NATIONAL POWER CORPORATION, PETITIONER, VS. HON. ARSENIO M. GONONG, JUDGE, RTC, MANILA, BR. 8, DOMINADOR B. ADRIANO, DEPUTY SHERIFF, ALLIED CONTROL & ELECTRIC CORPORATION, AND P…

Highlighted by the special civil action of certiorari at
bar is the regrettable lack of familiarity with and the consequent
misapplication of procedural rules governing execution of final judgments.

The instant action arose from an attempt to execute a final
judgment rendered on October 8, 1987
in Civil Case No. 87-39301 of the Regional Trial Court of Manila.1
The case had been instituted by Allied Control and Electric Corporation
(hereafter, simply ACEC) to recover a sum of money from Batong
Buhay Gold Mines, Inc. (hereafter, BGGMI).  The judgment ordered BGGMI to pay ACEC its
indebtedness of P264,401.00, interest thereon at the rate of 16% per annum and
“penalty charge” at 3% per month beginning May 15, 1985, and the further sum of P66,100.00
equivalent to 25% of the overdue obligation as attorney’s fees.  The judgment having become final, execution
was ordered by the Court at ACEC’s instance on December 18, 1987.

Evidently the attempt at execution failed.  Hence, ACEC filed on August 19, 1988 an
“Ex-Parte Motion for Examination of Debtor of
Judgment Debtor,” alleging that the National Power Corporation (NPC) was a
debtor of BGGMI and praying that certain officials of the NPC be required to
appear before the Court and examined regarding its debt to BGGMI.  This was granted by respondent Judge, who
scheduled the examination “on September
28, 1988 and on posterior dates.” The Manager of NPC’s General Accounts Division, Ariel Vinoya,
appeared in response to subpoena and was duly examined on oath.  The gist of his testimony is set out in
respondent Judge’s Order of November
15, 1988,1 viz:

” * * . Witness testified that sometime in 1980, National
Power Corporation and defendant Batong Buhay Gold Mines Inc. entered into an agreement, whereby at
that time Batong Buhay Gold
Mines Inc. needed the supply of electricity from NPC, however, at that time
there was no transmission lines connecting the mining site to the lines of NPC
and it was not yet within the program of activities of NPC to construct those
lines.  Thus, Batong
Buhay ** offered to finance the construction of the
line which they did (TSN, pp. 16-17, Sept. 28, 1988).  Under that arrangement, NPC is going to
reimburse Batong Buhay Gold
Mines Inc. the amount that they have spent for the construction of the line by
crediting 25% of defendant’s monthly electric power bills until the actual cost
shall have been fully paid and without interest (1st paragraph, Exh. B-2).  * * (T)he
transmission lines were in fact erected and installed by defendant and NPC
supplied electric power to the mining site and as agreed upon NPC deducted from
the monthly power bills of defendant the sums equivalent to 25% thereof, as
shown graphically in Exh ‘A-2-Motion’ from October
15, 1983 to October 11, 1985.  As
reflected in Exh. ‘A-Motion’ an amount of
P51,745,319.15 was due to defendant as of December 31, 1982 and after deducting the 25%, a balance
of P37,532,763.17 was left due to defendant (Exh.
‘A-3?Motion’ and Exh. ‘A-5-Motion’).  However, * * when defendant ceased operation
in 1985 it left unpaid electric power bills in the amount of P15,941,625.35
plus interest of P2,643,514.76 as of August, 1986 or in the total amount of
P18,585,140.11 (Exh. ‘A-6-Motion’); deduct this from
the P37,532,763.17 and a balance of P18,947,623.06 was left due to defendant
but Mr. Vinoya further testified that it is not due
to Batong Buhay Gold Mines,
Inc. but a balance of the advances made by Batong Buhay Gold Mines Inc. in the construction of the power
lines (TSN, p. 24, Sept. 26, 1988).”

