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SECOND DIVISION

PROFESSIONAL VIDEO, INC., G.R. No. 155504


Petitioner,
Present:

QUISUMBING, J., Chairperson,


*
YNARES-SANTIAGO,
**
CHICO-NAZARIO,
- versus - ***
LEONARDO-DE CASTRO, and
BRION, JJ.

TECHNICAL EDUCATION AND Promulgated:


SKILLS DEVELOPMENT
AUTHORITY, June 26, 2009
Respondent.

x ---------------------------------------------------------------------------------------------------------- x

DECISION

BRION, J.:

We resolve the petition filed by Professional Video, Inc. (PROVI)[1] to annul and
set aside the Decision[2] of the Court of Appeals (CA) in CA-G.R. SP No. 67599,
and its subsequent Order denying PROVIs motion for reconsideration.[3] The
assailed CA decision nullified:
a. the Order[4] dated July 16, 2001 of the Regional Trial Court (RTC),
Pasig City, in Civil Case No. 68527, directing the
attachment/garnishment of the properties of respondent Technical
Education and Skills Development Authority (TESDA) amounting to
Thirty Five Million Pesos (P35,000,000.00); and
b. the RTCs August 24, 2001 Order[5] denying respondent
TESDAs motion to discharge/quash writ of attachment.

THE FACTUAL BACKGROUND


PROVI is an entity engaged in the sale of high technology equipment,
information technology products and broadcast devices, including the supply of
plastic card printing and security facilities.

TESDA is an instrumentality of the government established under Republic


Act (R.A.) No. 7796 (the TESDA Act of 1994) and attached to the Department of
Labor and Employment (DOLE) to develop and establish a national system of
skills standardization, testing, and certification in the country.[6] To fulfill this
mandate, it sought to issue security-printed certification and/or identification
polyvinyl (PVC) cards to trainees who have passed the certification process.

TESDAs Pre-Qualification Bids Award Committee (PBAC) conducted two


(2) public biddings on June 25, 1999 and July 22, 1999 for the printing and
encoding of PVC cards. A failure of bidding resulted in both instances since only
two (2) bidders PROVI and Sirex Phils. Corp. submitted proposals.

Due to the failed bidding, the PBAC recommended that TESDA enter into a
negotiated contract with PROVI. On December 29, 1999, TESDA and PROVI
signed and executed their Contract Agreement Project: PVC ID Card Issuance (the
Contract Agreement) for the provision of goods and services in the printing and
encoding of PVC cards.[7] Under this Contract Agreement, PROVI was to provide
TESDA with the system and equipment compliant with the specifications defined
in the Technical Proposal. In return, TESDA would pay PROVI the amount of
Thirty-Nine Million Four Hundred and Seventy-Five Thousand Pesos
(P39,475,000) within fifteen (15) days after TESDAs acceptance of the contracted
goods and services.

On August 24, 2000, TESDA and PROVI executed an Addendum to the


Contract Agreement Project: PVC ID Card Issuance (Addendum),[8] whose terms
bound PROVI to deliver one hundred percent (100%) of the enumerated supplies
to TESDA consisting of five hundred thousand (500,000) pieces of security foil;
five (5) pieces of security die with TESDA seal; five hundred thousand (500,000)
pieces of pre-printed and customized identification cards; one hundred thousand
(100,000) pieces of scannable answer sheets; and five hundred thousand (500,000)
customized TESDA holographic laminate. In addition, PROVI would install and
maintain the following equipment: one (1) unit of Micropoise, two (2) units of card
printer, three (3) units of flatbed scanner, one (1) unit of OMR scanner, one (1)
unit of Server, and seven (7) units of personal computer.

TESDA in turn undertook to pay PROVI thirty percent (30%) of the total
cost of the supplies within thirty (30) days after receipt and acceptance of the
contracted supplies, with the balance payable within thirty (30) days after the
initial payment.

According to PROVI, it delivered the following items to TESDA on the


dates indicated:

Date Particulars Amount

26 April 2000 48,500 pre-printed cards P 2,764,500.00


07 June 2000 330,000 pre-printed cards 18,810,000.00
07 August 2000 121,500 pre-printed cards 6,925,500.00
26 April 2000 100,000 scannable answer sheets 600,000.00
06 June 2000 5 Micro-Poise customized die 375,000.00
13 June 2000 35 boxes @ 15,000 imp/box 10,000,000.00
Custom hologram Foil
Total P 39,475,000.00

PROVI further alleged that out of TESDAs liability of P39,475,000.00,


TESDA paid PROVI only P3,739,500.00, leaving an outstanding balance
of P35,735,500.00, as evidenced by PROVIs Statement of Account.[9] Despite the
two demand letters dated March 8 and April 27, 2001 that PROVI sent
TESDA,[10] the outstanding balance remained unpaid.

On July 11, 2001, PROVI filed with the RTC a complaint for sum of money
with damages against TESDA. PROVI additionally prayed for the issuance of a
writ of preliminary attachment/garnishment against TESDA. The case was
docketed as Civil Case No. 68527. In an Order dated July 16, 2001, the RTC
granted PROVIs prayer and issued a writ of preliminary attachment against the
properties of TESDA not exempt from execution in the amount
of P35,000,000.00.[11]

TESDA responded on July 24, 2001 by filing a Motion to Discharge/Quash


the Writ of Attachment, arguing mainly that public funds cannot be the subject of
garnishment.[12] The RTC denied TESDAs motion, and subsequently ordered the
manager of the Land Bank of the Philippines to produce TESDAs bank statement
for the garnishment of the covered amount.[13]

Faced with these rulings, TESDA filed a Petition for Certiorari with the CA
to question the RTC orders, imputing grave abuse of discretion amounting to lack
or excess of jurisdiction on the trial court for issuing a writ of preliminary
attachment against TESDAs public funds.[14]

The CA set aside the RTCs orders after finding that: (a) TESDAs funds are
public in nature and, therefore, exempt from garnishment; and (b) TESDAs
purchase of the PVC cards was a necessary incident of its governmental function;
consequently, it ruled that there was no legal basis for the issuance of a writ of
preliminary attachment/garnishment.[15] The CA subsequently denied PROVIs
motion for reconsideration;[16] hence, the present petition.

THE PETITION

The petition submits to this Court the single issue of whether or not the writ of
attachment against TESDA and its funds, to cover PROVIs claim against TESDA,
is valid. The issue involves a pure question of law and requires us to determine
whether the CA was correct in ruling that the RTC gravely abused its discretion in
issuing a writ of attachment against TESDA.

PROVI argues that the CA should have dismissed TESDAs petition


for certiorari as the RTC did not commit any grave abuse of discretion when it
issued the Orders dated July 16, 2001 and August 24, 2001. According to PROVI,
the RTC correctly found that when TESDA entered into a purely commercial
contract with PROVI, TESDA went to the level of an ordinary private citizen and
could no longer use the defense of state immunity from suit. PROVI further
contends that it has alleged sufficient ultimate facts in the affidavit it submitted to
support its application for a writ of preliminary attachment. Lastly, PROVI
maintains that sufficient basis existed for the RTCs grant of the writ of preliminary
attachment, since TESDA fraudulently misapplied or embezzled the money
earmarked for the payment of the contracted supplies and services, as evidenced by
the Certification as to Availability of Funds.

TESDA claims that it entered the Contract Agreement and Addendum in the
performance of its governmental function to develop and establish a national
system of skills standardization, testing, and certification; in the performance of
this governmental function, TESDA is immune from suit. Even assuming that it
had impliedly consented to be sued by entering into a contract with PROVI,
TESDA posits that the RTC still did not have the power to garnish or attach its
funds since these are public funds. Lastly, TESDA points out that PROVI failed to
comply with the elements for the valid issuance of a writ of preliminary
attachment, as set forth in Section 1, Rule 57 of the 1997 Rules of Civil Procedure.

THE COURTS RULING

We find, as the CA did, that the RTCs questioned order involved a


gross misreading of the law and jurisprudence amounting to action in excess
of its jurisdiction.Hence, we resolve to DENY PROVIs petition for lack of
merit.

TESDA is an instrumentality
of the government undertaking
governmental functions.
R.A. No. 7796 created the Technical Education and Skills Development
Authority or TESDA under the declared policy of the State to provide relevant,
accessible, high quality and efficient technical education and skills development in
support of the development of high quality Filipino middle-level manpower
responsive to and in accordance with Philippine development goals and
priorities.[17] TESDA replaced and absorbed the National Manpower and Youth
Council, the Bureau of Technical and Vocational Education and the personnel and
functions pertaining to technical-vocational education in the regional offices of the
Department of Education, Culture and Sports and the apprenticeship program of
the Bureau of Local Employment of the DOLE.[18] Thus, TESDA is an
unincorporated instrumentality of the government operating under its own charter.

Among others, TESDA is empowered to: approve trade skills standards and
trade tests as established and conducted by private industries; establish and
administer a system of accreditation of both public and private institutions;
establish, develop and support the institutions' trainors' training and/or programs;
exact reasonable fees and charges for such tests and trainings conducted, and retain
such earnings for its own use, subject to guidelines promulgated by the Authority;
and perform such other duties and functions necessary to carry out the provisions
of the Act, consistent with the purposes of the creation of TESDA.[19]

Within TESDAs structure, as provided by R.A. No. 7769, is a Skills


Standards and Certification Office expressly tasked, among others, to develop and
establish a national system of skills standardization, testing and certification in the
country; and to conduct research and development on various occupational areas in
order to recommend policies, rules and regulations for effective and efficient skills
standardization, testing and certification system in the country.[20] The law likewise
mandates that [T]here shall be national occupational skills standards to be
established by TESDA-accredited industry committees. The TESDA shall develop
and implement a certification and accreditation program in which private groups
and trade associations are accredited to conduct approved trade tests, and the local
government units to promote such trade testing activities in their respective areas
in accordance with the guidelines to be set by the TESDA. The Secretary of Labor
and Employment shall determine the occupational trades for mandatory
certification. All certificates relating to the national trade skills testing and
certification system shall be issued by the TESDA through its Secretariat.[21]

All these measures are undertaken pursuant to the constitutional command


that [T]he State affirms labor as a primary social economic force, and shall protect
the rights of workers and promote their welfare;[22] that [T]he State shall protect
and promote the right of all citizens to quality education at all levels, and shall take
appropriate steps to make such education accessible to all;[23] in order to afford
protection to labor and promote full employment and equality of employment
opportunities for all.[24]

Under these terms, both constitutional and statutory, we do not believe that
the role and status of TESDA can seriously be contested: it is an unincorporated
instrumentality of the government, directly attached to the DOLE through the
participation of the Secretary of Labor as its Chairman, for the performance of
governmental functions i.e., the handling of formal and non-formal education and
training, and skills development. As an unincorporated instrumentality operating
under a specific charter, it is equipped with both express and implied
powers,[25] and all State immunities fully apply to it.[26]

TESDA, as an agency of the State,


cannot be sued without its consent.

The rule that a state may not be sued without its consent is embodied in
Section 3, Article XVI of the 1987 Constitution and has been an established
principle that antedates this Constitution.[27] It is as well a universally recognized
principle of international law that exempts a state and its organs from the
jurisdiction of another state.[28] The principle is based on the very essence of
sovereignty, and on the practical ground that there can be no legal right as against
the authority that makes the law on which the right depends.[29] It also rests on
reasons of public policy that public service would be hindered, and the public
endangered, if the sovereign authority could be subjected to law suits at the
instance of every citizen and, consequently, controlled in the uses and dispositions
of the means required for the proper administration of the government.[30]

The proscribed suit that the state immunity principle covers takes on various
forms, namely: a suit against the Republic by name; a suit against an
unincorporated government agency; a suit against a government agency covered by
a charter with respect to the agencys performance of governmental functions; and a
suit that on its face is against a government officer, but where the ultimate liability
will fall on the government. In the present case, the writ of attachment was issued
against a government agency covered by its own charter. As discussed above,
TESDA performs governmental functions, and the issuance of certifications is a
task within its function of developing and establishing a system of skills
standardization, testing, and certification in the country. From the perspective of
this function, the core reason for the existence of state immunity applies i.e., the
public policy reason that the performance of governmental function cannot be
hindered or delayed by suits, nor can these suits control the use and disposition of
the means for the performance of governmental functions. In Providence
Washington Insurance Co. v. Republic of the Philippines,[31] we said:
[A] continued adherence to the doctrine of non-suability is not to be deplored for
as against the inconvenience that may be caused private parties, the loss of
governmental efficiency and the obstacle to the performance of its multifarious
functions are far greater if such a fundamental principle were abandoned and the
availability of judicial remedy were not thus restricted. With the well known
propensity on the part of our people to go to court, at the least provocation, the
loss of time and energy required to defend against law suits, in the absence of
such a basic principle that constitutes such an effective obstacle, could very well
be imagined.

PROVI argues that TESDA can be sued because it has effectively waived its
immunity when it entered into a contract with PROVI for a commercial purpose.
According to PROVI, since the purpose of its contract with TESDA is to provide
identification PVC cards with security seal which TESDA will thereafter sell to
TESDA trainees, TESDA thereby engages in commercial transactions not
incidental to its governmental functions.

TESDAs response to this position is to point out that it is not engaged in business,
and there is nothing in the records to show that its purchase of the PVC cards from
PROVI is for a business purpose. While TESDA admits that it will charge the
trainees with a fee for the PVC cards, it claims that this fee is only to recover their
costs and is not intended for profit.

We agree with TESDA. As the appellate court found, the PVC cards
purchased by TESDA from PROVI are meant to properly identify the trainees who
passed TESDAs National Skills Certification Program the program that
immediately serves TESDAs mandated function of developing and establishing a
national system of skills standardization, testing, and certification in the
country.[32] Aside from the express mention of this function in R.A. No. 7796, the
details of this function are provided under DOLE Administrative Order No. 157, S.
1992, as supplemented by Department Order Nos. 3 thru 3-F, S. 1994 and
Department Order No. 13, S. 1994.[33]

Admittedly, the certification and classification of trainees may be


undertaken in ways other than the issuance of identification cards, as the RTC
stated in its assailed Order.[34] How the mandated certification is to be done,
however, lies within the discretion of TESDA as an incident of its mandated
function, and is a properly delegated authority that this Court cannot inquire into,
unless its exercise is attended by grave abuse of discretion.

That TESDA sells the PVC cards to its trainees for a fee does not
characterize the transaction as industrial or business; the sale, expressly authorized
by the TESDA Act,[35] cannot be considered separately from TESDAs general
governmental functions, as they are undertaken in the discharge of these functions.
Along this line of reasoning, we held in Mobil Philippines v. Customs Arrastre
Services:[36]
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.

TESDAs funds are public in


character, hence exempt from
attachment or garnishment.

Even assuming that TESDA entered into a proprietary contract with PROVI and
thereby gave its implied consent to be sued, TESDAs funds are still public in
nature and, thus, cannot be the valid subject of a writ of garnishment or
attachment. Under Section 33 of the TESDA Act, the TESDA budget for the
implementation of the Act shall be included in the annual General Appropriation
Act; hence, TESDA funds, being sourced from the Treasury, are moneys belonging
to the government, or any of its departments, in the hands of public officials.[37] We
specifically spoke of the limits in dealing with this fund in Republic v.
Villasor[38] when we said:
This fundamental postulate underlying the 1935 Constitution is now made
explicit in the revised charter. It is therein expressly provided, The State may not
be sued without its consent. A corollary, both dictated by logic and sound sense,
from such a basic concept, is that public funds cannot be the object of
garnishment proceedings even if the consent to be sued had been previously
granted and the state liability adjudged. Thus in the recent case
of Commissioner of Public Highways vs. San Diego, such a well-settled doctrine
was restated in the opinion of Justice Teehankee:

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. [Emphasis supplied.]

We reiterated this doctrine in Traders Royal Bank v. Intermediate Appellate


Court,[39] where we said:
The NMPCs implied consent to be sued notwithstanding, the trial court
did not have the power to garnish NMPC deposits to answer for any eventual
judgment against it. Being public funds, the deposits are not within the reach
of any garnishment or attachment proceedings. [Emphasis supplied.]

As pointed out by TESDA in its Memorandum,[40] the garnished funds constitute


TESDAs lifeblood in government parlance, its MOOE[41] whose withholding via a
writ of attachment, even on a temporary basis, would paralyze TESDAs functions
and services. As well, these funds also include TESDAs Personal Services funds
from which salaries of TESDA personnel are sourced. Again and for obvious
reasons, the release of these funds cannot be delayed.

PROVI has not shown that it is


entitled to the writ of attachment.
Even without the benefit of any immunity from suit, the attachment of
TESDA funds should not have been granted, as PROVI failed to prove that
TESDA fraudulently misapplied or converted funds allocated under the Certificate
as to Availability of Funds. Section 1, Rule 57 of the Rules of Court sets forth the
grounds for issuance of a writ of preliminary attachment, as follows:
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. [Emphasis
supplied.]

Jurisprudence teaches us that the rule on the issuance of a writ of attachment


must be construed strictly in favor of the defendant. Attachment, a harsh remedy,
must be issued only on concrete and specific grounds and not on general averments
merely quoting the words of the pertinent rules.[42] Thus, the applicants affidavit
must contain statements clearly showing that the ground relied upon for the
attachment exists.

Section 1(b), Rule 57 of the Rules of Court, that PROVI relied upon,
applies only where money or property has been embezzled or converted by a
public officer, an officer of a corporation, or some other person who took
advantage of his fiduciary position or who willfully violated his duty.

PROVI, in this case, never entrusted any money or property to TESDA.


While the Contract Agreement is supported by a Certificate as to Availability of
Funds (Certificate) issued by the Chief of TESDAs Accounting Division, this
Certificate does not automatically confer ownership over the funds to
PROVI. Absent any actual disbursement, these funds form part of TESDAs public
funds, and TESDAs failure to pay PROVI the amount stated in the Certificate
cannot be construed as an act of fraudulent misapplication or embezzlement. In this
regard, Section 86 of Presidential Decree No. 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. [Emphasis supplied.]
By law, therefore, the amount stated in the Certification should be intact and
remains devoted to its purpose since its original appropriation. PROVI can rebut
the presumption that necessarily arises from the cited provision only by evidence
to the contrary. No such evidence has been adduced.

Section 1 (d), Rule 57 of the Rules of Court applies where a party is guilty
of fraud in contracting a debt or incurring an obligation, or in concealing or
disposing of the property for the taking, detention or conversion of which the
action is brought. In Wee v. Tankiansee,[43] we held that for a writ of attachment to
issue under this Rule, the applicant must sufficiently show the factual
circumstances of the alleged fraud because fraudulent intent cannot be inferred
from the debtors mere non-payment of the debt or failure to comply with his
obligation. The affidavit, being the foundation of the writ, must contain particulars
showing how the imputed fraud was committed for the court to decide whether or
not to issue the writ. To reiterate, a writ of attachment can only be granted on
concrete and specific grounds and not on general averments merely quoting the
words of the rules.[44]

The affidavit filed by PROVI through Elmer Ramiro, its President and Chief
Executive Officer, only contained a general allegation that TESDA had fraudulent
misapplied or converted the amount of P10,975,000.00 that was allotted to it.
Clearly, we cannot infer any finding of fraud from PROVIs vague assertion, and
the CA correctly ruled that the lower court acted with grave abuse of discretion in
granting the writ of attachment despite want of any valid ground for its issuance.

For all these reasons, we support the appellate courts conclusion that no
valid ground exists to support the grant of the writ of attachment against
TESDA. The CAs annulment and setting aside of the Orders of the RTC were
therefore fully in order.

WHEREFORE, premises considered, we hereby DENY the petition filed by


petitioner Professional Video, Inc., and AFFIRM the Court of Appeals Decision
dated July 23, 2002, and Resolution of September 27, 2002, in CA-G.R. SP No.
67599. Costs against the petitioner.

SO ORDERED.

ARTURO D. BRION
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CONSUELO YNARES-SANTIAGO MINITA V. CHICO-NAZARIO


Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO


Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

*
Designated additional Member of the Second Division per Special Order No. 645 dated May 15, 2009.
**
Designated additional Member of the Second Division effective June 3, 2009 per Special Order No. 658
dated June 3, 2009.
***
Designated additional Member of the Second Division effective May 11, 2009 per Special Order No. 635
dated May 7, 2009.
[1]
Petition for review on certiorari under Rule 45 of the Rules of Court; rollo, pp. 8-21.
[2]
Dated July 23, 2002, penned by Associate Justice Eliezer R. De Los Santos, with Acting Presiding Justice Cancio
C. Garcia (retired member of this Court) and Associate Justice Marina L. Buzon (retired), concurring; id., pp. 22-
31.
[3]
Dated September 27, 2002; id., pp. 32-33.
[4]
Penned by Judge Mariano M. Singzon, Jr.; id., pp. 86-87.
[5]
Id., pp. 88-89.
[6]
R.A. No. 7796, Section 14(b)(1).
[7]
Rollo, pp. 45-47.
[8]
Id., pp. 51-54.
[9]
Id., p. 55.
[10]
Id., pp. 56-57.
[11]
Id., pp. 86-87.
[12]
Id., pp. 95-108.
[13]
Order dated September 10, 2001; id., p. 120.
[14]
Filed on November 15, 2001; id., pp. 60-85.
[15]
Dated July 23, 2002; id., pp. 23-31.
[16]
In a Resolution dated September 27, 2002; id., p. 33.
[17]
Supra note 6, Section 2.
[18]
Id., Section 5.
[19]
Id., Section 8.
[20]
Id., Section 14(b).
[21]
Id., Section 22.
[22]
CONSTITUTION, Article II, Section 18.
[23]
Id., Article XIV, Section 1.
[24]
Id., Article XIII, Section 3.
[25]
See Laguna Lake Development Authority v. Court of Appeals, G.R. No. 110120, March 16, 1994, 231 SCRA
292; Republic v. Court of Appeals, G.R. No. 90482, August 5, 1991, 200 SCRA 226.
[26]
See Farolan, Jr. v. Court of Tax Appeals, G.R. No. 42204, January 21, 1993, 217 SCRA 298; Pacific Products,
Inc. v. Ong, G.R. No. 33777, January 30, 1990, 181 SCRA 536.
[27]
Metran v. Paredes, 79 Phil. 819 (1948).
[28]
JUSMAG Philippines v. NLRC, G.R. No. 108813, December 15, 1994, 239 SCRA 224.
[29]
Republic v. Sandoval, G.R. No. 84645, March 19, 1993, 220 SCRA 124, citing Kawanakoa v. Polyblank, 205
U.S. 349-353, 51 L. Ed. 834 (1907).
[30]
Ibid., citing The Siren v. United States, 7 Wall. 152, 19 L. Ed. 129 (1869).
[31]
G.R. No. L-26386, September 30, 1969, 29 SCRA 598.
[32]
R.A. No. 7796, Section 14(b)(1).
[33]
Whereas Clause of Contract Agreement Project: PVC ID Card Issuance; rollo, pp. 45-47.
[34]
Supra note 4.
[35]
See: Section 8 (5) to (10), R.A. No. 7796.
[36]
G.R. No. L-23139, December 17, 1966, 18 SCRA 1120.
[37]
Blacks Law Dictionary, 6th Ed., p. 1229.
[38]
G.R. No. L-30671, November 28, 1973, 54 SCRA 84.
[39]
G.R. No. 68514, December 17, 1990, 192 SCRA 305.
[40]
Rollo, pp. 188-202.
[41]
Maintenance and Other Operating Expenses.
[42]
Dy v. Enage, G.R. No. L-3535, March 17, 1976, 670 SCRA 96.
[43]
G.R. No. 171124, February 13, 2008, 545 SCRA 263.
[44]
D.P. Lub Oil Marketing Center, Inc. v. Nicolas, G.R. No. 76113, November 16, 1990, 191 SCRA 423.

SECOND DIVISION
DEUTSCHE GESELLSCHAFT FR G.R. No. 152318
TECHNISCHE ZUSAMMENARBEIT,
also known as GERMAN AGENCY Present:
FOR TECHNICAL COOPERATION,
(GTZ) HANS PETER PAULENZ and QUISUMBING, J.,
ANNE NICOLAY, Chairperson,
Petitioners, CARPIO MORALES,
TINGA,
VELASCO, and
- versus - BRION, JJ.
Promulgated:
HON. COURT OF APPEALS, HON.
ARIEL CADIENTE SANTOS, Labor April 16, 2009
Arbiter of the Arbitration Branch,
National Labor Relations Commission,
and BERNADETTE CARMELLA
MAGTAAS, CAROLINA DIONCO,
CHRISTOPHER RAMOS, MELVIN
DELA PAZ, RANDY TAMAYO and
EDGARDO RAMILLO,
Respondents.

x----------------------------------------------------------------------------x

DECISION
TINGA, J.:

On 7 September 1971, the governments of the Federal Republic of Germany and


the Republic of the Philippines ratified an Agreement concerning Technical Co-
operation (Agreement) in Bonn, capital of what was then West Germany. The
Agreement affirmed the countries common interest in promoting the technical and
economic development of their States, and recogni[zed] the benefits to be derived
by both States from closer technical co-operation, and allowed for the conclusion
of arrangements concerning individual projects of technical co-operation.[1] While
the Agreement provided for a limited term of effectivity of five (5) years, it
nonetheless was stated that [t]he Agreement shall be tacitly extended for
successive periods of one year unless either of the two Contracting Parties
denounces it in writing three months prior to its expiry, and that even upon the
Agreements expiry, its provisions would continue to apply to any projects agreed
upon x x x until their completion.[2]

On 10 December 1999, the Philippine government, through then Foreign Affairs


Secretary Domingo Siazon, and the German government, agreed to an
Arrangement in furtherance of the 1971 Agreement. This Arrangement affirmed
the common commitment of both governments to promote jointly a project called,
Social Health InsuranceNetworking and Empowerment (SHINE), which was
designed to enable Philippine familiesespecially poor onesto maintain their health
and secure health care of sustainable quality.[3] It appears that SHINE had already
been in existence even prior to the effectivity of the Arrangement, though the
record does not indicate when exactly SHINE was constituted. Nonetheless, the
Arrangement stated the various obligations of the Filipino and German
governments. The relevant provisions of the Arrangement are reproduced as
follows:

3. The Government of the Federal Republic of Germany shall make the


following contributions to the project.

It shall

(a) second

- one expert in health economy, insurance and health systems for up to 48


expert/months,

- one expert in system development for up to 10 expert/months

- short-term experts to deal with special tasks for a total of up to 18


expert/months,

- project assistants/guest students as required, who shall work on the project as


part of their basic and further training and assume specific project tasks under
the separately financed junior staff promotion programme of the Deutsche
Gesellschaft fr Technische Zusammenarbeit (GTZ);

(b) provide in situ

- short-term experts to deal with diverse special tasks for a total of up to 27


expert/months,

- five local experts in health economy, health insurance, community health


systems, information technology, information systems, training and community
mobilization for a total of up to 240 expert/months,

- local and auxiliary personnel for a total of up to 120 months;

(c) supply inputs, in particular

- two cross-country vehicles,

- ten computers with accessories,


- office furnishings and equipment

up to a total value of DM 310,000 (three hundred and ten thousand Deutsche


Mark);

(c) meet

- the cost of accommodation for the seconded experts and their families in so
far as this cost is not met by the seconded experts themselves,

- the cost of official travel by the experts referred to in sub-paragraph (a) above
within and outside the Republic of the Philippines,

- the cost of seminars and courses,

- the cost of transport and insurance to the project site of inputs to be supplied
pursuant to sub-paragraph (c) above, excluding the charges and storage fees
referred to in paragraph 4(d) below,

- a proportion of the operating and administrative costs;

xxx

4. The Government of the Republic of the Philippines shall make the


following contributions to the project:

It shall

(a) provide the necessary Philippine experts for the project, in particular one
project coordinator in the Philippine Health Insurance Corporation (Philhealth), at
least three further experts and a sufficient number of administrative and auxiliary
personnel, as well as health personnel in the pilot provinces and in the other
project partners, in particular one responsible expert for each pilot province and for
each association representing the various target groups,

- release suitably qualified experts from their duties for attendance at the
envisaged basic and further training activities; it shall only nominate such
candidates as have given an undertaking to work on the project for at least five
years after completing their training and shall ensure that these Philippine experts
receive appropriate remuneration,
- ensure that the project field offices have sufficient expendables,
- make available the land and buildings required for the project;

(b) assume an increasing proportion of the running and operating costs of the
project;
(c) afford the seconded experts any assistance they may require in carrying
out the tasks assigned to them and place at their disposal all necessary records and
documents;
(d) guarantee that

- the project is provided with an itemized budget of its own in order to ensure
smooth continuation of the project.

- the necessary legal and administrative framework is created for the project,

- the project is coordinated in close cooperation with other national and


international agencies relevant to implementation,

- the inputs supplied for the project on behalf of the Government of the
Federal Republic of Germany are exempted from the cost of licenses, harbour
dues, import and export duties and other public charges and fees, as well as storage
fees, or that any costs thereof are met, and that they are cleared by customs without
delay. The aforementioned exemptions shall, at the request of the implementing
agencies also apply to inputs procured in the Republic of the Philippines,

- the tasks of the seconded experts are taken over as soon as possible by
Philippine experts,

- examinations passed by Philippine nationals pursuant to this Arrangement


are recognized in accordance with their respective standards and that the persons
concerned are afforded such opportunities with regard to careers, appointments
and advancement as are commensurate with their training.[4]

In the arraignment, both governments likewise named their respective


implementing organizations for SHINE. The Philippines designated the
Department of Health (DOH) and the Philippine Health Insurance Corporation
(Philhealth) with the implementation of SHINE. For their part, the German
government charge[d] the Deustche Gesellschaft fr Technische
Zusammenarbeit[[5]] (GTZ[[6]]) GmbH, Eschborn, with the implementation of its
contributions.[7]

Private respondents were engaged as contract employees hired by GTZ to


work for SHINE on various dates between December of 1998 to September of
1999. Bernadette Carmela Magtaas was hired as an information systems manager
and project officer of SHINE;[8] Carolina Dionco as a Project Assistant of
SHINE;[9] Christopher Ramos as a project assistant and liason personnel of NHI
related SHINE activities by GTZ;[10] Melvin Dela Paz and Randy Tamayo as
programmers;[11] and Edgardo Ramilo as driver, messenger and multipurpose
service man.[12] The employment contracts of all six private respondents all
specified Dr. Rainer Tollkotter, identified as an adviser of GTZ, as the employer.
At the same time, all the contracts commonly provided that [i]t is mutually agreed
and understood that [Dr. Tollkotter, as employer] is a seconded GTZ expert who is
hiring the Employee on behalf of GTZ and for a Philippine-German bilateral
project named Social Health InsuranceNetworking and Empowerment (SHINE)
which will end at a given time.[13]

In September of 1999, Anne Nicolay (Nicolay), a Belgian national, assumed the


post of SHINE Project Manager. Disagreements eventually arose between Nicolay
and private respondents in matters such as proposed salary adjustments, and the
course Nicolay was taking in the implementation of SHINE different from her
predecessors. The dispute culminated in a letter[14] dated 8 June 2000, signed by the
private respondents, addressed to Nicolay, and copies furnished officials of the
DOH, Philheath, and the director of the Manila office of GTZ. The letter raised
several issues which private respondents claim had been brought up several times
in the past, but have not been given appropriate response. It was claimed that
SHINE under Nicolay had veered away from its original purpose to facilitate the
development of social health insurance by shoring up the national health insurance
program and strengthening local initiatives, as Nicolay had refused to support local
partners and new initiatives on the premise that community and local government
unit schemes were not sustainablea philosophy that supposedly betrayed Nicolays
lack of understanding of the purpose of the project. Private respondents further
alleged that as a result of Nicolays new thrust, resources have been used
inappropriately; that the new management style was not congruent with the
original goals of the project; that Nicolay herself suffered from cultural
insensitivity that consequently failed to sustain healthy relations with SHINEs
partners and staff.

The letter ended with these ominous words:

The issues that we [the private respondents] have stated here are very
crucial to us in working for the project. We could no longer find any reason to stay
with the project unless ALL of these issues be addressed immediately and
appropriately.[15]

In response, Nicolay wrote each of the private respondents a letter dated 21 June
2000, all similarly worded except for their respective addressees. She informed
private respondents that the projects orientations and evolution were decided in
consensus with partner institutions, Philhealth and the DOH, and thus no longer
subject to modifications. More pertinently, she stated:

You have firmly and unequivocally stated in the last paragraph of


th
your 8 June 2000 letter that you and the five other staff could no longer find any
reason to stay with the project unless ALL of these issues be addressed
immediately and appropriately. Under the foregoing premises and circumstances,
it is now imperative that I am to accept your resignation, which I expect to receive
as soon as possible.[16]

Taken aback, private respondents replied with a common letter, clarifying that their
earlier letter was not intended as a resignation letter, but one that merely intended
to raise attention to what they perceived as vital issues.[17] Negotiations ensued
between private respondents and Nicolay, but for naught. Each of the private
respondents received a letter from Nicolay dated 11 July 2000, informing them of
the pre-termination of their contracts of employment on the grounds of serious and
gross insubordination, among others, resulting to loss of confidence and trust.[18]
On 21 August 2000, the private respondents filed a complaint for illegal dismissal
with the NLRC. Named as respondents therein where GTZ, the Director of
its Manila office Hans Peter Paulenz, its Assistant Project Manager Christian Jahn,
and Nicolay.

On 25 October 2005, GTZ, through counsel, filed a Motion to Dismiss, on the


ground that the Labor Arbiter had no jurisdiction over the case, as its acts were
undertaken in the discharge of the governmental functions and sovereign acts of the
Government of the Federal Republic of Germany. This was opposed by private
respondents with the arguments that GTZ had failed to secure a certification that it
was immune from suit from the Department of Foreign Affairs, and that it
was GTZ and not the German government which had implemented the SHINE
Project and entered into the contracts of employment.

On 27 November 2000, the Labor Arbiter issued an Order[19] denying the Motion to
Dismiss. The Order cited, among others, that GTZ was a private corporation which
entered into an employment contract; and that GTZ had failed to secure from the
DFA a certification as to its diplomatic status.

On 7 February 2001, GTZ filed with the Labor Arbiter a Reiterating Motion to
Dismiss, again praying that the Motion to Dismiss be granted on the jurisdictional
ground, and reprising the arguments for dismissal it had earlier raised.[20] No action
was taken by the Labor Arbiter on this new motion. Instead, on 15 October 2001,
the Labor Arbiter rendered a Decision[21] granting the complaint for illegal
dismissal. The Decision concluded that respondents were dismissed without lawful
cause, there being a total lack of due process both substantive and procedural
[sic].[22] GTZ was faulted for failing to observe the notice requirements in the labor
law. The Decision likewise proceeded from the premise that GTZ had treated the
letter dated 8 June 2000 as a resignation letter, and devoted some focus in
debunking this theory.

The Decision initially offered that it need not discuss the jurisdictional aspect
considering that the same had already been lengthily discussed in the Order
de[n]ying respondents Motion to Dismiss.[23] Nonetheless, it proceeded to discuss
the jurisdictional aspect, in this wise:

Under pain of being repetitious, the undersigned Labor Arbiter has


jurisdiction to entertain the complaint on the following grounds:

Firstly, under the employment contract entered into between complainants


and respondents, specifically Section 10 thereof, it provides that contract partners
agree that his contract shall be subject to the LAWS of the jurisdiction of the
locality in which the service is performed.

Secondly, respondent having entered into contract, they can no longer


invoke the sovereignty of the Federal Republic of Germany.

Lastly, it is imperative to be immune from suit, respondents should have


secured from the Department of Foreign Affairs a certification of respondents
diplomatic status and entitlement to diplomatic privileges including immunity
from suits. Having failed in this regard, respondents cannot escape liability from
the shelter of sovereign immunity.[sic][24]

Notably, GTZ did not file a motion for reconsideration to the Labor Arbiters
Decision or elevate said decision for appeal to the NLRC. Instead, GTZ opted to
assail the decision by way of a special civil action for certiorari filed with the Court
of Appeals.[25] On 10 December 2001, the Court of Appeals promulgated a
Resolution[26] dismissing GTZs petition, finding that judicial recourse at this stage
of the case is uncalled for[,] [t]he appropriate remedy of the petitioners [being] an
appeal to the NLRC x x x.[27] A motion for reconsideration to this Resolution
proved fruitless for GTZ.[28]

Thus, the present petition for review under Rule 45, assailing the decision and
resolutions of the Court of Appeals and of the Labor Arbiter. GTZs arguments
center on whether the Court of Appeals could have entertained its petition for
certiorari despite its not having undertaken an appeal before the NLRC; and
whether the complaint for illegal dismissal should have been dismissed for lack of
jurisdiction on account of GTZs insistence that it enjoys immunity from suit. No
special arguments are directed with respect to petitioners Hans Peter Paulenz and
Anne Nicolay, respectively the then Director and the then Project Manager of GTZ
in the Philippines; so we have to presume that the arguments raised in behalf of
GTZs alleged immunity from suit extend to them as well.

The Court required the Office of the Solicitor General (OSG) to file a
Comment on the petition. In its Comment dated 7 November 2005, the OSG took
the side of GTZ, with the prayer that the petition be granted on the ground that
GTZ was immune from suit, citing in particular its assigned functions in
implementing the SHINE programa joint undertaking of the Philippine and German
governments which was neither proprietary nor commercial in nature.

The Court of Appeals had premised the dismissal of GTZs petition on its
procedural misstep in bypassing an appeal to NLRC and challenging the Labor
Arbiters Decision directly with the appellate
court by way of a Rule 65 petition. In dismissing the petition, the

Court of Appeals relied on our ruling in Air Service Cooperative v. Court of


Appeals.[29] The central issue in that case was whether a decision of a Labor Arbiter
rendered without jurisdiction over the subject matter may be annulled in a petition
before a Regional Trial Court. That case may be differentiated from the present
case, since the Regional Trial Court does not have original or appellate jurisdiction
to review a decision rendered by a Labor Arbiter. In contrast, there is no doubt, as
affirmed by jurisprudence, that the Court of Appeals has jurisdiction to review, by
way of its original certiorari jurisdiction, decisions ruling on complaints for illegal
dismissal.

Nonetheless, the Court of Appeals is correct in pronouncing the general rule


that the proper recourse from the decision of the Labor Arbiter is to first appeal the
same to the NLRC. Air Services is in fact clearly detrimental to petitioners position
in one regard. The Court therein noted that on account of the failure to correctly
appeal the decision of the Labor Arbiter to the NLRC, such judgment consequently
became final and executory.[30] GTZ goes as far as to request that the Court re-
examine Air Services, a suggestion that is needlessly improvident under the
circumstances. Air Services affirms doctrines grounded in sound procedural rules
that have allowed for the considered and orderly disposition of labor cases.

The OSG points out, citing Heirs of Mayor Nemencio Galvez v. Court of
Appeals,[31] that even when appeal is available, the Court has nonetheless allowed a
writ of certiorari when the orders of the lower court were issued either in excess of
or without jurisdiction. Indeed, the Court has ruled before that the failure to employ
available intermediate recourses, such as a motion for reconsideration, is not a fatal
infirmity if the ruling assailed is a patent nullity. This approach suggested by the
OSG allows the Court to inquire directly into what is the main issuewhether GTZ
enjoys immunity from suit.
The arguments raised by GTZ and the OSG are rooted in several indisputable
facts. The SHINE project was implemented pursuant to the bilateral agreements
between the Philippine and German governments. GTZ was tasked, under the 1991
agreement, with the implementation of the contributions of the German
government. The activities performed by GTZ pertaining to the SHINE project are
governmental in nature, related as they are to the promotion of health insurance in
the Philippines. The fact that GTZ entered into employment contracts with the
private respondents did not disqualify it from invoking immunity from suit, as held
in cases such as Holy See v. Rosario, Jr.,[32]which set forth what remains valid
doctrine:

Certainly, the mere entering into a contract by a foreign state with a private
party cannot be the ultimate test. Such an act can only be the start of the inquiry.
The logical question is whether the foreign state is engaged in the activity in the
regular course of business. If the foreign state is not engaged regularly in a
business or trade, the particular act or transaction must then be tested by its nature.
If the act is in pursuit of a sovereign activity, or an incident thereof, then it is an
act jure imperii, especially when it is not undertaken for gain or profit.[33]

Beyond dispute is the tenability of the comment points raised by GTZ and
the OSG that GTZ was not performing proprietary functions notwithstanding its
entry into the particular employment contracts. Yet there is an equally fundamental
premise which GTZ and the OSG fail to address, namely: Is GTZ, by conception,
able to enjoy the FederalRepublics immunity from suit?

The principle of state immunity from suit, whether a local state or a foreign
state, is reflected in Section 9, Article XVI of the Constitution, which states that the
State may not be sued without its consent. Who or what consists of the State? For
one, the doctrine is available to foreign States insofar as they are sought to be sued
in the courts of the local State,[34] necessary as it is to avoid unduly vexing the
peace of nations.

If the instant suit had been brought directly against the Federal Republic of
Germany, there would be no doubt that it is a suit brought against a State, and the
only necessary inquiry is whether said State had consented to be sued. However,
the present suit was brought against GTZ. It is necessary for us to understand what
precisely are the parameters of the legal personality of GTZ.

Counsel for GTZ characterizes GTZ as the implementing agency of the


Government of the Federal Republic of Germany, a depiction similarly adopted by
the OSG. Assuming that characterization is correct, it does not automatically invest
GTZ with the ability to invoke State immunity from suit. The distinction lies in
whether the agency is incorporated or unincorporated. The following lucid
discussion from Justice Isagani Cruz is pertinent:

Where suit is filed not against the government itself or its officials but
against one of its entities, it must be ascertained whether or not the State, as the
principal that may ultimately be held liable, has given its consent to be sued. This
ascertainment will depend in the first instance on whether the government
agency impleaded is incorporated or unincorporated.

An incorporated agency has a charter of its own that invests it with a


separate juridical personality, like the Social Security System, the University of
the Philippines, and the City of Manila. By contrast, the unincorporated agency is
so called because it has no separate juridical personality but is merged in the
general machinery of the government, like the Department of Justice, the Bureau
of Mines and the Government Printing Office.

If the agency is incorporated, the test of its suability is found in its


charter. The simple rule is that it is suable if its charter says so, and this is
true regardless of the functions it is performing. Municipal corporations, for
example, like provinces and cities, are agencies of the State when they are
engaged in governmental functions and therefore should enjoy the sovereign
immunity from suit. Nevertheless, they are subject to suit even in the
performance of such functions because their charter provides that they can
sue and be sued.[35]

State immunity from suit may be waived by general or special law. [36] The special
law can take the form of the original charter of the incorporated government
agency. Jurisprudence is replete with examples of incorporated government
agencies which were ruled not entitled to invoke immunity from suit, owing to
provisions in their
charters manifesting their consent to be sued. These include the National Irrigation
Administration,[37] the former Central Bank,[38] and the National Power
Corporation.[39] In SSS v. Court of Appeals,[40] the Court through Justice Melencio-
Herrera explained that by virtue of an express provision in its charter allowing it to
sue and be sued, the Social Security System did not enjoy immunity from suit:

We come now to the amendability of the SSS to judicial action and legal
responsibility for its acts. To our minds, there should be no question on this score
considering that the SSS is a juridical entity with a personality of its own. It has
corporate powers separate and distinct from the Government. SSS' own organic act
specifically provides that it can sue and be sued in Court. These words "sue and be
sued" embrace all civil process incident to a legal action. So that, even assuming
that the SSS, as it claims, enjoys immunity from suit as an entity performing
governmental functions, by virtue of the explicit provision of the aforecited
enabling law, the Government must be deemed to have waived immunity in
respect of the SSS, although it does not thereby concede its liability. That statutory
law has given to the private citizen a remedy for the enforcement and protection of
his rights. The SSS thereby has been required to submit to the jurisdiction of the
Courts, subject to its right to interpose any lawful defense. Whether the SSS
performs governmental or proprietary functions thus becomes unnecessary to
belabor. For by that waiver, a private citizen may bring a suit against it for varied
objectives, such as, in this case, to obtain compensation in damages arising from
contract, and even for tort.

A recent case squarely in point anent the principle, involving the National
Power Corporation, is that of Rayo v. Court of First Instance of Bulacan, 110
SCRA 457 (1981), wherein this Court, speaking through Mr. Justice Vicente Abad
Santos, ruled:
"It is not necessary to write an extended dissertation on whether or not the
NPC performs a governmental function with respect to the management
and operation of the Angat Dam. It is sufficient to say that the government
has organized a private corporation, put money in it and has allowed it to
sue and be sued in any court under its charter. (R.A. No. 6395, Sec. 3[d]).
As a government, owned and controlled corporation, it has a personality
of its own, distinct and separate from that of the Government. Moreover,
the charter provision that the NPC can 'sue and be sued in any court' is
without qualification on the cause of action and accordingly it can include
a tort claim such as the one instituted by the petitioners."[41]

It is useful to note that on the part of the Philippine government, it had designated
two entities, the Department of Health and the Philippine Health Insurance
Corporation (PHIC), as the implementing agencies in behalf of the Philippines. The
PHIC was established under Republic Act No. 7875, Section 16(g) of which grants
the corporation the power to sue and be sued in court. Applying the previously
cited jurisprudence, PHIC would not enjoy immunity from suit even in the
performance of its functions connected with SHINE, however, governmental in
nature as they may be.

