PHILIPPINE ROCK INDUSTRIES, INC., PETITIONER, VS. BOARD OF LIQUIDATORS, AS LIQUIDATOR OF THE DEFUNCT REPARATIONS COMMISSION, RESPONDENTS.

In its decision dated
March 21, 1987 in CA-G.R. SP No. 12017, the Court of Appeals set aside the
decision and order of execution pending appeal which the Regional Trial Court
of Manila issued in favor of the Philippine Rock Industries
(PHILROCK for brevity) in Civil Case No. 82-11394, authorizing the immediate
execution of its decision against the funds deposited in the Philippine
National Bank (PNB) of the respondent Board of Liquidators as liquidator of the
defunct Reparations Commission (REPACOM for brevity).

On July 30, 1982, PHILROCK
filed in the Regional Trial Court of Manila, Branch 38, a complaint against the Board of Liquidators for Specific Performance or
Revaluation with Damages, praying that the defective rock pulverizing machinery which it purchased from REPACOM be
replaced with a new one in good and operable condition according to the
specifications of their contract, or, in the alternative, to
refund the value of the defective rock pulverizing machinery at 31% of its
contract price.  PHILROCK also prayed for
actual damages of P5,000 per month for losses it allegedly incurred due to
the increased expenses of maintaining the plant, P4,000 per day as unrealized
profits, exemplary damages, attorney’s fees of P50,000, plus expenses and costs
of the suit.

The Board of Liquidators,
in its Answer with Counterclaim, alleged that REPACOM effected complete
delivery of the machinery and equipment to PHILROCK but no demand was made
regarding any hidden defect; that the machinery and equipment were inspected by
reputable companies pursuant to the Reparations Law, and the performance of the
plant was reported to be satisfactory at the time of delivery to PHILROCK; that PHILROCK failed to pay the first installment of the
equipment but a repossession was deferred, and the contractor/supplier was
required to make the necessary repairs; that the defect was attributed to PHILROCK’s improper use of the machinery; and that
PHILROCK is now in estoppel and guilty of laches for not calling REPACOM’s
attention to the alleged defects within the equipment’s warranty period.  In its counterclaim, the Board demanded
payment by PHILROCK of the first ten (10) amortizations in the sum of P284,242, expenses of litigation, moral and exemplary damages
and costs (pp. 62-63, Rollo).

On April 23, 1987,
the trial court rendered a decision in favor of PHILROCK and ordered REPACOM
and the Board of Liquidators –

“1.  To reimburse
Plaintiff Philrock for the expenses it had invested
and incurred in connection with its purchase of the said rock
pulverizing plant from REPACOM in the total amount of P102,837.66;

“2.  To pay Plaintiff Philrock
compensatory damages for unrealized profits from May, 1966 and up to December
31, 1983 in the amount of P33,896,844.47;

“3.  To pay Plaintiff Philrock
the amount of P671,925.32 as reimbursement for the expenses incurred in storage
and maintenance of the rock pulverizing plant at Philrock’s
plant site from June 1, 1966 up to December 31, 1982;

“4.  To pay Plaintiff Philrock
exemplary damages of P200,000.00;

“5.  To pay Plaintiff Philrock’s
(sic) Attorney’s fee of P50,000.00;

“6.  To pay the costs of this suit.” (p. 64, Rollo.)

On May 5, 1987,
PHILROCK filed an urgent motion for execution pending appeal (p. 64, Rollo).

On May 14, 1987,
the Solicitor General, on behalf of the State, filed a notice of appeal and an
opposition to the “Motion for Execution Pending Appeal” on the ground that the funds sought to be garnished by PHILROCK are public
funds, hence, exempt from attachment and execution (p. 66, Rollo).

On May 19,
1987, Judge Natividad Adduru-Santillan
issued a Writ of Execution.  An order of
Garnishment was served to PNB against the funds of REPACOM in the account of
the Board of Liquidators to satisfy the judgment of P34,894,607.45
in favor of PHILROCK (p. 68, Rollo).

On May 25,
1987, the Board
filed a petition for certiorari and prohibition in the Court of Appeals.

On March
21, 1988, the Court
of Appeals set aside the trial court’s order of execution.  It held that:

“x x x
the funds deposited by the Board of
Liquidators in the Philippine National Bank may not be garnished to
satisfy a money judgment against the petitioner as these funds are public
funds.” (p. 7, Rollo.)

PHILROCK filed this
petition for review.

The issue raised in the
petition is whether the funds of REPACOM in the account of the Board of
Liquidators in the Philippine National Bank may be garnished to satisfy a money
judgment against the BOARD.

PHILROCK relies on
Executive Order No. 629, Series of 1980, which abolished REPACOM effective December
31, 1980, and authorized
the Board of Liquidators to undertake the liquidation of the remaining assets
and outstanding liabilities of REPACOM. 
Executive Order 635-A, amplifying the said authority of the Board,
expressly decreed:

“3.  Subject to the provisions of existing laws
and with the approval of the President of the Philippines, the Board of
Liquidators shall sell, lease, transfer, assign or otherwise dispose of the
assets of the REPACOM and from the proceeds thereof pay, in accordance with the
priorities established by law, all outstanding obligations of the REPACOM
including the operational expenses of the REPACOM Residual Force.” (Annex E, p. 32, Rollo.)

PHILROCK contends that
the proceeds from the disposal of the assets of REPACOM are “funds
appropriated by law” for the specific purpose of paying the liabilities of
REPACOM preparatory to its permanent closure (pp. 15-16, Rollo).

