Commissioner of Public Highways vs. San Diego

Factual Background

The Government filed an eminent domain complaint on or about November 20, 1940, for a parcel of land owned by N. T. Hashim needed for the construction of what became Epifanio de los Santos Avenue. The Government took possession on November 25, 1940, upon deposit of P23,413.64 as provisional value. Records of the pre-war expropriation were lost during World War II and were not reconstituted. In 1958 the estate of N. T. Hashim filed a money claim with the Quezon City Engineer’s Office for P522,620.00 as fair market value, and in 1963 the estate filed a complaint in the Court of First Instance of Rizal for recovery of fair market price, later amended to include the Auditor General and the City Engineer as defendants.

Compromise and Lower Court Judgment

The Solicitor General answered asserting that the estate was entitled only to P3,203.00 as fair market value at the time of possession, plus legal interest, and alleged that that amount had been available and tendered by the Bureau of Public Highways. The parties negotiated a compromise whereby the estate accepted P14.00 per square meter for the 14,934 square-meter tract, totaling P209,076.00. The compromise was confirmed and approved by the Commissioner of Public Highways and the Secretary of Public Works and Communications, submitted to the lower court on November 7, 1966, and on November 8, 1966 the presiding judge rendered judgment approving the compromise and ordering payment of P209,076.00.

Execution, Garnishment, and Bank Payment

On October 10, 1968 the estate moved for a writ of execution alleging nonpayment. On October 12, 1968 it moved ex parte for appointment of BENJAMIN GARCIA as special sheriff. The lower court granted both motions in an order dated October 14, 1968. On the same date a notice of garnishment and a writ of execution were served on THE PHILIPPINE NATIONAL BANK to levy funds of the BUREAU OF PUBLIC HIGHWAYS and the AUDITOR GENERAL. On October 16, 1968 the bank, through BENJAMIN V. CORUNA, replied that it was holding P209,076.00 from the Bureau’s account. On October 18, 1968 the lower court ordered the bank to release the garnished funds, and the bank issued a cashier’s check for P209,076.00 and delivered the sum to the estate the same day.

Petitioners’ Challenge and Interim Relief

Petitioners, through the Solicitor General, protested the bank’s delivery and on January 28, 1969 filed the present special civil action for certiorari and prohibition seeking to declare the lower court orders void and to obtain immediate reimbursement of the garnished P209,076.00 to the Bureau’s account. The Supreme Court ordered issuance of a writ of preliminary mandatory injunction on January 31, 1969, directed in solidum against the principal respondents including the presiding judge to compel restoration. The bank complied and restored P209,076.00 to the Bureau’s account. The bank however sought to have the estate deposit the amount with it; the estate deposited P125,446.00 as a savings account and, according to the record, P83,630.00 was in the interim paid as attorney’s fees by the administrator, allegedly without probate court authority.

Legal Issues Presented

The Supreme Court framed and addressed the following principal questions: whether the lower court’s orders of October 14 and October 18, 1968, authorizing execution and delivery of government funds deposited with the bank, were valid; whether government funds deposited in a current account thereby lost their character as government funds and became subject to garnishment; whether the bank or its official could lawfully comply with the writ to avoid contempt; whether the appointment of a private “special sheriff” was authorized; and whether civil liability attached to the deputy clerk and the special sheriff who acted under court order.

Parties’ Contentions

Petitioners asserted that the writ of execution and the garnishment were null because government funds are not subject to execution or garnishment and because disbursement of public funds must await legislative appropriation. The Solicitor General earlier had maintained that only P3,203.00 was due as just compensation. Respondent bank and BENJAMIN V. CORUNA contended that funds in a current account lost their character as government funds and that a depositor-depository creditor-debtor relationship governed the transaction; they argued that refusal to obey the court’s delivery order would have exposed them to contempt. Respondent estate and its counsel urged payment of the judgment and criticized petitioners for failing to present “clean hands,” asserting that justice and equity required payment.

Court’s Ruling — Nullity of Execution and Garnishment

The Court granted the writs of certiorari and prohibition and declared the lower court’s Orders of October 14 and October 18, 1968 null and void. The Court held that the writs authorizing execution and the consequent delivery of P209,076.00 were invalid because government funds are not subject to execution or garnishment. The Court ordered all further proceedings in Civil Case No. Q-7441 of the Court of First Instance of Rizal, Quezon City, Branch IX to be abated. The writ of preliminary mandatory injunction previously issued was made permanent except as to the respondent judge, who was excluded from the injunction. The Court ordered the estate and TOMAS N. HASHIM jointly and severally to reimburse THE PHILIPPINE NATIONAL BANK in the amount of P209,076.00 with legal interest until actual reimbursement. The Court further ordered ESTATE OF N. T. HASHIM, PHILIPPINE NATIONAL BANK, and BENJAMIN CORUNA jointly to pay treble costs. The Clerk of Court was directed to furnish copies of the decision to the bank’s Board of Directors and its president.

Legal Basis and Reasoning Regarding Non-Garnishability of Public Funds

The Court reaffirmed the long-established rule that judgments against the State or its agencies operate only to liquidate liability and cannot be executed by seizure or garnishment of public funds. The Court relied on precedents including Visayan Refining Co. vs. Camas & Paredes, Merritt vs. Government of P.I., Belleng vs. Republic, and Republic vs. Palacio, and on the policy embodied in Act 3083 that the legislature must appropriate public funds to satisfy such judgments. The Court explained that allowing garnishment would contravene the requirement that disbursements of public funds be covered by corresponding appropriation and would risk paralyzing public functions. The Court found that the estate’s remedy lies in legislative appropriation and payment procedures rather than by execution against deposits of the government.

Rejection of Bank’s Defenses and Duties of Official Depositary

The Court rejected the bank’s contention that a current account deposit lost the funds’ governmental character or that the depositor-depository relation converted the funds into the bank’s property subject to garnishment. The Court emphasized that as the official depositary of the Philippine Government the bank must recognize and preserve the non-garnishable nature of government funds regardless of the form of deposit. The Court held that when the bank paid out the garnished sum it thereby delivered public funds not lawfully payable to private persons and that the bank’s officials were not duly authorized disbursing officers. The Court criticized the bank and CORUNA for precipitately delivering a large public sum within four days and for failing to consult the Bureau or the Solicitor General or to assert that the funds were non-garnishable, especially in view of the Court’s prior decision in Republic vs. Palacio, in which the bank had prudently notified government officials of an attempted levy.

Unauthorized Appointment of "Special Sheriff" and Sheriff’s Duties

The Court held that the lower court’s appointment of BENJAMIN GARCIA as special sheriff to serve the writ of execution was unauthorized. The Court reviewed Sections 183, 185, 189, and 330 of the Revised Administrative Code and Rule 39, section 8, Rules of Court, and concluded that execution of processes devolved upon the sheriff or h