Title
Bank of the Philippine Islands vs. Lee
Case
G.R. No. 190144
Decision Date
Aug 1, 2012
Carlito Lee sued Trendline for P5.8M, garnished P700K from Citytrust. After Citytrust-BPI merger, BPI denied holding funds. CA ruled BPI liable post-merger; SC affirmed, holding BPI accountable for garnished amount.
garnished deposit
motion for execution
enforcement of garnishment
A

Case Summary (G.R. No. 111124)

Factual Background

On April 26, 1988, Lee filed a complaint for sum of money with damages and application for the issuance of a writ of attachment against Trendline and Buelva before the Regional Trial Court (RTC) of Makati City, Branch 61, docketed as Civil Case No. 88-702. Lee alleged that he was induced to invest a total of P5.8 million into Trendline based on Buelvas misrepresentations that she was duly licensed to solicit and sell investment or commodity transactions. Lee claimed that the investments were lost without any explanation.

On May 4, 1988, the RTC issued a writ of preliminary attachment and garnished Trendline’s funds in Check-O-Matic Savings Accounts with Citytrust at its Ayala Branch, in the total amount of P700,962.10. The RTC later rendered judgment on August 8, 1989, finding defendants jointly and severally liable to Lee for the full investment plus legal interest, attorneys fees, and costs of suit.

Defendants appealed to the CA (docketed as CA-G.R. CV No. 23166). Meanwhile, on April 13, 1994, Citytrust filed an Urgent Motion and Manifestation before the RTC seeking authority to release P591,748.99 from the garnished funds to pay Trendline’s tax obligations. The RTC denied the motion for lack of jurisdiction. Trendline then sought similar relief from the CA, but it was denied for failure to prove that defendants had no other assets to answer for the tax obligations.

On October 4, 1996, Citytrust and BPI merged, with BPI as the surviving corporation. The Articles of Merger provided that all liabilities and obligations of Citytrust would be transferred to and become those of BPI as if BPI had itself incurred them. On December 22, 1998, the CA denied the appeal and affirmed the RTC decision in toto, which became final and executory on January 24, 1999. Lee then filed a Motion for Execution on July 29, 1999, which the RTC granted, resulting in the issuance of the corresponding writ.

When Lee sought release of the garnished deposits upon implementation of the writ, BPI Manager Samuel Mendoza, Jr. denied having possession, control, or custody of any deposits or properties belonging to defendants. Lee then asked for production of the bank records. However, the RTC denied Lee’s motion on September 6, 2002 after BPI manifested it could not locate the defendants’ records with the defunct Citytrust.

On December 16, 2002, Lee filed a Motion for Execution and/or Enforcement of Garnishment before the RTC seeking enforcement against BPI of the garnishment of Trendline’s deposits in the amount of P700,962.10 and any other deposits Trendline might have with Citytrust. The RTC denied the motion for lack of evidence showing that BPI took over the accounts from Citytrust and also because BPI was not a party to the case. Lee’s motion for reconsideration was likewise denied. Lee then elevated the matter to the CA through a petition for certiorari.

Court of Appeals Proceedings and Rulings

In its February 11, 2009 Decision, the CA annulled the RTC orders (the March 1, 2004 Order and the September 16, 2004 Order) and found grave abuse of discretion in the RTC’s refusal to enforce the garnishment against Trendline’s attached deposits with Citytrust. The CA held that because the deposited funds had been garnished under the RTC’s writ, and because Citytrust’s liabilities and obligations were transferred to BPI by the merger, BPI was liable to deliver to the RTC the garnished bank deposit of Trendline in the amount of P700,962.10, which Citytrust had withheld pursuant to the attachment writ.

The CA rejected BPI’s defense that it could no longer locate Trendline’s records with Citytrust, reasoning that Citytrust’s existence and acknowledgment of possession were supported by evidence, including the admission that Citytrust had the relevant deposit accounts. The CA also declined to treat BPI as a stranger to the case. It ruled that BPI became a party-in-interest upon SEC approval of the merger, and that it should be bound by the RTC orders issued in connection with the garnishment.

BPI’s motion for reconsideration was denied by the CA in its October 29, 2009 Resolution.

