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University of the Philippines v. Dizon

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University of the Philippines v. Dizon

Case Title and Citation

University of the Philippines, Jose V. Abueva, Raul P. De Guzman, Ruben P. Aspiras, Emmanuel P. Bello, Wilfredo P. David, Casiano S. Abrigo, and Josefina R. Licuanan, Petitioners, vs. Hon. Agustin S. Dizon, in his capacity as Presiding Judge of the Regional Trial Court of Quezon City, Branch 80, Stern Builders, Inc., and Servillano Dela Cruz, Respondents.
G.R. No. 171182, August 23, 2012
Supreme Court - First Division
Ponente: Associate Justice Lucas P. Bersamin

Facts

  • On August 30, 1990, UP, through President Jose V. Abueva, entered into a General Construction Agreement with Stern Builders, represented by Servillano Dela Cruz, for construction/renovation at UP Los Baños.
  • Stern Builders submitted three progress billings; UP paid two. The third billing of ₱273,729.47 was disallowed by the Commission on Audit (COA), later lifted, but remained unpaid.
  • Stern Builders and Dela Cruz sued UP and its officials in RTC Civil Case No. Q-93-14971 to collect the unpaid billing and recover damages.
  • On November 28, 2001, the RTC rendered judgment for plaintiffs ordering UP and co-respondents to pay:
    1. ₱503,462.74 (third billing, additional work, retention)
    2. ₱5,716,729.00 actual damages
    3. ₱10,000,000.00 moral damages
    4. ₱150,000.00 plus ₱1,500.00 per appearance as attorney’s fees
    5. Costs of suit
  • UP filed motion for reconsideration (denied May 7, 2002) and filed a notice of appeal on June 3, 2002. RTC denied due course for late filing on September 26, 2002; writ of execution issued October 4, 2002.
  • Sheriff served writ on UP October 9, 2002. UP filed motions to reconsider/quash; RTC denied relief April 1, 2003.
  • Stern Builders sought execution and garnishment of UP depository accounts (Land Bank and Development Bank of the Philippines, DBP). Notices of garnishment served June 23 and July 25, 2003.
  • The RTC issued multiple orders regarding garnishment, release, and sheriff assistance; DBP delivered a manager’s check for ₱16,370,191.74 representing garnished funds.
  • UP filed certiorari in the Court of Appeals (CA). On September 16, 2005, the CA dismissed UP’s petition and upheld release/deposit of garnished funds on the ground that funds had been earmarked for the project and held in a fiduciary capacity.
  • UP filed petition for review on certiorari to the Supreme Court (G.R. No. 171182). While proceedings were pending, RTC judges (Judge Dizon and later Judge Maria Theresa dela Torre‑Yadao) issued orders regarding withdrawal/release of the deposited funds; DBP complied and the funds were withdrawn on or about January 17, 2007.
  • Supreme Court issued a TRO dated January 24, 2007 enjoining enforcement of Judge Yadao’s order; UP later filed supplemental petitions challenging the withdrawal and denial to redeposit the funds.

Issues

  1. Were the University of the Philippines’ funds the proper subject of garnishment to satisfy the judgment?
  2. Did the Court of Appeals commit error in allowing garnishment of UP funds in violation of Article XIV, Section 5(5) of the Constitution?
  3. May the Supreme Court modify or delete the award of ₱10,000,000.00 as moral damages in the exercise of equity and review powers despite the finality of the RTC judgment?
  4. Did the RTC (Branch 80) commit grave error in ordering the immediate release of the judgment award in its January 3, 2007 order?
  5. Did the RTC commit grave error in ordering the immediate release of the judgment award in its January 16, 2007 order while remedies were pending?
  6. Should the garnished amount withdrawn by the private respondents be redeposited to DBP pursuant to the Supreme Court’s restraining order and authority?

Ruling

  1. No - UP funds are government trust funds and are not proper subjects of garnishment absent appropriate appropriation and COA settlement.
  2. Yes - the CA erred in allowing garnishment contrary to constitutional and statutory limitations on disbursement of public funds.
  3. Yes - the Court may modify/delete the ₱10,000,000.00 moral damages (and related awards) in equity because those awards lacked clear and distinct findings of fact and law and thus did not attain finality.
  4. Yes - the RTC erred in ordering immediate release on January 3, 2007; such orders authorizing withdrawal of government trust funds were beyond the court’s authority.
  5. Yes - the RTC erred in ordering immediate release on January 16, 2007 while administrative procedures and Supreme Court remedies were pending.
  6. Yes - the Court ordered Stern Builders and Servillano Dela Cruz to redeposit ₱16,370,191.74 within 10 days; costs of suit were imposed on private respondents.

