A.

CONSERVATORSHIP
CB vs. CA (3)
GR L-45710, 03 October 1985
FACTS:
Island Savings Bank approved a lump sum P80K loan of Tolentino secured by a
REM. But a mere P17K partial release of the loan was made; Tolentino signed a PN for
P17K. An advance interest for the P80K loan was deducted from the P17K but was
refunded to Tolentino, after being informed by the Bank that there was no fund yet
available for the release of the P63K balance.
The MB, after finding ISB was suffering liquidity problems, issued Resolution to
prohibit the bank from making new loans and investments excluding extensions or
renewals of already approved loans. The MB, after finding that ISB failed to put up the
required capital to restore its solvency, issued Resolution which prohibited ISB from doing
business in the Philippines.
ISB, in view of non-payment of the P17K covered by the pN, filed an application for
the E-J foreclosure of the REM. Tolentino filed a petition in court alleging that ISB failed to
deliver the P63K balance of the loan.
Trial court ruled against Tolentino. CA, affirmed the dismissal of Tolentino's petition
for specific performance, but it ruled that ISB can neither foreclose the real estate
mortgage nor collect the P17K loan.
ISSUE:
Will the insolvency of the bank excuse it from non-fulfillment of obligation? (NO)
HELD:
When ISB and Tolentino entered into a loan agreement they undertook reciprocal
obligations where the obligation or promise of each party is the consideration for that of
the other; and when one party has performed or is ready and willing to perform his part
of the contract, the other party who has not performed or is not ready and willing to
perform incurs in delay. The obligation of ISB to furnish the P80K loan accrued. Thus, the
Bank's delay in furnishing the entire loan lasted for a period of 3 years or when the MB of
the CB issued Resolution, which prohibited ISB from doing further business. Such
prohibition made it legally impossible for ISB to furnish the P63K balance of the loan. The
power of the MB to take over insolvent banks for the protection of the public is
recognized by Section 29 of R.A. No. 265.
The Board Resolution cannot interrupt the default of ISB in complying with its
obligation of releasing the P63K balance because said resolution merely prohibited the
Bank from making new loans and investments, and nowhere did it prohibit ISB from
releasing the balance of loan agreements previously contracted. Besides, the mere
pecuniary inability to fulfill an engagement does not discharge the obligation of the
contract, nor does it constitute any defense to a decree of specific performance. And, the
mere fact of insolvency of a debtor is never an excuse for the non-fulfillment of an
obligation but instead it is taken as a breach of the contract by him.
But since ISB is now prohibited from doing further business by MB, WE cannot
grant specific performance in favor of Tolentino. Rescission is the only alternative remedy
left.

Since both parties were in default in the performance of their respective reciprocal
obligations - ISB failed to comply with its obligation to furnish the entire loan and
Tolentino failed to comply with his obligation to pay his P17K debt within 3 years, they
are both liable for damages.

CENTRAL BANK vs. CA

GR 88353, 08 May 1992
FACTS:
CB claim that during the regular examination of the Producers Bank of the
Philippines, CB examiners stumbled upon some highly questionable loans which were
"fictitious" as they were extended, without collateral, to certain interests related to PBP
owners themselves. Said loans were deemed to be anomalous particularly because the
entire paid-in capital of the bank was utilized by PBP to fund these unsecured loans.
At the height of the controversy, several blind items about a family-owned bank
which granted fictitious loans to its stockholders appeared in major newspapers. These
news items triggered a bank-run in PBP which resulted in continuous over-drawings on
the bank's demand deposit account with the CB; thus, an indication of PBP's continuing
inability to maintain that condition of solvency and liquidity necessary to protect the
interests of its depositors and creditors. On the basis of the report submitted by the
Supervision and Examination Sector of the CB, the MB, placed PBP under
conservatorship.
While PBP admits that it had no choice but to submit to the conservatorship, it
nonetheless requested that the same be lifted by the CB. Consequently, the MB issued a
Resolution directing the principal stockholders of PBP to increase its capital accounts by
such an amount that would be necessary for the elimination of PBP's negative net worth
of P424 million. CB informed PBP the CB would be willing to lift the conservatorship
under the following conditions: (a) PBP's unsecured overdraft with the CB will be
converted into an emergency loan, to be secured by sufficient collateral; (b) A
comptroller for PBP and bank examiners designated by the CB; (c) A letter from the
Management of PBP authorizing the CB to automatically return clearing items.
The MB adopted a Resolution approving the consolidation of PBP's other unsecured
obligations to the CB with its overdraft and authorizing the conversion thereof into an
emergency loan. The same resolution authorized the CB Governor to lift the
conservatorship and return PBP's management to its principal stockholders upon
completion of the documentation and full collateralization of the emergency loan.
PBP submitted a rehabilitation plan to the CB. Although explored and discussed, no
program acceptable to both the CB and PPI was arrived at because of disagreements on
certain matters. No other rehabilitation program was submitted; as a result thereof, its
overdrafts with the CB continued to accumulate.
The CB MB decided to approve in principle what it considered a viable
rehabilitation program for PBP. There being no response from both PBP and PPI on the
proposed rehabilitation plan, the MB issued Resolution instructing CB management to
advise the bank: a. The CB conservatorship over PBP may be lifted only after PBP shall
have identified the new group of stockholders who will put in new capital in PBP and after
the MB shall have considered such new stockholders as acceptable; and b. The

stockholders of PBP have to decide whether or not to accept the terms of the
rehabilitation plan as provided.
A few days later, the PBP, without responding to the communications of the CB,
filed a complaint with the RTC against the CB, & MB asserting that the conservatorship
was unwarranted, ill-motivated, illegal, utterly unnecessary and unjustified; that the
appointment of the conservator was arbitrary; that herein petitioners acted in bad faith;
that the CB-designated conservators committed bank frauds and abuses; that the CB is
guilty of promissory estoppel; and that by reason of the conservatorship, it suffered
losses of profits and of goodwill. Judge issued a TRO and Order denying the motion to
dismiss on the grounds that: (a) the questioned MB Resolutions were issued arbitrarily
and with bad faith; (b) While it is true that under Section 28-A of the CB Act the
conservator takes over the management of a bank, the Board of Directors of such bank is
not prohibited from filing a suit to lift the conservatorship and from questioning the
validity of both the conservator's fraudulent acts and abuses and its principal's (MB)
arbitrary action; besides, PPI is now a party-plaintiff in the action.
CB filed with CA a petition for certiorari with preliminary injunction and ruled that
the CB's sudden and untimely announcement of the conservatorship over PBP eroded
the confidence which the banking public had hitherto reposed on the bank and resulted
in the bank-run; it then concluded that when the CB "peremptorily and illtimely
announced" the conservatorship, PBP was not given an opportunity to be heard since the
CB arbitrarily brushed aside administrative due process notwithstanding PBP's having
sufficiently established its inherent corporate right to autonomously perform its banking
activities without undue governmental interference that would in effect divest its
stockholders of their control over the operations of the bank.
Bank maintains that the Filing of the complaint without authority from the
conservator is an issue involving an error of judgment; besides, it would be ridiculous
and absurd to require such prior authorization from the conservator for no one expects
him to sanction the filing of a suit against his principal the CB; besides, no
administrative authority, even the CB, can nullify judicial review of administrative action
by requiring that only said administrative authority or its designated conservator can file
suit for judicial review of its actuation;

ISSUE:
WON the Judge committed grave abuse of discretion amounting to lack of
jurisdiction in not dismissing the action as the same was filed in the name of the PBP and
granting the writ of preliminary injunction.
HELD:
PBP has been under conservatorship since 20 January 1984. Pursuant to Section
28-A of the CB Act, a conservator, once appointed, takes over the management of the
bank and assumes exclusive powers to oversee every aspect of the bank's operations
and affairs. Petitioners now maintain that this power includes the authority to determine
"whether or not to maintain suit in the bank's name." The trial court overruled this
contention stating that the section alluded to "does not prohibit the Board of Directors of
a bank to file suit to lift the conservatorship over it, to question the validity of the
conservator's fraudulent acts and abuses and the arbitrary action of the conservator's
principal the MB of the CB. The conservator cannot be expected to question his own
continued existence and acts. He cannot be expected to file suit to annul the action of
his principal . . . or a suit that would point out the ill-motivation, the disastrous effects of

the conservatorship and the conservator's bank frauds and abuses as alleged in the
complaint."
Obviously, the trial court was of the impression that what was sought for is the
lifting of the conservatorship because it was arbitrarily and illegally imposed. There is
nothing in the amended complaint to reflect an unequivocal intention to ask for its lifting.
If it were to lift the conservatorship because it was arbitrarily imposed, then the case
should have been dismissed on the grounds of prescription and lack of personality to
bring the action.
The following requisites, therefore, must be present before the order of
conservatorship may be set aside by a court:
1. The appropriate pleading must be filed by the stockholders of record
representing the majority of the capital stock of the bank in the proper court;
2. Said pleading must be filed within ten (10) days from receipt of notice by said
majority stockholders of the order placing the bank under conservatorship; and
3. There must be convincing proof, after hearing, that the action is plainly arbitrary
and made in bad faith.
In the instant case, PBP was placed under conservatorship. The original complaint
was filed only 3 years, 7 months and 7 days later, long after the expiration of the 10-day
period deferred to above. It is also beyond question that the complaint and the amended
complaint were not initiated by the stockholders of record representing the majority of
the capital stock. Accordingly, the order placing PBP under conservatorship had long
become final and its validity could no longer be litigated upon before the trial court.

