Case Summary (G.R. No. 210164)
Petitioner and Respondent Positions
GSIS: contended that it must be permitted to examine Domsat’s bank records to prove that the US$11,000,000 loan proceeds were diverted and therefore that GSIS is not liable as surety. Banks and Domsat: opposed production of foreign currency bank ledgers, asserting bank secrecy protections under Republic Act No. 6426 (Foreign Currency Deposit Act); they sought quashal of the subpoena duces tecum issued to Westmont Bank.
Key Dates and Procedural Posture
Relevant procedural events include issuance of subpoena duces tecum (21 November 2002), RTC denial of the Banks’ initial motion to quash (9 April 2003) and denial of first motion for reconsideration (26 June 2003), then a grant of the Banks’ second motion for reconsideration quashing the subpoenas (1 September 2003) and denial of GSIS’s motion for reconsideration (30 December 2003). The Court of Appeals partially granted GSIS’s petition, and the Supreme Court ultimately dismissed GSIS’s certiorari petition, affirming the Court of Appeals’ decision.
Applicable Law and Constitutional Basis
Primary statutes: Republic Act No. 1405 (Law on Secrecy of Bank Deposits, as amended) and Republic Act No. 6426 (Foreign Currency Deposit Act, as amended). The decision was rendered under the 1987 Philippine Constitution, which governs judicial review and the proper remedies and appeals applied.
Factual Background
The Banks lent US$11,000,000 to Domsat for a satellite lease/purchase. GSIS issued a surety bond guaranteeing repayment. GSIS later refused payment on the bond, asserting that Domsat did not apply the loan proceeds to the satellite rental but instead transferred the funds via Westmont Bank. To substantiate its defense, GSIS procured a subpoena duces tecum for Westmont’s custodian of records, seeking ledgers and related documents for Domsat and Philippine Agila Satellite, Inc. for 1997–2002.
RTC Proceedings and Motions to Quash
The Banks filed a motion to quash the subpoena on grounds that the subpoena was oppressive and irrelevant, that production would violate bank secrecy, and that GSIS failed to advance production costs. The RTC initially denied the motion to quash, relying on an exception in RA 1405 permitting disclosure when the deposited money is the subject matter of litigation, but later (after reconsideration) granted the Banks’ second motion for reconsideration and quashed the subpoena for the bank ledger, invoking Intengan v. Court of Appeals.
Legal Issue Presented
Which statutory confidentiality regime applies to Domsat’s deposit, RA 1405 or RA 6426, and thus whether GSIS may compel production of Domsat’s foreign currency bank ledger without the depositor’s written consent; and whether the trial court committed reversible procedural error in accepting the Banks’ second motion for reconsideration despite alleged notice defects.
Statutory Comparison and Governing Principle
RA 1405 declares all bank deposits confidential with enumerated exceptions (including when the money deposited is the subject matter of litigation). RA 6426 specifically declares foreign currency deposits absolutely confidential and provides only one statutory exception—written permission of the depositor. The Court applied the canon generalia specialibus non derogant to hold that RA 6426, as a special law governing foreign currency deposits, controls over the general RA 1405 with respect to dollar deposits.
Precedent and Application
The Supreme Court relied on prior decisions (notably Intengan v. Court of Appeals and China Banking Corporation v. Court of Appeals) that had held foreign currency deposits to be governed by RA 6426 and that disclosure absent written depositor consent is impermissible. Under such binding precedents, Domsat’s dollar deposit at Westmont Bank was protected by RA 6426 and could not be examined or compelled without written permission from Domsat.
Court of Appeals’ Resolution and Scope of Production
The Court of Appeals concluded that the bank ledger itself was protected and properly quashed, but it ordered production of certain transactional documents (applications for cashier’s/manager’s checks, bank transfers by Domsat through Westmont from January 1997 to December 2002, and a copy of any agreement between Domsat/Philippine Agila Satellite and Intersputnik). The appellate court reasoned that production of such documents does not necessarily reveal the balance or detailed account contents and therefore does not implicate RA 6426’s secrecy protection in th
...continue readingCase Syllabus (G.R. No. 210164)
Case Citation and Court
- Reported at 666 Phil. 656; FIRST DIVISION; G.R. No. 189206; Decision dated June 08, 2011.
- Opinion penned by Justice Perez; Chief Justice Corona (Chairperson), and Justices Velasco, Jr., Leonardo-De Castro, and Del Castillo concurred.
- The petition challenges the Decision of the Court of Appeals in CA-G.R. SP No. 82647, which allowed the quashal by the Regional Trial Court (RTC) of Makati of a subpoena for the production of a bank ledger.
Parties and Posture
- Petitioner: Government Service Insurance System (GSIS), acting as surety under a surety bond.
- Respondents include: The Honorable 15th Division of the Court of Appeals, Industrial Bank of Korea, Tong Yang Merchant Bank, Hanareum Banking Corp., Land Bank of the Philippines, Westmont Bank (now United Overseas Bank), and Domsat Holdings, Inc. (Domsat).
