JUSMAG PHILIPPINES, petitioner, vs.
THE NATIONAL It is meet to discuss the historical background of the JUSMAG to
LABOR RELATIONS COMMISSION (Second Division) and
FLORENCIO SACRAMENTO, Union President, JPFCEA,
respondents.
DECISION
PUNO, J p:
The immunity from suit of the Joint United States Military Assistance
Group to the Republic of the Philippines (JUSMAG-Philippines) is
the pivotal issue in the case at bench. cdrep
JUSMAG assails the January 29, 1993 Resolution of the NATIONAL
LABOR RELATIONS COMMISSION (public respondent), in
NLRC NCR CASE NO. 00-03-02092-92, reversing the July 30, 1991
Order of the Labor Arbiter, and ordering the latter to assume
jurisdiction over the complaint for illegal dismissal filed by
FLORENCIO SACRAMENTO (private respondent) against
petitioner.
First, the undisputed facts.
Private respondent was one of the seventy-four (74) security
assistance support personnel (SASP) working at JUSMAG-
Philippines. 1 He had been with JUSMAG from December 18, 1969,
until his dismissal on April 27, 1992. When dismissed, he held the
position of Illustrator 2 and was the incumbent President of JUSMAG
PHILIPPINES-FILIPINO CIVILIAN EMPLOYEES
ASSOCIATION (JPFCEA), a labor organization duly registered with
the Department of Labor and Employment. His services were
terminated allegedly due to the abolition of his position. 2 He was
also advised that he was under administrative leave until April 27,
1992, although the same was not charged against his leave.
On March 31, 1992, private respondent filed a complaint with the
Department of Labor and Employment on the ground that he was
illegally suspended and dismissed from service by JUSMAG. 3 He
asked for his reinstatement.
JUSMAG then filed a Motion to Dismiss invoking its immunity from
suit as an agency of the United States. It further alleged lack of
employer-employee relationship and that it has no juridical
personality to sue and be sued. 4
In an Order dated July 30, 1991, Labor Arbiter Daniel C. Cueto
dismissed the subject complaint " for want of jurisdiction." 5 Private
respondent appealed 6 to the National Labor Relations Commission
(public respondent), assailing the ruling that petitioner is immune
from suit for alleged violation of our labor laws. JUSMAG filed its
Opposition, 7 reiterating its immunity from suit for its non-
contractual, governmental and/or public acts.
In a Resolution, dated January 29, 1993, the NLRC 8 reversed the
ruling of the Labor Arbiter as it held that petitioner had lost its right
not to be sued. The resolution was predicted on two grounds: (1) the
principle of estoppel — that JUSMAG failed to refute the existence
of employer-employee relationship under the "control test", and (2)
JUSMAG has waived its right to immunity from suit when it hired
the services of private respondent on December 18, 1969.
The NLRC relied on the case of Harry Lyons vs. United States of
America, 9 where the "United States Government (was considered to
have) waived its immunity from suit by entering into (a) contract of
stevedoring services, and thus, it submitted itself to the jurisdiction of
the local courts."
Accordingly, the case was remanded to the labor arbiter for reception
of evidence as to the issue on illegal dismissal.
Hence, this petition, JUSMAG contends:
I rates of pay are indicated at Enclosure 3). No promotion or transfer
THE PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK AND/OR EXCESS OF
JURISDICTION —
A. IN REVERSING THE DECISION OF THE LABOR
ARBITER AND IN NOT AFFIRMING THE DISMISSAL OF THE
COMPLAINT IT BEING A SUIT AGAINST THE UNITED
STATES OF AMERICA WHICH HAD NOT GIVEN ITS
CONSENT TO BE SUED; AND
B. IN FINDING WAIVER BY JUSMAG OF IMMUNITY
FROM SUIT;
II
THE PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK AND/OR EXCESS OF
JURISDICTION —
A. WHEN IT FOUND AN EMPLOYER-EMPLOYEE
RELATIONSHIP BETWEEN JUSMAG AND PRIVATE
RESPONDENT; AND
B. WHEN IT CONSIDERED JUSMAG ESTOPPED FROM
DENYING THAT PRIVATE RESPONDENT IS ITS EMPLOYEE
FOR FAILURE TO PRESENT PROOF TO THE CONTRARY.
We find the petition impressed with merit.
determine its immunity from suit.
JUSMAG was created pursuant to the Military Assistance
Agreement 10 dated March 21, 1947, between the Government of the
Republic of the Philippines and the Government of the United States
of America. As agreed upon, JUSMAG shall consist of Air, Naval
and Army group, and its primary task was to advise and assist the
Philippines, on air force, army and naval matters. 11
Article 14 of the 1947 Agreement provides, inter alia, that "the cost
of all services required by the Group, including compensation of
locally employed interpreters, clerks, laborers, and other personnel,
except personal servants, shall be borne by the Republic of the
Philippines." cdrep
This set-up was to change in 1991. In Note No 22, addressed to the
Department of Foreign Affairs (DFA) of the Philippines, dated
January 23, 1991, the United States Government, thru its Embassy,
manifested its preparedness "to provide funds to cover the salaries of
security assistance support personnel" and security guards, the rent of
JUSMAG occupied buildings and housing, and the cost of utilities.
12 This offer was accepted by our Government, thru the DFA, in
Note No. 911725, dated April 18, 1991. 13
Consequently, a Memorandum of Agreement 14 was forged between
the Armed Forces of the Philippines and JUSMAG-Philippines, thru
General Lisandro C. Abadia and U.S. Brigadier General Robert G.
Sausser. The Agreement delineated the terms of the assistance-in-
kind of JUSMAG for 1991, the relevant parts of which read:
"a. The term salaries as used in this agreement include those
for the security guards currently contracted between JUSMAG and A
Prime Security Services Inc., and the Security Assistance Support
Personnel (SASP). . . .
"b. The term Security Assistance Support Personnel (SASP)
does not include active duty uniformed members of the Armed
Forces of the Philippines performing duty at JUSMAG.
"c. It is understood that SASP are employees of the Armed
Forces of the Philippines (AFP). Therefore, the AFP agrees to
appoint, for service with JUSMAG, no more than 74 personnel to
designated positions with JUSMAG.
"d. SASP are under the total operational control of the Chief,
JUSMAG-Philippines. The term "Operational Control" includes, but
is not limited to, all personnel administrative actions, such as: hiring
recommendations; firing recommendations; position classification;
discipline; nomination and approval of incentive awards; and payroll
computation. Personnel administration will be guided by Annex E of
JUSMAG-Philippines Memo 10-2. For the period of time that there is
an exceptional funding agreement between the government of the
Philippines and the United States Government (USG), JUSMAG will
pay the total payroll costs for the SASP employees. Payroll costs
include only regular salary; approved overtime, costs of living
allowance; medical insurance; regular contributions to the Philippine
Society Security System, PAG-IBIG Fund and Personnel Economic
Relief Allowance (PERA); and the thirteenth-month bonus. Payroll
costs do not include gifts or other bonus payments in addition to
those previously defined above. Entitlements not considered payroll
costs under this agreement will be funded and paid by the AFP.
"e. All SASP employed as of July 1, 1990 will continue their
service with JUSMAG at their current rate of pay and benefits up to
30 June 1991, with an annual benefits up employment thereafter
subject to renewal of their appointment with the AFP (employees and
internal to JUSMAG of the listed personnel will result in the
reduction of their pay and benefits.
"f. All SASP will, after proper classification, be paid salaries
and benefits at established AFP civilian rates. Rules for computation
of pay and allowances will be made available to the Comptroller,
JUSMAG, by the Comptroller, GHQ, AFP. Additionally, any legally
mandated changes in salary levels or methods of computation shall be
transmitted within 48 hours of receipt by Comptroller, GHQ to
Comptroller, JUSMAG.
"g. The AFP agrees not to terminate SASP without 60 days
prior written notice to Chief, JUSMAG-Philippines. Any termination
of these personnel thought to be necessary because of budgetary
restrictions or manpower ceiling will be subject to consultations
between AFP and JUSMAG to ensure that JUSMAG's mission of
dedicated support to the AFP will not be degraded or harmed in any
way.
"h. The AFP agrees to assume the severance pay/retirement
pay liability for all appointed SASP. (Enclosure 3 lists the severance
pay liability date for current SASP). Any termination of services,
other than voluntary resignations or termination for cause, will result
in immediate payments of AFP of all termination pay to the entitled
employee. Vouchers for severance/retirement pay and accrued
Page 1 of 28
bonuses and annual leave will be presented to the Comptroller, GHQ,
AFP, not later than 14 calendar days prior to required date of
payment.
"i. All SASP listed in Enclosure 3 will continue to participate
in the Philippine Social Security System.
A year later, or in 1992, the United States Embassy sent another note
of similar import to the Department of Foreign Affairs (No. 227,
dated April 8, 1992), extending the funding agreement for the salaries
of SASP and security guards until December 31, 1992.
From the foregoing, it is apparent that when JUSMAG took the
services of private respondent, it was performing a governmental
function on behalf of the United States pursuant to the Military
Assistance Agreement dated March 21, 1947. Hence, we agree with
petitioner that the suit is, in effect, one against the United States
Government, albeit it was not impleaded in the complaint.
Considering that the United States has not waived or consented to the
suit, the complaint against JUSMAG cannot not prosper.
In this jurisdiction, we recognize and adopt the generally accepted
principles of international law as part of the law of the land. 15
Immunity of State from suit is one of these universally recognized
principles. In international law, "immunity" is commonly understood
as an exemption of the state and its organs from the judicial
jurisdiction of another state. 16 This is anchored on the principle of
the sovereign equality of states under which one state cannot assert
jurisdiction over another in violation of the maxim par in parem non
habet imperium (an equal has no power over an equal). 17
Under the traditional rule of State immunity, a state cannot be sued in
the courts of another State, without its consent or waiver. However,
in Santos, et al., vs. Santos, et al., 18 we recognized an exception to
the doctrine of immunity from suit by a state, thus:
". . . . Nevertheless, if, where and when the state or its government
enters into a contract, through its officers or agents, in furtherance of
a legitimate aim and purpose and pursuant to constitutional
legislative authority, whereby mutual and reciprocal benefits accrue
and rights and obligations arise therefrom, and if the law granting the
authority to enter into such contract does not provide for or name the
officer against whom action may be brought in the event of the
breach thereof, the state itself may be sued, even without its consent,
because by entering into a contract, the sovereign state has descended
to the level of the citizen and its consent to be sued is implied from
the very act of entering into such contract. . . ." (emphasis ours)
It was in this light that the state immunity issue in Harry Lyons, Inc.,
vs. United States of America 19 was decided.
In the case of Harry Lyons, Inc., the petitioner entered into a contract
with the United States Government for stevedoring services at the
U.S. Naval Base, Subic Bay, Philippines. It then sought to collect
from the US government sums of money arising from the contract.
One of the issues posed in the case was whether or not the defunct
Court of First Instance had jurisdiction over the defendant United
States, a sovereign state which cannot be sued without its consent.
This Court upheld the contention of Harry Lyons, Inc., 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."
The doctrine of state immunity from suit has undergone further
metamorphosis. The view evolved that the existence of a contract
does not, per se, mean that sovereign states may, at all times, be sued
in local courts. The complexity of relationships between sovereign
states, brought about by their increasing commercial activities,
mothered a more restrictive application of the doctrine. 20 Thus, in
United States of America vs. Ruiz, 21 we clarified that our
pronouncement in Harry Lyons, supra, with respect to the waiver of
State immunity, was obiter and "has no value as an imperative
authority."
As it stands now, the application of the doctrine of immunity from
suit has been restricted to sovereign or governmental activities ( jure
imperii). 22 The mantle of state immunity cannot be extended to
commercial, private and proprietary acts ( jure gestionis). As aptly
stated by this Court (En banc) in US vs. Ruiz, supra:
"The restrictive application of State immunity is proper 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 thus can be deemed to have tacitly given its consent to
be used only when it enters into business contracts. It does not apply
where the contract relates to the exercise of its sovereign functions."
(emphasis ours)
We held further, that the application of the doctrine of state immunity
depends on the legal nature of the act. Ergo, since a governmental
function was involved — the transaction dealt with the improvement
of the wharves in the naval installation at Subic Bay — it was held
that the United States was not deemed to have waived its immunity
from suit.
Then came the case of United States vs. Hon. Rodrigo, et al. 23 In
said case, Genove was employed as a cook in the Main Club located
at U.S. Air Force Recreation Center, John Hay Air Station. He was
dismissed from service after he was found to have polluted the stock
of soup with urine. Genove countered with a complaint for damages.
Apparently, the restaurant services offered at the John Hay Air
Station partake of the nature of a business enterprise undertaken by
the United States government in its proprietary capacity. The Court
then noted that the restaurant is well known and available to the
general public, thus, the services are operated for profit, as a
commercial and not a governmental activity. Speaking through
Associate Justice Isagani Cruz, the Court (En Banc) said:
"The consequence of this finding is that the petitioners cannot invoke
the doctrine of state immunity to justify the dismissal of the damage
suit against them by Genove. Such defense will not prosper even if it
be established that they were acting as agents of the United States
when they investigated and later dismissed Genove. For the matter,
not even the United States governmental itself can claim such
immunity. The reason is that by entering into the employment
contract with Genove in the discharge of its proprietary functions, it
impliedly divested itself of its sovereign immunity from suit."
(emphasis ours)
Conversely, if the contract was entered into in the discharge of its
governmental functions, the sovereign state cannot be deemed to
have waived its immunity from suit. 24 Such is the case at bench.
Prescinding from this premise, we need not determine whether
JUSMAG controls the employment conditions of the private
respondent.
We also hold that there appears to be no basis for public respondent
to rule that JUSMAG is estopped from denying the existence of
employer-employee relationship with private respondent. On the
contrary, in its Opposition before the public respondent, JUSMAG
consistently contended that the (74) SASP, including private
respondent, working in JUSMAG, are employees of the Armed
Forces of the Philippines. This can be gleaned from: (1) the Military
Assistance Agreement, supra, (2) the exchange of notes between our
Government, thru Department of Foreign Affairs, and the United
States, thru the US Embassy to the Philippines, and (3) the
Agreement on May 21, 1991, supra between the Armed Forces of the
Philippines and JUSMAG.
We sympathize with the plight of private respondent who had served
JUSMAG for more than twenty (20) years. Considering his length of
service with JUSMAG, he deserves a more compassionate treatment.
Unfortunately, JUSMAG is beyond the jurisdiction of this Court.
Nonetheless, the Executive branch, through the Department of
Foreign Affairs and the Armed Forces of the Philippines, can take the
cudgel for private respondent to the aforestated Military Assistance
Agreement. LLjur
IN VIEW OF THE FOREGOING, the petition for certiorari is
GRANTED. Accordingly, the impugned Resolution dated January
29, 1993 of the National Labor Relations Commission is
REVERSED and SET ASIDE. No costs.
SO ORDERED.
Narvasa, C.J., Regalado and Mendoza, JJ., concur.
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.
Page 2 of 28
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 refer to arguments relative to its claim of sovereign immunity from
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
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
Page 3 of 28
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
Page 4 of 28
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.
[G.R. No. 152318. April 16, 2009.]
DEUTSCHE GESELLSCHAFT FÜR TECHNISCHE
ZUSAMMENARBEIT, also known as GERMAN AGENCY FOR
TECHNICAL COOPERATION, (GTZ) HANS PETER
PAULENZ and ANNE NICOLAY, petitioners, vs. HON.
COURT OF APPEALS, HON. ARIEL CADIENTE SANTOS,
Labor Arbiter of the Arbitration Branch, National Labor
Relations Commission, and BERNADETTE CARMELLA
MAGTAAS, CAROLINA DIONCO, CHRISTOPHER RAMOS,
MELVIN DELA PAZ, RANDY TAMAYO and EDGARDO
RAMILLO, respondents.
DECISION
TINGA, J p:
On 7 September 1971, the governments of the Federal Republic of
Germany and the Republic of the Philippines ratified an Agreement
concerning Technical Co-operation (Agreement) in Bonn, capital of
what was then West Germany. The Agreement affirmed the countries'
"common interest in promoting the technical and economic
development of their States, and recogni[zed] the benefits to be
derived by both States from closer technical co-operation", and
allowed for the conclusion of "arrangements concerning individual
Page 5 of 28
projects of technical co-operation." 1 While the Agreement provided
for a limited term of effectivity of five (5) years, it nonetheless was
stated that "[t]he Agreement shall be tacitly extended for successive
periods of one year unless either of the two Contracting Parties
denounces it in writing three months prior to its expiry", and that
even upon the Agreement's expiry, its provisions would "continue to
apply to any projects agreed upon . . . until their completion." 2
aADSIc
On 10 December 1999, the Philippine government, through then
Foreign Affairs Secretary Domingo Siazon, and the German
government, agreed to an Arrangement in furtherance of the 1971
Agreement. This Arrangement affirmed the common commitment of
both governments to promote jointly a project called, Social Health
Insurance-Networking and Empowerment (SHINE), which was
designed to "enable Philippine families — especially poor ones — to
maintain their health and secure health care of sustainable quality." 3
It appears that SHINE had already been in existence even prior to the
effectivity of the Arrangement, though the record does not indicate
when exactly SHINE was constituted. Nonetheless, the Arrangement
stated the various obligations of the Filipino and German
governments. The relevant provisions of the Arrangement are
reproduced as follows:
3. The Government of the Federal Republic of Germany shall
make the following contributions to the project. aHESCT
It shall
(a) second 2009juris
- one expert in health economy, insurance and health systems
for up to 48 expert/months,
- one expert in system development for up to 10
expert/months
- short-term experts to deal with special tasks for a total of
up to 18 expert/months,
- project assistants/guest students as required, who shall
work on the project as part of their basic and further training and
assume specific project tasks under the separately financed junior
staff promotion programme of the Deutsche Gesellschaft für
Technische Zusammenarbeit (GTZ); IcHSCT
(b) provide in situ
- short-term experts to deal with diverse special tasks for a
total of up to 27 expert/months,
- five local experts in health economy, health insurance,
community health systems, information technology, information
systems, training and community mobilization for a total of up to 240
expert/months,
- local and auxiliary personnel for a total of up to 120
months;
(c) supply inputs, in particular
- two cross-country vehicles,
- ten computers with accessories,
- office furnishings and equipment
up to a total value of DM 310,000 (three hundred and ten thousand
Deutsche Mark); SEHTAC
(c) * meet
- the cost of accommodation for the seconded experts and
their families in so far as this cost is not met by the seconded experts
themselves,
- the cost of official travel by the experts referred to in sub-
paragraph (a) above within and outside the Republic of the
Philippines,
- the cost of seminars and courses,
- the cost of transport and insurance to the project site of
inputs to be supplied pursuant to sub-paragraph (c) above, excluding
the charges and storage fees referred to in paragraph 4(d) below,
- a proportion of the operating and administrative costs;
xxx xxx xxx
4. The Government of the Republic of the Philippines shall
make the following contributions to the project: aSHAIC
It shall
(a) - provide the necessary Philippine experts for the project, in
particular one project coordinator in the Philippine Health Insurance
Corporation (PhilHealth), at least three further experts and a
sufficient number of administrative and auxiliary personnel, as well
as health personnel in the pilot provinces and in the other project
partners, in particular one responsible expert for each pilot province
and for each association representing the various target groups,
- release suitably qualified experts from their duties for
attendance at the envisaged basic and further training activities; it
shall only nominate such candidates as have given an undertaking to
work on the project for at least five years after completing their
training and shall ensure that these Philippine experts receive
appropriate remuneration,
- ensure that the project field offices have sufficient