FIRST PHILIPPINE INTERNATIONAL BANK vs. CA

GR 115849, 24 January 1996
FACTS:
Producer Bank acquired six parcels of land used to be owned by BYME Investment
and Dev Corp which had them mortgaged with the bank as collateral for a loan. Upon the
suggestion of BYME Investments legal counsel, Jose Fajardo, met with defendant
Mercurio Rivera, Manager of the Property Management Department of the bank. The
meeting was held pursuant to plaintiffs plan to buy the property. After the meeting, a
formal purchase was offered to the bank through a letter.
There was no reply to the foregoing letter. What took place was a meeting between
the plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera as well as
Fajardo, the BYME lawyer, attended the meeting.
The conservator of the bank was replaced by an Acting Conservator. What
thereafter transpired was a series of demands by the plaintiffs for compliance by the
bank with what plaintiff considered as a perfected contract of sale, which demands were
in one form or another refused by the bank. As detailed by the trial court in its decision,
plaintiffs through a letter to defendant Rivera tendered payment of the amount of P5.5
million pursuant to perfected sale agreement. Defendants refused to receive both the
payment and the letter. Instead, the parcels of land involved in the transaction were
advertised by the bank for sale to any interested buyer. Plaintiffs demanded the

execution by the bank of the documents on what was considered as a perfected

agreement. Bank acknowledged receipt of the foregoing letter and stated, that said
letter has been referred to the office of our Conservator for proper disposition.
However, no response came from the Acting Conservator.
The letter drew no response for more than four months. Then, plaintiff, through
counsel, made a final demand for compliance by the bank with its obligations under the
considered perfected contract of sale. As recounted by the trial court, the defendants
through Acting Conservator Encarnacion repudiated the authority of defendant Rivera
and claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5
Million are unauthorized or illegal. On that basis, the defendants justified the refusal of
the tenders of payment and the non-compliance with the obligations under what the
plaintiffs considered to be a perfected contract of sale.
Plaintiffs filed a suit for specific performance with damages against the bank, its
Manager Rivera and Acting Conservator Encarnacion. The basis of the suit was that the
transaction had with the bank resulted in a perfected contract of sale. The defendants
took the position that there was no such perfected sale because the defendant Rivera is
not authorized to sell the property, and that there was no meeting of the minds as to the
price.
ISSUE:
Did the bank conservator have the unilateral power to repudiate the authority of
the bank officers and/or to revoke the said contract?
HELD:
It is not disputed that the petitioner Bank was under a conservator placed by the
CB during the time that the negotiation and perfection of the contract of sale took place.
Petitioners energetically contended that the conservator has the power to revoke or
overrule actions of the management or the board of directors of a bank, under Section
28-A of Republic Act No. 265 (otherwise known as the CB Act)
In the first place, this issue of the Conservators alleged authority to revoke or
repudiate the perfected contract of sale was raised for the first time in this Petition.
In the second place, there is absolutely no evidence that the Conservator, at the
time the contract was perfected, actually repudiated or overruled said contract of sale.
The Banks acting conservator at the time, never objected to the sale of the property.
In the third place, while the CB law gives vast and far-reaching powers to the
conservator of a bank, it must be pointed out that such powers must be related to the
preservation of the assets of the bank, the reorganization of the management and the
restoration of its viability. Such powers, enormous and extensive as they are, cannot
extend to the post-facto repudiation of perfected transactions, otherwise they would
infringe against the non-impairment clause of the Constitution.
Obviously, therefore, Section 28-A merely gives the conservator power to revoke
contracts that are, under existing law, deemed to be defective - i.e., void, voidable,
unenforceable or rescissible. Hence, the conservator merely takes the place of a banks
board of directors. What the said board cannot do - such as repudiating a contract validly
entered into under the doctrine of implied authority - the conservator cannot do either.
Ineluctably, his power is not unilateral and he cannot simply repudiate valid
obligations of the Bank. Thus, the conservator cannot revoke a contract of sale of a bank
acquired property entered into by a bank officer even though the price agreed upon is no
longer reflective of the fair market value of the property in view of appreciation in value
over time.

B. CLOSURE
CB vs. CA (2)
GR L-50031-32, 27 July 1981
FACTS:
Fernandez and Jayme are the majority and controlling stockholders of PSB Savings
Bank. A major portion of PSBs loanable funds was granted to DOSRi and the bank was
cautioned to avoid concentration of credits and to adopt a policy where loans would be
granted to a larger number of borrowers who had no financial interest in the bank.
PSB experienced a bank run which was triggered off by adverse publicity in the
media of investigations conducted by Congress that some banks were unable to pay
deposit withdrawals. In view of the unusually heavy withdrawals, PSB had no recourse
but to request emergency loans from the CB. The MB, however, denied these requests.
PSB, therefore, had to borrow from other banks like Banco Filipino. But, these loans were
not enough. As a result, PSB was forced to temporarily close its doors to the public.
Subsequently, the CB extended emergency loans to PSB in order to stop the bank
run, thus enabling PSB to reopen. Then followed a series of emergency releases. But, the
assistance given to PSB was not sufficient to meet and service the unusually heavy
withdrawal of deposits. Fernandez and Jayme appealed to the CB for continued
assistance. At one time, Fernandez and Jayme were summoned to the CB for a
conference with the Governor and were introduced to representatives of the Iglesia Ni
Kristo which had a sizeable deposit with PSB and was having difficulty in withdrawing the
same. CB decided that unless Fernandez and Jayme relinquished and turned over the
management and control of PSB to the INK, the CB would not further support and assist
the distressed PSB.
Immediately, a special meeting of the stockholders of PSB was convened and the
Articles of Incorporation of the bank was amended to comply with the terms and
stipulations contained in the MOA. A Voting Trust Agreement was, likewise, executed.
Following the transfer of management, PSB was further allowed to resume its lending
activities.
The new management caused the conversion of the deposits of INK into bills
payable earning 12% interest, which were subsequently withdrawn and also failed to
comply with the MB directives relative to the rehabilitation of the bank so that it restored
the interest rate of 12% on outstanding loans. Various irregularities detrimental to PSB
were also perpetrated by the new management despite the presence of resident CB
examiners. The INK likewise facilitated or caused the assignment and mortgage of PSBs
various assets, receivables, and interests in favor of the Eagle Broadcasting Corporation.
Manalo resigned as Chairman and President of PSB, giving rise to large withdrawals
from its big depositors. PSB had to seek assistance from other banks to prevent the
recurrence of another bank run. But, the financial condition of PSB continued to worsen,
the MB, after considering further that the principal stockholders have not come up with
concrete and substantial proposals towards the rehabilitation of the PSB Savings Bank,
which proposals were required of them in the conference; decided to forbid the PSB
Savings Bank to do business in the Philippines.

Fernandez and Jayme filed a petition to annul and set aside the MB Resolution and
to restrain the CB from liquidating PSB, and, instead, to order the CB to comply with its
commitments to the petitioners and reorganize and rehabilitate PSB in the manner it did
to the Overseas Bank of Manila, as well as for damages and costs. The CB answered that
PSB was insolvent and its condition warranted closure under Sec. 29 of Republic Act No.
265.
Lower Court Ruled against CB. CB claims that the lower court erred in not holding
that there can be no estoppel against the petitioner in view of the latters valid exercise
of police power by its lawful overseeing of PSB Savings Bank.
ISSUE:
On police power subject to judicial review (YES)
HELD:
No, while the closure and liquidation of a bank may be considered an exercise of
police power, the validity of such exercise of police power is subject to judicial inquiry
and could be set aside if it is capricious, discriminatory, whimsical, arbitrary, unjust, or a
denial of the due process and equal protection clauses of the Constitution.
In the cases under consideration, it is not disputed that the CB had committed
itself to support PSB and restore it to its former sound financial position provided that
Fernandez and Jayme should relinquish and give up its control and management of the
bank to the INK, and thereafter, whimsically withdrew such support to the detriment of
PSB.

