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Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-34548 November 29, 1988
RIZAL COMMERCIAL BANKING CORPORAION, petitioner,
vs.
!E !ONORABLE PACI"ICO P. #E CA$RO %&' P!ILIPPINE (IRGINIA
OBACCO A#MINI$RAION, respondents
Meer, Meer & Meer for petitioner.
The Solicitor General for respondents.

CORE$, J.:
The crux of the instant controversy dwells on the liability of a bank for releasing
its depositor's funds upon orders of the court, pursuant to a writ of garnishment. If
in compliance with the court order, the bank delivered the garnished amount to
the sheriff, who in turn delivered it to the judgment creditor, but subsequently, the
order of the court directing payment was set aside by the same judge, should the
bank be held solidarily liable with the judgment creditor to its depositor for
reimbursement of the garnished funds The !ourt does not think so.
In !ivil !ase "o. #$%&'() of the !ourt of *irst Instance of +i,al, #ue,on !ity
-ranch I. entitled /-adoc 0lanters, Inc. versus 0hilippine 1irginia Tobacco
2dministration, et al.,/ which was an action for recovery of unpaid tobacco
deliveries, an 3rder 40artial 5udgment6 was issued on 5anuary %), %7'8 by the
9on. :ourdes 0. ;an <iego, then 0residing 5udge, ordering the defendants
therein to pay jointly and severally, the plaintiff -adoc 0lanters, Inc. 4hereinafter
referred to as /-2<3!/6 within =( hours the aggregate amount of 0&8>,7%>.'>,
with legal interests thereon.
3n 5anuary &>,%7'8, -2<3! filed an ?rgent @x$0arte Aotion for a Brit of
@xecution of the said 0artial 5udgment which was granted on the same day by
the herein respondent judge who acted in place of the 9on. 5udge ;an <iego
who had just been elevated as a 5ustice of the !ourt of 2ppeals. 2ccordingly, the
-ranch !lerk of !ourt on the very same day, issued a Brit of @xecution
addressed to ;pecial ;heriff *austino +igor, who then issued a "otice of
Carnishment addressed to the Ceneral Aanager andDor !ashier of +i,al
!ommercial -anking !orporation 4hereinafter referred to as +!-!6, the
petitioner in this case, requesting a reply within five 4)6 days to said garnishment
as to any property which the 0hilippine 1irginia Tobacco 2dministration
4hereinafter referred to as /01T2/6 might have in the possession or control of
petitioner or of any debts owing by the petitioner to said defendant. ?pon receipt
of such "otice, +!-! notified 01T2 thereof to enable the 01T2 to take the
necessary steps for the protection of its own interest E+ecord on 2ppeal, p. F>G
?pon an ?rgent @x$0arte Aotion dated 5anuary &', %7'8 filed by -2<3!, the
respondent 5udge issued an 3rder granting the @x$0arte Aotion and directing
the herein petitioner /to deliver in check the amount garnished to ;heriff *austino
+igor and ;heriff +igor in turn is ordered to cash the check and deliver the
amount to the plaintiff's representative andDor counsel on record./ E+ecord on
2ppeal, p. &8H +ollo, p. ).G In compliance with said 3rder, petitioner delivered to
;heriff +igor a certified check in the sum of 0 &8>,7%>.'>.
+espondent 01T2 filed a Aotion for +econsideration dated *ebruary &>,%7'8
which was granted in an 3rder dated 2pril >,%7'8, setting aside the 3rders of
@xecution and of 0ayment and the Brit of @xecution and ordering petitioner and
-2<3! /to restore, jointly and severally, the account of 01T2 with the said bank
in the same condition and state it was before the issuance of the aforesaid
3rders by reimbursing the 01T2 of the amount of 0 &8>, 7%>.'> with interests at
the legal rate from 5anuary &', %7'8 until fully paid to the account of the 01T2
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./ E+ecord on 2ppeal, p. )(G
The Aotion for +econsideration of the said 3rder of 2pril >, %7'8 filed by herein
petitioner was denied in the 3rder of respondent judge dated 5une %8, %7'8 and
on 5une %7, %7'8, which was within the period for perfecting an appeal, the
herein petitioner filed a "otice of 2ppeal to the !ourt of 2ppeals from the said
3rders.
