Municipality of Makati vs. Court of Appeals

Factual Background

The Municipality of Makati instituted expropriation proceedings on May 20, 1986 against private parties including Admiral Finance Creditors Consortium, Inc., Home Building System & Realty Corporation, and Arceli P. Jo for a parcel at Mayapis St., San Antonio Village, Makati, registered under TCT No. S-5499. Petitioner deposited funds in a PNB Buendia Branch account (Account No. S/A 265-537154-3) pursuant to Pres. Decree No. 42, initially certified at P417,510.00. After appraisal and hearing, the RTC fixed just compensation at P5,291,666.00 in a June 4, 1987 decision and ordered payment less an earlier released advanced payment.

Trial Court Proceedings

Following finality of the June 4, 1987 decision, Admiral Finance moved for a writ of execution, which the RTC granted. A writ of garnishment was served by Sheriff Silvino R. Pastrana on PNB on January 14, 1988, but the sheriff learned that a “hold code” had been placed on the municipal account. Admiral Finance sought an order compelling the bank to deliver amounts equivalent to the unpaid balance. Municipality of Makati moved to lift the garnishment, contending that payment should be made in installments and that the RTC had failed to so provide. Petitioner later manifested that PSB had acquired title over the subject property by extra-judicial foreclosure and PSB and Admiral Finance entered into a compromise to divide the compensation.

Garnishment, Bank Compliance and Contempt Finding

The RTC conducted hearings and ordered PNB to release the funds held in the municipal account. The PNB general manager, Mr. Antonio Bautista, stated that he awaited authorization from PNB head office before disbursing. The RTC issued an order dated September 8, 1988 approving the PSB–Admiral Finance compromise, directing the release of P4,953,506.45 from the garnished municipal account, and requiring conveyance to petitioner. Petitioner’s motion to lift garnishment was denied. On December 21, 1988, the RTC denied petitioner’s reconsideration, held Mr. Bautista in contempt for disobedience to the release order, and ordered his detention until compliance.

Court of Appeals Proceedings

Both the Municipality of Makati and the PNB manager filed separate petitions for certiorari in the Court of Appeals, which were consolidated. The Court of Appeals, in a decision promulgated June 28, 1989, dismissed the petitions for lack of merit. The appellate court sustained the RTC’s jurisdiction over the funds in PNB Account No. 265-537154-3 and affirmed the RTC’s authority to levy on those funds. A motion for reconsideration to the Court of Appeals was denied.

Supreme Court Proceedings and Temporary Restraining Order

Petitioner sought review in the Supreme Court and prayed for a preliminary injunction. On November 20, 1989, the Supreme Court issued a temporary restraining order enjoining enforcement of the RTC order dated December 21, 1988 and restraining the sheriff and others from carrying out the writ of garnishment. The parties filed comments and replies before the Supreme Court.

Issues Presented

The principal legal questions were whether the municipal funds garnished by virtue of the RTC execution could be levied upon and disbursed absent an appropriation ordinance authorizing such expenditure, and whether the RTC and the Court of Appeals properly sustained garnishment and contempt measures where the municipal account bore a “hold code.” A subsidiary factual contention, raised for the first time before the Supreme Court, alleged that the petitioner maintained two PNB accounts: one account exclusively for the expropriation proceedings containing P99,743.94, and a second account for statutory obligations with P170,098,421.72 as of July 12, 1989.

Parties' Contentions

The Municipality of Makati contended that public funds earmarked for municipal statutory obligations in its second PNB account were immune from garnishment and execution absent an appropriation by municipal ordinance, invoking the doctrine of Republic v. Palacio and related authorities shielding public funds from attachment. Petitioner conceded that the specifically opened expropriation account could be subject to garnishment up to its balance but maintained that the excess funds in the other account could not be levied. Admiral Finance and PSB contended that the funds deposited for the expropriation and the compromise approved by the RTC entitled them to immediate payment and that the RTC properly ordered release and punished noncompliance.

Supreme Court's Ruling

The Supreme Court resolved to order Municipality of Makati to immediately pay PSB and Admiral Finance P4,953,506.45. The Court set aside the RTC order dated December 21, 1988, and made permanent the temporary restraining order issued on November 20, 1989. The Court required petitioner to report compliance within sixty (60) days from receipt of the resolution.

Legal Basis and Reasoning

The Court accepted that funds in Account No. S/A 265-537154-3, which was opened specifically for the expropriation proceedings under Pres. Decree No. 42, were properly subject to garnishment and levy to satisfy the RTC award. The Court, however, held that funds in the second account (PNB Account No. S/A 263-530850-7) constituted public funds of the municipal government intended for statutory obligations and governmental functions. Relying on established Philippine jurisprudence, including Republic v. Palacio, The Commissioner of Public Highways v. San Diego, and prior municipal immunity precedents, the Court reiterated the rule that public funds are not subject to levy and execution unless a statute provides otherwise. The Court held that absent a showing that the municipal council had enacted an appropriation ordinance appropriating from public funds an amount corresponding to the unpaid balance (less the funds available in the expropriation account), a levy upon the municipal public funds could not be validly effected.

Remedies, Alternatives and Compulsion

The Court