G.R. No. L-20322 May 29, 1968
Republic of the Philippines, petitioner, vs. Hon. Perfecto R. Palacio, as Judge of the Court of First Instance of Camarines Sur, Macario M. Ofilada, as ex-officio Sheriff of Manila, and Ildefonso Ortiz, respondents.

FACTS

On April 2, 1960, Ildefonso Ortiz filed Civil Case No. 4886 in the Court of First Instance of Camarines Sur against the Handong Irrigation Association, Inc. and the Irrigation Service Unit (ISU), an agency under the Department of Public Works and Communications, to recover possession of a lot and damages. The ISU was declared in default. The Republic, through the Solicitor General, moved to dismiss the complaint on the ground that the ISU had no juridical personality to sue and be sued, but the motion was denied, the court ruling that the ISU, though a government agency, was engaged in the private business of selling irrigation pumps and materials on installment. No appeal was taken from this denial.
On January 29, 1962, a writ of execution was served, and on February 16, 1962, an order of garnishment was served by the Sheriff of Manila against the “pump irrigation trust fund” in the ISU’s account at the Philippine National Bank to satisfy a judgment of P14,874.40. The Solicitor General moved to lift the garnishment, arguing the funds were public and exempt, but the motion was denied. The Republic then filed a certiorari and prohibition proceeding in the Court of Appeals, which dismissed the petition, sustaining the garnishment. The appellate court found that the ISU was engaged in private business and, following National Airports Corporation vs. Teodoro, by such engagement the government had consented to suit. The Republic petitioned for review.

ISSUE

Whether the pump irrigation trust fund deposited with the Philippine National Bank in the account of the Irrigation Service Unit may be garnished to satisfy a money judgment against the ISU.

RULING

No. The Supreme Court reversed the decision of the Court of Appeals and declared the order of garnishment null and void.
The Court held that the pump irrigation trust fund is a public fund. The ISU was created as a government office to promote a specific economic policy (extending irrigation facilities to small farmers) and its activity of selling pumps on installment was not intended for profit. The installment payments and interest collected were to replenish counterpart funds used for the project, as governed by a Supplemental Agreement to a Bilateral Agreement between the Philippines and the United States.
The Court of Appeals erred in assuming that a waiver of state immunity from suit automatically makes state property liable to seizure. Even if the state consents to suit, execution cannot issue on a judgment against it; the state must determine for itself whether to pay, and the legislature must provide for payment. Levying execution on the ISU funds would divert them from their appropriated purpose and constitute an illegal disbursement.
Furthermore, the liability in the original case arose from tort (inducing an invasion of land), not contract. Under Article 2180 of the Civil Code, the State is only liable for torts caused by its special agents specially commissioned for the act, and there was no proof of such authorization here. Therefore, neither the State nor its funds could be held liable. The writ of preliminary injunction was made permanent.