This case was then certified by the !ourt of 2ppeals to this 9onorable !ourt,
involving as it does purely questions of law.
The petitioner raises two principal queries in the instant caseI %6 Bhether or not
01T2 funds are public funds not subject to garnishmentH and &6 Bhether or not
the respondent 5udge correctly ordered the herein petitioner to reimburse the
amount paid to the ;pecial ;heriff by virtue of the execution issued pursuant to
the 3rderD0artial 5udgment dated 5anuary %), %7'8.
The record reveals that on *ebruary &, %7'8, private respondent 01T2 filed a
Aotion for +econsideration of the 3rderD 0artial 5udgment of 5anuary %), %7'8.
This was granted and the aforementioned 0artial 5udgment was set aside. The
case was set for hearings on "ovember =, 7 and %%, %7'8 E+ollo, pp. &8)$&8'.G
9owever, in view of the failure of plaintiff -2<3! to appear on the said dates,
the lower court ordered the dismissal of the case against 01T2 for failure to
prosecute E+ollo, p. &8(.G
It must be noted that the 3rder of respondent 5udge dated 2pril >, %7'8 directing
the plaintiff to reimburse 01T2 t e amount of 0&8>,7%>.'> with interests became
final as to said plaintiff who failed to even file a motion for reconsideration, much
less to appeal from the said 3rder. !onsequently, the order to restore the
account of 01T2 with +!-! in the same condition and state it was before the
issuance of the questioned orders must be upheld as to the plaintiff, -2<3!.
9owever, the questioned 3rder of 2pril >, %7'8 must be set aside insofar as it
ordered the petitioner +!-!, jointly and severally with -2<3!, to reimburse
01T2.
The petitioner merely obeyed a mandatory directive from the respondent 5udge
dated 5anuary &', %7'8, ordering petitioner 7= /to deliver in check the amount
garnished to ;heriff *austino +igor and ;heriff +igor is in turn ordered to cash
the check and deliver the amount to the plaintiffs representative andDor counsel
on record./ E+ecord on 2ppeal, p. &8.G
01T2 however claims that the manner in which the bank complied with the
;heriffs "otice of Carnishment 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 +!-! to the special sheriff
even in the absence of a demand to deliver made by the latter, before the
expiration of the five$day period given to reply to the "otice of Carnishment,
without any reply having been given thereto nor any prior authori,ation from its
depositor, 01T2 and even if the court's order of 5anuary &', %7'8 did not require
the bank to immediately deliver the garnished amount constitutes such lack of
prudence as to make it answerable jointly and severally with the plaintiff for the
wrongful release of the money from the deposit of the 01T2. The respondent
5udge in his controverted 3rder sustained such contention and blamed +!-! for
the supposed /hasty release of the amount from the deposit of the 01T2 without
giving 01T2 a chance to take proper steps by informing it of the action being
taken against its deposit, thereby observing with prudence the five$day period
given to it by the sheriff./ E+ollo, p. (%.G
;uch allegations must be rejected for lack of merit. In the first place, it should be
pointed out that +!-! did not deliver the amount on the strength solely of a
"otice of CarnishmentH rather, the release of the funds was made pursuant to the
aforesaid 3rder of 5anuary &', %7'8. Bhile the "otice of Carnishment dated
5anuary &>, %7'8 contained no demand of payment as it was a mere request for
petitioner to withold any funds of the 01T2 then in its possession, the 3rder of
5anuary &', %7'8 categorically required the delivery in check of the amount
garnished to the special sheriff, *austino +igor.
