Commissioner of Public Highways vs. San Diego

Government funds deposited with an official depository bank retain their character as public funds and are not subject to garnishment or execution to satisfy judgments against the State or its agencies, even where the State has consented to be sued; such judgments operate merely to liquidate and establish the claimant's right, and payment must be sought through the corresponding legislative appropriation.

The Government of the Philippines initiated expropriation proceedings in 1940 against a 14,934-square-meter parcel of land belonging to N.T. Hashim for the construction of a public road now known as Epifanio de los Santos Avenue. The records of that proceeding were destroyed during the Second World War, and neither party reconstituted them. The Hashim estate, through its judicial administrator Tomas N. Hashim, later pursued a money claim for the fair market value of the property, ultimately filing a complaint for recovery of just compensation against the Bureau of Public Highways, the Auditor General, and the Quezon City Engineer. The Philippine National Bank served as the official depository of the Philippine Government, holding the Bureau of Public Highways' funds in a current account.

On or about November 20, 1940, the Government of the Philippines filed a complaint for eminent domain in the Court of First Instance of Rizal for the expropriation of a 14,934-square-meter parcel of land belonging to N.T. Hashim, needed to construct a public road now known as Epifanio de los Santos Avenue. On November 25, 1940, the Government took possession of the property upon deposit with the City Treasurer of the sum of ₱23,413.64, fixed by the court as the provisional value of all the lots needed for the road, including Hashim's property. The records of the expropriation case were destroyed and lost during the Second World War, and neither party took any step to reconstitute the proceedings.

In 1958, the estate of N.T. Hashim, through its judicial administrator Tomas N. Hashim, filed a money claim with the Quezon City Engineer's Office in the sum of ₱522,620.00, alleging that amount to be the fair market value of the property, by then already converted and used as a public highway. Nothing came of the claim. On August 6, 1963, the estate filed a complaint for recovery of the fair market price in the sum of ₱672,030.00 against the Bureau of Public Highways in the Court of First Instance of Rizal, Quezon City, Branch IX, presided by respondent Judge Lourdes P. San Diego. The complaint was amended on August 26, 1963 to include the Auditor General and the City Engineer of Quezon City as additional defendants. The State, through then Solicitor General Arturo A. Alafriz, answered that the estate was entitled only to ₱3,203.00 as the fair market value at the time of taking on November 25, 1940, with 6% annual legal interest, and that said amount had been available and tendered by the Bureau since 1958.

The parties thereafter worked out a compromise agreement. The estate proposed on April 28, 1966 a payment of ₱14.00 per square meter for its 14,934-square-meter parcel, totaling ₱209,076.00, equivalent to the land's total assessed value. This was confirmed, ratified, and approved in November 1966 by the Commissioner of Public Highways and the Secretary of Public Works and Communications. On November 7, 1966, the Compromise Agreement—subscribed by counsel for the estate and by then Solicitor General Antonio P. Barredo—was submitted to the lower court, which on November 8, 1966 rendered judgment approving it and ordering petitioners to pay the estate ₱209,076.00.

On October 10, 1968, the estate filed a motion for the issuance of a writ of execution, alleging that petitioners had failed to satisfy the judgment. Two days later, it filed an ex-parte motion for the appointment of Benjamin Garcia as special sheriff to serve the writ. No opposition was filed by the Solicitor General's office, and on October 14, 1968, respondent Judge granted both motions. That same day, Garcia served a Notice of Garnishment, together with the writ of execution issued by Deputy Clerk Manuela C. Florendo, on the Philippine National Bank, notifying the bank that levy was made upon funds of the Bureau of Public Highways and the Auditor General on deposit to cover the ₱209,076.00 judgment. On October 16, 1968—three days before the expiration of the five-day deadline to reply—respondent Benjamin V. Coruña, Chief of the Documentation Staff of the bank's Legal Department, allegedly acting in excess of his authority and without the knowledge of the bank's Board of Directors, replied that the bank was holding ₱209,076.00 from the Bureau's account. On October 18, 1968, respondent Judge granted the estate's ex-parte motion ordering the bank to release the garnished amount to the special sheriff. That same day, Coruña authorized the issuance of a cashier's check for ₱209,076.00, drawn from the Bureau's current account, and paid it to the estate without notice to the Bureau.

Petitioners, through then Solicitor General Felix V. Makasiar, wrote the bank on December 20, 1968 complaining that it had acted precipitately in delivering the funds without affording the Bureau a reasonable time to contest the garnishment, and demanding that the bank credit the Bureau's account. The bank replied on January 6, 1969 that it was not liable, alleging it was "helpless to refuse delivery under the teeth" of the special order of October 18. Petitioners filed the present action on January 28, 1969. The Court issued a writ of preliminary mandatory injunction on January 31, 1969, and the bank restored the ₱209,076.00 to the Bureau's account. However, the bank did not require the estate to reimburse it in full; instead, it allowed the estate merely to deposit ₱125,446.00 as a savings account, while the balance of ₱83,630.00 had been paid as attorney's fees to the estate's counsel without authority of the probate court.