expendables, THIECD
- make available the land and buildings required for the
project;
(b) assume an increasing proportion of the running and
operating costs of the project;
(c) afford the seconded experts any assistance they may require
in carrying out the tasks assigned to them and place at their disposal
all necessary records and documents;
(d) guarantee that
- the project is provided with an itemized budget of its own
in order to ensure smooth continuation of the project,
- the necessary legal and administrative framework is created
for the project,
- the project is coordinated in close cooperation with other
national and international agencies relevant to implementation,
IASTDE
- the inputs supplied for the project on behalf of the
Government of the Federal Republic of Germany are exempted from
the cost of licenses, harbour dues, import and export duties and other
public charges and fees, as well as storage fees, or that any costs
thereof are met, and that they are cleared by customs without delay.
The aforementioned exemptions shall, at the request of the
implementing agencies also apply to inputs procured in the Republic
of the Philippines,
- the tasks of the seconded experts are taken over as soon as
possible by Philippine experts,
- examinations passed by Philippine nationals pursuant to
this Arrangement are recognized in accordance with their respective
standards and that the persons concerned are afforded such
opportunities with regard to careers, appointments and advancement
as are commensurate with their training. 4
In the arraignment, both governments likewise named their respective
implementing organizations for SHINE. The Philippines designated
the Department of Health (DOH) and the Philippine Health Insurance
Corporation (PhilHealth) with the implementation of SHINE. For
their part, the German government "charge[d] the Deustche
Gesellschaft für Technische Zusammenarbeit [5] (GTZ [6]) GmbH,
Eschborn, with the implementation of its contributions." 7 TIEHSA
Page 6 of 28
Private respondents were engaged as contract employees hired by
GTZ to work for SHINE on various dates between December of 1998
to September of 1999. Bernadette Carmela Magtaas was hired as an
"information systems manager and project officer of SHINE;" 8
Carolina Dionco as a "Project Assistant of SHINE;" 9 Christopher
Ramos as "a project assistant and liason * personnel of NHI related
SHINE activities by GTZ;" 10 Melvin Dela Paz and Randy Tamayo
as programmers; 11 and Edgardo Ramilo as "driver, messenger and
multipurpose service man." 12 The employment contracts of all six
private respondents all specified Dr. Rainer Tollkotter, identified as
an adviser of GTZ, as the "employer". At the same time, all the
contracts commonly provided that "[i]t is mutually agreed and
understood that [Dr. Tollkotter, as employer] is a seconded GTZ
expert who is hiring the Employee on behalf of GTZ and for a
Philippine-German bilateral project named 'Social Health Insurance
—Networking and Empowerment (SHINE)' which will end at a given
time." 13 THcEaS
In September of 1999, Anne Nicolay (Nicolay), a Belgian national,
assumed the post of SHINE Project Manager. Disagreements
eventually arose between Nicolay and private respondents in matters
such as proposed salary adjustments, and the course Nicolay was
taking in the implementation of SHINE different from her
predecessors. The dispute culminated in a letter 14 dated 8 June
2000, signed by the private respondents, addressed to Nicolay, and
copies furnished officials of the DOH, PhilHeath, * and the director
of the Manila office of GTZ. The letter raised several issues which
private respondents claim had been brought up several times in the
past, but have not been given appropriate response. It was claimed
that SHINE under Nicolay had veered away from its original purpose
to facilitate the development of social health insurance by shoring up
the national health insurance program and strengthening local
initiatives, as Nicolay had refused to support local partners and new
initiatives on the premise that community and local government unit
schemes were not sustainable — a philosophy that supposedly
betrayed Nicolay's lack of understanding of the purpose of the
project. Private respondents further alleged that as a result of
Nicolay's "new thrust, resources have been used inappropriately;"
that the new management style was "not congruent with the original
goals of the project;" that Nicolay herself suffered from "cultural
insensitivity" that consequently failed to sustain healthy relations
with SHINE's partners and staff. HcaDTE
The letter ended with these ominous words:
The issues that we [the private respondents] have stated here are very
crucial to us in working for the project. We could no longer find any
reason to stay with the project unless ALL of these issues be
addressed immediately and appropriately. 15
In response, Nicolay wrote each of the private respondents a letter
dated 21 June 2000, all similarly worded except for their respective
addressees. She informed private respondents that the "project's
orientations and evolution" were decided in consensus with partner
institutions, PhilHealth and the DOH, and thus no longer subject to
modifications. More pertinently, she stated: 2009juris
You have firmly and unequivocally stated in the last paragraph of
your 8th June 2000 letter that you and the five other staff "could no
longer find any reason to stay with the project unless ALL of these
issues be addressed immediately and appropriately." Under the
foregoing premises and circumstances, it is now imperative that I am
to accept your resignation, which I expect to receive as soon as
possible. 16 CITSAc
Taken aback, private respondents replied with a common letter,
clarifying that their earlier letter was not intended as a resignation
letter, but one that merely intended to raise attention to what they
perceived as vital issues. 17 Negotiations ensued between private
respondents and Nicolay, but for naught. Each of the private
respondents received a letter from Nicolay dated 11 July 2000,
informing them of the pre-termination of their contracts of
employment on the grounds of "serious and gross insubordination,
among others, resulting to loss of confidence and trust." 18
On 21 August 2000, the private respondents filed a complaint for
illegal dismissal with the NLRC. Named as respondents therein
where GTZ, the Director of its Manila office Hans Peter Paulenz, its
Assistant Project Manager Christian Jahn, and Nicolay. aIAHcE
On 25 October 2005, GTZ, through counsel, filed a Motion to
Dismiss, on the ground that the Labor Arbiter had no jurisdiction
over the case, as its acts were undertaken in the discharge of the
governmental functions and sovereign acts of the Government of the
Federal Republic of Germany. This was opposed by private
respondents with the arguments that GTZ had failed to secure a
certification that it was immune from suit from the Department of
Foreign Affairs, and that it was GTZ and not the German government
which had implemented the SHINE Project and entered into the
contracts of employment.
On 27 November 2000, the Labor Arbiter issued an Order 19 denying
the Motion to Dismiss. The Order cited, among others, that GTZ was
a private corporation which entered into an employment contract; and
that GTZ had failed to secure from the DFA a certification as to its
diplomatic status.
On 7 February 2001, GTZ filed with the Labor Arbiter a "Reiterating
Motion to Dismiss", again praying that the Motion to Dismiss be
granted on the jurisdictional ground, and reprising the arguments for
dismissal it had earlier raised. 20 No action was taken by the Labor
Arbiter on this new motion. Instead, on 15 October 2001, the Labor
Arbiter rendered a Decision 21 granting the complaint for illegal
dismissal. The Decision concluded that respondents were dismissed
without lawful cause, there being "a total lack of due process both
substantive and procedural [sic]." 22 GTZ was faulted for failing to
observe the notice requirements in the labor law. The Decision
likewise proceeded from the premise that GTZ had treated the letter
dated 8 June 2000 as a resignation letter, and devoted some focus in
debunking this theory. CacTIE
The Decision initially offered that it "need not discuss the
jurisdictional aspect considering that the same had already been
lengthily discussed in the Order de[n]ying respondents' Motion to
Dismiss." 23 Nonetheless, it proceeded to discuss the jurisdictional
aspect, in this wise:
Under pain of being repetitious, the undersigned Labor Arbiter has
jurisdiction to entertain the complaint on the following grounds:
Firstly, under the employment contract entered into between
complainants and respondents, specifically Section 10 thereof, it
provides that "contract partners agree that his contract shall be
subject to the LAWS of the jurisdiction of the locality in which the
service is performed."
Secondly, respondent having entered into contract, they can no longer
invoke the sovereignty of the Federal Republic of Germany.
Lastly, it is imperative to be immune from suit, respondents should
have secured from the Department of Foreign Affairs a certification
of respondents' diplomatic status and entitlement to diplomatic
privileges including immunity from suits. Having failed in this
regard, respondents cannot escape liability from the shelter of
sovereign immunity.[sic] 24 IaTSED
Notably, GTZ did not file a motion for reconsideration to the Labor
Arbiter's Decision or elevate said decision for appeal to the NLRC.
Instead, GTZ opted to assail the decision by way of a special civil
action for certiorari filed with the Court of Appeals. 25 On 10
December 2001, the Court of Appeals promulgated a Resolution 26
dismissing GTZ's petition, finding that "judicial recourse at this stage
of the case is uncalled for[,] [t]he appropriate remedy of the
petitioners [being] an appeal to the NLRC . . . ." 27 A motion for
reconsideration to this Resolution proved fruitless for GTZ. 28
Thus, the present petition for review under Rule 45, assailing the
decision and resolutions of the Court of Appeals and of the Labor
Arbiter. GTZ's arguments center on whether the Court of Appeals
could have entertained its petition for certiorari despite its not having
undertaken an appeal before the NLRC; and whether the complaint
for illegal dismissal should have been dismissed for lack of
jurisdiction on account of GTZ's insistence that it enjoys immunity
from suit. No special arguments are directed with respect to
petitioners Hans Peter Paulenz and Anne Nicolay, respectively the
then Director and the then Project Manager of GTZ in the
Philippines; so we have to presume that the arguments raised in
behalf of GTZ's alleged immunity from suit extend to them as well.
THESAD
The Court required the Office of the Solicitor General (OSG) to file a
Comment on the petition. In its Comment dated 7 November 2005,
the OSG took the side of GTZ, with the prayer that the petition be
granted on the ground that GTZ was immune from suit, citing in
particular its assigned functions in implementing the SHINE program
— a joint undertaking of the Philippine and German governments
which was neither proprietary nor commercial in nature.
Page 7 of 28
The Court of Appeals had premised the dismissal of GTZ's petition
on its procedural misstep in bypassing an appeal to NLRC and
challenging the Labor Arbiter's Decision directly with the appellate
court by way of a Rule 65 petition. In dismissing the petition, the
Court of Appeals relied on our ruling in Air Service Cooperative v.
Court of Appeals. 29 The central issue in that case was whether a
decision of a Labor Arbiter rendered without jurisdiction over the
subject matter may be annulled in a petition before a Regional Trial
Court. That case may be differentiated from the present case, since
the Regional Trial Court does not have original or appellate
jurisdiction to review a decision rendered by a Labor Arbiter. In
contrast, there is no doubt, as affirmed by jurisprudence, that the
Court of Appeals has jurisdiction to review, by way of its original
certiorari jurisdiction, decisions ruling on complaints for illegal
dismissal. ITaCEc
Nonetheless, the Court of Appeals is correct in pronouncing the
general rule that the proper recourse from the decision of the Labor
Arbiter is to first appeal the same to the NLRC. Air Services is in fact
clearly detrimental to petitioner's position in one regard. The Court
therein noted that on account of the failure to correctly appeal the
decision of the Labor Arbiter to the NLRC, such judgment
consequently became final and executory. 30 GTZ goes as far as to
"request" that the Court re-examine Air Services, a suggestion that is
needlessly improvident under the circumstances. Air Services affirms
doctrines grounded in sound procedural rules that have allowed for
the considered and orderly disposition of labor cases.
The OSG points out, citing Heirs of Mayor Nemencio Galvez v.
Court of Appeals, 31 that even when appeal is available, the Court
has nonetheless allowed a writ of certiorari when the orders of the
lower court were issued either in excess of or without jurisdiction.
Indeed, the Court has ruled before that the failure to employ available
intermediate recourses, such as a motion for reconsideration, is not a
fatal infirmity if the ruling assailed is a patent nullity. This approach
suggested by the OSG allows the Court to inquire directly into what
is the main issue — whether GTZ enjoys immunity from suit.
SCcHIE
The arguments raised by GTZ and the OSG are rooted in several
indisputable facts. The SHINE project was implemented pursuant to
the bilateral agreements between the Philippine and German
governments. GTZ was tasked, under the 1991 agreement, with the
implementation of the contributions of the German government. The
activities performed by GTZ pertaining to the SHINE project are
governmental in nature, related as they are to the promotion of health
insurance in the Philippines. The fact that GTZ entered into
employment contracts with the private respondents did not disqualify
it from invoking immunity from suit, as held in cases such as Holy
See v. Rosario, Jr., 32 which set forth what remains valid doctrine:
Certainly, the mere entering into a contract by a foreign state with a
private party cannot be the ultimate test. Such an act can only be the
start of the inquiry. The logical question is whether the foreign state
is engaged in the activity in the regular course of business. If the
foreign state is not engaged regularly in a business or trade, the
particular act or transaction must then be tested by its nature. If the
act is in pursuit of a sovereign activity, or an incident thereof, then it
is an act jure imperii, especially when it is not undertaken for gain or
profit. 33 TSHEIc
Beyond dispute is the tenability of the comment points raised by GTZ
and the OSG that GTZ was not performing proprietary functions
notwithstanding its entry into the particular employment contracts.
Yet there is an equally fundamental premise which GTZ and the OSG
fail to address, namely: Is GTZ, by conception, able to enjoy the
Federal Republic's immunity from suit?
The principle of state immunity from suit, whether a local state or a
foreign state, is reflected in Section 9, * Article XVI of the
Constitution, which states that "the State may not be sued without its
consent." Who or what consists of "the State"? For one, the doctrine
is available to foreign States insofar as they are sought to be sued in
the courts of the local State, 34 necessary as it is to avoid "unduly
vexing the peace of nations." HCaIDS
If the instant suit had been brought directly against the Federal
Republic of Germany, there would be no doubt that it is a suit
brought against a State, and the only necessary inquiry is whether
said State had consented to be sued. However, the present suit was
brought against GTZ. It is necessary for us to understand what
precisely are the parameters of the legal personality of GTZ.
Counsel for GTZ characterizes GTZ as "the implementing agency of
the Government of the Federal Republic of Germany", a depiction
similarly adopted by the OSG. Assuming that characterization is
correct, it does not automatically invest GTZ with the ability to
invoke State immunity from suit. The distinction lies in whether the
agency is incorporated or unincorporated. The following lucid
discussion from Justice Isagani Cruz is pertinent:
Where suit is filed not against the government itself or its officials
but against one of its entities, it must be ascertained whether or not
the State, as the principal that may ultimately be held liable, has
given its consent to be sued. This ascertainment will depend in the
first instance on whether the government agency impleaded is
incorporated or unincorporated. EaCSTc
An incorporated agency has a charter of its own that invests it with a
separate juridical personality, like the Social Security System, the
University of the Philippines, and the City of Manila. By contrast, the
unincorporated agency is so called because it has no separate juridical
personality but is merged in the general machinery of the
government, like the Department of Justice, the Bureau of Mines and
the Government Printing Office.
If the agency is incorporated, the test of its suability is found in its
charter. The simple rule is that it is suable if its charter says so, and
this is true regardless of the functions it is performing. Municipal
corporations, for example, like provinces and cities, are agencies of
the State when they are engaged in governmental functions and
therefore should enjoy the sovereign immunity from suit.
Nevertheless, they are subject to suit even in the performance of such
functions because their charter provides that they can sue and be
sued. 35
State immunity from suit may be waived by general or special law.
36 The special law can take the form of the original charter of the
incorporated government agency. Jurisprudence is replete with
examples of incorporated government agencies which were ruled not
entitled to invoke immunity from suit, owing to provisions in their
charters manifesting their consent to be sued. These include the
National Irrigation Administration, 37 the former Central Bank, 38
and the National Power Corporation. 39 In SSS v. Court of Appeals,
40 the Court through Justice Melencio-Herrera explained that by
virtue of an express provision in its charter allowing it to sue and be
sued, the Social Security System did not enjoy immunity from suit:
AHaETS
We come now to the amendability of the SSS to judicial action and
legal responsibility for its acts. To our minds, there should be no
question on this score considering that the SSS is a juridical entity
with a personality of its own. It has corporate powers separate and
distinct from the Government. SSS' own organic act specifically
provides that it can sue and be sued in Court. These words "sue and
be sued" embrace all civil process incident to a legal action. So that,
even assuming that the SSS, as it claims, enjoys immunity from suit
as an entity performing governmental functions, by virtue of the
explicit provision of the aforecited enabling law, the Government
must be deemed to have waived immunity in respect of the SSS,
although it does not thereby concede its liability. That statutory law
has given to the private citizen a remedy for the enforcement and
protection of his rights. The SSS thereby has been required to submit
to the jurisdiction of the Courts, subject to its right to interpose any
lawful defense. Whether the SSS performs governmental or
proprietary functions thus becomes unnecessary to belabor. For by
that waiver, a private citizen may bring a suit against it for varied
objectives, such as, in this case, to obtain compensation in damages
arising from contract, and even for tort.
A recent case squarely in point anent the principle, involving the
National Power Corporation, is that of Rayo v. Court of First
Instance of Bulacan, 110 SCRA 457 (1981), wherein this Court,
speaking through Mr. Justice Vicente Abad Santos, ruled: HTIEaS
"It is not necessary to write an extended dissertation on whether or
not the NPC performs a governmental function with respect to the
management and operation of the Angat Dam. It is sufficient to say
that the government has organized a private corporation, put money
in it and has allowed it to sue and be sued in any court under its
charter. (R.A. No. 6395, Sec. 3[d]). As a government-owned and
controlled corporation, it has a personality of its own, distinct and
separate from that of the Government. Moreover, the charter
provision that the NPC can 'sue and be sued in any court' is without
qualification on the cause of action and accordingly it can include a
tort claim such as the one instituted by the petitioners." 41
Page 8 of 28
It is useful to note that on the part of the Philippine government, it
had designated two entities, the Department of Health and the
Philippine Health Insurance Corporation (PHIC), as the
implementing agencies in behalf of the Philippines. The PHIC was
established under Republic Act No. 7875, Section 16 (g) of which
grants the corporation the power "to sue and be sued in court".
Applying the previously cited jurisprudence, PHIC would not enjoy
immunity from suit even in the performance of its functions
connected with SHINE, however, governmental in nature as they
may be. cHAaEC
Is GTZ an incorporated agency of the German government? There is
some mystery surrounding that question. Neither GTZ nor the OSG
go beyond the claim that petitioner is "the implementing agency of
the Government of the Federal Republic of Germany." On the other
hand, private respondents asserted before the Labor Arbiter that GTZ
was "a private corporation engaged in the implementation of
development projects." 42 The Labor Arbiter accepted that claim in
his Order denying the Motion to Dismiss, 43 though he was silent on
that point in his Decision. Nevertheless, private respondents argue in
their Comment that the finding that GTZ was a private corporation
"was never controverted, and is therefore deemed admitted." 44 In its
Reply, GTZ controverts that finding, saying that it is a matter of
public knowledge that the status of petitioner GTZ is that of the
"implementing agency", and not that of a private corporation. 45
DTcASE
In truth, private respondents were unable to adduce any evidence to
substantiate their claim that GTZ was a "private corporation", and the
Labor Arbiter acted rashly in accepting such claim without