On the strength of this testimony — which included, it must be
stressed, a denial by the witness that the amount of P18,947,623.06 was due to
BGGMI, this being “but a balance of the advances made by ** (the latter)
in the construction of the power lines” — respondent Judge resolved to
direct the NPC to pay ACEC “its judgment rendered in October 8, 1987 out
of the remaining credit NPC holds in favor of defendant,” and ordered his
deputy sheriff (respondent Adriano) “to garnish and attach the said credit
due Batong Buhay Gold
Mines, Inc.” In justification, His Honor invoked Section 15, Rule 39 of
the Rules of Court, authorizing the sheriff charged with execution of a money
judgment to levy on “debts” and “credits“2 in
addition to “real property, stocks, shares, * * and other personal
property, or any interest in either real or personal property,” pointing
out, too, that the NPC official, Vinoya, had later
admitted that “this amount of P18,947,623.06 is due to defendant Batong Buhay Gold Mines Inc. (tsn, pp. 28-29, Sept. 28, 1988; tsn
p. 5 Oct. 21, 1988).” Sheriff Adriano accordingly garnished such of the
funds of the NPC on deposit at the Philippine National Bank, Escolta, Manila, as were “sufficient to cover the
sum” required to be paid by respondent Judge’s Decision of October 8,
1987.

The NPC filed a “Manifestation” dated December 20, 1988 for the avowed
“purpose of bringing to ** (respondent) Court’s attention certain facts
and information in respect of its Order dated November 15, 1988,”1 these being:

1) the Court had “no jurisdiction to issue the Order of
November 15, 1988 * * since movant NPC was never a
party in the said civil case * * (h)ence, the
aforesaid Order of Garnishment is null and void insofar as movant
NPC is concerned;”

2) NPC was “not in possession nor in control of any * *
property belonging to BBGMI nor does BBGMI have any receivable of whatsoever
kind and nature from NPC;” and NPC ceased to have any “legal
obligation to pay or amortize the balance of the cost of the transmission line
constructed by BBGMI” after the latter ceased operations,” a
proposition shown by the following circumstances:

a) the “transmission line from the mining site of * * BBGMI to
the lines of the NPC which was financed and constructed by BBGMI was a
dedicated line for BBGMI mine site * * (and) was intended and was only utilized
for * * supplying electric power from the NPC lines to the * * mine site;”

b) according to Vinoya, “under the
arrangement between NPC and BBGMI, the former is going to reimburse BBGMI the
amount that the latter spent for the construction of the line by crediting 25%
of BBGMI’s monthly electric bill until the actual
cost shall have been fully amortized and paid without interest;” but Vinoya failed to state or stress “that under the same
arrangement * * it is only after full payment and amortization by NPC of the
total cost of the transmission line financed and constructed by BBGMI that
ownership of said transmission line will be transferred * * to NPC;”

d) the NPC-BBGMI “Agreement was rendered inoperative and
ineffective by reason of the breach thereof by BBGMI when it ceased operation
in 1985 * * (for the) cessation of operation * * resulted in the stoppage of
the supply of electric power by NPC to BBGMI and likewise effectively removed
or did away with the agreed mechanics by which NPC is to pay/amortize the cost
of the transmission line as agreed upon;” it resulted, too, in the loss of
any value or utility of the transmission line to NPC, “the same having been
intended solely for the benefit and use of BBGMI.”

No action was apparently taken by respondent Judge in response to
this Manifestation which was, to all intents and purposes, a motion to set
aside the Order of November 15, 1988.  And for aught that appears on the record,
neither was any traversing pleading or paper ever presented by ACEC.

