Municipality of Hagonoy, Bulacan vs. Dumdum, Jr.

A writ of preliminary attachment cannot be issued against the properties of a local government unit, as its consent to be sued merely allows a claimant to secure a judgment, but does not authorize the seizure of public funds or properties to satisfy such judgment, given that suability is distinct from liability.

Private respondent Emily Rose Go Ko Lim Chao, doing business as KD Surplus, was engaged in buying and selling surplus trucks and heavy equipment. Petitioner Mayor Felix V. Ople contacted Chao to procure motor vehicles for developmental projects in the Municipality of Hagonoy, Bulacan, representing that funds had been allocated. Relying on this, Chao delivered 21 motor vehicles valued at ₱5,820,000.00 from Cebu City to the municipality, as evidenced by bills of lading consigned to the municipality. Despite deliveries, the municipality and Ople failed to remit payment, prompting Chao to file a complaint for collection of a sum of money and damages amounting to ₱10,026,060.13, exclusive of penalties and damages.

• The Agreement and Delivery: Sometime in mid-2000, Mayor Ople contacted Chao to procure motor vehicles for the municipality's developmental undertakings, assuring her that funds had been allocated. Chao delivered 21 vehicles worth ₱5,820,000.00, supported by bills of lading consigned to the Municipality of Hagonoy.
• Non-Payment and Complaint: The municipality failed to pay for the deliveries. Chao filed a complaint for collection of sum of money and damages, claiming a total obligation of ₱10,026,060.13.
• Issuance of Writ of Attachment: On February 13, 2003, the RTC granted Chao's prayer for a writ of preliminary attachment upon posting of a bond. The writ was issued on March 20, 2003, directing the sheriff to attach the properties of the petitioners.
• Motions Filed: Petitioners filed a Motion to Dismiss based on the Statute of Frauds, arguing the absence of a written contract, public bidding, and municipal council approval. They also filed a Motion to Dissolve/Discharge the writ, invoking state immunity, unenforceability of the contract, and lack of substantiated fraud.
• Lower Court Rulings: The RTC denied both motions on October 20, 2003, and denied reconsideration on December 29, 2003. The CA affirmed the RTC via a Decision dated January 31, 2005, and a Resolution dated May 23, 2005, the latter also denying the motion for reconsideration on the ground that it was filed by unauthorized counsel.

• Statute of Frauds: Petitioner argued that the complaint should be dismissed because the alleged contract was unenforceable under the Statute of Frauds, there being no written contract, public bidding, or municipal council approval.
• Immunity from Attachment: Petitioner maintained that as a municipal corporation, the Municipality of Hagonoy is immune from suit and its properties are exempt from execution and garnishment, rendering the writ of preliminary attachment erroneously issued.
• Lack of Fraud: Petitioner contended that private respondent failed to substantiate the allegation of fraud necessary for the issuance of the writ.
• Unauthorized Counsel: Petitioner complained that the CA erred in denying their motion for reconsideration on the ground that it was filed by unauthorized counsel, making it a mere scrap of paper.

• Partial Performance: Respondent countered that the fact of delivery may be properly addressed at trial, implying partial performance that takes the case outside the Statute of Frauds.
• Sufficiency of Fraud Allegation: Respondent argued that the writ of preliminary attachment was properly issued because her affidavit sufficiently substantiated the allegation of fraud.
• Suability of the Municipality: Respondent asserted that the municipality's claim of immunity is negated by Section 22 of the Local Government Code, which vests municipal corporations with the power to sue and be sued.
• Premature Determination: Respondent contended that resolving the arguments against the writ of preliminary attachment at this stage would amount to a trial on the merits.

• Statute of Frauds: Whether the complaint should be dismissed on the ground of unenforceability under the Statute of Frauds despite allegations of partial performance.
• Preliminary Attachment: Whether a writ of preliminary attachment can be issued against the properties of a municipality given its suability under the Local Government Code.
• Unauthorized Counsel: Whether the Court of Appeals erred in denying the motion for reconsideration on the ground that it was filed by unauthorized counsel.