explanation. But neither has GTZ supplied any evidence defining its
legal nature beyond that of the bare descriptive "implementing
agency". There is no doubt that the 1991 Agreement designated GTZ
as the "implementing agency" in behalf of the German government.
Yet the catch is that such term has no precise definition that is
responsive to our concerns. Inherently, an agent acts in behalf of a
principal, and the GTZ can be said to act in behalf of the German
state. But that is as far as "implementing agency" could take us. The
term by itself does not supply whether GTZ is incorporated or
unincorporated, whether it is owned by the German state or by
private interests, whether it has juridical personality independent of
the German government or none at all.
GTZ itself provides a more helpful clue, inadvertently, through its
own official Internet website. 46 In the "Corporate Profile" section of
the English language version of its site, GTZ describes itself as
follows: SEIacA
As an international cooperation enterprise for sustainable
development with worldwide operations, the federally owned
Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH
supports the German Government in achieving its development-
policy objectives. It provides viable, forward-looking solutions for
political, economic, ecological and social development in a
globalised world. Working under difficult conditions, GTZ promotes
complex reforms and change processes. Its corporate objective is to
improve people's living conditions on a sustainable basis.
GTZ is a federal enterprise based in Eschborn near Frankfurt am
Main. It was founded in 1975 as a company under private law. The
German Federal Ministry for Economic Cooperation and
Development (BMZ) is its major client. The company also operates
on behalf of other German ministries, the governments of other
countries and international clients, such as the European
Commission, the United Nations and the World Bank, as well as on
behalf of private enterprises. GTZ works on a public-benefit basis.
All surpluses generated are channeled [sic] back into its own
international cooperation projects for sustainable development. 47
CDTHSI
GTZ's own website elicits that petitioner is "federally owned", a
"federal enterprise", and "founded in 1975 as a company under
private law". GTZ clearly has a very meaningful relationship with the
Federal Republic of Germany, which apparently owns it. At the same
time, it appears that GTZ was actually organized not through a
legislative public charter, but under private law, in the same way that
Philippine corporations can be organized under the Corporation Code
even if fully owned by the Philippine government.
This self-description of GTZ in its own official website gives further
cause for pause in adopting petitioners' argument that GTZ is entitled
to immunity from suit because it is "an implementing agency". The
above-quoted statement does not dispute the characterization of GTZ
as an "implementing agency of the Federal Republic of Germany",
yet it bolsters the notion that as a company organized under private
law, it has a legal personality independent of that of the Federal
Republic of Germany.
The Federal Republic of Germany, in its own official website, 48 also
makes reference to GTZ and describes it in this manner:
. . . Going by the principle of "sustainable development", the German
Technical Cooperation (Deutsche Gesellschaft für Technische
Zusammenarbeit GmbH, GTZ) takes on non-profit projects in
international "technical cooperation". The GTZ is a private company
owned by the Federal Republic of Germany. 49 SaHIEA
Again, we are uncertain of the corresponding legal implications under
German law surrounding "a private company owned by the Federal
Republic of Germany". Yet taking the description on face value, the
apparent equivalent under Philippine law is that of a corporation
organized under the Corporation Code but owned by the Philippine
government, or a government-owned or controlled corporation
without original charter. And it bears notice that Section 36 of the
Corporate Code states that "[e]very corporation incorporated under
this Code has the power and capacity . . . to sue and be sued in its
corporate name." 50 DTEScI
It is entirely possible that under German law, an entity such as GTZ
or particularly GTZ itself has not been vested or has been specifically
deprived the power and capacity to sue and/or be sued. Yet in the
proceedings below and before this Court, GTZ has failed to establish
that under German law, it has not consented to be sued despite its
being owned by the Federal Republic of Germany. We adhere to the
rule that in the absence of evidence to the contrary, foreign laws on a
particular subject are presumed to be the same as those of the
Philippines, 51 and following the most intelligent assumption we can
gather, GTZ is akin to a governmental owned or controlled
corporation without original charter which, by virtue of the
Corporation Code, has expressly consented to be sued. At the very
least, like the Labor Arbiter and the Court of Appeals, this Court has
no basis in fact to conclude or presume that GTZ enjoys immunity
from suit.
This absence of basis in fact leads to another important point, alluded
to by the Labor Arbiter in his rulings. Our ruling in Holy See v. Del
Rosario 52 provided a template on how a foreign entity desiring to
invoke State immunity from suit could duly prove such immunity
before our local courts. The principles enunciated in that case were
derived from public international law. We stated then: AcSHCD
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]).
DETACa
In the Philippines, the practice is for the foreign government or the
international organization to first secure an executive endorsement of
its claim of sovereign or diplomatic immunity. But how the
Philippine Foreign Office conveys its endorsement to the courts
varies. In International Catholic Migration Commission v. Calleja,
190 SCRA 130 (1990), the Secretary of Foreign Affairs just sent a
letter directly to the Secretary of Labor and Employment, informing
the latter that the respondent-employer could not be sued because it
enjoyed diplomatic immunity. In World Health Organization v.
Aquino, 48 SCRA 242 (1972), the Secretary of Foreign Affairs sent
the trial court a telegram to that effect. In Baer v. Tizon, 57 SCRA 1
(1974), the U.S. Embassy asked the Secretary of Foreign Affairs to
request the Solicitor General to make, in behalf of the Commander of
the United States Naval Base at Olongapo City, Zambales, a
"suggestion" to respondent Judge. The Solicitor General embodied
the "suggestion" in a Manifestation and Memorandum as amicus
curiae. 53
It is to be recalled that the Labor Arbiter, in both of his rulings, noted
that it was imperative for petitioners to secure from the Department
Page 9 of 28
of Foreign Affairs "a certification of respondents' diplomatic status
and entitlement to diplomatic privileges including immunity from
suits." 54 The requirement might not necessarily be imperative.
However, had GTZ obtained such certification from the DFA, it
would have provided factual basis for its claim of immunity that
would, at the very least, establish a disputable evidentiary
presumption that the foreign party is indeed immune which the
opposing party will have to overcome with its own factual evidence.
We do not see why GTZ could not have secured such certification or
endorsement from the DFA for purposes of this case. Certainly, it
would have been highly prudential for GTZ to obtain the same after
the Labor Arbiter had denied the motion to dismiss. Still, even at this
juncture, we do not see any evidence that the DFA, the office of the
executive branch in charge of our diplomatic relations, has indeed
endorsed GTZ's claim of immunity. It may be possible that GTZ
tried, but failed to secure such certification, due to the same concerns
that we have discussed herein. ScTCIE
Would the fact that the Solicitor General has endorsed GTZ's claim
of State's immunity from suit before this Court sufficiently substitute
for the DFA certification? Note that the rule in public international
law quoted in Holy See referred to endorsement by the Foreign
Office of the State where the suit is filed, such foreign office in the
Philippines being the Department of Foreign Affairs. Nowhere in the
Comment of the OSG is it manifested that the DFA has endorsed
GTZ's claim, or that the OSG had solicited the DFA's views on the
issue. The arguments raised by the OSG are virtually the same as the
arguments raised by GTZ without any indication of any special and
distinct perspective maintained by the Philippine government on the
issue. The Comment filed by the OSG does not inspire the same
degree of confidence as a certification from the DFA would have
elicited. THEDcS
Holy See made reference to Baer v. Tizon, 55 and that in the said
case, the United States Embassy asked the Secretary of Foreign
Affairs to request the Solicitor General to make a "suggestion" to the
trial court, accomplished by way of a Manifestation and
Memorandum, that the petitioner therein enjoyed immunity as the
Commander of the Subic Bay Naval Base. Such circumstance is
actually not narrated in the text of Baer itself and was likely supplied
in Holy See because its author, Justice Camilio Quiason, had
appeared as the Solicitor in behalf of the OSG in Baer. Nonetheless,
as narrated in Holy See, it was the Secretary of Foreign Affairs which
directed the OSG to intervene in behalf of the United States
government in the Baer case, and such fact is manifest enough of the
endorsement by the Foreign Office. We do not find a similar
circumstance that bears here.
The Court is thus holds * and so rules that GTZ consistently has been
unable to establish with satisfaction that it enjoys the immunity from
suit generally enjoyed by its parent country, the Federal Republic of
Germany. Consequently, both the Labor Arbiter and the Court of
Appeals acted within proper bounds when they refused to
acknowledge that GTZ is so immune by dismissing the complaint
against it. Our finding has additional ramifications on the failure of
GTZ to properly appeal the Labor Arbiter's decision to the NLRC. As
pointed out by the OSG, the direct recourse to the Court of Appeals
while bypassing the NLRC could have been sanctioned had the Labor
Arbiter's decision been a "patent nullity". Since the Labor Arbiter
acted properly in deciding the complaint, notwithstanding GTZ's
claim of immunity, we cannot see how the decision could have
translated into a "patent nullity". CHTAIc
As a result, there was no basis for petitioners in foregoing the appeal
to the NLRC by filing directly with the Court of Appeals the petition
for certiorari. It then follows that the Court of Appeals acted correctly
in dismissing the petition on that ground. As a further consequence,
since petitioners failed to perfect an appeal from the Labor Arbiter's
Decision, the same has long become final and executory. All other
questions related to this case, such as whether or not private
respondents were illegally dismissed, are no longer susceptible to
review, respecting as we do the finality of the Labor Arbiter's
Decision. DcCHTa
A final note. This decision should not be seen as deviation from the
more common methodology employed in ascertaining whether a
party enjoys State immunity from suit, one which focuses on the
particular functions exercised by the party and determines whether
these are proprietary or sovereign in nature. The nature of the acts
performed by the entity invoking immunity remains the most
important barometer for testing whether the privilege of State
immunity from suit should apply. At the same time, our Constitution
stipulates that a State immunity from suit is conditional on its
withholding of consent; hence, the laws and circumstances pertaining
to the creation and legal personality of an instrumentality or agency
invoking immunity remain relevant. Consent to be sued, as exhibited
in this decision, is often conferred by the very same statute or general
law creating the instrumentality or agency.
WHEREFORE, the petition is DENIED. No pronouncement as to
costs. DaTEIc
SO ORDERED.
Quisumbing, Carpio Morales, Velasco, Jr. and Brion, JJ., concur.
[G.R. No. 185572. February 7, 2012.]
CHINA NATIONAL MACHINERY & EQUIPMENT CORP.
(GROUP), petitioner, vs. HON. CESAR D. SANTAMARIA, in
his official capacity as Presiding Judge of Branch 145, Regional
Trial Court of Makati City, HERMINIO HARRY L. ROQUE,
JR., JOEL R. BUTUYAN, ROGER R. RAYEL, ROMEL R.
BAGARES, CHRISTOPHER FRANCISCO C. BOLASTIG,
LEAGUE OF URBAN POOR FOR ACTION (LUPA),
KILUSAN NG MARALITA SA MEYCAUAYAN (KMM-LUPA
CHAPTER), DANILO M. CALDERON, VICENTE C. ALBAN,
MERLYN M. VAAL, LOLITA S. QUINONES, RICARDO D.
LANOZO, JR., CONCHITA G. GOZO, MA. TERESA D.
ZEPEDA, JOSEFINA A. LANOZO, and SERGIO C. LEGASPI,
JR., KALIPUNAN NG DAMAYANG MAHIHIRAP
(KADAMAY), EDY CLERIGO, RAMMIL DINGAL, NELSON
B. TERRADO, CARMEN DEUNIDA, and EDUARDO
LEGSON, respondents.
DECISION
SERENO, J p:
This is a Petition for Review on Certiorari with Prayer for the
Issuance of a Temporary Restraining Order (TRO) and/or
Preliminary Injunction assailing the 30 September 2008 Decision and
5 December 2008 Resolution of the Court of Appeals (CA) in CA-
G.R. SP No. 103351. 1 cDCIHT
On 14 September 2002, petitioner China National Machinery &
Equipment Corp. (Group) (CNMEG), represented by its chairperson,
Ren Hongbin, entered into a Memorandum of Understanding with the
North Luzon Railways Corporation (Northrail), represented by its
president, Jose L. Cortes, Jr. for the conduct of a feasibility study on
a possible railway line from Manila to San Fernando, La Union (the
Northrail Project). 2
On 30 August 2003, the Export Import Bank of China (EXIM Bank)
and the Department of Finance of the Philippines (DOF) entered into
a Memorandum of Understanding (Aug 30 MOU), wherein China
agreed to extend Preferential Buyer's Credit to the Philippine
government to finance the Northrail Project. 3 The Chinese
government designated EXIM Bank as the lender, while the
Philippine government named the DOF as the borrower. 4 Under the
Aug 30 MOU, EXIM Bank agreed to extend an amount not
exceeding USD400,000,000 in favor of the DOF, payable in 20 years,
with a 5-year grace period, and at the rate of 3% per annum. 5
On 1 October 2003, the Chinese Ambassador to the Philippines,
Wang Chungui (Amb. Wang), wrote a letter to DOF Secretary Jose
Isidro Camacho (Sec. Camacho) informing him of CNMEG's
designation as the Prime Contractor for the Northrail Project. 6
SIcEHD
On 30 December 2003, Northrail and CNMEG executed a Contract
Agreement for the construction of Section I, Phase I of the North
Luzon Railway System from Caloocan to Malolos on a turnkey basis
(the Contract Agreement). 7 The contract price for the Northrail
Project was pegged at USD421,050,000. 8
On 26 February 2004, the Philippine government and EXIM Bank
entered into a counterpart financial agreement — Buyer Credit Loan
Agreement No. BLA 04055 (the Loan Agreement). 9 In the Loan
Agreement, EXIM Bank agreed to extend Preferential Buyer's Credit
in the amount of USD400,000,000 in favor of the Philippine
government in order to finance the construction of Phase I of the
Northrail Project. 10 aEIADT
On 13 February 2006, respondents filed a Complaint for Annulment
of Contract and Injunction with Urgent Motion for Summary Hearing
to Determine the Existence of Facts and Circumstances Justifying the
Issuance of Writs of Preliminary Prohibitory and Mandatory
Injunction and/or TRO against CNMEG, the Office of the Executive
Secretary, the DOF, the Department of Budget and Management, the
National Economic Development Authority and Northrail. 11 The
case was docketed as Civil Case No. 06-203 before the Regional
Trial Court, National Capital Judicial Region, Makati City, Branch
Page 10 of 28
145 (RTC Br. 145). In the Complaint, respondents alleged that the
Contract Agreement and the Loan Agreement were void for being
contrary to (a) the Constitution; (b) Republic Act No. 9184 (R.A. No.
9184), otherwise known as the Government Procurement Reform
Act; (c) Presidential Decree No. 1445, otherwise known as the
Government Auditing Code; and (d) Executive Order No. 292,
otherwise known as the Administrative Code. 12
RTC Br. 145 issued an Order dated 17 March 2006 setting the case
for hearing on the issuance of injunctive reliefs. 13 On 29 March
2006, CNMEG filed an Urgent Motion for Reconsideration of this
Order. 14 Before RTC Br. 145 could rule thereon, CNMEG filed a
Motion to Dismiss dated 12 April 2006, arguing that the trial court
did not have jurisdiction over (a) its person, as it was an agent of the
Chinese government, making it immune from suit, and (b) the subject
matter, as the Northrail Project was a product of an executive
agreement. 15
On 15 May 2007, RTC Br. 145 issued an Omnibus Order denying
CNMEG's Motion to Dismiss and setting the case for summary
hearing to determine whether the injunctive reliefs prayed for should
be issued. 16 CNMEG then filed a Motion for Reconsideration, 17
which was denied by the trial court in an Order dated 10 March 2008.
18 Thus, CNMEG filed before the CA a Petition for Certiorari with
Prayer for the Issuance of TRO and/or Writ of Preliminary Injunction
dated 4 April 2008. 19 IASEca
In the assailed Decision dated 30 September 2008, the appellate court
dismissed the Petition for Certiorari. 20 Subsequently, CNMEG filed
a Motion for Reconsideration, 21 which was denied by the CA in a
Resolution dated 5 December 2008. 22 Thus, CNMEG filed the
instant Petition for Review on Certiorari dated 21 January 2009,
raising the following issues: 23
Whether or not petitioner CNMEG is an agent of the sovereign
People's Republic of China.
Whether or not the Northrail contracts are products of an executive
agreement between two sovereign states.
Whether or not the certification from the Department of Foreign
Affairs is necessary under the foregoing circumstances.
Whether or not the act being undertaken by petitioner CNMEG is an
act jure imperii.
Whether or not the Court of Appeals failed to avoid a procedural
limbo in the lower court. ECTSDa
Whether or not the Northrail Project is subject to competitive public
bidding.
Whether or not the Court of Appeals ignored the ruling of this
Honorable Court in the Neri case.
CNMEG prays for the dismissal of Civil Case No. 06-203 before
RTC Br. 145 for lack of jurisdiction. It likewise requests this Court
for the issuance of a TRO and, later on, a writ of preliminary
injunction to restrain public respondent from proceeding with the
disposition of Civil Case No. 06-203.
The crux of this case boils down to two main issues, namely:
1. Whether CNMEG is entitled to immunity, precluding it
from being sued before a local court.
2. Whether the Contract Agreement is an executive
agreement, such that it cannot be questioned by or before a local
court. aICHEc
First issue: Whether CNMEG is
entitled to immunity
This Court explained the doctrine of sovereign immunity in Holy See
v. Rosario, 24 to wit:
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. (Emphasis supplied;
citations omitted.)
xxx xxx xxx
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. EcTDCI
In JUSMAG v. National Labor Relations Commission, 25 this Court
affirmed the Philippines' adherence to the restrictive theory as
follows:
The doctrine of state immunity from suit has undergone further
metamorphosis. The view evolved that the existence of a contract
does not, per se, mean that sovereign states may, at all times, be sued
in local courts. The complexity of relationships between sovereign
states, brought about by their increasing commercial activities,
mothered a more restrictive application of the doctrine.
xxx xxx xxx
As it stands now, the application of the doctrine of immunity from
suit has been restricted to sovereign or governmental activities (jure
imperii). The mantle of state immunity cannot be extended to
commercial, private and proprietary acts (jure gestionis). 26
(Emphasis supplied.)
Since the Philippines adheres to the restrictive theory, it is crucial to
ascertain the legal nature of the act involved — whether the entity
claiming immunity performs governmental, as opposed to
proprietary, functions. As held in United States of America v. Ruiz
— 27 EaHcDS
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.
28
A. CNMEG is engaged in a
proprietary activity.
A threshold question that must be answered is whether CNMEG
performs governmental or proprietary functions. A thorough
examination of the basic facts of the case would show that CNMEG
is engaged in a proprietary activity.
The parties executed the Contract Agreement for the purpose of
constructing the Luzon Railways, viz.: 29
WHEREAS the Employer (Northrail) desired to construct the
railways from Caloocan to Malolos, section I, Phase I of Philippine
North Luzon Railways Project (hereinafter referred to as THE
PROJECT); ScHAIT
AND WHEREAS the Contractor has offered to provide the Project
on Turnkey basis, including design, manufacturing, supply,
construction, commissioning, and training of the Employer's
personnel;
AND WHEREAS the Loan Agreement of the Preferential Buyer's
Credit between Export-Import Bank of China and Department of
Finance of Republic of the Philippines;
NOW, THEREFORE, the parties agree to sign this Contract for the
Implementation of the Project.
The above-cited portion of the Contract Agreement, however, does
not on its own reveal whether the construction of the Luzon railways
was meant to be a proprietary endeavor. In order to fully understand
the intention behind and the purpose of the entire undertaking, the
Contract Agreement must not be read in isolation. Instead, it must be
construed in conjunction with three other documents executed in
relation to the Northrail Project, namely: (a) the Memorandum of
Understanding dated 14 September 2002 between Northrail and
CNMEG; 30 (b) the letter of Amb. Wang dated 1 October 2003
addressed to Sec. Camacho; 31 and (c) the Loan Agreement. 32
IDTcHa
1. Memorandum of Understanding
dated 14 September 2002
The Memorandum of Understanding dated 14 September 2002 shows
that CNMEG sought the construction of the Luzon Railways as a
proprietary venture. The relevant parts thereof read:
WHEREAS, CNMEG has the financial capability, professional
competence and technical expertise to assess the state of the [Main
Line North (MLN)] and recommend implementation plans as well as
undertake its rehabilitation and/or modernization;