• Immunity of Government Funds from Garnishment: Petitioners contended that the lower court's orders of execution and garnishment were null and void because government funds are not subject to execution or garnishment, and that the bank was charged with legal knowledge of this principle.
• State Immunity from Suit: Petitioners invoked the State's immunity from suit, arguing that the lower court proceedings could not proceed against the government. (The Court rejected this argument, holding that the case below was a continuation of the pre-war expropriation proceedings instituted by the State itself.)
• Validity of the Compromise Agreement: Petitioners impugned the validity of the compromise agreement on the ground that it was executed only by the lawyer of the estate, without any showing of special authority to bind the estate. (The Court rejected this, holding that only the principal—the estate—could question lack of authority, and the estate had confirmed and ratified the agreement.)
• Illegality of Special Sheriff Appointment: Petitioners questioned the legality of the lower court's order appointing respondent Garcia as "special sheriff" for service of the writ of execution, absent any showing of the contingencies required by law.

• Character of Deposited Funds: Respondent bank and Coruña contended that the government funds, having been deposited by the Bureau under a current account subject to withdrawal by check rather than as special trust funds, "lost their kind and character as government funds."
• Creditor-Debtor Relationship: Respondent bank and Coruña argued that the funds lost their character as government funds the moment they were deposited with the bank, since the relation between depositor and depository bank is that of creditor and debtor.
• Contempt Risk: Respondent bank and Coruña maintained that refusal to obey the lower court's order to deliver the garnished amount, which they characterized as valid and binding unless annulled, would have exposed them to contempt of court.
• Equity and Justice: Respondent bank and Coruña assailed petitioners for not coming to court with "clean hands," asserting that in fairness, justice, and equity, petitioners should not impede or delay payment of just compensation to the landowners for property occupied since 1940.

• Garnishment of Government Funds: Whether government funds deposited with an official depository bank may be subject to garnishment and execution to satisfy a judgment against the State or its agencies.
• Character of Deposited Funds: Whether government funds deposited in a current account with the official government depository bank lose their character as public funds.
• Appointment of Special Sheriff: Whether the lower court's appointment of a "special sheriff" to serve the writ of execution was authorized by law.
• State Immunity from Suit: Whether the State may invoke its immunity from suit in the underlying proceedings.
• Validity of Compromise Agreement: Whether the compromise agreement is invalid for lack of authority of the estate's counsel to bind the estate.

• Garnishment of Government Funds: No. Government funds are not subject to execution or garnishment; judgments against the State or its agencies where the State has consented to be sued operate merely to liquidate and establish the claimant's right, and payment must be secured through legislative appropriation.
• Character of Deposited Funds: No. Government funds deposited with the official depository bank retain their character as public funds regardless of whether they are held in a general or special deposit, since government agencies do not have any non-public or private funds of their own.
• Appointment of Special Sheriff: No. The appointment of a "special sheriff" to serve a writ of execution is unauthorized by law absent a showing that the sheriff is a party to the action, is otherwise incompetent, or that the office of sheriff is vacant.
• State Immunity from Suit: No. The State may not invoke immunity from suit, the case below being in effect a continuation of the pre-war expropriation proceedings instituted by the State itself, in which the State submitted to the court's jurisdiction to determine just compensation.
• Validity of Compromise Agreement: Yes. The compromise agreement is valid; the alleged lack of authority of the estate's counsel may be questioned only by the principal, and the estate has confirmed and ratified the agreement.

• Garnishment of Government Funds: The universal rule is that where the State consents to be sued, it may limit the claimant's action only up to the completion of proceedings anterior to the stage of execution; the power of the courts ends when the judgment is rendered. Government funds and properties may not be seized under writs of execution or garnishment to satisfy such judgments. This rule rests on obvious considerations of public policy: disbursements of public funds must be covered by the corresponding appropriation as required by law, and the functions and public services rendered by the State cannot be paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects as appropriated by law. As early as 1919, in Visayan Refining Co. vs. Camus & Paredes, the Court held that although the Government submits to jurisdiction in expropriation proceedings and waives immunity from suit, the judgment requiring payment of just compensation cannot be realized upon execution; it is incumbent upon the legislature to appropriate any additional amount necessary to pay the award. In Belleng vs. Republic, the Court held that a claimant must look specifically to the Compensation Guarantee Fund provided by the Workmen's Compensation Act, citing Section 7 of Act 3083, which provides that "no execution shall issue upon any judgment rendered by any Court against the Government." In Republic vs. Palacio, the Court set aside as null and void a garnishment on funds of the Pump Irrigation Trust Fund, re-emphasizing that judgments against the State operate merely to liquidate and establish the plaintiff's claim and may not be enforced by writs of execution or garnishment. The two questioned orders of the lower court—ordering execution and directing delivery of the garnished amount to the estate—were therefore null and void.

