GSIS v.

CA | Nice
June 8, 2011
GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner, vs. THE HONORABLE 15th DIVISION OF THE COURT OF APPEALS
and INDUSTRIAL BANK OF KOREA, TONG YANG MERCHANT BANK, HANAREUM BANKING CORP., LAND BANK OF THE
PHILIPPINES, WESTMONT BANK and DOMSAT HOLDINGS, INC., Respondents.
PEREZ, J.

NATURE: Petition for certiorari of CA decision

SUMMARY: Domsat Holdings (Domsat) obtained a USD 11 M loan from several banks to lease or purchase a Gorizon Satellite. To
facilitate said loan, the GSIS executed a surety bond on the condition that the loan proceeds would be used as payment for said
lease/purchase. When Domsat failed to pay, the Banks sued Domsat and GSIS for the money. GSIS refused to pay, alleging that
Domsat deposited the amount with Westmont Bank (one of the creditor banks) and its obligation was contingent upon the use of the
money to lease/purchase the satellite. During trial, GSIS requested for the issuance of subpoenas duces tecum covering Domsat’s
accounts with Westmont. Domsat and the Banks opposed, alleging that the secrecy of said deposits were protected under the Foreign
Currency Deposit Act. The RTC at first issued the subpoenas, but then reversed itself. CA upheld. SC affirmed CA, holding that the
deposits were covered by the Foreign Currency Deposit Act as a special law, and the Bank Secrecy Act did not apply.
DOCTRINE (related to topic):
 These two laws both support the confidentiality of bank deposits. RA 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, RA 1405 is
considered a law of general application.
 On the other hand, RA 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 RA 6426 applies in this case.
FACTS:
 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 (the Banks) against Domsat Holdings, Inc. (Domsat) and the GSIS.
 The collection case stemmed from a Loan Agreement, whereby the Banks agreed to lend USD 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).
 To secure the payment of the loan, Domsat obtained a surety bond from GSIS. Said surety bond provided:
THE CONDITIONS OF THE OBLIGATION ARE AS FOLLOWS:

WHEREAS, the above bounden PRINCIPAL, on the 12th day of December, 1996 entered into a contract agreement with the
aforementioned OBLIGEES to fully and faithfully:

Guarantee the repayment of the principal and interest on the loan granted the PRINCIPAL to be used for the financing of the two (2)
year lease of a Russian Satellite from INTERSPUTNIK, in accordance with the terms and conditions of the credit package entered into
by the parties.

This bond shall remain valid and effective until the loan including interest has been fully paid and liquidated,
a copy of which contract/agreement is hereto attached and made part hereof;

WHEREAS, the aforementioned OBLIGEES require said PRINCIPAL to give a good and sufficient bond in the above stated sum to
secure the full and faithful performance on his part of said contract/agreement.

