City of Iloilo vs. Philippine Ports Authority and Development Bank of the Philippines

A notice of garnishment issued to satisfy a final money judgment is void where it collects an amount drastically in excess of the judgment and covers alleged liabilities without prior assessment and notice. Applied to the Philippine Ports Authority, whose adjudged tax liabilities had been paid and whose funds as a government instrumentality are exempt from execution, garnishment for Php44,298,470.11 could not stand against judgments totaling only a fraction of that sum.

The City of Iloilo is a local government unit exercising taxing powers under the Local Government Code. The Philippine Ports Authority is an attached agency of the Department of Transportation and Communication charged with management of major ports, with its deposits held by the Development Bank of the Philippines. Liability of the Philippine Ports Authority for specified realty and business taxes had been fixed by final judgments in G.R. Nos. 109791 and 143214.

On 03 November 2005, the Development Bank of the Philippines received a Notice of Garnishment from the City of Iloilo levying bank deposits of the Philippine Ports Authority for realty and business tax delinquencies, interest, charges and penalties in the amount of Php44,298,470.11, pursuant to the judgments in G.R. Nos. 109791 and 143214. The bank notified the Philippine Ports Authority, which requested the City to recall the garnishment and asked the bank to release its funds, claiming that its liabilities under those judgments, including interests and surcharges, had already been paid. Both efforts proved futile.

Thereafter, on 05 June 2009, the Philippine Ports Authority filed a complaint against the City and the bank for declaration of nullity of the notice of garnishment with prayer for temporary restraining order and writ of preliminary injunction, docketed as Civil Case No. 09-121552 before Branch 33, Regional Trial Court of Manila. According to the prosecution of its claim, it had effected full payment as evidenced by official receipts marked FULL: (a) realty taxes and penalties on the warehouse subject of G.R. Nos. 109791 and 143214 in the total amount of Php1,259,916 for 1985 to 1996; (b) business taxes and penalties subject of G.R. No. 109791 in the total amount of Php446,505.92 for 1984 to 1986 and 1995 to 2005; and (c) realty taxes and penalties on edifices and buildings covered by G.R. No. 143214 in the aggregate sum of Php227,917.28. It further alleged that the garnishment ballooned to Php44,298,471.37 without specification, was issued to implement final and executory decisions enforceable only by writ of execution issued by the trial court and served by the court sheriff, and was thus defective for lack of basis and violation of the rules on execution.

The bank, in its Answer, acknowledged the local government unit's power to garnish bank deposits of delinquent taxpayers but explained it had no authority to determine whether settlement had occurred and therefore could not release the funds. The City argued the complaint had no cause of action because taxable status had been settled in G.R. Nos. 109791 and 143214, and that the Philippine Ports Authority failed to comply with the condition precedent under Section 252 of the Local Government Code to pay under protest.

While the appeal was pending, the City on 07 November 2013 requested release of Php67,686,923.90 additional funds in view of the finality of the judgment in G.R. No. 204908. The bank remitted Php3,892,372.99 on 26 November 2013 and an additional Php554,959.72 on 18 December 2013 allegedly for interests on the garnished deposits. On 20 November 2014, the City issued sixteen notices of assessment to the Philippine Ports Authority for real property tax liabilities for 2015. The trial court ultimately dismissed the complaint, finding the garnishment was not limited to G.R. Nos. 109791 and 143214 but included other liabilities pertaining to the Iloilo Port Complex, and refusing to apply Spouses Curata vs. Philippine Ports Authority as concerning expropriation and issued in 2009.

• Jurisdiction of the CTA: Petitioner argued that the Court of Appeals had no jurisdiction to review the Regional Trial Court judgment because validity of local tax collection through garnishment falls within the exclusive jurisdiction of the Court of Tax Appeals, citing CE Casecnan Water & Energy Co., Inc. vs. Province of Nueva Ecija that the Court of Tax Appeals reviews Regional Trial Court decisions in local tax cases.
• Inapplicability of MIAA Ruling and Taxability: Petitioner maintained that Section 196 of Republic Act No. 7160 does not find application as held by the Court of Appeals, and that reliance on MIAA vs. Court of Appeals was erroneous because there is no categorical declaration therein that MIAA and Philippine Ports Authority are similarly situated in terms of tax-exempt status.

• Prior Full Payment: Respondent Philippine Ports Authority countered that its liabilities for local and real property taxes subject of the judgments in G.R. Nos. 109791 and 143214, including interests and surcharges, had already been paid as evidenced by official receipts marked FULL.
• Improper Enforcement by Garnishment: Respondent Philippine Ports Authority maintained that the notice of garnishment was defective because the liabilities had been fully paid and because enforcement should have been by writ of execution issued by the trial court and served by the sheriff, not by unilateral garnishment varying the judgment.
• No Authority to Release: Respondent Development Bank of the Philippines argued that while it recognized the local government unit's power to garnish deposits of delinquent taxpayers, it had no authority to determine settlement of tax obligations and thus could not release the funds on its own.

