Perla Compania de Seguros, Inc. vs. Ramolete

Service of the writ of garnishment, not summons, is sufficient to acquire jurisdiction over the garnishee, who becomes a "virtual party" to the case and is bound to comply with the trial court's orders. A third-party liability insurance policy may be validly garnished to satisfy a judgment against the insured, because the insured acquires an interest in the insurance contract from the moment liability to the injured third party attaches.

Petitioner Perla Compania de Seguros, Inc. was the insurer that issued a third-party liability insurance policy covering a Cimarron PUJ owned by Nelia Enriquez. Private respondent Primitiva Palmes was the widow of Calixto Palmes, who died in a collision involving the insured vehicle, and private respondent Honorato Borbon, Sr. was the father of a minor who suffered physical injuries in the same accident. The case arose from the execution of a final judgment for damages against Enriquez, the common carrier, and the subsequent attempt to satisfy that judgment through garnishment of the insurance policy.

In the afternoon of 1 June 1976, a Cimarron PUJ owned and registered in the name of Nelia Enriquez, and driven by Cosme Casas, was travelling from Cebu City to Danao City. While passing through Liloan, Cebu, the Cimarron PUJ collided with a private jeep owned by the late Calixto Palmes, who was then driving the private jeep. The impact of the collision flung the private jeep about thirty feet away, and it fell on its right side, pinning down Calixto Palmes, who died as a result of cardio-respiratory arrest due to a crushed chest. The accident also caused physical injuries to Adeudatus Borbon, who was then only two years old.

On 25 June 1976, private respondents Primitiva Palmes, widow of Calixto Palmes, and Honorato Borbon, Sr., father of minor Adeudatus Borbon, filed a complaint against Cosme Casas and Nelia Enriquez before the Court of First Instance of Cebu, Branch 3, claiming actual, moral, nominal, and exemplary damages. The claim of Honorato Borbon, Sr., being distinct and separate from that of co-plaintiff Primitiva Palmes, and the amount falling within the jurisdiction of the inferior court, respondent Judge Jose R. Ramolete ordered the Borbon claim excluded from the complaint, without prejudice to its being filed with the proper inferior court.

On 4 April 1977, the Court of First Instance rendered a Decision in favor of Primitiva Palmes, ordering common carrier Nelia Enriquez to pay P10,000.00 as moral damages, P12,000.00 as compensatory damages for the death of Calixto Palmes, P3,000.00 as exemplary damages, P5,000.00 as actual damages, and P1,000.00 as attorney's fees. The judgment became final and executory, and a writ of execution was issued but returned unsatisfied.

The judgment debtor Nelia Enriquez was thereafter summoned before the trial court for examination on 23 July 1979. She declared under oath that the Cimarron PUJ registered in her name was covered by a third-party liability insurance policy issued by petitioner Perla. On 31 July 1979, private respondent Palmes filed a motion for garnishment praying that an order of garnishment be issued against the insurance policy. On 6 August 1979, respondent Judge issued an Order directing the Provincial Sheriff to garnish the third-party liability insurance policy.

Petitioner Perla appeared before the trial court and moved for reconsideration and for quashal of the writ of garnishment, alleging that the writ was void because Perla was not a party to the case and jurisdiction over its person had never been acquired by the trial court by service of summons or by any process. The trial court denied the motion, and an Order for issuance of an alias writ of garnishment was subsequently issued on 8 April 1980. More than two years later, on 25 June 1982, Perla filed the present Petition for Certiorari and Prohibition with the Supreme Court, alleging grave abuse of discretion on the part of respondent Judge in ordering garnishment of the insurance contract.

• Lack of Jurisdiction over the Garnishee: Petitioner argued that its insurance contract could not be subjected to garnishment or execution because it was not a party to the case and the trial court did not acquire jurisdiction over its person by service of summons or by any process.
• No Opportunity to Set Up Defenses: Petitioner argued that the writ of garnishment was issued solely on the basis of the judgment debtor's testimony during examination, without granting Perla the opportunity to set up any defenses it may have under the insurance contract.
• Need for a Separate Action: Petitioner argued that the proceedings taken against it were contrary to the procedure laid down in Economic Insurance Company, Inc. vs. Torres, which held that under Rule 39, Section 45, the court "may only authorize" the judgment creditor to institute an action against a third person who holds property belonging to the judgment debtor.

