G.R. No. 103590 January 29, 1993
GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner, vs. HON. COURT OF APPEALS, THE PROVINCIAL SHERIFF OF CAVITE and VICTOR G. VALENCIA, respondents.

FACTS

Queen’s Row Subdivision, Inc. (QRSI) entered into a construction project agreement with the Government Service Insurance System (GSIS), wherein GSIS agreed to extend a financing loan for the construction of a residential subdivision. QRSI then entered into a construction contract with private respondent Victor G. Valencia. After completing his work, Valencia demanded payment from QRSI, which refused to pay. Valencia filed a complaint for sum of money against QRSI and GSIS. During trial, Valencia manifested he was not seeking relief against the personal funds of GSIS. Only Valencia presented evidence. On March 2, 1982, the trial court rendered a decision ordering QRSI to pay Valencia specific sums for various causes of action. The decision also contained a third dispositive paragraph requiring GSIS “to hold whatever amounts it has granted to, retained and obtained for defendant Queen’s Row, and to deliver the same to plaintiff by way of payment… It is distinctly made clear that defendant GSIS shall not be personally liable for the said obligation of co-defendant Queen’s Row, except as herein above-ordered…” Neither QRSI nor GSIS filed a motion for reconsideration or a notice of appeal. Valencia moved for execution. Writs were returned unsatisfied. Valencia then filed a Motion for Examination of Debtors of the Judgment Debtor. The trial court ordered a GSIS official to appear and testify. Valencia filed a petition to cite GSIS in contempt for failure to comply with the writ. The trial court ordered GSIS to comply. GSIS filed an Urgent Motion for Reconsideration but partially paid Valencia P154,476.14 out of retained funds for QRSI. Later, the trial court issued an alias writ of execution. The Sheriff served a notice of garnishment on GSIS. GSIS answered that it was not a debtor of QRSI but was, in fact, its biggest creditor. On July 5, 1985, the trial court ruled that GSIS was holding funds for QRSI and ordered GSIS to pay Valencia after deducting previous payments. GSIS’s motion for reconsideration was denied. GSIS filed a petition for certiorari and prohibition with the Court of Appeals (CA-G.R. SP No. 09956), which was dismissed on April 17, 1986, on the ground that the trial court’s 1982 decision had become final and executory. The CA noted that GSIS had acquiesced to the decision by not appealing and had even made a partial payment. GSIS appealed to the Supreme Court (G.R. No. 87980), which denied the petition on November 27, 1989. Valencia then filed a motion with the trial court for the issuance of an alias writ of execution. The trial court granted the motion on June 7, 1990. GSIS filed a motion for reconsideration, which was denied on September 10, 1990. GSIS filed a second motion for reconsideration, which was denied on December 5, 1990. GSIS then filed a petition for certiorari with the Court of Appeals (CA-G.R. SP No. 24021). On June 28, 1991, the Court of Appeals granted the petition and set aside the trial court’s 1990 orders, ruling that the 1982 decision did not adjudge GSIS liable for QRSI’s debt but merely recognized a contractor’s lien, and that GSIS’s partial payment did not constitute a waiver of its claim for legal compensation. Valencia filed a motion for reconsideration. On January 15, 1992, the Court of Appeals reversed its June 28, 1991 decision and reinstated the trial court’s 1990 orders, holding that the 1982 decision had become final and could no longer be altered. GSIS filed the present petition for review on certiorari.

ISSUE

Whether the Court of Appeals, in its Resolution of January 15, 1992, erred in reinstating the trial court’s 1990 orders which directed the execution of the 1982 decision against GSIS, despite the finding in its earlier Decision of June 28, 1991, that the 1982 decision did not impose personal liability on GSIS for QRSI’s debt and that GSIS had a superior right to the retained funds by way of legal compensation.

RULING

The Supreme Court GRANTED the petition. It SET ASIDE the Court of Appeals’ Resolution of January 15, 1992, and REINSTATED and AFFIRMED the Court of Appeals’ Decision of June 28, 1991.
The Supreme Court held that the Court of Appeals’ January 15, 1992 Resolution, which merely relied on the finality of the 1982 decision, constituted a grave abuse of discretion. A final judgment can still be corrected if it contains a clerical error or a void judgment. The Court examined the 1982 decision and found that its third dispositive paragraph did not impose a personal liability on GSIS to pay QRSI’s debt to Valencia. Instead, it merely recognized a contractor’s lien under Article 2242 of the Civil Code, which is a preference in insolvency, not an independent cause of action against a third party like GSIS. The decision explicitly stated that GSIS “shall not be personally liable.” The trial court’s subsequent orders in 1990, which directed GSIS to pay the judgment debt from its own funds, effectively modified the final 1982 decision by imposing a personal liability that did not originally exist. This was impermissible. Furthermore, the Court agreed with the Court of Appeals’ June 28, 1991 finding that GSIS had a right of legal compensation under Article 1279 of the Civil Code against QRSI. The undisputed fact was that QRSI was heavily indebted to GSIS. Since both parties were principal debtors and creditors of each other, their obligations were extinguished by compensation to the concurrent amount. GSIS’s partial payment to Valencia in 1982, made under the coercion of a contempt order, did not constitute a voluntary waiver of its right to compensation. The Court also noted that GSIS funds are held in trust for its members and are exempt from execution, except as expressly provided by its charter. Therefore, the trial court’s 1990 orders directing execution against GSIS were issued with grave abuse of discretion.