Pacific Products, Inc. vs. Ong

The garnishment of funds in the possession of a government agency, such as the Bureau of Telecommunications, is illegal and null and void, because the State, by virtue of its sovereignty, may not be sued in its own courts except by express authorization of the Legislature, and to subject its officers to garnishment would permit indirectly what is prohibited directly.

Pacific Products, Inc. (Pacific) filed an action for sum of money against Hilarion D. Labrador, doing business under the name and style of BML Trading and Supply, docketed as Civil Case No. 50120 with the Court of First Instance of Manila. BML Trading and Supply (BML Trading) won a bid to supply the Bureau of Telecommunications (Bureau) with 15,000 pounds of bluestone copper sulfate worth P10,500.00. The Bureau is a government agency created under Section 78 of Executive Order No. 94, Series of 1947, and has no charter and no distinct personality of its own.

On April 12, 1962, Pacific Products, Inc. (Pacific) filed Civil Case No. 50120 against H.D. Labrador, doing business under the name and style of BML Trading and Supply, with the Court of First Instance of Manila (Branch XIV) for recovery of P9,111.70, plus interest, costs, and attorney's fees. Upon motion, the court issued an order directing the Sheriff of Manila to attach the estate, real or personal, of the defendant H.D. Labrador. Pursuant to that order, the Sheriff of Manila, through Deputy Sheriff Santiago Geronilla, issued a notice of garnishment dated October 17, 1962, garnishing P9,111.70 of the amount of P10,500.00 payable to BML Trading and Supply by the Bureau of Telecommunications, thereby stopping payment of the said P10,500.00.

Meanwhile, BML Trading and Supply (BML Trading) had won a bid to supply the Bureau of Telecommunications (Bureau) with 15,000 pounds of bluestone copper sulfate worth P10,500.00. H.D. Labrador, as agent of BML Trading, delivered the compound. Unknown to Pacific, BML Trading, through its attorney-in-fact H.D. Labrador, assigned its rights over the P10,500.00 to Vicente S. Ong on October 19, 1962. It appears that Ong advanced the necessary funds to purchase the copper sulfate, and the parties agreed that the profits would be shared by BML Trading and Ong on a 40-60 percent basis. It was also their agreement that BML Trading would waive its share in the net profits which may be realized from the transaction should it fail to secure the release of the payment from the Bureau within seven days from the delivery of the compound. Pacific learned about the assignment only when a copy of the third party claim filed by Ong with the Office of the Sheriff of Manila was served on them on November 19, 1962.

On December 21, 1962, the trial court rendered its decision in Civil Case No. 50120, sentencing H.D. Labrador to pay Pacific the sum of P9,111.70 with interest at 6% per annum from April 12, 1962, plus attorney's fees of P500.00 and costs. After the decision became final, a writ of execution was issued, and the Sheriff of Manila, through Deputy Sheriff Santiago Geronilla, further garnished P1,181.65 of the P10,500.00. Ong's third party claim was frustrated when Pacific filed an Indemnity Bond with the Office of the Sheriff. Thus, Ong filed an action for damages against the Sheriff, Pacific Products, and First Quezon City Insurance on February 15, 1963, to vindicate his claim on the amount garnished.

The trial court dismissed the complaint on February 21, 1964. Ong appealed, and on May 7, 1971, the Court of Appeals reversed the trial court's decision, ordering Pacific Products, Inc. and First Quezon City Insurance Co., Inc. to pay jointly and severally the sum of P10,293.35 with legal interest from November 19, 1962. Pacific's Motion for Reconsideration was denied on July 2, 1971, prompting the instant appeal by certiorari.

• Illegality of Garnishment: Petitioner assailed the Court of Appeals' holding that the garnishment of the amount of P10,500.00 payable to BML Trading and Supply while still in the possession of the Bureau of Telecommunications was illegal and therefore null and void.
• Inapplicability of Cited Cases: Petitioner contended that the cases of Director of Commerce and Industry vs. Concepcion and Avendano et al. vs. Alikpala, et al., wherein the Court declared null and void the garnishment of the salaries of government employees, were not applicable because no garnishment of salaries of government officials or employees was involved in this case.
• Waiver of Immunity: Petitioner contended that immunity from suit was waived when the Bureau of Telecommunications entered into a business transaction with BML Trading, citing the doctrine that when the Government engages in business, it abdicates part of its sovereign prerogatives and ascends to the level of a citizen.
• NASSCO Doctrine: Petitioner contended that where the Bureau is authorized to enter into a contract, the government "may sue and be sued and may be subjected to court processes just like any other person," as held in National Shipyards and Steel Corporation (NASSCO) vs. CIR, et al.
• Identity of Debtor: Petitioner claimed that the Court of Appeals erred in ruling that the money due to BML Trading and Supply in the hands of the Bureau could not be made to answer for a personal judgment against H.D. Labrador, arguing that Ong admitted in the stipulation of facts that H.D. Labrador was "doing business under the name and style of BML Trading and Supply" and that H.D. Labrador and BML Trading are one.