The argument is not well
taken.  The Board of Liquidators is a
government agency under the direct supervision of the President of the Republic
created by EO 372, dated November
24, 1950 (p. 39, Rollo).  Pursuant to PDs Nos. 629 and 635-A, it is tasked with the specific duty of
administering the assets and paying the liabilities of the defunct
REPACOM.  It was not created for profit
or to engage in business.  Hence, when a
suit is directed against said unincorporated government agency which, because
it is unincorporated, possesses no juridical personality of its own, the suit
is against the agency’s principal, i.e., the State.

On the other hand, if the
Government conducts a business through either a government-owned and controlled
corporation or a non-corporate agency set up primarily for a business purpose,
the entity enjoys no immunity from suit even if there is no express grant of authority
to “sue or be sued.” Having a juridical personality separate and
distinct from the government, the funds of such government-owned and controlled
corporation and non-corporate agency, although considered public in character,
are not exempt from garnishment.  This
doctrine was applied to suits filed against the Philippine Virginia Tobacco
Administration (PNB vs. Pabalan, et al., 83 SCRA
595); the National Shipyard & Steel Corporation (NASSCO vs. CIR, 118 Phil.
782); the Manila Hotel Company (Manila Hotel Employees Asso.
vs. Manila Hotel Co., 73 Phil. 374); and the People’s Homesite
and Housing Corporation (PNB vs. CIR, 81 SCRA 314).

The sale of the rock
pulverizing plant to PHILROCK by the Board of Liquidators, although proprietary
in nature was merely incidental to the performance of the Board’s primary and
governmental function of settling and closing the affairs of the REPACOM.  Hence, its funds in the Philippine National
Bank are public funds which are exempt from garnishment (p. 75, Rollo).  This Court
so ruled in Commission of Public Highways vs. San Diego (31
SCRA 616):

“All government funds
deposited with PNB by any agency or instrumentality of the
government, whether by way of general or special deposit, remain
government funds, since such government agencies or
instrumentalities do not have any non-public or private funds of their
own.  They are not subject to
garnishment or levy; even assuming that the funds become
commingled with other funds of the bank, this does not remove the character of
the fund as a credit representing government funds thus deposited.”
(Underscoring supplied.)

It should be mentioned
that when the State consents to be sued, it does not necessarily concede its
liability.  By consenting to be sued, it
waives its immunity from suit, but it does not waive its lawful defenses to the
action (Meritt vs. Government, 31 SCRA 311,
318).  Even when the government has been
adjudged liable in a suit to which it has consented, it does not necessarily
follow that the judgment can be enforced by execution against its funds for, as
we held in Republic vs. Villasor, 54 SCRA 84, every
disbursement of public funds must be covered by a corresponding appropriation
passed by the Legislature:

“x x x where the State gives its consent to be sued by private parties either
by general or special law, it may limit claimant’s action ‘only up to the
completion of proceedings anterior to the state of execution’ and that the
powers of the Courts ends when the judgment is rendered, since government
funds and properties may
not be seized under writs
of execution or garnishment to satisfy
such judgments x x x.  Disbursements
of public funds must
be covered by the corresponding appropriation as required by law.  The functions and public services rendered by
the State cannot be allowed to be paralyzed or disrupted by the diversion of
public funds from their legitimate and specific objects, as appropriated by
law.” (p. 87.)

A judgment against the
State, in a case where it consents to be sued, simply implies that the
Legislature will recognize the judgment as final and make provision for its
satisfaction.  The decision of this Court
in Republic vs. Palacio, 23 SCRA 899 is relevant:

“The pump irrigation trust fund, deposited with the
Philippine National Bank in the account of the Irrigation Service Unit, may not
be garnished to satisfy a money-judgment against the latter.  It needs no stressing that to allow the
levying under execution of the Irrigation Service funds would amount to
diverting them from the purposes originally contemplated by the P.I.-U.S.
Bilateral Agreement, and would amount to a disbursement without any proper
appropriation as required by law.

“Even though
the rule as to immunity of a state from suit is relaxed, the power of the
courts ends when the judgment is rendered. 
Although the liability of the state has been judicially ascertained, the
state is at liberty to determine for itself whether to pay the judgment or not,
and execution can not issue on a judgment against the state.  Such statutes do not authorize a seizure of
state property to satisfy judgments recovered, and only convey an implication
that the legislature will recognize such judgment as final and make provision
for the satisfaction thereof (49 Am. Jur., Sec. 104,
pp. 312-320).”

Executive Order 635 A, s. 1980, is not an appropriation law.  Appropriations of public funds must emanate
from the legislature, not from the Chief Executive (Secs.
2-4, Article VI, Constitution).

The Court of Appeals
correctly annulled and set aside the writs of execution and garnishment issued
by the trial court against the funds of the Board of Liquidators in the
PNB.  Funds should be appropriated by the
legislature for the specific purpose of satisfying the judgment in favor of
PHILROCK before said judgment may be paid.

WHEREFORE, the decision of the Court of Appeals is
affirmed in toto.  The order of garnishment served by the
Sheriff of Manila against REPACOM’s funds in the
account of the Board of Liquidators in the Philippine National Bank, is hereby declared null and void.  No costs.

SO ORDERED.

Narvasa, (Chairman), Cruz, Gancayco, and Medialdea, JJ., concur.