Bank of the Philippine Islands vs. Lee

Upon service of a writ of garnishment, the garnishee becomes a “virtual party” or “forced intervenor” without need of summons or impleader, and the trial court acquires jurisdiction to bind the garnishee to all its orders. In a merger, the surviving corporation automatically succeeds to all the liabilities and obligations of the absorbed corporation, including obligations arising from a writ of garnishment that placed deposit accounts in custodia legis. The loss of bank records by the successor-garnishee is not a ground for dissolution of attachment or garnishment under the Rules of Court.

In 1988, Carlito Lee filed a complaint for sum of money with application for a writ of preliminary attachment against Trendline Resources & Commodities Exponent, Inc. and Leonarda Buelva. A writ of preliminary attachment was issued and Trendline’s Check-O-Matic Savings Accounts with Citytrust Banking Corporation in the aggregate amount of P700,962.10 were garnished. The Regional Trial Court found the defendants jointly and severally liable to Lee. During the pendency of defendants’ appeal, Citytrust filed motions concerning the release of part of the garnished funds. In 1996, Citytrust merged with Bank of the Philippine Islands, with BPI as the surviving corporation. After the judgment against defendants became final and executory, Lee sought execution and the release of the garnished deposits. BPI denied having possession of any deposits of the defendants and claimed it could not locate the records. The RTC initially refused to enforce the garnishment against BPI.

• The Original Suit and Attachment: On April 26, 1988, respondent Carlito Lee filed a complaint for sum of money with damages and an application for a writ of preliminary attachment against Trendline Resources & Commodities Exponent, Inc. and Leonarda Buelva. He sought to recover P5.8 million in lost investments, alleging that Buelva misrepresented herself as a licensed investment consultant. On May 4, 1988, the RTC issued a writ of preliminary attachment, and Trendline’s Check-O-Matic Savings Accounts with Citytrust Banking Corporation, Ayala Branch, in the total amount of P700,962.10 were garnished. Citytrust acknowledged possession of the deposit accounts in a letter-reply dated June 28, 1988. On August 8, 1989, the RTC rendered judgment in favor of Lee, holding Trendline and Buelva jointly and severally liable for the full investment plus interest, attorney’s fees, and costs. Defendants appealed to the CA.

• Intervening Motions and Merger of Banks: While the appeal was pending, Citytrust filed an Urgent Motion and Manifestation on April 13, 1994, seeking a ruling on the defendants’ request to release P591,748.99 of the garnished amount for tax obligations. The motion was denied for lack of jurisdiction; a similar motion before the CA was denied for failure to prove defendants had no other assets. On October 4, 1996, Citytrust and BPI merged, with BPI as the surviving corporation. The Articles of Merger provided that “all liabilities and obligations of Citytrust shall be transferred to and become the liabilities and obligations of BPI in the same manner as if the BPI had itself incurred such liabilities or obligations.” On December 22, 1998, the CA affirmed the RTC decision in toto, and the judgment became final and executory on January 24, 1999.

• Post-Judgment Execution and Denial of Enforcement: Lee filed a Motion for Execution on July 29, 1999, which was granted. When the writ was implemented, BPI Manager Samuel Mendoza, Jr. denied having possession, control, or custody of any deposits or properties of the defendants. Lee sought production of the records, but on BPI’s manifestation that it could not locate the records of the defunct Citytrust, the RTC denied the motion on September 6, 2002. On December 16, 2002, Lee filed a Motion for Execution and/or Enforcement of Garnishment, seeking to enforce the prior garnishment against BPI for P700,962.10 and any other deposits of Trendline with Citytrust. The RTC denied the motion on March 1, 2004, on the grounds that there was no evidence BPI took over the accounts and BPI was not a party to the case. Reconsideration was denied on September 16, 2004.

• Nature of Remedy: Petitioner argued that certiorari under Rule 65 was an improper remedy because the RTC order denying enforcement of garnishment was a final order, not an interlocutory one, and therefore the correct remedy was an ordinary appeal under Rule 41.

• Party-in-Interest: Petitioner contended that it was not a party to the original case and should not be considered a party-in-interest merely by virtue of the merger with Citytrust, as it was not the garnishee at the time the writ of attachment was served.

• Appropriate Remedy Against a Third Party: Petitioner maintained that because it denied possession of the property during execution, recourse should have been under Section 43, Rule 39 of the Revised Rules of Court, which requires the judgment obligee to institute a separate action against a third person who claims an adverse interest or denies the debt.

