against Greg Bartelli y Northcott for
Serious Illegal Detention and for Four (4) counts of Rape. The petitioners also filed a separate
civil action for damages with preliminary attachment against the accused that had several
dollar accounts in COCOBANK and China Banking Corporation. On February 24, 1989, the day
there was a hearing for Bartellis petition for bail the latter escaped from jail. The deputy
sheriff served Notice of Garnishment on China Banking Corporation but the latter declined to
furnish a copy as it invoked R.A. No. 1405. The sheriff again sent a letter stating that the
garnishment did not violate the bank secrecy law as it was legally made by virtue of a court
order but China Banking Corporation invoked
foreign transient , injustice would result especially to a citizen aggrieved by a foreign guest
like accused Greg Bartelli. Article 10 of the New Civil Code provides that in case of doubt in
the interpretation or application of laws, it is presumed that the lawmaking body intended
right and justice to prevail . Simply stated, when the statute is ambiguous, this is one of
those fundamental solutions that would respond to vehement urge of conscience.
It would be unthinkable that Section 113 of CB circular 960 would be used as a device by the
accused for wrong doing, and in so doing, acquitting the guilty as the expense of the
innocent. The situation calls for fairness against legal tyranny. We definitely cannot have both
ways and rest in the belief that we have served the ends of justice.

Section 113 of Central Bank Circular No. 960, that dollar accounts are exempt from
attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body, whatsoever
. The Central Bank sent a reply after a demand from the court asking if the Section 113 of
Central Bank Circular No.960 is absolute in nature of which it replied in affirmative. After the
accused was declared in default, the court rendered a judgment in favor of the petitioners
based on the heinous acts of the accused and the grave effects on social, moral and
psychological aspects on the part of the petitioners. China Banking Corporation refused the
Writ of Execution of the court. Thus; Petitioners file a Petition for Relief in the Supreme Court.
IN VIEW WHEREOF, the provisions of Section 113 of CB Circular No.960 and PD No.1246,
insofar as it amends Section8 of RA 6426 are hereby held to be INAPPLICABLE to this case
because of its peculiar circumstances. Respondents are hereby REQUIRED to COMPLY with
the writ of execution issued in Civil Case No. 89-3214 RTC Makati, and to RELEASE to
petitioners the dollar deposit of respondent Greg Bartelli y Nothcott in such amount as would
satisfy the judgment.

Issues: Whether the dollar accounts of the Accused is absolutely exempt from attachment,
garnishment or any other order or process of any court?

Held:

While it is true that the protective cloak of confidentiality over foreign deposit accounts
would better encourage the inflow of foreign currency deposits, lending capacity of the
government and would help financial stability and the national development, what would be
the relief of someone claiming damages against a person with foreign deposit accounts?
More so against a person who heinously and feloniously committed an offense in the territory
of the Philippines? As in this case, the accused deemed liable for the damages based of the
heinous acts according to the testimonies of the victim and the witnesses. It is the duty of the
government to encourage foreign currency deposits and to comply by giving confidentiality
but in the correct argument of the Solicitor General, foreign currency deposits of a tourist or
transient is not the one encouraged by PD Nos. 1034 and 1305 on the ground that said
accounts is temporary and only for a short period of time. The application of the law depends
on the extent of its justice. If we rule Section 113 of Central Bank Circular No.960which
exempts from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever, is applicable to
 21

EN BANC b. Urban bank Corp. MC # 34181 dated November 8, 1999 in

the amount of P10,875,749.43;
JOSEPH VICTOR G. EJERCITO, G.R. Nos. 157294-95 c. Urban Bank MC # 34182 dated November 8, 1999 in the
Petitioner, . amount of P42,716,554.22;
Promulgated: d. Urban Bank Corp. MC # 37661 dated November 23, 1999 in
- versus - the amount of P54,161,496.52;
November 30, 2006
SANDIGANBAYAN (SPECIAL DIVISION) AND PEOPLE 5. Trust Agreement dated January 1999:
OF THEPHILIPPINES, Trustee: Joseph Victor C. Ejercito
Respondents. Nominee: URBAN BANK-TRUST DEPARTMENT
Special Private Account No. (SPAN) 858; and
x--------------------------------------------------x 6. Ledger of the SPAN # 858.

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

SPAN No. 858
CARPIO MORALES, J.:
1. Signature Cards; and
2. Statement of Account/Ledger
The present petition for certiorari under Rule 65 assails the Sandiganbayan Resolutions dated
February 7 and 12, 2003 denying petitioner Joseph Victor G. Ejercitos Motions to Quash III. Urban Bank Managers Check and their corresponding Urban Bank Managers Check
Application Forms, as follows:
Subpoenas Duces Tecum/Ad Testificandum, and Resolution dated March 11, 2003 denying his
Motion for Reconsideration of the first two resolutions. 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;
The three resolutions were issued in Criminal Case No. 26558, People of the Philippines v.
4. MC # 039978 dated January 18, 2000 in the amount of P1,000,000.00;
Joseph Ejercito Estrada, et al., for plunder, defined and penalized in R.A. 7080, AN ACT
DEFINING AND PENALIZING THE CRIME OF PLUNDER.
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
In above-stated case of People v. Estrada, et al., the Special Prosecution Panel [1] filed on
Equitable-PCI Bank to produce statements of account pertaining to certain accounts in the
January 20, 2003 before the Sandiganbayan a Request for Issuance of Subpoena Duces Tecum
name of Jose Velarde and to testify thereon.
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
The Sandiganbayan granted both requests by Resolution of January 21, 2003 and subpoenas
documents during the hearings scheduled on January 22 and 27, 2003:
were accordingly issued.
I. For Trust Account No. 858;
1. Account Opening Documents; The Special Prosecution Panel filed still another Request for Issuance of Subpoena Duces
2. Trading Order No. 020385 dated January 29, 1999;
Tecum/Ad Testificandum dated January 23, 2003 for the President of EIB or his/her
3. Confirmation Advice TA 858;
4. Original/Microfilm copies, including the dorsal side, of the following: 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
a. Bank of Commerce MC # 0256254 in the amount
of P2,000,000.00; 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, quotedverbatim:
Your Honors:
It is with much respect that I write this court relative to the concern of
subpoenaing the undersigneds bank account which I have learned
through the media.
I am sure the prosecution is aware of our banking secrecy laws everyone
supposed to observe. But, instead of prosecuting those who may have
breached such laws, it seems it is even going to use supposed evidence
which I have reason to believe could only have been illegally obtained.
The prosecution was not content with a general request. It even lists and
identifies specific documents meaning someone else in the bank illegally
released confidential information.
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.
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 prosecutions
request for the issuance of subpoena concerning my accounts. (Emphasis
supplied)
22
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.
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.
 23

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;
Petitioners Motion for Reconsideration dated February 24, 2003 seeking a reconsideration of
the Resolutions of February 7 and 12, 2003 having been denied by Resolution of March 11,
2003, petitioner filed the present petition.
Raised as issues are:
1. Whether petitioners Trust Account No. 858 is covered by the term deposit
as used in R.A. 1405;
2. Whether petitioners Trust Account No. 858 and Savings Account No. 0116-
17345-9 are excepted from the protection of R.A. 1405; and

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 datedJanuary
31, 2003 directed to Aurora Baldoz be quashed for the same reasons which he cited in the
[4]
Motion to Quash he had earlier filed.
3. Whether the extremely-detailed information contained in the Special
Prosecution Panels requests for subpoena was obtained through a prior
illegal disclosure of petitioners bank accounts, in violation of the fruit of the
poisonous tree doctrine.
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.

On the same day, February 7, 2003, the Sandiganbayan issued a Resolution denying The policy behind the law is laid down in Section 1:
petitioners Motion to Quash Subpoenae Duces Tecum/Ad Testificandum datedJanuary 28,
2003. 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
Subsequently or on February 12, 2003, the Sandiganbayan issued a Resolution denying properly utilized by banks in authorized loans to assist in the economic
petitioners Urgent Motion to Quash Subpoena Duces Tecum/Ad Testificandum development of the country. (Underscoring supplied)

dated February 7, 2003.


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
[6]
investment of funds by Urban Bank for and in behalf of petitioner. 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
caseswhere 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.
24
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 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]
25
The crime of bribery and the overt acts constitutive of plunder are crimes committed by
public officers, and in either case the noble idea that a public office is a public trust and any
person who enters upon its discharge does so with the full knowledge that his life, so far as
relevant to his duty, is open to public scrutiny applies with equal force.
Plunder being thus analogous to bribery, the exception to R.A. 1405 applicable in cases of
bribery must also apply to cases of plunder.
Respecting petitioners claim that the money in his bank accounts is not the subject matter of
the litigation, the meaning of the phrase subject matter of the litigation as used in R.A. 1405
is explained in Union Bank of the Philippines v. Court of Appeals,[9] thus:
Petitioner contends that the Court of Appeals confuses the cause of
action with the subject of the action. In Yusingco v. Ong Hing Lian,
petitioner points out, this Court distinguished the two concepts.
x x x The cause of action is the legal wrong threatened
or committed, while the object of the action is to
prevent or redress the wrong by obtaining some legal
relief; but the subject of the action is neither of these
since it is not the wrong or the relief demanded, the
subject of the action is the matter or thing with
respect to which the controversy has arisen,
concerning which the wrong has been done, and this
ordinarily is the property or the contract and its
subject matter, or the thing in dispute.
The argument is well-taken. We note with approval the difference
between the subject of the action from the cause of action. We also find
petitioners definition of the phrase subject matter of the action is
consistent with the term subject matter of the litigation, as the latter is
used in the Bank Deposits Secrecy Act.
In Mellon Bank, N.A. v. Magsino , where the petitioner bank inadvertently
caused the transfer of the amount of US$1,000,000.00 instead of only
US$1,000.00, the Court sanctioned the examination of the bank
accounts where part of the money was subsequently caused to be
deposited:
x x x Section 2 of [Republic Act No. 1405] allows the
disclosure of bank deposits in cases where the money
deposited is the subject matter of the

litigation. Inasmuch as Civil Case No. 26899 is aimed
at recovering the amount converted by the Javiers
for their own benefit, necessarily, an inquiry into the
whereabouts of the illegally acquired amount
extends to whatever is concealed by being held or
recorded in the name of persons other than the one
responsible for the illegal acquisition.
Clearly, Mellon Bank involved a case where the money deposited was the
subject matter of the litigation since the money deposited was the very
thing in dispute. x x x (Emphasis and underscoring supplied)
The plunder case now pending with the Sandiganbayan necessarily involves an inquiry into
the whereabouts of the amount purportedly acquired illegally by former President Joseph
Estrada.
In light then of this Courts pronouncement in Union Bank, the subject matter of the litigation
cannot be limited to bank accounts under the name of President Estrada alone, but must
include those accounts to which the money purportedly acquired illegally or a portion thereof
was alleged to 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 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:
26
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.
Petitioners 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 Tecumaddressed to Urban Bank. (Attachment 1-b) It
should be noted that the description of the documents sought to be
produced at that time included that of numbered accounts 727, 737, 747,
757, 777 and 858 and included such names as Jose Velarde, Joseph E.
Estrada, Laarni Enriquez, Guia Gomez, Joy Melendrez, Peachy Osorio,
Rowena Lopez, Kevin or Kelvin Garcia. The subpoenadid not single out
account 858.
Thus, on February 13, 2001, PDIC, as receiver of Urban Bank, issued a certification
as to the availability of bank documents relating to A/C 858 and T/A 858
and the non-availability of bank records as to the other accounts named
in the subpoena. (Attachments 2, 2-1 and 2-b)
Based on the certification issued by PDIC, the Office of the Ombudsman
on February 16, 2001 again issued a Subpoena Duces Tecum directed to
Ms. Corazon dela Paz, as Interim Receiver, directing the production of
documents pertinent to account A/C 858 and T/C 858. (Attachment 3)
In compliance with the said subpoena dated February 16, 2001, Ms. Dela Paz, as
interim receiver, furnished the Office of the Ombudsman certified copies
of documents under cover latter datedFebruary 21, 2001:
1. 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;
27
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 mangers checks,
detailed in the Subpoena Duces Tecum dated March 7, 2001. (Attachment
5)
PDIC again complied with the said Subpoena Duces Tecum dated March 7,
2001 and provided copies of the managers checks thus requested under
cover letter dated March 16, 2001.(Attachment 6)[14] (Emphasis in the
original)
The Sandiganbayan credited the foregoing account of respondent People. [15] The Court finds
no reason to disturb this finding of fact by the Sandiganbayan.
The Marquez ruling notwithstanding, the above-described examination by the Ombudsman
of petitioners bank accounts, conducted before a case was filed with a court of competent
jurisdiction, was lawful.
For the Ombudsman issued the subpoenas bearing on the bank accounts of petitioner about
four months before Marquez was promulgated on June 27, 2001.
While judicial interpretations of statutes, such as that made in Marquez with respect to R.A.
No. 6770 or the Ombudsman Act of 1989, are deemed part of the statute as of the date it
was originally passed, the rule is not absolute.
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
[18]
known as the Tanodbayan, 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 Tanodbayans
issuance of subpoena duces tecum of bank records in the name of persons other than the one
who was charged, this Court, citing P.D. 1630,[19] Section 10, the relevant part of which states:
(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 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
28
(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 Ombudsmans 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 inMorales 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.
29
Since conducting such an inquiry would, however, only result in the disclosure of the same
documents to the Ombudsman, this Court, in avoidance of what would be a time-wasteful
and circuitous way of administering justice,[24] upholds the challenged subpoenas.
Respecting petitioners claim that the Sandiganbayan violated his right to due process as he
was neither notified of the requests for the issuance of the subpoenas nor of the grant
thereof, suffice it to state that the defects were cured when petitioner ventilated his
arguments against the issuance thereof through his earlier quoted letter addressed to the
Sandiganbayan and when he filed his motions to quash before the Sandiganbayan.
IN SUM, the Court finds that the Sandiganbayan did not commit grave abuse of discretion in
issuing the challenged subpoenas for documents pertaining to petitioners 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 petitioners bank accounts is said to form part of the subject matter of
the same plunder case.
2. The fruit of the poisonous tree principle, which states that once the primary source (the
tree) is shown to have been unlawfully obtained, any secondary or derivative evidence (the
fruit) derived from it is also inadmissible, does not apply in this case. In the first place, R.A.
1405 does not provide for the application of this rule. Moreover, there is no basis for applying
the same in this case since the primary source for the detailed information regarding
petitioners bank accounts the investigation previously conducted by the Ombudsman was
lawful.
3. At all events, even if the subpoenas issued by the Sandiganbayan were quashed, the
Ombudsman may conduct on its own the same inquiry into the subject bank accounts that it