OVERSEAS BANK OF MANILA vs. CA

GR L-45866, 19 April 1989
FACTS:
A contract of sale between NAWASA, as vendor and Regalado, as vendee, and the
amount of P327,257.20 was placed on a time deposit with the Overseas Bank by
NAWASA. The amount corresponding to a payment earlier made by Regalado to the
NAWASA, and the time deposit was made so that a refund could quickly be made to
Regalado in the event that his contract with the NAWASA be disapproved by the Office of
the President.
A second payment having been made by Regalado in the same sum in connection
with his contract, another time deposit was made by NAWASA with the Overseas Bank,
this time in the amount of P2,945,314.80, respresenting the balance of the purchase
price due from Regalado. The period of this second deposit was fixed at 1 year.
NAWASA wrote to the Overseas Bank advising that the first time deposit, NAWASA
wished to withdraw it immediately, and the second time deposit of P2,945,314.80, it
intended to withdraw it 60 days thereafter as authorized by the parties' agreement set
forth in the certificate of the deposit. The Overseas Bank having failed to remit to it. It
did however pay to NAWASA interest on its time deposit.
After maturity of the second time deposit, NAWASA again demanded remittance of
both time deposits. Having received no response, wrote to the CB Governor about the
matter and brought suit to recover its deposits. The Overseas Bank failed to file its
answer despite service of summons; it was declared in default; the Court received
NAWASA's evidence ex parte and on the basis thereof, thereafter rendered judgment by

default. The Overseas Bank made no effort whatever to have the order of default lifted,
or to have the judgment by default reconsidered. After being served with notice of the
judgment, it simply brought the case up to the CA.
The CA declared the appeal to be without merit and affirmed the decision against
Overseas Bank. The argument advanced by the Overseas Bank is that by reason of
"punitive action taken by the CB," it had been prevented from undertaking banking
operations "which would have generated funds to pay not only its depositors and
creditors but likewise, the interests due on the deposits."
HELD:
The suspension of operations which took place in August, 1968, could not possibly
excuse non-compliance with the obligations in question which matured in 1966. Again,
the claim that the CB, by suspending the Overseas Bank's banking operations, had made
it impossible for the Overseas Bank to pay its debts, whatever validity might be accorded
thereto, or the further claim that it had fallen into a "distressed financial situation,"
cannot in any sense excuse it from its obligation to the NAWASA, which had nothing
whatever to do with the CB's actuations or the events leading to the bank's distressed
state.
Also futile is the petitioner's invocation of this Court's decision in Ramos v. CB,
ordering the "rehabilitation, normalization and stabilization of the Overseas Bank of
Manila," Obviously, the failure of the CA to apply such a rehabilitation program to the
case cannot be error, as the petitioner deposits since the program was approved after
the CA had rendered judgment. Furthermore, that rehabilitation program or procedure of
payment does not in any way negate or diminish the indebtedness of the Overseas Bank
to the NAWASA incurred in 1966, for conceding full faith and credit to such a prescribed
procedure of payment, it constitutes no obstacle to determining the principal and
interests of the debts at issue at this time.
BANCO FILIPINO vs. MONETARY BOARD
GR 70054, 11 December 1991
FACTS:
Top Management Programs Corp obtained a loan from Banco Filipino as evidenced
by a PN. The loan was secured by REM. Likewise, Pilar Dev obtained loans from Banco
Filipino and mortgaged various properties. El Grande Dev Corp was granted a loan
secured by REM.
The MB issued a resolution finding Banco Filipino insolvent and unable to do
business without loss to its creditors and depositors. It placed Banco Filipino under
receivership of Carlota Valenzuela, Deputy Governor of the CB. The MB issued another
resolution placing the bank under liquidation and designating Valenzuela as liquidator. By
virtue of her authority as liquidator, Valenzuela appointed the law firm of Sycip, Salazar
to represent Banco Filipino in all litigations.
Banco Filipino filed the petition for certiorari questioning the validity of the
resolutions issued by the MB authorizing the receivership and liquidation of Banco
Filipino.
In a resolution the SC resolved to issue a TRO enjoining executing further acts of
liquidation of the bank; that acts such as receiving collectibles and receivables or paying
off creditors' claims and other transactions pertaining to normal operations of a bank are
not enjoined. The CB is ordered to designate a comptroller for Banco Filipino.

Subsequently, Top Management and Pilar Development failed to pay its loan on the
due date. Hence, the law firm of Sycip, Salazar acting as counsel for Banco Filipino under
authority of Valenzuela as liquidator, applied for extra-judicial foreclosure of the
mortgage over Top Management's properties. El Grande failed to pay its indebtedness to
Banco Filipino, Carlota Valenzuela, initiated the foreclosure.
Companies filed a petition for injunction and prohibition. El Grande filed a petition
for prohibition with the CA alleging that respondent Carlota Valenzuela could not proceed
with the foreclosure of its mortgaged properties on the ground that this Court issued a
resolution which restrained Carlota Valenzuela from acting as liquidator and allowed
Banco Filipino to resume banking operations only under a CB comptroller. CA rendered a
decision dismissing the petitions.
Companies now allege that Valenzuela, appointed by the MB as liquidator of Banco
Filipino, has no authority to proceed with the foreclosure sale of petitioners' properties on
the ground that the resolution of the issue on the validity of the closure and liquidation of
Banco Filipino is still pending with this Court.
Banco Filipino filed a complaint to annul the resolution of the MB, which ordered
the closure of the bank and placed it under receivership.
CB and the receivers filed a motion to dismiss the complaint on the ground that the
receivers had not authorized anyone to file the action. In a supplemental motion to
dismiss, the CB cited the resolution of this Court whereby We held that a complaint
questioning the validity of the receivership established by the CB becomes moot and
academic upon the initiation of liquidation proceedings.
Movant contends that the petitioner has no more personality to continue
prosecuting the instant case considering that petitioner bank was placed under
receivership by the CB.
A petition for certiorari was filed contending that a bank which has been closed
and placed under receivership by the CB under Section 29 of RA 265 could file suit in
court in its name to contest such acts of the CB, without the authorization of the CBappointed receiver.
ISSUES:
1. WON the liquidator has the authority to prosecute as well as to defend suits, and to
foreclose mortgages for and in behalf of the bank?
2. Is the receivership and liquidation of the bank pending resolution valid?
3. Can the CB be sued to fulfill financial commitments of a closed bank pursuant to
Section 29 of the CB Act?
HELD:
Section 29 of the CB Act, provides that when a bank is forbidden to do and placed
under receivership, the person designated as receiver shall immediately take charge of
the bank's assets and liabilities, as expeditiously as possible, collect and gather all the
assets and administer the same for the benefit of its creditors, and represent the bank
personally or through counsel as he may retain in all actions or proceedings for or
against the institution, exercising all the powers necessary for these purposes including,
but not limited to, bringing and foreclosing mortgages in the name of the bank. If the MB
shall later determine and confirm that banking institution is insolvent or cannot resume
business safety to depositors, creditors and the general public, it shall, public interest
requires, order its liquidation and appoint a liquidator who shall take over and continue
the functions of receiver previously appointed by MB.
When the issue on the validity of the closure and receivership of Banco Filipino
bank was raised, pendency of the case did not diminish the powers and authority of the

designated liquidator to effectuate and carry on the administration of the bank. In fact
when We adopted and issued a restraining order to MB and CB, We enjoined further acts
of liquidation. Such acts of liquidation, as explained in Sec. 29 of the CB Act are those
which constitute the conversion of the assets of the banking institution to money or the
sale, assignment or disposition of creditors and other parties for the purpose of paying
debts of such institution. We did not prohibit however acts as receiving collectibles and
receivables or paying off credits claims and other transactions pertaining to normal
operate of a bank. There is no doubt that the prosecution of suits collection and the
foreclosure of mortgages against debtors the bank by the liquidator are among the usual
and ordinary transactions pertaining to the administration of a bank.
Notwithstanding this, the liquidator is empowered under the law to continue the
functions of receiver is preserving and keeping intact the assets of the bank in
substitution of its former management, and to prevent the dissipation of its assets to the
detriment of the creditors of the bank. These powers and functions of the liquidator in
directing the operations of the bank in place of the former management or former
officials of the bank include the retaining of counsel of his choice in actions and
proceedings for purposes of administration.
Clearly, the liquidator by himself or through counsel has the authority to bring
actions for foreclosure of mortgages executed by debtors in favor of the bank and is
likewise authorized to resist or defend suits instituted against the bank by debtors and
creditors of the bank and by other private persons. Due to the afore stated reasons, the
CB cannot be compelled to fulfil financial transactions entered into by Banco Filipino
when the operations of the latter were suspended by reason of its closure. The CB
possesses those powers and functions only as provided for in Sec. 29 of the CB Act.
While We recognize the actual closure of Banco Filipino and the consequent legal
effects thereof on its operations, We hold that the closure and receivership of petitioner
bank, which was ordered by respondent MB is null and void.
The MB may order the cessation of operations of a bank in the Philippine and place
it under receivership upon a finding of insolvency or when its continuance in business
would involve probable loss its depositors or creditors. If the MB shall determine and
confirm within 60 days that the bank is insolvent or can no longer resume business with
safety to its depositors, creditors and the general public, it shall, if public interest will be
served, order its liquidation.
There is no question that under Section 29 of the CB Act, the following are the
mandatory requirements to be complied with before a bank found to be insolvent is
ordered closed and forbidden to do business in the Philippines: Firstly, an examination
shall be conducted by the head of the appropriate supervising or examining department
or his examiners or agents into the condition of the bank; secondly, it shall be disclosed
in the examination that the condition of the bank is one of insolvency, or that its
continuance in business would involve probable loss to its depositors or creditors; thirdly,
the department head concerned shall inform the MB in writing, of the facts; and lastly,
the MB shall find the statements of the department head to be true.
The Tiaoqui Report based his report on an incomplete examination of the bank and
outrightly concluded therein that the latter's financial status was one of insolvency or
illiquidity. He arrived at the said conclusion from the following facts: that total capital
accounts consisting of paid-in capital and other capital accounts such as surplus, surplus
reserves and undivided profits aggregated P351.8 million; that capital adjustments,
however, wiped out the capital accounts and placed the bank with a capital deficiency
amounting to P334.956 million; that the biggest adjustment which contributed to the
deficit is the provision for estimated losses on accounts classified as doubtful and loss
which was computed at P600.4 million pursuant to the examination. This provision is also