WHEREAS, CNMEG has expressed interest in the rehabilitation
and/or modernization of the MLN from Metro Manila to San
Fernando, La Union passing through the provinces of Bulacan,
Pampanga, Tarlac, Pangasinan and La Union (the 'Project');
WHEREAS, the NORTHRAIL CORP. welcomes CNMEG's
proposal to undertake a Feasibility Study (the "Study") at no cost to
NORTHRAIL CORP.; aDcHIS
WHEREAS, the NORTHRAIL CORP. also welcomes CNMEG's
interest in undertaking the Project with Supplier's Credit and intends
to employ CNMEG as the Contractor for the Project subject to
compliance with Philippine and Chinese laws, rules and regulations
for the selection of a contractor;
WHEREAS, the NORTHRAIL CORP. considers CNMEG's proposal
advantageous to the Government of the Republic of the Philippines
and has therefore agreed to assist CNMEG in the conduct of the
aforesaid Study;
xxx xxx xxx
II. APPROVAL PROCESS
Page 11 of 28
2.1 As soon as possible after completion and presentation of
the Study in accordance with Paragraphs 1.3 and 1.4 above and in
compliance with necessary governmental laws, rules, regulations and
procedures required from both parties, the parties shall commence the
preparation and negotiation of the terms and conditions of the
Contract (the "Contract") to be entered into between them on the
implementation of the Project. The parties shall use their best
endeavors to formulate and finalize a Contract with a view to signing
the Contract within one hundred twenty (120) days from CNMEG's
presentation of the Study. 33 (Emphasis supplied) TcCDIS
Clearly, it was CNMEG that initiated the undertaking, and not the
Chinese government. The Feasibility Study was conducted not
because of any diplomatic gratuity from or exercise of sovereign
functions by the Chinese government, but was plainly a business
strategy employed by CNMEG with a view to securing this
commercial enterprise.
2. Letter dated 1 October 2003
That CNMEG, and not the Chinese government, initiated the
Northrail Project was confirmed by Amb. Wang in his letter dated 1
October 2003, thus:
1. CNMEG has the proven competence and capability to
undertake the Project as evidenced by the ranking of 42 given by the
ENR among 225 global construction companies.
2. CNMEG already signed an MOU with the North Luzon
Railways Corporation last September 14, 2000 during the visit of
Chairman Li Peng. Such being the case, they have already established
an initial working relationship with your North Luzon Railways
Corporation. This would categorize CNMEG as the state corporation
within the People's Republic of China which initiated our
Government's involvement in the Project. HCSAIa
3. Among the various state corporations of the People's
Republic of China, only CNMEG has the advantage of being fully
familiar with the current requirements of the Northrail Project having
already accomplished a Feasibility Study which was used as inputs
by the North Luzon Railways Corporation in the approvals (sic)
process required by the Republic of the Philippines. 34 (Emphasis
supplied.)
Thus, the desire of CNMEG to secure the Northrail Project was in the
ordinary or regular course of its business as a global construction
company. The implementation of the Northrail Project was intended
to generate profit for CNMEG, with the Contract Agreement placing
a contract price of USD421,050,000 for the venture. 35 The use of
the term "state corporation" to refer to CNMEG was only descriptive
of its nature as a government-owned and/or -controlled corporation,
and its assignment as the Primary Contractor did not imply that it was
acting on behalf of China in the performance of the latter's sovereign
functions. To imply otherwise would result in an absurd situation, in
which all Chinese corporations owned by the state would be
automatically considered as performing governmental activities, even
if they are clearly engaged in commercial or proprietary pursuits.
3. The Loan Agreement
CNMEG claims immunity on the ground that the Aug 30 MOU on
the financing of the Northrail Project was signed by the Philippine
and Chinese governments, and its assignment as the Primary
Contractor meant that it was bound to perform a governmental
function on behalf of China. However, the Loan Agreement, which
originated from the same Aug 30 MOU, belies this reasoning, viz.:
AScHCD
Article 11. . . . (j) Commercial Activity. The execution and
delivery of this Agreement by the Borrower constitute, and the
Borrower's performance of and compliance with its obligations under
this Agreement will constitute, private and commercial acts done and
performed for commercial purposes under the laws of the Republic of
the Philippines and neither the Borrower nor any of its assets is
entitled to any immunity or privilege (sovereign or otherwise) from
suit, execution or any other legal process with respect to its
obligations under this Agreement, as the case may be, in any
jurisdiction. Notwithstanding the foregoing, the Borrower does not
waive any immunity with respect of its assets which are (i) used by a
diplomatic or consular mission of the Borrower and (ii) assets of a
military character and under control of a military authority or defense
agency and (iii) located in the Philippines and dedicated to public or
governmental use (as distinguished from patrimonial assets or assets
dedicated to commercial use). (Emphasis supplied.)
(k) Proceedings to Enforce Agreement. In any proceeding in
the Republic of the Philippines to enforce this Agreement, the choice
of the laws of the People's Republic of China as the governing law
hereof will be recognized and such law will be applied. The waiver of
immunity by the Borrower, the irrevocable submissions of the
Borrower to the non-exclusive jurisdiction of the courts of the
People's Republic of China and the appointment of the Borrower's
Chinese Process Agent is legal, valid, binding and enforceable and
any judgment obtained in the People's Republic of China will be if
introduced, evidence for enforcement in any proceedings against the
Borrower and its assets in the Republic of the Philippines provided
that (a) the court rendering judgment had jurisdiction over the subject
matter of the action in accordance with its jurisdictional rules, (b) the
Republic had notice of the proceedings, (c) the judgment of the court
was not obtained through collusion or fraud, and (d) such judgment
was not based on a clear mistake of fact or law. 36 ISaTCD
Further, the Loan Agreement likewise contains this express waiver of
immunity:
15.5 Waiver of Immunity. The Borrower irrevocably and
unconditionally waives, any immunity to which it or its property may
at any time be or become entitled, whether characterized as sovereign
immunity or otherwise, from any suit, judgment, service of process
upon it or any agent, execution on judgment, set-off, attachment prior
to judgment, attachment in aid of execution to which it or its assets
may be entitled in any legal action or proceedings with respect to this
Agreement or any of the transactions contemplated hereby or
hereunder. Notwithstanding the foregoing, the Borrower does not
waive any immunity in respect of its assets which are (i) used by a
diplomatic or consular mission of the Borrower, (ii) assets of a
military character and under control of a military authority or defense
agency and (iii) located in the Philippines and dedicated to a public or
governmental use (as distinguished from patrimonial assets or assets
dedicated to commercial use). 37
Thus, despite petitioner's claim that the EXIM Bank extended
financial assistance to Northrail because the bank was mandated by
the Chinese government, and not because of any motivation to do
business in the Philippines, 38 it is clear from the foregoing
provisions that the Northrail Project was a purely commercial
transaction. CTDAaE
Admittedly, the Loan Agreement was entered into between EXIM
Bank and the Philippine government, while the Contract Agreement
was between Northrail and CNMEG. Although the Contract
Agreement is silent on the classification of the legal nature of the
transaction, the foregoing provisions of the Loan Agreement, which
is an inextricable part of the entire undertaking, nonetheless reveal
the intention of the parties to the Northrail Project to classify the
whole venture as commercial or proprietary in character.
Thus, piecing together the content and tenor of the Contract
Agreement, the Memorandum of Understanding dated 14 September
2002, Amb. Wang's letter dated 1 October 2003, and the Loan
Agreement would reveal the desire of CNMEG to construct the
Luzon Railways in pursuit of a purely commercial activity performed
in the ordinary course of its business.
B. CNMEG failed to adduce evidence
that it is immune from suit under
Chinese law.
Even assuming arguendo that CNMEG performs governmental
functions, such claim does not automatically vest it with immunity.
This view finds support in Malong v. Philippine National Railways,
in which this Court held that "(i)mmunity from suit is determined by
the character of the objects for which the entity was organized." 39
EIcSTD
In this regard, this Court's ruling in Deutsche Gesellschaft Für
Technische Zusammenarbeit (GTZ) v. CA 40 must be examined. In
Deutsche Gesellschaft, Germany and the Philippines entered into a
Technical Cooperation Agreement, pursuant to which both signed an
arrangement promoting the Social Health Insurance-Networking and
Empowerment (SHINE) project. The two governments named their
respective implementing organizations: the Department of Health
(DOH) and the Philippine Health Insurance Corporation (PHIC) for
the Philippines, and GTZ for the implementation of Germany's
contributions. In ruling that GTZ was not immune from suit, this
Court held:
The arguments raised by GTZ and the [Office of the Solicitor
General (OSG)] are rooted in several indisputable facts. The SHINE
project was implemented pursuant to the bilateral agreements
between the Philippine and German governments. GTZ was tasked,
under the 1991 agreement, with the implementation of the
contributions of the German government. The activities performed by
GTZ pertaining to the SHINE project are governmental in nature,
related as they are to the promotion of health insurance in the
Philippines. The fact that GTZ entered into employment contracts
with the private respondents did not disqualify it from invoking
immunity from suit, as held in cases such as Holy See v. Rosario, Jr.,
which set forth what remains valid doctrine: SETaHC
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
Page 12 of 28
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.
Beyond dispute is the tenability of the comment points (sic) raised by
GTZ and the OSG that GTZ was not performing proprietary
functions notwithstanding its entry into the particular employment
contracts. Yet there is an equally fundamental premise which GTZ
and the OSG fail to address, namely: Is GTZ, by conception, able to
enjoy the Federal Republic's immunity from suit?
The principle of state immunity from suit, whether a local state or a
foreign state, is reflected in Section 9, Article XVI of the
Constitution, which states that "the State may not be sued without its
consent." Who or what consists of "the State"? For one, the doctrine
is available to foreign States insofar as they are sought to be sued in
the courts of the local State, necessary as it is to avoid "unduly
vexing the peace of nations."
If the instant suit had been brought directly against the Federal
Republic of Germany, there would be no doubt that it is a suit
brought against a State, and the only necessary inquiry is whether
said State had consented to be sued. However, the present suit was
brought against GTZ. It is necessary for us to understand what
precisely are the parameters of the legal personality of GTZ.
aHADTC
Counsel for GTZ characterizes GTZ as "the implementing agency of
the Government of the Federal Republic of Germany," a depiction
similarly adopted by the OSG. Assuming that the characterization is
correct, it does not automatically invest GTZ with the ability to
invoke State immunity from suit. The distinction lies in whether the
agency is incorporated or unincorporated.
xxx xxx xxx
State immunity from suit may be waived by general or special law.
The special law can take the form of the original charter of the
incorporated government agency. Jurisprudence is replete with
examples of incorporated government agencies which were ruled not
entitled to invoke immunity from suit, owing to provisions in their
charters manifesting their consent to be sued.
xxx xxx xxx
It is useful to note that on the part of the Philippine government, it
had designated two entities, the Department of Health and the
Philippine Health Insurance Corporation (PHIC), as the
implementing agencies in behalf of the Philippines. The PHIC was
established under Republic Act No. 7875, Section 16 (g) of which
grants the corporation the power "to sue and be sued in court."
Applying the previously cited jurisprudence, PHIC would not enjoy
immunity from suit even in the performance of its functions
connected with SHINE, however, (sic) governmental in nature as
(sic) they may be. SCEDaT
Is GTZ an incorporated agency of the German government? There is
some mystery surrounding that question. Neither GTZ nor the OSG
go beyond the claim that petitioner is "the implementing agency of
the Government of the Federal Republic of Germany." On the other
hand, private respondents asserted before the Labor Arbiter that GTZ
was "a private corporation engaged in the implementation of
development projects." The Labor Arbiter accepted that claim in his
Order denying the Motion to Dismiss, though he was silent on that
point in his Decision. Nevertheless, private respondents argue in their
Comment that the finding that GTZ was a private corporation "was
never controverted, and is therefore deemed admitted." In its Reply,
GTZ controverts that finding, saying that it is a matter of public
knowledge that the status of petitioner GTZ is that of the
"implementing agency," and not that of a private corporation.
In truth, private respondents were unable to adduce any evidence to
substantiate their claim that GTZ was a "private corporation," and the
Labor Arbiter acted rashly in accepting such claim without
explanation. But neither has GTZ supplied any evidence defining its
legal nature beyond that of the bare descriptive "implementing
agency." There is no doubt that the 1991 Agreement designated GTZ
as the "implementing agency" in behalf of the German government.
Yet the catch is that such term has no precise definition that is
responsive to our concerns. Inherently, an agent acts in behalf of a
principal, and the GTZ can be said to act in behalf of the German
state. But that is as far as "implementing agency" could take us. The
term by itself does not supply whether GTZ is incorporated or
unincorporated, whether it is owned by the German state or by
private interests, whether it has juridical personality independent of
the German government or none at all.
xxx xxx xxx
Again, we are uncertain of the corresponding legal implications under
German law surrounding "a private company owned by the Federal
Republic of Germany." Yet taking the description on face value, the
apparent equivalent under Philippine law is that of a corporation
organized under the Corporation Code but owned by the Philippine
government, or a government-owned or controlled corporation
without original charter. And it bears notice that Section 36 of the
Corporate Code states that "[e]very corporation incorporated under
this Code has the power and capacity . . . to sue and be sued in its
corporate name." DCcIaE
It is entirely possible that under German law, an entity such as GTZ
or particularly GTZ itself has not been vested or has been specifically
deprived the power and capacity to sue and/or be sued. Yet in the
proceedings below and before this Court, GTZ has failed to establish
that under German law, it has not consented to be sued despite it
being owned by the Federal Republic of Germany. We adhere to the
rule that in the absence of evidence to the contrary, foreign laws on a
particular subject are presumed to be the same as those of the
Philippines, and following the most intelligent assumption we can
gather, GTZ is akin to a governmental owned or controlled
corporation without original charter which, by virtue of the
Corporation Code, has expressly consented to be sued. At the very
least, like the Labor Arbiter and the Court of Appeals, this Court has
no basis in fact to conclude or presume that GTZ enjoys immunity
from suit. 41 (Emphasis supplied.)
Applying the foregoing ruling to the case at bar, it is readily apparent
that CNMEG cannot claim immunity from suit, even if it contends
that it performs governmental functions. Its designation as the
Primary Contractor does not automatically grant it immunity, just as
the term "implementing agency" has no precise definition for
purposes of ascertaining whether GTZ was immune from suit.
Although CNMEG claims to be a government-owned corporation, it
failed to adduce evidence that it has not consented to be sued under
Chinese law. Thus, following this Court's ruling in Deutsche
Gesellschaft, in the absence of evidence to the contrary, CNMEG is
to be presumed to be a government-owned and -controlled
corporation without an original charter. As a result, it has the capacity
to sue and be sued under Section 36 of the Corporation Code.
EaICAD
C. CNMEG failed to present a
certification from the Department
of Foreign Affairs.
In Holy See, 42 this Court reiterated the oft-cited doctrine that the
determination by the Executive that an entity is entitled to sovereign
or diplomatic immunity is a political question conclusive upon the
courts, to wit:
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.
xxx xxx xxx
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. EHTISC
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. 43 (Emphasis supplied.)
Page 13 of 28
The question now is whether any agency of the Executive Branch can
make a determination of immunity from suit, which may be
considered as conclusive upon the courts. This Court, in Department
of Foreign Affairs (DFA) v. National Labor Relations Commission
(NLRC), 44 emphasized the DFA's competence and authority to
provide such necessary determination, to wit:
The DFA's function includes, among its other mandates, the
determination of persons and institutions covered by diplomatic
immunities, a determination which, when challenge, (sic) entitles it to
seek relief from the court so as not to seriously impair the conduct of
the country's foreign relations. The DFA must be allowed to plead its
case whenever necessary or advisable to enable it to help keep the
credibility of the Philippine government before the international
community. When international agreements are concluded, the
parties thereto are deemed to have likewise accepted the
responsibility of seeing to it that their agreements are duly regarded.
In our country, this task falls principally of (sic) the DFA as being the
highest executive department with the competence and authority to so
act in this aspect of the international arena. 45 (Emphasis supplied.)
TEDaAc
Further, the fact that this authority is exclusive to the DFA was also
emphasized in this Court's ruling in Deutsche Gesellschaft:
It is to be recalled that the Labor Arbiter, in both of his rulings, noted
that it was imperative for petitioners to secure from the Department
of Foreign Affairs "a certification of respondents' diplomatic status
and entitlement to diplomatic privileges including immunity from
suits." The requirement might not necessarily be imperative.
However, had GTZ obtained such certification from the DFA, it
would have provided factual basis for its claim of immunity that
would, at the very least, establish a disputable evidentiary
presumption that the foreign party is indeed immune which the
opposing party will have to overcome with its own factual evidence.
We do not see why GTZ could not have secured such certification or
endorsement from the DFA for purposes of this case. Certainly, it
would have been highly prudential for GTZ to obtain the same after
the Labor Arbiter had denied the motion to dismiss. Still, even at this
juncture, we do not see any evidence that the DFA, the office of the
executive branch in charge of our diplomatic relations, has indeed
endorsed GTZ's claim of immunity. It may be possible that GTZ
tried, but failed to secure such certification, due to the same concerns
that we have discussed herein.
Would the fact that the Solicitor General has endorsed GTZ's claim
of State's immunity from suit before this Court sufficiently substitute
for the DFA certification? Note that the rule in public international
law quoted in Holy See referred to endorsement by the Foreign
Office of the State where the suit is filed, such foreign office in the
Philippines being the Department of Foreign Affairs. Nowhere in the
Comment of the OSG is it manifested that the DFA has endorsed
GTZ's claim, or that the OSG had solicited the DFA's views on the
issue. The arguments raised by the OSG are virtually the same as the
arguments raised by GTZ without any indication of any special and
distinct perspective maintained by the Philippine government on the
issue. The Comment filed by the OSG does not inspire the same
degree of confidence as a certification from the DFA would have
elicited. 46 (Emphasis supplied.)
In the case at bar, CNMEG offers the Certification executed by the
Economic and Commercial Office of the Embassy of the People's
Republic of China, stating that the Northrail Project is in pursuit of a
sovereign activity. 47 Surely, this is not the kind of certification that
can establish CNMEG's entitlement to immunity from suit, as Holy
See unequivocally refers to the determination of the "Foreign Office
of the state where it is sued." CAcDTI
Further, CNMEG also claims that its immunity from suit has the
executive endorsement of both the OSG and the Office of the
Government Corporate Counsel (OGCC), which must be respected
by the courts. However, as expressly enunciated in Deutsche
Gesellschaft, this determination by the OSG, or by the OGCC for that
matter, does not inspire the same degree of confidence as a DFA
certification. Even with a DFA certification, however, it must be
remembered that this Court is not precluded from making an inquiry
into the intrinsic correctness of such certification.
D. An agreement to submit any
dispute to arbitration may be
construed as an implicit waiver