earlier conducted last February-March 2001, there being a plunder case already pending
against former President Estrada. To quash the challenged subpoenas would, therefore, be
pointless since the Ombudsman may obtain the same documents by another
route. Upholding the subpoenas avoids an unnecessary delay in the administration of justice.
WHEREFORE, the petition is DISMISSED. The Sandiganbayan Resolutions dated February 7
and 12, 2003 and March 11, 2003 are upheld.
The Sandiganbayan is hereby directed, consistent with this Courts 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.
RA 1405 does not provide for the application of this rule. At all events, the Ombudsman is
not barred from requiring the production of documents based solely on information obtained
by it from sources independentof its previous inquiry.
Facts:
Joseph Victor G. Ejercito is the owner of Trust Account No. 858 which was originally opened
at Urban Bank but which is now maintained at Export and Industry Bank, which is the
purchaser and owner now of the former Urban Bank and Urbancorp Investment, Inc. He is
also the owner of Savings Account No. 0116-17345-9 which was originally opened at Urban
Bank but which is now maintained at Export and Industry Bank, the purchaser and owner of
the former Urban Bank and Urbancorp Investment, Inc.
Estrada was subsequently charged with Plunder. The Sandiganbayan a Request for Issuance
of Subpoena Duces Tecum for the issuance of a subpoena directing the President of Export
and Industry Bank (EIB, formerly Urban Bank) or his/her authorized representative to produce
various document related to the investigation.
The Special Prosecution Panel also filed a Request for Issuance of Subpoena Duces Tecum/Ad
Testificandum directed to the authorized representative of Equitable-PCI Bank to produce
statements of account pertaining to certain accounts in the name of Jose Velarde and to
testify thereon.
The Sandiganbayan granted both requests by Resolution and subpoenas were accordingly
issued. The Special Prosecution Panel filed still another Request for Issuance of Subpoena
30
Duces Tecum/Ad Testificandum for the President of EIB or his/her authorized representative
to produce the same documents subject of the first Subpoena Duces Tecum and to testify
thereon on the hearings scheduled and subsequent dates until completion of the testimony.
The request was likewise granted by the Sandiganbayan. A Subpoena Duces Tecum/Ad
Testificandum was accordingly issued. Ejercito filed various motions to quash the various
Subpoenas Duces Tecum/Ad Testificandum previously issued. In his Motion to Quash, he
claimed that his bank accounts are covered by R.A. No. 1405 (The Secrecy of Bank Deposits
Law) and do not fall under any of the exceptions stated therein. He further claimed that the
specific identification of documents in the questioned subpoenas, including details on dates
and amounts, could only have been made possible by an earlier illegal disclosure thereof by
the EIB and the Philippine Deposit Insurance Corporation (PDIC) in its capacity as receiver of
the then Urban Bank. The disclosure being illegal, he concluded, the prosecution in the case
may not be allowed to make use of the information. Before the motion was resolved by the
Sandiganbayan, the prosecution filed another
Issue: Whether or not a Trust Account is covered by the term deposit as used in R.A. 1405;
Held:
R.A. 1405 is broad enough to cover Trust Account No. 858. However, the protection afforded
by the law is not absolute. There being recognized exceptions thereto, as above-quoted
Section 2 provides. In the present case, two exceptions apply, to wit: (1) the examination of
bank accounts is upon order of a competent court in cases of bribery or dereliction of duty of
public officials, and (2) the money deposited or invested is the subject matter of the litigation.
Ejercito contends that since plunder is neither bribery nor dereliction of duty, his accounts
are not excepted from the protection of R.A. 1405.
Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no
reason is seen why these two classes of cases cannot be excepted from the rule making bank
deposits confidential. The policy as to one cannot be different from the policy as to the other.
This policy expresses the notion that a public office is a public trust and any person who
enters upon its discharge does so with the full knowledge that his life, so far as relevant to his
duty, is open to public scrutiny. Undoubtedly, cases for plunder involve unexplained wealth.
The crime of bribery and the overt acts constitutive of plunder are crimes committed by
public officers, noble idea that a public office is a public trust and any person who enters
upon its discharge does so with the full knowledge that his life, so far as relevant to his duty,
is open to public scrutiny applies with equal force.
Also, the plunder case now pending with the Sandiganbayan necessarily involves an inquiry
into the whereabouts of the amount purportedly acquired illegally by former President
Joseph Estrada. Republic Act No. 1405 allows the disclosure of bank deposits in cases where
 31

the money deposited is the subject matter of the litigation. Hence, these accounts are no
longer protected by the Secrecy of Bank Deposits Law, there being two exceptions to the said
law applicable in this case, namely: (1)the examination of bank accounts is upon order of a
competent court in cases of bribery or dereliction of duty of public officials, and (2)the money
deposited or invested is the subject matter of the litigation. Exception (1) applies since the
plunder case pending against former President Estrada is analogous to bribery or dereliction
of duty, while exception (2) applies because the money deposited in Ejercitos bank accounts
is said to form part of the subject matter of the same plunder case. The fruit of the
poisonous tree doctrine or the exclusionary rule is inapplicable in cases of unlawful
examination of bank accounts.

EN BANC
G.R. No. L-21146 September 20, 1965
RURAL BANK OF LUCENA, INC., petitioner,
vs.
HON. FRANCISCO ARCA, as Judge of the Court of First Instance of Manila, Branch 1, and
CENTRAL BANK OF THE PHILIPPINES, respondents.
REYES, J.B.L., J.:
The Rural Bank of Lucena, Inc., a banking corporation organized under Republic Act No. 720,
instituted, on June 22, 1961, in the Court of First Instance of Manila (Civil Case No. 47345) an
action to collect damages and to enjoin the Central Bank from enforcing Resolution No. 928
of its Monetary Board, finding that the Rural Bank of Lucena (Lucena for short), through its
officers, directors, and employees, had committed acts substantially prejudicial to the
Government, depositors, and creditors, and directing Lucena to reorganize its board of
directors; to refrain from granting or renewing loans, or accept new deposits, and not to issue
drafts or make disbursements without the approval of the supervising Central Bank
examiners, and threatening Lucena that its management would be taken over if the latter
should fail to comply with the resolution. After issue joined and trial of the case, and while
the litigation was still undecided by the Court of First Instance, the Monetary Board, having
been informed that the Director of its Department of Rural Banks recommended the
liquidation of the Rural Bank of Lucena, adopted on February 2, 1962 its Resolution No. 122
(Petition, Annex "C")
To request the Solicitor General, pursuant to Section 29 of Republic Act No. 265, to
file a petition in the proper courts for the liquidation of the affairs of the Rural Bank
of Lucena, Inc.
Notice was given by Central Bank officials, on February 10, 1962 that the Lucena bank was
temporarily closed pending final decision of the Court, and that business be transacted with
Central Bank representatives only.
Two days later (February 12, 1962), the Lucena bank filed suit in the Court of First Instance of
Quezon (Tayabas) annual Resolution 122 of the Monetary Board (Case No. 6471) and enjoin
its enforcement; and on February 14 the court issued ex parte a writ of preliminary injunction
to such effect.
On the same day, the Court of First Instance of Manila, per Judge, now Court of Appeals
Justice, Magno Gatmaitan of Branch XIV, decided Case No. 47345, enjoining enforcement of
Resolution No. 928 of the Monetary Board, for having been issued without the prior hearing
32
prescribed by section 10 of the Rural Bank Act, and ordering the Central Bank to pay
P5,000.00 damages and costs. The Central Bank appealed.
Upon the other hand, the Court of First Instance of Quezon Province, in its Case No. 6741, on
February, 24, 1962, dissolved its preliminary injunction against the enforcement of Resolution
122 of the Monetary Board. Other than filing a motion for reconsideration (ultimately denied
on January 9, 1963) the Lucena bank took no other steps to prosecute the case it had filed.
On the 31st of March 1962, invoking section 29 of Republic Act 265, the Central Bank, as
liquidator, petitioned the Court of First Instance of Manila for assistance in the liquidation of
the Lucena bank (Civil Case No. 50019). Upon motion, and after hearing the parties, Judge
Arca issued on interlocutory order on March 28, 1963, the dispositive portion of which is to
the following effect (Petition, Annex "D"):
The Rural Bank of Lucena thru its duly authorized officers or representatives, is
hereby ordered to turn over to the Central Bank, thru its duly authorized
representative, within a period of five (5) days from receipt of copy of this order,
the physical possession of all of said Rural Bank of Lucena's assets, properties and
papers. Should the Rural Bank of Lucena or its officers fail to comply with the above
order within the period indicated herein, the Central Bank, thru its authorized
representatives, is hereby authorized to take actual and physical possession of all
said assets, properties and papers of the Rural Bank of Lucena, duly inventoried in
the presence of the Provincial Fiscal, the Provincial Commander, the Provincial
Treasurer, and the Provincial Auditor of Quezon province, or their duly authorized
representatives.
The Rural Bank of Lucena resorted to this Court on certiorari, claiming that Judge Arca gravely
abused his discretion in issuing the above order, in that
(a) it interferes with the immediately executory judgment of Judge Gatmaitan in
Case No. 47345 of the Court of First Instance of Manila;
(b) Section 29 of the Central Bank Act (R.A. 265) does not apply;
(c) there was no prior valid take over of assets nor due hearing of the liquidated
Bank;
(d) Judge Gatmaitan's decision constitutes a judicial review of the Monetary Board's
action that cannot be nullified by the challenged order of Judge Area; and
(e) the turn over should not be ordered before trial on the merits.1awphl.nt