N/A — The decision does not recount Vicente S. Ong's specific arguments on appeal.

• Validity of Garnishment: Whether the garnishment of the amount of P10,500.00 payable to BML Trading and Supply while still in the possession of the Bureau of Telecommunications was illegal and null and void.
• Applicability of State Immunity: Whether the Bureau of Telecommunications, as a government agency, is subject to garnishment despite the doctrine of state immunity from suit.
• Identity of Debtor: Whether the judgment against H.D. Labrador in Civil Case No. 50120 could be satisfied from the funds the Bureau held in favor of BML Trading and Supply.

• Validity of Garnishment: Yes. The garnishment of the amount of P10,500.00 payable to BML Trading and Supply while still in the possession of the Bureau of Telecommunications was illegal and therefore null and void, as the Bureau is a government agency and the doctrine of state immunity from suit applies.
• Applicability of State Immunity: Yes. The Bureau of Telecommunications is a government agency created under Section 78 of Executive Order No. 94, Series of 1947, with no charter and no distinct personality of its own, and being a government agency, the doctrine of state immunity from suit applies.
• Identity of Debtor: No. There was nothing in the records from which it could be concluded that in the transactions involved in Civil Case No. 50120, H.D. Labrador acted as an agent of BML Trading, and the judgment therein was rendered only against H.D. Labrador, presumably as a personal judgment against him.

• Validity of Garnishment: The Court noted that the notice of garnishment served upon the Bureau of Telecommunications was made pursuant to an order of attachment issued by the trial court in the case for sum of money against H.D. Labrador. At the time of such service, the amount against which the notice was issued was still in the possession and control of the Bureau. The same situation obtained in the two cases relied upon by the appellate court. The Court quoted the ruling in Director of Commerce and Industry vs. Concepcion: "By the process of garnishment, the plaintiff virtually sues the garnishee for a debt due to the defendant. The debtor stranger becomes a forced intervenor." The Court further quoted the rule that "money in the hands of public officers, although it may be due government employees, is not liable to the creditors of these employees in the process of garnishment," for three reasons: (1) the State, by virtue of its sovereignty, may not be sued in its own courts except by express authorization by the Legislature, and to subject its officers to garnishment would be to permit indirectly what is prohibited directly; (2) moneys sought to be garnished, as long as they remain in the hands of the disbursing officer of the Government, belong to the latter, although the defendant in garnishment may be entitled to a specific portion thereof; and (3) every consideration of public policy forbids it.
• Applicability of State Immunity: The Court rejected petitioner's contention that immunity from suit was waived when the Bureau entered into a business transaction with BML Trading. The Court held that suability would follow only if the contract entered into by the government is in the exercise of a proprietary as distinguished from a governmental function. The Bureau of Telecommunications is a service bureau and is not engaged in business, and there was nothing in the records from which it could be concluded that in the purchase of the 15,000 pounds of bluestone copper sulfate, the Bureau was engaging in business. The Court also distinguished the NASSCO case, noting that NASSCO is a government owned and controlled corporation with a personality of its own, separate and distinct from that of the government, whereas the Bureau of Telecommunications is a government agency with no charter and no distinct personality of its own.
• Identity of Debtor: The Court held that there was nothing in the records from which it could be concluded that in the transactions involved in Civil Case No. 50120, H.D. Labrador acted as an agent of BML Trading. On the contrary, the judgment therein was rendered only against H.D. Labrador, presumably as a personal judgment against him. The P10,500.00 in the hands of the Bureau was payable to BML Trading and Supply owned by Benedicta Labrador and represented in the transaction by H.D. Labrador. There was also no evidence on record to support a conclusion that H.D. Labrador held himself out as the owner of BML Trading in his transactions with the Bureau. In the stipulation of facts, Ong never admitted that H.D. Labrador was doing business under the name and style of BML Trading; what was admitted was the fact that Civil Case No. 50120 was entitled "Pacific Products, Inc. vs. H.D. Labrador, doing business under the name and style of BML Trading and Supply."