of immunity from suit.
In the United States, the Foreign Sovereign Immunities Act of 1976
provides for a waiver by implication of state immunity. In the said
law, the agreement to submit disputes to arbitration in a foreign
country is construed as an implicit waiver of immunity from suit.
Although there is no similar law in the Philippines, there is reason to
apply the legal reasoning behind the waiver in this case. aSTAIH
The Conditions of Contract, 48 which is an integral part of the
Contract Agreement, 49 states:
33. SETTLEMENT OF DISPUTES AND ARBITRATION
33.1. Amicable Settlement
Both parties shall attempt to amicably settle all disputes or
controversies arising from this Contract before the commencement of
arbitration.
33.2. Arbitration
All disputes or controversies arising from this Contract which cannot
be settled between the Employer and the Contractor shall be
submitted to arbitration in accordance with the UNCITRAL
Arbitration Rules at present in force and as may be amended by the
rest of this Clause. The appointing authority shall be Hong Kong
International Arbitration Center. The place of arbitration shall be in
Hong Kong at Hong Kong International Arbitration Center (HKIAC).
HAICET
Under the above provisions, if any dispute arises between Northrail
and CNMEG, both parties are bound to submit the matter to the
HKIAC for arbitration. In case the HKIAC makes an arbitral award
in favor of Northrail, its enforcement in the Philippines would be
subject to the Special Rules on Alternative Dispute Resolution
(Special Rules). Rule 13 thereof provides for the Recognition and
Enforcement of a Foreign Arbitral Award. Under Rules 13.2 and 13.3
of the Special Rules, the party to arbitration wishing to have an
arbitral award recognized and enforced in the Philippines must
petition the proper regional trial court (a) where the assets to be
attached or levied upon is located; (b) where the acts to be enjoined
are being performed; (c) in the principal place of business in the
Philippines of any of the parties; (d) if any of the parties is an
individual, where any of those individuals resides; or (e) in the
National Capital Judicial Region.
From all the foregoing, it is clear that CNMEG has agreed that it will
not be afforded immunity from suit. Thus, the courts have the
competence and jurisdiction to ascertain the validity of the Contract
Agreement.
Second issue: Whether the Contract
Agreement is an executive agreement
Article 2 (1) of the Vienna Convention on the Law of Treaties
(Vienna Convention) defines a treaty as follows: IaAEHD
[A]n international agreement concluded between States in written
form and governed by international law, whether embodied in a
single instrument or in two or more related instruments and whatever
its particular designation.
In Bayan Muna v. Romulo, this Court held that an executive
agreement is similar to a treaty, except that the former (a) does not
require legislative concurrence; (b) is usually less formal; and (c)
deals with a narrower range of subject matters. 50
Despite these differences, to be considered an executive agreement,
the following three requisites provided under the Vienna Convention
must nevertheless concur: (a) the agreement must be between states;
(b) it must be written; and (c) it must governed by international law.
The first and the third requisites do not obtain in the case at bar.
A. CNMEG is neither a government
nor a government agency.
The Contract Agreement was not concluded between the Philippines
and China, but between Northrail and CNMEG. 51 By the terms of
the Contract Agreement, Northrail is a government-owned or
-controlled corporation, while CNMEG is a corporation duly
organized and created under the laws of the People's Republic of
China. 52 Thus, both Northrail and CNMEG entered into the
Contract Agreement as entities with personalities distinct and
separate from the Philippine and Chinese governments, respectively.
cCTESa
Neither can it be said that CNMEG acted as agent of the Chinese
government. As previously discussed, the fact that Amb. Wang, in his
letter dated 1 October 2003, 53 described CNMEG as a "state
corporation" and declared its designation as the Primary Contractor in
the Northrail Project did not mean it was to perform sovereign
functions on behalf of China. That label was only descriptive of its
nature as a state-owned corporation, and did not preclude it from
engaging in purely commercial or proprietary ventures.
B. The Contract Agreement is to
be governed by Philippine law.
Article 2 of the Conditions of Contract, 54 which under Article 1.1 of
the Contract Agreement is an integral part of the latter, states:
APPLICABLE LAW AND GOVERNING LANGUAGE
The contract shall in all respects be read and construed in accordance
with the laws of the Philippines.
The contract shall be written in English language. All correspondence
and other documents pertaining to the Contract which are exchanged
by the parties shall be written in English language.
Page 14 of 28
Since the Contract Agreement explicitly provides that Philippine law
shall be applicable, the parties have effectively conceded that their
rights and obligations thereunder are not governed by international
law. IcHDCS
It is therefore clear from the foregoing reasons that the Contract
Agreement does not partake of the nature of an executive agreement.
It is merely an ordinary commercial contract that can be questioned
before the local courts.
WHEREFORE, the instant Petition is DENIED. Petitioner China
National Machinery & Equipment Corp. (Group) is not entitled to
immunity from suit, and the Contract Agreement is not an executive
agreement. CNMEG's prayer for the issuance of a TRO and/or Writ
of Preliminary Injunction is DENIED for being moot and academic.
This case is REMANDED to the Regional Trial Court of Makati,
Branch 145, for further proceedings as regards the validity of the
contracts subject of Civil Case No. 06-203.
No pronouncement on costs of suit. cHSTEA
SO ORDERED.
Corona, C.J., Carpio, Velasco, Jr., Leonardo-de Castro, Brion,
Peralta, Bersamin, Abad, Villarama, Jr., Perez, Mendoza, Reyes and
Perlas-Bernabe, JJ., concur.
Del Castillo, J., is on leave.
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, in 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 p:
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). aHTEIA
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
P16,370,191.74 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 IASTDE
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 P273,729.47 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.: ISTHED
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. P503,462.74 amount of the third billing, additional
accomplished work and retention money
2. P5,716,729.00 in actual damages
3. P10,000,000.00 in moral damages
4. P150,000.00 and P1,500.00 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 CDESIA
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. SEIcAD
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 TDEASC
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
Page 15 of 28
notices of garnishment; 23 and a motion to quash the writ of
execution dated May 9, 2003. 24 cDAEIH
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 cDCIHT
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
"[r]evenue 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-Telan 37 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 SITCcE
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 HSDIaC
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 P16,370,191.74 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. cTAaDC
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. TcIAHS
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
cADEHI
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 CAScIH
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
Page 16 of 28
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:
DcAEIS
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. ITDHcA
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 [c]ourt 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. EHSAaD
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, 58 alleging 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 petition 59 after the RTC (Judge
Yadao) denied the UP's motion for the redeposit of the withdrawn
amount on April 10, 2007, 60 to wit: TESICD
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: DCASIT
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. TCaADS
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. AScHCD
SO ORDERED.
Issues
The UP now submits that:
I
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. DcCEHI
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 P10
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. IHDCcT
V
Page 17 of 28
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 Diego 61 and Department
of Agriculture v. NLRC 62 to the effect that government funds and
properties could not be seized under writs of execution or
garnishment to satisfy judgment awards. HaECDI
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
P5,716,729.00 and moral damages of P10 million should be reduced,
if not entirely deleted, due to its being unconscionable, inequitable
and detrimental to public service. aECSHI
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
P22,338,553.25, 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. EAICTS
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
P5,716,729.00, moral damages of P10,000,000.00 and attorney's fees
of P150,000.00 plus P1,500.00 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 university 67
"dedicated to the search for truth and knowledge as well as the
development of future leaders." 68 ASIDTa
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 DacASC
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: CDaTAI
. . . 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. DHITSc
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 TEacSA
II
Page 18 of 28
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: cSTHaE
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. ASHaDT
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 denying the UP's motion for the redeposit of
the withdrawn amount. Hence, such orders and issuances should be
struck down without exception. ScHADI
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:
TSAHIa
"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. IaHSCc
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 "[w]here 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: TaCEHA
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. TaCDIc
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 P16,370,191.74
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. caSDCA
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. 89 Indeed, 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)
Page 19 of 28
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. aAcHCT
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. TAEcSC
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 TaEIcS
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.: THEDcS
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
statutes, 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. AEIcSa
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."
aIETCA
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. cDHAES
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. EAcIST
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
Page 20 of 28
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. AECacS
Here, the decision of the RTC justified the grant of actual and moral
damages, and attorney's fees in the following terse manner, viz.:
. . . 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 P5,716,729.00 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. ICacDE
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
P10,000,000.00. 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 P10,000,000.00
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
P10,000,000.00 allowed as moral damages not only to be factually
baseless and legally indefensible, but also to be unconscionable,
inequitable and unreasonable. cSTDIC
Like the actual and moral damages, the P150,000.00, plus P1,500.00
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 2208 115 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 ETAICc
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., P503,462.74)
shall stand, subject to the action of the COA as stated herein.
aETAHD
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 P5,716,729.00, moral damages of P10,000,000.00,
and attorney's fees of P150,000.00, plus P1,500.00 per appearance, in
favor of Stern Builders Corporation and Servillano dela Cruz.
The Court ORDERS Stern Builders Corporation and Servillano dela
Cruz to redeposit the amount of P16,370,191.74 within 10 days from
receipt of this decision.
Costs of suit to be paid by the private respondents.
SO ORDERED. TaHDAS
Leonardo-de Castro, Del Castillo, Villarama, Jr. and Perlas-Bernabe,
JJ., concur.
[G.R. No. 159402. February 23, 2011.]
AIR TRANSPORTATION OFFICE, petitioner, vs. SPOUSES
DAVID * and ELISEA RAMOS, respondents.
DECISION
BERSAMIN, J p:
The State's immunity from suit does not extend to the petitioner
because it is an agency of the State engaged in an enterprise that is far
from being the State's exclusive prerogative. ScAHTI
Under challenge is the decision promulgated on May 14, 2003, 1 by
which the Court of Appeals (CA) affirmed with modification the
decision rendered on February 21, 2001 by the Regional Trial Court,
Branch 61 (RTC), in Baguio City in favor of the respondents. 2
Antecedents
Spouses David and Elisea Ramos (respondents) discovered that a
portion of their land registered under Transfer Certificate of Title No.
T-58894 of the Baguio City land records with an area of 985 square
meters, more or less, was being used as part of the runway and
running shoulder of the Loakan Airport being operated by petitioner
Air Transportation Office (ATO). On August 11, 1995, the
respondents agreed after negotiations to convey the affected portion
by deed of sale to the ATO in consideration of the amount of
P778,150.00. However, the ATO failed to pay despite repeated verbal
and written demands.
Thus, on April 29, 1998, the respondents filed an action for collection
against the ATO and some of its officials in the RTC (docketed as
Civil Case No. 4017-R and entitled Spouses David and Elisea Ramos
Page 21 of 28
v. Air Transportation Office, Capt. Panfilo Villaruel, Gen. Carlos
Tanega, and Mr. Cesar de Jesus).
In their answer, the ATO and its co-defendants invoked as an
affirmative defense the issuance of Proclamation No. 1358, whereby
President Marcos had reserved certain parcels of land that included
the respondents' affected portion for use of the Loakan Airport. They
asserted that the RTC had no jurisdiction to entertain the action
without the State's consent considering that the deed of sale had been
entered into in the performance of governmental functions.
On November 10, 1998, the RTC denied the ATO's motion for a
preliminary hearing of the affirmative defense.
After the RTC likewise denied the ATO's motion for reconsideration
on December 10, 1998, the ATO commenced a special civil action
for certiorari in the CA to assail the RTC's orders. The CA dismissed
the petition for certiorari, however, upon its finding that the assailed
orders were not tainted with grave abuse of discretion. 3 THIECD
Subsequently, February 21, 2001, the RTC rendered its decision on
the merits, 4 disposing:
WHEREFORE, the judgment is rendered ORDERING the defendant
Air Transportation Office to pay the plaintiffs DAVID and ELISEA
RAMOS the following: (1) The amount of P778,150.00 being the
value of the parcel of land appropriated by the defendant ATO as
embodied in the Deed of Sale, plus an annual interest of 12% from
August 11, 1995, the date of the Deed of Sale until fully paid; (2) The
amount of P150,000.00 by way of moral damages and P150,000.00
as exemplary damages; (3) the amount of P50,000.00 by way of
attorney's fees plus P15,000.00 representing the 10, more or less,
court appearances of plaintiff's counsel; (4) The costs of this suit.
SO ORDERED.
In due course, the ATO appealed to the CA, which affirmed the
RTC's decision on May 14, 2003, 5 viz.:
IN VIEW OF ALL THE FOREGOING, the appealed decision is
hereby AFFIRMED, with MODIFICATION that the awarded cost
therein is deleted, while that of moral and exemplary damages is
reduced to P30,000.00 each, and attorney's fees is lowered to
P10,000.00.
No cost.
SO ORDERED.
Hence, this appeal by petition for review on certiorari.
Issue
The only issue presented for resolution is whether the ATO could be
sued without the State's consent.
Ruling
The petition for review has no merit.
The immunity of the State from suit, known also as the doctrine of
sovereign immunity or non-suability of the State, is expressly
provided in Article XVI of the 1987 Constitution, viz.:
Section 3. The State may not be sued without its consent. —
The immunity from suit is based on the political truism that the State,
as a sovereign, can do no wrong. Moreover, as the eminent Justice
Holmes said in Kawananakoa v. Polyblank: 6 AEcTaS
The territory [of Hawaii], of course, could waive its exemption
(Smith v. Reeves, 178 US 436, 44 L ed. 1140, 20 Sup. Ct. Rep. 919),
and it took no objection to the proceedings in the cases cited if it
could have done so. . . . But in the case at bar it did object, and the
question raised is whether the plaintiffs were bound to yield. Some
doubts have been expressed as to the source of the immunity of a
sovereign power from suit without its own permission, but the answer
has been public property since before the days of Hobbes. Leviathan,
chap. 26, 2. A sovereign is exempt from suit, not because of any
formal conception or obsolete theory, but on the logical and practical
ground that there can be no legal right as against the authority that
makes the law on which the right depends. "Car on peut bien recevoir
loy d'autruy, mais il est impossible par nature de se donner loy."
Bodin, Republique, 1, chap. 8, ed. 1629, p. 132; Sir John Eliot, De
Jure Maiestatis, chap. 3. Nemo suo statuto ligatur necessitative.
Baldus, De Leg. et Const. Digna Vox, 2. ed. 1496, fol. 51b, ed. 1539,
fol. 61. 7
Practical considerations dictate the establishment of an immunity
from suit in favor of the State. Otherwise, and the State is suable at
the instance of every other individual, government service may be
severely obstructed and public safety endangered because of the
number of suits that the State has to defend against. 8 Several
justifications have been offered to support the adoption of the
doctrine in the Philippines, but that offered in Providence
Washington Insurance Co. v. Republic of the Philippines 9 is "the
most acceptable explanation," according to Father Bernas, a
recognized commentator on Constitutional Law, 10 to wit:
[A] continued adherence to the doctrine of non-suability is not to be
deplored for as against the inconvenience that may be caused private
parties, the loss of governmental efficiency and the obstacle to the
performance of its multifarious functions are far greater if such a
fundamental principle were abandoned and the availability of judicial
remedy were not thus restricted. With the well-known propensity on
the part of our people to go to court, at the least provocation, the loss
of time and energy required to defend against law suits, in the
absence of such a basic principle that constitutes such an effective
obstacle, could very well be imagined. cDCEHa
An unincorporated government agency without any separate juridical
personality of its own enjoys immunity from suit because it is
invested with an inherent power of sovereignty. Accordingly, a claim
for damages against the agency cannot prosper; otherwise, the
doctrine of sovereign immunity is violated. 11 However, the need to
distinguish between an unincorporated government agency
performing governmental function and one performing proprietary
functions has arisen. The immunity has been upheld in favor of the
former because its function is governmental or incidental to such
function; 12 it has not been upheld in favor of the latter whose
function was not in pursuit of a necessary function of government but
was essentially a business. 13
Should the doctrine of sovereignty immunity or non-suability of the
State be extended to the ATO?
In its challenged decision, 14 the CA answered in the negative,
holding:
On the first assignment of error, appellants seek to impress upon Us
that the subject contract of sale partook of a governmental character.
Apropos, the lower court erred in applying the High Court's ruling in
National Airports Corporation vs. Teodoro (91 Phil. 203 [1952]),
arguing that in Teodoro, the matter involved the collection of landing
and parking fees which is a proprietary function, while the case at bar
involves the maintenance and operation of aircraft and air
navigational facilities and services which are governmental functions.
We are not persuaded.
Contrary to appellants' conclusions, it was not merely the collection
of landing and parking fees which was declared as proprietary in
nature by the High Court in Teodoro, but management and
maintenance of airport operations as a whole, as well. Thus, in the
much later case of Civil Aeronautics Administration vs. Court of
Appeals (167 SCRA 28 [1988]), the Supreme Court, reiterating the
pronouncements laid down in Teodoro, declared that the CAA
(predecessor of ATO) is an agency not immune from suit, it being
engaged in functions pertaining to a private entity. It went on to
explain in this wise:
xxx 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. It is engaged in an
enterprise which, far from being the exclusive prerogative of state,
may, more than the construction of public roads, be undertaken by
private concerns. [National Airports Corp. v. Teodoro, supra, p. 207.]
EIDATc
xxx xxx xxx
True, the law prevailing in 1952 when the Teodoro case was
promulgated was Exec. Order 365 (Reorganizing the Civil
Aeronautics Administration and Abolishing the National Airports
Corporation). Republic Act No. 776 (Civil Aeronautics Act of the
Philippines), subsequently enacted on June 20, 1952, did not alter the
character of the CAA's objectives under Exec. Order 365. The
pertinent provisions cited in the Teodoro case, particularly Secs. 3
and 4 of Exec. Order 365, which led the Court to consider the CAA