This Court issued a temporary restraining order until April 25, 1963, but the same was not
renewed when it expired.
We see no irreconcilable conflict between section 10 (as amended) of Republic Act No. 720
(Rural Banks Act) and section 29 of Republic Act No. 265 (Central Bank Act). The former
provides in substance as follows:
The director of the Department of the Central Bank designated by the Monetary
Board to supervise Rural Banks ... upon proof that the Rural Bank or its board of
directors or officers are conducting and managing the affairs of the bank in a
manner contrary to laws, orders, instructions, rules and regulations promulgated by
the Monetary Board or in any manner substantially prejudicial to the interests of
the government, depositors or creditors, to take over the management of such
bank when specifically authorized to do so by the Monetary Board after due
hearing until a new board of directors and officers are elected and qualified. ...
It is easily seen that what this section authorized is the take over of the management by the
Central Bank, until the governing body of the offending Rural Bank is recognized with a view
to assuring compliance by it with the laws and regulations.
Upon the other hand, section 29 6f the Central Bank Act (R. A. 265) has in view a much more
drastic step, the liquidation of a rural bank by taking over its assets and converting them into
money to pay off its creditors. Said section prescribes:
SEC. 29. Proceedings upon insolvency. Whenever, upon examination by the
Superintendent or his examiners or agents into the condition of any banking
institution, it shall be disclosed that the condition of the same is one of insolvency,
or that its continuance in business would involve probable loss to its depositors or
creditors, it shall be the duty of the Superintendent forthwith, in writing, to inform
the Monetary Board of the facts, and the Board, upon finding the statement of the
Superintendent to be true, shall forthwith forbid the institution to do business in
the Philippines and shall take charge of its assets and proceeds according to law.
The Monetary Board shall thereupon determine within thirty days whether the
institution may be reorganized or otherwise placed in such a condition so that it
may be permitted to resume business with safety to its creditors and shall prescribe
the conditions under which such resumption of business shall take place. In such
case the expenses and fee in the administration of the institution shall be
determined by the Board and shall be paid to the Central Bank out of the assets of
such banking institution.
At any time within ten days after the Monetary Board has taken charge of the
assets of any banking institution, such institution may apply to the Court of First
Instance for an order requiring the Monetary Board to show cause why it should
33
not be enjoined from continuing such charge of its assets, and the court may direct
the Board to refrain from further proceedings and to surrender charge of its assets.
If the Monetary Board shall determine that the banking institution cannot resume
business with safety to its creditors, it shall, by the Solicitor General, file a petition
in the Court of First Instance reciting the proceedings which have been taken and
praying the assistance and supervision of the court in the liquidation of the affairs
of the same. The Superintendent shall thereafter, upon order of the Monetary
Board and under the supervision of the court and with all convenient speed,
convert the assets of the banking institution to money.
Considering that section 27 of the Rural Banks law (R.A. No. 720) expressly declares that
The provisions of Republic Acts numbered 265 and 337, in so far as applicable and
not in conflict with any provision of this Act, are hereby made a part of this Act.
we find no room for questioning the applicability of section 29 of Republic Act No. 265
(Central Bank Act) to rural banks organized under Republic Act 720, whenever the Monetary
Board should find that the rural bank affected is insolvent, or that its continuance in business
would involve probable loss to its depositors or creditors, and that it cannot resume business
with safety.
It follows that on the assumption that under section 10 of the Rural Banks Act the Monetary
Board may not take over the management of a rural bank without giving the latter a hearing,
i.e., an opportunity to rebut the charge that it has contravened applicable laws, rules and
regulations to the substantial prejudice of the government, its depositors and creditors, such
a previous hearing is nowhere required by section 29 of the Central Bank Law. Manifestly,
whether a rural bank's "continuance in business would involve probable loss" to its clients or
creditors and that it "cannot resume business with safety," is a matter of appreciation and
judgment that the law entrusts primarily to the Monetary Board. Equally apparent is that if
the rural bank affected is in the condition previously adverted to, every minute of delay in
securing its assets from dissipation inevitably increases the danger to the creditors. For this
reason, the statute has provided for a subsequent judicial review of the Monetary Board, in
lieu of a previous hearing.
In point of fact, the petitioner Rural Bank of Lucena did file a petition (Annex "G") for judicial
review in the Court of First Instance of Quezon Province, dated February 12, 1962, and
challenged the validity of Resolution No. 122 of the Monetary Board (Case No. 6471) ; but the
Court of First Instance of Quezon dissolved the preliminary injunction issued in that case and
allowed Resolution No. 122 to take effect, without any steps being taken for a review of such
action. This being the case, and in view of the manifest reluctance the Lucena bank's officials
to comply with the Monetary Board's resolution, the Central Bank had cause to seek judicial
assistance for the discharge of its duties as liquidator.
 34

The petitioner rural bank seems to take the view that the proceedings had before Judge when it dissolved its own preliminary injunction; and (5) because the Lucena Bank had
Gatmaitan in Case No. 47345, Branch XIV, of the Court of First Instance of Manila constituted apparently acquiesced in the action taken by the Court of Quezon Province, since the rural
the judicial review required by section 29 of Republic Act No. 265, the Central Bank Act. Such bank had not sought that the action of the Quezon court be set aside by a higher court.
a stand is untenable, for the case tried and decided by Judge Gatmaitan concerned an
attempt by the Central Bank to take over management under section 10 of the Rural Banks IN VIEW OF THE FOREGOING, the writ applied for is denied with costs against the petitioner
law (R.A. No. 720) in connection with the Monetary Board's resolution No. 928 of June 16, Lucena Rural Bank, Inc.
1961. Even more conclusive is the consideration that said action (Case No. 47345) was filed
on June 22, 1961, and could not possibly be a judicial review of the Resolution No. 122
adopted eight months later, on February 2, 1962. A review cannot precede the adoption of
the resolution being reviewed. This proposition requires no demonstration.

The narrated events also rebut the contention that the order of Judge Area, issued on March
28, 1963, in Case No. 50019, constitutes unlawful interference with the enforcement of Judge
Gatmaitan's decision of February 14, 1962, the issues involved being different in each case. As
heretofore pointed out one involved a take over of management under section 10 of the
Rural Banks Act, and the other a seizure of assets and liquidation under section 29 of the
Central Bank law (R.A. 265).

Nor can the proceedings before Judge Area be deemed judicial review of the 1962 resolution
No. 122 of the Monetary Board, if only because by law (section 29, R. A. 265) such review
must be asked within 10 days from notice of the resolution of the Board. Between the
adoption of Resolution No. 122 and the challenged order of Judge Arca, more than one year
had elapsed. Hence, the validity of the Monetary Board's resolution can no longer be litigated
before Judge Arca, whose role under the fourth paragraph of section 29 is confined to
assisting and supervising the liquidation of the Lucena bank.

Whether or not the Central Bank acted with arbitrariness or bad faith in decreeing that
circumstances called for the liquidation of the Lucena Rural Bank, and should be answerable
in damages, should be threshed out and determined, not by Judge Arca but in Case No. 6471
of the Court of First Instance of Quezon Province, which was filed within the 10-day period
prescribed by the Central Bank law, and which appears to be still pending, unless the Lucena
bank had abandoned such litigation, a fact that we need not decide at present. Suffice it to
say that Judge Arca had no reason to inquire into the merits of the case before issuing the
disputed order requiring the surrender of the assets and papers of the Lucena bank, because:
(1) neither the statute (sec. 29, R.A. 265) nor the constitutional requirement of due process
demand that the correctness of the Monetary Board's resolution to stop operation and
proceed to the liquidation of the Lucena Rural Bank should first be adjudged before making
the resolution effective, it being enough that a subsequent judicial review by provided
(section 29, R.A. 265; 12 Am. Jur. 305, sec. 611; Bourjois vs. Chapman, 301 U.S. 183, 81 Law
Ed. 1027, 1032; American Surety Co. vs. Baldwin, 77 Law Ed. 231, 86 ALR 307; Wilson vs.
Standefer, 46 Law Ed. 612); (2) the period for asking such judicial review had elapsed with
excess between the adoption of the Monetary Board Resolution No. 122 and the filing of the
case by the Central Bank in the Court of First Instance of Manila; (3) the correctness of said
resolution had already been put in issue before the Court of Quezon Province; (4) because
the latter court had refused to stop implementation of the Resolution of the Monetary Board

SECOND DIVISION
G.R. No. 73884 September 24, 1987
SPOUSES ROMEO LIPANA and MILAGROS LIPANA, petitioners,
vs.
DEVELOPMENT BANK OF RIZAL, respondent.
PARAS, J.:
This is a petition for review on certiorari of the August 30, 1985 Order of the Regional Trial
Court of Pasig denying petitioners' Motion to Lift Stay of Execution in Civil Case No. 50802.
During the period from 1982 to January, 1984, herein petitioners opened and maintained
both time and savings deposits with the herein respondent Development Bank of Rizal all in
the aggregate amount of P939,737.32. When some of the Time Deposit Certificates matured,
petitioners were not able to cash them but instead were issued a manager's check which was
dishonored upon presentment. Demands for the payment of both time and savings deposits
having failed, on March 14, 1984, petitioners filed with the Regional Trial Court of Pasig a
Complaint With Prayer For Issuance of a Writ of Preliminary Attachment for collection of a
sum of money with damages, docketed therein as Civil Case No. 50802 (Record, pp. 3-11).
Respondent Judge, in an Order dated March 19, 1984 (Ibid., p. 19-21), ordered the issuance
of a writ of attachment, and pursuant thereto, a writ of attachment dated March 20, 1984
was issued in favor of the petitioners (Ibid., p. 33).
On June 27, 1984, respondent bank filed its Answer (Ibid., p. 58-61).
On July 23, 1984, petitioners filed a Motion For Judgment on the Pleadings (Ibid., pp. 68-73),
opposed by respondent bank (Ibid., pp. 74-76), but respondent judge, in a Decision dated
November 13, 1984, rendered judgment in favor of petitioners. The dispositive portion of the
said Decision, reads:
IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the
plaintiffs, ordering the defendant to pay the total sum of P939,737.32 plus
stipulated interest; the sum equivalent to 15% of the amount due as attorney's
fees; and costs of suit.
The counterclaim is dismissed, for lack of merit.
Meanwhile, on August 10, 1984, the Monetary Board, in its Resolution No. 1009, finding that
the condition of respondent bank was one of insolvency and that its continuance in business
35
would result in probable loss to its depositors and creditors, decided to place it under
receivership (Rollo, p. 84).
On December 7, 1984, petitioners filed a Motion for Execution Pending Appeal (Rcd., pp. 91-
93), which was opposed by respondent bank (Ibid., p. 94-96). On December 27, 1984,
petitioners filed their Reply to the opposition (Ibid., pp. 98-101), to which respondent bank
filed its Rejoinder on January 1, 1985 (Ibid., pp. 102-105).
In an order dated January 29, 1985, respondent judge ordered the issuance of a writ of
execution (Ibid., p. 106).
On February 11, 1985, respondent bank filed a Motion for Reconsideration of order dated
January 29, 1985 and to Stay Writ of Execution (Ibid., pp. 109-110), opposed by petitioners
(Ibid., p. 111) but in an Order dated March 6, 1985, respondent judge stayed the execution
(Ibid., p. 113).
On August 7, 1985, petitioners filed a Motion to Lift Stay of Execution (Ibid., pp. 119-122),
opposed by respondent bank (Ibid., pp. 123-127), and in an Order dated August 30, 1985,
respondent judge denied the said motion (Ibid., p. 130). Hence, the instant petition (Rollo, pp.
8-17).
The Second Division of the Court, in a resolution dated May 5, 1986, resolved to require the
respondent to comment (Ibid., p. 52). In compliance therewith, respondent bank filed its
Comment on June 9, 1986 (Ibid., pp. 53-58).
The petition was given due course in a resolution dated August 11, 1986, and the parties
were required to file their respective memoranda (Ibid., p. 61). In compliance therewith,
petitioners filed their Memorandum on September 19, 1986 (Ibid., p. 63-75), while
respondent bank filed its Memorandum on September 25, 1986 (Ibid., pp. 76-83), and the
case was considered submitted for deliberation in the Resolution dated October 8, 1986
(Ibid., p. 88)
Petitioners raised the following issues:
1. Respondent judge cannot legally stay execution of judgement that has
already become final and executory;
2. The placing under receivership by the Central Bank of the respondent
bank, long after the complaint was filed removed it from the application
of the doctrine in Re: Central Bank vs. Morfe (63 SCRA 113);