N/A — The decision does not recount the respondents' arguments in detail.

• Jurisdiction over the Garnishee: Whether the trial court validly acquired jurisdiction over petitioner Perla as garnishee through service of the writ of garnishment, without service of summons or impleading.
• Garnishability of the Insurance Interest: Whether the judgment debtor's interest in the third-party liability insurance policy may be subjected to garnishment.
• Need for a Separate Action: Whether a separate action against the insurer was required under Rule 39, Section 45 of the Rules of Court where the garnishee did not deny the debt or claim an adverse interest.

• Jurisdiction over the Garnishee: Yes. Service of the writ of garnishment, not summons, is sufficient to acquire jurisdiction over the garnishee, who becomes a "virtual party" to the case. The trial court validly acquired jurisdiction over Perla when it was served with the writ of garnishment.
• Garnishability of the Insurance Interest: Yes. The judgment debtor had an interest in the proceeds of the third-party liability insurance contract, which may be garnished like any other credit, because the insurer becomes liable as soon as the liability of the insured to the injured third person attaches.
• Need for a Separate Action: No. Rule 39, Section 45 is not applicable where the garnishee does not deny the debt or claim an adverse interest; a writ of garnishment suffices to hold the garnishee answerable to the judgment creditor.

• Jurisdiction over the Garnishee: Garnishment is a species of attachment for reaching any property or credits pertaining or payable to a judgment debtor. In legal contemplation, it is a forced novation by the substitution of creditors: the judgment debtor, who is the original creditor of the garnishee, is substituted by the judgment creditor through service of the writ of garnishment. It is not necessary that summons be served upon the garnishee, nor that the garnishee be impleaded as a party. All that is necessary for the trial court lawfully to bind the person of the garnishee is service upon him of the writ of garnishment. Through such service, the garnishee becomes a "virtual party" to, or a "forced intervenor" in, the case, and the trial court acquires jurisdiction to bind him to compliance with all orders and processes with a view to the complete satisfaction of the judgment. The Court cited Bautista vs. Barredo and Tayabas Land Company vs. Sharruf in support of this principle. The garnishment of property to satisfy a writ of execution operates as an attachment and fastens upon the property a lien by which the property is brought under the jurisdiction of the court issuing the writ, into custodia legis.

• Garnishability of the Insurance Interest: Every interest which the judgment debtor may have in property may be subjected to execution. In a third-party liability insurance contract, the insurer assumes the obligation of paying the injured third party to whom the insured is liable. The insurer becomes liable as soon as the liability of the insured to the injured third person attaches; prior payment by the insured to the injured third person is not necessary. From the moment the insured became liable to the third person, the insured acquired an interest in the insurance contract, which interest may be garnished like any other credit.

• Need for a Separate Action: The Court distinguished Economic Insurance Company, Inc. vs. Torres, which held that a separate action needs to be commenced when the garnishee "claims an interest in the property adverse to him (judgment debtor) or denies the debt." In the instant case, Perla did not deny before the trial court that it had issued the third-party liability insurance policy in favor of the judgment debtor, and it refrained from setting up any substantive defense. The only ground asserted was lack of jurisdiction for failure to implead it by serving summons. Accordingly, Rule 39, Section 45 was not applicable, and no separate action was required. If Perla had any substantive defenses against the judgment debtor, it was properly deemed to have waived them by laches.

• Garnishment as Forced Novation — Garnishment is a species of attachment for reaching any property or credits pertaining or payable to a judgment debtor. In legal contemplation, it is a forced novation by the substitution of creditors: the judgment debtor, who is the original creditor of the garnishee, is substituted by the judgment creditor, who thereby becomes creditor of the garnishee. The Court applied this doctrine to hold that the trial court validly acquired jurisdiction over Perla as garnishee.

• Garnishee as "Virtual Party" or "Forced Intervenor" — Through 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 court. The Court applied this doctrine to reject Perla's claim that it could not be bound absent service of summons or impleading.

• Garnishability of Insured's Interest in Third-Party Liability Insurance — In a third-party liability insurance contract, the insurer assumes the obligation of paying the injured third party to whom the insured is liable. The insurer becomes liable as soon as the liability of the insured to the injured third person attaches; prior payment by the insured is not necessary. From the moment the insured became liable to the third person, the insured acquired an interest in the insurance contract, which interest may be garnished like any other credit.

