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UNIVERSITY OF PHILIPPINES v. AGUSTIN S. DIZON

FACTS:

The case stems from a decision by the Court of Appeals (CA) upholding the order of the Regional Trial Court (RTC) in Quezon City directing garnishment of public funds amounting to P16,370,191.74 from the University of the Philippines (UP) to satisfy an earlier judgment against UP. On August 30, 1990, UP, under then-President Jose V. Abueva, had entered into a General Construction Agreement with Stern Builders Corporation for construction work at the UP Los Baños campus. Stern Builders submitted three progress billings, but UP paid only two, withholding the third due to a disallowance by the Commission on Audit (COA). Despite the disallowance being lifted, UP failed to pay, leading Stern Builders to sue UP for the unpaid billing and various damages. The RTC ruled in favor of Stern Builders, awarding P503,462.74 for the third billing, additional actual damages of P5,716,729.00, moral damages of P10,000,000.00, attorney’s fees, and costs of the suit.

After UP's motion for reconsideration was denied on May 7, 2002, it filed a notice of appeal. Stern Builders argued the appeal was late, prompting the RTC to deny the appeal and grant their motion for execution. The subsequent execution process involved multiple legal motions, garnishments, and orders concerning the release of the garnished funds, including an urgent motion to reconsider, a petition for certiorari in the CA, and various motions reflecting both the RTC’s and the CA's involvement.

Despite these legal maneuvers, the RTC persisted in ordering the release of the garnished funds amid UP’s continued objections and appeals. Notably, on December 21, 2004, and further on January 3, 2007, RTC orders favored Stern Builders, allowing them to withdraw the garnished funds. The UP challenged these decisions, emphasizing that government funds were improperly seized without proper legal appropriation, rendering the orders for fund releases procedurally and substantively deficient considering the primary jurisdiction of the COA over such claims, which is reinforced by Presidential Decree No. 1445 (Government Auditing Code). The appeals process also raised significant questions regarding compliance with procedural rules and the COA's jurisdiction over monetary claims against government institutions like UP.

ISSUES:

  1. Whether the funds of the UP were the proper subject of garnishment in order to satisfy the judgment award.

  2. Whether the UP's plea for the deletion of the awards of actual damages, moral damages, and attorney's fees could be granted despite the finality of the judgment of the RTC.

RULING:

I. UP's funds are not subject to garnishment

The UP is a state university and government instrumentality performing a legitimate government function. Consequently, its funds are public in character and constitute a "special trust fund" subject to audit by the COA and can only be disbursed for the specific purposes for which they were intended. Government funds, including those of the UP, are generally not subject to garnishment to satisfy court judgments without a special appropriation by Congress. Therefore, the garnishment of UP funds to satisfy the judgment awards was not validly done, as there was no specific appropriation for such liabilities.

II. COA must adjudicate claims before execution proceeds

The primary jurisdiction to settle monetary claims against government agencies, including the UP, rests with the Commission on Audit (COA), according to Presidential Decree No. 1445. Thus, despite the finality of the RTC judgment, Stern Builders and dela Cruz should have sought the COA's approval for their monetary claim. Therefore, the RTC's orders pertaining to the garnishment and release of UP's funds were void and without legal effect.

III. Period of appeal did not start without effective service of the decision upon counsel of record; Fresh-period rule announced in Neypes v. Court of Appeals can be given retroactive application

The service of the denial of the motion for reconsideration upon Atty. Nolasco, who was not the counsel of record, was invalid. The period of appeal should have been reckoned from the date when the official legal service (the Office of Legal Services in Diliman) received the notice. Applying the fresh-period rule retroactively, the UP’s filing of the notice of appeal on June 3, 2002, was timely. Therefore, the declaration of finality of the RTC judgment was set aside.

IV. Awards of monetary damages were devoid of factual and legal bases and should be deleted

The RTC’s decision granting actual and moral damages, and attorney's fees lacked clear and distinct findings of fact and legal bases. Particularly egregious was the grant of moral damages to Stern Builders, an artificial entity incapable of experiencing moral injury. The awards were speculative and not supported by adequate evidence or law, thus not attaining finality and rendering them void.

PRINCIPLES:

  • Government Funds Immunity: State funds are not subject to garnishment without specific legislative appropriation.

  • Monetary Claims Adjudication: The Commission on Audit has primary jurisdiction to settle monetary claims against government entities.

  • Service of Notice: Service to a counsel of record is essential for the validity of the notice, ensuring the effective commencement of appeal periods.

  • Fresh-Period Rule: Litigants are granted a fresh period of 15 days within which to file a notice of appeal from receipt of an order denying a new trial or reconsideration.

  • Findings of Fact and Law Requirement: Court decisions must include clear and detailed findings of fact and legal bases to comply with the constitutional and procedural due process requirements.

  • Limitations on Moral Damages for Corporations: Moral damages are generally not applicable to corporations as they cannot suffer physical or emotional pain.