Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-11154 March 21, 1916

E. MERRITT, plaintiff-appellant,
vs.
GOVERNMENT OF THE PHILIPPINE ISLANDS, defendant-appellant.

Crossfield and O'Brien for plaintiff.

Attorney-General Avanceña for defendant..

TRENT, J.:

This is an appeal by both parties from a judgment of the Court of First Instance of the city of Manila in
favor of the plaintiff for the sum of P14,741, together with the costs of the cause.

Counsel for the plaintiff insist that the trial court erred (1) "in limiting the general damages which the
plaintiff suffered to P5,000, instead of P25,000 as claimed in the complaint," and (2) "in limiting the time
when plaintiff was entirely disabled to two months and twenty-one days and fixing the damage
accordingly in the sum of P2,666, instead of P6,000 as claimed by plaintiff in his complaint."

The Attorney-General on behalf of the defendant urges that the trial court erred: (a) in finding that the
collision between the plaintiff's motorcycle and the ambulance of the General Hospital was due to the
negligence of the chauffeur; (b) in holding that the Government of the Philippine Islands is liable for the
damages sustained by the plaintiff as a result of the collision, even if it be true that the collision was due
to the negligence of the chauffeur; and (c) in rendering judgment against the defendant for the sum of
P14,741.

The trial court's findings of fact, which are fully supported by the record, are as follows:

It is a fact not disputed by counsel for the defendant that when the plaintiff, riding on a
motorcycle, was going toward the western part of Calle Padre Faura, passing along the west side
thereof at a speed of ten to twelve miles an hour, upon crossing Taft Avenue and when he was
ten feet from the southwestern intersection of said streets, the General Hospital ambulance, upon
reaching said avenue, instead of turning toward the south, after passing the center thereof, so
that it would be on the left side of said avenue, as is prescribed by the ordinance and the Motor
Vehicle Act, turned suddenly and unexpectedly and long before reaching the center of the street,
into the right side of Taft Avenue, without having sounded any whistle or horn, by which
movement it struck the plaintiff, who was already six feet from the southwestern point or from the
post place there.

By reason of the resulting collision, the plaintiff was so severely injured that, according to Dr.
Saleeby, who examined him on the very same day that he was taken to the General Hospital, he
was suffering from a depression in the left parietal region, a would in the same place and in the
back part of his head, while blood issued from his nose and he was entirely unconscious.

The marks revealed that he had one or more fractures of the skull and that the grey matter and
brain was had suffered material injury. At ten o'clock of the night in question, which was the time
set for performing the operation, his pulse was so weak and so irregular that, in his opinion, there
 was little hope that he would live. His right leg was broken in such a way that the fracture
extended to the outer skin in such manner that it might be regarded as double and the would be
exposed to infection, for which reason it was of the most serious nature.

At another examination six days before the day of the trial, Dr. Saleeby noticed that the plaintiff's
leg showed a contraction of an inch and a half and a curvature that made his leg very weak and
painful at the point of the fracture. Examination of his head revealed a notable readjustment of the
functions of the brain and nerves. The patient apparently was slightly deaf, had a light weakness
in his eyes and in his mental condition. This latter weakness was always noticed when the plaintiff
had to do any difficult mental labor, especially when he attempted to use his money for
mathematical calculations.

According to the various merchants who testified as witnesses, the plaintiff's mental and physical
condition prior to the accident was excellent, and that after having received the injuries that have
been discussed, his physical condition had undergone a noticeable depreciation, for he had lost
the agility, energy, and ability that he had constantly displayed before the accident as one of the
best constructors of wooden buildings and he could not now earn even a half of the income that
he had secured for his work because he had lost 50 per cent of his efficiency. As a contractor, he
could no longer, as he had before done, climb up ladders and scaffoldings to reach the highest
parts of the building.

As a consequence of the loss the plaintiff suffered in the efficiency of his work as a contractor, he
had to dissolved the partnership he had formed with the engineer. Wilson, because he was
incapacitated from making mathematical calculations on account of the condition of his leg and of
his mental faculties, and he had to give up a contract he had for the construction of the Uy Chaco
building."

We may say at the outset that we are in full accord with the trial court to the effect that the collision
between the plaintiff's motorcycle and the ambulance of the General Hospital was due solely to the
negligence of the chauffeur.

The two items which constitute a part of the P14,741 and which are drawn in question by the plaintiff are
(a) P5,000, the award awarded for permanent injuries, and (b) the P2,666, the amount allowed for the
loss of wages during the time the plaintiff was incapacitated from pursuing his occupation. We find
nothing in the record which would justify us in increasing the amount of the first. As to the second, the
record shows, and the trial court so found, that the plaintiff's services as a contractor were worth P1,000
per month. The court, however, limited the time to two months and twenty-one days, which the plaintiff
was actually confined in the hospital. In this we think there was error, because it was clearly established
that the plaintiff was wholly incapacitated for a period of six months. The mere fact that he remained in
the hospital only two months and twenty-one days while the remainder of the six months was spent in his
home, would not prevent recovery for the whole time. We, therefore, find that the amount of damages
sustained by the plaintiff, without any fault on his part, is P18,075.

As the negligence which caused the collision is a tort committed by an agent or employee of the
Government, the inquiry at once arises whether the Government is legally-liable for the damages
resulting therefrom.

Act No. 2457, effective February 3, 1915, reads:

An Act authorizing E. Merritt to bring suit against the Government of the Philippine Islands and
authorizing the Attorney-General of said Islands to appear in said suit.
 Whereas a claim has been filed against the Government of the Philippine Islands by Mr. E.
Merritt, of Manila, for damages resulting from a collision between his motorcycle and the
ambulance of the General Hospital on March twenty-fifth, nineteen hundred and thirteen;

Whereas it is not known who is responsible for the accident nor is it possible to determine the
amount of damages, if any, to which the claimant is entitled; and

Whereas the Director of Public Works and the Attorney-General recommended that an Act be
passed by the Legislature authorizing Mr. E. Merritt to bring suit in the courts against the
Government, in order that said questions may be decided: Now, therefore,

By authority of the United States, be it enacted by the Philippine Legislature, that:

SECTION 1. E. Merritt is hereby authorized to bring suit in the Court of First Instance of the city of
Manila against the Government of the Philippine Islands in order to fix the responsibility for the
collision between his motorcycle and the ambulance of the General Hospital, and to determine
the amount of the damages, if any, to which Mr. E. Merritt is entitled on account of said collision,
and the Attorney-General of the Philippine Islands is hereby authorized and directed to appear at
the trial on the behalf of the Government of said Islands, to defendant said Government at the
same.

SEC. 2. This Act shall take effect on its passage.

Enacted, February 3, 1915.

Did the defendant, in enacting the above quoted Act, simply waive its immunity from suit or did it also
concede its liability to the plaintiff? If only the former, then it cannot be held that the Act created any new
cause of action in favor of the plaintiff or extended the defendant's liability to any case not previously
recognized.

All admit that the Insular Government (the defendant) cannot be sued by an individual without its consent.
It is also admitted that the instant case is one against the Government. As the consent of the Government
to be sued by the plaintiff was entirely voluntary on its part, it is our duty to look carefully into the terms of
the consent, and render judgment accordingly.

The plaintiff was authorized to bring this action against the Government "in order to fix the responsibility
for the collision between his motorcycle and the ambulance of the General Hospital and to determine the
amount of the damages, if any, to which Mr. E. Merritt is entitled on account of said collision, . . . ." These
were the two questions submitted to the court for determination. The Act was passed "in order that said
questions may be decided." We have "decided" that the accident was due solely to the negligence of the
chauffeur, who was at the time an employee of the defendant, and we have also fixed the amount of
damages sustained by the plaintiff as a result of the collision. Does the Act authorize us to hold that the
Government is legally liable for that amount? If not, we must look elsewhere for such authority, if it exists.

The Government of the Philippine Islands having been "modeled after the Federal and State
Governments in the United States," we may look to the decisions of the high courts of that country for aid
in determining the purpose and scope of Act No. 2457.

In the United States the rule that the state is not liable for the torts committed by its officers or agents
whom it employs, except when expressly made so by legislative enactment, is well settled. "The
Government," says Justice Story, "does not undertake to guarantee to any person the fidelity of the
officers or agents whom it employs, since that would involve it in all its operations in endless
embarrassments, difficulties and losses, which would be subversive of the public interest." (Claussen vs.
City of Luverne, 103 Minn., 491, citing U. S. vs. Kirkpatrick, 9 Wheat, 720; 6 L. Ed., 199; and Beers vs.
States, 20 How., 527; 15 L. Ed., 991.)

In the case of Melvin vs. State (121 Cal., 16), the plaintiff sought to recover damages from the state for
personal injuries received on account of the negligence of the state officers at the state fair, a state
institution created by the legislature for the purpose of improving agricultural and kindred industries; to
disseminate information calculated to educate and benefit the industrial classes; and to advance by such
means the material interests of the state, being objects similar to those sought by the public school
system. In passing upon the question of the state's liability for the negligent acts of its officers or agents,
the court said:

No claim arises against any government is favor of an individual, by reason of the misfeasance,
laches, or unauthorized exercise of powers by its officers or agents. (Citing Gibbons vs. U. S., 8
Wall., 269; Clodfelter vs. State, 86 N. C., 51, 53; 41 Am. Rep., 440; Chapman vs. State, 104 Cal.,
690; 43 Am. St. Rep., 158; Green vs. State, 73 Cal., 29; Bourn vs. Hart, 93 Cal., 321; 27 Am. St.
Rep., 203; Story on Agency, sec. 319.)

As to the scope of legislative enactments permitting individuals to sue the state where the cause of action
arises out of either fort or contract, the rule is stated in 36 Cyc., 915, thus:

By consenting to be sued a state simply waives its immunity from suit. It does not thereby
concede its liability to plaintiff, or create any cause of action in his favor, or extend its liability to
any cause not previously recognized. It merely gives a remedy to enforce a preexisting liability
and submits itself to the jurisdiction of the court, subject to its right to interpose any lawful
defense.

In Apfelbacher vs. State (152 N. W., 144, advanced sheets), decided April 16, 1915, the Act of 1913,
which authorized the bringing of this suit, read:

SECTION 1. Authority is hereby given to George Apfelbacher, of the town of Summit, Waukesha
County, Wisconsin, to bring suit in such court or courts and in such form or forms as he may be
advised for the purpose of settling and determining all controversies which he may now have with
the State of Wisconsin, or its duly authorized officers and agents, relative to the mill property of
said George Apfelbacher, the fish hatchery of the State of Wisconsin on the Bark River, and the
mill property of Evan Humphrey at the lower end of Nagawicka Lake, and relative to the use of
the waters of said Bark River and Nagawicka Lake, all in the county of Waukesha, Wisconsin.

In determining the scope of this act, the court said:

Plaintiff claims that by the enactment of this law the legislature admitted liability on the part of the
state for the acts of its officers, and that the suit now stands just as it would stand between private
parties. It is difficult to see how the act does, or was intended to do, more than remove the state's
immunity from suit. It simply gives authority to commence suit for the purpose of settling plaintiff's
controversies with the estate. Nowhere in the act is there a whisper or suggestion that the court
or courts in the disposition of the suit shall depart from well established principles of law, or that
the amount of damages is the only question to be settled. The act opened the door of the court to
the plaintiff. It did not pass upon the question of liability, but left the suit just where it would be in
the absence of the state's immunity from suit. If the Legislature had intended to change the rule
that obtained in this state so long and to declare liability on the part of the state, it would not have
left so important a matter to mere inference, but would have done so in express terms. (Murdock
Grate Co. vs. Commonwealth, 152 Mass., 28; 24 N.E., 854; 8 L. R. A., 399.)

In Denning vs. State (123 Cal., 316), the provisions of the Act of 1893, relied upon and considered, are as
follows:
 All persons who have, or shall hereafter have, claims on contract or for negligence against the
state not allowed by the state board of examiners, are hereby authorized, on the terms and
conditions herein contained, to bring suit thereon against the state in any of the courts of this
state of competent jurisdiction, and prosecute the same to final judgment. The rules of practice in
civil cases shall apply to such suits, except as herein otherwise provided.

And the court said:

This statute has been considered by this court in at least two cases, arising under different facts,
and in both it was held that said statute did not create any liability or cause of action against the
state where none existed before, but merely gave an additional remedy to enforce such liability as
would have existed if the statute had not been enacted. (Chapman vs. State, 104 Cal., 690; 43
Am. St. Rep., 158; Melvin vs. State, 121 Cal., 16.)

A statute of Massachusetts enacted in 1887 gave to the superior court "jurisdiction of all claims against
the commonwealth, whether at law or in equity," with an exception not necessary to be here mentioned.
In construing this statute the court, in Murdock Grate Co. vs. Commonwealth (152 Mass., 28), said:

The statute we are discussing disclose no intention to create against the state a new and
heretofore unrecognized class of liabilities, but only an intention to provide a judicial tribunal
where well recognized existing liabilities can be adjudicated.

In Sipple vs. State (99 N. Y., 284), where the board of the canal claims had, by the terms of the statute of
New York, jurisdiction of claims for damages for injuries in the management of the canals such as the
plaintiff had sustained, Chief Justice Ruger remarks: "It must be conceded that the state can be made
liable for injuries arising from the negligence of its agents or servants, only by force of some positive
statute assuming such liability."

It being quite clear that Act No. 2457 does not operate to extend the Government's liability to any cause
not previously recognized, we will now examine the substantive law touching the defendant's liability for
the negligent acts of its officers, agents, and employees. Paragraph 5 of article 1903 of the Civil Code
reads:

The state is liable in this sense when it acts through a special agent, but not when the damage
should have been caused by the official to whom properly it pertained to do the act performed, in
which case the provisions of the preceding article shall be applicable.

The supreme court of Spain in defining the scope of this paragraph said:

That the obligation to indemnify for damages which a third person causes to another by his fault
or negligence is based, as is evidenced by the same Law 3, Title 15, Partida 7, on that the person
obligated, by his own fault or negligence, takes part in the act or omission of the third party who
caused the damage. It follows therefrom that the state, by virtue of such provisions of law, is not
responsible for the damages suffered by private individuals in consequence of acts performed by
its employees in the discharge of the functions pertaining to their office, because neither fault nor
even negligence can be presumed on the part of the state in the organization of branches of
public service and in the appointment of its agents; on the contrary, we must presuppose all
foresight humanly possible on its part in order that each branch of service serves the general
weal an that of private persons interested in its operation. Between these latter and the state,
therefore, no relations of a private nature governed by the civil law can arise except in a case
where the state acts as a judicial person capable of acquiring rights and contracting obligations.
(Supreme Court of Spain, January 7, 1898; 83 Jur. Civ., 24.)
 That the Civil Code in chapter 2, title 16, book 4, regulates the obligations which arise out of fault
or negligence; and whereas in the first article thereof. No. 1902, where the general principle is
laid down that where a person who by an act or omission causes damage to another through fault
or negligence, shall be obliged to repair the damage so done, reference is made to acts or
omissions of the persons who directly or indirectly cause the damage, the following articles refers
to this persons and imposes an identical obligation upon those who maintain fixed relations of
authority and superiority over the authors of the damage, because the law presumes that in
consequence of such relations the evil caused by their own fault or negligence is imputable to
them. This legal presumption gives way to proof, however, because, as held in the last paragraph
of article 1903, responsibility for acts of third persons ceases when the persons mentioned in said
article prove that they employed all the diligence of a good father of a family to avoid the damage,
and among these persons, called upon to answer in a direct and not a subsidiary manner, are
found, in addition to the mother or the father in a proper case, guardians and owners or directors
of an establishment or enterprise, the state, but not always, except when it acts through the
agency of a special agent, doubtless because and only in this case, the fault or negligence, which
is the original basis of this kind of objections, must be presumed to lie with the state.

That although in some cases the state might by virtue of the general principle set forth in article
1902 respond for all the damage that is occasioned to private parties by orders or resolutions
which by fault or negligence are made by branches of the central administration acting in the
name and representation of the state itself and as an external expression of its sovereignty in the
exercise of its executive powers, yet said article is not applicable in the case of damages said to
have been occasioned to the petitioners by an executive official, acting in the exercise of his
powers, in proceedings to enforce the collections of certain property taxes owing by the owner of
the property which they hold in sublease.

That the responsibility of the state is limited by article 1903 to the case wherein it acts through a
special agent(and a special agent, in the sense in which these words are employed, is one who
receives a definite and fixed order or commission, foreign to the exercise of the duties of his office
if he is a special official) so that in representation of the state and being bound to act as an agent
thereof, he executes the trust confided to him. This concept does not apply to any executive
agent who is an employee of the acting administration and who on his own responsibility
performs the functions which are inherent in and naturally pertain to his office and which are
regulated by law and the regulations." (Supreme Court of Spain, May 18, 1904; 98 Jur. Civ., 389,
390.)

That according to paragraph 5 of article 1903 of the Civil Code and the principle laid down in a
decision, among others, of the 18th of May, 1904, in a damage case, the responsibility of the
state is limited to that which it contracts through a special agent, duly empowered by a definite
order or commission to perform some act or charged with some definite purpose which gives rise
to the claim, and not where the claim is based on acts or omissions imputable to a public official
charged with some administrative or technical office who can be held to the proper responsibility
in the manner laid down by the law of civil responsibility. Consequently, the trial court in not so
deciding and in sentencing the said entity to the payment of damages, caused by an official of the
second class referred to, has by erroneous interpretation infringed the provisions of articles 1902
and 1903 of the Civil Code. (Supreme Court of Spain, July 30, 1911; 122 Jur. Civ., 146.)

It is, therefore, evidence that the State (the Government of the Philippine Islands) is only liable, according
to the above quoted decisions of the Supreme Court of Spain, for the acts of its agents, officers and
employees when they act as special agents within the meaning of paragraph 5 of article 1903, supra, and
that the chauffeur of the ambulance of the General Hospital was not such an agent.

For the foregoing reasons, the judgment appealed from must be reversed, without costs in this instance.
Whether the Government intends to make itself legally liable for the amount of damages above set forth,
which the plaintiff has sustained by reason of the negligent acts of one of its employees, by legislative
enactment and by appropriating sufficient funds therefor, we are not called upon to determine. This matter
rests solely with the Legislature and not with the courts.

Arellano, C. J., Torres, Johnson, and Moreland, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-35645 May 22, 1985

UNITED STATES OF AMERICA, CAPT. JAMES E. GALLOWAY, WILLIAM I. COLLINS and ROBERT
GOHIER, petitioners,
vs.
HON. V. M. RUIZ, Presiding Judge of Branch XV, Court of First Instance of Rizal and ELIGIO DE
GUZMAN & CO., INC., respondents.

Sycip, Salazar, Luna & Manalo & Feliciano Law for petitioners.

Albert, Vergara, Benares, Perias & Dominguez Law Office for respondents.

ABAD SANTOS, J.:

This is a petition to review, set aside certain orders and restrain the respondent judge from trying Civil
Case No. 779M of the defunct Court of First Instance of Rizal.

The factual background is as follows:

At times material to this case, the United States of America had a naval base in Subic, Zambales. The
base was one of those provided in the Military Bases Agreement between the Philippines and the United
States.

Sometime in May, 1972, the United States invited the submission of bids for the following projects

1. Repair offender system, Alava Wharf at the U.S. Naval Station Subic Bay, Philippines.

2. Repair typhoon damage to NAS Cubi shoreline; repair typhoon damage to shoreline revetment,
NAVBASE Subic; and repair to Leyte Wharf approach, NAVBASE Subic Bay, Philippines.

Eligio de Guzman & Co., Inc. responded to the invitation and submitted bids. Subsequent thereto, the
company received from the United States two telegrams requesting it to confirm its price proposals and
for the name of its bonding company. The company complied with the requests. [In its complaint, the
company alleges that the United States had accepted its bids because "A request to confirm a price
proposal confirms the acceptance of a bid pursuant to defendant United States' bidding practices." (Rollo,
p. 30.) The truth of this allegation has not been tested because the case has not reached the trial stage.]

In June, 1972, the company received a letter which was signed by Wilham I. Collins, Director, Contracts
Division, Naval Facilities Engineering Command, Southwest Pacific, Department of the Navy of the United
States, who is one of the petitioners herein. The letter said that the company did not qualify to receive an
award for the projects because of its previous unsatisfactory performance rating on a repair contract for
the sea wall at the boat landings of the U.S. Naval Station in Subic Bay. The letter further said that the
projects had been awarded to third parties. In the abovementioned Civil Case No. 779-M, the company
sued the United States of America and Messrs. James E. Galloway, William I. Collins and Robert Gohier
all members of the Engineering Command of the U.S. Navy. The complaint is to order the defendants to
allow the plaintiff to perform the work on the projects and, in the event that specific performance was no
longer possible, to order the defendants to pay damages. The company also asked for the issuance of a
writ of preliminary injunction to restrain the defendants from entering into contracts with third parties for
work on the projects.

The defendants entered their special appearance for the purpose only of questioning the jurisdiction of
this court over the subject matter of the complaint and the persons of defendants, the subject matter of
the complaint being acts and omissions of the individual defendants as agents of defendant United States
of America, a foreign sovereign which has not given her consent to this suit or any other suit for the
causes of action asserted in the complaint." (Rollo, p. 50.)

Subsequently the defendants filed a motion to dismiss the complaint which included an opposition to the
issuance of the writ of preliminary injunction. The company opposed the motion. The trial court denied the
motion and issued the writ. The defendants moved twice to reconsider but to no avail. Hence the instant
petition which seeks to restrain perpetually the proceedings in Civil Case No. 779-M for lack of jurisdiction
on the part of the trial court.

The petition is highly impressed with merit.

The traditional rule of State immunity exempts a State from being sued in the courts of another State
without its consent or waiver. This rule is a necessary consequence of the principles of independence and
equality of States. However, the rules of International Law are not petrified; they are constantly
developing and evolving. And because the activities of states have multiplied, it has been necessary to
distinguish them-between sovereign and governmental acts (jure imperii) and private, commercial and
proprietary acts (jure gestionis). The result is that State immunity now extends only to acts jure imperil
The restrictive application of State immunity is now the rule in the United States, the United Kingdom and
other states in western Europe. (See Coquia and Defensor Santiago, Public International Law, pp. 207-
209 [1984].)

The respondent judge recognized the restrictive doctrine of State immunity when he said in his Order
denying the defendants' (now petitioners) motion: " A distinction should be made between a strictly
governmental function of the sovereign state from its private, proprietary or non- governmental acts
(Rollo, p. 20.) However, the respondent judge also said: "It is the Court's considered opinion that entering
into a contract for the repair of wharves or shoreline is certainly not a governmental function altho it may
partake of a public nature or character. As aptly pointed out by plaintiff's counsel in his reply citing the
ruling in the case of Lyons, Inc., [104 Phil. 594 (1958)], and which this Court quotes with approval, viz.:

It is however contended that when a sovereign state enters into a contract with a private
person, the state can be sued upon the theory that it has descended to the level of an
individual from which it can be implied that it has given its consent to be sued under the
contract. ...

xxx xxx xxx

We agree to the above contention, and considering that the United States government,
through its agency at Subic Bay, entered into a contract with appellant for stevedoring
and miscellaneous labor services within the Subic Bay Area, a U.S. Naval Reservation, it
is evident that it can bring an action before our courts for any contractual liability that that
political entity may assume under the contract. The trial court, therefore, has jurisdiction
to entertain this case ... (Rollo, pp. 20-21.)

The reliance placed on Lyons by the respondent judge is misplaced for the following reasons:
In Harry Lyons, Inc. vs. The United States of America, supra, plaintiff brought suit in the Court of First
Instance of Manila to collect several sums of money on account of a contract between plaintiff and
defendant. The defendant filed a motion to dismiss on the ground that the court had no jurisdiction over
defendant and over the subject matter of the action. The court granted the motion on the grounds that: (a)
it had no jurisdiction over the defendant who did not give its consent to the suit; and (b) plaintiff failed to
exhaust the administrative remedies provided in the contract. The order of dismissal was elevated to this
Court for review.

In sustaining the action of the lower court, this Court said:

It appearing in the complaint that appellant has not complied with the procedure laid
down in Article XXI of the contract regarding the prosecution of its claim against the
United States Government, or, stated differently, it has failed to first exhaust its
administrative remedies against said Government, the lower court acted properly in
dismissing this case.(At p. 598.)

It can thus be seen that the statement in respect of the waiver of State immunity from suit was purely
gratuitous and, therefore, obiter so that it has no value as an imperative authority.

The restrictive application of State immunity is proper only when the proceedings arise out of commercial
transactions of the foreign sovereign, its commercial activities or economic affairs. Stated differently, a
State may be said to have descended to the level of an individual and can thus be deemed to have tacitly
given its consent to be sued only when it enters into business contracts. It does not apply where the
contract relates to the exercise of its sovereign functions. In this case the projects are an integral part of
the naval base which is devoted to the defense of both the United States and the Philippines, indisputably
a function of the government of the highest order; they are not utilized for nor dedicated to commercial or
business purposes.

That the correct test for the application of State immunity is not the conclusion of a contract by a State but
the legal nature of the act is shown in Syquia vs. Lopez, 84 Phil. 312 (1949). In that case the plaintiffs
leased three apartment buildings to the United States of America for the use of its military officials. The
plaintiffs sued to recover possession of the premises on the ground that the term of the leases had
expired. They also asked for increased rentals until the apartments shall have been vacated.

The defendants who were armed forces officers of the United States moved to dismiss the suit for lack of
jurisdiction in the part of the court. The Municipal Court of Manila granted the motion to dismiss; sustained
by the Court of First Instance, the plaintiffs went to this Court for review on certiorari. In denying the
petition, this Court said:

On the basis of the foregoing considerations we are of the belief and we hold that the real
party defendant in interest is the Government of the United States of America; that any
judgment for back or Increased rentals or damages will have to be paid not by
defendants Moore and Tillman and their 64 co-defendants but by the said U.S.
Government. On the basis of the ruling in the case of Land vs. Dollar already cited, and
on what we have already stated, the present action must be considered as one against
the U.S. Government. It is clear hat the courts of the Philippines including the Municipal
Court of Manila have no jurisdiction over the present case for unlawful detainer. The
question of lack of jurisdiction was raised and interposed at the very beginning of the
action. The U.S. Government has not , given its consent to the filing of this suit which is
essentially against her, though not in name. Moreover, this is not only a case of a citizen
filing a suit against his own Government without the latter's consent but it is of a citizen
filing an action against a foreign government without said government's consent, which
renders more obvious the lack of jurisdiction of the courts of his country. The principles of
 law behind this rule are so elementary and of such general acceptance that we deem it
unnecessary to cite authorities in support thereof. (At p. 323.)

In Syquia,the United States concluded contracts with private individuals but the contracts notwithstanding
the States was not deemed to have given or waived its consent to be sued for the reason that the
contracts were for jure imperii and not for jure gestionis.

WHEREFORE, the petition is granted; the questioned orders of the respondent judge are set aside and
Civil Case No. is dismissed. Costs against the private respondent.

Teehankee, Aquino, Concepcion, Jr., Melencio-Herrera, Plana, * Escolin, Relova, Gutierrez, Jr., De la
Fuente, Cuevas and Alampay, JJ., concur.

Fernando, C.J., took no part.

 SECOND DIVISION

G.R. No. 129406 March 6, 2006

REPUBLIC OF THE PHILIPPINES represented by the PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT (PCGG), Petitioner,
vs.
SANDIGANBAYAN (SECOND DIVISION) and ROBERTO S. BENEDICTO, Respondents.

DECISION

GARCIA, J.:

Before the Court is this petition for certiorari under Rule 65 of the Rules of Court to nullify and set aside
the March 28, 19951 and March 13, 19972 Resolutions of the Sandiganbayan, Second Division, in Civil
Case No. 0034, insofar as said resolutions ordered the Presidential Commission on Good Government
(PCGG) to pay private respondent Roberto S. Benedicto or his corporations the value of 227 shares of
stock of the Negros Occidental Golf and Country Club, Inc. (NOGCCI) at P150,000.00 per share,
registered in the name of said private respondent or his corporations.

The facts:

Civil Case No. 0034 entitled Republic of the Philippines, plaintiff, v. Roberto S. Benedicto, et al.,
defendants, is a complaint for reconveyance, reversion, accounting, reconstitution and damages. The
case is one of several suits involving ill-gotten or unexplained wealth that petitioner Republic, through the
PCGG, filed with the Sandiganbayan against private respondent Roberto S. Benedicto and others
pursuant to Executive Order (EO) No. 14,3 series of 1986.

Pursuant to its mandate under EO No. 1,4 series of 1986, the PCGG issued writs placing under
sequestration all business enterprises, entities and other properties, real and personal, owned or
registered in the name of private respondent Benedicto, or of corporations in which he appeared to have
controlling or majority interest. Among the properties thus sequestered and taken over by PCGG fiscal
agents were the 227 shares in NOGCCI owned by private respondent Benedicto and registered in his
name or under the names of corporations he owned or controlled.

Following the sequestration process, PCGG representatives sat as members of the Board of Directors of
NOGCCI, which passed, sometime in October 1986, a resolution effecting a corporate policy change. The
change consisted of assessing a monthly membership due of P150.00 for each NOGCCI share. Prior to
this resolution, an investor purchasing more than one NOGCCI share was exempt from paying monthly
membership due for the second and subsequent shares that he/she owned.

Subsequently, on March 29, 1987, the NOGCCI Board passed another resolution, this time increasing the
monthly membership due from P150.00 to P250.00 for each share.
As sequestrator of the 227 shares of stock in question, PCGG did not pay the corresponding monthly
membership due thereon totaling P2,959,471.00. On account thereof, the 227 sequestered shares were
declared delinquent to be disposed of in an auction sale.

Apprised of the above development and evidently to prevent the projected auction sale of the same
shares, PCGG filed a complaint for injunction with the Regional Trial Court (RTC) of Bacolod City, thereat
docketed as Civil Case No. 5348. The complaint, however, was dismissed, paving the way for the auction
sale for the delinquent 227 shares of stock. On August 5, 1989, an auction sale was conducted.

On November 3, 1990, petitioner Republic and private respondent Benedicto entered into a Compromise
Agreement in Civil Case No. 0034. The agreement contained a general release clause 5 whereunder
petitioner Republic agreed and bound itself to lift the sequestration on the 227 NOGCCI shares, among
other Benedicto’s properties, petitioner Republic acknowledging that it was within private respondent
Benedicto’s capacity to acquire the same shares out of his income from business and the exercise of his
profession.6 Implied in this undertaking is the recognition by petitioner Republic that the subject shares of
stock could not have been ill-gotten.

In a decision dated October 2, 1992, the Sandiganbayan approved the Compromise Agreement and
accordingly rendered judgment in accordance with its terms.

In the process of implementing the Compromise Agreement, either of the parties would, from time to time,
move for a ruling by the Sandiganbayan on the proper manner of implementing or interpreting a specific
provision therein.

On February 22, 1994, Benedicto filed in Civil Case No. 0034 a "Motion for Release from Sequestration
and Return of Sequestered Shares/Dividends" praying, inter alia, that his NOGCCI shares of stock be
specifically released from sequestration and returned, delivered or paid to him as part of the parties’
Compromise Agreement in that case. In a Resolution7 promulgated on December 6, 1994, the
Sandiganbayan granted Benedicto’s aforementioned motion but placed the subject shares under the
custody of its Clerk of Court, thus:

WHEREFORE, in the light of the foregoing, the said "Motion for Release From Sequestration and Return
of Sequestered Shares/Dividends" is hereby GRANTED and it is directed that said shares/dividends be
delivered/placed under the custody of the Clerk of Court, Sandiganbayan, Manila subject to this Court’s
disposition.

On March 28, 1995, the Sandiganbayan came out with the herein first assailed Resolution, 8 which
clarified its aforementioned December 6, 1994 Resolution and directed the immediate implementation
thereof by requiring PCGG, among other things:

(b) To deliver to the Clerk of Court the 227 sequestered shares of [NOGCCI] registered in the name of
nominees of ROBERTO S. BENEDICTO free from all liens and encumbrances, or in default thereof, to
pay their value at P150,000.00 per share which can be deducted from [the Republic’s] cash share in the
Compromise Agreement. [Words in bracket added] (Emphasis Supplied).

Owing to PCGG’s failure to comply with the above directive, Benedicto filed in Civil Case No. 0034 a
Motion for Compliance dated July 25, 1995, followed by an Ex-Parte Motion for Early Resolution dated
February 12, 1996. Acting thereon, the Sandiganbayan promulgated yet another Resolution 9 on February
23, 1996, dispositively reading:

WHEREFORE, finding merit in the instant motion for early resolution and considering that, indeed, the
PCGG has not shown any justifiable ground as to why it has not complied with its obligation as set forth in
the Order of December 6, 1994 up to this date and which Order was issued pursuant to the Compromise
Agreement and has already become final and executory, accordingly, the Presidential Commission on
Good Government is hereby given a final extension of fifteen (15) days from receipt hereof within which to
comply with the Order of December 6, 1994 as stated hereinabove.

On April 1, 1996, PCGG filed a Manifestation with Motion for Reconsideration, 10 praying for the setting
aside of the Resolution of February 23, 1996. On April 11, 1996, private respondent Benedicto filed a
Motion to Enforce Judgment Levy. Resolving these two motions, the Sandiganbayan, in its second
assailed Resolution11 dated March 13, 1997, denied that portion of the PCGG’s Manifestation with Motion
for Reconsideration concerning the subject 227 NOGCCI shares and granted Benedicto’s Motion to
Enforce Judgment Levy.

Hence, the Republic’s present recourse on the sole issue of whether or not the public respondent
Sandiganbayan, Second Division, gravely abused its discretion in holding that the PCGG is at fault for not
paying the membership dues on the 227 sequestered NOGCCI shares of stock, a failing which eventually
led to the foreclosure sale thereof.

The petition lacks merit.

To begin with, PCGG itself does not dispute its being considered as a receiver insofar as the sequestered
227 NOGCCI shares of stock are concerned.12 PCGG also acknowledges that as such receiver, one of its
functions is to pay outstanding debts pertaining to the sequestered entity or property, 13 in this case the
227 NOGCCI shares in question. It contends, however, that membership dues owing to a golf club cannot
be considered as an outstanding debt for which PCGG, as receiver, must pay. It also claims to have
exercised due diligence to prevent the loss through delinquency sale of the subject NOGCCI shares,
specifically inviting attention to the injunctive suit, i.e., Civil Case No. 5348, it filed before the RTC of
Bacolod City to enjoin the foreclosure sale of the shares.

The filing of the injunction complaint adverted to, without more, cannot plausibly tilt the balance in favor of
PCGG. To the mind of the Court, such filing is a case of acting too little and too late. It cannot be over-
emphasized that it behooved the PCGG’s fiscal agents to preserve, like a responsible father of the family,
the value of the shares of stock under their administration. But far from acting as such father, what the
fiscal agents did under the premises was to allow the element of delinquency to set in before acting by
embarking on a tedious process of going to court after the auction sale had been announced and
scheduled.

The PCGG’s posture that to the owner of the sequestered shares rests the burden of paying the
membership dues is untenable. For one, it lost sight of the reality that such dues are basically obligations
attached to the shares, which, in the final analysis, shall be made liable, thru delinquency sale in case of
default in payment of the dues. For another, the PCGG as sequestrator-receiver of such shares is, as
stressed earlier, duty bound to preserve the value of such shares. Needless to state, adopting timely
measures to obviate the loss of those shares forms part of such duty and due diligence.

The Sandiganbayan, to be sure, cannot plausibly be faulted for finding the PCGG liable for the loss of the
227 NOGCCI shares. There can be no quibbling, as indeed the graft court so declared in its assailed and
related resolutions respecting the NOGCCI shares of stock, that PCGG’s fiscal agents, while sitting in the
NOGCCI Board of Directors agreed to the amendment of the rule pertaining to membership dues. Hence,
it is not amiss to state, as did the Sandiganbayan, that the PCGG-designated fiscal agents, no less, had a
direct hand in the loss of the sequestered shares through delinquency and their eventual sale through
public auction. While perhaps anti-climactic to so mention it at this stage, the unfortunate loss of the
shares ought not to have come to pass had those fiscal agents prudently not agreed to the passage of
the NOGCCI board resolutions charging membership dues on shares without playing representatives.

Given the circumstances leading to the auction sale of the subject NOGCCI shares, PCGG’s lament
about public respondent Sandiganbayan having erred or, worse still, having gravely abused its discretion
in its determination as to who is at fault for the loss of the shares in question can hardly be given
cogency.

For sure, even if the Sandiganbayan were wrong in its findings, which does not seem to be in this case, it
is a well-settled rule of jurisprudence that certiorari will issue only to correct errors of jurisdiction, not
errors of judgment. Corollarily, errors of procedure or mistakes in the court’s findings and conclusions are
beyond the corrective hand of certiorari.14 The extraordinary writ of certiorari may be availed only upon a
showing, in the minimum, that the respondent tribunal or officer exercising judicial or quasi-judicial
functions has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion. 15

The term "grave abuse of discretion" connotes capricious and whimsical exercise of judgment as is
equivalent to excess, or a lack of jurisdiction.16 The abuse must be so patent and gross as to amount to
an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in
contemplation of law as where the power is exercised in an arbitrary and despotic manner by reason of
passion or hostility.17 Sadly, this is completely absent in the present case. For, at bottom, the assailed
resolutions of the Sandiganbayan did no more than to direct PCGG to comply with its part of the bargain
under the compromise agreement it freely entered into with private respondent Benedicto. Simply put, the
assailed resolutions of the Sandiganbayan have firm basis in fact and in law.

Lest it be overlooked, the issue of liability for the shares in question had, as both public and private
respondents asserted, long become final and executory. Petitioner’s narration of facts in its present
petition is even misleading as it conveniently fails to make reference to two (2) resolutions issued by the
Sandiganbayan. We refer to that court’s resolutions of December 6, 1994 18 and February 23, 199619 as
well as several intervening pleadings which served as basis for the decisions reached therein. As it were,
the present petition questions only and focuses on the March 28, 199520 and March 13,
199721 resolutions, which merely reiterated and clarified the graft court’s underlying resolution of
December 6, 1994. And to place matters in the proper perspective, PCGG’s failure to comply with the
December 6, 1994 resolution prompted the issuance of the clarificatory and/or reiteratory resolutions
aforementioned.

In a last-ditch attempt to escape liability, petitioner Republic, through the PCGG, invokes state immunity
from suit.22As argued, the order for it to pay the value of the delinquent shares would fix monetary liability
on a government agency, thus necessitating the appropriation of public funds to satisfy the judgment
claim.23 But, as private respondent Benedicto correctly countered, the PCGG fails to take stock of one of
the exceptions to the state immunity principle, i.e., when the government itself is the suitor, as in Civil
Case No. 0034. Where, as here, the State itself is no less the plaintiff in the main case, immunity from suit
cannot be effectively invoked.24 For, as jurisprudence teaches, when the State, through its duly
authorized officers, takes the initiative in a suit against a private party, it thereby descends to the level of
a private individual and thus opens itself to whatever counterclaims or defenses the latter may have
against it.25 Petitioner Republic’s act of filing its complaint in Civil Case No. 0034 constitutes a waiver of
its immunity from suit. Being itself the plaintiff in that case, petitioner Republic cannot set up its immunity
against private respondent Benedicto’s prayers in the same case.

In fact, by entering into a Compromise Agreement with private respondent Benedicto, petitioner Republic
thereby stripped itself of its immunity from suit and placed itself in the same level of its adversary. When
the State enters into contract, through its officers or agents, in furtherance of a legitimate aim and
purpose and pursuant to constitutional legislative authority, whereby mutual or reciprocal benefits accrue
and rights and obligations arise therefrom, the State may be sued even without its express consent,
precisely because by entering into a contract the sovereign descends to the level of the citizen. Its
consent to be sued is implied from the very act of entering into such contract, 26 breach of which on its part
gives the corresponding right to the other party to the agreement.

Finally, it is apropos to stress that the Compromise Agreement in Civil Case No. 0034 envisaged the
immediate recovery of alleged ill-gotten wealth without further litigation by the government, and buying
peace on the part of the aging Benedicto.27 Sadly, that stated objective has come to naught as not only
had the litigation continued to ensue, but, worse, private respondent Benedicto passed away on May 15,
2000,28 with the trial of Civil Case No. 0034 still in swing, so much so that the late Benedicto had to be
substituted by the administratrix of his estate.29

WHEREFORE, the instant petition is hereby DISMISSED.

SO ORDERED.

CANCIO C. GARCIA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Associate Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Asscociate Justice

ADOLFO S. AZCUNA
Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

REYNATO S .PUNO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman's 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 Court.

ARTEMIO V. PANGANIBAN
Chief Justice
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-23139 December 17, 1966

MOBIL PHILIPPINES EXPLORATION, INC., plaintiff-appellant,

vs.
CUSTOMS ARRASTRE SERVICE and BUREAU of CUSTOMS, defendants-appellees.

Alejandro Basin, Jr. and Associates for plaintiff-appellant.

Felipe T. Cuison for defendants-appellees.

BENGZON, J.P., J.:

Four cases of rotary drill parts were shipped from abroad on S.S. "Leoville" sometime in November of
1962, consigned to Mobil Philippines Exploration, Inc., Manila. The shipment arrived at the Port of Manila
on April 10, 1963, and was discharged to the custody of the Customs Arrastre Service, the unit of the
Bureau of Customs then handling arrastre operations therein. The Customs Arrastre Service later
delivered to the broker of the consignee three cases only of the shipment.

On April 4, 1964 Mobil Philippines Exploration, Inc., filed suit in the Court of First Instance of Manila
against the Customs Arrastre Service and the Bureau of Customs to recover the value of the undelivered
case in the amount of P18,493.37 plus other damages.

On April 20, 1964 the defendants filed a motion to dismiss the complaint on the ground that not being
persons under the law, defendants cannot be sued.

After plaintiff opposed the motion, the court, on April 25, 1964, dismissed the complaint on the ground
that neither the Customs Arrastre Service nor the Bureau of Customs is suable. Plaintiff appealed to Us
from the order of dismissal.

Raised, therefore, in this appeal is the purely legal question of the defendants' suability under the facts
stated.

Appellant contends that not all government entities are immune from suit; that defendant Bureau of
Customs as operator of the arrastre service at the Port of Manila, is discharging proprietary functions and
as such, can be sued by private individuals.

The Rules of Court, in Section 1, Rule 3, provide:

SECTION 1. Who may be parties.—Only natural or juridical persons or entities authorized by law
may be parties in a civil action.

Accordingly, a defendant in a civil suit must be (1) a natural person; (2) a juridical person or (3) an entity
authorized by law to be sued. Neither the Bureau of Customs nor (a fortiori) its function unit, the Customs
Arrastre Service, is a person. They are merely parts of the machinery of Government. The Bureau of
Customs is a bureau under the Department of Finance (Sec. 81, Revised Administrative Code); and as
stated, the Customs Arrastre Service is a unit of the Bureau of Custom, set up under Customs
Administrative Order No. 8-62 of November 9, 1962 (Annex "A" to Motion to Dismiss, pp. 13-15, Record
an Appeal). It follows that the defendants herein cannot he sued under the first two abovementioned
categories of natural or juridical persons.

Nonetheless it is urged that by authorizing the Bureau of Customs to engage in arrastre service, the law
thereby impliedly authorizes it to be sued as arrastre operator, for the reason that the nature of this
function (arrastre service) is proprietary, not governmental. Thus, insofar as arrastre operation is
concerned, appellant would put defendants under the third category of "entities authorized by law" to be
sued. Stated differently, it is argued that while there is no law expressly authorizing the Bureau of
Customs to sue or be sued, still its capacity to be sued is implied from its very power to render arrastre
service at the Port of Manila, which it is alleged, amounts to the transaction of a private business.

The statutory provision on arrastre service is found in Section 1213 of Republic Act 1937 (Tariff and
Customs Code, effective June 1, 1957), and it states:

SEC. 1213. Receiving, Handling, Custody and Delivery of Articles.—The Bureau of Customs shall
have exclusive supervision and control over the receiving, handling, custody and delivery of
articles on the wharves and piers at all ports of entry and in the exercise of its functions it is
hereby authorized to acquire, take over, operate and superintend such plants and facilities as
may be necessary for the receiving, handling, custody and delivery of articles, and the
convenience and comfort of passengers and the handling of baggage; as well as to acquire fire
protection equipment for use in the piers: Provided, That whenever in his judgment the receiving,
handling, custody and delivery of articles can be carried on by private parties with greater
efficiency, the Commissioner may, after public bidding and subject to the approval of the
department head, contract with any private party for the service of receiving, handling, custody
and delivery of articles, and in such event, the contract may include the sale or lease of
government-owned equipment and facilities used in such service.

In Associated Workers Union, et al. vs. Bureau of Customs, et al., L-21397, resolution of August 6, 1963,
this Court indeed held "that the foregoing statutory provisions authorizing the grant by contract to any
private party of the right to render said arrastre services necessarily imply that the same is deemed by
Congress to be proprietary or non-governmental function." The issue in said case, however, was whether
laborers engaged in arrastre service fall under the concept of employees in the Government employed in
governmental functions for purposes of the prohibition in Section 11, Republic Act 875 to the effect that
"employees in the Government . . . shall not strike," but "may belong to any labor organization which does
not impose the obligation to strike or to join in strike," which prohibition "shall apply only to employees
employed in governmental functions of the Government . . . .

Thus, the ruling therein was that the Court of Industrial Relations had jurisdiction over the subject matter
of the case, but not that the Bureau of Customs can be sued. Said issue of suability was not resolved, the
resolution stating only that "the issue on the personality or lack of personality of the Bureau of Customs to
be sued does not affect the jurisdiction of the lower court over the subject matter of the case, aside from
the fact that amendment may be made in the pleadings by the inclusion as respondents of the public
officers deemed responsible, for the unfair labor practice acts charged by petitioning Unions".

