Republic of the Philippines On 30 December 2003, Northrail and CNMEG executed a Contract Agreement for the construction of
SUPREME COURT Section I, Phase I of the North Luzon Railway System from Caloocan to Malolos on a turnkey basis (the
Manila
EN BANC
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.:
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
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 USD 400,000,000 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
Contract Agreement).7 The contract price for the Northrail Project was pegged at USD 421,050,000. 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 USD 400,000,000
in favor of the Philippine government in order to finance the construction of Phase I of the Northrail
Project.10
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 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
In the assailed Decision dated 30 September 2008, the appellate court dismissed the Petition for
Certiorari.20Subsequently, 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.
1
Whether or not the Court of Appeals failed to avoid a procedural limbo in the lower court.
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.
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.)
x x x           x x x          x x x
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.
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.
x x x           x x x          x x x
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
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 form Caloocan to Malolos, section
I, Phase I of Philippine North Luzon Railways Project (hereinafter referred to as THE PROJECT);
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
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:
2
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.;
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;
x x x           x x x          x x x
II. APPROVAL PROCESS
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)
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.
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 USD
421,050,000 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:
Article 11. xxx (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
3
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.
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
In this regard, this Court’s ruling in Deutsche Gesellschaft Für Technische Zusammenarbeit (GTZ) v.
CA40 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:
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.
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.
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.
x x x           x x x          x x x
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.
x x x           x x x          x x x
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.
4
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.
x x x           x x x          x x x
Again, we are uncertain of the corresponding legal implications under German law surrounding
"a private company owned by the Federal Republic of Germany." Yet taking the description on
face value, the apparent equivalent under Philippine law is that of a corporation organized under
the Corporation Code but owned by the Philippine government, or a government-owned or
controlled corporation without original charter. And it bears notice that Section 36 of the
Corporate Code states that "[e]very corporation incorporated under this Code has the power
and capacity x x x to sue and be sued in its corporate name."
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.
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.
x x x           x x x          x x x
In the Philippines, the practice is for the foreign government or the international organization to first
secure an executive endorsement of its claim of sovereign or diplomatic immunity. But how the
Philippine Foreign Office conveys its endorsement to the courts varies. In International Catholic
Migration Commission v. Calleja, 190 SCRA 130 (1990), the Secretary of Foreign Affairs just sent a
letter directly to the Secretary of Labor and Employment, informing the latter that the respondent-
employer could not be sued because it enjoyed diplomatic immunity. In World Health Organization v.
Aquino, 48 SCRA 242 (1972), the Secretary of Foreign Affairs sent the trial court a telegram to that
effect. In Baer v. Tizon, 57 SCRA 1 (1974), the U.S. Embassy asked the Secretary of Foreign Affairs to
request the Solicitor General to make, in behalf of the Commander of the United States Naval Base at
Olongapo City, Zambales, a "suggestion" to respondent Judge. The Solicitor General embodied the
"suggestion" in a Manifestation and Memorandum as amicus curiae.
In the case at bench, the Department of Foreign Affairs, through the Office of Legal Affairs moved with
this Court to be allowed to intervene on the side of petitioner. The Court allowed the said Department to
file its memorandum in support of petitioner’s claim of sovereign immunity.
In some cases, the defense of sovereign immunity was submitted directly to the local courts by the
respondents through their private counsels (Raquiza v. Bradford, 75 Phil. 50 [1945]; Miquiabas v.
Philippine-Ryukyus Command, 80 Phil. 262 [1948]; United States of America v. Guinto, 182 SCRA 644
[1990] and companion cases). In cases where the foreign states bypass the Foreign Office, the courts
can inquire into the facts and make their own determination as to the nature of the acts and
transactions involved.43 (Emphasis supplied.)
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
5
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.)
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.47Surely, 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."
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.
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).
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:
[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
6
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.
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.
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.
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.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 159402               February 23, 2011
AIR TRANSPORTATION OFFICE, Petitioner, 
vs.
SPOUSES DAVID* ELISEA RAMOS, Respondents.
RESOLUTION
BERSAMIN, J.:
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.
