Matas, Faye Allen A.

- BSA3C

G.R. No. 189206

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner

vs.
THE HONORABLE 15th DIVISION OF THE COURT OF APPEALS, et al. Respondents.

NATURE OF THE CASE

GR 189206 is a petition for certiorari in the decision of the Court of Appeals in CA-G.R.
SP No. 82647 allowing the quashal by the Regional Trial Court (RTC) of Makati of a
subpoena for the production of bank ledger. This case is incident to Civil Case No. 99-
1853, which is the main case for collection of sum of money with damages filed by
Industrial Bank of Korea, Tong Yang Merchant Bank, First Merchant Banking Corporation,
Land Bank of the Philippines, and Westmont Bank (now United Overseas Bank),
collectively known as "the Banks" against Domsat Holdings, Inc. (Domsat) and the
Government Service Insurance System (GSIS). Said case stemmed from a Loan
Agreement, whereby the Banks agreed to lend United States (U.S.) $11 Million to Domsat
for the purpose of financing the lease and/or purchase of a Gorizon Satellite from the
International Organization of Space Communications (Intersputnik).

The controversy for this case originated from a surety agreement by which Domsat
obtained a surety bond from GSIS to secure the payment of the loan from the Banks. We
quote the terms of the Surety Bond in its entirety.

FACTS

On December 12, 1996, Domsat Holdings (Principal) along with Government Service
Insurance System entered into a surety bond contract with Land Bank of the Philippines,
Westmont Bank, Tong Yang Merchant Bank, Industrial Bank of Korea, and First Merchant
Banking Corporation (Obligees) with the sum of $ 11,000,000.00 for the financing of the
two (2) year lease of a Russian Satellite from INTERSPUTNIK. The contract specified the
guarantee of the payment of the principal amount and the interest of the debt.
However, Domsat Holdings failed to pay the loan. GSIS is then pressured by the bank to
pay the loan but GSIS refused for they reasoned out that Domsat did not use the loan
proceeds for the payment of rental for the satellite. GSIS alleged that Domsat, with
Westmont Bank as the conduit, transferred the U.S. $ 11 Million loan proceeds from the
Industrial Bank of Korea to Citibank New York account of Westmont Bank and from there
to the Binondo Branch of Westmont Bank. The Banks then filed a complaint before the
RTC of Makati against Domsat and GSIS.

In the course of the hearing, GSIS requested for the issuance of a subpoena duces tecum
to the custodian of records of Westmont Bank to produce the following documents:

1. Ledger covering the account of DOMSAT Holdings, Inc. with Westmont Bank
(now United Overseas Bank), any and all documents, records, files, books, deeds,
papers, notes and other data and materials relating to the account or transactions
 of DOMSAT Holdings, Inc. with or through the Westmont Bank (now United
Overseas Bank) for the period January 1997 to December 2002, in his/her direct
or indirect possession, custody or control (whether actual or constructive), whether
in his/her capacity as Custodian of Records or otherwise;
2. All applications for cashier’s/ manager’s checks and bank transfers funded by
the account of DOMSAT Holdings, Inc. with or through the Westmont Bank (now
United Overseas Bank) for the period January 1997 to December 2002, and all
other data and materials covering said applications, in his/her direct or indirect
possession, custody or control (whether actual or constructive), whether in his/her
capacity as Custodian of Records or otherwise;
3. Ledger covering the account of Philippine Agila Satellite, Inc. with Westmont
Bank (now United Overseas Bank), any and all documents, records, files, books,
deeds, papers, notes and other data and materials relating to the account or
transactions of Philippine Agila Satellite, Inc. with or through the Westmont bank
(now United Overseas Bank) for the period January 1997 to December 2002, in
his/her direct or indirect possession, custody or control (whether actual or
constructive), whether in his/her capacity as Custodian of Records or otherwise;
4. All applications for cashier’s/manager’s checks funded by the account of
Philippine Agila Satellite, Inc. with or through the Westmont Bank (now United
Overseas Bank) for the period January 1997 to December 2002, and all other data
and materials covering said applications, in his/her direct or indirect possession,
custody or control (whether actual or constructive), whether in his/her capacity as
Custodian of Records or otherwise.

On November 21, 2002, the RTC issued a subpoena. However, a motion to quash was
filed by the banks on three grounds: 1) the subpoena is unreasonable, oppressive and
does not establish the relevance of the documents sought; 2) request for the documents
will violate the Law on Secrecy of Bank Deposits; and 3) GSIS failed to advance the
reasonable cost of production of the documents. Domsat also joined the banks’ motion to
quash through its Manifestation/Comment. On 9 April 2003, the RTC issued an Order
denying the motion to quash for lack of merit.

On June 26, 2003, another Order was issued by the RTC denying the motion for
reconsideration filed by the banks. On 1 September 2003 however, the trial court granted
the second motion for reconsideration filed by the banks. The previous subpoenas issued
were consequently quashed. The trial court invoked the ruling in Intengan v. Court of
Appeals, where it was ruled that foreign currency deposits are absolutely confidential and
may be examined only when there is a written permission from the depositor. The motion
for reconsideration filed by GSIS was denied on 30 December 2003.