• Statute of Frauds: The complaint was properly retained. The Statute of Frauds merely regulates the method of proof for certain contracts and does not invalidate unwritten agreements. Where there is an allegation of partial performance, as evidenced by the bills of lading showing delivery consigned to the municipality, the contract is taken out of the Statute of Frauds. Furthermore, in a motion to dismiss, the material allegations of the complaint are hypothetically admitted; thus, the existence of a contract and the fact of delivery are established for the purpose of the motion.
• Preliminary Attachment: The writ of preliminary attachment was ordered lifted. A distinction exists between suability and liability. While Section 22 of the Local Government Code allows a municipality to be sued, this consent is limited only to the rendition of a verdict and does not authorize the seizure of public funds or properties to satisfy judgments. Because municipal properties are exempt from execution and garnishment, a writ of preliminary attachment would be useless and unnecessary.
• Unauthorized Counsel: The CA erred in treating the motion for reconsideration as a scrap of paper. The municipal legal officer had previously filed a Manifestation with Entry of Appearance adopting all pleadings filed by the private counsel, which included subsequent pleadings like the motion for reconsideration. Nevertheless, the denial of the motion was proper because it raised no new matters warranting a different treatment of the issues.

• Suability vs. Liability — Suability refers to the authority of a party to be sued, which can be consented to by the State or its political subdivisions via general or special law (e.g., Local Government Code). Liability refers to the legal obligation to pay a judgment. Consent to be sued does not automatically authorize the execution, garnishment, or attachment of public funds or properties, as disbursements of public funds must be covered by specific appropriations.
• Statute of Frauds and Partial Performance — The Statute of Frauds requires certain contracts to be in writing to be enforceable, but it does not invalidate unwritten contracts where all essential requisites for validity are present. Total or partial performance of the obligation takes the contract out of the Statute of Frauds, rendering it enforceable by action.
• Hypothetical Admission in Motion to Dismiss — When a motion to dismiss is filed, the material allegations of the complaint, including inferences fairly deducible therefrom, are deemed hypothetically admitted. If these allegations furnish a sufficient basis to maintain the complaint, dismissal is improper regardless of defenses raised.

• "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. Disbursements of public funds must be covered by the corresponding appropriations 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." — Cited from Traders Royal Bank v. Intermediate Appellate Court, emphasizing the rationale behind the immunity of public funds from execution and attachment.
• "By invoking unenforceability under the Statute of Frauds, petitioners are in effect acknowledging the existence of a contract between them and private respondent — only, the said contract cannot be enforced by action for being non-compliant with the legal requisite that it be reduced into writing." — Explaining the legal effect of invoking the Statute of Frauds as a defense.

• City of Caloocan v. Allarde, 457 Phil. 543 (2003) — Followed. Established the distinction between suability and liability, holding that while the state may consent to be sued, it retains the liberty to determine whether to satisfy the judgment, and execution cannot issue upon such judgment.
• Traders Royal Bank v. Intermediate Appellate Court, G.R. No. 68514, December 17, 1990 — Followed. Held that while a government entity opens itself to suit by entering into a contract, its funds remain public and beyond the reach of garnishment and attachment proceedings.
• Viewmaster Construction Corporation v. Roxas, 390 Phil. 872 (2000) — Followed. Stated that hypothetical admission in a motion to dismiss extends not only to relevant and material facts well pleaded, but also to inferences fairly deduced from them.
• Ramos v. Court of Appeals, G.R. No. 99425, March 3, 1997 — Distinguished. Cited by the CA for the rule that private counsel may only represent municipalities under well-defined exceptions, but the Supreme Court found the private counsel's appearance was validly adopted by the municipal legal officer.

• Article 1403(2), Civil Code — The Statute of Frauds. Applied to determine that the contract for the sale of goods priced over five hundred pesos requires a writing to be enforceable, unless there is partial performance (acceptance and receipt of goods), which was alleged in the complaint.
• Section 22, Local Government Code of 1991 — Vests local government units with corporate powers, including the power to sue and be sued. Applied to establish the suability of the Municipality of Hagonoy, while clarifying that this suability does not equate to liability allowing the attachment of public funds.
• Section 1(i), Rule 16, Rules of Court — Grounds for a motion to dismiss, specifically that the claim is unenforceable under the Statute of Frauds. Applied to assess the propriety of the dismissal, which was denied due to allegations of partial performance.

Renato C. Corona (Chairperson), Presbitero J. Velasco, Jr., Antonio Eduardo B. Nachura, Jose Catral Mendoza.