known as valuation reserves which was set up or deducted against the capital accounts
of the bank in arriving at the latter's financial condition.
Tiaoqui however admits the insufficiency and unreliability of the findings of the
examiner as to the setting up of recommended valuation reserves from the assets of
petitioner bank.
The examination contemplated in Sec. 29 of the CB Act as a mandatory
requirement was not completely and fully complied with. Despite the existence of the
partial list of findings in the examination of the bank, there were still highly significant
items to be weighed and determined such as the matter of valuation reserves, before
these can be considered in the financial condition of the bank. It would be a drastic move
to conclude prematurely that a bank is insolvent if the basis for such conclusion is
lacking and insufficient, especially if doubt exists as to whether such bases or findings
faithfully represent the real financial status of the bank.
We recognize the fact that it is the responsibility of the CB to administer the
monetary, banking and credit system of the country and that its powers and functions
shall be exercised by the MB. Consequently, the power and authority of the MB to close
banks and liquidate them thereafter when public interest so requires is an exercise of the
police power of the state. Police power, however, may not be done arbitratrily or
unreasonably.
However, as to the requirement of notice and hearing, Sec. 29 of RA 265 does not
require a previous hearing before the MB implements the closure of a bank, since its
action is subject to judicial scrutiny as provided for under the same law.
There is no doubt that the CB Act vests authority upon the CB and MB to take
charge and administer the monetary and banking system of the country and this
authority includes the power to examine and determine the financial condition of banks
for purposes provided for by law, such as for the purpose of closure on the ground of
insolvency stated in Section 29 of the CB Act. But express grants of power to public
officers should be subjected to a strict interpretation, and will be construed as conferring
those powers which are expressly imposed or necessarily implied.

RURAL BANK OF SAN MIGUEL vs. MB

516 SCRA 154
FACTS:
Rural Bank of San Miguel is a corporation duly engaged in banking and Soriano
claims to be the majority stockholder of its outstanding shares of stock.
The MB prohibited RBSM from doing business in the Philippines placing it under
receivership and designating PDIC as receiver.
RBSM filed a petition in the RTC to nullify and set aside the resolution of the MB.
However, this was withdrawn by RBSM and on the same day filed a special civil action for
certiorari and prohibition in the CA. The RTC dismissed the case.
RBSM was unable to pay its liabilities as they became due in the original course of
business and was found that they cannot continue business without involving probable
losses to its depositors and creditors.
The MB after evaluating and deliberating on the findings, issued closure order and
took over the management of RBSMs assets and affairs.
They contend that there was no complete examination conducted before it was
issued.

ISSUE:
WON it is a requirement to have a current and complete examination of the bank
before it can be closed and placed under receivership.
HELD:
The closure of a bank may be considered as an exercise of police power and the
acton of the monetary board on the matter is final and executor. Unlike under RA 265
which required that an examination should be made before the MB could issue a closure
order, RA 7653 requires only a report of the head of the supervising and examining
department. Current and complete examination of the bank is not necessary before it
can be closed and placed under receivership. The purpose of the law is to make the
closure of the bank summary and expeditious in order to protect public interest. Prior
notice and hearing are no longer required.

C. RECEIVERSHIP
CB v. CA (1985)
SPS LIPANA vs. DEVELOPMENT BANK OF RIZAL
GR 73884, 24 September 1987
FACTS:
Spouses opened and maintained time and savings deposits with Development
Bank of Rizal. When some of the Time Deposit Certificates matured, spouses 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, spouses filed with the RTC a Complaint for collection of a sum of money.
Lower Court renders judgment in favor of the spouses. Meanwhile, the MB, finding
that the condition of bank was one of insolvency and that its continuance in business
would result in probable loss to its depositors and creditors, decided to place it under
receivership. Spouses filed a Motion for Execution Pending Appeal and judge ordered the
issuance of a writ of execution. Bank filed a Motion for reconsideration and judge stayed
the execution.
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 exemption to
the execution of judgements.
ISSUE: Can judge legally stay execution of judgment that has already become final and
executory? (YES)
HELD:
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 or when certain facts and circumstances transpired after
the judgment became final which could render the execution of the judgment unjust.

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, after the MB 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.
The time of the filing of the complaint is immaterial. It is the execution that win
obviously prejudice the other depositors and creditors. Moreover, effect of the judgment
is only to fix the amount of the debt, and not give priority over other depositors and
creditors.

D. LIQUIDATION
APOLLO SALUD vs. CB (4)
GR L-17620, 19 August 1986
FACTS:
Whenever it shall appear prima facie that a banking institution is in a condition of
insolvency or so situated that its continuance in business would involve probable loss to
its depositors or creditors, the MB has authority: First, to forbid the institution to do
business and appoint a receiver therefor; and Second, to determine, within 60 days,
whether or not the institution may be reorganized and rehabilitated to be permitted to
resume business with safety to depositors, creditors and the general public; or it is
indeed insolvent or cannot resume business and public interest requires that it be
liquidated - its liquidation will be ordered and a liquidator appointed by the MB. The CB
shall thereafter file a petition in the RTC praying for the Court's assistance in the
liquidation of the bank.
The actions of the MB in this regard are explicitly declared to be "final and
executory." They may not be set aside or even restrained or enjoined by the court,
except only upon "convincing proof that the action is plainly arbitrary and made in bad
faith."
A "Petition for Assistance in the Liquidation of the Rural Bank of Muntinlupa, Inc."
was filed with the Court by the CB. The petition alleged that on the strength of said
provision, the MB had adopted 2 resolutions forbidding the Muntinlupa Bank to do
business; and ordering liquidation of the Bank.
The petition prayed that the Court "approve petitioners' request for assistance,"
that it render such assistance in fact, and also that it "grant such other reliefs as may be
just and equitable."
Muntinlupa Bank filed an objection that the liquidation was premature and void,
because prior to liquidation, it is the CB's "primordial duty to reorganize the

management and to restore its viability;" and was "arbitrary and in bad faith" because
Bank is still capable of rehabilitation, and inconsistent with prior actions of the CB of
rehabilitating "similarly distressed banks, the Republic Bank and the Overseas Bank of
Manila, among several others".
RTC ruled that conservatorship, and not liquidation was the appropriate and
"mandatory" remedy. The IAC declared that while the MB had power to determine
"whether a rural bank's continuance in business would involve probable loss to its clients
or creditors, etc.," the matter of "whether or not such findings by the MB is equipped
with abuse in its issuance is subject to judicial inquiry," however, because the RTC
"dismissed outright the petition for assistance... on the basis of respondents' opposition"
without a "hearing held for both parties to substantiate their allegations ... in their
respective pleadings," it had exceeded its authority.
Muntinlupa Bank's position is that under Section 29 of the CB Act, the RTC has
jurisdiction to adjudicate the question of whether the action of the MB in directing its
dissolution was in the premises, and in the language of the statute, "arbitrary and made
in bad faith;"
The CB assert that, a RTC has no jurisdiction of the issue of whether or not the MB
resolution is "arbitrary and made in bad faith,"- in which a petition for assistance in the
liquidation of a rural bank is filed by the CB- where that issue is raised in the same
proceeding either by an opposition or motion to dismiss. They argue that that issue may
only be raised in a separate action or proceeding. To raise the question of whether
liquidation is justified in the assistance proceeding is to conduct a collateral attack on the
liquidation. This is so because the factual basis of the liquidation- the insolvency of the
bank-has to have a full-blown hearing.
HELD:
Resolutions of the MB under Section 29 of the CB Act, forbidding banking
institutions to do business on account of a "condition of insolvency" or because "its
continuance in business would involve probable loss to depositors or creditors;" or
appointing a receiver to take charge of the bank's assets and liabilities; or determining
whether the banking institutions may be rehabilitated, or should be liquidated and
appointing a liquidator towards this end are by law "final and executory". But they "can
be set aside by the court" on one specific ground, and that is, "if there is convincing
proof that the action is plainly arbitrary and made in bad faith." The CB concedes this
power in "the court," but insists that that setting aside cannot be done in the same
proceeding for assistance in liquidation, but in a separate action instituted specifically for
the purpose.
This Court perceives no reason whatever why a banking institution's claim that a
resolution of the MB under Section 29 of the CB Act should be set aside as plainly
arbitrary and made in bad faith cannot be asserted as an affirmative defense or a
counterclaim in the proceeding for assistance in liquidation, but only as a cause of action
in a separate and distinct action. Nor can this Court see why "a full-blown hearing" on
the issue is possible only if it is asserted as a cause of action, but not when set up by
way of an affirmative defense, or a counterclaim. There is no provision of law which
expressly or even by implication imposes the requirement for a separate proceeding
exclusively occupied with adjudicating this issue. Moreover, to declare the issue as
beyond the scope of matters cognizable in a proceeding for assistance in liquidation
would be to engender that multiplicity of proceedings which the law abhors. Indeed, the
failure to assert, as a ground of defense or objection to a proceeding for assistance in
liquidation, the fact that the resolution of the MB authorizing the initiation of such a
proceeding is "arbitrary and made in bad faith" would constitute a waiver thereof.