Is GTZ an incorporated agency of the German government? There is some mystery


surrounding that question. Neither GTZ nor the OSG go beyond the claim that
petitioner is the implementing agency of the Government of the Federal Republic
of Germany. On the other hand, private respondents asserted before the Labor
Arbiter that GTZ was a private corporation engaged in the implementation of
development projects.[42] The Labor Arbiter accepted that claim in his Order
denying the Motion to Dismiss,[43] though he was silent on that point in his
Decision. Nevertheless, private respondents argue in their Comment that the
finding that GTZ was a private corporation was never controverted, and is therefore
deemed admitted.[44] In its Reply, GTZ controverts that finding, saying that it is a
matter of public knowledge that the status of petitioner GTZ is that of the
implementing agency, and not that of a private corporation.[45]
In truth, private respondents were unable to adduce any evidence to substantiate
their claim that GTZ was a private corporation, and the Labor Arbiter acted rashly
in accepting such claim without explanation. But neither has GTZ supplied any
evidence defining its legal nature beyond that of the bare descriptive implementing
agency. There is no doubt that the 1991 Agreement designated GTZ as the
implementing agency in behalf of the German government. Yet the catch is that
such term has no precise definition that is responsive to our concerns. Inherently,
an agent acts in behalf of a principal, and the GTZ can be said to act in behalf of
the German state. But that is as far as implementing agency could take us. The term
by itself does not supply whether GTZ is incorporated or unincorporated, whether
it is owned by the German state or by private interests, whether it has juridical
personality independent of the German government or none at all.

GTZ itself provides a more helpful clue, inadvertently, through its own official
Internet website.[46] In the Corporate Profile section of the English language version
of its site, GTZ describes itself as follows:

As an international cooperation enterprise for sustainable development with


worldwide operations, the federally owned Deutsche Gesellschaft fr Technische
Zusammenarbeit (GTZ) GmbH supports the German Government in achieving its
development-policy objectives. It provides viable, forward-looking solutions for
political, economic, ecological and social development in a globalised world.
Working under difficult conditions, GTZ promotes complex reforms and change
processes. Its corporate objective is to improve peoples living conditions on a
sustainable basis.

GTZ is a federal enterprise based in Eschborn near Frankfurt am Main. It


was founded in 1975 as a company under private law. The German Federal
Ministry for Economic Cooperation and Development (BMZ) is its major client.
The company also operates on behalf of other German ministries, the governments
of other countries and international clients, such as the European Commission, the
United Nations and the World Bank, as well as on behalf of private enterprises.
GTZ works on a public-benefit basis. All surpluses generated are channeled [sic]
back into its own international cooperation projects for sustainable
development.[47]
GTZs own website elicits that petitioner is federally owned, a federal enterprise,
and founded in 1975 as a company under private law. GTZ clearly has a very
meaningful relationship with the Federal Republic of Germany, which apparently
owns it. At the same time, it appears that GTZ was actually organized not through a
legislative public charter, but under private law, in the same way that Philippine
corporations can be organized under the Corporation Code even if fully owned by
the Philippine government.

This self-description of GTZ in its own official website gives further cause for
pause in adopting petitioners argument that GTZ is entitled to immunity from suit
because it is an implementing agency. The above-quoted statement does not dispute
the characterization of GTZ as an implementing agency of the Federal Republic of
Germany, yet it bolsters the notion that as a company organized under private law,
it has a legal personality independent of that of the Federal Republic of Germany.

The Federal Republic of Germany, in its own official website,[48] also makes
reference to GTZ and describes it in this manner:

x x x Going by the principle of sustainable development, the German


Technical Cooperation (Deutsche Gesellschaft fr Technische Zusammenarbeit
GmbH, GTZ) takes on non-profit projects in international technical
cooperation. The GTZ is a private company owned by the Federal Republic of
Germany.[49]

Again, we are uncertain of the corresponding legal implications under German law
surrounding a private company owned by the Federal Republic of Germany. Yet
taking the description on face value, the apparent equivalent under Philippine law
is that of a corporation organized under the Corporation Code but owned by the
Philippine government, or a government-owned or controlled corporation without
original charter. And it bears notice that Section 36 of the Corporate Code states
that [e]very corporation incorporated under this Code has the power and capacity x
x x to sue and be sued in its corporate name.[50]

It is entirely possible that under German law, an entity such as GTZ or particularly
GTZ itself has not been vested or has been specifically deprived the power and
capacity to sue and/or be sued. Yet in the proceedings below and before this Court,
GTZ has failed to establish that under German law, it has not consented to be sued
despite it being owned by the Federal Republic of Germany. We
adhere to the rule that in the absence of evidence to the contrary,
foreign laws on a particular subject are presumed to be the same as those of
the Philippines,[51] and following the most intelligent assumption we can gather,
GTZ is akin to a governmental owned or controlled corporation without original
charter which, by virtue of the Corporation Code, has expressly consented to be
sued. At the very least, like the Labor Arbiter and the Court of Appeals, this Court
has no basis in fact to conclude or presume that GTZ enjoys immunity from suit.

This absence of basis in fact leads to another important point, alluded to by the
Labor Arbiter in his rulings. Our ruling in Holy See v. Del Rosario[52] provided a
template on how a foreign entity desiring to invoke State immunity from suit could
duly prove such immunity before our local courts. The principles enunciated in that
case were derived from public international law. We stated then:

In Public International Law, when a state or international agency wishes to


plead sovereign or diplomatic immunity in a foreign court, it requests the Foreign
Office of the state where it is sued to convey to the court that said defendant is
entitled to immunity.

In the United States, the procedure followed is the process of "suggestion,"


where the foreign state or the international organization sued in an American court
requests the Secretary of State to make a determination as to whether it is entitled
to immunity. If the Secretary of State finds that the defendant is immune from suit,
he, in turn, asks the Attorney General to submit to the court a "suggestion" that the
defendant is entitled to immunity. In England, a similar procedure is followed,
only the Foreign Office issues a certification to that effect instead of submitting a
"suggestion" (O'Connell, I International Law 130 [1965]; Note: Immunity from
Suit of Foreign Sovereign Instrumentalities and Obligations, 50 Yale Law Journal
1088 [1941]).

In the Philippines, the practice is for the foreign government or the


international organization to first secure an executive endorsement of its claim of
sovereign or diplomatic immunity. But how the Philippine Foreign Office conveys
its endorsement to the courts varies. In International Catholic Migration
Commission v. Calleja, 190 SCRA 130 (1990), the Secretary of Foreign Affairs
just sent a letter directly to the Secretary of Labor and Employment, informing the
latter that the respondent-employer could not be sued because it enjoyed
diplomatic immunity. In World Health Organization v. Aquino, 48 SCRA 242
(1972), the Secretary of Foreign Affairs sent the trial court a telegram to that
effect. In Baer v. Tizon, 57 SCRA 1 (1974), the U.S. Embassy asked the Secretary
of Foreign Affairs to request the Solicitor General to make, in behalf of the
Commander of the United States Naval Base at Olongapo City, Zambales, a
"suggestion" to respondent Judge. The Solicitor General embodied the
"suggestion" in a Manifestation and Memorandum as amicus curiae.[53]

It is to be recalled that the Labor Arbiter, in both of his rulings, noted that it was
imperative for petitioners to secure from the Department of Foreign Affairs a
certification of respondents diplomatic status and entitlement to diplomatic
privileges including immunity from suits.[54] The requirement might not necessarily
be imperative. However, had GTZ obtained such certification from the DFA, it
would have provided factual basis for its claim of immunity that would, at the very
least, establish a disputable evidentiary presumption that the foreign party is indeed
immune which the opposing party will have to overcome with its own factual
evidence. We do not see why GTZ could not have secured such certification or
endorsement from the DFA for purposes of this case. Certainly, it would have been
highly prudential for GTZ to obtain the same after the Labor Arbiter had denied the
motion to dismiss. Still, even at this juncture, we do not see any evidence that the
DFA, the office of the executive branch in charge of our diplomatic relations, has
indeed endorsed GTZs claim of immunity. It may be possible that GTZ tried, but
failed to secure such certification, due to the same concerns that we have discussed
herein.
Would the fact that the Solicitor General has endorsed GTZs claim of States
immunity from suit before this Court sufficiently substitute for the DFA
certification? Note that the rule in public international law quoted in Holy
See referred to endorsement by the Foreign Office of the State where the suit is
filed, such foreign office in the Philippines being the Department of Foreign
Affairs. Nowhere in the Comment of the OSG is it manifested that the DFA has
endorsed GTZs claim, or that the OSG had solicited the DFAs views on the issue.
The arguments raised by the OSG are virtually the same as the arguments raised by
GTZ without any indication of any special and distinct perspective maintained by
the Philippine government on the issue. The Comment filed by the OSG does not
inspire the same degree of confidence as a certification from the DFA would have
elicited.

Holy See made reference to Baer v. Tizon,[55] and that in the said case, the United
States Embassy asked the Secretary of Foreign Affairs to request the Solicitor
General to make a suggestion to the trial court, accomplished by way of a
Manifestation and Memorandum, that the petitioner therein enjoyed immunity as
the Commander of the Subic Bay Naval Base. Such circumstance is actually not
narrated in the text of Baer itself and was likely supplied in Holy See because its
author, Justice Camilio Quiason, had appeared as the Solicitor in behalf of the OSG
in Baer. Nonetheless, as narrated in Holy See, it was the Secretary of Foreign
Affairs which directed the OSG to intervene in behalf of the United
States government in the Baer case, and such fact is manifest enough of the
endorsement by the Foreign Office. We do not find a similar circumstance that
bears here.

The Court is thus holds and so rules that GTZ consistently has been unable to
establish with satisfaction that it enjoys the immunity from suit generally enjoyed
by its parent country, the Federal Republic of Germany. Consequently, both the
Labor Arbiter and the Court of Appeals acted within proper bounds when they
refused to acknowledge that GTZ is so immune by dismissing the complaint
against it. Our finding has additional ramifications on the failure of GTZ to
properly appeal the Labor Arbiters decision to the NLRC. As pointed out by the
OSG, the direct recourse to the Court of Appeals while bypassing the NLRC could
have been sanctioned had the Labor Arbiters decision been a patent nullity. Since
the Labor Arbiter acted properly in deciding the complaint, notwithstanding GTZs
claim of immunity, we cannot see how the decision could have translated into a
patent nullity.

As a result, there was no basis for petitioners in foregoing the appeal to the NLRC
by filing directly with the Court of Appeals the petition for certiorari. It then
follows that the Court of Appeals acted correctly in dismissing the petition on that
ground. As a further consequence, since petitioners failed to perfect an appeal from
the Labor Arbiters Decision, the same has long become final and executory. All
other questions related to this case, such as whether or not private respondents were
illegally dismissed, are no longer susceptible to review, respecting as we do the
finality of the Labor Arbiters Decision.

A final note. This decision should not be seen as deviation from the more common
methodology employed in ascertaining whether a party enjoys State immunity from
suit, one which focuses on the particular functions exercised by the party and
determines whether these are proprietary or sovereign in nature. The nature of the
acts performed by the entity invoking immunity remains the most important
barometer for testing whether the privilege of State immunity from suit should
apply. At the same time, our Constitution stipulates that a State immunity from suit
is conditional on its withholding of consent; hence, the laws and circumstances
pertaining to the creation and legal personality of an instrumentality or agency
invoking immunity remain relevant. Consent to be sued, as exhibited in this
decision, is often conferred by the very same statute or general law creating the
instrumentality or agency.

WHEREFORE, the petition is DENIED. No pronouncement as to costs.

SO ORDERED.

DANTE O. TINGA
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CONCHITA CARPIO MORALES PRESBITERO J. VELASCO, JR.


Associate Justice Associate Justice

ARTURO D. BRION
Associate Justice
ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

[1]
Rollo, p. 51.
[2]
Id. at 56-57.
[3]
Id. at 59.
[4]
Id. at 59-62.
[5]
See id. at 2. Also known as the German Agency for Technical Cooperation.
[6]
GTZ is apparently the acronym by which petitioner is commonly identified; we adopt the same for
purposes of brevity.
[7]
Rollo, p. 62.
[8]
Id. at 64-67.
[9]
Id. at 68-71.
[10]
Id. at 72-75.
[11]
Id. at 76-79, 80-83.
[12]
Id. at 84-87.
[13]
See id. at 64, 68, 72, 76, 80, 84.
[14]
Rollo, pp. 156-158.
[15]
Id. at 157. Emphasis in the original.
[16]
Id. at 159, 160, 161, 162, 163 & 164. Emphasis not ours.
[17]
Id. at 165.
[18]
Id. at 168-173.
[19]
See id. at 204-205. Order penned by Labor Arbiter Ariel Cadiente Santos, the Labor Arbiter who heard
and eventually decided the complaint for illegal dismissal.
[20]
See id. at 206-211.
[21]
Id. at 212-223.
[22]
Id.
[23]
Id. at 219.
[24]
Id. at 220-221.
[25]
Docketed as CA-G.R. SP No. 67794.
[26]
Rollo, pp. 48-49. Resolution penned by Associate Justice Salvador T. Valdez, Jr. of the Court of Appeals
Former Fifteenth Division, and concurred in by Associate Justices Mercedes Gozo-Dadole and Sergio L. Pestao.
[27]
Id. at 45.
[28]
The Resolution denying the Motion for Reconsideration was promulgated on 4 March 2002.
[29]
354 Phil. 905 (1998).
[30]
Id. at 916-917.
[31]
325 Phil. 1028 (1996).
[32]
G.R. No. 101949, 1 December 1994, 238 SCRA 524
[33]
Id. at 536.
[34]
See Syquia v. Almeda Lopez, 84 Phil. 312 (1949).
[35]
I. CRUZ, PHILIPPINE POLITICAL LAW (2002 ed.) at 43. Emphasis supplied. See also Metran v.
Paredes, 79 Phil. 819 (1948).
[36]
See Traders Royal Bank v. Intermediate Appellate Court, G.R. No. 68514, 17 December 1990, 192
SCRA 305, 310.
[37]
See Fontanilla v. Maliaman, G.R. Nos. 55963 & 61045, 27 February 1991, 194 SCRA 486.
[38]
See Arcega v. Court of Appeals, 160 Phil. 919 (1975); Olizo v. Central Bank, 120 Phil. 355 (1964).
[39]
See Rayo v. CFI of Bulacan, 196 Phil. 572 (1981).
[40]
See SSS v. Court of Appeals, 205 Phil. 609 (1983).
[41]
Id. at 624.
[42]
See rollo, p. 110.
[43]
Id. at 204.
[44]
Id. at 278.
[45]
Id. at 317.
[46]
German language version at http://www.gtz.de/de/index.htm, while the English language version is
at http://www.gtz.de/en/ (Last visited, 23 March 2009)
[47]
GTZ. Corporate Profile, at http://www.gtz.de/en/unternehmen/1698.htm (Last visited, 23 March 2009).
[48]
http://www.deutschland.de (Last visited, 23 March 2009).
[49]
Das Deutschland Portal > German Technical Cooperation, at http://www.deutschland.de/
link.php?lang=2&category2=249&link_id=391 (Last visited, 23 March 2009, emphasis supplied).
[50]
See CORPORATION CODE, Sec. 36.
[51]
Board of Commissioners v. Dela Rosa, G.R. Nos. 95122-23, 31 May 1991, 197 SCRA 854; Miciano v.
Brimo, 50 Phil. 867 (1924); Lim and Lim v. Collector of Customs, 36 Phil. 472; Yam Ka Lim v. Collector of
Customs, 30 Phil. 46 (1915).
[52]
Supra note 38.
[53]
Id. at 532.
[54]
See rollo, pp. 204, 221.
[55]
156 Phil. 1 (1974).
FIRST DIVISION

LOCKHEED DETECTIVE AND G.R. No. 185918


WATCHMAN AGENCY, INC.,

Petitioner, Present:

LEONARDO-DE CASTRO,
Acting Chairperson,
PERALTA,
BERSAMIN,
VILLARAMA, JR., and
- versus -
REYES,** JJ

UNIVERSITY OF THE PHILIPPINES, Promulgated:

Respondent. April 18, 2012

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, assailing the August 20, 2008 Amended
Decision[1] and December 23, 2008 Resolution[2] of the Court of Appeals (CA) in
CA-G.R. SP No. 91281.

The antecedent facts of the case are as follows:


Petitioner Lockheed Detective and Watchman Agency, Inc. (Lockheed) entered
into a contract for security services with respondent University of the Philippines
(UP).

In 1998, several security guards assigned to UP filed separate complaints against


Lockheed and UP for payment of underpaid wages, 25% overtime pay, premium
pay for rest days and special holidays, holiday pay, service incentive leave pay,
night shift differentials, 13th month pay, refund of cash bond, refund of
deductions for the Mutual Benefits Aids System (MBAS), unpaid wages from
December 16-31, 1998, and attorneys fees.

On February 16, 2000, the Labor Arbiter rendered a decision as follows:


WHEREFORE, premises considered, respondents Lockheed Detective and Watchman
Agency, Inc. and UP as job contractor and principal, respectively, are hereby declared to
be solidarily liable to complainants for the following claims of the latter which are found
meritorious.

Underpaid wages/salaries, premium pay for work on rest day and special holiday,
holiday pay, 5 days service incentive leave pay, 13th month pay for 1998, refund of cash
bond (deducted at P50.00 per month from January to May 1996, P100.00 per month
from June 1996 and P200.00 from November 1997), refund of deduction for Mutual
Benefits Aids System at the rate of P50.00 a month, and attorneys fees; in the total
amount of P1,184,763.12 broken down as follows per attached computation of the
Computation and [E]xamination Unit of this Commission, which computation forms part
of this Decision:

1. JOSE SABALAS P77,983.62

2. TIRSO DOMASIAN 76,262.70

3. JUAN TAPEL 80,546.03

4. DINDO MURING 80,546.03

5. ALEXANDER ALLORDE 80,471.78

6. WILFREDO ESCOBAR 80,160.63

7. FERDINAND VELASQUEZ 78,595.53


8. ANTHONY GONZALES 76,869.97

9. SAMUEL ESCARIO 80,509.78

10. PEDRO FAILORINA 80,350.87

11. MATEO TANELA 70,590.58

12. JOB SABALAS 59,362.40

13. ANDRES DACANAYAN 77,403.73

14. EDDIE OLIVAR 77,403.73

P1,077,057.38

plus 10% attorneys fees 107,705.74

GRAND TOTAL AWARD P1,184,763.12

Third party respondent University of the Philippines is hereby declared to be liable to


Third Party Complainant and cross claimant Lockheed Detective and Watchman Agency
for the unpaid legislated salary increases of the latters security guards for the years
1996 to 1998, in the total amount of P13,066,794.14, out of which amount the amounts
due complainants here shall be paid.

The other claims are hereby DISMISSED for lack of merit (night shift differential and
13th month pay) or for having been paid in the course of this proceedings (salaries
for December 15-31, 1997 in the amount of P40,140.44).

The claims of Erlindo Collado, Rogelio Banjao and Amor Banjao are hereby DISMISSED as
amicably settled for and in consideration of the amounts of P12,315.72, P12,271.77 and
P12,819.33, respectively.

SO ORDERED.[3]

Both Lockheed and UP appealed the Labor Arbiters decision. By


Decision[4] dated April 12, 2002, the NLRC modified the Labor Arbiters
decision. The NLRC held:
WHEREFORE, the decision appealed from is hereby modified as follows:
1. Complainants claims for premium pay for work on rest day and special
holiday, and 5 days service incentive leave pay, are hereby dismissed for
lack of basis.

2. The respondent University of the Philippines is still solidarily liable with


Lockheed in the payment of the rest of the claims covering the period of
their service contract.

The Financial Analyst is hereby ordered to recompute the awards of the


complainants in accordance with the foregoing modifications.

SO ORDERED.[5]

The complaining security guards and UP filed their respective motions for
reconsideration. On August 14, 2002, however, the NLRC denied said motions.

As the parties did not appeal the NLRC decision, the same became final and
executory on October 26, 2002.[6] A writ of execution was then issued but later
quashed by the Labor Arbiter on November 23, 2003 on motion of UP due to
disputes regarding the amount of the award. Later, however, said order quashing
the writ was reversed by the NLRC by Resolution[7] dated June 8, 2004, disposing
as follows:
WHEREFORE, premises considered, we grant this instant appeal. The Order dated 23
November 2003 is hereby reversed and set aside. The Labor Arbiter is directed to issue a
Writ of Execution for the satisfaction of the judgment award in favor of Third-Party
complainants.

SO ORDERED.[8]

UP moved to reconsider the NLRC resolution. On December 28, 2004, the NLRC
upheld its resolution but with modification that the satisfaction of the judgment
award in favor of Lockheed will be only against the funds of UP which are not
identified as public funds.
The NLRC order and resolution having become final, Lockheed filed a motion for
the issuance of an alias writ of execution. The same was granted on May 23,
2005.[9]

On July 25, 2005, a Notice of Garnishment[10] was issued to Philippine National


Bank (PNB) UP Diliman Branch for the satisfaction of the award of P12,142,522.69
(inclusive of execution fee).

In a letter[11] dated August 9, 2005, PNB informed UP that it has received an order
of release dated August 8, 2005 issued by the Labor Arbiter directing PNB UP
Diliman Branch to release to the NLRC Cashier, through the assigned NLRC Sheriff
Max L. Lago, the judgment award/amount of P12,142,522.69. PNB likewise
reminded UP that the bank only has 10 working days from receipt of the order to
deliver the garnished funds and unless it receives a notice from UP or the NLRC
before the expiry of the 10-day period regarding the issuance of a court order or
writ of injunction discharging or enjoining the implementation and execution of
the Notice of Garnishment and Writ of Execution, the bank shall be constrained to
cause the release of the garnished funds in favor of the NLRC.

On August 16, 2005, UP filed an Urgent Motion to Quash Garnishment.[12] UP


contended that the funds being subjected to garnishment at PNB are
government/public funds. As certified by the University Accountant, the subject
funds are covered by Savings Account No. 275-529999-8, under the name of UP
System Trust Receipts, earmarked for Student Guaranty Deposit, Scholarship
Fund, Student Fund, Publications, Research Grants, and Miscellaneous Trust
Account. UP argued that as public funds, the subject PNB account cannot be
disbursed except pursuant to an appropriation required by law. The Labor Arbiter,
however, dismissed the urgent motion for lack of merit on August 30, 2005.[13]

On September 2, 2005, the amount of P12,062,398.71 was withdrawn by the


sheriff from UPs PNB account.[14]
On September 12, 2005, UP filed a petition for certiorari before the CA based on
the following grounds:
I.

The concept of solidary liability by an indirect employer notwithstanding, respondent


NLRC gravely abused its discretion in a manner amounting to lack or excess of
jurisdiction by misusing such concept to justify the garnishment by the executing Sheriff
of public/government funds belonging to UP.

II.

Respondents NLRC and Arbiter LORA acted without jurisdiction or gravely


abused their discretion in a manner amounting to lack or excess of jurisdiction when, by
means of an Alias Writ of Execution against petitioner UP, they authorized respondent
Sheriff to garnish UPs public funds. Similarly, respondent LORA gravely abused her
discretion when she resolved petitioners Motion to Quash Notice of Garnishment
addressed to, and intended for, the NLRC, and when she unilaterally and arbitrarily
disregarded an official Certification that the funds garnished are public/government
funds, and thereby allowed respondent Sheriff to withdraw the same from PNB.

III.

Respondents gravely abused their discretion in a manner amounting to lack or excess of


jurisdiction when they, despite prior knowledge, effected the execution that caused
paralyzation and dislocation to petitioners governmental functions.[15]

On March 12, 2008, the CA rendered a decision[16] dismissing UPs petition for
certiorari. Citing Republic v. COCOFED,[17] which defines public funds as moneys
belonging to the State or to any political subdivisions of the State, more
specifically taxes, customs, duties and moneys raised by operation of law for the
support of the government or the discharge of its obligations, the appellate court
ruled that the funds sought to be garnished do not seem to fall within the stated
definition.

On reconsideration, however, the CA issued the assailed Amended Decision. It


held that without departing from its findings that the funds covered in the savings
account sought to be garnished do not fall within the classification of public
funds, it reconsiders the dismissal of the petition in light of the ruling in the case
of National Electrification Administration v. Morales[18] which mandates that all
money claims against the government must first be filed with the Commission on
Audit (COA).

Lockheed moved to reconsider the amended decision but the same was denied in
the assailed CA Resolution dated December 23, 2008. The CA cited Manila
International Airport Authority v. Court of Appeals[19] which held that UP ranks
with MIAA, a government instrumentality exercising corporate powers but not
organized as a stock or non-stock corporation. While said corporations are
government instrumentalities, they are loosely called government corporate
entities but not government-owned and controlled corporations in the strict
sense.

Hence this petition by Lockheed raising the following arguments:


1. RESPONDENT UP IS A GOVERNMENT ENTITY WITH A SEPARATE AND DISTINCT
PERSONALITY FROM THE NATIONAL GOVERNMENT AND HAS ITS OWN CHARTER
GRANTING IT THE RIGHT TO SUE AND BE SUED. IT THEREFORE CANNOT AVAIL OF
THE IMMUNITY FROM SUIT OF THE GOVERNMENT. NOT HAVING IMMUNITY FROM
SUIT, RESPONDENT UP CAN BE HELD LIABLE AND EXECUTION CAN THUS ENSUE.

2. MOREOVER, IF THE COURT LENDS IT ASSENT TO THE INVOCATION OF THE


DOCTRINE OF STATE IMMUNITY, THIS WILL RESULT [IN] GRAVE INJUSTICE.

3. FURTHERMORE, THE PROTESTATIONS OF THE RESPONDENT ARE TOO LATE IN THE


DAY, AS THE EXECUTION PROCEEDINGS HAVE ALREADY BEEN TERMINATED.[20]

Lockheed contends that UP has its own separate and distinct juridical entity
from the national government and has its own charter. Thus, it can be sued and
be held liable. Moreover, Executive Order No. 714 entitled Fiscal Control and
Management of the Funds of UP recognizes that as an institution of higher
learning, UP has always granted full management and control of its affairs
including its financial affairs.[21] Therefore, it cannot shield itself from its private
contractual liabilities by simply invoking the public character of its
funds. Lockheed also cites several cases wherein it was ruled that funds of public
corporations which can sue and be sued were not exempt from garnishment.

Lockheed likewise argues that the rulings in the NEA and MIAA cases are
inapplicable. It contends that UP is not similarly situated with NEA because the
jurisdiction of COA over the accounts of UP is only on a post-audit basis. As to
the MIAA case, the liability of MIAA pertains to the real estate taxes imposed by
the City of Paranaque while the obligation of UP in this case involves a private
contractual obligation. Lockheed also argues that the declaration
in MIAA specifically citing UP was mere obiter dictum.

Lockheed moreover submits that UP cannot invoke state immunity to


justify and perpetrate an injustice. UP itself admitted its liability and thus it should
not be allowed to renege on its contractual obligations. Lockheed contends that
this might create a ruinous precedent that would likely affect the relationship
between the public and private sectors.

Lastly, Lockheed contends that UP cannot anymore seek the quashal of the
writ of execution and notice of garnishment as they are already fait accompli.

For its part, UP contends that it did not invoke the doctrine of state immunity
from suit in the proceedings a quo and in fact, it did not object to being sued before
the labor department. It maintains, however, that suability does not necessarily
mean liability. UP argues that the CA correctly applied the NEA ruling when it held
that all money claims must be filed with the COA.

As to alleged injustice that may result for invocation of state immunity from
suit, UP reiterates that it consented to be sued and even participated in the
proceedings below. Lockheed cannot now claim that invocation of state
immunity, which UP did not invoke in the first place, can result in injustice.

On the fait accompli argument, UP argues that Lockheed cannot wash its
hands from liability for the consummated garnishment and execution of UPs trust
fund in the amount of P12,062,398.71. UP cites that damage was done to UP and
the beneficiaries of the fund when said funds, which were earmarked for specific
educational purposes, were misapplied, for instance, to answer for the execution
fee of P120,123.98 unilaterally stipulated by the sheriff. Lockheed, being the party
which procured the illegal garnishment, should be held primarily liable. The mere
fact that the CA set aside the writ of garnishment confirms the liability of
Lockheed to reimburse and indemnify in accordance with law.

The petition has no merit.

We agree with UP that there was no point for Lockheed in discussing the
doctrine of state immunity from suit as this was never an issue in this
case. Clearly, UP consented to be sued when it participated in the proceedings
below. What UP questions is the hasty garnishment of its funds in its PNB
account.

This Court finds that the CA correctly applied the NEA case. Like NEA, UP is
a juridical personality separate and distinct from the government and has the
capacity to sue and be sued. Thus, also like NEA, it cannot evade execution, and
its funds may be subject to garnishment or levy. However, before execution may
be had, a claim for payment of the judgment award must first be filed with the
COA. Under Commonwealth Act No. 327,[22] as amended by Section 26 of P.D. No.
1445,[23] it is the COA which has primary jurisdiction to examine, audit and settle
all debts and claims of any sort due from or owing the Government or any of its
subdivisions, agencies and instrumentalities, including government-owned or
controlled corporations and their subsidiaries. With respect to money claims
arising from the implementation of Republic Act No. 6758,[24] their allowance or
disallowance is for COA to decide, subject only to the remedy of appeal by
petition for certiorari to this Court.[25]

We cannot subscribe to Lockheeds argument that NEA is not similarly


situated with UP because the COAs jurisdiction over the latter is only on post-
audit basis. A reading of the pertinent Commonwealth Act provision clearly shows
that it does not make any distinction as to which of the government subdivisions,
agencies and instrumentalities, including government-owned or controlled
corporations and their subsidiaries whose debts should be filed before the COA.

As to the fait accompli argument of Lockheed, contrary to its claim that


there is nothing that can be done since the funds of UP had already been
garnished, since the garnishment was erroneously carried out and did not go
through the proper procedure (the filing of a claim with the COA), UP is entitled to
reimbursement of the garnished funds plus interest of 6% per annum, to be
computed from the time of judicial demand to be reckoned from the time UP filed
a petition for certiorari before the CA which occurred right after the withdrawal of
the garnished funds from PNB.

WHEREFORE, the petition for review on certiorari is DENIED for lack of


merit. Petitioner Lockheed Detective and Watchman Agency, Inc. is ordered
to REIMBURSE respondent University of the Philippines the amount
of P12,062,398.71 plus interest of 6% per annum, to be computed from
September 12, 2005 up to the finality of this Decision, and 12% interest on the
entire amount from date of finality of this Decision until fully paid.

No pronouncement as to costs.

SO ORDERED.
MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:

TERESITA J. LEONARDO-DE CASTRO

Acting Chairperson

DIOSDADO M. PERALTA LUCAS P.


BERSAMINAssociate Justice
Associate Justice

BIENVENIDO L. REYES
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify that the
conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA

Chief Justice

Designated additional member per Raffle dated April 2, 2012.


*
Designated additional member per Raffle dated April 16, 2012.
[1]
Rollo, pp. 47-50. Penned by Associate Justice Arcangelita M. Romilla-Lontok with Associate Justices Mariano C.
Del Castillo (now a member of this Court) and Romeo F. Barza concurring.
[2]
Id. at 52-53.
[3]
CA rollo, pp. 23-24.
[4]
Id. at 22-38.
[5]
Id. at 37.
[6]
Id. at 44, citing NLRC records, p. 868.
[7]
Id. at 39-56.
[8]
Id. at 55.
[9]
Id. at 57-64.
[10]
Id. at 65.
[11]
Id. at 74.
[12]
Id. at 66-73.
[13]
Id. at 79-81.
[14]
Id. at 10.
[15]
Id.
[16]
Id. at 122-134.
[17]
G.R. Nos. 147062-64, December 14, 2001, 372 SCRA 462, 481.
[18]
G.R. No. 154200, June 24, 2007, 528 SCRA 79, 90-91.
[19]
G.R. No. 155650, July 20, 2006, 495 SCRA 591, 618-619.
[20]
Rollo, p. 17.
[21]
Id. at 24-25.
[22]
AN ACT FIXING THE TIME WITHIN WHICH THE AUDITOR GENERAL SHALL RENDER HIS
DECISIONS AND PRESCRIBING THE MANNER OF APPEAL THEREFROM.
[23]
ORDAINING AND INSTITUTING A GOVERNMENT AUDITING CODE OF THE PHILIPPINES. Section
26 thereof provides:
Section 26. General jurisdiction. The authority and powers of the Commission shall extend to and comprehend all
matters relating to auditing procedures, systems and controls, the keeping of the general accounts of the
Government, the preservation of vouchers pertaining thereto for a period of ten years, the examination and
inspection of the books, records, and papers relating to those accounts; and the audit and settlement of the
accounts of all persons respecting funds or property received or held by them in an accountable capacity, as
well as the examination, audit, and settlement of all debts and claims of any sort due from or owing to the
Government or any of its subdivisions, agencies and instrumentalities. The said jurisdiction extends to all
government-owned or controlled corporations, including their subsidiaries, and other self-governing boards,
commissions, or agencies of the Government, and as herein prescribed, including non-governmental entities
subsidized by the government, those funded by donations through the government, those required to pay levies
or government share, and those for which the government has put up a counterpart fund or those partly funded
by the government.
[24]
Compensation and Position Classification Act of 1989.
[25]
National Electrification Administration v. Morales, supra note 18, at 89-91.

Republic of the Philippines


Supreme Court
Manila

THIRD DIVISION

AIR TRANSPORTATION G.R. No. 159402


OFFICE,
Petitioner, Present:

BRION, Acting Chairperson,**


BERSAMIN,
- versus - ABAD,***
VILLARAMA, JR., and
SERENO, JJ.
SPOUSES DAVID* and Promulgated:
ELISEA RAMOS, February 23, 2011
Respondents.
x-----------------------------------------------------------------------------------------x

RESOLUTION

BERSAMIN, J.:

The States immunity from suit does not extend to the petitioner because it is an
agency of the State engaged in an enterprise that is far from being the States
exclusive prerogative.

Under challenge is the decision promulgated on May 14, 2003,[1] by which


the Court of Appeals (CA) affirmed with modification the decision rendered
on February 21, 2001 by the Regional Trial Court, Branch 61 (RTC),
in Baguio City in favor of the respondents.[2]
Antecedents

Spouses David and Elisea Ramos (respondents) discovered that a portion of their
land registered under Transfer Certificate of Title No. T-58894 of
the Baguio City land records with an area of 985 square meters, more or less, was
being used as part of the runway and running shoulder of the Loakan Airport being
operated by petitioner Air Transportation Office (ATO). On August 11, 1995, the
respondents agreed after negotiations to convey the affected portion by deed of
sale to the ATO in consideration of the amount of P778,150.00. However, the ATO
failed to pay despite repeated verbal and written demands.

Thus, on April 29, 1998, the respondents filed an action for collection
against the ATO and some of its officials in the RTC (docketed as Civil Case No.
4017-R and entitled Spouses David and Elisea Ramos v. Air Transportation Office,
Capt. Panfilo Villaruel, Gen. Carlos Tanega, and Mr. Cesar de Jesus).

In their answer, the ATO and its co-defendants invoked as an affirmative


defense the issuance of Proclamation No. 1358, whereby President Marcos had
reserved certain parcels of land that included the respondents affected portion for
use of the Loakan Airport. They asserted that the RTC had no jurisdiction to
entertain the action without the States consent considering that the deed of sale had
been entered into in the performance of governmental functions.
On November 10, 1998, the RTC denied the ATOs motion for a preliminary
hearing of the affirmative defense.

After the RTC likewise denied the ATOs motion for reconsideration
on December 10, 1998, the ATO commenced a special civil action for certiorari in
the CA to assail the RTCs orders. The CA dismissed the petition for certiorari,
however, upon its finding that the assailed orders were not tainted with grave abuse
of discretion.[3]

Subsequently, February 21, 2001, the RTC rendered its decision on the
merits,[4] disposing:

WHEREFORE, the judgment is rendered ORDERING the defendant Air


Transportation Office to pay the plaintiffs DAVID and ELISEA RAMOS the
following: (1) The amount of P778,150.00 being the value of the parcel of land
appropriated by the defendant ATO as embodied in the Deed of Sale, plus an
annual interest of 12% from August 11, 1995, the date of the Deed of Sale until
fully paid; (2) The amount of P150,000.00 by way of moral damages
and P150,000.00 as exemplary damages; (3) the amount of P50,000.00 by way of
attorneys fees plus P15,000.00 representing the 10, more or less, court
appearances of plaintiffs counsel; (4) The costs of this suit.

SO ORDERED.

In due course, the ATO appealed to the CA, which affirmed the RTCs decision
on May 14, 2003,[5] viz:

IN VIEW OF ALL THE FOREGOING, the appealed decision is


hereby AFFIRMED, with MODIFICATION that the awarded cost therein
is deleted, while that of moral and exemplary damages is reduced to P30,000.00
each, and attorneys fees is lowered to P10,000.00.
No cost.
SO ORDERED.

Hence, this appeal by petition for review on certiorari.

Issue
The only issue presented for resolution is whether the ATO could be sued without
the States consent.

Ruling

The petition for review has no merit.

The immunity of the State from suit, known also as the doctrine of sovereign
immunity or non-suability of the State, is expressly provided in Article XVI of the
1987 Constitution, viz:

Section 3. The State may not be sued without its consent.

The immunity from suit is based on the political truism that the State, as a
sovereign, can do no wrong. Moreover, as the eminent Justice Holmes said
in Kawananakoa v. Polyblank:[6]

The territory [of Hawaii], of course, could waive its exemption (Smith v. Reeves,
178 US 436, 44 L ed 1140, 20 Sup. Ct. Rep. 919), and it took no objection to the
proceedings in the cases cited if it could have done so. xxx But in the case at bar it
did object, and the question raised is whether the plaintiffs were bound to yield.
Some doubts have been expressed as to the source of the immunity of a sovereign
power from suit without its own permission, but the answer has been public
property since before the days of Hobbes. Leviathan, chap. 26, 2. A sovereign is
exempt from suit, not because of any formal conception or obsolete theory,
but on the logical and practical ground that there can be no legal right as
against the authority that makes the law on which the right depends. Car on
peut bien recevoir loy d'autruy, mais il est impossible par nature de se donner
loy. Bodin, Republique, 1, chap. 8, ed. 1629, p. 132; Sir John Eliot, De Jure
Maiestatis, chap. 3. Nemo suo statuto ligatur necessitative. Baldus, De Leg. et
Const. Digna Vox, 2. ed. 1496, fol. 51b, ed. 1539, fol. 61.[7]

Practical considerations dictate the establishment of an immunity from suit


in favor of the State. Otherwise, and the State is suable at the instance of every
other individual, government service may be severely obstructed and public safety
endangered because of the number of suits that the State has to defend
against.[8] Several justifications have been offered to support the adoption of the
doctrine in the Philippines, but that offered in Providence Washington Insurance
Co. v. Republic of the Philippines[9] is the most acceptable explanation, according
to Father Bernas, a recognized commentator on Constitutional Law,[10] to wit:

[A] continued adherence to the doctrine of non-suability is not to be


deplored for as against the inconvenience that may be caused private parties, the
loss of governmental efficiency and the obstacle to the performance of its
multifarious functions are far greater if such a fundamental principle were
abandoned and the availability of judicial remedy were not thus restricted. With
the well-known propensity on the part of our people to go to court, at the least
provocation, the loss of time and energy required to defend against law suits, in
the absence of such a basic principle that constitutes such an effective obstacle,
could very well be imagined.

An unincorporated government agency without any separate juridical


personality of its own enjoys immunity from suit because it is invested with an
inherent power of sovereignty. Accordingly, a claim for damages against the
agency cannot prosper; otherwise, the doctrine of sovereign immunity is
violated.[11] However, the need to distinguish between an unincorporated
government agency performing governmental function and one performing
proprietary functions has arisen. The immunity has been upheld in favor of the
former because its function is governmental or incidental to such function; [12] it has
not been upheld in favor of the latter whose function was not in pursuit of a
necessary function of government but was essentially a business.[13]

Should the doctrine of sovereignty immunity or non-suability of the State be


extended to the ATO?

In its challenged decision,[14] the CA answered in the negative, holding:


On the first assignment of error, appellants seek to impress upon Us that the
subject contract of sale partook of a governmental character. Apropos, the lower
court erred in applying the High Courts ruling in National Airports Corporation
vs. Teodoro (91 Phil. 203 [1952]), arguing that in Teodoro, the matter involved
the collection of landing and parking fees which is a proprietary function, while
the case at bar involves the maintenance and operation of aircraft and air
navigational facilities and services which are governmental functions.

We are not persuaded.


Contrary to appellants conclusions, it was not merely the collection of
landing and parking fees which was declared as proprietary in nature by the High
Court in Teodoro, but management and maintenance of airport operations as a
whole, as well. Thus, in the much later case of Civil Aeronautics Administration
vs. Court of Appeals (167 SCRA 28 [1988]), the Supreme Court, reiterating the
pronouncements laid down in Teodoro, declared that the CAA (predecessor
of ATO) is an agency not immune from suit, it being engaged in functions
pertaining to a private entity. It went on to explain in this wise:

xxx

The Civil Aeronautics Administration comes under the


category of a private entity. Although not a body corporate it was
created, like the National Airports Corporation, not to maintain a
necessary function of government, but to run what is essentially a
business, even if revenues be not its prime objective but rather the
promotion of travel and the convenience of the travelling public. It
is engaged in an enterprise which, far from being the exclusive
prerogative of state, may, more than the construction of public
roads, be undertaken by private concerns. [National Airports Corp.
v. Teodoro, supra, p. 207.]

xxx

True, the law prevailing in 1952 when the Teodoro case was
promulgated was Exec. Order 365 (Reorganizing the Civil
Aeronautics Administration and Abolishing the National Airports
Corporation). Republic Act No. 776 (Civil Aeronautics Act of
the Philippines), subsequently enacted on June 20, 1952, did not
alter the character of the CAAs objectives under Exec. Order
365. The pertinent provisions cited in the Teodoro case, particularly
Secs. 3 and 4 of Exec. Order 365, which led the Court to consider
the CAA in the category of a private entity were retained
substantially in Republic Act 776, Sec. 32(24) and (25). Said Act
provides:

Sec. 32. Powers and Duties of the Administrator. Subject to the


general control and supervision of the Department Head, the
Administrator shall have among others, the following powers and
duties:

xxx
(24) To administer, operate, manage, control, maintain and
develop the Manila International Airport and all government-owned
aerodromes except those controlled or operated by the Armed Forces
of the Philippines including such powers and duties as: (a) to plan,
design, construct, equip, expand, improve, repair or alter aerodromes
or such structures, improvement or air navigation facilities; (b) to
enter into, make and execute contracts of any kind with any person,
firm, or public or private corporation or entity;

(25) To determine, fix, impose, collect and receive landing fees,


parking space fees, royalties on sales or deliveries, direct or indirect,
to any aircraft for its use of aviation gasoline, oil and lubricants, spare
parts, accessories and supplies, tools, other royalties, fees or rentals
for the use of any of the property under its management and control.

xxx

From the foregoing, it can be seen that the CAA is tasked with
private or non-governmental functions which operate to remove it
from the purview of the rule on State immunity from suit. For the
correct rule as set forth in the Teodoro case states:

xxx

Not all government entities, whether corporate or non-


corporate, are immune from suits. Immunity from suits is determined
by the character of the objects for which the entity was
organized. The rule is thus stated in Corpus Juris:

Suits against State agencies with relation to matters


in which they have assumed to act in private or non-
governmental capacity, and various suits against certain
corporations created by the state for public purposes,
but to engage in matters partaking more of the nature of
ordinary business rather than functions of a
governmental or political character, are not regarded as
suits against the state. The latter is true, although the
state may own stock or property of such a corporation
for by engaging in business operations through a
corporation, the state divests itself so far of its
sovereign character, and by implication consents to
suits against the corporation. (59 C.J., 313) [National
Airports Corporation v. Teodoro, supra, pp. 206-207;
Italics supplied.]