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 ₱778,150.00. However, the ATO failed to pay despite repeated verbal and written
demands.
Thus, on April 29, 1998, the respondents filed an action for collection against the ATO and some of its
officials in the RTC (docketed as Civil Case No. 4017-R and entitled Spouses David and Elisea Ramos
v. Air Transportation Office, Capt. Panfilo Villaruel, Gen. Carlos Tanega, and Mr. Cesar de Jesus).
In their answer, the ATO and its co-defendants invoked as an affirmative defense the issuance of
Proclamation No. 1358, whereby President Marcos had reserved certain parcels of land that included
the respondents’ affected portion for use of the Loakan Airport. They asserted that the RTC had no
jurisdiction to entertain the action without the 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
7
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 ₱778,150.00 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 ₱150,000.00 by way of moral damages and ₱150,000.00 as exemplary damages; (3) the
amount of ₱50,000.00 by way of attorney’s fees plus ₱15,000.00 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 ₱30,000.00 each, and attorney’s fees is lowered to ₱10,000.00.
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
The territory [of Hawaii], of course, could waive its exemption (Smith v. Reeves, 178 US 436, 44 L ed
1140, 20 Sup. Ct. Rep. 919), and it took no objection to the proceedings in the cases cited if it could
have done so. xxx But in the case at bar it did object, and the question raised is whether the plaintiffs
were bound to yield. Some doubts have been expressed as to the source of the immunity of a
sovereign power from suit without its own permission, but the answer has been public property since
before the days of Hobbes. Leviathan, chap. 26, 2. A sovereign is exempt from suit, not because of any
formal conception or obsolete theory, but on the logical and practical ground that there can be no legal
right as against the authority that makes the law on which the right depends. "Car on peut bien recevoir
loy d'autruy, mais il est impossible par nature de se donner loy." Bodin, Republique, 1, chap. 8, ed.
1629, p. 132; Sir John Eliot, De Jure Maiestatis, chap. 3. Nemo suo statuto ligatur necessitative.
Baldus, De Leg. et Const. Digna Vox, 2. ed. 1496, fol. 51b, ed. 1539, fol. 61. 7
Practical considerations dictate the establishment of an immunity from suit in favor of the State.
Otherwise, and the State is suable at the instance of every other individual, government service may be
severely obstructed and public safety endangered because of the number of suits that the State has to
defend against.8 Several justifications have been offered to support the adoption of the doctrine in the
Philippines, but that offered in Providence Washington Insurance Co. v. Republic of the Philippines 9 is
"the most acceptable explanation," according to Father Bernas, a recognized commentator on
Constitutional Law,10 to wit:
[A] continued adherence to the doctrine of non-suability is not to be deplored for as against the
inconvenience that may be caused private parties, the loss of governmental efficiency and the obstacle
to the performance of its multifarious functions are far greater if such a fundamental principle were
abandoned and the availability of judicial remedy were not thus restricted. With the well-known
propensity on the part of our people to go to court, at the least provocation, the loss of time and energy
required to defend against law suits, in the absence of such a basic principle that constitutes such an
effective obstacle, could very well be imagined.
An unincorporated government agency without any separate juridical personality of its own enjoys
immunity from suit because it is invested with an inherent power of sovereignty. Accordingly, a claim for
damages against the agency cannot prosper; otherwise, the doctrine of sovereign immunity is
violated.11 However, the need to distinguish between an unincorporated government agency performing
governmental function and one performing proprietary functions has arisen. The immunity has been
upheld in favor of the former because its function is governmental or incidental to such function; 12 it has
not been upheld in favor of the latter whose function was not in pursuit of a necessary function of
government but was essentially a business.13
Should the doctrine of sovereignty immunity or non-suability of the State be extended to the ATO?
