G.R. No. 84992 - Philippine Rock Industries, Inc. vs. Board of Liquidators

PHILROCK (Philippine Rock Industries, Inc.) purchased a defective rock pulverizing plant from the defunct Reparations Commission (REPACOM).
The contract provided that the machinery must conform to specified standards, failing which PHILROCK sought either replacement with a new, operable machine or a refund of 31% of the contract price.
In addition to the specific performance or revaluation with damages, PHILROCK claimed actual damages for its alleged losses, including increased maintenance costs and lost profits, as well as exemplary damages, attorney’s fees, and other expenses.

On July 30, 1982, PHILROCK filed its complaint in the Regional Trial Court (RTC) of Manila, Branch 38.
In its Answer with Counterclaim, the Board of Liquidators defended by asserting:

REPACOM had fully delivered the machinery and equipment without immediate demands regarding defects.
The plant’s performance had been verified by reputable companies as satisfactory, and any defect was attributed to alleged improper use by PHILROCK.
PHILROCK’s failure to pay the first installment led to a deferred repossession, with requirements placed on the contractor/supplier for necessary repairs.
PHILROCK was estopped and guilty of laches for not highlighting defects within the warranty period.

In its counterclaim, the Board sought payment for the first ten amortizations, litigation expenses, moral and exemplary damages, and costs.

Reimbursement of expenses incurred in connection with the purchase of the machinery.
Compensatory damages for unrealized profits from May 1966 up to December 31, 1983.
Reimbursement for storage and maintenance expenses incurred from June 1, 1966 up to December 31, 1982.
Exemplary damages, attorney’s fees, and costs of the suit.

On May 5, 1987, PHILROCK filed an urgent motion for execution pending appeal, seeking immediate enforcement of the RTC judgment.
On May 19, 1987, Judge Natividad Adduru-Santillan issued a Writ of Execution, which led to the issuance of an order of garnishment:

The order targeted funds deposited in the Philippine National Bank (PNB) in the account of the Board of Liquidators.
The garnishment was aimed at satisfying a judgment amounting to P34,894,607.45.

On May 14, 1987, the Solicitor General, representing the State, filed a notice of appeal and opposed the motion for execution pending appeal.
The opposition was based on the contention that the funds in question were public funds and, therefore, were exempt from attachment and execution.

On March 21, 1988, the Court of Appeals set aside the RTC’s order of execution.
The Court held that the funds deposited by the Board of Liquidators in the PNB could not be garnished to satisfy a money judgment because such funds were public in character.
PHILROCK subsequently filed the petition for review raising the principal question regarding the garnishment of these funds.

PHILROCK’s position was supported by Executive Order No. 629, Series of 1980, which abolished REPACOM effective December 31, 1980, and empowered the Board of Liquidators to liquidate REPACOM’s remaining assets and liabilities.
Executive Order 635-A further detailed the Board’s authority to sell, lease, or otherwise dispose of REPACOM assets to settle its obligations.
The petition raised whether the proceeds arising from the disposal of REPACOM’s assets could constitute funds “appropriated by law” to satisfy the judgment.

Do the funds held by the Board of Liquidators in the Philippine National Bank, arising from REPACOM’s liquidation, qualify as public funds?
What is the effect of such classification on the garnishment process?

Can the funds, despite being in a bank account, be garnished to satisfy a money judgment against a government agency?
Given that the Board of Liquidators is an instrumentality of the State, does the execution of a garnishment order interfere with the public funds’ designated purpose?

Does the reliance on Executive Order No. 629 and EO 635-A, in lieu of a legislative appropriation, suffice to subject the funds to garnishment?
How does the principle that government funds must be disbursed only through legislated appropriations impact the enforceability of the RTC’s judgment?

To what extent does the immunity attached to the State, even when it consents to be sued, preclude the garnishment of its funds to satisfy judgments?