Issues Raised in the Petition for Review

BPI attributed alleged reversible error to the CA in, among others, failing to dismiss the certiorari petition as an improper remedy under Rule 65; wrongly ruling that BPI became a party-in-interest after SEC approval of the merger; ruling that the Motion for Execution and/or Enforcement of Garnishment was the proper remedy notwithstanding a third party during execution; and holding BPI accountable for PHP 700,962.10.

Legal Basis and Reasoning

The Court examined the nature of the RTC orders that were challenged before the CA. Section 1, Rule 41 of the Revised Rules of Court provides that no appeal may be taken from, among others, an interlocutory order, and that in such cases the aggrieved party may file a special civil action under Rule 65. The Court found that Lee had already sought execution of the final and executory RTC decision, which had been granted and had issued a writ of execution. However, because the deposits had been subject to a preliminary attachment and garnishment, Lee later filed a new motion for execution and/or enforcement of garnishment.

The RTC’s March 1, 2004 Order denied the motion in a manner directed specifically at enforcement of the garnishment. In particular, the RTC denied it for lack of evidence that the accounts had been taken over by BPI from Citytrust and for the fact that BPI was not a party to the case. The Court characterized this as interlocutory because it did not finally dispose of the case or end the court’s task of adjudicating the parties’ rights and liabilities in relation to execution. Hence, the remedy of certiorari under Rule 65 was proper, and the CA had jurisdiction to entertain the certiorari petition.

On the question of BPI’s standing, the Court invoked Section 5, Rule 65, requiring that persons interested in sustaining proceedings be impleaded as private respondents. It then addressed the practical effect of a merger. When Citytrust merged with BPI, and BPI assumed Citytrust’s liabilities and obligations, BPI became a party interested in sustaining the proceedings because it would be prejudiced by the outcome. The Court further held that, in garnishment practice, once a writ of garnishment is served, the garnishee becomes a virtual party or forced intervenor and the trial court acquires jurisdiction to bind the garnishee to comply with its orders. Citing Perla Compania de Seguros, Inc. v. Ramolete (G.R. No. 60887, November 13, 1991, 203 SCRA 487), the Court explained that it is not necessary for summons to be served upon the garnishee and that the Rules do not require impleader of the garnishee in order to bind it; service of the writ is enough.

The Court reasoned that Citytrust became a virtual party or forced intervenor upon service of the writ and its acknowledgment, through a letter-reply dated June 28, 1988, that it possessed the deposit accounts of the defendants. Upon Citytrust’s merger with BPI on October 4, 1996, BPI effectively became the garnishee and the virtual party to the civil case for purposes of compliance with the garnishment orders.

The Court then underscored the effects of a corporate merger, emphasizing that the surviving corporation continues as a single entity, that the separate existence of the constituent corporation ceases except for the surviving corporation, and that the surviving corporation takes over all rights, properties, receivables, and liabilities of the constituent corporation. The Court also noted that rights of creditors or liens upon constituent property are not impaired by merger.

The Court rejected BPI’s alternative claim that Lee should have used Section 43, Rule 39 of the Revised Rules of Court because Lee was a third party during execution who denied possession. Section 43 addresses a situation where a person alleged to have property of the judgment obligor or who is indebted to him claims an interest adverse to the judgment obligee or denies the debt, so that the court may authorize a separate action. The Court found that the contemplated circumstances did not exist. The garnishee did not claim an adverse interest and did not deny the existence of the deposit accounts. Instead, Citytrust admitted possession of the deposit accounts in its June 28, 1988 letter. Accordingly, there was no basis for invoking Section 43, Rule 39.

Proceeding to the nature and consequences of garnishment, the Court defined garnishment as a form of attachment for reaching credits belonging to the judgment debtor and owing to him from a stranger to the litigation. A writ of attachment was described as substantially a writ of execution that begins at the start of the suit rather than at its end. It places the attached properties in custodia legis, creating a lien that becomes effective upon judgment in favor of the attaching creditor. By virtue of the writ of garnishment, the deposits of defendants with Citytrust were placed under the sole control of the RTC, with Citytrust holding them subject to the RTC’

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