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. This is the doctrine recognized in Bureau of Printing, et al. vs. Bureau of Printing
Employees Association, et al., L-15751, January 28, 1961:

The Bureau of Printing is an office of the Government created by the Administrative Code of 1916
(Act No. 2657). As such instrumentality of the Government, it operates under the direct
supervision of the Executive Secretary, Office of the President, and is "charged with the
execution of all printing and binding, including work incidental to those processes, required by the
 National Government and such other work of the same character as said Bureau may, by law or
by order of the (Secretary of Finance) Executive Secretary, be authorized to undertake . . . ."
(Sec. 1644, Rev. Adm. Code.) It has no corporate existence, and its appropriations are provided
for in the General Appropriations Act. Designed to meet the printing needs of the Government, it
is primarily a service bureau and, obviously, not engaged in business or occupation for pecuniary
profit.

xxx xxx xxx

. . . Clearly, while the Bureau of Printing is allowed to undertake private printing jobs, it cannot be
pretended that it is thereby an industrial or business concern. The additional work it executes for
private parties is merely incidental to its function, and although such work may be deemed
proprietary in character, there is no showing that the employees performing said proprietary
function are separate and distinct from those emoloyed in its general governmental functions.

xxx xxx xxx

Indeed, as an office of the Government, without any corporate or juridical personality, the Bureau
of Printing cannot be sued (Sec. 1, Rule 3, Rules of Court.) Any suit, action or proceeding against
it, if it were to produce any effect, would actually be a suit, action or proceeding against the
Government itself, and the rule is settled that the Government cannot be sued without its consent,
much less over its objection. (See Metran vs. Paredes, 45 Off. Gaz. 2835; Angat River Irrigation
System, et al. vs. Angat River Workers Union, et al., G.R. Nos. L-10943-44, December 28, 1957.)

The situation here is not materially different. The Bureau of Customs, to repeat, is part of the Department
of Finance (Sec. 81, Rev. Adm. Code), with no personality of its own apart from that of the national
government. Its primary function is governmental, that of assessing and collecting lawful revenues from
imported articles and all other tariff and customs duties, fees, charges, fines and penalties (Sec. 602, R.A.
1937). To this function, arrastre service is a necessary incident. For practical reasons said revenues and
customs duties can not be assessed and collected by simply receiving the importer's or ship agent's or
consignee's declaration of merchandise being imported and imposing the duty provided in the Tariff law.
Customs authorities and officers must see to it that the declaration tallies with the merchandise actually
landed. And this checking up requires that the landed merchandise be hauled from the ship's side to a
suitable place in the customs premises to enable said customs officers to make it, that is, it requires
arrastre operations.1

Clearly, therefore, although said arrastre function may be deemed proprietary, it is a necessary incident of
the primary and governmental function of the Bureau of Customs, so that engaging in the same does not
necessarily render said Bureau liable to suit. For otherwise, it could not perform its governmental function
without necessarily exposing itself to suit. Sovereign immunity, granted as to the end, should not be
denied as to the necessary means to that end.

And herein lies the distinction between the present case and that of National Airports Corporation vs.
Teodoro, 91 Phil. 203, on which appellant would rely. For there, the Civil Aeronautics Administration was
found have for its prime reason for existence not a governmental but a proprietary function, so that to it
the latter was not a mere incidental function:

Among the general powers of the Civil Aeronautics Administration are, under Section 3, to
execute contracts of any kind, to purchase property, and to grant concessions rights, and under
Section 4, to charge landing fees, royalties on sales to aircraft of aviation gasoline, accessories
and supplies, and rentals for the use of any property under its management.
 These provisions confer upon the Civil Aeronautics Administration, in our opinion, the power to
sue and be sued. The power to sue and be sued is implied from the power to transact private
business. . . .

xxx xxx 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. . . .

Regardless of the merits of the claim against it, the State, for obvious reasons of public policy, cannot be
sued without its consent. Plaintiff should have filed its present claim to the General Auditing Office, it
being for money under the provisions of Commonwealth Act 327, which state the conditions under which
money claims against the Government may be filed.

It must be remembered that statutory provisions waiving State immunity from suit are strictly construed
and that waiver of immunity, being in derogation of sovereignty, will not be lightly inferred. (49 Am. Jur.,
States, Territories and Dependencies, Sec. 96, p. 314; Petty vs. Tennessee-Missouri Bridge Com., 359
U.S. 275, 3 L. Ed. 804, 79 S. Ct. 785). From the provision authorizing the Bureau of Customs to lease
arrastre operations to private parties, We see no authority to sue the said Bureau in the instances where
it undertakes to conduct said operation itself. The Bureau of Customs, acting as part of the machinery of
the national government in the operation of the arrastre service, pursuant to express legislative mandate
and as a necessary incident of its prime governmental function, is immune from suit, there being no
statute to the contrary.

WHEREFORE, the order of dismissal appealed from is hereby affirmed, with costs against appellant. So
ordered.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Zaldivar and Sanchez, JJ., concur.

Makalintal, J., concurs in the result.

Castro, J., reserves his vote.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-33112 June 15, 1978

PHILIPPINE NATIONAL BANK, petitioner,

vs.
HON. JUDGE JAVIER PABALAN, Judge of the Court of First Instance, Branch III, La Union, AGOO
TOBACCO PLANTERS ASSOCIATION, INC., PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION,
and PANFILO P. JIMENEZ, Deputy Sheriff, La Union, respondents.

Conrado E. Medina, Edgardo M. Magtalas & Walfrido Climaco for petitioner.

Felimon A. Aspirin fit respondent Agoo 'Tobacco Planters Association, Inc.

Virgilio C. Abejo for respondent Phil. Virginia Tobacco Administration.

FERNANDO, Acting C.J.:

The reliance of petitioner Philippine National Bank in this certiorari and prohibition proceeding against
respondent Judge Javier Pabalan who issued a writ of execution, 1 followed thereafter by a notice of
garnishment of the funds of respondent Philippine Virginia Tobacco Administration, 2 deposited with it, is
on the fundamental constitutional law doctrine of non-suability of a state, it being alleged that such funds
are public in character. This is not the first time petitioner raised that issue. It did so before in Philippine
National Bank v. Court of industrial Relations, 3 decided only last January. It did not meet with success,
this Court ruling in accordance with the two previous cases of National Shipyard and Steel
Corporation 4 and Manila Hotel Employees Association v. Manila Hotel Company,5 that funds of public
corporations which can sue and be sued were not exempt from garnishment. As respondent Philippine
Virginia Tobacco Administration is likewise a public corporation possessed of the same attributes, 6 a
similar outcome is indicated. This petition must be dismissed.

It is undisputed that the judgment against respondent Philippine Virginia Tobacco Administration had
reached the stage of finality. A writ of execution was, therefore, in order. It was accordingly issued on
December 17, 1970. 7There was a notice of garnishment for the full amount mentioned in such writ of
execution in the sum of P12,724,66. 8 In view of the objection, however, by petitioner Philippine National
Bank on the above ground, coupled with an inquiry as to whether or not respondent Philippine Virginia
Tobacco Administration had funds deposited with petitioner's La Union branch, it was not until January
25, 1971 that the order sought to be set aside in this certiorari proceeding was issued by respondent
Judge.9 Its dispositive portion reads as follows: Conformably with the foregoing, it is now ordered, in
accordance with law, that sufficient funds of the Philippine Virginia Tobacco Administration now deposited
with the Philippine National Bank, La Union Branch, shall be garnished and delivered to the plaintiff
immediately to satisfy the Writ of Execution for one-half of the amount awarded in the decision of
November 16, 1970." 10 Hence this certiorari and prohibition proceeding.

As noted at the outset, petitioner Philippine National Bank would invoke the doctrine of non-suability. It is
to be admitted that under the present Constitution, what was formerly implicit as a fundamental doctrine in
constitutional law has been set forth in express terms: "The State may not be sued without its
consent." 11 If the funds appertained to one of the regular departments or offices in the government, then,
certainly, such a provision would be a bar to garnishment. Such is not the case here. Garnishment would
lie. Only last January, as noted in the opening paragraph of this decision, this Court, in a case brought by
the same petitioner precisely invoking such a doctrine, left no doubt that the funds of public corporations
could properly be made the object of a notice of garnishment. Accordingly, this petition must fail.

1. The alleged grave abuse of discretion, the basis of this certiorari proceeding, was sought to be justified
on the failure of respondent Judge to set aside the notice of garnishment of funds belonging to
respondent Philippine Virginia Tobacco Administration. This excerpt from the aforecited decision
of Philippine National Bank v. Court of Industrial Relations makes manifest why such an argument is far
from persuasive. "The premise that the funds could be spoken as public character may be accepted in the
sense that the People Homesite and Housing Corporation was a government-owned entity. It does not
follow though that they were exempt. from garnishment. National Shipyard and Steel Corporation v. Court
of Industrial Relations is squarely in point. As was explicitly stated in the opinion of the then Justice, later
Chief Justice, Concepcion: "The allegation to the effect that the funds of the NASSCO are public funds of
the government, and that, as such, the same may not be garnished, attached or levied upon, is untenable
for, as a government owned and controlled corporation, the NASSCO has a personality of its own. distinct
and separate from that of the Government. It has — pursuant to Section 2 of Executive Order No. 356,
dated October 23, 1950 ... , pursuant to which The NASSCO has been established — all the powers of a
corporation under the Corporation Law ... ." Accordingly, it may be sue and be sued and may be
subjected to court processes just like any other corporation (Section 13, Act No. 1459, as amended.)" ...
To repeat, the ruling was the appropriate remedy for the prevailing party which could proceed against the
funds of a corporate entity even if owned or controlled by the government." 12

2. The National Shipyard and Steel Corporation decision was not the first of its kind. The ruling therein
could be inferred from the judgment announced in Manila Hotel Employees Association v. Manila Hotel
Company, decided as far back as 1941. 13 In the language of its ponente Justice Ozaeta "On the other
hand, it is well-settled that when the government enters into commercial business, it abandons its
sovereign capacity and is to be treated like any other corporation. (Bank of the United States v. Planters'
Bank, 9 Wheat. 904, 6 L.ed. 244). By engaging in a particular business thru the instrumentality of a
corporation, the government divests itself pro hac vice of its sovereign character, so as to render the
corporation subject to the rules of law governing private corporations." 14 It is worth mentioning that
Justice Ozaeta could find support for such a pronouncement from the leading American Supreme Court
case of united States v. Planters' Bank, 15 with the opinion coming from the illustrious Chief Justice
Marshall. It was handed down more than one hundred fifty years ago, 1824 to be exact. It is apparent,
therefore, that petitioner Bank could it legally set forth as a bar or impediment to a notice of garnishment
the doctrine of non-suability.

WHEREFORE, this petition for certiorari and prohibition is dismissed. No costs.

Barredo, Antonio, Aquino, and Santos, JJ., concur.

Concepcion, Jr., J., is on leave.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-31635 August 31, 1971

ANGEL MINISTERIO and ASUNCION SADAYA, petitioners,

vs.
THE COURT OF FIRST INSTANCE OF CEBU, Fourth Branch, Presided by the Honorable, Judge
JOSE C. BORROMEO, THE PUBLIC HIGHWAY COMMISSIONER, and THE AUDITOR
GENERAL, respondents.

Eriberto Seno for petitioners.

Office of the Solicitor General Felix Q. Antonio, Acting First Assistant Solicitor General Antonio A. Torres
and Solicitor Norberto P. Eduardo for respondents.

FERNANDO, J.:

What is before this Court for determination in this appeal by certiorari to review a decision of the Court of
First Instance of Cebu is the question of whether or not plaintiffs, now petitioners, seeking the just
compensation to which they are entitled under the Constitution for the expropriation of their property
necessary for the widening of a street, no condemnation proceeding having been filed, could sue
defendants Public Highway Commissioner and the Auditor General, in their capacity as public officials
without thereby violating the principle of government immunity from suit without its consent. The lower
court, relying on what it considered to be authoritative precedents, held that they could not and dismissed
the suit. The matter was then elevated to us. After a careful consideration and with a view to avoiding the
grave inconvenience, not to say possible injustice contrary to the constitutional mandate, that would be
the result if no such suit were permitted, this Court arrives at a different conclusion, and sustains the right
of the plaintiff to file a suit of this character. Accordingly, we reverse.

Petitioners as plaintiffs in a complaint filed with the Court of First Instance of Cebu, dated April 13, 1966,
sought the payment of just compensation for a registered lot, containing an area of 1045 square meters,
alleging that in 1927 the National Government through its authorized representatives took physical and
material possession of it and used it for the widening of the Gorordo Avenue, a national road, Cebu City,
without paying just compensation and without any agreement, either written or verbal. There was an
allegation of repeated demands for the payment of its price or return of its possession, but defendants
Public Highway Commissioner and the Auditor General refused to restore its possession. It was further
alleged that on August 25, 1965, the appraisal committee of the City of Cebu approved Resolution No.
90, appraising the reasonable and just price of Lot No. 647-B at P50.00 per square meter or a total price
of P52,250.00. Thereafter, the complaint was amended on June 30, 1966 in the sense that the remedy
prayed for was in the alternative, either the restoration of possession or the payment of the just
compensation.

In the answer filed by defendants, now respondents, through the then Solicitor General, now Associate
Justice, Antonio P. Barredo, the principal defense relied upon was that the suit in reality was one against
the government and therefore should be dismissed, no consent having been shown. Then on July 11,
1969, the parties submitted a stipulation of facts to this effect: "That the plaintiffs are the registered
owners of Lot 647-B of the Banilad estate described in the Survey plan RS-600 GLRO Record No. 5988
and more particularly described in Transfer Certificate of Title No. RT-5963 containing an area of 1,045
square meters; That the National Government in 1927 took possession of Lot 647-B Banilad estate, and
used the same for the widening of Gorordo Avenue; That the Appraisal Committee of Cebu City approved
Resolution No. 90, Series of 1965 fixing the price of Lot No. 647-B at P50.00 per square meter; That Lot
No. 647-B is still in the possession of the National Government the same being utilized as part of the
Gorordo Avenue, Cebu City, and that the National Government has not as yet paid the value of the land
which is being utilized for public use."1

The lower court decision now under review was promulgated on January 30, 1969. As is evident from the
excerpt to be cited, the plea that the suit was against the government without its consent having been
manifested met with a favorable response. Thus: "It is uncontroverted that the land in question is used by
the National Government for road purposes. No evidence was presented whether or not there was an
agreement or contract between the government and the original owner and whether payment was paid or
not to the original owner of the land. It may be presumed that when the land was taken by the
government the payment of its value was made thereafter and no satisfactory explanation was given why
this case was filed only in 1966. But granting that no compensation was given to the owner of the land,
the case is undoubtedly against the National Government and there is no showing that the government
has consented to be sued in this case. It may be contended that the present case is brought against the
Public Highway Commissioner and the Auditor General and not against the National Government.
Considering that the herein defendants are sued in their official capacity the action is one against the
National Government who should have been made a party in this case, but, as stated before, with its
consent."2

Then came this petition for certiorari to review the above decision. The principal error assigned would
impugn the holding that the case being against the national government which was sued without its
consent should be dismissed, as it was in fact dismissed. As was indicated in the opening paragraph of
this opinion, this assignment of error is justified. The decision of the lower court cannot stand. We shall
proceed to explain why.

1. The government is immune from suit without its consent.3 Nor is it indispensable that it be the party
proceeded against. If it appears that the action, would in fact hold it liable, the doctrine calls for
application. It follows then that even if the defendants named were public officials, such a principle could
still be an effective bar. This is clearly so where a litigation would result in a financial responsibility for the
government, whether in the disbursements of funds or loss of property. Under such circumstances, the
liability of the official sued is not personal. The party that could be adversely affected is government.
Hence the defense of non-suability may be interposed.4

So it has been categorically set forth in Syquia v. Almeda Lopez:5 "However, and this is important, where
the judgment in such a case would result not only in the recovery of possession of the property in favor of
said citizen but also in a charge against or financial liability to the Government, then the suit should be
regarded as one against the government itself, and, consequently, it cannot prosper or be validly
entertained by the courts except with the consent of said Government."6

2. It is a different matter where the public official is made to account in his capacity as such for acts
contrary to law and injurious to the rights of plaintiff. As was clearly set forth by Justice Zaldivar in Director
of the Bureau of Telecommunications v. Aligean:7 "Inasmuch as the State authorizes only legal acts by its
officers, unauthorized acts of government officials or officers are not acts of the State, and an action
against the officials or officers by one whose rights have been invaded or violated by such acts, for the
protection of his rights, is not a suit against the State within the rule of immunity of the State from suit. In
the same tenor, it has been said that an action at law or suit in equity against a State officer or the
director of a State department on the ground that, while claiming to act for the State, he violates or
invades the personal and property rights of the plaintiff, under an unconstitutional act or under an
assumption of authority which he does not have, is not a suit against the State within the constitutional
provision that the State may not be sued without its consent."8

3. It would follow then that the prayer in the amended complaint of petitioners being in the alternative, the
lower court, instead of dismissing the same, could have passed upon the claim of plaintiffs there, now
petitioners, for the recovery of the possession of the disputed lot, since no proceeding for eminent
domain, as required by the then Code of Civil Procedure, was instituted. 9 However, as noted in Alfonso v.
Pasay City, 10 this Court speaking through Justice Montemayor, restoration would be "neither convenient
nor feasible because it is now and has been used for road purposes." 11 The only relief, in the opinion of
this Court, would be for the government "to make due compensation, ..." 12 It was made clear in such
decision that compensation should have been made "as far back as the date of the taking." Does it result,
therefore, that petitioners would be absolutely remediless since recovery of possession is in effect barred
by the above decision? If the constitutional mandate that the owner be compensated for property taken
for public use 13 were to be respected, as it should, then a suit of this character should not be summarily
dismissed. The doctrine of governmental immunity from suit cannot serve as an instrument for
perpetrating an injustice on a citizen. Had the government followed the procedure indicated by the
governing law at the time, a complaint would have been filed by it, and only upon payment of the
compensation fixed by the judgment, or after tender to the party entitled to such payment of the amount
fixed, may it "have the right to enter in and upon the land so condemned" to appropriate the same to the
public use defined in the judgment." 14 If there were an observance of procedural regularity, petitioners
would not be in the sad plaint they are now. It is unthinkable then that precisely because there was a
failure to abide by what the law requires, the government would stand to benefit. It is just as important, if
not more so, that there be fidelity to legal norms on the part of officialdom if the rule of law were to be
maintained. It is not too much to say that when the government takes any property for public use, which is
conditioned upon the payment of just compensation, to be judicially ascertained, it makes manifest that it
submits to the jurisdiction of a court. There is no thought then that the doctrine of immunity from suit could
still be appropriately invoked. 15

Accordingly, the lower court decision is reversed so that the court may proceed with the complaint and
determine the compensation to which petitioners are entitled, taking into account the ruling in the above
Alfonso case: "As to the value of the property, although the plaintiff claims the present market value
thereof, the rule is that to determine due compensation for lands appropriated by the Government, the
basis should be the price or value at the time that it was taken from the owner and appropriated by the
Government." 16

WHEREFORE, the lower court decision of January 30, 1969 dismissing the complaint is reversed and the
case remanded to the lower court for proceedings in accordance with law.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Teehankee, Villamor and Makasiar, JJ., concur.

Concepcion, C.J., and Barredo, J., took no part.

Footnotes

1 Petition, Annex H, pp. 1 and 2.

2 Ibid, Annex I, p.4.

3 Cf. Providence Washington Insurance Co. v. Republic, L-26386, Sept. 30, 1969, 29
SCRA 598; Fireman's Fund Insurance Co. v. United States Lines Co., L-26533, Jan. 30,
1970, 31 SCRA 309; Switzerland General Insurance Company, Ltd. v. Republic, L-
27389, March 30, 1970; 32 SCRA 227.
4 Cf. Begosa v. Chairman Philippine Veterans Administration, L-25916, April 30, 1970, 32
SCRA 466, citing Ruiz v. Cabahug, 102 Phil. 110 (1957) and Syquia v. Almeda Lopez, 84
Phil. 312 (1949).

5 84 Phil. 312 (1949) affirmed in Marvel Building Corp. v. Phil. War Damage Commission,
85 Phil. 27 (1949) and Johnson v. Turner, 94 Phil. 807 (1954). Such a doctrine goes back
to Tan Te v. Bell, 27 Phil. 354 (1914). Cf. L. S. Moon v. Harrison, 43 Phil 27 (1922).

6 Ibid., p. 319.

7 L-31135, May 29, 1970, 33 SCRA 368.

8 Ibid., pp. 377-378.

9 Act No. 190 (1901). According to Section 241 of such Code: "The Government of the
Philippine Islands, or of any province or department thereof, or of any municipality, and
any person, or public or private corporation having by law the right to condemn private
property for public use shall exercise that right in the manner hereinafter prescribed." The
next section reads: "The complaint in condemnation proceedings shall state with certainty
the right of condemnation, and describe the property sought to be condemned, showing
the interest of each defendant separately." Sec. 242.

10 106 Phil. 1017 (1960).

11 Ibid., p. 1022.

12 Ibid.

13 "According to Article III, Section 1, paragraph 2 of the Constitution: "Private property

shall not be taken for public use without just compensation."

14 Section 247 of Act No. 190 reads in full: "Upon payment by the plaintiff to the
defendant of compensation as fixed by the judgment, or after tender to him of the amount
so fixed and payment of the costs, the plaintiff shall have the right to enter in and upon
the land so condemned, to appropriate the same to the public use defined in the
judgment. In case the defendant and his attorney absent themselves from the court or
decline to receive the same, payment may be made to the clerk of the court for him, and
such officer shall be responsible on his bond therefor and shall be compelled to receive
it."

15 Cf. Merrit v. Government of the Philippine Islands, 34 Phil. 311 (1916); Compania
General de Tabacos v. Government, 45 Phil. 663 (1924); Salgado v. Ramos, 64 Phil. 724
(1937); Bull v. Yatco, 67 Phil. 728 (1939); Santos vs. Santos, 92 Phil. 281 (1952) ; Froilan
v. Pan Oriental Shipping Co., 95 Phil. 905 (1954); Angat River Irrigation v. Angat River
Workers' Union, 102 Phil. 789 (1957); Concepcion, J., diss.; Lyons, Inc. v. United States
of America, 104 Phil. 593 (1958); Mobil Philippines Exploration, Inc. v. Customs Arrastre
Service, L-23139, December 17, 1966, 18 SCRA 1120; Hartford Insurance Co. v. P. D.
Marchessini & Co., L-24544, November 15, 1967, 21 SCRA 860; Firemen's Fund
Insurance Co. v. Maersk Line Far East Service, L-27189, March 28, 1969, 27 SCRA 519;
Insurance Co. of North America v. Osaka Shosen Kaisha, L-22784, March 28, 1969, 27
SCRA 780; Providence Washington Insurance Co. v. Republic of the Philippines, L-
26386, Sept. 30, 1969, 29 SCRA 598.
16 Alfonso v. Pasay City, 106 Phil. 1017, 1022-1023 (1960).
 SECOND DIVISION

G.R. No. 206484, June 29, 2016

DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS (DOTC), Petitioner, v. SPOUSES

VICENTE ABECINA AND MARIA CLEOFE ABECINA, Respondents.

DECISION

BRION, J.:

This petition for review on certiorari seeks to reverse and set aside the March 20, 2013 decision of the
Court of Appeals (CA) in CA-G.R. CV No. 937951 affirming the decision of the Regional Trial Court (RTC)
of Daet, Camarines Norte, Branch 39, in Civil Case No. 7355.2 The RTC ordered the Department of
Transportation and Communications (DOTC) to vacate the respondents' properties and to pay them
actual and moral damages.

ANTECEDENTS

Respondent spouses Vicente and Maria Cleofe Abecina (respondents/spouses Abecina) are the
registered owners of five parcels of land in Sitio Paltik, Barrio Sta. Rosa, Jose Panganiban, Camarines
Norte. The properties are covered by Transfer Certificates of Title (TCT) Nos. T-25094, T-25095, T-
25096, T-25097, and T-25098.3chanrobleslaw

In February 1993, the DOTC awarded Digitel Telecommunications Philippines, Inc. (Digitel) a contract for
the management, operation, maintenance, and development of a Regional Telecommunications
Development Project (RTDP) under the National Telephone Program, Phase I, Tranche 1 (NTPI-
1)4chanrobleslaw

The DOTC and Digitel subsequently entered into several Facilities Management Agreements (FMA) for
Digitel to manage, operate, maintain, and develop the RTDP and NTPI-1 facilities comprising local
telephone exchange lines in various municipalities in Luzon. The FMAs were later converted into
Financial Lease Agreements (FLA) in 1995.

Later on, the municipality of Jose Panganiban, Camarines Norte, donated a one thousand two hundred
(1,200) square-meter parcel of land to the DOTC for the implementation of the RDTP in the municipality.
However, the municipality erroneously included portions of the respondents' property in the donation.
Pursuant to the FLAs, Digitel constructed a telephone exchange on the property which encroached on the
properties of the respondent spouses.5chanrobleslaw

Sometime in the mid-1990s, the spouses Abecina discovered Digitel's occupation over portions of their
properties. They required Digitel to vacate their properties and pay damages, but the latter refused,
insisting that it was occupying the property of the DOTC pursuant to their FLA.

On April 29, 2003, the respondent spouses sent a final demand letter to both the DOTC and Digitel to
vacate the premises and to pay unpaid rent/damages in the amount of one million two hundred thousand
pesos (P1,200,000.00). Neither the DOTC nor Digitel complied with the demand.
On September 3, 2003, the respondent spouses filed an accion publiciana complaint6 against the DOTC
and Digitel for recovery of possession and damages. The complaint was docketed as Civil Case No.
7355.

In its answer, the DOTC claimed immunity from suit and ownership over the subject
properties.7Nevertheless, during the pre-trial conference, the DOTC admitted that the Abecinas were the
rightful owners of the properties and opted to rely instead on state immunity from suit. 8chanrobleslaw

On March 12, 2007, the respondent spouses and Digitel executed a Compromise Agreement and entered
into a Contract of Lease. The RTC rendered a partial decision and approved the Compromise Agreement
on March 22, 2007.9chanrobleslaw

On May 20, 2009, the RTC rendered its decision against the DOTC. 10 It brushed aside the defense of
state immunity. Citing Ministerio v. Court of First Instance11 and Amigable v. Cuenca,12 it held that
government immunity from suit could not be used as an instrument to perpetuate an injustice on a
citizen.13chanrobleslaw

The RTC held that as the lawful owners of the properties, the respondent spouses enjoyed the right to
use and to possess them - rights that were violated by the DOTC's unauthorized entry, construction, and
refusal to vacate. The RTC (1) ordered the Department - as a builder in bad faith -to forfeit the
improvements and vacate the properties; and (2) awarded the spouses with P1,200,000.00 as actual
damages, P200,000.00 as moral damages, and P200,000.00 as exemplary damages plus attorney's fees
and costs of suit.

The DOTC elevated the case to the CA arguing: (1) that the RTC never acquired jurisdiction over it due to
state immunity from suit; (2) that the suit against it should have been dismissed after the spouses
Abecina and Digitel executed a compromise agreement; and (3) that the RTC erred in awarding actual,
moral, and exemplary damages against it.14 The appeal was docketed as CA-G.R. CV No. 93795.

On March 20, 2013, the CA affirmed the RTC's decision but deleted the award of exemplary damages.
The CA upheld the RTC's jurisdiction over cases for accion publiciana where the assessed value exceeds
P20,000.00.15 It likewise denied the DOTC's claim of state immunity from suit, reasoning that the DOTC
removed its cloak of immunity after entering into a proprietary contract - the Financial Lease Agreement
with Digitel.16 It also adopted the RTC's position that state immunity cannot be used to defeat a valid
claim for compensation arising from an unlawful taking without the proper expropriation
proceedings.17The CA affirmed the award of actual and moral damages due to the DOTC's neglect to
verify the perimeter of the telephone exchange construction but found no valid justification for the award
of exemplary damages.18chanrobleslaw

On April 16, 2013, the DOTC filed the present petition for review on certiorari.

THE PARTIES' ARGUMENTS

The DOTC asserts that its Financial Lease Agreement with Digitel was entered into in pursuit of its
governmental functions to promote and develop networks of communication systems. 19 Therefore, it
cannot be interpreted as a waiver of state immunity.

The DOTC also maintains that while it was regrettable that the construction of the telephone exchange
erroneously encroached on portions of the respondent's properties, the RTC erred in ordering the return
of the property.20 It argues that while the DOTC, in good faith and in the performance of its mandate, took
private property without formal expropriation proceedings, the taking was nevertheless an exercise of
eminent domain.21chanrobleslaw

Citing the 2007 case of Heirs of Mateo Pidacan v. Air Transportation Office (ATO),22 the Department
prays that instead of allowing recovery of the property, the case should be remanded to the RTC for
determination of just compensation.
On the other hand, the respondents counter that the state immunity cannot be invoked to perpetrate an
injustice against its citizens.23 They also maintain that because the subject properties are titled, the DOTC
is a builder in bad faith who is deemed to have lost the improvements it introduced. 24 Finally, they
differentiate their case from Heirs of Mateo Pidacan v. ATO because Pidacan originated from a complaint
for payment of the value of the property and rentals while their case originated from a complaint for
recovery of possession and damages.25cralawredchanrobleslaw

OUR RULING

We find no merit in the petition.

The State may not be sued without its consent.26 This fundamental doctrine stems from the principle that
there can be no legal right against the authority which makes the law on which the right depends. 27This
generally accepted principle of law has been explicitly expressed in both the 1973 28 and the present
Constitutions.

But as the principle itself implies, the doctrine of state immunity is not absolute. The State may waive its
cloak of immunity and the waiver may be made expressly or by implication.

Over the years, the State's participation in economic and commercial activities gradually expanded
beyond its sovereign function as regulator and governor. The evolution of the State's activities and degree
of participation in commerce demanded a parallel evolution in the traditional rule of state immunity. Thus,
it became necessary to distinguish between the State's sovereign and governmental acts (jure imperii)
and its private, commercial, and proprietary acts (jure gestionis). Presently, state immunity restrictively
extends only to acts jure imperii while acts jure gestionis are considered as a waiver of
immunity.29chanrobleslaw

The Philippines recognizes the vital role of information and communication in nation building.30 As a
consequence, we have adopted a policy environment that aspires for the full development of
communications infrastructure to facilitate the flow of information into, out of, and across the country. 31To
this end, the DOTC has been mandated with the promotion, development, and regulation of dependable
and coordinated networks of communication.32chanrobleslaw

The DOTC encroached on the respondents' properties when it constructed the local telephone exchange
in Daet, Camarines Norte. The exchange was part of the RTDP pursuant to the National Telephone
Program. We have no doubt that when the DOTC constructed the encroaching structures and
subsequently entered into the FLA with Digitel for their maintenance, it was carrying out a sovereign
function. Therefore, we agree with the DOTC's contention that these are acts jure imperii that fall within
the cloak of state immunity.

However, as the respondents repeatedly pointed out, this Court has long established in Ministerio v
CFI,33Amigable v. Cuenca,34 the 2010 case Heirs of Pidacan v. ATO,35 and more recently in Vigilar v.
Aquino36 that the doctrine of state immunity cannot serve as an instrument for perpetrating an injustice to
a citizen.

The Constitution identifies the limitations to the awesome and near-limitless powers of the State. Chief
among these limitations are the principles that no person shall be deprived of life, liberty, or property
without due process of law and that private property shall not be taken for public use without just
compensation.37 These limitations are enshrined in no less than the Bill of Rights that guarantees the
citizen protection from abuse by the State.

Consequently, our laws38 require that the State's power of eminent domain shall be exercised through
expropriation proceedings in court. Whenever private property is taken for public use, it becomes the
ministerial duty of the concerned office or agency to initiate expropriation proceedings. By necessary
implication, the filing of a complaint for expropriation is a waiver of State immunity.
If the DOTC had correctly followed the regular procedure upon discovering that it had encroached on the
respondents' property, it would have initiated expropriation proceedings instead of insisting on its
immunity from suit. The petitioners would not have had to resort to filing its complaint for reconveyance.
As this Court said in Ministerio:ChanRoblesVirtualawlibrary
It is unthinkable then that precisely because there was a failure to abide by what the law requires, the
government would stand to benefit. It is just as important, if not more so, that there be fidelity to legal
norms on the part of officialdom if the rule of law were to be maintained. It is not too much to say
that when the government takes any property for public use, which is conditioned upon the
payment of just compensation, to be judicially ascertained, it makes manifest that it submits to
the jurisdiction of a court. There is no thought then that the doctrine of immunity from suit could still be
appropriately invoked.39 [Emphasis supplied]
We hold, therefore, that the Department's entry into and taking of possession of the respondents' property
amounted to an implied waiver of its governmental immunity from suit.

We also find no merit in the DOTC's contention that the RTC should not have ordered the reconveyance
of the respondent spouses' property because the property is being used for a vital governmental function,
that is, the operation and maintenance of a safe and efficient communication system. 40chanrobleslaw

The exercise of eminent domain requires a genuine necessity to take the property for public use and the
consequent payment of just compensation. The property is evidently being used for a public purpose.
However, we also note that the respondent spouses willingly entered into a lease agreement with Digitel
for the use of the subject properties.

If in the future the factual circumstances should change and the respondents refuse to continue the lease,
then the DOTC may initiate expropriation proceedings. But as matters now stand, the respondents are
clearly willing to lease the property. Therefore, we find no genuine necessity for the DOTC to actually take
the property at this point.

Lastly, we find that the CA erred when it affirmed the RTC's decision without deleting the forfeiture of the
improvements made by the DOTC through Digitel. Contrary to the RTC's findings, the DOTC was not a
builder in bad faith when the improvements were constructed. The CA itself found that the Department's
encroachment over the respondents' properties was a result of a mistaken implementation of the donation
from the municipality of Jose Panganiban.41chanrobleslaw

Good faith consists in the belief of the builder that the land he is building on is his and [of] his ignorance of
any defect or flaw in his title.42 While the DOTC later realized its error and admitted its encroachment over
the respondents' property, there is no evidence that it acted maliciously or in bad faith when the
construction was done.

Article 52743 of the Civil Code presumes good faith. Without proof that the Department's mistake was
made in bad faith, its construction is presumed to have been made in good faith. Therefore, the forfeiture
of the improvements in favor of the respondent spouses is unwarranted.

WHEREFORE, we hereby DENY the petition for lack of merit. The May 20, 2009 decision of the Regional
Trial Court in Civil Case No. 7355, as modified by the March 20, 2013 decision of the Court of Appeals
in CA-G.R. CV No. 93795, is AFFIRMED with further MODIFICATION that the forfeiture of the
improvements made by the DOTC in favor of the respondents is DELETED. No costs.

SO ORDERED.chanRoblesvirtualLawlibrary

Carpio, (Chairperson), Mendoza, and Leonen, JJ., concur.

Del Castillo, J., on leave.
 FIRST DIVISION

[G.R. No. L-29993. October 23, 1978.]

LAUDENCIO TORIO, GUILLERMO EVANGELISTA, MANUEL DE GUZMAN, ALFONSO R.

MAGSANOC, JESUS MACARANAS, MAXIMO MANANGAN, FIDEL MONTEMAYOR, MELCHOR
VIRAY, RAMON TULAGAN, all Members of the Municipal Council of Malasiqui in 1959, Malasiqui,
Pangasinan, Petitioners, v. ROSALINA, ANGELINA, LEONARDO, EDUARDO, ARTEMIO,
ANGELITA, ANITA, ERNESTO, NORMA, VIRGINIA, REMEDIOS and ROBERTO, all surnamed
FONTANILLA, and THE HONORABLE COURT OF APPEALS, Respondents.

[G.R. No. L-30183. October 23, 1978.]

MUNICIPALITY OF MALASIQUI, Petitioner, v. ROSALINA, ANGELINA, LEONARDO, EDUARDO,

ARTEMIO, ANGELITA, ANITA, ERNESTO, NORMA, VIRGINIA, REMEDIOS and ROBERTO, all
surnamed FONTANILLA, and the Honorable COURT OF APPEALS, Respondents.

Julian M. Armas, Assistant Provincial Fiscal, for Petitioners.

Isidoro L. Padilla for Respondents.

SYNOPSIS

Pursuant to Section 2282 of the Revised Administrative Code, the Municipal Council of Malasiqui,
Pangasinan, resolved to celebrate the town fiesta and created a "Town Fiesta Executive Committee" to
undertake, manage and supervise the festivities. The Executive Committee created a sub-committee on
"Entertainment and Stage", which constructed two stages, one for the "zarzuela" and another for
"cancionan." During the program people went up the "zarzuela" stage and before the play was over the
stage collapsed, pinning underneath one of the performers, resulting in his death.

The heirs of the deceased sued the municipality and the councilors for damages. The municipality
invoked inter alia the principal defense that the holding of a town fiesta was an exercise of its
governmental function from which no liability can arise to answer for the negligence of any of its agents.
The councilors maintained that they merely acted as agents of the municipality in carrying out the
municipal ordinance.

The trial court dismissed the complaint of a finding that the petitioners exercised due diligence and care of
a good father of a family in selecting a competent man to construct the stage and if it collapsed it was due
to forces beyond the control of the committee on entertainment and stage.

The Court of Appeals reversed the decision stating that petitioners were guilty of negligence when they
failed to take the necessary measures to prevent the mounting of onlookers on the stage resulting in the
collapse thereof.

The Supreme Court held that the holding of a town fiesta though not for profit is a proprietary function for
which a municipality is liable for damages to third persons ex contractu or ex delicto; that under the
principle of respondeat superior the principal is liable for the negligence of its agents acting within the
scope of their assigned tasks; and that the municipal councilors have a personally distinct and separate
from the municipality, hence, as a rule they are not co-responsible in an action for damages for tort or
 negligence unless they acted in bad faith or have directly participated in the commission of the wrongful
act.

Appealed decision affirmed with modification.

SYLLABUS

1. POLITICAL LAW; MUNICIPAL CORPORATIONS; MUNICIPALITIES MAY SUE AND BE SUED. —

Under Philippine laws municipalities are political bodies corporate and as such are endowed with the
faculties of municipal corporations to be exercised by and through their respective municipal governments
in conformity with law, and in their proper corporate name, they may inter alia, sue and be sued, and
contract and be contracted with.

2. ID.; ID.; dual CHARACTER OF MUNICIPALITIES. — Municipal corporations exist in a dual capacity
and their powers are twofold in character — public, governmental or political on the one hand, corporate
private, or proprietary on the other hand. Governmental powers are those exercised by the corporation in
administering the powers of the state and promoting the public welfare and they include the legislative,
judicial, public, and political. Municipal powers on the other hand are exercised for the special benefit and
advantage of the community and include those which are ministerial, private and corporate.

3. ID.; ID.; ID.; TEST; RULE IN DETERMINING NATURE OF FUNCTION PERFORMED. — A municipal
corporation proper has a public character as regards the state at large insofar as it is its agent in
government, and private insofar as it is to promote local necessities and conveniences for its own
community (McQuillin on Municipal Corporations). Stated differently, "Municipal corporations exist in a
dual capacity and their functions are twofold. In one way they exercise the right springing from
sovereignty, and while in the performance of the duties pertaining thereto, their acts are political and
governmental. Their officers and agents in such capacity, though elected or appointed by them, are
nevertheless public functionaries performing a public service, and as such they are officers, agents, and
servants of the state. In the other capacity the municipalities exercise a private, proprietary or corporate
right, arising from their existence as legal persons and not as public agencies. Their officers and agents in
the performance of such functions act in behalf of the municipalities in their corporate or individual
capacity, and not for the state or sovereign power." (City of Kokomo v. Boy, 112 NE 994).

4. ID.; ID.; ID.; LIABILITY; RULE ON LIABILITY OF MUNICIPAL CORPORATIONS. — If the injury is
caused in the course of the performance of a governmental function or duty no recovery, as a rule, can be
had from the municipality unless there is an existing statute on the matter, nor from its officers, so long as
they performed their duties honestly and in good faith or that they did not act wantonly and maliciously.
With respect to proprietary functions, the settled rule is that a municipal corporation can be held liable to
third persons ex contractu or ex delicto. The rule of law is a general one, that the superior or employer
must answer civilly for the negligence or want of skill of his agent or servant in the course or line of his
employment, by which another, who is free from contributory fault, is injured. Municipal corporations
under the conditions herein stated, fall within the operation of this rule of law, and are liable, accordingly,
to civil actions for damages when the requisite elements of liability coexist (Dillion on Municipal
Corporations). There can be no hard and fast rule for purposes of determining the true nature of an
undertaking or function of a municipality; the surrounding circumstances of a particular case are to be
considered and will be decisive. The basic element, however beneficial to the public the undertaking may
be, is that it is governmental in essence, otherwise the function becomes private or proprietary in
character.

5. ID.; ID.; ID.; SECTION 2282, REVISED ADMINISTRATIVE CODE MERELY AUTHORITATIVE;
HOLDING FIESTAS, PROPRIETARY IN CHARACTER. — Section 2282 of the Revised Administrative
Code simply gives authority to the municipality to celebrate a yearly fiesta but it does not impose upon it a
duty to observe one. Holding a fiesta even if the purpose is to commemorate a religious or historical event
of the town is in essence an act for the special benefit of the community and not for the general welfare of
 the public performed in pursuance of a policy of the state. It is an exercise of a private proprietary
function. The mere fact that the celebration was not to secure profit or gain but merely to provide
entertainment to the town inhabitants is not a conclusive test that the same is governmental in character.

6. ID.; ID.; RESPONDEAT SUPERIOR; MUNICIPALITY LIABLE FOR DAMAGES COMMITTED BY ITS
AGENTS. — The municipality cannot evade responsibility for the death of a stage performer arising from
faulty construction of the stage by the chairman of the entertainment and stage committee appointed by
the municipal council, in connection with a town fiesta, because under the doctrine of respondeat
superior, a municipality is responsible or liable for the negligence of its agent acting within his assigned
tasks.

7. ID.; ID.; ID.; LIABILITY RESTS ON NEGLIGENCE. — The failure of the municipality or its agents
despite the necessary means within its command, to prevent the onlookers from mounting on the stage
resulting in its collapse and death of one of the performers constitutes negligence from which liability
arises. Liability rests on negligence which is "the want of such care as a person of ordinary prudence
would exercise under the circumstances of the case."cralaw virtua1aw library

8. ID.; ID.; ID.; LIABILITY OF MUNICIPALITY TO "INVITEE." — Where a municipality, in connection with
the celebration of a town fiesta, accepted the donation of the services of an "extravaganza troupe" and
constructed precisely a "zarzuela stage" for the purpose, the participants in the stage show had the right
to expect that the municipality would build or put up a stage or platform strong enough to sustain the
weight or burden of the performance and take the necessary measures to insure the personal safety of
the participants.

9. ID.; ID.; ID.; ARTICLE 27 OF THE NEW CIVIL CODE, NOT APPLICABLE. — Article 27 of the New
Civil Code which allows action for damages against a public servant or employee who refuses or neglect
without just cause to perform his duties covers a case of non-feasance or non-performance by a public
officer of his official duty; it does not apply to a case of negligence or misfeasance in carrying out an
official duty.

10. ID.; ID.; ID.; MUNICIPAL COUNCILORS NOT LIABLE FOR DAMAGES ARISING FROM THE
WRONGFUL ACT OF THE MUNICIPAL OFFICIALS UNLESS THEY PARTICIPATED IN THE
COMMISSION THEREOF. — The celebration of a town fiesta by a municipality is not a governmental
function. The legal consequence is that the municipality stands on the same footing as an ordinary private
corporation with the municipal council acting as its board of directors. It is an elementary principle that a
corporation has a personality separate and distinct from its officers, directors, or persons composing it
and the latter are not as a rule co-responsible in an action for damages for tort or negligence (culpa
acquiliana) committed by the corporation’s employees or agents unless there is a showing of bad faith or
gross or wanton negligence on their part.

DECISION

MUÑOZ PALMA, J.:

These Petitions for review present the issue of whether or not the celebration of a town fiesta authorized
by a municipal council under Sec. 2282 of the Municipal Law as embodied in the Revised Administrative
Code is a governmental or a corporate or proprietary function of the municipality.

A resolution of that issue will lead to another, viz: the civil liability for damages of the Municipality of
Malasiqui, and the members of the Municipal Council of Malasiqui, province of Pangasinan, for a death
which occurred during the celebration of the town fiesta on January 22, 1959, and which was attributed to
the negligence of the municipality and its council members.cralawnad
The following facts are not in dispute:chanrob1es virtual 1aw library

On October 21, 1958, the Municipal Council of Malasiqui, Pangasinan, passed Resolution No. 159
whereby "it resolved to manage the 1959 Malasiqui town fiesta celebration on January 21, 22, and 23,
1959." Resolution No. 182 was also passed creating the "1959 Malasiqui Town Fiesta Executive
Committee" which in turn organized a subcommittee on entertainment and stage, with Jose Macaraeg as
Chairman. The council appropriated the amount of P100.00 for the construction of 2 stages, one for the
"zarzuela" and another for the "cancionan." Jose Macaraeg supervised the construction of the stage and
as constructed the stage for the "zarzuela" was "5-1/2 meters by 8 meters in size, had a wooden floor
high at the rear and was supported by 24 bamboo posts — 4 in a row in front, 4 in the rear and 5 on each
side — with bamboo braces." 1

The "zarzuela" entitled "Midas Extravanganza" was donated by an association of Malasiqui employees of
the Manila Railroad Company in Caloocan, Rizal. The troupe arrived in the evening of January 22 for the
performance and one of the members of the group was Vicente Fontanilla. The program started at about
10:15 o’clock that evening with some speeches, and many persons went up the stage. The "zarzuela"
then began but before the dramatic part of the play was reached, the stage collapsed and Vicente
Fontanilla who was at the rear of the stage was pinned underneath. Fontanilla was taken to the San
Carlos General Hospital where he died in the afternoon of the following day.

The heirs of Vicente Fontanilla filed a complaint with the Court of First Instance of Manila on September
11, 1959 to recover damages. Named party-defendants were the Municipality of Malasiqui, the Municipal
Council of Malasiqui and all the individual members of the Municipal Council in 1959.

Answering the complaint defendant municipality invoked inter alia the principal defense that as a legally
and duly organized public corporation it performs sovereign functions and the holding of a town fiesta was
an exercise of its governmental functions from which no liability can arise to answer for the negligence of
any of its agents.

