This Supreme Court decision clarifies that government funds, particularly those of state universities like the University of the Philippines (UP), are generally protected from garnishment to satisfy court judgments, emphasizing the need for a specific appropriation from Congress before such funds can be disbursed. This ruling underscores the principle that public funds must be used for their intended purposes and that the Commission on Audit (COA) has primary jurisdiction over claims against government entities, safeguarding public resources from unauthorized seizure and ensuring the continued operation of essential government services.

When Academic Ambitions Meet Fiscal Realities: Can a University’s Funds Be Garnished?

The University of the Philippines (UP) entered into a construction agreement with Stern Builders Corporation for renovations at its Los Baños campus. A dispute arose over unpaid billings, leading Stern Builders to sue UP. The Regional Trial Court (RTC) ruled in favor of Stern Builders, ordering UP to pay a substantial amount, including damages. However, UP’s appeal was initially denied due to a technicality regarding the filing deadline. Consequently, Stern Builders sought to enforce the judgment by garnishing UP’s funds held in depository banks. This action sparked a legal battle that ultimately reached the Supreme Court, raising critical questions about the extent to which government funds are subject to execution to satisfy court judgments against government entities.

At the heart of the matter lies the principle of state immunity from suit, which generally shields the government from being sued without its consent. While the UP, as a state university, can be sued, this suability does not automatically translate into liability. The Supreme Court has consistently held that even when the State allows itself to be sued, its funds and properties remain protected from seizure under writs of execution or garnishment unless there is a specific appropriation for that purpose. This protection is rooted in the public policy consideration of preventing the disruption of essential government functions and services.

The Court emphasized that UP’s funds, derived from fees, income, and yearly appropriations, constitute a **special trust fund** that must be used solely for the university’s mission and purpose. These funds are subject to auditing by the COA, further reinforcing their public character. Presidential Decree No. 1445, the **Government Auditing Code of the Philippines**, defines a trust fund as one officially held by a government agency or public officer for a specific obligation. Such funds can only be used for the designated purpose, underscoring the need for a specific appropriation from Congress to cover the judgment against UP.

In its decision, the Supreme Court cited the landmark case of Republic v. Villasor, where the Court nullified an alias writ of execution against the funds of the Armed Forces of the Philippines. The Court reiterated that government funds and properties cannot be seized under writs of execution or garnishment to satisfy judgments, as this would disrupt public services. This principle aligns with Section 29 (1), Article VI of the Constitution, which mandates that no money shall be paid out of the Treasury except in pursuance of an appropriation made by law. Thus, even if a court renders a judgment against a government entity, the enforcement of that judgment through execution requires a specific appropriation from Congress.

Furthermore, the Supreme Court underscored the **primary jurisdiction of the COA** over claims against government entities. Section 26 of Presidential Decree No. 1445 grants the COA the authority to examine, audit, and settle all debts and claims due from or owing to the Government or any of its subdivisions, agencies, and instrumentalities. Even with a final and executory court decision, the settlement of monetary claims against the government remains subject to the COA’s approval. The RTC, therefore, acted beyond its authority in directing the immediate withdrawal of UP’s funds from its depository banks without COA’s sanction.

The Court also addressed the issue of the UP’s allegedly belated appeal. While the lower courts found the UP’s notice of appeal to be tardy, the Supreme Court invoked equity and applied the **fresh-period rule** retroactively. This rule, established in Neypes v. Court of Appeals, allows a fresh 15-day period to file a notice of appeal from receipt of the order dismissing a motion for new trial or reconsideration. The Court emphasized that procedural rules should be applied to serve substantial justice, and denying the UP the benefit of the fresh-period rule would be unjust and absurd.

Finally, the Supreme Court examined the RTC’s award of actual and moral damages, as well as attorney’s fees. The Court found that the RTC’s decision lacked the necessary factual and legal basis for these awards, violating Section 14 of Article VIII of the Constitution, which requires courts to clearly and distinctly state the facts and the law on which their decisions are based. The Court emphasized that the findings of fact must include not only ultimate facts but also the supporting evidentiary facts. Without these findings, the awards of damages and attorney’s fees were deemed speculative and devoid of legal basis, rendering them void.

In this case, the Supreme Court made it clear that the funds of the University of the Philippines, being government funds, are not subject to garnishment. It is legally unwarranted for the Court of Appeals to agree with the RTC’s holding that no appropriation by Congress was necessary to allocate and set aside the payment of the judgment awards. The Constitution strictly mandates that no money shall be paid out of the Treasury except in pursuance of an appropriation made by law. For these reasons, the garnishment of the UP’s funds was deemed illegal.

FAQs

What was the key issue in this case?	The central issue was whether the funds of the University of the Philippines, a state university, could be garnished to satisfy a court judgment against it, or if such funds were protected as government funds requiring a specific appropriation from Congress for disbursement.
What is the "fresh-period rule" and how did it apply?	The fresh-period rule, established in Neypes v. Court of Appeals, grants a litigant a new 15-day period to file a notice of appeal from receipt of the order dismissing a motion for new trial or reconsideration; here, the Supreme Court retroactively applied this rule to the UP’s appeal, deeming it timely filed.
Why did the Supreme Court delete the awards for damages and attorney’s fees?	The Court found that the RTC’s decision lacked the necessary factual and legal basis for the awards of actual and moral damages, as well as attorney’s fees, violating the constitutional requirement for a clear and distinct statement of the supporting facts and law.
What does the case say about garnishing government funds?	The Court says that government funds are generally protected from garnishment to satisfy court judgments, emphasizing the need for a specific appropriation from Congress before such funds can be disbursed.
What is the role of the Commission on Audit (COA) in these cases?	The COA has primary jurisdiction over the examination, audit, and settlement of all debts and claims due from or owing to the Government or any of its subdivisions, agencies, and instrumentalities, meaning even a final court decision is subject to COA’s approval before execution.
What is a special trust fund, according to this case?	The court defined UP’s fund as a government fund that is public in character. These funds include income accruing from the use of real property ceded to the UP that may be spent only for the attainment of its institutional objectives.
What constitutional provision is relevant to this case?	Section 29 (1), Article VI of the Constitution is relevant. It mandates that no money shall be paid out of the Treasury except in pursuance of an appropriation made by law.
What is the difference between suability and liability?	Suability depends on the consent of the state to be sued, liability on the applicable law and the established facts. When the state does waive its sovereign immunity, it is only giving the plaintiff the chance to prove, if it can, that the defendant is liable.

The Supreme Court’s decision in University of the Philippines vs. Hon. Agustin S. Dizon, Stern Builders, Inc., and Servillano Dela Cruz provides important clarity regarding the protection of government funds from garnishment and the respective roles of the courts and the COA in adjudicating claims against government entities. By emphasizing the need for a specific appropriation from Congress and the COA’s primary jurisdiction, the Court safeguards public resources and ensures the continued operation of essential government services.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: University of the Philippines, G.R. No. 171182, August 23, 2012