In its challenged decision,14 the CA answered in the negative, holding:
On the first assignment of error, appellants seek to impress upon Us that the subject contract of sale
partook of a governmental character. Apropos, the lower court erred in applying the High 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
8
immune from suit, it being engaged in functions pertaining to a private entity. It went on to explain in this
wise:
xxx
The Civil Aeronautics Administration comes under the category of a private entity. Although not a body
corporate it was created, like the National Airports Corporation, not to maintain a necessary function of
government, but to run what is essentially a business, even if revenues be not its prime objective but
rather the promotion of travel and the convenience of the travelling public. It is engaged in an enterprise
which, far from being the exclusive prerogative of state, may, more than the construction of public
roads, be undertaken by private concerns. [National Airports Corp. v. Teodoro, supra, p. 207.]
xxx
True, the law prevailing in 1952 when the Teodoro case was promulgated was Exec. Order 365
(Reorganizing the Civil Aeronautics Administration and Abolishing the National Airports Corporation).
Republic Act No. 776 (Civil Aeronautics Act of the Philippines), subsequently enacted on June 20,
1952, did not alter the character of the 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
(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;
… constructed by the provincial engineer of Rizal and a private contractor without the owners’ knowledge
(25) To determine, fix, impose, collect and receive landing fees, parking space fees, royalties on sales
or deliveries, direct or indirect, to any aircraft for its use of aviation gasoline, oil and lubricants, spare
parts, accessories and supplies, tools, other royalties, fees or rentals for the use of any of the property
under its management and control.
xxx
From the foregoing, it can be seen that the CAA is tasked with private or non-governmental functions
which operate to remove it from the purview of the rule on State immunity from suit. For the correct rule
as set forth in the Teodorocase states:
xxx
Not all government entities, whether corporate or non-corporate, are immune from suits. Immunity from
suits is determined by the character of the objects for which the entity was organized. The rule is thus
stated in Corpus Juris:
Suits against State agencies with relation to matters in which they have assumed to act in private or
non-governmental capacity, and various suits against certain corporations created by the state for
public purposes, but to engage in matters partaking more of the nature of ordinary business rather than
functions of a governmental or political character, are not regarded as suits against the state. The latter
is true, although the state may own stock or property of such a corporation for by engaging in business
operations through a corporation, the state divests itself so far of its sovereign character, and by
implication consents to suits against the corporation. (59 C.J., 313) [National Airports Corporation v.
Teodoro, supra, pp. 206-207; Italics supplied.]
This doctrine has been reaffirmed in the recent case of Malong v. Philippine National Railways [G.R.
No. L-49930, August 7, 1985, 138 SCRA 63], where it was held that the Philippine National Railways,
although owned and operated by the government, was not immune from suit as it does not exercise
sovereign but purely proprietary and business functions. Accordingly, as the CAA was created to
undertake the management of airport operations which primarily involve proprietary functions, it cannot
avail of the immunity from suit accorded to government agencies performing strictly governmental
functions.15
In our view, the CA thereby correctly appreciated the juridical character of the ATO as an agency of the
Government not performing a purely governmental or sovereign function, but was instead involved in
the management and maintenance of the Loakan Airport, an activity that was not the exclusive
prerogative of the State in its sovereign capacity. Hence, the ATO had no claim to the State’s immunity
from suit. We uphold the CA’s aforequoted holding.
We further observe the doctrine of sovereign immunity cannot be successfully invoked to defeat a valid
claim for compensation arising from the taking without just compensation and without the proper
expropriation proceedings being first resorted to of the plaintiffs’ property. 16 Thus, in De los Santos v.
Intermediate Appellate Court,17 the trial 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
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
9
Aviation Authority of the Philippines (CAAP), herein after referred to as the "Authority" attached to the
Department of Transportation and Communications (DOTC) for the purpose of policy coordination. For
this purpose, the existing Air transportation Office created under the provisions of Republic Act
No. 776, as amended is hereby abolished.
xxx
Under its Transitory Provisions, R.A. No. 9497 established in place of the ATO the Civil Aviation
Authority of the Philippines (CAAP), which thereby assumed all of the ATO’s powers, duties and rights,
assets, real and personal properties, funds, and revenues, viz:
CHAPTER XII
TRANSITORTY PROVISIONS
Section 85. Abolition of the Air Transportation Office. – The Air Transportation Office (ATO) created
under Republic Act No. 776, a sectoral office of the Department of Transportation and Communications
(DOTC), is hereby abolished.1avvphi1
All powers, duties and rights vested by law and exercised by the ATO is hereby transferred to the
Authority.