The defendant councilors in turn maintained that they merely acted as agents of the municipality in
carrying out the municipal ordinance providing for the management of the town fiesta celebration and as
such they are likewise not liable for damages as the undertaking was not one for profit; furthermore. they
had exercised due care and diligence in implementing the municipal ordinance. 2

After trial, the Presiding Judge, Hon. Gregorio T. Lantin, narrowed the issue to whether or not the
defendants exercised due diligence in the construction of the stage. From his findings he arrived at the
conclusion that the Executive Committee appointed by the municipal council had exercised due diligence
and care like a good father of the family in selecting a competent man to construct a stage strong enough
for the occasion and that if it collapsed that was due to forces beyond the control of the committee on
entertainment, consequently, the defendants were not liable for damages for the death of Vicente
Fontanilla. The complaint was accordingly dismissed in a decision dated July 10, 1962. 3

The Fontanillas appealed to the Court of Appeals. In a decision promulgated on October 31, 1968, the
Court of Appeals through its Fourth Division composed at the time of Justices Salvador V. Esguerra,
Nicasio A. Yatco and Eulogio S. Serrano reversed the trial court’s decision and ordered all the
defendants-appellees to pay jointly and severally the heirs of Vicente Fontanilla the sums of P12,000.00
by way of moral and actual damages: P1,200.00 as attorney’s fees; and the costs. 4

The case is now before Us on various assignments of errors all of which center on the proposition stated
at the opening sentence of this Opinion and which We repeat:chanrobles virtual lawlibrary

Is the celebration of a town fiesta an undertaking in the exercise of a municipality’s governmental or

public function or is it of a private or proprietary character?

1. Under Philippine laws municipalities are political bodies corporate and as such as endowed with the
faculties of municipal corporations to be exercised by and through their respective municipal governments
in conformity with law, and in their proper corporate name, they may, inter alia, sue and be sued, and
contract and be contracted with. 5

The powers of a municipality are twofold in character — public, governmental, or political on the one
hand, and corporate, private, or proprietary on the other. Governmental powers are those exercised by
the corporation in administering the powers of the state and promoting the public welfare and they include
the legislative, judicial, public, and political, Municipal powers on the other hand are exercised for the
special benefit and advantage of the community and include those which are ministerial, private and
corporate. 6

As to when a certain activity is governmental and when proprietary or private, that is generally a difficult
matter to determine. The evolution of the municipal law in American Jurisprudence, for instance, has
shown that none of the tests which have evolved and are stated in textbooks have set down a conclusive
principle or rule, so that each case will have to be determined on the basis of attending circumstances.

In McQuillin on Municipal Corporations, the rule is stated thus: "A municipal corporation proper has . . . a
public character as regards the state at large insofar as it is its agent in government, and private (so-
cases) insofar as it is to promote local necessities and conveniences for its own community." 7

Another statement of the test is given in City of Kokomo v. Loy, decided by the Supreme Court of Indiana
in 1916, thus:jgc:chanrobles.com.ph

"Municipal corporations exist in a dual capacity, and their functions are twofold. In one they exercise the
right springing from sovereignty, and while in the performance of the duties pertaining thereto, their acts
are political and governmental. Their officers and agents in such capacity, though elected or appointed by
them, are nevertheless public functionaries performing a public service, and as such they are officers,
agents, and servants of the state. In the other capacity the municipalities exercise a private, proprietary or
corporate right, arising from their existence as legal persons and not as public agencies. Their officers
and agents in the performance of such functions act in behalf of the municipalities in their corporate or
individual capacity, and not for the state or sovereign power." (112 N.E., 994-995)chanrobles law library

In the early Philippine case of Mendoza v. de Leon, 1916, the Supreme Court, through Justice Grant T.
Trent, relying mainly on American Jurisprudence classified certain activities of the municipality as
governmental, e.g.: regulations against fire, disease, preservation of public peace, maintenance of
municipal prisons, establishment of schools, post-offices, etc. while the following are corporate or
proprietary in character, viz: municipal waterwork, slaughterhouses, markets, stables, bathing
establishments, wharves, ferries, and fisheries. 8 Maintenance of parks, golf courses, cemeteries and
airports among others, are also recognized as municipal or city activities of a proprietary character. 9

2. This distinction of powers becomes important for purposes of determining the liability of the
municipality for the acts of its agents which result in an injury to third persons.

If the injury is caused in the course of the performance of a governmental function or duty no recovery, as
a rule, can be had from the municipality unless there is an existing statute on the matter, 10 nor from its
officers, so long as they performed their duties honestly and in good faith or that they did not act wantonly
and maliciously. 11 In Palafox, Et. Al. v. Province of Ilocos Norte, Et Al., 1958, a truck driver employed by
the provincial government of Ilocos Norte ran over Proceto Palafox in the course of his work at the
construction of a road. The Supreme Court in affirming the trial court’s dismissal of the complaint for
damages held that the province could not be made liable because its employee was in the performance
of a governmental function — the construction and maintenance of roads — and however tragic and
deplorable it may be, the death of Palafox imposed on the province no duty to pay monetary
consideration. 12

With respect to proprietary functions, the settled rule is that a municipal corporation can be held liable to
third persons ex contractu 13 or ex delicto. 14
"Municipal corporations are subject to be sued upon contracts and in tort. . . .

x x x

"The rule of law is a general one, that the superior or employer must answer civilly for the negligence or
want of skill of its agent or servant in the course or line of his employment, by which another, who is free
from contributory fault, is injured. Municipal corporations under the conditions herein stated, fall within the
operation of this rule of law, and are liable, accordingly, to civil actions for damages when the requisite
elements of liability coexist . . ." (Dillon on Municipal Corporations, 5th ed. Secs, 1610, 1647, cited in
Mendoza v. de Leon, supra, 514)

3. Coming to the case before Us, and applying the general tests given above, We hold that the holding of
the town fiesta in 1959 by the municipality of Malasiqui Pangasinan, was an exercise of a private or
proprietary function of the municipality.

Section 2282 of the Chapter on Municipal Law of the Revised Administrative Code
provides:jgc:chanrobles.com.ph

"Section 2282. Celebration of fiesta. — A fiesta may be held in each municipality not oftener than once a
year upon a date fixed by the municipal council. A fiesta shall not be held upon any other date than that
lawfully fixed therefor, except when, for weighty reasons, such as typhoons, inundations, earthquakes,
epidemics, or other public calamities, the fiesta cannot be held in the date fixed, in which case it may be
held at a later date in the same year, by resolution of the council."cralaw virtua1aw library

This provision simply gives authority to the municipality to accelebrate a yearly fiesta but it does not
impose upon it a duty to observe one. Holding a fiesta even if the purpose is to commemorate a religious
or historical event of the town is in essence an act for the special benefit of the community and not for the
general welfare of the public performed in pursuance of a policy of the state. The mere fact that the
celebration, as claimed, was not to secure profit or gain but merely to provide entertainment to the town
inhabitants is not a conclusive test. For instance, the maintenance of parks is not a source of income for
the town, nonetheless it is private undertaking as distinguished from the maintenance of public schools,
jails, and the like which are for public service.chanrobles.com.ph : virtual law library

As stated earlier, there can be no hard and fast rule for purposes of determining the true nature of an
undertaking or function of a municipality; the surrounding circumstances of a particular case are to be
considered and will be decisive. The basic element, however beneficial to the public the undertaking may
be, is that it is governmental in essence, otherwise, the function becomes private or proprietary in
character. Easily, no governmental or public policy of the state is involved in the celebration of a town
fiesta. 15

4. It follows that under the doctrine of respondent superior, petitioner-municipality is to be held liable for
damages for the death of Vicente Fontanilla if that was attributable to the negligence of the municipality’s
officers, employees, or agents.

"Art. 2176, Civil Code: Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. . . ."cralaw virtua1aw library

"Art. 2180. Civil Code: The obligation imposed by article 2176 is demandable not only for one’s own acts
or omission, but also for those of persons for whom one is responsible . . ."cralaw virtua1aw library

On this point, the Court of Appeals found and held that there was negligence.

The trial court gave credence to the testimony of Angel Novado, a witness of the defendants (now
petitioners), that a member of the "extravaganza troupe" removed two principal braces located on the
front portion of the stage and used them to hang the screen or "telon", and that when many people went
up the stage the latter collapsed. This testimony was not believed however by respondent appellate court,
and rightly so. According to said defendants, those two braces were "mother" or "principal" braces located
semi-diagonally from the front ends of the stage to the front posts of the ticket booth located at the rear of
the stage and were fastened with a bamboo twine. 16 That being the case, it becomes incredible that any
person in his right mind would remove those principal braces and leave the front portion of the stage
practically unsupported. Moreover, if that did happen, there was indeed negligence as there was lack of
supervision over the use of the stage to prevent such an occurrence.

At any rate, the guitarist who was pointed to by Novado as the person who removed the two bamboo
braces denied having done so. The Court of Appeals said. "Amor by himself alone could not have
removed the two braces which must be about ten meters long and fastened them on top of the stage for
the curtain. The stage was only five and a half meters wide Surely, it would be impractical and unwieldy to
use a ten meter bamboo pole, much more two poles, for the stage curtain." 17

The appellate court also found that the stage was not strong enough considering that only P100.00 was
appropriate for the construction of two stages and while the floor of the "zarzuela" stage was of wooden
planks, the posts and braces used were of bamboo material. We likewise observe that although the stage
was described by the petitioners as being supported by "24" posts, nevertheless there were only 4 in
front, 4 at the rear, and 5 on each side. Where were the rest?chanrobles.com:cralaw:red

The Court of Appeals thus concluded:jgc:chanrobles.com.ph

"The court a quo itself attributed the collapse of the stage to the great number of onlookers who mounted
the stage. The municipality and/or its agents had the necessary means within its command to prevent
such an occurrence. Having failed to take the necessary steps to maintain the safety of the stage for the
use of the participants in the stage presentation prepared in connection with the celebration of the town
fiesta, particularly, in preventing nonparticipants or spectators from mounting and accumulating on the
stage which was not constructed to meet the additional weight, the defendants-appellees were negligent
and are liable for the death of Vicente Fontanilla." (pp. 30-31, rollo, L-29993)

The findings of the respondent appellate court that the facts as presented to it establish negligence as a
matter of law and that the Municipality failed to exercise the due diligence of a good father of the family,
will not disturbed by Us in the absence of a clear showing of an abuse of discretion or a gross
misapprehension of facts. 18

Liability rests on negligence which is "the want of such care as a person of ordinary prudence would
exercise under the circumstances of the case." 19

Thus, private respondents argue that the "Midas Extravaganza" which was to be performed during the
town fiesta was a "donation" offered by an association of Malasiqui employees of the Manila Railroad Co.
in Caloocan, and that when the Municipality of Malasiqui accepted the donation of services and
constructed precisely a "zarzuela stage" for the purpose, the participants in the stage show had the right
to expect that the Municipality through its "Committee on entertainment and stage" would build or put up a
stage or platform strong enough to sustain the weight or burden of the performance and take the
necessary measures to insure the personal safety of the participants. 20 We agree.

Quite relevant to that argument is the American case of Sanders v. City of Long Beach, 1942, which was
an action against the city for injuries sustained from a fall when plaintiff was descending the steps of the
city auditorium. The city was conducting a "Know your City Week" and one of the features was the
showing of a motion picture in the city auditorium to which the general public was invited and plaintiff
Sanders was one of those who attended. In sustaining the award for damages in favor of plaintiff, the
District Court of Appeal, Second district, California, held inter alia that the "Know your City Week" was a
"proprietary activity" and not a "governmental one" of the city, that defendant owed to plaintiff, an
"invitee", the duty of exercising ordinary care for her safety, and plaintiff was entitled to assume that she
would not be exposed to a danger (which in this case consisted of lack of sufficient illumination of the
premises) that would come to her through a violation of defendant’s duty. 21

We can say that the deceased Vicente Fontanilla was similarly situated as Sanders. The Municipality of
Malasiqui resolved to celebrate the town fiesta in January of 1959; it created a committee in charge of the
entertainment and stage; an association of Malasiqui residents responded to the call for the festivities and
volunteered to present a stage show; Vicente Fontanilla was one of the participants who like Sanders had
the right to expect that he would be exposed to danger on that occasion.chanrobles virtual lawlibrary

Lastly, petitioner or appellant Municipality cannot evade responsibility and/or liability under the claim that
it was Jose Macaraeg who constructed the stage. The municipality acting through its municipal council
appointed Macaraeg as chairman of the sub-committee on entertainment and in charge of the
construction of the "zarzuela" stage. Macaraeg acted merely as an agent of the Municipality. Under the
doctrine of respondent superior mentioned earlier, petitioner is responsible or liable for the negligence of
its agent acting within his assigned tasks. 22

". . . when it is sought to render a municipal corporation liable for the act of servants or agents, a cardinal
inquiry is, whether they are the servants or agents of the corporation. If the corporation appoints or elects
them, can control them in the discharge of their duties, can continue or remove them, can hold them
responsible for the manner in which they discharge their trust, and if those duties relate to the exercise of
corporate powers, and are for the peculiar benefit of the corporation in its local or special interest, they
may justly be regarded as its agents or servants, and the maxim of respondent superior applies.." . .
(Dillon on Municipal Corporations, 5th Ed., Vol. IV, p. 2879)

5. The remaining question to be resolved centers on the liability of the municipal councilors who enacted
the ordinance and created the fiesta committee.

The Court of Appeals held the councilors jointly and solidarily liable with the municipality for damages
under Article 27 of the Civil Code which provides that "any person suffering material or moral loss
because a public servant or employee refuses or neglects, without just cause, to perform his official duty
may file an action for damages and other relief against the latter." 23

In their Petition for review the municipal councilors allege that the Court of Appeals erred in ruling that the
holding of a town fiesta is not a governmental function and that there was negligence on their part for not
maintaining and supervising the safe use of the stage, in applying Article 27 of the Civil Code against
them, and in not holding Jose Macaraeg liable for the collapse of the stage and the consequent death of
Vicente Fontanilla. 24

We agree with petitioners that the Court of Appeals erred in applying Article 27 of the Civil Code against
them, for this particular article covers a case of non-feasance or non-performance by a public officer of
his official duty; it does not apply to a case of negligence or misfeasance in carrying out an official duty.

If We are led to set aside the decision of the Court of Appeals insofar as these petitioners are concerned,
it is because of plain error committed by respondent court which however is not invoked in petitioners’
brief.

In Miguel v. The Court of Appeals, Et Al., the Court, through Justice, now Chief Justice, Fred Ruiz Castro,
held that the Supreme Court is vested with ample authority to review matters not assigned as errors in an
appeal if it finds that their consideration and resolution are indispensable or necessary in arriving at a just
decision in a given case, and that this is authorized under Sec. 7, Rule 51 of the Rules of Court. 25 We
believe that this pronouncement can well be applied in the instant case.chanrobles virtual lawlibrary

The Court of Appeals in its decision now under review held that the celebration of a town fiesta by the
Municipality of Malasiqui was not a governmental function. We upheld that ruling. The legal consequence
thereof is that the Municipality stands on the same footing as an ordinary private corporation with the
municipal council acting as its board of directors. It is an elementary principle that a corporation has a
personality, separate and distinct from its officers, directors, or persons composing it 26 and the latter are
not as a rule co-responsible in an action for damages for tort or negligence (culpa aquiliana) committed
by the corporation’s employees or agents unless there is a showing of bad faith or gross or wanton
negligence on their part. 27

x x x

"The ordinary doctrine is that a Director, merely by reason of his office, is not personally liable for the torts
of his corporation; he must be shown to have personally voted for or otherwise participated in them.." . .
(Fletcher Cyclopedia Corporations, Vol. 3A, Chapt. 11, p. 207)

"Officers of a corporation ‘are not held liable for the negligence of the corporation merely because of their
official relation to it, but because of some wrongful or negligent act by such officer amounting to a breach
of duty which resulted in an injury . . . To make an officer of a corporation liable for the negligence of the
corporation there must have been upon his part such a breach of duty as contributed to, or helped to
bring about, the injury; that is to say, he must be a participant in the wrongful act.." . . (pp. 207-208, ibid.)

x x x

"Directors who merely employ one to give n fireworks exhibition on the corporate grounds are not
personally liable for the negligent acts of the exhibitor." (p. 211, ibid.)

On these principles We absolve the municipal councilors from any liability for the death of Vicente
Fontanilla. The records do not show that said petitioners directly participated in the defective construction
of the "zarzuela" stage or that they personally permitted spectators to go up the platform.

6. One last point We have to resolve is on the award of attorney’s fees by respondent court. Petitioner-
municipality assails the award.

Under paragraph 11, Art. 2208 of the Civil Code attorney’s fees and expenses of litigation may be granted
when the court deems it just and equitable. In this case of Vicente Fontanilla, although respondent
appellate court failed to state the grounds for awarding attorney’s fees, the records show however that
attempts were made by plaintiffs, now private respondents, to secure an extrajudicial compensation from
the municipality; that the latter gave promises and assurances of assistance but failed to comply; and it
was only eight months after the incident that the bereaved family of Vicente Fontanilla was compelled to
seek relief from the courts to ventilate what was believed to be a just cause. 28

We hold, therefore, that there is no error committed in the grant of attorney’s fees which after all is a
matter of judicial discretion. The amount of P1,200.00 is fair and reasonable.

PREMISES CONSIDERED, We AFFIRM in toto the decision of the Court of Appeals insofar as the
Municipality of Malasiqui is concerned (L-30183), and We absolve the municipal councilors from liability
and SET ASIDE the judgment against them (L-29993).

Without pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez, and Guerrero, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-52179 April 8, 1991

MUNICIPALITY OF SAN FERNANDO, LA UNION, petitioner

vs.
HON. JUDGE ROMEO N. FIRME, JUANA RIMANDO-BANIÑA, IAUREANO BANIÑA, JR., SOR
MARIETA BANIÑA, MONTANO BANIÑA, ORJA BANIÑA, AND LYDIA R. BANIÑA, respondents.

Mauro C. Cabading, Jr. for petitioner.

Simeon G. Hipol for private respondent.

MEDIALDEA, J.:

This is a petition for certiorari with prayer for the issuance of a writ of preliminary mandatory injunction
seeking the nullification or modification of the proceedings and the orders issued by the respondent
Judge Romeo N. Firme, in his capacity as the presiding judge of the Court of First Instance of La Union,
Second Judicial District, Branch IV, Bauang, La Union in Civil Case No. 107-BG, entitled "Juana Rimando
Baniña, et al. vs. Macario Nieveras, et al." dated November 4, 1975; July 13, 1976; August 23,1976;
February 23, 1977; March 16, 1977; July 26, 1979; September 7, 1979; November 7, 1979 and
December 3, 1979 and the decision dated October 10, 1979 ordering defendants Municipality of San
Fernando, La Union and Alfredo Bislig to pay, jointly and severally, the plaintiffs for funeral expenses,
actual damages consisting of the loss of earning capacity of the deceased, attorney's fees and costs of
suit and dismissing the complaint against the Estate of Macario Nieveras and Bernardo Balagot.

The antecedent facts are as follows:

Petitioner Municipality of San Fernando, La Union is a municipal corporation existing under and in
accordance with the laws of the Republic of the Philippines. Respondent Honorable Judge Romeo N.
Firme is impleaded in his official capacity as the presiding judge of the Court of First Instance of La Union,
Branch IV, Bauang, La Union. While private respondents Juana Rimando-Baniña, Laureano Baniña, Jr.,
Sor Marietta Baniña, Montano Baniña, Orja Baniña and Lydia R. Baniña are heirs of the deceased
Laureano Baniña Sr. and plaintiffs in Civil Case No. 107-Bg before the aforesaid court.

At about 7 o'clock in the morning of December 16, 1965, a collision occurred involving a passenger
jeepney driven by Bernardo Balagot and owned by the Estate of Macario Nieveras, a gravel and sand
truck driven by Jose Manandeg and owned by Tanquilino Velasquez and a dump truck of the Municipality
of San Fernando, La Union and driven by Alfredo Bislig. Due to the impact, several passengers of the
jeepney including Laureano Baniña Sr. died as a result of the injuries they sustained and four (4) others
suffered varying degrees of physical injuries.

On December 11, 1966, the private respondents instituted a compliant for damages against the Estate of
Macario Nieveras and Bernardo Balagot, owner and driver, respectively, of the passenger jeepney, which
was docketed Civil Case No. 2183 in the Court of First Instance of La Union, Branch I, San Fernando, La
Union. However, the aforesaid defendants filed a Third Party Complaint against the petitioner and the
driver of a dump truck of petitioner.
Thereafter, the case was subsequently transferred to Branch IV, presided over by respondent judge and
was subsequently docketed as Civil Case No. 107-Bg. By virtue of a court order dated May 7, 1975, the
private respondents amended the complaint wherein the petitioner and its regular employee, Alfredo
Bislig were impleaded for the first time as defendants. Petitioner filed its answer and raised affirmative
defenses such as lack of cause of action, non-suability of the State, prescription of cause of action and
the negligence of the owner and driver of the passenger jeepney as the proximate cause of the collision.

In the course of the proceedings, the respondent judge issued the following questioned orders, to wit:

(1) Order dated November 4, 1975 dismissing the cross-claim against Bernardo Balagot;

(2) Order dated July 13, 1976 admitting the Amended Answer of the Municipality of San
Fernando, La Union and Bislig and setting the hearing on the affirmative defenses only with
respect to the supposed lack of jurisdiction;

(3) Order dated August 23, 1976 deferring there resolution of the grounds for the Motion to
Dismiss until the trial;

(4) Order dated February 23, 1977 denying the motion for reconsideration of the order of July 13,
1976 filed by the Municipality and Bislig for having been filed out of time;

(5) Order dated March 16, 1977 reiterating the denial of the motion for reconsideration of the
order of July 13, 1976;

(6) Order dated July 26, 1979 declaring the case deemed submitted for decision it appearing that
parties have not yet submitted their respective memoranda despite the court's direction; and

(7) Order dated September 7, 1979 denying the petitioner's motion for reconsideration and/or
order to recall prosecution witnesses for cross examination.

On October 10, 1979 the trial court rendered a decision, the dispositive portion is hereunder quoted as
follows:

IN VIEW OF ALL OF (sic) THE FOREGOING, judgment is hereby rendered for the plaintiffs, and
defendants Municipality of San Fernando, La Union and Alfredo Bislig are ordered to pay jointly
and severally, plaintiffs Juana Rimando-Baniña, Mrs. Priscilla B. Surell, Laureano Baniña Jr., Sor
Marietta Baniña, Mrs. Fe B. Soriano, Montano Baniña, Orja Baniña and Lydia B. Baniña the sums
of P1,500.00 as funeral expenses and P24,744.24 as the lost expected earnings of the late
Laureano Baniña Sr., P30,000.00 as moral damages, and P2,500.00 as attorney's fees. Costs
against said defendants.

The Complaint is dismissed as to defendants Estate of Macario Nieveras and Bernardo Balagot.

SO ORDERED. (Rollo, p. 30)

Petitioner filed a motion for reconsideration and for a new trial without prejudice to another motion which
was then pending. However, respondent judge issued another order dated November 7, 1979 denying
the motion for reconsideration of the order of September 7, 1979 for having been filed out of time.

Finally, the respondent judge issued an order dated December 3, 1979 providing that if defendants
municipality and Bislig further wish to pursue the matter disposed of in the order of July 26, 1979, such
should be elevated to a higher court in accordance with the Rules of Court. Hence, this petition.
Petitioner maintains that the respondent judge committed grave abuse of discretion amounting to excess
of jurisdiction in issuing the aforesaid orders and in rendering a decision. Furthermore, petitioner asserts
that while appeal of the decision maybe available, the same is not the speedy and adequate remedy in
the ordinary course of law.

On the other hand, private respondents controvert the position of the petitioner and allege that the petition
is devoid of merit, utterly lacking the good faith which is indispensable in a petition for certiorari and
prohibition. (Rollo, p. 42.) In addition, the private respondents stress that petitioner has not considered
that every court, including respondent court, has the inherent power to amend and control its process and
orders so as to make them conformable to law and justice. (Rollo, p. 43.)

The controversy boils down to the main issue of whether or not the respondent court committed grave
abuse of discretion when it deferred and failed to resolve the defense of non-suability of the State
amounting to lack of jurisdiction in a motion to dismiss.

In the case at bar, the respondent judge deferred the resolution of the defense of non-suability of the
State amounting to lack of jurisdiction until trial. However, said respondent judge failed to resolve such
defense, proceeded with the trial and thereafter rendered a decision against the municipality and its
driver.

The respondent judge did not commit grave abuse of discretion when in the exercise of its judgment it
arbitrarily failed to resolve the vital issue of non-suability of the State in the guise of the municipality.
However, said judge acted in excess of his jurisdiction when in his decision dated October 10, 1979 he
held the municipality liable for the quasi-delict committed by its regular employee.

The doctrine of non-suability of the State is expressly provided for in Article XVI, Section 3 of the
Constitution, to wit: "the State may not be sued without its consent."

Stated in simple parlance, the general rule is that the State may not be sued except when it gives consent
to be sued. Consent takes the form of express or implied consent.

Express consent may be embodied in a general law or a special law. The standing consent of the State to
be sued in case of money claims involving liability arising from contracts is found in Act No. 3083. A
special law may be passed to enable a person to sue the government for an alleged quasi-delict, as in
Merritt v. Government of the Philippine Islands (34 Phil 311). (see United States of America v. Guinto,
G.R. No. 76607, February 26, 1990, 182 SCRA 644, 654.)

Consent is implied when the government enters into business contracts, thereby descending to the level
of the other contracting party, and also when the State files a complaint, thus opening itself to a
counterclaim. (Ibid)

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
provided that they can sue and be sued. (Cruz, Philippine Political Law, 1987 Edition, p. 39)

A distinction should first be made between suability and liability. "Suability depends on the consent of the
state to be sued, liability on the applicable law and the established facts. The circumstance that a state is
suable does not necessarily mean that it is liable; on the other hand, it can never be held liable if it does
not first consent to be sued. Liability is not conceded by the mere fact that the state has allowed itself to
be sued. When the state does waive its sovereign immunity, it is only giving the plaintiff the chance to
prove, if it can, that the defendant is liable." (United States of America vs. Guinto, supra, p. 659-660)
Anent the issue of whether or not the municipality is liable for the torts committed by its employee, the test
of liability of the municipality depends on whether or not the driver, acting in behalf of the municipality, is
performing governmental or proprietary functions. As emphasized in the case of Torio vs. Fontanilla (G.
R. No. L-29993, October 23, 1978. 85 SCRA 599, 606), the distinction of powers becomes important for
purposes of determining the liability of the municipality for the acts of its agents which result in an injury to
third persons.

Another statement of the test is given in City of Kokomo vs. Loy, decided by the Supreme Court of
Indiana in 1916, thus:

Municipal corporations exist in a dual capacity, and their functions are twofold. In one they
exercise the right springing from sovereignty, and while in the performance of the duties
pertaining thereto, their acts are political and governmental. Their officers and agents in such
capacity, though elected or appointed by them, are nevertheless public functionaries performing a
public service, and as such they are officers, agents, and servants of the state. In the other
capacity the municipalities exercise a private, proprietary or corporate right, arising from their
existence as legal persons and not as public agencies. Their officers and agents in the
performance of such functions act in behalf of the municipalities in their corporate or individual
capacity, and not for the state or sovereign power." (112 N.E., 994-995) (Ibid, pp. 605-606.)

It has already been remarked that municipal corporations are suable because their charters grant them
the competence to sue and be sued. Nevertheless, they are generally not liable for torts committed by
them in the discharge of governmental functions and can be held answerable only if it can be shown that
they were acting in a proprietary capacity. In permitting such entities to be sued, the State merely gives
the claimant the right to show that the defendant was not acting in its governmental capacity when the
injury was committed or that the case comes under the exceptions recognized by law. Failing this, the
claimant cannot recover. (Cruz, supra, p. 44.)

In the case at bar, the driver of the dump truck of the municipality insists that "he was on his way to the
Naguilian river to get a load of sand and gravel for the repair of San Fernando's municipal streets." (Rollo,
p. 29.)

In the absence of any evidence to the contrary, the regularity of the performance of official duty is
presumed pursuant to Section 3(m) of Rule 131 of the Revised Rules of Court. Hence, We rule that the
driver of the dump truck was performing duties or tasks pertaining to his office.

We already stressed in the case of Palafox, et. al. vs. Province of Ilocos Norte, the District Engineer, and
the Provincial Treasurer (102 Phil 1186) that "the construction or maintenance of roads in which the truck
and the driver worked at the time of the accident are admittedly governmental activities."

After a careful examination of existing laws and jurisprudence, We arrive at the conclusion that the
municipality cannot be held liable for the torts committed by its regular employee, who was then engaged
in the discharge of governmental functions. Hence, the death of the passenger –– tragic and deplorable
though it may be –– imposed on the municipality no duty to pay monetary compensation.

All premises considered, the Court is convinced that the respondent judge's dereliction in failing to resolve
the issue of non-suability did not amount to grave abuse of discretion. But said judge exceeded his
jurisdiction when it ruled on the issue of liability.

ACCORDINGLY, the petition is GRANTED and the decision of the respondent court is hereby modified,
absolving the petitioner municipality of any liability in favor of private respondents.

SO ORDERED.
Narvasa, Cruz, Gancayco and Griño-Aquino, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 161657 October 4, 2007

REPUBLIC OF THE PHILIPPINES, Petitioner,

vs.
HON. VICENTE A. HIDALGO, in his capacity as Presiding Judge of the Regional Trial Court of
Manila, Branch 37, CARMELO V. CACHERO, in his capacity as Sheriff IV, Regional Trial Court of
Manila, and TARCILA LAPERAL MENDOZA, Respondents.

DECISION

GARCIA, J.:

Via this verified petition for certiorari and prohibition under Rule 65 of the Rules of Court, the Republic of
the Philippines ("Republic," for short), thru the Office of the Solicitor General (OSG), comes to this Court
to nullify and set aside the decision dated August 27, 2003 and other related issuances of the Regional
Trial Court (RTC) of Manila, Branch 37, in its Civil Case No. 99-94075. In directly invoking the Court’s
original jurisdiction to issue the extraordinary writs of certiorari and prohibition, without challenge from any
of the respondents, the Republic gave as justification therefor the fact that the case involves an
over TWO BILLION PESO judgment against the State, allegedly rendered in blatant violation of the
Constitution, law and jurisprudence.

By any standard, the case indeed involves a colossal sum of money which, on the face of the assailed
decision, shall be the liability of the national government or, in fine, the taxpayers. This consideration,
juxtaposed with the constitutional and legal questions surrounding the controversy, presents special and
compelling reasons of public interests why direct recourse to the Court should be allowed, as an
exception to the policy on hierarchy of courts.

At the core of the litigation is a 4,924.60-square meter lot once covered by Transfer Certificate of Title
(TCT) No. 118527 of the Registry of Deeds of Manila in the name of the herein private respondent Tarcila
Laperal Mendoza (Mendoza), married to Perfecto Mendoza. The lot is situated at No. 1440 Arlegui St.,
San Miguel, Manila, near the Malacañang Palace complex. On this lot, hereinafter referred to as
the Arlegui property, now stands the Presidential Guest House which was home to two (2) former
Presidents of the Republic and now appears to be used as office building of the Office of the President. 1

The facts:

Sometime in June 1999, Mendoza filed a suit with the RTC of Manila for reconveyance and the
corresponding declaration of nullity of a deed of sale and title against the Republic, the Register of Deeds
of Manila and one Atty. Fidel Vivar. In her complaint, as later amended, docketed as Civil Case No. 99-
94075 and eventually raffled to Branch 35 of the court, Mendoza essentially alleged being the owner of
the disputed Arlegui property which the Republic forcibly dispossessed her of and over which the
Register of Deeds of Manila issued TCT No. 118911 in the name of the Republic.

Answering, the Republic set up, among other affirmative defenses, the State’s immunity from suit.

The intervening legal tussles are not essential to this narration. What is material is that in an Order of
March 17, 2000, the RTC of Manila, Branch 35, dismissed Mendoza’s complaint. The court would also
deny, in another order dated May 12, 2000, Mendoza’s omnibus motion for reconsideration. On a petition
for certiorari, however, the Court of Appeals (CA), in CA-G.R. SP No. 60749, reversed the trial court’s
assailed orders and remanded the case to the court a quo for further proceedings.2 On appeal, this Court,
in G.R. No. 155231, sustained the CA’s reversal action.3

From Branch 35 of the trial court whose then presiding judge inhibited himself from hearing the remanded
Civil Case No. 99-94075, the case was re-raffled to Branch 37 thereof, presided by the respondent judge.

On May 5, 2003, Mendoza filed a Motion for Leave of Court to file a Third Amended Complaint with a
copy of the intended third amended complaint thereto attached. In the May 16, 2003 setting to hear the
motion, the RTC, in open court and in the presence of the Republic’s counsel, admitted the third
amended complaint, ordered the Republic to file its answer thereto within five (5) days from May 16, 2003
and set a date for pre-trial.

In her adverted third amended complaint for recovery and reconveyance of the Arlegui property,
Mendoza sought the declaration of nullity of a supposed deed of sale dated July 15, 1975 which provided
the instrumentation toward the issuance of TCT No. 118911 in the name of the Republic. And aside from
the cancellation of TCT No. 118911, Mendoza also asked for the reinstatement of her TCT No.
118527.4 In the same third amended complaint, Mendoza averred that, since time immemorial, she and
her predecessors-in-interest had been in peaceful and adverse possession of the property as well as of
the owner’s duplicate copy of TCT No. 118527. Such possession, she added, continued "until the first
week of July 1975 when a group of armed men representing themselves to be members of the
Presidential Security Group [PSG] of the then President Ferdinand E. Marcos, had forcibly entered [her]
residence and ordered [her] to turn over to them her … Copy of TCT No. 118525 … and compelled her
and the members of her household to vacate the same …; thus, out of fear for their lives, [she] handed
her Owner’s Duplicate Certificate Copy of TCT No. 118527 and had left and/or vacated the subject
property." Mendoza further alleged the following:

1. Per verification, TCT No. 118527 had already been cancelled by virtue of a deed of sale in
favor of the Republic allegedly executed by her and her deceased husband on July 15, 1975 and
acknowledged before Fidel Vivar which deed was annotated at the back of TCT No. 118527
under PE: 2035/T-118911 dated July 28, 1975; and

2. That the aforementioned deed of sale is fictitious as she (Mendoza) and her husband have not
executed any deed of conveyance covering the disputed property in favor of the Republic, let
alone appearing before Fidel Vivar.

Inter alia, she prayed for the following:

4. Ordering the … Republic to pay plaintiff [Mendoza] a reasonable compensation or rental for the
use or occupancy of the subject property in the sum of FIVE HUNDRED THOUSAND
(P500,000.00) PESOS a month with a five (5%) per cent yearly increase, plus interest thereon at
the legal rate, beginning July 1975 until it finally vacates the same;

5. Ordering the … Republic to pay plaintiff’s counsel a sum equivalent to TWENTY FIVE (25%)
PER CENT of the current value of the subject property and/or whatever amount is recovered
under the premises; Further, plaintiff prays for such other relief, just and equitable under the
premises.

On May 21, 2003, the Republic, represented by the OSG, filed a Motion for Extension (With Motion for
Cancellation of scheduled pre-trial). In it, the Republic manifested its inability to simply adopt its previous
answer and, accordingly, asked that it be given a period of thirty (30) days from May 21, 2003 or
until June 20, 2003 within which to submit an Answer.5 June 20, 2003 came and went, but no answer
was filed. On July 18, 2003 and again on August 19, 2003, the OSG moved for a 30-day extension at
each instance. The filing of the last two motions for extension proved to be an idle gesture, however,
since the trial court had meanwhile issued an order6 dated July 7, 2003 declaring the petitioner Republic
as in default and allowing the private respondent to present her evidence ex-parte.

The evidence for the private respondent, as plaintiff a quo, consisted of her testimony denying having
executed the alleged deed of sale dated July 15, 1975 which paved the way for the issuance of TCT No.
118911. According to her, said deed is fictitious or inexistent, as evidenced by separate certifications, the
first (Exh. "E"), issued by the Register of Deeds for Manila and the second (Exh. "F"), by the Office of
Clerk of Court, RTC Manila. Exhibit "E"7states that a copy of the supposed conveying deed cannot,
despite diligent efforts of records personnel, be located, while Exhibit "F"8 states that Fidel Vivar was not
a commissioned notary public for and in the City of Manila for the year 1975. Three other
witnesses9 testified, albeit their testimonies revolved around the appraisal and rental values of
the Arlegui property.

Eventually, the trial court rendered a judgment by default10 for Mendoza and against the Republic. To the
trial court, the Republic had veritably confiscated Mendoza’s property, and deprived her not only of the
use thereof but also denied her of the income she could have had otherwise realized during all the years
she was illegally dispossessed of the same.

Dated August 27, 2003, the trial court’s decision dispositively reads as follows:

WHEREFORE, judgment is hereby rendered:

1. Declaring the deed of sale dated July 15, 1975, annotated at the back of [TCT] No. 118527 as
PE:2035/T-118911, as non-existent and/or fictitious, and, therefore, null and void from the
beginning;

2. Declaring that [TCT] No. 118911 of the defendant Republic of the Philippines has no basis,
thereby making it null and void from the beginning;

3. Ordering the defendant Register of Deeds for the City of Manila to reinstate plaintiff [Mendoza’s
TCT] No. 118527;

4. Ordering the defendant Republic … to pay just compensation in the sum of ONE HUNDRED
FORTY THREE MILLION SIX HUNDRED THOUSAND (P143,600,000.00) PESOS, plus interest
at the legal rate, until the whole amount is paid in full for the acquisition of the subject property;

5. Ordering the plaintiff, upon payment of the just compensation for the acquisition of her
property, to execute the necessary deed of conveyance in favor of the defendant Republic …;
and, on the other hand, directing the defendant Register of Deeds, upon presentation of the said
deed of conveyance, to cancel plaintiff’s TCT No. 118527 and to issue, in lieu thereof, a new
Transfer Certificate of Title in favor of the defendant Republic;

6. Ordering the defendant Republic … to pay the plaintiff the sum of ONE BILLION FOUR
HUNDRED EIGHTY MILLION SIX HUNDRED TWENTY SEVEN THOUSAND SIX HUNDRED
EIGHTY EIGHT (P1,480,627,688.00) PESOS, representing the reasonable rental for the use of
the subject property, the interest thereon at the legal rate, and the opportunity cost at the rate of
three (3%) per cent per annum, commencing July 1975 continuously up to July 30, 2003, plus an
additional interest at the legal rate, commencing from this date until the whole amount is paid in
full;

7. Ordering the defendant Republic … to pay the plaintiff attorney’s fee, in an amount equivalent
to FIFTEEN (15%) PER CENT of the amount due to the plaintiff.
With pronouncement as to the costs of suit.

SO ORDERED. (Words in bracket and emphasis added.)

Subsequently, the Republic moved for, but was denied, a new trial per order of the trial court of October
7, 2003.11Denied also was its subsequent plea for reconsideration.12 These twin denial orders were
followed by several orders and processes issued by the trial court on separate dates as hereunder
indicated:

1. November 27, 2003 - - Certificate of Finality declaring the August 27, 2003 decision final and
executory.13

2. December 17, 2003 - - Order denying the Notice of Appeal filed on November 27, 2003, the
same having been filed beyond the reglementary period.14

3. December 19, 2003 - - Order15 granting the private respondent’s motion for execution.

4. December 22, 2003 - - Writ of Execution.16

Hence, this petition for certiorari.

By Resolution17 of November 20, 2006, the case was set for oral arguments. On January 22, 2007, when
this case was called for the purpose, both parties manifested their willingness to settle the case amicably,
for which reason the Court gave them up to February 28, 2007 to submit the compromise agreement for
approval. Following several approved extensions of the February 28, 2007 deadline, the OSG, on August
6, 2007, manifested that it is submitting the case for resolution on the merits owing to the inability of the
parties to agree on an acceptable compromise.

In this recourse, the petitioner urges the Court to strike down as a nullity the trial court’s order declaring it
in default and the judgment by default that followed. Sought to be nullified, too, also on the ground that
they were issued in grave abuse of discretion amounting to lack or in excess of jurisdiction, are the orders
and processes enumerated immediately above issued after the rendition of the default judgment.

Petitioner lists five (5) overlapping grounds for allowing its petition. It starts off by impugning the order of
default and the judgment by default. To the petitioner, the respondent judge committed serious
jurisdictional error when he proceeded to hear the case and eventually awarded the private respondent a
staggering amount without so much as giving the petitioner the opportunity to present its defense.

Petitioner’s posture is simply without merit.

Deprivation of procedural due process is obviously the petitioner’s threshold theme. Due process, in its
procedural aspect, guarantees in the minimum the opportunity to be heard.18 Grave abuse of discretion,
however, cannot plausibly be laid at the doorstep of the respondent judge on account of his having issued
the default order against the petitioner, then proceeding with the hearing and eventually rendering a
default judgment. For, what the respondent judge did hew with what Section 3, Rule 9 of the Rules of
Court prescribes and allows in the event the defending party fails to seasonably file a responsive
pleading. The provision reads:

SEC. 3. Default; declaration of.- If the defending party fails to answer within the time allowed therefor, the
court shall, upon motion of the claiming party with notice to the defending party, and proof of such failure,
declare the defending party in default. Thereupon, the court shall proceed to render judgment granting the
claimant such relief as his pleading may warrant, unless the court in its discretion requires the claimant to
submit evidence ….19
While the ideal lies in avoiding orders of default,20 the policy of the law being to have every litigated case
tried on its full merits,21 the act of the respondent judge in rendering the default judgment after an order of
default was properly issued cannot be struck down as a case of grave abuse of discretion.

The term "grave abuse of discretion," in its juridical sense, connotes capricious, despotic, oppressive or
whimsical exercise of judgment as is equivalent to lack of jurisdiction. 22 The abuse must be of such
degree as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law,
as where the power is exercised in a capricious manner. The word "capricious," usually used in tandem
with "arbitrary," conveys the notion of willful and unreasoning action. 23

Under the premises, the mere issuance by the trial court of the order of default followed by a judgment by
default can easily be sustained as correct and doubtless within its jurisdiction. Surely, a disposition
directing the Republic to pay an enormous sum without the trial court hearing its side does not, without
more, vitiate, on due procedural ground, the validity of the default judgment. The petitioner may have
indeed been deprived of such hearing, but this does not mean that its right to due process had been
violated. For, consequent to being declared in default, the defaulting defendant is deemed to have waived
his right to be heard or to take part in the trial. The handling solicitors simply squandered the Republic’s
opportunity to be heard. But more importantly, the law itself imposes such deprivation of the right to
participate as a form of penalty against one unwilling without justification to join issue upon the allegations
tendered by the plaintiff.

And going to another point, the petitioner would ascribe jurisdictional error on the respondent judge for
denying its motion for new trial based on any or a mix of the following factors, viz., (1) the failure to file an
answer is attributable to the negligence of the former handling solicitor; (2) the meritorious nature of the
petitioner’s defense; and (3) the value of the property involved.

The Court is not convinced. Even as the Court particularly notes what the trial court had said on the
matter of negligence: that all of the petitioner’s pleadings below bear at least three signatures, that of the
handling solicitor, the assistant solicitor and the Solicitor General himself, and hence accountability
should go up all the way to the top of the totem pole of authority, the cited reasons advanced by the
petitioner for a new trial are not recognized under Section 1, Rule 37 of the Rules of Court for such
recourse.24 Withal, there is no cogent reason to disturb the denial by the trial court of the motion for new
trial and the denial of the reiterative motion for reconsideration.

Then, too, the issuance by the trial court of the Order dated December 17, 200325 denying the petitioner’s
notice of appeal after the court caused the issuance on November 27, 2003 of a certificate of finality of its
August 27, 2003 decision can hardly be described as arbitrary, as the petitioner would have this Court
believe. In this regard, the Court takes stock of the following key events and material dates set forth in the
assailed December 17, 2003 order, supra: (a) The petitioner, thru the OSG, received on August 29,
2003 a copy of the RTC decision in this case, hence had up to September 13, 2003, a Saturday, within
which to perfect an appeal; (b) On September 15, 2003, a Monday, the OSG filed its motion for new trial,
which the RTC denied, the OSG receiving a copy of the order of denial on October 9, 2003; and (c) On
October 24, 2003, the OSG sought reconsideration of the order denying the motion for new trial. The
motion for reconsideration was denied per Order dated November 25, 2003, a copy of which the OSG
received on the same date.

Given the foregoing time perspective, what the trial court wrote in its aforementioned impugned order of
December 17, 2003 merits approval:

In the case at bar, it is clear that the motion for new trial filed on the fifteenth (15th) day after the decision
was received on August 29, 2003 was denied and the moving party has only the remaining period from
notice of notice of denial within which to file a notice of appeal. xxx
Accordingly, when defendants [Republic et al.] filed their motion for new trial on the last day of the fifteen
day (15) prescribed for taking an appeal, which motion was subsequently denied, they had one (1) day
from receipt of a copy of the order denying … new trial within which to perfect [an] appeal …. Since
defendants had received a copy of the order denying their motion for new trial on 09 October 2003,
reckoned from that date, they only have one (1) day left within which to file the notice of appeal. But
instead of doing so, the defendants filed a motion for reconsideration which was later declared by the
Court as pro forma motion in the Order dated 25 November 2003. The running of the prescriptive
period, therefore, can not be interrupted by a pro forma motion. Hence the filing of the notice of appeal on
27 November 2007 came much too late for by then the judgment had already become final and
executory.26 (Words in bracket added; Emphasis in the original.)

It cannot be over-emphasized at this stage that the special civil action of certiorari is limited to resolving
only errors of jurisdiction; it is not a remedy to correct errors of judgment. Hence, the petitioner’s lament,
partly covered by and discussed under the first ground for allowing its petition, about the trial court taking
cognizance of the case notwithstanding private respondent’s claim or action being barred by prescription
and/or laches cannot be considered favorably. For, let alone the fact that an action for the declaration of
the inexistence of a contract, as here, does not prescribe;27 that a void transfer of property can be
recovered by accion reivindicatoria;28 and that the legal fiction of indefeasibility of a Torrens title cannot
be used as a shield to perpetuate fraud,29 the trial court’s disinclination not to appreciate in favor of the
Republic the general principles of prescription or laches constitutes, at best, errors of judgment not
correctable by certiorari.

The evidence adduced below indeed adequately supports a conclusion that the Office of the President,
during the administration of then President Marcos, wrested possession of the property in question and
somehow secured a certificate of title over it without a conveying deed having been executed to legally
justify the cancellation of the old title (TCT No. 118527) in the name of the private respondent and the
issuance of a new one (TCT No. 118911) in the name of petitioner Republic. Accordingly, granting private
respondent’s basic plea for recovery of the Arlegui property, which was legally hers all along, and the
reinstatement of her cancelled certificate of title are legally correct as they are morally right. While not
exactly convenient because the Office of the President presently uses it for mix residence and office
purposes, restoring private respondent to her possession of the Arlegui property is still legally and
physically feasible. For what is before us, after all, is a registered owner of a piece of land who, during the
early days of the martial law regime, lost possession thereof to the Government which appropriated the
same for some public use, but without going through the legal process of expropriation, let alone paying
such owner just compensation.