• Separate Action Not Required Where Garnishee Does Not Deny Debt — Under Rule 39, Section 45, a separate action against the garnishee is required only when the garnishee "claims an interest in the property adverse to him (judgment debtor) or denies the debt." Where the garnishee does not deny the debt or claim an adverse interest, a writ of garnishment suffices to hold the garnishee answerable to the judgment creditor.

• "In order that the trial court may validly acquire jurisdiction to bind the person of the garnishee, it is not necessary that summons be served upon him. The garnishee need not be impleaded as a party to the case. All that is necessary for the trial court lawfully to bind the person of the garnishee or any person who has in his possession credits belonging to the judgment debtor is service upon him of the writ of garnishment." — This passage states the core ratio decidendi on jurisdiction over the garnishee, establishing that service of the writ, not summons, is the operative act.

• "Through 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 defines the doctrinal status of the garnishee and explains the legal mechanism by which the trial court binds the garnishee.

• "In a third-party liability insurance contract, the insurer assumes the obligation of paying the injured third party to whom the insured is liable. The insurer becomes liable as soon as the liability of the insured to the injured third person attaches. Prior payment by the insured to the injured third person is not necessary in order that the obligation of the insurer may arise. From the moment that the insured became liable to the third person, the insured acquired an interest in the insurance contract, which interest may be garnished like any other credit." — This passage establishes the garnishability of the insured's interest in a third-party liability insurance policy, a key holding of the case.

• Economic Insurance Company, Inc. vs. Torres, 79 SCRA 519 (1977) — Distinguished. The Court held that reliance on this case was misplaced because it applies only where the garnishee "claims an interest in the property adverse to him (judgment debtor) or denies the debt," which was not the situation in the instant case.
• Bautista vs. Barredo, 13 SCRA 744 (1965) — Followed. Cited for the doctrine that jurisdiction is acquired over the garnishee when the sheriff serves the writ of garnishment, making the garnishee a "virtual party" to the case.
• Tayabas Land Company vs. Sharruf, 41 Phil. 382 (1921) — Followed. Cited for the definition of garnishment as a species of attachment for reaching credits belonging to the judgment debtor and owing to him from a stranger to the litigation, and for the concept of the garnishee as a "forced intervenor."
• Rizal Commercial Banking Corporation vs. De Castro, 168 SCRA 49 (1988) — Followed. Cited for the principle that garnishment operates as an attachment and fastens upon the property a lien, bringing it into custodia legis under the sole control of the court issuing the writ.
• Reliance Procoma, Inc. vs. Phil-Asia Tobacco Corporation, 57 SCRA 370 (1974) — Cited for the description of garnishment as a warning to a person having in his possession property or credits of the judgment debtor not to pay or deliver to the latter but to appear and answer the plaintiff's suit.

• Section 15, Rule 39, Rules of Court — Provides for execution of money judgments by levying on all property of the judgment debtor not exempt from execution, including debts, credits, and other personal property, or any interest in either real or personal property, which may be levied on in like manner as under a writ of attachment. The Court applied this provision to uphold the garnishment of the insurance policy.
• Section 7(e), Rule 57, Rules of Court — Provides for attachment of debts and credits by leaving with the person owing such debts, or having in his possession or under his control such credits or other personal property, a copy of the order and notice that the debts owing by him to the party against whom attachment is issued are attached. The Court cited this provision to illustrate the manner of levying on credits.
• Section 45, Rule 39, Rules of Court — Provides that if a person alleged to have property of the judgment debtor or to be indebted to him claims an interest in the property adverse to him or denies the debt, the court may only authorize the judgment creditor to institute an action against such person. The Court held this provision inapplicable because Perla did not deny the debt or claim an adverse interest.
• Section 373(f), Insurance Code — Defines the obligation of the insurer in a third-party liability insurance contract to pay the injured third party to whom the insured is liable. The Court cited this provision to establish that the insurer becomes liable as soon as the liability of the insured attaches.

Narvasa, C.J., Cruz, Griño-Aquino, and Medialdea, JJ., concurred.

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