This doctrine has been reaffirmed in the recent case of Malong


v. Philippine National Railways [G.R. No. L-49930, August 7,
1985, 138 SCRA 63], where it was held that the Philippine National
Railways, although owned and operated by the government, was not
immune from suit as it does not exercise sovereign but purely
proprietary and business functions. Accordingly, as the CAA was
created to undertake the management of airport operations which
primarily involve proprietary functions, it cannot avail of the
immunity from suit accorded to government agencies performing
strictly governmental functions.[15]

In our view, the CA thereby correctly appreciated the juridical character of


the ATO as an agency of the Government not performing a purely governmental or
sovereign function, but was instead involved in the management and maintenance
of the Loakan Airport, an activity that was not the exclusive prerogative of the
State in its sovereign capacity. Hence, the ATO had no claim to the States
immunity from suit. We uphold the CAs aforequoted holding.

We further observe the doctrine of sovereign immunity cannot be


successfully invoked to defeat a valid claim for compensation arising from the
taking without just compensation and without the proper expropriation proceedings
being first resorted to of the plaintiffs property.[16] Thus, in De los Santos v.
Intermediate Appellate Court,[17] the trial courts dismissal based on the doctrine of
non-suability of the State of two cases (one of which was for damages) filed by
owners of property where a road 9 meters wide and 128.70 meters long occupying
a total area of 1,165 square meters and an artificial creek 23.20 meters wide and
128.69 meters long occupying an area of 2,906 square meters had been constructed
by the provincial engineer of Rizal and a private contractor without the owners
knowledge and consent was reversed and the cases remanded for trial on the
merits. The Supreme Court ruled that the doctrine of sovereign immunity was not
an instrument for perpetrating any injustice on a citizen. In exercising the right of
eminent domain, the Court explained, the State exercised its jus imperii, as
distinguished from its proprietary rights, or jus gestionis; yet, even in that area,
where private property had been taken in expropriation without just compensation
being paid, the defense of immunity from suit could not be set up by the State
against an action for payment by the owners.

Lastly, the issue of whether or not the ATO could be sued without the States
consent has been rendered moot by the passage of Republic Act No.
9497, otherwise known as the Civil Aviation Authority Act of 2008.

R.A. No. 9497 abolished the ATO, to wit:


Section 4. Creation of the Authority. There is hereby created an independent
regulatory body with quasi-judicial and quasi-legislative powers and possessing
corporate attributes to be known as the Civil Aviation Authority of the Philippines
(CAAP), herein after referred to as the Authority attached to the Department of
Transportation and Communications (DOTC) for the purpose of policy
coordination. For this purpose, the existing Air transportation Office created
under the provisions of Republic Act No. 776, as amended is hereby
abolished.
xxx

Under its Transitory Provisions, R.A. No. 9497 established in place of the ATO the
Civil Aviation Authority of the Philippines (CAAP), which thereby assumed all of
the ATOs powers, duties and rights, assets, real and personal properties, funds, and
revenues, viz:

CHAPTER XII
TRANSITORTY PROVISIONS
Section 85. Abolition of the Air Transportation Office. The Air
Transportation Office (ATO) created under Republic Act No. 776, a sectoral
office of the Department of Transportation and Communications (DOTC), is
hereby abolished.

All powers, duties and rights vested by law and exercised by the
ATO is hereby transferred to the Authority.

All assets, real and personal properties, funds and revenues owned by or
vested in the different offices of the ATO are transferred to the Authority. All
contracts, records and documents relating to the operations of the abolished
agency and its offices and branches are likewise transferred to the
Authority. Any real property owned by the national government or
government-owned corporation or authority which is being used and
utilized as office or facility by the ATO shall be transferred and titled in favor
of the Authority.
Section 23 of R.A. No. 9497 enumerates the corporate powers vested in the
CAAP, including the power to sue and be sued, to enter into contracts of every
class, kind and description, to construct, acquire, own, hold, operate, maintain,
administer and lease personal and real properties, and to settle, under such terms
and conditions most advantageous to it, any claim by or against it.[18]
With the CAAP having legally succeeded the ATO pursuant to R.A. No. 9497, the
obligations that the ATO had incurred by virtue of the deed of sale with the Ramos
spouses might now be enforced against the CAAP.

WHEREFORE, the Court denies the petition for review on certiorari, and affirms
the decision promulgated by the Court of Appeals.

No pronouncement on costs of suit.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

ARTURO D. BRION
Associate Justice
Acting Chairperson

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.


Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO


Associate Justice

ATTESTATION
I attest that the conclusions in the above Resolution had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.

ARTURO D. BRION
Associate Justice
Acting Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above Resolution had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

*
David Ramos died on October 14, 2001, before the assailed decision was promulgated. He was substituted by his
children Cherry Ramos, Joseph David Ramos and Elsie Grace R. Dizon pursuant to a resolution of the CA
promulgated on April 23, 2003 (see rollo, p. 136).
**
Acting Chairperson in lieu of Justice Conchita Carpio Morales who is on leave per Special Order No. 925
dated January 24, 2011.
***
Additional member per Special Order No. 926 dated January 24, 2011.
[1]
Rollo, pp. 25-35; penned by Associate Justice Conrado M. Vasquez (later Presiding Justice, now retired), and
concurred in by Associate Justice Mercedes Gozo-Dadole (retired) and Associate Justice Rosmari D. Carandang,
[2]
Id., pp. 80-87; penned by Judge Antonio C. Reyes.
[3]
Id.
[4]
Id.
[5]
Id., pp. 25-35.
[6]
205 US 349, 353 (1907).
[7]
Bold emphasis supplied.
[8]
Veterans Manpower and Protective Services, Inc. v. Court of Appeals, G.R. No. 91359, Sept. 25, 1992, 214
SCRA 286, 294; Republic v. Purisima, No. L-36084, Aug. 31, 1977, 78 SCRA 470, 473.
[9]
L-26386, Sept. 30, 1969, 29 SCRA 598, 601-602.
[10]
Bernas, The 1987 Constitution of the Republic of the Philippines: A Commentary, 2003 Edition, p. 1269.
[11]
Metropolitan Transportation Service v. Paredes, 79 Phil. 819 (1948).
[12]
E.g., Angat River Irrigation System, et. al. v. Angat River Workers Union, et. al., 102 Phil. 789 (1957).
[13]
E.g., National Airports Corporation v. Teodoro, Sr. and Phil. Airlines Inc., 91 Phil. 203 (1952).
[14]
Rollo, pp. 25-35.
[15]
Id., pp. 29-32.
[16]
Republic v. Sandiganbayan, G.R. No. 90478, Nov. 2, 1991, 204 SCRA 212, 231; Ministerio v. Court of First
Instance of Cebu, No. L-31635, Aug. 31, 1971, 40 SCRA 464; Santiago v. Republic, No. L-48214, Dec. 19, 1978,
87 SCRA 294.
[17]
G.R. Nos. 71998-99, June 2, 1993, 223 SCRA 11.
[18]
Section 23. Corporate Powers. The Authority, acting through the Board, shall have the following corporate
powers:

(a) To succeed in its corporate name, to sue and be sued in such corporate name xxx.
xxx
(c) To enter into, make, perform and carry out contracts of every class, kind and description, which are
necessary or incidental to the realization of its purposes, with any person, domestic or foreign private firm, or
corporation, local or national government office, agency and with international institutions or foreign government;
xxx
(e) To construct, acquire, own, hold, operate, maintain, administer and lease personal and real properties,
including buildings, machinery, equipment, other infrastructure, agricultural land, and its improvements, property
rights, and interest therein x x x
xxx
(i) To settle, under such terms and conditions most advantageous to it, any claim by or against it;
xxx

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. 180388 January 18, 2011

GREGORIO R. VIGILAR, SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND


HIGHWAYS (DPWH), DPWH UNDERSECRETARIES TEODORO E. ENCARNACION AND
EDMUNDO E. ENCARNACION AND EDMUNDO V. MIR, DPWH ASSISTANT SECRETARY JOEL
L. ALTEA, DPWH REGIONAL DIRECTOR VICENTE B. LOPEZ, DPWH DISTRICT ENGINEER
ANGELITO M. TWAO, FELIX A. DESIERTO OF THE TECHNICAL WORKING GROUP
VALIDATION AND AUDITING TEAM, AND LEONARDO ALVARO, ROMEO N. SUPAN,
VICTORINO C. SANTOS OF THE DPWH PAMPANGA 2ND ENGINEERING
DISTRICT, Petitioners,
vs.
ARNULFO D. AQUINO, Respondent.

DECISION

SERENO, J.:

Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, assailing
the Decision2of the Court of Appeals in C.A.-G.R. CV No. 82268, dated 25 September 2006.

The antecedent facts are as follows:


On 19 June 1992, petitioner Angelito M. Twao, then Officer-in-Charge (OIC)-District Engineer of the
Department of Public Works and Highways (DPWH) 2nd Engineering District of Pampanga sent an
Invitation to Bid to respondent Arnulfo D. Aquino, the owner of A.D. Aquino Construction and
Supplies. The bidding was for the construction of a dike by bulldozing a part of the Porac River at
Barangay Ascomo-Pulungmasle, Guagua, Pampanga.

Subsequently, on 7 July 1992, the project was awarded to respondent, and a "Contract of
Agreement" was thereafter executed between him and concerned petitioners for the amount of
PhP1,873,790.69, to cover the project cost.

By 9 July 1992, the project was duly completed by respondent, who was then issued a Certificate of
Project Completion dated 16 July 1992. The certificate was signed by Romeo M. Yumul, the Project
Engineer; as well as petitioner Romeo N. Supan, Chief of the Construction Section, and by petitioner
Twao.

Respondent Aquino, however, claimed that PhP1,262,696.20 was still due him, but petitioners
refused to pay the amount. He thus filed a Complaint3 for the collection of sum of money with
damages before the Regional Trial Court of Guagua, Pampanga. The complaint was docketed as
Civil Case No. 3137.

Petitioners, for their part, set up the defense4 that the Complaint was a suit against the state; that
respondent failed to exhaust administrative remedies; and that the "Contract of Agreement" covering
the project was void for violating Presidential Decree No. 1445, absent the proper appropriation and
the Certificate of Availability of Funds.5

On 28 November 2003, the lower court ruled in favor of respondent, to wit:

WHEREFORE, premises considered, defendant Department of Public Works and Highways is


hereby ordered to pay the plaintiff Arnulfo D. Aquino the following:

1. PhP1,873,790.69, Philippine Currency, representing actual amount for the completion of


the project done by the plaintiff;

2. PhP50,000.00 as attorneys fee and

3. Cost of this suit.

SO ORDERED. 6

It is to be noted that respondent was only asking for PhP1,262,696.20; the award in paragraph 1
above, however, conforms to the entire contract amount.

On appeal, the Court of Appeals reversed and set aside the Decision of the lower court and
disposed as follows:

WHEREFORE, premises considered, the appeal is GRANTED. The "CONTRACT AGREEMENT"


entered into between the plaintiff-appellees construction company, which he represented, and the
government, through the Department of Public Works and Highway (DPWH) Pampanga 2nd
Engineering District, is declared null and void ab initio.

The assailed decision of the court a quo is hereby REVERSED AND SET ASIDE.
In line with the pronouncement in Department of Health vs. C.V. Canchela & Associates,
Architects,7 the Commission on Audit (COA) is hereby ordered to determine and ascertain with
dispatch, on a quantum meruit basis, the total obligation due to the plaintiff-appellee for his
undertaking in implementing the subject contract of public works, and to allow payment thereof,
subject to COA Rules and Regulations, upon the completion of the said determination.

No pronouncement as to costs.

SO ORDERED.8

Dissatisfied with the Decision of the Court of Appeals, petitioners are now before this Court, seeking
a reversal of the appellate courts Decision and a dismissal of the Complaint in Civil Case No. G-
3137. The Petition raises the following issues:

1. WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT THE DOCTRINE
OF NON-SUABILITY OF THE STATE HAS NO APPLICATION IN THIS CASE.

2. WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT DISMISSING THE


COMPLAINT FOR FAILURE OF RESPONDENT TO EXHAUST ALL ADMINISTRATIVE
REMEDIES.

3. WHETHER OR NOT THE COURT OF APPEALS ERRED IN ORDERING THE COA TO ALLOW
PAYMENT TO RESPONDENT ON A QUANTUM MERUIT BASIS DESPITE THE LATTERS
FAILURE TO COMPLY WITH THE REQUIREMENTS OF PRESIDENTIAL DECREE NO. 1445.

After a judicious review of the case, the Court finds the Petition to be without merit.

Firstly, petitioners claim that the Complaint filed by respondent before the Regional Trial Court was
done without exhausting administrative remedies. Petitioners aver that respondent should have first
filed a claim before the Commission on Audit (COA) before going to the courts. However, it has been
established that the doctrine of exhaustion of administrative remedies and the doctrine of primary
jurisdiction are not ironclad rules. In Republic of the Philippines v. Lacap,9 this Court enumerated the
numerous exceptions to these rules, namely: (a) where there is estoppel on the part of the party
invoking the doctrine; (b) where the challenged administrative act is patently illegal, amounting to
lack of jurisdiction; (c) where there is unreasonable delay or official inaction that will irretrievably
prejudice the complainant; (d) where the amount involved is relatively so small as to make the rule
impractical and oppressive; (e) where the question involved is purely legal and will ultimately have to
be decided by the courts of justice; (f) where judicial intervention is urgent; (g) where the application
of the doctrine may cause great and irreparable damage; (h) where the controverted acts violate due
process; (i) where the issue of non-exhaustion of administrative remedies has been rendered moot;
(j) where there is no other plain, speedy and adequate remedy; (k) where strong public interest is
involved; and (l) in quo warranto proceedings. In the present case, conditions (c) and (e) are
present.

The government project contracted out to respondent was completed almost two decades ago. To
delay the proceedings by remanding the case to the relevant government office or agency will
definitely prejudice respondent. More importantly, the issues in the present case involve the validity
and the enforceability of the "Contract of Agreement" entered into by the parties. These are
questions purely of law and clearly beyond the expertise of the Commission on Audit or the DPWH.
In Lacap, this Court said:
... It does not involve an examination of the probative value of the evidence presented by the parties.
There is a question of law when the doubt or difference arises as to what the law is on a certain state
of facts, and not as to the truth or the falsehood of alleged facts. Said question at best could be
resolved only tentatively by the administrative authorities. The final decision on the matter rests not
with them but with the courts of justice. Exhaustion of administrative remedies does not apply,
because nothing of an administrative nature is to be or can be done. The issue does not require
technical knowledge and experience but one that would involve the interpretation and application of
law. (Emphasis supplied.)

Secondly, in ordering the payment of the obligation due respondent on a quantum meruit basis, the
Court of Appeals correctly relied on Royal Trust Corporation v. COA,10 Eslao v. COA,11 Melchor v.
COA,12 EPG Construction Company v. Vigilar,13 and Department of Health v. C.V. Canchela &
Associates, Architects.14 All these cases involved government projects undertaken in violation of the
relevant laws, rules and regulations covering public bidding, budget appropriations, and release of
funds for the projects. Consistently in these cases, this Court has held that the contracts were void
for failing to meet the requirements mandated by law; public interest and equity, however, dictate
that the contractor should be compensated for services rendered and work done.

Specifically, C.V. Canchela & Associates is similar to the case at bar, in that the contracts involved in
both cases failed to comply with the relevant provisions of Presidential Decree No. 1445 and the
Revised Administrative Code of 1987. Nevertheless, "(t)he illegality of the subject Agreements
proceeds, it bears emphasis, from an express declaration or prohibition by law, not from any intrinsic
illegality. As such, the Agreements are not illegal per se, and the party claiming thereunder may
recover what had been paid or delivered."15

The government project involved in this case, the construction of a dike, was completed way back on
9 July 1992. For almost two decades, the public and the government benefitted from the work done
by respondent. Thus, the Court of Appeals was correct in applying Eslao to the present case. In
Eslao, this Court stated:

...the Court finds that the contractor should be duly compensated for services rendered, which were
for the benefit of the general public. To deny the payment to the contractor of the two buildings which
are almost fully completed and presently occupied by the university would be to allow the
government to unjustly enrich itself at the expense of another. Justice and equity demand
compensation on the basis of quantum meruit. (Emphasis supplied.)

Neither can petitioners escape the obligation to compensate respondent for services rendered and
work done by invoking the states immunity from suit. This Court has long established in Ministerio v.
CFI of Cebu,16 and recently reiterated in Heirs of Pidacan v. ATO,17 that the doctrine of governmental
immunity from suit cannot serve as an instrument for perpetrating an injustice to a citizen. As this
Court enunciated in EPG Construction:18 1avvphi 1

To our mind, it would be the apex of injustice and highly inequitable to defeat respondents
right to be duly compensated for actual work performed and services rendered, where both
the government and the public have for years received and accepted benefits from the
project and reaped the fruits of respondents honest toil and labor.

xxx xxx xxx

Under these circumstances, respondent may not validly invoke the Royal Prerogative of Dishonesty
and conveniently hide under the State's cloak of invincibility against suit, considering that this
principle yields to certain settled exceptions. True enough, the rule, in any case, is not absolute
for it does not say that the state may not be sued under any circumstance.

xxx xxx xxx

Although the Amigable and Ministerio cases generously tackled the issue of the State's immunity
from suit vis a vis the payment of just compensation for expropriated property, this Court
nonetheless finds the doctrine enunciated in the aforementioned cases applicable to the instant
controversy, considering that the ends of justice would be subverted if we were to uphold, in
this particular instance, the State's immunity from suit.

To be sure, this Court as the staunch guardian of the citizens' rights and welfare cannot
sanction an injustice so patent on its face, and allow itself to be an instrument in the
perpetration thereof. Justice and equity sternly demand that the State's cloak of invincibility
against suit be shred in this particular instance, and that petitioners-contractors be duly
compensated on the basis of quantum meruit for construction done on the public works
housing project. (Emphasis supplied.)

WHEREFORE, in view of the foregoing, the Petition is DENIED for lack of merit. The assailed
Decision of the Court of Appeals in CA-G.R. No. 82268 dated 25 September 2006 is AFFIRMED.

SO ORDERED.

MARIA LOURDES P. A. SERENO


Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice

ANTONIO T. CARPIO CONCHITA CARPIO MORALES


Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR. ANTONIO EDUARDO B. NACHURA


Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO ARTURO D. BRION


Associate Justice Associate Justice

DIOSDADO M. PERALTA LUCAS P. BERSAMIN


Associate Justice Associate Justice

MARIANO C. DEL CASTILLO ROBERTO A. ABAD


Associate Justice Associate Justice

MARTIN S. VILLARAMA, JR. JOSE PORTUGAL PEREZ


Associate Justice Associate Justice
JOSE CATRAL MENDOZA
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion
of the Court.

RENATO C. CORONA
Chief Justice

Footnotes

1 Rollo at 10-32.

2Penned by Associate Justice Amelita G. Tolentino, with Associate Justices Portia Alio-
Hormachuelos and Arcangelita Romilla-Lontok concurring, rollo at 33-48.

3 Rollo at 51-55.

4 Petitioners Answer, rollo at 56-59.

5Sections 85-87, Ordaining and Instituting a Government Auditing Code of the Philippines
(1978).

6 Rollo at 60-64.

7 G.R. Nos. 151373-74, November 17, 2005, 475 SCRA 218.

8 Rollo at 47.

9 G.R. No. 158253, March 2, 2007, 517 SCRA 255.

Supreme Court Resolution En Banc, G.R. No. 84202, November 22, 1988, cited in Eslao v.
10

COA, 195 SCRA 730.

11 G.R. No. 89745, April 8, 1991, 195 SCRA 730.

12 G.R. No. 95938, August 16, 1991, 200 SCRA 705.

13 G.R. 131544, March 16, 2001, 354 SCRA 566.

14 Supra at note 7.

15DOH v. C.V. Canchela Associates, Architects, G.R. Nos. 151373-74, November 17, 2005,
475 SCRA 218.
16 G.R. No. L-31635, August 31, 1971, 40 SCRA 464.

17 G.R. No. 186192, August 25, 2010.

18 G.R. No. 131544, March 16, 2001, 354 SCRA 566.

SECOND DIVISION

SHELL PHILIPPINES G.R. No. 179918

EXPLORATION B.V.,
represented by its Managing
Director, Jeremy Cliff,
Petitioner, Present:
CARPIO, J., Chairperson,
- versus - PERALTA,

DEL CASTILLO,*

ABAD, and

MENDOZA, JJ.

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Respondents. Promulgated:

September 8, 2010

x --------------------------------------------------------------------------------------- x

DECISION
ABAD, J.:

This case is about a question of jurisdiction over an action against a petroleum


contractor, whose pipeline operation has allegedly driven the fish away from
coastal areas, inflicting loss of earnings among fishermen.

The Facts and the Case

On December 11, 1990 petitioner Shell Philippines Exploration B.V. (Shell) and the
Republic of the Philippines entered into Service Contract 38 for the exploration
and extraction of petroleum in northwestern Palawan. Two years later, Shell
discovered natural gas in the Camago-Malampaya area and pursued its
development of the well under the Malampaya Natural Gas Project. This entailed
the construction and installation of a pipeline from Shells production platform to
its gas processing plant in Batangas. The pipeline spanned 504 kilometers and
crossed the Oriental Mindoro Sea.

On May 19, 2003, respondents Efren Jalos, Joven Campang, Arnaldo Mijares, and
75 other individuals (Jalos, et al) filed a complaint for damages[1] against Shell
before the Regional Trial Court (RTC), Branch 41, Pinamalayan, Oriental
Mindoro. Jalos, et al claimed that they were all subsistence fishermen from the
coastal barangay of Bansud, Oriental Mindoro whose livelihood was adversely
affected by the construction and operation of Shells natural gas pipeline.

Jalos, et al claimed that their fish catch became few after the construction of the
pipeline. As a result, their average net income per month fell from a high
of P4,848.00 to only P573.00. They said that the pipeline greatly affected
biogenically hard-structured communities such as coral reefs and led [to] stress to
the marine life in the Mindoro Sea. They now have to stay longer and farther out
at sea to catch fish, as the pipelines operation has driven the fish population out
of coastal waters.[2]

Instead of filing an answer, Shell moved for dismissal of the complaint. It alleged
that the trial court had no jurisdiction over the action, as it is a pollution case
under Republic Act (R.A.) 3931, as amended by Presidential Decree (P.D.) 984 or
the Pollution Control Law. Under these statutes, the Pollution Adjudication Board
(PAB) has primary jurisdiction over pollution cases and actions for related
damages.[3]

Shell also claimed that it could not be sued pursuant to the doctrine of state
immunity without the States consent. Shell said that under Service Contract 38, it
served merely as an agent of the Philippine government in the development of
the Malampaya gas reserves.

Moreover, said Shell, the complaint failed to state a cause of action since it did
not specify any actionable wrong or particular act or omission on Shells part that
could have caused the alleged injury to Jalos, et al. The complaint likewise failed
to comply with requirements of a valid class suit, verification and certification
against forum shopping, and the requisites for a suit brought by pauper
litigants.[4]

On March 24, 2004 the RTC dismissed the complaint. It ruled that the action was
actually pollution-related, although denominated as one for damages. The
complaint should thus be brought first before the PAB, the government agency
vested with jurisdiction over pollution-related cases.[5]
Jalos, et al assailed the RTCs order through a petition for certiorari[6] before the
Court of Appeals (CA). In due course, the latter court reversed such order and
upheld the jurisdiction of the RTC over the action. It said that Shell was not being
sued for committing pollution, but for constructing and operating a natural gas
pipeline that caused fish decline and considerable reduction in the fishermens
income. The claim for damages was thus based on a quasi-delict over which the
regular courts have jurisdiction.
The CA also rejected Shells assertion that the suit was actually against the State. It
observed that the government was not even impleaded as party defendant. It
gave short shrift to Shells insistence that, under the service contract, the
government was solidarily liable with Shell for damages caused to third
persons. Besides, the State should be deemed to have given its consent to be
sued when it entered into the contract with Shell.

The CA also held that the complaint sufficiently alleged an actionable wrong.
Jalos, et al invoked their right to fish the sea and earn a living, which Shell had the
correlative obligation to respect. Failure to observe such obligation resulted in a
violation of the fishermens rights and thus gave rise to a cause of action for
damages.[7]

Finally, the CA held that Jalos, et al substantially complied with the technical
requirements for filing the action. But since they failed to prove the requisites of a
class suit, only those who have verified the complaint should be deemed party
plaintiffs.[8]

Shell moved for reconsideration of the CAs decision but the same was
denied.[9] Hence, it filed this petition for review under Rule 45.

The Issues Presented

The case presents the following issues:


1. Whether or not the complaint is a pollution case that falls within the
primary jurisdiction of the PAB;

2. Whether or not the complaint sufficiently alleges a cause of action


against Shell; and

3. Whether or not the suit is actually against the State and is barred under
the doctrine of state immunity.

The Courts Rulings

First. Although the complaint of Jalos, et al does not use the word pollution
in describing the cause of the alleged fish decline in the Mindoro Sea, it is
unmistakable based on their allegations that Shells pipeline produced some kind
of poison or emission that drove the fish away from the coastal areas. While the
complaint did not specifically attribute to Shell any specific act of pollution, it
alleged that the pipeline greatly affected biogenically hard-structured
communities such as coral reefs and led [to] stress to the marine life in
the Mindoro Sea.[10] This constitutes pollution as defined by law.

Section 2(a) of P.D. 984 defines pollution as any alteration of the physical,
chemical and biological properties of any water x x x as will or is likely to create
or render such water x x x harmful, detrimental or injurious to public health,
safety or welfare or which will adversely affect their utilization for domestic,
commercial, industrial, agricultural, recreational or other legitimate purposes.

It is clear from this definition that the stress to marine life claimed by
Jalos, et al is caused by some kind of pollution emanating from Shells natural gas
pipeline. The pipeline, they said, greatly affected or altered the natural habitat of
fish and affected the coastal waters natural function as fishing
grounds. Inevitably, in resolving Jalos, et als claim for damages, the proper
tribunal must determine whether or not the operation of the pipeline adversely
altered the coastal waters properties and negatively affected its life sustaining
function. The power and expertise needed to determine such issue lies with the
PAB.

Executive Order 192 (1987) transferred to the PAB the powers and
functions of the National Pollution and Control Commission provided in R.A. 3931,
as amended by P.D. 984.[11] These empowered the PAB to [d]etermine the
location, magnitude, extent, severity, causes and effects of water
pollution.[12] Among its functions is to [s]erve as arbitrator for the determination
of reparation, or restitution of the damages and losses resulting from pollution. In
this regard, the PAB has the power to conduct hearings,[13]impose penalties for
violation of P.D. 984,[14] and issue writs of execution to enforce its orders and
decisions.[15] The PABs final decisions may be reviewed by the CA under Rule 43 of
the Rules of Court.[16]

Jalos, et al had, therefore, an administrative recourse before filing their


complaint with the regular courts.[17] The laws creating the PAB and vesting it with
powers are wise. The definition of the term pollution itself connotes the need for
specialized knowledge and skills, technical and scientific, in determining the
presence, the cause, and the effects of pollution. These knowledge and skills are
not within the competence of ordinary courts.[18] Consequently, resort must first
be made to the PAB, which is the agency possessed of expertise in determining
pollution-related matters.

To this extent, the failure of Jalos, et al to allege in their complaint that they
had first taken resort to PAB before going to court means that they failed to state
a cause of action that the RTC could act on. This warranted the dismissal of their
action.[19]
Second. Still, Shell points out that the complaint also states no cause of
action because it failed to specify any actionable wrong or particular act or
omission on Shells part.The Court cannot agree.

As mentioned above, the complaint said that the natural gas pipelines
construction and operation greatly affected the marine environment, drove away
the fish, and resulted in reduced income for Jalos, et al. True, the complaint did
not contain some scientific explanation regarding how the construction and
operation of the pipeline disturbed the waters and drove away the fish from their
usual habitat as the fishermen claimed. But lack of particulars is not a ground for
dismissing the complaint.

A cause of action is the wrongful act or omission committed by the defendant in


violation of the primary rights of the plaintiff.[20] Its elements consist of: (1) a right
existing in favor of the plaintiff, (2) a duty on the part of the defendant to respect
the plaintiffs right, and (3) an act or omission of the defendant in violation of such
right.[21] To sustain a motion to dismiss for lack of cause of action, however, the
complaint must show that the claim for relief does not exist and not only that the
claim was defectively stated or is ambiguous, indefinite or uncertain.[22]
Here, all the elements of a cause of action are present. First, Jalos, et
al undoubtedly had the right to the preferential use of marine and fishing
resources which is guaranteed by no less than the Constitution.[23] Second, Shell
had the correlative duty to refrain from acts or omissions that could impair
Jalos, et als use and enjoyment of the bounties of the seas. Lastly, Shells
construction and operation of the pipeline, which is an act of physical intrusion
into the marine environment, is said to have disrupted and impaired the natural
habitat of fish and resulted in considerable reduction of fish catch and income for
Jalos, et al.

Thus, the construction and operation of the pipeline may, in itself, be a wrongful
act that could be the basis of Jalos, et als cause of action. The rules do not require
that the complaint establish in detail the causal link between the construction and
operation of the pipeline, on the one hand, and the fish decline and loss of
income, on the other hand, it being sufficient that the complaint states the
ultimate facts on which it bases its claim for relief. The test for determining the
sufficiency of a cause of action rests on whether the complaint alleges facts
which, if true, would justify the relief demanded.[24] In this case, a valid judgment
for damages can be made in favor of Jalos, et al, if the construction and operation
of the pipeline indeed caused fish decline and eventually led to the fishermens
loss of income, as alleged in the complaint.

Third. Shell claims that it cannot be sued without the States consent under
the doctrine of state immunity from suit. But, to begin with, Shell is not an agent
of the Republic of the Philippines. It is but a service contractor for the exploration
and development of one of the countrys natural gas reserves. While the Republic
appointed Shell as the exclusive party to conduct petroleum operations in the
Camago-Malampayo area under the States full control and supervision,[25] it does
not follow that Shell has become the States agent within the meaning of the law.
An agent is a person who binds himself to render some service or to do something
in representation or on behalf of another, with the consent or authority of the
latter.[26] The essence of an agency is the agents ability to represent his principal
and bring about business relations between the latter and third persons.[27] An
agents ultimate undertaking is to execute juridical acts that would create, modify
or extinguish relations between his principal and third persons.[28] It is this power
to affect the principals contractual relations with third persons that differentiates
the agent from a service contractor.

Shells main undertaking under Service Contract 38 is to [p]erform all


petroleum operations and provide all necessary technology and finance as well as
other connected services[29] to the Philippine government. As defined under the
contract, petroleum operation means the searching for and obtaining Petroleum
within the Philippines, including the transportation, storage, handling and sale of
petroleum whether for export or domestic consumption.[30] Shells primary
obligation under the contract is not to represent the Philippine government for
the purpose of transacting business with third persons. Rather, its contractual
commitment is to develop and manage petroleum operations on behalf of the
State.

Consequently, Shell is not an agent of the Philippine government, but a


provider of services, technology and financing[31] for the Malampaya Natural Gas
Project. It is not immune from suit and may be sued for claims even without the
States consent. Notably, the Philippine government itself recognized that Shell
could be sued in relation to the project. This is evident in the stipulations agreed
upon by the parties under Service Contract 38.

Article II, paragraph 8, Annex B of Service Contract 38[32] states that legal
expenses, including judgments obtained against the Parties or any of them on
account of the Petroleum Operations, can be recovered by Shell as part of
operating expenses to be deducted from gross proceeds. Article II, paragraph 9B
of the same document allows a similar recovery for [a]ll actual expenditures
incurred and paid by CONTRACTOR [Shell] in settlement of any and all losses,
claims, damages, judgments, and any other expenses not covered by insurance,
including legal services. This signifies that the State itself acknowledged the
suability of Shell. Since payment of claims and damages pursuant to a judgment
against Shell can be deducted from gross proceeds, the State will not be required
to perform any additional affirmative act to satisfy such a judgment.

In sum, while the complaint in this case sufficiently alleges a cause of action, the
same must be filed with the PAB, which is the government agency tasked to
adjudicate pollution-related cases. Shell is not an agent of the State and may thus
be sued before that body for any damages caused by its operations. The parties
may appeal the PABs decision to the CA. But pending prior determination by the
PAB, courts cannot take cognizance of the complaint.

WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the
Court of Appeals in CA-G.R. CV 82404 dated November 20, 2006. Respondent
Efren Jalos, et als complaint for damages against Shell Philippines Exploration B.V.
in Civil Case P-1818-03 of the Regional Trial Court, Branch 41, Pinamalayan,
Oriental Mindoro is ordered DISMISSED without prejudice to its refiling with the
Pollution Adjudication Board or PAB.

SO ORDERED.

ROBERTO A. ABAD

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

DIOSDADO M. PERALTA MARIANO C. DEL CASTILLO


Associate Justice Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson, Second Division


CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

RENATO C. CORONA

Chief Justice
*
Designated as additional member in lieu of Associate Justice Antonio Eduardo B. Nachura, per raffle dated June 7,
2010.
[1]
Docketed as Civil Case P-1818-03 (also referred to as Civil Case R-1818-03 in some parts of the records).
[2]
Rollo, p. 119.
[3]
Id. at 141-143.
[4]
Id. at 146-157.
[5]
Id. at 114.
[6]
Docketed as CA-G.R. CV 82404.
[7]
Rollo, pp. 96-100.
[8]
Id. at 102.
[9]
Id. at 108-110.
[10]
Biogenic means essential to life and its maintenance. (Websters Third New International Dictionary, Unabridged,
p. 218.)
[11]
Estrada v. Court of Appeals, 484 Phil. 730, 742 (2004).
[12]
P.D. 984, Section 6(a).
[13]
Id., Section 6(d).
[14]
Id., Section (9).
[15]
Id., Section 7(d).
[16]
Id., Section 7(c).
[17]
The Alexandra Condominium Corporation v. Laguna Lake Development Authority, G.R. No. 169228, September
11, 2009, 599 SCRA 452, 461.
[18]
Mead v. Hon. Argel, 200 Phil. 650, 662 (1982).
[19]
Supra note 11, at 739.
[20]
Remedial Law Compendium, Vol. I (2002 Ed.), Justice Florenz D. Regalado. p. 66.
[21]
Luzon Development Bank v. Conquilla, G.R. No. 163338, September 21, 2005, 470 SCRA 533, 546.
[22]
Philippine Bank of Communications v. Trazo, G.R. No. 165500, August 30, 2006, 500 SCRA 242, 255.
[23]
Article XIII, Section 7 provides:
SEC. 7. The State shall protect the rights of subsistence fishermen, especially of local communities, to the
preferential use of the communal marine and fishing resources, both inland and offshore. It shall provide support to
such fishermen through appropriate technology and research, adequate financial, production, and marketing
assistance, and other services. The State shall also protect, develop, and conserve such resources. The protection
shall extend to offshore fishing grounds of subsistence fishermen against foreign intrusion. Fishworkers shall receive
a just share from their labor in the utilization of marine and fishing resources.
[24]
Raytheon International, Inc. v. Rouzie, Jr., G.R. No. 162894, February 26, 2008, 546 SCRA 555, 565.
[25]
Rollo, p. 378.
[26]
CIVIL CODE OF THE PHILIPPINES, Article 1869.
[27]
Philex Mining Corporation v. Commissioner of Internal Revenue, G.R. No. 148187, April 16, 2008, 551 SCRA
428, 442.
[28]
Nielson & Company, Inc. v. Lepanto Consolidated Mining Company, 135 Phil. 532, 541 (1968).
[29]
Rollo, p. 384.
[30]
Id. at 380.
[31]
See Sections 6 and 7, Presidential Decree 87 or The Oil Exploration and Development Act of 1972.
[32]
Rollo, p. 403. The stipulation reads in full:
8. Legal Expenses.
All costs and expenses of litigation, or legal service otherwise necessary or expedient for the
protection of the joint interests, including attorneys fees and expenses as hereinafter provided, together with
all judgments obtained against the Parties or any of them on account of the Petroleum Operations, and
actual expenses incurred in securing evidence for the purpose of defending against the Operations of the
subject matter of the Contract. In the event actions or claims affecting interests under the Contract shall be
handled by the legal staff not otherwise charged to Operating Expenses of one or more of the Parties, a
charge commensurate with the cost of providing and furnishing such services may be made against
Operating Expenses.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 101949 December 1, 1994

THE HOLY SEE, petitioner,


vs.
THE HON. ERIBERTO U. ROSARIO, JR., as Presiding Judge of the Regional Trial Court of
Makati, Branch 61 and STARBRIGHT SALES ENTERPRISES, INC., respondents.

Padilla Law Office for petitioner.

Siguion Reyna, Montecillo & Ongsiako for private respondent.

QUIASON, J.:

This is a petition for certiorari under Rule 65 of the Revised Rules of Court to reverse and set aside
the Orders dated June 20, 1991 and September 19, 1991 of the Regional Trial Court, Branch 61,
Makati, Metro Manila in Civil Case No. 90-183.

The Order dated June 20, 1991 denied the motion of petitioner to dismiss the complaint in Civil Case
No. 90-183, while the Order dated September 19, 1991 denied the motion for reconsideration of the
June 20,1991 Order.

Petitioner is the Holy See who exercises sovereignty over the Vatican City in Rome, Italy, and is
represented in the Philippines by the Papal Nuncio.

Private respondent, Starbright Sales Enterprises, Inc., is a domestic corporation engaged in the real
estate business.

This petition arose from a controversy over a parcel of land consisting of 6,000 square meters (Lot 5-
A, Transfer Certificate of Title No. 390440) located in the Municipality of Paraaque, Metro Manila
and registered in the name of petitioner.

Said Lot 5-A is contiguous to Lots 5-B and 5-D which are covered by Transfer Certificates of Title
Nos. 271108 and 265388 respectively and registered in the name of the Philippine Realty
Corporation (PRC).

The three lots were sold to Ramon Licup, through Msgr. Domingo A. Cirilos, Jr., acting as agent to
the sellers. Later, Licup assigned his rights to the sale to private respondent.

In view of the refusal of the squatters to vacate the lots sold to private respondent, a dispute arose
as to who of the parties has the responsibility of evicting and clearing the land of squatters.
Complicating the relations of the parties was the sale by petitioner of Lot 5-A to Tropicana Properties
and Development Corporation (Tropicana).

On January 23, 1990, private respondent filed a complaint with the Regional Trial Court, Branch 61,
Makati, Metro Manila for annulment of the sale of the three parcels of land, and specific performance
and damages against petitioner, represented by the Papal Nuncio, and three other defendants:
namely, Msgr. Domingo A. Cirilos, Jr., the PRC and Tropicana (Civil Case No.
90-183).

The complaint alleged that: (1) on April 17, 1988, Msgr. Cirilos, Jr., on behalf of petitioner and the
PRC, agreed to sell to Ramon Licup Lots 5-A, 5-B and 5-D at the price of P1,240.00 per square
meters; (2) the agreement to sell was made on the condition that earnest money of P100,000.00 be
paid by Licup to the sellers, and that the sellers clear the said lots of squatters who were then
occupying the same; (3) Licup paid the earnest money to Msgr. Cirilos; (4) in the same month, Licup
assigned his rights over the property to private respondent and informed the sellers of the said
assignment; (5) thereafter, private respondent demanded from Msgr. Cirilos that the sellers fulfill
their undertaking and clear the property of squatters; however, Msgr. Cirilos informed private
respondent of the squatters' refusal to vacate the lots, proposing instead either that private
respondent undertake the eviction or that the earnest money be returned to the latter; (6) private
respondent counterproposed that if it would undertake the eviction of the squatters, the purchase
price of the lots should be reduced from P1,240.00 to P1,150.00 per square meter; (7) Msgr. Cirilos
returned the earnest money of P100,000.00 and wrote private respondent giving it seven days from
receipt of the letter to pay the original purchase price in cash; (8) private respondent sent the earnest
money back to the sellers, but later discovered that on March 30, 1989, petitioner and the PRC,
without notice to private respondent, sold the lots to Tropicana, as evidenced by two separate Deeds
of Sale, one over Lot 5-A, and another over Lots 5-B and 5-D; and that the sellers' transfer certificate
of title over the lots were cancelled, transferred and registered in the name of Tropicana; (9)
Tropicana induced petitioner and the PRC to sell the lots to it and thus enriched itself at the expense
of private respondent; (10) private respondent demanded the rescission of the sale to Tropicana and
the reconveyance of the lots, to no avail; and (11) private respondent is willing and able to comply
with the terms of the contract to sell and has actually made plans to develop the lots into a
townhouse project, but in view of the sellers' breach, it lost profits of not less than P30,000.000.00.

Private respondent thus prayed for: (1) the annulment of the Deeds of Sale between petitioner and
the PRC on the one hand, and Tropicana on the other; (2) the reconveyance of the lots in question;
(3) specific performance of the agreement to sell between it and the owners of the lots; and (4)
damages.

On June 8, 1990, petitioner and Msgr. Cirilos separately moved to dismiss the complaint
petitioner for lack of jurisdiction based on sovereign immunity from suit, and Msgr. Cirilos for being
an improper party. An opposition to the motion was filed by private respondent.

On June 20, 1991, the trial court issued an order denying, among others, petitioner's motion to
dismiss after finding that petitioner "shed off [its] sovereign immunity by entering into the business
contract in question" (Rollo, pp. 20-21).

On July 12, 1991, petitioner moved for reconsideration of the order. On August 30, 1991, petitioner
filed a "Motion for a Hearing for the Sole Purpose of Establishing Factual Allegation for claim of
Immunity as a Jurisdictional Defense." So as to facilitate the determination of its defense of
sovereign immunity, petitioner prayed that a hearing be conducted to allow it to establish certain
facts upon which the said defense is based. Private respondent opposed this motion as well as the
motion for reconsideration.

On October 1, 1991, the trial court issued an order deferring the resolution on the motion for
reconsideration until after trial on the merits and directing petitioner to file its answer (Rollo, p. 22).

Petitioner forthwith elevated the matter to us. In its petition, petitioner invokes the privilege of
sovereign immunity only on its own behalf and on behalf of its official representative, the Papal
Nuncio.

On December 9, 1991, a Motion for Intervention was filed before us by the Department of Foreign
Affairs, claiming that it has a legal interest in the outcome of the case as regards the diplomatic
immunity of petitioner, and that it "adopts by reference, the allegations contained in the petition of the
Holy See insofar as they refer to arguments relative to its claim of sovereign immunity from suit"
(Rollo, p. 87).

Private respondent opposed the intervention of the Department of Foreign Affairs. In compliance
with the resolution of this Court, both parties and the Department of Foreign Affairs submitted their
respective memoranda.

II

A preliminary matter to be threshed out is the procedural issue of whether the petition
for certiorari under Rule 65 of the Revised Rules of Court can be availed of to question the order
denying petitioner's motion to dismiss. The general rule is that an order denying a motion to dismiss
is not reviewable by the appellate courts, the remedy of the movant being to file his answer and to
proceed with the hearing before the trial court. But the general rule admits of exceptions, and one of
these is when it is very clear in the records that the trial court has no alternative but to dismiss the
complaint (Philippine National Bank v. Florendo, 206 SCRA 582 [1992]; Zagada v. Civil Service
Commission, 216 SCRA 114 [1992]. In such a case, it would be a sheer waste of time and energy to
require the parties to undergo the rigors of a trial.

The other procedural question raised by private respondent is the personality or legal interest of the
Department of Foreign Affairs to intervene in the case in behalf of the Holy See (Rollo, pp. 186-190).

In Public International Law, when a state or international agency wishes to plead sovereign or
diplomatic immunity in a foreign court, it requests the Foreign Office of the state where it is sued to
convey to the court that said defendant is entitled to immunity.

In the United States, the procedure followed is the process of "suggestion," where the foreign state
or the international organization sued in an American court requests the Secretary of State to make
a determination as to whether it is entitled to immunity. If the Secretary of State finds that the
defendant is immune from suit, he, in turn, asks the Attorney General to submit to the court a
"suggestion" that the defendant is entitled to immunity. In England, a similar procedure is followed,
only the Foreign Office issues a certification to that effect instead of submitting a "suggestion"
(O'Connell, I International Law 130 [1965]; Note: Immunity from Suit of Foreign Sovereign
Instrumentalities and Obligations, 50 Yale Law Journal 1088 [1941]).

In the Philippines, the practice is for the foreign government or the international organization to first
secure an executive endorsement of its claim of sovereign or diplomatic immunity. But how the
Philippine Foreign Office conveys its endorsement to the courts varies. In International Catholic
Migration Commission v. Calleja, 190 SCRA 130 (1990), the Secretary of Foreign Affairs just sent a
letter directly to the Secretary of Labor and Employment, informing the latter that the respondent-
employer could not be sued because it enjoyed diplomatic immunity. In World Health Organization v.
Aquino, 48 SCRA 242 (1972), the Secretary of Foreign Affairs sent the trial court a telegram to that
effect. In Baer v. Tizon, 57 SCRA 1 (1974), the U.S. Embassy asked the Secretary of Foreign Affairs
to request the Solicitor General to make, in behalf of the Commander of the United States Naval
Base at Olongapo City, Zambales, a "suggestion" to respondent Judge. The Solicitor General
embodied the "suggestion" in a Manifestation and Memorandum as amicus curiae.