in the category of a private entity were retained substantially in
Republic Act 776, Sec. 32(24) and (25). Said Act provides:
Sec. 32. Powers and Duties of the Administrator. — Subject to the
general control and supervision of the Department Head, the
Administrator shall have among others, the following powers and
duties:
xxx xxx xxx
(24) To administer, operate, manage, control, maintain and
develop the Manila International Airport and all government-owned
aerodromes except those controlled or operated by the Armed Forces
of the Philippines including such powers and duties as: (a) to plan,
design, construct, equip, expand, improve, repair or alter aerodromes
or such structures, improvement or air navigation facilities; (b) to
enter into, make and execute contracts of any kind with any person,
firm, or public or private corporation or entity; . . .
(25) To determine, fix, impose, collect and receive landing fees,
parking space fees, royalties on sales or deliveries, direct or indirect,
to any aircraft for its use of aviation gasoline, oil and lubricants, spare
Page 22 of 28
parts, accessories and supplies, tools, other royalties, fees or rentals
for the use of any of the property under its management and control.
xxx xxx xxx
From the foregoing, it can be seen that the CAA is tasked with
private or non-governmental functions which operate to remove it
from the purview of the rule on State immunity from suit. For the
correct rule as set forth in the Teodoro case states: aSEHDA
xxx xxx xxx
Not all government entities, whether corporate or non-corporate, are
immune from suits. Immunity from suits is determined by the
character of the objects for which the entity was organized. The rule
is thus stated in Corpus Juris:
Suits against State agencies with relation to matters in which they
have assumed to act in private or non-governmental capacity, and
various suits against certain corporations created by the state for
public purposes, but to engage in matters partaking more of the
nature of ordinary business rather than functions of a governmental or
political character, are not regarded as suits against the state. The
latter is true, although the state may own stock or property of such a
corporation for by engaging in business operations through a
corporation, the state divests itself so far of its sovereign character,
and by implication consents to suits against the corporation. (59 C.J.,
313) [National Airports Corporation v. Teodoro, supra, pp. 206-207;
Italics supplied.]
This doctrine has been reaffirmed in the recent case of Malong v.
Philippine National Railways [G.R. No. L-49930, August 7, 1985,
138 SCRA 63], where it was held that the Philippine National
Railways, although owned and operated by the government, was not
immune from suit as it does not exercise sovereign but purely
proprietary and business functions. Accordingly, as the CAA was
created to undertake the management of airport operations which
primarily involve proprietary functions, it cannot avail of the
immunity from suit accorded to government agencies performing
strictly governmental functions. 15
In our view, the CA thereby correctly appreciated the juridical
character of the ATO as an agency of the Government not performing
a purely governmental or sovereign function, but was instead
involved in the management and maintenance of the Loakan Airport,
an activity that was not the exclusive prerogative of the State in its
sovereign capacity. Hence, the ATO had no claim to the State's
immunity from suit. We uphold the CA's aforequoted holding.
aTHASC
We further observe the doctrine of sovereign immunity cannot be
successfully invoked to defeat a valid claim for compensation arising
from the taking without just compensation and without the proper
expropriation proceedings being first resorted to of the plaintiffs'
property. 16 Thus, in De los Santos v. Intermediate Appellate Court,
17 the trial court's dismissal based on the doctrine of non-suability of
the State of two cases (one of which was for damages) filed by
owners of property where a road 9 meters wide and 128.70 meters
long occupying a total area of 1,165 square meters and an artificial
creek 23.20 meters wide and 128.69 meters long occupying an area
of 2,906 square meters had been constructed by the provincial
engineer of Rizal and a private contractor without the owners'
knowledge and consent was reversed and the cases remanded for trial
on the merits. The Supreme Court ruled that the doctrine of sovereign
immunity was not an instrument for perpetrating any injustice on a
citizen. In exercising the right of eminent domain, the Court
explained, the State exercised its jus imperii, as distinguished from its
proprietary rights, or jus gestionis; yet, even in that area, where
private property had been taken in expropriation without just
compensation being paid, the defense of immunity from suit could
not be set up by the State against an action for payment by the
owners.
Lastly, the issue of whether or not the ATO could be sued without the
State's consent has been rendered moot by the passage of Republic
Act No. 9497, otherwise known as the Civil Aviation Authority Act
of 2008.
R.A. No. 9497 abolished the ATO, to wit:
Section 4. Creation of the Authority. — There is hereby
created an independent regulatory body with quasi-judicial and quasi-
legislative powers and possessing corporate attributes to be known as
the Civil Aviation Authority of the Philippines (CAAP), herein after
referred to as the "Authority" attached to the Department of
Transportation and Communications (DOTC) for the purpose of
policy coordination. For this purpose, the existing Air Transportation
Office created under the provisions of Republic Act No. 776, as
amended is hereby abolished. SDTaHc
xxx xxx xxx
Under its Transitory Provisions, R.A. No. 9497 established in place
of the ATO the Civil Aviation Authority of the Philippines (CAAP),
which thereby assumed all of the ATO's powers, duties and rights,
assets, real and personal properties, funds, and revenues, viz.:
CHAPTER XII
TRANSITORY PROVISIONS
Section 85. Abolition of the Air Transportation Office. —
The Air Transportation Office (ATO) created under Republic Act No.
776, a sectoral office of the Department of Transportation and
Communications (DOTC), is hereby abolished.
All powers, duties and rights vested by law and exercised by the
ATO is hereby transferred to the Authority.
All assets, real and personal properties, funds and revenues owned by
or vested in the different offices of the ATO are transferred to the
Authority. All contracts, records and documents relating to the
operations of the abolished agency and its offices and branches are
likewise transferred to the Authority. Any real property owned by the
national government or government-owned corporation or authority
which is being used and utilized as office or facility by the ATO shall
be transferred and titled in favor of the Authority.
Section 23 of R.A. No. 9497 enumerates the corporate powers vested
in the CAAP, including the power to sue and be sued, to enter into
contracts of every class, kind and description, to construct, acquire,
own, hold, operate, maintain, administer and lease personal and real
properties, and to settle, under such terms and conditions most
advantageous to it, any claim by or against it. 18
With the CAAP having legally succeeded the ATO pursuant to R.A.
No. 9497, the obligations that the ATO had incurred by virtue of the
deed of sale with the Ramos spouses might now be enforced against
the CAAP.
WHEREFORE, the Court denies the petition for review on certiorari,
and affirms the decision promulgated by the Court of Appeals.
No pronouncement on costs of suit. IcADSE
SO ORDERED.
Brion, ** Abad, *** Villarama, Jr. and Sereno, JJ., concur.
[G.R. No. L-30671. November 28, 1973.]
REPUBLIC OF THE PHILIPPINES, petitioner, vs. HON.
GUILLERMO P. VILLASOR, as Judge of the Court of First Instance
of Cebu, Branch I, THE PROVINCIAL-SHERIFF OF RIZAL, THE
SHERIFF OF QUEZON CITY, and THE SHERIFF OF THE CITY
OF MANILA, THE CLERK OF COURT, Court of First Instance of
Cebu, P.J. KIENER CO., LTD., GAVINO UNCHUAN, and
INTERNATIONAL CONSTRUCTION CORPORATION,
respondents.
Solicitor General Felix V . Makasiar and Solicitor Bernardo P. Pardo
for petitioner.
Andres T . Velarde & Marcelo B. Fernan for respondents.
DECISION
FERNANDO, J p:
The Republic of the Philippines in this certiorari and prohibition
proceeding challenges the validity of an order issued by respondent
Judge Guillermo P. Villasor, then of the Court of First Instance of
Cebu, Branch I, 1 declaring a decision final and executory and of an
alias writ of execution directed against the funds of the Armed Forces
of the Philippines subsequently issued in pursuance thereof, the
alleged ground being excess of jurisdiction, or at the very least, grave
abuse of discretion. As thus simply and tersely put, with the facts
being undisputed and the principle of law that calls for application
indisputable, the outcome is predictable. The Republic of the
Philippines is entitled to the writs prayed for. Respondent Judge
ought not to have acted thus. The order thus impugned and the alias
writ of execution must be nullified.
In the petition filed by the Republic of the Philippines on July 7,
1969, a summary of facts was set forth thus: "7. On July 3, 1961, a
decision was rendered in Special Proceedings No. 2156-R in favor of
respondents P. J. Kiener Co., Ltd., Gavino Unchuan, and
International Construction Corporation, and against the petitioner
herein, confirming the arbitration award in the amount of
P1,712,396.40, subject of Special Proceedings. 8. On June 24, 1969,
respondent Honorable Guillermo P. Villasor, issued an Order
declaring the aforestated decision of July 3, 1961 final and executory,
directing the Sheriffs of Rizal Province, Quezon City [as well as]
Manila to execute the said decision. 9. Pursuant to the said Order
dated June 24, 1969, the corresponding Alias Writ of Execution [was
issued] dated June 26, 1969, . . . 10. On the strength of the afore-
mentioned Alias Writ of Execution dated June 26, 1969, the
Provincial Sheriff of Rizal (respondent herein) served notices of
garnishment dated June 28, 1969 with several Banks, specially on the
`monies due the Armed Forces of the Philippines in the form of
deposits, sufficient to cover the amount mentioned in the said Writ of
Execution'; the Philippine Veterans Bank received the same notice of
Page 23 of 28
garnishment on June 30, 1969 . . . 11. The funds of the Armed Forces
of the Philippines on deposit with the Banks, particularly, with the
Philippine Veterans Bank and the Philippine National Bank [or] their
branches are public funds duly appropriated and allocated for the
payment of pensions of retirees, pay and allowances of military and
civilian personnel and for maintenance and operations of the Armed
Forces of the Philippines, as per Certification dated July 3, 1969 by
the AFP Comptroller, . . ." 2 The paragraph immediately succeeding
in such petition then alleged: "12. Respondent Judge, Honorable
Guillermo P. Villasor, acted in excess of jurisdiction [or] with grave
abuse of discretion amounting to lack of jurisdiction in granting the
issuance of an alias writ of execution against the properties of the
Armed Forces of the Philippines, hence, the Alias Writ of Execution
and notices of garnishment issued pursuant thereto are null and void."
3 In the answer filed by respondents, through counsel Andres T.
Velarde and Marcelo B. Fernan, the facts set forth were admitted
with the only qualification being that the total award was in the
amount of P2,372,331.40. 4
The Republic of the Philippines, as mentioned at the outset, did right
in filing this certiorari and prohibition proceeding. What was done by
respondent Judge is not in conformity with the dictates of the
Constitution.
It is a fundamental postulate of constitutionalism flowing from the
juristic concept of sovereignty that the state as well as its government
is immune from suit unless it gives its consent. It is readily
understandable why it must be so. In the classic formulation of
Holmes: "A sovereign is exempt from suit, not because of any formal
conception or obsolete theory, but on the logical and practical ground
that there can be no legal right as against the authority that makes the
law on which the right depends." 5 Sociological jurisprudence
supplies an answer not dissimilar. So it was indicated in a recent
decision, Providence Washington Insurance Co. v. Republic of the
Philippines, 6 with its affirmation that "a continued adherence to the
doctrine of non-suability is not to be deplored for as against the
inconvenience that may be caused private parties, the loss of
governmental efficiency and the obstacle to the performance of its
multifarious functions are far greater if such a fundamental principle
were abandoned and the availability of judicial remedy were not thus
restricted. With the well known propensity on the part of our people
to go to court, at the least provocation, the loss of time and energy
required to defend against law suits, in the absence of such a basic
principle that constitutes such an effective obstacle, could very well
be imagined." 7
This fundamental postulate underlying the 1935 Constitution is now
made explicit in the revised charter. It is therein expressly provided:
"The State may not be sued without its consent." 8 A corollary, both
dictated by logic and sound sense from such a basic concept is that
public funds cannot be the object of a garnishment proceeding even if
the consent to be sued had been previously granted and the state
liability adjudged. Thus in the recent case of Commissioner of Public
Highways v. San Diego, 9 such a well-settled doctrine was restated in
the opinion of Justice Teehankee: "The universal rule that where the
State gives its consent to be sued by private parties either by general
or special law, it may limit claimant's action `only up to the
completion of proceedings anterior to the stage of execution' and that
the power of the Courts ends when the judgment is rendered, since
government funds and properties may not be seized under writs of
execution or garnishment to satisfy such judgments, is based on
obvious considerations of public policy. Disbursements of public
funds must be covered by the corresponding appropriation as
required by law. The functions and public services rendered by the
State cannot be allowed to be paralyzed or disrupted by the diversion
of public funds from their legitimate and specific objects, as
appropriated by law." 10 Such a principle applies even to an
attempted garnishment of a salary that had accrued in favor of an
employee. Director of Commerce and Industry v. Concepcion, 11
speaks to that effect. Justice Malcolm as ponente left no doubt on that
score. Thus: "A rule, which has never been seriously questioned, is
that money in the hands of public officers, although it may be due
government employees, is not liable to the creditors of these
employees in the process of garnishment. One reason is, that the
State, by virtue of its sovereignty, may not be sued in its own courts
except by express authorization by the Legislature, and to subject its
officers to garnishment would be to permit indirectly what is
prohibited directly. Another reason is that moneys sought to be
garnished, as long as they remain in the hands of the disbursing
officer of the Government, belong to the latter, although the
defendant in garnishment may be entitled to a specific portion
thereof. And still another reason which covers both of the foregoing
is that every consideration of public policy forbids it." 12
In the light of the above, it is made abundantly clear why the
Republic of the Philippines could rightfully allege a legitimate
grievance.
WHEREFORE, the writs of certiorari and prohibition are granted,
nullifying and setting aside both the order of June 24, 1969 declaring
executory the decision of July 3, 1961 as well as the alias writ of
execution issued thereunder. The preliminary injunction issued by
this Court on July 12, 1969 is hereby made permanent.
Zaldivar, Antonio, Fernandez and Aquino, JJ ., concur.
Barredo, J ., did not take part.
[G.R. No. L-8596. May 18, 1956.]
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellant, vs.
JULIANA UBA and CALIXTA UBA, defendants-appellees.
Solicitor General Ambrosio Padilla and Assistant Solicitor
General Jose G. Bautista for appellant.
Malcolm S. Enerio for appellees.
SYLLABUS
1. CRIMINAL PROCEDURE INFORMATION; MISTAKE
IN PUTTING THE NAME OF OFFENDED PARTY, EFFECT OF;
DISMISSAL NOT AMENDMENT, IS THE PROPER REMEDY. —
A mistake in putting in the information the name of the offended
party is a material matter which necessarily affects the identification
of the act charged. Amendment of the information by changing the
name of the offended party so as to make it conform with the
evidence is not proper. The case should be dismissed for variance
between the allegations of the information and the proof.
2. ID.; ID.; ID.; ACCUSED MAY BE CHARGED ANEW
FOR ANOTHER OFFENSE. — Where the evidence showed that the
accused were guilty of another act, the court should have ordered the
fiscal to file another information and hold the accused in custody to
answer the new charged.
DECISION
LABRADOR, J p:
Appeal by the People against a judgment of the Court of First
Instance of Misamis Occidental, absolving Juliana Uba and Calixta
Uba of the offense of oral defamation of which they are charged in an
information filed by the provincial fiscal.
On August 1, 1952, Demetria Somod-ong filed a complaint in the
justice of the peace court of Oroquieta, Misamis Occidental, charging
above-named Juliana and Calixta Uba with having uttered in public
against complainant certain defamatory words and expressions. The
complaint was supported by the affidavits of Pastora Somod-ong,
Marciano Calibog and Anacoreta Rocaldo. The court found the
existence of probable cause and forwarded the case to the Court of
First Instance, where the provincial fiscal filed the information
charging the accused Juliana and Calixta Uba of serious oral
defamation. However, instead of mentioning the complainant
Demetria Somod-ong as the offended party, the information named
Pastora Somod-ong as the person offended.
When the case came for trial both Demetria and Pastora testified for
the prosecution. Demetria is the daughter of Pastora and when the
latter testified she declared that it was her daughter Demetria who
was insulted by the accused. When Demetria testified she declared
the accused insulted her corroborating her mother's testimony. Two
other witnesses testified that the accused insulted Demetria Somod-
ong calling her lascivious and a prostitute. When the prosecution had
rested, counsel for the accused promptly moved for the dismissal of
the case on the ground that all the defamatory statements supposed to
have been uttered by the accused were against Demetria, not against
the offended party, Pastora. The judge then ordered counsel for the
parties to present the motion and the answer thereto in writing which
they did. The judge sustained the motion to dismiss and entered
decision acquitting the accused of the charge. Hence, this appeal.
The Solicitor General contends in this appeal that the trial court
should have ordered the fiscal to amend the information by changing
the name of the offended party so as to make it conform with the
evidence. It is claimed that the change would merely be one of form,
permitted by Section 13 of Rule 106, which provides:
"SEC. 13.Amendment. — The information or complaint may be
amended, in substance or form, without leave of court, at any time
before the defendant pleads; and thereafter and during the trial as to
all matters of form, by leave and at the discretion of the court, when
the same can be done without prejudice to the rights of the defendant.
If it appears at any time before judgment that mistake has been made
in charging the proper offense, the court may dismiss the original
complaint or information and order the filing of a new one charging
the proper offense, provided the defendant would not be place
Page 24 of 28
thereby in double jeopardy, and may also require the witnesses to
give bail for their appearance at the trial."
While it is probably true that the fiscal or his clerk made a clerical
error in putting in the information the name of Pastora Somod-ong
instead of that of Demetria Somod-ong, as the offended party, the
mistake thus committed was on a very material matter in the case,
such that it necessarily affected the identification of the act charged.
The act of insulting X is distinct from a similar act of insult against
Y, even if the insult is preferred by the same person, in the same
language and at about the same time. Note that the pleading that give
the court jurisdiction to try the offense is not the complaint of the
offended party, but the information by the fiscal, because the charge
is the utterance of insulting or defamatory language, not the
imputation of an offense which can be prosecuted only at the instance
of the offended party. (People vs. Marquez, 68 Phil., 521; Blanco vs.
People, 70 Phil., 735.)
The case of Lahoylahoy, 38 Phil., 330, appears to us to be in point
and decisive of the case. The reasons for the decision in that case
were, first, because, to convict a person of robbing X when the
person robbed is Y is violative of the principles of pleading and,
second, because then the plea of double jeopardy would be of no
avail to an accused. To this same effect is our decision in People vs.
Balboa, 90 Phil., 5.
We, therefore, find that the court a quo did not err in dismissing the
case for variance between the allegations of the information and the
proof. But the evidence showed that the accused were guilty of
another act, that of insulting Demetria Somod-ong. The Court should
have, therefore, ordered the fiscal to file another information with
Demetria Somod-ong as the offended party and hold the accused in
custody to answer the new charge.
The order of dismissal is hereby affirmed, but the provincial fiscal of
Misamis Occidental is hereby ordered to file a new information
charging the same accused with the offense of serious oral
defamation against Demetria Somod-ong. Judgment modified.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista
Angelo, Concepcion, Reyes, J.B.L., and Endencia, JJ., concur.
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. 7 There 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.
Page 25 of 28