• Doctrine of State Immunity from Suit — The State, by virtue of its sovereignty, may not be sued in its own courts except by express authorization by the Legislature, and to subject its officers to garnishment would be to permit indirectly what is prohibited directly. The Court applied this doctrine to hold that the garnishment of funds in the possession of the Bureau of Telecommunications was illegal and void, as the Bureau is a government agency without a distinct personality.
• Garnishment of Public Funds — Money in the hands of public officers, although it may be due government employees, is not liable to the creditors of these employees in the process of garnishment. The reasons are: (1) the State may not be sued without its consent; (2) moneys sought to be garnished, as long as they remain in the hands of the disbursing officer of the Government, belong to the latter; and (3) every consideration of public policy forbids it.
• Proprietary vs. Governmental Functions — Suability of the government would follow only if the contract entered into by the government is in the exercise of a proprietary as distinguished from a governmental function. The Court held that the Bureau of Telecommunications is a service bureau and is not engaged in business, and there was nothing in the records to conclude that in purchasing the bluestone copper sulfate, the Bureau was engaging in business.

• "By the process of garnishment, the plaintiff virtually sues the garnishee for a debt due to the defendant. The debtor stranger becomes a forced intervenor. The Director of the Bureau of Commerce and Industry, an officer of the Government of the Philippine Islands, when served with the writ of attachment, thus became a party to the action." — This passage, quoted from Tayabas Land Co. vs. Sharruf, explains the nature of garnishment and why it effectively constitutes a suit against the government when the garnishee is a public officer.
• "A rule, which has never been seriously questioned, is that money in the hands of public officers, although it may be due government employees, is not liable to the creditors of these employees in the process of garnishment. One reason is, that the State, by virtue of its sovereignty may not be sued in its own courts except by express authorization by the Legislature, and to subject its officers to garnishment would be to permit indirectly what is prohibited directly. Another reason is that moneys sought to be garnished, as long as it remains in the hands of the disbursing officer of the Government, belong latter, although the defendant in garnishment may be entitled to a specific portion thereof. And still another reason which covers both of the foregoing is that every consideration of public policy forbids it." — This passage, quoted from Director of Commerce and Industry vs. Concepcion, states the canonical formulation of the rule against garnishment of public funds and was the controlling doctrine in this case.
• "Suability would follow only if the contract entered into by the government is in the exercise of a proprietary as distinguished from a governmental function." — This passage states the distinction between proprietary and governmental functions for purposes of determining whether the government's immunity from suit has been waived.

• Director of Commerce and Industry vs. Concepcion, 43 Phil. 384 — Controlling precedent relied upon by the Court of Appeals and affirmed by the Supreme Court; held that garnishment of salaries of government employees is null and void, and the Court applied its reasoning to the garnishment of funds in the possession of the Bureau of Telecommunications.
• Avendano et al. vs. Alikpala, et al., G.R. No. L-21189, November 28, 1964 — Followed; declared null and void the garnishment of salaries of government employees, and was relied upon by the appellate court.
• Tayabas Land Co. vs. Sharruf, 41 Phil. 382 (1921) — Quoted for the proposition that by the process of garnishment, the plaintiff virtually sues the garnishee for a debt due to the defendant, and the debtor stranger becomes a forced intervenor.
• Price Stabilization Corporation vs. Court of Industrial Relations, G.R. L-9797 and L-9834, November 29, 1957 — Distinguished; petitioner cited this case for the doctrine that when the Government engages in business, it abdicates part of its sovereign prerogatives, but the Court held this was not applicable because the Bureau of Telecommunications is not engaged in business.
• National Shipyards and Steel Corporation (NASSCO) vs. CIR, et al., G.R. L-17874, August 31, 1963, 8 SCRA 781 — Distinguished; NASSCO is a government owned and controlled corporation with a personality of its own, separate and distinct from that of the government, unlike the Bureau of Telecommunications which has no charter and no distinct personality.

• Section 78, Executive Order No. 94, Series of 1947 — The provision creating the Bureau of Telecommunications as a government agency. The Court applied this to determine that the Bureau has no charter and no distinct personality of its own, and therefore the doctrine of state immunity from suit applies.
• Section 2, Executive Order No. 356, dated October 23, 1950 — The provision establishing NASSCO with all the powers of a corporation under the Corporation Code. The Court distinguished NASSCO from the Bureau of Telecommunications on this basis.

Narvasa, Cruz, Gancayco, and Griño-Aquino, JJ., concurred.

N/A — No dissenting opinions were noted in the case text.