3. The filing of the complaint for a sum of money With damages against
respondent bank and the subsequent attachment of its property in Pasig,
Metro Manila long before the receivership took place render inapplicable
the doctrine laid down by this Honorable Supreme Court in the said
Morfe case;
4. The indefinite stay of execution without a ruling as to how long it will
last, amounts to deprivation of petitioners of their property without due
process of law.
The instant petition is without merit.
I.
The main issue in this case is whether or not respondent judge could legally stay execution of
judgment that has already become final and executory.
The answer is in the affirmative.
The rule that once a decision becomes final and executory, it is the ministerial duty of the
court to order its execution, admits of certain exceptions as in cases of special and
exceptional nature where it becomes imperative in the higher interest of justice to direct the
suspension of its execution (Vecine vs. Geronimo, 59 O.G. 579); whenever it is necessary to
accomplish the aims of justice (Pascual vs. Tan, 85 Phil. 164); or when certain facts and
circumstances transpired after the judgment became final which could render the execution
of the judgment unjust (Cabrias vs. Adil, 135 SCRA 354).
In the instant case, the stay of the execution of judgment is warranted by the fact that
respondent bank was placed under receivership. To execute the judgment would unduly
deplete the assets of respondent bank to the obvious prejudice of other depositors and
creditors, since, as aptly stated in Central Bank of the Philippines vs. Morfe (63 SCRA 114),
after the Monetary Board has declared that a bank is insolvent and has ordered it to cease
operations, the Board becomes the trustee of its assets for the equal benefit of all the
creditors, including depositors. The assets of the insolvent banking institution are held in trust
for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage
or a preference over another by an attachment, execution or otherwise.
Moreover, it will be noted that respondent bank was placed under receivership on August 10,
1984, and the Decision of respondent judge is dated November 13, 1984. Accordingly, in line
with the ruling in the aforesaid Morfe case, which reads:
The circumstance that the Fidelity Savings Bank, having stopped operations since
February 19, 1969, was forbidden to do business (and that ban would include the
36
payment of time deposits) implies that suits for the payment of such deposits were
prohibited. What was directly prohibited should not be encompassed indirectly. ...
petitioners 'complaint should have been dismissed.
II.
It is the contention of petitioners, however, that the placing under receivership of respondent
bank long after the filing of the complaint removed it from the doctrine in the said Morfe
case.
This contention is untenable. The time of the filing of the complaint is immaterial. It is the
execution that win obviously prejudice the other depositors and creditors. Moreover, as
stated in the said Morfe case, the effect of the judgment is only to fix the amount of the debt,
and not give priority over other depositors and creditors.
III.
Anent the contention of petitioners that the attachment of one of the properties of
respondent bank was erased by virtue of the delayed receivership is to expand the power of
the Central Bank, Suffice it to say that in the case ofCentral Bank of the Philippines, et al. vs.
Court of Appeals, et al. (Resolution of this Court dated September 17, 1984 in G.R. No.
33302), wherein the original plaintiff Algue Inc. was able to obtain a writ of preliminary
attachment against the original defendant Island Savings Bank, this Court refused to recognize
any preference resulting from such attachment and ruled that after a declaration of
insolvency, the remedy of the depositors is to intervene in the liquidation proceedings.
IV.
It is also contended by the petitioners that the indefinite stay of execution without ruling as
to how long it will last, amounts to a deprivation of their property without due process of law.
Said contention, likewise, is devoid of merit. Apart from the fact that the stay of execution is
not only in accordance with law but is also supported by jurisprudence, such staying of
execution is not without a time limit. In fact, the Monetary Board, in its resolution No. 4-33
approved the liquidation of respondent bank on April 26, 1985 and ordered, among others,
the filing of a petition in the Regional Trial Court praying for assistance of said court in the
liquidation of the bank. (Rollo, p. 81). The staying of the writ of execution will be lifted after
approval by the liquidation court of the project of distribution, and the liquidator or his
deputy will authorize payments to all claimants concerned in accordance with the approved
project of distribution.
PREMISES CONSIDERED, the instant petition is hereby DISMISSED.
 37

SO ORDERED.
After the Monetary Board has declared that a bank is insolvent and has ordered it to cease
operations, the Board becomes the trustee of its assets for the equal benefit of all the
creditors, including depositors. To execute the judgment would unduly deplete the assets of
respondent bank to the obvious prejudice of other depositors and creditors.
for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage
or a preference over another by an attachment, execution or otherwise. To execute the
judgment would unduly deplete the assets of respondent bank to the obvious prejudice of
other depositors and creditors.
Can a final and executory judgment against an insolvent bank be stayed?

Facts: Petitioners opened and maintained both time and savings deposits with the
respondent Development Bank of Rizal. When some of the time deposit certificates matured,
petitioners were not able to cash them but instead were issued a managers check which was
dishonored upon presentment. Demands for the payment of both time and savings deposits
have failed. Hence, petitioners filed with the RTC a collection suit with prayer for issuance of a
writ of preliminary attachment which was granted by the court. The RTC rendered judgment
in favor of petitioners. Meanwhile, the Monetary Board placed the respondent bank under
receivership. Subsequently, the motion for execution pending appeal filed by petitioners was
granted by the court but was also stayed by the trial judge. The motion filed by petitioners to
lift the stay order having been denied, this petition was filed.
Yes, after the Monetary Bank has declared that a bank is insolvent and has ordered it to cease
operations, the assets of the insolvent bank are held in trust for the equal benefit of all
creditors. One cannot obtain an advantage or preference over another by attachment,
execution or otherwise. The final judgment against the bank should be stayed as to execute
the judgment would unduly deplete the assets of the banks to the obvious prejudice of other
depositors and creditors. (Lipana v. Development Bank of Rizal, G.R. No. L-73884, Sept. 24,
1987)

Issue: Whether or not respondent judge could legally stay execution of judgment that has
already become final and executor

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

After the Monetary Board has declared that a bank is insolvent and has ordered it to cease
operations, the Board becomes the trustee of its assets for the equal benefit of all the
creditors, including depositors. The assets of the insolvent banking institution are held in trust
 38

THIRD DIVISION In September, 1972, defendant-appellant was placed under receivership

by the Central Bank of the Philippines until 27 July 1981 when the
G.R. No. 97218 May 17, 1993 receivership was set aside by the Honorable Supreme Court.

PROVIDENT SAVINGS BANK, petitioner, On 11 December 1984, Lorenzo K. Guarin, in reply to the letter of latter's
vs. counsel informing that the mortgaged property would be sold at public
COURT OF APPEALS, Former SPECIAL EIGHTH DIVISION and WILSON CHUA, respondents. auction on 27 December 1984, assured he and his wife had every
intention of paying their obligation and requesting for a recomputation of
their account and a postponement of the foreclosure sale. (Exh. 1).
MELO, J.:

On 10 February 1986, the Guarins received a Statement of Account from

The error, if error it be, of respondent Court of Appeals which petitioner seeks to rectify
defendant-appellant showing two outstanding accounts as of 15 February
via the petitioner forcertiorari before us refers to respondent court's major conclusion arrived
1986. One was account of Lorenzo K. Guarin in the amount of
at in CA-G.R. CV No. 21312 (Javellana (P), Kalalo, Dayrit, JJ) barring petitioner from foreclosing
P591,088.80, and the other was the account of L.K. Guarin Manufacturing
the subject realty on account of prescription. Petitioner begs to differ, insisting that the
Co., Inc. in the amount of P6,287,380.27 (Attachment to Exh. 2)
period during which it was placed under receivership by the Central Bank is akin to a caso
fortuito and should not thus be reckoned against it.
On 26 February 1986, Lorenzo K. Guarin wrote defendant-appellant
stating that he was ready and willing to pay his obligation in the total
Both petitioner and private respondent accepted the synthesized factual backdrop
amount of P591,088.80 as recomputed by defendant-appellant whenever
formulated by respondent court, to wit:
defendant-appellant was already to receive the payment and inquiring as
to when his mortgaged title would be available for him to pick up. (Exh. 2)
This an appeal by both plaintiff and defendant from the decision of the Regional
Trial Court of the National Capital Judicial 29 September 1988, in Civil Case No. 977-
Defendant-appellant replied on 27 February 1986 that Lorenzo K. Guarin
NW, which directed plaintiff-appellant to pay defendant-appellant the personal
may make payment at its office in Makati, Metro Manila, but that the
obligation of the spouses Guarin to defendant-appellant in the amount of
mortgaged title could not be released to him even after the payment of
P62,500.00, together with the interest, penalties, and bank charges due thereon,
the obligation of P591,088.80 as it also served as security for the
and ordering defendant-appellant thereafter to: (1) release the real estate
indebtedness of L.Y. Guarin Manufacturing Co., Inc., to defendant-
mortgage executed by the spouses Lorenzo K. Guarin and Liwayway J. Guarin in
appellant which was undertaken by Lorenzo K. Guarin in his personal
favor of defendant bank on 16 February 1967; (2) return to surrender to plaintiff-
capacity and as president of the corporation. (Exh. 3)
appellant, as successor-in-interest of the spouses Guarin, the latter's Owner's
Duplicate of Title No. 177014; (3) pay plaintiff-appellant P20,000.00 as and for
attorney's fees; and, (4) pay the costs of suit. On 20 May 1986, plaintiff-appellant wrote defendant-appellant saying
that the mortgaged property of the Guarins had been offered to him as
payment of the judgment he obtained against the Guarins in Civil Case
The established fact are:
No. Q-47465 entitled, "Wilson Chua vs. Lorenzo K. Guarin", and
requesting for defendant-appellant's conformity to the assignment and
On 16 February 1967, the spouses Lorenzo K. Guarin and Liwayway J. expressing his willingness to pay for the obligation of Mr. Guarin so that
Guarin (Guarins) obtained a loan from defendant-appellant in the amount the title could be released by defendant-appellant. (Exh. 4)
of P62,500.00 payable on or before 20 June 1967. As security for the loan,
they executed a real estate mortgage in favor of defendant-appellant over
On 10 July 1986, the Guarins and plaintiff-appellant executed a Deed of
a parcel of land covered by TCT No. 177014. (Exhs. C and D).
Absolute Sale With Assumption of Mortgaged whereby the Guarins sold
the mortgaged property to Guarins sold the appellant for the sum of
P250,000.00 and plaintiff-appellant undertook to assume the mortgaged

obligation of the Guarins with defendant-appellant which as of 15
February 1985 amounted to P591,088.80.(Exh. B).
On 5 August 1986, plaintiff-appellant informed defendant-appellant that
as a result of the judgment in Civil Case No. Q-47645, the mortgaged
property had been sold to him by the Guarins, as evidenced by the Deed
of Sale enclosed for guidance and information of defendant-appellant. He
requested that he be allowed to pay the loan secured by the mortgaged,
otherwise, he would be constrained to bring the matter to court. (Exh. 5)
In reply, defendant-appellant, on 11 August 1986, informed plaintiff-
appellant that his request could be granted if he would settle the
obligation of L.K. Guarin Manufacturing Co., Inc., as well and defendant-
appellant's letter to Mr. Guarin dated 27 February 1986. (Exh. 6)
On 3 August 1987, counsel for plaintiff-appellant addressed a letter to
defendant-appellant informing that plaintiff-appellant had purchased the
mortgaged property from the Guarin's and requesting that the owner's
copy of TCT No. 177014 in the possession of defendant-appellant be
released to him so that he can register the sale and have the title to the
property transferred in his name. He likewise, informed defendant-
appellant that it had lost whatever right or action had against the Guarins
because of prescription. (Exh. E) Defendant-appellant replied on 10
August 1987 stating the reasons why they could not comply with plaintiff-
appellant's demands. (Exh. F)
On 21 August 1986, plaintiff-appellant filed a complaint against
defendant-appellant to compel the latter to: (1) release the real estate
mortgaged executed by the Guarins in favor of defendant-appellant on 16
February 1967; (2) return or surrender to plaintiff-appellant, as successor-
in-interest of the Guarins, the latter's owner's duplicate of TCT No.
177014; and (3) pay plaintiff-appellant P2,750,000.00 as actual and/or
consequential damages, moral damages as may be proved during the
trial, exemplary damages as may be reasonably assessed by the court,
and attorney's fees of P50,00.00. Defendant-appellant answered the
complaint thereof and setting up special and affirmative defenses. After
trial, judgment was rendered as stated in the opening paragraph hereof
from which both parties appealed . . . . (pp. 35-37, Rollo.)
Concerning the challenge posed by Provident Saving Bank against the personality of Wilson
Chua to initiate the action to compel the release of the real estate mortgage and the delivery
of the owner's duplicate copy of the certificate of title, respondent court noted that Wilson
Chua can be considered a real-property-in-interest because he is the successor-in-interest of
the Guarins who is naturally entitled to the realty as against the so-called right of Provident
Savings Bank, as mortgagee, to foreclose the mortgage which had become stale through
sheer lapse of time. The matter of novation in the form of substitution of the debtor without
39
corresponding acquiesence of the mortgagee was viewed by respondent court to be legally
inconsequential due to the demeanor of the mortgagee-bank in requiring Wilson Chua to pay
the indebtedness of Lorenzo Guarin, posterior to the change of obligors, which act was
construed as equivalent to consent.
To the question of whether petitioner can still foreclose the subject realty, respondent court
gave a negative response on account of the absence of proof to indicate that the bank was
precluded from collecting indebtedness while it was under receivership from September,
1972 until July 20,1981. Thus, there was no legal interruption of the pres-criptive period to
speak of, said respondent court, which intervened between June 20, 1967, the date the
mortgage matured, and June 20, 1977 the last day within which petitioner could have
foreclosed the mortgage.
Respondent court did not also heed the suggestion of the petitioner bank to interpret Wilson
Chua's assumption of the mortgage on July 10, 1986 as tantamount to an explicit
acknowledgement that the obligation was outstanding and had not yet prescribed.
As a result of these observations, respondent court reversed the decision of the trial court
insofar as it ordered Wilson Chua to pay the sum of P591,088.80 to the bank and affirmed the
other dispositions made the court of origin (p. 42, Rollo).
Following the unfavorable judgment, the bank filed a motion for reconsideration and a
motion for new trial premised on newly discovered evidence relative to a statement of
account unearthed by the bank's liaison officer from the loose folders on October 18, 1990
which it believed to be of legal significance to the case. But respondent court was
unperturbed, observing that the vital piece of document could have been located in the
course of trial had the slightest degree of prudence been exercised, considering that the
statement of account sprouted the same day the liaison officer was advised to take an
inventory of the records ( p. 45, Rollo).
Hence, the petitioner at bar.
Consistent with its theory premised on fuerza major, petitioner insists that it can not be
blamed for not lifting a finger, so speak, during the period when it was enjoined by the
Central Bank on September 15, 1972 from transacting business until this Court affirmed on
July 27,1981 the decision of the Court of Appeals annulling the proscription against petitioner
in Central Bank vs. Court of Appeals (106 SCRA 143 [1981]. We are not unaware of the rule
laid down in Teal Motor Co. vs. Court of First Instance of Manila (51 Phil. 549 [1928]; Martin,
Commentaries and Jurisprudence on the Philippine Commercial Laws, 1986 Revised ed.,
p.125) that the appointment of a receiver does not dissolve the corporation nor does it
interfere with the exercise of its corporate rights. But this principles is, of course, applicable
to a situation where there is no restraint imposed on the corporation, unlike in the case at bar
where petitioner Provident Savings Bank was specifically forbidden and immobilized from
doing business in the Philippines on September 15, 1972 through Monetary Board Resolution
No. 1766 until 1981 when the decision in Central Bank vs. Court of Appeals (supra, at p. 150)
 40

