G.R. No.

L-34589 June 29, 1988

ENGINEERING CONSTRUCTION INCORPORATED, petitioner,

vs.
NATIONAL POWER CORPORATION and COURT OF APPEALS, respondents.

G.R. No. L-34656 June 29, 1988

MANILA ELECTRIC COMPANY, petitioner,

vs.
COURT OF APPEALS and NATIONAL POWER CORPORATION, respondents.

FERNAN, J.:

In these related petitions for review under Rule 45 of the Rules of Court, the Engineering
Construction, Inc. [ECI] and the Manila Electric Company [MERALCO] question the decision of the
Court of Appeals in CA-G.R. No. 47528-R which set aside the orders of the trial court directing
execution pending appeal of a judgment for P1,108,985.31 in damages in favor of ECI. Petitioners
also question the resolution of said court holding them liable for restitution of the garnished funds to
the National Power Corporation [NPC].

On August 29, 1968, ECI filed a complaint for damages against the NPC in the then Court of First
Instance of Manila, Branch 15, alleging that it suffered damages to its facilities and equipment due to
the inundation of its campsite in Ipo, Norzagaray, Bulacan, as a direct result of the improper and
careless opening by NPC of the spillway gates of Angat Dam at the height of typhoon "Welming" on
November 4,1967. 1

On December 23, 1970, the trial court found NPC guilty of gross negligence and rendered its
judgment, thus:

WHEREFORE, judgment is rendered in favor of plaintiff and against defendant as

follows:

1. Ordering defendant to pay plaintiff actual or compensatory damages in the amount

of P675,785.31;

2. Ordering defendant to pay consequential damages in the amount of P233,200.00;

*

3. Ordering defendant to pay plaintiff the amount of P50,000 as and by way of

exemplary damages; and

4. Ordering defendant to pay plaintiff the amount of P50,000 as and for attorney's
fees ... 2

NPC filed a notice of appeal from that decision but before it could perfect its appeal, ECI moved for
and was granted execution pending appeal upon posting a covering bond of P200,000 which it later
increased to P1,109,000 to fully answer for whatever damages NPC might incur by reason of the
premature execution of the lower court's decision. 3
In granting said motion for the exceptional writ over the strong opposition of the NPC, the trial court
adopted the grounds adduced by movant ECI.

1. x x x.

2. That the substantial portion of the award of damages refers to the actual or
compensatory damages incurred by plaintiff, which are supported by voluminous
documentary evidence, the genuineness and due execution of which were admitted
and further, no evidence whatever was presented to contest the same;

3. That this case has been pending for years, as the plaintiff and the Honorable Court
were led to believe that the matter in dispute would be settled amicably;

4. That an appeal by defendant would obviously be for purposes of delay;

5. That on appeal, the case would certainly drag on for many years, and in the
meantime, the actual loss and damages sustained by plaintiff, who because of such
loss have become heavily obligated and financially distressed, would remain
uncompensated and unsatisfied

6. That also, plaintiff is willing and able to file a bond to answer for any damage
which defendant may suffer as a result of an execution pending appeal. 4

Subsequently, Deputy Sheriff Restituto R. Quemada who was assigned to enforce the writ of
execution, garnished in favor of ECI all amounts due and payable to NPC which were then in
possession of MERALCO and sufficient to cover the judgment sum of P1,108,985.31. 5

Attempts to lift the order of execution having proved futile and the offer of a supersedeas bond
having been rejected by the lower court, NPC filed with the Appellate Court a petition for certiorari. 6

In its challenged decision of October 20, 1971, the Court of Appeals granted NPCs petition and
nullified the execution pending appeal of the judgment rendered by the trial court on December 28,
1970, as well as all issued writs and processes in connection with the execution. One justice
dissented. 7

On November 11, 1971, MERALCO sought from the Appellate Court a clarification and
reconsideration of the aforesaid decision on the ground, among others, that the decision was being
used by NPC to compel MERALCO to return the amount of P1,114,545.23 (inclusive of sheriff's
fees) in two checks which it had already entrusted to the deputy sheriff on February 23, 1971, who
then indorsed and delivered the same to ECI. Whereupon, in its resolution of January 7, 1972, the
Appellate Court held the sheriff, MERALCO and ECI liable to restore to NPC the amount due
to NPC which MERALCO had earlier turned over to the sheriff for payment to ECI. 8

Their two motions for reconsideration having been denied, ECI and MERALCO filed separate
petitions for review before this Court: Nos. L-34589 and 34656, the very petitions before us for
adjudication. In this connection, it must be made clear that we are not concemed with the main
appeal. For the present, we limit our discussion to the correctness of the extraordinary writ of
execution pending appeal and the ordered restitution of the garnished funds---two collateral matters
which have greatly exacerbated the existing dispute between the parties.

We shall deal first with the propriety of the execution pending appeal.
Section 2, Rule 39 of the Rules of Court provides:

Execution pending appeal. On motion of the prevailing party with notice to the
adverse party the court may, in its discretion, order execution to issue even before
the expiration of the time to appeal, upon good reasons to be stated in a special
order. If a record on appeal is filed thereafter, the motion and the special order shall
be included thereon.

While the rule gives the court the discretionary power to allow immediate execution, the following
requisites must be satisfied for its valid exercise:

(a) There must be a motion by the prevailing party with notice to the adverse party;

(b) There must be a good reasons for issuing the execution; and

(c) The good reasons must be stated in a special order.

In its assailed decision, the Appellate Court, through Justice Salvador V. Esguerra, observe
that NPC, as defendant in the civil case for damages, was being ordered to pay the amount of P
1,108,985.31 pending appeal when practically 40% thereof was made up of awards of damages
based on the court's sole and untrammeled discretion. Such amount might greatly be reduced by the
superior court, especially the items for consequential and exemplary damages and attorney's fees
which by themselves would amount to the "staggering" sum of P433,220.00

The Appellate Court noted the many instances when on review, the amounts for attorney's fees and
exemplary and moral damages were drastically cut or eliminated altogether in the absence of proof
that the losing party acted with malice, evident bad faith or in an oppressive manner.

Inasmuch as the list submitted by ECI of the estimated losses and damages to its tunnel project
caused by the instant flooding on November 4, 1967 was duly supported by vouchers presented in
evidence, and considering thatNPC, for its part, failed to submit proofs to refute or contradict such
documentary evidence, we are constrained to sustain the order of execution pending appeal by the
trial court but only as far as the award for actual or compensatory damages is concemed. We are not
prepared to disagree with the lower court on this point since it was not sufficiently shown that it
abused or exceeded its authority.

With respect to the consequential and exemplary damages as well as attorney's fees, however, we
concur with the Appellate Court in holding that the lower court had exceeded the limits of its
discretion. Execution should have been postponed until such time as the merits of the case have
been finally determined in the regular appeal.

In the fairly recent case of RCPI, et al vs. Lantin Nos. L-59311 and 59320, January 31, 1985 , 134
SCRA 395, 400-401, the Court said:

The execution of any award for moral and exemplary damages is dependent on the
outcome of the main case. Unlike actual damages for which the petitioners may
clearly be held liable if they breach a specific contract and the amounts of which are
fixed and certain, liabilities with respect to moral and exemplary damages as well as
the exact amounts remain uncertain and indefinite pending resolution by the
Intermediate Appellate Court and eventually the Supreme Court. The existence of
the factual bases of these types of damages and their casual relation to petitioners'
 act will have to be determined in the light of the assignments or errors on appeal. It is
possible that the petitioners, after all, while liable for actual damages may not be
liable for moral and exemplary damages. Or as in some cases elevated to the
Supreme Court, the awards may be reduced.

Indeed, as later events would show, the Appellate Court was proven right when it
postulated that it is not beyond the realm of probability that NPCs appeal from the
lower court's judgment could result in the substantial reduction of the consequential
damages and attorney's fees and the deletion of exemplary damages.

We take judicial notice of the fact that on August 24, 1987, the Court of Appeals
rendered a decision on the main appeal. 9 It affirmed the trial court's conclusion
that NPC was guilty of negligence but differred in the award of damages. While it upheld
the court a quo's award of P675,785.31 as actual damages, it reduced the consequential
damages from P333,200.00 to P19,200.00 and the attorney's fees from P50,000 to
P30,000.00 The grant of P50,000 as exemplary damages was eliminated. Altogether, the
award of damages was modified from P1,108,985.31 to P724,985.31. From that decision,
both the ECI and NPC filed their separate appeals to this Court. 10 Finally, on May 16,
1988, the Court promulgated its judgment affirming in all respects the Appellate Court's
decision in CA-G.R. No. 49955-R, thus putting to rest the question of negligence
and NPCs liability for damages.

The point that the Court wishes to emphasize is this: Courts look with disfavor upon any attempt to
execute a judgment which has not acquired a final character. Section 2, Rule 39, authorizing the
premature execution of judgments, being an exception to the general rule, must be restrictively
construed. It would not be a sound rule to allow indiscriminately the execution of a money judgment,
even if there is a sufficient bond. "The reasons allowing execution must constitute superior
circumstances demanding urgency which will outweigh the injury or damages should the losing party
secure a reversal of the judgment."' 11

We come now to the second issue of whether petitioners, including the sheriff, are bound to restore
to NPC the judgment amount which has been delivered to ECI in compliance with the writ of
garnishment.

In line with our pronouncement that we are sanctioning in this particular instance the execution
pending appeal of actual but not consequential and exemplary damages and attorney's fees which
must necessarily depend on the final resolution of the main cases, i.e., Nos. L-47379 and 47481, the
direct consequence would be to authorize NPCto proceed against the covering bond filed by ECI but
only to the extent of the difference between the amount finally adjudicated by this Court in the main
cases [P724,985.31] and the amount originally decreed by the trial court relating to the
consequential and exemplary damages and attorney's fees [P1,108.985.31]. In other words, ECIs
bond is held answerable to NPC for P384,000.

But while partial restitution is warranted in favor of NPC, we find that the Appellate Court erred in not
absolvingMERALCO, the garnishee, from its obligations to NPC with respect to the payment
to ECI of P1,114,543.23, thus in effect subjecting MERALCO to double liability. MERALCO should
not have been faulted for its prompt obedience to a writ of garnishment. Unless there are compelling
reasons such as: a defect on the face of the writ or actual knowledge on the part of the garnishee of
lack of entitlement on the part of the garnisher, it is not incumbent upon the garnishee to inquire or to
judge for itself whether or not the order for the advance execution of a judgment is valid.

Section 8, Rule 57 of the Rules of Court provides,

 Effect of attachment of debts and credits.-All persons having in their possession or
under their control any credits or other similar personal property belonging to the
party against whom attachment is issued, or owing any debts to the same, at the
time of service upon them of a copy of the order of attachment and notice as
provided in the last preceding section, shall be liable to the applicant for the amount
of such credits, debts or other property, until the attachment be discharged, or any
judgment recovered by him be satisfied, unless such property be delivered or
transferred, or such debts be paid, to the clerk, sheriff or other proper officer of the
court issuing the attachment.

Garnishment is considered as a specie of attachment for reaching credits belonging to the judgment
debtor and owing to him from a stranger to the litigation. Under the above-cited rule, the garnishee
[the third person] is obliged to deliver the credits, etc. to the proper officer issuing the writ and "the
law exempts from liability the person having in his possession or under his control any credits or
other personal property be, longing to the defendant, ..., if such property be delivered or transferred,
..., to the clerk, sheriff, or other officer of the court in which the action is pending." 12

Applying the foregoing to the case at bar, MERALCO, as garnishee, after having been judicially
compelled to pay the amount of the judgment represented by funds in its possession belonging to
the judgment debtor or NPC, should be released from all responsibilities over such amount after
delivery thereof to the sheriff. The reason for the rule is self-evident. To expose garnishees to risks
for obeying court orders and processes would only undermine the administration of justice.

WHEREFORE, the Court in disposing of the two side issues of execution pending appeal and
petitioners' liability for restitution, hereby MODIFIES the Court of Appeals' decision and resolution
under review, and rules as follows:

[a] NPC is authorized to proceed against the P1,109,000 bond filed by ECI to the extent of P384,000
which corresponds to the difference between the awards for consequential and exemplary damages
and attorney's fees upheld by the Court in the main cases (Nos. L-47379 and 47481) and those
decreed for the same items by the trial court;

[b] MERALCO is declared absolved from any and all responsibilities in connection with the amount
of P1,114,545.23 representing the NPC garnished funds and therefore relieved from the burden of
restoring the same to NPC.

SO ORDERED .

G.R. No. L-34548 November 29, 1988

RIZAL COMMERCIAL BANKING CORPORATION, petitioner,

vs.
THE HONORABLE PACIFICO P. DE CASTRO and PHILIPPINE VIRGINIA TOBACCO
ADMINISTRATION,respondents

CORTES, J.:

The crux of the instant controversy dwells on the liability of a bank for releasing 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? The Court does not think so.

In Civil Case No. Q-12785 of the Court of First Instance of Rizal, Quezon City Branch IX entitled
"Badoc Planters, Inc. versus Philippine Virginia Tobacco Administration, et al.," which was an action
for recovery of unpaid tobacco deliveries, an Order (Partial Judgment) was issued on January 15,
1970 by the Hon. Lourdes P. San Diego, then Presiding Judge, ordering the defendants therein to
pay jointly and severally, the plaintiff Badoc Planters, Inc. (hereinafter referred to as "BADOC") within
48 hours the aggregate amount of P206,916.76, with legal interests thereon.

On January 26,1970, BADOC filed an Urgent Ex-Parte Motion for a Writ of Execution of the said
Partial Judgment which was granted on the same day by the herein respondent judge who acted in
place of the Hon. Judge San Diego who had just been elevated as a Justice of the Court of Appeals.
Accordingly, the Branch Clerk of Court on the very same day, issued a Writ of Execution addressed
to Special Sheriff Faustino Rigor, who then issued a Notice of Garnishment addressed to the
General Manager and/or Cashier of Rizal Commercial Banking Corporation (hereinafter referred to
as RCBC), the petitioner in this case, requesting a reply within five (5) days to said garnishment as
to any property which the Philippine Virginia Tobacco Administration (hereinafter referred to as
"PVTA") might have in the possession or control of petitioner or of any debts owing by the petitioner
to said defendant. 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 [Record on Appeal, p. 36]

Upon an Urgent Ex-Parte Motion dated January 27, 1970 filed by BADOC, the respondent Judge
issued an Order granting the Ex-Parte Motion and directing the herein petitioner "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." [Record on Appeal,
p. 20; Rollo, p. 5.] In compliance with said Order, petitioner delivered to Sheriff Rigor a certified
check in the sum of P 206,916.76.

Respondent PVTA filed a Motion for Reconsideration dated February 26,1970 which was granted in
an Order dated April 6,1970, setting aside the Orders of Execution and of Payment and the Writ of
Execution and ordering petitioner and BADOC "to restore, jointly and severally, the account of PVTA
with the said bank in the same condition and state it was before the issuance of the aforesaid Orders
by reimbursing the PVTA of the amount of P 206, 916.76 with interests at the legal rate from January
27, 1970 until fully paid to the account of the PVTA This is without prejudice to the right of plaintiff 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." [Record on Appeal, p. 58]

The Motion for Reconsideration of the said Order of April 6, 1970 filed by herein petitioner was
denied in the Order of respondent judge dated June 10, 1970 and on June 19, 1970, which was
within the period for perfecting an appeal, the herein petitioner filed a Notice of Appeal to the Court
of Appeals from the said Orders.

This case was then certified by the Court of Appeals to this Honorable Court, involving as it does
purely questions of law.

The petitioner raises two principal queries in the instant case: 1) Whether or not PVTA funds are
public funds not subject to garnishment; and 2) Whether or not the respondent Judge correctly
ordered the herein petitioner to reimburse the amount paid to the Special Sheriff by virtue of the
execution issued pursuant to the Order/Partial Judgment dated January 15, 1970.
The record reveals that on February 2, 1970, private respondent PVTA filed a Motion for
Reconsideration of the Order/ Partial Judgment of January 15, 1970. This was granted and the
aforementioned Partial Judgment was set aside. The case was set for hearings on November 4, 9
and 11, 1970 [Rollo, pp. 205-207.] However, in view of the failure of plaintiff BADOC to appear on
the said dates, the lower court ordered the dismissal of the case against PVTA for failure to
prosecute [Rollo, p. 208.]

It must be noted that the Order of respondent Judge dated April 6, 1970 directing the plaintiff to
reimburse PVTA t e amount of P206,916.76 with interests became final as to said plaintiff who failed
to even file a motion for reconsideration, much less to appeal from the said Order. Consequently, the
order to restore the account of PVTA with RCBC in the same condition and state it was before the
issuance of the questioned orders must be upheld as to the plaintiff, BADOC.

However, the questioned Order of April 6, 1970 must be set aside insofar as it ordered the petitioner
RCBC, jointly and severally with BADOC, to reimburse PVTA.

The petitioner merely obeyed a mandatory directive from the respondent Judge dated January 27,
1970, ordering petitioner 94 "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 and/or counsel on record." [Record on Appeal, p. 20.]

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 insistently urges that the premature delivery of the garnished amount by RCBC
to the special sheriff even in the absence of a demand to deliver made by the latter, before the
expiration of the five-day period given to reply to the Notice of Garnishment, without any reply having
been given thereto nor any prior authorization from its depositor, PVTA and even if the court's order
of January 27, 1970 did not require the bank to immediately deliver the garnished amount
constitutes such lack of prudence as to make it answerable jointly and severally with the plaintiff for
the wrongful release of the money from the deposit of the PVTA. The respondent Judge in his
controverted Order sustained such contention and blamed RCBC for the supposed "hasty release of
the amount from the deposit of the PVTA without giving PVTA a chance to take proper steps by
informing it of the action being taken against its deposit, thereby observing with prudence the five-
day period given to it by the sheriff." [Rollo, p. 81.]

Such allegations must be rejected for lack of merit. In the first place, 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 of January 27, 1970. While the
Notice of Garnishment dated January 26, 1970 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 of January
27, 1970 categorically required the delivery in check of the amount garnished to the special sheriff,
Faustino Rigor.

In the second place, 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. [See Rollo, p. 93.]