All assets, real and personal properties, funds and revenues owned by or vested in the different
offices of the ATO are transferred to the Authority. All contracts, records and documents relating
to the operations of the abolished agency and its offices and branches are likewise transferred to
the Authority. Any real property owned by the national government or government-owned
corporation or authority which is being used and utilized as office or facility by the ATO shall
be transferred and titled in favor of the Authority.
Section 23 of R.A. No. 9497 enumerates the corporate powers vested in the CAAP, including the power
to sue and be sued, to enter into contracts of every class, kind and description, to construct, acquire,
own, hold, operate, maintain, administer and lease personal and real properties, and to settle, under
such terms and conditions most advantageous to it, any claim by or against it.18
With the CAAP having legally succeeded the ATO pursuant to R.A. No. 9497, the obligations that the
ATO had incurred by virtue of the deed of sale with the Ramos spouses might now be enforced against
the CAAP.
WHEREFORE, the Court denies the petition for review on certiorari, and affirms the decision
promulgated by the Court of Appeals.
No pronouncement on costs of suit.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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.:
On 7 September 1971, the governments of the Federal Republic of Germany and the Republic of the
Philippines ratified an Agreement concerning Technical Co-operation (Agreement) in Bonn, capital of
what was then West Germany. The Agreement affirmed the countries’ "common interest in promoting
the technical and economic development of their States, and recogni[zed] the benefits to be derived by
both States from closer technical co-operation," and allowed for the conclusion of "arrangements
concerning individual projects of technical co-operation."1 While the Agreement provided for a limited
term of effectivity of five (5) years, it nonetheless was stated that "[t]he Agreement shall be tacitly
extended for successive periods of one year unless either of the two Contracting Parties denounces it
in writing three months prior to its expiry," and that even upon the Agreement’s expiry, its provisions
would "continue to apply to any projects agreed upon x x x until their completion."2
On 10 December 1999, the Philippine government, through then Foreign Affairs Secretary Domingo
Siazon, and the German government, agreed to an Arrangement in furtherance of the 1971 Agreement.
This Arrangement affirmed the common commitment of both governments to promote jointly a project
called, Social Health 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.
It shall
(a) second
10
 - 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);
(b) provide in situ
- short-term experts to deal with diverse special tasks for a total of up to 27
expert/months,
- five local experts in health economy, health insurance, community health
systems, information technology, information systems, training and community
mobilization for a total of up to 240 expert/months,
- local and auxiliary personnel for a total of up to 120 months;
(c) supply inputs, in particular
- two cross-country vehicles,
- ten computers with accessories,
- office furnishings and equipment
up to a total value of DM 310,000 (three hundred and ten thousand Deutsche
Mark);
(c) meet
- the cost of accommodation for the seconded experts and their families in so far as
this cost is not met by the seconded experts themselves,
- the cost of official travel by the experts referred to in sub-paragraph (a) above
within and outside the Republic of the Philippines,
- the cost of seminars and courses,
- the cost of transport and insurance to the project site of inputs to be supplied
pursuant to sub-paragraph (c) above, excluding the charges and storage fees
referred to in paragraph 4(d) below,
- a proportion of the operating and administrative costs;
xxx
4. The Government of the Republic of the Philippines shall make the following contributions to the
project:
It shall
(a) – provide the necessary Philippine experts for the project, in particular one project
coordinator in the Philippine Health Insurance Corporation (Philhealth), at least three further
experts and a sufficient number of administrative and auxiliary personnel, as well as health
personnel in the pilot provinces and in the other project partners, in particular one responsible
expert for each pilot province and for each association representing the various target
groups,
- release suitably qualified experts from their duties for attendance at the envisaged
basic and further training activities; it shall only nominate such candidates as have
given an undertaking to work on the project for at least five years after completing
their training and shall ensure that these Philippine experts receive appropriate
remuneration,
- ensure that the project field offices have sufficient expendables,
- make available the land and buildings required for the project;
(b) assume an increasing proportion of the running and operating costs of the project;
(c) afford the seconded experts any assistance they may require in carrying out the tasks
assigned to them and place at their disposal all necessary records and documents;
(d) guarantee that
- the project is provided with an itemized budget of its own in order to ensure
smooth continuation of the project.