The Court cannot, however, stop with just restoring the private respondent to her possession and
ownership of her property. The restoration ought to be complemented by some form of monetary
compensation for having been unjustly deprived of the beneficial use thereof, but not, however, in the
varying amounts and level fixed in the assailed decision of the trial court and set to be executed by the
equally assailed writ of execution. The Court finds the monetary award set forth therein to be erroneous.
And the error relates to basic fundamentals of law as to constitute grave abuse of discretion.

As may be noted, private respondent fixed the assessed value of her Arlegui property at ₱2,388,990.00.
And in the prayer portion of her third amended complaint for recovery, she asked to be restored to the
possession of her property and that the petitioner be ordered to pay her, as reasonable compensation or
rental use or occupancy thereof, the sum of ₱500,000.00 a month, or ₱6 Million a year, with a five
percent (5%) yearly increase plus interest at the legal rate beginning July 1975. From July 1975 when the
PSG allegedly took over the subject property to July 2003, a month before the trial court rendered
judgment, or a period of 28 years, private respondent’s total rental claim would, per the OSG’s
computation, only amount to ₱371,440,426.00. In its assailed decision, however, the trial court ordered
the petitioner to pay private respondent the total amount of over ₱1.48 Billion or the mind-boggling
amount of ₱1,480,627,688.00, to be exact, representing the reasonable rental for the property, the
interest rate thereon at the legal rate and the opportunity cost. This figure is on top of
the ₱143,600,000.00 which represents the acquisition cost of the disputed property. All told, the trial court
would have the Republic pay the total amount of about ₱1.624 Billion, exclusive of interest, for the taking
of a property with a declared assessed value of ₱2,388,900.00. This is not to mention the award of
attorney’s fees in an amount equivalent to 15% of the amount due the private respondent.

In doing so, the respondent judge brazenly went around the explicit command of Rule 9, Section 3(d) of
the Rules of Court30 which defines the extent of the relief that may be awarded in a judgment by
default, i.e., only so much as has been alleged and proved. The court acts in excess of jurisdiction if it
awards an amount beyond the claim made in the complaint or beyond that proved by the
evidence.31 While a defaulted defendant may be said to be at the mercy of the trial court, the Rules of
Court and certainly the imperatives of fair play see to it that any decision against him must be in
accordance with law.32 In the abstract, this means that the judgment must not be characterized by
outrageous one-sidedness, but by what is fair, just and equitable that always underlie the enactment of a
law.

Given the above perspective, the obvious question that comes to mind is the level of compensation which
– for the use and occupancy of the Arlegui property - would be fair to both the petitioner and the private
respondent and, at the same time, be within acceptable legal bounds. The process of balancing the
interests of both parties is not an easy one. But surely, the Arlegui property cannot possibly be assigned,
even perhaps at the present real estate business standards, a monthly rental value of at least
₱500,000.00 or ₱6,000,000.00 a year, the amount private respondent particularly sought and attempted
to prove. This asking figure is clearly unconscionable, if not downright ridiculous, attendant circumstances
considered. To the Court, an award of ₱20,000.00 a month for the use and occupancy of the Arlegui
property, while perhaps a little bit arbitrary, is reasonable and may be granted pro hac viceconsidering the
following hard realities which the Court takes stock of:

1. The property is relatively small in terms of actual area and had an assessed value of only
P2,388,900.00;

2. What the martial law regime took over was not exactly an area with a new and imposing
structure, if there was any; and

3. The Arlegui property had minimal rental value during the relatively long martial law years, given
the very restrictive entry and egress conditions prevailing at the vicinity at that time and even
after.

To be sure, the grant of monetary award is not without parallel. In Alfonso v. Pasay City,33 a case where a
registered owner also lost possession of a piece of lot to a municipality which took it for a public purposes
without instituting expropriation proceedings or paying any compensation for the lot, the Court,
citing Herrera v. Auditor General,34ordered payment of just compensation but in the form of interest when
a return of the property was no longer feasible.

The award of attorney’s fees equivalent to 15% of the amount due the private respondent, as reduced
herein, is affirmed.

The assessment of costs of suit against the petitioner is, however, nullified, costs not being allowed
against the Republic, unless otherwise provided by law.35

The assailed trial court’s issuance of the writ of execution36 against government funds to satisfy its money
judgment is also nullified. It is basic that government funds and properties may not be seized under writs
of execution or garnishment to satisfy such judgments.37 Republic v. Palacio38 teaches that a judgment
against the State generally operates merely to liquidate and establish the plaintiff’s claim in the absence
of express provision; otherwise, they can not be enforced by processes of law.
Albeit title to the Arlegui property remains in the name of the petitioner Republic, it is actually the Office
of the President which has beneficial possession of and use over it since the 1975 takeover.
Accordingly, and in accord with the elementary sense of justice, it behooves that office to make the
appropriate budgetary arrangements towards paying private respondent what is due her under the
premises. This, to us, is the right thing to do. The imperatives of fair dealing demand no less. And the
Court would be remiss in the discharge of its duties as dispenser of justice if it does not exhort the Office
of the President to comply with what, in law and equity, is its obligation. If the same office will undertake
to pay its obligation with reasonable dispatch or in a manner acceptable to the private respondent, then
simple justice, while perhaps delayed, will have its day. Private respondent is in the twilight of her life,
being now over 90 years of age.39 Any delay in the implementation of this disposition would be a bitter
cut.1âwphi1

WHEREFORE, the decision of the Regional Trial Court of Manila dated August 27, 2003 insofar as it
nullified TCT No. 118911 of petitioner Republic of the Philippines and ordered the Register of Deeds of
Manila to reinstate private respondent Tarcila L. Mendoza’s TCT No. 118527, or to issue her a new
certificate of title is AFFIRMED. Should it be necessary, the Register of Deeds of Manila shall execute the
necessary conveying deed to effect the reinstatement of title or the issuance of a new title to her.

It is MODIFIED in the sense that for the use and occupancy of the Arlegui property, petitioner Republic is
ordered to pay private respondent the reasonable amount of ₱20,000.00 a month beginning July 1975
until it vacates the same and the possession thereof restored to the private respondent, plus an additional
interest of 6% per annum on the total amount due upon the finality of this Decision until the same is fully
paid. Petitioner is further ordered to pay private respondent attorney's fees equivalent to 15% of the
amount due her under the premises.

Accordingly, a writ of certiorari is hereby ISSUED in the sense that:

1. The respondent court’s assailed decision of August 27, 2003 insofar as it ordered the petitioner
Republic of the Philippines to pay private respondent Tarcila L. Mendoza the sum of One Billion
Four Hundred Eighty Million Six Hundred Twenty Seven Thousand Six Hundred Eighty Eight
Pesos (₱1,480,627,688.00) representing the purported rental use of the property in question, the
interest thereon and the opportunity cost at the rate of 3% per annum plus the interest at the legal
rate added thereon is nullified. The portion assessing the petitioner Republic for costs of suit is
also declared null and void.

2. The Order of the respondent court dated December 19, 2003 for the issuance of a writ of
execution and the Writ of Execution dated December 22, 2003 against government funds are
hereby declared null and void. Accordingly, the presiding judge of the respondent court, the
private respondent, their agents and persons acting for and in their behalves are permanently
enjoined from enforcing said writ of execution.

However, consistent with the basic tenets of justice, fairness and equity, petitioner Republic, thru
the Office of the President, is hereby strongly enjoined to take the necessary steps, and, with
reasonable dispatch, make the appropriate budgetary arrangements to pay private respondent Tarcila L.
Mendoza or her assigns the amount adjudged due her under this disposition.

SO ORDERED.

CANCIO C. GARCIA
Associate Justice

WE CONCUR:
 REYNATO S. PUNO
Chief Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice

ADOLFO S. AZCUNA
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’s
Division.

REYNATO S. PUNO
Chief Justice
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. Nos. 89898-99 October 1, 1990

MUNICIPALITY OF MAKATI, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON. SALVADOR P. DE GUZMAN, JR., as Judge RTC of
Makati, Branch CXLII ADMIRAL FINANCE CREDITORS CONSORTIUM, INC., and SHERIFF SILVINO
R. PASTRANA, respondents.

Defante & Elegado for petitioner.

Roberto B. Lugue for private respondent Admiral Finance Creditors' Consortium, Inc.

RESOLUTION

CORTÉS, J.:

The present petition for review is an off-shoot of expropriation proceedings initiated by petitioner
Municipality of Makati against private respondent Admiral Finance Creditors Consortium, Inc., Home
Building System & Realty Corporation and one Arceli P. Jo, involving a parcel of land and improvements
thereon located at Mayapis St., San Antonio Village, Makati and registered in the name of Arceli P. Jo
under TCT No. S-5499.

It appears that the action for eminent domain was filed on May 20, 1986, docketed as Civil Case No.
13699. Attached to petitioner's complaint was a certification that a bank account (Account No. S/A 265-
537154-3) had been opened with the PNB Buendia Branch under petitioner's name containing the sum of
P417,510.00, made pursuant to the provisions of Pres. Decree No. 42. After due hearing where the
parties presented their respective appraisal reports regarding the value of the property, respondent RTC
judge rendered a decision on June 4, 1987, fixing the appraised value of the property at P5,291,666.00,
and ordering petitioner to pay this amount minus the advanced payment of P338,160.00 which was
earlier released to private respondent.

After this decision became final and executory, private respondent moved for the issuance of a writ of
execution. This motion was granted by respondent RTC judge. After issuance of the writ of execution, a
Notice of Garnishment dated January 14, 1988 was served by respondent sheriff Silvino R. Pastrana
upon the manager of the PNB Buendia Branch. However, respondent sheriff was informed that a "hold
code" was placed on the account of petitioner. As a result of this, private respondent filed a motion dated
January 27, 1988 praying that an order be issued directing the bank to deliver to respondent sheriff the
amount equivalent to the unpaid balance due under the RTC decision dated June 4, 1987.

Petitioner filed a motion to lift the garnishment, on the ground that the manner of payment of the
expropriation amount should be done in installments which the respondent RTC judge failed to state in
his decision. Private respondent filed its opposition to the motion.
Pending resolution of the above motions, petitioner filed on July 20, 1988 a "Manifestation" informing the
court that private respondent was no longer the true and lawful owner of the subject property because a
new title over the property had been registered in the name of Philippine Savings Bank, Inc. (PSB)
Respondent RTC judge issued an order requiring PSB to make available the documents pertaining to its
transactions over the subject property, and the PNB Buendia Branch to reveal the amount in petitioner's
account which was garnished by respondent sheriff. In compliance with this order, PSB filed a
manifestation informing the court that it had consolidated its ownership over the property as
mortgagee/purchaser at an extrajudicial foreclosure sale held on April 20, 1987. After several
conferences, PSB and private respondent entered into a compromise agreement whereby they agreed to
divide between themselves the compensation due from the expropriation proceedings.

Respondent trial judge subsequently issued an order dated September 8, 1988 which: (1) approved the
compromise agreement; (2) ordered PNB Buendia Branch to immediately release to PSB the sum of
P4,953,506.45 which corresponds to the balance of the appraised value of the subject property under the
RTC decision dated June 4, 1987, from the garnished account of petitioner; and, (3) ordered PSB and
private respondent to execute the necessary deed of conveyance over the subject property in favor of
petitioner. Petitioner's motion to lift the garnishment was denied.

Petitioner filed a motion for reconsideration, which was duly opposed by private respondent. On the other
hand, for failure of the manager of the PNB Buendia Branch to comply with the order dated September 8,
1988, private respondent filed two succeeding motions to require the bank manager to show cause why
he should not be held in contempt of court. During the hearings conducted for the above motions, the
general manager of the PNB Buendia Branch, a Mr. Antonio Bautista, informed the court that he was still
waiting for proper authorization from the PNB head office enabling him to make a disbursement for the
amount so ordered. For its part, petitioner contended that its funds at the PNB Buendia Branch could
neither be garnished nor levied upon execution, for to do so would result in the disbursement of public
funds without the proper appropriation required under the law, citing the case of Republic of the
Philippines v. Palacio [G.R. No. L-20322, May 29, 1968, 23 SCRA 899].

Respondent trial judge issued an order dated December 21, 1988 denying petitioner's motion for
reconsideration on the ground that the doctrine enunciated in Republic v. Palacio did not apply to the
case because petitioner's PNB Account No. S/A 265-537154-3 was an account specifically opened for the
expropriation proceedings of the subject property pursuant to Pres. Decree No. 42. Respondent RTC
judge likewise declared Mr. Antonio Bautista guilty of contempt of court for his inexcusable refusal to obey
the order dated September 8, 1988, and thus ordered his arrest and detention until his compliance with
the said order.

Petitioner and the bank manager of PNB Buendia Branch then filed separate petitions for certiorari with
the Court of Appeals, which were eventually consolidated. In a decision promulgated on June 28, 1989,
the Court of Appeals dismissed both petitions for lack of merit, sustained the jurisdiction of respondent
RTC judge over the funds contained in petitioner's PNB Account No. 265-537154-3, and affirmed his
authority to levy on such funds.

Its motion for reconsideration having been denied by the Court of Appeals, petitioner now files the present
petition for review with prayer for preliminary injunction.

On November 20, 1989, the Court resolved to issue a temporary restraining order enjoining respondent
RTC judge, respondent sheriff, and their representatives, from enforcing and/or carrying out the RTC
order dated December 21, 1988 and the writ of garnishment issued pursuant thereto. Private respondent
then filed its comment to the petition, while petitioner filed its reply.

Petitioner not only reiterates the arguments adduced in its petition before the Court of Appeals, but also
alleges for the first time that it has actually two accounts with the PNB Buendia Branch, to wit:
 xxx xxx xxx

(1) Account No. S/A 265-537154-3 — exclusively for the expropriation of the subject
property, with an outstanding balance of P99,743.94.

(2) Account No. S/A 263-530850-7 — for statutory obligations and other purposes of the
municipal government, with a balance of P170,098,421.72, as of July 12, 1989.

xxx xxx xxx

[Petition, pp. 6-7; Rollo, pp. 11-12.]

Because the petitioner has belatedly alleged only in this Court the existence of two bank accounts, it may
fairly be asked whether the second account was opened only for the purpose of undermining the legal
basis of the assailed orders of respondent RTC judge and the decision of the Court of Appeals, and
strengthening its reliance on the doctrine that public funds are exempted from garnishment or execution
as enunciated in Republic v. Palacio [supra.] At any rate, the Court will give petitioner the benefit of the
doubt, and proceed to resolve the principal issues presented based on the factual circumstances thus
alleged by petitioner.

Admitting that its PNB Account No. S/A 265-537154-3 was specifically opened for expropriation
proceedings it had initiated over the subject property, petitioner poses no objection to the garnishment or
the levy under execution of the funds deposited therein amounting to P99,743.94. However, it is
petitioner's main contention that inasmuch as the assailed orders of respondent RTC judge involved the
net amount of P4,965,506.45, the funds garnished by respondent sheriff in excess of P99,743.94, which
are public funds earmarked for the municipal government's other statutory obligations, are exempted from
execution without the proper appropriation required under the law.

There is merit in this contention. The funds deposited in the second PNB Account No. S/A 263-530850-7
are public funds of the municipal government. In this jurisdiction, well-settled is the rule that public funds
are not subject to levy and execution, unless otherwise provided for by statute [Republic v.
Palacio, supra.; The Commissioner of Public Highways v. San Diego, G.R. No. L-30098, February 18,
1970, 31 SCRA 616]. More particularly, the properties of a municipality, whether real or personal, which
are necessary for public use cannot be attached and sold at execution sale to satisfy a money judgment
against the municipality. Municipal revenues derived from taxes, licenses and market fees, and which are
intended primarily and exclusively for the purpose of financing the governmental activities and functions
of the municipality, are exempt from execution [See Viuda De Tan Toco v. The Municipal Council of Iloilo,
49 Phil. 52 (1926): The Municipality of Paoay, Ilocos Norte v. Manaois, 86 Phil. 629 (1950); Municipality
of San Miguel, Bulacan v. Fernandez, G.R. No. 61744, June 25, 1984, 130 SCRA 56]. The foregoing rule
finds application in the case at bar. Absent a showing that the municipal council of Makati has passed an
ordinance appropriating from its public funds an amount corresponding to the balance due under the RTC
decision dated June 4, 1987, less the sum of P99,743.94 deposited in Account No. S/A 265-537154-3, no
levy under execution may be validly effected on the public funds of petitioner deposited in Account No.
S/A 263-530850-7.

Nevertheless, this is not to say that private respondent and PSB are left with no legal recourse. Where a
municipality fails or refuses, without justifiable reason, to effect payment of a final money judgment
rendered against it, the claimant may avail of the remedy of mandamus in order to compel the enactment
and approval of the necessary appropriation ordinance, and the corresponding disbursement of municipal
funds therefor [See Viuda De Tan Toco v. The Municipal Council of Iloilo, supra; Baldivia v. Lota, 107
Phil. 1099 (1960); Yuviengco v. Gonzales, 108 Phil. 247 (1960)].

In the case at bar, the validity of the RTC decision dated June 4, 1987 is not disputed by petitioner. No
appeal was taken therefrom. For three years now, petitioner has enjoyed possession and use of the
subject property notwithstanding its inexcusable failure to comply with its legal obligation to pay just
compensation. Petitioner has benefited from its possession of the property since the same has been the
site of Makati West High School since the school year 1986-1987. This Court will not condone petitioner's
blatant refusal to settle its legal obligation arising from expropriation proceedings it had in fact initiated. It
cannot be over-emphasized that, within the context of the State's inherent power of eminent domain,

. . . [j]ust compensation means not only the correct determination of the amount to be
paid to the owner of the land but also the payment of the land within a reasonable time
from its taking. Without prompt payment, compensation cannot be considered "just" for
the property owner is made to suffer the consequence of being immediately deprived of
his land while being made to wait for a decade or more before actually receiving the
amount necessary to cope with his loss [Cosculluela v. The Honorable Court of Appeals,
G.R. No. 77765, August 15, 1988, 164 SCRA 393, 400. See also Provincial Government
of Sorsogon v. Vda. de Villaroya, G.R. No. 64037, August 27, 1987, 153 SCRA 291].

The State's power of eminent domain should be exercised within the bounds of fair play and justice. In the
case at bar, considering that valuable property has been taken, the compensation to be paid fixed and the
municipality is in full possession and utilizing the property for public purpose, for three (3) years, the Court
finds that the municipality has had more than reasonable time to pay full compensation.

WHEREFORE, the Court Resolved to ORDER petitioner Municipality of Makati to immediately pay
Philippine Savings Bank, Inc. and private respondent the amount of P4,953,506.45. Petitioner is hereby
required to submit to this Court a report of its compliance with the foregoing order within a non-extendible
period of SIXTY (60) DAYS from the date of receipt of this resolution.

The order of respondent RTC judge dated December 21, 1988, which was rendered in Civil Case No.
13699, is SET ASIDE and the temporary restraining order issued by the Court on November 20, 1989 is
MADE PERMANENT.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 171182 August 23, 2012

UNIVERSITY OF THE PHILIPPINES, JOSE V. ABUEVA, RAUL P. DE GUZMAN, RUBEN P. ASPIRAS,

EMMANUEL P. BELLO, WILFREDO P. DAVID, CASIANO S. ABRIGO, and JOSEFINA R.
LICUANAN,Petitioners,
vs.
HON. AGUSTIN S. DIZON, his capacity as Presiding Judge of the Regional Trial Court of Quezon
City, Branch 80, STERN BUILDERS, INC., and SERVILLANO DELA CRUZ, Respondents.

DECISION

BERSAMIN, J.:

Trial judges should not immediately issue writs of execution or garnishment against the Government or
any of its subdivisions, agencies and instrumentalities to enforce money judgments. 1 They should bear in
mind that the primary jurisdiction to examine, audit and settle all claims of any sort due from the
Government or any of its subdivisions, agencies and instrumentalities pertains to the Commission on
Audit (COA) pursuant to Presidential Decree No. 1445 (Government Auditing Code of the Philippines).

The Case

On appeal by the University of the Philippines and its then incumbent officials (collectively, the UP) is the
decision promulgated on September 16, 2005,2 whereby the Court of Appeals (CA) upheld the order of
the Regional Trial Court (RTC), Branch 80, in Quezon City that directed the garnishment of public funds
amounting to ₱ 16,370,191.74 belonging to the UP to satisfy the writ of execution issued to enforce the
already final and executory judgment against the UP.

Antecedents

On August 30, 1990, the UP, through its then President Jose V. Abueva, entered into a General
Construction Agreement with respondent Stern Builders Corporation (Stern Builders), represented by its
President and General Manager Servillano dela Cruz, for the construction of the extension building and
the renovation of the College of Arts and Sciences Building in the campus of the University of the
Philippines in Los Baños (UPLB).3

In the course of the implementation of the contract, Stern Builders submitted three progress billings
corresponding to the work accomplished, but the UP paid only two of the billings. The third billing worth ₱
273,729.47 was not paid due to its disallowance by the Commission on Audit (COA). Despite the lifting of
the disallowance, the UP failed to pay the billing, prompting Stern Builders and dela Cruz to sue the UP
and its co-respondent officials to collect the unpaid billing and to recover various damages. The suit,
entitled Stern Builders Corporation and Servillano R. Dela Cruz v. University of the Philippines Systems,
Jose V. Abueva, Raul P. de Guzman, Ruben P. Aspiras, Emmanuel P. Bello, Wilfredo P. David, Casiano
S. Abrigo, and Josefina R. Licuanan, was docketed as Civil Case No. Q-93-14971 of the Regional Trial
Court in Quezon City (RTC).4

After trial, on November 28, 2001, the RTC rendered its decision in favor of the plaintiffs, 5 viz:
Wherefore, in the light of the foregoing, judgment is hereby rendered in favor of the plaintiff and against
the defendants ordering the latter to pay plaintiff, jointly and severally, the following, to wit:

1. ₱ 503,462.74 amount of the third billing, additional accomplished work and retention
money

2. ₱ 5,716,729.00 in actual damages

3. ₱ 10,000,000.00 in moral damages

4. ₱ 150,000.00 and ₱ 1,500.00 per appearance as attorney’s fees; and

5. Costs of suit.

SO ORDERED.

Following the RTC’s denial of its motion for reconsideration on May 7, 2002, 6 the UP filed a notice of
appeal on June 3, 2002.7 Stern Builders and dela Cruz opposed the notice of appeal on the ground of its
filing being belated, and moved for the execution of the decision. The UP countered that the notice of
appeal was filed within the reglementary period because the UP’s Office of Legal Affairs (OLS) in Diliman,
Quezon City received the order of denial only on May 31, 2002. On September 26, 2002, the RTC denied
due course to the notice of appeal for having been filed out of time and granted the private respondents’
motion for execution.8

The RTC issued the writ of execution on October 4, 2002,9 and the sheriff of the RTC served the writ of
execution and notice of demand upon the UP, through its counsel, on October 9, 2002. 10 The UP filed an
urgent motion to reconsider the order dated September 26, 2002, to quash the writ of execution dated
October 4, 2002, and to restrain the proceedings.11 However, the RTC denied the urgent motion on April
1, 2003.12

On June 24, 2003, the UP assailed the denial of due course to its appeal through a petition
for certiorari in the Court of Appeals (CA), docketed as CA-G.R. No. 77395.13

On February 24, 2004, the CA dismissed the petition for certiorari upon finding that the UP’s notice of
appeal had been filed late,14 stating:

Records clearly show that petitioners received a copy of the Decision dated November 28, 2001 and
January 7, 2002, thus, they had until January 22, 2002 within which to file their appeal. On January 16,
2002 or after the lapse of nine (9) days, petitioners through their counsel Atty. Nolasco filed a Motion for
Reconsideration of the aforesaid decision, hence, pursuant to the rules, petitioners still had six (6)
remaining days to file their appeal. As admitted by the petitioners in their petition (Rollo, p. 25), Atty.
Nolasco received a copy of the Order denying their motion for reconsideration on May 17, 2002, thus,
petitioners still has until May 23, 2002 (the remaining six (6) days) within which to file their appeal.
Obviously, petitioners were not able to file their Notice of Appeal on May 23, 2002 as it was only filed on
June 3, 2002.

In view of the said circumstances, We are of the belief and so holds that the Notice of Appeal filed by the
petitioners was really filed out of time, the same having been filed seventeen (17) days late of the
reglementary period. By reason of which, the decision dated November 28, 2001 had already become
final and executory. "Settled is the rule that the perfection of an appeal in the manner and within the
period permitted by law is not only mandatory but jurisdictional, and failure to perfect that appeal renders
the challenged judgment final and executory. This is not an empty procedural rule but is grounded on
fundamental considerations of public policy and sound practice." (Ram’s Studio and Photographic
Equipment, Inc. vs. Court of Appeals, 346 SCRA 691, 696). Indeed, Atty. Nolasco received the order of
denial of the Motion for Reconsideration on May 17, 2002 but filed a Notice of Appeal only on June 3,
3003. As such, the decision of the lower court ipso facto became final when no appeal was perfected
after the lapse of the reglementary period. This procedural caveat cannot be trifled with, not even by the
High Court.15

The UP sought a reconsideration, but the CA denied the UP’s motion for reconsideration on April 19,
2004.16

On May 11, 2004, the UP appealed to the Court by petition for review on certiorari (G.R. No. 163501).

On June 23, 2004, the Court denied the petition for review.17 The UP moved for the reconsideration of the
denial of its petition for review on August 29, 2004,18 but the Court denied the motion on October 6,
2004.19 The denial became final and executory on November 12, 2004.20

In the meanwhile that the UP was exhausting the available remedies to overturn the denial of due course
to the appeal and the issuance of the writ of execution, Stern Builders and dela Cruz filed in the RTC their
motions for execution despite their previous motion having already been granted and despite the writ of
execution having already issued. On June 11, 2003, the RTC granted another motion for execution filed
on May 9, 2003 (although the RTC had already issued the writ of execution on October 4, 2002). 21

On June 23, 2003 and July 25, 2003, respectively, the sheriff served notices of garnishment on the UP’s
depository banks, namely: Land Bank of the Philippines (Buendia Branch) and the Development Bank of
the Philippines (DBP), Commonwealth Branch.22 The UP assailed the garnishment through an urgent
motion to quash the notices of garnishment;23 and a motion to quash the writ of execution dated May 9,
2003.24

On their part, Stern Builders and dela Cruz filed their ex parte motion for issuance of a release order. 25

On October 14, 2003, the RTC denied the UP’s urgent motion to quash, and granted Stern Builders and
dela Cruz’s ex parte motion for issuance of a release order.26

The UP moved for the reconsideration of the order of October 14, 2003, but the RTC denied the motion
on November 7, 2003.27

On January 12, 2004, Stern Builders and dela Cruz again sought the release of the garnished
funds.28 Despite the UP’s opposition,29 the RTC granted the motion to release the garnished funds on
March 16, 2004.30 On April 20, 2004, however, the RTC held in abeyance the enforcement of the writs of
execution issued on October 4, 2002 and June 3, 2003 and all the ensuing notices of garnishment, citing
Section 4, Rule 52, Rules of Court, which provided that the pendency of a timely motion for
reconsideration stayed the execution of the judgment.31

On December 21, 2004, the RTC, through respondent Judge Agustin S. Dizon, authorized the release of
the garnished funds of the UP,32 to wit:

WHEREFORE, premises considered, there being no more legal impediment for the release of the
garnished amount in satisfaction of the judgment award in the instant case, let the amount garnished be
immediately released by the Development Bank of the Philippines, Commonwealth Branch, Quezon City
in favor of the plaintiff.

SO ORDERED.
The UP was served on January 3, 2005 with the order of December 21, 2004 directing DBP to release
the garnished funds.33

On January 6, 2005, Stern Builders and dela Cruz moved to cite DBP in direct contempt of court for its
non-compliance with the order of release.34

Thereupon, on January 10, 2005, the UP brought a petition for certiorari in the CA to challenge the
jurisdiction of the RTC in issuing the order of December 21, 2004 (CA-G.R. CV No. 88125).35 Aside from
raising the denial of due process, the UP averred that the RTC committed grave abuse of discretion
amounting to lack or excess of jurisdiction in ruling that there was no longer any legal impediment to the
release of the garnished funds. The UP argued that government funds and properties could not be seized
by virtue of writs of execution or garnishment, as held in Department of Agriculture v. National Labor
Relations Commission,36 and citing Section 84 of Presidential Decree No. 1445 to the effect that "revenue
funds shall not be paid out of any public treasury or depository except in pursuance of an appropriation
law or other specific statutory authority;" and that the order of garnishment clashed with the ruling in
University of the Philippines Board of Regents v. Ligot-Telan37 to the effect that the funds belonging to the
UP were public funds.

On January 19, 2005, the CA issued a temporary restraining order (TRO) upon application by the UP. 38

On March 22, 2005, Stern Builders and dela Cruz filed in the RTC their amended motion for sheriff’s
assistance to implement the release order dated December 21, 2004, stating that the 60-day period of the
TRO of the CA had already lapsed.39 The UP opposed the amended motion and countered that the
implementation of the release order be suspended.40

On May 3, 2005, the RTC granted the amended motion for sheriff’s assistance and directed the sheriff to
proceed to the DBP to receive the check in satisfaction of the judgment. 41

The UP sought the reconsideration of the order of May 3, 2005. 42

On May 16, 2005, DBP filed a motion to consign the check representing the judgment award and to
dismiss the motion to cite its officials in contempt of court.43

On May 23, 2005, the UP presented a motion to withhold the release of the payment of the judgment
award.44

On July 8, 2005, the RTC resolved all the pending matters,45 noting that the DBP had already delivered to
the sheriff Manager’s Check No. 811941 for ₱ 16,370,191.74 representing the garnished funds payable to
the order of Stern Builders and dela Cruz as its compliance with the RTC’s order dated December 21,
2004.46 However, the RTC directed in the same order that Stern Builders and dela Cruz should not
encash the check or withdraw its amount pending the final resolution of the UP’s petition for certiorari, to
wit:47

To enable the money represented in the check in question (No. 00008119411) to earn interest during the
pendency of the defendant University of the Philippines application for a writ of injunction with the Court of
Appeals the same may now be deposited by the plaintiff at the garnishee Bank (Development Bank of the
Philippines), the disposition of the amount represented therein being subject to the final outcome of the
case of the University of the Philippines et al., vs. Hon. Agustin S. Dizon et al., (CA G.R. 88125) before
the Court of Appeals.

Let it be stated herein that the plaintiff is not authorized to encash and withdraw the amount represented
in the check in question and enjoy the same in the fashion of an owner during the pendency of the case
between the parties before the Court of Appeals which may or may not be resolved in plaintiff’s favor.
With the end in view of seeing to it that the check in question is deposited by the plaintiff at the
Development Bank of the Philippines (garnishee bank), Branch Sheriff Herlan Velasco is directed to
accompany and/or escort the plaintiff in making the deposit of the check in question.

SO ORDERED.

On September 16, 2005, the CA promulgated its assailed decision dismissing the UP’s petition for
certiorari, ruling that the UP had been given ample opportunity to contest the motion to direct the DBP to
deposit the check in the name of Stern Builders and dela Cruz; and that the garnished funds could be the
proper subject of garnishment because they had been already earmarked for the project, with the UP
holding the funds only in a fiduciary capacity,48 viz:

Petitioners next argue that the UP funds may not be seized for execution or garnishment to satisfy the
judgment award. Citing Department of Agriculture vs. NLRC, University of the Philippines Board of
Regents vs. Hon. Ligot-Telan, petitioners contend that UP deposits at Land Bank and the Development
Bank of the Philippines, being government funds, may not be released absent an appropriations bill from
Congress.

The argument is specious. UP entered into a contract with private respondents for the expansion and
renovation of the Arts and Sciences Building of its campus in Los Baños, Laguna. Decidedly, there was
already an appropriations earmarked for the said project. The said funds are retained by UP, in a fiduciary
capacity, pending completion of the construction project.

We agree with the trial Court [sic] observation on this score:

"4. Executive Order No. 109 (Directing all National Government Agencies to Revert
Certain Accounts Payable to the Cumulative Result of Operations of the National
Government and for Other Purposes) Section 9. Reversion of Accounts Payable,
provides that, all 1995 and prior years documented accounts payable and all
undocumented accounts regardless of the year they were incurred shall be reverted to
the Cumulative Result of Operations of the National Government (CROU). This shall
apply to accounts payable of all funds, except fiduciary funds, as long as the purpose for
which the funds were created have not been accomplished and accounts payable under
foreign assisted projects for the duration of the said project. In this regard, the
Department of Budget and Management issued Joint-Circular No. 99-6 4.0 (4.3)
Procedural Guidelines which provides that all accounts payable that reverted to the
CROU may be considered for payment upon determination thru administrative process,
of the existence, validity and legality of the claim. Thus, the allegation of the defendants
that considering no appropriation for the payment of any amount awarded to plaintiffs
appellee the funds of defendant-appellants may not be seized pursuant to a writ of
execution issued by the regular court is misplaced. Surely when the defendants and the
plaintiff entered into the General Construction of Agreement there is an amount already
allocated by the latter for the said project which is no longer subject of future
appropriation."49

After the CA denied their motion for reconsideration on December 23, 2005, the petitioners appealed by
petition for review.

Matters Arising During the Pendency of the Petition

On January 30, 2006, Judge Dizon of the RTC (Branch 80) denied Stern Builders and dela Cruz’s motion
to withdraw the deposit, in consideration of the UP’s intention to appeal to the CA,50 stating:
Since it appears that the defendants are intending to file a petition for review of the Court of Appeals
resolution in CA-G.R. No. 88125 within the reglementary period of fifteen (15) days from receipt of
resolution, the Court agrees with the defendants stand that the granting of plaintiffs’ subject motion is
premature.

Let it be stated that what the Court meant by its Order dated July 8, 2005 which states in part that the
"disposition of the amount represented therein being subject to the final outcome of the case of the
University of the Philippines, et. al., vs. Hon. Agustin S. Dizon et al., (CA G.R. No. 88125 before the Court
of Appeals) is that the judgment or resolution of said court has to be final and executory, for if the same
will still be elevated to the Supreme Court, it will not attain finality yet until the highest court has rendered
its own final judgment or resolution.51

However, on January 22, 2007, the UP filed an Urgent Application for A Temporary Restraining Order
and/or A Writ of Preliminary Injunction,52 averring that on January 3, 2007, Judge Maria Theresa dela
Torre-Yadao (who had meanwhile replaced Judge Dizon upon the latter’s appointment to the CA) had
issued another order allowing Stern Builders and dela Cruz to withdraw the deposit, 53 to wit:

It bears stressing that defendants’ liability for the payment of the judgment obligation has become
indubitable due to the final and executory nature of the Decision dated November 28, 2001. Insofar as the
payment of the [sic] judgment obligation is concerned, the Court believes that there is nothing more the
defendant can do to escape liability. It is observed that there is nothing more the defendant can do to
escape liability. It is observed that defendant U.P. System had already exhausted all its legal remedies to
overturn, set aside or modify the decision (dated November 28, 2001( rendered against it. The way the
Court sees it, defendant U.P. System’s petition before the Supreme Court concerns only with the manner
by which said judgment award should be satisfied. It has nothing to do with the legality or propriety
thereof, although it prays for the deletion of [sic] reduction of the award of moral damages.

It must be emphasized that this Court’s finding, i.e., that there was sufficient appropriation earmarked for
the project, was upheld by the Court of Appeals in its decision dated September 16, 2005. Being a finding
of fact, the Supreme Court will, ordinarily, not disturb the same was said Court is not a trier of fact. Such
being the case, defendants’ arguments that there was no sufficient appropriation for the payment of the
judgment obligation must fail.

While it is true that the former Presiding Judge of this Court in its Order dated January 30, 2006 had
stated that:

Let it be stated that what the Court meant by its Order dated July 8, 2005 which states in part that the
"disposition of the amount represented therein being subject to the final outcome of the case of the
University of the Philippines, et. al., vs. Hon. Agustin S. Dizon et al., (CA G.R. No. 88125 before the Court
of Appeals) is that the judgment or resolution of said court has to be final and executory, for if the same
will still be elevated to the Supreme Court, it will not attain finality yet until the highest court has rendered
its own final judgment or resolution.

it should be noted that neither the Court of Appeals nor the Supreme Court issued a preliminary injunction
enjoining the release or withdrawal of the garnished amount. In fact, in its present petition for review
before the Supreme Court, U.P. System has not prayed for the issuance of a writ of preliminary injunction.
Thus, the Court doubts whether such writ is forthcoming.

The Court honestly believes that if defendants’ petition assailing the Order of this Court dated December
31, 2004 granting the motion for the release of the garnished amount was meritorious, the Court of
Appeals would have issued a writ of injunction enjoining the same. Instead, said appellate court not only
refused to issue a wit of preliminary injunction prayed for by U.P. System but denied the petition, as
well.54
The UP contended that Judge Yadao thereby effectively reversed the January 30, 2006 order of Judge
Dizon disallowing the withdrawal of the garnished amount until after the decision in the case would have
become final and executory.

Although the Court issued a TRO on January 24, 2007 to enjoin Judge Yadao and all persons acting
pursuant to her authority from enforcing her order of January 3, 2007,55 it appears that on January 16,
2007, or prior to the issuance of the TRO, she had already directed the DBP to forthwith release the
garnished amount to Stern Builders and dela Cruz; 56 and that DBP had forthwith complied with the order
on January 17, 2007 upon the sheriff’s service of the order of Judge Yadao. 57

These intervening developments impelled the UP to file in this Court a supplemental petition on January
26, 2007,58alleging that the RTC (Judge Yadao) gravely erred in ordering the immediate release of the
garnished amount despite the pendency of the petition for review in this Court.

The UP filed a second supplemental petition59 after the RTC (Judge Yadao) denied the UP’s motion for
the redeposit of the withdrawn amount on April 10, 2007,60 to wit:

This resolves defendant U.P. System’s Urgent Motion to Redeposit Judgment Award praying that
plaintiffs be directed to redeposit the judgment award to DBP pursuant to the Temporary Restraining
Order issued by the Supreme Court. Plaintiffs opposed the motion and countered that the Temporary
Restraining Order issued by the Supreme Court has become moot and academic considering that the act
sought to be restrained by it has already been performed. They also alleged that the redeposit of the
judgment award was no longer feasible as they have already spent the same.

It bears stressing, if only to set the record straight, that this Court did not – in its Order dated January 3,
2007 (the implementation of which was restrained by the Supreme Court in its Resolution dated January
24, 2002) – direct that that garnished amount "be deposited with the garnishee bank (Development Bank
of the Philippines)". In the first place, there was no need to order DBP to make such deposit, as the
garnished amount was already deposited in the account of plaintiffs with the DBP as early as May 13,
2005. What the Court granted in its Order dated January 3, 2007 was plaintiff’s motion to allow the
release of said deposit. It must be recalled that the Court found plaintiff’s motion meritorious and, at that
time, there was no restraining order or preliminary injunction from either the Court of Appeals or the
Supreme Court which could have enjoined the release of plaintiffs’ deposit. The Court also took into
account the following factors:

a) the Decision in this case had long been final and executory after it was rendered on
November 28, 2001;

b) the propriety of the dismissal of U.P. System’s appeal was upheld by the Supreme
Court;

c) a writ of execution had been issued;

d) defendant U.P. System’s deposit with DBP was garnished pursuant to a lawful writ of
execution issued by the Court; and

e) the garnished amount had already been turned over to the plaintiffs and deposited in
their account with DBP.

The garnished amount, as discussed in the Order dated January 16, 2007, was already owned by the
plaintiffs, having been delivered to them by the Deputy Sheriff of this Court pursuant to par. (c), Section 9,
Rule 39 of the 1997 Rules of Civil Procedure. Moreover, the judgment obligation has already been fully
satisfied as per Report of the Deputy Sheriff.
Anent the Temporary Restraining Order issued by the Supreme Court, the same has become functus
oficio, having been issued after the garnished amount had been released to the plaintiffs. The judgment
debt was released to the plaintiffs on January 17, 2007, while the Temporary Restraining Order issued by
the Supreme Court was received by this Court on February 2, 2007. At the time of the issuance of the
Restraining Order, the act sought to be restrained had already been done, thereby rendering the said
Order ineffectual.

After a careful and thorough study of the arguments advanced by the parties, the Court is of the
considered opinion that there is no legal basis to grant defendant U.P. System’s motion to redeposit the
judgment amount. Granting said motion is not only contrary to law, but it will also render this Court’s final
executory judgment nugatory. Litigation must end and terminate sometime and somewhere, and it is
essential to an effective administration of justice that once a judgment has become final the issue or
cause involved therein should be laid to rest. This doctrine of finality of judgment is grounded on
fundamental considerations of public policy and sound practice. In fact, nothing is more settled in law than
that once a judgment attains finality it thereby becomes immutable and unalterable. It may no longer be
modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous
conclusion of fact or law, and regardless of whether the modification is attempted to be made by the court
rendering it or by the highest court of the land.

WHEREFORE, premises considered, finding defendant U.P. System’s Urgent Motion to Redeposit
Judgment Award devoid of merit, the same is hereby DENIED.

SO ORDERED.

Issues

The UP now submits that:

THE COURT OF APPEALS COMMITTED GRAVE ERROR IN DISMISSING THE PETITION, ALLOWING
IN EFFECT THE GARNISHMENT OF UP FUNDS, WHEN IT RULED THAT FUNDS HAVE ALREADY
BEEN EARMARKED FOR THE CONSTRUCTION PROJECT; AND THUS, THERE IS NO NEED FOR
FURTHER APPROPRIATIONS.

II

THE COURT OF APPEALS COMMITTED GRAVE ERROR IN ALLOWING GARNISHMENT OF A

STATE UNIVERSITY’S FUNDS IN VIOLATION OF ARTICLE XIV, SECTION 5(5) OF THE
CONSTITUTION.

III

IN THE ALTERNATIVE, THE UNIVERSITY INVOKES EQUITY AND THE REVIEW POWERS OF THIS
HONORABLE COURT TO MODIFY, IF NOT TOTALLY DELETE THE AWARD OF ₱ 10 MILLION AS
MORAL DAMAGES TO RESPONDENTS.

IV

THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE IMMEDIATE RELEASE OF

THE JUDGMENT AWARD IN ITS ORDER DATED 3 JANUARY 2007 ON THE GROUND OF EQUITY
AND JUDICIAL COURTESY.
 V

THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE IMMEDIATE RELEASE OF

THE JUDGMENT AWARD IN ITS ORDER DATED 16 JANUARY 2007 ON THE GROUND THAT
PETITIONER UNIVERSITY STILL HAS A PENDING MOTION FOR RECONSIDERATION OF THE
ORDER DATED 3 JANUARY 2007.

VI

THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN NOT ORDERING THE REDEPOSIT OF THE
GARNISHED AMOUNT TO THE DBP IN VIOLATION OF THE CLEAR LANGUAGE OF THE SUPREME
COURT RESOLUTION DATED 24 JANUARY 2007.

The UP argues that the amount earmarked for the construction project had been purposely set aside only
for the aborted project and did not include incidental matters like the awards of actual damages, moral
damages and attorney’s fees. In support of its argument, the UP cited Article 12.2 of the General
Construction Agreement, which stipulated that no deductions would be allowed for the payment of claims,
damages, losses and expenses, including attorney’s fees, in case of any litigation arising out of the
performance of the work. The UP insists that the CA decision was inconsistent with the rulings in
Commissioner of Public Highways v. San Diego61 and Department of Agriculture v. NLRC62 to the effect
that government funds and properties could not be seized under writs of execution or garnishment to
satisfy judgment awards.

Furthermore, the UP contends that the CA contravened Section 5, Article XIV of the Constitution by
allowing the garnishment of UP funds, because the garnishment resulted in a substantial reduction of the
UP’s limited budget allocated for the remuneration, job satisfaction and fulfillment of the best available
teachers; that Judge Yadao should have exhibited judicial courtesy towards the Court due to the
pendency of the UP’s petition for review; and that she should have also desisted from declaring that the
TRO issued by this Court had become functus officio.

Lastly, the UP states that the awards of actual damages of ₱ 5,716,729.00 and moral damages of ₱ 10
million should be reduced, if not entirely deleted, due to its being unconscionable, inequitable and
detrimental to public service.

In contrast, Stern Builders and dela Cruz aver that the petition for review was fatally defective for its
failure to mention the other cases upon the same issues pending between the parties (i.e., CA-G.R. No.
77395 and G.R No. 163501); that the UP was evidently resorting to forum shopping, and to delaying the
satisfaction of the final judgment by the filing of its petition for review; that the ruling in Commissioner of
Public Works v. San Diego had no application because there was an appropriation for the project; that the
UP retained the funds allotted for the project only in a fiduciary capacity; that the contract price had been
meanwhile adjusted to ₱ 22,338,553.25, an amount already more than sufficient to cover the judgment
award; that the UP’s prayer to reduce or delete the award of damages had no factual basis, because they
had been gravely wronged, had been deprived of their source of income, and had suffered untold
miseries, discomfort, humiliation and sleepless years; that dela Cruz had even been constrained to sell
his house, his equipment and the implements of his trade, and together with his family had been forced to
live miserably because of the wrongful actuations of the UP; and that the RTC correctly declared the
Court’s TRO to be already functus officio by reason of the withdrawal of the garnished amount from the
DBP.

The decisive issues to be considered and passed upon are, therefore:

(a) whether the funds of the UP were the proper subject of garnishment in order to satisfy the judgment
award; and (b) whether the UP’s prayer for the deletion of the awards of actual damages of ₱
5,716,729.00, moral damages of ₱ 10,000,000.00 and attorney’s fees of ₱ 150,000.00 plus ₱ 1,500.00
per appearance could be granted despite the finality of the judgment of the RTC.

Ruling

The petition for review is meritorious.