In the second place, the bank had already filed a reply to the "otice of
Carnishment stating that it had in its custody funds belonging to the 01T2,
which, in fact was the basis of the plaintiff in filing a motion to secure delivery of
the garnished amount to the sheriff. E;ee +ollo, p. 7F.G
:astly, the bank, upon the receipt of the "otice of Carnishment, duly informed
01T2 thereof to enable the latter to take the necessary steps for the protection of
its own interest E+ecord on 2ppeal, p. F>G
It is important to stress, at this juncture, that there was nothing irregular in the
delivery of the funds of 01T2 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
5anuary &', %7'8 was composed of two parts, requiringI %6 +!-! to deliver in
check the amount garnished to the designated sheriff and &6 the sheriff in turn to
cash the check and deliver the amount to the plaintiffs representative andDor
counsel on record. It must be noted that in delivering the garnished amount in
check to the sheriff, the +!-! 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. E2rticle %&=7, !ivil !ode.G
Aoreover, by virtue of the order of garnishment, the same was placed in custodia
legis and therefore, from that time on, +!-! was holding the funds subject to the
orders of the court a quo. That the sheriff, upon delivery of the check to him by
+!-! encashed it and turned over the proceeds thereof to the plaintiff was no
longer the concern of +!-! as the responsibility over the garnished funds
passed to the court. Thus, no breach of trust or dereliction of duty can be
attributed to +!-! 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 E<e :eon v. ;alvador, C.+. "os. :$F8('% and
:$F%>8F, <ecember &(,%7'8, F> ;!+2 )>', )'=.G
The respondent judge however, censured the petitioner for having released the
funds /simply on the strength of the 3rder 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./ E+ollo, p. (%.G
This argument deserves no serious consideration. 2s 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.
3n 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 E@ngineering !onstruction Inc., v. "ational 0ower
!orporation, C.+. "o. :$F=)(7, 5une &7, %7((G penned by the now !hief 5ustice
Aarcelo *ernan, this !ourt absolved a garnishee from any liability for prompt
compliance with its order for the delivery of the garnished funds. The rationale
behind such ruling deserves emphasis in the present caseI
-ut while partial restitution is warranted in favor of "0!, we find that the
2ppellate !ourt erred in not absolving A@+2:!3, the garnishee, from its
obligations to "0! with respect to the payment of @!I of 0 %,%%=,)=F.&F, thus in
effect subjecting A@+2:!3 to double liability. A@+2:!3 should not have been
faulted for its prompt obedience to a writ of garnishment. ?nless there are
compelling reasons such asI a defect on the face of the writ or actual knowledge
on the part of the garnishee of lack of entitlement on the part of the garnisher, it
is not incumbent upon the garnishee to inquire or to judge for itself whether or
not the order for the advance eecution of a judgment is valid.
;ection (, +ule )' of the +ules of !ourt providesI
@ffect of attachment of debts and credits.J2ll persons having in
their possession or under their control any credits or other similar
personal property belonging to the party against whom
attachment is issued, or owing any debts to the same, all the
time of service upon them of a copy of the order of attachment
and notice as provided in the last preceding section, shall be
liable to the applicant for the amount of such credits, debts or
other property, until the attachment be discharged, or any
judgment recovered by him be satisfied, unless such property be
delivered or transferred, or such debts be paid, to the clerk,
sheriff or other proper officer of the court issuing the attachment.
Carnishment is considered as a specie of attachment for reaching credits
belonging to the judgment debtor and owing to him from a stranger to the
litigation. ?nder the above$cited rule, the garnishee Ethe third personG 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. EF Aoran, !omments on the +ules of !ourt
F= 4%7'8 ed.6G
2pplying the foregoing to the case at bar, A@+2:!3, 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 "0!, should be
released from all responsibilities over such amount after delivery thereof to the
sheriff. The reason for the rule is self!evident. To epose garnishees to risks for
obe"ing court orders and processes would onl" undermine the administration of
justice. E@mphasis supplied.G
The aforequoted ruling thus bolsters +!-!'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. "or can its liability to reimburse 01T2 of the amount
delivered in check be premised upon the subsequent declaration of nullity of the
order of delivery. 2s correctly pointed out by the petitionerI
xxx xxx xxx
That the respondent 5udge, after his 3rder was enforced, saw fit to recall said
3rder 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 !ourt/ E;ection )4m6 +ule %F%, +evised +ules of
!ourtG. 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. 2 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. 2nd this is what will
happen were the controversial orders to be sustained. Be need not underscore
the danger of this as a precedent.
xxx xxx xxx
E -rief for the 0etitioner, +ollo, p. &%&H @mphasis supplied.G
*rom the foregoing, it may be concluded that the charge of breach of trust andDor
dereliction of duty as well as lack of prudence in effecting the immediate payment
of the garnished amount is totally unfounded. ?pon receipt of the "otice of
Carnishment, +!-! duly informed 01T2 thereof to enable the latter to take the
necessary steps for its protection. 9owever, right on the very next day after its
receipt of such notice, +!-! was already served with the 3rder requiring
delivery of the garnished amount. !onfronted 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 5udge nevertheless held that the liability of +!-! for the
reimbursement of the garnished amount is predicated on the ruling of the
;upreme !ourt in the case of #ommissioner of $ublic %ighwa"s v. %on. San
&iego EC.+. "o. :$F887(, *ebruary %(, %7'8, F% ;!+2 >%>G which he found
practically on all fours with the case at bar.