In the case at bench, the Department of Foreign Affairs, through the Office of Legal Affairs moved
with this Court to be allowed to intervene on the side of petitioner. The Court allowed the said
Department to file its memorandum in support of petitioner's claim of sovereign immunity.

In some cases, the defense of sovereign immunity was submitted directly to the local courts by the
respondents through their private counsels (Raquiza v. Bradford, 75 Phil. 50 [1945]; Miquiabas v.
Philippine-Ryukyus Command, 80 Phil. 262 [1948]; United States of America v. Guinto, 182 SCRA
644 [1990] and companion cases). In cases where the foreign states bypass the Foreign Office, the
courts can inquire into the facts and make their own determination as to the nature of the acts and
transactions involved.

III

The burden of the petition is that respondent trial court has no jurisdiction over petitioner, being a
foreign state enjoying sovereign immunity. On the other hand, private respondent insists that the
doctrine of non-suability is not anymore absolute and that petitioner has divested itself of such a
cloak when, of its own free will, it entered into a commercial transaction for the sale of a parcel of
land located in the Philippines.

A. The Holy See

Before we determine the issue of petitioner's non-suability, a brief look into its status as a sovereign
state is in order.

Before the annexation of the Papal States by Italy in 1870, the Pope was the monarch and he, as
the Holy See, was considered a subject of International Law. With the loss of the Papal States and
the limitation of the territory under the Holy See to an area of 108.7 acres, the position of the Holy
See in International Law became controversial (Salonga and Yap, Public International Law 36-37
[1992]).

In 1929, Italy and the Holy See entered into the Lateran Treaty, where Italy recognized the exclusive
dominion and sovereign jurisdiction of the Holy See over the Vatican City. It also recognized the right
of the Holy See to receive foreign diplomats, to send its own diplomats to foreign countries, and to
enter into treaties according to International Law (Garcia, Questions and Problems In International
Law, Public and Private 81 [1948]).

The Lateran Treaty established the statehood of the Vatican City "for the purpose of assuring to the
Holy See absolute and visible independence and of guaranteeing to it indisputable sovereignty also
in the field of international relations" (O'Connell, I International Law 311 [1965]).

In view of the wordings of the Lateran Treaty, it is difficult to determine whether the statehood is
vested in the Holy See or in the Vatican City. Some writers even suggested that the treaty created
two international persons the Holy See and Vatican City (Salonga and Yap, supra, 37).
The Vatican City fits into none of the established categories of states, and the attribution to it of
"sovereignty" must be made in a sense different from that in which it is applied to other states
(Fenwick, International Law 124-125 [1948]; Cruz, International Law 37 [1991]). In a community of
national states, the Vatican City represents an entity organized not for political but for ecclesiastical
purposes and international objects. Despite its size and object, the Vatican City has an independent
government of its own, with the Pope, who is also head of the Roman Catholic Church, as the Holy
See or Head of State, in conformity with its traditions, and the demands of its mission in the world.
Indeed, the world-wide interests and activities of the Vatican City are such as to make it in a sense
an "international state" (Fenwick, supra., 125; Kelsen, Principles of International Law 160 [1956]).

One authority wrote that the recognition of the Vatican City as a state has significant implication
that it is possible for any entity pursuing objects essentially different from those pursued by states to
be invested with international personality (Kunz, The Status of the Holy See in International Law, 46
The American Journal of International Law 308 [1952]).

Inasmuch as the Pope prefers to conduct foreign relations and enter into transactions as the Holy
See and not in the name of the Vatican City, one can conclude that in the Pope's own view, it is the
Holy See that is the international person.

The Republic of the Philippines has accorded the Holy See the status of a foreign sovereign. The
Holy See, through its Ambassador, the Papal Nuncio, has had diplomatic representations with the
Philippine government since 1957 (Rollo, p. 87). This appears to be the universal practice in
international relations.

B. Sovereign Immunity

As expressed in Section 2 of Article II of the 1987 Constitution, we have adopted the generally
accepted principles of International Law. Even without this affirmation, such principles of
International Law are deemed incorporated as part of the law of the land as a condition and
consequence of our admission in the society of nations (United States of America v. Guinto, 182
SCRA 644 [1990]).

There are two conflicting concepts of sovereign immunity, each widely held and firmly established.
According to the classical or absolute theory, a sovereign cannot, without its consent, be made a
respondent in the courts of another sovereign. According to the newer or restrictive theory, the
immunity of the sovereign is recognized only with regard to public acts or acts jure imperii of a state,
but not with regard to private acts or acts jure gestionis
(United States of America v. Ruiz, 136 SCRA 487 [1987]; Coquia and Defensor-Santiago, Public
International Law 194 [1984]).

Some states passed legislation to serve as guidelines for the executive or judicial determination
when an act may be considered as jure gestionis. The United States passed the Foreign Sovereign
Immunities Act of 1976, which defines a commercial activity as "either a regular course of
commercial conduct or a particular commercial transaction or act." Furthermore, the law declared
that the "commercial character of the activity shall be determined by reference to the nature of the
course of conduct or particular transaction or act, rather than by reference to its purpose." The
Canadian Parliament enacted in 1982 an Act to Provide For State Immunity in Canadian Courts. The
Act defines a "commercial activity" as any particular transaction, act or conduct or any regular course
of conduct that by reason of its nature, is of a "commercial character."

The restrictive theory, which is intended to be a solution to the host of problems involving the issue
of sovereign immunity, has created problems of its own. Legal treatises and the decisions in
countries which follow the restrictive theory have difficulty in characterizing whether a contract of a
sovereign state with a private party is an act jure gestionis or an act jure imperii.

The restrictive theory came about because of the entry of sovereign states into purely commercial
activities remotely connected with the discharge of governmental functions. This is particularly true
with respect to the Communist states which took control of nationalized business activities and
international trading.

This Court has considered the following transactions by a foreign state with private parties as
acts jure imperii: (1) the lease by a foreign government of apartment buildings for use of its military
officers (Syquia v. Lopez, 84 Phil. 312 [1949]; (2) the conduct of public bidding for the repair of a
wharf at a United States Naval Station (United States of America v. Ruiz, supra.); and (3) the change
of employment status of base employees (Sanders v. Veridiano, 162 SCRA 88 [1988]).

On the other hand, this Court has considered the following transactions by a foreign state with
private parties as acts jure gestionis: (1) the hiring of a cook in the recreation center, consisting of
three restaurants, a cafeteria, a bakery, a store, and a coffee and pastry shop at the John Hay Air
Station in Baguio City, to cater to American servicemen and the general public (United States of
America v. Rodrigo, 182 SCRA 644 [1990]); and (2) the bidding for the operation of barber shops in
Clark Air Base in Angeles City (United States of America v. Guinto, 182 SCRA 644 [1990]). The
operation of the restaurants and other facilities open to the general public is undoubtedly for profit as
a commercial and not a governmental activity. By entering into the employment contract with the
cook in the discharge of its proprietary function, the United States government impliedly divested
itself of its sovereign immunity from suit.

In the absence of legislation defining what activities and transactions shall be considered
"commercial" and as constituting acts jure gestionis, we have to come out with our own guidelines,
tentative they may be.

Certainly, the mere entering into a contract by a foreign state with a private party cannot be the
ultimate test. Such an act can only be the start of the inquiry. The logical question is whether the
foreign state is engaged in the activity in the regular course of business. If the foreign state is not
engaged regularly in a business or trade, the particular act or transaction must then be tested by its
nature. If the act is in pursuit of a sovereign activity, or an incident thereof, then it is an act jure
imperii, especially when it is not undertaken for gain or profit.

As held in United States of America v. Guinto, (supra):

There is no question that the United States of America, like any other state, will be
deemed to have impliedly waived its non-suability if it has entered into a contract in
its proprietary or private capacity. It is only when the contract involves its sovereign
or governmental capacity that no such waiver may be implied.

In the case at bench, if petitioner has bought and sold lands in the ordinary course of a real estate
business, surely the said transaction can be categorized as an act jure gestionis. However, petitioner
has denied that the acquisition and subsequent disposal of Lot 5-A were made for profit but claimed
that it acquired said property for the site of its mission or the Apostolic Nunciature in the Philippines.
Private respondent failed to dispute said claim.

Lot 5-A was acquired by petitioner as a donation from the Archdiocese of Manila. The donation was
made not for commercial purpose, but for the use of petitioner to construct thereon the official place
of residence of the Papal Nuncio. The right of a foreign sovereign to acquire property, real or
personal, in a receiving state, necessary for the creation and maintenance of its diplomatic mission,
is recognized in the 1961 Vienna Convention on Diplomatic Relations (Arts. 20-22). This treaty was
concurred in by the Philippine Senate and entered into force in the Philippines on November 15,
1965.

In Article 31(a) of the Convention, a diplomatic envoy is granted immunity from the civil and
administrative jurisdiction of the receiving state over any real action relating to private immovable
property situated in the territory of the receiving state which the envoy holds on behalf of the sending
state for the purposes of the mission. If this immunity is provided for a diplomatic envoy, with all the
more reason should immunity be recognized as regards the sovereign itself, which in this case is the
Holy See.

The decision to transfer the property and the subsequent disposal thereof are likewise clothed with a
governmental character. Petitioner did not sell Lot
5-A for profit or gain. It merely wanted to dispose off the same because the squatters living thereon
made it almost impossible for petitioner to use it for the purpose of the donation. The fact that
squatters have occupied and are still occupying the lot, and that they stubbornly refuse to leave the
premises, has been admitted by private respondent in its complaint (Rollo, pp. 26, 27).

The issue of petitioner's non-suability can be determined by the trial court without going to trial in the
light of the pleadings, particularly the admission of private respondent. Besides, the privilege of
sovereign immunity in this case was sufficiently established by the Memorandum and Certification of
the Department of Foreign Affairs. As the department tasked with the conduct of the Philippines'
foreign relations (Administrative Code of 1987, Book IV, Title I, Sec. 3), the Department of Foreign
Affairs has formally intervened in this case and officially certified that the Embassy of the Holy See is
a duly accredited diplomatic mission to the Republic of the Philippines exempt from local jurisdiction
and entitled to all the rights, privileges and immunities of a diplomatic mission or embassy in this
country (Rollo, pp. 156-157). The determination of the executive arm of government that a state or
instrumentality is entitled to sovereign or diplomatic immunity is a political question that is conclusive
upon the courts (International Catholic Migration Commission v. Calleja, 190 SCRA 130 [1990]).
Where the plea of immunity is recognized and affirmed by the executive branch, it is the duty of the
courts to accept this claim so as not to embarrass the executive arm of the government in
conducting the country's foreign relations (World Health Organization v. Aquino, 48 SCRA 242
[1972]). As in International Catholic Migration Commission and in World Health Organization, we
abide by the certification of the Department of Foreign Affairs.

Ordinarily, the procedure would be to remand the case and order the trial court to conduct a hearing
to establish the facts alleged by petitioner in its motion. In view of said certification, such procedure
would however be pointless and unduly circuitous (Ortigas & Co. Ltd. Partnership v. Judge Tirso
Velasco, G.R. No. 109645, July 25, 1994).

IV

Private respondent is not left without any legal remedy for the redress of its grievances. Under both
Public International Law and Transnational Law, a person who feels aggrieved by the acts of a
foreign sovereign can ask his own government to espouse his cause through diplomatic channels.

Private respondent can ask the Philippine government, through the Foreign Office, to espouse its
claims against the Holy See. Its first task is to persuade the Philippine government to take up with
the Holy See the validity of its claims. Of course, the Foreign Office shall first make a determination
of the impact of its espousal on the relations between the Philippine government and the Holy See
(Young, Remedies of Private Claimants Against Foreign States, Selected Readings on Protection by
Law of Private Foreign Investments 905, 919 [1964]). Once the Philippine government decides to
espouse the claim, the latter ceases to be a private cause.

According to the Permanent Court of International Justice, the forerunner of the International Court
of Justice:

By taking up the case of one of its subjects and by reporting to diplomatic action or
international judicial proceedings on his behalf, a State is in reality asserting its own
rights its right to ensure, in the person of its subjects, respect for the rules of
international law (The Mavrommatis Palestine Concessions, 1 Hudson, World Court
Reports 293, 302 [1924]).

WHEREFORE, the petition for certiorari is GRANTED and the complaint in Civil Case No. 90-183
against petitioner is DISMISSED.

SO ORDERED.

Narvasa, C.J., Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan and
Mendoza, JJ., concur.

Padilla, J., took no part.

Feliciano, J., is on leave.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. 104226 August 12, 1993

CONCHITA ROMUALDEZ-YAP, petitioner,


vs.
THE CIVIL SERVICE COMMISSION and THE PHILIPPINE NATIONAL BANK, respondents.

Estelito P. Mendoza for petitioner.

The Solicitor General for the Civil Service Commission.

Domingo A. Santiago, Jr. for Philippine National Bank.


PADILLA, J.:

This is a special civil action for certiorari under Rule 65 of the Rules of Court, assailing Resolution
No. 92-201 of the respondent Civil Service Commission, which upheld the petitioner's separation
from the Philippine National Bank(PNB) as a result of the abolition of the Fund Transfer Department
pursuant to a reorganization under Executive Order No. 80, dated 3 December 1986.

Petitioner Conchita Romualdez-Yap started working with the Philippine National Bank on 20
September 1972 as special assistant with the rank of Second Assistant Manager assigned to the
office of the PNB President. After several promotions, she was appointed in 1983 Senior Vice
President assigned to the Fund Transfer Department.

Starting 1 April 1986 up to 20 February 1987, petitioner filed several applications for leave of
absence (due to medical reasons) which were duly approved. While she was on leave, Executive
Order No. 80 (Revised Charter of the PNB) was approved on 3 December 1986. Said executive
order authorized the restructure/reorganization and rehabilitation of PNB. Pursuant to the
reorganization plan, the Fund Transfer Department was abolished and its functions transferred to the
International Department.

Consequently, petitioner was notified of her separation from the service in a letter dated 30 January
1987, thus:

Pursuant to the Transitory Provision of the 1986 Revised Charter of the Bank, please
be informed that Management has approved your separation from the
service effective February 16, 1986. You shall be entitled to the regular benefits
allowed under existing law. (emphasis supplied)

Please be informed further that under Sec. 37 of the Bank's 1986 Revised Charter,
any officer or employee who feels aggrieved by any matter treated above may submit
his case to the Civil Service
Commission.1

This letter was received by petitioner's secretary at the PNB head office on 16 February 1987.

Petitioner's first recorded appeal to the Civil Service Commission questioning her separation is a
letter dated 4 August 1989. Then CSC Chairman Samilo N. Barlongay upheld the validity of her
separation from the service in a letter/opinion dated 30 August 1989 (this was allegedly received by
petitioner only on 26 February 1990) stating thus:

xxx xxx xxx

It may be mentioned in this connection, that inasmuch as you did not avail of the
ERIP/Supplementary Retirement Plans adopted by the PNB in 1986, you have
therefore lost your right thereto. Moreover, since you lack the required number of
years of service to entitle you to retirement benefits under existing laws, you may be
entitled to the return of your GSIS personal contributions. Considering further that
you have exhausted all your accumulated leave credits as you went on leave of
absence for the period from April 1, 1986 to February 20, 1987, there is no legal or
valid basis to entitle you to payment of terminal leave.
Finally, pursuant to Section 16, Article XVIII of the Transitory Provisions of the 1987
Philippine Constitution, you may be entitled to payment of separation subject to
auditing rules and regulations.2

In her motion for reconsideration with the Civil Service Commission, dated 5 March 1990,
questioning Chairman Barlongay's ruling, petitioner claimed:

1. The opinion/ruling was not fully supported by the evidence on record;

2. Errors of law prejudicial to the interest of the movant have been committed. She argued:

. . . that her separation from the service was illegal and was done in bad faith
considering that her termination on February 16, 1986 was made effective prior to
the effectivity of Executive Order No. 80 on December 3, 1986, which law authorized
the reorganization of the PNB, and even before February 25, 1986, when President
Corazon C. Aquino came into power. She further claims that although the notice of
termination was dated January 30, 1987 it was only served upon her on February 16,
1987 when the new Constitution which guarantees security of tenure to public
employees was already in effect.3

xxx xxx xxx

. . . the bad faith in her separation from the service in 1987 was evident from the
recent restoration of the Fund Transfer Department as a separate and distinct unit
from the International Department . . . 4

Denying the motion for reconsideration, the Civil Service Commission in its aforecited Resolution No.
92-201, dated 30 January, 1992, ruled:

Sec. 33 of EO 80 (1986 Revised Charter of the PNB) provides:

Sec. 33. Authority to Reorganize. In view of reduced operations contemplated


under this charter in pursuance of the national policy expressed in the "Whereas"
clause hereof, a reorganization of the Bank and a reduction in force are hereby
authorized to achieve greater efficiency and economy in operations, including the
adoption of a new staffing pattern to suit the reduced operations envisioned. The
program of reorganization shall begin immediately after the approval of this Order,
and shall be completed within six (6) months and shall be fully implemented within
eighteen (18) months thereafter." Clearly; as aforequoted, PNB was authorized to
undergo reorganization and to effect a reduction in force to "achieve greater
efficiency and economy in operations". It cannot, be disputed that reduction in force
necessitates, among others, the abolition of positions/offices. The records show that
prior to its reorganization, PNB originally had 7,537 positions which were reduced to
5,405 after the reorganization. Indeed, 2,132 positions were abolished, that is, the
original positions in PNB were reduced by 28%. This reduction in force likewise
included the senior officer positions, in PNB, which were reduced, thus:

Positions Incumbents Proposed Position

President 1 1 1
Sr. Exec. VP 1 1 0
Exec. VP 3 2 2
Senior VP 12 11 7
Vice Pres. 33 27 15

The position of movant Yap (SVP) was one among the original twelve (12) SVP
positions. It was one among the five (5) SVP positions which were abolished. In fact,
the FTD of which she was then the incumbent SVP, was merged with the
International Department to which its functions were closedly related.

It should be noted that as ruled by the Supreme Court in Dario vs. Mison (G.R. NO.
81954):

Reorganizations in this jurisdiction have been regarded as valid


provided they are pursued in good faith. As a general rule, a
reorganization is carried out in "good faith" if it is for the purpose of
economy or to make bureaucracy more efficient. In that event, no
dismissal or separation actually occurs because the position itself
ceases to exist. And in that case, security of tenure would not be a
Chinese Wall. . . . .

. . . Good faith, as a component of a reorganization under a


constitutional regime is judged from the facts of each case.

In the instant case, therefore, this Commission is inclined to believe that the
reorganization of PNB was done in good faith. For indeed, the reorganization was
pursued to achieve economy. It undertook reduction in force as a means to
streamline the numbers of the workforce. It was incidental that movant Yap's position
was one among those abolished. Movant Yap failed to substantiate her claim by
clear and convincing evidence that the abolition of her position was a result of her
close identification with the previous regime, being a sister of former First Lady
Imelda Romualdez Marcos. This being so, and pursuant to the presumption of
regularity in the performance of official functions, the abolition of movant Yap's
position should be upheld. PNB, in the instant case, has clearly proved by substantial
evidence that its act in terminating the services of some of its employees was done in
good faith. 5

Overruling her imputation of bad faith, i.e. her separation was illegal because it took effect on 16
February 1986 or even before the promulgation of EO No. 80 on 3 December 1986, the CSC noted
that the year "1986" stated in the notice of her separation from the service was a typographical error.
PNB submitted documents (p. 6 of Resolution No. 92-201) supporting its stand that the separation
actually took effect on 16 February 1987.

On the issue of bad faith as related to the later restoration of the Fund Transfer Department, the
subject CSC resolution adds:

xxx xxx xxx

It may be mentioned that the recent restoration of the Fund Transfer Department,
actually was a merger of the Fund Transfer Group, the Foreign Remittance
Development and Coordinating Unit based on board Resolution No. 60 of March 12,
1991, or after the lapse of over four (4) years from the date it was abolished in 1987.
Moreover, the restoration of the Fund Transfer Department and other offices in the
PNB was primarily caused by the improved financial capability and present needs of
the Bank. This improved financial condition of the PNB is evident from the 1990
Annual Report it submitted. It may be further stated that the re-established FTD is
headed by a Vice President, a position much lower in rank than the former
department headed by a Senior Vice President.

Furthermore, it should be noted that granting arguendo that movant Yap's


termination from the service was tainted with bad faith, she however, is now barred
from assailing the same as she did not seasonably assert her right thereto. Records
show that she was separated from PNB on February 16, 1987 and it was only in
1989 or about 2 years thereafter when she brought this matter to this Commission.
By her inaction in questioning her termination within a period of one year, she is
considered to have acquiesced to her separation from the service and abandoned
her right to the position.6

In the present petition before the Court, the following issues are raised:

1. Existence of bad faith in the reorganization of the Philippine National Bank resulting in the
separation from the service of petitioner.

2. Erroneous application of the Dario v. Mison doctrine vis-a-vis PNB's reorganization.

3. Erroneous application of the one (1) year prescriptive period for quo warranto proceedings in
petitioner's case.

Dario v. Mison7 laid down the requirement of good faith in the reorganization of a government bureau
wherein offices are abolished. It says:

. . . Reorganizations in this jurisdiction have been regarded as valid provided they are
pursued in good faith. As a general rule, a reorganization is carried out in "good faith"
if it is for the purpose of economy or to make bureaucracy more efficient. In that
event, no dismissal (in case of dismissal) or separation actually occurs because the
position itself ceases to exist. And in that case, security of tenure would not be a
Chinese wall. Be that as it may, if the "abolition," which is nothing else but a
separation or removal, is done for political reasons or purposely to defeat security of
tenure, or otherwise not in good faith, no valid "abolition" takes place and whatever
"abolition" is done, is void ab initio. There is an invalid "abolition" as where there is
merely a change of nomenclature of positions, or where claims of economy are
belied by the existence of ample funds. It is to be stressed that by predisposing a
reorganization to the yardstick of good faith, we are not, as a consequence, imposing
a "cause" for restructuring. Retrenchment in the course of a reorganization in good
faith is still removal "not for cause" if by "cause" we refer to "grounds" or conditions
that call for disciplinary action. Good faith, as a component of a reorganization under
a constitutional regime, is judged from the facts of each case.

In Petitioner's case, the following instances are cited by her as indicia of bad faith:

1. The abolished department was later restored and the number of senior vice
presidents was increased.

2. PNB did not follow the prescribed sequence of separation of employees from the
service contained in Rep. Act No. 6656 which is:
Sec. 3. In the separation of personnel pursuant to reorganization, the
following order of removal shall be followed:

(a) Casual employees with less than five (5) years of


government service;

(b) Casual employees with five (5) years or more of


government service;

(c) Employees holding temporary appointments; and

(d) Employees holding permanent


appointments: Provided, That those in the same
category as enumerated above, who are least
qualified in terms of performance and merit shall be
laid off first, length of service notwithstanding.

3. Petitioner was not extended preference in appointment to the positions in the new
staffing pattern as mandated by Sec. 4 of Rep. Act 6656, her qualification and fitness
for new positions were never evaluated or considered in violation of Sec. 27 of P.D.
807 which was incorporated as Sec. 29 Ch. 5 Subtitle A, Book V of the
Administrative Code of 1987.

4. Lack of notice and bearing before separation from the service.

5. Petitioner was forced to take a leave of absence and prevented from reporting for
work.

6. There is a discrepancy in the date of her separation from the service and the
effectivity thereof.

7. PNB employees in the Fund Transfer Department identified with her were
reassigned or frozen.

8. She is listed as having resigned instead of being separated or dismissed which


was what actually happened.

9. The dismissal was politically motivated, she being a sister of Mrs. Imelda
Romualdez Marcos, wife of deposed President Ferdinand Marcos.

Executive Order No. 80 conferred upon the PNB the authority to reorganize. The order was issued
by then Pres. Corazon Aquino on 3 December 1986 while she was exercising the powers vested in
the President of the Philippines by the Freedom Constitution. After 3 December 1986, what
remained to be done was the implementation of the reorganization. There is no doubt as to the legal
basis for PNB's reorganization. The real question is: was it done in good faith, tested by the Dario
v. Mison doctrine?

To start with it is almost absurd for petitioner to insist that her termination from the service was
antedated to 16 February 1986. At that time, the reorganization of PNB had not even been
conceived. In most of PNB's pleadings, it has documented and supported its stand that the year of
petitioner's separation is 1987 not 1986. The antedating of the termination date, aside from being
clearly a typographical error, is a periphernal issue. The real issue is existence of bad faith
consisting of tangible bureaucratic/management pressures exerted to ease her out of office. Bad
faith has been defined as a state of mind affirmatively operating with furtive design or with some
motive of self interest or ill will or for an ulterior purpose.8 It is the performance of an act with the
knowledge that the actor is violating the fundamental law or right, even without willful intent to injure
or purposive malice to perpetrate a damnifying harm.9

PNB's reorganization, to repeat, was by virtue of a valid law. At the time of reorganization, due to the
critical financial situation of the bank, departments, positions and functions were abolished or
merged. The abolition of the Fund Transfer Department (FTD) was deemed necessary. This, to the
Court's mind, was a management prerogative exercised pursuant to a business judgment. At this
point, a distinction can be made in ruling on the validity of a reorganization between a government
bureau or office performing constituent functions (like the Customs) and a government-owned or
controlled corporation performing ministrant functions (like the PNB).

Constituent function are those which constitute the very bonds of society and are compulsory in
nature; ministrant functions are those undertaken by way of advancing the general interests of
society, and are merely optional. Commercial or universal banking is, ideally, not a governmental but
a private sector, endeavor. It is an optional function of government.

. . . The principles determining whether or not a government shall exercise certain of


these optional functions are: (1) that a government should do for the public welfare
those things which private capital would not naturally undertake and (2) that a
government should do those things which by its very, nature it is better equipped to
administer for the public welfare than is any private individual or group of individuals
(Malcolm, The Government of the Philippine Islands, pp. 19-20)

From the above we may infer that, strictly speaking, there are functions which our
government is required to exercise to promote its objectives as expressed in our
Constitution and which are exercised by it as an attribute of sovereignty, and those
which it may exercise to promote merely the welfare, progress and prosperity of the
people. To this latter class belongs the organization of those corporations owned or
controlled by the government to promote certain aspects of the economic life of our
people such as the National Coconut Corporation. These are what we call
government-owned or controlled corporations which may take on the form of a
private enterprise or one organized with powers and formal characteristics of a
private corporation under the Corporation Law. (Bacani vs. Nacoco, No, L-9657,
November 29, 1956, 100 Phil. 468)

But a reorganization whether in a government bureau performing constituent functions or in a


government-owned or controlled corporation performing ministrant functions must meet a common
test, the test of good faith. In this connection, the philosophy behind PNB's reorganization is spelled
out in the whereas clauses of Executive Order No. 80:

WHEREAS, within the context of the general policy there nevertheless exists a clear
role for direct government-participation in the banking system, particularly in
servicing the requirements of agriculture, small and medium scale industry, export
development, and the government sector.

WHEREAS, in pursuit of this national policy there is need to restructure the


government financial institutions, particularly the Philippine National Bank, to achieve
a more efficient and effective use of available scarce resources, to improve its
viability, and to avoid unfair competition with the private sector, and

WHEREAS, the reorganization and rehabilitation of the Philippine National Bank into
a similar but stronger and more operationally viable bank is an important component
of the nationalization programs for both the financial system and the government
corporation sector; . . . .

Whether there was a hidden political agenda to persecute petitioner due to her consanguinial
relation to Mrs. Imelda Romualdez Marcos, the widow of former President Marcos, is not clearly
shown. On the other hand, it is entirely possible that, precisely because of such consanguinial
relation, petitioner may have been the object of deferential, if not special treatment under the Marcos
regime. It is part of the Filipino culture to extend such deferential, if not special treatment to close
relatives of persons in power. Many times this is carried to unwholesome extremes. But a
discontinuance of such deferential or special treatment in the wake of a change in government or
administration is not bad faith per se. It may be merely putting things in their proper places.

Due to the restructuring and this is empirically verifiable PNB became once more a viable
banking institution. The restoration of the FTD four years after it was abolished and its functions
transferred to the International Department, can be attributed to the bank's growth after
reorganizations, thereby negating malice or bad faith in that reorganization. The essence of good
faith lies in an honest belief in the validity of one's right.10 It consists of an honest intention to abstain
from taking an unconscionable and unscrupulous advantage of another, its absence should be
established by convincing evidence. 11

The records also clearly indicate that starting April 1986 to February 1987, petitioner went on leave
of absence for medical reasons. While she was not reporting to the office, the bank's reorganization
got underway. She continued, however, receiving her salaries, allowances, emoluments, honoraria
and fees up to March 1987. Employees who were affected by the reorganization had the option to
avail of the bank's Separation Benefits Plan/Early Retirement Plan (SBP/ERIP). Petitioner opted not
to avail of such plan and instead submitted to the result of the bank's ongoing reorganization and
management's discretion. If petitioner had the desire for continued employment with the bank, she
could have asserted it for management's consideration. There is no proof on record that she
affirmatively expressed willingness to be employed. Since she cannot rebut the CSC finding that her
earliest appeal was made on 4 August 1989, there is no reason for this Court to hold that she did not
sleep on her rights. On the contrary, her present argument that bad faith existed at the time of the
abolition of the FTD because it was restored four years later is a little too late. Who could have
predicted in 1986 or 1987 that PNB would be able to rise from its financial crisis and become a
viable commercial bank again? The decision to abolish the FTD at the time it was abolished, to
repeat, was a business judgment made in good faith.

PNB for its part submits that its reorganization was effected in good faith
because

a) There was not only a perceptible but substantial restructuring of the PNB hierarchy
showing reduction of personnel, consolidation of offices and abolition of positions.

b) Two thousand one hundred thirty two (2,132) positions were abolished during the
period from February 16, 1986 to January 14, 1987 leaving a lean workforce of five
thousand four hundred five (5,405) as of latter date per B.R. No. 34 hereto attached
as Annex "R".
c) The number of senior officers, including Senior Vice Presidents, was accordingly
reduced.

Another issue raised by petitioner is PNB's alleged non-compliance with the mandate of Sections 2
and 4 of Rep. Act No. 6656. These Sections provide:

Sec. 2. No officer or employee in the career service shall be removed except for a
valid cause and after due notice and hearing. A valid cause for removal exists when,
pursuant to a bona fide reorganization, a position has been abolished or rendered
redundant or there is a need to merge, divide, or consolidate positions in order to
meet the exigencies of the service, or other lawful causes allowed by the Civil
Service Law. The existence of any or some of the following circumstances may be
considered as evidence of bad faith in the removals made as a result of
reorganization, giving to a claim for reinstatement or reappointment by an aggrieved
party.

(a) Where there is a significant increase in the number of positions in the new staffing
pattern of the department or agency concerned;

(b) Where an office is abolished and another performing substantially the same
functions is created;

(c) Where incumbents are replaced by those less qualified in terms of status of
appointment, performance and merit;

(d) Where there is a reclassification of offices in the department or agency concerned


and the reclassified offices perform substantially the same functions as the original
offices;

(e) Where the removal violates the order of separation provided in Section 3 hereof.

xxx xxx xxx

Sec. 4. Officers and employees holding permanent, appointments shall be given


preference for appointment to the new position in the approved staffing pattern
comparable to their former positions or in case there are not enough comparable
positions, to positions next lower in rank.

No new employees shall be taken in until all permanent officers and employees have
been appointed, including temporary and casual employees who possess the
necessary qualification requirements, among which is the appropriate civil service
eligibility, for permanent appointment to positions in the approved staffing pattern, in
case there are still positions to be filled, unless such positions are policy-determining,
primarily confidential or highly technical in nature.

In the first place, Rep. Act No. 6656 cannot be invoked by petitioner because it took effect on 15
June 1987, or after PNB's reorganization had already been implemented. But assuming, ex gratia
argumenti, that it is applicable here and petitioner must be accorded preferential right to appointment
in the bank, PNB in its rejoinder impressively asserts:
Needless to say, there were various committees that were created in the
implementation of the organizational restructuring of the Bank based on the
foregoing policy guidelines. Each personnel to be retained was evaluated in terms of
relative fitness and merit along with the other personnel of the Bank. Thus, when
then SVP Federico Pascual was chosen to head the International Department from
among other officers of the Bank, including Ms. Yap, his qualifications far exceeded
those of the other candidates for the position.

We attach hereto as Annexes "G-1" and "G-2" the service records of Mr. Federico
Pascual and Petitioner Ms. Yap, respectively, which clearly show that the
qualifications of Mr. Pascual far exceed those of Petitioner Yap. Aside from being a
lawyer having been a law graduate from the University of the Philippines, he is also a
Bachelor of Arts degree holder from Ateneo de Manila and a Master of Laws
graduate o Columbia Law School. He had studied Masteral Arts in Public
Administration at the London School of Economics and had undergone extensive
seminars since 1974 at the International Department and had been assigned in
several foreign branches of the Bank. Before he resigned from the Bank, he held the
second highest position of Executive Vice President and served as Acting President
of the Bank before the incumbent president, President Gabriel Singson assumed his
position.

On the other hand, the service record of Petitioner Yap will show that she only holds
a Bachelor of Science in Commerce Degree from Assumption Convent and has
undergone only one seminar on Management and Leadersbip Training Program. She
entered the Bank service in 1972. (Rollo at pp. 312 to 313)

xxx xxx xxx

The prayer in the petition at bar seeks petitioner's immediate reinstatement to her former position as
senior vice president and head of the Fund Transfer Department, or reappointment to a position of
comparable or equivalent rank without loss of seniority rights and pay, etc., under the bank's new
staffing pattern.

A person claiming to be entitled to a public office or position usurped or unlawfully held or exercised
by another may bring an action for quo warranto (Rule 66, Sec. 6, Rules of Court). The petitioner
therein must show a clear legal right to the office allegedly held unlawfully by another. 12

An action for quo warranto should be brought within one (1) year after ouster from office;13 the failure
to institute the same within the reglementary period constitutes more than a sufficient basis for its
dismissal14 since it is not proper that the title to a public office be subjected to continued
uncertainty . . . 15 An exception to this prescriptive period lies only if the failure to file the action can
be attributed to the acts of a responsible government officer and not of the dismissed employee.16

Measured by the above jurisprudence, petitioner's action may be said to be one for quo warranto,
seeking reinstatement to her former position which at present is occupied by another. She cannot
invoke De Tavera v. Phil.Tuberculosis Society, Inc., et. al. 17 and contend that there is no claim of
usurpation of office, and that quo warrantomay be availed of to assert one's right to an office in the
situation obtaining in the case at bar.

Santos v. CA, et. al. 18 and Magno v. PNNC Corp. 19 are invoked by petitioner to illustrate that this
action is one for separation without just cause, hence, the prescriptive period is allegedly four (4)
years in accordance with Article 1146 of the Civil Code. 20 We do not agree. Petitioner's separation
from the service was due to the abolition of her office in implementation of a valid reorganization.
This is not the unjustifiable cause which results in injury to the rights of a person contemplated by
Article 1146. The abolition of the office was not a whimsical, thoughtless move. It was a thoroughly
evaluated action for streamlining functions based on a rehabilitation plan. 21 At the time of the
abolition of the Fund Transfer Department in 1986, foreign exchange losses of the bank amounted to
P81.1 Million. 22 The head of office was a Senior Vice President. At the time of restoration of the
department in 1991, it was headed by a vice president (lower in rank) and showed earnings of
P2,620.0 Million. 23 Other departments abolished in 1986 were also subsequently restored.

Restoring petitioner to her previous position with backwages would be unjust enrichment to her,
considering that she had abandoned or showed lack of interest in reclaiming the same position when
the bank was not yet fully rehabilitated and she only insisted on reinstatement in August 1989 or two
(2) years after her alleged unjustified separation.

To those who feel that their unjustified separation from the service is for a cause beyond their
control, the aforecited Magno case teaches:

. . . while We fully recognize the special protection which the Constitution, labor laws,
and social legislation accord the workingman, We cannot, however, alter or amend
the law on prescription to relieve him of the consequences of his inaction.
Vigilantibus, non dormientibus, jura subveniunt (Laws come to the assistance of the
vigilant, not of the sleeping). His explanation that he could not have filed the
complaint earlier because "he was prevented to do so beyond his control for the
simple reason that private respondent have (sic) tried to circumvent the law by
merely floating" him is very flimsy and does not even evoke sympathetic
consideration, if at all it is proper and necessary. We note that petitioner herein is not
an unlettered man; he seems to be educated and assertive of his rights and appears
to be familiar with judicial procedures. He filed a motion for extension of time to file
the petition and the petition itself without the assistance of counsel. We cannot
believe that if indeed he had a valid grievance against PNCC he would not have
taken immediate positive steps for its redress.

WHEREFORE, premises considered, the assailed CSC resolution is AFFIRMED. The petition is
DISMISSED for failure to show grave abuse of discretion on the part of said CSC in rendering the
questioned resolution. No pronouncement as to costs.

SO ORDERED.

Narvasa, C.J., Cruz, Feliciano, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon,
Bellosillo, Melo, Quiason, Puno and Vitug, JJ., concur.

# Footnotes

1 Rollo, p. 12.

2 Rollo, pp. 43-44.

3 Resolution No. 92-201, CSC, Rollo, p. 31.


4 Ibid., p. 32.

5 Ibid., pp. 33-34.

6 Rollo at p. 36.

7 G.R. No. 81954, August 8, 1989, 176 SCRA 92-93.

8 Air France v. Carrascoso L-21438, September 28, 1966, 18 SCRA 166.

9 De Castro v. Carranza, 50460-R, July 3, 1974, see Moreno, F.B., Philippine Law
Dictionary, Third Edition.

10 Bernardo vs. Bernardo, 96 Phil., 205.

11 Hilario vs. Galvez, 45494-R, August 19, 1971.

12 Carillo vs. CA, G.R. No. L-24554, May 31, 1967, 77 SCRA 170.

13 Cornejo vs. Secretary of Justice, G.R. No. L-32818, June 28, 1974, 57 SCRA
663.

14 Alejo vs. Marquez, G.R. No. L-29053, February 27, 1971, 37 SCRA 762.

15 Villegas vs. de la Cruz, G.R. No. L-23752, December 31, 1965, 15 SCRA 720.

16 Cristobal vs. Melchor, G.R. No. L-43203, July 29, 1977, 75 SCRA 175.

17 G.R. No. L-48928, February 25, 1982, 112 SCRA 243.

18 G.R. No. L-47750, February 29, 1980, 96 SCRA 448.

19 G.R. No. L-87320, June 6, 1991, 198 SCRA 230.

20 Article 1146, Civil Code, provides:

Art 1146. The following actions must be instituted within four years:

1. Upon an injury to the rights of the plaintiff;

2. Upon a quasi-delict."

21 Annex F-2, Rollo at 336.

22 PNB's Rejoinder, p. 29, Rollo at 293.

23 Ibid., p. 294.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-9959 December 13, 1916

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, represented by the Treasurer of the


Philippine Islands,plaintiff-appellee,
vs.
EL MONTE DE PIEDAD Y CAJA DE AHORRAS DE MANILA, defendant-appellant.

William A. Kincaid and Thomas L. Hartigan for appellant.


Attorney-General Avancea for appellee.

TRENT, J.:

About $400,000, were subscribed and paid into the treasury of the Philippine Islands by the
inhabitants of the Spanish Dominions of the relief of those damaged by the earthquake which took
place in the Philippine Islands on June 3, 1863. Subsequent thereto and on October 6 of that year, a
central relief board was appointed, by authority of the King of Spain, to distribute the moneys thus
voluntarily contributed. After a thorough investigation and consideration, the relief board allotted
$365,703.50 to the various sufferers named in its resolution, dated September 22, 1866, and, by
order of the Governor-General of the Philippine Islands, a list of these allotments, together with the
names of those entitled thereto, was published in the Official Gazette of Manila dated April 7, 1870.
There was later distributed, inaccordance with the above-mentioned allotments, the sum of
$30,299.65, leaving a balance of S365,403.85 for distribution. Upon the petition of the governing
body of the Monte de Piedad, dated February 1, 1833, the Philippine Government, by order dated
the 1st of that month, directed its treasurer to turn over to the Monte de Piedad the sum of $80,000
of the relief fund in installments of $20,000 each. These amounts were received on the following
dates: February 15, March 12, April 14, and June 2, 1883, and are still in the possession of
the Monte de Piedad. On account of various petitions of the persons, and heirs of others to whom
the above-mentioned allotments were made by the central relief board for the payment of those
amounts, the Philippine Islands to bring suit against the Monte de Piedad a recover, "through the
Attorney-General and in representation of the Government of the Philippine Islands," the $80.000,
together with interest, for the benefit of those persons or their heirs appearing in the list of names
published in the Official Gazette instituted on May 3, 1912, by the Government of the Philippine
Islands, represented by the Insular Treasurer, and after due trial, judgment was entered in favor of
the plaintiff for the sum of $80,000 gold or its equivalent in Philippine currency, together with legal
interest from February 28, 1912, and the costs of the cause. The defendant appealed and makes the
following assignment of errors:

1. The court erred in not finding that the eighty thousand dollars ($80,000), give to the Monte
de Piedad y Caja de Ahorros, were so given as a donation subject to one condition, to wit:
the return of such sum of money to the Spanish Government of these Islands, within eight
days following the day when claimed, in case the Supreme Government of Spain should not
approve the action taken by the former government.

2. The court erred in not having decreed that this donation had been cleared; said eighty
thousand dollars ($80,000) being at present the exclusive property of the appellant
the Monte de Piedad y Caja de Ahorros.

3. That the court erred in stating that the Government of the Philippine Islands has
subrogated the Spanish Government in its rights, as regards an important sum of money
resulting from a national subscription opened by reason of the earthquake of June 3, 1863, in
these Island.

4. That the court erred in not declaring that Act Numbered 2109, passed by the Philippine
Legislature on January 30, 1912, is unconstitutional.

5. That the court erred in holding in its decision that there is no title for the prescription of this
suit brought by the Insular Government against the Monte de Piedad y Caja de Ahorros for
the reimbursement of the eighty thousand dollars ($80,000) given to it by the late Spanish
Government of these Islands.

6. That the court erred in sentencing the Monte de Piedad y Caja de Ahorros to reimburse
the Philippine Government in the sum of eighty thousand dollars ($80,000) gold coin, or the
equivalent thereof in the present legal tender currency in circulation, with legal interest
thereon from February 28th, 1912, and the costs of this suit.

In the royal order of June 29, 1879, the Governor-General of the Philippine Islands was directed to
inform the home Government in what manner the indemnity might be paid to which, by virtue of the
resolutions of the relief board, the persons who suffered damage by the earthquake might be
entitled, in order to perform the sacred obligation which the Government of Spain had assumed
toward the donors.

The next pertinent document in order is the defendant's petition, dated February 1, 1883, addressed
to the Governor-General of the Philippine Islands, which reads:

Board of Directors of the Monte de Piedad of Manila Presidencia.

Excellency: The Board of Directors of the Monte de Piedad y Caja de Ahorros of Manila
informs your Excellency, First: That the funds which it has up to the present been able to
dispose of have been exhausted in loans on jewelry, and there only remains the sum of one
thousand and odd pesos, which will be expended between to-day and day after tomorrow.
Second: That, to maintain the credit of the establishment, which would be greatly injured
were its operations suspended, it is necessary to procure money. Third: That your
Excellency has proposed to His Majesty's Government to apply to the funds of the Monte de
Piedad a part of the funds held in the treasury derived form the national subscription for the
relief of the distress caused by the earthquake of 1863. Fourth: That in the public treasury
there is held at the disposal of the central earthquake relief board over $1090,000 which was
deposited in the said treasury by order of your general Government, it having been
transferred thereto from the Spanish-Filipino Bank where it had been held. fifth: That in the
straightened circumstances of the moment, your Excellency can, to avert impending disaster
to the Monte de Piedad, order that, out of that sum of one hundred thousand pesos held in
the Treasury at the disposal of the central relief board, there be transferred to the Monte de
Piedad the sum of $80,000, there to be held under the same conditions as at present in the
Treasury, to wit, at the disposal of the Relief Board. Sixth: That should this transfer not be
approved for any reason, either because of the failure of His Majesty's Government to
approve the proposal made by your Excellency relative to the application to the needs of
the Monte de Piedad of a pat of the subscription intended to believe the distress caused by
the earthquake of 1863, or for any other reason, the board of directors of the Monte de
Piedad obligates itself to return any sums which it may have received on account of the
eighty thousand pesos, or the whole thereof, should it have received the same, by securing a
loan from whichever bank or banks may lend it the money at the cheapest rate upon the
security of pawned jewelry. This is an urgent measure to save the Monte de Piedad in the
present crisis and the board of directors trusts to secure your Excellency's entire cooperation
and that of the other officials who have take part in the transaction.