• Character of Deposited Funds: The bank's contention that government funds deposited under a current account "lost their kind and character as government funds" is untenable. As the official depository of the Philippine Government, the bank and its officials should know that all government funds deposited with it by any agency or instrumentality of the government, whether by way of general or special deposit, remain government funds, since such agencies do not have any non-public or private funds of their own. The bank's second contention—that the funds lost their character because the relation between depositor and depository bank is that of creditor and debtor—is equally untenable. Assuming the creation of such a relationship, the Bureau thereby held a credit against the bank whose obligation was to pay upon demand the public funds thus deposited; what was garnished was not the bank's own funds but the credit of the Bureau against the bank. The Bureau's credit never lost its character as a credit representing government funds. Neither the bank nor Coruña are duly authorized disbursing officers and auditors of the Government to authorize and cause payment of public funds for the benefit of private persons. The bank's improper haste in allowing the garnishment and delivery within four days, even before the expiration of the five-day reglementary period to reply, and its failure to follow the prudent course it had taken in Republic vs. Palacio of notifying proper government officials, compounded the wrongfulness of its conduct.

• Appointment of Special Sheriff: The general practice of lower courts of appointing "special sheriffs" for service of writs of execution is unauthorized by law. The duty of executing all processes of the courts in civil cases, particularly writs of execution, devolves upon the sheriff or his deputies under Section 183 of the Revised Administrative Code and Rule 39, Section 8 of the Rules of Court. Unlike the service of summons, which may be made by any person especially authorized by the judge for special reasons under Rule 14, Section 5, the service of writs of execution—which involves the taking and delivery of money or property in trust for the judgment creditor—must be carried out by regularly bonded sheriffs or other proper court officers. The bond required of sheriffs is conditioned inter alia for the delivery or payment to the Government or the persons entitled thereto of all property or sums of money that shall officially come into the sheriff's hands, thus avoiding the risk of embezzlement. Section 185 of the Revised Administrative Code restrictively authorizes the judge to deputize a suitable person only when the sheriff is a party to the action or is otherwise incompetent to serve process, or when the office of sheriff is vacant. None of these contingencies was shown to exist.

• State Immunity from Suit: The State may not invoke immunity from suit because the case below was in effect a continuation of the pre-war expropriation proceedings instituted by the State itself. The expropriation of the property is a fait accompli and is not questioned. The only issue was the amount of just compensation due, which properly pertained to the jurisdiction of the lower court. In expropriation proceedings, the State submits to the court's jurisdiction and asks the court to affirm its right to take the property for public use and to determine the amount of just compensation.

• Validity of Compromise Agreement: The alleged lack of authority of the estate's counsel to bind the estate may be questioned only by the principal or client, and the estate as principal has confirmed and ratified the compromise agreement. Moreover, the Solicitor General made no prayer in the petition for the annulment of the compromise agreement or of the lower court's decision approving it.

• Immunity of Government Funds from Execution and Garnishment — Where the State gives its consent to be sued by private parties either by general or special law, it may limit the claimant's action only up to the completion of proceedings anterior to the stage of execution. The power of the courts ends when the judgment is rendered. Government funds and properties may not be seized under writs of execution or garnishment to satisfy such judgments. Judgments against the State or its agencies operate merely to liquidate and establish the plaintiff's claim; it is for the legislature to provide for their payment through the corresponding appropriation. The Court applied this doctrine to nullify the lower court's orders of execution and garnishment upon the Bureau of Public Highways' deposit with PNB, and to make permanent the mandatory injunction requiring reimbursement of the garnished sum.

• Character of Government Funds on Deposit with Official Depository — All government funds deposited with the official depository bank by any agency or instrumentality of the government, whether by way of general or special deposit, remain government funds, since such agencies do not have any non-public or private funds of their own. The creditor-debtor relationship created by a bank deposit does not alter the character of the funds as public funds; what is garnished is the government agency's credit against the bank, not the bank's own funds. The Court applied this principle to reject PNB's contention that the Bureau's current-account deposit had lost its character as government funds.

• Unauthorized Appointment of Special Sheriffs — The duty of serving writs of execution devolves upon regularly bonded sheriffs or their deputies. A judge may deputize a suitable person only when (a) the sheriff is a party to the action or is otherwise incompetent to serve process (Section 185, Revised Administrative Code), or (b) the office of sheriff is vacant and there is an emergency (Section 189, Revised Administrative Code). Absent these contingencies, the appointment of a "special sheriff" is devoid of authority. The Court found none of the contingencies present and declared the appointment of Garcia as special sheriff unauthorized.