- the necessary legal and administrative framework is created for the project,
- the project is coordinated in close cooperation with other national and
international agencies relevant to implementation,
11
 - the inputs supplied for the project on behalf of the Government of the Federal The letter ended with these ominous words:
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
The issues that we [the private respondents] have stated here are very crucial to us in working for the
that any costs thereof are met, and that they are cleared by customs without delay.
project. We could no longer find any reason to stay with the project unless ALL of these issues be
The aforementioned exemptions shall, at the request of the implementing agencies
addressed immediately and appropriately.15
also apply to inputs procured in the Republic of the Philippines,

In response, Nicolay wrote each of the private respondents a letter dated 21 June 2000, all similarly
- the tasks of the seconded experts are taken over as soon as possible by
worded except for their respective addressees. She informed private respondents that the "project’s
Philippine experts,
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:
- examinations passed by Philippine nationals pursuant to this Arrangement are
recognized in accordance with their respective standards and that the persons
You have firmly and unequivocally stated in the last paragraph of your 8th June 2000 letter that you and
concerned are afforded such opportunities with regard to careers, appointments
the five other staff "could no longer find any reason to stay with the project unless ALL of these issues
and advancement as are commensurate with their training. 4
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
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
Taken aback, private respondents replied with a common letter, clarifying that their earlier letter was not
Insurance Corporation (Philhealth) with the implementation of SHINE. For their part, the German
intended as a resignation letter, but one that merely intended to raise attention to what they perceived
government "charge[d] the Deustche Gesellschaft für Technische Zusammenarbeit[5 ] (GTZ[6 ]) GmbH,
as vital issues.17Negotiations ensued between private respondents and Nicolay, but for naught. Each of
Eschborn, with the implementation of its contributions."7
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,
Private respondents were engaged as contract employees hired by GTZ to work for SHINE on various among others, resulting to loss of confidence and trust."18
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
On 21 August 2000, the private respondents filed a complaint for illegal dismissal with the NLRC.
SHINE;"9 Christopher Ramos as "a project assistant and liason personnel of NHI related SHINE
Named as respondents therein where GTZ, the Director of its Manila office Hans Peter Paulenz, its
activities by GTZ;"10 Melvin Dela Paz and Randy Tamayo as programmers;11 and Edgardo Ramilo as
Assistant Project Manager Christian Jahn, and Nicolay.
"driver, messenger and multipurpose service man."12The 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. On 25 October 2005, GTZ, through counsel, filed a Motion to Dismiss, on the ground that the Labor
Tollkotter, as employer] is a seconded GTZ expert who is hiring the Employee on behalf of GTZ and for Arbiter had no jurisdiction over the case, as its acts were undertaken in the discharge of the
a Philippine-German bilateral project named ‘Social Health Insurance—Networking and Empowerment governmental functions and sovereign acts of the Government of the Federal Republic of Germany.
(SHINE)’ which will end at a given time."13 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
In September of 1999, Anne Nicolay (Nicolay), a Belgian national, assumed the post of SHINE Project
contracts of employment.
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 letter14 dated 8 June 2000, signed by the On 27 November 2000, the Labor Arbiter issued an Order 19 denying the Motion to Dismiss. The Order
private respondents, addressed to Nicolay, and copies furnished officials of the DOH, Philheath, and cited, among others, that GTZ was a private corporation which entered into an employment contract;
the director of the Manila office of GTZ. The letter raised several issues which private respondents and that GTZ had failed to secure from the DFA a certification as to its diplomatic status.