The Governor-General's resolution on the foregoing petition is as follows:

GENERAL GOVERNMENT OF THE PHILIPPINES.


MANILA, February 1, 1883.

In view of the foregoing petition addressed to me by the board of directors of the Monte de
Piedad of this city, in which it is stated that the funds which the said institution counted upon
are nearly all invested in loans on jewelry and that the small account remaining will scarcely
suffice to cover the transactions of the next two days, for which reason it entreats the general
Government that, in pursuance of its telegraphic advice to H. M. Government, the latter
direct that there be turned over to said Monte de Piedad $80,000 out of the funds in the
public treasury obtained from the national subscription for the relief of the distress caused by
the earthquake of 1863, said board obligating itself to return this sum should H. M.
Government, for any reason, not approve the said proposal, and for this purpose it will
procure funds by means of loans raised on pawned jewelry; it stated further that if the aid so
solicited is not furnished, it will be compelled to suspend operations, which would seriously
injure the credit of so beneficient an institution; and in view of the report upon the matter
made by the Intendencia General de Hacienda; and considering the fact that the public
treasury has on hand a much greater sum from the source mentioned than that solicited; and
considering that this general Government has submitted for the determination of H. M.
Government that the balance which, after strictly applying the proceeds obtained from the
subscription referred to, may remain as a surplus should be delivered to the Monte de
Piedad, either as a donation, or as a loan upon the security of the credit of the institution,
believing that in so doing the wishes of the donors would be faithfully interpreted inasmuch
as those wishes were no other than to relieve distress, an act of charity which is exercised in
the highest degree by the Monte de Piedad, for it liberates needy person from the pernicious
effects of usury; and

Considering that the lofty purposes that brought about the creation of the pious institution
referred to would be frustrated, and that the great and laudable work of its establishment,
and that the great and laudable and valuable if the aid it urgently seeks is not granted, since
the suspension of its operations would seriously and regrettably damage the ever-growing
credit of the Monte de Piedad; and

Considering that if such a thing would at any time cause deep distress in the public mind, it
might be said that at the present juncture it would assume the nature of a disturbance of
public order because of the extreme poverty of the poorer classes resulting from the late
calamities, and because it is the only institution which can mitigate the effects of such
poverty; and
Considering that no reasonable objection can be made to granting the request herein
contained, for the funds in question are sufficiently secured in the unlikely event that H> M.
Government does not approve the recommendation mentioned, this general Government, in
the exercise of the extraordinary powers conferred upon it and in conformity with the report
of the Intendencia de Hacienda, resolves as follows:

First. Authority is hereby given to deliver to the Monte de Piedad, out of the sum held in the
public treasury of these Islands obtained from the national subscription opened by reason of
the earthquakes of 1863, amounts up to the sum $80,000, as its needs may require, in
installments of $20,000.

Second. The board of directors of the Monte de Piedad is solemnly bound to return, within
eight days after demand, the sums it may have so received, if H. M. Government does not
approve this resolution.

Third. The Intendencia General de Hacienda shall forthwith, and in preference to all other
work, proceed to prepare the necessary papers so that with the least possible delay the
payment referred to may be made and the danger that menaces the Monte de Piedad of
having to suspend its operations may be averted.

H. M. Government shall be advised hereof. lawphi 1.net

(Signed) P. DE RIVERA.

By the royal order of December 3, 1892, the Governor-General of the Philippine Islands was ordered
to "inform this ministerio what is the total sum available at the present time, taking into consideration
the sums delivered to the Monte de Piedad pursuant to the decree issued by your general
Government on February 1, 1883," and after the rights of the claimants, whose names were
published in the Official Gazette of Manila on April 7, 1870, and their heirs had been established, as
therein provided, as such persons "have an unquestionable right to be paid the donations assigned
to them therein, your general Government shall convoke them all within a reasonable period and
shall pay their shares to such as shall identify themselves, without regard to their financial status,"
and finally "that when all the proceedings and operations herein mentioned have been concluded
and the Government can consider itself free from all kinds of claims on the part of those interested in
the distribution of the funds deposited in the vaults of the Treasury, such action may be taken as the
circumstances shall require, after first consulting the relief board and your general Government and
taking account of what sums have been delivered to the Monte de Piedad and those that were
expended in 1888 to relieve public calamities," and "in order that all the points in connection with the
proceedings had as a result of the earthquake be clearly understood, it is indispensable that the
offices hereinbefore mentioned comply with the provisions contained in paragraphs 2 and 3 of the
royal order of June 25, 1879." On receipt of this Finance order by the Governor-General, the
Department of Finance was called upon for a report in reference to the $80,000 turned over to the
defendant, and that Department's report to the Governor-General dated June 28, 1893, reads:

Intendencia General de Hacienda de Filipinas (General Treasury of the Philippines)


Excellency. By Royal Order No. 1044 of December 3, last, it is provided that the persons
who sustained losses by the earthquakes that occurred in your capital in the year 1863 shall
be paid the amounts allotted to them out of the sums sent from Spain for this purpose, with
observance of the rules specified in the said royal order, one of them being that before
making the payment to the interested parties the assets shall be reduced to money. These
assets, during the long period of time that has elapsed since they were turned over to the
Treasury of the Philippine Islands, were used to cover the general needs of the
appropriation, a part besides being invested in the relief of charitable institutions and another
part to meet pressing needs occasioned by public calamities. On January 30, last, your
Excellency was please to order the fulfillment of that sovereign mandate and referred the
same to this Intendencia for its information and the purposes desired (that is, for compliance
with its directions and, as aforesaid, one of these being the liquidation, recovery, and deposit
with the Treasury of the sums paid out of that fund and which were expended in a different
way from that intended by the donors) and this Intendencia believed the moment had arrived
to claim from the board of directors of the Monte de Piedad y Caja de Ahorros the sum of
80,000 pesos which, by decree of your general Government of the date of February 1, 1883,
was loaned to it out of the said funds, the (Monte de Piedad) obligating itself to return the
same within the period of eight days if H. M. Government did not approve the delivery. On
this Intendencia's demanding from the Monte de Piedad the eighty thousand pesos, thus
complying with the provisions of the Royal Order, it was to be supposed that no objection to
its return would be made by the Monte de Piedad for, when it received the loan, it formally
engaged itself to return it; and, besides, it was indisputable that the moment to do so had
arrived, inasmuch as H. M. Government, in ordering that the assets of the earthquake relief
fund should he collected, makes express mention of the 80,000 pesos loaned to the Monte
de Piedad, without doubt considering as sufficient the period of ten years during which it has
been using this large sum which lawfully belongs to their persons. This Intendencia also
supposed that the Monte de Piedad no longer needed the amount of that loan, inasmuch as,
far from investing it in beneficient transactions, it had turned the whole amount into the
voluntary deposit funds bearing 5 per cent interests, the result of this operation being that the
debtor loaned to the creditor on interest what the former had gratuitously received. But
the Monte de Piedad, instead of fulfilling the promise it made on receiving the sum, after
repeated demands refused to return the money on the ground that only your Excellency, and
not the Intendencia (Treasury), is entitled to order the reimbursement, taking no account of
the fact that this Intendencia was acting in the discharge of a sovereign command, the
fulfillment of which your Excellency was pleased to order; and on the further ground that the
sum of 80,000 pesos which it received from the fund intended for the earthquake victims was
not received as a loan, but as a donation, this in the opinion of this Intendencia, erroneously
interpreting both the last royal order which directed the apportionment of the amount of the
subscription raised in the year 1863 and the superior decree which granted the loan,
inasmuch as in this letter no donation is made to the Monte de Piedad of the 80,000 pesos,
but simply a loan; besides, no donation whatever could be made of funds derived from a
private subscription raised for a specific purpose, which funds are already distributed and the
names of the beneficiaries have been published in the Gaceta, there being lacking only the
mere material act of the delivery, which has been unduly delayed. In view of the unexpected
reply made by the Monte de Piedad, and believing it useless to insist further in the matter of
the claim for the aforementioned loan, or to argue in support thereof,
this Intendencia believes the intervention of your Excellency necessary in this matter, if the
royal Order No. 1044 of December 3, last, is to be complied with, and for this purpose I beg
your Excellency kindly to order the Monte de Piedad to reimburse within the period of eight
days the 80,000 which it owes, and that you give this Intendencia power to carry out the
provisions of the said royal order. I must call to the attention of your Excellency that the said
pious establishment, during the last few days and after demand was made upon it, has
endorsed to the Spanish-Filipino Bank nearly the whole of the sum which it had on deposit in
the general deposit funds.

The record in the case under consideration fails to disclose any further definite action taken by either
the Philippine Government or the Spanish Government in regard to the $80,000 turned over to
the Monte de Piedad.

In the defendant's general ledger the following entries appear: "Public Treasury: February 15, 1883,
$20,000; March 12, 1883, $20,000; April 14, 1883, $20,000; June 2, 1883, $20,000, total $80,000."
The book entry for this total is as follows: "To the public Treasury derived from the subscription for
the earthquake of 1863, $80,000 received from general Treasury as a returnable loan, and without
interest." The account was carried in this manner until January 1, 1899, when it was closed by
transferring the amount to an account called "Sagrada Mitra," which latter account was a loan of
$15,000 made to the defendant by the Archbishop of Manila, without interest, thereby placing the
"Sagrada Mitra" account at $95,000 instead of $15,000. The above-mentioned journal entry for
January 1, 1899, reads: "Sagrada Mitra and subscription, balance of these two account which on this
date are united in accordance with an order of the Exmo. Sr. Presidente of the Council transmitted
verbally to the Presidente Gerente of these institutions, $95,000."

On March 16, 1902, the Philippine government called upon the defendant for information concerning
the status of the $80,000 and received the following reply:

MANILA, March 31, 1902.

To the Attorney-General of the Department of Justice of the Philippine Islands.

SIR: In reply to your courteous letter of the 16th inst., in which you request information from
this office as to when and for what purpose the Spanish Government delivered to the Monte
de Piedad eighty thousand pesos obtained from the subscription opened in connection with
the earthquake of 1863, as well as any other information that might be useful for the report
which your office is called upon to furnish, I must state to your department that the books
kept in these Pious Institutions, and which have been consulted for the purpose, show that
on the 15th of February, 1883, they received as a reimbursable loan and without interest,
twenty thousand pesos, which they deposited with their own funds. On the same account
and on each of the dates of March 12, April 14 and June 2 of the said year, 1883, they also
received and turned into their funds a like sum of twenty thousand pesos, making a total of
eighty thousand pesos. (Signed) Emilio Moreta.

I hereby certify that the foregoing is a literal copy of that found in the letter book No. 2 of
those Pious Institutions.

Manila, November 19, 1913


(Sgd.) EMILIO LAZCANOTEGUI,
Secretary

(Sgd.) O. K. EMILIO MORETA,


Managing Director.

The foregoing documentary evidence shows the nature of the transactions which took place
between the Government of Spain and the Philippine Government on the one side and the Monte de
Piedad on the other, concerning the $80,000. The Monte de Piedad, after setting forth in its petition
to the Governor-General its financial condition and its absolute necessity for more working capital,
asked that out of the sum of $100,000 held in the Treasury of the Philippine Islands, at the disposal
of the central relief board, there be transferred to it the sum of $80,000 to be held under the same
conditions, to wit, "at the disposal of the relief board." The Monte de Piedad agreed that if the
transfer of these funds should not be approved by the Government of Spain, the same would be
returned forthwith. It did not ask that the $80,000 be given to it as a donation. The Governor-
General, after reciting the substance of the petition, stated that "this general Government has
submitted for the determination of H. M. Government that the balance which, after strictly applying
the proceeds obtained from the subscription referred to, may remain as a surplus, should be
delivered to the Monte de Piedad, either as a donation, or as a loan upon the security of the credit of
the institution," and "considering that no reasonable objection can be made to granting the request
herein contained," directed the transfer of the $80,000 to be made with the understanding that "the
Board of Directors of the Monte de Piedad is solemnly bound to return, within eight days after
demand, the sums it may have so received, if H. M. Government does not approve this resolution." It
will be noted that the first and only time the word "donation" was used in connection with the $80,000
appears in this resolution of the Governor-General. It may be inferred from the royal orders that the
Madrid Government did tacitly approve of the transfer of the $80,000 to the Monte de Piedad as a
loan without interest, but that Government certainly did not approve such transfer as a donation for
the reason that the Governor-General was directed by the royal order of December 3, 1892, to
inform the Madrid Government of the total available sum of the earthquake fund, "taking into
consideration the sums delivered to the Monte de Piedad pursuant to the decree issued by your
general Government on February 1, 1883." This language, nothing else appearing, might admit of
the interpretation that the Madrid Government did not intend that the Governor-General of the
Philippine Islands should include the $80,000 in the total available sum, but when considered in
connection with the report of the Department of Finance there can be no doubt that it was so
intended. That report refers expressly to the royal order of December 3d, and sets forth in detail the
action taken in order to secure the return of the $80,000. The Department of Finance, acting under
the orders of the Governor-General, understood that the $80,000 was transferred to the Monte de
Piedad well knew that it received this sum as a loan interest." The amount was thus carried in its
books until January, 1899, when it was transferred to the account of the "Sagrada Mitra" and was
thereafter known as the "Sagrada Mitra and subscription account." Furthermore, the Monte de
Piedad recognized and considered as late as March 31, 1902, that it received the $80,000 "as a
returnable loan, and without interest." Therefore, there cannot be the slightest doubt the fact that
the Monte de Piedad received the $80,000 as a mere loan or deposit and not as a donation.
Consequently, the first alleged error is entirely without foundation.

Counsel for the defendant, in support of their third assignment of error, say in their principal brief
that:

The Spanish nation was professedly Roman Catholic and its King enjoyed the distinction of
being deputy ex officio of the Holy See and Apostolic Vicar-General of the Indies, and as
such it was his duty to protect all pious works and charitable institutions in his kingdoms,
especially those of the Indies; among the latter was the Monte de Piedad of the Philippines,
of which said King and his deputy the Governor-General of the Philippines, as royal vice-
patron, were, in a special and peculiar manner, the protectors; the latter, as a result of the
cession of the Philippine Islands, Implicitly renounced this high office and tacitly returned it to
the Holy See, now represented by the Archbishop of Manila; the national subscription in
question was a kind of foundation or pious work, for a charitable purpose in these Islands;
and the entire subscription not being needed for its original purpose, the royal vice-patron,
with the consent of the King, gave the surplus thereof to an analogous purpose; the
fulfillment of all these things involved, in the majority, if not in all cases, faithful compliance
with the duty imposed upon him by the Holy See, when it conferred upon him the royal
patronage of the Indies, a thing that touched him very closely in his conscience and religion;
the cessionary Government though Christian, was not Roman Catholic and prided itself on
its policy of non-interference in religious matters, and inveterately maintained a complete
separation between the ecclesiastical and civil powers.

In view of these circumstances it must be quite clear that, even without the express
provisions of the Treaty of Paris, which apparently expressly exclude such an idea, it did not
befit the honor of either of the contracting parties to subrogate to the American Government
in lieu of the Spanish Government anything respecting the disposition of the funds delivered
by the latter to the Monte de Piedad. The same reasons that induced the Spanish
Government to take over such things would result in great inconvenience to the American
Government in attempting to do so. The question was such a delicate one, for the reason
that it affected the conscience, deeply religious, of the King of Spain, that it cannot be
believed that it was ever his intention to confide the exercise thereof to a Government like
the American. (U. S. vs. Arredondo, 6 Pet. [U. S.], 711.)

It is thus seen that the American Government did not subrogate the Spanish Government or
rather, the King of Spain, in this regard; and as the condition annexed to the donation was
lawful and possible of fulfillment at the time the contract was made, but became impossible
of fulfillment by the cession made by the Spanish Government in these Islands, compliance
therewith is excused and the contract has been cleared thereof.

The contention of counsel, as thus stated, in untenable for two reason, (1) because such contention
is based upon the erroneous theory that the sum in question was a donation to the Monte de
Piedad and not a loan, and (2) because the charity founded by the donations for the earthquake
sufferers is not and never was intended to be an ecclesiastical pious work. The first proposition has
already been decided adversely to the defendant's contention. As to the second, the record shows
clearly that the fund was given by the donors for a specific and definite purpose the relief of the
earthquake sufferers and for no other purpose. The money was turned over to the Spanish
Government to be devoted to that purpose. The Spanish Government remitted the money to the
Philippine Government to be distributed among the suffers. All officials, including the King of Spain
and the Governor-General of the Philippine Islands, who took part in the disposal of the fund, acted
in their purely civil, official capacity, and the fact that they might have belonged to a certain church
had nothing to do with their acts in this matter. The church, as such, had nothing to do with the fund
in any way whatever until the $80,000 reached the coffers of the Monte de Piedad (an institution
under the control of the church) as a loan or deposit. If the charity in question had been founded as
an ecclesiastical pious work, the King of Spain and the Governor-General, in their capacities as
vicar-general of the Indies and as royal vice-patron, respectively, would have disposed of the fund as
such and not in their civil capacities, and such functions could not have been transferred to the
present Philippine Government, because the right to so act would have arisen out of the special
agreement between the Government of Spain and the Holy See, based on the union of the church
and state which was completely separated with the change of sovereignty.

And in their supplemental brief counsel say:

By the conceded facts the money in question is part of a charitable subscription. The donors
were persons in Spain, the trustee was the Spanish Government, the donees, the cestuis
que trustent, were certain persons in the Philippine Islands. The whole matter is one of
trusteeship. This is undisputed and indisputable. It follows that the Spanish Government at
no time was the owner of the fund. Not being the owner of the fund it could not transfer the
ownership. Whether or not it could transfer its trusteeship it certainly never
has expressly done so and the general terms of property transfer in the Treaty of Paris are
wholly insufficient for such a purpose even could Spain have transferred its trusteeship
without the consent of the donors and even could the United States, as a Government, have
accepted such a trust under any power granted to it by the thirteen original States in the
Constitution, which is more than doubtful. It follows further that this Government is not a
proper party to the action. The only persons who could claim to be damaged by this payment
to the Monte, if it was unlawful, are the donors or the cestuis que trustent, and this
Government is neither.

If "the whole matter is one of trusteeship," and it being true that the Spanish Government could not,
as counsel say, transfer the ownership of the fund to the Monte de Piedad, the question arises, who
may sue to recover this loan? It needs no argument to show that the Spanish or Philippine
Government, as trustee, could maintain an action for this purpose had there been no change of
sovereignty and if the right of action has not prescribed. But those governments were something
more than mere common law trustees of the fund. In order to determine their exact status with
reference to this fund, it is necessary to examine the law in force at the time there transactions took
place, which are the law of June 20, 1894, the royal decree of April 27. 1875, and the instructions
promulgated on the latter date. These legal provisions were applicable to the Philippine Islands
(Benedicto vs. De la Rama, 3 Phil. Rep., 34)

The funds collected as a result of the national subscription opened in Spain by royal order of the
Spanish Government and which were remitted to the Philippine Government to be distributed among
the earthquake sufferers by the Central Relief Board constituted, under article 1 of the law of June
20, 1894, and article 2 of the instructions of April 27, 1875, a special charity of a temporary nature as
distinguished from a permanent public charitable institution. As the Spanish Government initiated the
creation of the fund and as the donors turned their contributions over to that Government, it became
the duty of the latter, under article 7 of the instructions, to exercise supervision and control over the
moneys thus collected to the end that the will of the donors should be carried out. The relief board
had no power whatever to dispose of the funds confided to its charge for other purposes than to
distribute them among the sufferers, because paragraph 3 of article 11 of the instructions conferred
the power upon the secretary of the interior of Spain, and no other, to dispose of the surplus funds,
should there be any, by assigning them to some other charitable purpose or institution. The
secretary could not dispose of any of the funds in this manner so long as they were necessary for
the specific purpose for which they were contributed. The secretary had the power, under the law
above mentioned to appoint and totally or partially change the personnel of the relief board and to
authorize the board to defend the rights of the charity in the courts. The authority of the board
consisted only in carrying out the will of the donors as directed by the Government whose duty it was
to watch over the acts of the board and to see that the funds were applied to the purposes for which
they were contributed .The secretary of the interior, as the representative of His Majesty's
Government, exercised these powers and duties through the Governor-General of the Philippine
Islands. The Governments of Spain and of the Philippine Islands in complying with their duties
conferred upon them by law, acted in their governmental capacities in attempting to carry out the
intention of the contributors. It will this be seen that those governments were something more, as we
have said, than mere trustees of the fund.

It is further contended that the obligation on the part of the Monte de Piedad to return the $80,000 to
the Government, even considering it a loan, was wiped out on the change of sovereignty, or inn
other words, the present Philippine Government cannot maintain this action for that reason. This
contention, if true, "must result from settled principles of rigid law," as it cannot rest upon any title to
the fund in the Monte de Piedad acquired prior to such change. While the obligation to return the
$80,000 to the Spanish Government was still pending, war between the United States and Spain
ensued. Under the Treaty of Paris of December 10, 1898, the Archipelago, known as the Philippine
Islands, was ceded to the United States, the latter agreeing to pay Spain the sum of $20,000,000.
Under the first paragraph of the eighth article, Spain relinquished to the United States "all buildings,
wharves, barracks, forts, structures, public highways, and other immovable property which, in
conformity with law, belonged to the public domain, and as such belonged to the crown of Spain." As
the $80,000 were not included therein, it is said that the right to recover this amount did not,
therefore, pass to the present sovereign. This, in our opinion, does not follow as a necessary
consequence, as the right to recover does not rest upon the proposition that the $80,000 must be
"other immovable property" mentioned in article 8 of the treaty, but upon contractual obligations
incurred before the Philippine Islands were ceded to the United States. We will not inquire what
effect his cession had upon the law of June 20, 1849, the royal decree of April 27, 1875, and the
instructions promulgated on the latter date. In Vilas vs.Manila (220 U. S., 345), the court said:
That there is a total abrogation of the former political relations of the inhabitants of the ceded
region is obvious. That all laws theretofore in force which are in conflict with the political
character, constitution, or institutions of the substituted sovereign, lose their force, is also
plain. (Alvarez y Sanchez vs. United States, 216 U. S., 167.) But it is equally settled in the
same public law that the great body of municipal law which regulates private and domestic
rights continues in force until abrogated or changed by the new ruler.

If the above-mentioned legal provisions are in conflict with the political character, constitution or
institutions of the new sovereign, they became inoperative or lost their force upon the cession of the
Philippine Islands to the United States, but if they are among "that great body of municipal law which
regulates private and domestic rights," they continued in force and are still in force unless they have
been repealed by the present Government. That they fall within the latter class is clear from their
very nature and character. They are laws which are not political in any sense of the word. They
conferred upon the Spanish Government the right and duty to supervise, regulate, and to some
extent control charities and charitable institutions. The present sovereign, in exempting "provident
institutions, savings banks, etc.," all of which are in the nature of charitable institutions, from taxation,
placed such institutions, in so far as the investment in securities are concerned, under the general
supervision of the Insular Treasurer (paragraph 4 of section 111 of Act No. 1189; see also Act No.
701).

Furthermore, upon the cession of the Philippine Islands the prerogatives of he crown of Spain
devolved upon he United States. In Magill vs. Brown (16 Fed. Cas., 408), quoted with approval in
Mormon Charch vs. United States (136 U. S.,1, 57), the court said:

The Revolution devolved on the State all the transcendent power of Parliament, and the
prerogative of the crown, and gave their Acts the same force and effect.

In Fontain vs. Ravenel (17 Hw., 369, 384), Mr. Justice McLean, delivering the opinion of the court in
a charity case, said:

When this country achieved its independence, the prerogatives of the crown devolved upon
the people of the States. And this power still remains with them except so fact as they have
delegated a portion of it to the Federal Government. The sovereign will is made known to us
by legislative enactment. The State as a sovereign, is the parens patriae.

Chancelor Kent says:

In this country, the legislature or government of the State, as parens patriae, has the right to
enforce all charities of public nature, by virtue of its general superintending authority over the
public interests, where no other person is entrusted with it. (4 Kent Com., 508, note.)

The Supreme Court of the United States in Mormon Church vs. United States, supra, after approving
also the last quotations, said:

This prerogative of parens patriae is inherent in the supreme power of every State, whether
that power is lodged in a royal person or in the legislature, and has no affinity to those
arbitrary powers which are sometimes exerted by irresponsible monarchs to the great
detriment of the people and the destruction of their liberties. On the contrary, it is a most
beneficient functions, and often necessary to be exercised in the interest of humanity, and for
the prevention of injury to those who cannot protect themselves.
The court in the same case, after quoting from Sohier vs. Mass. General Hospital (3 Cush., 483,
497), wherein the latter court held that it is deemed indispensible that there should be a power in the
legislature to authorize the same of the estates of in facts, idiots, insane persons, and persons not
known, or not in being, who cannot act for themselves, said:

These remarks in reference to in facts, insane persons and person not known, or not in
being, apply to the beneficiaries of charities, who are often in capable of vindicating their
rights, and justly look for protection to the sovereign authority, acting as parens patriae. They
show that this beneficient functions has not ceased t exist under the change of government
from a monarchy to a republic; but that it now resides in the legislative department, ready to
be called into exercise whenever required for the purposes of justice and right, and is a
clearly capable of being exercised in cases of charities as in any other cases whatever.

In People vs. Cogswell (113 Cal. 129, 130), it was urged that the plaintiff was not the real party in
interest; that the Attorney-General had no power to institute the action; and that there must be an
allegation and proof of a distinct right of the people as a whole, as distinguished from the rights of
individuals, before an action could be brought by the Attorney-General in the name of the people.
The court, in overruling these contentions, held that it was not only the right but the duty of the
Attorney-General to prosecute the action, which related to charities, and approved the following
quotation from Attorney-General vs. Compton (1 Younge & C. C., 417):

Where property affected by a trust for public purposes is in the hands of those who hold it
devoted to that trust, it is the privilege of the public that the crown should be entitled to
intervene by its officers for the purpose of asserting, on behalf on the public generally, the
public interest and the public right, which, probably, no individual could be found effectually
to assert, even if the interest were such as to allow it. (2 Knet's Commentaries, 10th ed., 359;
Lewin on Trusts, sec. 732.)

It is further urged, as above indicated, that "the only persons who could claim to be damaged by this
payment to the Monte, if it was unlawful, are the donors or the cestuis que trustent, and this
Government is neither. Consequently, the plaintiff is not the proper party to bring the action." The
earthquake fund was the result or the accumulation of a great number of small contributions. The
names of the contributors do not appear in the record. Their whereabouts are unknown. They parted
with the title to their respective contributions. The beneficiaries, consisting of the original sufferers
and their heirs, could have been ascertained. They are quite numerous also. And no doubt a large
number of the original sufferers have died, leaving various heirs. It would be impracticable for them
to institute an action or actions either individually or collectively to recover the $80,000. The only
course that can be satisfactorily pursued is for the Government to again assume control of the fund
and devote it to the object for which it was originally destined.

The impracticability of pursuing a different course, however, is not the true ground upon which the
right of the Government to maintain the action rests. The true ground is that the money being given
to a charity became, in a measure, public property, only applicable, it is true, to the specific purposes
to which it was intended to be devoted, but within those limits consecrated to the public use, and
became part of the public resources for promoting the happiness and welfare of the Philippine
Government. (Mormon Church vs. U. S., supra.) To deny the Government's right to maintain this
action would be contrary to sound public policy, as tending to discourage the prompt exercise of
similar acts of humanity and Christian benevolence in like instances in the future.

As to the question raised in the fourth assignment of error relating to the constitutionality of Act No.
2109, little need be said for the reason that we have just held that the present Philippine
Government is the proper party to the action. The Act is only a manifestation on the part of the
Philippine Government to exercise the power or right which it undoubtedly had. The Act is not, as
contended by counsel, in conflict with the fifth section of the Act of Congress of July 1, 1902,
because it does not take property without due process of law. In fact, the defendant is not the owner
of the $80,000, but holds it as a loan subject to the disposal of the central relief board. Therefor,
there can be nothing in the Act which transcends the power of the Philippine Legislature.

In Vilas vs. Manila, supra, the plaintiff was a creditor of the city of Manila as it existed before the
cession of the Philippine Islands to the United States by the Treaty of Paris of December 10, 1898.
The action was brought upon the theory that the city, under its present charter from the Government
of the Philippine Islands, was the same juristic person, and liable upon the obligations of the old city.
This court held that the present municipality is a totally different corporate entity and in no way liable
for the debts of the Spanish municipality. The Supreme Court of the United States, in reversing this
judgment and in holding the city liable for the old debt, said:

The juristic identity of the corporation has been in no wise affected, and, in law, the present
city is, in every legal sense, the successor of the old. As such it is entitled to the property and
property rights of the predecessor corporation, and is, in law, subject to all of its liabilities.

In support of the fifth assignment of error counsel for the defendant argue that as the Monte de
Piedad declined to return the $80,000 when ordered to do so by the Department of Finance in June,
1893, the plaintiff's right of action had prescribed at the time this suit was instituted on May 3, 1912,
citing and relying upon article 1961, 1964 and 1969 of the Civil Code. While on the other hand, the
Attorney-General contends that the right of action had not prescribed (a) because the defense of
prescription cannot be set up against the Philippine Government, (b) because the right of action to
recover a deposit or trust funds does not prescribe, and (c) even if the defense of prescription could
be interposed against the Government and if the action had, in fact, prescribed, the same was
revived by Act No. 2109.

The material facts relating to this question are these: The Monte de Piedad received the $80,000 in
1883 "to be held under the same conditions as at present in the treasury, to wit, at the disposal of
the relief board." In compliance with the provisions of the royal order of December 3, 1892, the
Department of Finance called upon the Monte de Piedadin June, 1893, to return the $80,000. The
Monte declined to comply with this order upon the ground that only the Governor-General of the
Philippine Islands and not the Department of Finance had the right to order the reimbursement. The
amount was carried on the books of the Monte as a returnable loan until January 1, 1899, when it
was transferred to the account of the "Sagrada Mitra." On March 31, 1902, the Monte, through its
legal representative, stated in writing that the amount in question was received as a reimbursable
loan, without interest. Act No. 2109 became effective January 30, 1912, and the action was instituted
on May 3rd of that year.

Counsel for the defendant treat the question of prescription as if the action was one between
individuals or corporations wherein the plaintiff is seeking to recover an ordinary loan. Upon this
theory June, 1893, cannot be taken as the date when the statute of limitations began to run, for the
reason that the defendant acknowledged in writing on March 31, 1902, that the $80,000 were
received as a loan, thereby in effect admitting that it still owed the amount. (Section 50, Code of Civil
Procedure.) But if counsels' theory is the correct one the action may have prescribed on May 3,
1912, because more than ten full years had elapsed after March 31, 1902. (Sections 38 and 43,
Code of Civil Procedure.)

Is the Philippine Government bound by the statute of limitations? The Supreme Court of the United
States in U. S. vs. Nashville, Chattanooga & St. Louis Railway Co. (118 U. S., 120, 125), said:
It is settled beyond doubt or controversy upon the foundation of the great principle of
public policy, applicable to all governments alike, which forbids that the public interests
should be prejudiced by the negligence of the officers or agents to whose care they are
confided that the United States, asserting rights vested in it as a sovereign government, is
not bound by any statute of limitations, unless Congress has clearly manifested its intention
that it should be so bound. (Lindsey vs. Miller, 6 Pet. 666; U. S. vs. Knight, 14 Pet., 301;
Gibson vs. Chouteau, 13 Wall., 92; U. S. vs. Thompson, 98 U. S., 486; Fink vs. O'Neil, 106
U. S., 272, 281.)

In Gibson vs. Choteau, supra, the court said:

It is a matter of common knowledge that statutes of limitation do not run against the State.
That no laches can be imputed to the King, and that no time can bar his rights, was the
maxim of the common laws, and was founded on the principle of public policy, that as he
was occupied with the cares of government he ought not to suffer from the negligence of his
officer and servants. The principle is applicable to all governments, which must necessarily
act through numerous agents, and is essential to a preservation of the interests and property
of the public. It is upon this principle that in this country the statutes of a State prescribing
periods within which rights must be prosecuted are not held to embrace the State itself,
unless it is expressly designated or the mischiefs to be remedied are of such a nature that it
must necessarily be included. As legislation of a State can only apply to persons and thing
over which the State has jurisdiction, the United States are also necessarily excluded from
the operation of such statutes.

In 25 Cyc., 1006, the rule, supported by numerous authorities, is stated as follows:

In the absence of express statutory provision to the contrary, statute of limitations do not as a
general rule run against the sovereign or government, whether state or federal. But the rule
is otherwise where the mischiefs to be remedied are of such a nature that the state must
necessarily be included, where the state goes into business in concert or in competition with
her citizens, or where a party seeks to enforces his private rights by suit in the name of the
state or government, so that the latter is only a nominal party.

In the instant case the Philippine Government is not a mere nominal party because it, in bringing and
prosecuting this action, is exercising its sovereign functions or powers and is seeking to carry out a
trust developed upon it when the Philippine Islands were ceded to the United States. The United
States having in 1852, purchased as trustee for the Chickasaw Indians under treaty with that tribe,
certain bonds of the State of Tennessee, the right of action of the Government on the coupons of
such bonds could not be barred by the statute of limitations of Tennessee, either while it held them
in trust for the Indians, or since it became the owner of such coupons. (U. S. vs. Nashville, etc., R.
Co., supra.) So where lands are held in trust by the state and the beneficiaries have no right to sue,
a statute does not run against the State's right of action for trespass on the trust lands. (Greene
Tp. vs. Campbell, 16 Ohio St., 11; see also Atty.-Gen. vs. Midland R. Co., 3 Ont., 511 [following
Reg. vs. Williams, 39 U. C. Q. B., 397].)

These principles being based "upon the foundation of the great principle of public policy" are, in the
very nature of things, applicable to the Philippine Government.

Counsel in their argument in support of the sixth and last assignments of error do not question the
amount of the judgment nor do they question the correctness of the judgment in so far as it allows
interest, and directs its payment in gold coin or in the equivalent in Philippine currency.
For the foregoing reasons the judgment appealed from is affirmed, with costs against the appellant.
So ordered.

Torres, Johnson and Araullo, JJ., concur.


Moreland, J., did not sign.

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-25843 July 25, 1974

MELCHORA CABANAS, plaintiff-appellee,


vs.
FRANCISCO PILAPIL, defendant-appellant.

Seno, Mendoza & Associates for plaintiff-appellee.

Emilio Benitez, Jr. for defendant-appellant.

FERNANDO, J.:p

The disputants in this appeal from a question of law from a lower court decision are the mother and the uncle of a minor beneficiary of the
proceeds of an insurance policy issued on the life of her deceased father. The dispute centers as to who of them should be entitled to act as
trustee thereof. The lower court applying the appropriate Civil Code provisions decided in favor of the mother, the plaintiff in this case.
Defendant uncle appealed. As noted, the lower court acted the way it did following the specific mandate of the law. In addition, it must have
taken into account the principle that in cases of this nature the welfare of the child is the paramount consideration. It is not an unreasonable
assumption that between a mother and an uncle, the former is likely to lavish more care on and pay greater attention to her. This is all the
more likely considering that the child is with the mother. There are no circumstances then that did militate against what conforms to the
natural order of things, even if the language of the law were not as clear. It is not to be lost sight of either that the judiciary pursuant to its role
as an agency of the State as parens patriae, with an even greater stress on family unity under the present Constitution, did weigh in the
balance the opposing claims and did come to the conclusion that the welfare of the child called for the mother to be entrusted with such
responsibility. We have to affirm.

The appealed decision made clear: "There is no controversy as to the facts. "1 The insured,
Florentino Pilapil had a child, Millian Pilapil, with a married woman, the plaintiff, Melchora Cabanas.
She was ten years old at the time the complaint was filed on October 10, 1964. The defendant,
Francisco Pilapil, is the brother of the deceased. The deceased insured himself and instituted as
beneficiary, his child, with his brother to act as trustee during her minority. Upon his death, the
proceeds were paid to him. Hence this complaint by the mother, with whom the child is living,
seeking the delivery of such sum. She filed the bond required by the Civil Code. Defendant would
justify his claim to the retention of the amount in question by invoking the terms of the insurance
policy.2
After trial duly had, the lower court in a decision of May 10, 1965, rendered judgment ordering the
defendant to deliver the proceeds of the policy in question to plaintiff. Its main reliance was on
Articles 320 and 321 of the Civil Code. The former provides: "The father, or in his absence the
mother, is the legal administrator of the property pertaining to the child under parental authority. If
the property is worth more than two thousand pesos, the father or mother shall give a bond subject
to the approval of the Court of First Instance."3 The latter states: "The property which the
unemancipated child has acquired or may acquire with his work or industry, or by any lucrative title,
belongs to the child in ownership, and in usufruct to the father or mother under whom he is under
parental authority and whose company he lives; ...4

Conformity to such explicit codal norm is apparent in this portion of the appealed decision: "The
insurance proceeds belong to the beneficiary. The beneficiary is a minor under the custody and
parental authority of the plaintiff, her mother. The said minor lives with plaintiff or lives in the
company of the plaintiff. The said minor acquired this property by lucrative title. Said property,
therefore, belongs to the minor child in ownership, and in usufruct to the plaintiff, her mother. Since
under our law the usufructuary is entitled to possession, the plaintiff is entitled to possession of the
insurance proceeds. The trust, insofar as it is in conflict with the above quoted provision of law,
is pro tanto null and void. In order, however, to protect the rights of the minor, Millian Pilapil, the
plaintiff should file an additional bond in the guardianship proceedings, Sp. Proc. No. 2418-R of this
Court to raise her bond therein to the total amount of P5,000.00."5

It is very clear, therefore, considering the above, that unless the applicability of the two cited Civil
Code provisions can be disputed, the decision must stand. There is no ambiguity in the language
employed. The words are rather clear. Their meaning is unequivocal. Time and time again, this
Court has left no doubt that where codal or statutory norms are cast in categorical language, the task
before it is not one of interpretation but of application.6 So it must be in this case. So it was in the
appealed decision.

1. It would take more than just two paragraphs as found in the brief for the defendant-appellant7 to
blunt the force of legal commands that speak so plainly and so unqualifiedly. Even if it were a
question of policy, the conclusion will remain unaltered. What is paramount, as mentioned at the
outset, is the welfare of the child. It is in consonance with such primordial end that Articles 320 and
321 have been worded. There is recognition in the law of the deep ties that bind parent and child. In
the event that there is less than full measure of concern for the offspring, the protection is supplied
by the bond required. With the added circumstance that the child stays with the mother, not the
uncle, without any evidence of lack of maternal care, the decision arrived at can stand the test of the
strictest scrutiny. It is further fortified by the assumption, both logical and natural, that infidelity to the
trust imposed by the deceased is much less in the case of a mother than in the case of an uncle.
Manresa, commenting on Article 159 of the Civil Code of Spain, the source of Article 320 of the Civil
Code, was of that view: Thus "El derecho y la obligacion de administrar el Patrimonio de los hijos es
una consecuencia natural y lgica de la patria potestad y de la presuncin de que nadie cuidar de
los bienes de acqullos con mas cario y solicitude que los padres. En nuestro Derecho antiguo
puede decirse que se hallaba reconocida de una manera indirecta aquelia doctrina, y asi se
desprende de la sentencia del Tribunal Supremeo de 30 de diciembre de 1864, que se refiere a la
ley 24, tit. XIII de la Partida 5. De la propia suerte aceptan en general dicho principio los Codigos
extranjeros, con las limitaciones y requisitos de que trataremos mis adelante."8

2. The appealed decision is supported by another cogent consideration. It is buttressed by its


adherence to the concept that the judiciary, as an agency of the State acting as parens patriae, is
called upon whenever a pending suit of litigation affects one who is a minor to accord priority to his
best interest. It may happen, as it did occur here, that family relations may press their respective
claims. It would be more in consonance not only with the natural order of things but the tradition of
the country for a parent to be preferred. it could have been different if the conflict were between
father and mother. Such is not the case at all. It is a mother asserting priority. Certainly the judiciary
as the instrumentality of the State in its role of parens patriae, cannot remain insensible to the
validity of her plea. In a recent case,9 there is this quotation from an opinion of the United States
Supreme Court: "This prerogative of parens patriae is inherent in the supreme power of every State,
whether that power is lodged in a royal person or in the legislature, and has no affinity to those
arbitrary powers which are sometimes exerted by irresponsible monarchs to the great detriment of
the people and the destruction of their liberties." What is more, there is this constitutional provision
vitalizing this concept. It reads: "The State shall strengthen the family as a basic social
institution." 10 If, as the Constitution so wisely dictates, it is the family as a unit that has to be
strengthened, it does not admit of doubt that even if a stronger case were presented for the uncle,
still deference to a constitutional mandate would have led the lower court to decide as it did.

WHEREFORE, the decision of May 10, 1965 is affirmed. Costs against defendant-appellant.

Zaldivar (Chairman), Antonio, Fernandez and Aquino, JJ., concur.

Barredo, J., took no part.

Footnotes

1 Decision, Record on Appeal, 24.

2 Cf. Ibid, 24-25.

3 Article 320 of the Civil Code (1950).

4 Article 321 of the Civil Code (1950).

5 Decision, Record on Appeal, 27.

6 Cf. People vs. Mapa, L-22301, Aug. 30, 1967, 20 SCRA 1164; Pacific Oxygen &
Acetylene Co. v. Central Bank, L-21881, March 1, 1968, 22 SCRA 917; Dequito v.
Lopez, L-27757, March 28, 1968, 22 SCRA 1352; Padilla v. City of Pasay L-24039,
June 29, 1968, 23 SCRA 1349: Garcia v. Vasquez, L-26808, March 28, 1969, 27
SCRA 505; La Peria Cigar and Cigarette Factory v. Caparas, L-27948 and 28001-11,
July 31, 1969, 28 SCRA 1085; Mobil Oil Phil., Inc. v. Diocares, L-26371, Sept. 30,
1969, 29 SCRA 656; Luzon Surety Co., Inc. v. De Garcia,
L-25659, Oct. 31, 1969, 30 SCRA 111; Vda. de Macabenta v. Davao Stevedore
Terminal Co.,
L-27489, April 30, 1970, 32 SCRA 553; Republic Flour Mills, Inc. v. Commissioner of
Customs, L-28463, May 31, 1971, 39 SCRA 269; Maritime Co. of the Phil. v.
Reparations Commission, L-29203, July 26, 1971, 40 SCRA 70; Allied Brokerage
Corp. v. Commissioner of Customs, L-27641, Aug. 31, 1971, 40 SCRA 555.;
Gonzaga v. Court of Appeals, L-27455, June 28, 1973, 51 SCRA 381; Vallangca v.
Ariola, L-29226, Sept. 28, 1973, 53 SCRA 139; Jalandoni v. Endaya, L-23894, Jan.
24, 1974, 55 SCRA 261; Pacis v. Pamaran, L-23996, March 15, 1974.

7 Brief for the Defendant-Appellant, 8-9.


8 2 Manresa, Codigo Civil Espaol, 38 (1944).

9 Nery v. Lorenzo, L-23096, April 27, 1972, 44 SCRA 431, 438-439.

10 Article II, Section of the Constitution.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. 173034 October 9, 2007

PHARMACEUTICAL AND HEALTH CARE ASSOCIATION OF THE PHILIPPINES, petitioner,


vs.
HEALTH SECRETARY FRANCISCO T. DUQUE III; HEALTH UNDER SECRETARIES DR.
ETHELYN P. NIETO, DR. MARGARITA M. GALON, ATTY. ALEXANDER A. PADILLA, & DR.
JADE F. DEL MUNDO; and ASSISTANT SECRETARIES DR. MARIO C. VILLAVERDE, DR.
DAVID J. LOZADA, AND DR. NEMESIO T. GAKO,respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

The Court and all parties involved are in agreement that the best nourishment for an infant is
mother's milk. There is nothing greater than for a mother to nurture her beloved child straight from
her bosom. The ideal is, of course, for each and every Filipino child to enjoy the unequaled benefits
of breastmilk. But how should this end be attained?

Before the Court is a petition for certiorari under Rule 65 of the Rules of Court, seeking to nullify
Administrative Order (A.O.) No. 2006-0012 entitled, Revised Implementing Rules and
Regulations of Executive Order No. 51, Otherwise Known as The "Milk Code," Relevant
International Agreements, Penalizing Violations Thereof, and for Other Purposes (RIRR).
Petitioner posits that the RIRR is not valid as it contains provisions that are not constitutional and go
beyond the law it is supposed to implement.

Named as respondents are the Health Secretary, Undersecretaries, and Assistant Secretaries of the
Department of Health (DOH). For purposes of herein petition, the DOH is deemed impleaded as a
co-respondent since respondents issued the questioned RIRR in their capacity as officials of said
executive agency.1

Executive Order No. 51 (Milk Code) was issued by President Corazon Aquino on October 28, 1986
by virtue of the legislative powers granted to the president under the Freedom Constitution. One of
the preambular clauses of the Milk Code states that the law seeks to give effect to Article 112 of the
International Code of Marketing of Breastmilk Substitutes (ICMBS), a code adopted by the World
Health Assembly (WHA) in 1981. From 1982 to 2006, the WHA adopted several Resolutions to the
effect that breastfeeding should be supported, promoted and protected, hence, it should be ensured
that nutrition and health claims are not permitted for breastmilk substitutes.