BANCO FILIPINO v. CB (1991)

RURAL BANK OF STA. CATALINA vs. LAND BANK
GR 148019, 26 July 2004
FACTS:
Land Bank filed a complaint against Sta. Catalina Rural Bank for the collection of a
sum of money. Trial court issued an Order declaring the petitioner bank in default for its
failure to file its answer. Despite its receipt of the copy of the said order, the petitioner
bank failed to file a motion to set aside the order of default.
In the meantime, the MB approved the placement of the petitioner banks assets
under receivership under Section 29. The PDIC was designated as receiver, and the latter
was prohibited from doing business.
Unaware of the action of the CB, the trial court, rendered judgment by default
against the petitioner bank. The petitioner, appealed the decision to the CA. The PDIC
submitted a Report to the MB that the petitioner bank remained insolvent, and that its
management failed to rehabilitate the said bank.
The bank appealed and claimed that since it was placed under receivership and
prohibited from doing business, it should no longer be held liable for interests and
penalties on its account to the respondent bank.
CA affirming the decision of the RTC. The CA ruled that having failed to file a
motion for recon of the trial courts order declaring it in default before such court
rendered judgment, the petitioner bank was precluded from invoking receivership, and
its exemption from liability for interests and penalties after the said date.
ISSUE: Is petitioner liable for interests and penalties, when its assets and affairs were
placed under receivership and was prohibited from doing business? (YES)
HELD:
Records show that petitioner was served with a copy of summons and the
complaint, but failed to file its answer and motion to set aside the Order of default.
The PDIC was designated by the CB of the Philippines as receiver (conservator) as
early as January 14, 1998, and in the course of its management of the petitioner banks
affairs, it should have known of the pendency of the case against the latter in the trial
court. Moreover, the petitioner, through the PDIC, received a copy of the decision of the
trial court, but did not bother filing a motion for partial reconsideration, appending
thereto the orders of the MB or a motion to set aside the order of default. Instead, the
petitioner appealed the decision, and even failed to assign as an error the default order
of the trial court. The petitioner is, thus, barred from relying on the orders of the MB of
the CB of the Philippines placing its assets and affairs under receivership and ordering its
liquidation.
Consequently, it cannot rely on the rule that a bank placed under receivership is
not liable to pay interest and penalty on its loan accounts with another bank.

LAW ON SECRECY OF BANK DEPOSITS

2. PROHIBITED ACTS
EMMANUEL OATE vs. HON. ZEUS ABROGAR
GR 107303, 23 February 1995
FACTS:
Petitioners maintain that the attachment of their properties was void because the
trial court had not at that time acquired jurisdiction over them and that the subsequent
service of summons on them did not cure the invalidity of the levy. They further contend
that the examination of the books and ledgers of the BPI, PNB and the Urban Bank was a
"fishing expedition" which the trial court should not have authorized because petitioner
Oate, whose accounts were examined, was not a signatory to any of the documents
evidencing the transaction between Sun Life and Brunner Development Corp.
On the other hand private respondent Sun Life stresses the fact that the trial
court eventually acquired jurisdiction over petitioners and contends that this cured the
invalidity of the attachment of petitioners' properties. With respect to the second
contention, private respondent argues that the examination of petitioner Oate's bank
account was justified because it was he who signed checks transferring huge amounts
from Brunner's account in the Urban Bank to the PNB and the BPI.
Sun Life defends these court orders on the ground that the money paid by it to
Brunner was subsequently withdrawn from the Urban Bank after it had been deposited
by Brunner and then transferred to BPI and to the unnamed account in the petitioner
Oate's account in the BPI and to the unnamed account in the PNB.
In its complaint, Sun Life alleges that Oate, in his personal capacity and as
president of Econ, offered to sell to Sun Life P46,990,000.00 worth of treasury bills
owned by Econ and Brunner at the discounted price of P39,526,500.82; that, Sun Life
paid the price by means of a check payable to Brunner; that Brunner, through its
president Dio, issued to it a receipt with undertaking to deliver the treasury bills to Sun
Life; and that on December 4, 1991, Brunner and Dio delivered instead a promissory
note in which it was made to appear that the transaction was a money placement
instead of sale of treasury bills.
ISSUE:
whether the money paid to Brunner was the consideration for the sale of treasury
bills or for placement. whether the transaction is considered a sale or money placement
does not make the money the "subject matter of litigation" within the meaning of 2 of
Republic Act No. 1405 which prohibits the disclosure or inquiry into bank deposits except
"in cases where the money deposited or invested is the subject matter of litigation." Nor
will it matter whether the money was "swindled" as Sun Life contends.

HELD:
We likewise find petitioners' second contention to be meritorious. The records show
that respondent judge ordered the examination of the books of accounts and ledgers of
Brunner at the Urban Bank, the records of account of petitioner Oate at the BPI, even as
he ordered the PNB to produce the records regarding certain checks deposited in it.

The examination of the bank account in which the money paid by an insurance
company for treasury bills was deposited is prohibited by RA 1405 even if the insurance
company sued the seller of the treasury bills for failure to deliver the treasury bills, for
the money is not the subject matter of the litigation.
UNION BANK vs. CA and ALLIED BANK
GR 134699, 23 December 1999

FACTS:
A check in the amount of P1M was drawn against an account with Allied Bank
payable to the order of one Jose Alvarez. The payee deposited the check with Union Bank
who credited the P1M to the account of Mr. Alvarez. The check was sent for clearing
through the Philippine Clearing House. When the check was presented for payment, a
clearing discrepancy was committed by Union Bank's clearing staff when the amount of
P1M was erroneously under-encoded to P1K only.
Petitioner only discovered the under-encoding almost a year later. Thus, Union
Bank notified Allied Bank of the discrepancy by way of a charge slip for P999,000 for
automatic debiting against of Allied Bank. The latter refused to accept the charge slip
since the transaction was completed per your Union Bank's original instruction and
client's account is now insufficiently funded.
Subsequently, Union Bank filed a complaint against Allied Bank before the PCHC
Arbitration Committee.
Thereafter, Union Bank filed in the RTC of Makati a petition for the examination of
the Account. Judgment on the arbitration case was held in abeyance pending the
resolution of said petition.
The RTC dismissed Union Bank's petition. CA affirmed the dismissal of the petition,
ruling that the case was not one where the money deposited is the subject matter of the
litigation.
Union Bank is now before this Court insisting that the money deposited in Account
No. 0111-01854-8 is the subject matter of the litigation, contending that the CA confuses
the "cause of action" with the "subject of the action." 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.
ISSUE:
WON the case at bar falls under the last exception is the issue in the instant petition.
HELD:
Sec. 2 of the Law on Secrecy of Bank Deposits, as amended, declares bank deposits to
be "absolutely confidential" except:
(1) In an examination made in the course of a special or general examination of a bank
that is specifically authorized by the Monetary Board after being satisfied that there is
reasonable ground to believe that a bank fraud or serious irregularity has been or is

