424 Phil. 1
QUISUMBING, J.:
At the outset, we note that petitioner had previously come before this Court raising the same issues it is raising now, in the case of PNB MADECOR v. Gerardo C. Uy, G.R. No. 129598, promulgated on August 15, 2001. The respondent therein was different but the facts are essentially the same: respondent was PNEI’s judgment debtor who sought to garnish petitioner’s receivables from PNEI. Petitioner opposed, claiming legal compensation, and asserting that it could not have become a forced intervenor in the case by virtue of the order of garnishment. Petitioner likewise pointed out in that earlier case that PNEI had not made any demand for payment of the amount owed under the promissory note. The alleged demand letter sent by PNEI to PNB MADECOR in this case is the same demand letter that was presented in evidence in the previous case. [8]I …IN THE INTERPRETATION OF THE RULES OF COURT WHEN IT RULED THAT AN AFFIDAVIT IS NOT A CONDITION PRECEDENT TO AN EXAMINATION OF A DEBTOR OF A JUDGMENT DEBTOR AS MENTIONED UNDER SECTION 39, RULE 39 OF THE RULES OF COURT.II …IN RULING THAT A DEMAND WAS MADE BY PNEI TO PETITIONER PNB MADECOR FOR THE PAYMENT OF THE PROMISSORY NOTE DATED 31 OCTOBER 1982.III …WHEN IT RULED THAT THE REQUISITES FOR LEGAL COMPENSATION AS SET FORTH UNDER ARTICLES 1277 AND 1278 OF THE CIVIL CODE DO NOT CONCUR IN THE CASE AT BAR.IV …[WHEN IT] MISCONSTRUED THE PROVISIONS OF SECTION 45, RULE 39 OF THE RULES OF COURT BY RULING THAT PETITIONER PNB-MADECOR, UPON BEING CITED IN AND SERVED WITH A NOTICE OF GARNISHMENT BECAME A FORCED INTERVENOR. HENCE, DENYING THE RIGHT OF THE LATTER TO VENTILATE ITS POSITION IN FULL-BLOWN TRIAL. [7]
SEC. 39. Examination of debtor of judgment debtor. -- After an execution against the property of a judgment debtor has been returned unsatisfied in whole or in part, and upon proof, by affidavit of a party or otherwise, to the satisfaction of the judge, that a person, corporation, or other legal entity has property of such judgment debtor, or is indebted to him, the judge may, by an order, require such person, corporation, or other legal entity, or any officer or member thereof, to appear before the judge, or a commissioner appointed by him, at a time and place within the province in which the order is served, to answer concerning the same. The service of the order shall bind all credits due the judgment debtor and all money and property of the judgment debtor in the possession or in the control of such person, corporation, or legal entity from the time of service; and the judge may also require notice of such proceedings to be given to any party to the action in such manner as he may deem proper. (Underscoring supplied.)Petitioner apparently confuses a sheriff’s return with the affidavit, or other proof, stating that another person is indebted to the judgment debtor. The cited rule does not refer to a sheriff’s return that states whether or not the judgment has been satisfied. Rather, it speaks of an affidavit, or some other proof, that a third person is indebted to, or has property of, a judgment debtor.
We find, however, that legal compensation could not have occurred because of the absence of one requisite in this case: that both debts must be due and demandable.There is another alleged demand letter on record, dated January 24, 1990.[10] It was addressed to Atty. Domingo A. Santiago, Jr., Senior Vice President and Chief Legal Counsel of PNB, and signed by Manuel Vijungco, chairman of the Board of Directors of PNEI. In said letter, PNEI requested offsetting of accounts between petitioner and PNEI. However, PNEI’s own Assistant General Manager for Finance at that time, Atty. Loreto N. Tang, testified that the letter was not a demand letter. [11]The CA observed:Petitioner’s obligation to PNEI appears to be payable on demand, following the above observation made by the CA and the assertion made by petitioner. Petitioner is obligated to pay the amount stated in the promissory note upon receipt of a notice to pay from PNEI. If petitioner fails to pay after such notice, the obligation will earn an interest of 18 percent per annum.