was rendered. The question which immediately crops up is whether a foreclose proceeding
falls within the purview of the phrase "doing business". In Mentholatum Co., Inc., et al. vs.
Mangaliman, et al. (72 Phil. 524 [1941]; Moreno, Philippine Law Dictionary, Second ed., 1972,
p. 186), the term was construed by Justice Laurel to refer to:
. . . a continuity of commercial dealings and arrangements, and
contemplates to that extent, the exercise of some of the words or the
normally incident to, and in progressive prosecution of, the purpose ands
object of its organizations. (p. 528; emphasis supplied.)
Withal, we believe that a foreclose is deemed embraced by the phrase "doing business" as a
preparatory measure to acquiring or holding property for petitioner as a saving bank under
Section 34 of the General Banking Act. Like any other banking institution, petitioner is vested
with the usual attributes and powers of a corporation under Section 36 of the Corporation
Code (Vitug, Pandect of Commercial Law and Jurisprudence, 1990 ed., p. 475). The
prerogative of a bank to foreclose is implicit from and is even necessary to enforce collection
of secured debts under Section 36(11) and 45 of the Corporation Code, in conjunction with
Section 29 of the General Banking Act (6 Fletcher, 206; Agbayani, Commentaries and
Jurisprudence on the Commercial Laws of the Philippines, 1990 ed., p. 325).
When a bank is prohibited to do business by the Central Bank and a receiver is appointed for
such bank, that bank would not be able to do new business, i.e., to grant new loans or to
accept new deposits. However, the receiver of the bank is obliged to collect debts owing to
the bank, which debts form part of the assets of the bank. The receiver must assemble the
assets and pay the obligation of the bank under receivership, and take steps to prevent
dissipation of such assets. Accordingly, the the receiver of the bank is obliged to collect pre-
existing debts due to the bank, and in connection therewith, to foreclose mortgages securing
debts. This is not to ignore The Philippine Trust Co. vs. HSBC (67 Phil. 204 [1939], for in that
case, the Court simply rejected the objections of certain creditors to the report of a receiver,
that is, objections that the receiver did not report the collection made before the beginning
of his receivership. It would follow that the bank is bound by the acts, or failure to act, of the
receiver. At the same time, the receiver is liable to the bank for culpable or negligent failure
to collect the assets of such bank and to safeguard said assets.
the Civil Code of the Philippines, 1991 ed., pp. 18-19). Consequently, when the closure of was
set aside in 1981, the period of ten years within which to foreclose under Article 1142 of the
New Civil Code began to run again and, therefore, the action filed on August 21, 1986 to
compel petitioner to release the mortgage carried with it the mistaken notion that
petitioner's own suit foreclosure had prescribed. What exacerbates the situation is the letter
of private respondent requesting petitioner on August 6, 1986 that private respondent be
allowed to pay the loan secured by the mortgage as the result of the Deed of Sale executed
by the Guarins in his favor on July 10, 1986 (pp. 36-37, Rollo). In point of law, this written
communication is synonymous to an express acknowledgment of the obligation and had the
effect of interrupting the prescription for the second time (Article 1155, New Civil Code;
Osmea vs. Rama, 14 Phil. 99 [1909]; 4 Tolentino, supra at p. 50). And this piece of document
necessarily estops private respondent from setting up prescription vis-a-vis his unfounded
supposition that acknowledgment of the debt is of no moment because the right of the
petitioner to foreclose had long prescribed in 1977 (p. 13, Petition; p. 7, Comment; pp. 19 and
58, Rollo).
Contrary to respondent court's prescription of the existence of novation, the evidence at
hand does not buttress a finding along this line from the mere fact that petitioner supposedly
did not question the substitution when the bank reacted to private respondent's offer to pay
the loan (p. 39, Rollo). What seems to have escaped respondent court's attention was the
condition imposed by the petitioner that it will grant private respondent's request if the latter
will also shoulder the obligation incurred by Lorenzo Guarin in his capacity as president of the
corporation (p.37, Rollo). The consent of the petitioner to the substitution, as creditor, was
thus erroneously appreciated.
With the conclusions reached, we need not discuss the other issues raised in the petition.
WHEREFORE, the petition is hereby GRANTED. The decision dated August 31, 1990, including
the resolution dated February 6, 1991 of respondent court are hereby set aside and another
one entered dismissing Wilson Chua's complaint. No special pronouncement is made to costs.

Having arrived at the conclusion that the foreclosure is part of bank's business activity which
could not have been pursued by the receiver then because of the circumstances discussed in
the Central Bank case, we are thus convinced that the prescriptive period was legally
interrupted by fuerza mayor in 1972 on account on the prohibition imposed by the Monetary
Board against petitioner from transacting business, until the directive of the board was
nullified in 1981. Indeed, the period during which the obligee was prevented by a caso
fortuito from enforcing his right is not reckoned against him (Article 1154, New Civil Code).
When prescription is interrupted, all the benefits acquired so far from the possession cease
and when prescription starts anew, it will be entirely a new one. This concept should not be
equated with suspension where the past period is included in the computation being added
to the period after prescription is resumed (4 Tolentino, Commentaries and Jurisprudence on

FIRST DIVISION
G.R. No. 141297 October 8, 2001
DOMINGO R. MANALO, petitioner,
vs.
COURT OF APPEALS (Special Twelfth Division) and PAIC SAVINGS AND MORTGAGE
BANK, respondents.
PUNO, J.:
This petition for certiorari seeks the review of the Decision of the Court of Appeals in C.A.-
G.R. SP. No. 50341 promulgated December 23, 1999, which affirmed an Order issued by the
Regional Trial Court, Branch 112, Pasay City, in Civil Case No. 9011 dated December 9, 1998.
On July 19, 1983, S. Villanueva Enterprises, represented by its president, Therese Villanueva
Vargas, obtained a loan of three million pesos (P3,000,000.00) and one million pesos
(P1,000,000.00) from the respondent PAIC Savings and Mortgage Bank and the Philippine
American Investments Corporation (PAIC), respectively. To secure payment of both debts,
Vargas executed in favor of the respondent and PAIC a Joint First Mortgage 1 over two parcels
of land registered under her name. One of the lots, located in Pasay City with an area of nine
hundred nineteen square meters (919 sq. m.) and covered by TCT No. 6076, is the subject of
the present case. Section 2 of the mortgage contract states that "the properties mortgaged
therein shall include all buildings and improvements existing on the mortgaged property at
the time of the execution of the mortgage contract and thereafter." 2
S. Villanueva Enterprises defaulted in paying the amortizations due. Despite repeated
demands from the respondent, it failed to settle its loan obligation. Accordingly, respondent
instituted extrajudicial foreclosure proceedings over the mortgaged lots. On August 22, 1984,
the Pasay City property was sold at a public auction to the respondent itself, after tendering
the highest bid. The respondent then caused the annotation of the corresponding Sheriff's
Certificate of Sale3 on the title of the land on December 4, 1984. After the lapse of one year,
or the statutory period extended by law to a mortgagor to exercise his/her right of
redemption, title was consolidated in respondent's name for failure of Vargas to redeem.
On October 29, 1986, the Central Bank of the Philippines filed a Petition 4 for assistance in the
liquidation of the respondent with the Regional Trial Court. The petition was given due course
in an Order5 dated May 19, 1987.
It appears that from the years 1986 to 1991, Vargas negotiated with the respondent (through
its then liquidator, the Central Bank) for the repurchase of the foreclosed property. The
negotiations, however, fizzled out as Vargas cannot afford the repurchase price fixed by the
respondent based on the appraised value of the land at that time. On October 4, 1991, Vargas
41
filed a case for annulment of mortgage and extrajudicial foreclosure sale before Branch 116 of
the Pasay City Regional Trial Court. On July 22, 1993, the court rendered a
decision6 dismissing the complaint and upholding the validity of the mortgage and
foreclosure sale. On appeal, the appellate court upheld the assailed judgment and declared
the said mortgage and foreclosure proceedings to be in accord with law. 7 This decision of the
Court of Appeals subsequently became final and executory when we summarily dismissed
Vargas' Petition for Review on Certiorari for having been filed beyond the reglementary
period.8
In the meantime, on June 22, 1992, respondent petitioned the Regional Trial Court, Branch
112, of Pasay City, herein court a quo, for the issuance of a writ of possession for the subject
property in Civil Case No. 9011. This is in view of the consolidation of its ownership over the
same as mentioned earlier. Vargas and S. Villanueva Enterprises, Inc. filed their opposition
thereto. After which, trial ensued.
During the pendency of Civil Case No. 9011 (for the issuance of a writ of possession), Vargas,
on December 23, 1992, executed a Deed of Absolute Sale 9 selling, transferring, and conveying
ownership of the disputed lot in favor of a certain Armando Angsico. Notwithstanding this
sale, Vargas, still representing herself to be the lawful owner of the property, leased the same
to petitioner Domingo R. Manalo on August 25, 1994. Pertinent provisions of the lease
agreement10 state:
"3. (a) The lease is for a period of ten year lease (sic), involving 450 square meters, a
portion of the above 919 square meter property.
x x x (d) The LESSEE has to introduce into the said 450 square meter premises
improvements thereon (sic) consisting of one story building to house a Karaoke
Music Restaurant Business, which improvements constructed thereof (sic), upon
the termination of the lease contract, by said LESSEE be surrendered in favor of the
LESSOR (sic).''11
Later, on June 29, 1997, Armando Angsico, as buyer of the property, assigned his rights
therein to petitioner.12
On April 21, 1998, the court a quo granted the petition for the issuance of the Writ of
Possession.13 The writ was subsequently issued on April 24, 1998, the pertinent portion of
which reads:14
"NOW THEREFORE you are hereby commanded that you cause oppositors THERESE
VILLANUEVA VARGAS and S. VILLANUEVA ENTERPRISES, INC. and any and all
persons claiming rights or title under them, to forthwith vacate and surrender the
possession of subject premises in question known as that parcel of land and
improvements covered by TCT No. 6076 of the Registry of Deeds of Pasay City; you