What happened next was that on February 17, 1989 the Philippine
National Bank debited NPC’s “account (S/A No.
010-572194­-3 for Eight Hundred Twenty Eight Thousand Eight Hundred Six and
20/100 (P828,806.20) representing P828,796.00 amount of Cashier’s Check
delivered and paid to ** Sheriff Dominador B.
Adriano, ** **.”1

Hence, the present action of certiorari instituted by NPC
praying for “the setting aside (of) respondent Judge’s Order dated
November 15, 1988 * * and commanding respondent to desist from executing the
writ of garnishment issued by respondent Sheriff in Civil Case No. 87­-39301.”
For the reasons shortly to be explained, the Court decreed on March 15, 1989
the issuance of a temporary restraining order “enjoining the respondents
from enforcing and/or implementing the (challenged) Order,” and a
preliminary mandatory injunction “commanding respondent Deputy Sheriff Dominador B. Adriano and/or Allied Control and Electric Corporation
to RETURN to respondent Philippine National Bank the amount of P828,806.20 **
debited from petitioner’s * * Account S/A No. 010-572194-3.” The Court
subsequently gave due course to the petition and required the parties to submit
memoranda.  Said memoranda have since
been received.

The Court rules that in authorizing the execution of the judgment
in Civil Case No. 87-39301 against a stranger to the action, on the theory that
the latter was a “debtor of the judgment debtor,” respondent Judge
was guilty of grave abuse of discretion tantamount to lack or excess of
jurisdiction.

It is true that Rule 39 empowers a Court to order the examination
of a judgment debtor.  This is clear from
Section 39 of the rule:

“SEC. 39.  Examination
of debtor of judgment debtor. – After an execution against the property of
a judgment debtor has been returned unsatisfied in whole or in part, and upon
proof, by affidavit of a party or otherwise, to the satisfaction of the judge,
that a person, corporation, or other legal entity has property of such judgment
debtor, or is indebted to him, the judge may, by an order, require such person,
corporation or other legal entity, or any officer or member thereof, to appear
before the judge, or a commissioner appointed by him, at a time and place
within the province in which the order is served, to answer concerning the
same.  The service of an order shall bind
all credits due the judgment debtor and all money and property of the judgment
debtor in the possession or in the control of such person, corporation, or
legal entity from the time of service; and the judgment may also require notice
of such proceedings to be given to any party to the action in such manner as he
may deem proper.”

It was thus clearly within respondent Judge’s prerogative to
require the appearance, by subpoena, of officials of the NPC to appear and be
questioned regarding the latter’s claimed indebtedness to the judgment debtor,
BGGMI.  But just as clearly, it was not
within His Honor’s power to order the payment by the alleged debtor of the
judgment debtor to pay the claimed debt without indubitable admission or
conclusive proof that the debt existed and was demandable.  The applicable provision is not, as was
respondent Judge’s erroneous notion, Section 15 of Rule 39, which merely states
the procedure that the sheriff should follow in the enforcement of a money
judgment against the judgment debtor himself, i.e., to levy on property
of the judgment debtor, including “debts” or “credits,” and
sell the same, etc., but which obviously does not at all treat of the propriety
and requisites for collecting such “debts” or “credits”
from third persons.  The relevant
provisions are those embodied in Sections 42 and 45 of the same Rule 39.  Section 42 reads as follows:

“SEC. 42.  Order for
application of property and income in satisfaction of judgment — The judge
may order any property of the judgment debtor, or money due him, not exempt
from execution, in the hands of either himself or other person, or of a
corporation or other legal entity, to be applied to the satisfaction of the
judgment, subject to any prior rights over such property, ***.”

Section 45, on the other hand, states the
following:

“SEC. 45.  Proceedings
when indebtedness denied or another person claims the property — If it
appears that a person or corporation, 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 or judge may authorize, by an order made to
that effect, the judgment creditor to institute an action against such person
or corporation for the recovery of such interest or debt, forbid a transfer or
other disposition of such interest or debt until an action can be commenced and
prosecuted to judgment, and may punish disobedience of such order as for
contempt.  Such order may be modified or
vacated by the judge granting the same, or by the court in which the action is
brought at anytime, upon such terms as maybe just.”

