G.R. No. 156956 - Republic vs. Del Monte Motors, Inc.

Case Summary (G.R. No. 156956)

Petitioner

The Insurance Commissioner, acting in his official capacity, sought review of the RTC’s contempt finding for refusal to comply with an order to permit withdrawal of CISCO’s security deposit to satisfy Del Monte Motors’ writ of garnishment.

Respondent

Del Monte Motors, Inc. obtained a final and executory judgment against defendants and sought execution against a counterbond issued by CISCO; after levy and issuance of a Notice of Garnishment, Del Monte moved to cite the Insurance Commissioner in contempt for refusing to permit withdrawal of CISCO’s security deposit.

Key Dates and Procedural Posture

RTC decision in favor of Del Monte: January 15, 2002.
RTC granted execution and writ of garnishment: June 13, 2002.
RTC Resolution ordering Insurance Commissioner to allow withdrawal from CISCO’s security deposit: December 18, 2002.
Del Monte’s motion to cite Commissioner in contempt and subsequent RTC Order finding Commissioner guilty of indirect contempt: January 8 and January 16, 2003.
Partial releases of the security deposit by the Commissioner occurred in 2003; the Supreme Court decision reviewed the RTC’s contempt order (petition filed under Rule 45).

Applicable Law and Constitutional Framework

The governing statutory provisions are Sections 191, 192, 203, 414 and related provisions of the Insurance Code as quoted and discussed. Because the decision date is after 1990, the 1987 Constitution is the applicable constitutional framework for the public-interest and regulatory aspects addressed in the decision (as the court expressly treated the business of insurance as subject to State regulation and public interest considerations).

Facts Relevant to the Controversy

Del Monte obtained judgment for P11,835,375.50 against defendants and sought execution against a counterbond issued by CISCO. Sheriff Paguyo levied CISCO’s properties and served a Notice of Garnishment on CISCO’s depository banks and on the Insurance Commission seeking enforcement against CISCO’s security deposit held under Section 203 of the Insurance Code. The RTC ruled the garnishment valid and ordered the Commissioner to withdraw from CISCO’s security deposit the amount necessary to satisfy the Notice of Garnishment.

Trial Court Ruling and Contempt Determination

The RTC held that the security deposit was answerable for CISCO’s contractual obligations and ordered payment from the deposit; upon the Commissioner’s refusal to implement that order, the RTC found him guilty of indirect contempt under Rule 71, Section 3 of the 1997 Rules of Civil Procedure for willfully disobeying the lawful order.

Issue Presented to the Supreme Court

Whether the security deposit held by the Insurance Commissioner pursuant to Section 203 of the Insurance Code may be levied or garnished in favor of only one insured (i.e., whether a single judgment creditor may levy upon the security deposit to the exclusion of other policyholders).

Preliminary Consideration: Mootness and Public Interest

The Commissioner later authorized partial releases of the security deposit to Del Monte in 2003, and the fund was partially paid. The Supreme Court found the dispute not wholly moot: only a portion of the claim was satisfied, CISCO was required to replenish the deposit, and similar claims had arisen nationally. Because the question implicates public interest and insurance regulation, the Court concluded it must decide the legal issue to provide guiding principles for future cases.

Statutory Text and Primary Interpretation (Section 203)

Section 203 requires domestic insurers to deposit securities with the Commissioner equal to 25% of the minimum paid-up capital, to be free from lien or encumbrance, and to be “deposited with and held by the Commissioner for the faithful performance by the depositing insurer of all its obligations under its insurance contracts.” The provision further states, “Except as otherwise provided in this Code, no judgment creditor or other claimant shall have the right to levy upon any of the securities of the insurer held on deposit pursuant to the requirement of the Commissioner.” The Court emphasized the plain statutory language that the deposit is (1) answerable for all obligations under insurance contracts, (2) to remain free from liens and encumbrances, and (3) exempt from levy by any claimant.

Nature of the Fund: Contingency Trust for All Policyholders

The Court interpreted the statutory deposit as an implied trust (a contingency fund) held for the benefit and security of all policyholders and beneficiaries of the depositing insurer. Citing the California precedent reflected in the Insurance Code’s lineage, the Court noted that such funds must be ratably distributed among all claimants entitled to share, and cannot be appropriated by a single claimant except through equitable proceedings in the nature of a creditors’ bill where all interested parties are before the court.

Rights of a Single Claimant: Inchoate and Expectancy Status

A judgment creditor’s claim upon the security deposit is contingent upon the insurer’s insolvency and is subject to all other obligations arising from existing insurance contracts. The Court described a single claimant’s right as inchoate—an expectancy without present proprietary attributes—making it premature to permit garnishment before insolvency proceedings or a coordinated determination of all claimants’ rights and prorations.