Reasoning / Ratio Decidendi

  • Government instrumentality and trust-fund character of UP: UP is a chartered national university and a government instrumentality administering special funds. Funds in UP’s possession are trust funds to be used only for the specific purposes for which they were created (Act No. 1870; R.A. No. 9500; Executive Order No. 714). Interest and deposits of such funds remain public in character and subject to COA audit.
  • Primary jurisdiction of COA: Section 26, Presidential Decree No. 1445 (Government Auditing Code) vests COA with primary jurisdiction to examine, audit and settle all claims due from the Government or its subdivisions, agencies and instrumentalities. Execution against government funds must respect PD No. 1445 procedures.
  • Constitutional and statutory limitation on disbursement: The Constitution provides that no money shall be paid out of the Treasury except in pursuance of an appropriation made by law (Section 29(1), Article VI). Section 84(2), P.D. No. 1445 and related authorities restrict diversion of trust/public funds absent appropriation or statutory authority.
  • Precedent: The Court relied on prior decisions recognizing that government funds and properties generally cannot be subjected to levy and execution to satisfy judgments unless appropriation or specific law permits (see Commissioner of Public Highways v. San Diego; Republic v. Villasor; Department of Agriculture v. NLRC).
  • Administrative Circular / Judicial caution: The Court cited Administrative Circular No. 10-2000, which enjoined judges to exercise utmost caution in issuing writs of execution against government entities to avoid circumvention of COA procedures.
  • Procedural regularity and service of notices: The Court found service of the denial of motion for reconsideration on an attorney who was not counsel of record (Atty. Nolasco) ineffective; service was properly upon UP’s Office of Legal Services which received the order May 31, 2002, making the June 3, 2002 notice of appeal timely.
  • Fresh-period rule and equity: The Court applied retroactively the fresh-period rule announced in Neypes v. Court of Appeals (allowing a fresh 15-day appeal period from receipt of denial of motion for reconsideration) in equity to avoid injustice in pending cases, thereby negating the earlier declaration of finality.
  • Findings of fact and law requirement: The Constitution (Article VIII, Section 14) and Rule 36, Section 1 require decisions to state clearly and distinctly the facts and law supporting judgments. The RTC’s awards of actual damages (₱5,716,729.00), moral damages (₱10,000,000.00) and attorney’s fees lacked detailed factual findings and legal justification in the decision’s body; thus they were speculative, not properly proven, and void for failure to comply with due process and Rule 36 (citing Velarde v. Social Justice Society; related authorities).
  • Attorney’s fees: Recovery of attorney’s fees must fall within exceptions in Article 2208 of the Civil Code and must be supported by facts and law in the decision’s body; the RTC’s award failed this requirement.
  • Consequence: Because execution and release orders were issued in violation of PD No. 1445 and in absence of required findings, the RTC orders authorizing release and the CA decision upholding them were annulled as void insofar as they authorized garnishment and withdrawal of UP trust funds.

Doctrine / Legal Principle

  • Government trust funds and deposits held by state instrumentalities are public funds; they are not subject to garnishment or execution except upon lawful appropriation or specific statutory authority.
  • The Commission on Audit has primary jurisdiction to examine, audit and settle claims against the Government and its instrumentalities under P.D. No. 1445; execution should not circumvent COA procedures.
  • Trial courts must exercise utmost caution and prudence before issuing writs of execution or garnishment against government entities (Administrative Circular No. 10-2000).
  • Procedural rules that benefit litigants (e.g., fresh-period rule in Neypes) may be retroactively applied in equity to pending cases.
  • A judgment lacking clear and distinct findings of fact and law on damages violates due process and cannot support final awards of actual damages, moral damages, or attorney’s fees.

Disposition

  • The petition for review is GRANTED.
  • The decision of the Court of Appeals is REVERSED and SET ASIDE.
  • Orders for garnishment of UP funds and for release of the garnished amount to Stern Builders and Servillano Dela Cruz are ANNULLED.
  • The RTC decision of November 28, 2001 is MODIFIED: the awards of actual damages (₱5,716,729.00), moral damages (₱10,000,000.00), and attorney’s fees (₱150,000.00 plus ₱1,500.00 per appearance) are DELETED for being void. The award of ₱503,462.74 remains, subject to COA action.
  • Stern Builders and Servillano Dela Cruz are ORDERED to redeposit the amount of ₱16,370,191.74 within 10 days from receipt of this decision.
  • Costs of suit are imposed on the private respondents.

Concurring / Dissenting Opinions

  • No dissenting opinion was recorded. The decision was concurred in by Associate Justices Teresita J. Leonardo‑De Castro (Acting Chairperson, First Division), Mariano C. Del Castillo, Martin S. Villarama, Jr., and Estela M. Perlas‑Bernabe.

Significance / Notes

  • Practical effect: Trial courts are restrained from ordering immediate execution or garnishment of government trust funds; claimants must first pursue COA procedures and, where applicable, seek appropriations or specific statutory authority for payment.
  • Reinforces COA primacy: Section 26, P.D. No. 1445 grants COA the primary administrative avenue to adjudicate, audit and settle claims against government entities before judicial execution.
  • Judicial administration: Administrative Circular No. 10-2000 underscores the judiciary’s duty to avoid actions that may circumvent COA processes.
  • Procedural safeguards: Proper service upon counsel of record is jurisdictionally significant; defective service can affect running of appeal periods.
  • Remedies in equity: The Court confirmed that equitable doctrines, including retroactive application of procedural rules like the fresh-period rule (Neypes), may be used to prevent injustice in pending cases.
  • Findings requirement: Decisions awarding damages must include clear, distinct findings of fact and law in the body of the decision; absence renders damage awards void and non‑final.
  • Compliance directive: Private claimants who obtained funds in violation of the foregoing principles may be ordered to redeposit withdrawn sums and bear costs.
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