• Jurisdiction over Appeal: Whether the Court of Appeals had jurisdiction to review the Regional Trial Court decision, or whether exclusive appellate jurisdiction lay with the Court of Tax Appeals as a local tax case.
• Exemption from Execution: Whether Philippine Ports Authority funds and properties as a government instrumentality are exempt from garnishment and execution.
• Conformity to Judgment: Whether the notice of garnishment is void for varying the money judgments in G.R. Nos. 109791 and 143214.
• Prior Payment: Whether liabilities under G.R. Nos. 109791 and 143214 had already been paid, leaving no basis for garnishment of Php44,298,470.11.
• Prior Assessment for Other Liabilities: Whether garnishment for supposed tax liabilities other than those covered by G.R. Nos. 109791 and 143214 is void for lack of prior assessment and notice under the Local Government Code.

• Jurisdiction over Appeal: Yes. The Court of Appeals properly assumed jurisdiction because the complaint questioned the propriety of garnishment to enforce a final judgment, not a tax assessment, and was therefore not a local tax case appealable to the Court of Tax Appeals.
• Exemption from Execution: Yes. As a government instrumentality, Philippine Ports Authority funds partake of government funds and its properties of public dominion are exempt from levy, execution, and garnishment absent allocation by its Board or statutory grant.
• Conformity to Judgment: Yes, void. A writ of garnishment must conform to the dispositive part of the judgment it enforces, and collection of Php44,298,470.11 vastly exceeded the adjudged liabilities.
• Prior Payment: Yes. Payment of the adjudged amounts plus interests and surcharges was established and undisputed, leaving no basis for the garnishment amount.
• Prior Assessment for Other Liabilities: Yes, void. Collection of other alleged delinquencies without a notice of assessment stating nature, deficiency, surcharges, interests and penalties violates Sections 175, 195 and 254 of the Local Government Code and due process.

• Jurisdiction over Appeal: Jurisdiction over subject matter is conferred by law, and under Section 7(a)(3) of Republic Act No. 9282 the Court of Tax Appeals reviews Regional Trial Court decisions only in local tax cases, meaning actions primarily involving a tax issue. Determined by allegations of the complaint and character of relief sought, the complaint admitted liability and full payment under G.R. Nos. 109791 and 143214 and assailed only resort to garnishment and violation of execution rules. Unlike CE Casecnan Water & Energy Co., Inc. vs. Province of Nueva Ecija, which involved erroneous assessment, the controversy involved erroneous execution of final judgments.
• Exemption from Execution: Properties of government instrumentalities are of public dominion, outside commerce, and not subject to levy, encumbrance or disposition because essential public services would stop. Following MIAA vs. Court of Appeals and Spouses Curata vs. Philippine Ports Authority, Philippine Ports Authority is similarly situated: not a government-owned or controlled corporation for having no shares or members, administering docks, piers and buildings owned by the Republic as mere trustee. Its monies, facilities and assets being government properties, garnishment and discretionary execution pending appeal are barred; what cannot be done directly cannot be done indirectly.
• Conformity to Judgment: Garnishment is satisfaction of a money judgment through forced novation substituting the judgment creditor for the judgment debtor as creditor of the garnishee, obliging delivery of debts due under Rule 39. It must conform to that ordained in the dispositive part, execution not in harmony with judgment being bereft of validity. G.R. No. 109791 imposed Php98,519.16 real property tax on its warehouse from last quarter 1984 to December 1986 and Php3,828.07 business tax for lease of real estate, while G.R. No. 143214 upheld assessment of Php125,990.95 for 1985-1989, making Php44,298,470.11 drastically excessive.
• Prior Payment: As found by the Court of Appeals and undisputed, Philippine Ports Authority paid Php1,259,916.95 for real property taxes from 1984 to 1986 inclusive of charges, interest and penalties and Php663,381.92 for business taxes from 1984 to 2005 under G.R. No. 109791, and Php227,917.28 under G.R. No. 143214. Having already collected on those money judgments, no basis remained for garnishing Php44,298,470.11.
• Prior Assessment for Other Liabilities: The 26 October 2005 garnishment cited only realty and business delinquencies pursuant to the final decisions in G.R. Nos. 109791 and 143214, not eighteen other properties in Loboc, Lapaz and Veteran's Village. Under Sections 175 and 195 for distraint of personal property and protest of assessment, and Section 254 for real property delinquency, collection requires prior notice stating nature of tax, deficiency, surcharges, interests and penalties to allow protest within sixty days. Lumping unassessed liabilities circumvented due process, paralleling the requirement of preliminary assessment notice in internal revenue collection, and justified return of Php26,661,552.41 released in excess.

