Fiduciary funds in the judiciary

Supreme Court of the Philippines


Fiduciary Funds Shall Remain With Court
Posted January 31 , 2011; By Anna Katrina M. Martinez
see -http://sc.judiciary.gov.ph/news/courtnews%20flash/2011/01/01311102.php


The deposit of the Judiciary’s Fiduciary Funds, amounting to more than PhP4.8 billion, and all subsequent collections of trust and other receipts with the Bureau of Treasury “has no legal basis,” and the remittance of interests of the Fiduciary Funds to the national government “is erroneous and must be discontinued.”

Thus said the Supreme Court as it ruled that Fiduciary Funds in custodia legis shall remain under the custody and control of the courts, to be deposited and disposed of as the courts may direct in the exercise of their judicial functions, while Fiduciary Funds deposited with the Court in its administrative capacity, and not in custodia legis, shall be remitted to the National Treasury.

In its 2008 Annual Audit Report, the COA recommended that the Court deposit the amount of P4,838,976,011.86 “and all subsequent collections of trust and other receipts with the Bureau of Treasury” in conformity with Executive Order 338 (EO 338), Sections 7 and 8 of the General Provisions of the General Appropriations Act for Fiscal Year 2008 (2008 GAA), and COA-DOF-DBM Joint Circular No. 1-97.

EO 338 directs government offices and agencies to immediately transfer all public moneys deposited with depository banks and other institutions to the Bureau of Treasury, regardless of income source, while the 2008 GAA directs government agencies to book trust and other receipts “which have been received as guaranty for the fulfillment of an obligation” with the National Treasury. Joint Circular No. 1-97, on the other hand, requires that all National Government cash balances be deposited with the National Treasury.

In an En Banc Resolution, the Supreme Court clarified whether the deposits in its Fiduciary Funds and in those of the lower courts as well as the Philippine Mediation Center should be remitted to the National Treasury, as suggested by COA.

The Court said while funds that properly accrue to the General Fund must be turned over to the Bureau of Treasury, which is under the Executive branch, the custody and disposition of any fund of whatever nature that is in custodia legis (custody of the law) is under the exclusive control of the courts in the exercise of their judicial functions.

“The control of funds in custodia legis is an exercise of judicial power, and under the Constitution, ‘[T]he judicial power is vested in one Supreme Court and in such lower courts as may be established by law,’” said the Court. “Neither the Executive nor Legislative branch can encroach on the power of the courts to control custody or disposition of funds in custodia legis,” adding that upon termination of the case, or earlier as the courts may direct, the funds in custodia legis will be returned to their rightful owners, subject to a service fee of 10% per annum of the interests earned, which shall accrue to the Judiciary Development Fund (JDF).

The High Court said that while Batas Pambansa Blg. 325 provides that, unless otherwise provided, all collections from fees and charges of government agencies, including the Supreme Court, shall accrue to the General Fund of the National Government, an exemption is provided under Presidential Decree No. 1949 (PD 1949), which established the JDF “for the benefit of the members and personnel of the Judiciary to help ensure and guarantee the independence of the Judiciary.”

PD 1949 provides that the Chief Justice shall administer and allocate the JDF and shall have the sole exclusive power and duty to approve the authorized disbursement and expenditures of the Fund. “Thus, the JDF, although derived from legal fees and charges, does not accrue to the General Fund by express provision of PD 1949,” said the Court.

The High Court added that Fiduciary Funds also do not accrue to the General Fund as these are not “collections from fees and charges” but are funds that are deposited in court which are held in trust for the parties and litigants.

The Court also ruled that its own practice of remitting the interests of the Fiduciary Funds to the national government is erroneous and must be discontinued.

“Following the right of accession conferred on the owner of the property under Article 440 of the Civil Code, the interests on these fiduciary funds also belong to the parties who own the principal amount. Upon termination of the case, the interests should be returned to the parties together with the principal. The interests should not accrue to the General Fund because it is tantamount to taking private property for public use without just compensation,” the Court held. It added that interests on deposits of the JDF accrue to the JDF for the benefit of the members and personnel of the Judiciary.

The Court, however, ruled that forfeited cash deposits made to guarantee undertakings in favor of the government, and the interests thereon, are income of the government and shall be remitted to the National Treasury and that unclaimed fiduciary funds of private parties, including interests, shall remain with the courts until a law is passed authorizing the escheat or forfeiture of such unclaimed funds in favor of the State.
Finally, the Supreme Court ruled that the amounts it previously remitted to the National Treasury representing interest earned on the Fiduciary Fund and forfeited/confiscated bonds covering the period from 2004 to 2007, under the staggered payments proposed by retired Chief Justice Reynato S. Puno to the COA in 2009, shall be credited to whatever amounts the Court is required to remit to the National Treasury. (Min. Res., AM No. 05-3-35-SC, Re: Audit Observation Memorandum; Min. Res., AM No. 10-8-3-SC, Re: Fiduciary Fund Deposits Not Remitted to the Bureau of Treasury, January 18, 2011)