NOW, THEREFORE, if the PRINCIPAL shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions, and
agreements stipulated in said contract/agreements, then this obligation shall be null and void; otherwise, it shall remain in full force and
effect.
 When Domsat failed to pay, GSIS refused pay as well, arguing that Domsat did not use the loan proceeds for the payment of
rental for the satellite. GSIS alleged that:
o Domsat, with Westmont Bank as the conduit, transferred the USD 11 M 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 filed a complaint before the RTC of Makati against Domsat and GSIS.
 During hearing, GSIS requested for the issuance of a subpoena duces tecum to the custodian of records of Westmont Bank to
produce the following documents:
o Ledger covering the account of DOMSAT 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 with or through Westmont from January 1997 to December 2002;
o All applications for cashier’s/ manager’s checks and bank transfers funded by the account of DOMSAT with or
through Westmont from January 1997 to December 2002, and all other data and materials covering said applications;
o Ledger covering the account of Philippine Agila Satellite, Inc. with Westmont, 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 Westmont for the same period;
o All applications for cashier’s/manager’s checks funded by the account of Philippine Agila Satellite, Inc. with or through
Westmont for the same period, and all other data and materials covering said applications.
  The RTC issued a subpoena decus tecum on 21 November 2002.
 A motion to quash was filed by the banks (and joined by Domsat) on three grounds:
o 1) the subpoena is unreasonable, oppressive and does not establish the relevance of the documents sought;
o 2) request for the documents will violate the Law on Secrecy of Bank Deposits; and
o 3) GSIS failed to advance the reasonable cost of production of the documents.
 9 April 2003: the RTC issued an Order denying the motion to quash, ruling that the case was for the collection of a sum of
money initiated by the banks against Domsat and GSIS, the latter being surety. The RTC considered the contention of GSIS
that the proceeds of the loan was deviated to purposes other than to what the loan was extended, hence, it ruled that quashal
of the subpoena would deny GSIS its right to prove its defenses.
 The Banks filed first MR; denied. The Banks filed 2nd MR, which the RTC granted, quashing the subpoenas. The RTC 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.
 GSIS filed MR; denied.
 Upon appeal, the CA partially ruled in favor of the Banks, ruling that that Domsat’s deposit in Westmont Bank is covered by
Republic Act No. 6426 (Foreign Currency Deposit Act of the Philippines) or the Bank Secrecy Law. It held that:
o the ruling in Van Twest vs. Court of Appeals (relied upon by GSIS) was rendered during the effectivity of CB Circular
960, and under Sec. 102 thereof, transfer to foreign currency deposit account or receipt from another foreign currency
deposit account, whether for payment of legitimate obligation or otherwise, are not eligible for deposit under the
System.
o However, said CB Circular has already been superseded by CB Circular 1318 and later by CB Circular 1389, and CB
Circular 960 has not been re-enacted. Hence, the ruling in Intengan v. CA (the case used by the RTC and relied upon
by the Banks) is the applicable case.
o Moreover, GSIS had inappropriately invoked the provisions of CB Circular 343 which has already been superseded
by more recently issued CB Circulars. CB Circular 343 requires the surrender to the banking system of foreign
exchange, including proceeds of foreign borrowings. This requirement, however, can no longer be found in later
circulars.
o As to GSIS’ argument that “assuming CB Circular 1389 was the applicable circular, Domsat violated it since under
Section 27 thereof, the USD 11 M should have been paid directly to Intersputnik and not deposited to Westmont,” the
CA held that Section 27 does not prescribe the conditions before any foreign currency deposit can be entitled to the
confidentiality provisions of R.A. 6426.
o Lastly, as to the argument of GSIS that “since the President of Westmont Bank had already testified during trial as to
the USD 11 M deposit, hence, it was no longer confidential,” the CA ruled that it was not the written consent
contemplated by R.A. 6426.
 However, the CA upheld the issuance of subpoena praying for the production of applications for cashier’s or manager’s checks
by Domsat through Westmont, as well as a copy of an the agreements between Domsat and/or Philippine Agila Satellite and
Intersputnik for the acquisition and/or lease of a Gorizon Satellite. The CA held that the production of these documents does
not involve the examination of Domsat’s account since it will never be known how much money was deposited into it or
withdrawn therefrom and how much remains therein.
 GSIS filed MR; denied. In its petition to the SC, it argues that:
o Domsat’s deposit with Westmont Bank can be examined and inquired into, since the Bank Secrecy Act allows the
disclosure of bank deposits in cases where the money deposited is the subject matter of the litigation.
o the subject matter of the litigation is the USD 11 M obtained by Domsat from the Banks to supposedly finance the
lease of a Russian satellite from Intersputnik, and whether or not it should be held liable as a surety is contingent
upon whether Domsat indeed utilized the amount to lease a Russian satellite as agreed upon.
o the whereabouts of the USD 11 M is the subject matter of the case and the disclosure of bank deposits relating to the
USD 11 M should be allowed.
o the concerted refusal of Domsat and the banks to divulge the whereabouts of the USD 11 M will greatly prejudice and
burden the GSIS pension fund considering that a substantial portion of this fund is earmarked every year to cover the
surety bond issued.
ISSUE #1 (MAIN):
 W/N the subpoena for the bank ledger of Domsat’s account should issue (NO)
RATIO #1:
 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.
 RA 1405 was enacted in 1955. Section 2 thereof was first amended by PD 1792 in 1981 and further amended by RA 7653 in
1993. It 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 RA 6426, enacted in 1974, and amended by PD 1035 and later by PD1246, 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.
 RA 1405 provides for four exceptions (actually 5, pero 4 yung sabi ng SC) when records of deposits may be disclosed. These
are under any of the following instances:
o a) upon written permission of the depositor,
o (b) in cases of impeachment,
o (c) upon order of a competent court in the case of bribery or dereliction of duty of public officials or,
o (d) when the money deposited or invested is the subject matter of the litigation, and
o 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.
 The lone exception to the non-disclosure of foreign currency deposits, under RA 6426, is disclosure upon the written
permission of the depositor.
 These two laws both support the confidentiality of bank deposits. RA 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, RA 1405 is
considered a law of general application.
 On the other hand, RA 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 RA 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 RA 6426.
o 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 RA 1405.
The SC ruled that since the accounts in question are U.S. dollar deposits, the applicable law therefore is not RA 1405
but RA 6426.
 Applying Section 8 of RA 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.
DISPOSITION
 Petition for certiorari is DISMISSED. The Decision dated 29 February 2008 and 19 June 2009 Resolution of the Court of
Appeals are hereby AFFIRMED.