In 1990, the Philippines ratified the International Convention on the Rights of the Child. Article 24 of
said instrument provides that State Parties should take appropriate measures to diminish infant and
child mortality, and ensure that all segments of society, specially parents and children, are informed
of the advantages of breastfeeding.

On May 15, 2006, the DOH issued herein assailed RIRR which was to take effect on July 7, 2006.

However, on June 28, 2006, petitioner, representing its members that are manufacturers of
breastmilk substitutes, filed the present Petition for Certiorari and Prohibition with Prayer for the
Issuance of a Temporary Restraining Order (TRO) or Writ of Preliminary Injunction.

The main issue raised in the petition is whether respondents officers of the DOH acted without or in
excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction,
and in violation of the provisions of the Constitution in promulgating the RIRR.3

On August 15, 2006, the Court issued a Resolution granting a TRO enjoining respondents from
implementing the questioned RIRR.

After the Comment and Reply had been filed, the Court set the case for oral arguments on June 19,
2007. The Court issued an Advisory (Guidance for Oral Arguments) dated June 5, 2007, to wit:

The Court hereby sets the following issues:

1. Whether or not petitioner is a real party-in-interest;

2. Whether Administrative Order No. 2006-0012 or the Revised Implementing Rules and
Regulations (RIRR) issued by the Department of Health (DOH) is not constitutional;

2.1 Whether the RIRR is in accord with the provisions of Executive Order No. 51 (Milk Code);

2.2 Whether pertinent international agreements1 entered into by the Philippines are part of
the law of the land and may be implemented by the DOH through the RIRR; If in the
affirmative, whether the RIRR is in accord with the international agreements;

2.3 Whether Sections 4, 5(w), 22, 32, 47, and 52 of the RIRR violate the due process clause
and are in restraint of trade; and

2.4 Whether Section 13 of the RIRR on Total Effect provides sufficient standards.

_____________

1 (1) United Nations Convention on the Rights of the Child; (2) the WHO and Unicef "2002
Global Strategy on Infant and Young Child Feeding;" and (3) various World Health Assembly
(WHA) Resolutions.

The parties filed their respective memoranda.


The petition is partly imbued with merit.

On the issue of petitioner's standing

With regard to the issue of whether petitioner may prosecute this case as the real party-in-interest,
the Court adopts the view enunciated in Executive Secretary v. Court of Appeals,4 to wit:

The modern view is that an association has standing to complain of injuries to its members.
This view fuses the legal identity of an association with that of its members. An association
has standing to file suit for its workers despite its lack of direct interest if its members
are affected by the action. An organization has standing to assert the concerns of its
constituents.

xxxx

x x x We note that, under its Articles of Incorporation, the respondent was organized x x x to
act as the representative of any individual, company, entity or association on matters related
to the manpower recruitment industry, and to perform other acts and activities necessary to
accomplish the purposes embodied therein. The respondent is, thus, the appropriate
party to assert the rights of its members, because it and its members are in every
practical sense identical. x x x The respondent [association] is but the medium
through which its individual members seek to make more effective the expression of
their voices and the redress of their grievances. 5 (Emphasis supplied)

which was reasserted in Purok Bagong Silang Association, Inc. v. Yuipco,6 where the Court ruled
that an association has the legal personality to represent its members because the results of the
case will affect their vital interests.7

Herein petitioner's Amended Articles of Incorporation contains a similar provision just like in
Executive Secretary, that the association is formed "to represent directly or through approved
representatives the pharmaceutical and health care industry before the Philippine Government and
any of its agencies, the medical professions and the general public."8 Thus, as an organization,
petitioner definitely has an interest in fulfilling its avowed purpose of representing members who are
part of the pharmaceutical and health care industry. Petitioner is duly authorized9 to take the
appropriate course of action to bring to the attention of government agencies and the courts any
grievance suffered by its members which are directly affected by the RIRR. Petitioner, which is
mandated by its Amended Articles of Incorporation to represent the entire industry, would be remiss
in its duties if it fails to act on governmental action that would affect any of its industry members, no
matter how few or numerous they are. Hence, petitioner, whose legal identity is deemed fused with
its members, should be considered as a real party-in-interest which stands to be benefited or injured
by any judgment in the present action.

On the constitutionality of the provisions of the RIRR

First, the Court will determine if pertinent international instruments adverted to by respondents are
part of the law of the land.

Petitioner assails the RIRR for allegedly going beyond the provisions of the Milk Code, thereby
amending and expanding the coverage of said law. The defense of the DOH is that the RIRR
implements not only the Milk Code but also various international instruments10 regarding infant and
young child nutrition. It is respondents' position that said international instruments are deemed part
of the law of the land and therefore the DOH may implement them through the RIRR.
The Court notes that the following international instruments invoked by respondents, namely: (1) The
United Nations Convention on the Rights of the Child; (2) The International Covenant on Economic,
Social and Cultural Rights; and (3) the Convention on the Elimination of All Forms of Discrimination
Against Women, only provide in general terms that steps must be taken by State Parties to diminish
infant and child mortality and inform society of the advantages of breastfeeding, ensure the health
and well-being of families, and ensure that women are provided with services and nutrition in
connection with pregnancy and lactation. Said instruments do not contain specific provisions
regarding the use or marketing of breastmilk substitutes.

The international instruments that do have specific provisions regarding breastmilk substitutes are
the ICMBS and various WHA Resolutions.

Under the 1987 Constitution, international law can become part of the sphere of domestic law either
by transformation or incorporation.11 The transformation method requires that an international law
be transformed into a domestic law through a constitutional mechanism such as local legislation.
The incorporation method applies when, by mere constitutional declaration, international law is
deemed to have the force of domestic law.12

Treaties become part of the law of the land through transformation pursuant to Article VII, Section
21 of the Constitution which provides that "[n]o treaty or international agreement shall be valid and
effective unless concurred in by at least two-thirds of all the members of the Senate." Thus, treaties
or conventional international law must go through a process prescribed by the Constitution for it to
be transformed into municipal law that can be applied to domestic conflicts.13

The ICMBS and WHA Resolutions are not treaties as they have not been concurred in by at least
two-thirds of all members of the Senate as required under Section 21, Article VII of the 1987
Constitution.

However, the ICMBS which was adopted by the WHA in 1981 had been transformed into domestic
law through local legislation, the Milk Code. Consequently, it is the Milk Code that has the force and
effect of law in this jurisdiction and not the ICMBS per se.

The Milk Code is almost a verbatim reproduction of the ICMBS, but it is well to emphasize at this
point that the Code did not adopt the provision in the ICMBS absolutely prohibiting advertising or
other forms of promotion to the general public of products within the scope of the ICMBS.
Instead, the Milk Code expressly provides that advertising, promotion, or other marketing
materials may be allowed if such materials are duly authorized and approved by the Inter-
Agency Committee (IAC).

On the other hand, Section 2, Article II of the 1987 Constitution, to wit:

SECTION 2. The Philippines renounces war as an instrument of national policy, adopts the
generally accepted principles of international law as part of the law of the land and
adheres to the policy of peace, equality, justice, freedom, cooperation and amity with all
nations. (Emphasis supplied)

embodies the incorporation method.14

In Mijares v. Ranada,15 the Court held thus:


[G]enerally accepted principles of international law, by virtue of the incorporation clause of
the Constitution, form part of the laws of the land even if they do not derive from treaty
obligations. The classical formulation in international law sees those customary rules
accepted as binding result from the combination [of] two elements: the established,
widespread, and consistent practice on the part of States; and a psychological element
known as the opinion juris sive necessitates (opinion as to law or necessity). Implicit in the
latter element is a belief that the practice in question is rendered obligatory by the existence
of a rule of law requiring it.16 (Emphasis supplied)

"Generally accepted principles of international law" refers to norms of general or customary


international law which are binding on all states,17 i.e., renunciation of war as an instrument of
national policy, the principle of sovereign immunity,18 a person's right to life, liberty and due
process,19 and pacta sunt servanda,20 among others. The concept of "generally accepted principles
of law" has also been depicted in this wise:

Some legal scholars and judges look upon certain "general principles of law" as a primary source of
international law because they have the "character of jus rationale" and are "valid through all
kinds of human societies."(Judge Tanaka in his dissenting opinion in the 1966 South West Africa
Case, 1966 I.C.J. 296). O'Connell holds that certain priniciples are part of international law
because they are "basic to legal systems generally" and hence part of the jus gentium. These
principles, he believes, are established by a process of reasoning based on the common identity of
all legal systems. If there should be doubt or disagreement, one must look to state practice and
determine whether the municipal law principle provides a just and acceptable solution. x x
x 21 (Emphasis supplied)

Fr. Joaquin G. Bernas defines customary international law as follows:

Custom or customary international law means "a general and consistent practice of states
followed by them from a sense of legal obligation [opinio juris]." (Restatement) This
statement contains the two basic elements of custom: the material factor, that is, how
states behave, and the psychological or subjective factor, that is, why they behave the
way they do.

xxxx

The initial factor for determining the existence of custom is the actual behavior of states. This
includes several elements: duration, consistency, and generality of the practice of states.

The required duration can be either short or long. x x x

xxxx

Duration therefore is not the most important element. More important is the consistency and
the generality of the practice. x x x

xxxx

Once the existence of state practice has been established, it becomes necessary to
determine why states behave the way they do. Do states behave the way they do
because they consider it obligatory to behave thus or do they do it only as a matter of
courtesy? Opinio juris, or the belief that a certain form of behavior is obligatory, is
what makes practice an international rule. Without it, practice is not law.22(Underscoring
and Emphasis supplied)

Clearly, customary international law is deemed incorporated into our domestic system.23

WHA Resolutions have not been embodied in any local legislation. Have they attained the status of
customary law and should they then be deemed incorporated as part of the law of the land?

The World Health Organization (WHO) is one of the international specialized agencies allied with the
United Nations (UN) by virtue of Article 57,24 in relation to Article 6325 of the UN Charter. Under the
1946 WHO Constitution, it is the WHA which determines the policies of the WHO,26 and has the
power to adopt regulations concerning "advertising and labeling of biological, pharmaceutical and
similar products moving in international commerce,"27and to "make recommendations to members
with respect to any matter within the competence of the Organization."28 The legal effect of its
regulations, as opposed to recommendations, is quite different.

Regulations, along with conventions and agreements, duly adopted by the WHA bind member
states thus:

Article 19. The Health Assembly shall have authority to adopt conventions or agreements
with respect to any matter within the competence of the Organization. A two-thirds vote of
the Health Assembly shall be required for the adoption of such conventions or
agreements, which shall come into force for each Member when accepted by it in
accordance with its constitutional processes.

Article 20. Each Member undertakes that it will, within eighteen months after the adoption
by the Health Assembly of a convention or agreement, take action relative to the
acceptance of such convention or agreement. Each Member shall notify the Director-
General of the action taken, and if it does not accept such convention or agreement within
the time limit, it will furnish a statement of the reasons for non-acceptance. In case of
acceptance, each Member agrees to make an annual report to the Director-General in
accordance with Chapter XIV.

Article 21. The Health Assembly shall have authority to adopt regulations concerning: (a)
sanitary and quarantine requirements and other procedures designed to prevent the
international spread of disease; (b) nomenclatures with respect to diseases, causes of death
and public health practices; (c) standards with respect to diagnostic procedures for
international use; (d) standards with respect to the safety, purity and potency of biological,
pharmaceutical and similar products moving in international commerce; (e) advertising and
labeling of biological, pharmaceutical and similar products moving in international commerce.

Article 22. Regulations adopted pursuant to Article 21 shall come into force for all
Members after due notice has been given of their adoption by the Health Assembly except
for such Members as may notify the Director-General of rejection or reservations within the
period stated in the notice. (Emphasis supplied)

On the other hand, under Article 23, recommendations of the WHA do not come into force for
members, in the same way that conventions or agreements under Article 19 and regulations under
Article 21 come into force. Article 23 of the WHO Constitution reads:
Article 23. The Health Assembly shall have authority to make recommendations to
Members with respect to any matter within the competence of the Organization. (Emphasis
supplied)

The absence of a provision in Article 23 of any mechanism by which the recommendation would
come into force for member states is conspicuous.

The former Senior Legal Officer of WHO, Sami Shubber, stated that WHA recommendations are
generally not binding, but they "carry moral and political weight, as they constitute the judgment on a
health issue of the collective membership of the highest international body in the field of
health."29 Even the ICMBS itself was adopted as a mere recommendation, as WHA Resolution No.
34.22 states:

"The Thirty-Fourth World Health Assembly x x x adopts, in the sense of Article 23 of the
Constitution, the International Code of Marketing of Breastmilk Substitutes annexed to the
present resolution." (Emphasis supplied)

The Introduction to the ICMBS also reads as follows:

In January 1981, the Executive Board of the World Health Organization at its sixty-seventh
session, considered the fourth draft of the code, endorsed it, and unanimously recommended
to the Thirty-fourth World Health Assembly the text of a resolution by which it would adopt
the code in the form of a recommendation rather than a regulation. x x x (Emphasis
supplied)

The legal value of WHA Resolutions as recommendations is summarized in Article 62 of the WHO
Constitution, to wit:

Art. 62. Each member shall report annually on the action taken with respect to
recommendations made to it by the Organization, and with respect to conventions,
agreements and regulations.

Apparently, the WHA Resolution adopting the ICMBS and subsequent WHA Resolutions urging
member states to implement the ICMBS are merely recommendatory and legally non-binding. Thus,
unlike what has been done with the ICMBS whereby the legislature enacted most of the
provisions into law which is the Milk Code, the subsequent WHA Resolutions,30 specifically
providing for exclusive breastfeeding from 0-6 months, continued breastfeeding up to 24
months, and absolutely prohibiting advertisements and promotions of breastmilk substitutes,
have not been adopted as a domestic law.

It is propounded that WHA Resolutions may constitute "soft law" or non-binding norms, principles
and practices that influence state behavior.31

"Soft law" does not fall into any of the categories of international law set forth in Article 38, Chapter
III of the 1946 Statute of the International Court of Justice.32 It is, however, an expression of non-
binding norms, principles, and practices that influence state behavior.33 Certain declarations and
resolutions of the UN General Assembly fall under this category.34 The most notable is the UN
Declaration of Human Rights, which this Court has enforced in various cases,
specifically, Government of Hongkong Special Administrative Region v. Olalia,35 Mejoff v. Director of
Prisons,36 Mijares v. Raada37 and Shangri-la International Hotel Management, Ltd. v. Developers
Group of Companies, Inc..38
The World Intellectual Property Organization (WIPO), a specialized agency attached to the UN with
the mandate to promote and protect intellectual property worldwide, has resorted to soft law as a
rapid means of norm creation, in order "to reflect and respond to the changing needs and demands
of its constituents."39 Other international organizations which have resorted to soft law include the
International Labor Organization and the Food and Agriculture Organization (in the form of
the Codex Alimentarius).40

WHO has resorted to soft law. This was most evident at the time of the Severe Acute Respiratory
Syndrome (SARS) and Avian flu outbreaks.

Although the IHR Resolution does not create new international law binding on WHO
member states, it provides an excellent example of the power of "soft law" in
international relations. International lawyers typically distinguish binding rules of
international law-"hard law"-from non-binding norms, principles, and practices that
influence state behavior-"soft law." WHO has during its existence generated many
soft law norms, creating a "soft law regime" in international governance for public
health.

The "soft law" SARS and IHR Resolutions represent significant steps in laying the political
groundwork for improved international cooperation on infectious diseases. These resolutions
clearly define WHO member states' normative duty to cooperate fully with other countries
and with WHO in connection with infectious disease surveillance and response to outbreaks.

This duty is neither binding nor enforceable, but, in the wake of the SARS epidemic,
the duty is powerful politically for two reasons. First, the SARS outbreak has taught the
lesson that participating in, and enhancing, international cooperation on infectious disease
controls is in a country's self-interest x x x if this warning is heeded, the "soft law" in the
SARS and IHR Resolution could inform the development of general and consistent state
practice on infectious disease surveillance and outbreak response, perhaps crystallizing
eventually into customary international law on infectious disease prevention and control.41

In the Philippines, the executive department implemented certain measures recommended by WHO
to address the outbreaks of SARS and Avian flu by issuing Executive Order (E.O.) No. 201 on April
26, 2003 and E.O. No. 280 on February 2, 2004, delegating to various departments broad powers to
close down schools/establishments, conduct health surveillance and monitoring, and ban importation
of poultry and agricultural products.

It must be emphasized that even under such an international emergency, the duty of a state to
implement the IHR Resolution was still considered not binding or enforceable, although said
resolutions had great political influence.

As previously discussed, for an international rule to be considered as customary law, it must be


established that such rule is being followed by states because they consider it obligatory to comply
with such rules (opinio juris). Respondents have not presented any evidence to prove that the WHA
Resolutions, although signed by most of the member states, were in fact enforced or practiced by at
least a majority of the member states; neither have respondents proven that any compliance by
member states with said WHA Resolutions was obligatory in nature.

Respondents failed to establish that the provisions of pertinent WHA Resolutions are customary
international law that may be deemed part of the law of the land.
Consequently, legislation is necessary to transform the provisions of the WHA Resolutions into
domestic law. The provisions of the WHA Resolutions cannot be considered as part of the law
of the land that can be implemented by executive agencies without the need of a law enacted
by the legislature.

Second, the Court will determine whether the DOH may implement the provisions of the WHA
Resolutions by virtue of its powers and functions under the Revised Administrative Code even in the
absence of a domestic law.

Section 3, Chapter 1, Title IX of the Revised Administrative Code of 1987 provides that the DOH
shall define the national health policy and implement a national health plan within the framework
of the government's general policies and plans, and issue orders and regulations concerning the
implementation of established health policies.

It is crucial to ascertain whether the absolute prohibition on advertising and other forms of promotion
of breastmilk substitutes provided in some WHA Resolutions has been adopted as part of the
national health policy.

Respondents submit that the national policy on infant and young child feeding is embodied in A.O.
No. 2005-0014, dated May 23, 2005. Basically, the Administrative Order declared the following
policy guidelines: (1) ideal breastfeeding practices, such as early initiation of breastfeeding,
exclusive breastfeeding for the first six months, extended breastfeeding up to two years and beyond;
(2) appropriate complementary feeding, which is to start at age six months; (3) micronutrient
supplementation; (4) universal salt iodization; (5) the exercise of other feeding options; and (6)
feeding in exceptionally difficult circumstances. Indeed, the primacy of breastfeeding for children is
emphasized as a national health policy. However, nowhere in A.O. No. 2005-0014 is it declared
that as part of such health policy, the advertisement or promotion of breastmilk substitutes
should be absolutely prohibited.

The national policy of protection, promotion and support of breastfeeding cannot automatically be
equated with a total ban on advertising for breastmilk substitutes.

In view of the enactment of the Milk Code which does not contain a total ban on the advertising and
promotion of breastmilk substitutes, but instead, specifically creates an IAC which will regulate said
advertising and promotion, it follows that a total ban policy could be implemented only pursuant to a
law amending the Milk Code passed by the constitutionally authorized branch of government, the
legislature.

Thus, only the provisions of the Milk Code, but not those of subsequent WHA Resolutions, can
be validly implemented by the DOH through the subject RIRR.

Third, the Court will now determine whether the provisions of the RIRR are in accordance with those
of the Milk Code.

In support of its claim that the RIRR is inconsistent with the Milk Code, petitioner alleges the
following:

1. The Milk Code limits its coverage to children 0-12 months old, but the RIRR extended its
coverage to "young children" or those from ages two years old and beyond:

MILK CODE RIRR


WHEREAS, in order to ensure that safe and Section 2. Purpose These Revised Rules
adequate nutrition for infants is provided, there
and Regulations are hereby promulgated to
is a need to protect and promote breastfeedingensure the provision of safe and adequate
and to inform the public about the proper use nutrition for infants and young children by the
of breastmilk substitutes and supplements and promotion, protection and support of
related products through adequate, consistent breastfeeding and by ensuring the proper use
and objective information and appropriate of breastmilk substitutes, breastmilk
regulation of the marketing and distribution of
supplements and related products when these
the said substitutes, supplements and related are medically indicated and only when
products; necessary, on the basis of adequate
information and through appropriate marketing
SECTION 4(e). "Infant" means a person falling and distribution.
within the age bracket of 0-12 months.
Section 5(ff). "Young Child" means a person
from the age of more than twelve (12) months
up to the age of three (3) years (36 months).

2. The Milk Code recognizes that infant formula may be a proper and possible substitute for
breastmilk in certain instances; but the RIRR provides "exclusive breastfeeding for infants
from 0-6 months" and declares that "there is no substitute nor replacement for breastmilk":

MILK CODE RIRR


WHEREAS, in order to ensure that safe and Section 4. Declaration of Principles The
adequate nutrition for infants is provided, there following are the underlying principles from
is a need to protect and promote breastfeeding which the revised rules and regulations are
and to inform the public about the proper use premised upon:
of breastmilk substitutes and supplements and
related products through adequate, consistent a. Exclusive breastfeeding is for infants from 0
and objective information and appropriate to six (6) months.
regulation of the marketing and distribution of
the said substitutes, supplements and related b. There is no substitute or replacement for
products; breastmilk.

3. The Milk Code only regulates and does not impose unreasonable requirements for
advertising and promotion; RIRR imposes an absolute ban on such activities for breastmilk
substitutes intended for infants from 0-24 months old or beyond, and forbids the use of
health and nutritional claims. Section 13 of the RIRR, which provides for a "total effect" in the
promotion of products within the scope of the Code, is vague:

MILK CODE RIRR


SECTION 6. The General Public and Section 4. Declaration of Principles The
Mothers. following are the underlying principles from
which the revised rules and regulations are
(a) No advertising, promotion or other premised upon:
marketing materials, whether written, audio or
visual, for products within the scope of this xxxx
Code shall be printed, published, distributed,
exhibited and broadcast unless such materials f. Advertising, promotions, or sponsor-ships of
are duly authorized and approved by an inter- infant formula, breastmilk substitutes and other
agency committee created herein pursuant to related products are prohibited.
the applicable standards provided for in this
Code. Section 11. Prohibition No advertising,
promotions, sponsorships, or marketing
materials and activities for breastmilk
substitutes intended for infants and young
children up to twenty-four (24) months, shall be
allowed, because they tend to convey or give
subliminal messages or impressions that
undermine breastmilk and breastfeeding or
otherwise exaggerate breastmilk substitutes
and/or replacements, as well as related
products covered within the scope of this
Code.

Section 13. "Total Effect" - Promotion of


products within the scope of this Code must be
objective and should not equate or make the
product appear to be as good or equal to
breastmilk or breastfeeding in the advertising
concept. It must not in any case undermine
breastmilk or breastfeeding. The "total effect"
should not directly or indirectly suggest that
buying their product would produce better
individuals, or resulting in greater love,
intelligence, ability, harmony or in any manner
bring better health to the baby or other such
exaggerated and unsubstantiated claim.

Section 15. Content of Materials. - The


following shall not be included in advertising,
promotional and marketing materials:

a. Texts, pictures, illustrations or information


which discourage or tend to undermine the
benefits or superiority of breastfeeding or
which idealize the use of breastmilk substitutes
and milk supplements. In this connection, no
pictures of babies and children together with
their mothers, fathers, siblings, grandparents,
other relatives or caregivers (or yayas) shall be
used in any advertisements for infant formula
and breastmilk supplements;

b. The term "humanized," "maternalized,"


"close to mother's milk" or similar words in
describing breastmilk substitutes or milk
supplements;

c. Pictures or texts that idealize the use of


infant and milk formula.

Section 16. All health and nutrition claims for


products within the scope of the Code are
absolutely prohibited. For this purpose, any
phrase or words that connotes to increase
emotional, intellectual abilities of the infant and
young child and other like phrases shall not be
allowed.

4. The RIRR imposes additional labeling requirements not found in the Milk Code:

MILK CODE RIRR


SECTION 10. Containers/Label. Section 26. Content Each container/label
shall contain such message, in both Filipino
(a) Containers and/or labels shall be designed and English languages, and which message
to provide the necessary information about the cannot be readily separated therefrom, relative
appropriate use of the products, and in such a the following points:
way as not to discourage breastfeeding.
(a) The words or phrase "Important Notice" or
(b) Each container shall have a clear, "Government Warning" or their equivalent;
conspicuous and easily readable and
understandable message in Pilipino or English (b) A statement of the superiority of
printed on it, or on a label, which message can breastfeeding;
not readily become separated from it, and
which shall include the following points: (c) A statement that there is no substitute for
breastmilk;
(i) the words "Important Notice" or their
equivalent; (d) A statement that the product shall be used
only on the advice of a health worker as to the
(ii) a statement of the superiority of need for its use and the proper methods of
breastfeeding; use;

(iii) a statement that the product shall be used (e) Instructions for appropriate prepara-tion,
only on the advice of a health worker as to the and a warning against the health hazards of
need for its use and the proper methods of inappropriate preparation; and
use; and
(f) The health hazards of unnecessary or
(iv) instructions for appropriate preparation, improper use of infant formula and other
and a warning against the health hazards of related products including information that
inappropriate preparation. powdered infant formula may contain
pathogenic microorganisms and must be
prepared and used appropriately.

5. The Milk Code allows dissemination of information on infant formula to health


professionals; the RIRR totally prohibits such activity:

MILK CODE RIRR


SECTION 7. Health Care System. Section 22. No manufacturer, distributor, or
representatives of products covered by the
(b) No facility of the health care system shall Code shall be allowed to conduct or be
be used for the purpose of promoting infant involved in any activity on breastfeeding
formula or other products within the scope of promotion, education and production of
this Code. This Code does not, however, Information, Education and Communication
(IEC) materials on breastfeeding, holding of or
preclude the dissemination of information to participating as speakers in classes or
health professionals as provided in Section seminars for women and children activities and
8(b). to avoid the use of these venues to market
their brands or company names.
SECTION 8. Health Workers. -
SECTION 16. All health and nutrition claims for
(b) Information provided by manufacturers and products within the scope of the Code are
distributors to health professionals regarding absolutely prohibited. For this purpose, any
products within the scope of this Code shall be phrase or words that connotes to increase
restricted to scientific and factual matters and emotional, intellectual abilities of the infant and
such information shall not imply or create a young child and other like phrases shall not be
belief that bottle-feeding is equivalent or allowed.
superior to breastfeeding. It shall also include
the information specified in Section 5(b).

6. The Milk Code permits milk manufacturers and distributors to extend assistance in
research and continuing education of health professionals; RIRR absolutely forbids the
same.

MILK CODE RIRR


SECTION 8. Health Workers Section 4. Declaration of Principles

(e) Manufacturers and distributors of products The following are the underlying principles
within the scope of this Code may assist in the from which the revised rules and regulations
research, scholarships and continuing are premised upon:
education, of health professionals, in
accordance with the rules and regulations i. Milk companies, and their
promulgated by the Ministry of Health. representatives, should not form part of any
policymaking body or entity in relation to the
advancement of breasfeeding.

SECTION 22. No manufacturer, distributor, or


representatives of products covered by the
Code shall be allowed to conduct or be
involved in any activity on breastfeeding
promotion, education and production of
Information, Education and Communication
(IEC) materials on breastfeeding, holding of or
participating as speakers in classes or
seminars for women and children activitiesand
to avoid the use of these venues to market
their brands or company names.

SECTION 32. Primary Responsibility of


Health Workers - It is the primary
responsibility of the health workers to promote,
protect and support breastfeeding and
appropriate infant and young child feeding.
Part of this responsibility is to continuously
update their knowledge and skills on
breastfeeding. No assistance, support, logistics
or training from milk companies shall be
permitted.

7. The Milk Code regulates the giving of donations; RIRR absolutely prohibits it.

MILK CODE RIRR


SECTION 6. The General Public and Section 51. Donations Within the Scope of
Mothers. This Code - Donations of products, materials,
defined and covered under the Milk Code and
(f) Nothing herein contained shall prevent these implementing rules and regulations, shall
donations from manufacturers and distributors be strictly prohibited.
of products within the scope of this Code upon
request by or with the approval of the Ministry Section 52. Other Donations By Milk
of Health. Companies Not Covered by this Code. -
Donations of products, equipments, and the
like, not otherwise falling within the scope of
this Code or these Rules, given by milk
companies and their agents, representatives,
whether in kind or in cash, may only be
coursed through the Inter Agency Committee
(IAC), which shall determine whether such
donation be accepted or otherwise.

8. The RIRR provides for administrative sanctions not imposed by the Milk Code.

MILK CODE RIRR


Section 46. Administrative Sanctions. The
following administrative sanctions shall be
imposed upon any person, juridical or natural,
found to have violated the provisions of the
Code and its implementing Rules and
Regulations:

a) 1st violation Warning;

b) 2nd violation Administrative fine of a


minimum of Ten Thousand (P10,000.00) to
Fifty Thousand (P50,000.00) Pesos,
depending on the gravity and extent of the
violation, including the recall of the offending
product;

c) 3rd violation Administrative Fine of a


minimum of Sixty Thousand (P60,000.00) to
One Hundred Fifty Thousand (P150,000.00)
Pesos, depending on the gravity and extent of
the violation, and in addition thereto, the recall
of the offending product, and suspension of the
Certificate of Product Registration (CPR);

d) 4th violation Administrative Fine of a


minimum of Two Hundred Thousand
(P200,000.00) to Five Hundred (P500,000.00)
Thousand Pesos, depending on the gravity
and extent of the violation; and in addition
thereto, the recall of the product, revocation of
the CPR, suspension of the License to
Operate (LTO) for one year;

e) 5th and succeeding repeated violations


Administrative Fine of One Million
(P1,000,000.00) Pesos, the recall of the
offending product, cancellation of the CPR,
revocation of the License to Operate (LTO) of
the company concerned, including the
blacklisting of the company to be furnished the
Department of Budget and Management
(DBM) and the Department of Trade and
Industry (DTI);

f) An additional penalty of Two Thou-sand Five


Hundred (P2,500.00) Pesos per day shall be
made for every day the violation continues
after having received the order from the IAC or
other such appropriate body, notifying and
penalizing the company for the infraction.

For purposes of determining whether or not


there is "repeated" violation, each product
violation belonging or owned by a company,
including those of their subsidiaries, are
deemed to be violations of the concerned milk
company and shall not be based on the
specific violating product alone.

9. The RIRR provides for repeal of existing laws to the contrary.

The Court shall resolve the merits of the allegations of petitioner seriatim.

1. Petitioner is mistaken in its claim that the Milk Code's coverage is limited only to children 0-12
months old. Section 3 of the Milk Code states:

SECTION 3. Scope of the Code The Code applies to the marketing, and practices related
thereto, of the following products: breastmilk substitutes, including infant formula; other milk
products, foods and beverages, including bottle-fed complementary foods, when marketed or
otherwise represented to be suitable, with or without modification, for use as a partial or total
replacement of breastmilk; feeding bottles and teats. It also applies to their quality and
availability, and to information concerning their use.

Clearly, the coverage of the Milk Code is not dependent on the age of the child but on the kind of
product being marketed to the public. The law treats infant formula, bottle-fed complementary food,
and breastmilk substitute as separate and distinct product categories.
Section 4(h) of the Milk Code defines infant formula as "a breastmilk substitute x x x to satisfy the
normal nutritional requirements of infants up to between four to six months of age, and adapted to
their physiological characteristics"; while under Section 4(b), bottle-fed complementary food refers to
"any food, whether manufactured or locally prepared, suitable as a complement to breastmilk or
infant formula, when either becomes insufficient to satisfy the nutritional requirements of the infant."
An infant under Section 4(e) is a person falling within the age bracket 0-12 months. It is the
nourishment of this group of infants or children aged 0-12 months that is sought to be promoted and
protected by the Milk Code.

But there is another target group. Breastmilk substitute is defined under Section 4(a) as "any food
being marketed or otherwise presented as a partial or total replacement for breastmilk, whether or
not suitable for that purpose." This section conspicuously lacks reference to any particular age-
group of children. Hence, the provision of the Milk Code cannot be considered exclusive for
children aged 0-12 months. In other words, breastmilk substitutes may also be intended for young
children more than 12 months of age. Therefore, by regulating breastmilk substitutes, the Milk Code
also intends to protect and promote the nourishment of children more than 12 months old.

Evidently, as long as what is being marketed falls within the scope of the Milk Code as provided in
Section 3, then it can be subject to regulation pursuant to said law, even if the product is to be used
by children aged over 12 months.

There is, therefore, nothing objectionable with Sections 242 and 5(ff)43 of the RIRR.

2. It is also incorrect for petitioner to say that the RIRR, unlike the Milk Code, does not recognize that
breastmilk substitutes may be a proper and possible substitute for breastmilk.

The entirety of the RIRR, not merely truncated portions thereof, must be considered and construed
together. As held in De Luna v. Pascual,44 "[t]he particular words, clauses and phrases in the Rule
should not be studied as detached and isolated expressions, but the whole and every part thereof
must be considered in fixing the meaning of any of its parts and in order to produce a harmonious
whole."

Section 7 of the RIRR provides that "when medically indicated and only when necessary, the use of
breastmilk substitutes is proper if based on complete and updated information." Section 8 of the
RIRR also states that information and educational materials should include information on the proper
use of infant formula when the use thereof is needed.

Hence, the RIRR, just like the Milk Code, also recognizes that in certain cases, the use of
breastmilk substitutes may be proper.

3. The Court shall ascertain the merits of allegations 345 and 446 together as they are interlinked with
each other.

To resolve the question of whether the labeling requirements and advertising regulations under the
RIRR are valid, it is important to deal first with the nature, purpose, and depth of the regulatory
powers of the DOH, as defined in general under the 1987 Administrative Code,47 and as delegated in
particular under the Milk Code.

Health is a legitimate subject matter for regulation by the DOH (and certain other administrative
agencies) in exercise of police powers delegated to it. The sheer span of jurisprudence on that
matter precludes the need to further discuss it..48 However, health information, particularly advertising
materials on apparently non-toxic products like breastmilk substitutes and supplements, is a
relatively new area for regulation by the DOH.49

As early as the 1917 Revised Administrative Code of the Philippine Islands,50 health information was
already within the ambit of the regulatory powers of the predecessor of DOH.51 Section 938 thereof
charged it with the duty to protect the health of the people, and vested it with such powers as "(g) the
dissemination of hygienic information among the people and especially the inculcation of
knowledge as to the proper care of infants and the methods of preventing and combating
dangerous communicable diseases."

Seventy years later, the 1987 Administrative Code tasked respondent DOH to carry out the state
policy pronounced under Section 15, Article II of the 1987 Constitution, which is "to protect and
promote the right to health of the people and instill health consciousness among them."52 To that
end, it was granted under Section 3 of the Administrative Code the power to "(6) propagate health
information and educate the population on important health, medical and environmental matters
which have health implications."53

When it comes to information regarding nutrition of infants and young children, however, the Milk
Code specifically delegated to the Ministry of Health (hereinafter referred to as DOH) the power to
ensure that there is adequate, consistent and objective information on breastfeeding and use of
breastmilk substitutes, supplements and related products; and the power to control such
information. These are expressly provided for in Sections 12 and 5(a), to wit:

SECTION 12. Implementation and Monitoring

xxxx

(b) The Ministry of Health shall be principally responsible for the implementation and
enforcement of the provisions of this Code. For this purpose, the Ministry of Health shall
have the following powers and functions:

(1) To promulgate such rules and regulations as are necessary or proper for the
implementation of this Code and the accomplishment of its purposes and objectives.

xxxx

(4) To exercise such other powers and functions as may be necessary for or
incidental to the attainment of the purposes and objectives of this Code.

SECTION 5. Information and Education

(a) The government shall ensure that objective and consistent information is provided on
infant feeding, for use by families and those involved in the field of infant nutrition. This
responsibility shall cover the planning, provision, design and dissemination of information,
and the control thereof, on infant nutrition. (Emphasis supplied)

Further, DOH is authorized by the Milk Code to control the content of any information on
breastmilk vis--visbreastmilk substitutes, supplement and related products, in the following manner:

SECTION 5. x x x
(b) Informational and educational materials, whether written, audio, or visual, dealing with the
feeding of infants and intended to reach pregnant women and mothers of infants, shall
include clear information on all the following points: (1) the benefits and superiority of
breastfeeding; (2) maternal nutrition, and the preparation for and maintenance of
breastfeeding; (3) the negative effect on breastfeeding of introducing partial bottlefeeding; (4)
the difficulty of reversing the decision not to breastfeed; and (5) where needed, the proper
use of infant formula, whether manufactured industrially or home-prepared. When such
materials contain information about the use of infant formula, they shall include the
social and financial implications of its use; the health hazards of inappropriate foods
or feeding methods; and, in particular, the health hazards of unnecessary or improper
use of infant formula and other breastmilk substitutes. Such materials shall not use
any picture or text which may idealize the use of breastmilk substitutes.

SECTION 8. Health Workers

xxxx

(b) Information provided by manufacturers and distributors to health professionals regarding


products within the scope of this Code shall be restricted to scientific and factual
matters, and such information shall not imply or create a belief that bottlefeeding is
equivalent or superior to breastfeeding. It shall also include the information specified
in Section 5(b).

SECTION 10. Containers/Label

(a) Containers and/or labels shall be designed to provide the necessary information about
the appropriate use of the products, and in such a way as not to discourage
breastfeeding.

xxxx

(d) The term "humanized," "maternalized" or similar terms shall not be used. (Emphasis
supplied)

The DOH is also authorized to control the purpose of the information and to whom such information
may be disseminated under Sections 6 through 9 of the Milk Code54 to ensure that the information
that would reach pregnant women, mothers of infants, and health professionals and workers in the
health care system is restricted to scientific and factual matters and shall not imply or create a belief
that bottlefeeding is equivalent or superior to breastfeeding.

It bears emphasis, however, that the DOH's power under the Milk Code to control information
regarding breastmilk vis-a-vis breastmilk substitutes is not absolute as the power to control does
not encompass the power to absolutely prohibit the advertising, marketing, and promotion of
breastmilk substitutes.

The following are the provisions of the Milk Code that unequivocally indicate that the control over
information given to the DOH is not absolute and that absolute prohibition is not contemplated by the
Code:

a) Section 2 which requires adequate information and appropriate marketing and distribution
of breastmilk substitutes, to wit:
SECTION 2. Aim of the Code The aim of the Code is to contribute to the provision
of safe and adequate nutrition for infants by the protection and promotion of
breastfeeding and by ensuring the proper use of breastmilk substitutes and
breastmilk supplements when these are necessary, on the basis of adequate
information and through appropriate marketing and distribution.

b) Section 3 which specifically states that the Code applies to the marketing of and practices
related to breastmilk substitutes, including infant formula, and to information concerning their
use;

c) Section 5(a) which provides that the government shall ensure that objective and consistent
information is provided on infant feeding;

d) Section 5(b) which provides that written, audio or visual informational and educational
materials shall not use any picture or text which may idealize the use of breastmilk
substitutes and should include information on the health hazards of unnecessary or improper
use of said product;

e) Section 6(a) in relation to Section 12(a) which creates and empowers the IAC to review
and examine advertising, promotion, and other marketing materials;

f) Section 8(b) which states that milk companies may provide information to health
professionals but such information should be restricted to factual and scientific matters and
shall not imply or create a belief that bottlefeeding is equivalent or superior to breastfeeding;
and

g) Section 10 which provides that containers or labels should not contain information that
would discourage breastfeeding and idealize the use of infant formula.

It is in this context that the Court now examines the assailed provisions of the RIRR regarding
labeling and advertising.

Sections 1355 on "total effect" and 2656 of Rule VII of the RIRR contain some labeling requirements,
specifically: a) that there be a statement that there is no substitute to breastmilk; and b) that there be
a statement that powdered infant formula may contain pathogenic microorganisms and must be
prepared and used appropriately. Section 1657of the RIRR prohibits all health and nutrition claims for
products within the scope of the Milk Code, such as claims of increased emotional and intellectual
abilities of the infant and young child.

These requirements and limitations are consistent with the provisions of Section 8 of the Milk Code,
to wit:

SECTION 8. Health workers -

xxxx

(b) Information provided by manufacturers and distributors to health professionals regarding


products within the scope of this Code shall be restricted to scientific and factual matters,
and such information shall notimply or create a belief that bottlefeeding
is equivalent or superior to breastfeeding. It shall also include the information specified in
Section 5.58 (Emphasis supplied)
and Section 10(d)59 which bars the use on containers and labels of the terms "humanized,"
"maternalized," or similar terms.

These provisions of the Milk Code expressly forbid information that would imply or create a belief
that there is any milk product equivalent to breastmilk or which is humanized or maternalized, as
such information would be inconsistent with the superiority of breastfeeding.

It may be argued that Section 8 of the Milk Code refers only to information given to health workers
regarding breastmilk substitutes, not to containers and labels thereof. However, such restrictive
application of Section 8(b) will result in the absurd situation in which milk companies and distributors
are forbidden to claim to health workers that their products are substitutes or equivalents of
breastmilk, and yet be allowed to display on the containers and labels of their products the exact
opposite message. That askewed interpretation of the Milk Code is precisely what Section 5(a)
thereof seeks to avoid by mandating that all information regarding breastmilk vis-a-vis breastmilk
substitutes be consistent, at the same time giving the government control over planning, provision,
design, and dissemination of information on infant feeding.

Thus, Section 26(c) of the RIRR which requires containers and labels to state that the product
offered is not a substitute for breastmilk, is a reasonable means of enforcing Section 8(b) of the Milk
Code and deterring circumvention of the protection and promotion of breastfeeding as embodied in
Section 260 of the Milk Code.

Section 26(f)61 of the RIRR is an equally reasonable labeling requirement. It implements Section 5(b)
of the Milk Code which reads:

SECTION 5. x x x

xxxx

(b) Informational and educational materials, whether written, audio, or visual, dealing with the
feeding of infants and intended to reach pregnant women and mothers of infants, shall
include clear information on all the following points: x x x (5) where needed, the proper use of
infant formula, whether manufactured industrially or home-prepared. When such materials
contain information about the use of infant formula, they shall include the social and financial
implications of its use; the health hazards of inappropriate foods or feeding methods;
and, in particular, the health hazards of unnecessary or improper use of infant formula
and other breastmilk substitutes. Such materials shall not use any picture or text which
may idealize the use of breastmilk substitutes. (Emphasis supplied)

The label of a product contains information about said product intended for the buyers thereof. The
buyers of breastmilk substitutes are mothers of infants, and Section 26 of the RIRR merely adds a
fair warning about the likelihood of pathogenic microorganisms being present in infant formula and
other related products when these are prepared and used inappropriately.

Petitioners counsel has admitted during the hearing on June 19, 2007 that formula milk is prone to
contaminations and there is as yet no technology that allows production of powdered infant formula
that eliminates all forms of contamination.62

Ineluctably, the requirement under Section 26(f) of the RIRR for the label to contain the message
regarding health hazards including the possibility of contamination with pathogenic microorganisms
is in accordance with Section 5(b) of the Milk Code.
The authority of DOH to control information regarding breastmilk vis-a-vis breastmilk substitutes and
supplements and related products cannot be questioned. It is its intervention into the area of
advertising, promotion, and marketing that is being assailed by petitioner.

In furtherance of Section 6(a) of the Milk Code, to wit:

SECTION 6. The General Public and Mothers.

(a) No advertising, promotion or other marketing materials, whether written, audio or visual,
for products within the scope of this Code shall be printed, published, distributed, exhibited
and broadcast unless such materials are duly authorized and approved by an inter-agency
committee created herein pursuant to the applicable standards provided for in this Code.

the Milk Code invested regulatory authority over advertising, promotional and marketing materials to
an IAC, thus:

SECTION 12. Implementation and Monitoring -

(a) For purposes of Section 6(a) of this Code, an inter-agency committee composed of the
following members is hereby created:

Minister of Health ------------------- Chairman

Minister of Trade and Industry ------------------- Member

Minister of Justice ------------------- Member

Minister of Social Services and Development ------------------- Member

The members may designate their duly authorized representative to every meeting of the
Committee.