[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 Office for
petitioners.
Albert, Vergara, Benares, Perlas & Dominguez Law Office for
respondents.
DECISION
ABAD SANTOS, J p:
This is a petition to review, set aside certain orders and restrain the
respondent judge from trying Civil Case No. 779-M 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 fender 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.
LLpr
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
William 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. LexLib
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
imperii. 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].) 2006cdtai
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 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. cdrep
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.)
Page 26 of 28
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 on 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
that 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.) LLphil
In Syquia, the United States concluded contracts with private
individuals but the contracts notwithstanding the United 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. 779-M is
dismissed. Costs against the private respondent.
SO ORDERED.
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.
Separate Opinions
MAKASIAR, J., dissents:
The petition should be dismissed and the proceedings in Civil Case
No. 779-M in the defunct CFI (now RTC) of Rizal be allowed to
continue therein.
In the case of Lyons vs. the United States of America (104 Phil. 593),
where the contract entered into between the plaintiff (Harry Lyons,
Inc.) and the defendant (U.S. Government) involved stevedoring and
labor services within the Subic Bay area, this Court further stated that
inasmuch as ". . . 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.
Navy Reservation, it is evident that it can bring an action before our
courts for any contractual liability that political entity may assume
under the contract."
When the U.S. Government, through its agency at Subic Bay,
confirmed the acceptance of a bid of a private company for the repair
of wharves or shoreline in the Subic Bay area, it is deemed to have
entered into a contract and thus waived the mantle of sovereign
immunity from suit and descended to the level of the ordinary citizen.
Its consent to be sued, therefore, is implied from its act of entering
into a contract (Santos vs. Santos, 92 Phil. 281, 284).
Justice and fairness dictate that a foreign government that commits a
breach of its contractual obligation — in the case at bar by the
unilateral cancellation of the award for the project by the United
States government, through its agency at Subic Bay — should not be
allowed to take undue advantage of a party who may have legitimate
claims against it by seeking refuge behind the shield of non-suability.
A contrary view would render a Filipino citizen, as in the instant
case, helpless and without redress in his own country for violation of
his rights committed by the agents of the foreign government
professing to act in its name. cdll
Appropriate are the words of Justice Perfecto in his dissenting
opinion in Syquia vs. Almeda Lopez, 84 Phil. 312, 325:
"Although, generally, foreign governments are beyond the
jurisdiction of domestic courts of justice, such rule is inapplicable to
cases in which the foreign government enters into private contracts
with the citizens of the court's jurisdiction. A contrary view would
simply run against all principles of decency and violative of all tenets
of morals.
"Moral principles and principles of justice are as valid and applicable
as well with regard to private individuals as with regard to
governments either domestic or foreign. Once a foreign government
enters into a private contract with the private citizens of another
country, such foreign government cannot shield its non-performance
or contravention of the terms of the contract under the cloak of non-
jurisdiction. To place such foreign government beyond the
jurisdiction of the domestic courts is to give approval to the execution
of unilateral contracts, graphically described in Spanish as 'contratos
leoninos,' because one party gets the lion's share to the detriment of
the other. To give validity to such contract is to sanctify bad faith,
deceit, fraud. We prefer to adhere to the thesis that all parties in a
private contract, including governments and the most powerful of
them, are amenable to law, and that such contracts are enforceable
through the help of the courts of justice with jurisdiction to take
cognizance of any violation of such contracts if the same had been
entered into only by private individuals."
Constant resort by a foreign state or its agents to the doctrine of State
immunity in this jurisdiction impinges unduly upon our sovereignty
and dignity as a nation. Its application will particularly discourage
Filipino or domestic contractors from transacting business and
entering into contracts with United States authorities or facilities in
the Philippines — whether naval, air or ground forces — because the
difficulty, if not impossibility, of enforcing a validly executed
contract and of seeking judicial remedy in our own courts for
breaches of contractual obligation committed by agents of the United
States government, always looms large, thereby hampering the
growth of Filipino enterprises and creating a virtual monopoly in our
own country by United States contractors of contracts for services or
supplies with the various U.S. offices and agencies operating in the
Philippines.
The sanctity of upholding agreements freely entered into by the
parties cannot be over emphasized. Whether the parties are nations or
private individuals, it is to be reasonably assumed and expected that
the undertakings in the contract will be complied with in good faith.
One glaring fact of modern day civilization is that a big and powerful
nation, like the United States of America, can always overwhelm
small and weak nations. The declaration in the United Nations
Charter that its member states are equal and sovereign, becomes
hollow and meaningless because big nations wielding economic and
military superiority impose upon and dictate to small nations,
subverting their sovereignty and dignity as nations. Thus, more often
than not, when U.S. interest clashes with the interest of small nations,
Page 27 of 28
the American governmental agencies or its citizens invoke principles
of international law for their own benefit.
In the case at bar, the efficacy of the contract between the U.S. Naval
authorities at Subic Bay on one hand, and herein private respondent
on the other, was honored more in the breach than in the compliance.
The opinion of the majority will certainly open the floodgates of
more violations of contractual obligations. American authorities or
any foreign government in the Philippines for that matter, dealing
with the citizens of this country, can conveniently seek protective
cover under the majority opinion. The result is disastrous to the
Philippines. LibLex
The majority opinion seems to mock the provision of paragraph 1 of
the joint statement of President Marcos and Vice-President Mondale
of the United States dated May 4, 1978 that "the United States re-
affirms that Philippine sovereignty extends over the bases and that Its
base shall be under the command of a Philippine Base Commander,"
which is supposed to underscore the joint Communique of President
Marcos and U.S. President Ford of December 7, 1975, under which
"they affirm that sovereign equality, territorial integrity and political
independence of all States are fundamental principles which both
countries scrupulously respect; and that "they confirm that mutual
respect for the dignity of each nation shall characterize their
friendship as well as the alliance between their two countries."