being committed and that it is necessary to look into the deposit to establish such fraud
or irregularity,
(2) In an examination made by an independent auditor hired by the bank to conduct its
regular audit provided that the examination is for audit purposes only and the results
thereof shall be for the exclusive use of the bank,
(3) Upon written permission of the depositor,
(4) In cases of impeachment,
(5) Upon order of a competent court in cases of bribery or dereliction of duty of public
officials, or
(6) In cases where the money deposited or invested is the subject matter of the
litigation.
In Mellon Bank cases, it involved the money deposited being the subject matter of
the litigation since the money so deposited was the very thing in dispute. This, however,
is not the case here.
Petitioner's theory is that private respondent Allied Bank should have informed petitioner
of the under-encoding
The following argument adduced by petitioner in the Arbicom case leaves no doubt
that petitioner is holding private respondent itself liable for the discrepancy:
Defendant by its acceptance thru the clearing exchange of the check deposit from its
client cannot be said to be free from any liability for the unpaid portion of the
check amount considering that defendant as the drawee bank, is remiss in its duty of
verifying possible technicalities on the face of the check.
Since the provisions of the PCHC Rule Book has so imposed upon the defendant
being the Receiving Bank of a discrepant check item to give that timely notification and
defendant failing to comply with such requirement, then it can be said that defendant is
guilty of negligence. He who is guilty of negligence in the performance of its duty is
liable for damages. (Art. 1170, New Civil Code.)
Art. 1172 of the Civil Code provides that: "Responsibility arising from negligence in the
performance of every kind of obligation is also demandable, but such liability may be
regulated by the courts, according to the circumstances.
In short, petitioner is fishing for information so it can determine the culpability of
private respondent and the amount of damages it can recover from the latter. It does not
seek recovery of the very money contained in the deposit. The subject matter of the
dispute may be the amount of P999,000.00 that petitioner seeks from private
respondent as a result of the latter's alleged failure to inform the former of the
discrepancy; but it is not the P999,000.00 deposited in the drawer's account. By the
terms of R.A. No. 1405, the "money deposited" itself should be the subject matter of the
litigation.
That petitioner feels a need for such information in order to establish its case against
private respondent does not, by itself, warrant the examination of the bank deposits. The
necessity of the inquiry, or the lack thereof, is immaterial since the case does not come
under any of the exceptions allowed by the Bank Deposits Secrecy Act.
3. DEPOSITS COVERED
CARMEN INTENGAN v. CA
GR 128996, 15 February 2002
FACTS:

Citibank filed a complaint for violation of section 31, in relation to section 144 of
the Corporation Code against two (2) of its officers, Santos and Genuino. Attached to the
complaint was an affidavit executed by Lim, a vice-president of Citibank. Pertinent
portions of his affidavit states that The investigation in which he was asked to participate
was undertaken because the bank had found records/evidence showing that the 2
officers appeared to have been actively engaged in business endeavors that were in
conflict with the business of the bank. In the course of the investigation, he 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 Corp
for subsequent investment in securities, shares of stocks and debt papers in other
companies were as follows: Carmen Intengan, Rosario Neri, 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 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. Provincial
Prosecutor directed the filing of informations against private respondents for alleged
violation of Republic Act No. 1405.
Private respondents counsel then filed an appeal before the DOJ, and its
Secretary, Drilon issued a Resolution ordering the withdrawal of the aforesaid
informations against private respondents.
The CA rendered judgment dismissing the petition stating: Clearly, the disclosure
of petitioners deposits was necessary to establish the allegation that Santos and
Genuino had violated Section 31 of the Corporation Code. Although petitioners were not
the parties involved, 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. 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.
HELD:
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,
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 of R.A. No. 9160 otherwise known as the Anti-Money Laundering Act.
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.
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. Applying Act No.
3326, the offense prescribes in eight years. 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. In her complaint-affidavit, 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. As to Brawner, the material date is January 5, 1994. Based on any of these dates,
prescription has set in.
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.
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; on the other, ignorantia legis non excusat. 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.
JOSEPH EJERCITO vs. SANDIGANBAYAN
GR 157294-95, 30 November 2006
FACTS:
Joseph Estrada was charged with plunder. In criminal case of People v. Estrada, the
Special Prosecution Panel filed before the Sandiganbayan a Request for Issuance of
Subpoena Duces Tecum for the issuance of a subpoena directing the President of Export
and Industry Bank to produce documents during the hearings like Trust Accounts, Trading
Orders, managers checks, Signature Cards; and Statement of Account/Ledger.
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.
Petitioner, filed before the Sandiganbayan a letter of even date expressing his
concerns stating that the prosecution must be aware of our banking secrecy laws and it
seems it is even going to use supposed evidence which I have reason to believe could
only have been illegally obtained.
In open court, the Special Division of the Sandiganbayan, Justice 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.

Petitioner, unassisted by counsel, thus filed a Motion to Quash Subpoena Duces

Tecum/Ad Testificandum praying that the subpoenas previously issued to the President of
the EIB be quashed.
In his Motion to Quash, petitioner claimed that his bank accounts are covered by
R.A. No. 1405 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 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. The Sandiganbayan issued
a Resolution denying petitioners Urgent Motion to Quash.
Respondent People posits that Trust Account 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.
ISSUES:
1. Whether a Trust Account is covered by the term "deposit" as used in R.A. 1405;
2. Whether Trust and Savings Account are excepted from the protection of R.A. 1405
HELD:
I.
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. 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.
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."
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.
II.
Petitioner contends that since plunder is neither bribery nor dereliction of duty, his
accounts are not excepted from the protection of R.A. 1405. PNB v. Gancayco 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.
III.
Petitioner relies on Marquez v. Desierto where the Court held that the account holder
must be notified to be present during the inspection may not be applied retroactively to
the inquiry if the ombudsman subject of this case since said ruling is not a judicial
interpretation but a judge-made-law which can only be given prospective application.
4. EXCEPTIONS
RCBC vs. DE CASTRO
GR L-34548, 29 November 1988
FACTS:
There was an action for recovery of unpaid tobacco deliveries, an Order was issued
by the Judge, ordering Phil Virginia Tobacco to pay Badoc Planters within 48 hours.
BADOC filed an Urgent Ex-Parte Motion for a Writ of Execution of the said Partial
Judgment which was granted. The Branch Clerk of Court on the very same day, issued a
Writ of Execution addressed to Special Sheriff, who then issued a Notice of Garnishment
addressed to the General Manager and/or Cashier of RCBC, requesting a reply within 5
days to said garnishment as to any property which the PVTA might have in the
possession or control of RCBC or of any debts owing by the BANK to PVTA. Upon receipt
of such Notice, RCBC notified PVTA thereof to enable the PVTA to take the necessary
steps for the protection of its own interest.
Upon an Urgent Ex-Parte Motion filed by BADOC, the Judge issued an Order
granting the Ex-Parte Motion and directing the BANK "to deliver in check the amount
garnished to Sheriff Faustino Rigor and Sheriff Rigor in turn is ordered to cash the check
and deliver the amount to the plaintiff's representative and/or counsel on record." In
compliance with said Order, petitioner delivered to Sheriff Rigor a certified check in the
sum of P 206,916.76.
PVTA filed a Motion for Reconsideration which was granted, setting aside the
Orders of Execution and of Payment and the Writ of Execution and ordering RCBC and
BADOC "to restore the account of PVTA with the said bank in the same condition and
state it was before the issuance of the aforesaid Orders without prejudice to the right to
move for the execution of the partial judgment pending appeal in case the motion for
reconsideration is denied and appeal is taken from the said partial judgment."
ISSUE:
Is there liability where a bank released its depositor's funds upon orders of the
court, pursuant to a writ of garnishment, if in compliance with the court order, the bank
delivered the garnished amount to the sheriff, who in turn delivered it to the judgment
creditor, but subsequently, the order of the court directing payment was set aside by the
same judge, should the bank be held solidarily liable with the judgment creditor to its
depositor for reimbursement of the garnished funds? NO