Lastly, 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 [Record on Appeal,
p. 36]
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. The order of the court dated January 27, 1970 was composed of two parts, requiring: 1)
RCBC to deliver in check the amount garnished to the designated sheriff and 2) the sheriff in turn to
cash the check and deliver the amount to the plaintiffs representative and/or counsel on record. 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.]

Moreover, by virtue of the order of garnishment, the same was placed in custodia legis and
therefore, from that time on, RCBC was holding the funds subject to the orders of the court a quo.
That the sheriff, upon delivery of the check to him by RCBC encashed it and turned over the
proceeds thereof to the plaintiff was no longer the concern of RCBC as the responsibility over the
garnished funds passed to the court. Thus, no breach of trust or dereliction of duty can be attributed
to RCBC in delivering its depositor's funds pursuant to a court order which was merely in the
exercise of its power of control over such funds.

... The garnishment of property to satisfy a writ of execution operates as an

attachment and fastens upon the property a lien by which the property is brought
under the jurisdiction of the court issuing the writ. It is brought into custodia legis,
under the sole control of such court [De Leon v. Salvador, G.R. Nos. L-30871 and L-
31603, December 28,1970, 36 SCRA 567, 574.]

The respondent judge however, censured the petitioner for having released the funds "simply on the
strength of the Order of the court which. far from ordering an immediate release of the amount
involved, merely serves as a standing authority to make the release at the proper time as prescribed
by the rules." [Rollo, p. 81.]

This argument deserves no serious consideration. As stated earlier, the order directing the bank to
deliver the amount to the sheriff was distinct and separate from the order directing the sheriff to
encash the said check. The bank had no choice but to comply with the order demanding delivery of
the garnished amount in check. The very tenor of the order called for immediate compliance
therewith. On the other hand, the bank cannot be held liable for the subsequent encashment of the
check as this was upon order of the court in the exercise of its power of control over the funds
placed in custodia legis by virtue of the garnishment.

In a recent decision [Engineering Construction Inc., v. National Power Corporation, G.R. No. L-
34589, June 29, 1988] penned by the now Chief Justice Marcelo Fernan, this Court absolved a
garnishee from any liability for prompt compliance with its order for the delivery of the garnished
funds. The rationale behind such ruling deserves emphasis in the present case:

But while partial restitution is warranted in favor of NPC, we find that the Appellate
Court erred in not absolving MERALCO, the garnishee, from its obligations to NPC
with respect to the payment of ECI of P 1,114,543.23, thus in effect subjecting
MERALCO to double liability. MERALCO should not have been faulted for its prompt
obedience to a writ of garnishment. Unless there are compelling reasons such as: a
defect on the face of the writ or actual knowledge on the part of the garnishee of lack
of entitlement on the part of the garnisher, it is not incumbent upon the garnishee to
inquire or to judge for itself whether or not the order for the advance execution of a
judgment is valid.

Section 8, Rule 57 of the Rules of Court provides:

 Effect of attachment of debts and credits.All persons having in their
possession or under their control any credits or other similar personal
property belonging to the party against whom attachment is issued, or
owing any debts to the same, all the time of service upon them of a
copy of the order of attachment and notice as provided in the last
preceding section, shall be liable to the applicant for the amount of
such credits, debts or other property, until the attachment be
discharged, or any judgment recovered by him be satisfied, unless
such property be delivered or transferred, or such debts be paid, to
the clerk, sheriff or other proper officer of the court issuing the
attachment.

Garnishment is considered as a specie of attachment for reaching credits belonging

to the judgment debtor and owing to him from a stranger to the litigation. Under the
above-cited rule, the garnishee [the third person] is obliged to deliver the credits, etc.
to the proper officer issuing the writ and "the law exempts from liability the person
having in his possession or under his control any credits or other personal property
belonging to the defendant, ..., if such property be delivered or transferred, ..., to the
clerk, sheriff, or other officer of the court in which the action is pending. [3 Moran,
Comments on the Rules of Court 34 (1970 ed.)]

Applying the foregoing to the case at bar, MERALCO, as garnishee, after having been judicially
compelled to pay the amount of the judgment represented by funds in its possession belonging to
the judgment debtor or NPC, should be released from all responsibilities over such amount after
delivery thereof to the sheriff. The reason for the rule is self-evident. To expose garnishees to risks
for obeying court orders and processes would only undermine the administration of justice.
[Emphasis supplied.]

The aforequoted ruling thus bolsters RCBC's stand that its immediate compliance with the lower
court's order should not have been met with the harsh penalty of joint and several liability. Nor can
its liability to reimburse PVTA of the amount delivered in check be premised upon the subsequent
declaration of nullity of the order of delivery. As correctly pointed out by the petitioner:

xxx xxx xxx

That the respondent Judge, after his Order was enforced, saw fit to recall said Order
and decree its nullity, should not prejudice one who dutifully abided by it, the
presumption being that judicial orders are valid and issued in the regular
performance of the duties of the Court" [Section 5(m) Rule 131, Revised Rules of
Court]. This should operate with greater force in relation to the herein petitioner
which, not being a party in the case, was just called upon to perform an act in
accordance with a judicial flat. A contrary view will invite disrespect for the majesty of
the law and induce reluctance in complying with judicial orders out of fear that said
orders might be subsequently invalidated and thereby expose one to suffer some
penalty or prejudice for obeying the same. And this is what will happen were the
controversial orders to be sustained. We need not underscore the danger of this as a
precedent.

xxx xxx xxx

[ Brief for the Petitioner, Rollo, p. 212; Emphasis supplied.]

From the foregoing, 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.

The respondent Judge nevertheless held that the liability of RCBC for the reimbursement of the
garnished amount is predicated on the ruling of the Supreme Court in the case of Commissioner of
Public Highways v. Hon. San Diego[G.R. No. L-30098, February 18, 1970, 31 SCRA 616] which he
found practically on all fours with the case at bar.

The Court disagrees.

The said case which reiterated the rule in Republic v. Palacio [G.R. No. L-20322, May 29, 1968, 23
SCRA 899] that government funds and properties may not be seized under writs of execution or
garnishment to satisfy such judgment is definitely distinguishable from the case at bar.

In the Commissioner of Public Highways case [supra], the bank which precipitately allowed the
garnishment and delivery of the funds failed to inform its depositor thereof, charged as it was with
knowledge of the nullity of the writ of execution and notice of garnishment against government funds.
In the aforementioned case, the funds involved belonged to the Bureau of Public Highways, which
being an arm of the executive branch of the government, has no personality of its own separate from
the National Government. The funds involved were government funds covered by the rule on
exemption from execution.

This brings us to the first issue raised by the petitioner: Are the PVTA funds public funds exempt
from garnishment? The Court holds that they are not.

Republic Act No. 2265 created the PVTA as an ordinary corporation with all the attributes of a
corporate entity subject to the provisions of the Corporation Law. Hence, it possesses the power "to
sue and be sued" and "to acquire and hold such assets and incur such liabilities resulting directly
from operations authorized by the provisions of this Act or as essential to the proper conduct of such
operations." [Section 3, Republic Act No. 2265.]

Among the specific powers vested in the PVTA are: 1) to buy Virginia tobacco grown in the
Philippines for resale to local bona fide tobacco manufacturers and leaf tobacco dealers [Section
4(b), R.A. No. 2265]; 2) to contracts of any kind as may be necessary or incidental to the attainment
of its purpose with any person, firm or corporation, with the Government of the Philippines or with
any foreign government, subject to existing laws [Section 4(h), R.A. No. 22651; and 3) generally, to
exercise all the powers of a corporation under the Corporation Law, insofar as they are not
inconsistent with the provisions of this Act [Section 4(k), R.A. No. 2265.]

From the foregoing, it is clear that PVTA has been endowed with a personality distinct and separate
from the government which owns and controls it. Accordingly, this Court has heretofore declared that
the funds of the PVTA can be garnished since "funds of public corporation which can sue and be
sued were not exempt from garnishment" [Philippine National Bank v. Pabalan, G.R. No. L-33112,
June 15, 1978, 83 SCRA 595, 598.]

In National Shipyards and Steel Corp. v. CIR [G.R. No. L-17874, August 31, 1964, 8 SCRA 781], this
Court held that the allegation to the effect that the funds of the NASSCO are public funds of the
government and that as such, the same may not be garnished, attached or levied upon is untenable
for, as a government-owned or controlled corporation, it has a personality of its own, distinct and
separate from that of the government. This court has likewise ruled that other govemment-owned
and controlled corporations like National Coal Company, the National Waterworks and Sewerage
Authority (NAWASA), the National Coconut Corporation (NACOCO) the National Rice and Corn
Corporation (NARIC) and the Price Stabilization Council (PRISCO) which possess attributes similar
to those of the PVTA are clothed with personalities of their own, separate and distinct from that of
the government [National Coal Company v. Collector of Internal Revenue, 46 Phil. 583 (1924);
Bacani and Matoto v. National Coconut Corporation et al., 100 Phil. 471 (1956); Reotan v. National
Rice & Corn Corporation, G.R. No. L-16223, February 27, 1962, 4 SCRA 418.] The rationale in
vesting it with a separate personality is not difficult to find. It is well-settled that when the government
enters into commercial business, it abandons its sovereign capacity and is to be treated like any
other corporation [Manila Hotel Employees' Association v. Manila Hotel Co. and CIR, 73 Phil. 734
(1941).]

Accordingly, as emphatically expressed by this Court in a 1978 decision, "garnishment was the
appropriate remedy for the prevailing party which could proceed against the funds of a corporate
entity even if owned or controlled by the government" inasmuch as "by engaging in a particular
business thru the instrumentality of a corporation, the government divests itself pro hac vice of its
sovereign character, so as to render the corporation subject to the rules of law governing private
corporations" [Philippine National Bank v. CIR, G.R No. L-32667, January 31, 1978, 81 SCRA 314,
319.]

Furthermore, in the case of PVTA, the law has expressly allowed it funds to answer for various
obligations, including the one sought to be enforced by plaintiff BADOC in this case (i.e. for unpaid
deliveries of tobacco). Republic Act No. 4155, which discounted the erstwhile support given by the
Central Bank to PVTA, established in lieu thereof a "Tobacco Fund" to be collected from the
proceeds of fifty per centum of the tariff or taxes of imported leaf tobacco and also fifty per centum of
the specific taxes on locally manufactured Virginia type cigarettes.

Section 5 of Republic Act No. 4155 provides that this fund shall be expended for the support or
payment of:

1. Indebtedness of the Philippine Virginia Tobacco Administration and the former

Agricultural Credit and Cooperative Financing Administration to FACOMAS and
farmers and planters regarding Virginia tobacco transactions in previous years;

2. Indebtedness of the Philippine Virginia Tobacco Administration and the former

Agricultural Credit and Cooperative Financing Administration to the Central Bank in
gradual amounts regarding Virginia tobacco transactions in previous years;

3. Continuation of the Philippine Virginia Tobacco Administration support and subsidy

operationsincluding the purchase of locally grown and produced Virginia leaf
tobacco, at the present support and subsidy prices, its procurement, redrying,
handling, warehousing and disposal thereof, and the redrying plants trading within
the purview of their contracts;

4. Operational, office and field expenses, and the establishment of the Tobacco
Research and Grading Institute. [Emphasis supplied.]

Inasmuch as the Tobacco Fund, a special fund, was by law, earmarked specifically to answer
obligations incurred by PVTA in connection with its proprietary and commercial operations
authorized under the law, it follows that said funds may be proceeded against by ordinary judicial
processes such as execution and garnishment. If such funds cannot be executed upon or garnished
pursuant to a judgment sustaining the liability of the PVTA to answer for its obligations, then the
purpose of the law in creating the PVTA would be defeated. For it was declared to be a national
policy, with respect to the local Virginia tobacco industry, to encourage the production of local
Virginia tobacco of the qualities needed and in quantities marketable in both domestic and foreign
markets, to establish this industry on an efficient and economic basis, and to create a climate
conducive to local cigarette manufacture of the qualities desired by the consuming public, blending
imported and native Virginia leaf tobacco to improve the quality of locally manufactured cigarettes
[Section 1, Republic Act No. 4155.]

The Commissioner of Public Highways case is thus distinguishable from the case at bar. In said
case, the Philippine National Bank (PNB) as custodian of funds belonging to the Bureau of Public
Highways, an agency of the government, was chargeable with knowledge of the exemption of such
government funds from execution and garnishment pursuant to the elementary precept that public
funds cannot be disbursed without the appropriation required by law. On the other hand, the same
cannot hold true for RCBC as the funds entrusted to its custody, which belong to a public
corporation, are in the nature of private funds insofar as their susceptibility to garnishment is
concerned. Hence, RCBC cannot be charged with lack of prudence for immediately complying with
the order to deliver the garnished amount. Since the funds in its custody are precisely meant for the
payment of lawfully-incurred obligations, RCBC cannot rightfully resist a court order to enforce
payment of such obligations. That such court order subsequently turned out to have been
erroneously issued should not operate to the detriment of one who complied with its clear order.

Finally, it is contended that RCBC was bound to inquire into the legality and propriety of the Writ of
Execution and Notice of Garnishment issued against the funds of the PVTA deposited with said
bank. But the bank was in no position to question the legality of the garnishment since it was not
even a party to the case. As correctly pointed out by the petitioner, it had neither the personality nor
the interest to assail or controvert the orders of respondent Judge. It had no choice but to obey the
same inasmuch as it had no standing at all to impugn the validity of the partial judgment rendered in
favor of the plaintiff or of the processes issued in execution of such judgment.

RCBC cannot therefore be compelled to make restitution solidarily with the plaintiff BADOC. Plaintiff
BADOC alone was responsible for the issuance of the Writ of Execution and Order of Payment and
so, the plaintiff alone should bear the consequences of a subsequent annulment of such court
orders; hence, only the plaintiff can be ordered to restore the account of the PVTA.

WHEREFORE, the petition is hereby granted and the petitioner is ABSOLVED from any liability to
respondent PVTA for reimbursement of the funds garnished. The questioned Order of the
respondent Judge ordering the petitioner, jointly and severally with BADOC, to restore the account of
PVTA are modified accordingly.

SO ORDERED.

G.R. No. 107282 March 16, 1994

THE MANILA REMNANT CO., INC., petitioner,

vs.
HON. COURT OF APPEALS, AND SPS. OSCAR C. VENTANILLA AND CARMEN GLORIA
DIAZ, respondents.

CRUZ, J.:
The present petition is an offshoot of our decision in Manila Remnant Co., Inc., (MRCI) v. Court of
Appeals, promulgated on November 22, 1990.

That case involved parcels of land in Quezon City which were owned by petitioner MRCI and
became the subject of its agreement with A.U. Valencia and Co., Inc., (AUVCI) by virtue of which the
latter was to act as the petitioner's agent in the development and sale of the property. For a
stipulated fee, AUVCI was to convert the lands into a subdivision, manage the sale of the lots,
execute contracts and issue official receipts to the lot buyers. At the time of the agreement, the
president of both MRCI and AUVCI was Artemio U. Valencia.

Pursuant to the above agreement, AUVCI executed two contracts to sell dated March 3, 1970,
covering Lots 1 and 2, Block 17, in favor of spouses Oscar C. Ventanilla and Carmen Gloria Diaz for
the combined contract price of P66,571.00, payable monthly in ten years. After ten days and without
the knowledge of the Ventanilla couple, Valencia, as president of MRCI, resold the same parcels to
Carlos Crisostomo, one of his sales agents, without any consideration. Upon orders of Valencia, the
monthly payments of the Ventanillas were remitted to the MRCI as payments of Crisostomo, for
which receipts were issued in his name. The receipts were kept by Valencia without the knowledge
of the Ventanillas and Crisostomo. The Ventanillas continued paying their monthly installments.

On May 30, 1973, MRCI informed AUVCI that it was terminating their agreement because of
discrepancies discovered in the latter's collections and remittances. On June 6, 1973, Valencia was
removed by the board of directors of MRCI as its president.

On November 21, 1978, the Ventanilla spouses, having learned of the supposed sale of their lots to
Crisostomo, commenced an action for specific performance, annulment of deeds, and damages
against Manila Remnant Co., Inc., A.U. Valencia and Co., Inc., and Carlos Crisostomo. It was
docketed as Civil Case No. 26411 in the Court of First Instance of Quezon City, Branch
7-B.

On November 17, 1980, the trial court rendered a decision declaring the contracts to sell in favor of
the Ventanillas valid and subsisting, and annulling the contract to sell in favor of Crisostomo. It
ordered the MRCI to execute an absolute deed of sale in favor of the Ventanillas, free from all liens
and encumbrances. Damages and attorney's fees in the total amount of P210,000.00 were also
awarded to the Ventanillas for which the MRCI, AUVCI, and Crisostomo were held solidarily liable.

The lower court ruled further that if for any reason the transfer of the lots could not be effected, the
defendants would be solidarily liable to the Ventanillas for reimbursement of the sum of P73,122.35,
representing the amount paid for the two lots, and legal interest thereon from March 1970, plus the
decreed damages and attorney's fees. Valencia was also held liable to MRCI for moral and
exemplary damages and attorney's fees.

From this decision, separate appeals were filed by Valencia and MRCI. The appellate court,
however, sustained the trial court in toto.

MRCI then filed before this Court a petition for certiorari to review the portion of the decision of the
Court of Appeals upholding the solidary liability of MRCI, AUVCI and Carlos Crisostomo for the
payment of moral and exemplary damages and attorney's fees to the Ventanillas.

On November 22, 1990, this Court affirmed the decision by the Court of Appeals and declared the
judgment of the trial court immediately executory.

The Present Case

On January 25, 1991, the spouses Ventanilla filed with the trial court a motion for the issuance of a
writ of execution in Civil Case No. 26411. The writ was issued on May 3, 1991, and served upon
MRCI on May 9, 1991.

In a manifestation and motion filed by MRCI with the trial court on May 24, 1991, the petitioner
alleged that the subject properties could not be delivered to the Ventanillas because they had
already been sold to Samuel Marquez on February 7, 1990, while their petition was pending in this
Court. Nevertheless, MRCI offered to reimburse the amount paid by the respondents, including legal
interest plus the aforestated damages. MRCI also prayed that its tender of payment be accepted and
all garnishments on their accounts lifted.