ISSUE

1. Whether the ruling of the Court of Appeals in stating that the bank accounts in
Westmont bank is covered by the bank secrecy law correct or not.

HELD
The subject matter of the subpoena pertains to foreign currency, then RA no. 6426
is applicable. Hence, GSIS may not inspect such accounts, unless the depositor
would give its consent.

GSIS invokes Republic Act No. 1405 to justify the issuance of the subpoena while the
banks cite Republic Act No. 6426 to oppose it. The core issue is which of the two laws
should apply in the instant case.
Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first amended by
Presidential Decree No. 1792 in 1981 and further amended by Republic Act No. 7653 in
1993. It now reads:

Section 2. All deposits of whatever nature with banks or banking institutions in the
Philippines including investments in bonds issued by the Government of the
Philippines, its political subdivisions and its instrumentalities, are hereby
considered as of an absolutely confidential nature and may not be examined,
inquired or looked into by any person, government official, bureau or office, except
upon written permission of the depositor, or in cases of impeachment, or upon
order of a competent court in cases of bribery or dereliction of duty of public
officials, or in cases where the money deposited or invested is the subject matter
of the litigation.

Section 8 of Republic Act No. 6426, which was enacted in 1974, and amended by
Presidential Decree No. 1035 and later by Presidential Decree No. 1246, provides:

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

authorized under this Act, as amended by Presidential Decree No. 1035, as well
as foreign currency deposits authorized under Presidential Decree No. 1034, are
hereby declared as and considered of an absolutely confidential nature and,
except upon the written permission of the depositor, in no instance shall foreign
currency deposits be examined, inquired or looked into by any person, government
official, bureau or office whether judicial or administrative or legislative or any other
entity whether public or private; Provided, however, That said foreign currency
deposits shall be exempt from attachment, garnishment, or any other order or
process of any court, legislative body, government agency or any administrative
body whatsoever. (As amended by PD No. 1035, and further amended by PD No.
1246, prom. Nov. 21, 1977.)

On the one hand, Republic Act No. 1405 provides for four (4) exceptions when records
of deposits may be disclosed. These are under any of the following instances: (a) upon
written permission of the depositor, (b) in cases of impeachment, (c) upon order of a
competent court in the case of bribery or dereliction of duty of public officials or, (d) when
the money deposited or invested is the subject matter of the litigation, and (e) in cases of
violation of the Anti-Money Laundering Act (AMLA), the Anti-Money Laundering Council
(AMLC) may inquire into a bank account upon order of any competent court. On the other
hand, the lone exception to the non-disclosure of foreign currency deposits, under
Republic Act No. 6426, is disclosure upon the written permission of the depositor.

These two laws both support the confidentiality of bank deposits. There is no conflict
between them. Republic Act No. 1405 was enacted for the purpose of giving
encouragement to the people to deposit their money in banking institutions and to
discourage private hoarding so that the same may be properly utilized by banks in
authorized loans to assist in the economic development of the country. It covers all bank
deposits in the Philippines and no distinction was made between domestic and foreign
deposits. Thus, Republic Act No. 1405 is considered a law of general application. On the
other hand, Republic Act No. 6426 was intended to encourage deposits from foreign
lenders and investors. It is a special law designed especially for foreign currency deposits
in the Philippines. A general law does not nullify a specific or special law. Generalia
specialibus non derogant. Therefore, it is beyond cavil that Republic Act No. 6426 applies
in this case.

Intengan v. Court of Appeals affirmed the above-cited principle and categorically declared
that for foreign currency deposits, such as U.S. dollar deposits, the applicable law is
Republic Act No. 6426.

In said case, Citibank filed an action against its officers for persuading their clients to
transfer their dollar deposits to competitor banks. Bank records, including dollar deposits
of petitioners, purporting to establish the deception practiced by the officers, were
annexed to the complaint. Petitioners now complained that Citibank violated Republic Act
No. 1405. This Court ruled that since the accounts in question are U.S. dollar deposits,
the applicable law therefore is not Republic Act No. 1405 but Republic Act No. 6426.

The above pronouncement was reiterated in China Banking Corporation v. Court of

Appeals, where respondent accused his daughter of stealing his dollar deposits with
Citibank. The latter allegedly received the checks from Citibank and deposited them to
her account in China Bank. The subject checks were presented in evidence. A subpoena
was issued to employees of China Bank to testify on these checks. China Bank argued
that the Citibank dollar checks with both respondent and/or her daughter as payees,
deposited with China Bank, may not be looked into under the law on secrecy of foreign
currency deposits. This Court highlighted the exception to the non-disclosure of foreign
currency deposits, i.e., in the case of a written permission of the depositor, and ruled that
respondent, as owner of the funds unlawfully taken and which are indisputably now
deposited with China Bank, he has the right to inquire into the said deposits.

Applying Section 8 of Republic Act No. 6426, absent the written permission from Domsat,
Westmont Bank cannot be legally compelled to disclose the bank deposits of Domsat,
otherwise, it might expose itself to criminal liability under the same act.

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

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