G.R. No. 132245 ; January 2, 2002
PNB MANAGEMENT and DEVELOPMENT CORP. (PNB MADECOR), petitioner, vs. R&R METAL CASTING and FABRICATING, INC., respondent.

FACTS

Respondent R&R Metal obtained a judgment for damages against Pantranco North Express, Inc. (PNEI). A writ of execution was returned unsatisfied as the sheriff found no leviable property of PNEI. Subsequently, R&R discovered through a subpoena that petitioner PNB MADECOR was indebted to PNEI under a promissory note. R&R then filed a motion for the court to apply these funds in PNB MADECOR’s hands to satisfy its judgment against PNEI.
PNB MADECOR opposed the motion, arguing that its obligation to PNEI was not yet due, that it had a claim for unpaid rentals from PNEI which should result in legal compensation (extinguishing the debt), and that it had an adverse claim over the funds, necessitating a separate action under the Rules of Court. The trial court granted R&R’s motion and issued an order of garnishment, which the Court of Appeals affirmed.

ISSUE

The core issues are: (1) whether an affidavit of non-satisfaction of judgment is a prerequisite for examining a debtor of the judgment debtor; (2) whether PNB MADECOR’s debt to PNEI was due and demandable; (3) whether legal compensation between PNB MADECOR and PNEI had taken place; and (4) whether PNB MADECOR was denied due process by being made a “forced intervenor” without a full-blown trial.

RULING

The Supreme Court denied the petition and affirmed the appellate court’s decision. On the procedural issue, the Court clarified that Section 39, Rule 39 does not require a sheriff’s return affidavit as a condition precedent. The rule requires proof, which can be by affidavit or otherwise, that a third person is indebted to the judgment debtor. The sheriff’s return of an unsatisfied writ, already part of the records, sufficiently established this prerequisite.
On the substantive defenses, the Court found PNB MADECOR’s debt to PNEI was due and demandable. The promissory note was executed in 1982, and PNEI had made a written demand for payment in 1994. The claim of legal compensation failed because compensation under the Civil Code requires that both debts be due and demandable. PNB MADECOR’s claim for unpaid rentals from PNEI was not liquidated and had not been adjudicated, thus the requisites for legal compensation did not concur.
Finally, the Court ruled that PNB MADECOR, upon service of the garnishment order, became a “virtual party” or “forced intervenor” in the case. This procedural status is established jurisprudence and does not require a separate action. The trial court acquired jurisdiction to bind PNB MADECOR to its orders. The Court noted that PNB MADECOR actively participated in the proceedings, thus it was not denied the opportunity to be heard.