The Ventanillas accepted the amount of P210,000.00 as damages and attorney's fees but opposed
the reimbursement offered by MRCI in lieu of the execution of the absolute deed of sale. They
contended that the alleged sale to Samuel Marquez was void, fraudulent, and in contempt of court
and that no claim of ownership over the properties in question had ever been made by Marquez.

On July 19, 1991, Judge Elsie Ligot-Telan issued the following order:

To ensure that there is enough amount to cover the value of the lots involved if
transfer thereof to plaintiff may no longer be effected, pending litigation of said issue,
the garnishment made by the Sheriff upon the bank account of Manila Remnant may
be lifted only upon the deposit to the Court of the amount of P500,000.00 in cash.

MRCI then filed a manifestation and motion for reconsideration praying that it be ordered to
reimburse the Ventanillas in the amount of P263,074.10 and that the garnishment of its bank deposit
be lifted. This motion was denied by the trial court in its order dated September 30, 1991. A second
manifestation and motion filed by MRCI was denied on December 18, 1991. The trial court also
required MRCI to show cause why it should not be cited for contempt for disobedience of its
judgment.

These orders were questioned by MRCI in a petition for certiorari before the respondent court on the
ground that they were issued with grave abuse of discretion.

The Court of Appeals ruled that the contract to sell in favor of Marquez did not constitute a legal
impediment to the immediate execution of the judgment. Furthermore, the cash bond fixed by the
trial court for the lifting of the garnishment was fair and reasonable because the value of the lot in
question had increased considerably. The appellate court also set aside the show-cause order and
held that the trial court should have proceeded under Section 10, Rule 39 of the Rules of Court and
not Section 9 thereof. 1

In the petition now before us, it is submitted that the trial court and the Court of Appeals committed
certain reversible errors to the prejudice of MRCI.

The petitioner contends that the trial court may not enforce it garnishment order after the monetary
judgment for damages had already been satisfied and the amount for reimbursement had already
been deposited with the sheriff. Garnishment as a remedy is intended to secure the payment of a
judgment debt when a well-founded belief exists that the erring party will abscond or deliberately
render the execution of the judgment nugatory. As there is no such situation in this case, there is no
need for a garnishment order.

It is also averred that the trial court gravely abused its discretion when it arbitrarily fixed the amount
of the cash bond for the lifting of the garnishment order at P500,000.00.
MRCI further maintains that the sale to Samuel Marquez was valid and constitutes a legal
impediment to the execution of the absolute deed of sale to the Ventanillas. At the time of the sale to
Marquez, the issue of the validity of the sale to the Ventanillas had not yet been resolved.
Furthermore, there was no specific injunction against the petitioner re-selling the property.

Lastly, the petitioner insists that Marquez was a buyer in good faith and had a right to rely on the
recitals in the certificate of title. The subject matter of the controversy having passed to an innocent
purchaser for value, the respondent court erred in ordering the execution of the absolute deed of
sale in favor of the Ventanillas.

For their part, the respondents argue that the validity of the sale to them had already been
established even while the previous petition was still pending resolution. That petition only
questioned the solidary liability of MRCI to the Ventanillas. The portion of the decision ordering the
MRCI to execute an absolute deed of sale in favor of the Ventanillas became final and executory
when the petitioner failed to appeal it to the Supreme Court. There was no need then for an order
enjoining the petitioner from re-selling the property in litigation.

They also point to the unusual lack of interest of Marquez in protecting and asserting his right to the
disputed property, a clear indication that the alleged sale to him was merely a ploy of the petitioner
to evade the execution of the absolute deed of sale in their favor.

The petition must fail.

The validity of the contract to sell in favor of the Ventanilla spouses is not disputed by the parties.
Even in the previous petition, the recognition of that contract was not assigned as error of either the
trial court or appellate court. The fact that the MRCI did not question the legality of the award for
damages to the Ventanillas also shows that it even then already acknowledged the validity of the
contract to sell in favor of the private respondents.

On top of all this, there are other circumstances that cast suspicion on the validity, not to say the
very existence, of the contract with Marquez.

First, the contract to sell in favor of Marquez was entered into after the lapse of almost ten years
from the rendition of the judgment of the trial court upholding the sale to the Ventanillas.

Second, the petitioner did not invoke the contract with Marquez during the hearing on the motion for
the issuance of the writ of execution filed by the private respondents. It disclosed the contract only
after the writ of execution had been served upon it.

Third, in its manifestation and motion dated December 21, 1990, the petitioner said it was ready to
deliver the titles to the Ventanillas provided that their counterclaims against private respondents
were paid or offset first. There was no mention of the contract to sell with Marquez on February 7,
1990.

Fourth, Marquez has not intervened in any of these proceedings to assert and protect his rights to
the subject property as an alleged purchaser in good faith.

At any rate, even if it be assumed that the contract to sell in favor of Marquez is valid, it cannot
prevail over the final and executory judgment ordering MRCI to execute an absolute deed of sale in
favor of the Ventanillas. No less importantly, the records do not show that Marquez has already paid
the supposed balance amounting to P616,000.00 of the original price of over P800,000.00. 2
The Court notes that the petitioner stands to benefit more from the supposed contract with Marquez
than from the contract with the Ventanillas with the agreed price of only P66,571.00. Even if it paid
the P210,000.00 damages to the private respondents as decreed by the trial court, the petitioner
would still earn more profit if the Marquez contract were to be sustained.

We come now to the order of the trial court requiring the posting of the sum of P500,000.00 for the
lifting of its garnishment order.

While the petitioners have readily complied with the order of the trial court for the payment of
damages to the Ventanillas, they have, however, refused to execute the absolute deed of sale. It
was for the purpose of ensuring their compliance with this portion of the judgment that the trial court
issued the garnishment order which by its term could be lifted only upon the filling of a cash bond of
P500,000.00.

The petitioner questions the propriety of this order on the ground that it has already partially
complied with the judgment and that it has always expressed its willingness to reimburse the amount
paid by the respondents. It says that there is no need for a garnishment order because it is willing to
reimburse the Ventanillas in lieu of execution of the absolute deed of sale.

The alternative judgment of reimbursement is applicable only if the conveyance of the lots is not
possible, but it has not been shown that there is an obstacle to such conveyance. As the main
obligation of the petitioner is to execute the absolute deed of sale in favor of the Ventanillas, its
unjustified refusal to do so warranted the issuance of the garnishment order.

Garnishment is a species of attachment for reaching credits belonging to the judgment debtor and
owing to him from a stranger to the litigation. 3 It is an attachment by means of which the plaintiff seeks
to subject to his claim property of the defendant in the hands of a third person or money owed by such
third person or garnishee to the defendant. 4 The rules on attachment also apply to garnishment
proceedings.

A garnishment order shall be lifted if it established that:

(a) the party whose accounts have been garnished has posted a counterbond or has
made the requisite cash deposit; 5

(b) the order was improperly or irregularly issued 6 as where there is no ground for
garnishment 7 or the affidavit and/or bond filed therefor are defective or insufficient; 8

(c) the property attached is exempt from execution, hence exempt from preliminary
attachment 9 or

(d) the judgment is rendered against the attaching or garnishing creditor. 10

Partial execution of the judgment is not included in the above enumeration of the legal grounds for
the discharge of a garnishment order. Neither does the petitioner's willingness to reimburse render
the garnishment order unnecessary. As for the counterbond, the lower court did not err when it fixed
the same at P500,000.00. As correctly pointed out by the respondent court, that amount
corresponds to the current fair market value of the property in litigation and was a reasonable basis
for determining the amount of the counterbond.

Regarding the refusal of the petitioner to execute the absolute deed of sale, Section 10 of Rule 39 of
the Rules of Court reads as follows:
 Sec. 10. Judgment for specific act; vesting title If a judgment directs a party to
execute a conveyance of land, or to deliver deeds or other documents, or to perform
any other specific act, and the party fails to comply within the time specified, the
court may direct the act to be done at the cost of the disobedient party by some other
person appointed by the court and the act when so done shall have like effect as if
done by the party. If real or personal property is within the Philippines, the court in
lieu of directing a conveyance thereof may enter judgment divesting the title of any
party and vesting it in others and such judgment shall have the force and effect of a
conveyance executed in due form of law.

Against the unjustified refusal of the petitioner to accept payment of the balance of the contract
price, the remedy of the respondents is consignation, conformably to the following provisions of the
Civil Code:

Art. 1256. If the creditor to whom tender of payment has been made refuses without
just cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due. . .

Art. 1258. Consignation shall be made by depositing the things due at the disposal of
the judicial authority, before whom the tender of payment shall be proved, in a proper
case, and the announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified
thereof.

Art. 1260. Once the consignation has been duly made, the debtor may ask the judge
to order the cancellation of the obligation.

Accordingly, upon consignation by the Ventanillas of the sum due, the trial court may enter judgment
canceling the title of the petitioner over the property and transferring the same to the respondents.
This judgment shall have the same force and effect as conveyance duly executed in accordance
with the requirements of the law.

In sum, we find that:

1. No legal impediment exists to the execution, either by the petitioner or the trial court, of an
absolute deed of sale of the subject property in favor of the respondent Ventanillas; and

2. The lower court did not abuse its discretion when it required the posting of a P500,000.00 cash
bond for the lifting of the garnishment order.

WHEREFORE, the petition is DENIED and the challenged decision of the Court of Appeals is
AFFIRMED in toto, with costs against the petitioner. It is so ordered.

CHEMPHIL vs. CA supra

G.R. No. 104133 April 18, 1995

SPOUSES EMILIO ABINUJAR and MILAGROS M. LANA, petitioners,

vs.
 THE COURT OF APPEALS and SPOUSES SANTIAGO RAMIRO and FLORENTINA
RAMIRO, respondents.

QUIASON, J.:

This is a petition for review on ceitiorari under Rule 45 of the Revised Rules of Court of the Decision
dated December 27, 1991 and the Resolution dated February 11, 1992 of the Court of Appeals in
CA-G.R. SP No. 24683.

On October 10, 1987, petitioners executed a Deed of Sale with Right to Repurchase in favor of
private respondents, involving a residential house located at No. 346 Algeciras St., Sampaloc,
Manila. Due to serious financial and business reverses, petitioners were not able to redeem the
property within four months as agreed upon.

On October 24, 1989, private respondents filed a complaint for ejectment in the Metropolitan Trial
Court of the City of Manila, docketed as Civil Case No. 130352-CV against petitioners.

On December 27, 1989, the parties, assisted by their counsels, executed a compromise agreement.
In an order dated March 15, 1990, the Metropolitan Trial Court approved the compromise
agreement. The order reproduced the agreement as follows:

1. That defendants [petitioners herein] agree to pay plaintiffs [private respondents

herein] in the amounts and on the dates specifically indicated herein below:

P50,000.00 on Jan. 31, 1990;

10,000.00 on Feb. 28, 1990;
10,000.00 on March 31, 1990;
10,000.00 on April 30, 1990;
10,000.00 on May 31, 1990;
10,000.00 on June 30, 1990;
10,000.00 on July 31,1990;
10,000.00 on August 31, 1990;
10,000.00 on September 30, 1990;

2. That failure on the part of the defendants to pay three (3) consecutive payments,
plaintiffs will be entitled to a writ of execution, unless the parties agree to extend the
period of entitlement to a writ of execution in writing to be submitted and/or approved
by this Honorable Court; . . . (Rollo, p. 53).

On April 15, 1990, private respondents filed a motion for execution on the ground that petitioners
failed to pay the first three installments stipulated in the compromise agreement, to wit: P50,000.00
on January 31, 1990; P10,000.00 on February 28, 1990; and P10,000.00 on March 31, 1990.
On April 6, 1990, petitioners filed an "Urgent Ex-Parte Motion for Reconsideration and/or Correct
Order of this Court" calling attention to a typographical error in the Order dated March 15, 1990, and
asking that the amount of P10.000.00 payable on September 30, 1990 be corrected and changed to
the agreed amount of P50,000.

On April 25, 1990, the Metropolitan Trial Court issued an order granting the motion for correction of
the typographical error in the decision.

On August 17, 1990, petitioners filed a motion asking that the check payments previously deposited
by them with the court, be accepted and be given to respondents in compliance with their
compromise agreement.

On August 23, 1990, respondents opposed petitioners' ex-parte motion and stated that they would
not renew the compromise agreement with petitioners.

The Metropolitan Trial Court denied private respondents' motion for execution dated April 15, 1990
and another similar motion dated June 26, 1990.

On October 12, 1990, respondents filed a petition for mandamus with us (G.R. No. 95470). In a
resolution dated November 5, 1990, we referred the case to the Executive Judge of the Regional
Trial Court, Manila. petitioners moved to dismiss the petition for mandamus.

On March 14, 1991 the Regional Trial Court denied the motion to dismiss and issued the assailed
resolution commanding the Metropolitan Trial Court to issue a writ of execution of the decision
approving the compromise agreement in Civil Case No. 130352-CV.

In compliance with the said resolution, the Metropolitan Trial Court issued an order dated March 27,
1991 directing the issuance of a writ of execution to enforce the compromise agreement entered into
by the parties.

On April 11, 1991, a "Sheriffs' Notice to Voluntarily Vacate the Premises" was served on petitioner.

Petitioners then filed a petition for certiorari with a prayer for the issuance of a temporary restraining
order and a writ of injunction with the Court of Appeals (CA-G.R. SP No. 24683).

On December 27, 1991, the Court of Appeals dismissed the petition. Likewise, the said court denied
the motion for reconsideration filed by petitioner.

II

Petitioners contend that both the Regional Trial Court and Metropolitan Trial Court acted with grave
abuse of discretion, the former in issuing a resolution directing the Metropolitan Trial Court to issue a
writ of execution against petitioners herein, and the latter, in issuing said writ of execution.

III

A compromise agreement is a contract between the parties, which if not contrary to law, morals or
public policy, is valid and enforceable between them (Municipal Board of Cabanatuan City v.
Samahang Magsasaka, Inc., 62 SCRA 435 [1975]). There are two kinds of compromise agreements,
the judicial, which puts an end to a pending litigation, and the extrajudicial, which is to avoid a
litigation (Civil Code of the Philippines, Art. 2028; Caguioa, VI Commentaries and Cases, on Civil
Law 292 [1970]).

As a contract, a compromise agreement is perfected by mutual consent (Rovero v. Amparo, 91 Phil.

228 [1952]). A judicial compromise, however, while binding between the parties upon its execution,
is not executory until it is approved by the court and reduced to a judgment.

Article 2037 of the Civil Code of the Philippines provides:

A compromise has upon the parties the effect and authority of res judicata; but there
shall be no execution except in compliance with a judicial compromise.

The non-fulfillment of the terms and conditions of a compromise agreement approved by the court
justifies execution thereof and the issuance of the writ for said purpose is the court's ministerial duty
enforceable bymandamus (Maceda, Jr. v. Moreman Builders Co., Inc., 203 SCRA 293 [1991]).

In the compromise agreement, petitioners obligated themselves to pay private respondents the
amount of P50,000.00 on January 31, 1990, P10,000.00 on February 28, 1990, and P10,000.00 on
March 31, 1990.

Petitioners received a copy of the decision of the Metropolitan Trial Court approving the compromise
agreement on March 26, 1990. Clearly, there was a breach, for it was only on August 17, 1990 that
petitioners attempted to pay by means of nine postdated checks the amounts agreed upon. In effect,
the first installment payment of P50,000.00 due on January 31, 1990 was moved to August 31,
1990, the second installment of P10,000.00 due on February 28, 1990 was moved to September 30,
1990 and so forth, thereby making the last installment of P5,000.00 due on September 30, 1990
moved to April 30, 1991. This is tantamount to novating the original agreement entered into by the
parties without the consent of private respondents.

Inasmuch as a judicial compromise becomes binding between the parties upon its execution,
petitioners should have paid the installments falling due even before the approval thereof by the trial
court. But assuming that a judicial compromise is not perfected until it is approved by the court, still
petitioner should have paid the compromise agreement installments due on March 31, 1990,
together with the installments due on January 31 and February 28, 1990 on or before March 31,
1990.

Petitioners also assail the validity of the issuance by the Deputy Sheriff of the notice to voluntarily
vacate the premises by way of enforcing the decision approving the compromise agreement. They
maintain that their obligation is monetary in nature and the applicable rule should have been Section
15, Rule 39 and not Section 13, Rule 39 of the Revised Rules of Court.

Petitioners contention has merit.

When the parties entered into a compromise agreement, the original action for ejectment was set
aside and the action was changed to a monetary obligation.

A perusal of the compromise agreement signed by the parties and approved by the inferior court
merely provided that in case the defendants (petitioners herein) failed to pay three monthly
installments, the plaintiffs (private respondents herein) would be entitled to a writ of execution,
without specifying what the subject of execution would be. Said agreement did not state that
petitioners would be evicted from the premises subject of the suit in case of any default in complying
with their obligation thereunder. This was the result of the careless drafting thereof for which only
private respondents were to be blamed.

A judgment is the foundation of a writ of execution which draws its vitality therefrom (Monaghon v.
Monaghon, 25 Ohio St. 325). An officer issuing a writ of execution is required to look to the judgment
for his immediate authority (Sydnor v. Roberts, 12 Tex. 598).

An execution must conform to and be warranted by the judgment on which it was issued (Francisco,
The Revised Rules of Court 641 [1966]; Kramer v. Montgomery, 206 Okla.190, 242 p. 2d 414
[1952]). There should not be a substantial variance between the judgment and the writ of execution
(Avery v. Lewis, 10 Vt. 332). Thus, an execution is fatally defective if the judgment was for a sum of
money and the writ of execution was for the sale of mortgaged property (Bank of Philippine Islands
v. Green, 48 Phil. 284 [1925]).

As petitioners' obligation under the compromise agreement as approved by the court was monetary
in nature, private respondents can avail only of the writ of execution provided in Section 15, Rule 39
of the Revised Rules of Court, and not that provided in Section 13.