are hereby further ordered to take possession and deliver to the petitioner PAIC
SAVINGS AND MORTGAGE BANK the subject parcel of land and improvements."
Shortly, on May 8, 1998, S. Villanueva Enterprises and Vargas moved for its
quashal.15 Thereafter on June 25, 1998, petitioner, on the strength of the lease contract and
Deed of Assignment made in his favor, submitted a Permission to File an Ex-parte Motion to
Intervene.16 It bears mentioning, however, that before petitioner sought intervention in the
present case, he had separately instituted a Complaint for Mandamus, docketed as Civil Case
No. 98-0868 before another branch17 of the Pasay City RTC to compel PAIC Bank to allow him
to repurchase the subject property.
On October 7, 1998, the court a quo denied the Motion to Quash and Motion to Intervene
filed respectively by Vargas and petitioner.18 A Motion for Reconsideration and a
Supplemental Motion for Reconsideration were filed by the petitioner which, however, were
similarly denied on December 9, 1998.
Petitioner then sought relief with the Court of Appeals, filing therein a Petition for Certiorari.
While this was awaiting resolution, he entered into another lease agreement, 19 this time with
the respondent, represented by its liquidator, over the same 450 sq. m. portion of the lot. The
contract fixed a period of one month beginning January 28, 1999, renewable for another
month at the exclusive option of the lessor, respondent PAIC Bank.
On December 23, 1999, the appellate court rendered the impugned Decision, dismissing the
petition, thus:
"All told, WE find the Order, subject of the instant Petition for Certiorari and
Prohibition, to be not without rational bases and we observe that the court a quo,
in issuing its questioned Order, committed no grave abuse of discretion amounting
to lack of jurisdiction.
WHEREFORE, the Petition for Certiorari and Prohibition is hereby DISMISSED and
the assailed December 9, 1998 Order is AFFIRMED in all respects.
SO ORDERED."20
Hence, this appeal, where petitioner raises and argues the following legal issues:
"I. Whether or not public respondent acted without or in excess of its jurisdiction
and/or was patently in error when it affirmed the denial of petitioner's motion for
intervention, despite the fact that he has a legal interest, being a lessee and an
assignee of the property subject matter of this case.
42
II. Whether or not the public respondent committed grave abuse of discretion when
it held that what are required to be instituted before the liquidation court are those
claims against the insolvent banks only considering that the private respondent
bank is legally dead due to insolvency and considering further that there is already
a liquidation court (Regional Trial Court of Makati, Branch 57, docketed as Spec.
Pro. No. M-1280) which is exclusively vested with jurisdiction to hear all matters
and incidents on liquidation pursuant to Section 29, Republic Act No. 265,
otherwise known as The Central Bank Act, as amended.
III. Whether or not the public respondent committed grave abuse of discretion
and/or was patently in error in affirming the ruling of the trial court, totally
disregarding the arguments raised in petitioner's supplemental motion for
reconsideration only through a minute order and without taking into consideration
the fact that there is a pending action in another court (RTC, Pasay City, Branch
231 ) which presents a prejudicial question to the case at bar.
IV. Whether or not the petitioner is estopped from questioning private respondent's
ownership when it entered into a contract of lease involving the property in
question."21
We will first resolve the jurisdictional and procedural questions raised by the petitioner.
I.
Petitioner postulates that the lower court should have dismissed respondent's "Ex-
Parte Petition for Issuance of Writ of Possession" in Civil Case No. P-9011 for want of
jurisdiction over the subject matter of the claim. The power to hear the same, he insists,
exclusively vests with the Liquidation Court pursuant to Section 29 of Republic Act No. 265,
otherwise known as The Central Bank Act.22 He then cites our decision in Valenzuela v. Court
of Appeals,23 where we held that "if there is a judicial liquidation of an insolvent bank, all
claims against the bank should be filed in the liquidation proceeding." For going to another
court, the respondent, he accuses, is guilty of forum shopping.
These contentions can not pass judicial muster. The pertinent portion of Section 29 states:
"x x x The liquidator designated as hereunder provided shall, by the Solicitor
General, file a petition in the Regional Trial Court reciting the proceedings which
have been taken and praying the assistance of the court in the liquidation of such
institution. The court shall have jurisdiction in the same proceedings to assist in the
adjudication of disputed claims against the bank or non-bank financial intermediary
performing quasi-banking functions and the enforcement of individual liabilities of
the stockholders and do all that is necessary to preserve the assets of such
institution and to implement the liquidation plan approved by the Monetary Board,
x x x"24 (emphasis supplied.)

Petitioner apparently failed to appreciate the correct meaning and import of the above-
quoted law. The legal provision only finds operation in cases where there are claims against
an insolvent bank. In fine, the exclusive jurisdiction of the liquidation court pertains only
to the adjudication of claims against the bank. It does not cover the reverse situation where it
is the bank which files a claim against another person or legal entity.
This interpretation of Section 29 becomes more obvious in the light of its intent. The
requirement that all claims against the bank be pursued in the liquidation proceedings filed
by the Central Bank is intended to prevent multiplicity of actions against the insolvent bank
and designed to establish due process and orderliness in the liquidation of the bank, to
obviate the proliferation of litigations and to avoid injustice and arbitrariness. 25 The
lawmaking body contemplated that for convenience, only one court, if possible, should pass
upon the claims against the insolvent bank and that the liquidation court should assist the
Superintendents of Banks and regulate his operations.26
It then ought to follow that petitioner's reliance on Section 29 and the Valenzuela case is
misplaced. The Petition for the Issuance of a Writ of Possession in Civil Case No. 9011 is not in
the nature of a disputed claim against the bank. On the contrary, it is an action instituted by
the respondent bank itself for the preservation of its asset and protection of its property. It
was filed upon the instance of the respondent's liquidator in order to take possession of a
tract of land over which it has ownership claims.
To be sure, the liquidator took the proper course of action when it applied for a writ in the
Pasay City RTC. Act 3135,27 entitled An Act to Regulate the Sale of Property Under Special
Powers Inserted In or Annexed To Real Estate Mortgages, mandates that jurisdiction over a
Petition for Writ of Possession lies with the court of the province, city, or municipality where
the property subject thereof is situated. This is sanctioned by Section 7 of the said Act, thus:
"SECTION 7. In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance of the province or place where the property or
any part thereof is situated, to give him possession thereof during the redemption
period, furnishing bond in an amount equivalent to the use of the property for a
period of twelve months, to indemnify the debtor in case it be shown that the sale
was made without violating the mortgage or without complying with the
requirements of this Act x x x"28 (emphasis supplied)
Since the land subject of this controversy is located in Pasay City, then the city's RTC should
rightly take cognizance of the case, to the exclusion of other courts.
Anent petitioner's auxiliary contention that respondent should be held guilty of forum
shopping for not filing the case in the liquidation court, suffice it to state here that the
doctrine only ponders situations where two (or more) cases are pending before different
tribunals.29 Well to point, we have laid down the yardstick to determine whether a party
violated the rule against forum shopping as where the elements of litis pendentia are present
or where a final judgment in one case will amount to res judicata in the other.30 Inasmuch as
43
the case at bar is the only one filed by the respondent for the issuance of a writ of possession
over the subject property, there is no occasion for the doctrine to apply.
Petitioner next casts doubt on the capacity of the respondent to continue litigating the
petition for the issuance of the writ. He asserts that, being under liquidation, respondent
bank is already a "dead" corporation that cannot maintain the suit in the RTC. Hence, no writ
may be issued in its favor.
The argument is devoid of merit. A bank which had been ordered closed by the monetary
board retains its juridical personality which can sue and be sued through its liquidator. The
only limitation being that the prosecution or defense of the action must be done through the
liquidator.31 Otherwise, no suit for or against an insolvent entity would prosper. In such
situation, banks in liquidation would lose what justly belongs to them through a mere
technicality.32
That the law allows a bank under liquidation to participate in an action can be
clearly inferred from the third paragraph of the same Section 29 of The Central
Bank Act earlier quoted, which authorizes or empowers a liquidator to institute
actions, thus: "x x x and he (liquidator) may in the name of the bank or non-bank
financial intermediary performing quasi-banking functions and with the assistance
of counsel as he may retain, institute such actions as may be necessary in the
appropriate court to collect and recover accounts and assets of such institution or
defend any action filed against the institution."33 (emphasis supplied.)
It is therefore beyond dispute that respondent was legally capacitated to petition the court a
quo for the issuance of the writ.
II.
Petitioner likewise proffers one other procedural obstacle, which is the pendency of Civil Case
No. 98-0868 in Branch 231 of Pasay City RTC. The said action is the complaint he filed against
the respondent for the latter to receive and accept the redemption price of eighteen million
pesos for the subject property. He argues that the primary issue therein constitutes a
prejudicial question in relation to the present case in that if the Court therein will grant
petitioner's prayer, then this will necessarily negate the possessory writ issued by the court a
quo.
Again, we are not persuaded. A prejudicial question is one which arises in a case the
resolution of which is a logical antecedent of the issue involved therein, and the cognizance
of which pertains to another tribunal.34 It generally comes into play in a situation where a civil
action and a criminal action are both pending and there exists in the former an issue which
must be preemptively resolved before the criminal action may proceed, because howsoever
the issue raised in the civil action is resolved would be determinative juris et de jure of the

guilt or innocence of the accused in the criminal case. The rationale behind the principle of
prejudicial question is to avoid two conflicting decisions. 35
Here, aside from the fact that Civil Case No. 98-0868 and the present one are both civil in
nature and therefore no prejudicial question can arise from the existence of the two
actions,36 it is apparent that the former action was instituted merely to frustrate the Court's
ruling in the case at bar granting the respondent the right to possess the subject property. It
is but a canny and preemptive maneuver on the part of the petitioner to delay, if not prevent,
the execution of a judgment adverse to his interests. It bears stressing that the complaint for
mandamus was filed only on May 7, 1998, sixteen days after the lower court granted
respondent's petition and thirteen days after it issued the writ. It cannot then possibly
prejudice a decided case.
At any rate, it taxes our imagination why the questions raised in Case No. 98-0868 must be
considered determinative of Case No. 9011. The basic issue in the former is whether the
respondent, as the purchaser in the extra-judicial foreclosure proceedings, may be compelled
to have the property repurchased or resold to a mortgagor's successor-in-interest
(petitioner): while that in the latter is merely whether the respondent, as the purchaser in the
extrajudicial foreclosure proceedings, is entitled to a writ of possession after the statutory
period for redemption has expired. The two cases, assuming both are pending, can proceed
separately and take their own direction independent of each other.
III.
Having disposed of the jurisdictional and procedural issues, we now come to the merits of the
case. Petitioner seeks intervention in this case by virtue of the lease agreement and the deed
of assignment executed in his favor by the mortgagor (Vargas) and an alleged buyer (Angsico)
of the land, respectively. He posits that as a lessee and assignee in possession of the
foreclosed real estate, he automatically acquires interest over the subject matter of the
litigation. This interest is coupled with the fact that he introduced improvements thereon,
consisting of a one-storey building which houses a karaoke-music restaurant, allegedly to the
tune of fifteen million pesos (P15,000,000.00). Enforcing the writ, he adds, without hearing
his side would be an injustice to him.
Intervention is a remedy by which a third party, not originally impleaded in the proceeding,
becomes a litigant therein to enable him to protect or preserve a right or interest which may
be affected by such proceeding.37 The pertinent provision is stated in Section 1, Rule 19 of the
1997 Rules of Civil Procedure, thus:
"SECTION 1. Who may intervene. A person who has a legal interest in the matter
in litigation, or in the success of either of the parties, or an interest against both, or
is so situated as to be adversely affected by a distribution or other disposition of
property in the custody of the court or of an officer thereof may, with leave of
court, be allowed to intervene in the action. The court shall consider whether or
not the intervention will unduly delay or prejudice the adjudication of the rights of
44
the original parties, and whether or not the intervenor's rights may be fully
protected in a separate proceeding."38
Intervention is not a matter of right but may be permitted by the courts only when the
statutory conditions for the right to intervene is shown. 39 Thus, the allowance or disallowance
of a motion to intervene is addressed to the sound discretion of the court. 40 In determining
the propriety of letting a party intervene in a case, the tribunal should not limit itself to
inquiring whether "a person (1) has a legal interest in the matter in litigation; (2) or in the
success of either of the parties; (3) or an interest against both; (4) or when is so situated as to
be adversely affected by a distribution or other disposition of property in the custody of the
court or of an officer thereof."41 Just as important, as we have stated in Big Country Ranch
Corporation v. Court of Appeals,42 is the function to consider whether or not the intervention
will unduly delay or prejudice the adjudication of the rights of the original parties, and
whether or not the intervenor's rights may be fully protected in a separate proceeding.
The period within which a person may intervene is also restricted. Section 2, Rule 19 of the
1997 Rules of Civil Procedure requires:
"SECTION 2. Time to intervene. The motion to intervene may be filed at any time
before the rendition of judgment by the trial court, x x x"
After the lapse of this period, it will not be warranted anymore. This is because, basically,
intervention is not an independent action but is ancillary and supplemental to an existing
litigation.43
Taking into account these fundamental precepts, we rule that the petitioner may not properly
intervene in the case at bar. His insistence to participate in the proceeding is an unfortunate
case of too little, too late.
In the first place, petitioner's Ex-parte Permission to File a Motion to Intervene was submitted
to the RTC only on June 25, 1998. At that stage, the lower court had already granted
respondent's petition for the writ in an Order dated April 21, 1998. It had issued the Writ of
Possession on April 24, 1998. Petitioner's motion then was clearly out of time, having been
filed only at the execution stage. For that reason alone, it must meet the consequence of
denial. While it is true that on May 8, 1998, Vargas and S. Villanueva Enterprises moved to
quash the writ, that did not in any way affect the nature of the RTC's Order as an adjudication
on the merits. The issuance of the Order is in essence a rendition of judgment within the
purview of Section 2, Rule 19.
Allowing petitioner to intervene, furthermore, will serve no other purpose but to unduly
delay the execution of the writ, to the prejudice of the respondent. This cannot be
countenanced considering that after the consolidation of title in the buyer's name, for failure
of the mortgagor to redeem, the writ of possession becomes a matter of right. 44 Its issuance
to a purchaser in an extrajudicial foreclosure is merely a ministerial function. 45 As such, the