A reading of these two provisions leaves no doubt about the
proposition that after summary examination of a person or entity alleged to be
a debtor of the judgment debtor or holding property belonging to the latter, in
accordance with Section 39, Rule 39, supra execution may issue against
such person or entity only upon an incontrovertible showing that the person or
entity in fact holds property belonging to the judgment debtor or is indeed a
debtor of said judgment debtor; i.e., that such holding of property, or the
indebtedness is not denied In the event of such a denial, it is not to
repeat, within the judge’s power to order delivery of property allegedly
belonging to the judgment debtor or the payment of the alleged debt.  A contrary rule would allow a court to
adjudge substantive liability in a summary proceeding, incidental merely to the
process of executing a judgment, rather than in a trial on the merits, to be
held only after the party sought to be made liable has been properly summoned
and accorded full opportunity to file the pleadings permitted by the Rules in
ventilation of his side.  This would
amount to a denial of due process of law. 
So has this Court in fact already had occasion to rule.  In a 1977 case, Economic Insurance Co.,
Inc. v. Torres,1
the Court said:

* * the only power of the court in proceedings supplemental to
execution is to make 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.

The record demonstrates that the supposed indebtedness of NPC to
BBGMI was denied not only by the representative of NPC who gave testimony at
the summary hearing scheduled by His Honor, but also by its lawyers who, in a
formal pleading, detailed the facts and circumstances in substantiation of the
thesis of non-liability.  Of course, the
respondent Judge’s Order makes a general reference to later admissions
supposedly made by Vinoya the NPC
representative.  Such unspecified
admissions are, of course, not only contradictory of the earlier denial of Vinoya, but are themselves contradicted by the subsequent
assertions of the NPC through its lawyers. 
This state of things, when the least that can be said is that it is
doubtful if there has been a categorical admission of liability on the part of
the NPC, cannot operate to invest the respondent Court with jurisdiction to
order NPC to pay its alleged indebtedness to BBGMI.  The only disposition that said Court could
legitimately have made in the premises, was that indicated in Section 46 of
Rule 39, above quoted, i.e., authorize ACEC, as judgment creditor, to bring a
separate action against NPC, as alleged debtor of BBGMI, the judgment debtor,
for establishment by satisfactory proof of the postulated indebtedness of NPC
to BBGMI, and consequent payment to it (ACEC) of so much of that indebtedness
as corresponds to the amount of its judgment.

The ruling herein made dictates the mode of resolution of ACEC’s pending motion (dated July 10, 1989)1
advising of its willingness to reserve the loan it had applied for from PNB Escolta “in the custody of PNB in compliance with the
resolution of ** June 19, 1989,” a loan which, incidentally, it appears
that it has already obtained in the sum of P829,000.00.2

WHEREFORE, the writ of certiorari prayed for is
GRANTED.  The Order of November 15, 1988 in Civil Case No.
87-39301 is NULLIFIED AND SET ASIDE.  The
temporary restraining order and mandatory injunction issued by this Court on March 15, 1989 are CONFIRMED AND MADE
PERMANENT.  Respondent Allied Control and
Electric Corporation (ACEC) is commanded, IMMEDIATELY upon service of
notice of this judgment, to deliver and pay to petitioner National Power
Corporation the sum of P828,796.00 and P10.20 debited against the latter’s
account in the Philippine National Bank on February 17, 1989, with interest at
the rate of six percent (6%) per annum from said date.  Costs against respondents, excluding the
Philippine National Bank.

SO ORDERED.

Cruz, Gancayco, Griño-Aquino,
and Medialdea,
JJ., concur.

1
Rollo, pp. 17- 18

1
Id., pp. 19-20

2
Emphasis, Judge Gonong’s

1
Rollo, pp. 23-26

1
Id., p. 35

1
L-28488, Oct. 21,1977, 79
SCRA 519, 523-524

1
Rollo, pp. 145-196

2
Id., pp 153-154