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R.A. No. 1405 also protects trust accounts

(Article published in the Mar 5, 2008 issue of Manila Standard Today)  

In line with the activities of the trust industry on the occasion of Trust Consciousness Week next week, I call attention to the Supreme Court’s pronouncement which, from where I sit, had gone unnoticed in the din of perverse interest in the progress, or lack thereof, of the Plunder case against President Erap.  Everyone was concerned about what was going to happen to the former president; not many paid attention to what went on in the case of his son, Joseph Victor, or  “JV”. 

To the pleasant surprise of trust clients, the Supreme Court, in the Rule 65 certiorari case of Joseph Victor G. Ejercito, petitioner, v. Sandiganbayan (Special Division) and People of the Philippines, respondents, G.R. No. 157294-95, promulgated on November 30, 2006, ruled, among other things, that Republic Act No. 1405 also covers trust accounts. 

The pronouncement was issued after JV ran to the Supreme Court when the Sandiganbayan denied his motion to quash the subpoenas duces tecum and ad testificandum that the latter court issued to the Export and Industry Bank (EIB) to produce the documents relating to a trust account and certain savings accounts which were opened when it was still known as Urban Bank. The orders to produce the documents were issued by the Sandiganbayan, not in a case against him, but in the plunder case of his father Erap entitled People of the Philippines v. Joseph Ejercito Estrada, et al., Criminal Case No. 26558. 


          JV was not one of the “et al.” in his father’s case and thus claimed to have learned of the orders through the media. Among his reasons for resisting the orders  was that “his bank accounts are covered by R.A. No. 1405 (The Secrecy of Bank Deposits Law.”  The phrase “Bank accounts” was a clever description and made, I suspect, deliberately broad.  It included both the deposit accounts of JV opened with the commercial banking department of then Urban Bank and also his Trust Account No. 858 which was opened with said bank’s trust department.

The People of the Philippines, which is the prosecution in Erap’s case, maintained that JV’s deposit accounts may be inquired into because although R.A. No. 1405  in general protects deposits from the prying eyes of strangers, it does provide for exceptions and the plunder case of Erap before the Sandiganbayan was one of its exceptions for being akin to unexplained wealth which was in turn akin, as ruled in the case of PBN v. Gancayco (122 Phil 503; 15 SCRA 81), to bribery or dereliction of duty, an express exception written in the law. 

With respect to JV’s contention that R.A. No. 1405 is a reason to resist inquiry into his Trust Account No. 858, the prosecution maintained that “it is not even contemplated therein.”  In a clumsy way, what the People was saying was that deposits are not trusts and the protective mantle of R.A. No. 1405 covers only deposits.

That deposits with banks are loans is established in statute law and jurisprudence.  Article 1980 of the Civil Code says that “fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.”  Court decisions are more direct: they do not just say that bank deposits are to be “governed by the provisions concerning simple loan,” they say, for instance, that “they are simple loans…”(Central Bank v. Morfe, 63 SCRA 114). As summarized by authority on banking, Antonio V. Viray, in his book “Handbook on Bank Deposits”, “Well-established through a long line of judicial decisions is the doctrine that the relation between the bank and the depositor is that of debtor-creditor...” 

That bank accounts like those of JV’s Trust Account No. 858 are, on the other hand, not loans is likewise standard trust doctrine.  Again quoting Viray, “a trust account…creates a trustor-trustee relationship (not debtor-creditor”.  The trustor-trustee relationship is instead, according to Balantine’s Law Dictionary, “an obligation of a person, to whom the legal title to property has been transferred arising from the confidence vested in him, to apply the property faithfully and according to such confidence.”

Finally, that the protection of R.A. No. 1405 is limited to only bank deposits and investment in bonds issued by the Government was also the long-standing position of the Department of Justice.  Thus, in Opinion No. 126, series of 1989, issued on 22 June 1989, the Secretary of  Justice observed that “This Department has had the occasion to rule that the immunity granted under Section 2 of R.A. No. 1405 is limited to two matters, namely: bank deposits and investments in government bonds; it does not extend to papers and documents through banking institutions such as the issuance of letters of credit or trust receipts which do not involve the deposit of money, as instruments of indebtedness, such as bank drafts or promissory notes.”

It was thus a pleasant surprise to trust clients when Justice Carpio-Morales ruled, in JV’s case, that “the contention that trust accounts are not covered by the term “deposits” as used in R.A. No. 1405, by the mere fact that they do not entail a creditor-debtor relationship between the trustor and bank, does not lie.”  The good justice maintains that “the term ‘deposit’ …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.”

Justice Carpio-Morales has the text of the law on her side.  Section 1 states that the policy behind the law is “to give 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.”  Thus, the good justice argues, “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.”

Justice Carpio-Morales further notes that Section 2 specifically talks of “deposits of whatever nature…” That phrase, says the good justice, proscribes any restrictive interpretation of “deposits.”.  She thus put into the mainstream what was once a contrarian view of Antonio V. Viray who had earlier maintained that “the deposits referred to [in Section 2 of R.A. No. 1405] include…trust accounts…and all deposits of whatever nature.” (Viray, op. cit, p. 176).

Finally, Justice Carpio-Morales observes that Section 2 also talks of money that is “invested.”  This, according to the good justice, “shows that the law was not intended to apply only to “deposits” in the strict sense.  Otherwise, there would have been no need to add the phrase “or invested.”

JV’s initial victory in getting the court to agree that his Trust Account No. 858 was covered by R.A. No. 1405 did not, however, lead to a result in his favor.  The ponencia went on further to observe that the crime of plunder was, in effect, one of the exceptions to the immunity extended by Section 2.  Hence, the inquiry by the Sandiganbayan into his Trust Account No. 858 was permissible. 

          My heart goes out to JV for precipitating a ruling favorable to others in a decision that went against him.  But then, this is not the first time in this cruel world when he who suffered the toil of planting and sowing did not reap the joy of harvest.