MANILA ELECTRIC COMPANY, PETITIONER, VS. GEN­BANCOR DEVELOPMENT CORPORATION AND THE HON. GUARDSON R. LOOD IN HIS CAPACITY AS JUDGE OF THE COURT OF FIRST INSTANCE OF RIZAL, BRANC…

Meralco versus Genbancor Development Corporation

The Case

This is a special civil action of certiorari brought by the Manila Electric Company, commonly called Meralco, against Genbancor Development Corporation and the presiding judge of the Court of First Instance of Rizal. Genbancor had sued a debtor, Continental Finance Corporation, and caused a writ of preliminary attachment to be served on Meralco as garnishee. When the trial court ordered Meralco's officers to appear and be examined under oath about supposed debts to the judgment debtor, Meralco came to the Supreme Court. The case matters because it draws the line between two situations that students often blur: a garnishee who admits the debt, and a garnishee who denies it. It tells us when the summary remedy of examination under the attachment rule may be used, and when the creditor must instead prove the debt in a separate action.

Procedural History

Genbancor sued Continental Finance Corporation in the Court of First Instance of Rizal, Pasig, for the recovery of securities worth more than seven million pesos. On Genbancor's motion, the court issued a writ of preliminary attachment, and a deputy sheriff served a notice of garnishment on Meralco, attaching the money, credits, shares, interests and deposits of Continental Finance Corporation in Meralco's control and possession.

About ten months later, Genbancor moved to require Meralco to deliver the garnished amounts to the branch clerk of court, and to require the clerk to deposit them in a bank under the court's control. Meralco filed a manifestation denying that it held any monies payable to Continental Finance Corporation. Genbancor then moved that the qualified officers of Meralco and of Continental Finance Corporation be examined under oath under Section 10 of Rule 57. The trial court, mistakenly assuming that Meralco had filed no opposition, granted the motion. Meralco moved for reconsideration; the trial court denied it, relying on a balance sheet showing Meralco indebted to Continental Finance Corporation in the sum of four million, eight hundred six thousand, six hundred twenty two pesos and forty five centavos. Meralco then filed this special civil action of certiorari in the Supreme Court.

Facts

Genbancor's action against Continental Finance Corporation sought the recovery of securities with a selling price of more than seven million pesos. To secure any judgment, Genbancor obtained a writ of preliminary attachment, and the sheriff served a notice of garnishment on Meralco on July 1, 1974. On July 5, 1974, Meralco's assistant general counsel wrote the sheriff's office, undertaking that Meralco would not deliver, transfer or otherwise dispose of any money, credits, shares, interests or claims under its control and possession which may become due to Continental Finance Corporation.

Neither Genbancor nor the sheriff followed up the notice immediately. Only on May 21, 1975 did Genbancor move to require Meralco to deliver the garnished amounts to the branch clerk of court. Meralco responded with a manifestation denying that it held monies payable to Continental Finance Corporation, and clarifying that its letter was not an admission of any debt. Genbancor then moved for the examination of the qualified officers of both corporations under Section 10 of Rule 57, relying on the letter and on an inventory listing five promissory notes of Meralco as assets of Continental Finance Corporation.

Meralco opposed the motion, invoking the rule that Section 10 of Rule 57 applies only where the garnishee admits the debt, and that a denial must be resolved in a separate action. The trial court nevertheless ordered the examination, and denied reconsideration. Before the Supreme Court, Meralco submitted the affidavit of its money market section supervisor, who affirmed that what Meralco delivered to Continental Finance Corporation were confidence negotiable certificates, not the commercial papers listed, that these were sold and transferred from one financial institution to another, that at maturity they were paid to holders other than Continental Finance Corporation, and that as of the date of the writ of garnishment Meralco had no money or credits due or payable to Continental Finance Corporation. The president of Continental Finance Corporation himself admitted at a hearing that the five commercial papers had already been endorsed by Meralco to other firms.

Issues

• Whether or not the trial court may, under Section 10 of Rule 57, order the examination under oath of a garnishee who categorically denies holding any money or credits of the debtor.
• Whether or not the trial court's orders, premised on the assumption that Meralco was indebted to Continental Finance Corporation, rested on false factual assumptions and were issued with grave abuse of discretion.

Applicable Provisions

Section 10 of Rule 57 of the Rules of Court, as described in the decision, provides:

Examination of party whose property is attached and persons indebted to him or controlling his property.

This is the provision under which Genbancor sought to examine Meralco's officers, and the Court construes it as reaching only a garnishee who has in his possession or under his control a credit or other personal property belonging to the debtor.

Section 45 of Rule 39 of the Rules of Court, as invoked by Meralco, provides:

If the garnishee denies the debt the controversy must be determined in a separate action.

This is the remedy the Court recognizes where the garnishee denies the indebtedness, instead of the summary examination the trial court ordered.

Ruling

On the first issue, the Court ruled that the examination was uncalled for. Under Section 10 of Rule 57, the person who may be examined by the creditor is a garnishee that has in his possession or under his control any credit or other personal property belonging to the debtor. Meralco's categorical denial that it was holding money or credits of Continental Finance Corporation appeared credible. The Court held that where the garnishee denies the debt, the controversy must be determined in a separate action, as Meralco had argued.

On the second issue, the Court found that the trial court's orders were predicated on false factual assumptions. The orders assumed that Meralco was indebted to Continental Finance Corporation in the sum of four million, eight hundred six thousand, six hundred twenty two pesos and forty five centavos, as shown in the five commercial papers. But Meralco repeatedly denied holding any money or credits of Continental Finance Corporation, and the president of that corporation admitted at the hearing that the five commercial papers had already been endorsed by Meralco to other firms. The Court also noted that Genbancor could utilize the modes of discovery against Continental Finance Corporation, particularly against the manager of its money market department, to find out who owed the debtor money.

Doctrine

The summary remedy of examination under Section 10 of Rule 57 is available only against a garnishee who has in his possession or under his control a credit or other personal property belonging to the debtor. Where the garnishee categorically denies the debt, the creditor cannot compel the examination; the controversy must be determined in a separate action under Section 45 of Rule 39. A trial court order premised on a false factual assumption, such as an unproven balance sheet entry contradicted by the garnishee's denial and by the debtor's own admission, is set aside on certiorari. The creditor's proper recourse is the modes of discovery against the debtor himself.

Disposition

The Supreme Court granted Meralco's petition, set aside the trial court's order requiring its qualified officer to submit to interrogation, and ordered that no costs be assessed.

Remember This

Memorize the line: if the garnishee admits the debt, examine him under Section 10 of Rule 57; if he denies it, the creditor must prove the debt in a separate action under Section 45 of Rule 39. Examiners use this case to test the distinction between the summary examination of an admitting garnishee and the separate action required against a denying one.