Difference Between Constructive Distraint and Garnishment under Philippine Law

(with emphasis on tax-collection practice but noting the broader procedural rules)

Key take-away:

Constructive distraint is a preventive measure that merely immobilises the taxpayer’s own property so it cannot be spirited away.

Garnishment is a coercive measure that captures the taxpayer’s money, credits or other personal property that are in the hands of third parties (most often banks).

While both belong to the government’s summary collection remedies (no court action needed), they differ in timing, reach, legal effect, and procedural safeguards.

1. Statutory Framework and Definitions

Remedy	Primary Source	One-Sentence Definition
Constructive distraint	National Internal Revenue Code (NIRC), § 206	An administrative act by the BIR that places the taxpayer’s assets under constructive custody to secure future payment of tax.
(Actual) distraint & garnishment	NIRC § 207 (A); Rules of Court (Rule 57 on attachment, Rule 60 on receivership)	The BIR (or a court sheriff, in ordinary civil cases) seizes or garnishes personal property/credits to satisfy a delinquent tax or judgment. Garnishment is the variant directed at intangibles or property “belonging to the debtor but held by another.”

Relationship of terms. In tax law parlance, garnishment is a form of actual distraint focused on credits, while constructive distraint is a separate, anticipatory device. In ordinary civil procedure, garnishment issues as a writ of attachment or execution.

2. Constructive Distraint in Detail

When can it be imposed? (NIRC § 206)
- The taxpayer is about to retire from business.
- Will leave the Philippines, hide, or abscond.
- Remove, conceal or destroy property.
- Act in any manner tending to prejudice or render ineffectual the collection of tax.
Procedure
1. Listing of assets. Revenue officers prepare an inventory of the property to be covered.
2. Request to sign Receipt and Deed of Undertaking (RDU). Taxpayer acknowledges the list and promises not to dispose of or alter the property without BIR consent.
3. Refusal to sign. The officer may place official seals or marks on the property and two witnesses must attest.
4. Preservation, not possession. Title and actual control remain with the taxpayer; the BIR merely acquires constructive custody.
Duration and lifting
- Runs until the tax liability is paid or otherwise secured (e.g., through an acceptable bond).
- May be lifted by the Commissioner or duly authorized official, typically after payment, compromise, or sufficient bond posting.
Due-process safeguards
- Notice of tax findings must precede the distraint.
- The power must be exercised strictly within statutory grounds; otherwise, the RDU or sealing is void (see CIR v. Pascor Realty, G.R. 152403, Aug 29 2005).
- Taxpayer may question an abusive distraint via administrative protest or petition for certiorari.

3. Garnishment in Detail

Legal Basis
- Tax context: NIRC § 207(A) (for personal property) and § 208 (warrant of garnishment).
- General procedural context: Rules of Court, Rule 57 § 2 & § 5; Rule 39 (execution).
Triggering event
- A final and demandable tax delinquency (failure to pay on the due date after a formal assessment and final notice and demand), or
- A final judgment in an ordinary civil/collection case.
Procedure (Tax)
1. Warrant of Garnishment (WG). Issued by the Commissioner/Regional Director, directed to the garnishee (e.g., a bank).
2. Service on third party. The garnishee must freeze the taxpayer’s account/credit up to the amount stated and report within five days.
3. Turn-over. Upon receipt of the WG, the garnishee is obliged to remit the garnished funds to the BIR after 10 days (NIRC § 208).
Bank secrecy vs. garnishment
- By Sec. 113 of the Tax Code (formerly Sec. 6[12]), the BIR may inquire into bank deposits solely for purposes of determining a tax liability of: (a) a decedent; (b) a taxpayer who has offered to compromise on grounds of financial incapacity; (c) specific cases of judicially issued subpoena. Once liability is final, garnishment proceeds without court order despite the Bank Secrecy Law (RA 1405), per long-standing jurisprudence (China Bank v. Court of Appeals, G.R. 80007, Apr 12 1989).
Third-party liability
- The garnishee becomes personally liable for the amount if it releases funds to the taxpayer after service of the WG (NIRC § 208, 3rd par.).
Remedies of taxpayer or garnishee
- Administrative protest (questioning the underlying assessment or warrant’s validity).
- Petition for certiorari/prohibition under Rule 65 (lack or excess of jurisdiction, grave abuse of discretion).
- Motion to quash in execution proceedings (ordinary civil cases).