• Liability for the Garnished Amount: Petitioner asserted that it could not be held accountable for P700,962.10 because it was unable to locate the bank records of the defunct Citytrust and the funds were never actually transferred to BPI.

• Propriety of Certiorari: Respondent maintained that the RTC order was interlocutory because it merely involved the implementation of a final and executory judgment, leaving other matters to be done; hence, certiorari under Rule 65 was the proper remedy.

• Effect of Merger on Party Status: Respondent argued that by operation of law, BPI assumed all of Citytrust’s liabilities and obligations, including the obligation as garnishee, and thus became a virtual party to the case upon the merger’s approval by the Securities and Exchange Commission.

• Obligation to Deliver Garnished Funds: Respondent insisted that the loss of bank records did not extinguish the garnishment lien; the deposit had been placed in custodia legis, and BPI was obliged to keep the fund intact and deliver it to the proper officer upon order of the court.

• Availability of Certiorari: Whether the Court of Appeals properly assumed jurisdiction over the petition for certiorari notwithstanding that the challenged order was a denial of a motion for execution and enforcement of garnishment.

• Effect of Merger on Party Status: Whether BPI, as the surviving corporation of a merger with Citytrust, became a “party-in-interest” or “virtual party” to the garnishment proceeding for purposes of enforcing the writ of garnishment.

• Proper Remedy Against a Third-Party Garnishee: Whether a motion for enforcement of garnishment was the appropriate remedy against BPI, or whether Lee should have filed a separate action under Section 43, Rule 39 of the Rules of Court.

• Liability for the Garnished Funds: Whether BPI could be held liable to deliver the garnished deposit of P700,962.10 despite its claims that the bank records could not be located and the funds were not transferred to it.

• Availability of Certiorari: The denial of the motion for enforcement of garnishment was an interlocutory order because it did not finally dispose of the case and plainly indicated that other things remained to be done; it merely involved the implementation of a final and executory judgment. Under Section 1, Rule 41, no appeal may be taken from an interlocutory order, and the aggrieved party may instead file a special civil action for certiorari under Rule 65. Accordingly, the CA did not err in assuming jurisdiction over the petition.

• Effect of Merger on Party Status: Through service of the writ of garnishment and Citytrust’s acknowledgment of possession, Citytrust became a “virtual party” or “forced intervenor” in the civil case, bound by all orders and processes of the trial court. The subsequent merger between Citytrust and BPI, with BPI as the surviving corporation, operated to transfer all rights, privileges, liabilities, and obligations of Citytrust to BPI as a matter of law, including the obligation arising from the garnishment. BPI therefore automatically became the garnishee and a party-in-interest, properly impleaded in the certiorari proceedings. The merger effects under Section 80 of the Corporation Code—particularly that all liabilities of the constituent corporations attach to the surviving corporation, and that rights of creditors or liens upon property are not impaired—applied squarely to make BPI responsible for the garnished deposit.

• Proper Remedy Against a Third-Party Garnishee: Section 43, Rule 39 contemplates a situation where the garnishee claims an interest in the property adverse to the judgment debtor or denies the debt itself. In this case, Citytrust had admitted possession of the deposit accounts and never claimed any adverse interest; it denied neither the existence of the accounts nor the debt. Consequently, the separate action envisioned by Section 43 was not the correct remedy, and the motion for enforcement of garnishment was proper.

• Liability for the Garnished Funds: Upon service of the writ of garnishment, the deposit accounts of Trendline were placed in custodia legis—under the sole control of the court—and Citytrust held them subject to the court’s orders until satisfaction of judgment or lawful dissolution of the garnishment. The obligation to keep the deposit intact and deliver it to the proper officer persisted and passed to BPI by virtue of the merger. The loss of bank records is not among the exclusive grounds for dissolution of a preliminary attachment or garnishment under Rules 57 and 39 of the Rules of Court (such as posting of a counter-bond, improper or irregular issuance, excessive attachment, exempt property, or judgment against the attaching creditor). The Articles of Merger explicitly transferred all liabilities of Citytrust to BPI, and the amount of P700,962.10 remained undisputed throughout the proceedings. Hence, BPI’s liability to deliver the garnished fund was clearly established.

• Doctrine of Virtual Party / Forced Intervenor in Garnishment — Upon service of a writ of garnishment, the garnishee is not required to be impleaded or served with summons; the service itself vests the trial court with jurisdiction to bind the garnishee to all its orders and processes, making the garnishee a “virtual party” or “forced intervenor” to the case. The Court applied this to Citytrust and, following the merger, to BPI, holding that BPI stood in the shoes of the garnishee and was subject to the court’s orders.