HELD:
RCBC merely obeyed a mandatory directive from the Judge ordering RCBC "to
deliver in check the amount garnished to Sheriff Faustino Rigor and Sheriff Rigor is in
turn ordered to cash the check and deliver the amount to the plaintiffs representative.
PVTA however claims that the manner in which the bank complied with the Sheriffs
Notice of Garnishment indicated breach of trust and dereliction of duty on the part of the
bank as custodian of government funds.
It should be pointed out that RCBC did not deliver the amount on the strength
solely of a Notice of Garnishment; rather, the release of the funds was made pursuant to
the aforesaid Order. While the Notice of Garnishment contained no demand of payment
as it was a mere request for petitioner to withold any funds of the PVTA then in its
possession, the Order categorically required the delivery in check of the amount
garnished to the special sheriff, Faustino Rigor. The bank had already filed a reply to the
Notice of Garnishment stating that it had in its custody funds belonging to the PVTA,
which, in fact was the basis of the plaintiff in filing a motion to secure delivery of the
garnished amount to the sheriff. The bank, upon the receipt of the Notice of
Garnishment, duly informed PVTA thereof to enable the latter to take the necessary steps
for the protection of its own interest.
It is important to stress, at this juncture, that there was nothing irregular in the
delivery of the funds of PVTA by check to the sheriff, whose custody is equivalent to the
custody of the court, he being a court officer. It must be noted that in delivering the
garnished amount in check to the sheriff, the RCBC did not thereby make any payment,
for the law mandates that delivery of a check does not produce the effect of payment
until it has been cashed. [Article 1249, Civil Code.]
It may be concluded that the charge of breach of trust and/or dereliction of duty as
well as lack of prudence in effecting the immediate payment of the garnished amount is
totally unfounded. Upon receipt of the Notice of Garnishment, RCBC duly informed PVTA
thereof to enable the latter to take the necessary steps for its protection. However, right
on the very next day after its receipt of such notice, RCBC was already served with the
Order requiring delivery of the garnished amount. Confronted as it was with a mandatory
directive, disobedience to which exposed it to a contempt order, it had no choice but to
comply.
MELLON BANK vs. MAGSINO
GR 71479, 18 October 1990
FACTS:
Dolores Ventosa requested the transfer of $1,000 from First National Bank of
Moundsville to Victoria Javier in Manila through the Prudential Bank. Accordingly, the First
National Bank requested Mellon Bank to effect the transfer. Unfortunately the wire sent
by Mellon Bank to Manufacturers Hanover Bank, a correspondent of Prudential Bank,
indicated the amount transferred as "US$1,000,000" instead of US$1,000. Hence
Manufacturers Hanover Bank transferred one million dollars less bank charges to the
Prudential Bank for the account of Victoria Javier.
Javier opened a new dollar account in the Prudential Bank and deposited
$999,943.70. Immediately the spouses made withdrawals from the account, deposited
them in several banks only to withdraw them later in an apparent plan to conceal,
"launder" and dissipate the erroneously sent amount.

Javier withdrew $475,000 from account and converted it into eight cashier's
checks. The first six checks were delivered to Jose Marquez and Honorio Poblador, Jr.
bought properties, stocks, etc.
Meanwhile, Mellon Bank filed a complaint in the Superior Court of California against
Melchor Javier, Jane Doe Javier, Honorio Poblador and alleged that it had mistakenly and
inadvertently cause the transfer of the sum of $999,000 and believes that the
defendants had withdrawn said funds; and that because of defendants' knowledge of
Mellon Bank's mistake and inadvertence and their use of the funds to purchase the
property, they and "each of them are involuntary or constructive trustees of the real
property and of any profits therefrom, with a duty to convey the same to plaintiff
forthwith." It prayed that the defendants and each of them be declared as holders of the
property in trust for the plaintiff; that defendants be compelled to transfer legal title and
possession of the property to the plaintiff.
Mellon Bank also filed in the Court of First Instance of Rizal, a complaint against the
Javier spouses, et al.
The lower court ruled that the purchase price of the California property received by
defendant Poblador from Javier is no longer the proper subject matter of litigation and
the movement and disposition of the purchase price is therefore within the scope of the
absolutely confidential nature of bank deposits as provided by Sec. 2, R.A. 1405.
Mellon Bank moved for reconsideration, alleging that said order prevented the
presentation of evidence on the purchase price of the California property; that there can
be no binding election of remedies before the decision on the merits is had; that until
Mellon Bank gets full recovery of the trust moneys, any contention of election of remedy
is premature, and that, the purchase price being the subject of litigation, inquiring into
its movement, including its deposit in banks, is allowed under Republic Act No. 1405.
The court ruled that the determination of the relevancy of the testimonies of
Baylosis and Red was "premised directly and principally" on whether or not Mellon Bank
could still recover the purchase price of the California property notwithstanding the filing
of the case in California to recover title and possession of the said property. After quoting
the resolution of September 10, 1982, the Court ruled that it was a "final order or a
definitive judgment with respect to the claim of plaintiff for the recovery" of the purchase
price of the California property.
In its effort to locate the Javiers so that their side could be heard, we required the
petitioner to furnish us with the Javiers' address as well as the name and address of their
counsel. Counsel for petitioner accordingly informed the Court that he learned that the
Javiers had fled the country and that he had no way of verifying whether Melchor Javier
had indeed died.
In view of these circumstances, the Javiers' comment on the petition shall be
dispensed with as the Court deems the pleadings filed by the parties sufficient bases for
resolving this case.
HELD:
We hold that the lower court gravely abused its discretion in ruling that the
resolution is a "final and definitive disposition" of petitioner's claim for the purchase price
of the Kern property.
Private respondents' protestations that to allow the questioned testimonies to
remain on record would be in violation of the provisions of Republic Act No. 1405 on the
secrecy of bank deposits, is unfounded. Section 2 of said law 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.

PCIBank v. CA & MARINDUQUE MINING

GR 84526, 28 January 1991 (SARMIENTO, J.)
FACTS:
The instant case originated from an action filed with the NLRC by a group of
laborers who obtained a favorable judgment for the payment of backwages amounting to
P205,853.00 against marinduque mining.
Commission issued a writ of execution directing the Deputy Sheriff to enforce the
judgment.
Deputy sheriff went to the mining site and served the writ of execution on the persons
concerned, but nothing seemed to have happened.
Sheriff prepared on his own a Notice of Garnishment addressed to 6 banks, all
located in Bacolod City, one of which is PCIB, directing the bank concerned to
immediately issue a check in the name of the Deputy Provincial Sheriff of Negros
Occidental in an amount equivalent to the amount of the garnishment and that proper
receipt would be issued therefor.
Incidentally, the house lawyer requested the withholding of any release of the
deposit.
The deputy sheriff presented the Notice of Garnishment and the Writ of Execution
attached therewith to the petitioner Henares and later in the afternoon, demanded from
the latter, under pain of contempt, the release of the deposit of the private respondent.
The petitioner Henares, upon knowing from the Acting Provincial Sheriff that there
was no restraining order from the NLRC and on the favorable advice of the bank's legal
counsel, issued a debit memo for the full balance of the private respondent's account
with the petitioner bank. Thereafter, he issued a manager's check in the name of the
Deputy Provincial Sheriff of Negros Occidental for the amount of P37,466.18, which was
the exact balance of the private respondent's account as of that day.
On the following day, the deputy sheriff returned to the bank in order to encash the
check but before the actual encashment, the petitioner Henares once again inquired
about any existing restraining order from the NLRC and upon being told that there was
none, the latter allowed the said encashment.
The company filed a complaint before the RTC alleging that the current deposit with the
bank was levied upon, garnished, and with undue haste unlawfully allowed to be
withdrawn, and notwithstanding the alleged unauthorized disclosure of the said current
deposit and unlawful release thereof, the latter have failed and refused to restore the
amount of P37,466.18 to the former's account despite repeated demands. The trial court
rendered its judgment in favor of the company.
ISSUE:
WON petitioners violated Republic Act No. 1405 when they allowed the sheriff to
garnish the deposit of private respondent.

HELD:
It is clear from the discussion of the conference committee report on Republic Act
1405, that the prohibition against examination of or inquiry into a bank deposit under
Republic Act 1405 does not preclude its being garnished to insure satisfaction of a
judgment. Indeed there is no real inquiry in such a case, and if existence of the deposit is
disclosed the disclosure is purely incidental to the execution process. It is hard to
conceive that it was ever within the intention of Congress to enable debtors to evade
payment of their just debts, even if ordered by the Court, through the expedient of
converting their assets into cash and depositing the same in a bank.
Since there is no evidence that the petitioners themselves divulged the information
that the private respondent had an account with the petitioner bank and it is undisputed
that the said account was properly the object of the notice of garnishment and writ of
execution carried out by the deputy sheriff, a duly authorized officer of the court, we can
not therefore hold the petitioners liable under R.A. 1405.

MARQUEZ vs. DESIERTO & UNION BANK

G R 135882, 27 June 2001 (PARDO, J.)
FACTS:
Marquez received an Order from Ombudsman Desierto to produce several bank
documents for purposes of inspection in camera relative to various accounts maintained
at Union Bank, where petitioner is the branch manager. The accounts to be inspected are
involved in a case pending with the Ombudsman entitled, Fact-Finding and Intelligence
Bureau (FFIB) v. Amado Lagdameo.
The basis of the Ombudsman in ordering an in camera inspection of the accounts
is a trail managers checks purchased by one George Trivinio, a respondent in a case
pending with the office of the Ombudsman.
It would appear that Mr. George Trivinio, purchased 51 Managers Checks for a total
amount of P272M at Traders Royal Bank. Out of the 51 MCs, 11 MCs were deposited and
credited to an account maintained at the Union Bank.
The FFIB panel met in conference with Marquez at the bank's main office for the
purpose of allowing petitioner and Atty. Macalino to view the checks furnished by Traders
Royal Bank. After convincing themselves of the veracity of the checks, Atty. Macalino
advised Ms. Marquez to comply with the order of the Ombudsman. Petitioner agreed to
an in camera inspection.
However, petitioner wrote the Ombudsman explaining to him that the accounts in
question cannot readily be identified and asked for time to respond to the order. The
reason forwarded by the petitioner was that "despite diligent efforts and from the
accounts numbers presented, we cannot identify these accounts since the checks are
issued in cash or bearer. We surmised that these accounts have long been dormant,
hence are not covered by the new account number generated by the Union Bank system.
We therefore have to verify from the Interbank records archives for the whereabouts of
these accounts.
The Ombudsman, responding to the request of the petitioner for time to comply
with the order, stated: "firstly, it must be emphasized that Union Bank was depositary
bank of the subject MCs, as shown at its dorsal portion and as cleared by the Philippines
Clearing House, not the International Corporate Bank.

