PROFESSIONAL VIDEO, INC., PETITIONER, VS. TECHNICAL EDUCATION AND SKILLS DEVELOPMENT AUTHORITY, RESPONDENT.

Professional Video versus Technical Education and Skills Development Authority

The Case

This is a petition brought by Professional Video, a private supplier of high technology equipment and security printing facilities, against the Technical Education and Skills Development Authority, known as TESDA, the government agency created to develop and establish a national system of skills standardization, testing, and certification. Professional Video had won a negotiated contract to supply security printed polyvinyl cards and related equipment, and when TESDA failed to pay the balance, Professional Video sued for a sum of money and obtained a writ of preliminary attachment and garnishment over TESDA's funds. The case matters because it gathers in one decision the two great shields of the government against its creditors: the doctrine of state immunity from suit, and the rule that public funds cannot be the object of attachment or garnishment even where consent to be sued exists. It is a staple of bar examinations on immunity, on the suability of government agencies, and on the strict requirements for a writ of preliminary attachment.

Procedural History

Professional Video filed a complaint for sum of money with damages against TESDA before the Regional Trial Court of Pasig City, praying as well for a writ of preliminary attachment and garnishment. The trial court granted the prayer and issued a writ of preliminary attachment against TESDA's properties not exempt from execution in the amount of thirty five million pesos. TESDA moved to discharge and quash the writ on the ground that public funds cannot be garnished. The trial court denied the motion and even ordered the manager of the Land Bank of the Philippines to produce TESDA's bank statement for the garnishment of the covered amount.

TESDA then filed a petition for certiorari with the Court of Appeals, imputing grave abuse of discretion amounting to lack or excess of jurisdiction on the trial court. The Court of Appeals set aside the trial court's orders, holding that TESDA's funds are public in nature and exempt from garnishment, and that TESDA's purchase of the cards was a necessary incident of its governmental function. The Court of Appeals denied Professional Video's motion for reconsideration, so Professional Video came to the Supreme Court by petition, raising a pure question of law.

Facts

TESDA, to fulfill its mandate, sought to issue security printed certification and identification cards to trainees who had passed its certification process. Its bids and awards committee conducted two public biddings for the printing and encoding of these cards, but both failed because only two bidders, Professional Video and another corporation, submitted proposals. On the recommendation of the committee, TESDA entered into a negotiated contract with Professional Video in December 1999, under which Professional Video would provide the system and equipment and TESDA would pay thirty nine million four hundred seventy five thousand pesos within fifteen days after acceptance of the goods and services. An addendum followed in August 2000, binding Professional Video to deliver the enumerated supplies and to install and maintain the listed equipment, with payment in installments.

Professional Video alleged that it delivered the items on the dates indicated, totalling the full contract price, but that TESDA paid only three million seven hundred thirty nine thousand five hundred pesos, leaving an outstanding balance of thirty five million seven hundred thirty five thousand five hundred pesos. Two demand letters went unanswered.

Professional Video then sued and obtained the writ of preliminary attachment. TESDA resisted, arguing that public funds cannot be the subject of garnishment and that it was immune from suit. The trial court refused to lift the writ, prompting TESDA's petition to the Court of Appeals, which ruled in TESDA's favor.

Issues

• Whether or not the writ of attachment against TESDA and its funds, to cover Professional Video's claim, is valid.
• Whether or not TESDA, by entering into the contract with Professional Video, waived its immunity from suit and descended to the level of an ordinary private citizen.
• Whether or not TESDA's funds, being public in character, are exempt from attachment or garnishment.
• Whether or not Professional Video complied with the grounds for the issuance of a writ of preliminary attachment under Section 1, Rule 57 of the Rules of Court.

Applicable Provisions

Section 3, Article Sixteen of the 1987 Constitution, which the Court cites as the embodiment of the rule, provides:

The State may not be sued without its consent.

This is the constitutional anchor of TESDA's defense, and the Court holds that all State immunities fully apply to TESDA as an unincorporated instrumentality operating under its own charter.

Section 1, Rule 57 of the Rules of Court, which Professional Video invoked, provides:

SECTION 1. Grounds upon which attachment may issue. - A plaintiff or any proper party may, at the commencement of the action or at any time thereafter, have the property of the adverse party attached as security for the satisfaction of any judgment that may be recovered in the following cases: (a) In an action for recovery of a specified amount of money or damages, other than moral and exemplary, on a cause of action arising from law, contract, quasi-contract, delict or quasi-delict against a party who is about to depart from the Philippines with intent to defraud his creditors; (b) In an action for money or property embezzled or fraudulently misapplied or converted to his use by a public officer, or an officer of a corporation, or an attorney, factor, broker, agent or clerk, in the course of his employment as such, or by any other person in a fiduciary capacity, or for a willful violation of duty; (c) In an action to recover the possession of property unjustly or fraudulently taken, detained or converted, when the property or any part thereof, has been concealed, removed or disposed of to prevent its being found or taken by the applicant or an authorized person; (d) In an action against a party who has been guilty of fraud in contracting the debt or incurring the obligation upon which the action is brought, or in concealing or disposing of the property for the taking, detention or conversion of which the action is brought; (e) In an action against a party who has removed or disposed of his property, or is about to do so, with intent to defraud his creditors; (f) In an action against a party who does not reside and is not found in the Philippines, or on whom summons may be served by publication.