Powers and Discretion of the Insurance Commissioner

The Insurance Code vests the Commissioner with broad regu

Case Syllabus (G.R. No. 156956)

Nature and Procedural Posture of the Case

This is a Petition for Review under Rule 45 of the Rules of Court seeking reversal of the January 16, 2003 Order of the Regional Trial Court (RTC) of Quezon City (Branch 221) in Civil Case No. Q-97-30412.
The RTC Order declared Insurance Commissioner Eduardo T. Malinis guilty of indirect contempt for refusing to comply with the RTC’s December 18, 2002 Resolution directing the release of a security deposit of Capital Insurance and Surety Co., Inc. (CISCO) to satisfy a Notice of Garnishment.
The petition was submitted for decision on February 8, 2005 upon receipt of petitioner’s memorandum; respondent’s memorandum was received on November 26, 2004.
The Supreme Court (Panganiban, CJ) rendered a decision granting the petition and setting aside the RTC Order; the decision was concurred in by Justices Ynares-Santiago, Austria-Martinez, Callejo, Sr., and Chico-Nazario.

Primary Relief Sought and Lower Court Action

Respondent (Del Monte Motors, Inc.) sought satisfaction of a final and executory judgment by levying upon and garnishing the security deposit of CISCO held by the Insurance Commission pursuant to Section 203 of the Insurance Code.
On June 13, 2002, the RTC granted respondent’s Motion for Execution and issued the corresponding writ. Sheriff Manuel S. Paguyo proceeded to levy on CISCO properties, issued notices of garnishment to banks, and served a Notice of Garnishment on the Insurance Commission to enforce the writ against CISCO’s security deposit.
On December 18, 2002, the RTC ruled that the Notice of Garnishment on the Insurance Commission was valid and ordered the Insurance Commissioner to withdraw from CISCO’s security deposit the amount stated in the RTC’s resolution and pay it to the sheriff in satisfaction of the Notice of Garnishment.
On January 8, 2003, respondent filed a Motion to Cite Commissioner Malinis in Contempt for his refusal to obey the RTC’s December 18, 2002 Resolution; after a hearing where the commissioner or his representative failed to appear, the RTC issued its January 16, 2003 Order finding him guilty of indirect contempt.

Essential Factual Background

On January 15, 2002, the RTC rendered judgment in Civil Case No. Q-97-30412 finding Vilfran Liner, Inc., Hilaria Villegas, and Maura Villegas jointly and severally liable to Del Monte Motors, Inc. for P11,835,375.50, representing the balance of Vilfran Liner’s service contracts with respondent.
The trial court ordered execution of its decision against the counterbond posted by Vilfran Liner on June 10, 1997, purportedly issued by CISCO.
On April 18, 2002, CISCO opposed the Motion for Execution, claiming respondent had no record or document regarding the alleged issuance of the counterbond, asserting the bond was not valid or enforceable.
The sheriff’s Notice of Garnishment, served on the Insurance Commission on August 16, 2002, sought enforcement against the security deposit that CISCO had filed with the Insurance Commission under Section 203 of the Insurance Code.
In the record, the RTC’s December 18, 2002 Resolution, as quoted in the source, ordered withdrawal from CISCO’s security deposit the amount of "P11,835.50" to be paid to Sheriff Manuel S. Paguyo (the record elsewhere and earlier reflects the larger judgment amount of P11,835,375.50).

Issue Presented to the Supreme Court

The sole legal issue raised by the petitioner for resolution by the Supreme Court was: Whether or not the security deposit held by the Insurance Commissioner pursuant to Section 203 of the Insurance Code may be levied upon or garnished in favor of only one insured.

Preliminary Issue: Mootness and Partial Releases

After the RTC’s contested order, Commissioner Malinis sent a letter dated March 26, 2003 to the Treasurer of the Philippines stating he had no objection to release of the security deposit to Del Monte Motors; portions of the fund were released to respondent in July, October, and December 2003.
The Supreme Court considered whether these partial releases rendered the case moot. Petitioner contended the releases did not constitute abandonment of its legal position that Section 203 deposits are exempt from levy and garnishment, and that the releases were made under the commissioner’s control over the fund rather than pursuant to the RTC’s garnishment order.
The Court found the case not totally moot because only a portion of respondent’s claim was satisfied, the Insurance Commission required CISCO to replenish its security deposit, respondent could seek further garnishment after replenishment, and similar claims against security deposits had been or could be made in other instances.
The Court emphasized the public interest character of the insurance business and that the matter involved public policy warranting guidance by the high court; consequently the Court exercised jurisdiction to resolve the legal question.

Statutory Provisions and Text Interpreted

Section 203, Insurance Code (quoted in the source): requires domestic