• "The universal rule that 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 stage of execution' and that the power 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, is based on obvious considerations of public policy." — This passage articulates the ratio decidendi of the case: the fundamental principle that government funds are immune from execution and garnishment, grounded in public policy against disruption of government functions.

• "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." — This passage states the policy rationale underlying the doctrine of immunity of government funds from garnishment, explaining why execution against public funds is prohibited.

• "As the official depositary of the Philippine Government, respondent bank and its officials should be the first ones to know that all government funds deposited with it 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." — This passage defines the rule that government funds retain their public character regardless of the type of deposit arrangement with the official depository bank, directly rejecting the bank's argument.

• "The Court finds this general practice of the lower courts of appointing 'special sheriffs' for the service of writs of execution to be unauthorized by law." — This passage establishes the doctrine that the appointment of special sheriffs for service of writs of execution is unauthorized absent the specific statutory contingencies.

• Visayan Refining Co. vs. Camus & Paredes, 40 Phil. 550 (1919) — Controlling precedent. The Court held that although the Government submits to jurisdiction in expropriation proceedings and waives immunity from suit, the judgment requiring payment of just compensation cannot be realized upon execution; it is for the legislature to appropriate the necessary funds. This case was the earliest articulation of the doctrine applied in the present case.

• Merritt vs. Government of P.I., 34 Phil. 311 (1916) — Followed. The Court held that where the government consents to be sued by special law, the plaintiff must look to the legislature for another enactment and appropriation of sufficient funds if the Government intended to be legally liable, since judgments against the government cannot be enforced by execution.

• Belleng vs. Republic, L-19856, Nov. 16, 1963 (9 SCRA 6) — Followed. The Court held that a claimant in a compensation case must look specifically to the Compensation Guarantee Fund provided by the Workmen's Compensation Act, citing Section 7 of Act 3083 prohibiting execution against the Government, or otherwise prosecute the claim under Commonwealth Act 327.

• Republic vs. Palacio, L-20322, May 29, 1968 (23 SCRA 899) — Controlling precedent, directly on point. The Court set aside as null and void a garnishment on funds of the Pump Irrigation Trust Fund deposited with PNB, emphasizing that judgments against the State operate merely to liquidate the claim and may not be enforced by execution or garnishment. The Court noted that in that earlier case, PNB had prudently notified proper government officials of the attempted levy, contrasting its conduct unfavorably with the present case.

• Alsua vs. Johnson, 21 Phil. 308 — Applied. The Court cited this case for the proposition that no civil liability attaches to the special sheriff and deputy clerk, since they acted pursuant to orders issued by the respondent judge in the discharge of her judicial functions, and the judge's immunity from civil responsibility covers them.

• Section 7, Act 3083 — Provides that "no execution shall issue upon any judgment rendered by any Court against the Government of the (Philippines) under the provisions of this Act." The Court cited this as the statutory basis for the rule that government funds are exempt from execution, and noted that claimants must look to specific funds or legislative appropriation for satisfaction of judgments.

• Sections 183 and 330, Revised Administrative Code — Section 183 vests in the sheriff or his deputies the duty of executing all processes of the courts in civil cases, including writs of execution. Section 330 prescribes the bond required of sheriffs, conditioned inter alia for the delivery or payment to the Government or persons entitled thereto of all property or sums of money that shall officially come into the sheriff's hands. The Court relied on these provisions to hold that service of writs of execution must be carried out by regularly bonded sheriffs, not special appointees.

• Section 185, Revised Administrative Code — Restrictively authorizes the judge to deputize a suitable person only "when the sheriff is party to any action or proceeding or is otherwise incompetent to serve process therein." The Court found this contingency absent.

• Section 189, Revised Administrative Code — Authorizes the judge, when the office of sheriff is vacant, "in case of emergency, (to) make a temporary appointment to the office of sheriff." The Court found this contingency absent as well.

• Rule 39, Section 8, Rules of Court — Provides that the duty of executing all processes of the courts in civil cases, particularly writs of execution, devolves upon the sheriff or his deputies. The Court applied this to hold that the appointment of a special sheriff was unauthorized.

• Rule 14, Section 5, Rules of Court — Allows service of summons, aside from the sheriff or other proper court officers, "for special reasons by any person especially authorized by the judge." The Court distinguished this from service of writs of execution, which must be by regularly bonded sheriffs.

• Article 1901, Civil Code — Governs the authority of agents to bind principals. The Court applied this in rejecting the State's challenge to the compromise agreement, holding that lack of authority may be questioned only by the principal, and the estate had ratified the agreement.

• R.A. 296, Section 44; Rule 67, Rules of Court — Confer jurisdiction on the Court of First Instance to determine just compensation in expropriation proceedings. The Court cited these to confirm that the question of just compensation properly pertained to the lower court's jurisdiction.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, and Villamor, JJ., concurred.