Notwithstanding the facts that the checks were payable to cash or bearer,
nonetheless, the name of the depositor(s) could easily be identified since the account
numbers where said checks were deposited are identified in the order.
Even assuming that the accounts were already classified as "dormant accounts,"
the bank is still required to preserve the records pertaining to the accounts within a
certain period of time as required by existing banking rules and regulations.
And finally, the in camera inspection was already extended twice thereby giving
the bank enough time within which to sufficiently comply with the order." The
Ombudsman issued an order directing petitioner to produce the bank documents relative
to accounts in issue.
Petitioner together with Union Bank, filed a petition for declaratory relief,
prohibition and injunctions with the RTC against the Ombudsman.
The petition was intended to clear the rights and duties of petitioner. Thus, petitioner
sought a declaration of her rights from the court due to the clear conflict between RA
No.6770, Section 15 and R.A. No. 1405, Sections 2 and 3.
Petitioner prayed for a TRO because the Ombudsman were continuously harassing
her to produce the bank documents relatives to the accounts in question. The
Ombudsman issued another order stating that unless petitioner appeared before the FFIB
with the documents requested, petitioner manager would be charged with indirect
contempt and obstruction of justice.
The lower court denied petitioner's prayer for a TRO. The Ombudsman filed a
motion to dismiss the petition for declaratory relief on the ground that the RTC has no
jurisdiction to hear a petition for relief from the findings and orders of the Ombudsman,
citing R.A. No. 6770, Sections 14 and 27.
Petitioner received a copy of the motion to cite her for contempt, filed with the Office of
the Ombudsman and Fact Finding and Intelligence Bureau (FFIB).
Petitioner filed with the Ombudsman an opposition to the motion to cite her in
contempt on the ground that the filing thereof was premature due to the petition
pending in the lower court. Petitioner likewise reiterated that she had no intention to
disobey the orders of the Ombudsman. However, she wanted to be clarified as to how
she would comply with the orders without her breaking any law, particularly RA. No.
1405.
ISSUE:
1. Whether petitioner may be cited for indirect contempt for her failure to produce
the documents requested by the Ombudsman
2. Whether the order of the Ombudsman to have an in camera inspection of the
questioned account is allowed as an exception to RA 1405.
HELD:
An examination of the secrecy of bank deposits law (R.A. No.1405) would reveal
the following exceptions:
1. Where the depositor consents in writing;
2. Impeachment case;
3. By court order in bribery or dereliction of duty cases against public officials;
4. Deposit is subject of litigation;
5. Sec. 8, R.A. No.3019, in cases of unexplained wealth as held in the case of PNB vs.
Gancayco.
We rule that before an in camera inspection may be allowed, there must be a
pending case before a court of competent jurisdiction. Further, the account must be
clearly identified, the inspection limited to the subject matter of the pending case before

the court of competent jurisdiction. The bank personnel and the account holder must be
notified to be present during the inspection, and such inspection may cover only the
account identified in the pending case.
In Union Bank of the Philippines v. Court of Appeals, we held that "Section 2 of the
Law on Secrecy of Bank Deposits, as amended, declares bank deposits to be "absolutely
confidential" except:
1. In an examination made in the course of a special or general examination of a
bank that is specifically authorized by the Monetary Board after being satisfied that
there is reasonable ground to believe that a bank fraud or serious irregularity has
been or is being committed and that it is necessary to look into the deposit to
establish such fraud or irregularity,
2. In an examination made by an independent auditor hired by the bank to conduct
its regular audit provided that the examination is for audit purposes only and the
results thereof shall be for the exclusive use of the bank,
3. Upon written permission of the depositor,
4. In cases of impeachment,
5. Upon order of a competent court in cases of bribery or dereliction of duty of public
officials, or
6. In cases where the money deposited or invested is the subject matter of the
litigation".27
In the case at bar, there is yet no pending litigation before any court of competent
authority. What is existing is an investigation by the Office of the Ombudsman. In short,
what the office of the ombudsman would wish to do is to fish for additional evidence to
formally charge Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no
pending case in court which would warrant the opening of the bank account for
inspection.

5. GARNISHMENT OF DEPOSITS, INCLUDING FOREIGN DEPOSITS

SALVACION vs. CENTRAL BANK
GR 94723, 21 August 1997
FACTS:
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 and was able to rape the child. 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 2.) COCOBANK Bank Book 3.) Dollar Account China Banking
Corp.
Makati Investigating Fiscal filed against Greg Bartelli Serious Illegal Detention and 4
counts of Rape. On the same day, petitioners filed with the RTC of Makati Civil Case for
damages with preliminary attachment against Greg Bartelli. The day there was a
scheduled hearing for Bartellis petition for bail the latter escaped from jail.
The court granted the fiscals 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, the Judge issued an Order granting the application of herein

petitioners, for the issuance of the writ of preliminary attachment. After petitioners gave
Bond, a Writ of Preliminary Attachment was issued by the trial court.
Deputy Sheriff of Makati served a Notice of Garnishment on China Banking
Corporation. China Bank invoked RA 1405 as its answer to the notice of garnishment
served on it. Deputy Sheriff of Makati sent his reply to China Bank 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. China Bank invoked Section 113 of
Central Bank Circular No. 960 to the effect that the dollar deposits of defendant Greg
Bartelli are exempt from attachment, garnishment, or any other order or process of any
court, legislative body, government agency or any administrative body, whatsoever.
This prompted the counsel for petitioners to make an inquiry with the Central Bank
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 that It does not admit of any
exception, nor has the same been repealed nor amended.
Trial court granted petitioners motion for leave to serve summons by publication
Bartelli failed to file his answer to the complaint and was declared in default
The heinous acts of respondents Greg Bartelli which gave rise to the award were
related in graphic detail by the trial court in its decision.
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 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 Bartellis
dollar deposit with China Bank. Likewise, the bank invoked Section 113 of Central Bank
Circular No. 960.
Thus, petitioners decided to seek relief from this Court. 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 garnished to satisfy the
judgment rendered in petitioners favor in violation of substantive due process; 2.) it
has given foreign currency depositors an undue favor or a class privilege in violation of
the equal protection clause; 3.) it has provided a safe haven for criminals since criminal
could escape civil liability for their wrongful acts by merely converting their money to a
foreign currency and depositing it in a foreign currency deposit account with an
authorized bank; and 4.) The Monetary Board, in issuing Section 113 of Central Bank
Circular No. 960 has exceeded its delegated quasi- legislative power when it took
away: a.) the plaintiffs substantive right to have the claim sought to be enforced by the
civil action secured by way of the writ of preliminary attachment b.) the plaintiffs
substantive right to have the judgment credit satisfied by way of the writ of execution
out of the bank deposit.
The Central Bank said that one reason for exempting the foreign currency deposits
from attachment, garnishment or any other order process of any court, is to assure the
development and speedy growth of the Foreign Currency Deposit System and the
Offshore Banking System in the Philippines; that another reason is to encourage the
inflow of foreign currency deposits into the banking institutions thereby placing such

institutions more in a position to properly channel the same to loans and investments in
the Philippines, thus directly contributing to the economic development of the country;
that the subject section is being enforced according to the regular methods of procedure;
and that it applies to all currency deposits made by any person and therefore does not
violate the equal protection clause of the Constitution.
ISSUE:
May the Foreign Currency Deposit Act be made applicable to a foreign transient?
HELD:
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
Cas.
The Court has no original and exclusive jurisdiction over a petition for declatory
relief. 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.
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.
If Karens sad fate had happened to anybodys own kin, it would be difficult for him
to fathom how the incentive for foreign currency deposit could be more important than
his childs right to said award of damages; in this case, the victims claim for damages
from this alien who had the gall to wrong a child of tender years of a country where he is
mere visitor. This further illustrates the flaw in the questioned provisions.
It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time when
the countrys economy was in a shambles; when foreign investments were minimal and
presumably, this was the reason why said statute was enacted. But the realities of the
present times show that the country has recovered economically; and even if not, the
questioned law still denies those entitled to due process of law for being unreasonable
and oppressive. The intention of the questioned law may be good when enacted. The
law failed to anticipate the inquitous effects producing outright injustice and inequality
such as as the case before us.
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.
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 legal tyranny.
We definitely cannot have both ways and rest in the belief that we have served the ends
of justice.