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
On 7 February 2001, GTZ filed with the Labor Arbiter a "Reiterating Motion to Dismiss," again praying
development of social health insurance by shoring up the national health insurance program and
that the Motion to Dismiss be granted on the jurisdictional ground, and reprising the arguments for
strengthening local initiatives, as Nicolay had refused to support local partners and new initiatives on
dismissal it had earlier raised. 20 No action was taken by the Labor Arbiter on this new motion. Instead,
the premise that community and local government unit schemes were not sustainable—a philosophy
on 15 October 2001, the Labor Arbiter rendered a Decision21 granting the complaint for illegal dismissal.
that supposedly betrayed Nicolay’s lack of understanding of the purpose of the project. Private
The Decision concluded that respondents were dismissed without lawful cause, there being "a total lack
respondents further alleged that as a result of Nicolay’s "new thrust, resources have been used
of due process both substantive and procedural [sic]."22 GTZ was faulted for failing to observe the
inappropriately;" that the new management style was "not congruent with the original goals of the
notice requirements in the labor law. The Decision likewise proceeded from the premise that GTZ had
project;" that Nicolay herself suffered from "cultural insensitivity" that consequently failed to sustain
treated the letter dated 8 June 2000 as a resignation letter, and devoted some focus in debunking this
healthy relations with SHINE’s partners and staff.
theory.

12
The Decision initially offered that it "need not discuss the jurisdictional aspect considering that the same
had already been lengthily discussed in the Order de[n]ying respondents’ Motion to
Dismiss."23 Nonetheless, it proceeded to discuss the jurisdictional aspect, in this wise:
Under pain of being repetitious, the undersigned Labor Arbiter has jurisdiction to entertain the complaint
on the following grounds:
Firstly, under the employment contract entered into between complainants and respondents,
specifically Section 10 thereof, it provides that "contract partners agree that his contract shall
be subject to the LAWS of the jurisdiction of the locality in which the service is performed."
Secondly, respondent having entered into contract, they can no longer invoke the sovereignty
of the Federal Republic of Germany.
Lastly, it is imperative to be immune from suit, respondents should have secured from the
Department of Foreign Affairs a certification of respondents’ diplomatic status and entitlement
to diplomatic privileges including immunity from suits. Having failed in this regard,
respondents cannot escape liability from the shelter of sovereign immunity.[sic]24
Notably, GTZ did not file a motion for reconsideration to the Labor 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 Resolution26dismissing 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 x x x."27 A motion for reconsideration to this
Resolution proved fruitless for GTZ.28
Thus, the present petition for review under Rule 45, assailing the decision and resolutions of the Court
of Appeals and of the Labor Arbiter. 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.
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.
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.
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.
The arguments raised by GTZ and the OSG are rooted in several indisputable facts. The SHINE project
was implemented pursuant to the bilateral agreements between the Philippine and German
governments. GTZ was tasked, under the 1991 agreement, with the implementation of the contributions
of the German government. The activities performed by GTZ pertaining to the SHINE project are
governmental in nature, related as they are to the promotion of health insurance in the Philippines. The
fact that GTZ entered into employment contracts with the private respondents did not disqualify it from
invoking immunity from suit, as held in cases such as Holy See v. Rosario, Jr., 32 which set forth what
remains valid doctrine:
Certainly, the mere entering into a contract by a foreign state with a private party cannot be the ultimate
test. Such an act can only be the start of the inquiry. The logical question is whether the foreign state is
engaged in the activity in the regular course of business. If the foreign state is not engaged regularly in
a business or trade, the particular act or transaction must then be tested by its nature. If the act is in
pursuit of a sovereign activity, or an incident thereof, then it is an act jure imperii, especially when it is
not undertaken for gain or profit.33
Beyond dispute is the tenability of the comment points raised by GTZ and the OSG that GTZ was not
performing proprietary functions notwithstanding its entry into the particular employment contracts. Yet
there is an equally fundamental premise which GTZ and the OSG fail to address, namely: Is GTZ, by
conception, able to enjoy the 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."
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
13
consented to be sued. However, the present suit was brought against GTZ. It is necessary for us to
understand what precisely are the parameters of the legal personality of GTZ.