Under the terms of the promissory note, failure on the part of NAREDECO (PNB MADECOR) to pay the value of the instrument ‘after due notice has been made by PNEI would entitle PNEI to collect an 18% [interest] per annum from date of notice of demand.
Petitioner makes a similar assertion in its petition, that
xxx It has been stipulated that the promissory note shall earn an interest of 18% per annum in case NAREDECO, after notice, fails to pay the amount stated therein.
Respondent alleges that PNEI had already demanded payment. The alleged demand letter reads in part:We wish to inform you that as of August 31, 1984 your outstanding accounts amounted to P10,376,078.67, inclusive of interest.We agree with petitioner that this letter was not one demanding payment, but one that merely informed petitioner of (1) the conveyance of a certain portion of its obligation to PNEI per a dacion en pago arrangement between PNEI and PNB, and (2) the unpaid balance of its obligation after deducting the amount conveyed to PNB. The import of this letter is not that PNEI was demanding payment, but that PNEI was advising petitioner to settle the matter of implementing the earlier arrangement with PNB.
In accordance with our previous arrangement, we have conveyed in favor of the Philippine National Bank P7,884,921.10 of said receivables from you. With this conveyance, the unpaid balance of your account will be P2,491,157.57.
To forestall further accrual of interest, we request that you take up with PNB the implementation of said arrangement. xxxxxx
Since petitioner’s obligation to PNEI is payable on demand, and there being no demand made, it follows that the obligation is not yet due. Therefore, this obligation may not be subject to compensation for lack of a requisite under the law. Without compensation having taken place, petitioner remains obligated to PNEI to the extent stated in the promissory note. This obligation may undoubtedly be garnished in favor of respondent to satisfy PNEI’s judgment debt.[9] (Citations appearing in the original omitted.)
Petitioner, in fact, actively participated in the proceedings before the trial court by appearing during hearings, examining witnesses, and filing pleadings.[16] It cannot now claim that it was denied the opportunity to present its side in a full-blown trial.…petitioner contends that it did not become a forced intervenor in the present case even after being served with a notice of garnishment. Petitioner argues that the correct procedure would have been for respondent to file a separate action against PNB MADECOR, per Section 43 of Rule 39 of the Rules of Court.[12] Petitioner insists it was denied its right to ventilate its claims in a separate, full-blown trial when the courts a quo ruled that the abovementioned rule was inapplicable to the present case.On this score, we had occasion to rule as early as 1921 in Tayabas Land Co. v. Sharruf,[13] as follows:…garnishment… consists in the citation of some stranger to the litigation, who is debtor to one of the parties to the action. By this means such debtor stranger becomes a forced intervenor; and the court, having acquired jurisdiction over his person by means of citation, requires him to pay his debt, not to his former creditor, but to the new creditor, who is creditor in the main litigation. It is merely a case of involuntary novation by the substitution of one creditor for another. Upon principle the remedy is a species of attachment or execution for reaching any property pertaining to a judgment debtor which may be found owing to such debtor by a third person.Again, in Perla Compania de Seguros, Inc. v. Ramolete,[14] we declared:Through service of the writ of garnishment, the garnishee becomes a “virtual party” to, or a “forced intervenor” in, the case and the trial court thereby acquires jurisdiction to bind him to compliance with all orders and processes of the trial court with a view to the complete satisfaction of the judgment of the court.xxx
There is no need for the institution of a separate action under Rule 39, Section 43, contrary to petitioner’s claim. This provision contemplates a situation where the person allegedly holding property of (or indebted to) the judgment debtor claims an adverse interest in the property (or denies the debt). In this case, petitioner expressly admits its obligation to PNEI.[15] (Citations appearing in the original adjusted to conform to present decision.)