The !ourt disagrees.
The said case which reiterated the rule in 'epublic v. $alacio EC.+. "o. :$&8F&&,
Aay &7, %7>(, &F ;!+2 (77G that government funds and properties may not be
sei,ed under writs of execution or garnishment to satisfy such judgment is
definitely distinguishable from the case at bar.
In the #ommissioner of $ublic %ighwa"s case EsupraG, 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 -ureau of 0ublic
9ighways, which being an arm of the executive branch of the government, has
no personality of its own separate from the "ational Covernment. The funds
involved were government funds covered by the rule on exemption from
execution.
This brings us to the first issue raised by the petitionerI 2re the 01T2 funds
public funds exempt from garnishment The !ourt holds that they are not.
+epublic 2ct "o. &&>) created the 01T2 as an ordinary corporation with all the
attributes of a corporate entity subject to the provisions of the !orporation :aw.
9ence, it possesses the power /to sue and be sued/ and /to acquire and hold
such assets and incur such liabilities resulting directly from operations authori,ed
by the provisions of this 2ct or as essential to the proper conduct of such
operations./ E;ection F, +epublic 2ct "o. &&>).G
2mong the specific powers vested in the 01T2 areI %6 to buy 1irginia tobacco
grown in the 0hilippines for resale to local bona fide tobacco manufacturers and
leaf tobacco dealers E;ection =4b6, +.2. "o. &&>)GH &6 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 Covernment of the 0hilippines or with any foreign
government, subject to existing laws E;ection =4h6, +.2. "o. &&>)%H and F6
generally, to exercise all the powers of a corporation under the !orporation :aw,
insofar as they are not inconsistent with the provisions of this 2ct E;ection =4k6,
+.2. "o. &&>).G
*rom the foregoing, it is clear that 01T2 has been endowed with a personality
distinct and separate from the government which owns and controls it.
2ccordingly, this !ourt has heretofore declared that the funds of the 01T2 can be
garnished since /funds of public corporation which can sue and be sued were not
exempt from garnishment/ E0hilippine "ational -ank v. 0abalan, C.+. "o. :$
FF%%&, 5une %), %7'(, (F ;!+2 )7), )7(.G
In (ational Ship"ards and Steel #orp. v. #)' EC.+. "o. :$%'('=, 2ugust F%,
%7>=, ( ;!+2 '(%G, this !ourt held that the allegation to the effect that the funds
of the "2;;!3 are public funds of the government and that as such, the same
may not be garnished, attached or levied upon is untenable for, as a government$
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$owned and controlled corporations like "ational !oal !ompany, the
"ational Baterworks and ;ewerage 2uthority 4"2B2;26, the "ational !oconut
!orporation 4"2!3!36 the "ational +ice and !orn !orporation 4"2+I!6 and
the 0rice ;tabili,ation !ouncil 40+I;!36 which possess attributes similar to
those of the 01T2 are clothed with personalities of their own, separate and
distinct from that of the government E"ational !oal !ompany v. !ollector of
Internal +evenue, => 0hil. )(F 4%7&=6H -acani and Aatoto v. "ational !oconut
!orporation et al., %88 0hil. ='% 4%7)>6H +eotan v. "ational +ice K !orn
!orporation, C.+. "o. :$%>&&F, *ebruary &', %7>&, = ;!+2 =%(.G The rationale
in vesting it with a separate personality is not difficult to find. It is well$settled that
when the government enters into commercial business, it abandons its sovereign
capacity and is to be treated like any other corporation EAanila 9otel @mployees'
2ssociation v. Aanila 9otel !o. and !I+, 'F 0hil. 'F= 4%7=%6.G
2ccordingly, as emphatically expressed by this !ourt in a %7'( decision,
/garnishment was the appropriate remedy for the prevailing party which could
proceed against the funds of a corporate entity even if owned or controlled by the
government/ inasmuch as /by engaging in a particular business thru the
instrumentality of a corporation, the government divests itself pro hac vice of its
sovereign character, so as to render the corporation subject to the rules of law
governing private corporations/ E0hilippine "ational -ank v. !I+, C.+ "o. :$
F&>>', 5anuary F%, %7'(, (% ;!+2 F%=, F%7.G
*urthermore, in the case of 01T2, the law has expressly allowed it funds to
answer for various obligations, including the one sought to be enforced by
plaintiff -2<3! in this case 4i.e. for unpaid deliveries of tobacco6. +epublic 2ct
"o. =%)), which discounted the erstwhile support given by the !entral -ank to
01T2, established in lieu thereof a /Tobacco *und/ 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 1irginia type
cigarettes.