• Effects of Merger under Section 80 of the Corporation Code — A merger results in a single surviving corporation that, without further act or deed, possesses all the rights, privileges, immunities, and property of the absorbed corporations, and is liable for all their obligations. Crucially, the rights of creditors or liens upon property are not impaired by the merger. BPI was deemed to have automatically assumed Citytrust’s obligation over the garnished deposit, and the lien created by the writ of preliminary attachment remained in full force.

• Custodia Legis and Grounds for Dissolution of Attachment — Property placed under a writ of attachment or garnishment is in custodia legis; the court has sole control over it pending litigation and execution. The Rules of Court enumerate the exclusive grounds upon which a preliminary attachment or garnishment may be dissolved or discharged: (a) the debtor has posted a counter-bond or made a cash deposit; (b) the attachment was improperly or irregularly issued; (c) the attachment is excessive; (d) the property is exempt; or (e) judgment is rendered against the attaching creditor. The loss of bank records is not a recognized ground, and the garnishee’s obligation to deliver the fund persists until one of the statutory grounds is satisfied.

• “Through the 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.” — This passage, drawn from Perla Compania de Seguros, Inc. v. Ramolete, encapsulates the rule that makes a garnishee bound to the court’s orders without formal impleader.

• “The surviving or consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations; and any pending claim, action or proceeding brought by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens upon the property of any of such constituent corporations shall not be impaired by such merger or consolidation.” — The Court quoted this from Section 80 of the Corporation Code to underscore that the garnishment lien and obligation were not extinguished by the merger.

• Perla Compania de Seguros, Inc. v. Ramolete, G.R. No. 60887, November 13, 1991, 203 SCRA 487 — Followed as controlling precedent for the doctrine that a garnishee becomes a “virtual party” or “forced intervenor” upon service of the writ of garnishment, and the trial court acquires jurisdiction to bind the garnishee to its orders without need of summons.

• Santos v. Aquino, Jr., G.R. Nos. 86181-82, January 13, 1992, 205 SCRA 127 — Cited for the rule that a writ of attachment places property in custodia legis and for the exclusive statutory grounds on which a preliminary attachment or garnishment may be dissolved.

• Investments, Inc. v. Court of Appeals, No. L-60036, January 27, 1987, 147 SCRA 334 — Relied upon for the definition of an interlocutory order as one that does not finally dispose of the case but indicates that other things remain to be done.

• PNB Management and Development Corporation v. R&R Metal Casting and Fabricating, Inc., G.R. No. 132245, January 2, 2002, 373 SCRA 1 — Distinguished; explained that Section 43, Rule 39 applies only when the garnishee claims an adverse interest or denies the debt, a situation not present here.

• National Power Corporation v. Philippine Commercial and Industrial Bank, G.R. No. 171176, September 4, 2009, 598 SCRA 326 — Followed for the definition of garnishment as a specie of attachment for reaching credits belonging to the judgment debtor and owing from a stranger to the litigation.

• Section 1, Rule 41, Rules of Court — No appeal may be taken from an interlocutory order; the aggrieved party may file a special civil action for certiorari under Rule 65. Applied to classify the RTC’s denial of the motion to enforce garnishment as interlocutory and certiorari as the proper remedy.

• Section 5, Rule 65, Rules of Court — Requires that persons interested in sustaining the proceedings be impleaded as private respondents. BPI, as the successor to Citytrust’s garnishment obligation, was held to be a person interested and properly impleaded.

• Section 43, Rule 39, Rules of Court — Governs proceedings when a third person claims an interest in the property adverse to the judgment obligor or denies the debt. The Court ruled this provision inapplicable because Citytrust admitted the deposit and claimed no adverse interest.

• Rule 57, Sections 8, 12, 13, and 19, Rules of Court — These provisions, read together, establish that property under attachment is held in custodia legis subject to court orders, and enumerate the exclusive grounds upon which attachment may be dissolved. Loss of records was not among them, so the garnishment remained enforceable.

• Section 80, Corporation Code — Enumerates the effects of merger, including the transfer of all rights, privileges, property, and liabilities to the surviving corporation without further act or deed, and preserves the rights of creditors and liens upon property. BPI was held to have automatically assumed Citytrust’s garnishment liability.

Presbitero J. Velasco, Jr. (Chairperson), Diosdado M. Peralta, Lucas P. Bersamin (designated in lieu of Justice Jose C. Mendoza per Special Order No. 1282), Roberto A. Abad.