Section 15, Rule 39 provides:

Execution of money judgments. The officer must enforce an execution of a money

judgment by levying on all the property, real and personal of every name and nature
whatsoever, and which may be disposed of for value, of the judgment debtor not
exempt from execution, or on a sufficient amount of such property, if there be
sufficient, and selling the same, and paying to the judgment creditor, or his attorney,
so much of the proceeds as will satisfy the judgment. Any excess in the proceeds
over the judgment and accruing costs must be delivered to the judgment debtor,
unless otherwise directed by the judgment or order of the court. When there is more
property of the judgment debtor than is sufficient to satisfy the judgment and accruing
costs, within the view of the officer, he must levy only on such part of the property as
is amply sufficient to satisfy the judgment and costs.

Real property, stocks, shares, debts, credits, and other personal property, or any
interest in either real or personal property, may be levied on in like manner and with
like effect as under a writ of attachment.

On the other hand, Section 13, Rule 39 provides:

How execution for the delivery or restitution of property enforced. The officer must
enforce an execution for the delivery or restitution of property by ousting therefrom
the person against whom the judgment is rendered and placing the judgment creditor
in possession of such property, and by levying as hereinafter provided upon so much
of the property of the judgment debtor as will satisfy the amount of the judgment and
costs included in the writ of execution.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the
Sheriff is directed to enforce the execution only of the money judgment in accordance with Section
15, Rule 39 of the Revised Rules of Court.

SO ORDERED.
G.R. No. L-30982 January 31, 1930

THE PHILIPPINE NATIONAL BANK, plaintiff-appellant,

vs.
OLUTANGA LUMBER COMPANY, defendant-appellee.

VILLA-REAL, J.:

This appeal is taken by the Philippine National Bank from an order of the Court of First Instance of
Manila, the dispositive part of which is as follows:

The Philippine National Bank having appeared as an ordinary creditor in the involuntary
insolvency of the Olutanga Lumber Company, civil case No. 33048 of this court, claiming the
sum attached by the sheriff, it thereby renounced its preferred right acquired through
garnishment issued in the present case; and for that reason, the motion of the Bank of the
Philippine Islands is hereby granted, and the sheriff of the City of Manila is hereby ordered to
return to it the sum deposited by virtue of the garnishment, after deducting therefrom his
legal fees to which he has a perfect right notwithstanding the result arrived at.

In support of its appeal, the appellant assigns the following alleged errors committed by the trial
court in its judgment, to wit:

1. The lower court erred in holding, in its said order of March 31, 1928, that appellant the
Philippine National Bank had waived its lien acquired by garnishment in the present case by
joining as an unsecured creditor the petition for the involuntary insolvency of the Olutanga
Lumber Company.

2. The lower court erred in holding, in its said order of March 31, 1928, that the garnishment
issued in the present case referred only to P16,656.30, and in ordering the difference
between said sum and the amount of P30,092.11 deposited with the sheriff of Manila to be
returned to the Bank of the Philippine Islands after deducting the sheriff's fees therefrom.

3. The lower court erred in denying the motion of the appellant of November 14, 1928.

The following facts are necessary and pertinent to resolve the questions raised in the present
appeal:

In civil case entitled the Bank of the Philippine Islands, plaintiff and appellee, vs. Olutanga Lumber
Company, defendant and appellant, G. R. No. 27045,1 said plaintiff and appellee was ordered by this
court to pay to the aforesaid defendant and appellant a certain sum amounting to P31,242.11,
Philippine currency. Upon the return of the case to the Court of First Instance of Zamboanga, the
corresponding writ of execution was issued, which was complied with by the sheriff of said province
by presenting it to the manager of the branch of the Bank of the Philippine Islands in the City of
Zamboanga, on January 10, 1928, but without levying execution on any property belonging to the
execution debtor. On the same date, the aforesaid sheriff addressed to the central office of said
bank at Manila the following telegram:

Execution Bank Philippine Islands versus Olutanga Lumber Company served today manager
Zamboanga branch. Please authorize him pay amount due defendant Olutanga Lumber plus
sheriff fees otherwise levy will be made on your Zamboaga office. LUIS
PANAGUITON, Provincial Sheriff.
On the same date, January 10, 1928, before receiving the foregoing telegram, the central office of
the Bank of the Philippine Islands in Manila was notified by the sheriff of the City of Manila that all
the credits and debts contracted by it with the Olutanga Lumber Company, amounting to
P16,656.30, plus the interest at the rate of 12 per cent per annum from April 19, 1922 until fully paid,
were levied upon in the name of the Philippine National Rank by virtue of a writ of attachment issued
in civil case No. 32936 of the Court of First Instance of Manila.

On the following day, January 11, 1928, the Bank of the Philippine Islands, in reply to said notice,
addressed a letter to the sheriff of the City of Manila, notifying the latter that, pursuant to his notice of
attachment, it retained at the disposal of said sheriff the aforesaid sum of P16,656.30, plus interest
at the rate of 12 per cent per annum from April 19, 1922 until such date as may be designated.

On the same date, January 11, 1928, the sheriff of the City of Manila sent a letter to the Bank of the
Philippine Islands at Manila, requiring the latter to deliver to him the sum of P32,109,45, theretofore
attached, belonging to the Olutanga Lumber Company.

After the delivery to the sheriff of the City of Manila of the amount of the judgment in favor of the
Olutanga Lumber Company, rendered in civil case No. 1176 of the Court of First Instance of
Zamboanga, G. R. No. 27045 of this court, the Bank of the Philippine Islands notified the provincial
sheriff of Zamboanga by telegram, on January 12, 1928, that the amount of the judgment in favor of
the Olutanga Lumber Company against said bank had been delivered to the sheriff of the City of
Manila, and that any question on that subject should be taken up with him.

On January 14, 1928, the provincial sheriff of Zamboanga sent a communication to the manager of
the Bank of the Philippine Islands in said city, notifying him that all the money he had in his
possession or control, belonging to the Bank of the Philippine Islands, was levied upon by virtue of
an order of execution issued by the Court of First Instance of Zamboanga in civil case No. 1176,
entitled Bank of the Philippine Islands vs. Olutanga Lumber Company, G. R. No. 27045 of this court,
copy of which order of execution was served upon him on January 10, 1928.

On January 14, 1928, the sheriff of the City of Manila sent a telegram to the sheriff of the Province of
Zamboanga, telling him that the amount of the judgment against the Bank of the Philippine Islands
and in favor of the Olutanga Lumber Company, which had been attached by virtue of two writs of
attachment issued by the Philippine National Bank and the Standard Oil company of New York
against the Olutanga Lumber Company, had been deposited with him by said Bank of the Philippine
Islands.

Notwithstanding the fact that the provincial sheriff of Zamboanga had been duly informed of the levy
made by the sheriff of the City of Manila upon the funds of the Olutanga Lumber Company in
possession of the herein appellee, the Bank of the Philippine Islands, and of the delivery of said
funds to said judicial officer of the City of Manila, he attempted to collect from the branch of said
Bank of the Philippine Islands at Zamboanga the amount of the judgment in favor of the Olutanga
Lumber Company, threatening to levy, and in fact did levy, an attachment against said branch.

In view of this act of the provincial sheriff of Zamboanga, the herein appellee, the Bank of the
Philippine Islands, had to file a petition for prohibition with this court against the Judge of the Court of
First Instance of Zamboanga, the provincial sheriff of said province and the Olutanga Lumber
Company, docketed as G. R. No. 29043 of this court. Upon hearing said petition, this court entered
the following resolution on February 9, 1928:

Upon consideration of the petition filed in case G. R. No. 29043, Banco de las Islas Filipinas
vs. J. Horilleno et al., and of the answer interposed by the respondents in connection with the
 arguments adduced by both parties in their memoranda and during the hearing of said case,
and it appearing that the writ of execution complained of was issued and served upon the
petitioner before the latter received notice by the garnishment, and two days before he was
required by the sheriff of Manila to deliver the amount mentioned in the said garnishment
proceedings, wherefore, the respondent judge did not exceed its jurisdiction in issuing the
aforesaid writ of execution, it is ordered that the petition for a writ of prohibition be and is
hereby denied, with costs against the petitioner. Mr. Justice Street took no part.

On February 10, 1928, the clerk of this court sent the following telegram to the provincial sheriff of
Zamboanga:

Supreme Court denied writ of prohibition requested by Bank Philippine Islands to stop
execution judgment in favor Olutanga Lumber Company you may proceed with execution
forthwith.

Upon receipt of the foregoing telegram, the provincial sheriff of Zamboanga sent the following letter
to the manager of the Bank of the Philippine Islands at Zamboanga:

SIR: With reference to the levy made by the undersigned on your office on January 14, 1928,
in the sum of thirty-two thousand pesos (P32,000), Philippine currency, to cover the amount
claimed in the order of execution issued by the Court of First Instance of Zamboanga in civil
case No. 1176, "The Bank of the Philippine Islands vs. Olutanga Lumber Company," and R.
G. No. 27045, which levy has been suspended by order of the Honorable Supreme Court by
virtue of the writ of prohibition filed by the Bank of the Philippine Islands against the
undersigned and others, I have the honor to inform you that said writ of prohibition has been
denied by the Supreme Court as per telegram received by the undersigned, a copy of which
is herewith inclosed.

In view thereof, and in pursuance of the order of execution above referred to, you are hereby
ordered to deliver to the undersigned, immediately upon your receipt hereof, the sum of
thirty-one thousand five hundred ninety-six pesos and eighty-three centavos (P31,596.83),
Philippine currency, which is the amount recovered by the Olutanga Lumber company in the
Supreme Court including interests, costs and sheriff's fees.

Zamboanga, Zamboanga, February 11, 1928.

(Sgd.) LUIS PANAGUITON
Provincial Sheriff

In view of this urgent and peremptory demand of the provincial sheriff of Zamboanga, the manager
of the Bank of the Philippine Islands at Zamboanga had no other remedy than to deliver to the sheriff
of Zamboanga the sum of P31,596.83.

The only question necessary to be decided in this appeal is whether the funds placed by the Bank of
the Philippine Islands in possession of the sheriff of the City of Manila, which had been attached in
the name of the Philippine National Bank and against the Olutanga Lumber Company, had been
released from said attachment when the aforesaid Bank of the Philippine Islands, by judicial order,
paid the judgment rendered by this court against the said Bank of the Philippine Islands and in favor
of the Olutanga Lumber Company.

We have seen that after the central office of the Bank of the Philippine Islands in the City of Manila
had deposited with the sheriff of the City of Manila the sum of P32,109.45, by virtue of a demand
made upon it by the latter in compliance with an order of attachment issued by the Court of First
Instance of Manila in civil case No. 32936, wherein the Philippine National Bank was and still is the
plaintiff and the Olutanga Lumber Company was and still is the defendant, which sum of
P32,109.45 was the amount of the judgment rendered in civil case No. 1176 of the Court of First
Instance of Zamboanga, G. R. No. 27045 of this court, in favor of the Olutanga Lumber Company
and against the Bank of the Philippine Islands, said central office of the Bank of the Philippine
Islands notified the provincial sheriff of Zamboanga of said consignation; but the latter,
notwithstanding the attachment of said amount by the sheriff of the City of Manila, tried to collect
from the branch office in Zamboanga of the Bank of the Philippine Islands the amount of said
judgment. Under the circumstances the Zamboanga branch had to resort to this court for a remedy
to prevent execution of said judgment. This court denied the remedy prayed for, and upon receipt of
notice of said denial the provincial sheriff of Zamboanga insisted in collecting from the Zamboanga
branch of the Bank of the Philippine Islands the amount of said judgment, which said bank had to
pay. The general rule is that, where attached properties belonging to the principal debtor are taken
out of the hands of a person by legal process, after he had been notified of the order of attachment,
said person cannot be made to answer for the properties in a proceeding to carry out said
attachment (28 Corpus Juris, paragraph 362, page 264). In the present case, the fact that the funds
attached in the possession of the Bank of the Philippine Islands, belonging to the Olutanga Lumber
Company, had been deposited with the sheriff of the City of Manila by order of said officer, does not
change the juridical situation of said funds as attached in the possession of the Bank of the Philipine
Islands, and, according to the above-quoted rule, the aforesaid Bank of the Philippine Islands,
having been judicially compelled to pay the amount of the judgment represented by said funds to the
Olutanga Lumber Company, after having employed all the legal means to avoid it, is released from
all responsibility to the Philippine National Bank in whose favor the writ of attachment was issued.

For the foregoing considerations, we are of the opinion, and so hold, that when a person has funds
in his possession belonging to a debtor, and said funds are attached by a creditor of the latter, said
person is relieved from all responsibility to said creditor if he is judicially compelled to deliver said
funds to the aforesaid debtor.

Wherefore, the dispositive part of the order appealed from is affirmed in so far as it grants the motion
of the Bank of the Philippine Islands, and the sheriff of the City of Manila is hereby ordered to return
to said bank the amount deposited by virtue of the writ of attachment, after deducting his legal fees,
with costs against the appellant. So ordered.

G.R. No. L-60887 November 13, 1991

PERLA COMPANIA DE SEGUROS, INC., petitioner,

vs.
HON. JOSE R. RAMOLETE, PRIMITIVA Y. PALMES, HONORATO BORBON, SR., OFFICE OF
THE PROVINCIAL SHERIFF, PROVINCE OF CEBU, respondents.

FELICIANO, J.:p

The present Petition for Certiorari seeks to annul: (a) the Order dated 6 August 1979 1 which ordered the
Provincial Sheriff to garnish the third-party liability insurance policy issued by petitioner Perla Compania de Seguros, Inc. ("Perla") in favor of
Nelia Enriquez, judgment debtor in Civil Case No. R-15391; (b) the Order dated 24 October 1979 2 which denied the motion for
reconsideration of the 6 August 1979 Order; and (c) the Order dated 8 April 1980 3 which ordered the issuance of an alias writ of
garnishment against petitioner.

In the afternoon of 1 June 1976, a Cimarron PUJ owned and registered in the name of Nelia
Enriquez, and driven by Cosme Casas, was travelling from Cebu City to Danao City. While passing
through Liloan, Cebu, the Cimarron PUJ collided with a private jeep owned by the late Calixto
Palmes (husband of private respondent Primitiva Palmes) who was then driving the private jeep. The
impact of the collision was such that the private jeep was flung away to a distance of about thirty (30)
feet and then fell on its right side pinning down Calixto Palmes. He died as a result of cardio-
respiratory arrest due to a crushed chest. 4 The accident also caused physical injuries on the part of Adeudatus Borbon who
was then only two (2) years old.

On 25 June 1976, private respondents Primitiva Palmes (widow of Calixto Palmes) and Honorato
Borbon, Sr. (father of minor Adeudatus Borbon) filed a complaint 5 against Cosme Casas and Nelia Enriquez
(assisted by her husband Leonardo Enriquez) before the then Court of First Instance of Cebu, Branch 3, claiming actual, moral, nominal and
exemplary damages as a result of the accident.

The claim of private respondent Honorato Borbon, Sr., being distinct and separate from that of co-
plaintiff Primitiva Palmes, and the amount thereof falling properly within the jurisdiction of the inferior
court, respondent Judge Jose R. Ramolete ordered the Borbon claim excluded from the complaint,
without prejudice to its being filed with the proper inferior court.

On 4 April 1977, the Court of First Instance rendered a Decision 6 in favor of private respondent Primitiva Palmes,
ordering common carrier Nelia Enriquez to pay her P10,000.00 as moral damages, P12,000.00 as compensatory damages for the death of
Calixto Palmes, P3,000.00 as exemplary damages, P5,000.00 as actual damages, and P1,000.00 as attorney's fees.

The judgment of the trial court became final and executory and a writ of execution was thereafter
issued. The writ of execution was, however, returned unsatisfied. Consequently, the judgment debtor
Nelia Enriquez was summoned before the trial court for examination on 23 July 1979. She declared
under oath that the Cimarron PUJ registered in her name was covered by a third-party liability
insurance policy issued by petitioner Perla.

Thus, on 31 July 1979, private respondent Palmes filed a motion for garnishment 7 praying that an order of
garnishment be issued against the insurance policy issued by petitioner in favor of the judgment debtor. On 6 August 1979, respondent
Judge issued an Order 8 directing the Provincial Sheriff or his deputy to garnish the third-party liability insurance policy.

Petitioner then appeared before the trial court and moved for reconsideration of the 6 August 1979
Order and for quashal of the writ of garnishment, 9 alleging that the writ was void on the ground that it (Perla) was not a
party to the case and that jurisdiction over its person had never been acquired by the trial court by service of summons or by any process.
The trial court denied petitioner's motion.10 An Order for issuance of an alias writ of garnishment was subsequently issued on 8 April
1980. 11

More than two (2) years later, the present Petition for Certiorari and Prohibition was filed with this
Court on 25 June 1982 alleging grave abuse of discretion on the part of respondent Judge Ramolete
in ordering garnishment of the third-party liability insurance contract issued by petitioner Perla in
favor of the judgment debtor, Nelia Enriquez. The Petition should have been dismissed forthwith for
having been filed way out of time but, for reasons which do not appear on the record, was
nonetheless entertained.

In this Petition, petitioner Perla reiterates its contention that its insurance contract cannot be
subjected to garnishment or execution to satisfy the judgment in Civil Case No. R-15391 because
petitioner was not a party to the case and the trial court did not acquire jurisdiction over petitioner's
person. Perla further argues that the writ of garnishment had been issued solely on the basis of the
testimony of the judgment debtor during the examination on 23 July 1979 to the effect that the
Cimarron PUJ was covered by a third-party liability insurance issued by Perla, without granting it the
opportunity to set up any defenses which it may have under the insurance contract; and that the
proceedings taken against petitioner are contrary to the procedure laid down in Economic Insurance
Company, Inc. v. Torres, et al., 12 which held that under Rule 39, Section 45, the Court "may only authorize" the judgment
creditor to institute an action against a third person who holds property belonging to the judgment debtor.
We find no grave abuse of discretion or act in excess of or without jurisdiction on the part of
respondent Judge Ramolete in ordering the garnishment of the judgment debtor's third-party liability
insurance.