Counsel for GTZ characterizes GTZ as "the implementing agency of the Government of the Federal
Republic of Germany," a depiction similarly adopted by the OSG. Assuming that characterization is
correct, it does not automatically invest GTZ with the ability to invoke State immunity from suit. The
distinction lies in whether the agency is incorporated or unincorporated. The following lucid discussion
from Justice Isagani Cruz is pertinent:
Where suit is filed not against the government itself or its officials but against one of its entities, it must
be ascertained whether or not the State, as the principal that may ultimately be held liable, has given its
consent to be sued. This ascertainment will depend in the first instance on whether the government
agency impleaded is incorporated or unincorporated.
An incorporated agency has a charter of its own that invests it with a separate juridical personality, like
the Social Security System, the University of the Philippines, and the City of Manila. By contrast, the
unincorporated agency is so called because it has no separate juridical personality but is merged in the
general machinery of the government, like the Department of Justice, the Bureau of Mines and the
Government Printing Office.
If the agency is incorporated, the test of its suability is found in its charter. The simple rule is that it is
suable if its charter says so, and this is true regardless of the functions it is performing. Municipal
corporations, for example, like provinces and cities, are agencies of the State when they are engaged in
governmental functions and therefore should enjoy the sovereign immunity from suit. Nevertheless,
they are subject to suit even in the performance of such functions because their charter provides that
they can sue and be sued.35
State immunity from suit may be waived by general or special law.36 The special law can take the form
of the original charter of the incorporated government agency. Jurisprudence is replete with examples
of incorporated government agencies which were ruled not entitled to invoke immunity from suit, owing
to provisions in their
charters manifesting their consent to be sued. These include the National Irrigation Administration, 37 the
former Central Bank,38 and the National Power Corporation. 39 In SSS v. Court of Appeals,40 the Court
through Justice Melencio-Herrera explained that by virtue of an express provision in its charter allowing
it to sue and be sued, the Social Security System did not enjoy immunity from suit:
We come now to the amendability of the SSS to judicial action and legal responsibility for its acts. To
our minds, there should be no question on this score considering that the SSS is a juridical entity with a
personality of its own. It has corporate powers separate and distinct from the Government. SSS' own
organic act specifically provides that it can sue and be sued in Court. These words "sue and be sued"
embrace all civil process incident to a legal action. So that, even assuming that the SSS, as it claims,
enjoys immunity from suit as an entity performing governmental functions, by virtue of the explicit
provision of the aforecited enabling law, the Government must be deemed to have waived immunity in
respect of the SSS, although it does not thereby concede its liability. That statutory law has given to the
private citizen a remedy for the enforcement and protection of his rights. The SSS thereby has been
required to submit to the jurisdiction of the Courts, subject to its right to interpose any lawful defense.
Whether the SSS performs governmental or proprietary functions thus becomes unnecessary to
belabor. For by that waiver, a private citizen may bring a suit against it for varied objectives, such as, in
this case, to obtain compensation in damages arising from contract, and even for tort.
A recent case squarely in point anent the principle, involving the National Power Corporation, is that of
Rayo v. Court of First Instance of Bulacan, 110 SCRA 457 (1981), wherein this Court, speaking through
Mr. Justice Vicente Abad Santos, ruled:
"It is not necessary to write an extended dissertation on whether or not the NPC performs a
governmental function with respect to the management and operation of the Angat Dam. It is sufficient
to say that the government has organized a private corporation, put money in it and has allowed it to
sue and be sued in any court under its charter. (R.A. No. 6395, Sec. 3[d]). As a government, owned
and controlled corporation, it has a personality of its own, distinct and separate from that of the
Government. Moreover, the charter provision that the NPC can 'sue and be sued in any court' is without
qualification on the cause of action and accordingly it can include a tort claim such as the one instituted
by the petitioners."41
It is useful to note that on the part of the Philippine government, it had designated two entities, the
Department of Health and the Philippine Health Insurance Corporation (PHIC), as the implementing
agencies in behalf of the Philippines. The PHIC was established under Republic Act No. 7875, Section
16(g) of which grants the corporation the power "to sue and be sued in court." Applying the previously
cited jurisprudence, PHIC would not enjoy immunity from suit even in the performance of its functions
connected with SHINE, however, governmental in nature as they may be.