I.
UP’s funds, being government funds,
are not subject to garnishment

The UP was founded on June 18, 1908 through Act 1870 to provide advanced instruction in literature,
philosophy, the sciences, and arts, and to give professional and technical training to deserving
students.63 Despite its establishment as a body corporate,64 the UP remains to be a "chartered
institution"65 performing a legitimate government function. It is an institution of higher learning, not a
corporation established for profit and declaring any dividends.66 In enacting Republic Act No. 9500 (The
University of the Philippines Charter of 2008), Congress has declared the UP as the national
university67 "dedicated to the search for truth and knowledge as well as the development of future
leaders."68

Irrefragably, the UP is a government instrumentality,69 performing the State’s constitutional mandate of

promoting quality and accessible education.70 As a government instrumentality, the UP administers
special funds sourced from the fees and income enumerated under Act No. 1870 and Section 1 of
Executive Order No. 714,71 and from the yearly appropriations, to achieve the purposes laid down by
Section 2 of Act 1870, as expanded in Republic Act No. 9500.72 All the funds going into the possession of
the UP, including any interest accruing from the deposit of such funds in any banking institution,
constitute a "special trust fund," the disbursement of which should always be aligned with the UP’s
mission and purpose,73 and should always be subject to auditing by the COA.74

Presidential Decree No. 1445 defines a "trust fund" as a fund that officially comes in the possession of an
agency of the government or of a public officer as trustee, agent or administrator, or that is received for
the fulfillment of some obligation.75 A trust fund may be utilized only for the "specific purpose for which the
trust was created or the funds received."76

The funds of the UP are government funds that are public in character. They include the income accruing
from the use of real property ceded to the UP that may be spent only for the attainment of its institutional
objectives.77 Hence, the funds subject of this action could not be validly made the subject of the RTC’s
writ of execution or garnishment. The adverse judgment rendered against the UP in a suit to which it had
impliedly consented was not immediately enforceable by execution against the UP, 78 because suability of
the State did not necessarily mean its liability.79

A marked distinction exists between suability of the State and its liability. As the Court succinctly stated in
Municipality of San Fernando, La Union v. Firme:80

A distinction should first be made between suability and liability. "Suability depends on the consent of the
state to be sued, liability on the applicable law and the established facts. The circumstance that a state is
suable does not necessarily mean that it is liable; on the other hand, it can never be held liable if it does
not first consent to be sued. Liability is not conceded by the mere fact that the state has allowed itself to
be sued. When the state does waive its sovereign immunity, it is only giving the plaintiff the chance to
prove, if it can, that the defendant is liable.

Also, in Republic v. Villasor,81 where the issuance of an alias writ of execution directed against the funds
of the Armed Forces of the Philippines to satisfy a final and executory judgment was nullified, the Court
said:
xxx The universal rule that where the State gives its consent to be sued by private parties either by
general or special law, it may limit claimant’s action "only up to the completion of proceedings anterior to
the stage of execution" and that the power of the Courts ends when the judgment is rendered, since
government funds and properties may not be seized under writs of execution or garnishment to satisfy
such judgments, is based on obvious considerations of public policy. Disbursements of public funds must
be covered by the corresponding appropriation as required by law. The functions and public services
rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public funds
from their legitimate and specific objects, as appropriated by law.

The UP correctly submits here that the garnishment of its funds to satisfy the judgment awards of actual
and moral damages (including attorney’s fees) was not validly made if there was no special appropriation
by Congress to cover the liability. It was, therefore, legally unwarranted for the CA to agree with the
RTC’s holding in the order issued on April 1, 2003 that no appropriation by Congress to allocate and set
aside the payment of the judgment awards was necessary because "there (were) already an
appropriations (sic) earmarked for the said project."82 The CA and the RTC thereby unjustifiably ignored
the legal restriction imposed on the trust funds of the Government and its agencies and instrumentalities
to be used exclusively to fulfill the purposes for which the trusts were created or for which the funds were
received except upon express authorization by Congress or by the head of a government agency in
control of the funds, and subject to pertinent budgetary laws, rules and regulations. 83

Indeed, an appropriation by Congress was required before the judgment that rendered the UP liable for
moral and actual damages (including attorney’s fees) would be satisfied considering that such monetary
liabilities were not covered by the "appropriations earmarked for the said project." The Constitution strictly
mandated that "(n)o money shall be paid out of the Treasury except in pursuance of an appropriation
made by law."84

II
COA must adjudicate private respondents’ claim
before execution should proceed

The execution of the monetary judgment against the UP was within the primary jurisdiction of the COA.
This was expressly provided in Section 26 of Presidential Decree No. 1445, to wit:

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.

It was of no moment that a final and executory decision already validated the claim against the UP. The
settlement of the monetary claim was still subject to the primary jurisdiction of the COA despite the final
decision of the RTC having already validated the claim.85 As such, Stern Builders and dela Cruz as the
claimants had no alternative except to first seek the approval of the COA of their monetary claim.

On its part, the RTC should have exercised utmost caution, prudence and judiciousness in dealing with
the motions for execution against the UP and the garnishment of the UP’s funds. The RTC had no
authority to direct the immediate withdrawal of any portion of the garnished funds from the depository
banks of the UP. By eschewing utmost caution, prudence and judiciousness in dealing with the execution
and garnishment, and by authorizing the withdrawal of the garnished funds of the UP, the RTC acted
beyond its jurisdiction, and all its orders and issuances thereon were void and of no legal effect,
specifically: (a) the order Judge Yadao issued on January 3, 2007 allowing Stern Builders and dela Cruz
to withdraw the deposited garnished amount; (b) the order Judge Yadao issued on January 16, 2007
directing DBP to forthwith release the garnish amount to Stern Builders and dela Cruz; (c) the sheriff’s
report of January 17, 2007 manifesting the full satisfaction of the writ of execution; and (d) the order of
April 10, 2007 deying the UP’s motion for the redeposit of the withdrawn amount. Hence, such orders and
issuances should be struck down without exception.

Nothing extenuated Judge Yadao’s successive violations of Presidential Decree No. 1445. She was
aware of Presidential Decree No. 1445, considering that the Court circulated to all judges its
Administrative Circular No. 10-2000,86 issued on October 25, 2000, enjoining them "to observe utmost
caution, prudence and judiciousness in the issuance of writs of execution to satisfy money judgments
against government agencies and local government units" precisely in order to prevent the circumvention
of Presidential Decree No. 1445, as well as of the rules and procedures of the COA, to wit:

In order to prevent possible circumvention of the rules and procedures of the Commission on
Audit, judges are hereby enjoined to observe utmost caution, prudence and judiciousness in the
issuance of writs of execution to satisfy money judgments against government agencies and local
government units.

Judges should bear in mind that in Commissioner of Public Highways v. San Diego (31 SCRA 617, 625
1970), this Court explicitly stated:

"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 Court 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.

Moreover, it is settled jurisprudence that upon determination of State liability, the prosecution,
enforcement or satisfaction thereof must still be pursued in accordance with the rules and
procedures laid down in P.D. No. 1445, otherwise known as the Government Auditing Code of the
Philippines (Department of Agriculture v. NLRC, 227 SCRA 693, 701-02 1993 citing Republic vs.
Villasor, 54 SCRA 84 1973). All money claims against the Government must first be filed with the
Commission on Audit which must act upon it within sixty days. Rejection of the claim will
authorize the claimant to elevate the matter to the Supreme Court on certiorari and in effect, sue
the State thereby (P.D. 1445, Sections 49-50).

However, notwithstanding the rule that government properties are not subject to levy and execution
unless otherwise provided for by statute (Republic v. Palacio, 23 SCRA 899 1968; Commissioner of
Public Highways v. San Diego, supra) or municipal ordinance (Municipality of Makati v. Court of Appeals,
190 SCRA 206 1990), the Court has, in various instances, distinguished between government funds and
properties for public use and those not held for public use. Thus, in Viuda de Tan Toco v. Municipal
Council of Iloilo (49 Phil 52 1926, the Court ruled that "where property of a municipal or other public
corporation is sought to be subjected to execution to satisfy judgments recovered against such
corporation, the question as to whether such property is leviable or not is to be determined by the usage
and purposes for which it is held." The following can be culled from Viuda de Tan Toco v. Municipal
Council of Iloilo:
1. Properties held for public uses – and generally everything held for governmental purposes –
are not subject to levy and sale under execution against such corporation. The same rule applies
to funds in the hands of a public officer and taxes due to a municipal corporation.

2. Where a municipal corporation owns in its proprietary capacity, as distinguished from its public or
government capacity, property not used or used for a public purpose but for quasi-private purposes, it is
the general rule that such property may be seized and sold under execution against the corporation.

3. Property held for public purposes is not subject to execution merely because it is temporarily used for
private purposes. If the public use is wholly abandoned, such property becomes subject to execution.

This Administrative Circular shall take effect immediately and the Court Administrator shall see to it that it
is faithfully implemented.

Although Judge Yadao pointed out that neither the CA nor the Court had issued as of then any writ of
preliminary injunction to enjoin the release or withdrawal of the garnished amount, she did not need any
writ of injunction from a superior court to compel her obedience to the law. The Court is disturbed that an
experienced judge like her should look at public laws like Presidential Decree No. 1445 dismissively
instead of loyally following and unquestioningly implementing them. That she did so turned her court into
an oppressive bastion of mindless tyranny instead of having it as a true haven for the seekers of justice
like the UP.

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

The UP next pleads that the Court gives due course to its petition for review in the name of equity in order
to reverse or modify the adverse judgment against it despite its finality. At stake in the UP’s plea for equity
was the return of the amount of ₱ 16,370,191.74 illegally garnished from its trust funds. Obstructing the
plea is the finality of the judgment based on the supposed tardiness of UP’s appeal, which the RTC
declared on September 26, 2002. The CA upheld the declaration of finality on February 24, 2004, and the
Court itself denied the UP’s petition for review on that issue on May 11, 2004 (G.R. No. 163501). The
denial became final on November 12, 2004.

It is true that a decision that has attained finality becomes immutable and unalterable, and cannot be
modified in any respect,87 even if the modification is meant to correct erroneous conclusions of fact and
law, and whether the modification is made by the court that rendered it or by this Court as the highest
court of the land.88 Public policy dictates that once a judgment becomes final, executory and
unappealable, the prevailing party should not be deprived of the fruits of victory by some subterfuge
devised by the losing party. Unjustified delay in the enforcement of such judgment sets at naught the role
and purpose of the courts to resolve justiciable controversies with finality. 89Indeed, all litigations must at
some time end, even at the risk of occasional errors.

But the doctrine of immutability of a final judgment has not been absolute, and has admitted several
exceptions, among them: (a) the correction of clerical errors; (b) the so-called nunc pro tunc entries that
cause no prejudice to any party; (c) void judgments; and (d) whenever circumstances transpire after the
finality of the decision that render its execution unjust and inequitable. 90 Moreover, in Heirs of Maura So v.
Obliosca,91 we stated that despite the absence of the preceding circumstances, the Court is not precluded
from brushing aside procedural norms if only to serve the higher interests of justice and equity. Also, in
Gumaru v. Quirino State College,92 the Court nullified the proceedings and the writ of execution issued by
the RTC for the reason that respondent state college had not been represented in the litigation by the
Office of the Solicitor General.

We rule that the UP’s plea for equity warrants the Court’s exercise of the exceptional power to disregard
the declaration of finality of the judgment of the RTC for being in clear violation of the UP’s right to due
process.

Both the CA and the RTC found the filing on June 3, 2002 by the UP of the notice of appeal to be tardy.
They based their finding on the fact that only six days remained of the UP’s reglementary 15-day period
within which to file the notice of appeal because the UP had filed a motion for reconsideration on January
16, 2002 vis-à-vis the RTC’s decision the UP received on January 7, 2002; and that because the denial of
the motion for reconsideration had been served upon Atty. Felimon D. Nolasco of the UPLB Legal Office
on May 17, 2002, the UP had only until May 23, 2002 within which to file the notice of appeal.

The UP counters that the service of the denial of the motion for reconsideration upon Atty. Nolasco was
defective considering that its counsel of record was not Atty. Nolasco of the UPLB Legal Office but the
OLS in Diliman, Quezon City; and that the period of appeal should be reckoned from May 31, 2002, the
date when the OLS received the order. The UP submits that the filing of the notice of appeal on June 3,
2002 was well within the reglementary period to appeal.

We agree with the submission of the UP.

Firstly, the service of the denial of the motion for reconsideration upon Atty. Nolasco of the UPLB Legal
Office was invalid and ineffectual because he was admittedly not the counsel of record of the UP. The
rule is that it is on the counsel and not the client that the service should be made. 93

That counsel was the OLS in Diliman, Quezon City, which was served with the denial only on May 31,
2002. As such, the running of the remaining period of six days resumed only on June 1, 2002, 94 rendering
the filing of the UP’s notice of appeal on June 3, 2002 timely and well within the remaining days of the
UP’s period to appeal.

Verily, the service of the denial of the motion for reconsideration could only be validly made upon the OLS
in Diliman, and no other. The fact that Atty. Nolasco was in the employ of the UP at the UPLB Legal
Office did not render the service upon him effective. It is settled that where a party has appeared by
counsel, service must be made upon such counsel.95 Service on the party or the party’s employee is not
effective because such notice is not notice in law.96 This is clear enough from Section 2, second
paragraph, of Rule 13, Rules of Court, which explicitly states that: "If any party has appeared by counsel,
service upon him shall be made upon his counsel or one of them, unless service upon the party himself is
ordered by the court. Where one counsel appears for several parties, he shall only be entitled to one copy
of any paper served upon him by the opposite side." As such, the period to appeal resumed only on June
1, 2002, the date following the service on May 31, 2002 upon the OLS in Diliman of the copy of the
decision of the RTC, not from the date when the UP was notified.97

Accordingly, the declaration of finality of the judgment of the RTC, being devoid of factual and legal
bases, is set aside.

Secondly, even assuming that the service upon Atty. Nolasco was valid and effective, such that the
remaining period for the UP to take a timely appeal would end by May 23, 2002, it would still not be
correct to find that the judgment of the RTC became final and immutable thereafter due to the notice of
appeal being filed too late on June 3, 2002.

In so declaring the judgment of the RTC as final against the UP, the CA and the RTC applied the rule
contained in the second paragraph of Section 3, Rule 41 of the Rules of Court to the effect that the filing
of a motion for reconsideration interrupted the running of the period for filing the appeal; and that the
period resumed upon notice of the denial of the motion for reconsideration. For that reason, the CA and
the RTC might not be taken to task for strictly adhering to the rule then prevailing.

However, equity calls for the retroactive application in the UP’s favor of the fresh-period rule that the
Court first announced in mid-September of 2005 through its ruling in Neypes v. Court of Appeals, 98 viz:

To standardize the appeal periods provided in the Rules and to afford litigants fair opportunity to appeal
their cases, the Court deems it practical to allow a fresh period of 15 days within which to file the notice of
appeal in the Regional Trial Court, counted from receipt of the order dismissing a motion for a new trial or
motion for reconsideration.

The retroactive application of the fresh-period rule, a procedural law that aims "to regiment or make the
appeal period uniform, to be counted from receipt of the order denying the motion for new trial, motion for
reconsideration (whether full or partial) or any final order or resolution,"99 is impervious to any serious
challenge. This is because there are no vested rights in rules of procedure. 100 A law or regulation is
procedural when it prescribes rules and forms of procedure in order that courts may be able to administer
justice.101 It does not come within the legal conception of a retroactive law, or is not subject of the general
rule prohibiting the retroactive operation of statues, but is given retroactive effect in actions pending and
undetermined at the time of its passage without violating any right of a person who may feel that he is
adversely affected.

We have further said that a procedural rule that is amended for the benefit of litigants in furtherance of the
administration of justice shall be retroactively applied to likewise favor actions then pending, as equity
delights in equality.102 We may even relax stringent procedural rules in order to serve substantial justice
and in the exercise of this Court’s equity jurisdiction.103 Equity jurisdiction aims to do complete justice in
cases where a court of law is unable to adapt its judgments to the special circumstances of a case
because of the inflexibility of its statutory or legal jurisdiction. 104

It is cogent to add in this regard that to deny the benefit of the fresh-period rule to the UP would amount
to injustice and absurdity – injustice, because the judgment in question was issued on November 28,
2001 as compared to the judgment in Neypes that was rendered in 1998; absurdity, because parties
receiving notices of judgment and final orders issued in the year 1998 would enjoy the benefit of the
fresh-period rule but the later rulings of the lower courts like that herein would not. 105

Consequently, even if the reckoning started from May 17, 2002, when Atty. Nolasco received the denial,
the UP’s filing on June 3, 2002 of the notice of appeal was not tardy within the context of the fresh-period
rule. For the UP, the fresh period of 15-days counted from service of the denial of the motion for
reconsideration would end on June 1, 2002, which was a Saturday. Hence, the UP had until the next
working day, or June 3, 2002, a Monday, within which to appeal, conformably with Section 1 of Rule 22,
Rules of Court, which holds that: "If the last day of the period, as thus computed, falls on a Saturday, a
Sunday, or a legal holiday in the place where the court sits, the time shall not run until the next working
day."

IV
Awards of monetary damages,
being devoid of factual and legal bases,
did not attain finality and should be deleted

Section 14 of Article VIII of the Constitution prescribes that express findings of fact and of law should be
made in the decision rendered by any court, to wit:

Section 14. No decision shall be rendered by any court without expressing therein clearly and distinctly
the facts and the law on which it is based.
No petition for review or motion for reconsideration of a decision of the court shall be refused due course
or denied without stating the legal basis therefor.

Implementing the constitutional provision in civil actions is Section 1 of Rule 36, Rules of Court, viz:

Section 1. Rendition of judgments and final orders. — A judgment or final order determining the merits of
the case shall be in writing personally and directly prepared by the judge, stating clearly and distinctly the
facts and the law on which it is based, signed by him, and filed with the clerk of the court. (1a)

The Constitution and the Rules of Court apparently delineate two main essential parts of a judgment,
namely: the body and the decretal portion. Although the latter is the controlling part, 106 the importance of
the former is not to be lightly regarded because it is there where the court clearly and distinctly states its
findings of fact and of law on which the decision is based. To state it differently, one without the other is
ineffectual and useless. The omission of either inevitably results in a judgment that violates the letter and
the spirit of the Constitution and the Rules of Court.

The term findings of fact that must be found in the body of the decision refers to statements of fact, not to
conclusions of law.107 Unlike in pleadings where ultimate facts alone need to be stated, the Constitution
and the Rules of Court require not only that a decision should state the ultimate facts but also that it
should specify the supporting evidentiary facts, for they are what are called the findings of fact.

The importance of the findings of fact and of law cannot be overstated. The reason and purpose of the
Constitution and the Rules of Court in that regard are obviously to inform the parties why they win or lose,
and what their rights and obligations are. Only thereby is the demand of due process met as to the
parties. As Justice Isagani A. Cruz explained in Nicos Industrial Corporation v. Court of Appeals:108

It is a requirement of due process that the parties to a litigation be informed of how it was decided, with an
explanation of the factual and legal reasons that led to the conclusions of the court. The court cannot
simply say that judgment is rendered in favor of X and against Y and just leave it at that without any
justification whatsoever for its action. The losing party is entitled to know why he lost, so he may appeal to
a higher court, if permitted, should he believe that the decision should be reversed. A decision that does
not clearly and distinctly state the facts and the law on which it is based leaves the parties in the dark as
to how it was reached and is especially prejudicial to the losing party, who is unable to pinpoint the
possible errors of the court for review by a higher tribunal.

Here, the decision of the RTC justified the grant of actual and moral damages, and attorney’s fees in the
following terse manner, viz:

xxx The Court is not unmindful that due to defendants’ unjustified refusal to pay their outstanding
obligation to plaintiff, the same suffered losses and incurred expenses as he was forced to re-mortgage
his house and lot located in Quezon City to Metrobank (Exh. "CC") and BPI Bank just to pay its monetary
obligations in the form of interest and penalties incurred in the course of the construction of the subject
project.109

The statement that "due to defendants’ unjustified refusal to pay their outstanding obligation to plaintiff,
the same suffered losses and incurred expenses as he was forced to re-mortgage his house and lot
located in Quezon City to Metrobank (Exh. "CC") and BPI Bank just to pay its monetary obligations in the
form of interest and penalties incurred in the course of the construction of the subject project" was only a
conclusion of fact and law that did not comply with the constitutional and statutory prescription. The
statement specified no detailed expenses or losses constituting the ₱ 5,716,729.00 actual damages
sustained by Stern Builders in relation to the construction project or to other pecuniary hardships. The
omission of such expenses or losses directly indicated that Stern Builders did not prove them at all, which
then contravened Article 2199, Civil Code, the statutory basis for the award of actual damages, which
entitled a person to an adequate compensation only for such pecuniary loss suffered by him as he has
duly proved. As such, the actual damages allowed by the RTC, being bereft of factual support, were
speculative and whimsical. Without the clear and distinct findings of fact and law, the award amounted
only to an ipse dixit on the part of the RTC,110 and did not attain finality.

There was also no clear and distinct statement of the factual and legal support for the award of moral
damages in the substantial amount of ₱ 10,000,000.00. The award was thus also speculative and
whimsical. Like the actual damages, the moral damages constituted another judicial ipse dixit, the
inevitable consequence of which was to render the award of moral damages incapable of attaining
finality. In addition, the grant of moral damages in that manner contravened the law that permitted the
recovery of moral damages as the means to assuage "physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury."111 The contravention of the law was manifest considering that Stern Builders, as an artificial
person, was incapable of experiencing pain and moral sufferings.112 Assuming that in granting the
substantial amount of ₱ 10,000,000.00 as moral damages, the RTC might have had in mind that dela
Cruz had himself suffered mental anguish and anxiety. If that was the case, then the RTC obviously
disregarded his separate and distinct personality from that of Stern Builders. 113 Moreover, his moral and
emotional sufferings as the President of Stern Builders were not the sufferings of Stern Builders. Lastly,
the RTC violated the basic principle that moral damages were not intended to enrich the plaintiff at the
expense of the defendant, but to restore the plaintiff to his status quo ante as much as possible. Taken
together, therefore, all these considerations exposed the substantial amount of ₱ 10,000,000.00 allowed
as moral damages not only to be factually baseless and legally indefensible, but also to be
unconscionable, inequitable and unreasonable.

Like the actual and moral damages, the ₱ 150,000.00, plus ₱ 1,500.00 per appearance, granted as
attorney’s fees were factually unwarranted and devoid of legal basis. The general rule is that a successful
litigant cannot recover attorney’s fees as part of the damages to be assessed against the losing party
because of the policy that no premium should be placed on the right to litigate.114 Prior to the effectivity of
the present Civil Code, indeed, such fees could be recovered only when there was a stipulation to that
effect. It was only under the present Civil Code that the right to collect attorney’s fees in the cases
mentioned in Article 2208115 of the Civil Code came to be recognized.116 Nonetheless, with attorney’s fees
being allowed in the concept of actual damages,117 their amounts must be factually and legally justified in
the body of the decision and not stated for the first time in the decretal portion. 118 Stating the amounts only
in the dispositive portion of the judgment is not enough;119 a rendition of the factual and legal justifications
for them must also be laid out in the body of the decision.120

That the attorney’s fees granted to the private respondents did not satisfy the foregoing requirement
suffices for the Court to undo them.121 The grant was ineffectual for being contrary to law and public
policy, it being clear that the express findings of fact and law were intended to bring the case within the
exception and thereby justify the award of the attorney’s fees. Devoid of such express findings, the award
was a conclusion without a premise, its basis being improperly left to speculation and conjecture.122

Nonetheless, the absence of findings of fact and of any statement of the law and jurisprudence on which
the awards of actual and moral damages, as well as of attorney’s fees, were based was a fatal flaw that
invalidated the decision of the RTC only as to such awards. As the Court declared in Velarde v. Social
Justice Society,123 the failure to comply with the constitutional requirement for a clear and distinct
statement of the supporting facts and law "is a grave abuse of discretion amounting to lack or excess of
jurisdiction" and that "(d)ecisions or orders issued in careless disregard of the constitutional mandate are
a patent nullity and must be struck down as void."124 The other item granted by the RTC (i.e., ₱
503,462.74) shall stand, subject to the action of the COA as stated herein.

WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS
ASIDE the decision of the Court of Appeals under review; ANNULS the orders for the garnishment of the
funds of the University of the Philippines and for the release of the garnished amount to Stern Builders
Corporation and Servillano dela Cruz; and DELETES from the decision of the Regional Trial Court dated
November 28, 2001 for being void only the awards of actual damages of ₱ 5,716,729.00, moral damages
of ₱ 10,000,000.00, and attorney's fees of ₱ 150,000.00, plus ₱ 1,500.00 per appearance, in favor of
Stern Builders Corporation and Servillano dela Cruz.

The Court ORDERS Stem Builders Corporation and Servillano dela Cruz to redeposit the amount of ₱
16,370,191.74 within 10 days from receipt of this decision.

Costs of suit to be paid by the private respondents.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

TERESITA J. LEONARDO-DE CASTRO

Associate Justice
Acting Chairperson, First Division

MARIANO C. DEL CASTILLO MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
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 Court's Division.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice
Acting Chairperson, First Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Acting Chairperson's 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 Court's Division.

ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. 296,
The Judiciary Act of 1948, as amended)
 FIRST DIVISION

G.R. No. 171953, October 21, 2015

NATIONAL HOUSING AUTHORITY, Petitioner, v. ERNESTO ROXAS, Respondent.

DECISION

BERSAMIN, J.:

The National Housing Authority (NHA), a government-owned and -controlled corporation created and
existing under Presidential Decree No. 757,1 may sue and be sued. However, no court should issue a writ
of execution upon any monetary judgment rendered against the NHA unless such monetary judgment is
first submitted to and passed upon by the Commission on Audit (COA).

The Case

Being challenged on appeal by the NHA is the adverse decision promulgated on February 20,
2006,2whereby the Court of Appeals (CA) dismissed the NHA's petition for certiorari brought to nullify the
orders issued in Special Civil Action No. 93-060-MN entitled Ernesto Roxas v. National Housing Authority,
et al. by the Regional Trial Court (RTC), Branch 72, in Malabon City. The first order, dated May 3, 2002,
had granted the motion for the issuance of the writ of execution filed by respondent Ernesto Roxas. 3 The
other order, dated January 6, 2003, had denied the NHA's motion for reconsideration. 4 The NHA had also
thereby assailed the writ of execution consequently issued on February 24, 2003. 5 In its petition
for certiorari, the NHA insisted that the RTC had thereby committed grave abuse of discretion amounting
to lack or excess of jurisdiction.

Antecedents

The NHA is charged, among others, with the development of the Dagat-dagatan Development Project
(project) situated in Navotas, Metro Manila.6 On December 4, 1985, Roxas applied for commercial lots in
the project, particularly Lot 9 and Lot 10 in Block 11, Area 3, Phase III A/B, with an area of 176 square
meters, for the use of his business of buying and selling gravel, sand and cement products. 7 The NHA
approved his application, and issued on December 6, 1985 the order of payment respecting the lots. On
December 27, 1985, the NHA issued the notice of award for the lots in favor of Roxas, 8 at
P1,500.00/square meter.9 On the basis of the order of payment and the notice of award, Roxas made his
downpayment of P79,200.00.10 A relocation/reblocking survey resulted in the renumbering of Lot 9 to Lot
5 and Lot 10 to Lot 6 (subject lots).11 He completed his payment for the subject lots on December 20,
1991.

In the meanwhile, the NHA conducted a final subdivision project survey, causing the increase in the area
of the subject lots from 176 to 320 square meters. The NHA informed Roxas about the increase in the
area of the subject lots, and approved the award of the additional area of 144 square meters to him at
P3,500.00/square meter.12 Although manifesting his interest in acquiring the additional area, he appealed
for the reduction of the price to Pl,500.00/square meter,13 pointing out that Lot 5 and Lot 6 were a
substitution unilaterally imposed by the NHA that resulted in the increase of 144 square meters based on
the technical description, and that although he desired to purchase the increased area, the purchase
must be in accordance with the terms and conditions contained in the order of payment and notice of
award issued to him. After the NHA rejected his appeal,14 he commenced in the RTC this action for
specific performance and damages, with prayer for the issuance of a writ of preliminary injunction. He
amended the complaint15 to compel the NHA to comply with the terms and conditions of the order of
payment and the notice of award.

The NHA countered in its answer16 that Roxas' prayer to include in the original contract the increase in lot
measurement of 144 square meters was contrary to its existing rules and regulation; that he could not
claim more than what had been originally awarded to him; and that at the very least, his right in the
additional area was limited only to first refusal.

On July 15, 1994, after trial, the RTC rendered judgment against the
NHA,17 decreeing:chanRoblesvirtualLawlibrary

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff Ernesto Roxas and
against defendant NHA, represented by its General Manager and its Dagat-dagatan Development Project
Manager, as follows:
1. Declaring plaintiff Ernesto Roxas the legal awardee of subject lots 5 and 6 in the full total area thereof
of 320 sq. meters;

2. Ordering defendant NHA, thru its General Manager Robert P. Balao and the project Manager for
its Dagat-dagatan Development Project Evelyn V. Ramos, or whoever shall be the incumbents of the
positions at the time of the enforcement hereof to execute the corresponding Contract to Sell for the
entire area of subject lots 5 and 6 totaling to 320 sq. meters at the cost of PI,500.00 per sq. meter under
the same terms and conditions as that provided for in the Order of Payment and Notice of Award (Exhs. B
and D), respectively, deducting whatever has already been paid by plaintiff;

3. Ordering defendant NHA to pay plaintiff P30,000.00 by way of reasonable Attorney's Fees.
The Writ of Preliminary Injunction issued in this case on January 31, 1994 is hereby made permanent.

Costs against defendant NHA.

SO ORDERED.cralawlawlibrary

The NHA appealed in due course, but the CA affirmed the judgment of the RTC, prompting the NHA to
seek to undo the adverse decision of the CA through its petition for certiorari. On July 5, 2000, however,
the Court dismissed the petition for certiorari. It later denied the NHA's motion for reconsideration. 18

On July 27, 2001, Roxas filed his motion for the issuance of the writ of execution,19 which the RTC
granted on May 3, 2002.20 The NHA sought reconsideration, but its motion was denied on January 6,
2003. Accordingly, on February 24, 2003, the RTC issued the writ of execution to enforce the final and
executory decision of July 15, 1994.21

In order to prevent the execution, the NHA brought another petition for certiorari in the CA, docketed as
C.A.-G.R. SP No. 76468, imputing to the RTC grave abuse of discretion amounting to lack or excess of
jurisdiction for ordering the execution of the judgment.

On February 20, 2006, the CA dismissed the NFIA's petition for certiorari through the presently assailed
decision because it found that the RTC did not gravely abuse its discretion amounting to lack or excess of
jurisdiction in granting Roxas' motion for the issuance of the writ of execution and in issuing the writ of
execution.22 The CA observed that the NHA was a government-owned and -controlled corporation whose
funds were not exempt from garnishment or execution; and ruled that Roxas did not need to first file his
claim in the COA.

Issues
The NHA insists that the judgment of the RTC did not lie against it because its submission to the litigation
did not necessarily imply that the Government had thereby given its consent to liability; and that the
money judgment awarded to Roxas could not be recovered by motion for execution but should have been
first filed in the COA.23

Roxas counters that the main relief under the final and executory judgment of the RTC directed the NHA
to execute the contract to sell the subject lots at the rate of P1,500.00/square meter as provided for in the
order of payment and the notice of award. He claims that the award of attorney's fees in his favor was
only incidental to the main relief of specific performance; and argues that the Government abandons its
sovereign capacity and is treated like any other corporations whenever it enters into a commercial
transaction.24

Ruling of the Court

The appeal is partly meritorious.

First of all, the mantle of the State's immunity from suit did not extend to the NHA despite its being a
government-owned and -controlled corporation. Under Section 6(i) of Presidential Decree No. 757, which
was its charter, the NHA could sue and be sued. As such, the NHA was not immune from the suit of
Roxas.

And, secondly, for purposes of the implementation of the writ of execution, it is necessary to distinguish
between, on the one hand, the main relief adjudicated in the judgment of July 15, 1994, which was the
decree of specific performance as to the right of Roxas to acquire the subject lots at Pl,500.00/square
meter as stated in the original agreement between the parties, and, on the other, the secondary relief for
the attorney's fees of P30,000.00 to be paid by the NHA to Roxas.

Section 12 of Presidential Decree No. 757 has authorized the NHA to "determine, establish and maintain
the most feasible and effective program for the management or disposition of specific housing or
resettlement projects undertaken by [it]", and "[u]nless otherwise decided by the Board, completed
housing or resettlement projects shall be managed and administered by [it]." The execution of the
contract to sell by the NHA conformably with the main relief under the judgment would be in the ordinary
course of the management or disposition of the Dagat-dagatan Development Project undertaken by the
NHA. In other words, the NHA possessed the legal competence and authority to directly afford the main
relief without Roxas needing to first submit to the COA the contract to sell for review and approval. To
maintain otherwise is to unconstitutionally grant to the COA the power of judicial review in respect of the
decision of a court of law.

However, settling or paying off the secondary relief for the attorney's fees of £30,000.00, being a
monetary obligation of the NHA, would not be in the usual course of the activities of the NHA under its
charter. That such relief was the consequence of the suit that granted the main relief did not matter.
Pursuant to Section 26 of Presidential Decree No. 1445, Roxas should first bring it to the COA prior to its
enforcement against the NHA.25 Indeed, Section 26 specifically vested in the COA the power, authority
and duty to examine, audit and settle "all debts and claims of any sort" due from or owing to the
Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and
controlled corporations with original charters, viz.:chanRoblesvirtualLawlibrary

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 nongovernmental 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, (bold underscoring supplied for
emphasis)
cralawlawlibrary

As the text of the legal provision plainly shows, the audit jurisdiction of the COA extends
to allgovernment-owned or -controlled corporations, their subsidiaries, and other self-governing boards,
commissions, or agencies of the Government, as well as to all non-governmental entities subsidized by
the Government, or funded by donations through the Government, or required to pay levies or
government share, or for which the Government has put up a counterpart fund, or those partly funded by
the Government. There is no distinction as to the class of claims. Ubi lex non distinguish nee nos
distinguere debemos.26 Indeed, a general term or phrase should not be reduced into parts and one part
distinguished from the other so as to justify its exclusion from the operation of the law. In other words,
there should be no distinction in the application of a statute where none is indicated. Corollary to this rule
is the principle that where the law does not make any exception, the courts may not exempt something
therefrom, unless there is compelling reason to the contrary.27

There is no question that the NHA could sue or be sued, and thus could be held liable under the judgment
rendered against it. But the universal rule remains to be that the State, although it gives its consent to be
sued either by general or special law, may limit the claimant's action only up to the completion of
proceedings anterior to the stage of execution. In other words, the power of the court ends when the
judgment is rendered because government funds and property may not be seized pursuant to writs of
execution or writs of garnishment to satisfy such judgments. The functions and public services of the
State cannot be allowed to be paralyzed or disrupted by the diversion of public fund from their legitimate
and specific objects, and as appropriated by law. The rule is based on obvious considerations of public
policy. Indeed, the disbursements of public funds must be covered by the corresponding appropriation as
required by law.28

WHEREFORE, the Court PARTLY GRANTS the petition for review on certiorari; and MODIFIES the writ
of execution dated February 24, 2003 by enjoining the respondent to file his claim for attorney's fees with
the Commission on Audit pursuant to Presidential Decree No. 1445.

SO ORDERED.chanroblesvirtuallawlibrary

Sereno, C.J., *Velasco, Leonardo-De Castro, and Perlas-Bernabe, JJ., concur.chanrobleslaw

 SECOND DIVISION

G.R. No. 174747, March 09, 2016

REPUBLIC OF THE PHILIPPINES REPRESENTED BY PRIVATIZATION AND MANAGEMENT

OFFICE, Petitioners, v. NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION) AND
NACUSIP/BISUDECO CHAPTER/GEORGE EMATA, DOMINGO REBANCOS, NELSON BERINA,
ROBERTO TIRAO, AMADO VILLOTE, AND BIENVENIDO FELINA, Respondents.

DECISION

LEONEN, J.:

Under Proclamation No. 50, Series of 1986,1 no employer-employee relationship is created by the
acquisition of Asset Privatization Trust (now Privatization and Management Office) of government assets
for privatization. It is not obliged to pay for any money claims arising from employer-employee relations
except when it voluntarily holds itself liable to pay. These money claims, however, must be filed within the
three-year period under Article 2912 of the Labor Code. Once liability is determined, a separate money
claim must be brought before the Commission on Audit, unless the funds to be used have already been
previously appropriated and disbursed.

This resolves a Petition for Review on Certiorari3 assailing the Decision4 dated February 27, 2004 and
Resolution5 dated September 19, 2006 of the Court of Appeals. The Decision and Resolution affirmed the
National Labor Relations Commission Resolutions dated May 10, 2002 6 and June 21, 20027 dismissing
petitioner's appeal for failure to file the appeal within the reglementary period.

Asset Privatization Trust was a government entity created under Proclamation No. 50 dated December 8,
1986 for the purpose of conserving, provisionally managing, and disposing of assets that have been
identified for privatization or disposition. NACUSIP/BISUDECO Chapter is the exclusive bargaining agent
for the rank-and-file employees of Bicolandia Sugar Development Corporation, a corporation engaged in
milling and producing sugar.8 Since the 1980s, Bicolandia Sugar Development Corporation had been
incurring heavy losses.9 It obtained loans from Philippine Sugar Corporation and Philippine National
Bank, secured by its assets and properties.10

Under Proclamation No. 50, as amended, Administrative Order No. 14 dated February 3, 1987, the Deed
of Transfer dated February 27, 1987, and the Trust Agreement dated February 27, 1987,11 Philippine
National Bank ceded its rights and interests over Bicolandia Sugar Development Corporation's loans to
the government through Asset Privatization Trust.12

On November 18, 1988, Bicolandia Sugar Development Corporation, with the conformity of Asset
Privatization Trust, entered into a Supervision and Financing Agreement13 with Philippine Sugar
Corporation for the latter to operate and manage the mill until August 31, 1992. 14

Due to Bicolandia Sugar Development Corporation's continued failure to pay its loan obligations, Asset
Privatization Trust filed a Petition for Extrajudicial Foreclosure of Bicolandia Sugar Development
Corporation's mortgaged properties on March 26, 1990. There being no other qualified bidder, Asset
Privatization Trust was issued a certificate of sale upon payment of P1,725,063,044.00. 15
On December 15, 1990, NACUSIP/BISUDECO Chapter and Bicolandia Sugar Development Corporation
entered into a Collective Bargaining Agreement to be in effect until December 15, 1996.16 Asset
Privatization Trust and Philippine Sugar Corporation were also joined as parties. 17

Sometime in 1992, the Asset Privatization Trust, pursuant to its mandate to dispose of government
properties for privatization, decided to sell the assets and properties of Bicolandia Sugar Development
Corporation. On September 1, 1992, it issued a Notice of Termination to Bicolandia Sugar Development
Corporation's employees, advising them that their services would be terminated within 30 days.
NASUCIP/BISUDECO Chapter received the Notice under protest.18

After the employees' dismissal from service, Bicolandia Sugar Development Corporation's assets and
properties were sold to Bicol Agro-Industrial Producers Cooperative, Incorporated-Peñafrancia Sugar
Mill.19

As a result, several members of the NACUSIP/BISUDECO Chapter20 filed a Complaint dated April 24,
1996 charging Asset Privatization Trust, Bicolandia Sugar Development Corporation, Philippine Sugar
Corporation, and Bicol Agro-Industrial Producers Cooperative, Incorporated-Peñafrancia Sugar Mill with
unfair labor practice, union busting, and claims for labor standard benefits. 21

On January 14, 2000, the Labor Arbiter rendered the Decision 22 dismissing the Complaint for lack of
merit. The Labor Arbiter found that there was no union busting when Asset Privatization Trust and
Philippine Sugar Corporation disposed of Bicolandia Sugar Development Corporation's assets and
properties since Asset Privatization Trust was merely disposing of a non-performing asset of government,
pursuant to its mandate under Proclamation No. 50.23

However, the Labor Arbiter found that although Asset Privatization Trust previously released funds for
separation pay, 13th month pay, and accrued vacation and sick leave credits for 1992, George Emata,
Bienvenido Felina, Domingo Rebancos, Jr., Nelson Berina, Armando Villote, and Roberto Tirao (Emata,
et al.) refused to receive their checks24 "on account of their protested dismissal."25 Their refusal to receive
their checks was premised on their Complaint that Asset Privatization Trust's sale of Bicolandia Sugar
Development Corporation violated their Collective Bargaining Agreement and was a method of union
busting.26

While the Labor Arbiter acknowledged that Emata, et al.'s entitlement to these benefits had already
prescribed under Article 29127 of the Labor Code,28 he nevertheless ordered Asset Privatization Trust to
pay Emata, et al. their benefits since their co-complainants were able to claim their checks.29

Pursuant to the Decision, Asset Privatization Trust deposited with the National Labor Relations
Commission a Cashier's Check in the amount of P116,182.20, the equivalent of the monetary award in
favor of Emata, et al. On February 8, 2000, it filed a Notice of Partial Appeal, together with a
Memorandum of Partial Appeal, before the National Labor Relations Commission.30

Under Executive Order No. 323 dated December 6, 2000, Asset Privatization Trust was succeeded by
Privatization and Management Office.31

On May 10, 2002, the National Labor Relations Commission issued the Resolution 32 dismissing the
Partial Appeal for failure to perfect the appeal within the statutory period of appeal. Privatization and
Management Office moved for reconsideration, but its Motion was denied in the National Labor Relations
Commission's June 21, 2002 Resolution.33

Aggrieved, Privatization and Management Office filed before the Court of Appeals a Petition for
Certiorari34 arguing that its appeal should have been decided on the merits in the interest of substantial
justice.

On February 27, 2004, the Court of Appeals rendered its Decision35 denying the Petition. According to the
Court of Appeals, Privatization and Management Office failed to show that it falls under the exemption for
strict compliance with procedural rules. It ruled that the grant of separation pay to Emata, et al. was
anchored on the finding that Privatization and Management Office had already granted the same benefits
to the other complainants in the labor case.36

Privatization and Management Office moved for reconsideration, but the Motion was denied in the
Resolution37 dated September 19, 2006.

Hence, this Petition38 was filed.

Privatization and Management Office argues that there should have been a liberal application of the
procedural rules since the dismissal of its appeal would cause grave and irreparable damage to
government.39 It alleges that the money claims of the employees had already prescribed since their
Complaint for illegal dismissal was filed beyond the three-year prescriptive period under Article 29140 of
the Labor Code.41

Privatization and Management Office argues further that even assuming that the action had not yet
prescribed, it would still not be liable to pay separation pay and other benefits since the closure of the
business was due to serious losses and financial reverses.42 It also argues that the transfer of Bicolandia
Sugar Development Corporation's assets and properties to it, by virtue of a foreclosure sale, did not
create an employer-employee relationship with Bicolandia Sugar Development Corporation's
employees.43 Moreover, since Privatization and Management Office is an instrumentality of government,
any money claim against it should first be brought before the Commission on Audit in view of
Commonwealth Act No. 327,44 as amended by Presidential Decree No. 1445.45

On the other hand, Emata, et al. allege that the Petition did not raise any new issue that had not already
been addressed by the Labor Arbiter, the National Labor Relations Commission, and the Court of
Appeals.46 They argue that the issues raised involve the exercise of discretion by the Court of Appeals
and the quasi-judicial agencies. They further argue that the Petition does not specifically mention any law
relied upon by Privatization and Management Office to support its arguments. 47

In rebuttal, Privatization and Management Office insists that it was able to point out laws and
jurisprudence that the Court of Appeals and the National Labor Relations Commission failed to take into
consideration when it dismissed the appeal on a technicality. 48

For this Court's resolution are the following issues:

First, whether there was an employer-employee relationship between petitioner Privatization and
Management Office (then Asset Privatization Trust) and private respondents NACUSIP/BISUDECO
Chapter employees, and thus, whether petitioner is liable to pay the separation benefits of private
respondents George Emata, Bienvenido Felina, Domingo Rebancos, Jr., Nelson Berina, Armando Villote,
and Roberto Tirao;

Second, whether Bicolandia Sugar Development Corporation's closure could be considered serious
business losses that would exempt petitioner from payment of separation benefits; and

Lastly, whether private respondents' claim for labor standard benefits had already prescribed under
Article 291 of the Labor Code.

Before proceeding to the substantive issues of the case, petitioner's procedural misstep before the
National Labor Relations Commission must first be addressed.

It is settled that appeal is not a right but a mere statutory privilege. It may only be exercised within the
manner provided by law.49 In labor cases, the perfection of an appeal is governed by the Labor Code.
Article 223 provides:
chanRoblesvirtualLawlibrary
Art. 223. Appeal. Decisions, awards, or orders of the Labor Arbiter are final and executory unless
appealed to the Commission by any or both parties within ten (10) calendar days from receipt of such
decisions, awards, or orders. Such appeal may be entertained only on any of the following grounds:

....
Petitioner received a copy of the Labor Arbiter's Decision on January 26, 2000. 50 It had 10 days, or until
February 7, 2000,51 to file its appeal. However, it filed its Memorandum of Appeal only on February 8,
2000.52 Petitioner did not explain the reason for its delay.

Petitioner's disregard of procedural rules resulted in the denial of its appeal before the National Labor
Relations Commission and its subsequent Petition for Certiorari before the Court of Appeals. In its
Petition for Review before this Court, petitioner still did not explain its delay in filing the Memorandum of
Appeal. It merely insisted that its case should have been resolved on the merits.

Procedural rules are designed to facilitate the orderly administration of justice.53 In labor cases, however,
procedural rules are not to be applied "in a very rigid and technical sense"54 if its strict application will
frustrate, rather than promote, substantial justice.55

Liberality favors the laborer.56 However, this case is also brought against a government entity. If the
government entity is found liable, its liability will necessarily entail the dispensation of public funds. Thus,
its basis for liability must be subjected to strict scrutiny.

Even assuming that we grant the plea of liberality, the Petition will still be denied.

II

Initially, petitioner was not liable for the Union's claims for labor standard benefits. Its acquisition of
Bicolandia Sugar Development Corporation's assets was not for the purpose of continuing its business. It
was to conserve the assets in order to prepare it for privatization.

When Philippine National Bank ceded its rights and interests over Bicolandia Sugar Development
Corporation's loan to petitioner in 1987, it merely transferred its rights and interests over
Bicolandia's outstanding loan obligations. The transfer was not for the purpose of continuing Bicolandia
Sugar Development Corporation's business. Thus, petitioner never became the substitute employer of
Bicolandia Sugar Development Corporation's employees. It would not have been liable for any money
claim arising from an employer-employee relationship.