• Jurisdiction determined by nature of action — Jurisdiction is determined by the nature of the action pleaded based on allegations in the complaint and character of relief sought. Applied here, the complaint's attack on the remedy of garnishment to enforce final judgments, rather than on the amount of tax liability, removed the case from the category of local tax cases.
• CTA appellate jurisdiction in local tax cases — Under Section 7(a)(3) of Republic Act No. 9282, the Court of Tax Appeals exercises exclusive appellate jurisdiction over decisions of Regional Trial Courts in local tax cases originally decided in exercise of original or appellate jurisdiction. Invoked only where the Regional Trial Court action is in the nature of a tax case primarily involving a tax issue, it did not apply where execution, not assessment, was disputed.
• Government instrumentality exempt from tax and execution — Properties of government instrumentalities devoted to public use are of public dominion, outside the commerce of men, exempt from real property tax and from levy, encumbrance, execution, or garnishment. Applied through MIAA vs. Court of Appeals and Spouses Curata vs. Philippine Ports Authority, Philippine Ports Authority as mere trustee of Republic-owned ports could not have its funds garnished absent Board allocation or statutory grant.
• Garnishment must conform to judgment — Garnishment as satisfaction of a money judgment effects forced novation and must conform to the dispositive part; execution varying the judgment is void. The Php44,298,470.11 garnishment was void for exceeding the specific sums adjudged in G.R. Nos. 109791 and 143214.
• Prior notice of assessment as due process in local tax collection — Collection by distraint requires written notice, authenticated certificate of delinquency, and for local taxes a notice of assessment stating nature, deficiency, surcharges, interests and penalties, with opportunity to protest; for real property tax, notice of delinquency with publication and specification. Failure to notify the taxpayer of basis for other alleged liabilities violates due process notwithstanding the lifeblood doctrine, invalidating the levy therefor.

• "Jurisdiction over the subject matter of a case is conferred by law." — States the foundational test for determining whether the Court of Tax Appeals or the Court of Appeals could review the Regional Trial Court decision.
• "In other words, the action in the RTC must be in the nature of a tax case, or one which primarily involves a tax issue." — Defines the threshold for invoking Court of Tax Appeals appellate jurisdiction under Republic Act No. 9282.
• "PPA's monies, facilities and assets are government properties. Ergo, they are exempt from execution whether by virtue of a final judgment or pending appeal." — Restates the Spouses Curata vs. Philippine Ports Authority formulation extending MIAA exemption to Philippine Ports Authority funds.
• "Execution not in harmony with the judgment is bereft of validity." — Articulates the controlling rule voiding the garnishment for collecting far beyond the adjudged tax liabilities.

• MIAA vs. Court of Appeals, G.R. No. 155650, 20 July 2006 — Controlling precedent that Manila International Airport Authority is a government instrumentality, not a taxable government-owned or controlled corporation, and its Republic-owned properties are of public dominion exempt from tax, levy and execution; extended to Philippine Ports Authority.
• Spouses Curata vs. Philippine Ports Authority, G.R. Nos. 154211-12, 158252, 166200, 168272, 170683 & 173392, 22 June 2009 — Followed for the rule that Philippine Ports Authority funds are government funds exempt from execution whether by final judgment or pending appeal, and what cannot be done directly cannot be done indirectly.
• Republic vs. Parañaque, G.R. No. 191109, 18 July 2012 — Cited by the Court of Appeals as supporting government instrumentality exemption from real property tax.
• Philippine Fisheries Development Authority vs. Court of Appeals, G.R. No. 169836, 31 July 2007 — Cited by the Court of Appeals as supporting government instrumentality exemption.
• CE Casecnan Water & Energy Co., Inc. vs. Province of Nueva Ecija, G.R. No. 196278, 17 June 2015 — Distinguished because it involved challenge to erroneous real property assessment, whereas the present case involved erroneous execution of final judgments already fixing liability.
• Yamane vs. BA Lepanto Condominium Corp., G.R. No. 154993, 25 October 2005 — Cited for the requirement that notice state nature of tax, deficiency, surcharges, interests and penalties.

• Section 7(a)(3), Republic Act No. 9282 — Confers exclusive appellate jurisdiction on the Court of Tax Appeals over Regional Trial Court decisions in local tax cases; held inapplicable because the complaint raised enforcement propriety, not a tax issue.
• Section 175, Local Government Code — Governs distraint of personal property requiring written notice, seizure, and authenticated certificate of delinquency; applied to require proper process before garnishing deposits for other alleged liabilities.
• Section 195, Local Government Code — Requires notice of assessment stating nature, deficiency, surcharges, interests and penalties and provides sixty-day protest procedure; violation found where garnishment lumped unassessed liabilities without such notice.
• Section 254, Local Government Code — Requires notice of delinquency in real property tax by posting and publication specifying delinquency date and warning of distraint and auction; cited as part of mandatory pre-collection notice.
• Section 9(c), Rule 39, Rules of Court — Obligates garnishee to deliver debts due to judgment obligor; cited to explain garnishment as forced novation in satisfaction of money judgment.

Peralta, C.J. (Chairperson), Caguioa, Carandang, and Gaerlan, JJ., concur.