Garnishment has been defined as a species of attachment for reaching any property or credits
pertaining or payable to a judgment debtor. 13 In legal contemplation, it is a forced novation by the substitution of
creditors: 14 the judgment debtor, who is the original creditor of the garnishee is, through service of the writ of garnishment, substituted by
the judgment creditor who thereby becomes creditor of the garnishee. Garnishment has also been described as a warning to a person having
in his possession property or credits of the judgment debtor, not to pay the money or deliver the property to the latter, but rather to appear
and answer the plaintiff's suit. 15

In order that the trial court may validly acquire jurisdiction to bind the person of the garnishee, it is
not necessary that summons be served upon him. The garnishee need not be impleaded as a party
to the case. All that is necessary for the trial court lawfully to bind the person of the garnishee or any
person who has in his possession credits belonging to the judgment debtor is service upon him of
the writ of garnishment.

The Rules of Court themselves do not require that the garnishee be served with summons or
impleaded in the case in order to make him liable.

Rule 39, Section 15 provides:

Sec. 15. Execution of money judgments. The officer must enforce an execution of
a money judgment by levying on all the property, real or personal of every name and
nature whatsoever, and which may be disposed of for value, of the judgment debtor
not exempt from execution . . .

Real property, stocks, shares, debts, credits, and other personal property, or any
interest in either real or personal property, may be levied on in like manner and with
like effect as under a writ of attachment.(Emphasis supplied).

Rule 57, Section 7(e) in turn reads:

Sec. 7. Attachment of real and personal property; recording thereof. Properties

shall be attached by the officer executing the order in the following manner:

xxx xxx xxx

(e) Debts and credits, and other personal property not capable of manual delivery,
by leaving with the person owing such debts, or having his possession or under his
control such credits or other personal property, or with his agent, a copy of the order,
and notice that the debts owing by him to the party against whom attachment is
issued, and the credits and other personal property in his possession, or under his
control, belonging to said party, are attached in pursuance of such order;

xxx xxx xxx

(Emphasis supplied)

Through service of the writ of garnishment, the garnishee becomes a "virtual party" to, or a "forced
intervenor" in, the case and the trial court thereby acquires jurisdiction to bind him to compliance with
all orders and processes of the trial court with a view to the complete satisfaction of the judgment of
the court. In Bautista v. Barredo, 16 the Court, through Mr. Justice Bautista Angelo, held:

While it is true that defendant Jose M. Barredo was not a party in Civil Case No.
1636 when it was instituted by appellant against the Philippine Ready Mix Concrete
Company, Inc., however, jurisdiction was acquired over him by the court and he
became a virtual party to the case when, after final judgment was rendered in said
case against the company, the sheriff served upon him a writ of garnishment in
behalf of appellant. Thus, as held by this Court in the case of Tayabas Land
Company vs. Sharruf, 41 Phil. 382, the proceeding by garnishment is a species of
attachment for reaching credits belonging to the judgment debtor and owing to him
from a stranger to the litigation. By means of the citation, the stranger becomes a
forced intervenor; and the court, having acquired jurisdiction over him by means of
the citation, requires him to pay his debt, not to his former creditor, but to the new
creditor, who is creditor in the main litigation. (Emphasis supplied).

In Rizal Commercial Banking Corporation v. De Castro, 17 the Court stressed that the asset or credit garnished is
thereupon subjected to a specific lien:

The garnishment of property to satisfy a writ of execution operates as an attachment

and fastens upon the property a lien by which the property is brought under the
jurisdiction of the court issuing the writ. It is brought into custodia legis, under the
sole control of such
court. 18 (Emphasis supplied)

In the present case, there can be no doubt, therefore, that the trial court actually acquired jurisdiction
over petitioner Perla when it was served with the writ of garnishment of the third-party liability
insurance policy it had issued in favor of judgment debtor Nelia Enriquez. Perla cannot successfully
evade liability thereon by such a contention.

Every interest which the judgment debtor may have in property may be subjected to execution.19 In
the instant case, the judgment debtor Nelia Enriquez clearly had an interest in the proceeds of the third-party liability insurance contract. In a
third-party liability insurance contract, the insurer assumes the obligation of paying the injured third party to whom the insured is
liable. 20 The insurer becomes liable as soon as the liability of the insured to the injured third person attaches. Prior payment by the insured
to the injured third person is not necessary in order that the obligation of the insurer may arise. From the moment that the insured became
liable to the third person, the insured acquired an interest in the insurance contract, which interest may be garnished like any other credit. 21

Petitioner also contends that in order that it may be held liable under the third-party liability
insurance, a separate action should have been commenced by private respondents to establish
petitioner's liability. Petitioner invokesEconomic Insurance Company, Inc. vs. Torres, 22 which stated:

It is clear from Section 45, Rule 39 that if a persons alleged to have property of the
judgment debtor or to be indebted to him claims an interest in the property adverse to
him or denies the debt, the court may only authorize the judgment creditor to institute
an action against such person for the recovery of such interest or debt. Said section
does not authorize the court to make a finding that the third person has in his
possession property belonging to the judgment debtor or is indebted to him and to
order said third person to pay the amount to the judgment creditor.

It has been held that the only power of the court in proceedings supplemental to
execution is to niake an order authorizing the creditor to sue in the proper court to
recover an indebtedness due to the judgment debtor. The court has no jurisdiction to
try summarily the question whether the third party served with notice of execution
and levy is indebted to defendant when such indebtedness is denied. To make an
 order in relation to property which the garnishee claimed to own in his own right,
requiring its application in satisfaction of judgment of another, would be to deprive
the garnishee of property upon summary proceeding and without due process of law.
(Emphasis supplied)

But reliance by petitioner on the case of Economic Insurance Company, Inc. v. Torres (supra) is
misplaced. The Court there held that a separate action needs to be commenced when the garnishee
"claims an interest in the property adverse to him (judgment debtor) or denies the debt." In the
instant case, petitioner Perla did not deny before the trial court that it had indeed issued a third-party
liability insurance policy in favor of the judgment debtor. Petitioner moreover refrained from setting
up any substantive defense which it might have against the insured-judgment debtor. The only
ground asserted by petitioner in its "Motion for Reconsideration of the Order dated August 6, 1979
and to Quash Notice of Garnishment" was lack of jurisdiction of the trial court for failure to implead it
in the case by serving it with summons. Accordingly, Rule 39, Section 45 of the Rules of Court is not
applicable in the instant case, and we see no need to require a separate action against Perla: a writ
of garnishment suffices to hold petitioner answerable to the judgment creditor. If Perla had any
substantive defenses against the judgment debtor, it is properly deemed to have waived them by
laches.

WHEREFORE, the Petition for Certiorari and Prohibition is hereby DISMISSED for having been filed
out of time and for lack of merit. The assailed Orders of the trial court are hereby AFFIRMED. Costs
against petitioner. This Decision is immediately executory.

SO ORDERED.

G.R. No. L-9802 February 5, 1916

TEC BI & CO., plaintiff-appelle,

vs.
THE CHARTERED BANK OF INDIA, AUSTRALIA & CHINA, defendant-appellant.

CARSON, J.:

The following statement of the facts upon which this case was submitted in the court below is taken
literally from the brief of counsel for the appellant:

This is an action to recover from the defendant bank the sum of P11,572.96, the amount of a
judgment recovered by the plaintiff against "La Urania Cigar Factory (Ltd.)," and for which
the plaintiff seeks to hold the defendant liable by virtue of an attempted levy of attachment
upon certain leaf tobacco in the possession of the defendant bank under a pledge executed
by the said "La Urania Cigar Factory (Ltd.)." The Tobacco being pledged for an amount
largely in excess of its value, the bank refused to deliver it to the sheriff, and the pledge
having become due, sold the tobacco and applied the proceeds on account of the
indebtedness, previous to the time when the plaintiff finally secured judgment against "La
Urania Cigar Factory (Ltd.)." and issued execution thereon.

The case was submitted upon a stipulation of facts as follows:

It is hereby agreed that all the facts contained in paragraphs 1, 2, 3, and 4 of the complaint
are true, with the exception of that part of the first five lines of paragraph 2, which alleges
that the plaintiff had notice that some of the bales of tobacco in leaf which were sold to the
 "La Urania Cigar Factory (Ltd.)," were attempted to be sold for the manifest purpose of
defrauding the plaintiff.

Referring to the answer of defendant corporation it stipulated that the allegations of

paragraphs 2, 3, 4, 5, and 6 are true.

The defendant corporation offers in evidence the original contract of pledge marked Exhibit 1, as
part of this stipulation.

With reference to the admission of the contents of paragraph 3 of the answer, it is

understood that the word "neutral" is eliminated.

From the allegations of the complain and answer admitted to be true in conformity with the foregoing
stipulation, it appears:

(1) That on the 7th of November 1912, the plaintiff sold to the "La Urania Cigar Factory
(Ltd.)," a quantity of leaf tobacco. (Paragraph 1 of complaint.)

(2) That on the 16th January, 1913, the "La Urania Cigar Factory (Ltd.)," pledged to the
defendant corporation as security for the payment of an indebtedness of P25,000 the bales
of tobacco described in Exhibit A of the answer, the original of which has been offered in
evidence in connection with the stipulation of facts as Exhibit 1.

(3) That the bales of tobacco thus pledged and described in Exhibit 1 were stored in the
bodega of a third person, that is to say, in the bodega of Messrs. Sprungli & Co., situated at
No. 42 (now No. 214) of Calle David, Manila. (Paragraph 3 of answer.)

(4) That on or about the 1st day of February, 1913, the defendant corporation demanded of
the obtained from Messrs. Sprungli & Co. the keys to the said bodega, and discovered that
of the 436 bales of tobacco described in Exhibit 1 there remained only those set forth in
paragraph 4 of the answer. (Paragraph 4 of answer.)

(5) That the defendant bank did not know and had been unable to ascertain whether "La
Urania Cigar Factory (Ltd.)," misrepresented the quantity of the tobacco in the said
warehouse at the time of the execution of said document of pledge, or whether the difference
between the amount described in the document of pledge and that found on hand on the 1st
of February, 1913, and in the meantime been disposed of by "La Urania Cigar Factory
(Ltd.)," in collusion with Messrs. Sprungli & Co., but that if such disposition was made it was
without the knowledge or consent of the defendant bank. (Paragraph 5 of answer.)

(6) That from said 1st day of February, 1913, the defendant corporation had been in the
absolute and exclusive possession of the tobacco described in the fourth paragraph of the
answer and in Exhibit 1 of the stipulation of facts, until the 15th of May, 1913, when same
was sold under and by virtue of the document of pledge Exhibit 1 by the defendant bank for
the sum of P12,722.36 which was applied on account of said loan, the entire amount of
which was then past due and unpaid, leaving a large balance thereof still due and unpaid.
(Paragraph 6 of answer.)

(7) That on the 22nd day of April, 1913, the plaintiff Tec Bi & Co., filed a complaint in the
Court of First Instance of Manila against "La Urania Cigar Factory (Ltd.)," claiming the
 payment of the sum of P11,572.96 as the balance of the unpaid purchase price of the
tobacco referred to in paragraph 2. (Paragraph 1 of complaint.)

(8) That on the 5th day of May, 1913, Tec Bi & Co. asked for and obtained from the Court of
First Instance an attachment against the said bales of tobacco, but inasmuch as the bodega
was locked and the sheriff was informed that the keys were in the possession of the bank, he
demanded the delivery thereof from the latter, which demand was refused by the bank,
alleging that it held possession of the tobacco under a pledge. (Paragraph 2 of complaint.)

(9) That in view of the statement of the bank, the sheriff notified it that the bales of tobacco
identified in Exhibit A of the complaint were attached subject to the results of the complaint
were attached subject to the results of the complaint filed by Tec Bi & Co. against "La Urania
Cigar Factory (Ltd.)," (Paragraph 2 of complaint.)

(10) That on the 8th day of May, 1913, the bank answered the notification of the sheriff,
confirming the fact that it had in its possession the bales of tobacco specified in the
notification, as security for the payment of a loan and that it intended to sell the same; that
the sheriff communicated the answer of the bank to the attorneys to Tec Bi & Co., who
replied insisting upon the levy of the attachment. (Paragraph 3 of complaint.)

(11) That on the 19th day of May, 1913, the Court of First Instance rendered judgment in
said case against "La Urania Cigar Factory (Ltd.)," in favor of Tec Bi & Co., for the sum of
P11,572.96, with legal interest from April 22, 1913, and costs. (Paragraph 4 of complaint.)

(12) That on the 22d day of May, 1913, the sheriff attempted to execute the judgment upon
the bales of tobacco attached and in the possession of the defendant corporation, but was
unable to do so due to the statement of the agent of said corporation, that the tobacco had
been sold and that the proceeds of the sale had been applied upon the payment of the
amount due to from "La Urania Cigar Factory (Ltd.)," (Paragraph 4 of complaint.)

The case having been submitted on the foregoing stipulation of facts, the Court of First
Instance found that the plaintiff's claim was a preferred credit under the provisions of
paragraph 1 of article 1922 of the Civil Code; that the pledge executed by "La Urania Cigar
Factory (Ltd.)," in favor of the defendant corporation (Exhibit 1) was not binding upon the
plaintiff for the reason that it was not set forth in a public instrument as required by article
1865 of the Civil Code in order to be effective against, third person, and rendered judgment
in favor of the plaintiff and against the defendant for the amount of the former's judgment
against "La Urania Cigar Factory (Ltd.)," with interest and costs. (Pages 17 to 23, inclusive,
bill of exceptions.)

From this judgment the defendant corporation appeals, assigning the following errors:

ASSIGNMENT OF ERRORS

I. The court erred in holding that the plaintiff's claim as vendor of the tobacco was entitled to
preference over that of the defendant bank secured by a pledge on the same tobacco.

II. The court erred in applying article 1865 of the Civil Code to the defendant's pledge, and in
holding that such pledge was ineffective as to the plaintiff.
 III. The court erred in holding that the plaintiff was a third person as contemplated by that
term in article 1865 of the Civil Code.

IV. Assuming that article 1865 is applicable to the transaction in question, the court erred in
holding that the plaintiff did not waive any defect in the private instrument of pledge by
expressly admitting its genuineness and the correctness of its date by stipulation, and by
failure to object to its introduction in evidence.

V. The court erred in rendering judgment in favor of the plaintiff and against the defendant,
and in denying the latter's motion for a new trial.

It will readily be seen that our disposition of this appeal must turn upon the force and effect which
should be given the instrument referred to in the statement of facts as the "original contract of pledge
marked Exhibit 1."

Plaintiff's contention is that under the provisions of clause 1 of article 1922, his right as a preferred
creditor for the amount of the purchase price of the tobacco was not prejudice and could not be
prejudiced by the pledge of the tobacco to the defendant, since the date of the contract of pledge is
not evidenced by a public document; and, further, that he had a perfect right to attach the tobacco in
the course of judicial proceedings for the recovery of his claim against the pledgor, for the purchase
price of the tobacco pledged to the defendant bank.

The defendant bank, on the other hand, contends that under the provisions of clause 2 of article
1922 of the Civil Code read together with clause 1 of section 1926, the right of preference in favor of
the bank, to which the tobacco had been pledged by the common debtor, excluded the preference in
favor of the plaintiff; and that plaintiff could not rely on the provisions of article 1865 of the Code,
because he was not a "third person" in the sense in which these words are used in that article.

Clauses 1 and 2 of article 1922 of the Civil Code are as follows:

1922. With regard to the specified personal property of the debtor, the following are
preferred:

1. Credits for the construction, repair, preservation, or for the amount of the sale of personal
property which may be in the possession of the debtor to the extent of the value of the same.

2. Those secured by a pledge which may be in the possession of the creditor, with regard to
the thing pledged and to the extent of its value.

Clause 1 of article 1926 of the Civil Code is as follows:

1926. Credits which enjoy preference with regard to certain personal property, exclude all the
other to the extent of the value of the personal property to which the preference refers.

When two or more, creditors claim preference with regard to certain personal property, the
following rules shall be observed as to priority of payment:

1. Credits secured by a pledge exclude all other to the extent of the value of the thing given
in pledge.

Article 1865 of the Civil Code is as follows:

 A pledge shall not be effective against a third person, when evidence of its date does not
appear in a public instrument.

Under these provisions of the Code there can be no doubt that had the date of the contract of pledge
been evidenced by a public document, the preferential right of the pledgee would have been
superior to and excluded all and any preferential rights of the vendor. We so held in Macke and
Macke vs. Rubert (11 Phil., 480).

The pledge contract (Exhibit 1) is before us, however, and it is admitted that the date is not
evidenced by a public instrument. It cannot therefore be permitted to prejudice the rights of the
vendor of the tobacco if he is a "third person: in the sense in which that term is used in the above-
cited article 1865 of the code.

It cannot be doubted that with relation to the pledgor and the pledgee the original vendor of the
goods was a third person. The words are not susceptible of any possible explanation which would
exclude him. He had no privity with either of the parties to the pledge contract. He had no knowledge
of the execution of that contract. He did not participate in it in any way whatever. His rights so far as
they affected the pledged property, were adverse to both pledgor and pledgee. In a word he was as
to them a third person.

It necessarily follows that since the execution of the pledge in favor of the defendant bank without
the date of execution being evidenced by a public instrument could have no effect as again the
plaintiff, he was strictly within his rights in asserting his claims as a preferred creditor and in levying
an attachment against the tobacco; and the defendant bank could not lawfully assert any right as a
pledgee or preferred creditor which adversely affected the rights of the plaintiff in the premises.

To these conclusions a number of objections have been raised, none of which, however, will bear
close inspection.

It is said that even though the date of the defendant bank's pledge is not evidenced in a public
document, still the delivery of the tobacco into the possession of the bank defeated the right of the
plaintiff to a preference. This contention is based on the provision of article 1922 which limits the
preference for the purchase price of goods sold to the time during which they continue in the
possession of the purchaser.

To this contention there are two sufficient answers.

First. While the contract of pledge and the delivery of the tobacco undoubtedly created a valid
pledge as between the pledgor and the pledgee, so that the pledgor himself could not disturb the
possession of the pledgee; still, with relation to third person, the possession of the bank must be
deemed to be that of the purchaser of the tobacco, since under the provisions of article 1865 of the
Code, the execution of the pledge could not affect the right of third person. As to third persons the
pledge and the pledged property must be treated as if the pledge never had been executed.