The Court uses this provision to test whether the writ should have issued at all, quite apart from the immunity question.

Section 86 of Presidential Decree Number 1445, the Accounting Code, provides:

Section 86. Certificate showing appropriation to meet contract. - Except in a case of a contract for personal service, for supplies for current consumption or to be carried in stock not exceeding the estimated consumption for three months, or banking transactions of government-owned or controlled banks, no contract involving the expenditure of public funds by any government agency shall be entered into or authorized unless the proper accounting official or the agency concerned shall have certified to the officer entering into the obligation that funds have been duly appropriated for the purpose and that the amount necessary to cover the proposed contract for the current fiscal year is available for expenditure on account thereof, subject to verification by the auditor concerned. The certification signed by the proper accounting official and the auditor who verified it, shall be attached to and become an integral part of the proposed contract, and the sum so certified shall not thereafter be available for expenditure for any other purpose until the obligation of the government agency concerned under the contract is fully extinguished.

This provision defeats Professional Video's theory that the certification of availability of funds converted the money into its own, because the certified sum remains public money devoted to its purpose until the obligation is extinguished.

Ruling

On the first issue, the Court denied the petition and upheld the Court of Appeals. TESDA is an unincorporated instrumentality of the government, attached to the Department of Labor and Employment, performing governmental functions, namely the handling of formal and non-formal education and training and skills development. As such, it is equipped with both express and implied powers, and all State immunities fully apply to it. The Court held that the writ of attachment was issued against a government agency covered by its own charter, and that the core reason for state immunity applies: the performance of governmental functions cannot be hindered or delayed by suits, nor can these suits control the use and disposition of the means for performing those functions.

On the second issue, the Court rejected the argument that TESDA descended to the level of an ordinary private citizen. The cards purchased from Professional Video are meant to identify the trainees who passed TESDA's national skills certification program, the very program that serves its mandated function. How the mandated certification is to be done lies within TESDA's discretion as an incident of its mandated function. That TESDA sells the cards to trainees for a fee does not make the transaction industrial or business, because the sale is expressly authorized by its charter and cannot be considered separately from its governmental functions. The Court quoted its earlier ruling:

Now, the fact that a non-corporate government entity performs a function proprietary in nature does not necessarily result in its being suable. If said non-governmental function is undertaken as an incident to its governmental function, there is no waiver thereby of the sovereign immunity from suit extended to such government entity.

On the third issue, the Court held that even assuming TESDA gave its implied consent to be sued, its funds are still public in nature and cannot be the valid subject of a writ of garnishment or attachment. Under the TESDA Act, its budget is included in the annual General Appropriation Act, so its funds are sourced from the Treasury and are moneys belonging to the government in the hands of public officials. The Court restated the rule:

The universal rule that where the State gives its consent to be sued by private parties either by general or special law, it may limit claimant's action 'only up to the completion of proceedings anterior to the stage of execution' and that the power of the Courts ends when the judgment is rendered, since government funds and properties may not be seized under writs of execution or garnishment to satisfy such judgments, is based on obvious considerations of public policy. Disbursements of public funds must be covered by the corresponding appropriation as required by law. The functions and public services rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects, as appropriated by law.

The garnished funds, the Court noted, constitute TESDA's lifeblood, including the personal services funds from which the salaries of its personnel are sourced.

On the fourth issue, the Court held that even without immunity, the writ should not have issued. The rule on attachment must be construed strictly in favor of the defendant, and attachment, a harsh remedy, must issue only on concrete and specific grounds and not on general averments merely quoting the words of the rules. Professional Video never entrusted any money or property to TESDA, and absent actual disbursement the funds remained public, so TESDA's failure to pay cannot be construed as fraudulent misapplication or embezzlement. As for fraud in contracting the debt, fraudulent intent cannot be inferred from the debtor's mere non-payment of the debt or failure to comply with his obligation.

Doctrine

First, the State may not be sued without its consent, and this immunity extends to unincorporated government agencies operating under their own charters with respect to the performance of governmental functions. Second, the fact that a non-corporate government entity performs a function proprietary in nature does not necessarily make it suable; if that function is undertaken as an incident to its governmental function, there is no waiver of sovereign immunity. Third, public funds cannot be the object of garnishment or attachment even if consent to be sued had been previously granted and the State's liability already adjudged, because disbursements must be covered by appropriation and public services cannot be paralyzed by the diversion of public funds. Fourth, a writ of preliminary attachment is a harsh remedy construed strictly in favor of the defendant; it must rest on concrete and specific grounds shown in the applicant's affidavit, and fraud cannot be inferred from mere non-payment of a debt.

Disposition

The Supreme Court denied Professional Video's petition for lack of merit, sustained the Court of Appeals, and upheld the nullification of the writ of attachment and garnishment against TESDA's funds.

Remember This

Memorize the twin shield: consent to be sued does not open the public treasury to attachment or garnishment, for the power of the courts ends when judgment is rendered. Examiners use this case to test state immunity for chartered agencies performing governmental functions, and the strict, affidavit-based requirements for a writ of preliminary attachment.