Section 24 of Proclamation No. 50 states:

chanRoblesvirtualLawlibrary
The transfer of any asset of government directly to the national government as mandated herein shall be
for the purpose of disposition, liquidation and/or privatization only, any import in the covering deed of
assignment to the contrary notwithstanding. Such transfer, therefore, shall not operate to revert such
assets automatically to the general fund or the national patrimony, and shall not require specific enabling
legislation to authorize their subsequent disposition, but shall remain as duly appropriated public
properties earmarked for assignment, transfer or conveyance under the signature of the Minister of
Finance or his duly authorized representative, who is hereby authorized for this purpose, to any
disposition entity approved by the Committee pursuant to the provisions of this Proclamation. (Emphasis
supplied)
This Court explained in Republic v. National Labor Relations Commission, et al.57 that the Asset
Privatization Trust is usually joined as a party respondent due to its role as the conservator of assets of
the corporation undergoing privatization:
chanRoblesvirtualLawlibrary
A matter that must not be overlooked is the fact that the inclusion of APT as a respondent in the monetary
claims against [Pantranco North Express, Inc.] is merely the consequence of its being a conservator of
assets, a role that APT normally plays in, or the relationship that ordinarily it maintains with, corporations
identified for and while under privatization. The liability of APT under this particular arrangement, nothing
else having been shown, should be co-extensive with the amount of assets taken over from the privatized
firm.58ChanRoblesVirtualawlibrary
Pursuant to its mandate under Proclamation No. 50, petitioner provisionally took possession of assets
and properties only for the purpose of privatization or disposition. Its interest over Bicolandia Sugar
Development Corporation was not the latter's continued business operations.

The issue of petitioner's role in the money claims of Bicolandia Sugar Development Corporation's
employees was already settled in Barayoga v. Asset Privatization Trust.59

In Barayoga, BISUDECO-PHILSUCOR Corfarm Workers Union alleged that when Philippine Sugar
Corporation took over Bicolandia Sugar Development Corporation's operations in 1988, it retained the
Corporation's existing employees until the start of the season sometime in May 1991. At the start of the
1991 season, Philippine Sugar Corporation failed to recall some of the union's members back to work.
For this reason, it filed a Complaint on July 23, 1991 for unfair labor practice, illegal dismissal, illegal
deduction, and underpayment of wages and other labor standard benefits against Bicolandia Sugar
Development Corporation, Asset Privatization Trust, and Philippine Sugar Corporation. Of the three
respondents, only Asset Privatization Trust was held liable by the Labor Arbiter and the National Labor
Relations Commission for the union members' money claims.

The Court of Appeals reversed the Labor Arbiter's and the National Labor Relations Commission's rulings
and held that Asset Privatization Trust did not become the employer of Bicolandia Sugar Development
Corporation's employees. The terminated employees appealed to this Court, arguing that their claims
against Asset Privatization Trust were recognized under the law.

This Court, however, denied their Petition and held that the Asset Privatization Trust could not be held
liable for any money claims arising from an employer-employee relationship. Asset Privatization Trust,
being a mere transferee of Bicolandia Sugar Development Corporation's assets for the purpose of
conservation, never became the union's employer. Hence, it could not be liable for their money claims:
chanRoblesvirtualLawlibrary
The duties and liabilities of BISUDECO, including its monetary liabilities to its employees, were not all
automatically assumed by APT as purchaser of the foreclosed properties at the auction sale. Any
assumption of liability must be specifically and categorically agreed upon. In Sundowner Development
Corp. v. Drilon, the Court ruled that, unless expressly assumed, labor contracts like collective bargaining
agreements are not enforceable against the transferee of an enterprise. Labor contracts are in personam
and thus binding only between the parties.

No succession of employment rights and obligations can be said to have taken place between the two.
Between the employees of BISUDECO and APT, there is no privity of contract that would make the latter
a substitute employer that should be burdened with the obligations of the corporation. To rule otherwise
would result in unduly imposing upon APT an unwarranted assumption of accounts not contemplated in
Proclamation No. 50 or in the Deed of Transfer between the national government and PNB. 60 (Emphasis
supplied)
For petitioner to be liable for private respondents' money claims arising from an employer-employee
relationship, it must specifically and categorically agree to be liable for these claims.

III

While petitioner per se is not liable for private respondents' money claims arising from an employer-
employee relationship, it voluntarily obliged itself to pay Bicolandia Sugar Development Corporation's
terminated employees separation benefits in the event of the Corporation's privatization.
In Barayoga, the aggrieved union members were those who were not recalled back to work by Philippine
Sugar Corporation during the start of the season in May 1991. The union members in this case were
those who were recalled back to work in May 1991 but were eventually served with a Notice of
Termination on September 1, 1992.

The timeline of events in this case mirror that of Barayoga. In Barayoga, Asset Privatization Trust's Board
of Trustees issued the Resolution dated September 23, 1992 authorizing the payment of separation pay
and other benefits to Bicolandia Sugar Development Corporation's employees in the event of its
privatization:
chanRoblesvirtualLawlibrary
In the present case, petitioner-unions members who were not recalled to work by Philsucor in May 1991
seek to hold APT liable for their monetary claims and allegedly illegal dismissal. Significantly, prior to the
actual sale of BISUDECO assets to BAPCI on October 30, 1992, the APT board of trustees had approved
a Resolution on September 23, 1992. The Resolution authorized the payment of separation benefits to
the employees of the corporation in the event of its privatization. Not included in the Resolution, though,
were petitioner-unions members who had not been recalled to work in May 1991. 61(Emphasis supplied)
This Resolution was not made part of the records of this case. However, it is not disputed that the union
members here were Bicolandia Sugar Development Corporation's employees at the time the Corporation
was sold to Bicol Agro-Industrial Producers Cooperative, Incorporated-Peñafrancia Sugar Mill. The Labor
Arbiter also found that:
chanRoblesvirtualLawlibrary
With respect to complainants['] claim for labor standard benefits, records show that they were paid
separation pay including 13th month pay for the year 1992 as well as conversion of their accrued vacation
and sick leave (pp. 698 to 763, rollo) except that some complainants refused to collect their checks
representing said benefits whereas the payments due complainants Domulot, de Luna, Falcon, Aguilar,
Gomez, Ramos, Arao, de Jesus, Abonite, Bomanlag, and Parro were released by APT to this Arbitration
Branch (p. 764), rollo) in compliance with the Alias Writ of Execution issued by then Executive Labor
Arbiter Vito C. Bose.62ChanRoblesVirtualawlibrary
Under Section 27 of Proclamation No. 50, the employer-employee relationship is severed upon the sale
or disposition of assets of a company undergoing privatization. This, however, is without prejudice to
"benefits incident to their employment or attaching to termination under applicable employment contracts,
collective bargaining agreements, and applicable legislation":
chanRoblesvirtualLawlibrary
SECTION 27. AUTOMATIC TERMINATION OF EMPLOYER-EMPLOYEE RELATIONS. Upon the sale or
other disposition of the ownership and/or controlling interest of the government in a corporation held by
the Trust, or all or substantially all of the assets of such corporation, the employer-employee relations
between the government and the officers and other personnel of such corporations shall terminate by
operation of law. None of such officers or employees shall retain any vested right to future employment in
the privatized or disposed corporation, and the new owners or controlling interest holders thereof shall
have full and absolute discretion to retain or dismiss said officers and employees and to hire the
replacement or replacements of any one or all of them as the pleasure and confidence of such owners or
controlling interest holders may dictate.

Nothing in this section, however, be construed to deprive said officers and employees of their vested
entitlements in accrued or due compensation and other benefits incident to their employment or attaching
to termination under applicable employment contracts, collective bargaining agreements, and applicable
legislation. (Emphasis supplied)
When petitioner's Board of Trustees issued the Resolution dated September 23, 1992, it acknowledged
its contractual obligation to be liable for benefits arising from an employer-employee relationship even
though, as a mere conservator of assets, it was not supposed to be liable. Under Article III, Section 12(6)
of Proclamation No. 50,63 Asset Privatization Trust had the power to release claims or settle liabilities, as
in this case. When it issued its Resolution dated September 23, 1992, petitioner voluntarily bound itself to
be liable for separation benefits to Bicolandia Sugar Development Corporation's terminated employees.

IV
Petitioner proposes that even if it is found liable for separation benefits, it cannot be made to pay since
Bicolandia Sugar Development Corporation's closure was due to serious business losses.

An employer may terminate employment to prevent business losses. Article 298 64 of the Labor Code
allows the termination of employees provided that the employer pays the affected employees separation
pay of one month or at least one-half month for every month of pay, whichever is higher. The provision
states:
chanRoblesvirtualLawlibrary
Art. 298. Closure of establishment and reduction of personnel. The employer may also terminate the
employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of the establishment or undertaking unless the
closing is for the purpose of circumventing the provisions of this Title, by serving a written notice on the
workers and the Ministry of Labor and Employment at least one (1) month before the intended date
thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker
affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at
least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent
losses and in cases of closures or cessation of operations of establishment or undertaking not due to
serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay
or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of at least six
(6) months shall be considered one (1) whole year.
The employer is exempted from having to pay separation pay if the closure was due to serious business
losses.65 A business suffers from serious business losses when it has operated at a loss for such a period
of time that its financial standing is unlikely to improve in the future. 66

Bicolandia Sugar Development Corporation incurred heavy loans from Philippine National Bank in the
1980s to cover its losses. The Corporation's losses were substantial. When Philippine National Bank
transferred its interests over the Corporation's loans to petitioner, it effectively transferred all of the
Corporation's assets. Petitioner eventually sold these assets and properties to a private company,
pursuant to its mandate to dispose of government's non-performing assets.

Bicolandia Sugar Development Corporation's financial standing when petitioner took over as its
conservator clearly showed that it was suffering from serious business losses and would have been
exempted from paying its terminated employees their separation pay. This exemption, however, only
applies to employers. It does not apply to petitioner.

Even assuming that petitioner became NACUSIP/BISUDECO's substitute employer, the exemption would
still not apply if the employer voluntarily assumes the obligation to pay terminated employees, regardless
of the employer's financial situation. In Benson Industries Employees Union-ALU-TUCP v. Benson
Industries, Inc.:67
To reiterate, an employer which closes shop due to serious business losses is exempt from paying
separation benefits under Article 297 of the Labor Code for the reason that the said provision explicitly
requires the same only when the closure is not due to serious business losses; conversely, the obligation
is maintained when the employer's closure is not due to serious business losses. For a similar exemption
to obtain against a contract, such as a CBA, the tenor of the parties' agreement ought to be similar to the
law's tenor. When the parties, however, agree to deviate therefrom, and unqualifiedly covenant the
payment of separation benefits irrespective of the employer's financial position, then the obligatory force
of that contract prevails and its terms should be carried out to its full effect.68(Emphasis supplied)
Petitioner's Board of Trustees issued the Resolution dated September 23, 1992 authorizing the payment
of separation benefits to Bicolandia Sugar Development Corporation's terminated employees in the event
of the Corporation's privatization. It voluntarily bound itself to pay separation benefits regardless of the
Corporation's financial standing. It cannot now claim that it was exempted from paying such benefits due
to serious business losses.

V
Private respondents' claim to their separation benefits has not yet prescribed under Article 291 of the
Labor Code.69 Article 291 provides:
chanRoblesvirtualLawlibrary
Art. 291. Money claims. All money claims arising from employer- employee relations accruing during the
effectivity of this Code shall be filed within three (3) years from the time the cause of action accrued;
otherwise they shall be forever barred[.]
In Arriola v. National Labor Relations Commission,70 we have distinguished a money claim arising from an
employer-employee relationship and a money claim as reparation for illegal acts done by an employer in
violation of the Labor Code. The prescriptive period for the former is three (3) years under Article 291 of
the Labor Code while the prescriptive period of the latter is four (4) years under Article 1146 71 of the Civil
Code. We also reiterated that the three-year prescriptive period under Article 290 of the Labor Code
refers to "illegal acts penalized under the Labor Code, including committing any of the prohibited activities
during strikes and lockouts, unfair labor practices, and illegal recruitment activities." 72 Article 290
provides:
chanRoblesvirtualLawlibrary
Art. 290. Offenses. Offenses penalized under this Code and the rules and regulations pursuant thereto
shall prescribe in three (3) years.

All unfair labor practice arising from Book V shall be filed within one (1) year from accrual of such unfair
labor practice; otherwise, they shall be forever barred.
Private respondents filed their Complaint for unfair labor practices, union busting, and labor standard
benefits on April 24, 1996,73 or three (3) years, seven (7) months and 24 days after their termination on
September 30, 1992. Their Complaint essentially alleged that their termination was illegal because it was
made prior to Bicolandia Sugar Development Corporation's sale to Bicol Agro-Industrial Producers
Cooperative, Incorporated-Peñafrancia Sugar Mill.74 They also alleged that the sale was illegal since it
was made for the purpose of removing NACUSIP/BISUDECO Chapter as the sugar mill's Union. 75

Under the prescriptive periods stated in the Labor Code and Arriola, private respondents' cause of action
and any subsequent money claim for illegal termination has not yet prescribed. Their Complaint dated
April 24, 1996 before the Labor Arbiter was filed within the prescriptive period.

The claim for separation pay, 13th month pay, and accrued vacation and sick leaves are incidental to
employer-employee relations. Under Article 291 of the Labor Code, these claims prescribe within three
(3) years from the accrual of the cause of action:
chanRoblesvirtualLawlibrary
Art. 291. Money Claims. All money claims arising from employer-employee relations accruing during the
effectivity of this Code shall be filed within three (3) years from the time the cause of action accrued;
otherwise they shall be barred forever.
This Court has stated that "in the computation of the three-year prescriptive period, a determination must
be made as to the period when the act constituting a violation of the workers' right to the benefits being
claimed was committed."76 In Barayoga, the September 23, 1992 Resolution "authorized the payment of
separation benefits to the employees of the corporation in the event of its privatization."77The payment of
these benefits, however, to private respondents was mandated by the Labor Arbiter in his Decision dated
January 14, 2000.78 It was only then that private respondents' right to these benefits was determined.
Since the case was appealed to the National Labor Relations Commission, the prescriptive period to
claim these benefits began to run only after the Commission's Decision had become final and executory.
The refusal to pay these benefits after the Commission's Decision had become final and executory would
be "the act constituting a violation of the worker's right to the benefits being claimed." 79

Under Rule VII, Section 1480 of the New Rules of Procedure of the National Labor Relations
Commission,81 decisions of the Commission become final and executory 10 days after the receipt of the
notice of decision, order, or resolution. The three-year prescriptive period, therefore, begins from private
respondents' receipt of the National Labor Relations Commission Resolution dated June 21, 2002
denying petitioner's Motion for Reconsideration.
Since the Complaint, which included the claim for labor benefits, was filed on April 24, 1996, private
respondents' claims did not prescribe.

Further, the Labor Arbiter did not err in ordering the release of separation benefits to private respondents
despite their initial refusal to receive them. The Constitution guarantees workers full protection of their
rights, including that of "economic security and parity."82 Article II, Section 18 and Article XIII, Section 3
state:
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Article II
State Policies

SECTION 18. The State affirms labor as a primary social economic force. It shall protect the rights of
workers and promote their welfare.

Article XIII
Labor

SECTION 3. The State shall afford full protection to labor, local and overseas, organized and
unorganized, and promote full employment and equality of employment opportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and
peaceful concerted activities, including the right to strike in accordance with law. They shall be entitled to
security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and
decision-making processes affecting their rights and benefits as may be provided by law.

The State shall promote the principle of shared responsibility between workers and employers and the
preferential use of voluntary modes in settling disputes, including conciliation, and shall enforce their
mutual compliance therewith to foster industrial peace.

The State shall regulate the relations between workers and employers, recognizing the right of labor to its
just share in the fruits of production and the right of enterprises to reasonable returns on investments, and
to expansion and growth.
Under these provisions, workers should be granted all rights, including monetary benefits, enjoyed by
other workers who are similarly situated. Thus, the separation benefits granted to Bicolandia Sugar
Development Corporation's terminated employees as of September 30, 1992 must be enjoyed by all,
including private respondents.

This case is unique, however, in that though private respondents' separation benefits were already
released by petitioner, they refused to collect their checks "on account of their protested dismissal." 83Their
refusal to receive their checks was premised on their Complaint that petitioner's sale of Bicolandia Sugar
Development Corporation violated their Collective Bargaining Agreement and was a method of union
busting. It was not because of negligence or malice. It was because of their honest belief that their rights
as laborers were violated and the grant of separation benefits would not be enough compensation for it.
While private respondents' allegations have not been properly substantiated, it would be unjust to deprive
them of their rightful claim to their separation benefits.

Moreover, private respondents' co-complainants84 were able to collect their checks for their separation
benefits during the pendency of the Complaint85 without having to go through the Commission on Audit.

Under Section 26 of the State Auditing Code, the Commission on Audit has jurisdiction over the
settlement of debts and claims "of any sort" against government:
chanRoblesvirtualLawlibrary
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 selfgoverning [sic] boards, commissions, or agencies of the Government, and as herein prescribed,
including non-governmental entities subsidized by the government, those funded by donation 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. (Emphasis supplied)
The purpose of requiring a separate process with the Commission on Audit for money claims against
government is under the principle that public funds may only be released upon proper appropriation and
disbursement:
chanRoblesvirtualLawlibrary
Section 4. Fundamental principles. Financial transactions and operations of any government agency shall
be governed by the fundamental principles set forth hereunder, to wit:

(1) No money shall be paid out of any public treasury or depository except in pursuance of an
appropriation law or other specific statutory authority.

(2) Government funds or property shall be spent or used solely for public purposes.

(3) Trust funds shall be available and may be spent only for the specific purpose for which the trust was
created or the funds received.

(4) Fiscal responsibility shall, to the greatest extent, be shared by all those exercising authority over the
financial affairs, transactions, and operations of the government agency.

(5) Disbursements or disposition of government funds or property shall invariably bear the approval of the
proper officials.

(6) Claims against government funds shall be supported with complete documentation.

(7) All laws and regulations applicable to financial transactions shall be faithfully adhered to.

(8) Generally accepted principles and practices of accounting as well as of sound management and fiscal
administration shall be observed, provided that they do not contravene existing laws and regulations.
Money claims against government include money judgments by courts, which must be brought before the
Commission on Audit before it can be satisfied. Supreme Court Administrative Circular No. 10-
200086states the rationale for requiring claimants to file their money judgments before the Commission on
Audit:
chanRoblesvirtualLawlibrary
Republic of the Philippines
Supreme Court
Manila

ADMINISTRATIVE CIRCULAR NO. 10-2000

TO : All Judges of Lower Courts
SUBJECT : Exercise of Utmost Caution, Prudence and Judiciousness in the Issuance of Writs of
Execution to Satisfy Money Judgments Against Government Agencies and Local Government Units

In order to prevent possible circumvention of the rules and procedures of the Commission on Audit,
judges are hereby enjoined to observe utmost caution, prudence and judiciousness in the issuance of
writs of execution to satisfy money judgments against government agencies and local government units.
Judges should bear in mind that in Commissioner of Public Highways v. San Diego (31 SCRA 617, 625
[1970]), this Court explicitly stated:

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.

Moreover, it is settled jurisprudence that upon determination of State liability, the prosecution,
enforcement or satisfaction thereof must still be pursued in accordance with the rules and procedures laid
down in P.D. No. 1445, otherwise known as the Government Auditing Code of the Philippines
(Department of Agriculture v. NLRC, 227 SCRA 693, 701-02 [1993] citing Republic vs. Villasor, 54 SCRA
84 [1973]). All money claims against the Government must first be filed with the Commission on Audit
which must act upon it within sixty days. Rejection of the claim will authorize the claimant to elevate the
matter to the Supreme Court on certiorari and in effect sue the State thereby (P.D. 1445, Sections 49-50).
. . . (Emphasis supplied)
Thus, in National Electrification Administration v. Morales,87 while entitlement to claims for rice allowance,
meal allowance, medical/dental/optical allowance, children's allowance, and longevity pay under Republic
Act No. 6758 may be adjudicated by the trial court, a separate action must be filed before the
Commission on Audit for the satisfaction of the judgment award.

Similarly, in Lockheed Detective and Watchman Agency v. University of the Philippines,88 this Court
reimbursed to the University of the Philippines its funds that were garnished upon orders of the National
Labor Relations Commission for the satisfaction of a judgment award. The reimbursement was on the
ground that the money claim must first be filed before the Commission on Audit.

The situation in this case, however, is different from these previous cases. Petitioner's Board of Trustees
already issued the Resolution on September 23, 1992 for the release of funds to pay separation benefits
to terminated employees of Bicolandia Sugar Development Corporation.89 Private respondents' checks
were released by petitioner to the Arbitration Branch of the Labor Arbiter in 1992. 90 Under these
circumstances, it is presumed that the funds to be used for private respondents' separation benefits have
already been appropriated and disbursed. This would account for why private respondents' co-
complainants were able to claim their checks without need of filing a separate claim before the
Commission on Audit.

In this instance, private respondents' separation benefits may be released to them without filing a
separate money claim before the Commission on Audit. It would be unjust and a violation of private
respondents' right to equal protection if they were not allowed to claim, under the same conditions as their
fellow workers, what is rightfully due to them.chanrobleslaw

WHEREFORE, the Petition is DENIED.

SO ORDERED.cralawlawlibrary

Carpio, (Chairperson), Del Castillo, and Mendoza, JJ., concur.

Brion, J., on leavechanroblesvirtuallawlibrary
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 77765 August 15, 1988

SEBASTIAN COSCULLUELA, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and the REPUBLIC OF THE PHILIPPINES, represented by
NATIONAL IRRIGATION ADMINISTRATION, respondents.

Pio G. Villoso for petitioner.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari which seeks to set aside the decision of the Court of Appeals
nullifying the orders of the trial court on the ground that said orders in effect, sought the enforcement of a
writ of execution against government funds. The petitioner contends that to set aside the writ of execution
would be an abridgment of his right to just compensation and due process of law. The public respondents
on the other hand, state that government funds cannot be disbursed without proper appropriation and that
a writ of execution cannot legally issue against the State.

On March 8, 1976, the Republic of the Philippines filed a complaint with the Court of First Instance of
Iloilo to expropriate two parcels of land in the municipality of Barotac, Iloilo owned by petitioner Sebastian
Cosculluela and one Mita Lumampao, for the construction of the canal network of the Barotac Irrigation
Project.

On April 4, 1976, the trial court rendered a decision granting the expropriation and ordered the public
respondent to pay the following amounts:

1. To Mita Lumampao, the sum of P20,000 minus P4,001.82 which she had already
withdrawn plus P3,000 attorney's fees; and

2. Sebastian Cosculluela, the sum of P200,000.00 which is the reasonable estimate of

his actual and consequential loss by reason of the taking of his 3 hectares of land,
destruction of the sugarcane therein and the reduce in the yield of his sugarcane farm
due to water lagging and seepage; plus attorney's fees of P10,000 and litigation
expenses of P5,000.00. (p. 36, Rollo)

On appeal, the Court of Appeals modified the trial court's decision in that the attorney's fees and litigation
expenses were reduced from P10,000.00 and P5,000.00 to P5,000.00 and P2,500.00 respectively. The
decision became final and executory on September 21, 1985.

On May 7, 1986, on motion of the petitioner, the trial court ordered the issuance of a writ of execution to
implement the judgment of the appellate court.

On August 11, 1986, the respondent Republic filed a motion to set aside the order of May 7, 1986 as well
as the writ of execution issued pursuant thereto, contending that the funds of the National Irrigation
Authority (NIA) are government funds and therefore, cannot be disbursed without a government
appropriation.

On October 6, 1986, the lower court issued an order modifying its order of May 7, 1986, directing instead
that the respondenit Republic deposit with the Philippine National Bank (PNB) in the name of the
petitioner, the amount adjudged in favor of the latter.

The respondent filed a petition with the Court of Appeals to annul the orders of May 7 and October 6,
1986.

On November 25, 1986, the appellate court rendered the questioned decision setting aside the
aforementioned orders of the trial court on the ground that public or government funds are not subject to
levy and execution.

In this instant petition, the petitioner assails the decision of the appellate court as being violative of his
right to just compensation and due process of law. He maintains that these constitutional guarantees
transcend all administrative and procedural laws and jurisprudence for as between these said laws and
the constitutional rights of private citizens, the latter must prevail.

As admitted by the respondent Republic, the NIA took possession of the expropriated property in 1975
and for around ten (10) years already, it has been servicing the farmers on both sides of the Barotac Viejo
Irrigation Project in Iloilo Province and has been collecting fees therefor by way of taxes at the expense of
the petitioner. On the other hand, the petitioner, who is already more than eighty (80) years old and sickly,
is undergoing frequent hospitalization, and is made to suffer further by the unconscionable delay in the
payment of just compensation based on a final and executory judgment.

The respondent Republic, on the other hand, argues that while it has no intention of keeping the land and
dishonoring the judgment, the manner by which the same will have to be satisfied must not be
inconsistent with prevailing jurisprudence, and that is, that public funds such as those of the respondent
NIA cannot be disbursed without the proper appropriation.

We rule for the petitioner.

One of the basic principles enshrined in our Constitution is that no person shall be deprived of his private
property without due process of law; and in expropriation cases, an essential element of due process is
that there must be just compensation whenever private property is taken for public use. Thus, in the case
of Province of Pangasinan v. CFI Judge of Pangasinan, Branch VIII (80 SCRA 117, 120-121), this Court
speaking through then Chief Justice Fernando ruled:

There is full and ample recognition of the power of eminent domain by Justice Street in a
leading case of Visayan Refining Co. v. Camus (4C) Phil. 550 [1919]) decided prior to the
Commonwealth, the matter being governed by the Philippine Autonomy Act of 1916,
otherwise known as the Jones Law. It was characterized as "inseparable from
sovereignty being essential to the existence of the State and inherent in government
even in its most primitive forms." (Ibid, 558) Nonetheless, he was careful to point out: "In
other words, the provisions now generally found in the modern laws of constitutions of
civilized countries to the effect that private property shall not be taken for public use
without just compensation have their origin in the recognition of a necessity for restraining
the sovereign and protecting the individual. (Ibid, 559) Moreover, he did emphasize:
"Nevertheless it should be noted that the whole problem of expropriation is resolvable in
its ultimate analysis into a constitutional question of due process of law. ... Even were
there no organic or constitutional provision in force requiring compensation to be paid,
the seizure of one's property without payment, even though intended for a public use,
would undoubtedly be held to be a taking without due process of law and a denial of the
 equal protection of the laws. That aspect of the matter was stressed in the recent case
of J. M. Tuason and Co., Inc. v. Land Tenure Administration. (31 SCRA 413)
Conformably to such a fundamental principle then, in accordance with a constitutional
mandate, this Court has never hesitated to assure that there be just compensation. If it
were otherwise, the element of arbitrariness certainly would enter. It is bad enough that
an owner of a property, in the event of the exercise of this sovereign prerogative, has no
choice but to yield to such a taking. It is infinitely worse if thereafter, he is denied all these
years the payment to which he is entitled. This is one of the instances where law and
morals speak to the same effect. (Cf. Province of Tayabas v. Perez, 66 Phil. 467 [1938]
and other related cases).

The property of the petitioner was taken by the government in 1975. The following year, respondent NIA
made the required deposit of P2,097.30 with the Philippine National Bank and within the same year, the
Barotac Viejo Irrigation Project was finished. Since then, for more than a period of ten (10) years, the
project has been of service to the farmers nearby in the province of Iloilo. It is, thus, inconceivable how
this project could have been started without the necessary appropriation for just compensation. Needless
to state, no government instrumentality, agency, or subdivision has any business initiating expropriation
proceedings unless it has adequate funds, supported by proper appropriation acts, to pay for the property
to be seized from the owner. Not only was the government able to make an initial deposit of P2,097.30
but the project was finished in only a year's time. We agree with the petitioner that before the respondent
NIA undertook the construction of the Barotac Viejo Irrigation Project, the same was duly authorized, with
the corresponding funds appropriated for the payment of expropriated land and to pay for equipment,
salaries of personnel, and other expenses incidental to the project. The NIA officials responsible for the
project have to do plenty of explaining as to where they misdirected the funds intended for the
expropriated property.

The present case must be distinguished from earlier cases where payment for property expropriated by
the National Government may not be realized upon execution. As a rule, the legislature must first
appropriate the additional amount to pay the award. (See Commissioner of Public Highways v. San
Diego, 31 SCRA 616 and Visayan Refining Co. v. Camus & Paredes, 40 Phil. 550).

In the present case, the Barotac Viejo Project was a package project of government. Money was
allocated for an entire project. Before bulldozers and ditch diggers tore up the place and before millions of
pesos were put into the development of the project, the basic responsibility of paying the owners for
property seized from them should have been met.

Another distinction lies in the fact that the NIA collects fees for the use of the irrigation system constructed
on the petitioner's land. It does not have to await an express act of Congress to locate funds for this
specific purpose. The rule in earlier precedents that 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 (Commissioner of Public Highways v. San Diego, supra, at p. 625) is not applicable
here. There is no showing of any public service to be disrupted if the fees collected from the farmers of
Iloilo for the use of irrigation water from the disrupted property were utilized to pay for that property.

We must emphasize that nowhere in any expropriation case has there been a deviation from the rule that
the Government must pay for expropriated property. In the Commissioner of Public Highways case, the
Court stressed that it is incumbent upon the legislature to appropriate the necessary amount because it
cannot keep the land and dishonor the judgment.

This case illustrates the expanded meaning of "public use" in the eminent domain clause. (Constitution,
Article III, Section 9.) The petitioner's land was not taken for the construction of a road, bridge, school,
public buildings, or other traditional objects of expropriation. When the National Housing Authority
expropriates raw land to convert into housing projects for rent or sale to private persons or the NIA
expropriates land to construct irrigation systems and sells water rights to farmers, it would be the height of
abuse and ignominy for the agencies to start earning from those properties while ignoring final judgments
ordering the payment of just compensation to the former owners.

Just compensation means not only the correct determination of the amount to be paid to the owner of the
land but also the payment of the land within a reasonable time from its taking. Without prompt payment,
compensation cannot be considered "just" for the property owner is made to suffer the consequence of
being immediately deprived of his land while being made to wait for a decade or more before actually
receiving the amount necessary to cope with his loss. Thus, in the case of Provincial Government of
Sorsogon v. Rosa E. Vda. de Villaroyo (153 SCRA 291), we ruled:

The petitioners have been waiting for more than thirty years to be paid for their land
which was taken for use as a public high school. As a matter of fair procedure, it is the
duty of the Government whenever it takes property from private persons against their will
to supply all required documentation and facilitate payment of just compensation. The
imposition of unreasonable requirements and vexatious delays before effecting payment
is not only galling and arbitrary but a rich source of discontent with government. There
should be some kind of swift and effective recourse against unfeeling and uncaring acts
of middle or lower level bureaucrats.

Under ordinary circumstances, immediate return to the owners of the unpaid property is
the obvious remedy. ln cases where land is taken for public use, public interest, however,
must, be considered. The children of Gubat, Sorsogon have been using the disputed land
as their high school athletic grounds for thirty years. (Emphasis supplied)

In the present case, the irrigation project was completed and has been in operation since
1976. The project is benefitting the farmers specifically and the community in general.
Obviously, the petitioner's land cannot be returned to him. However, it is high time that
the petitioner be paid what was due him eleven years ago. It is arbitrary and capricious
for a government agency to initiate expropriation proceedings, seize a person's property,
allow the judgment of the court to become final and executory and then refuse to pay on
the ground that there are no appropriations for the property earlier taken and profitably
used. We condemn in the strongest possible terms the cavalier attitude of government
officials who adopt such a despotic and irresponsible stance.

WHEREFORE, the petition is hereby GRANTED. The decision and order of the respondent appellate
court dated November 25, 1987 and February 16, 1987 respectively are ANNULLED and SET ASIDE.
The Regional Trial Court of Iloilo City is ordered to immediately execute the final judgment in Civil Case
No. 10530 and effect payment of P200,000.00 as just compensation deducting therefrom the partial
payment already deposited by the respondent at the institution of the action below with legal interest from
September 21, 1985, plus P5,000.00 attorney's fees and P2,500.00 litigation expenses.

SO ORDERED.

Fernan, C.J., Feliciano, Bidin and Cortes, JJ., concur.

 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 Parañaque, 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).
 I

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.

 FIRST DIVISION

G.R. No. 142396 February 11, 2003

KHOSROW MINUCHER, petitioner,

vs.
HON. COURT OF APPEALS and ARTHUR SCALZO, respondents.

DECISION

VITUG, J.:

Sometime in May 1986, an Information for violation of Section 4 of Republic Act No. 6425, otherwise also
known as the "Dangerous Drugs Act of 1972," was filed against petitioner Khosrow Minucher and one
Abbas Torabian with the Regional Trial Court, Branch 151, of Pasig City. The criminal charge followed a
"buy-bust operation" conducted by the Philippine police narcotic agents in the house of Minucher, an
Iranian national, where a quantity of heroin, a prohibited drug, was said to have been seized. The narcotic
agents were accompanied by private respondent Arthur Scalzo who would, in due time, become one of
the principal witnesses for the prosecution. On 08 January 1988, Presiding Judge Eutropio Migrino
rendered a decision acquitting the two accused.

On 03 August 1988, Minucher filed Civil Case No. 88-45691 before the Regional Trial Court (RTC),
Branch 19, of Manila for damages on account of what he claimed to have been trumped-up charges of
drug trafficking made by Arthur Scalzo. The Manila RTC detailed what it had found to be the facts and
circumstances surrounding the case.

"The testimony of the plaintiff disclosed that he is an Iranian national. He came to the Philippines to study
in the University of the Philippines in 1974. In 1976, under the regime of the Shah of Iran, he was
appointed Labor Attaché for the Iranian Embassies in Tokyo, Japan and Manila, Philippines. When the
Shah of Iran was deposed by Ayatollah Khomeini, plaintiff became a refugee of the United Nations and
continued to stay in the Philippines. He headed the Iranian National Resistance Movement in the
Philippines.

"He came to know the defendant on May 13, 1986, when the latter was brought to his house and
introduced to him by a certain Jose Iñigo, an informer of the Intelligence Unit of the military. Jose Iñigo, on
the other hand, was met by plaintiff at the office of Atty. Crisanto Saruca, a lawyer for several Iranians
whom plaintiff assisted as head of the anti-Khomeini movement in the Philippines.

"During his first meeting with the defendant on May 13, 1986, upon the introduction of Jose Iñigo, the
defendant expressed his interest in buying caviar. As a matter of fact, he bought two kilos of caviar from
plaintiff and paid P10,000.00 for it. Selling caviar, aside from that of Persian carpets, pistachio nuts and
other Iranian products was his business after the Khomeini government cut his pension of over $3,000.00
per month. During their introduction in that meeting, the defendant gave the plaintiff his calling card, which
showed that he is working at the US Embassy in the Philippines, as a special agent of the Drug
Enforcement Administration, Department of Justice, of the United States, and gave his address as US
Embassy, Manila. At the back of the card appears a telephone number in defendant’s own handwriting,
the number of which he can also be contacted.

"It was also during this first meeting that plaintiff expressed his desire to obtain a US Visa for his wife and
the wife of a countryman named Abbas Torabian. The defendant told him that he [could] help plaintiff for
a fee of $2,000.00 per visa. Their conversation, however, was more concentrated on politics, carpets and
caviar. Thereafter, the defendant promised to see plaintiff again.

"On May 19, 1986, the defendant called the plaintiff and invited the latter for dinner at Mario's Restaurant
at Makati. He wanted to buy 200 grams of caviar. Plaintiff brought the merchandize but for the reason that
the defendant was not yet there, he requested the restaurant people to x x x place the same in the
refrigerator. Defendant, however, came and plaintiff gave him the caviar for which he was paid. Then their
conversation was again focused on politics and business.

"On May 26, 1986, defendant visited plaintiff again at the latter's residence for 18 years at Kapitolyo,
Pasig. The defendant wanted to buy a pair of carpets which plaintiff valued at $27,900.00. After some
haggling, they agreed at $24,000.00. For the reason that defendant did not yet have the money, they
agreed that defendant would come back the next day. The following day, at 1:00 p.m., he came back with
his $24,000.00, which he gave to the plaintiff, and the latter, in turn, gave him the pair of
carpets.1awphi1.nét

"At about 3:00 in the afternoon of May 27, 1986, the defendant came back again to plaintiff's house and
directly proceeded to the latter's bedroom, where the latter and his countryman, Abbas Torabian, were
playing chess. Plaintiff opened his safe in the bedroom and obtained $2,000.00 from it, gave it to the
defendant for the latter's fee in obtaining a visa for plaintiff's wife. The defendant told him that he would be
leaving the Philippines very soon and requested him to come out of the house for a while so that he can
introduce him to his cousin waiting in a cab. Without much ado, and without putting on his shirt as he was
only in his pajama pants, he followed the defendant where he saw a parked cab opposite the street. To
his complete surprise, an American jumped out of the cab with a drawn high-powered gun. He was in the
company of about 30 to 40 Filipino soldiers with 6 Americans, all armed. He was handcuffed and after
about 20 minutes in the street, he was brought inside the house by the defendant. He was made to sit
down while in handcuffs while the defendant was inside his bedroom. The defendant came out of the
bedroom and out from defendant's attaché case, he took something and placed it on the table in front of
the plaintiff. They also took plaintiff's wife who was at that time at the boutique near his house and
likewise arrested Torabian, who was playing chess with him in the bedroom and both were handcuffed
together. Plaintiff was not told why he was being handcuffed and why the privacy of his house, especially
his bedroom was invaded by defendant. He was not allowed to use the telephone. In fact, his telephone
was unplugged. He asked for any warrant, but the defendant told him to `shut up.’ He was nevertheless
told that he would be able to call for his lawyer who can defend him.

"The plaintiff took note of the fact that when the defendant invited him to come out to meet his cousin, his
safe was opened where he kept the $24,000.00 the defendant paid for the carpets and another $8,000.00
which he also placed in the safe together with a bracelet worth $15,000.00 and a pair of earrings worth
$10,000.00. He also discovered missing upon his release his 8 pieces hand-made Persian carpets,
valued at $65,000.00, a painting he bought for P30,000.00 together with his TV and betamax sets. He
claimed that when he was handcuffed, the defendant took his keys from his wallet. There was, therefore,
nothing left in his house.

"That his arrest as a heroin trafficker x x x had been well publicized throughout the world, in various
newspapers, particularly in Australia, America, Central Asia and in the Philippines. He was identified in
the papers as an international drug trafficker. x x x
In fact, the arrest of defendant and Torabian was likewise on television, not only in the Philippines, but
also in America and in Germany. His friends in said places informed him that they saw him on TV with
said news.

"After the arrest made on plaintiff and Torabian, they were brought to Camp Crame handcuffed together,
where they were detained for three days without food and water."1

During the trial, the law firm of Luna, Sison and Manas, filed a special appearance for Scalzo and moved
for extension of time to file an answer pending a supposed advice from the United States Department of
State and Department of Justice on the defenses to be raised. The trial court granted the motion. On 27
October 1988, Scalzo filed another special appearance to quash the summons on the ground that he, not
being a resident of the Philippines and the action being one in personam, was beyond the processes of
the court. The motion was denied by the court, in its order of 13 December 1988, holding that the filing by
Scalzo of a motion for extension of time to file an answer to the complaint was a voluntary appearance
equivalent to service of summons which could likewise be construed a waiver of the requirement of formal
notice. Scalzo filed a motion for reconsideration of the court order, contending that a motion for an
extension of time to file an answer was not a voluntary appearance equivalent to service of summons
since it did not seek an affirmative relief. Scalzo argued that in cases involving the United States
government, as well as its agencies and officials, a motion for extension was peculiarly unavoidable due
to the need (1) for both the Department of State and the Department of Justice to agree on the defenses
to be raised and (2) to refer the case to a Philippine lawyer who would be expected to first review the
case. The court a quo denied the motion for reconsideration in its order of 15 October 1989.

Scalzo filed a petition for review with the Court of Appeals, there docketed CA-G.R. No. 17023, assailing
the denial. In a decision, dated 06 October 1989, the appellate court denied the petition and affirmed the
ruling of the trial court. Scalzo then elevated the incident in a petition for review on certiorari, docketed
G.R. No. 91173, to this Court. The petition, however, was denied for its failure to comply with SC Circular
No. 1-88; in any event, the Court added, Scalzo had failed to show that the appellate court was in error in
its questioned judgment.

Meanwhile, at the court a quo, an order, dated 09 February 1990, was issued (a) declaring Scalzo in
default for his failure to file a responsive pleading (answer) and (b) setting the case for the reception of
evidence. On 12 March 1990, Scalzo filed a motion to set aside the order of default and to admit his
answer to the complaint. Granting the motion, the trial court set the case for pre-trial. In his answer,
Scalzo denied the material allegations of the complaint and raised the affirmative defenses (a) of
Minucher’s failure to state a cause of action in his complaint and (b) that Scalzo had acted in the
discharge of his official duties as being merely an agent of the Drug Enforcement Administration of the
United States Department of Justice. Scalzo interposed a counterclaim of P100,000.00 to answer for
attorneys' fees and expenses of litigation.

Then, on 14 June 1990, after almost two years since the institution of the civil case, Scalzo filed a motion
to dismiss the complaint on the ground that, being a special agent of the United States Drug Enforcement
Administration, he was entitled to diplomatic immunity. He attached to his motion Diplomatic Note No. 414
of the United States Embassy, dated 29 May 1990, addressed to the Department of Foreign Affairs of the
Philippines and a Certification, dated 11 June 1990, of Vice Consul Donna Woodward, certifying that the
note is a true and faithful copy of its original. In an order of 25 June 1990, the trial court denied the motion
to dismiss.

On 27 July 1990, Scalzo filed a petition for certiorari with injunction with this Court, docketed G.R. No.
94257 and entitled "Arthur W. Scalzo, Jr., vs. Hon. Wenceslao Polo, et al.," asking that the complaint in
Civil Case No. 88-45691 be ordered dismissed. The case was referred to the Court of Appeals, there
docketed CA-G.R. SP No. 22505, per this Court’s resolution of 07 August 1990. On 31 October 1990, the
Court of Appeals promulgated its decision sustaining the diplomatic immunity of Scalzo and ordering the
dismissal of the complaint against him. Minucher filed a petition for review with this Court, docketed G.R.
No. 97765 and entitled "Khosrow Minucher vs. the Honorable Court of Appeals, et. al." (cited in 214
SCRA 242), appealing the judgment of the Court of Appeals. In a decision, dated 24 September 1992,
penned by Justice (now Chief Justice) Hilario Davide, Jr., this Court reversed the decision of the appellate
court and remanded the case to the lower court for trial. The remand was ordered on the theses (a) that
the Court of Appeals erred in granting the motion to dismiss of Scalzo for lack of jurisdiction over his
person without even considering the issue of the authenticity of Diplomatic Note No. 414 and (b) that the
complaint contained sufficient allegations to the effect that Scalzo committed the imputed acts in his
personal capacity and outside the scope of his official duties and, absent any evidence to the contrary,
the issue on Scalzo’s diplomatic immunity could not be taken up.

The Manila RTC thus continued with its hearings on the case. On 17 November 1995, the trial court
reached a decision; it adjudged:

"WHEREFORE, and in view of all the foregoing considerations, judgment is hereby rendered for the
plaintiff, who successfully established his claim by sufficient evidence, against the defendant in the
manner following:

"`Adjudging defendant liable to plaintiff in actual and compensatory damages of P520,000.00; moral
damages in the sum of P10 million; exemplary damages in the sum of P100,000.00; attorney's fees in the
sum of P200,000.00 plus costs.

`The Clerk of the Regional Trial Court, Manila, is ordered to take note of the lien of the Court on this
judgment to answer for the unpaid docket fees considering that the plaintiff in this case instituted this
action as a pauper litigant.’"2

While the trial court gave credence to the claim of Scalzo and the evidence presented by him that he was
a diplomatic agent entitled to immunity as such, it ruled that he, nevertheless, should be held accountable
for the acts complained of committed outside his official duties. On appeal, the Court of Appeals reversed
the decision of the trial court and sustained the defense of Scalzo that he was sufficiently clothed with
diplomatic immunity during his term of duty and thereby immune from the criminal and civil jurisdiction of
the "Receiving State" pursuant to the terms of the Vienna Convention.

Hence, this recourse by Minucher. The instant petition for review raises a two-fold issue: (1) whether or
not the doctrine of conclusiveness of judgment, following the decision rendered by this Court in G.R. No.
97765, should have precluded the Court of Appeals from resolving the appeal to it in an entirely different
manner, and (2) whether or not Arthur Scalzo is indeed entitled to diplomatic immunity.