Second. Even if it were true that the plaintiff had lost his statutory right of preference as a result of
the execution of the pledge and the delivery of possession to the bank, still he had a perfect right to
levy an attachment on the tobacco pending his action to recover the amount of the pledgor's
indebtedness, unless the execution of the pledge had the effect of depriving him of that right. But it is
very clear that under the express provisions of article 1865 of the code no such effect could be given
the pledge.
Much is made in the brief of the appellant of the fact that one of the allegations of the answer set
forth that at the date of the issuance of the attachment the defendant bank was in the absolute and
exclusive possession of the tobacco in question; and that the truth of this allegation was admitted in
the agreed statement of facts.

The defendant's answer contains a series of allegations setting forth the precise nature and
character of the possession of the tobacco by the bank, and of all the circumstances under the by
virtue of which the bank came into possession; and there is attached to the answer, as an exhibit a
copy of the pledge contract itself. We have shown that accepting these allegations as true, the
possession of the bank was not absolute and exclusive in the sense that it could in any wise affect
the right of another credit of the common debtor, a "third person" with relation to the pledge contract,
to levy an attachment upon the tobacco. We must conclude therefore that the stipulation as to the
truth of the allegation of the answer that the possession of the tobacco by the bank was "absolute
and exclusive" was intended only to mean that it was "absolute and exclusive" so far as the pledgor
himself was concerned; or else that the stipulation as to the truth of the allegations of the answer did
not include this averment as to the "absolute and exclusive" possession of the tobacco by the bank it
being merely a conclusion of law, based upon the other allegations of facts alleged by the pleader.

A general admission of the truth of the allegations set forth in a pleading is not an admission of the
truth of an impossible conclusion of fact drawn from other facts set out in the pleading, nor of a
wrong conclusion of law based on the allegations of fact well pleaded, nor of the truth of a general
averment of facts contradicted by more specific averments. Thus, if a pleader alleges that two pesos
were borrowed on one day and two more borrowed on another making five Pin all, a stipulation of
the truth of the allegations in the pleading does not amount to an admission by the opposing party
that twice two make five. Again if a pleader alleges that one hundred pesos were loaned without
interest for one year and had not been paid, and that the borrower is indebted to the lender in the
sum of one hundred and ten pesos, that being the amount of the capital together with interest for the
year for which the money was loaned, a stipulation as to the truth of the allegation set forth in the
pleadings is not an admission of the truth of the conclusion of law as to the interest due by the
borrower. These elementary principles have been quite fully developed in a great variety of cases
arising on demurrers, and sufficiently dispose of the attempt of counsel to fix the attention of the
court upon this single averment of the answer, apart from the context and to the exclusion of the
specific allegations of fact, the truth of which, as stipulated by the parties, cannot be questioned. (Cf.
144 U.S., 751; 97 Ala., 491 2; 31 Cyc., 333-337; 6 Encyc. Pl. & Pr., 334-338.)

One other contention of counsel for the appellant remains to be considered. It is that on which his
fourth assignment of error is based. Counsel insist that "assuming that article 1865 is applicable to
the transaction in question, the court erred in holding that the plaintiff did not waive any defect in the
private instrument of pledge by expressly admitting its genuineness and the correctness of its date
by stipulation, and by failure to object to its introduction in evidence."

This contention rests on a misconception of the real purpose and object of the provisions of article
1865 of the code. This article is not a mere rule of adjective law, prescribing the mode whereby proof
may be made of the date of a contract of pledge. It is a rule of substantive law, prescribing a
condition without which the execution of a pledge contract cannot affect third person adversely.

The plaintiff in this action does not question the truth of the bank's allegations that the pledge
contract was executed on the day on which it purports on its face to have been signed and delivered.
There is no suggestion of bad faith or sharp practice on the part of either the pledgor or pledgee in
the execution of the pledge. Under the circumstances plaintiff had no reason to object to the
introduction of evidence which tended direct to establish his claim that although the pledge had been
executed as alleged by the defendant bank, it could not affect his rights on the premises. On the
contrary he must have welcomed the introduction of this evidence, which conclusively established
the very point upon which his whole case necessarily turns.

Plaintiff stands strictly on the rule of substantive law laid down in this article of the code which
declared that this rights, as a "third person," cannot be adversely affected by a pledge the date of
which is not evidenced in a public document. His right so to do cannot be successfully challenged;
and indeed we are inclined to think that the equities of the case, as far as they appear from the
record, are with the vendor of a large quantity of tobacco, in his effort to recover the unpaid purchase
price, rather than the creditor, who succeeded in having the debtor who had failed to pay the
purchase price of this tobacco, bought on credit, turn it over to him by way of a pledge to secure the
payment of a preexisting debt.

What has been said would seem to dispose of all the contentions of the appellant; but at the risk of
extending this opinion to an undue length, we here insert the comment of a learned Spanish
commentator (Manresa) on the provisions of article 1865 of the code, because he seems to have
anticipated every contention of appellant in this case, and the citation demonstrates quite
conclusively that the plaintiff is entitled to rely on his rights in the premises as a "third person," who
cannot be adversely affected by the execution of a pledge in the manner and form in which the
pledge to the defendant bank was made.

Article 1865. A pledge will not be valid against a third party if the certainty of the date is not
expressed in a public instrument.

This article, the precept of which did not exist in our old law, answers the necessity for not
disturbing the relationship or the status of the ownership of things with hidden or simulated
contract of pledge, in the same way and for the identical reasons that were taken into
account by the mortgage law in order to suppress the implied and legal mortgages which
produced so much instability in real property.

Considering the effects of a contract of pledge, it is easily understood that, without this
warranty demanded by law, the case may happen wherein a debtor in bad faith from the
moment that he sees his movable property in danger of execution may attempt to withdraw
the same from the action of justice and the reach of his creditors by simulating, through
criminal confabulations, anterior and fraudulent alterations in his possession by means of
feigned contract of this nature; and, with the object of avoiding or preventing such abuses,
almost all the foreign writers advise that for the effectiveness of the pledge, it be demanded
as a precise condition that in every case the contract be executed in a public writing, for,
otherwise, the determination of its date will be rendered difficult and its proof more so, even
in cases in which it is executed before witnesses, due to the difficulty to be encountered in
seeking those before whom it was executed.

Our code has not gone so far, for it does not demand in express terms that in all cases the
pledge be constituted or formalized in a public writing, nor even in private document, but only
that the certainty of the date be expressed in the first of the said class of instruments in order
that it may be valid against a third party; and, in default of any express provision of law, in
the cases where no agreement requiring the execution in a public writing exists, it should be
subjected to the general rule, especially to that established in the last paragraph of article
1280, according to which all contracts not included in the foregoing cases of the said article
should be made in writing even though it be private, whenever the amount of the prestation
of one or of the two contracting parties exceeds 1,500 pesetas.
 The pledge, therefore, can be constituted in whatever form, as all other contracts, and the
one formalized in that way will be valid and will produce its natural and legal consequences
in the juridical order with respect to the contracting parties and to their assigns; but it will not
have effect with respect to a third party if the certainty of the date is not evidenced in a public
writing, by which means the legislator has tried to render impossible the existence of the
fraudulent confabulations which we have hereinbefore indicated as otherwise possible.

That is to say, what the law wishes in the precept that we are examining is to impose the
existence, not only of an efficacious and authentic means of proof of the constitution of a
pledge, but also of a security of its certainty and the reality of the pledge in order to avoid
frauds and damages to the creditors, arising from the bad faith of the debtor; something like
the inscription of the mortgage in the Registry of Property, as has been said by an author,
although with less warranties than this one.

Some authors criticise the limitations in the wording of the article insofar as it does not
demand an identical expression respecting the other essential circumstances of the contract,
they upholding the necessity or at lest the convenience of expressing in the public instrument
principally the debt for the security of which the pledge is constituted, the date of debt, the
designation of the thing pledged, the period during which the accessory obligation is
contracted form, with all the other stipulations which constitute the essence of the contract.
But his should not be imposed by the law but by the private interest which is the only one
affected, and for the same reason, a like determination should be demanded in all contracts.

The only thing in this case that could interest or concern the legislator would be to prevent or
to make impossible any simulation or fraud, supposing the existence of fraudulent pledged to
be to the prejudice of third parties and to that end, it is sufficient that the date of its
constitution be evidenced with all certainty in a public instrument. Any thing else would
amount to an attempt against the principle of liberty with which contract of the modern
legislation are inspired, placing obstacles to it by demanding the execution in every case of a
public writing, a thing which though it constitutes a worthy and just aspiration, yet, ca not take
precedence over the will and the freedom of the contracting parties.

Hence, any one who may wish to constitute a pledge in a private document or verbally, if the
prestations of the parties do not exceed 1,500 pesetas, can validly make it; but the contract
celebrated will not prejudice a third party while the requisite of the execution of a public
instrument referred to in the article is not complied with.

There exists another reason which justifies the precept we are discussing. In fact, from the
contract of pledge arises the preference established in No. 2 of article 1922, respecting the
credits guaranteed by the thing pledged which is in the possession of the creditor, up to the
amount of its value, which preference may be opposed against third parties; and, in order
that the latter may not be prejudiced, it is necessary that the date of the contract be
expressed in a true, indubitable and authentic manner and that it be certain to the end that
even the bare possibility of fraud and of collusion between the creditor keeping the pledge
and the debtor owner thereof may be excluded.

What has been said necessitates the entry of judgment affirming the judgment entered in the court
below, with the costs of this instance against the appellant.

Let judgment be entered accordingly. So ordered.

G.R. No. 73976 May 29, 1987

THE CONSOLIDATED BANK and TRUST CORPORATION (SOLIDBANK), petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT, GOLDEN STAR INDUSTRIAL CORPORATION,
NICOS INDUSTRIAL CORPORATION and THE PROVINCIAL SHERIFF OF
BULACAN, respondents.

GUTIERREZ, JR., J.:

The basic issue for resolution in this petition for review of the December 13, 1985 decision of the
Intermediate Appellate Court, now the Court of Appeals, as well as the resolution of March 13, 1986
denying the motion for reconsideration, is whether or not an attaching creditor acquires the right of
redemption of a debtor over the attached properties of the latter which are subsequently
extrajudicially foreclosed by third parties.

Briefly, the facts are as follows: Originally, petitioner Consolidated Bank and Trust Corporation
(SOLIDBANK) loaned private respondent NICOS Industrial Corporation (NICOS) sums of money in
the total amount of FOUR MILLION SEVENTY SIX THOUSAND FIVE HUNDRED EIGHTEEN AND
64/100 PESOS (P4,076,518.64).

Subsequently, NICOS failed to pay back the loan prompting SOLIDBANK to file a collection case
before the Court of First Instance of Manila, Branch XXIX. The case was docketed as Civil Case No.
82-11611.

On August 30, 1982, the court in the aforecited case issued an order of attachment " ... upon the
rights, interests and participation of which defendants NICOS Industrial Corporation ... may have in
Transfer Certificate of Title No. T-210581 (T-32.505 M) and Transfer Certificate of Title No. T-10580
(T-32.504 M) (Annexes "B", "B-1", "B-2" and "B-3" of petition).

On September 1, 1982, pursuant to the writ of attachment issued by the Court and upon petitioner's
posting of sufficient bond, the Sheriff of Manila levied and attached the two real properties described
by the foregoing order of attachment, including the buildings and other improvements thereon.
Afterwards, the Sheriff sent separate Notices of Levy Upon Realty to the Registrar of Deeds of
Malolos, Bulacan, dated September 1, 1982 requesting him "to make the proper annotation in the
books of your office" by virtue of the order of attachment dated August 30,1982 issued by the Manila
Court in Civil Case No. 82-11611.

Accordingly, on September 7, 1982, the Registrar of Deeds of Malolos, Bulacan, pursuant to the
request of the Manila Sheriff, inscribed and annotated the Notices of Levy Upon Real Property at the
back of Transfer Certificates of Title Nos. T-210581 (T-32.505 M) and T-210580 (T-32.504 M).

Pursuant to the foregoing ng inscription and annotations, guards were deputized by the Manila
Sheriff to secure the premises of the two attached realties.

A year later, however, on July 11, 1983, the attached properties which had been mortgaged by
NICOS to the United Coconut Planters Bank (UCPB) on March 11, 1982, were extrajudicially
foreclosed by the latter. As the highest bidder therein, a certificate of sale was issued to it by the
Sheriff of Bulacan over the subject realties including the buildings and improvements thereon.

Surprisingly, two transactions occurred soon thereafter, both on August 29, 1983. First, UCPB sold
all of its rights, interests, and participation over the properties in question to a certain Manuel Go;
Second, Manuel Go sold all the rights he acquired from UCPB over the same lots on that very same
day to private respondent Golden Star Industrial Corporation (GOLDEN STAR).
Barely a month later, on October 5, 1983, respondent NICOS, though fully aware that it still had the
right to redeem the auctioned properties within the one year period of redemption from July 11,
1983, suddenly executed a document entitled "Waiver of Right of Redemption" in favor of
respondent GOLDEN STAR.

On September 15, 1983, GOLDEN STAR filed a petition for the issuance of a writ of possession
over the subject realties before the Regional Trial Court, Branch VI of Malolos, Bulacan.

On November 4, 1983, the Malolos Court granted GOLDEN STAR's petition for a writ of possession
and issued the writ. In accordance with these orders, armed men of GOLDEN STAR forcibly took
over the possession of the properties in dispute from the guards deputized by the Sheriff of Manila to
secure the premises.

Thus on November 21, 1983, petitioner SOLIDBANK, on the strength of its prior attachment over the
lands in question filed with the Malolos court an omnibus motion to annul the writ of possession
issued to GOLDEN STAR and to punish for contempt of court the persons who implemented the writ
of possession with the use of force and intimidation.

The respondents NICOS and GOLDEN STAR, filed oppositions to the foregoing omnibus motion,
the former on the basis of the waiver of its right of redemption to GOLDEN STAR, and the latter on
its alleged ignorance that the lands in question were under custodia legis, having been attached by
the Sheriff of Manila.

On June 9, 1984, the Malolos Court issued an order denying the omnibus motion, the decretal
portion of which is as follows:

WHEREFORE, the Omnibus Motion of movant Consolidated Bank and Trust

Corporation to annul the writ of possession issued by this Court in favor of Golden
Star Industrial Corporation and to cite for contempt those who fraudulently secured
and unlawfully implemented the writ of possession is hereby DENIED for lack of
merit. (p. 8 of the Brief for the Complainant-Oppositor-Appellant in AC-G.R. CV No.
04398 [p.118, Rollo])

The petitioner SOLIDBANK forthwith interposed an appeal before the Intermediate Appellate Court
arguing inter aliathat the properties were under custodia legis, hence the extrajudicial foreclosure
and the writ of possession were null and void, and that the right of NICOS to redeem the auctioned
properties had been acquired by SOLIDBANK.

On December 13, 1985, the Intermediate Appellate Court rendered its assailed decision "finding no
merit in this appeal and affirming in toto the appealed order of June 9, 1984, ruling that "the
properties in issue ... were not incustodia legis at the time of the extrajudicial foreclosure."

The petitioner moved for reconsideration, arguing that its writ of attachment over the properties in
question was duly registered in the Register of Deeds of Malolos, Bulacan, and that the right to
redeem said properties should be retained or given back to SOLIDBANK as attaching creditor.

On March 13, 1986, the Intermediate Appellate Court promulgated its resolution denying the motion
for reconsideration for lack of merit.

Hence this petition for review, on the grounds that respondent appellate court decided the case
contrary to law and applicable decisions of the Supreme Court, and has departed from the accepted
and usual course of judicial proceedings as to call for an exercise of the power of supervision of this
Court.

The fundamental question herein, which is determinative of the other issues, is whether or not the
subject properties were under custodia legis by virtue of the prior annotation of a writ of attachment
in petitioner's favor at the time the properties were extrajudicially foreclosed.

We rule in the affirmative on the following grounds:

First of all, the records show (specifically Annexes "B," "B-1" to "B-3" of the petition) that on
September 1, 1982, the Sheriff of Branch XXIX of the Court of First Instance of Manila, sent
separate Notices of Levy Upon Realty to the Registrar of Deeds of Malolos Bulacan, requesting him
"to make the proper annotation in the books of your office," "by virtue of an order of attachment
issued in Civil Case No. 82-11611 dated August 30, 1982, ... upon the rights, interests, and
participation of which defendant NICOS Industrial Corporation in this case may have in ... ."Transfer
Certificate of Title No. T-210581 (T-32.505 M) and Transfer Certificate of Title No. T-210580 (T-
32,505 M).

Secondly, and more significant, the records clearly show (page 4, Annex "D" of petition) that the
Registrar of Deeds of Malolos, Bulacan, on September 7, 1982, inscribed and annotated the
foregoing Notices of Levy at the back of Transfer Certificate of Title Nos. 210580 and 210581, to wit:

TRANSFER CERTIFICATE OF TITLE

No. T-210580 (T-32.504 M)

Entry No. 79524 (M): Kind; NOTICE OF LEVY UPON REALTY, Executed in favor of
the CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK);-Plaintiff;
Conditions: Notice is hereby given that by virtue of an Order of Attachment issued by
the C.F.I. of Manila, Branch XXIX, in Civil Case No. 82-11611, all the rights, interest
and participation of NICOS INDUSTRIAL CORPORATION-Defendant over the
herein described lot is hereby levied upon attached.; Date of Instrument: September
1, 1982; Date of Inscription: September 7, 1982 at 2:35.

Meycauayan, Bulacan.

(SGD.) VIOLETA R. LINCALLO

GARCIA

Branch Register of
Deeds

TRANSFER CERTIFICATE OF TITLE

No. T-210581 (T-32.505 M)

Entry No. 79524 (M); Kind: NOTICE OF LEVY UPON REALTY, Executed in favor of
THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK)
Plaintiff; Conditions: Notice is hereby given that by virtue of an Order of Attachment
issued by the C.F.I. of Manila, Branch XXIX, in Civil Case No. 82-11611, all the
rights, interest and participation of NICOS INDUSTRIAL CORPORATION
 Defendants over the herein described lot is hereby levied upon attached.; Date of
Instrument; September 1, 1982; Date of Inscription: September 7, 1982 at 2:35.

Meycauayan, Bulacan.

