G.R. No. L-41756 July 30, 1976
MANILA ELECTRIC COMPANY, petitioner, vs. GENBANCOR DEVELOPMENT CORPORATION and THE HON. GUARDSON R. LOOD in his capacity, as Judge of the Court of First Instance of Rizal, Branch VI, respondents.

FACTS

Genbancor Development Corporation sued Continental Finance Corporation and obtained a writ of preliminary attachment. A deputy sheriff served a notice of garnishment upon Manila Electric Company (Meralco) regarding any money or credits due to Continental from Meralco. Meralco responded with a letter stating it would comply by not disposing of any such property. Nearly ten months later, Genbancor moved to compel Meralco to deliver garnished amounts to the court clerk. Meralco filed a manifestation denying it held any monies payable to Continental, clarifying its prior letter was not an admission of indebtedness. Genbancor then moved, citing Section 10, Rule 57 of the Rules of Court, to examine Meralco’s officers under oath, alleging that Continental’s records listed five Meralco promissory notes totaling over P4.8 million.
Meralco opposed, denying any such indebtedness or the existence of the specified promissory notes, and invoked the rule in Bucra Corporation vs. Macadaeg that a garnishee’s denial of debt necessitates a separate action. The lower court, however, granted Genbancor’s motion, ordering the examination. Upon Meralco’s motion for reconsideration, the court, relying on a balance sheet from Continental, affirmed its order, holding the examination imperative. Meralco filed this certiorari petition, submitting an affidavit from its supervisor stating the referenced commercial papers did not exist and that any prior negotiable certificates had been transferred and paid to other entities.

ISSUE

Whether the lower court acted with grave abuse of discretion in ordering the examination of Meralco’s officers under Section 10, Rule 57, despite Meralco’s categorical denial of holding any credits or property belonging to the judgment debtor, Continental Finance Corporation.

RULING

The Supreme Court granted the petition and set aside the lower court’s orders. The legal logic is anchored on the proper application of Section 10, Rule 57, which allows the examination of a garnishee who is alleged to have possession or control of the debtor’s property. The Court clarified that this provision applies only when the garnishee admits the debt or is presumed to hold the property. Where the garnishee expressly and credibly denies the indebtedness, as Meralco did repeatedly, the remedy for the attaching creditor is not a compulsory examination under Rule 57 but an independent action under Section 45, Rule 39 to establish the existence of the debt. The lower court’s order was premised on a false factual assumption—that Meralco was indebted based on Continental’s records—which was contradicted by Meralco’s evidence showing the specific notes did not exist and the actual certificates had been negotiated to third parties. Since Meralco’s denial appeared credible and was supported by an affidavit and even an admission from Continental’s president that the papers had been endorsed elsewhere, the compulsory examination was uncalled for. Genbancor’s proper recourse was to utilize other modes of discovery against the debtor, Continental, to ascertain its true obligors, not to compel an examination of a garnishee who had legitimately disputed the obligation.