This opinion of the majority manifests a neo-colonial mentality. It
fosters economic imperialism and foreign political ascendancy in our
Republic.
The doctrine of government immunity from suit cannot and should
not serve as an instrument for perpetrating an injustice on a citizen
(Amigable vs. Cuenca, L-26400, February 29, 1972, 43 SCRA 360;
Ministerio vs. Court of First Instance, L-31635, August 31, 1971, 40
SCRA 464).
Under the doctrine of implied waiver of its non-suability, the United
States government, through its naval authorities at Subic Bay, should
be held amenable to lawsuits in our country like any other juristic
person.
The majority opinion negates the statement on the delineation of the
powers, duties and responsibilities of both the Philippine and
American Base Commanders that "in the performance of their duties,
the Philippine Base Commander and the American Base Commander
shall be guided by full respect for Philippine sovereignty on the one
hand and the assurance of unhampered U.S. military operations on
the other hand;" and that "they shall promote cooperation,
understanding and harmonious relations within the Base and with the
general public in the proximate vicinity thereof" (par. 2 & par. 3 of
the Annex covered by the exchange of notes, January 7, 1979,
between Ambassador Richard W. Murphy and Minister of Foreign
Affairs Carlos P. Romulo, italics supplied).

The invocation by the petitioner United States of America is not in

accord with paragraph 3 of Article III of the original RP-US Military
Bases Agreement of March 14, 1947, which states that "in the
exercise of the above-mentioned rights, powers and authority, the
United States agrees that the powers granted to it will not be used
unreasonably. . . ." (italics supplied).

Nor is such posture of the petitioners herein in harmony with the

amendment dated May 27, 1968 to the aforesaid RP-US Military
Bases Agreement, which recognizes "the need to promote and
maintain sound employment practices which will assure equality of
treatment of all employees . . . and continuing favorable employer-
employee relations . . ." and "(B)elieving that an agreement will be
mutually beneficial and will strengthen the democratic institutions
cherished by both Governments, . . . the United States Government
agrees to accord preferential employment of Filipino citizens in the
Bases, thus (1) the U.S. Forces in the Philippines shall fill the needs
for civilian employment by employing Filipino citizens, etc." (Par. 1,
Art. I of the Amendment of May 27, 1968).

Neither does the invocation by petitioners of state immunity from suit

express fidelity to paragraph 1 of Article IV of the aforesaid
amendment of May 27, 1968 which directs that "contractors and
concessionaires performing work for the U.S. Armed Forces shall be
required by their contract or concession agreements to comply with
all applicable Philippine labor laws and regulations," even though
paragraph 2 thereof affirms that "nothing in this Agreement shall
imply any waiver by either of the two Governments of such
immunity under international law."

Reliance by petitioners on the non-suability of the United States

Government before the local courts, actually clashes with No. III on
respect for Philippine law of the Memorandum of Agreement signed
on January 7, 1979, also amending RP-US Military Bases
Agreement, which stresses that "it is the duty of members of the
United States Forces, the civilian component and their dependents, to
respect the laws of the Republic of the Philippines and to abstain
from any activity inconsistent with the spirit of the Military Bases
Agreement and, in particular, from any political activity in the
Philippines. The United States shall take all measures within its
authority to insure that they adhere to them" (italics supplied). cdll

The foregoing duty imposed by the amendment to the Agreement is

further emphasized by No. IV on the economic and social
improvement of areas surrounding the bases, which directs that
"moreover, the United States Forces shall procure goods and services
in the Philippines to the maximum extent feasible" (italics supplied).

Under No. VI on labor and taxation of the said amendment of

January 6, 1979 in connection with the discussions on possible
revisions or alterations of the Agreement of May 27, 1968, "the
discussions shall be conducted on the basis of the principles of
equality of treatment, the right to organize, and bargain collectively,
and respect for the sovereignty of the Republic of the Philippines"
(italics supplied).

Page 28 of 28