court neither exercises its official discretion nor judgment. 46 If only to stress the writ's
ministerial character, we have, in previous cases, disallowed injunction to prohibit its
issuance,47 just as we have held that issuance of the same may not be stayed by a pending
action for annulment of mortgage or the foreclosure itself. 48
Even if he anchors his intervention on the purported interest he has over the land and the
improvements thereon, petitioner, still, should not be allowed to do so. He admits that he is a
mere lessee and assignee. Whatever possessory rights he holds only emanate from that of
Vargas, from whom he leased the lot, and from whom his assignor/predecessor-in-interest
bought it. Therein lies the precariousness of his title. Petitioner cannot validly predicate his
supposed interest over the property in litigation on that of Vargas, for the simple reason that
as early as December 4, 1985, the latter has already been stripped of all her rights over the
land when she, as mortgagor, failed to redeem it. A mortgagor has only one year within which
to redeem her foreclosed real estate.49 After that period, she loses all her interests over it.
This is in consonance with Section 78 of the General Banking Act, 50viz.:
"x x x In the event of foreclosure, whether judicially or extrajudicially, of any
mortgage on real estate which is security for any loan granted before the passage of
this Act or the provisions of this Act, the mortgagor or debtor whose real property
has been sold at public auction, judicially or extrajudicially, for the full or partial
payment of an obligation to any bank, banking or credit institution, within the
purview of this Act shall have the right, within one year after the sale of the real
estate mortgage as a result of the foreclosure of the respective mortgage, to
redeem the property by paying the amount fixed by the court in the order or
execution x x x"51 (emphasis supplied.)
Being herself bereft of valid title and rights, Vargas can not legitimately convey any to some
other person. She could not have lawfully sold the land to Angsico nor leased it to petitioner
for her own account. It is axiomatic that one can not transmit what one does not have. 52 It
ought to follow that petitioner could not have acquired any right or interest from Vargas.
Withal, all is not lost for the petitioner. He can still fully protect his rights in Civil Case No. 98-
0868 or the complaint for mandamus he filed before Branch 231 of the Pasay City RTC. There,
he can ventilate his side to a fuller extent as that would be the more appropriate venue for
elucidating whatever legal basis he alleges in compelling the respondent to sell to him the
currently disputed land.
IV.
This brings us to petitioner's final point. He briefly asserts that his act of entering into a lease
contract with the respondent should not affect his right to redeem the subject property.
The possible legal implication of the lease on the petitioner's act of trying to redeem the
disputed lot is a question which, in our opinion, can best be resolved in the mandamus
45
complaint. Whether the agreement must be construed as a waiver on his part of exercising
his purported right of redemption is an issue best left for the court therein to decide.
Whether by acknowledging the legality of the respondent's claim and title over the land at
the time of the execution of the contract, he likewise perpetually barred himself from
redeeming the same is a matter which can be addressed most aptly in that pending action.
Hence, there is presently no need for us to squarely rule on this ultimate point.
IN VIEW WHEREOF, finding no cogent reason to disturb the assailed Decision, the instant
petition is hereby DENIED.
SO ORDERED.
Facts: Villanueva Enterprises, represented by its president, Therese Villanueva Vargas,
obtained a loan of three million pesos and one million pesos from the respondent PAIC
Savings and Mortgage Bank and the Philippine American Investments Corporation (PAIC),
respectively. To secure payment of both debts, Vargas executed in favor of the respondent
and PAIC a joint first mortgageover two parcels of land registered under her name. One of the
lots is the subject of the present case. S. Villanueva Enterprises failed to settle its loan
obligation.
Accordingly, respondent instituted extrajudicial foreclosure proceedings over the mortgaged
lots and acquired the same as the highest bidder. After the lapse of one year, title was
consolidated in respondents name for failure of Vargas to redeem. The Central Bank of the
Philippines filed a petition for assistance in the liquidation of the respondent PAIC with the
Regional Trial Court. After a few years, respondent petitioned the
RegionalTrialCourtofPasayCity for the issuance of a writ of possession for the subject
property. However, during the pendency of civil case for the issuance of a writ of possession,
Vargas executed a deed of absolute sale selling, transferring, and conveying ownership of the
disputed lot in favor of a certain Armando Angsico. Notwithstanding this sale, Vargas, still
representing herself to be the lawful owner of the property, leased the same to petitioner
Domingo R. Manalo. Later, Armando Angsico, as buyer of the property, assigned his rights
therein to petitioner. The court subsequently issued the writ of possession but Villanueva
Enterprises and Vargas moved for its quashal. Petitioner, on the strength of the lease contract
and deed of assignment made in his favor, submitted a permission to file an ex-parte motion
to intervene. Both motions were denied by the court. Court of Appeals upheld the order of
the lower court. Hence this petition.
 46

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

Held: No. The exclusive jurisdiction of the liquidation court pertains only to the adjudication
of claims against the bank. It does not cover the reverse situation where it is the bank which
files a claim against another person or legal entity.

Although the law provides that all claims against the insolvent bank should be filed in the
liquidation proceeding, such legal provision only finds operation in cases where there are
claims against an insolvent bank. In fine, the exclusive jurisdiction of the liquidation court
pertains only to the adjudication of claims against the bank. It does not cover the reverse
situation where it is the bank which files a claim against another person or legal entity.
Moreover, a bank which had been ordered closed by the monetary board retains its juridical
personality which can sue and be sued through its liquidator. The only limitation being that
the prosecution or defense of the action must be done through the liquidator. Otherwise, no
suit for or against an insolvent entity would prosper. In such situation, banks in liquidation
would lose what justly belongs to them through a mere technicality.
 47

THIRD DIVISION Respondents Spouses Maximo and Paz Landrito (Spouses Landrito) are herein represented by
their son and attorney-in-fact, Zoilo Landrito.[3]
HEIRS OF ZOILO ESPIRITU AND PRIMITIVA G.R. No. 169617
ESPIRITU,
On 5 September 1986, Spouses Landrito loaned from the Spouses Espiritu the
Petitioners,
Present: amount of P350,000.00 payable in three months. To secure the loan, the
Spouses Landritoexecuted a real estate mortgage over a five hundred forty (540) square
meter lot located in Alabang, Muntinlupa, covered by Transfer Certificate of Title No. S-48948,
YNARES-SANTIAGO, J.,
- versus - Chairperson, in favor of the Spouses Espiritu. From the P350,000.00 that the Landritos were supposed to
AUSTRIA-MARTINEZ, receive, P17,500.00 was deducted as interest for the first month which was equivalent to five
CALLEJO, SR.,
CHICO-NAZARIO, and percent of the principal debt, and P7,500.00 was further deducted as service fee. Thus, they
NACHURA, JJ. actually received a net amount of P325,000.00. The agreement, however, provided that the
SPOUSES MAXIMO LANDRITO AND PAZ
principal indebtedness earns interest at the legal rate. [4]
LANDRITO, Represented by ZOILO LANDRITO,
as their Attorney-in-Fact,
Re s p o n d e nt s . Promulgated: After three months, when the debt became due and demandable, the
Spouses Landrito were unable to pay the principal, and had not been able to make any
April 4, 2007
x--------------------------------------------------x interest payments other than the amount initially deducted from the proceeds of the
loan. On 29 December 1986, the loan agreement was extended to 4 January 1987 through an

DECISION Amendment of Real Estate Mortgage. The loan was restructured in such a way that the
unpaid interest became part of the principal, thus increasing the principal to P385,000. The
new loan agreement adopted all other terms and conditions contained in first agreement. [5]
CHICO-NAZARIO, J.:

This is a petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the
[1]
Decision of the Court of Appeals, dated 31 August 2005, reversing the Decision rendered by
the trial court on 13 December 1995. The Court of Appeals, in its assailed Decision, fixed the
interest rate of the loan between the parties at 12% per annum, and ordered the
Spouses Zoilo and Primitiva Espiritu (Spouses Espiritu) to reconvey the subject property to the
Spouses Landrito conditioned upon the payment of the loan.
Petitioners DULCE, BENLINDA, EDWIN, CYNTHIA, AND MIRIAM ANDREA, all surnamed
ESPIRITU, are the only children and legal heirs of the Spouses Zoilo andPrimitiva Espiritu, who
both died during the pendency of the case before the Honorable Court of Appeals.[2]
Due to the continued inability of the Spouses Landritos to settle their obligations
with the Spouses Espiritu, the loan agreement was renewed three more times. In all these
subsequent renewals, the same terms and conditions found in the first agreement were
retained. On 29 July 1987, the principal was increased to P507,000.00 inclusive of running
interest. On 11 March 1988, it was increased to P647,000.00. And on 21 October 1988, the
principal was increased to P874,125.00.[6] At the hearing before the trial
court, ZoiloEspiritu testified that the increase in the principal in each amendment of the loan
agreement did not correspond to the amount delivered to the Spouses Landrito. Rather, the
increase in the principal had been due to unpaid interest and other charges. [7]
The debt remained unpaid. As a consequence, the Spouses Espiritu foreclosed the
mortgaged property on 31 October 1990. During the auction sale, the property was sold to
the Spouses Espiritu as the lone bidder. On 9 January 1991, the Sheriffs Certificate of Sale was

annotated on the title of the mortgaged property, giving the Spouses Landritountil 8 January
[8]
1992 to redeem the property.
The Spouses Landrito failed to redeem the subject property although they alleged
that they negotiated for the redemption of the property as early as 30 October 1991.While
the negotiated price for the land started at P1,595,392.79, it was allegedly increased by the
Spouses Espiritu from time to time. Spouses Landrito allegedly tendered two managers
checks and some cash, totaling P1,800,000.00 to the Spouses Espiritu on 13 January 1992,
but the latter refused to accept the same. They also alleged that
SpousesEspiritu increased the amount demanded to P2.5 Million and gave them until July
1992 to pay the said amount. However, upon inquiry, they found out that on 24 June 1992,
the Spouses Espiritu had already executed an Affidavit of Consolidation of Ownership and
registered the mortgaged property in their name, and that the Register of Deeds
of Makatihad already issued Transfer Certificate of Title No. 179802 in the name of the
Spouses Espiritu. On 9 October 1992, the Spouses Landrito, represented by
son ZoiloLandrito, filed an action for annulment or reconveyance of title, with damages
against the Spouses Espiritu before Branch 146 of the Regional Trial Court of Makati.[9] Among
the allegations in their Complaint, they stated that the Spouses Espiritu, as creditors and
mortgagees, imposed interest rates that are shocking to ones moral senses. [10]
The trial court dismissed the complaint and upheld the validity of the foreclosure sale. The
trial court ordered in its Decision, dated 13 December 1995:[11]
WHEREFORE, all the foregoing premises considered, the herein complaint
is hereby dismissed forthwith.
Without pronouncements to costs.
The Spouses Landrito appealed to the Court of Appeals pursuant to Rule 41 of the
1997 Rules of Court. In its Decision dated 31 August 2005, the Court of Appeals reversed the
trial courts decision, decreeing that the five percent (5%) interest imposed by the
Spouses Espiritu on the first month and the varying interest rates imposed for the succeeding
months contravened the provisions of the Real Estate Mortgage contract which provided that
interest at the legal rate, i.e., 12% per annum, would be imposed. It also ruled that although
48
the Usury Law had been rendered ineffective by Central Bank Circular No. 905, which, in
effect, removed the ceiling rates prescribed for interests, thus, allowing parties to freely
stipulate thereon, the courts may render void any stipulation of interest rates which are
found iniquitous or unconscionable. As a result, the Court of Appeals set the interest rate of
the loan at the legal rate, or 12% per annum. [12]
Furthermore, the Court of Appeals held that the action for reconveyance, filed by
the Spouses Landrito, is still a proper remedy. Even if the Spouses Landrito failed to redeem
the the property within the one-year redemption period provided by law, the action
for reconveyance remained as a remedy available to a landowner whose property was
wrongfully registered in anothers name since the subject property has not yet passed to an
innocent purchaser for value.[13]
In the decretal portion of its Decision, the Court of Appeals ruled[14]:
their
WHEREFORE, the instant appeal is hereby GRANTED. The assailed
Decision dated December 13, 1995 of the Regional Trial Court of Makati,
Branch 146 in Civil Case No. 92-2920 is hereby REVERSED and SET ASIDE,
and a new one is hereby entered as follows: (1) The legal rate of 12% per
annum is hereby FIXED to be applied as the interest of the loan; and (2)
Conditioned upon the payment of the loan, defendants-
appellees spouses Zoilo and Primitiva Espiritu are hereby ordered
to reconvey Transfer Certificate of Title No. S-48948 to appellant
spouses Maximo and Paz Landrito.
The case is REMANDED to the Trial Court for the above determination.
Hence, the present petition. The following issues were raised:[15]
I
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING AND SETTING
ASIDE THE DECISION OF THE TRIAL COURT AND ORDERING HEREIN
PETITIONERS TO RECONVEY TRANSFER CERTIFICATE OF TITLE NO. 18918
TO HEREIN RESPONDENTS, WITHOUT ANY FACTUAL OR LEGAL BASIS
THEREFOR.
II
THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT HEREIN
PETITIONERS UNILATERALLY IMPOSED ON HEREIN RESPONDENTS THE
ALLEGEDLY UNREASONABLE INTERESTS ON THE MORTGAGE LOANS.