4. Head-to-Head Comparison

Aspect	Constructive Distraint	Garnishment
Timing / Purpose	Preventive & preservative — to secure assets before or even without tax delinquency when flight or dissipation is feared.	Enforcement & coercive — to collect an existing delinquent tax or judgment debt.
Property affected	Taxpayer’s own property in his possession (movables, stock-in-trade, equipment, even real property improvements).	Taxpayer’s credits, bank deposits, debts, royalties, receivables held by third parties.
Transfer of possession?	No. Assets stay with taxpayer; only a legal restraint is imposed.	Yes (constructive) — third party must set aside and eventually deliver money/property to government.
Instrument issued	Receipt and Deed of Undertaking or inventory with BIR seals; no warrant.	Warrant of Garnishment (tax) or Writ of Garnishment (court).
Statutory authority	NIRC § 206.	NIRC § 207–208; Rules of Court.
Need for court order?	None.	Not for tax collection; yes in ordinary civil cases.
Duration	Until lifted by BIR or satisfied.	Until amount remitted or writ quashed.
Common remedies	Protest; motion to lift; certiorari.	Motion to quash, protest, refund suit, certiorari.
Penalty for violation	Criminal liability for removal or sale of distrained property (NIRC § 266).	Contempt, garnishee liability, criminal penalties under Revised Penal Code (Art. 134-135, if obstructing).

5. Similarities and Shared Principles

Summary character: Both bypass judicial trial, recognising the State’s paramount interest in tax collection (Const. art. VI § 28).
Need for prior assessment and demand (except when constructive distraint is used purely for preservation before delinquency — in which case a valid investigation notice must exist).
Protection of taxpayer rights through administrative due process (RR No. 12-99, RR No. 18-2013) and judicial review.
Priority lien of the State (Civil Code art. 2241[1]) attaches to distrained or garnished assets, ranking ahead of other unsecured creditors.

6. Practical and Strategic Considerations for Taxpayers

Situation	Government’s likely remedy	Taxpayer’s best defensive action
Planning to wind-up business and leave PH	Constructive distraint	Lay out a clear settlement plan and offer adequate security (e.g., surety bond) early.
Assessment final; no payment after 5 days + 10	Garnishment and/or levy	File a protest/appeal within the reglementary period; negotiate instalment payment; seek lifting for undue hardship.
Assets largely in bank deposits	Garnishment	Anticipate a freeze; ring-fence payroll & operating funds via escrow agreements.
Unsold inventory at risk of spoiling	Constructive distraint (may block sale)	Request conditional lifting permitting sale with proceeds deposited in escrow.

7. Selected Jurisprudence

Ungab v. Cusi, Jr. (G.R. L-41919, July 30 1976) – Upheld constitutionality of summary distraint without prior judicial hearing in tax cases, provided due-process notice exists.
China Banking Corp. v. CA (G.R. 80007, Apr 12 1989) – Clarified that the Bank Secrecy Law does not bar a properly issued BIR garnishment warrant.
CIR v. Pascor Realty & Dev. Corp. (G.R. 152403, Aug 29 2005) – Stressed that constructive distraint must strictly follow § 206; absence of specific authority nullifies the levy.
CIR v. Goodyear Phil. (G.R. 216130, Mar 10 2020) – Recognised that constructive distraint may lawfully cover future tax liabilities uncovered in an ongoing audit where “removal of assets appears imminent.”

8. Conclusion

Constructive distraint and garnishment are twin but distinct tools in the government’s arsenal. Constructive distraint is akin to a “freeze tag” placed early to prevent asset flight, whereas garnishment is the “collection net” cast later to scoop up money already owed but held by others. Understanding their differences allows taxpayers and counsel to choose the correct responses—be it providing security to lift a distraint, or swiftly contesting an over-broad garnishment—to protect both the public revenue and private property rights.

This article is for educational purposes and does not constitute legal advice. For specific cases, consult qualified Philippine tax counsel.