The doctrine of conclusiveness of judgment, or its kindred rule of res judicata, would require 1) the finality
of the prior judgment, 2) a valid jurisdiction over the subject matter and the parties on the part of the court
that renders it, 3) a judgment on the merits, and 4) an identity of the parties, subject matter and causes of
action.3 Even while one of the issues submitted in G.R. No. 97765 - "whether or not public respondent
Court of Appeals erred in ruling that private respondent Scalzo is a diplomat immune from civil suit
conformably with the Vienna Convention on Diplomatic Relations" - is also a pivotal question raised in the
instant petition, the ruling in G.R. No. 97765, however, has not resolved that point with finality. Indeed, the
Court there has made this observation -

"It may be mentioned in this regard that private respondent himself, in his Pre-trial Brief filed on 13 June
1990, unequivocally states that he would present documentary evidence consisting of DEA records on his
investigation and surveillance of plaintiff and on his position and duties as DEA special agent in Manila.
Having thus reserved his right to present evidence in support of his position, which is the basis for the
alleged diplomatic immunity, the barren self-serving claim in the belated motion to dismiss cannot be
relied upon for a reasonable, intelligent and fair resolution of the issue of diplomatic immunity." 4

Scalzo contends that the Vienna Convention on Diplomatic Relations, to which the Philippines is a
signatory, grants him absolute immunity from suit, describing his functions as an agent of the United
States Drugs Enforcement Agency as "conducting surveillance operations on suspected drug dealers in
the Philippines believed to be the source of prohibited drugs being shipped to the U.S., (and) having
ascertained the target, (he then) would inform the Philippine narcotic agents (to) make the actual arrest."
Scalzo has submitted to the trial court a number of documents -

1. Exh. '2' - Diplomatic Note No. 414 dated 29 May 1990;

2. Exh. '1' - Certification of Vice Consul Donna K. Woodward dated 11 June 1990;

3. Exh. '5' - Diplomatic Note No. 757 dated 25 October 1991;

4. Exh. '6' - Diplomatic Note No. 791 dated 17 November 1992; and

5. Exh. '7' - Diplomatic Note No. 833 dated 21 October 1988.

6. Exh. '3' - 1st Indorsement of the Hon. Jorge R. Coquia, Legal Adviser, Department of Foreign
Affairs, dated 27 June 1990 forwarding Embassy Note No. 414 to the Clerk of Court of RTC
Manila, Branch 19 (the trial court);

7. Exh. '4' - Diplomatic Note No. 414, appended to the 1st Indorsement (Exh. '3'); and

8. Exh. '8' - Letter dated 18 November 1992 from the Office of the Protocol, Department of
Foreign Affairs, through Asst. Sec. Emmanuel Fernandez, addressed to the Chief Justice of this
Court.5

The documents, according to Scalzo, would show that: (1) the United States Embassy accordingly
advised the Executive Department of the Philippine Government that Scalzo was a member of the
diplomatic staff of the United States diplomatic mission from his arrival in the Philippines on 14 October
1985 until his departure on 10 August 1988; (2) that the United States Government was firm from the very
beginning in asserting the diplomatic immunity of Scalzo with respect to the case pursuant to the
provisions of the Vienna Convention on Diplomatic Relations; and (3) that the United States Embassy
repeatedly urged the Department of Foreign Affairs to take appropriate action to inform the trial court of
Scalzo’s diplomatic immunity. The other documentary exhibits were presented to indicate that: (1) the
Philippine government itself, through its Executive Department, recognizing and respecting the diplomatic
status of Scalzo, formally advised the "Judicial Department" of his diplomatic status and his entitlement to
all diplomatic privileges and immunities under the Vienna Convention; and (2) the Department of Foreign
Affairs itself authenticated Diplomatic Note No. 414. Scalzo additionally presented Exhibits "9" to "13"
consisting of his reports of investigation on the surveillance and subsequent arrest of Minucher, the
certification of the Drug Enforcement Administration of the United States Department of Justice that
Scalzo was a special agent assigned to the Philippines at all times relevant to the complaint, and the
special power of attorney executed by him in favor of his previous counsel6 to show (a) that the United
States Embassy, affirmed by its Vice Consul, acknowledged Scalzo to be a member of the diplomatic
staff of the United States diplomatic mission from his arrival in the Philippines on 14 October 1985 until
his departure on 10 August 1988, (b) that, on May 1986, with the cooperation of the Philippine law
enforcement officials and in the exercise of his functions as member of the mission, he investigated
Minucher for alleged trafficking in a prohibited drug, and (c) that the Philippine Department of Foreign
Affairs itself recognized that Scalzo during his tour of duty in the Philippines (14 October 1985 up to 10
August 1988) was listed as being an Assistant Attaché of the United States diplomatic mission and
accredited with diplomatic status by the Government of the Philippines. In his Exhibit 12, Scalzo
described the functions of the overseas office of the United States Drugs Enforcement Agency, i.e., (1) to
provide criminal investigative expertise and assistance to foreign law enforcement agencies on narcotic
and drug control programs upon the request of the host country, 2) to establish and maintain liaison with
the host country and counterpart foreign law enforcement officials, and 3) to conduct complex criminal
investigations involving international criminal conspiracies which affect the interests of the United States.
The Vienna Convention on Diplomatic Relations was a codification of centuries-old customary law and, by
the time of its ratification on 18 April 1961, its rules of law had long become stable. Among the city states
of ancient Greece, among the peoples of the Mediterranean before the establishment of the Roman
Empire, and among the states of India, the person of the herald in time of war and the person of the
diplomatic envoy in time of peace were universally held sacrosanct. 7 By the end of the 16th century, when
the earliest treatises on diplomatic law were published, the inviolability of ambassadors was firmly
established as a rule of customary international law.8Traditionally, the exercise of diplomatic intercourse
among states was undertaken by the head of state himself, as being the preeminent embodiment of the
state he represented, and the foreign secretary, the official usually entrusted with the external affairs of
the state. Where a state would wish to have a more prominent diplomatic presence in the receiving state,
it would then send to the latter a diplomatic mission. Conformably with the Vienna Convention, the
functions of the diplomatic mission involve, by and large, the representation of the interests of the sending
state and promoting friendly relations with the receiving state. 9

The Convention lists the classes of heads of diplomatic missions to include (a) ambassadors or nuncios
accredited to the heads of state,10 (b) envoys,11 ministers or internuncios accredited to the heads of
states; and (c) charges d' affairs12 accredited to the ministers of foreign affairs.13 Comprising the "staff of
the (diplomatic) mission" are the diplomatic staff, the administrative staff and the technical and service
staff. Only the heads of missions, as well as members of the diplomatic staff, excluding the members of
the administrative, technical and service staff of the mission, are accorded diplomatic rank. Even while
the Vienna Convention on Diplomatic Relations provides for immunity to the members of diplomatic
missions, it does so, nevertheless, with an understanding that the same be restrictively applied. Only
"diplomatic agents," under the terms of the Convention, are vested with blanket diplomatic immunity from
civil and criminal suits. The Convention defines "diplomatic agents" as the heads of missions or members
of the diplomatic staff, thus impliedly withholding the same privileges from all others. It might bear
stressing that even consuls, who represent their respective states in concerns of commerce and
navigation and perform certain administrative and notarial duties, such as the issuance of passports and
visas, authentication of documents, and administration of oaths, do not ordinarily enjoy the traditional
diplomatic immunities and privileges accorded diplomats, mainly for the reason that they are not charged
with the duty of representing their states in political matters. Indeed, the main yardstick in ascertaining
whether a person is a diplomat entitled to immunity is the determination of whether or not he performs
duties of diplomatic nature.

Scalzo asserted, particularly in his Exhibits "9" to "13," that he was an Assistant Attaché of the United
States diplomatic mission and was accredited as such by the Philippine Government. An attaché belongs
to a category of officers in the diplomatic establishment who may be in charge of its cultural, press,
administrative or financial affairs. There could also be a class of attaches belonging to certain ministries
or departments of the government, other than the foreign ministry or department, who are detailed by
their respective ministries or departments with the embassies such as the military, naval, air, commercial,
agricultural, labor, science, and customs attaches, or the like. Attaches assist a chief of mission in his
duties and are administratively under him, but their main function is to observe, analyze and interpret
trends and developments in their respective fields in the host country and submit reports to their own
ministries or departments in the home government.14 These officials are not generally regarded as
members of the diplomatic mission, nor are they normally designated as having diplomatic rank.

In an attempt to prove his diplomatic status, Scalzo presented Diplomatic Notes Nos. 414, 757 and 791,
all issued post litem motam, respectively, on 29 May 1990, 25 October 1991 and 17 November 1992. The
presentation did nothing much to alleviate the Court's initial reservations in G.R. No. 97765, viz:

"While the trial court denied the motion to dismiss, the public respondent gravely abused its discretion in
dismissing Civil Case No. 88-45691 on the basis of an erroneous assumption that simply because of the
diplomatic note, the private respondent is clothed with diplomatic immunity, thereby divesting the trial
court of jurisdiction over his person.

"x x x x x x x x x
"And now, to the core issue - the alleged diplomatic immunity of the private respondent. Setting aside for
the moment the issue of authenticity raised by the petitioner and the doubts that surround such claim, in
view of the fact that it took private respondent one (1) year, eight (8) months and seventeen (17) days
from the time his counsel filed on 12 September 1988 a Special Appearance and Motion asking for a first
extension of time to file the Answer because the Departments of State and Justice of the United States of
America were studying the case for the purpose of determining his defenses, before he could secure the
Diplomatic Note from the US Embassy in Manila, and even granting for the sake of argument that such
note is authentic, the complaint for damages filed by petitioner cannot be peremptorily dismissed.

"x x x x x x x x x

"There is of course the claim of private respondent that the acts imputed to him were done in his official
capacity. Nothing supports this self-serving claim other than the so-called Diplomatic Note. x x x. The
public respondent then should have sustained the trial court's denial of the motion to dismiss. Verily, it
should have been the most proper and appropriate recourse. It should not have been overwhelmed by
the self-serving Diplomatic Note whose belated issuance is even suspect and whose authenticity has not
yet been proved. The undue haste with which respondent Court yielded to the private respondent's claim
is arbitrary."

A significant document would appear to be Exhibit No. 08, dated 08 November 1992, issued by the Office
of Protocol of the Department of Foreign Affairs and signed by Emmanuel C. Fernandez, Assistant
Secretary, certifying that "the records of the Department (would) show that Mr. Arthur W. Scalzo, Jr.,
during his term of office in the Philippines (from 14 October 1985 up to 10 August 1988) was listed as an
Assistant Attaché of the United States diplomatic mission and was, therefore, accredited diplomatic status
by the Government of the Philippines." No certified true copy of such "records," the supposed bases for
the belated issuance, was presented in evidence.

Concededly, vesting a person with diplomatic immunity is a prerogative of the executive branch of the
government. In World Health Organization vs. Aquino,15 the Court has recognized that, in such matters,
the hands of the courts are virtually tied. Amidst apprehensions of indiscriminate and incautious grant of
immunity, designed to gain exemption from the jurisdiction of courts, it should behoove the Philippine
government, specifically its Department of Foreign Affairs, to be most circumspect, that should particularly
be no less than compelling, in its post litem motam issuances. It might be recalled that the privilege is not
an immunity from the observance of the law of the territorial sovereign or from ensuing legal liability; it is,
rather, an immunity from the exercise of territorial jurisdiction.16 The government of the United States
itself, which Scalzo claims to be acting for, has formulated its standards for recognition of a diplomatic
agent. The State Department policy is to only concede diplomatic status to a person who possesses an
acknowledged diplomatic title and "performs duties of diplomatic nature."17 Supplementary criteria for
accreditation are the possession of a valid diplomatic passport or, from States which do not issue such
passports, a diplomatic note formally representing the intention to assign the person to diplomatic duties,
the holding of a non-immigrant visa, being over twenty-one years of age, and performing diplomatic
functions on an essentially full-time basis.18 Diplomatic missions are requested to provide the most
accurate and descriptive job title to that which currently applies to the duties performed. The Office of the
Protocol would then assign each individual to the appropriate functional category.19

But while the diplomatic immunity of Scalzo might thus remain contentious, it was sufficiently established
that, indeed, he worked for the United States Drug Enforcement Agency and was tasked to conduct
surveillance of suspected drug activities within the country on the dates pertinent to this case. If it should
be ascertained that Arthur Scalzo was acting well within his assigned functions when he committed the
acts alleged in the complaint, the present controversy could then be resolved under the related doctrine of
State Immunity from Suit.

The precept that a State cannot be sued in the courts of a foreign state is a long-standing rule of
customary international law then closely identified with the personal immunity of a foreign sovereign from
suit20 and, with the emergence of democratic states, made to attach not just to the person of the head of
state, or his representative, but also distinctly to the state itself in its sovereign capacity. 21 If the acts
giving rise to a suit are those of a foreign government done by its foreign agent, although not necessarily
a diplomatic personage, but acting in his official capacity, the complaint could be barred by the immunity
of the foreign sovereign from suit without its consent. Suing a representative of a state is believed to be,
in effect, suing the state itself. The proscription is not accorded for the benefit of an individual but for the
State, in whose service he is, under the maxim - par in parem, non habet imperium - that all states are
sovereign equals and cannot assert jurisdiction over one another. 22 The implication, in broad terms, is that
if the judgment against an official would require the state itself to perform an affirmative act to satisfy the
award, such as the appropriation of the amount needed to pay the damages decreed against him, the suit
must be regarded as being against the state itself, although it has not been formally impleaded.23

In United States of America vs. Guinto,24 involving officers of the United States Air Force and special
officers of the Air Force Office of Special Investigators charged with the duty of preventing the distribution,
possession and use of prohibited drugs, this Court has ruled -

"While the doctrine (of state immunity) appears to prohibit only suits against the state without its consent,
it is also applicable to complaints filed against officials of the state for acts allegedly performed by them in
the discharge of their duties. x x x. It cannot for a moment be imagined that they were acting in their
private or unofficial capacity when they apprehended and later testified against the complainant. It follows
that for discharging their duties as agents of the United States, they cannot be directly impleaded for acts
imputable to their principal, which has not given its consent to be sued. x x x As they have acted on
behalf of the government, and within the scope of their authority, it is that government, and not the
petitioners personally, [who were] responsible for their acts."25

This immunity principle, however, has its limitations. Thus, Shauf vs. Court of Appeals 26 elaborates:

"It is a different matter where the public official is made to account in his capacity as such for acts
contrary to law and injurious to the rights of the plaintiff. As was clearly set forth by Justice Zaldivar in
Director of the Bureau of Telecommunications, et al., vs. Aligaen, et al. (33 SCRA 368): `Inasmuch as the
State authorizes only legal acts by its officers, unauthorized acts of government officials or officers are not
acts of the State, and an action against the officials or officers by one whose rights have been invaded or
violated by such acts, for the protection of his rights, is not a suit against the State within the rule of
immunity of the State from suit. In the same tenor, it has been said that an action at law or suit in equity
against a State officer or the director of a State department on the ground that, while claiming to act for
the State, he violates or invades the personal and property rights of the plaintiff, under an unconstitutional
act or under an assumption of authority which he does not have, is not a suit against the State within the
constitutional provision that the State may not be sued without its consent. The rationale for this ruling is
that the doctrine of state immunity cannot be used as an instrument for perpetrating an injustice.

"x x x x x x x x x

"(T)he doctrine of immunity from suit will not apply and may not be invoked where the public official is
being sued in his private and personal capacity as an ordinary citizen. The cloak of protection afforded
the officers and agents of the government is removed the moment they are sued in their individual
capacity. This situation usually arises where the public official acts without authority or in excess of the
powers vested in him. It is a well-settled principle of law that a public official may be liable in his personal
private capacity for whatever damage he may have caused by his act done with malice and in bad faith or
beyond the scope of his authority and jurisdiction."27

A foreign agent, operating within a territory, can be cloaked with immunity from suit but only as long as it
can be established that he is acting within the directives of the sending state. The consent of the host
state is an indispensable requirement of basic courtesy between the two sovereigns. Guinto and Shauf
both involve officers and personnel of the United States, stationed within Philippine territory, under the
RP-US Military Bases Agreement. While evidence is wanting to show any similar agreement between the
governments of the Philippines and of the United States (for the latter to send its agents and to conduct
surveillance and related activities of suspected drug dealers in the Philippines), the consent
or imprimatur of the Philippine government to the activities of the United States Drug Enforcement
Agency, however, can be gleaned from the facts heretofore elsewhere mentioned. The official exchanges
of communication between agencies of the government of the two countries, certifications from officials of
both the Philippine Department of Foreign Affairs and the United States Embassy, as well as the
participation of members of the Philippine Narcotics Command in the "buy-bust operation" conducted at
the residence of Minucher at the behest of Scalzo, may be inadequate to support the "diplomatic status"
of the latter but they give enough indication that the Philippine government has given its imprimatur, if not
consent, to the activities within Philippine territory of agent Scalzo of the United States Drug Enforcement
Agency. The job description of Scalzo has tasked him to conduct surveillance on suspected drug
suppliers and, after having ascertained the target, to inform local law enforcers who would then be
expected to make the arrest. In conducting surveillance activities on Minucher, later acting as the poseur-
buyer during the buy-bust operation, and then becoming a principal witness in the criminal case against
Minucher, Scalzo hardly can be said to have acted beyond the scope of his official function or duties.

All told, this Court is constrained to rule that respondent Arthur Scalzo, an agent of the United States
Drug Enforcement Agency allowed by the Philippine government to conduct activities in the country to
help contain the problem on the drug traffic, is entitled to the defense of state immunity from suit.

WHEREFORE, on the foregoing premises, the petition is DENIED. No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio and Azcuna, JJ., concur
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 206510 September 16, 2014

MOST REV. PEDRO D. ARIGO, Vicar Apostolic of Puerto Princesa D.D.; MOST REV. DEOGRACIAS
S. INIGUEZ, JR., Bishop-Emeritus of Caloocan, FRANCES Q. QUIMPO, CLEMENTE G. BAUTISTA,
JR., Kalikasan-PNE, MARIA CAROLINA P. ARAULLO, RENATO M. REYES, JR., Bagong Alyansang
Makabayan, HON. NERI JAVIER COLMENARES, Bayan Muna Partylist, ROLAND G. SIMBULAN,
PH.D., Junk VF A Movement, TERESITA R. PEREZ, PH.D., HON. RAYMOND V. PALATINO,
Kabataan Party-list, PETER SJ. GONZALES, Pamalakaya, GIOVANNI A. TAPANG, PH. D., Agham,
ELMER C. LABOG, Kilusang Mayo Uno, JOAN MAY E. SALVADOR, Gabriela, JOSE ENRIQUE A.
AFRICA, THERESA A. CONCEPCION, MARY JOAN A. GUAN, NESTOR T. BAGUINON, PH.D., A.
EDSEL F. TUPAZ, Petitioners,
vs.
SCOTT H. SWIFT in his capacity as Commander of the US. 7th Fleet, MARK A. RICE in his capacity
as Commanding Officer of the USS Guardian, PRESIDENT BENIGNO S. AQUINO III in his capacity
as Commander-in-Chief of the Armed Forces of the Philippines, HON. ALBERT F. DEL ROSARIO,
Secretary, pepartment of Foreign Affair.s, HON. PAQUITO OCHOA, JR., Executiv~.:Secretary,
Office of the President, . HON. VOLTAIRE T. GAZMIN, Secretary, Department of National Defense,
HON. RAMON JESUS P. P AJE, Secretary, Department of Environment and Natural Resoz!rces,
VICE ADMIRAL JOSE LUIS M. ALANO, Philippine Navy Flag Officer in Command, Armed Forces of
the Philippines, ADMIRAL RODOLFO D. ISO RENA, Commandant, Philippine Coast Guard,
COMMODORE ENRICO EFREN EVANGELISTA, Philippine Coast Guard Palawan, MAJOR GEN.
VIRGILIO 0. DOMINGO, Commandant of Armed Forces of the Philippines Command and LT. GEN.
TERRY G. ROBLING, US Marine Corps Forces. Pacific and Balikatan 2013 Exercise Co-
Director, Respondents.

DECISION

VILLARAMA, JR, J.:

Before us is a petition for the issuance of a Writ of Kalikasan with prayer for the issuance of a Temporary
Environmental Protection Order (TEPO) under Rule 7 of A.M. No. 09-6-8-SC, otherwise known as the
Rules of Procedure for Environmental Cases (Rules), involving violations of environmental laws and
regulations in relation to the grounding of the US military ship USS Guardian over the Tubbataha Reefs.

Factual Background

The name "Tubbataha" came from the Samal (seafaring people of southern Philippines) language which
means "long reef exposed at low tide." Tubbataha is composed of two huge coral atolls - the north atoll
and the south atoll - and the Jessie Beazley Reef, a smaller coral structure about 20 kilometers north of
the atolls. The reefs of Tubbataha and Jessie Beazley are considered part of Cagayancillo, a remote
island municipality of Palawan.1

In 1988, Tubbataha was declared a National Marine Park by virtue of Proclamation No. 306 issued by
President Corazon C. Aquino on August 11, 1988. Located in the middle of Central Sulu Sea, 150
kilometers southeast of Puerto Princesa City, Tubbataha lies at the heart of the Coral Triangle, the global
center of marine biodiversity.
In 1993, Tubbataha was inscribed by the United Nations Educational Scientific and Cultural Organization
(UNESCO) as a World Heritage Site. It was recognized as one of the Philippines' oldest ecosystems,
containing excellent examples of pristine reefs and a high diversity of marine life. The 97,030-hectare
protected marine park is also an important habitat for internationally threatened and endangered marine
species. UNESCO cited Tubbataha's outstanding universal value as an important and significant natural
habitat for in situ conservation of biological diversity; an example representing significant on-going
ecological and biological processes; and an area of exceptional natural beauty and aesthetic importance. 2

On April 6, 2010, Congress passed Republic Act (R.A.) No. 10067,3 otherwise known as the "Tubbataha
Reefs Natural Park (TRNP) Act of 2009" "to ensure the protection and conservation of the globally
significant economic, biological, sociocultural, educational and scientific values of the Tubbataha Reefs
into perpetuity for the enjoyment of present and future generations." Under the "no-take" policy, entry into
the waters of TRNP is strictly regulated and many human activities are prohibited and penalized or fined,
including fishing, gathering, destroying and disturbing the resources within the TRNP. The law likewise
created the Tubbataha Protected Area Management Board (TPAMB) which shall be the sole policy-
making and permit-granting body of the TRNP.

The USS Guardian is an Avenger-class mine countermeasures ship of the US Navy. In December 2012,
the US Embassy in the Philippines requested diplomatic clearance for the said vessel "to enter and exit
the territorial waters of the Philippines and to arrive at the port of Subic Bay for the purpose of routine ship
replenishment, maintenance, and crew liberty."4 On January 6, 2013, the ship left Sasebo, Japan for
Subic Bay, arriving on January 13, 2013 after a brief stop for fuel in Okinawa, Japan.1âwphi1

On January 15, 2013, the USS Guardian departed Subic Bay for its next port of call in Makassar,
Indonesia. On January 17, 2013 at 2:20 a.m. while transiting the Sulu Sea, the ship ran aground on the
northwest side of South Shoal of the Tubbataha Reefs, about 80 miles east-southeast of Palawan. No
cine was injured in the incident, and there have been no reports of leaking fuel or oil.

On January 20, 2013, U.S. 7th Fleet Commander, Vice Admiral Scott Swift, expressed regret for the
incident in a press statement.5 Likewise, US Ambassador to the Philippines Harry K. Thomas, Jr., in a
meeting at the Department of Foreign Affairs (DFA) on February 4, "reiterated his regrets over the
grounding incident and assured Foreign Affairs Secretazy Albert F. del Rosario that the United States will
provide appropriate compensation for damage to the reef caused by the ship."6 By March 30, 2013, the
US Navy-led salvage team had finished removing the last piece of the grounded ship from the coral reef.

On April 1 7, 2013, the above-named petitioners on their behalf and in representation of their respective
sector/organization and others, including minors or generations yet unborn, filed the present petition
agairtst Scott H. Swift in his capacity as Commander of the US 7th Fleet, Mark A. Rice in his capacity as
Commanding Officer of the USS Guardian and Lt. Gen. Terry G. Robling, US Marine Corps Forces,
Pacific and Balikatan 2013 Exercises Co-Director ("US respondents"); President Benigno S. Aquino III in
his capacity as Commander-in-Chief of the Armed Forces of the Philippines (AFP), DF A Secretary Albert
F. Del Rosario, Executive Secretary Paquito Ochoa, Jr., Secretary Voltaire T. Gazmin (Department of
National Defense), Secretary Jesus P. Paje (Department of Environment and Natural Resources), Vice-
Admiral Jose Luis M. Alano (Philippine Navy Flag Officer in Command, AFP), Admiral Rodolfo D. Isorena
(Philippine Coast Guard Commandant), Commodore Enrico Efren Evangelista (Philippine Coast Guard-
Palawan), and Major General Virgilio 0. Domingo (AFP Commandant), collectively the "Philippine
respondents."

The Petition

Petitioners claim that the grounding, salvaging and post-salvaging operations of the USS Guardian cause
and continue to cause environmental damage of such magnitude as to affect the provinces of Palawan,
Antique, Aklan, Guimaras, Iloilo, Negros Occidental, Negros Oriental, Zamboanga del Norte, Basilan,
Sulu, and Tawi-Tawi, which events violate their constitutional rights to a balanced and healthful ecology.
They also seek a directive from this Court for the institution of civil, administrative and criminal suits for
acts committed in violation of environmental laws and regulations in connection with the grounding
incident.

Specifically, petitioners cite the following violations committed by US respondents under R.A. No. 10067:
unauthorized entry (Section 19); non-payment of conservation fees (Section 21 ); obstruction of law
enforcement officer (Section 30); damages to the reef (Section 20); and destroying and disturbing
resources (Section 26[g]). Furthermore, petitioners assail certain provisions of the Visiting Forces
Agreement (VFA) which they want this Court to nullify for being unconstitutional.

The numerous reliefs sought in this case are set forth in the final prayer of the petition, to wit:
WHEREFORE, in view of the foregoing, Petitioners respectfully pray that the Honorable Court: 1.
Immediately issue upon the filing of this petition a Temporary Environmental Protection Order (TEPO)
and/or a Writ of Kalikasan, which shall, in particular,

a. Order Respondents and any person acting on their behalf, to cease and desist all operations
over the Guardian grounding incident;

b. Initially demarcating the metes and bounds of the damaged area as well as an additional buffer
zone;

c. Order Respondents to stop all port calls and war games under 'Balikatan' because of the
absence of clear guidelines, duties, and liability schemes for breaches of those duties, and
require Respondents to assume responsibility for prior and future environmental damage in
general, and environmental damage under the Visiting Forces Agreement in particular.

d. Temporarily define and describe allowable activities of ecotourism, diving, recreation, and
limited commercial activities by fisherfolk and indigenous communities near or around the TRNP
but away from the damaged site and an additional buffer zone;

2. After summary hearing, issue a Resolution extending the TEPO until further orders of the
Court;

3. After due proceedings, render a Decision which shall include, without limitation:

a. Order Respondents Secretary of Foreign Affairs, following the dispositive portion of Nicolas v.
Romulo, "to forthwith negotiate with the United States representatives for the appropriate
agreement on [environmental guidelines and environmental accountability] under Philippine
authorities as provided in Art. V[] of the VFA ... "

b. Direct Respondents and appropriate agencies to commence administrative, civil, and criminal
proceedings against erring officers and individuals to the full extent of the law, and to make such
proceedings public;

c. Declare that Philippine authorities may exercise primary and exclusive criminal jurisdiction over
erring U.S. personnel under the circumstances of this case;

d. Require Respondents to pay just and reasonable compensation in the settlement of all
meritorious claims for damages caused to the Tubbataha Reef on terms and conditions no less
severe than those applicable to other States, and damages for personal injury or death, if such
had been the case;
 e. Direct Respondents to cooperate in providing for the attendance of witnesses and in the
collection and production of evidence, including seizure and delivery of objects connected with
the offenses related to the grounding of the Guardian;

f. Require the authorities of the Philippines and the United States to notify each other of the
disposition of all cases, wherever heard, related to the grounding of the Guardian;

g. Restrain Respondents from proceeding with any purported restoration, repair, salvage or post
salvage plan or plans, including cleanup plans covering the damaged area of the Tubbataha Reef
absent a just settlement approved by the Honorable Court;

h. Require Respondents to engage in stakeholder and LOU consultations in accordance with the
Local Government Code and R.A. 10067;

i. Require Respondent US officials and their representatives to place a deposit to the TRNP Trust
Fund defined under Section 17 of RA 10067 as a bona .fide gesture towards full reparations;

j. Direct Respondents to undertake measures to rehabilitate the areas affected by the grounding
of the Guardian in light of Respondents' experience in the Port Royale grounding in 2009, among
other similar grounding incidents;

k. Require Respondents to regularly publish on a quarterly basis and in the name of transparency
and accountability such environmental damage assessment, valuation, and valuation methods, in
all stages of negotiation;

l. Convene a multisectoral technical working group to provide scientific and technical support to
the TPAMB;

m. Order the Department of Foreign Affairs, Department of National Defense, and the
Department of Environment and Natural Resources to review the Visiting Forces Agreement and
the Mutual Defense Treaty to consider whether their provisions allow for the exercise of erga
omnes rights to a balanced and healthful ecology and for damages which follow from any
violation of those rights;

n. Narrowly tailor the provisions of the Visiting Forces Agreement for purposes of protecting the
damaged areas of TRNP;

o. Declare the grant of immunity found in Article V ("Criminal Jurisdiction") and Article VI of the
Visiting Forces Agreement unconstitutional for violating equal protection and/or for violating the
preemptory norm of nondiscrimination incorporated as part of the law of the land under Section 2,
Article II, of the Philippine Constitution;

p. Allow for continuing discovery measures;

q. Supervise marine wildlife rehabilitation in the Tubbataha Reefs in all other respects; and

4. Provide just and equitable environmental rehabilitation measures and such other reliefs as are
just and equitable under the premises.7 (Underscoring supplied.)

Since only the Philippine respondents filed their comment8 to the petition, petitioners also filed a motion
for early resolution and motion to proceed ex parte against the US respondents. 9

Respondents' Consolidated Comment

In their consolidated comment with opposition to the application for a TEPO and ocular inspection and
production orders, respondents assert that: ( 1) the grounds relied upon for the issuance of a TEPO or
writ of Kalikasan have become fait accompli as the salvage operations on the USS Guardian were
already completed; (2) the petition is defective in form and substance; (3) the petition improperly raises
issues involving the VFA between the Republic of the Philippines and the United States of America; and (
4) the determination of the extent of responsibility of the US Government as regards the damage to the
Tubbataha Reefs rests exdusively with the executive branch.

The Court's Ruling

As a preliminary matter, there is no dispute on the legal standing of petitioners to file the present petition.

Locus standi is "a right of appearance in a court of justice on a given question." 10 Specifically, it is "a
party's personal and substantial interest in a case where he has sustained or will sustain direct injury as a
result" of the act being challenged, and "calls for more than just a generalized grievance." 11 However, the
rule on standing is a procedural matter which this Court has relaxed for non-traditional plaintiffs like
ordinary citizens, taxpayers and legislators when the public interest so requires, such as when the subject
matter of the controversy is of transcendental importance, of overreaching significance to society, or of
paramount public interest.12

In the landmark case of Oposa v. Factoran, Jr.,13 we recognized the "public right" of citizens to "a
balanced and healthful ecology which, for the first time in our constitutional history, is solemnly
incorporated in the fundamental law." We declared that the right to a balanced and healthful ecology need
not be written in the Constitution for it is assumed, like other civil and polittcal rights guaranteed in the Bill
of Rights, to exist from the inception of mankind and it is an issue of transcendental importance with
intergenerational implications.1âwphi1 Such right carries with it the correlative duty to refrain from
impairing the environment.14

On the novel element in the class suit filed by the petitioners minors in Oposa, this Court ruled that not
only do ordinary citizens have legal standing to sue for the enforcement of environmental rights, they can
do so in representation of their own and future generations. Thus:

Petitioners minors assert that they represent their generation as well as generations yet unborn. We find
no difficulty in ruling that they can, for themselves, for others of their generation and for the succeeding
generations, file a class suit. Their personality to sue in behalf of the succeeding generations can only be
based on the concept of intergenerational responsibility insofar as the right to a balanced and healthful
ecology is concerned. Such a right, as hereinafter expounded, considers the "rhythm and harmony of
nature." Nature means the created world in its entirety. Such rhythm and harmony indispensably include,
inter alia, the judicious disposition, utilization, management, renewal and conservation of the country's
forest, mineral, land, waters, fisheries, wildlife, off-shore areas and other natural resources to the end that
their exploration, development and utilization be equitably accessible to the present a:: well as future
generations. Needless to say, every generation has a responsibility to the next to preserve that rhythm
and harmony for the full 1:njoyment of a balanced and healthful ecology. Put a little differently, the minors'
assertion of their right to a sound environment constitutes, at the same time, the performance of their
obligation to ensure the protection of that right for the generations to come.15 (Emphasis supplied.)

The liberalization of standing first enunciated in Oposa, insofar as it refers to minors and generations yet
unborn, is now enshrined in the Rules which allows the filing of a citizen suit in environmental cases. The
provision on citizen suits in the Rules "collapses the traditional rule on personal and direct interest, on the
principle that humans are stewards of nature."16

Having settled the issue of locus standi, we shall address the more fundamental question of whether this
Court has jurisdiction over the US respondents who did not submit any pleading or manifestation in this
case.
The immunity of the State from suit, known also as the doctrine of sovereign immunity or non-suability of
the State,17is expressly provided in Article XVI of the 1987 Constitution which states:

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

In United States of America v. Judge Guinto,18 we discussed the principle of state immunity from suit, as
follows:

The rule that a state may not be sued without its consent, now · expressed in Article XVI, Section 3, of the
1987 Constitution, is one of the generally accepted principles of international law that we have adopted as
part of the law of our land under Article II, Section 2. x x x.

Even without such affirmation, we would still be bound by the generally accepted principles of
international law under the doctrine of incorporation. Under this doctrine, as accepted by the majority of
states, such principles are deemed incorporated in the law of every civilized state as a condition and
consequence of its membership in the society of nations. Upon its admission to such society, the state is
automatically obligated to comply with these principles in its relations with other states.

As applied to the local state, the doctrine of state immunity is based on the justification given by Justice
Holmes that ''there can be no legal right against the authority which makes the law on which the right
depends." [Kawanakoa v. Polybank, 205 U.S. 349] There are other practical reasons for the enforcement
of the doctrine. In the case of the foreign state sought to be impleaded in the local jurisdiction, the added
inhibition is expressed in the maxim par in parem, non habet imperium. All states are sovereign equals
and cannot assert jurisdiction over one another. A contrary disposition would, in the language of a
celebrated case, "unduly vex the peace of nations." [De Haber v. Queen of Portugal, 17 Q. B. 171]

While the doctrine appears to prohibit only suits against the state without its consent, it is also applicable
to complaints filed against officials of the state for acts allegedly performed by them in the discharge of
their duties. The rule is that if the judgment against such officials will require the state itself to perform an
affirmative act to satisfy the same,. such as the appropriation of the amount needed to pay the damages
awarded against them, the suit must be regarded as against the state itself although it has not been
formally impleaded. [Garcia v. Chief of Staff, 16 SCRA 120] In such a situation, the state may move to
dismiss the comp.taint on the ground that it has been filed without its consent. 19 (Emphasis supplied.)

Under the American Constitution, the doctrine is expressed in the Eleventh Amendment which reads:

The Judicial power of the United States shall not be construed to extend to any suit in law or equity,
commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or
Subjects of any Foreign State.

In the case of Minucher v. Court of Appeals,20 we further expounded on the immunity of foreign states
from the jurisdiction of local courts, as follows:

The precept that a State cannot be sued in the courts of a foreign state is a long-standing rule of
customary international law then closely identified with the personal immunity of a foreign sovereign from
suit and, with the emergence of democratic states, made to attach not just to the person of the head of
state, or his representative, but also distinctly to the state itself in its sovereign capacity. If the acts giving
rise to a suit arc those of a foreign government done by its foreign agent, although not necessarily a
diplomatic personage, but acting in his official capacity, the complaint could be barred by the immunity of
the foreign sovereign from suit without its consent. Suing a representative of a state is believed to be, in
effect, suing the state itself. The proscription is not accorded for the benefit of an individual but for the
State, in whose service he is, under the maxim -par in parem, non habet imperium -that all states are
soverr~ign equals and cannot assert jurisdiction over one another. The implication, in broad terms, is that
if the judgment against an official would rec 1uire the state itself to perform an affirmative act to satisfy the
award, such as the appropriation of the amount needed to pay the damages decreed against him, the suit
must be regarded as being against the state itself, although it has not been formally
impleaded.21 (Emphasis supplied.)

In the same case we also mentioned that in the case of diplomatic immunity, the privilege is not an
immunity from the observance of the law of the territorial sovereign or from ensuing legal liability; it is,
rather, an immunity from the exercise of territorial jurisdiction.22

In United States of America v. Judge Guinto,23 one of the consolidated cases therein involved a Filipino
employed at Clark Air Base who was arrested following a buy-bust operation conducted by two officers of
the US Air Force, and was eventually dismissed from his employment when he was charged in court for
violation of R.A. No. 6425. In a complaint for damages filed by the said employee against the military
officers, the latter moved to dismiss the case on the ground that the suit was against the US Government
which had not given its consent. The RTC denied the motion but on a petition for certiorari and prohibition
filed before this Court, we reversed the RTC and dismissed the complaint. We held that petitioners US
military officers were acting in the exercise of their official functions when they conducted the buy-bust
operation against the complainant and thereafter testified against him at his trial. It follows that for
discharging their duties as agents of the United States, they cannot be directly impleaded for acts
imputable to their principal, which has not given its consent to be sued.

This traditional rule of State immunity which exempts a State from being sued in the courts of another
State without the former's consent or waiver has evolved into a restrictive doctrine which distinguishes
sovereign and governmental acts (Jure imperil") from private, commercial and proprietary acts (Jure
gestionis). Under the restrictive rule of State immunity, State immunity extends only to acts Jure imperii.
The restrictive application of State immunity is proper only when the proceedings arise out of commercial
transactions of the foreign sovereign, its commercial activities or economic affairs. 24

In Shauf v. Court of Appeals,25 we discussed the limitations of the State immunity principle, thus:

It is a different matter where the public official is made to account in his capacity as such for acts contrary
to law and injurious to the rights of plaintiff. As was clearly set forth by JustiGe Zaldivar in Director of the
Bureau of Telecommunications, et al. vs. Aligaen, etc., et al. : "Inasmuch as the State authorizes only
legal acts by its officers, unauthorized acts of government officials or officers are not acts of the State,
and an action against the officials or officers by one whose rights have been invaded or violated by such
acts, for the protection of his rights, is not a suit against the State within the rule of immunity of the State
from suit. In the same tenor, it has been said that an action at law or suit in equity against a State officer
or the director of a State department on the ground that, while claiming to act for the State, he violates or
invades the personal and property rights of the plaintiff, under an unconstitutional act or under an
assumption of authority which he does not have, is not a suit against the State within the constitutional
provision that the State may not be sued without its consent." The rationale for this ruling is that the
doctrine of state immunity cannot be used as an instrument for perpetrating an injustice.

xxxx

The aforecited authorities are clear on the matter. They state that the doctrine of immunity from suit will
not apply and may not be invoked where the public official is being sued in his private and personal
capacity as an ordinary citizen. The cloak of protection afforded the officers and agents of the government
is removed the moment they are sued in their individual capacity. This situation usually arises where the
public official acts without authority or in excess of the powers vested in him. It is a well-settled principle of
law that a public official may be liable in his personal private capacity for whatever damage he may have
caused by his act done with malice and in bad faith, or beyond the scope of his authority or
jurisdiction.26 (Emphasis supplied.) In this case, the US respondents were sued in their official capacity as
commanding officers of the US Navy who had control and supervision over the USS Guardian and its
crew. The alleged act or omission resulting in the unfortunate grounding of the USS Guardian on the
TRNP was committed while they we:re performing official military duties. Considering that the satisfaction
of a judgment against said officials will require remedial actions and appropriation of funds by the US
government, the suit is deemed to be one against the US itself. The principle of State immunity therefore
bars the exercise of jurisdiction by this Court over the persons of respondents Swift, Rice and Robling.

During the deliberations, Senior Associate Justice Antonio T. Carpio took the position that the conduct of
the US in this case, when its warship entered a restricted area in violation of R.A. No. 10067 and caused
damage to the TRNP reef system, brings the matter within the ambit of Article 31 of the United Nations
Convention on the Law of the Sea (UNCLOS). He explained that while historically, warships enjoy
sovereign immunity from suit as extensions of their flag State, Art. 31 of the UNCLOS creates an
exception to this rule in cases where they fail to comply with the rules and regulations of the coastal State
regarding passage through the latter's internal waters and the territorial sea.

According to Justice Carpio, although the US to date has not ratified the UNCLOS, as a matter of long-
standing policy the US considers itself bound by customary international rules on the "traditional uses of
the oceans" as codified in UNCLOS, as can be gleaned from previous declarations by former Presidents
Reagan and Clinton, and the US judiciary in the case of United States v. Royal Caribbean Cruise Lines,
Ltd.27

The international law of the sea is generally defined as "a body of treaty rules arid customary norms
governing the uses of the sea, the exploitation of its resources, and the exercise of jurisdiction over
maritime regimes. It is a branch of public international law, regulating the relations of states with respect
to the uses of the oceans."28 The UNCLOS is a multilateral treaty which was opened for signature on
December 10, 1982 at Montego Bay, Jamaica. It was ratified by the Philippines in 1984 but came into
force on November 16, 1994 upon the submission of the 60th ratification.

The UNCLOS is a product of international negotiation that seeks to balance State sovereignty (mare
clausum) and the principle of freedom of the high seas (mare liberum).29 The freedom to use the world's
marine waters is one of the oldest customary principles of international law. 30 The UNCLOS gives to the
coastal State sovereign rights in varying degrees over the different zones of the sea which are: 1) internal
waters, 2) territorial sea, 3) contiguous zone, 4) exclusive economic zone, and 5) the high seas. It also
gives coastal States more or less jurisdiction over foreign vessels depending on where the vessel is
located.31

Insofar as the internal waters and territorial sea is concerned, the Coastal State exercises sovereignty,
subject to the UNCLOS and other rules of international law. Such sovereignty extends to the air space
over the territorial sea as well as to its bed and subsoil.32

In the case of warships,33 as pointed out by Justice Carpio, they continue to enjoy sovereign immunity
subject to the following exceptions:

Article 30
Non-compliance by warships with the laws and regulations of the coastal State

If any warship does not comply with the laws and regulations of the coastal State concerning passage
through the territorial sea and disregards any request for compliance therewith which is made to it, the
coastal State may require it to leave the territorial sea immediately.

Article 31
Responsibility of the flag State for damage caused by a warship

or other government ship operated for non-commercial purposes

The flag State shall bear international responsibility for any loss or damage to the coastal State resulting
from the non-compliance by a warship or other government ship operated for non-commercial purposes
with the laws and regulations of the coastal State concerning passage through the territorial sea or with
the provisions of this Convention or other rules of international law.

Article 32
Immunities of warships and other government ships operated for non-commercial purposes

With such exceptions as are contained in subsection A and in articles 30 and 31, nothing in this
Convention affects the immunities of warships and other government ships operated for non-commercial
purposes. (Emphasis supplied.) A foreign warship's unauthorized entry into our internal waters with
resulting damage to marine resources is one situation in which the above provisions may apply. But what
if the offending warship is a non-party to the UNCLOS, as in this case, the US?

An overwhelming majority - over 80% -- of nation states are now members of UNCLOS, but despite this
the US, the world's leading maritime power, has not ratified it.

While the Reagan administration was instrumental in UNCLOS' negotiation and drafting, the U.S.
delegation ultimately voted against and refrained from signing it due to concerns over deep seabed
mining technology transfer provisions contained in Part XI. In a remarkable, multilateral effort to induce
U.S. membership, the bulk of UNCLOS member states cooperated over the succeeding decade to revise
the objection.able provisions. The revisions satisfied the Clinton administration, which signed the revised
Part XI implementing agreement in 1994. In the fall of 1994, President Clinton transmitted UNCLOS and
the Part XI implementing agreement to the Senate requesting its advice and consent. Despite consistent
support from President Clinton, each of his successors, and an ideologically diverse array of
stakeholders, the Senate has since withheld the consent required for the President to internationally bind
the United States to UNCLOS.

While UNCLOS cleared the Senate Foreign Relations Committee (SFRC) during the 108th and 110th
Congresses, its progress continues to be hamstrung by significant pockets of political ambivalence over
U.S. participation in international institutions. Most recently, 111 th Congress SFRC Chairman Senator
John Kerry included "voting out" UNCLOS for full Senate consideration among his highest priorities. This
did not occur, and no Senate action has been taken on UNCLOS by the 112th Congress. 34

Justice Carpio invited our attention to the policy statement given by President Reagan on March 10, 1983
that the US will "recognize the rights of the other , states in the waters off their coasts, as reflected in the
convention [UNCLOS], so long as the rights and freedom of the United States and others under
international law are recognized by such coastal states", and President Clinton's reiteration of the US
policy "to act in a manner consistent with its [UNCLOS] provisions relating to traditional uses of the
oceans and to encourage other countries to do likewise." Since Article 31 relates to the "traditional uses
of the oceans," and "if under its policy, the US 'recognize[s] the rights of the other states in the waters off
their coasts,"' Justice Carpio postulates that "there is more reason to expect it to recognize the rights of
other states in their internal waters, such as the Sulu Sea in this case."

As to the non-ratification by the US, Justice Carpio emphasizes that "the US' refusal to join the UN CLOS
was centered on its disagreement with UN CLOS' regime of deep seabed mining (Part XI) which
considers the oceans and deep seabed commonly owned by mankind," pointing out that such "has
nothing to do with its [the US'] acceptance of customary international rules on navigation."

It may be mentioned that even the US Navy Judge Advocate General's Corps publicly endorses the
ratification of the UNCLOS, as shown by the following statement posted on its official website:

The Convention is in the national interest of the United States because it establishes stable maritime
zones, including a maximum outer limit for territorial seas; codifies innocent passage, transit passage,
and archipelagic sea lanes passage rights; works against "jurisdictiomtl creep" by preventing coastal
nations from expanding their own maritime zones; and reaffirms sovereign immunity of warships,
auxiliaries anJ government aircraft.

xxxx

Economically, accession to the Convention would support our national interests by enhancing the ability
of the US to assert its sovereign rights over the resources of one of the largest continental shelves in the
world. Further, it is the Law of the Sea Convention that first established the concept of a maritime
Exclusive Economic Zone out to 200 nautical miles, and recognized the rights of coastal states to
conserve and manage the natural resources in this Zone.35

We fully concur with Justice Carpio's view that non-membership in the UNCLOS does not mean that the
US will disregard the rights of the Philippines as a Coastal State over its internal waters and territorial
sea. We thus expect the US to bear "international responsibility" under Art. 31 in connection with the USS
Guardian grounding which adversely affected the Tubbataha reefs. Indeed, it is difficult to imagine that
our long-time ally and trading partner, which has been actively supporting the country's efforts to preserve
our vital marine resources, would shirk from its obligation to compensate the damage caused by its
warship while transiting our internal waters. Much less can we comprehend a Government exercising
leadership in international affairs, unwilling to comply with the UNCLOS directive for all nations to
cooperate in the global task to protect and preserve the marine environment as provided in Article 197,
viz:

Article 197
Cooperation on a global or regional basis

States shall cooperate on a global basis and, as appropriate, on a regional basis, directly or through
competent international organizations, in formulating and elaborating international rules, standards and
recommended practices and procedures consistent with this Convention, for the protection and
preservation of the marine environment, taking into account characteristic regional features.

In fine, the relevance of UNCLOS provisions to the present controversy is beyond dispute. Although the
said treaty upholds the immunity of warships from the jurisdiction of Coastal States while navigating
the.latter's territorial sea, the flag States shall be required to leave the territorial '::;ea immediately if they
flout the laws and regulations of the Coastal State, and they will be liable for damages caused by their
warships or any other government vessel operated for non-commercial purposes under Article 31.

Petitioners argue that there is a waiver of immunity from suit found in the VFA. Likewise, they invoke
federal statutes in the US under which agencies of the US have statutorily waived their immunity to any
action. Even under the common law tort claims, petitioners asseverate that the US respondents are liable
for negligence, trespass and nuisance.