III
THE HONORABLE COURT OF APPEALS ERRED IN NOT CONSIDERING THAT
HEREIN RESPONDENTS ATTORNEY-IN-FACT IS NOT ARMED WITH
AUTHORITY TO FILE AND PROSECUTE THIS CASE.
The petition is without merit.
The Real Estate Mortgage executed between the parties specified that the principal
indebtedness shall earn interest at the legal rate. The agreement contained no other
provision on interest or any fees or charges incident to the debt. In at least three contracts, all
designated as Amendment of Real Estate Mortgage, the interest rate imposed was, likewise,
unspecified. During his testimony, Zoilo Espiritu admitted that the increase in the principal in
each of the Amendments of the Real Estate Mortgage consists of interest and charges. The
Spouses Espiritu alleged that the parties had agreed on the interest and charges imposed in
connection with the loan, hereunder enumerated:
1. P17,500.00 was the interest charged for the first month
and P7,500.00 was imposed as service fee.
2. P35,000.00 interest and charges, or the difference between
the P350,000.00 principal in the Real Estate Mortgage dated 5 September
1986 and the P385,000.00 principal in the Amendment of the Real Estate
Mortgage dated 29 December 1986.
3. P132,000.00 interest and charges, or the difference between
the P385,000.00 principal in the Amendment of the Real Estate Mortgage
dated 29 December 1986 and the P507,000.00 principal in the
Amendment of the Real Estate Mortgage dated 29 July 1987.
4. P140,000.00 interest and charges, or the difference between
the P507,000.00 principal in the Amendment of the Real Estate Mortgage
dated 29 July 1987 and the P647,000.00 principal in the Amendment of
the Real Estate Mortgage dated 11 March 1988.
5. P227,125.00 interest and charges, or the difference between
the P647,000.00 principal in the Amendment of the Real Estate Mortgage
dated 11 March 1988 and the P874,125 principal in the Amendment of
the Real Estate Mortgage dated 21 October 1988.
The total interest and charges amounting to P559,125.00 on the original principal
of P350,000 was accumulated over only two years and one month. These charges are not
49
found in any written agreement between the parties. The records fail to show any
computation on how much interest was charged and what other fees were imposed. Not only
did lack of transparency characterize the aforementioned agreements, the interest rates and
the service charge imposed, at an average of 6.39% per month, are excessive.
In enacting Republic Act No. 3765, known as the Truth in Lending Act, the State
seeks to protect its citizens from a lack of awareness of the true cost of credit by assuring the
full disclosure of such costs. Section 4, in connection with Section 3(3) [16] of the said law, gives
a detailed enumeration of the specific information required to be disclosed, among which are
the interest and other charges incident to the extension of credit. Section 6[17] of the same
law imposes on anyone who willfully violates these provisions, sanctions which include civil
liability, and a fine and/or imprisonment.
Although any action seeking to impose either civil or criminal liability had already
prescribed, this Court frowns upon the underhanded manner in which the
SpousesEspiritu imposed interest and charges, in connection with the loan. This is aggravated
by the fact that one of the creditors, Zoilo Espiritu, a lawyer, is hardly in a position to plead
ignorance of the requirements of the law in connection with the transparency of credit
transactions. In addition, the Civil Code clearly provides that:
Article 1956. No interest shall be due unless it has been stipulated in
writing.
The omission of the Spouses Espiritu in specifying in the contract the interest rate which was
actually imposed, in contravention of the law, manifested bad faith.
In several cases, this Court has been known to declare null and void stipulations on
interest and charges that were found excessive, iniquitous, and unconscionable. In the case
of Medel v. Court of Appeals,[18] the Court declared an interest rate of 5.5% per month on
a P500,000.00 loan to be excessive, iniquitous, unconscionable and exorbitant.Even if the
parties themselves agreed on the interest rate and stipulated the same in a written
agreement, it nevertheless declared such stipulation as void and ordered the imposition of a
12% yearly interest rate. In Spouses Solangon v. Salazar,[19] 6% monthly interest on
a P60,000.00 loan was likewise equitably reduced to a 1% monthly interest or 12% per

annum. In Ruiz v. Court of Appeals,[20] the Court found a 3% monthly interest imposed on four
separate loans with a total of P1,050,000.00 to be excessive and reduced the interest to a 1%
monthly interest or 12% per annum.
In declaring void the stipulations authorizing excessive interest and charges, the
Court declared that although the Usury Law was suspended by Central Bank Circular No. 905,
s. 1982, effective on 1 January 1983, and consequently parties are given a wide latitude to
agree on any interest rate, nothing in the said Circular grants lenders carte blancheauthority
to raise interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets.[21]
Stipulation authorizing iniquitous or unconscionable interests are contrary to
morals, if not against the law. Under Article 1409 of the Civil Code, these contracts are
inexistent and void from the beginning. They cannot be ratified nor the right to set up their
[22]
illegality as a defense be waived. The nullity of the stipulation on the usurious interest does
not, however, affect the lenders right to recover the principal of the loan. [23] Nor would it
affect the terms of the real estate mortgage. The right to foreclose the mortgage remains
with the creditors, and said right can be exercised upon the failure of the debtors to pay the
debt due. The debt due is to be considered without the stipulation of the excessive interest. A
legal interest of 12% per annum will be added in place of the excessive interest formerly
imposed.
While the terms of the Real Estate Mortgage remain effective, the foreclosure
proceedings held on 31 Ocotber 1990 cannot be given effect. In the Notice of
[24] [25]
SheriffsSale dated 5 October 1990, and in the Certificate of Sale dated 31 October 1990,
the amount designated as mortgage indebtedness amounted to P874,125.00. Likewise, in the
demand letter[26] dated 12 December 1989, Zoilo Espiritu demanded from the
Spouses Landrito the amount of P874,125.00 for the unpaid loan. Since the debt due is
limited to the principal of P350,000.00 with 12% per annum as legal interest, the previous
demand for payment of the amount of P874,125.00 cannot be considered as a valid demand
for payment. For an obligation to become due, there must be a valid demand. [27] Nor can the
foreclosure proceedings be considered valid since the total amount of the indebtedness
during the foreclosure proceedings was pegged at P874,125.00 which included interest and
which this Court now nullifies for being excessive, iniquitous and exorbitant. If the foreclosure
50
proceedings were considered valid, this would result in an inequitable situation wherein the
Spouses Landrito will have their land foreclosed for failure to pay an over-inflated loan only a
small part of which they were obligated to pay.
Moreover, it is evident from the facts of the case that despite considerable effort on
their part, the Spouses Landrito failed to redeem the mortgaged property because they were
unable to raise the total amount, which was grossly inflated by the excessive interest
imposed. Their attempt to redeem the mortgaged property at the inflated amount
ofP1,595,392.79, as early as 30 October 1991, is reflected in a letter, which creditor-
mortgagee Zoilo Landrito acknowledged to have received by affixing his signature herein.
[28]
They also attached in their Complaint copies of two checks in the amounts
of P770,000.00 and P995,087.00, both dated 13 January 1992, which were allegedly refused
by the Spouses Espiritu.[29] Lastly, the Spouses Espiritu even attached in their exhibits a copy
of a handwritten letter, dated 27 January 1994, written by Paz Landrito, addressed to the
Spouses Espiritu, wherein the former offered to pay the latter the sum of P2,000,000.00.[30] In
all these instances, the Spouses Landrito had tried, but failed, to pay an amount way over the
indebtedness they were supposed to pay i.e., P350,000.00 and 12% interest per annum. Thus,
it is only proper that the Spouses Landrito be given the opportunity to repay the real amount
of their indebtedness.
Since the Spouses Landrito, the debtors in this case, were not given an opportunity
to settle their debt, at the correct amount and without the iniquitous interest imposed, no
foreclosure proceedings may be instituted. A judgment ordering a foreclosure sale is
conditioned upon a finding on the correct amount of the unpaid obligation and the failure of
the debtor to pay the said amount. [31] In this case, it has not yet been shown that the
Spouses Landrito had already failed to pay the correct amount of the debt and, therefore, a
foreclosure sale cannot be conducted in order to answer for the unpaid debt. The foreclosure
sale conducted upon their failure to pay P874,125 in 1990 should be nullified since the
amount demanded as the outstanding loan was overstated; consequently it has not been
shown that the mortgagors the Spouses Landrito, have failed to pay their outstanding
obligation. Moreover, if the proceeds of the sale together with its reasonable rates of interest
were applied to the obligation, only a small part of its original loans would actually remain
outstanding, but because of the unconscionable interest rates, the larger part corresponded
to said excessive and iniquitous interest.
 51

As a result, the subsequent registration of the foreclosure sale cannot transfer any rights over
the mortgaged property to the Spouses Espiritu. The registration of the foreclosure sale,
herein declared invalid, cannot vest title over the mortgaged property. The Torrens system
does not create or vest title where one does not have a rightful claim over a real property. It
only confirms and records title already existing and vested. It does not permit one to enrich
oneself at the expense of another. [32] Thus, the decree of registration, even after the lapse of
one (1) year, cannot attain the status of indefeasibility.
Significantly, the records show that the property mortgaged was purchased by the
Spouses Espiritu and had not been transferred to an innocent purchaser for value. This means
that an action for reconveyance may still be availed of in this case.[33]
Registration of property by one person in his or her name, whether by mistake or fraud, the
real owner being another person, impresses upon the title so acquired the character of a
constructive trust for the real owner, which would justify an action for reconveyance.[34] This is
based on Article 1465 of the Civil Code which states that:
The last issue raised by the petitioners is whether or not Zoilo Landrito was authorized to file
the action for reconveyance filed before the trial court or even to file the appeal from the
judgment of the trial court, by virtue of the Special Power of Attorney dated 30 September
1992. They further noted that the trial court and the Court of Appeals failed to rule on this
issue.[36]
The Special Power of Attorney [37] dated 30 September 1992 was executed
by Maximo Landrito, Jr., with the conformity of Paz Landrito, in connection with the
mortgaged property. It authorized Zoilo Landrito:
2. To make, sign, execute and deliver corresponding pertinent contracts,
documents, agreements and other writings of whatever nature or kind
and to sue or file legal action in any court of the Philippines, to collect,
ask demands, encash checks, and recover any and all sum of monies,
proceeds, interest and other due accruing, owning, payable or belonging
to me as such owner of the afore-mentioned property. (Emphasis
provided.)
Zoilo Landritos authority to file the case is clearly set forth in the Special Power of

Art. 1465. If property acquired through mistakes or fraud, the person Attorney. Furthermore, the records of the case unequivocally show that Zoilo Landritofiled
obtaining it is, by force of law, considered a trustee of an implied trust for the reconveyance case with the full authority of his mother, Paz Landrito, who attended the
benefit of the person from whom the property comes. hearings of the case, filed in her behalf, without making any protest. [38] She even testified in
The action for reconveyance does not prescribe until after a period of ten years from the date the same case on 30 August 1995. From the acts of Paz Landrito, there is no doubt that she
of the registration of the certificate of sale since the action would be based on implied trust. had authorized her son to file the action for reconveyance, in her behalf, before the trial
[35]
Thus, the action for reconveyance filed on 31 October 1992, more than one year after the court.
Sheriffs Certificate of Sale was registered on 9 January 1991, was filed within the prescription
period. IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This Court AFFIRMS the assailed
Decision of the Court of Appeals, promulgated on 31 August 2005, fixing the interest rate of
It should, however, be reiterated that the provisions of the Real Estate Mortgage are not the loan between the parties at 12% per annum, and ordering the
annulled and the principal obligation stands. In addition, the interest is not completely Spouses Espiritu to reconvey the subject property to the Spouses Landritoconditioned upon
removed; rather, it is set by this Court at 12% per annum. Should the Spouses Landrito fail to the payment of the loan together with herein fixed rate of interest. Costs against the
pay the principal, with its recomputed interest which runs from the time the loan agreement petitioners. SO ORDERED.
was entered into on 5 September 1986 until the present, there is nothing in this Decision
which prevents the Spouses Espiritu from foreclosing the mortgaged property.