(SGD.) VIOLETA R.
LINCALLO GARCIA

Branch
Registe
r of
Deeds

(pp.
91-92,
Rollo)

Based on the foregoing evidence on record, the conclusion is clear that the disputed real properties
were undercustodia legis by virtue of a valid attachment at the time the same were extrajudicially
foreclosed by a third party mortgagee.

The rule is well settled that when a writ of attachment has been levied on real property or any
interest therein belonging to the judgment debtor, the levy thus effected creates a lien which nothing
can destroy but its dissolution (Chua Pua Hermanos v. Register of Deeds of Batangas, 50 Phil. 670;
Government, et. al. v. Mercado, 67 Phil. 409).

The foregoing conclusion has two necessary consequences.

Firstly, it follows that the writ of possession issued by the Malolos court in favor of respondent
GOLDEN STAR is nun and void ab initio because it interfered with the jurisdiction of a co-ordinate
and co-equal court (See De Leon v. Salvador, 36 SCRA 567):

While property or money is in custodia legis, the officer holding it is the mere hand of
the court, his possession is the possession of the court, and to interfere with it is to
invade the jurisdiction of the court itself (Gende v. Fleming, 371 N.E. 2d. 191; Bishop
v. Atlantic Smokeless Coal Co., 88F. Supp. 27, 7 CJS 320).

Of equal importance is the fact that the transactions on which respondent GOLDEN STAR's right to
a writ of possession are based are highly irregular and questionable, to say the least, considering
the following circumstances:

On July 11, 1983, the Sheriff of Bulacan executed a certificate of sale over the two lots in question in
favor of UCPB.

On August 29, 1983, or about a month and a half later, UCPB sold its rights, interests and
participation over the lands to Manuel Go.

On that very same day, August 29, 1983, Manuel Go sold the same properties to respondent
GOLDEN STAR.
On October 5, 1983, respondent NICOS which had a one year right of redemption over the lands in
question executed a "Waiver of Right of Redemption in favor of respondent GOLDEN STAR." The
attempts to bring the disputed properties out of the petitioner's reach, inspite of the attachment, are
plain and apparent.

Based on the foregoing facts, we find that respondents NICOS and GOLDEN STAR conspired to
defeat petitioner's lien on the attached properties and to deny the latter its right of redemption.

It appears that in issuing the writ of possession, the Malolos court relied on copies of documents
(which did not show the memorandum of encumbrance) submitted to it by GOLDEN STAR. It was
thus led into the error of ruling that the petitioner's attachment was not properly annotated.

Secondly, it likewise follows that the petitioner has acquired by operation of law the right of
redemption over the foreclosed properties pursuant to Sec. 6 of Act No. 3135, to wit:

In all such cases in which an extrajudicial sale is made ... any person having a lien
on the property subsequent to the mortgage ... may redeem the same at any time
within the term of one year from and after the date of sale.

It has been held that "an attaching creditor may succeed to the incidental rights to which the debtor
was entitled by reason of his ownership of the property, as for example, a right to redeem from a
prior mortgage" (Lyon v. Stanford, 5 Conn. 541, 7 SJS 505).

The fact that respondent NICOS executed a waiver of right of redemption in favor of respondent
GOLDEN STAR on October 5, 1983 is of no moment as by that time it had no more right which it
may waive in favor of another,

Finally, GOLDEN STAR argues that even if the attachment in issue was duly registered and the
petitioner has a right of redemption, the certificate of sale of the lands in question was registered on
September 6, 1983. It claims that the period to redeem therefore lapsed on September 6, 1984
without the petitioner bank ever exercising any right of redemption.

This argument is untenable. Well settled is the rule that the pendency of an action tolls the term of
the right of redemption. Specifically, tills Court in Ong Chua v. Carr, (53 Phil. 975, 983) categorically
ruled that:

xxx xxx xxx

... Neither was it error on the part of the court to hold that the pendency of the action
tolled the term for the right of redemption; that is an old and well established rule.

This was reiterated in Fernandez v. Suplido (96 Phil. 541, 543), as follows:

xxx xxx xxx

... As pointed out in Ong Chua v. Carr, 53 Phil. 975, the pendency of an action
brought in good faith and relating to the validity of a sale with pacto de retro tolls the
term for the right of redemption. ...
Not only that. It has been held that "under a statute limiting the time for redemption ... the right of
redemption continues after perfection of an appeal ... until the decision of the appeal (Philadelphia
Mortgage Co. v. Gustus, 75 N.W. 1107).

In the case at bar, the petitioner commenced the instant action by way of an omnibus motion before
the Bulacan Court on November 21, 1983 or barely two months after the certificate of sale was
registered on September 6, 1983, well within the one year period of redemption.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is granted and judgment is hereby
rendered:

1) declaring as valid and binding the levy and attachment by the Manila Sheriff on the two realties in
question including the buildings and improvements thereon;

2) declaring that petitioner has acquired the right of redemption over the aforesaid properties which it
may exercise within one year from notice of entry of judgment in this case; and

3) declaring as null and void (a) the order of the Bulacan Court dated November 4, 1983 granting the
writ of possession to respondent GOLDEN STAR, (b) its order of June 9, 1984 denying the
petitioner's omnibus motion, and (c) the Waiver of Right of Redemption executed by respondent
NICOS in favor of respondent GOLDEN STAR.

SO ORDERED.

G.R. No. 76879 October 3, 1990

BF HOMES, INCORPORATED, petitioner,

vs.
COURT OF APPEALS, ROSALINDA R. ROA and VICENTE MENDOZA, respondents.

G.R.No. 77143 October 3, 1990

ROSALINDA ROA and VICENTE MENDOZA, petitioners,

vs.
COURT OF APPEALS and BF HOMES, INCORPORATED, respondents.

CRUZ, J.:

Involved here are two petitions for review assailing the decision of the Court of Appeals in CA-G.R.
No. Sp 05411, entitled BF Homes, Inc. v. Judge Tutaan, et al., dated June 6, 1986, as amended on
October 22, 1986.

BF Homes, Inc. is a domestic corporation previously engaged in the business of developing and
selling residential lots and houses and other related realty matters.

On July 19, 1984, BF contracted a loan from Rosalinda R. Roa and Vicente Mendoza in the amount
of P250,000.00 with interest at the rate of 33% per annum payable after 32 days. The obligation was
embodied in a promissory note and secured by two post-dated checks issued by BF in favor of the
lenders.
On September 25, 1984, BF filed a Petition for Rehabilitation and for a Declaration in a State of
Suspension of Payments under Sec. 5(d) of P.D. No. 902-A with a prayer that upon the filing of the
petition and in the meantime, all claims against it for any and all accounts or indebtedness be
suspended, but allowing petitioner to continue with its normal operations. It also asked for the
approval of the proposed rehabilitation plan.

On October 17, 1984, Roa and Mendoza filed a complaint against BF with the Regional Trial Court
of Quezon City, docketed as Civil Case No. Q-43104, for the recovery of the loan of P250,000.00,
with interest and attorney's fees. The complaint also prayed for the issuance of a writ of preliminary
attachment against the properties of BF.

October 22, 1984, the trial court issued the writ against properties of BF sufficient to satisfy the
principal claim in the amount of P257,333.33.

In a motion dated October 25, 1984, BF moved for the dismissal of the case for lack of jurisdiction,
or at least for its suspension in view of the pendency of SEC Case No. 002693. it also asked for the
lifting of the writ of preliminary attachment.

The trial court denied the motion to dismiss on November 20, 1984, and the motion for
reconsideration on January 11, 1985. Citing the case of DMRC Enterprises v. Este del Sol Mountain
Reserves, Inc., 1 the trial court held it had jurisdiction because what was involved was not an intra-
corporate or partnership dispute but merely a determination of the rights of the parties arising out of the
contract of loan.

On February 13, 1985, BF filed with the Intermediate Appellate Court (now Court of Appeals) an
original action forcertiorari with prayer for a writ of preliminary injunction against the regional trial
court, Roa and Mendoza. On February 14, 1985, the Court of Appeals issued an order temporarily
restraining proceedings in Civil Case No. Q-43104.

On March 18, 1985, the SEC, finding an urgent need to rehabilitate BF issued an order creating a
management committee and suspending all actions for claims against BF pending before any court,
tribunal or board.

On June 6, 1986, the Court of Appeals rendered a decision dismissing the complaint in Civil Case
No. Q-43104 and declaring the writ of preliminary attachment null and void. But upon a motion for
reconsideration filed by Roa and Mendoza, the decision was set aside and a new one was entered
upholding the jurisdiction of the regional trial court over the case. At the same time, however, it
suspended the proceedings therein until after the management committee shall have been
impleaded as party defendant. The dissolution of the writ of preliminary attachment was maintained.

Both parties filed separate motions for reconsideration, BF took exception to the amended decision
insofar as it directed the continuation of proceedings in Civil Case No. Q-43104 until after the
management committee shall have been impleaded. Roa and Mendoza faulted the Court of Appeals
for ordering BF to be substituted by the management committee and for dissolving the writ of
preliminary attachment without the filing of the necessary counter-bond by the defendant.

In a resolution dated December 22, 1986, the Court of Appeals denied both motions for
reconsideration, noting that the proceedings in the civil case could not remain suspended forever.
The purpose of the suspension, it said, was to enable the management committee to substitute BF
as party defendant and prosecute the defense to conclusion. Substitution was necessary to prevent
collusion between the previous management and creditors it might seek to favor, to the prejudice of
its other creditors.
In sustaining the dissolution of the writ of preliminary attachment, the respondent court said that Roa
and Mendoza were secured in the satisfaction of any judgment they might obtain against BF since
all the properties of the latter were already in the custody of the management committee.

Their motions for reconsideration having been denied, both parties filed their respective petitions for
review before this Court.

In G.R. No. 76879, entitled "BF Homes, Inc. v. Court of Appeals, Rosalinda R. Roa and Vicente
Mendoza," the petitioner contends that the respondent court committed an error and violated Sec.
5(d) of P.D. No. 902-A when it authorized continuation of proceedings in Civil Case No. Q-43104
after the management committee created by the SEC shall have been impleaded.

In G.R. No. 77143, entitled "Rosalinda R. Roa and Vicente Mendoza v. Court of Appeals and BF
Homes, Inc.," the petitioners seek a review on the grounds that the management committee was not
a proper party and should not have been ordered substituted as party defendant in the regional trial
court and that the writ of preliminary attachment should not have been dissolved.

These two petitions were ordered consolidated in the resolution of this Court dated August 17, 1987.

On February 2, 1988, the SEC issued an order approving the proposed revised rehabilitation plan
and dissolving the management committee earlier created. Atty. Florencio Orendain was appointed
rehabilitation receiver.

Now to the merits.

The parties in both cases are agreed that the proceedings in the civil case for the recovery of a sum
of money should be suspended. BF originally maintained that the action should be resumed only
until after SEC Case No. 002693 shall have been adjudicated on the merits but now agrees with Roa
and Mendoza, in line with the "assessment" of the Solicitor General, that the action should be
suspended pending the outcome of the rehabilitation proceedings.

The pertinent provision of law dealing with the suspension of actions for claims against the
corporation is Sec. 6(c) of P.D. 902-A, as amended, which reads:

Sec. 6. n order to effectively exercise such jurisdiction, the Commission shall

possess the following powers:

xxx xxx xxx

(c) To appoint one or more receivers of the property, real and personal, which is the
subject of the action pending before the Commission in accordance with the pertinent
provisions of the Rules of Court, and in such other cases whenever necessary in
order to preserve the rights of parties-litigants and/or protect the interest of the
investing public and creditors: Provided, however, That the Commission may, in
appropriate cases, appoint a rehabilitation receiver of corporations, partnerships or
other associations not supervised or regulated by other government agencies who
shall have, in addition to the powers of a regular receiver under the provisions of the
Rules of Court, such functions and powers as are provided for in the succeeding
paragraph (d) hereof: Provided, further, That the Commission may appoint a
rehabilitation receiver of corporations, partnership or other associations supervised
or regulated by other government agencies, such as banks and insurance
 companies, upon request of the government agency concerned: Provided, finally,
That upon appointment of a management committee, rehabilitation receiver, board or
body, pursuant to this Decree, all actions for claims against corporations,
partnership, or associations under management or receivership pending before any
court, tribunal, board or body shall be suspended accordingly. (As amended by P.D.
Nos. 1653, 1758 and 1799; Emphasis supplied.)

As will be noted, the duration of the suspension is not indicated in the law itself. And neither is it
specified in the SEC order creating the management committee.

The Court feels that the respondent court erred in ordering the resumption of the civil proceeding
after the management committee shall have been impleaded as party defendant. The explanation
that the only purpose of suspending the civil action was to enable the management committee to
substitute BF as party defendant is not acceptable.

The view of the respondent court is that the continuation of the action is necessary for the purpose of
determining the extent of the liability of BF to Roa and Mendoza. The flaw in this theory is that even
if such liability is determined, it still cannot be enforced by the trial court as long as BF is under
receivership. 2 Moreover, it disregards the possibility that such determination would not be necessary at
all should the rehabilitation receiver favorably consider and fully acknowledge the claims made by Roa
and Mendoza.

Under Sec. 6(d) of P.D. No. 902-A, the management committee or rehabilitation receiver is
empowered to take custody and control of all existing assets and properties of such corporations
under management; to evaluate the existing assets and liabilities, earnings and operations of such
corporations; to determine the best way to salvage and protect the interest of investors and
creditors; to study, review and evaluate the feasibility of continuing operations and restructure and
rehabilitate such entities if determined to be feasible by the SEC.

In light of these powers, the reason for suspending actions for claims against the corporation should
not be difficult to discover. It is not really to enable the management committee or the rehabilitation
receiver to substitute the defendant in any pending action against it before any court, tribunal, board
or body. Obviously, the real justification is to enable the management committee or rehabilitation
receiver to effectively exercise its/his powers free from any judicial or extra-judicial interference that
might unduly hinder or prevent the "rescue" of the debtor company. To allow such other action to
continue would only add to the burden of the management committee or rehabilitation receiver,
whose time, effort and resources would be wasted in defending claims against the corporation
instead of being directed toward its restructuring and rehabilitation.

In BF Homes, Inc. v. Hon. Fernando P. Agdamag et al., 3 the Court of Appeals held:

It must be emphasized that the suspension is only for a temporary period to prevent
the irreversible collapse of the corporation and give the management committee or
receiver the absolute tranquility to study the viability of the corporation. During this
period, the law creates a wall around the corporation against all claims.

In Alemar's Sibal & Sons, Inc. v. Hon. Jesus M. Elbinias, et al., 4 this Court, explaining the legal
consequences of a receivership, said:

. . . When a corporation threatened by bankruptcy is taken over by a receiver, all the

creditors should stand on an equal footing. Not anyone of them should be given any
preference by paying one or some of them ahead of the others. This is precisely the
 reason for the suspension of all pending claims against the corporation under
receivership. Instead of creditors vexing the courts with suits against the distressed
firm, they are directed to file their claims with the receiver who is a duly appointed
officer of the SEC. (Emphasis supplied)

Consequently, we feel that the trial court cannot at this point determine the extent of BF's liability, if
any, to Roa and Mendoza. This is true whether it is retained as party defendant or substituted by the
management committee (or the rehabilitation receiver) as directed by the respondent court. What
Roa and Mendoza should do now is file their claims with the rehabilitation receiver and submit to him
such evidence as they would otherwise have to adduce before the trial court to prove such claims.

As the revised rehabilitation plan approved by the SEC is expected to be implemented within ten
years, the proceedings in the Regional Trial Court of Quezon City should be suspended during that
period, to begin from February 2, 1988, the date of its approval. This is without prejudice to the
authority of the SEC to extend the period when warranted and even to order the liquidation of BF if
the plan is found to be no longer feasible. On the other hand, on a more positive note, the SEC can
also find within that period that BF has been sufficiently revived and able to resume its normal
business operations without further need of rehabilitation.

Coming now to the writ of preliminary attachment, we find that it must stand despite the suspension
of the proceedings in the Regional Trial Court of Quezon City. The writ was issued prior to the
creation of the management committee and so should not be regarded as an undue advantage of
Mendoza and Roa over the other creditors of BF.

In its amended decision and the resolution ordering the discharge of the writ of preliminary
attachment, the respondent court did not rule on whether the issuance of the writ was improper or
irregular. It simply said that the writ was no longer proper or necessary at that time because the
properties of BF were in the hands of the receiver. We do not think so.

The appointment of a rehabilitation receiver who took control and custody of BF has not necessarily
secured the claims of Roa and Mendoza. In the event that the receivership is terminated with such
claims not having been satisfied, the creditors may also find themselves without security therefor in
the civil action because of the dissolution of the attachment. This should not be permitted. Having
previously obtained the issuance of the writ in good faith, they should not be deprived of its
protection if the rehabilitation plan does not succeed and the civil action is resumed.

It is settled that:

If there is an attachment or sequestration of the goods or estate of the defendant in

an action which is removed to a bankruptcy court, such an attachment or
sequestration will continue in existence and hold the goods or estate to answer the
final judgment or decree in the same manner as they would have been held to
answer the final judgment or decree rendered by the Court from which the action was
removed, unless the attachment or sequestration is invalidated under applicable law.
(28 USCS No. 1479 [a].) 5

As we ruled in Government of the Philippine Islands v. Mercado: 6

Attachment is in the nature of a proceeding in rem. It is against the particular

property. The attaching creditor thereby acquires specific lien upon the attached
property which ripens into a judgment against the res when the order of sale is made.
Such a proceeding is in effect a finding that the property attached is an indebted
 thing and a virtual condemnation of it to pay the owner's debt. The law does not
provide the length of time an attachment lien shall continue after the rendition of
judgment, and it must therefore necessarily continue until the debt is paid, or sale is
had under execution issued on the judgment or until judgment is satisfied, or the
attachment discharged or vacated in some manner provided by law.

It has been held that the hen obtained by attachment stands upon as high equitable
grounds as a mortgage lien:

The lien or security obtained by an attachment even before judgment,

is a fixed and positive security, a specific lien, and, although whether
it will ever be made available to the creditor depends on
contingencies, its existence is in no way contingent, conditioned or
inchoate. It is a vested interest, an actual and substantial security,
affording specific security for satisfaction of the debt put in suit, which
constitutes a cloud on the legal title, and is as specific as if created by
virtue of a voluntary act of the debtor and stands upon as high
equitable grounds as a mortgage. (7 Corpus Juris Secundum, 433,
and authorities therein cited.)