We are not persuaded.

The VFA is an agreement which defines the treatment of United States troops and personnel visiting the
Philippines to promote "common security interests" between the US and the Philippines in the region. It
provides for the guidelines to govern such visits of military personnel, and further defines the rights of the
United States and the Philippine government in the matter of criminal jurisdiction, movement of vessel
and aircraft, importation and exportation of equipment, materials and supplies. 36 The invocation of US
federal tort laws and even common law is thus improper considering that it is the VF A which governs
disputes involving US military ships and crew navigating Philippine waters in pursuance of the objectives
of the agreement.
As it is, the waiver of State immunity under the VF A pertains only to criminal jurisdiction and not to
special civil actions such as the present petition for issuance of a writ of Kalikasan. In fact, it can be
inferred from Section 17, Rule 7 of the Rules that a criminal case against a person charged with a
violation of an environmental law is to be filed separately:

SEC. 17. Institution of separate actions.-The filing of a petition for the issuance of the writ of kalikasan
shall not preclude the filing of separate civil, criminal or administrative actions.

In any case, it is our considered view that a ruling on the application or non-application of criminal
jurisdiction provisions of the VF A to US personnel who may be found responsible for the grounding of the
USS Guardian, would be premature and beyond the province of a petition for a writ of Kalikasan. We also
find it unnecessary at this point to determine whether such waiver of State immunity is indeed absolute. In
the same vein, we cannot grant damages which have resulted from the violation of environmental laws.
The Rules allows the recovery of damages, including the collection of administrative fines under R.A. No.
10067, in a separate civil suit or that deemed instituted with the criminal action charging the same
violation of an environmental law.37

Section 15, Rule 7 enumerates the reliefs which may be granted in a petition for issuance of a writ of
Kalikasan, to wit:

SEC. 15. Judgment.-Within sixty (60) days from the time the petition is submitted for decision, the court
shall render judgment granting or denying the privilege of the writ of kalikasan.

The reliefs that may be granted under the writ are the following:

(a) Directing respondent to permanently cease and desist from committing acts or neglecting the
performance of a duty in violation of environmental laws resulting in environmental destruction or
damage;

(b) Directing the respondent public official, govemment agency, private person or entity to protect,
preserve, rehabilitate or restore the environment;

(c) Directing the respondent public official, government agency, private person or entity to monitor
strict compliance with the decision and orders of the court;

(d) Directing the respondent public official, government agency, or private person or entity to
make periodic reports on the execution of the final judgment; and

(e) Such other reliefs which relate to the right of the people to a balanced and healthful ecology or
to the protection, preservation, rehabilitation or restoration of the environment, except the award
of damages to individual petitioners. (Emphasis supplied.)

We agree with respondents (Philippine officials) in asserting that this petition has become moot in the
sense that the salvage operation sought to be enjoined or restrained had already been accomplished
when petitioners sought recourse from this Court. But insofar as the directives to Philippine respondents
to protect and rehabilitate the coral reef stn icture and marine habitat adversely affected by the grounding
incident are concerned, petitioners are entitled to these reliefs notwithstanding the completion of the
removal of the USS Guardian from the coral reef. However, we are mindful of the fact that the US and
Philippine governments both expressed readiness to negotiate and discuss the matter of compensation
for the damage caused by the USS Guardian. The US Embassy has also declared it is closely
coordinating with local scientists and experts in assessing the extent of the damage and appropriate
methods of rehabilitation.
Exploring avenues for settlement of environmental cases is not proscribed by the Rules. As can be
gleaned from the following provisions, mediation and settlement are available for the consideration of the
parties, and which dispute resolution methods are encouraged by the court, to wit:

RULE3

xxxx

SEC. 3. Referral to mediation.-At the start of the pre-trial conference, the court shall inquire from the
parties if they have settled the dispute; otherwise, the court shall immediately refer the parties or their
counsel, if authorized by their clients, to the Philippine Mediation Center (PMC) unit for purposes of
mediation. If not available, the court shall refer the case to the clerk of court or legal researcher for
mediation.

Mediation must be conducted within a non-extendible period of thirty (30) days from receipt of notice of
referral to mediation.

The mediation report must be submitted within ten (10) days from the expiration of the 30-day period.

SEC. 4. Preliminary conference.-If mediation fails, the court will schedule the continuance of the pre-trial.
Before the scheduled date of continuance, the court may refer the case to the branch clerk of court for a
preliminary conference for the following purposes:

(a) To assist the parties in reaching a settlement;

xxxx

SEC. 5. Pre-trial conference; consent decree.-The judge shall put the parties and their counsels under
oath, and they shall remain under oath in all pre-trial conferences.

The judge shall exert best efforts to persuade the parties to arrive at a settlement of the dispute. The
judge may issue a consent decree approving the agreement between the parties in accordance with law,
morals, public order and public policy to protect the right of the people to a balanced and healthful
ecology.

xxxx

SEC. 10. Efforts to settle.- The court shall endeavor to make the parties to agree to compromise or settle
in accordance with law at any stage of the proceedings before rendition of judgment. (Underscoring
supplied.)

The Court takes judicial notice of a similar incident in 2009 when a guided-missile cruiser, the USS Port
Royal, ran aground about half a mile off the Honolulu Airport Reef Runway and remained stuck for four
days. After spending $6.5 million restoring the coral reef, the US government was reported to have paid
the State of Hawaii $8.5 million in settlement over coral reef damage caused by the grounding. 38

To underscore that the US government is prepared to pay appropriate compensation for the damage
caused by the USS Guardian grounding, the US Embassy in the Philippines has announced the formation
of a US interdisciplinary scientific team which will "initiate discussions with the Government of the
Philippines to review coral reef rehabilitation options in Tubbataha, based on assessments by Philippine-
based marine scientists." The US team intends to "help assess damage and remediation options, in
coordination with the Tubbataha Management Office, appropriate Philippine government entities, non-
governmental organizations, and scientific experts from Philippine universities."39
A rehabilitation or restoration program to be implemented at the cost of the violator is also a major relief
that may be obtained under a judgment rendered in a citizens' suit under the Rules, viz:

RULES

SECTION 1. Reliefs in a citizen suit.-If warranted, the court may grant to the plaintiff proper reliefs which
shall include the protection, preservation or rehabilitation of the environment and the payment of
attorney's fees, costs of suit and other litigation expenses. It may also require the violator to submit a
program of rehabilitation or restoration of the environment, the costs of which shall be borne by the
violator, or to contribute to a special trust fund for that purpose subject to the control of the court.1âwphi1

In the light of the foregoing, the Court defers to the Executive Branch on the matter of compensation and
rehabilitation measures through diplomatic channels. Resolution of these issues impinges on our relations
with another State in the context of common security interests under the VFA. It is settled that "[t]he
conduct of the foreign relations of our government is committed by the Constitution to the executive and
legislative-"the political" --departments of the government, and the propriety of what may be done in the
exercise of this political power is not subject to judicial inquiry or decision." 40

On the other hand, we cannot grant the additional reliefs prayed for in the petition to order a review of the
VFA and to nullify certain immunity provisions thereof.

As held in BAYAN (Bagong Alyansang Makabayan) v. Exec. Sec. Zamora,41 the VFA was duly concurred
in by the Philippine Senate and has been recognized as a treaty by the United States as attested and
certified by the duly authorized representative of the United States government. The VF A being a valid
and binding agreement, the parties are required as a matter of international law to abide by its terms and
provisions.42 The present petition under the Rules is not the proper remedy to assail the constitutionality
of its provisions. WHEREFORE, the petition for the issuance of the privilege of the Writ of Kalikasan is
hereby DENIED.

No pronouncement as to costs.

SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:

See Concurring Opinion

MARIA LOURDES P. A. SERENO
Chief Justice

ANTONIO T. CARPIO PRESBITERO J. VELASCO, JR.

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 JOSE PORTUGAL PEREZ
Associate Justice Associate Justice

(On official leave)

BIENVENIDO L. REYES
JOSE CATRAL MENDOZA*
Associate Justice
Associate Justice

See Separate Concurring Opinion

ESTELA M. PERLAS-BERNABE
MARVIC M.V.F. LEONEN
Associate Justice
Associate Justice

(No Part)
FRANCIS H. JARDELEZA**
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the 1987 Constitution, 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 Court.

MARIA LOURDES P. A. SERENO

Chief Justice
 FIRST DIVISION

G.R. No. 125865 - March 26, 2001

JEFFREY LIANG (HUEFENG), Petitioner, v. PEOPLE OF THE PHILIPPINES, respondent.

RESOLUTION

YNARES-SANTIAGO, J.:

This resolves petitioner's Motion for Reconsideration of our Decision dated January 28, 2000, denying the
petition for review.

The Motion is anchored on the following arguments:

1) THE DFA'S DETERMINATION OF IMMUNITY IS A POLITICAL QUESTION TO BE MADE BY THE

EXECUTIVE BRANCH OF THE GOVERNMENT AND IS CONCLUSIVE UPON THE COURTS.

2) THE IMMUNITY OF INTERNATIONAL ORGANIZATIONS IS ABSOLUTE.

3) THE IMMUNITY EXTENDS TO ALL STAFF OF THE ASIAN DEVELOPMENT BANK (ADB).

4) DUE PROCESS WAS FULLY AFFORDED THE COMPLAINANT TO REBUT THE DFA PROTOCOL.

5) THE DECISION OF JANUARY 28, 2000 ERRONEOUSLY MADE A FINDING OF FACT ON THE
MERITS, NAMELY, THE SLANDERING OF A PERSON WHICH PREJUDGED PETITIONER'S CASE
BEFORE THE METROPOLITAN TRIAL COURT (MTC)-MANDALUYONG.

6) THE VIENNA CONVENTION ON DIPLOMATIC RELATIONS IS NOT APPLICABLE TO THIS CASE.

This case has its origin in two criminal Informations1 for grave oral defamation filed against petitioner, a
Chinese national who was employed as an Economist by the Asian Development Bank (ADB), alleging
that on separate occasions on January 28 and January 31, 1994, petitioner allegedly uttered defamatory
words to Joyce V. Cabal, a member of the clerical staff of ADB. On April 13, 1994, the Metropolitan Trial
Court of Mandaluyong City, acting pursuant to an advice from the Department of Foreign Affairs that
petitioner enjoyed immunity from legal processes, dismissed the criminal Informations against him. On a
petition for certiorari and mandamus filed by the People, the Regional Trial Court of Pasig City, Branch
160, annulled and set aside the order of the Metropolitan Trial Court dismissing the criminal cases. 2

Petitioner, thus, brought a petition for review with this Court. On January 28, 2000, we rendered the
assailed Decision denying the petition for review. We ruled, in essence, that the immunity granted to
officers and staff of the ADB is not absolute; it is limited to acts performed in an official capacity.
Furthermore, we held that the immunity cannot cover the commission of a crime such as slander or oral
defamation in the name of official duty.
On October 18, 2000, the oral arguments of the parties were heard. This Court also granted the Motion
for Intervention of the Department of Foreign Affairs. Thereafter, the parties were directed to submit their
respective memorandum.

For the most part, petitioner's Motion for Reconsideration deals with the diplomatic immunity of the ADB,
its officials and staff, from legal and judicial processes in the Philippines, as well as the constitutional and
political bases thereof. It should be made clear that nowhere in the assailed Decision is diplomatic
immunity denied, even remotely. The issue in this case, rather, boils down to whether or not the
statements allegedly made by petitioner were uttered while in the performance of his official functions, in
order for this case to fall squarely under the provisions of Section 45 (a) of the "Agreement Between the
Asian Development Bank and the Government of the Republic of the Philippines Regarding the
Headquarters of the Asian Development Bank," to wit:

Officers and staff of the Bank, including for the purpose of this Article experts and consultants performing
missions for the Bank, shall enjoy the following privileges and immunities:

(a) Immunity from legal process with respect to acts performed by them in their official capacity except
when the Bank waives the immunity.

After a careful deliberation of the arguments raised in petitioner's and intervenor's Motions for
Reconsideration, we find no cogent reason to disturb our Decision of January 28, 2000. As we have
stated therein, the slander of a person, by any stretch, cannot be considered as falling within the purview
of the immunity granted to ADB officers and personnel. Petitioner argues that the Decision had the effect
of prejudging the criminal case for oral defamation against him. We wish to stress that it did not. What we
merely stated therein is that slander, in general, cannot be considered as an act performed in an official
capacity. The issue of whether or not petitioner's utterances constituted oral defamation is still for the trial
court to determine.

WHEREFORE, in view of the foregoing, the Motions for Reconsideration filed by petitioner and intervenor
Department of Foreign Affairs are DENIED with FINALITY.

SO ORDERED.

Kapunan and Pardo, JJ ., concur.

Davide, Jr., C.J., I also join concurring opinion of Mr. Justice Puno.
Puno, J., Please see concurring opinion.

Concurring Opinions

PUNO, J., concurring:

For resolution is the Motion for Reconsideration filed by petitioner Jeffrey Liang of this Court's decision
dated January 28, 2000 which denied the petition for review. We there held that: the protocol
communication of the Department of Foreign Affairs to the effect that petitioner Liang is covered by
immunity is only preliminary and has no binding effect in courts; the immunity provided for under Section
45(a) of the Headquarters Agreement is subject to the condition that the act be done in an "official
capacity"; that slandering a person cannot be said to have been done in an "official capacity" and, hence,
it is not covered by the immunity agreement; under the Vienna Convention on Diplomatic Relations, a
diplomatic agent, assuming petitioner is such, enjoys immunity from criminal jurisdiction of the receiving
state except in the case of an action relating to any professional or commercial activity exercised by the
diplomatic agent in the receiving state outside his official functions; the commission of a crime is not part
of official duty; and that a preliminary investigation is not a matter of right in cases cognizable by the
Metropolitan Trial Court.

Petitioner's motion for reconsideration is anchored on the following arguments:

1. The DFA's determination of immunity is a political question to be made by the executive branch of the
government and is conclusive upon the courts;

2. The immunity of international organizations is absolute;

3. The immunity extends to all staff of the Asian Development Bank (ADB);

4. Due process was fully accorded the complainant to rebut the DFA protocol;

5. The decision of January 28, 2000 erroneously made a finding of fact on the merits, namely, the
slandering of a person which prejudged petitioner's case before the Metropolitan Trial Court (MTC)
Mandaluyong; and

6. The Vienna Convention on diplomatic relations is not applicable to this case.

Petitioner contends that a determination of a person's diplomatic immunity by the Department of Foreign
Affairs is a political question. It is solely within the prerogative of the executive department and is
conclusive upon the courts. In support of his submission, petitioner cites the following cases: WHO vs.
Aquino;1 International Catholic Migration Commission vs. Calleja;2 The Holy See vs. Rosario, Jr.;3Lasco
vs. United Nations;4 and DFA vs. NLRC.5

It is further contended that the immunity conferred under the ADB Charter and the Headquarters
Agreement is absolute. It is designed to safeguard the autonomy and independence of international
organizations against interference from any authority external to the organizations. It is necessary to allow
such organizations to discharge their entrusted functions effectively. The only exception to this immunity
is when there is an implied or express waiver or when the immunity is expressly limited by statute. The
exception allegedly has no application to the case at bar.

Petitioner likewise urges that the international organization's immunity from local jurisdiction empowers
the ADB alone to determine what constitutes "official acts" and the same cannot be subject to different
interpretations by the member states. It asserts that the Headquarters Agreement provides for remedies
to check abuses against the exercise of the immunity. Thus, Section 49 states that the "Bank shall waive
the immunity accorded to any person if, in its opinion, such immunity would impede the course of justice
and the waiver would not prejudice the purposes for which the immunities are accorded." Section 51
allows for consultation between the government and the Bank should the government consider that an
abuse has occurred. The same section provides the mechanism for a dispute settlement regarding,
among others, issues of interpretation or application of the agreement.

Petitioner's argument that a determination by the Department of Foreign Affairs that he is entitled to
diplomatic immunity is a political question binding on the courts, is anchored on the ruling enunciated in
the case of WHO, et al. vs. Aquino, et al.,6 viz:

"It is a recognized principle of international law and under our system of separation of powers that
diplomatic immunity is essentially a political question and courts should refuse to look beyond a
determination by the executive branch of the government, and where the plea of diplomatic immunity is
recognized and affirmed by the executive branch of the government as in the case at bar, it is then the
duty of the courts to accept the claim of immunity upon appropriate suggestion by the principal law officer
of the government, the Solicitor General in this case, or other officer acting under his direction. Hence, in
adherence to the settled principle that courts may not so exercise their jurisdiction by seizure and
detention of property, as to embarrass the executive arm of the government in conducting foreign
relations, it is accepted doctrine that in such cases the judicial department of the government follows the
action of the political branch and will not embarrass the latter by assuming an antagonistic jurisdiction."

This ruling was reiterated in the subsequent cases of International Catholic Migration Commission vs.
Calleja;7 The Holy See vs. Rosario, Jr.;8 Lasco vs. UN;9 and DFA vs. NLRC.10

The case of WHO vs. Aquino involved the search and seizure of personal effects of petitioner Leonce
Verstuyft, an official of the WHO. Verstuyft was certified to be entitled to diplomatic immunity pursuant to
the Host Agreement executed between the Philippines and the WHO.

ICMC vs. Calleja concerned a petition for certification election filed against ICMC and IRRI. As
international organizations, ICMC and IRRI were declared to possess diplomatic immunity. It was held
that they are not subject to local jurisdictions. It was ruled that the exercise of jurisdiction by the
Department of Labor over the case would defeat the very purpose of immunity, which is to shield the
affairs of international organizations from political pressure or control by the host country and to ensure
the unhampered performance of their functions.

Holy See v. Rosario, Jr. involved an action for annulment of sale of land against the Holy See, as
represented by the Papal Nuncio. The Court upheld the petitioner's defense of sovereign immunity. It
ruled that where 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, with
all the more reason should immunity be recognized as regards the sovereign itself, which in that case is
the Holy See.

In Lasco vs. United Nations, the United Nations Revolving Fund for Natural Resources Exploration was
sued before the NLRC for illegal dismissal. The Court again upheld the doctrine of diplomatic immunity
invoked by the Fund.

Finally, DFA v. NLRC involved an illegal dismissal case filed against the Asian Development Bank.
Pursuant to its Charter and the Headquarters Agreement, the diplomatic immunity of the Asian
Development Bank was recognized by the Court.

It bears to stress that all of these cases pertain to the diplomatic immunity enjoyed by international
organizations. Petitioner asserts that he is entitled to the same diplomatic immunity and he cannot be
prosecuted for acts allegedly done in the exercise of his official functions.

The term "international organizations" -

"is generally used to describe an organization set up by agreement between two or more states. Under
contemporary international law, such organizations are endowed with some degree of international legal
personality such that they are capable of exercising specific rights, duties and powers. They are
organized mainly as a means for conducting general international business in which the member states
have an interest."11

International public officials have been defined as:

". . . persons who, on the basis of an international treaty constituting a particular international community,
are appointed by this international community, or by an organ of it, and are under its control to exercise,
in a continuous way, functions in the interest of this particular international community, and who are
subject to a particular personal status."12
"Specialized agencies" are international organizations having functions in particular fields, such as posts,
telecommunications, railways, canals, rivers, sea transport, civil aviation, meteorology, atomic energy,
finance, trade, education and culture, health and refugees.13

Issues

1. Whether petitioner Liang, as an official of an international organization, is entitled to diplomatic

immunity;

2. Whether an international official is immune from criminal jurisdiction for all acts, whether private or
official;

3. Whether the authority to determine if an act is official or private is lodged in the courts;

4. Whether the certification by the Department of Foreign Affairs that petitioner is covered by immunity is
a political question that is binding and conclusive on the courts.

Discussion

A perusal of the immunities provisions in various international conventions and agreements will show
that the nature and degree of immunities vary depending on who the recipient is. Thus:

1. Charter of the United Nations

"Article 105 (1): The Organization shall enjoy in the territory of each of its Members such privileges and
immunities as are necessary for the fulfillment of its purposes.

Article 105 (2): Representatives of the Members of the United Nations and officials of the Organization
shall similarly enjoy such privileges and immunities as are necessary for the independent exercise of their
functions in connection with the Organization."

2. Convention on the Privileges and Immunities of the United Nations

"Section 2: The United Nations, its property and assets wherever located and by whomsoever held, shall
enjoy immunity from every form of legal process except insofar as in any particular case it has expressly
waived its immunity. It is, however, understood that no waiver of immunity shall extend to any measure of
execution.

xxx xxx xxx

Section 11 (a): Representatives of Members to the principal and subsidiary organs of the United Nations .
. shall . . . enjoy . . . immunity from personal arrest or detention and from seizure of their personal
baggage, and, in respect of words spoken or written and all acts done by them in their capacity as
representatives, immunity from legal process of every kind.

xxx xxx xxx

Section 14: Privileges and immunities are accorded to the representatives of Members not for the
personal benefit of the individuals themselves, but in order to safeguard the independent exercise of their
functions in connection with the United Nations. Consequently, a Member not only has the right but is
under a duty to waive the immunity of its representative in any case where in the opinion of the Member
the immunity would impede the course of justice, and it can be waived without prejudice to the purpose
for which the immunity is accorded.

xxx xxx xxx

Section 18 (a): Officials of the United Nations shall be immune from legal process in respect of words
spoken or written and all acts performed by them in their official capacity.

xxx xxx xxx

Section 19: In addition to the immunities and privileges specified in Section 18, the Secretary-General
and all Assistant Secretaries-General shall be accorded in respect of themselves, their spouses and
minor children, the privileges and immunities, exemptions and facilities accorded to diplomatic envoys, in
accordance with international law.

Section 20: Privileges and immunities are granted to officials in the interest of the United Nations and not
for the personal benefit of the individuals themselves. The Secretary-General shall have the right and the
duty to waive the immunity of any official in any case where, in his opinion, the immunity would impede
the course of justice and can be waived without prejudice to the interests of the United Nations.

xxx xxx xxx

Section 22: Experts . . . performing missions for the United Nations . . . shall be accorded: (a) immunity
from personal arrest or detention and from seizure of their personal baggage; (b) in respect of words
spoken or written and acts done by them in the course of the performance of their mission, immunity from
legal process of every kind."

3. Vienna Convention on Diplomatic Relations

"Article 29: The person of a diplomatic agent shall be inviolable. He shall not be liable to any form of
arrest or detention. The receiving State shall treat him with due respect and shall take all appropriate
steps to prevent any attack on his person, freedom, or dignity.

xxx xxx xxx

Article 31 (1): A diplomatic agent shall enjoy immunity from the criminal jurisdiction of the receiving State.
He shall also enjoy immunity from its civil and administrative jurisdiction, except in certain cases.

xxx xxx xxx

Article 38 (1): Except in so far as additional privileges and immunities may be granted by the receiving
State, a diplomatic agent who is a national of or permanently a resident in that State shall enjoy only
immunity from jurisdiction, and inviolability, in respect of official acts performed in the exercise of his
functions."

4. Vienna Convention on Consular Relations

"Article 41 (1): Consular officials shall not be liable to arrest or detention pending trial, except in the case
of a grave crime and pursuant to a decision by the competent judicial authority.

xxx xxx xxx

Article 43 (1): Consular officers and consular employees shall not be amenable to the jurisdiction of the
judicial or administrative authorities of the receiving State in respect of acts performed in the exercise of
consular functions.

Article 43 (2): The provisions of paragraph 1 of this Article shall not, however, apply in respect of a civil
action either: (a) arising out of a contract concluded by a consular officer or a consular employee in which
he did not contract expressly or impliedly as an agent of the sending State; or (b) by a third party for
damage arising from an accident in the receiving State caused by a vehicle, vessel or aircraft."

5. Convention on the Privileges and Immunities of the Specialized Agencies

"Section 4: The specialized agencies, their property and assets, wherever located and by whomsoever
held, shall enjoy immunity from every form of legal process except in so far as in any particular case they
have expressly waived their immunity. It is, however, understood that no waiver of immunity shall extend
to any measure of execution.

Section 13 (a): Representatives of members at meetings convened by a specialized agency shall, while
exercising their functions and during their journeys to and from the place of meeting, enjoy immunity from
personal arrest or detention and from seizure of their personal baggage, and in respect of words spoken
or written and all acts done by them in their official capacity, immunity from legal process of every kind.

xxx xxx xxx

Section 19 (a): Officials of the specialized agencies shall be immune from legal process in respect of
words spoken or written and all acts performed by them in their official capacity.

xxx xxx xxx

Section 21: In addition to the immunities and privileges specified in sections 19 and 20, the executive
head of each specialized agency, including a any official acting on his behalf during his absence from
duty, shall be accorded in respect of himself, his spouse and minor children, the privileges and
immunities, exemptions and facilities accorded to diplomatic envoys, in accordance with international
law."

6. Charter of the ADB

"Article 50 (1): The Bank shall enjoy immunity from every form of legal process, except in cases arising
out of or in connection with the exercise of its powers to borrow money, to guarantee obligations, or to
buy and sell or underwrite the sale of securities, in which cases actions may be brought against the Bank
in a court of competent jurisdiction in the territory of a country in which the Bank has its principal or a
branch office, or has appointed an agent for the purpose of accepting service or notice of process, or has
issued or guaranteed securities.

xxx xxx xxx

Article 55 (i): All Governors, Directors, alternates, officers and employees of the Bank, including experts
performing missions for the Bank shall be immune from legal process with respect to acts performed by
them in their official capacity, except when the Bank waives the immunity."

7. ADB Headquarters Agreement

"Section 5: The Bank shall enjoy immunity from every form of legal process, except in cases arising out of
or in connection with the exercise of its powers to borrow money, to guarantee obligations, or to buy and
sell or underwrite the sale of securities, in which cases actions may be brought against the Bank in a
court of competent jurisdiction in the Republic of the Philippines.

xxx xxx xxx

Section 44: Governors, other representatives of Members, Directors, the President, Vice-President and
executive officers as may be agreed upon between the Government and the Bank shall enjoy, during their
stay in the Republic of the Philippines in connection with their official duties with the Bank: (a) immunity
from personal arrest or detention and from seizure of their personal baggage; (b) immunity from legal
process of every kind in respect of words spoken or written and all acts done by them in their official
capacity; and (c) in respect of other matters not covered in (a) and (b) above, such other immunities,
exemptions, privileges and facilities as are enjoyed by members of diplomatic missions of comparable
rank, subject to corresponding conditions and obligations.

Section 45 (a): Officers and staff of the Bank, including for the purposes of this Article experts and
consultants performing missions for the Bank, shall enjoy . . . immunity from legal process with respect to
acts performed by them in their official capacity, except when the Bank waives the immunity."

II

There are three major differences between diplomatic and international immunities. Firstly, one of the
recognized limitations of diplomatic immunity is that members of the diplomatic staff of a mission may be
appointed from among the nationals of the receiving State only with the express consent of that State;
apart from inviolability and immunity from jurisdiction in respect of official acts performed in the exercise of
their functions, nationals enjoy only such privileges and immunities as may be granted by the receiving
State. International immunities may be specially important in relation to the State of which the official is a
national. Secondly, the immunity of a diplomatic agent from the jurisdiction of the receiving State does not
exempt him from the jurisdiction of the sending State; in the case of international immunities there is no
sending State and an equivalent for the jurisdiction of the Sending State therefore has to be found either
in waiver of immunity or in some international disciplinary or judicial procedure. Thirdly, the effective
sanctions which secure respect for diplomatic immunity are the principle of reciprocity and the danger of
retaliation by the aggrieved State; international immunities enjoy no similar protection.14

The generally accepted principles which are now regarded as the foundation of international immunities
are contained in the ILO Memorandum, which reduced them in three basic propositions, namely: (1) that
international institutions should have a status which protects them against control or interference by any
one government in the performance of functions for the effective discharge of which they are responsible
to democratically constituted international bodies in which all the nations concerned are represented; (2)
that no country should derive any financial advantage by levying fiscal charges on common international
funds; and (3) that the international organization should, as a collectivity of States Members, be accorded
the facilities for the conduct of its official business customarily extended to each other by its individual
member States. The thinking underlying these propositions is essentially institutional in character. It is not
concerned with the status, dignity or privileges of individuals, but with the elements of functional
independence necessary to free international institutions from national control and to enable them to
discharge their responsibilities impartially on behalf of all their members.15

III

Positive international law has devised three methods of granting privileges and immunities to the
personnel of international organizations. The first is by simple conventional stipulation, as was the case in
the Hague Conventions of 1899 and 1907. The second is by internal legislation whereby the government
of a state, upon whose territory the international organization is to carry out its functions, recognizes the
international character of the organization and grants, by unilateral measures, certain privileges and
immunities to better assure the successful functioning of the organization and its personnel. In this
situation, treaty obligation for the state in question to grant concessions is lacking. Such was the case
with the Central Commission of the Rhine at Strasbourg and the International Institute of Agriculture at
Rome. The third is a combination of the first two. In this third method, one finds a conventional obligation
to recognize a certain status of an international organization and its personnel, but the status is described
in broad and general terms. The specific definition and application of those general terms are determined
by an accord between the organization itself and the state wherein it is located. This is the case with the
League of Nations, the Permanent Court of Justice, and the United Nations.16

The Asian Development Bank and its Personnel fall under this third category.

There is a connection between diplomatic privileges and immunities and those extended to international
officials. The connection consists in the granting, by contractual provisions, of the relatively well-
established body of diplomatic privileges and immunities to international functionaries. This connection is
purely historical. Both types of officials find the basis of their special status in the necessity of retaining
functional independence and freedom from interference by the state of residence. However, the legal
relationship between an ambassador and the state to which he is accredited is entirely different from the
relationship between the international official and those states upon whose territory he might carry out his
functions.17

The privileges and immunities of diplomats and those of international officials rest upon different legal
foundations. Whereas those immunities awarded to diplomatic agents are a right of the sending state
based on customary international law, those granted to international officials are based on treaty or
conventional law. Customary international law places no obligation on a state to recognize a special
status of an international official or to grant him jurisdictional immunities. Such an obligation can only
result from specific treaty provisions.18

The special status of the diplomatic envoy is regulated by the principle of reciprocity by which a state is
free to treat the envoy of another state as its envoys are treated by that state. The juridical basis of the
diplomat's position is firmly established in customary international law. The diplomatic envoy is appointed
by the sending State but it has to make certain that the agreement of the receiving State has been given
for the person it proposes to accredit as head of the mission to that State. 19

The staff personnel of an international organization - the international officials - assume a different
position as regards their special status. They are appointed or elected to their position by the organization
itself, or by a competent organ of it; they are responsible to the organization and their official acts are
imputed to it. The juridical basisof their special position is found in conventional law,20 since there is no
established basis of usage or custom in the case of the international official. Moreover, the relationship
between an international organization and a member-state does not admit of the principle of
reciprocity,21 for it is contradictory to the basic principle of equality of states. An international organization
carries out functions in the interest of every member state equally. The international official does not carry
out his functions in the interest of any state, but in serving the organization he serves, indirectly, each
state equally. He cannot be, legally, the object of the operation of the principle of reciprocity between
states under such circumstances. It is contrary to the principle of equality of states for one state member
of an international organization to assert a capacity to extract special privileges for its nationals from other
member states on the basis of a status awarded by it to an international organization. It is upon this
principle of sovereign equality that international organizations are built.

It follows from this same legal circumstance that a state called upon to admit an official of an international
organization does not have a capacity to declare him persona non grata.

The functions of the diplomat and those of the international official are quite different. Those of the
diplomat are functions in the national interest. The task of the ambassador is to represent his state, and
its specific interest, at the capital of another state. The functions of the international official are carried out
in the international interest. He does not represent a state or the interest of any specific state. He does
not usually "represent" the organization in the true sense of that term. His functions normally are
administrative, although they may be judicial or executive, but they are rarely political or functions of
representation, such as those of the diplomat.

There is a difference of degree as well as of kind. The interruption of the activities of a diplomatic agent is
likely to produce serious harm to the purposes for which his immunities were granted. But the interruption
of the activities of the international official does not, usually, cause serious dislocation of the functions of
an international secretariat.22

On the other hand, they are similar in the sense that acts performed in an official capacity by either a
diplomatic envoy or an international official are not attributable to him as an individual but are imputed to
the entity he represents, the state in the case of the diplomat, and the organization in the case of the
international official.23

IV

Looking back over 150 years of privileges and immunities granted to the personnel of international
organizations, it is clear that they were accorded a wide scope of protection in the exercise of their
functions - The Rhine Treaty of 1804 between the German Empire and France which provided "all the
rights of neutrality" to persons employed in regulating navigation in the international interest; The Treaty
of Berlin of 1878 which granted the European Commission of the Danube "complete independence of
territorial authorities" in the exercise of its functions; The Covenant of the League which granted
"diplomatic immunities and privileges." Today, the age of the United Nations finds the scope of protection
narrowed. The current tendency is to reduce privileges and immunities of personnel of international
organizations to a minimum. The tendency cannot be considered as a lowering of the standard but rather
as a recognition that the problem on the privileges and immunities of international officials is new. The
solution to the problem presented by the extension of diplomatic prerogatives to international
functionaries lies in the general reduction of the special position of both types of agents in that the special
status of each agent is granted in the interest of function. The wide grant of diplomatic prerogatives was
curtailed because of practical necessity and because the proper functioning of the organization did not
require such extensive immunity for its officials. While the current direction of the law seems to be to
narrow the prerogatives of the personnel of international organizations, the reverse is true with respect to
the prerogatives of the organizations themselves, considered as legal entities. Historically, states have
been more generous in granting privileges and immunities to organizations than they have to the
personnel of these organizations.24

Thus, Section 2 of the General Convention on the Privileges and Immunities of the United Nations states
that the UN shall enjoy immunity from every form of legal process except insofar as in any particular case
it has expressly waived its immunity. Section 4 of the Convention on the Privileges and Immunities of the
Specialized Agencies likewise provides that the specialized agencies shall enjoy immunity from every
form of legal process subject to the same exception. Finally, Article 50(1) of the ADB Charter and Section
5 of the Headquarters Agreement similarly provide that the bank shall enjoy immunity from every form of
legal process, except in cases arising out of or in connection with the exercise of its powers to borrow
money, to guarantee obligations, or to buy and sell or underwrite the sale of securities.

The phrase "immunity from every form of legal process" as used in the UN General Convention has been
interpreted to mean absolute immunity from a state's jurisdiction to adjudicate or enforce its law by legal
process, and it is said that states have not sought to restrict that immunity of the United Nations by
interpretation or amendment. Similar provisions are contained in the Special Agencies Convention as well
as in the ADB Charter and Headquarters Agreement. These organizations were accorded privileges and
immunities in their charters by language similar to that applicable to the United Nations. It is clear
therefore that these organizations were intended to have similar privileges and immunities. 25 From this, it
can be easily deduced that international organizations enjoy absolute immunity similar to the diplomatic
prerogatives granted to diplomatic envoys.
Even in the United States this theory seems to be the prevailing rule. The Foreign Sovereign Immunities
Act was passed adopting the "restrictive theory" limiting the immunity of states under international law
essentially to activities of a kind not carried on by private persons. Then the International Organizations
Immunities Act came into effect which gives to designated international organizations the same immunity
from suit and every form of judicial process as is enjoyed by foreign governments. This gives the
impression that the Foreign Sovereign Immunities Act has the effect of applying the restrictive theory also
to international organizations generally. However, aside from the fact that there was no indication in its
legislative history that Congress contemplated that result, and considering that the Convention on
Privileges and Immunities of the United Nations exempts the United Nations "from every form of legal
process," conflict with the United States obligations under the Convention was sought to be avoided by
interpreting the Foreign Sovereign Immunities Act, and the restrictive theory, as not applying to suits
against the United Nations.26

On the other hand, international officials are governed by a different rule. Section 18(a) of the General
Convention on Privileges and Immunities of the United Nations states that officials of the United Nations
shall be immune from legal process in respect of words spoken or written and all acts performed by them
in their official capacity. The Convention on Specialized Agencies carries exactly the same provision. The
Charter of the ADB provides under Article 55(i) that officers and employees of the bank shall be immune
from legal process with respect to acts performed by them in their official capacity except when the Bank
waives immunity. Section 45 (a) of the ADB Headquarters Agreement accords the same immunity to the
officers and staff of the bank. There can be no dispute that international officials are entitled to immunity
only with respect to acts performed in their official capacity, unlike international organizations which enjoy
absolute immunity.

Clearly, the most important immunity to an international official, in the discharge of his international
functions, is immunity from local jurisdiction. There is no argument in doctrine or practice with the principle
that an international official is independent of the jurisdiction of the local authorities for his official acts.
Those acts are not his, but are imputed to the organization, and without waiver the local courts cannot
hold him liable for them. In strict law, it would seem that even the organization itself could have no right to
waive an official's immunity for his official acts. This permits local authorities to assume jurisdiction over
an individual for an act which is not, in the wider sense of the term, his act at all. It is the organization
itself, as a juristic person, which should waive its own immunity and appear in court, not the individual,
except insofar as he appears in the name of the organization. Provisions for immunity from jurisdiction for
official acts appear, aside from the aforementioned treatises, in the constitution of most modern
international organizations. The acceptance of the principle is sufficiently widespread to be regarded as
declaratory of international law.27

What then is the status of the international official with respect to his private acts?

Section 18 (a) of the General Convention has been interpreted to mean that officials of the specified
categories are denied immunity from local jurisdiction for acts of their private life and empowers local
courts to assume jurisdiction in such cases without the necessity of waiver.28 It has earlier been
mentioned that historically, international officials were granted diplomatic privileges and immunities and
were thus considered immune for both private and official acts. In practice, this wide grant of diplomatic
prerogatives was curtailed because of practical necessity and because the proper functioning of the
organization did not require such extensive immunity for its officials. Thus, the current status of the law
does not maintain that states grant jurisdictional immunity to international officials for acts of their private
lives.29 This much is explicit from the Charter and Headquarters Agreement of the ADB which contain
substantially similar provisions to that of the General Convention.

VI
Who is competent to determine whether a given act is private or official?

This is an entirely different question. In connection with this question, the current tendency to narrow the
scope of privileges and immunities of international officials and representatives is most apparent. Prior to
the regime of the United Nations, the determination of this question rested with the organization and its
decision was final. By the new formula, the state itself tends to assume this competence. If the
organization is dissatisfied with the decision, under the provisions of the General Convention of the
United States, or the Special Convention for Specialized Agencies, the Swiss Arrangement, and other
current dominant instruments, it may appeal to an international tribunal by procedures outlined in those
instruments. Thus, the state assumes this competence in the first instance. It means that, if a local court
assumes jurisdiction over an act without the necessity of waiver from the organization, the determination
of the nature of the act is made at the national level.30

It appears that the inclination is to place the competence to determine the nature of an act as private or
official in the courts of the state concerned. That the prevalent notion seems to be to leave to the local
courts determination of whether or not a given act is official or private does not necessarily mean that
such determination is final. If the United Nations questions the decision of the Court, it may invoke
proceedings for settlement of disputes between the organization and the member states as provided in
Section 30 of the General Convention. Thus, the decision as to whether a given act is official or private is
made by the national courts in the first instance, but it may be subjected to review in the international
level if questioned by the United Nations.31

A similar view is taken by Kunz, who writes that the "jurisdiction of local courts without waiver for acts of
private life empowers the local courts to determine whether a certain act is an official act or an act of
private life," on the rationale that since the determination of such question, if left in the hands of the
organization, would consist in the execution, or non-execution, of waiver, and since waiver is not
mentioned in connection with the provision granting immunities to international officials, then the decision
must rest with local courts.32

Under the Third Restatement of the Law, it is suggested that since an international official does not enjoy
personal inviolability from arrest or detention and has immunity only with respect to official acts, he is
subject to judicial or administrative process and must claim his immunity in the proceedings by showing
that the act in question was an official act. Whether an act was performed in the individual's official
capacity is a question for the court in which a proceeding is brought, but if the international organization
disputes the court's finding, the dispute between the organization and the state of the forum is to be
resolved by negotiation, by an agreed mode of settlement or by advisory opinion of the International Court
of Justice.33

Recognizing the difficulty that by reason of the right of a national court to assume jurisdiction over private
acts without a waiver of immunity, the determination of the official or private character of a particular act
may pass from international to national control, Jenks proposes three ways of avoiding difficulty in the
matter. The first would be for a municipal court before which a question of the official or private character
of a particular act arose to accept as conclusive in the matter any claim by the international organization
that the act was official in character, such a claim being regarded as equivalent to a governmental claim
that a particular act is an act of State. Such a claim would be in effect a claim by the organization that the
proceedings against the official were a violation of the jurisdictional immunity of the organization itself
which is unqualified and therefore not subject to delimitation in the discretion of the municipal court.
The second would be for a court to accept as conclusive in the matter a statement by the executive
government of the country where the matter arises certifying the official character of the act.
The thirdwould be to have recourse to the procedure of international arbitration. Jenks opines that it is
possible that none of these three solutions would be applicable in all cases; the first might be readily
acceptable only in the clearest cases and the second is available only if the executive government of the
country where the matter arises concurs in the view of the international organization concerning the
official character of the act. However, he surmises that taken in combination, these various possibilities
may afford the elements of a solution to the problem.34
One final point. The international official's immunity for official acts may be likened to a consular official's
immunity from arrest, detention, and criminal or civil process which is not absolute but applies only to acts
or omissions in the performance of his official functions, in the absence of special agreement. Since a
consular officer is not immune from all legal process, he must respond to any process and plead and
prove immunity on the ground that the act or omission underlying the process was in the performance of
his official functions. The issue has not been authoritatively determined, but apparently the burden is on
the consular officer to prove his status as well as his exemption in the circumstances. In the United
States, the US Department of State generally has left it to the courts to determine whether a particular act
was within a consular officer's official duties.35

Submissions

On the bases of the foregoing disquisitions, I submit the following conclusions:

First, petitioner Liang, a bank official of ADB, is not entitled to diplomatic immunity and hence his
immunity is not absolute.

Under the Vienna Convention on Diplomatic Relations, a diplomatic envoy is immune from criminal
jurisdiction of the receiving State for all acts, whether private or official, and hence he cannot be arrested,
prosecuted and punished for any offense he may commit, unless his diplomatic immunity is waived. 36 On
the other hand, officials of international organizations enjoy "functional" immunities, that is, only those
necessary for the exercise of the functions of the organization and the fulfillment of its purposes.37 This is
the reason why the ADB Charter and Headquarters Agreement explicitly grant immunity from legal
process to bank officers and employees only with respect to acts performed by them in their official
capacity, except when the Bank waives immunity. In other words, officials and employees of the ADB are
subject to the jurisdiction of the local courts for their private acts, notwithstanding the absence of a waiver
of immunity.

Petitioner cannot also seek relief under the mantle of "immunity from every form of legal process"
accorded to ADB as an international organization. The immunity of ADB is absolute whereas the
immunity of its officials and employees is restricted only to official acts. This is in consonance with the
current trend in international law which seeks to narrow the scope of protection and reduce the privileges
and immunities granted to personnel of international organizations, while at the same time aims to
increase the prerogatives of international organizations.

Second, considering that bank officials and employees are covered by immunity only for their official acts,
the necessary inference is that the authority of the Department of Affairs, or even of the ADB for that
matter, to certify that they are entitled to immunity is limited only to acts done in their official capacity.
Stated otherwise, it is not within the power of the DFA, as the agency in charge of the executive
department's foreign relations, nor the ADB, as the international organization vested with the right to
waive immunity, to invoke immunity for private acts of bank officials and employees, since no such
prerogative exists in the first place. If the immunity does not exist, there is nothing to certify.

As an aside, ADB cannot even claim to have the right to waive immunity for private acts of its officials and
employees. The Charter and the Headquarters Agreement are clear that the immunity can be waived only
with respect to official acts because this is only the extent to which the privilege has been granted. One
cannot waive the right to a privilege which has never been granted or acquired.

Third, I choose to adopt the view that it is the local courts which have jurisdiction to determine whether or
not a given act is official or private. While there is a dearth of cases on the matter under Philippine
jurisprudence, the issue is not entirely novel.

The case of M.H. Wylie, et al. vs. Rarang, et al.38 concerns the extent of immunity from suit of the officials
of a United States Naval Base inside the Philippine territory. Although a motion to dismiss was filed by the
defendants therein invoking their immunity from suit pursuant to the RP-US Military Bases Agreement, the
trial court denied the same and, after trial, rendered a decision declaring that the defendants are not
entitled to immunity because the latter acted beyond the scope of their official duties. The Court likewise
applied the ruling enunciated in the case of Chavez vs. Sandiganbayan39 to the effect that a mere
invocation of the immunity clause does not ipso facto result in the charges being automatically dropped.
While it is true that the Chavez case involved a public official, the Court did not find any substantial
reason why the same rule cannot be made to apply to a US official assigned at the US Naval Station
located in the Philippines. In this case, it was the local courts which ascertained whether the acts
complained of were done in an official or personal capacity.

In the case of The Holy See vs. Rosario, Jr.,40 a complaint for annulment of contract of sale,
reconveyance, specific performance and damages was filed against petitioner. Petitioner moved to
dismiss on the ground of, among others, lack of jurisdiction based on sovereign immunity from suit, which
was denied by the trial court. A motion for reconsideration, and subsequently, a "Motion for a Hearing for
the Sole Purpose of Establishing Factual Allegation for Claim of Immunity as a Jurisdictional Defense"
were filed by petitioner. The trial court deferred resolution of said motions until after trial on the merits. On
certiorari, the Court there ruled on the issue of petitioner's non-suability on the basis of the allegations
made in the pleadings filed by the parties. This is an implicit recognition of the court's jurisdiction to
ascertain the suability or non-suability of the sovereign by assessing the facts of the case. The Court
hastened to add that when a state or international agency wishes to plead sovereign or diplomatic
immunity in a foreign court, in some cases, the defense of sovereign immunity was submitted directly to
the local courts by the respondents through their private counsels, or 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.

Finally, it appears from the records of this case that petitioner is a senior economist at ADB and as such
he makes country project profiles which will help the bank in deciding whether to lend money or support a
particular project to a particular country.41 Petitioner stands charged of grave slander for allegedly uttering
defamatory remarks against his secretary, the private complainant herein. Considering that the immunity
accorded to petitioner is limited only to acts performed in his official capacity, it becomes necessary to
make a factual determination of whether or not the defamatory utterances were made pursuant and in
relation to his official functions as a senior economist.

I vote to deny the motion for reconsideration.

Davide, Jr., C.J., concurs.