;ection ) of +epublic 2ct "o. =%)) provides that this fund shall be expended for
the support or payment ofI
%. Indebtedness of the 0hilippine 1irginia Tobacco 2dministration and the former
2gricultural !redit and !ooperative *inancing 2dministration to *2!3A2; and
farmers and planters regarding 1irginia tobacco transactions in previous yearsH
&. Indebtedness of the 0hilippine 1irginia Tobacco 2dministration and the former
2gricultural !redit and !ooperative *inancing 2dministration to the !entral -ank
in gradual amounts regarding 1irginia tobacco transactions in previous yearsH
F. !ontinuation of the 0hilippine 1irginia Tobacco 2dministration support and
subsidy operations including the purchase of locall" grown and produced *irginia
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 contractsH
=. 3perational, office and field expenses, and the establishment of the Tobacco
+esearch and Crading Institute. E@mphasis supplied.G
Inasmuch as the Tobacco *und, a special fund, was by law, earmarked
specifically to answer obligations incurred by 01T2 in connection with its
proprietary and commercial operations authori,ed 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 01T2 to answer for its
obligations, then the purpose of the law in creating the 01T2 would be defeated.
*or it was declared to be a national policy, with respect to the local 1irginia
tobacco industry, to encourage the production of local 1irginia 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 1irginia leaf tobacco to
improve the quality of locally manufactured cigarettes E;ection %, +epublic 2ct
"o. =%)).G
The !ommissioner of 0ublic 9ighways case is thus distinguishable from the case
at bar. In said case, the 0hilippine "ational -ank 40"-6 as custodian of funds
belonging to the -ureau of 0ublic 9ighways, an agency of the government, was
chargeable with knowledge of the eemption of such government funds from
eecution and garnishment pursuant to the elementary precept that public funds
cannot be disbursed without the appropriation required by law. 3n the other
hand, the same cannot hold true for +!-! 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. 9ence, +!-! cannot be
charged with lack of prudence for immediately complying with the order to deliver
the garnished amount. ;ince the funds in its custody are precisely meant for the
payment of lawfully$incurred obligations, +!-! 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.
*inally, it is contended that +!-! was bound to inquire into the legality and
propriety of the Brit of @xecution and "otice of Carnishment issued against the
funds of the 01T2 deposited with said bank. -ut the bank was in no position to
question the legality of the garnishment since it was not even a party to the case.
2s correctly pointed out by the petitioner, it had neither the personality nor the
interest to assail or controvert the orders of respondent 5udge. 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.
+!-! cannot therefore be compelled to make restitution solidarily with the
plaintiff -2<3!. 0laintiff -2<3! alone was responsible for the issuance of the
Brit of @xecution and 3rder of 0ayment and so, the plaintiff alone should bear
the consequences of a subsequent annulment of such court ordersH hence, only
the plaintiff can be ordered to restore the account of the 01T2.
B9@+@*3+@, the petition is hereby granted and the petitioner is 2-;3:1@<
from any liability to respondent 01T2 for reimbursement of the funds garnished.
The questioned 3rder of the respondent 5udge ordering the petitioner, jointly and
severally with -2<3!, to restore the account of 01T2 are modified accordingly.
;3 3+<@+@<.
+ernan, #.,., Gutierre-, ,r., +eliciano and .idin, ,,., concur.