Under the Rules of Court, a writ of attachment may be dissolved only upon the filing of a counter-
bond or upon proof of its improper or irregular issuance. Neither ground has been established in the
case at bar to warrant the discharge of the writ. No counter-bond has been given. As for the
contention that the writ was improperly issued for lack of notice to BF on the application for the writ,
it suffices to cite Mindanao Savings & Loan Association, Inc. v.Court of Appeals, where we held: 7

The only requisites for the issuance of a writ of preliminary attachment under Section
3, Rule 57 of the Rules of Court are the affidavit and bond of the applicant.

SEC. 3. Affidavit and bond required. An order of attachment shall

be granted only when it is made to appear by the affidavit of the
applicant, or of some other person who personally knows the facts,
that a sufficient cause of action exists, that the case is one of those
mentioned in section 1 hereof, that there is no other sufficient security
for the claim sought to be enforced by the action and that the amount
due to the applicant, or the value of the property the possession of
which he is entitled to recover, is as much as the sum for which the
order is granted above all legal counterclaims. The affidavit, and the
bond required by the next succeeding section must be duly filed with
the clerk or judge of the court before the order issues.

No notice to the adverse party or hearing of the application is required. As a matter of

fact a hearing would defeat the purpose of this provisional remedy. The time which
such a hearing would take, could be enough to enable the defendant to abscond or
dispose of his property before a writ of attachment issues. Nevertheless, while no
hearing is required by the Rules of Court for the issuance of an attachment (Belisle
Investment & Finance Co., Inc. v. State Investment House, Inc., 72927, June 30,
1987; Filinvest Credit Corp. v. Relova, 117 SCRA 420), a motion to quash the writ
may not be granted without "reasonable notice to the applicant" and only "after
hearing" (Secs. 12 and 13, Rule 57, Rules of Court).
In sum, the Court holds that the substitution of the management committee/rehabilitation receiver in
Civil Case No. Q-43104 in the Regional Trial Court of Quezon City is not necessary because the
proceedings therein shall be suspended anyway pending implementation of the revised rehabilitation
plan, during which the writ of preliminary attachment shall remain in force.

WHEREFORE, the decision of the respondent court is SET ASIDE and judgment is rendered as
follows:

(1) In G.R. No. 76879, the petition is GRANTED. The proceedings in Civil Case No. Q-43104 shall
remain suspended for a period of ten (10) years from February 2, 1988, unless extended or
shortened by the SEC as circumstances may warrant; and

(2) In G.R.No.77143, the petition is GRANTED insofar as it seeks restoration of the writ of
preliminary attachment, issued on October 22, 1984, which is hereby reinstated.

SO ORDERED.

G.R. No. 111174 March 9, 2000

REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
HON. BERNARDO V. SALUDARES, Presiding Judge, RTC, Br. 28, Lianga, Surigao del Sur,
and HUNG MING KUK, respondents.

QUISUMBING, J.:

This special civil action for certiorari assails the decision1 of the Regional Trial Court of Lianga,
Surigao del Sur, Branch 28, dated March 19, 1993. At issue is the jurisdiction of the trial court over
properties owned by Lianga Bay Logging Company, Inc. (LBLC), but allegedly sequestered by the
Presidential Commission on Good Government (PCGG).

The facts on record show that on April 2, 1986, the PCGG issued a writ of sequestration,2 which
reads:

IN THE MATTER OF THE SEQUESTRATION OF LIANGA BAY LOGGING

x-----------------------x

TO: MR. ARISTIDES M. ESCOSORA

Baganga, Davao Oriental

WRIT OF SEQUESTRATION

By virtue of the power vested unto this Commission and by authority of the President of the
Philippines, LIANGA BAY LOGGING, with offices at 2nd Floor, Emerald Building, Emerald Ave.,
Ortigas Office Bldg. Complex, Pasig, Metro Manila is hereby sequestered.

Mr. Aristides Escosora is hereby appointed Fiscal Agent of this Commission and as such, he is
hereby ordered to:
 1. To implement this sequestration order with a minimum disruption of business
activities.

2. To preserve and safeguard, as well as prevent the removal concealment of

records and the disposition and dissipation of assets, funds and resources.

3. To prevent undue removal or withdrawal of funds, until further orders to the

Commission.

4. To report to the Commission on Good Government within five (5) days.

Further, you are authorized to request the Commission for security support from the Military/Police
authorities only if necessary.

xxx xxx xxx

FOR THE COMMISSION:

Originally Signed

MARY CONCEPCION BAUTISTA

Commissioner

The writ of sequestration was based on the ground that the shares of stocks in LBLC owned by
Peter A. Sabido formed part of "illegally acquired wealth." On July 27, 1987, the Republic of the
Philippines through the PCGG and the Office of the Solicitor General filed before the Sandiganbayan
a complaint3 for reconveyance, reversion, accounting, restitution and damages against, among
others, Peter A. Sabido.

On August 12, 1991, Sabido filed a Motion to Lift the Writs of Sequestration before the
Sandiganbayan. On November 29, 1991, the Sandiganbayan granted the motion, disposing as
follows:

WHEREFORE, the "Motion (to Lift Writs of Sequestration)" dated August 12, 1991, is
granted. Accordingly, the Writs of Sequestration issued against the Philippine Integrated
Meat Corporation on March 17, 1986, andLianga Bay Logging Company, Inc. on April 2,
1986, are declared to have been deemed automatically lifted upon the lapse of six months
from the ratification of the 1987 Constitution on February 2, 1987, without prejudice to the
continuation of the proceedings against PIMECO and Lianga. . . . (emphasis supplied)

xxx xxx xxx

SO ORDERED.4

On December 11, 1991, PCGG filed a motion for reconsideration of the decision of Sandiganbayan
praying for the nullification of the order which lifted the writ of sequestration of LBLC.

In the meantime, on February 11, 1993, private respondent Hung Ming Kuk filed a complaint5 for
sum of money against LBLC, with a prayer for a writ of preliminary attachment, with the Regional
Trial Court, Branch 28, of Lianga, Surigao del Sur. The PCGG was not impleaded by Hung Ming Kuk
as party-defendant nor was the sequestration case referred to the RTC's proceedings.

Thus, the Republic of the Philippines filed a special civil action6 for certiorari under Rule 65, dated
March 29, 1993, with the Supreme Court. This petition, docketed as G.R. No. 109314, was later on
consolidated with other similar cases.

Meantime, on February 15, 1993, the Sandiganbayan denied the motion for reconsideration of
PCGG, dated December 11, 1991.

On February 17, 1993, the trial court granted the writ of preliminary attachment in favor of Hung
Ming Kuk.

Thereafter, Hung Ming Kuk filed a motion to declare LBLC in default for failure to file responsive
pleadings pursuant to Sec. 1, Rule 18 of the Rules of Court. The RTC of Lianga, acting on the
motion of Hung Ming Kuk, issued an order dated March 4, 1993, declaring LBLC as in default.
Consequently, on March 19, 1993, the RTC rendered judgment by default, and decreed thus:

WHEREFORE, premised on the foregoing evidences and findings, this court hereby renders
judgment in favor of the plaintiff, and ordering the defendant-Corporation to pay, as follows:

1. To pay plaintiff the principal amount of the accrued unpaid obligation in the total
amount of P18,031,563.78, with interests at 14% per annum reckoned from July
1992 to February 1993 in the computed total of P1,250,666.66, the same to continue
until said obligation is fully paid;

2. To pay plaintiff moral and exemplary damages in the total amount of P150,000.00,
plus Appearance Fee for the counsel in the sum of P5,000.00;

3. To pay plaintiff the total amount of P4,857,195.45 for Sheriff's Expenses, Attached
Properties Guards' Fees, Filing Fees, Litigation Expenses, and Attorneys Fees
computed at 25% of the principal obligation, or P4,507,890.95, or a total amount of
P4,857,195.45;

4. To pay the costs of the suit.

IT IS SO ORDERED.7

On August 11, 1993, petitioner filed this special civil action under Rule 65 of the Rules of Court,
raising the sole issue as follows:

WHETHER, THE TRIAL COURT FAULTED IN DECIDING THE CLAIM OF PRIVATE

RESPONDENT WHICH INVOLVED THE PROPERTIES OF LIANGA BAY LOGGING CO.
INC.

In the meantime, on January 23, 1995, the Supreme Court en banc issued its decision in the
consolidated cases ofRepublic vs. Sandiganbayan (First Division), 240 SCRA 376 (1995). The
decision included the nullification of the resolution of the Sandiganbayan that lifted the writ of
sequestration of LBLC properties in G.R. No. 109314. Hence, the Court effectively confirmed the
validity of the writ of sequestration over said properties. Peter A. Sabido's motion for reconsideration
was denied. Finally, an entry of judgment was issued on April 22, 1997, in G.R. No. 109314.
Petitioner contends that the RTC of Lianga has no jurisdiction over the subject matter of the case
inasmuch as the same are under sequestration by the PCGG. Citing Baseco vs. PCGG, 150 SCRA
181 (1987), petitioner asserts that the sequestered assets have been placed under custodia legis of
the PCGG pending the final determination by the Sandiganbayan that said assets are in fact ill-
gotten. Hence, the RTC has no jurisdiction to order the attachment of said sequestered properties.

Private respondent, however avers that his original complaint was for a sum of money. It was a
demand for payment of a valid obligation owed to him by LBLC. He adds that it would be unfair and
unjust to declare the entire RTC proceedings regarding his claim for sum of money null and void.

Private respondent further claims that the attachment order of the trial court was issued after the
Sandiganbayan had lifted the writ of sequestration against LBLC. But petitioner asserts that this
order of the Sandiganbayan was reversed by the Supreme Court in a banc decision8 dated January
23, 1995, resolving several consolidated cases for which G.R. No. 109314 was included. Petitioner
stresses that said reversal had become final and executory on April 22, 1997.

In PAGCOR vs. CA, 275 SCRA 433-434 (1997), involving ownership by Philippine Casino Operators
Corporation (PCOC) over several gaming and office equipment during the time that PCOC was
under a sequestration by PCGG, the Court ruled:

We disagree with the RTC and the CA on the issue of jurisdiction. While there can be no
dispute that PCOC was sequestered, the fact of sequestration alone did not automatically
oust the RTC of jurisdiction to decide upon the question of ownership of the subject gaming
and office equipment. The PCGG must be a party to the suit in order that the
Sandiganbayan's exclusive jurisdiction may be correctly invoked. This is deducible from no
less than E.O. No. 14, the "Pea" and "Nepomuceno" cases relied upon by both subordinate
courts. Note that in Section 2 of E.O. No. 14 which provides:

Sec. 2. The Presidential Commission on Good Government shall file all such cases,
whether civil or criminal, with the Sandiganbayan, which shall have exclusive and
original jurisdiction thereof.

it speaks of the PCGG as party-plaintiff. On the other hand, the PCGG was impleaded as co-
defendant in both the "Pea" and "Nepomuceno" cases. But here, the PCGG does not
appear in either capacity, as the complaint is solely between PAGCOR and respondents
PCOC and Marcelo. The "Pea" and "Nepomuceno" cases which recognize the
independence of the PCGG and the Sandiganbayan in sequestration cases, therefore,
cannot be invoked in the instant case so as to divest the RTC of its jurisdiction, under
Section 19 of B.P. Blg. 129, over PAGCOR's action for recovery of personal property.

In the case at bar, the claim of private respondent Hung Ming Kuk is for a sum of money arising from
a debt incurred by LBLC. Under a contract, private respondent had extended cash advances and
supplied LBLC hardware materials, auto spare parts, and rendered services, for cutting and hauling
logs. The total claim amounts to P18,031,563.78. Following Section 19 of B.P. Blg. 129, as amended
by R.A. No. 7691 on March 25, 1994, the complaint falls within the jurisdiction of the Regional Trial
Court, viz:

Sec. 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive original
jurisdiction:

xxx xxx xxx

 (8) In all other cases in which the demand, exclusive of interest, damages of whatever kind,
attorney's fees, litigation expenses, and costs or the value of the property in controversy
exceeds One hundred thousand pesos (P100,000.00) or, in such other cases in Metro
Manila, where the demand, exclusive of the above-mentioned items exceeds Two hundred
thousand pesos (P200,000).

Petitioner relies, however, on the case of PCGG vs. Pea, 159 SCRA 556 (1988) and asserts that
the controversy of LBLC or a sequestered company falls within the exclusive jurisdiction of the
Sandiganbayan and not of the trial court.

In the Pea case, the trial court issued a temporary restraining order which prevented PCGG from
enforcing the memorandum of then PCGG Commissioner Mary Concepcion Bautista. Her
memorandum denied complainant's authority to sign and manage the funds of the sequestered
company. The Supreme Court ruled that the trial court had no jurisdiction over PCGG being a co-
equal body, and therefore, the regional trial courts may not interfere with and restrain the PCGG or
set aside the orders and actions of its Commissioner.

In contrast, the case now before us concerns receivables of the private respondent arising out of a
legitimate business contract to supply goods and services in favor of LBLC. When a collection suit
was filed against LBLC by its supplier, Hung Ming Kuk, evidently PCGG could not be the proper
party to defend against such claim. More so, because when PCGG had not taken over the LBLC's
business operations.

We note that PCGG is not an owner but a conservator. It can exercise only powers of administration
over property sequestered, frozen or provisionally taken over. Even resort to the provisional
remedies should entail the least possible interference with business operations or activities so that,
in the event that the accusation that the business enterprise is "ill-gotten" be not proven, it may be
returned to its rightful owner as far as possible in the same condition as it was at the time of
sequestration. 9

The holding in Pea which confers exclusive jurisdiction on the Sandiganbayan in sequestration
cases cannot also be relied upon by petitioner in this case. We hold that the Regional Trial Court has
jurisdiction over the complaint for payment of money allegedly averred by LBLC to private
respondent.

We now move to the ancillary issue of whether or not the provisional remedy of attachment issued
by the trial court in favor of the private respondent is valid.

It bears recalling that when the Sandiganbayan ordered that the writ of sequestration be lifted,
PCGG filed a special civil action for certiorari to contest that order. The Supreme Court ruled in favor
of PCGG when it granted the latter'spetition to declare the lifting of the writ of sequestration by the
Sandiganbayan null and void. The Court's en bancresolution pertinently reads:

WHEREFORE, judgment is hereby rendered:

A. NULLIFYING AND SETTING ASIDE:

xxx xxx xxx

17) in G.R. No. 109314, its impugned Resolutions 10 dated November 29, 1991 and February
16, 1993.
In the same en banc Resolution, the Court observed:

II. Provisional Remedies in Pursuance of Policy

Special adjective tools or devices were provided by the Revolutionary Government for the
recovery of that "ill-gotten wealth." These took the form of provisional remedies akin to
preliminary attachment (Rule 57), writ of seizure of personalty (Rule 60) and receivership
(Rule 59). They were (a) sequestration and (b) freeze orders, as regards "unearthed
instance of "ill-gotten wealth"; and (c) provisional takeover, as regards "business enterprises
and properties taken over by the government of the Marcos Administration or by entities or
persons close to former President Marcos."

A. Executive Orders Re Sequestration, Freezing and Takeover

These special remedies were prescribed and defined in Executive Orders Numbered 1 and
2, promulgated by President Corazon C. Aquino in March, 1986. Their validity and propriety
were sustained by this Court on May 27, 1987, against claims that they were unconstitutional
as being bills of attainder, or as violative of the right against self-incrimination and the
guaranty against unreasonable searches and seizures. In the same case, the Court also set
the parameters for and restrictions on the proper exercise of the remedies.

In BASECO vs. PCGG, 150 SCRA 181, 182 (1987), sequestration is defined as the process, which
may be employed as a conservatory writ whenever the right of the property is involved, to preserve,
pending litigation, specific property subject to conflicting claims of ownership or liens and
privileges. 11

The Court also noted the relationship between attachment and receivership, on one hand, and
sequestration, freeze order and provisional takeover on the other. The latter there are ancillary
remedies in prosecuting the ill-gotten wealth of the previous Marcos regime. The Court observed
that sequestration, freezing and provisional takeover are akin to the provisional remedy of
preliminary attachment or receivership. 1wphi1

By an order of attachment, a sheriff seizes property of a defendant in a civil suit so that it may stand
as security for the satisfaction of any judgment that may be obtained, and not disposed of, or
dissipated, or lost intentionally, or otherwise, pending the action. 12 When a writ of attachment has
been levied on real property or any interest therein belonging to the judgment debtor, the levy
creates a lien which nothing can destroy but its dissolution. 13 This well-settled rule is likewise
applicable to a writ of sequestration.

Attachment is in the nature of a proceeding in rem. It is against a particular property of a debtor. The
attaching creditor thereby acquires a specific lien upon the attached property which ripens into a
judgment against the reswhen the order of sale is made. Such a proceeding is in effect a finding that
the property attached is an indebted thing and results in its virtual condemnation to pay for the
owner's debt. The law does not provide the length of time during which an attachment lien shall
continue after the rendition of the judgment, and it must therefore continue until the debt is paid, or
sale is had under execution issued in the judgment, or until the judgment is satisfied, or the
statement discharged or vacated in some manner provided by law. 14

In our view, the disputed properties of LBLC were already under custodia legis by virtue of a valid
writ of sequestration 15 issued by the PCGG on April 2, 1986, when respondent Judge Saludares
issued the assailed writ of attachment in favor of private respondent Hung Ming Kuk. At that time the
writ of sequestration issued by PCGG against LBLC was subsisting. Said writ of the PCGG could not
be interfered with by the RTC of Lianga, because the PCGG is a coordinate and co-equal body. The
PCGG had acquired by operation of law the right of redemption over the property until after the final
determination of the case or until its dissolution.

WHEREFORE, the instant petition is partially GRANTED. The default Order issued by the public
respondent dated March 19, 1993, is AFFIRMED, but should be held in abeyance until the
sequestration case involving LBLC before the Sandiganbayan is determined. The Order of
Attachment issued by the public respondent is declared NULL and VOID. No pronouncement as to
costs.
1wphi 1.nt

SO ORDERED.