The Committee shall have the following powers and functions:

(1) To review and examine all advertising. promotion or other marketing materials,
whether written, audio or visual, on products within the scope of this Code;

(2) To approve or disapprove, delete objectionable portions from and prohibit the
printing, publication, distribution, exhibition and broadcast of, all advertising
promotion or other marketing materials, whether written, audio or visual, on products
within the scope of this Code;

(3) To prescribe the internal and operational procedure for the exercise of its powers
and functions as well as the performance of its duties and responsibilities; and

(4) To promulgate such rules and regulations as are necessary or proper for
the implementation of Section 6(a) of this Code. x x x (Emphasis supplied)

However, Section 11 of the RIRR, to wit:


SECTION 11. Prohibition No advertising, promotions, sponsorships, or marketing materials
and activities for breastmilk substitutes intended for infants and young children up to twenty-
four (24) months, shall be allowed, because they tend to convey or give subliminal messages
or impressions that undermine breastmilk and breastfeeding or otherwise exaggerate
breastmilk substitutes and/or replacements, as well as related products covered within the
scope of this Code.

prohibits advertising, promotions, sponsorships or marketing materials and activities for breastmilk
substitutes in line with the RIRRs declaration of principle under Section 4(f), to wit:

SECTION 4. Declaration of Principles

xxxx

(f) Advertising, promotions, or sponsorships of infant formula, breastmilk substitutes and


other related products are prohibited.

The DOH, through its co-respondents, evidently arrogated to itself not only the regulatory authority
given to the IAC but also imposed absolute prohibition on advertising, promotion, and marketing.

Yet, oddly enough, Section 12 of the RIRR reiterated the requirement of the Milk Code in Section 6
thereof for prior approval by IAC of all advertising, marketing and promotional materials prior to
dissemination.

Even respondents, through the OSG, acknowledged the authority of IAC, and repeatedly insisted,
during the oral arguments on June 19, 2007, that the prohibition under Section 11 is not actually
operational, viz:

SOLICITOR GENERAL DEVANADERA:

xxxx

x x x Now, the crux of the matter that is being questioned by Petitioner is whether or not
there is an absolute prohibition on advertising making AO 2006-12 unconstitutional. We
maintained that what AO 2006-12 provides is not an absolute prohibition because Section 11
while it states and it is entitled prohibition it states that no advertising, promotion,
sponsorship or marketing materials and activities for breast milk substitutes intended for
infants and young children up to 24 months shall be allowed because this is the standard
they tend to convey or give subliminal messages or impression undermine that breastmilk or
breastfeeding x x x.

We have to read Section 11 together with the other Sections because the other Section,
Section 12, provides for the inter agency committee that is empowered to process and
evaluate all the advertising and promotion materials.

xxxx

What AO 2006-12, what it does, it does not prohibit the sale and manufacture, it simply
regulates the advertisement and the promotions of breastfeeding milk substitutes.

xxxx
Now, the prohibition on advertising, Your Honor, must be taken together with the provision
on the Inter-Agency Committee that processes and evaluates because there may be some
information dissemination that are straight forward information dissemination. What the AO
2006 is trying to prevent is any material that will undermine the practice of breastfeeding,
Your Honor.

xxxx

ASSOCIATE JUSTICE SANTIAGO:

Madam Solicitor General, under the Milk Code, which body has authority or power to
promulgate Rules and Regulations regarding the Advertising, Promotion and Marketing of
Breastmilk Substitutes?

SOLICITOR GENERAL DEVANADERA:

Your Honor, please, it is provided that the Inter-Agency Committee, Your Honor.

xxxx

ASSOCIATE JUSTICE SANTIAGO:

x x x Don't you think that the Department of Health overstepped its rule making authority
when it totally banned advertising and promotion under Section 11 prescribed the total effect
rule as well as the content of materials under Section 13 and 15 of the rules and regulations?

SOLICITOR GENERAL DEVANADERA:

Your Honor, please, first we would like to stress that there is no total absolute ban. Second,
the Inter-Agency Committee is under the Department of Health, Your Honor.

xxxx

ASSOCIATE JUSTICE NAZARIO:

x x x Did I hear you correctly, Madam Solicitor, that there is no absolute ban on advertising of
breastmilk substitutes in the Revised Rules?

SOLICITOR GENERAL DEVANADERA:

Yes, your Honor.

ASSOCIATE JUSTICE NAZARIO:

But, would you nevertheless agree that there is an absolute ban on advertising of breastmilk
substitutes intended for children two (2) years old and younger?

SOLICITOR GENERAL DEVANADERA:


It's not an absolute ban, Your Honor, because we have the Inter-Agency Committee that can
evaluate some advertising and promotional materials, subject to the standards that we have
stated earlier, which are- they should not undermine breastfeeding, Your Honor.

xxxx

x x x Section 11, while it is titled Prohibition, it must be taken in relation with the other
Sections, particularly 12 and 13 and 15, Your Honor, because it is recognized that the Inter-
Agency Committee has that power to evaluate promotional materials, Your Honor.

ASSOCIATE JUSTICE NAZARIO:

So in short, will you please clarify there's no absolute ban on advertisement regarding milk
substitute regarding infants two (2) years below?

SOLICITOR GENERAL DEVANADERA:

We can proudly say that the general rule is that there is a prohibition, however, we take
exceptions and standards have been set. One of which is that, the Inter-Agency Committee
can allow if the advertising and promotions will not undermine breastmilk and breastfeeding,
Your Honor.63

Sections 11 and 4(f) of the RIRR are clearly violative of the Milk Code.

However, although it is the IAC which is authorized to promulgate rules and regulations for the
approval or rejection of advertising, promotional, or other marketing materials under Section 12(a) of
the Milk Code, said provision must be related to Section 6 thereof which in turn provides that the
rules and regulations must be "pursuant to the applicable standards provided for in this Code." Said
standards are set forth in Sections 5(b), 8(b), and 10 of the Code, which, at the risk of being
repetitious, and for easy reference, are quoted hereunder:

SECTION 5. Information and Education

xxxx

(b) Informational and educational materials, whether written, audio, or visual, dealing with the
feeding of infants and intended to reach pregnant women and mothers of infants, shall
include clear information on all the following points: (1) the benefits and superiority of
breastfeeding; (2) maternal nutrition, and the preparation for and maintenance of
breastfeeding; (3) the negative effect on breastfeeding of introducing partial bottlefeeding; (4)
the difficulty of reversing the decision not to breastfeed; and (5) where needed, the proper
use of infant formula, whether manufactured industrially or home-prepared. When such
materials contain information about the use of infant formula, they shall include the social
and financial implications of its use; the health hazards of inappropriate foods of feeding
methods; and, in particular, the health hazards of unnecessary or improper use of infant
formula and other breastmilk substitutes. Such materials shall not use any picture or text
which may idealize the use of breastmilk substitutes.

xxxx

SECTION 8. Health Workers.


xxxx

(b) Information provided by manufacturers and distributors to health professionals regarding


products within the scope of this Code shall be restricted to scientific and factual matters and
such information shall not imply or create a belief that bottle feeding is equivalent or superior
to breastfeeding. It shall also include the information specified in Section 5(b).

xxxx

SECTION 10. Containers/Label

(a) Containers and/or labels shall be designed to provide the necessary information about
the appropriate use of the products, and in such a way as not to discourage breastfeeding.

(b) Each container shall have a clear, conspicuous and easily readable and understandable
message in Pilipino or English printed on it, or on a label, which message can not readily
become separated from it, and which shall include the following points:

(i) the words "Important Notice" or their equivalent;

(ii) a statement of the superiority of breastfeeding;

(iii) a statement that the product shall be used only on the advice of a health worker
as to the need for its use and the proper methods of use; and

(iv) instructions for appropriate preparation, and a warning against the health hazards
of inappropriate preparation.

Section 12(b) of the Milk Code designates the DOH as the principal implementing agency for the
enforcement of the provisions of the Code. In relation to such responsibility of the DOH, Section 5(a)
of the Milk Code states that:

SECTION 5. Information and Education

(a) The government shall ensure that objective and consistent information is provided on
infant feeding, for use by families and those involved in the field of infant nutrition. This
responsibility shall cover the planning, provision, design and dissemination of information,
and the control thereof, on infant nutrition. (Emphasis supplied)

Thus, the DOH has the significant responsibility to translate into operational terms the
standards set forth in Sections 5, 8, and 10 of the Milk Code, by which the IAC shall screen
advertising, promotional, or other marketing materials.

It is pursuant to such responsibility that the DOH correctly provided for Section 13 in the RIRR which
reads as follows:

SECTION 13. "Total Effect" - Promotion of products within the scope of this Code must be
objective and should not equate or make the product appear to be as good or equal to
breastmilk or breastfeeding in the advertising concept. It must not in any case undermine
breastmilk or breastfeeding. The "total effect" should not directly or indirectly suggest that
buying their product would produce better individuals, or resulting in greater love,
intelligence, ability, harmony or in any manner bring better health to the baby or other such
exaggerated and unsubstantiated claim.

Such standards bind the IAC in formulating its rules and regulations on advertising, promotion, and
marketing. Through that single provision, the DOH exercises control over the information content of
advertising, promotional and marketing materials on breastmilk vis-a-vis breastmilk substitutes,
supplements and other related products. It also sets a viable standard against which the IAC may
screen such materials before they are made public.

In Equi-Asia Placement, Inc. vs. Department of Foreign Affairs,64 the Court held:

x x x [T]his Court had, in the past, accepted as sufficient standards the following: "public
interest," "justice and equity," "public convenience and welfare," and "simplicity, economy
and welfare."65

In this case, correct information as to infant feeding and nutrition is infused with public interest and
welfare.

4. With regard to activities for dissemination of information to health professionals, the Court also
finds that there is no inconsistency between the provisions of the Milk Code and the RIRR. Section
7(b)66 of the Milk Code, in relation to Section 8(b)67 of the same Code, allows dissemination of
information to health professionals but such information is restricted to scientific and factual
matters.

Contrary to petitioner's claim, Section 22 of the RIRR does not prohibit the giving of information to
health professionals on scientific and factual matters. What it prohibits is the involvement of the
manufacturer and distributor of the products covered by the Code in activities for the promotion,
education and production of Information, Education and Communication (IEC) materials regarding
breastfeeding that are intended for women and children. Said provision cannot be construed to
encompass even the dissemination of information to health professionals, as restricted by the
Milk Code.

5. Next, petitioner alleges that Section 8(e)68 of the Milk Code permits milk manufacturers and
distributors to extend assistance in research and in the continuing education of health professionals,
while Sections 22 and 32 of the RIRR absolutely forbid the same. Petitioner also assails Section
4(i)69 of the RIRR prohibiting milk manufacturers' and distributors' participation in any policymaking
body in relation to the advancement of breastfeeding.

Section 4(i) of the RIRR provides that milk companies and their representatives should not form part
of any policymaking body or entity in relation to the advancement of breastfeeding. The Court finds
nothing in said provisions which contravenes the Milk Code. Note that under Section 12(b) of the
Milk Code, it is the DOH which shall be principally responsible for the implementation and
enforcement of the provisions of said Code. It is entirely up to the DOH to decide which entities to
call upon or allow to be part of policymaking bodies on breastfeeding. Therefore, the RIRR's
prohibition on milk companies participation in any policymaking body in relation to the advancement
of breastfeeding is in accord with the Milk Code.

Petitioner is also mistaken in arguing that Section 22 of the RIRR prohibits milk companies from
giving reasearch assistance and continuing education to health professionals. Section 2270 of the
RIRR does not pertain to research assistance to or the continuing education of health
professionals; rather, it deals with breastfeeding promotion and education for women and
children. Nothing in Section 22 of the RIRR prohibits milk companies from giving assistance for
research or continuing education to health professionals; hence, petitioner's argument against this
particular provision must be struck down.

It is Sections 971 and 1072 of the RIRR which govern research assistance. Said sections of the RIRR
provide that research assistance for health workers and researchers may be allowed upon
approval of an ethics committee, and with certain disclosure requirements imposed on the
milk company and on the recipient of the research award.

The Milk Code endows the DOH with the power to determine how such research or educational
assistance may be given by milk companies or under what conditions health workers may accept the
assistance. Thus, Sections 9 and 10 of the RIRR imposing limitations on the kind of research done
or extent of assistance given by milk companies are completely in accord with the Milk Code.

Petitioner complains that Section 3273 of the RIRR prohibits milk companies from giving assistance,
support, logistics or training to health workers. This provision is within the prerogative given to the
DOH under Section 8(e)74of the Milk Code, which provides that manufacturers and distributors of
breastmilk substitutes may assist in researches, scholarships and the continuing education, of health
professionals in accordance with the rules and regulations promulgated by the Ministry of Health,
now DOH.

6. As to the RIRR's prohibition on donations, said provisions are also consistent with the Milk Code.
Section 6(f) of the Milk Code provides that donations may be made by manufacturers and
distributors of breastmilk substitutes upon the request or with the approval of the DOH. The law
does not proscribe the refusal of donations. The Milk Code leaves it purely to the discretion of the
DOH whether to request or accept such donations. The DOH then appropriately exercised its
discretion through Section 5175 of the RIRR which sets forth its policy not to request or approve
donations from manufacturers and distributors of breastmilk substitutes.

It was within the discretion of the DOH when it provided in Section 52 of the RIRR that any donation
from milk companies not covered by the Code should be coursed through the IAC which shall
determine whether such donation should be accepted or refused. As reasoned out by respondents,
the DOH is not mandated by the Milk Code to accept donations. For that matter, no person or entity
can be forced to accept a donation. There is, therefore, no real inconsistency between the RIRR and
the law because the Milk Code does not prohibit the DOH from refusing donations.

7. With regard to Section 46 of the RIRR providing for administrative sanctions that are not found in
the Milk Code, the Court upholds petitioner's objection thereto.

Respondent's reliance on Civil Aeronautics Board v. Philippine Air Lines, Inc.76 is misplaced. The
glaring difference in said case and the present case before the Court is that, in the Civil Aeronautics
Board, the Civil Aeronautics Administration (CAA) was expressly granted by the law (R.A. No.
776) the power to impose fines and civil penalties, while the Civil Aeronautics Board (CAB) was
granted by the same law the power to review on appeal the order or decision of the CAA and to
determine whether to impose, remit, mitigate, increase or compromise such fine and civil penalties.
Thus, the Court upheld the CAB's Resolution imposing administrative fines.

In a more recent case, Perez v. LPG Refillers Association of the Philippines, Inc.,77 the Court upheld
the Department of Energy (DOE) Circular No. 2000-06-10
implementing Batas Pambansa (B.P.) Blg. 33. The circular provided for fines for the commission of
prohibited acts. The Court found that nothing in the circular contravened the law because the DOE
was expressly authorized by B.P. Blg. 33 and R.A. No. 7638 to impose fines or penalties.
In the present case, neither the Milk Code nor the Revised Administrative Code grants the DOH the
authority to fix or impose administrative fines. Thus, without any express grant of power to fix or
impose such fines, the DOH cannot provide for those fines in the RIRR. In this regard, the DOH
again exceeded its authority by providing for such fines or sanctions in Section 46 of the RIRR. Said
provision is, therefore, null and void.

The DOH is not left without any means to enforce its rules and regulations. Section 12(b) (3) of the
Milk Code authorizes the DOH to "cause the prosecution of the violators of this Code and other
pertinent laws on products covered by this Code." Section 13 of the Milk Code provides for the
penalties to be imposed on violators of the provision of the Milk Code or the rules and regulations
issued pursuant to it, to wit:

SECTION 13. Sanctions

(a) Any person who violates the provisions of this Code or the rules and regulations
issued pursuant to this Code shall, upon conviction, be punished by a penalty of two (2)
months to one (1) year imprisonment or a fine of not less than One Thousand Pesos
(P1,000.00) nor more than Thirty Thousand Pesos (P30,000.00) or both. Should the offense
be committed by a juridical person, the chairman of the Board of Directors, the president,
general manager, or the partners and/or the persons directly responsible therefor, shall be
penalized.

(b) Any license, permit or authority issued by any government agency to any health worker,
distributor, manufacturer, or marketing firm or personnel for the practice of their profession or
occupation, or for the pursuit of their business, may, upon recommendation of the Ministry of
Health, be suspended or revoked in the event of repeated violations of this Code, or of the
rules and regulations issued pursuant to this Code. (Emphasis supplied)

8. Petitioners claim that Section 57 of the RIRR repeals existing laws that are contrary to the RIRR
is frivolous.

Section 57 reads:

SECTION 57. Repealing Clause - All orders, issuances, and rules and regulations or parts
thereof inconsistent with these revised rules and implementing regulations are hereby
repealed or modified accordingly.

Section 57 of the RIRR does not provide for the repeal of laws but only orders, issuances and rules
and regulations. Thus, said provision is valid as it is within the DOH's rule-making power.

An administrative agency like respondent possesses quasi-legislative or rule-making power or the


power to make rules and regulations which results in delegated legislation that is within the confines
of the granting statute and the Constitution, and subject to the doctrine of non-delegability and
separability of powers.78 Such express grant of rule-making power necessarily includes the power to
amend, revise, alter, or repeal the same.79 This is to allow administrative agencies flexibility in
formulating and adjusting the details and manner by which they are to implement the provisions of a
law,80 in order to make it more responsive to the times. Hence, it is a standard provision in
administrative rules that prior issuances of administrative agencies that are inconsistent therewith
are declared repealed or modified.
In fine, only Sections 4(f), 11 and 46 are ultra vires, beyond the authority of the DOH to promulgate
and in contravention of the Milk Code and, therefore, null and void. The rest of the provisions of the
RIRR are in consonance with the Milk Code.

Lastly, petitioner makes a "catch-all" allegation that:

x x x [T]he questioned RIRR sought to be implemented by the Respondents is unnecessary


and oppressive, and is offensive to the due process clause of the Constitution, insofar
as the same is in restraint of trade and because a provision therein is inadequate to
provide the public with a comprehensible basis to determine whether or not they have
committed a violation.81 (Emphasis supplied)

Petitioner refers to Sections 4(f),82 4(i),83 5(w),84 11,85 22,86 32,87 46,88 and 5289 as the provisions that
suppress the trade of milk and, thus, violate the due process clause of the Constitution.

The framers of the constitution were well aware that trade must be subjected to some form of
regulation for the public good. Public interest must be upheld over business interests.90 In Pest
Management Association of the Philippines v. Fertilizer and Pesticide Authority,91 it was held thus:

x x x Furthermore, as held in Association of Philippine Coconut Desiccators v. Philippine


Coconut Authority, despite the fact that "our present Constitution enshrines free
enterprise as a policy, it nonetheless reserves to the government the power to
intervene whenever necessary to promote the general welfare." There can be no
question that the unregulated use or proliferation of pesticides would be hazardous to our
environment. Thus, in the aforecited case, the Court declared that "free enterprise does not
call for removal of protective regulations." x x x It must be clearly explained and
proven by competent evidence just exactly how such protective regulation would
result in the restraint of trade. [Emphasis and underscoring supplied]

In this case, petitioner failed to show that the proscription of milk manufacturers participation in any
policymaking body (Section 4(i)), classes and seminars for women and children (Section 22); the
giving of assistance, support and logistics or training (Section 32); and the giving of donations
(Section 52) would unreasonably hamper the trade of breastmilk substitutes. Petitioner has not
established that the proscribed activities are indispensable to the trade of breastmilk substitutes.
Petitioner failed to demonstrate that the aforementioned provisions of the RIRR are unreasonable
and oppressive for being in restraint of trade.

Petitioner also failed to convince the Court that Section 5(w) of the RIRR is unreasonable and
oppressive. Said section provides for the definition of the term "milk company," to wit:

SECTION 5 x x x. (w) "Milk Company" shall refer to the owner, manufacturer, distributor of
infant formula, follow-up milk, milk formula, milk supplement, breastmilk substitute or
replacement, or by any other description of such nature, including their representatives who
promote or otherwise advance their commercial interests in marketing those products;

On the other hand, Section 4 of the Milk Code provides:

(d) "Distributor" means a person, corporation or any other entity in the public or private sector
engaged in the business (whether directly or indirectly) of marketing at the wholesale or retail
level a product within the scope of this Code. A "primary distributor" is a manufacturer's sales
agent, representative, national distributor or broker.
xxxx

(j) "Manufacturer" means a corporation or other entity in the public or private sector engaged
in the business or function (whether directly or indirectly or through an agent or and entity
controlled by or under contract with it) of manufacturing a products within the scope of this
Code.

Notably, the definition in the RIRR merely merged together under the term "milk company" the
entities defined separately under the Milk Code as "distributor" and "manufacturer." The RIRR also
enumerated in Section 5(w) the products manufactured or distributed by an entity that would qualify
it as a "milk company," whereas in the Milk Code, what is used is the phrase "products within the
scope of this Code." Those are the only differences between the definitions given in the Milk Code
and the definition as re-stated in the RIRR.

Since all the regulatory provisions under the Milk Code apply equally to both manufacturers and
distributors, the Court sees no harm in the RIRR providing for just one term to encompass both
entities. The definition of "milk company" in the RIRR and the definitions of "distributor" and
"manufacturer" provided for under the Milk Code are practically the same.

The Court is not convinced that the definition of "milk company" provided in the RIRR would bring
about any change in the treatment or regulation of "distributors" and "manufacturers" of breastmilk
substitutes, as defined under the Milk Code.

Except Sections 4(f), 11 and 46, the rest of the provisions of the RIRR are in consonance with the
objective, purpose and intent of the Milk Code, constituting reasonable regulation of an industry
which affects public health and welfare and, as such, the rest of the RIRR do not constitute illegal
restraint of trade nor are they violative of the due process clause of the Constitution.

WHEREFORE, the petition is PARTIALLY GRANTED. Sections 4(f), 11 and 46 of Administrative


Order No. 2006-0012 dated May 12, 2006 are declared NULL and VOID for being ultra vires. The
Department of Health and respondents are PROHIBITED from implementing said provisions.

The Temporary Restraining Order issued on August 15, 2006 is LIFTED insofar as the rest of the
provisions of Administrative Order No. 2006-0012 is concerned.

SO ORDERED.

Puno, (Chief Justice), Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Corona, Carpio-


Morales, Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr., Nachura, Reyes, JJ., concur.

Footnotes

1 Section 11, Rule 3, 1997 Rules of Civil Procedure which provides:

Section 11. Misjoinder and non-joinder of parties. - Neither misjoinder nor non-
joinder of parties is ground for dismissal of an action. Parties may be dropped or
added by order of the court on motion of any party or on its own initiative at any
stage of the action and on such terms as are just. x x x (Emphasis supplied)
2 Article 11. Implementation and monitoring

11.1 Governments should take action to give effect to the principles and aim of this
Code, as appropriate to their social and legislative framework, including the adoption
of national legislation, regulations or other suitable measures. For this purpose,
governments should seek, when necessary, the cooperation of WHO, UNICEF and
other agencies of the United Nations system. National policies and measures,
including laws and regulations, which are adopted to give effect to the principles and
aim of this Code should be publicly stated, and should apply on the same basis to all
those involved in the manufacture and marketing of products within the scope of this
Code.

xxxx

3 Petition, rollo, p. 12.

4
G.R. No. 131719, May 25, 2004, 429 SCRA 81.

5 Id. at 96-97.

6 G.R. No. 135092, May 4, 2006, 489 SCRA 382.

7 Id. at 396.

8 Annex "G", Petitioner's Memorandum dated July 19, 2007.

9Annexes "H", "I", and "J" of Petitioner's Memorandum executed by Wyeth Philippines, Inc.,
Bristol Myers Squibb (Phil.), Inc., and Abbott Laboratories, Inc., respectively.

10a) The UN Convention on the Rights of the Child (CRC); b) the International Code of
Marketing Breastmilk Substitutes (ICMBS); c) the International Covenant on Economic,
Social and Cultural Rights (CSCR); d) the Convention on the Elimination of All Forms of
Discrimination Against Women (CEDAW); e) the Global Strategy for Infant and Young Child
Nutrition (Global Strategy); and f) various resolutions adopted by the World Health Assembly.

11Joaquin G. Bernas, S.J., Constitutional Structure and Powers of Government (Notes


and Cases) Part I ( 2005).

12 Id.

13 Joaquin G. Bernas, S.J., An Introduction to Public International Law, 2002 Ed., p. 57.

14According to Fr. Bernas, the Austrian Constitution (Art. 9) and the Constitution of the
Federal Republic of Germany (Art. 25) also use the incorporation method.

15 G.R. No. 139325, April 12, 2005, 455 SCRA 397.

16 Id. at 421.

17 Merlin M. Magallona, Fundamentals of Public International Law, 2005 Ed., p. 526.


18 Id. at 525.

19Government of Hong Kong Special Administrative Region v. Olalia, G.R. No. 153675, April
19, 2007.

20 Taada v. Angara, 338 Phil. 546, 592 (1997).

21Louis Henkin, Richard C. Pugh, Oscar Schachter, Hans Smit, International Law, Cases
and Materials, 2ndEd., p. 96.

22 Supra note 13, at 10-13.

23 Minucher v. Court of Appeals, 445 Phil. 250, 269 (2003).

24Article 57. The various specialized agencies, established by intergovernmental agreement


and having wide international responsibilities, as defined in their basic instruments, in
economic, social, cultural, educational, health, and related fields, shall be brought into
relationship with the United Nations in accordance with the provisions of Article 63.

Such agencies thus brought into relationship with the United Nations are hereinafter referred
to as specialized agencies.

25Article 63. The Economic and Social Council may enter into agreements with any of the
agencies referred to in Article 57, defining the terms on which the agency concerned shall be
brought into relationship with the United Nations. Such agreements shall be subject to
approval by the General Assembly.

It may coordinate the activities of the specialized agencies through consultation with and
recommendations to such agencies and through recommendations to the General Assembly
and to the Members of the United Nations.

26Article 18. The functions of the Health Assembly shall be: (a) to determine the policies
of the Organization x x x. (Emphasis supplied)

27
Article 21. The Health Assembly shall have authority to adopt regulations concerning: x x x
(e) advertising and labeling of biological, pharmaceutical and similar products moving in
international commerce. (Emphasis supplied)

28Article 23. The Health Assembly shall have authority to make recommendations to
Members with respect to any matter within the competence of the Organization. (Emphasis
supplied)

29See David Fidler, Developments Involving SARS, International Law, and Infectious
Disease Control at the Fifty-Sixth Meeting of the World Health Assembly, June 2003, ASIL.

In Resolution No. 34.22 (May 21, 1981), the WHA, acting under Article 23 of the WHO
30

Constitution, adopted the ICBMS.

(a) In Resolution No. 35.26 (May 1982), the WHA urged member states to
implement the ICBMS as a "minimum requirement".
(b) In Resolution No. 39.28 (May 16, 1986), the WHA requested the WHO Director
General to direct the attention of member states to the fact that any food or drink
given before complementary feeding is nutritionally required may interfere with the
initiation or maintenance of breastfeeding and therefore should neither be promoted
nor encouraged for us by infants during this period.

(c) In Resolution No. 43.3 (May 14, 1990), the WHA urged member states to protect
and promote breastfeeding as an essential component of nutrition policies so as to
enable infants to be exclusively breastfed during the first four to six months of life.

(d) In Resolution No. 45.34 (May 14, 1992), the WHA urged member states to
implement the targets of the Innocenti Declaration specifically, to give effect to the
ICMBS.

(e) In Resolution No. 46.7 (May 10, 1993), the WHA urged member states to strive
to eliminate under-nutrition, malnutrition and nutritional deficiency among children.

(f) In Resolution No. 47.5 (May 9, 1994), the WHA urged member states to ensure
that there are no donations of supplies of breastmilk substitutes and other products
covered by the ICMBS in any part of the health care system.

(g) In Resolution No. 49.15 (May 25, 1996), the WHA urged member states to
ensure that complementary foods are not marketed for or used in ways that
undermine exclusive and sustained breastfeeding.

(h) In Resolution No. 54.2 (May 2002), the WHA, noting that "despite the fact that
the International Code of Marketing of Breastmilk Substitutes and relevant
subsequent World Health Assembly resolutions state that there should be no
advertising or other forms of promotion of products within its scope, new modern
communication methods including electronic means, are currently increasingly being
used to promote such products; and conscious of the need for the Codex
Alimentarius Commission to take the International Code and subsequent relevant
Health Assembly resolutions into consideration in dealing with health claims in the
development of food standards and guidelines x x x," urged member states to
develop new approaches to protect, promote and support exclusive breastfeeding for
six months as a global public health recommendation.

(i) In Resolution No. 55.25 (May 15, 2002), the WHA requested the Codex
Alimentarius Commission to ensure that labelling of processed foods for infants and
young children be consistent with the WHO policy under the ICBMS.

(j) In Resolution No. 58.32 (May 25, 2005), the WHA urged member states to
continue to protect and promote exclusive breastfeeding for six months.

(k) In Resolution No. 59.21 (May 27, 2006), the WHA reiterated its support for the
Gobal strategy for Infant and Young Child Feeding.

31 David Fidler, supra note 29.

32Article 38. 1. The Court, whose function is to decide in accordance with international law
such disputes as are submitted to it, shall apply: a) international conventions, whether
general or particular, establishing rules expressly recognized by the contesting states; b)
international custom, as evidence of a general practice accepted as law; c) the general
principles of law recognized by civilized nations; d) subject to the provisions of Article 59,
judicial decisions and the teachings of the most highly qualified publicists of the various
nations, as subsidiary means for the determination of rules of law.

33 Supra note 29.

34Louis Henkin, et al., International Law, Cases and Materials, 2nd Ed., supra note 21, at 114-
136.

35 Supra note 19.

36
90 Phil. 70 (1951).

37 Supra note 15.

38 G.R. No. 159938, March 31, 2006, 486 SCRA 405.

39Edward Kwakwa, Some Comments on Rulemaking at the World Intellectual Property


Organization, www.law.duke.edu/shell/cite; September 13, 2007, 12:33, citing the 1999
WIPO Resolution Concerning Provisions on the Protection of Well-Known Marks, 2000
WIPO Recommendation Concerning Trademark Licenses, and 2001 WIPO
Recommendation Concerning Provisions on the Protection of Marks and other Industrial
Property Rights in Signs on the Internet.

40 Id.

41 Supra note 29.

42Section 2. Purpose These Revised Rules and Regulations are hereby promulgated to
ensure the provision of safe and adequate nutrition for infants and young children by the
promotion, protection and support of breastfeeding and by ensuring the proper use of
breastmilk substitutes, breastmilk supplements and related products when these are
medically indicated and only when necessary, on the basis of adequate information and
through appropriate marketing and distribution. (Underscoring supplied)

43Section 5(ff). "Young Child" means a person from the age of more than twelve (12) months
up to the age of three (3) years (36 months). (Underscoring supplied)

44 G.R. No. 144218, July 14, 2006, 495 SCRA 42, 55.

45 See pp. 19-21.

46 See p. 21.

47 Executive Order No. 292, made effective on November 23, 1989 by Proclamation No. 495.

48Jacobson v. Massachusetts, 197 US 11 (1905); Beltran v. Secretary of Health G.R. No.


133640, November 25, 2005, 476 SCRA 168, 196; St. Lukess Medical Center Employees
Association- AFW v. National Labor Relations Commission, G.R. No. 162053, March 7,
2007; Tablarin v. Gutierrez, G.R. No. L-78164, July 31, 1987, 152 SCRA 730, 741; Pollution
Adjudication Board v. Court of Appeals, G.R. No. 93891, March 11, 1991, 195 SCRA 112,
123-124; Rivera v. Campbell, 34 Phil. 348, 353-354 (1916); Lorenzo v. Director of Health, 50
Phil. 595, 597 (1927).

49As early as People v. Pomar, 46 Phil. 440, 445 (1924), we already noted that "advancing
civilization is bringing within the scope of police power of the state today things
which were not thought of as being with in such power yesterday. The development of
civilization, the rapidly increasing population, the growth of public opinion, with [an
increasing] desire on the part of the masses and of the government to look after and care for
the interests of the individuals of the state, have brought within the police power of the state
many questions for regulation which formerly were not so considered."

50 Act No. 2711, approved on March 10, 1917.

51 Known then as Public Health Service

52 Section 1, Chapter I, Title IX, Executive Order No. 292.

53 Id. at Section 3.

54 SECTION 6. The General Public and Mothers

(a) No advertising, promotion or other marketing materials, whether written, audio or


visual, for products within the scope of this Code shall be printed, published,
distributed, exhibited and broadcast unless such materials are duly authorized and
approved by an inter-agency committee created herein pursuant to the applicable
standards provided for in this Code.

(b) Manufacturers and distributors shall not be permitted to give, directly or indirectly,
samples and supplies of products within the scope of this Code or gifts of any sort to
any member of the general public, including members of their families, to hospitals
and other health institutions, as well as to personnel within the health care system,
save as otherwise provided in this Code.

(c) There shall be no point-of-sale advertising, giving of samples or any other


promotion devices to induce sales directly to the consumers at the retail level, such
as special displays, discount coupons, premiums, special sales, bonus and tie-in
sales for the products within the scope of this Code. This provision shall not restrict
the establishment of pricing policies and practices intended to provide products at
lower prices on a long-term basis.

(d) Manufactures and distributors shall not distribute to pregnant women or mothers
of infants any gifts or articles or utensils which may promote the use of breastmilk
substitutes or bottlefeeding, nor shall any other groups, institutions or individuals
distribute such gifts, utensils or products to the general public and mothers.

(e) Marketing personnel shall be prohibited from advertising or promoting in any


other manner the products covered by this Code, either directly or indirectly, to
pregnant women or with mother of infants, except as otherwise provided by this
Code.
(f) Nothing herein contained shall prevent donations from manufacturers and
distributors or products within the scope of this Code upon request by or with the
approval of the Ministry of Health.

SECTION 7. Health Care System

(a) The Ministry of Health shall take appropriate measures to encourage and
promote breastfeeding. It shall provide objective and consistent information, training
and advice to health workers on infant nutrition, and on their obligations under this
Code.

(b) No facility of the health care system shall be used for the purpose of promoting
infant formula or other products within the scope of this Code. This Code does not,
however, preclude the dissemination of information to health professionals as
provided in Section 8(b).

(c) Facilities of the health care system shall not be used for the display of products
within the scope of this Code, or for placards or posters concerning such products.

(d) The use by the health care system of "professional service" representatives,
"mothercraft nurses" or similar personnel, provided or paid for by manufacturers or
distributors, shall not be permitted.

(e) In health education classes for mothers and the general public, health workers
and community workers shall emphasize the hazards and risks of the improper use
of breastmilk substitutes particularly infant formula. Feeding with infant formula shall
be demonstrated only to mothers who may not be able to breastfeed for medical or
other legitimate reasons.

SECTION 8. Health Workers

(a) Health workers shall encourage and promote breastfeeding and shall make
themselves familiar with objectives and consistent information on maternal and infant
nutrition, and with their responsibilities under this Code.

(b) Information provided by manufacturers and distributors to health professionals


regarding products within the scope of this Code shall be restricted to scientific and
factual matters and such information shall not imply or create a belief that
bottlefeeding is equivalent or superior to breastfeeding. It shall also include the
information specified in Section 5(b).

(c) No financial or material inducements to promote products within the scope of this
Code shall be offered by manufacturers or distributors to health workers or members
of their families, nor shall these be accepted by the health workers or members of
their families, except as otherwise provided in Section 8(e).

(d) Samples of infant formula or other products within the scope of this Code, or of
equipment or utensils for their preparation or use, shall not be provided to health
workers except when necessary for the purpose of professional evaluation or
research in accordance with the rules and regulations promulgated by the Ministry of
Health. No health workers shall give samples of infant formula to pregnant women
and mothers of infants or members of their families.

(e) Manufacturers and distributors of products within the scope of this Code may
assist in the research, scholarships and continuing education, of health
professionals, in accordance with the rules and regulations promulgated by the
Ministry of Health.

SECTION 9. Persons employed by Manufacturers and Distributors Personnel employed in


marketing products within the scope of this Code shall not, as part of their job
responsibilities, perform educational functions in relation to pregnant women or mothers of
infants.

55 See p. 20.

56 See p. 21.

57SECTION 16. All health and nutrition claims for products within the scope of the Code are
absolutely prohibited. For this purpose, any phrase or words that connotes to increase
emotional, intellectual abilities of the infant and young child and other like phrases shall not
be allowed.

58 See p. 30.

59 SECTION 10. Containers/Label

xxxx

(d) The term "humanized", "maternalized" or similar terms shall not be used.

60SECTION 2. Aim of the Code The aim of the Code is to contribute to the provision of
safe and adequate nutrition for infants by the protection and promotion of breastfeeding and
by ensuring the proper use of breastmilk substitutes and breastmilk supplements when these
are necessary, on the basis of adequate information and through appropriate marketing and
distribution.

61SECTION 26. Content Each container/label shall contain such message, in both Filipino
and English languages, and which message cannot be readily separated therefrom, relative
the following points:

xxxx

(f) The health hazards of unnecessary or improper use of infant formula and other
related products including information that powdered infant formula may contain
pathogenic microorganisms and must be prepared and used appropriately.

62 TSN of the hearing of June 19, 2007, pp. 114-120.

63 TSN of June 19, 2007 hearing, pp. 193-194, 198, 231, 237-240, 295-300.

64 G.R. No. 152214, September 19, 2006, 502 SCRA 295.


65 Id. at 314.

66 SECTION 7. Health Care System

xxxx

(b) No facility of the health care system shall be used for the purpose of promoting
infant formula or other products within the scope of this Code. This Code does not,
however, preclude the dissemination of information to health professionals as
provided in Section 8(b).

67 SECTION 8. Health Workers. -

xxxx

(b) Information provided by manufacturers and distributors to health professionals


regarding products within the scope of this Code shall be restricted to scientific and
factual matters and such information shall not imply or create a belief that
bottlefeeding is equivalent or superior to breastfeeding. It shall also include the
information specified in Section 5(b).

68 SECTION 8. Health Workers -

xxxx

(e) Manufacturers and distributors of products within the scope of this Code may
assist in the research, scholarships and continuing education, of health
professionals, in accordance with the rules and regulations promulgated by the
Ministry of Health.

SECTION 4. Declaration of Principles The following are the underlying principles from
69

which the revised rules and regulations are premised upon:

xxxx

(i) Milk companies, and their representatives, should not form part of any
policymaking body or entity in relation to the advancement of breastfeeding.

70SECTION 22. No manufacturer, distributor, or representatives of products covered by the


Code shall be allowed to conduct or be involved in any activity on breastfeeding promotion,
education and production of Information, Education and Communication (IEC) materials on
breastfeeding, holding of or participating as speakers in classes or seminars for women and
children activities and to avoid the use of these venues to market their brands or company
names.

71SECTION 9. Research, Ethics Committee, Purpose - The DOH shall ensure that research
conducted for public policy purposes, relating to infant and young child feeding should, at all
times, be free form any commercial influence/bias; accordingly, the health worker or
researcher involved in such must disclose any actual or potential conflict of interest with the
company/person funding the research. In any event, such research and its findings shall be
subjected to independent peer review. x x x.
72SECTION 10. Public Disclosure For transparency purposes, a disclosure and/or
disclaimer of the sponsoring company should be done by the company itself, health worker,
researcher involved through verbal declaration during the public presentation of the research
and in print upon publication.

73SECTION 32. Primary Responsibility of Health Workers It is the primary responsibility of


the health workers to promote, protect and support breastfeeding and appropriate infant and
young child feeding. Part of this responsibility is to continuously update their knowledge and
skills on breastfeeding. No assistance, support, logistics or training from milk companies
shall be permitted.

74 Supra note 68.

75SECTION 51. Donations Within the Scope of This Code - Donations of products, materials,
defined and covered under the Milk Code and these implementing rules and regulations,
shall be strictly prohibited.

76 159-A Phil. 142 (1975).

77 G.R. No. 159149, June 26, 2006, 492 SCRA 638.

78Smart Communications, Inc. v. National Telecommunications Commission, 456 Phil. 145,


155-156 (2003).

79Yazaki Torres Manufacturing, Inc. v. Court of Appeals, G.R. No. 130584, June 27, 2006,
493 SCRA 86, 97.

80 Supra note 78, at 156.

81 Petitioner's Memorandum.

SECTION 4. Declaration of Principles The following are the underlying principles from
82

which the revised rules and regulations are premised upon:

xxxx

(f) Advertising, promotions, or sponsorships of infant formula, breastmilk substitutes


and other related products are prohibited.

83 SECTION 4. Declaration of Principles x x x

(i) Milk companies, and their representatives, should not form part of any
policymaking body or entity in relation to the advancement of breastfeeding.

84SECTION 5. x x x x (w) "Milk Company" shall refer to the owner, manufacturer, distributor,
of infant formula, follow-up milk, milk formula, milk supplement, breastmilk substitute or
replacement, or by any other description of such nature, including their representatives who
promote or otherwise advance their commercial interests in marketing those products; x x x.

SECTION 11. Prohibition No advertising, promotions, sponsorships, or marketing


85

materials and activities for breastmilk substitutes intended for infants and young children up
to twenty-four (24) months, shall be allowed, because they tend to convey or give subliminal
messages or impressions that undermine breastmilk and breastfeeding or otherwise
exaggerate breastmilk substitutes and/or replacements, as well as related products covered
within the scope of this Code.

86 Supra note 70.

87 Supra note 73.

88SECTION 46. Administrative Sanctions. The following administrative sanctions shall be


imposed upon any person, juridical or natural, found to have violated the provisions of the
Code and its implementing Rules and Regulations:

(a) 1st violation Warning;

(b) 2nd violation Administrative fine of a minimum of Ten Thousand (P10,000.00) to


Fifty Thousand (P50,000.00) Pesos, depending on the gravity and extent of the
violation, including the recall of the offending product;

(c) 3rd violation Administrative Fine of a minimum of Sixty Thousand (P60,000.00)


to One Hundred Fifty Thousand (P150,000.00) Pesos, depending on the gravity and
extent of the violation, and in addition thereto, the recall of the offending product, and
suspension of the Certificate of Product Registration (CPR);

(d) 4th violation Administrative Fine of a minimum of Two Hundred Thousand


(P200,000.00) to Five Hundred (P500,000.00) Thousand Pesos, depending on the
gravity and extent of the violation; and in addition thereto, the recall of the product,
revocation of the CPR, suspension of the License to Operate (LTO) for one year;

(e) 5th and succeeding repeated violations Administrative Fine of One Million
(P1,000,000.00) Pesos, the recall of the offending product, cancellation of the CPR,
revocation of the License to Operate (LTO) of the company concerned, including the
blacklisting of the company to be furnished the Department of Budget and
Management (DBM) and the Department of Trade and Industry (DTI);

(f) An additional penalty of Two Thou-sand Five Hundred (P2,500.00) Pesos per day
shall be made for every day the violation continues after having received the order
from the IAC or other such appropriate body, notifying and penalizing the company
for the infraction.

For purposes of determining whether or not there is "repeated" violation, each


product violation belonging or owned by a company, including those of their
subsidiaries, are deemed to be violations of the concerned milk company and shall
not be based on the specific violating product alone.

89SECTION 52. Other Donations By Milk Companies Not Covered by this Code - Donations
of products, equipments, and the like, not otherwise falling within the scope of this Code or
these Rules, given by milk companies and their agents, representatives, whether in kind or in
cash, may only be coursed through the Inter Agency Committee (IAC), which shall determine
whether such donation be accepted or otherwise.
Eastern Assurance & Surety Corporation v. Land Transportation Franchising and
90

Regulatory Board, 459 Phil. 395, 399 (2003).

91 G.R. No. 156041, February 21, 2007.

SECOND DIVISION

[G.R. No. 139325. April 12, 2005]

PRISCILLA C. MIJARES, LORETTA ANN P. ROSALES, HILDA B.


NARCISO, SR. MARIANI DIMARANAN, SFIC, and JOEL C.
LAMANGAN in their behalf and on behalf of the Class Plaintiffs
in Class Action No. MDL 840, United States District Court of
Hawaii, petitioners, vs. HON. SANTIAGO JAVIER RANADA, in his
capacity as Presiding Judge of Branch 137, Regional Trial Court,
Makati City, and the ESTATE OF FERDINAND E. MARCOS,
through its court appointed legal representatives in Class Action
MDL 840, United States District Court of Hawaii, namely: Imelda
R. Marcos and Ferdinand Marcos, Jr., respondents.