- The petition is incident to Civil Case No. 99-1853, a main civil action for collection of sum of money with damages instituted by several banks (Industrial Bank of Korea, Tong Yang Merchant Bank, First Merchant Banking Corporation, Land Bank of the Philippines, and Westmont Bank) against Domsat and GSIS.
Underlying Transaction and Dispute Origin
- The Banks agreed to lend U.S. $11,000,000 to Domsat pursuant to a Loan Agreement for financing the lease and/or purchase of a Gorizon Satellite from the International Organization of Space Communications (Intersputnik).
- Domsat secured the loan by obtaining a surety bond from GSIS; GSIS issued a surety bond to secure payment of the loan.
- The dispute arose when Domsat failed to pay the loan and GSIS refused to honor the surety, alleging diversion of the loan proceeds: GSIS asserted that, with Westmont Bank as conduit, the U.S. $11,000,000 loan proceeds were transferred from Industrial Bank of Korea to Citibank New York account of Westmont Bank and from there to Westmont Bank’s Binondo Branch, rather than being used to pay satellite rental.
Terms of the Surety Bond (as quoted in source)
- The surety bond in text:
- Principal: Domsat Holdings, Inc., represented by its President.
- Surety: Government Service Insurance System, Administrator of the General Insurance Fund.
- Obligees: Land Bank of the Philippines; Westmont Bank; Tong Yang Merchant Bank; Industrial Bank of Korea; First Merchant Banking Corporation.
- Penal sum: US $11,000,000.
- Conditions: Bond secures the repayment of principal and interest on the loan for financing a two-year lease of a Russian satellite from Intersputnik; the bond remains valid until the loan including interest has been fully paid and liquidated; bond is null and void if the principal performs all undertakings in the underlying contract/agreement, otherwise remains in full force and effect.
- Execution date: Witnessed December 13, 1996, at Pasay City; signed by Domsat President Capt. Rodrigo A. Silverio and GSIS Senior Vice-President Amalio A. Mallari as representatives.
Procedural History in RTC (Subpoena and Motions)
- During trial in Civil Case No. 99-1853, GSIS sought issuance of a subpoena duces tecum to the records custodian of Westmont Bank to produce specified bank documents.
- Documents requested by GSIS (for January 1997 to December 2002, in direct or indirect possession, actual or constructive):
- Ledger covering the account of Domsat Holdings, Inc. with Westmont Bank and all related records or materials.
- All applications for cashier’s/manager’s checks and bank transfers funded by Domsat’s Westmont Bank account and all data covering such applications.
- Ledger covering the account of Philippine Agila Satellite, Inc. with Westmont Bank and all related records or materials.
- All applications for cashier’s/manager’s checks funded by Philippine Agila Satellite, Inc.’s Westmont Bank account and related materials.
- RTC issued the subpoena duces tecum on November 21, 2002.
- The Banks filed a motion to quash the subpoena on three grounds:
- The subpoena is unreasonable, oppressive, and fails to establish relevance of the documents sought.
- Production would violate the Law on Secrecy of Bank Deposits.
- GSIS failed to advance the reasonable cost of production of the documents.
- Domsat joined the Banks’ motion to quash through Manifestation/Comment.
RTC Rulings (Denial and Subsequent Quashal)
- On April 9, 2003, the RTC issued an Order denying the motion to quash for lack of merit, reasoning:
- The Law on Secrecy of Bank Deposits declares deposits “absolutely confidential” except in enumerated instances, including where the money deposited is the subject matter of the litigation.
- This case is for collection of a sum of money on a loan secured by GSIS; GSIS contends loan proceeds were diverted; quashal would deny GSIS the right to prove its defenses.
- Therefore, the motion to quash was denied.
- On June 26, 2003, RTC denied the Banks’ motion for reconsideration.
- However, on September 1, 2003, the trial court granted the Banks’ second motion for reconsideration and quashed the previously issued subpoenas.
- GSIS filed a motion for reconsideration which the RTC denied on December 30, 2003.
- The orders quashing the subpoena became the subject of GSIS’s petition for certiorari to the Court of Appeals.
Issues Raised by GSIS in Petition to Court of Appeals (as quoted)
- I. Whether the respondent judge acted with grave abuse of discretion by considering the Banks’ second Motion for Reconsideration dated July 9, 2003 despite lack of notice (alleged pro forma or “mere scrap of paper”).
- II. Whether the respondent judge capriciously and arbitrarily ignored Section 2 of the Foreign Currency Deposit Act (RA 6426) in ruling that Domsat’s US $11,000,000 deposit in Westmont Bank is covered by secrecy of bank deposit.
- III. Whether, since both the Banks and Domsat disclosed during trial the US $11,000,000 deposit, it ceased to be secret and confidential and GSIS’s right to inquire cannot be suppressed.
Court of Appeals’ Considerations and Ruling (as summarized)
- The Court of Appeals applied a liberal interpretation of procedural rules to avoid miscarriage of justice and allowed filing and acceptance of the second motion for reconsideration.
- Th