DECISION
TINGA, J.:

Our martial law experience bore strange unwanted fruits, and we have yet to finish
weeding out its bitter crop. While the restoration of freedom and the fundamental
structures and processes of democracy have been much lauded, according to a
significant number, the changes, however, have not sufficiently healed the colossal
damage wrought under the oppressive conditions of the martial law period. The cries of
justice for the tortured, the murdered, and the desaparecidos arouse outrage and
sympathy in the hearts of the fair-minded, yet the dispensation of the appropriate relief
due them cannot be extended through the same caprice or whim that characterized the
ill-wind of martial rule. The damage done was not merely personal but institutional, and
the proper rebuke to the iniquitous past has to involve the award of reparations due
within the confines of the restored rule of law.
The petitioners in this case are prominent victims of human rights violations[1] who,
deprived of the opportunity to directly confront the man who once held absolute rule
over this country, have chosen to do battle instead with the earthly representative, his
estate. The clash has been for now interrupted by a trial court ruling, seemingly
comported to legal logic, that required the petitioners to pay a whopping filing fee of
over Four Hundred Seventy-Two Million Pesos (P472,000,000.00) in order that they be
able to enforce a judgment awarded them by a foreign court. There is an
understandable temptation to cast the struggle within the simplistic confines of a
morality tale, and to employ short-cuts to arrive at what might seem the desirable
solution. But easy, reflexive resort to the equity principle all too often leads to a result
that may be morally correct, but legally wrong.
Nonetheless, the application of the legal principles involved in this case will comfort
those who maintain that our substantive and procedural laws, for all their perceived
ambiguity and susceptibility to myriad interpretations, are inherently fair and just. The
relief sought by the petitioners is expressly mandated by our laws and conforms to
established legal principles. The granting of this petition for certiorari is warranted in
order to correct the legally infirm and unabashedly unjust ruling of the respondent judge.
The essential facts bear little elaboration. On 9 May 1991, a complaint was filed with
the United States District Court (US District Court), District of Hawaii, against the Estate
of former Philippine President Ferdinand E. Marcos (Marcos Estate). The action was
brought forth by ten Filipino citizens[2] who each alleged having suffered human rights
abuses such as arbitrary detention, torture and rape in the hands of police or military
forces during the Marcos regime.[3] The Alien Tort Act was invoked as basis for the US
District Courts jurisdiction over the complaint, as it involved a suit by aliens for tortious
violations of international law.[4] These plaintiffs brought the action on their own behalf
and on behalf of a class of similarly situated individuals, particularly consisting of all
current civilian citizens of the Philippines, their heirs and beneficiaries, who between
1972 and 1987 were tortured, summarily executed or had disappeared while in the
custody of military or paramilitary groups. Plaintiffs alleged that the class consisted of
approximately ten thousand (10,000) members; hence, joinder of all these persons was
impracticable.
The institution of a class action suit was warranted under Rule 23(a) and (b)(1)(B) of
the US Federal Rules of Civil Procedure, the provisions of which were invoked by the
plaintiffs. Subsequently, the US District Court certified the case as a class action and
created three (3) sub-classes of torture, summary execution and disappearance
victims.[5] Trial ensued, and subsequently a jury rendered a verdict and an award of
compensatory and exemplary damages in favor of the plaintiff class. Then, on 3
February 1995, the US District Court, presided by Judge Manuel L. Real, rendered a
Final Judgment (Final Judgment) awarding the plaintiff class a total of One Billion Nine
Hundred Sixty Four Million Five Thousand Eight Hundred Fifty Nine Dollars and Ninety
Cents ($1,964,005,859.90). The Final Judgment was eventually affirmed by the US
Court of Appeals for the Ninth Circuit, in a decision rendered on 17 December 1996. [6]
On 20 May 1997, the present petitioners filed Complaint with the Regional Trial
Court, City of Makati (Makati RTC) for the enforcement of the Final Judgment. They
alleged that they are members of the plaintiff class in whose favor the US District Court
awarded damages.[7] They argued that since the Marcos Estate failed to file a petition for
certiorari with the US Supreme Court after the Ninth Circuit Court of Appeals had
affirmed the Final Judgment, the decision of the US District Court had become final and
executory, and hence should be recognized and enforced in the Philippines, pursuant to
Section 50, Rule 39 of the Rules of Court then in force.[8]
On 5 February 1998, the Marcos Estate filed a motion to dismiss, raising, among
others, the non-payment of the correct filing fees. It alleged that petitioners had only
paid Four Hundred Ten Pesos (P410.00) as docket and filing fees, notwithstanding the
fact that they sought to enforce a monetary amount of damages in the amount of over
Two and a Quarter Billion US Dollars (US$2.25 Billion). The Marcos Estate cited
Supreme Court Circular No. 7, pertaining to the proper computation and payment of
docket fees. In response, the petitioners claimed that an action for the enforcement of a
foreign judgment is not capable of pecuniary estimation; hence, a filing fee of only Four
Hundred Ten Pesos (P410.00) was proper, pursuant to Section 7(c) of Rule 141.[9]
On 9 September 1998, respondent Judge Santiago Javier Ranada [10] of the Makati
RTC issued the subject Order dismissing the complaint without prejudice. Respondent
judge opined that contrary to the petitioners submission, the subject matter of the
complaint was indeed capable of pecuniary estimation, as it involved a judgment
rendered by a foreign court ordering the payment of definite sums of money, allowing
for easy determination of the value of the foreign judgment. On that score, Section 7(a)
of Rule 141 of the Rules of Civil Procedure would find application, and the RTC
estimated the proper amount of filing fees was approximately Four Hundred Seventy
Two Million Pesos, which obviously had not been paid.
Not surprisingly, petitioners filed a Motion for Reconsideration, which Judge Ranada
denied in an Order dated 28 July 1999. From this denial, petitioners filed a Petition for
Certiorariunder Rule 65 assailing the twin orders of respondent judge. [11] They prayed for
the annulment of the questioned orders, and an order directing the reinstatement of Civil
Case No. 97-1052 and the conduct of appropriate proceedings thereon.
Petitioners submit that their action is incapable of pecuniary estimation as the
subject matter of the suit is the enforcement of a foreign judgment, and not an action for
the collection of a sum of money or recovery of damages. They also point out that to
require the class plaintiffs to pay Four Hundred Seventy Two Million Pesos
(P472,000,000.00) in filing fees would negate and render inutile the liberal construction
ordained by the Rules of Court, as required by Section 6, Rule 1 of the Rules of Civil
Procedure, particularly the inexpensive disposition of every action.
Petitioners invoke Section 11, Article III of the Bill of Rights of the Constitution,
which provides that Free access to the courts and quasi-judicial bodies and adequate
legal assistance shall not be denied to any person by reason of poverty, a mandate
which is essentially defeated by the required exorbitant filing fee. The adjudicated
amount of the filing fee, as arrived at by the RTC, was characterized as indisputably
unfair, inequitable, and unjust.
The Commission on Human Rights (CHR) was permitted to intervene in this
case.[12] It urged that the petition be granted and a judgment rendered, ordering the
enforcement and execution of the District Court judgment in accordance with Section
48, Rule 39 of the 1997 Rules of Civil Procedure. For the CHR, the Makati RTC erred in
interpreting the action for the execution of a foreign judgment as a new case, in violation
of the principle that once a case has been decided between the same parties in one
country on the same issue with finality, it can no longer be relitigated again in another
country.[13] The CHR likewise invokes the principle of comity, and of vested rights.
The Courts disposition on the issue of filing fees will prove a useful jurisprudential
guidepost for courts confronted with actions enforcing foreign judgments, particularly
those lodged against an estate. There is no basis for the issuance a limited pro hac
vice ruling based on the special circumstances of the petitioners as victims of martial
law, or on the emotionally-charged allegation of human rights abuses.
An examination of Rule 141 of the Rules of Court readily evinces that the
respondent judge ignored the clear letter of the law when he concluded that the filing
fee be computed based on the total sum claimed or the stated value of the property in
litigation.
In dismissing the complaint, the respondent judge relied on Section 7(a), Rule 141
as basis for the computation of the filing fee of over P472 Million. The provision states:

SEC. 7. Clerk of Regional Trial Court.-

(a) For filing an action or a permissive counterclaim or money claim against an


estate not based on judgment, or for filing with leave of court a third-party, fourth-
party, etc., complaint, or a complaint in intervention, and for all clerical services in the
same time, if the total sum claimed, exclusive of interest, or the started value of the
property in litigation, is:

1. Less than P 100,00.00 P 500.00


2. P 100,000.00 or more - P 800.00
but less than P 150,000.00
3. P 150,000.00 or more but - P 1,000.00
less than P 200,000.00
4. P 200,000.00 or more but
less than P 250,000.00 - P 1,500.00
5. P 250,000.00 or more but
less than P 300,00.00 - P 1,750.00
6. P 300,000.00 or more but
not more than P 400,000.00 - P 2,000.00
7. P 350,000.00 or more but not
more than P400,000.00 - P 2,250.00
8. For each P 1,000.00 in excess of
P 400,000.00 - P 10.00

...

(Emphasis supplied)
Obviously, the above-quoted provision covers, on one hand, ordinary actions,
permissive counterclaims, third-party, etc. complaints and complaints-in-interventions,
and on the other, money claims against estates which are not based on judgment.
Thus, the relevant question for purposes of the present petition is whether the action
filed with the lower court is a money claim against an estate not based on judgment.
Petitioners complaint may have been lodged against an estate, but it is clearly
based on a judgment, the Final Judgment of the US District Court. The provision does
not make any distinction between a local judgment and a foreign judgment, and where
the law does not distinguish, we shall not distinguish.
A reading of Section 7 in its entirety reveals several instances wherein the filing fee
is computed on the basis of the amount of the relief sought, or on the value of the
property in litigation. The filing fee for requests for extrajudicial foreclosure of mortgage
is based on the amount of indebtedness or the mortgagees claim.[14] In special
proceedings involving properties such as for the allowance of wills, the filing fee is again
based on the value of the property.[15] The aforecited rules evidently have no application
to petitioners complaint.
Petitioners rely on Section 7(b), particularly the proviso on actions where the value
of the subject matter cannot be estimated. The provision reads in full:

SEC. 7. Clerk of Regional Trial Court.-

(b) For filing

1. Actions where the value


of the subject matter
cannot be estimated --- P 600.00

2. Special civil actions except


judicial foreclosure which
shall be governed by
paragraph (a) above --- P 600.00

3. All other actions not


involving property --- P 600.00

In a real action, the assessed value of the property, or if there is none, the estimated value,
thereof shall be alleged by the claimant and shall be the basis in computing the fees.

It is worth noting that the provision also provides that in real actions, the assessed
value or estimated value of the property shall be alleged by the claimant and shall be
the basis in computing the fees. Yet again, this provision does not apply in the case at
bar. A real action is one where the plaintiff seeks the recovery of real property or an
action affecting title to or recovery of possession of real property. [16] Neither the
complaint nor the award of damages adjudicated by the US District Court involves any
real property of the Marcos Estate.
Thus, respondent judge was in clear and serious error when he concluded that the
filing fees should be computed on the basis of the schematic table of Section 7(a), as
the action involved pertains to a claim against an estate based on judgment. What
provision, if any, then should apply in determining the filing fees for an action to enforce
a foreign judgment?
To resolve this question, a proper understanding is required on the nature and
effects of a foreign judgment in this jurisdiction.
The rules of comity, utility and convenience of nations have established a usage
among civilized states by which final judgments of foreign courts of competent
jurisdiction are reciprocally respected and rendered efficacious under certain conditions
that may vary in different countries.[17] This principle was prominently affirmed in the
leading American case of Hilton v. Guyot[18] and expressly recognized in our
jurisprudence beginning with Ingenholl v. Walter E. Olsen & Co.[19] The conditions
required by the Philippines for recognition and enforcement of a foreign judgment were
originally contained in Section 311 of the Code of Civil Procedure, which was taken from
the California Code of Civil Procedure which, in turn, was derived from the California Act
of March 11, 1872.[20] Remarkably, the procedural rule now outlined in Section 48, Rule
39 of the Rules of Civil Procedure has remained unchanged down to the last word in
nearly a century. Section 48 states:

SEC. 48. Effect of foreign judgments. The effect of a judgment of a tribunal of a foreign country,
having jurisdiction to pronounce the judgment is as follows:

(a) In case of a judgment upon a specific thing, the judgment is conclusive upon the title to the
thing;

(b) In case of a judgment against a person, the judgment is presumptive evidence of a right as
between the parties and their successors in interest by a subsequent title;

In either case, the judgment or final order may be repelled by evidence of a want of jurisdiction,
want of notice to the party, collusion, fraud, or clear mistake of law or fact.

There is an evident distinction between a foreign judgment in an action in rem and


one in personam. For an action in rem, the foreign judgment is deemed conclusive upon
the title to the thing, while in an action in personam, the foreign judgment is
presumptive, and not conclusive, of a right as between the parties and their successors
in interest by a subsequent title.[21]However, in both cases, the foreign judgment is
susceptible to impeachment in our local courts on the grounds of want of jurisdiction or
notice to the party,[22] collusion, fraud,[23] or clear mistake of law or fact.[24] Thus, the party
aggrieved by the foreign judgment is entitled to defend against the enforcement of such
decision in the local forum. It is essential that there should be an opportunity to
challenge the foreign judgment, in order for the court in this jurisdiction to properly
determine its efficacy.[25]
It is clear then that it is usually necessary for an action to be filed in order to enforce
a foreign judgment[26], even if such judgment has conclusive effect as in the case of in
rem actions, if only for the purpose of allowing the losing party an opportunity to
challenge the foreign judgment, and in order for the court to properly determine its
efficacy.[27] Consequently, the party attacking a foreign judgment has the burden of
overcoming the presumption of its validity.[28]
The rules are silent as to what initiatory procedure must be undertaken in order to
enforce a foreign judgment in the Philippines. But there is no question that the filing of a
civil complaint is an appropriate measure for such purpose. A civil action is one by
which a party sues another for the enforcement or protection of a right, [29] and clearly an
action to enforce a foreign judgment is in essence a vindication of a right prescinding
either from a conclusive judgment upon title or the presumptive evidence of a
right.[30] Absent perhaps a statutory grant of jurisdiction to a quasi-judicial body, the claim
for enforcement of judgment must be brought before the regular courts.[31]
There are distinctions, nuanced but discernible, between the cause of action arising
from the enforcement of a foreign judgment, and that arising from the facts or
allegations that occasioned the foreign judgment. They may pertain to the same set of
facts, but there is an essential difference in the right-duty correlatives that are sought to
be vindicated. For example, in a complaint for damages against a tortfeasor, the cause
of action emanates from the violation of the right of the complainant through the act or
omission of the respondent. On the other hand, in a complaint for the enforcement of a
foreign judgment awarding damages from the same tortfeasor, for the violation of the
same right through the same manner of action, the cause of action derives not from the
tortious act but from the foreign judgment itself.
More importantly, the matters for proof are different. Using the above example, the
complainant will have to establish before the court the tortious act or omission
committed by the tortfeasor, who in turn is allowed to rebut these factual allegations or
prove extenuating circumstances. Extensive litigation is thus conducted on the facts,
and from there the right to and amount of damages are assessed. On the other hand, in
an action to enforce a foreign judgment, the matter left for proof is the foreign judgment
itself, and not the facts from which it prescinds.
As stated in Section 48, Rule 39, the actionable issues are generally restricted to a
review of jurisdiction of the foreign court, the service of personal notice, collusion, fraud,
or mistake of fact or law. The limitations on review is in consonance with a strong and
pervasive policy in all legal systems to limit repetitive litigation on claims and
issues.[32] Otherwise known as the policy of preclusion, it seeks to protect party
expectations resulting from previous litigation, to safeguard against the harassment of
defendants, to insure that the task of courts not be increased by never-ending litigation
of the same disputes, and in a larger sense to promote what Lord Coke in the Ferrers
Case of 1599 stated to be the goal of all law: rest and quietness. [33] If every judgment of
a foreign court were reviewable on the merits, the plaintiff would be forced back on
his/her original cause of action, rendering immaterial the previously concluded
litigation.[34]
Petitioners appreciate this distinction, and rely upon it to support the proposition that
the subject matter of the complaintthe enforcement of a foreign judgmentis incapable of
pecuniary estimation. Admittedly the proposition, as it applies in this case, is counter-
intuitive, and thus deserves strict scrutiny. For in all practical intents and purposes, the
matter at hand is capable of pecuniary estimation, down to the last cent. In the
assailed Order, the respondent judge pounced upon this point without equivocation:

The Rules use the term where the value of the subject matter cannot be estimated. The subject
matter of the present case is the judgment rendered by the foreign court ordering defendant to
pay plaintiffs definite sums of money, as and for compensatory damages. The Court finds that
the value of the foreign judgment can be estimated; indeed, it can even be easily determined. The
Court is not minded to distinguish between the enforcement of a judgment and the amount of
said judgment, and separate the two, for purposes of determining the correct filing fees.
Similarly, a plaintiff suing on promissory note for P1 million cannot be allowed to pay only P400
filing fees (sic), on the reasoning that the subject matter of his suit is not the P1 million, but the
enforcement of the promissory note, and that the value of such enforcement cannot be
estimated.[35]

The jurisprudential standard in gauging whether the subject matter of an action is


capable of pecuniary estimation is well-entrenched. The Marcos Estate cites Singsong
v. Isabela Sawmill and Raymundo v. Court of Appeals, which ruled:

[I]n determining whether an action is one the subject matter of which is not capable of pecuniary
estimation this Court has adopted the criterion of first ascertaining the nature of the principal
action or remedy sought. If it is primarily for the recovery of a sum of money, the claim is
considered capable of pecuniary estimation, and whether jurisdiction is in the municipal courts or
in the courts of first instance would depend on the amount of the claim. However, where the
basic issue is something other than the right to recover a sum of money, where the money claim
is purely incidental to, or a consequence of, the principal relief sought, this Court has considered
such actions as cases where the subject of the litigation may not be estimated in terms of money,
and are cognizable exclusively by courts of first instance (now Regional Trial Courts).

On the other hand, petitioners cite the ponencia of Justice JBL Reyes in Lapitan v.
Scandia,[36] from which the rule in Singsong and Raymundo actually derives, but which
incorporates this additional nuance omitted in the latter cases:

xxx However, where the basic issue is something other than the right to recover a sum of money,
where the money claim is purely incidental to, or a consequence of, the principal relief
sought, like in suits to have the defendant perform his part of the contract (specific
performance) and in actions for support, or for annulment of judgment or to foreclose a
mortgage, this Court has considered such actions as cases where the subject of the litigation may
not be estimated in terms of money, and are cognizable exclusively by courts of first instance.[37]

Petitioners go on to add that among the actions the Court has recognized as being
incapable of pecuniary estimation include legality of conveyances and money
deposits,[38] validity of a mortgage,[39] the right to support,[40] validity of
documents, rescission of contracts, specific performance, and validity or annulment
[41] [42] [43]

of judgments.[44] It is urged that an action for enforcement of a foreign judgment belongs


to the same class.
This is an intriguing argument, but ultimately it is self-evident that while the subject
matter of the action is undoubtedly the enforcement of a foreign judgment, the effect of
a providential award would be the adjudication of a sum of money. Perhaps in theory,
such an action is primarily for the enforcement of the foreign judgment, but there is a
certain obtuseness to that sort of argument since there is no denying that the
enforcement of the foreign judgment will necessarily result in the award of a definite
sum of money.
But before we insist upon this conclusion past beyond the point of reckoning, we
must examine its possible ramifications. Petitioners raise the point that a declaration
that an action for enforcement of foreign judgment may be capable of pecuniary
estimation might lead to an instance wherein a first level court such as the Municipal
Trial Court would have jurisdiction to enforce a foreign judgment. But under the statute
defining the jurisdiction of first level courts, B.P. 129, such courts are not vested with
jurisdiction over actions for the enforcement of foreign judgments.

Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts in civil cases. Metropolitan Trial Courts, Municipal Trial Courts, and
Municipal Circuit Trial Courts shall exercise:

(1) Exclusive original jurisdiction over civil actions and probate proceedings, testate
and intestate, including the grant of provisional remedies in proper cases, where the
value of the personal property, estate, or amount of the demand does not exceed One
hundred thousand pesos (P100,000.00) or, in Metro Manila where such personal
property, estate, or amount of the demand does not exceed Two hundred thousand
pesos (P200,000.00) exclusive of interest damages of whatever kind, attorney's fees,
litigation expenses, and costs, the amount of which must be specifically alleged:
Provided, That where there are several claims or causes of action between the same
or different parties, embodied in the same complaint, the amount of the demand shall
be the totality of the claims in all the causes of action, irrespective of whether the
causes of action arose out of the same or different transactions;
(2) Exclusive original jurisdiction over cases of forcible entry and unlawful
detainer: Provided, That when, in such cases, the defendant raises the question of
ownership in his pleadings and the question of possession cannot be resolved without
deciding the issue of ownership, the issue of ownership shall be resolved only to
determine the issue of possession.
(3) Exclusive original jurisdiction in all civil actions which involve title to, or possession
of, real property, or any interest therein where the assessed value of the property or
interest therein does not exceed Twenty thousand pesos (P20,000.00) or, in civil
actions in Metro Manila, where such assessed value does not exceed Fifty thousand
pesos (P50,000.00) exclusive of interest, damages of whatever kind, attorney's fees,
litigation expenses and costs: Provided, That value of such property shall be
determined by the assessed value of the adjacent lots.[45]
Section 33 of B.P. 129 refers to instances wherein the cause of action or subject
matter pertains to an assertion of rights and interests over property or a sum of money.
But as earlier pointed out, the subject matter of an action to enforce a foreign judgment
is the foreign judgment itself, and the cause of action arising from the adjudication of
such judgment.
An examination of Section 19(6), B.P. 129 reveals that the instant complaint for
enforcement of a foreign judgment, even if capable of pecuniary estimation, would fall
under the jurisdiction of the Regional Trial Courts, thus negating the fears of the
petitioners. Indeed, an examination of the provision indicates that it can be relied upon
as jurisdictional basis with respect to actions for enforcement of foreign judgments,
provided that no other court or office is vested jurisdiction over such complaint:

Sec. 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive original
jurisdiction:

xxx

(6) In all cases not within the exclusive jurisdiction of any court, tribunal, person or body
exercising jurisdiction or any court, tribunal, person or body exercising judicial or quasi-judicial
functions.

Thus, we are comfortable in asserting the obvious, that the complaint to enforce the
US District Court judgment is one capable of pecuniary estimation. But at the same
time, it is also an action based on judgment against an estate, thus placing it beyond the
ambit of Section 7(a) of Rule 141. What provision then governs the proper computation
of the filing fees over the instant complaint? For this case and other similarly situated
instances, we find that it is covered by Section 7(b)(3), involving as it does, other
actions not involving property.
Notably, the amount paid as docket fees by the petitioners on the premise that it
was an action incapable of pecuniary estimation corresponds to the same amount
required for other actions not involving property. The petitioners thus paid the correct
amount of filing fees, and it was a grave abuse of discretion for respondent judge to
have applied instead a clearly inapplicable rule and dismissed the complaint.
There is another consideration of supreme relevance in this case, one which should
disabuse the notion that the doctrine affirmed in this decision is grounded solely on the
letter of the procedural rule. We earlier adverted to the the internationally recognized
policy of preclusion,[46] as well as the principles of comity, utility and convenience of
nations[47] as the basis for the evolution of the rule calling for the recognition and
enforcement of foreign judgments. The US Supreme Court in Hilton v. Guyot[48] relied
heavily on the concept of comity, as especially derived from the landmark treatise of
Justice Story in his Commentaries on the Conflict of Laws of 1834.[49] Yet the notion of
comity has since been criticized as one of dim contours[50] or suffering from a number of
fallacies.[51] Other conceptual bases for the recognition of foreign judgments have
evolved such as the vested rights theory or the modern doctrine of obligation. [52]
There have been attempts to codify through treaties or multilateral agreements the
standards for the recognition and enforcement of foreign judgments, but these have not
borne fruition. The members of the European Common Market accede to
the Judgments Convention, signed in 1978, which eliminates as to participating
countries all of such obstacles to recognition such as reciprocity and rvision au
fond.[53] The most ambitious of these attempts is the Convention on the Recognition and
Enforcement of Foreign Judgments in Civil and Commercial Matters, prepared in 1966
by the Hague Conference of International Law.[54] While it has not received the
ratifications needed to have it take effect,[55] it is recognized as representing current
scholarly thought on the topic.[56] Neither the Philippines nor the United States are
signatories to the Convention.
Yet even if there is no unanimity as to the applicable theory behind the recognition
and enforcement of foreign judgments or a universal treaty rendering it obligatory force,
there is consensus that the viability of such recognition and enforcement is essential.
Steiner and Vagts note:

. . . The notion of unconnected bodies of national law on private international law, each
following a quite separate path, is not one conducive to the growth of a transnational community
encouraging travel and commerce among its members. There is a contemporary resurgence of
writing stressing the identity or similarity of the values that systems of public and private
international law seek to further a community interest in common, or at least reasonable, rules on
these matters in national legal systems. And such generic principles as reciprocity play an
important role in both fields.[57]

Salonga, whose treatise on private international law is of worldwide renown, points


out:

Whatever be the theory as to the basis for recognizing foreign judgments, there can be little
dispute that the end is to protect the reasonable expectations and demands of the parties. Where
the parties have submitted a matter for adjudication in the court of one state, and proceedings
there are not tainted with irregularity, they may fairly be expected to submit, within the state or
elsewhere, to the enforcement of the judgment issued by the court.[58]

There is also consensus as to the requisites for recognition of a foreign judgment


and the defenses against the enforcement thereof. As earlier discussed, the exceptions
enumerated in Section 48, Rule 39 have remain unchanged since the time they were
adapted in this jurisdiction from long standing American rules. The requisites and
exceptions as delineated under Section 48 are but a restatement of generally accepted
principles of international law. Section 98 of The Restatement, Second, Conflict of
Laws, states that a valid judgment rendered in a foreign nation after a fair trial in a
contested proceeding will be recognized in the United States, and on its face, the term
valid brings into play requirements such notions as valid jurisdiction over the subject
matter and parties.[59] Similarly, the notion that fraud or collusion may preclude the
enforcement of a foreign judgment finds affirmation with foreign jurisprudence and
commentators,[60] as well as the doctrine that the foreign judgment must not constitute a
clear mistake of law or fact.[61] And finally, it has been recognized that public policy as a
defense to the recognition of judgments serves as an umbrella for a variety of concerns
in international practice which may lead to a denial of recognition.[62]
The viability of the public policy defense against the enforcement of a foreign
judgment has been recognized in this jurisdiction.[63] This defense allows for the
application of local standards in reviewing the foreign judgment, especially when such
judgment creates only a presumptive right, as it does in cases wherein the judgment is
against a person.[64] The defense is also recognized within the international sphere, as
many civil law nations adhere to a broad public policy exception which may result in a
denial of recognition when the foreign court, in the light of the choice-of-law rules of the
recognizing court, applied the wrong law to the case.[65] The public policy defense can
safeguard against possible abuses to the easy resort to offshore litigation if it can be
demonstrated that the original claim is noxious to our constitutional values.
There is no obligatory rule derived from treaties or conventions that requires the
Philippines to recognize foreign judgments, or allow a procedure for the enforcement
thereof. However, generally accepted principles of international law, by virtue of the
incorporation clause of the Constitution, form part of the laws of the land even if they do
not derive from treaty obligations.[66] The classical formulation in international law sees
those customary rules accepted as binding result from the combination two elements:
the established, widespread, and consistent practice on the part of States; and a
psychological element known as the opinion juris sive necessitates (opinion as to law or
necessity). Implicit in the latter element is a belief that the practice in question is
rendered obligatory by the existence of a rule of law requiring it. [67]
While the definite conceptual parameters of the recognition and enforcement of
foreign judgments have not been authoritatively established, the Court can assert with
certainty that such an undertaking is among those generally accepted principles of
international law.[68] As earlier demonstrated, there is a widespread practice among
states accepting in principle the need for such recognition and enforcement, albeit
subject to limitations of varying degrees. The fact that there is no binding universal
treaty governing the practice is not indicative of a widespread rejection of the principle,
but only a disagreement as to the imposable specific rules governing the procedure for
recognition and enforcement.
Aside from the widespread practice, it is indubitable that the procedure for
recognition and enforcement is embodied in the rules of law, whether statutory or
jurisprudential, adopted in various foreign jurisdictions. In the Philippines, this is
evidenced primarily by Section 48, Rule 39 of the Rules of Court which has existed in its
current form since the early 1900s. Certainly, the Philippine legal system has long ago
accepted into its jurisprudence and procedural rules the viability of an action for
enforcement of foreign judgment, as well as the requisites for such valid enforcement,
as derived from internationally accepted doctrines. Again, there may be distinctions as
to the rules adopted by each particular state,[69] but they all prescind from the premise
that there is a rule of law obliging states to allow for, however generally, the recognition
and enforcement of a foreign judgment. The bare principle, to our mind, has attained the
status of opinio juris in international practice.
This is a significant proposition, as it acknowledges that the procedure and
requisites outlined in Section 48, Rule 39 derive their efficacy not merely from the
procedural rule, but by virtue of the incorporation clause of the Constitution. Rules of
procedure are promulgated by the Supreme Court, [70] and could very well be abrogated
or revised by the high court itself. Yet the Supreme Court is obliged, as are all State
components, to obey the laws of the land, including generally accepted principles of
international law which form part thereof, such as those ensuring the qualified
recognition and enforcement of foreign judgments.[71]
Thus, relative to the enforcement of foreign judgments in the Philippines, it emerges
that there is a general right recognized within our body of laws, and affirmed by the
Constitution, to seek recognition and enforcement of foreign judgments, as well as a
right to defend against such enforcement on the grounds of want of jurisdiction, want of
notice to the party, collusion, fraud, or clear mistake of law or fact.
The preclusion of an action for enforcement of a foreign judgment in this country
merely due to an exhorbitant assessment of docket fees is alien to generally accepted
practices and principles in international law. Indeed, there are grave concerns in
conditioning the amount of the filing fee on the pecuniary award or the value of the
property subject of the foreign decision. Such pecuniary award will almost certainly be in
foreign denomination, computed in accordance with the applicable laws and standards
of the forum.[72] The vagaries of inflation, as well as the relative low-income capacity of
the Filipino, to date may very well translate into an award virtually unenforceable in this
country, despite its integral validity, if the docket fees for the enforcement thereof were
predicated on the amount of the award sought to be enforced. The theory adopted by
respondent judge and the Marcos Estate may even lead to absurdities, such as if
applied to an award involving real property situated in places such as the United States
or Scandinavia where real property values are inexorably high. We cannot very well
require that the filing fee be computed based on the value of the foreign property as
determined by the standards of the country where it is located.
As crafted, Rule 141 of the Rules of Civil Procedure avoids unreasonableness, as it
recognizes that the subject matter of an action for enforcement of a foreign judgment is
the foreign judgment itself, and not the right-duty correlatives that resulted in the foreign
judgment. In this particular circumstance, given that the complaint is lodged against an
estate and is based on the US District Courts Final Judgment, this foreign judgment
may, for purposes of classification under the governing procedural rule, be deemed as
subsumed under Section 7(b)(3) of Rule 141, i.e., within the class of all other actions
not involving property. Thus, only the blanket filing fee of minimal amount is required.
Finally, petitioners also invoke Section 11, Article III of the Constitution, which states
that [F]ree access to the courts and quasi-judicial bodies and adequate legal assistance
shall not be denied to any person by reason of poverty. Since the provision is among
the guarantees ensured by the Bill of Rights, it certainly gives rise to a demandable
right. However, now is not the occasion to elaborate on the parameters of this
constitutional right. Given our preceding discussion, it is not necessary to utilize this
provision in order to grant the relief sought by the petitioners. It is axiomatic that the
constitutionality of an act will not be resolved by the courts if the controversy can be
settled on other grounds[73] or unless the resolution thereof is indispensable for the
determination of the case.[74]
One more word. It bears noting that Section 48, Rule 39 acknowledges that
the Final Judgment is not conclusive yet, but presumptive evidence of a right of the
petitioners against the Marcos Estate. Moreover, the Marcos Estate is not precluded to
present evidence, if any, of want of jurisdiction, want of notice to the party, collusion,
fraud, or clear mistake of law or fact. This ruling, decisive as it is on the question of filing
fees and no other, does not render verdict on the enforceability of the Final
Judgment before the courts under the jurisdiction of the Philippines, or for that matter
any other issue which may legitimately be presented before the trial court. Such issues
are to be litigated before the trial court, but within the confines of the matters for proof
as laid down in Section 48, Rule 39. On the other hand, the speedy resolution of this
claim by the trial court is encouraged, and contumacious delay of the decision on the
merits will not be brooked by this Court.
WHEREFORE, the petition is GRANTED. The assailed orders are NULLIFIED and
SET ASIDE, and a new order REINSTATING Civil Case No. 97-1052 is hereby issued.
No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

[1]
Priscilla Mijares is a judge of the Regional Trial Court of Pasay, Loretta Ann P. Rosales an incumbent
member of the House of Representatives, and Joel Lamangan a noted film director.
[2]
Namely Celsa Hilao, Josefina Hilao Forcadilla, Arturo P. Revilla, Jr., Rodolfo G. Benosa, Danila M.
Fuente, Renato Pineda, Domiciano Amparo, Chistopher Sorio, Jose Duran, and Adora Faye De
Vera. Rollo, pp. 42-47.
[3]
Except for Celsa Hilao, who instead alleged that her daughter, Liliosa Hilao, had been tortured then
executed by military personnel during martial law. Id. at 42-43.
[4]
Id. at 42.
[5]
Id. at 35.
[6]
The Opinion was authored by Circuit Judge Betty B. Fletcher and concurred in by Circuit Judge Harry
Pragerson. Circuit Judge Pamela Ann Rymer filed an opinion concurring and dissenting in part,
her dissent centering on the methodology used for computing compensatory damages. Rollo, pp.
84-132.
[7]
Under Section 58 of the US Federal Rules of Civil Procedure, the judgment for compensatory damages
in a class suit is awarded to a randomly selected. Petitioner Joel Lamangan was among the
randomly selected claimants of the Torture subclass awarded damages by the US District
Court. See Rollo, p. 71.
[8]
Now Section 48, Rule 39, 1997 Rules of Civil Procedure.
[9]
Since increased to P600.00.
[10]
Now an Associate Justice of the Court of Appeals.
[11]
Petitioners correctly note that they are precluded from filing an appeal on certiorari under Section 1,
Rule 41 of the Rules of Civil Procedure, which bars an appeal taken from an order dismissing an
action without prejudice and dictates the aggrieved party to file an appropriate civil action under
Rule 65 instead. See Rollo, p. 9
[12]
In a Resolution dated 4 December 2000. Rollo, p. 282.
[13]
Id. at 205.
[14]
See Section 7(c), Rule 141.
[15]
See Section 7(d), id.
[16]
Gochan v. Gochan, 423 Phil. 491, 502 (2001).
[17]
Philippine Aluminum Wheels v. Fasgi Enterprises, Inc., G.R. No. 137378, 12 October 2000, 342 SCRA
722, 734; citing Jovito R Salonga, Rex Bookstore, Manila, Philippines, 1995 Edition, p. 543.
[18]
159 U.S. 113 (1895)
[19]
47 Phil. 189 (1925). While the Philippine Supreme Court in this case refused to enforce the judgment of
the Hongkong Court on the ground of mistake of law or fact, it was reversed on appeal to the US
Supreme Court.
[20]
Id. JJ. Malcolm and Avancea, dissenting.
[21]
See also Borthwick v. Hon. Castro-Bartolome, G.R. No. L-57338, 23 July 1987, 152 SCRA 129, 235;
Philippine International Shipping Corp. v. Court of Appeals, G.R. No. 77085, 26 April 1989, 172
SCRA 810, 819.
[22]
Ultimately, matters of remedy and procedure such as those relating to the service of summons or court
process upon the defendant, the authority of counsel to appear and represent a defendant and
the formal requirements in a decision are governed by the lex fori or the internal law of the forum.
Asiavest Merchant Bankers (M) Berhad v. Court of Appeals, 414 Phil. 13, 29 (1991).
[23]
Fraud, to hinder the enforcement within this jurisdiction of a foreign judgment, must be extrinsic, i.e.,
fraud based on facts not controverted or resolved in the case where judgment is rendered, or that
which would go to the jurisdiction of the court or would deprive the party against whom judgment
is rendered a chance to defend the action to which he has a meritorious case or defense. In fine,
intrinsic fraud, that is, fraud which goes to the very existence of the cause of action such as fraud
in obtaining the consent to a contract is deemed already adjudged, and it, therefore, cannot
militate against the recognition or enforcement of the foreign judgment. Philippine Aluminum
Wheels v. Fasgi Enterprises, Inc., supra note 17.
[24]
See, e.g., Nagarmull v. Binalbagan-Isabela Sugar Co., 144 Phil. 72, 77 (1970); Ingenholl v. Walter E.
Olsen and Company, Inc., supra note 20.
[25]
Roeher v. Rodriguez, G.R. No. 142820, 20 June 2003, 404 SCRA 495, 503.
[26]
An action must be brought in the second state upon the judgment recovered in the first. J. Salonga,
Private International Law (3rd ed., 1967), at 500; citing Goodrich, 600, 601; Chesire, 628; II
Beale, 1377. But see E. Scoles and P. Hay, Conflict of Laws (2nd ed., 1982), at 969, which
recognizes that civil law countries provide a procedure to give executory force to the foreign
judgment, as distinguished from the Anglo-American common law (but not statutory) practice of
requiring an action on the judgment.
[27]
See Philsec Investment Corp. v. Court of Appeals, G.R. No. 103493, 19 June 1997, 274 SCRA 102,
110.
[28]
Northwest Orient Airlines v. Court of Appeals, G.R. No. 112573, 9 February 1995, 241 SCRA 192, 199.
[29]
See Section 3(a), Rule 1, Rules of Civil Procedure.
[30]
Every ordinary civil action must be based on a cause of action. Section 1, Rule 2, Rules of Civil
Procedure. A cause of action is the act or omission by which a party violates a right of another.
Section 2, Rule 2, Rules of Civil Procedure.
[31]
See Pacific Asia Overseas Shipping Corp. v. NLRC, G.R. No. 76595. 6 May 1988, 161 SCRA 122,
133.
[32]
Soles & Hay, supra note 27, at 916.
[33]
Ibid.
[34]
Salonga, supra note 27, at 514; citing Cheshire, 803.
[35]
Rollo, p. 30. Emphasis omitted.
[36]
133 Phil. 526 (1968).
[37]
Id. at 528.
[38]
Rollo, at 326, citing Arroz v. Alojado, 19 SCRA 711 (1967).
[39]
Ibid citing Bunayog v. Tunas, 106 Phil. 715 (1959)
[40]
Id. citing Baito v. Sarmiento, 109 Phil. 148 (1960).
[41]
Id. citing De Rivera v. Halili, 9 SCRA 59 (1963).
[42]
Id. citing Bautista v. Lim, 88 SCRA 479 (1979) and De Leon v. Court of Appeals, 287 SCRA 94 (1998).
[43]
Id. citing Amorganda v. Court of Appeals, 166 SCRA 203 (1988); Ortigas & Company v. Herrera, 120
SCRA 89 (1983).
[44]
Id. citing Mercado v. Ubay, 187 SCRA 719 (1990) and Filipino Pipe Workers Union v. Batario, Jr., 163
SCRA 789 (1988).
[45]
As amended by Rep. Act No. 7691.
[46]
Supra note 32.
[47]
Supra note 17.
[48]
Supra note 18.
[49]
H. Steiner & D. Vagts, Transnational Legal Problems: Materials and Text (2nd ed., 1976), at 775.
[50]
Ibid.
[51]
See Salonga, supra note 27, at 66.
[52]
Id. at 502-503.
[53]
Scoles & Hays, supra note 27, at 970.
[54]
Steiner & Vagts, supra note 51, at 808. A decision rendered in one of the Contracting States shall be
entitled to recognition and enforcement in another Contracting State under the terms of this
Convention (1) if the decision was given by a court considered to have jurisdiction within the
meaning of this Convention, and (2) if it is no longer subject to ordinary forms of review in the
State of origin. Convention on the Recognition and Enforcement of Foreign Judgments in Civil
and Commercial Matters, Chapter II, Article 4.
[55]
To date, only Cyprus, the Netherlands, Portugal and Kuwait have either ratified or acceded to the
Convention.
[56]
Steiner & Vagts, supra note 51.
[57]
Steiner & Vagts, supra note 51,at 776.
[58]
Salonga, supra note 51, at 502.
[59]
Steiner & Vagts, supra note 27, at 779. A policy common to all legal systems is to provide for the final
resolution of disputes. The policy is furthered by each nations adoption of a view of jurisdiction in
the international sense which recognizes the foreign courts assertion of jurisdiction as satisfying
its own notions of due process in circumstances in which it itself would have asserted jurisdiction.
Soles & Hay, supra note 27, at 976; citing Hay, International versus Interstate Conflicts Law in the
United States, 35 Rabels Zeitschrift 429,450 n. 101 (1971) and Cherun v. Frishman, 236 F. Supp.
292 (D.D.C. 1964). Salonga, in affirming the rule of want of jurisdiction, cites the commentaries of
Cheshire, Wolff, Goodrich and Nussbaum.
[60]
See, e.g., Salonga, supra note 27 at 513.
[61]
Ibid; citing Henderson v. Henderson, 6 Q.B. (1844) 288; Vanquelin v. Bouard, 15 C.B. (N.S. 1863) 341;
Godard v. Gray, L.R. 6 Q.B. 139 (1870); Vadala v. Lawes 25 Q.B.D. (1890) 319, 316; cf.
Chandler v. Peketz, 297 U.S. 609, 56 S.Ct., 80 L.Ed. 881 (1936); Cheshire, 661-664; Wolff, 268;
Goodrich, 603.
[62]
Soles & Hay, supra note 27, at 978.
[63]
Thus, when the foreign law, judgment or contract is contrary to a sound and established public policy of
the forum, the said foreign law, judgment or order shall not be applied. Bank of
America v. American Realty Corp., 378 Phil. 1279, 1296 (1999); citing Philippine Conflict of Laws,
Eight Edition, 1996, Paras, page 46. Las sentencias de tribunals extranjeros no pueden ponerse
en vigor en Filipinas si son contrarias a las leyes, costumbres y orden pblico. Si dichas
decisiones, por la simple teora de reciprocidad, cortesa judicial y urbanidad internacional son
base suficiente para que nuestros tribunales decidan a tenor de las mismas, entonces nuestros
juzgados estaran en la pobre tessitura de tener que dictar sentencias contrarias a nuestras leyes,
costumbres y orden pblico. Esto es absurdo. Querubin v. Querubin, 87 Phil. 124, 133. (1950).
[64]
See Section 48, Rule 39, Rules of Civil Procedure.
[65]
Soles & Hays, supra note 27, at 979.
[66]
[It] is generally recognized that, subject to [exceptions], a rule of general customary international law is
binding on all States, whether or not they have participated in the practice from which it sprang.
H. Thirlway, The Sources of International Law, International Law (ed. by M.Evans, 1st ed., 2003),
at 124.
[67]
Not only must the acts concerned amount to a settled practice, but they must also be such, or be
carried out in such a way, as to be evidence of a belief that this practice is rendered obligatory by
the existence of a rule of law requiring it. The need for such a belief, i.e., the existence of a
subjective element, is implicit in the very notion of the opinion juris sive necessitatis. North Sea
Continental Shelf, Judgment, ICJ Reports 1969, p. 3, para. 77; cited in H. Thirlway, ibid.
[68]
The problems that arise in the enforcement of foreign judgments are generally to be solved by the
principles of international law. The Philippines by its Constitution, adopts the generally accepted
principles of international law. F. Gupit, Enforcement of Foreign Judgments and Arbitral Awards,
XXIII J. Integ. Bar. Phil. 3, at 69.
[69]
Divergent practices do not necessarily preclude recognition of a customary norm. In reviewing the
question of the existence of customary rules forbidding the use of force or intervention, the
International Court of Justice pertinently held: It is not to be expected that in the practice of States
the application of the rules in question should have been perfect, in the sense that States should
have refrained, with complete consistency, from the use of force or from intervention in each
others internal affairs. The Court does not consider that, for a rule to be established as
customary, the corresponding practice must be in absolutely rigorous conformity with the
rule. In order to deduce the existence of customary rules, the Court deems it sufficient that the
conduct of States, should, in general, be consistent with such rules, and that instances of State
conduct inconsistent with a given rule should generally have been treated as breaches of that
rule, not as indications of recognition of a new rule. (emphasis supplied) Military and Paramilitary
Activities in and against Nicaragua (Nicaragua v. United States of America), Merits, Judgment,
ICJ Reports 1986, p. 14, para. 186; citing in H. Thirlway, supra note 66.
[70]
And other inferior courts, relative to their jurisdictions.
[71]
Sec. 2, Art. II, 1987 Const., which states The Philippines renounces war as an instrument of national
policy, adopts the generally accepted principles of international law as part of the law of the land
and adheres to the policy of peace, equality, justice, freedom, cooperation and amity with all
nations.
[72]
Indeed, the valuation of foreign money judgments remains a matter of debate in international law. In
the United States, Section 144 of the Restatement, Second, Conflicts of Laws (1971) adopts the
rule that the forum would convert the currency into local currency as of the date of the award.
However, this rule has been criticized. In England, the judgment debtor may now effect payment
either in the foreign currency in the amount due or in local currency equivalent to the foreign
currency on the date of payment. French and German law similarly permit the expression of a
judgment in foreign currency. Soles & Hays, supra note 27, at 973.
[73]
Ty v. Trampe, 321 Phil. 81 (1995).
[74]
Tarrosa v. Singson, G.R. No. 111243, 25 May 1994, 232 SCRA 553, 557.