Is GTZ an incorporated agency of the German government? There is some mystery surrounding that
question. Neither GTZ nor the OSG go beyond the claim that petitioner is "the implementing agency of
the Government of the Federal Republic of Germany." On the other hand, private respondents asserted
before the Labor Arbiter that GTZ was "a private corporation engaged in the implementation of
development projects."42 The Labor Arbiter accepted that claim in his Order denying the Motion to
Dismiss,43 though he was silent on that point in his Decision. Nevertheless, private respondents argue
in their Comment that the finding that GTZ was a private corporation "was never controverted, and is
therefore deemed admitted."44 In its Reply, GTZ controverts that finding, saying that it is a matter of
public knowledge that the status of petitioner GTZ is that of the "implementing agency," and not that of
a private corporation.45
In truth, private respondents were unable to adduce any evidence to substantiate their claim that GTZ
was a "private corporation," and the Labor Arbiter acted rashly in accepting such claim without
explanation. But neither has GTZ supplied any evidence defining its legal nature beyond that of the
bare descriptive "implementing agency." There is no doubt that the 1991 Agreement designated GTZ
as the "implementing agency" in behalf of the German government. Yet the catch is that such term has
no precise definition that is responsive to our concerns. Inherently, an agent acts in behalf of a
principal, and the GTZ can be said to act in behalf of the German state. But that is as far as
"implementing agency" could take us. The term by itself does not supply whether GTZ is incorporated
or unincorporated, whether it is owned by the German state or by private interests, whether it has
juridical personality independent of the German government or none at all.
GTZ itself provides a more helpful clue, inadvertently, through its own official Internet website. 46 In the
"Corporate Profile" section of the English language version of its site, GTZ describes itself as follows:
As an international cooperation enterprise for sustainable development with worldwide operations, the
federally owned Deutsche Gesellschaft 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
14
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
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:
x x x 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
Again, we are uncertain of the corresponding legal implications under German law surrounding "a
private company owned by the Federal Republic of Germany." Yet taking the description on face value,
the apparent equivalent under Philippine law is that of a corporation organized under the Corporation
Code but owned by the Philippine government, or a government-owned or controlled corporation
without original charter. And it bears notice that Section 36 of the Corporate Code states that "[e]very
corporation incorporated under this Code has the power and capacity x x x to sue and be sued in its
corporate name."50
It is entirely possible that under German law, an entity such as GTZ or particularly GTZ itself has not
been vested or has been specifically deprived the power and capacity to sue and/or be sued. Yet in the
proceedings below and before this Court, GTZ has failed to establish that under German law, it has not
consented to be sued despite it being owned by the Federal Republic of Germany. We adhere to the
rule that in the absence of evidence to the contrary,
foreign laws on a particular subject are presumed to be the same as those of the Philippines, 51 and
following the most intelligent assumption we can gather, GTZ is akin to a governmental owned or
controlled corporation without original charter which, by virtue of the Corporation Code, has expressly
consented to be sued. At the very least, like the Labor Arbiter and the Court of Appeals, this Court has
no basis in fact to conclude or presume that GTZ enjoys immunity from suit.
This absence of basis in fact leads to another important point, alluded to by the Labor Arbiter in his
rulings. Our ruling in Holy See v. Del Rosario52 provided a template on how a foreign entity desiring to
invoke State immunity from suit could duly prove such immunity before our local courts. The principles
enunciated in that case were derived from public international law. We stated then:
In Public International Law, when a state or international agency wishes to plead sovereign or
diplomatic immunity in a foreign court, it requests the Foreign Office of the state where it is sued to
convey to the court that said defendant is entitled to immunity.
In the United States, the procedure followed is the process of "suggestion," where the foreign state or
the international organization sued in an American court requests the Secretary of State to make a
determination as to whether it is entitled to immunity. If the Secretary of State finds that the defendant is
immune from suit, he, in turn, asks the Attorney General to submit to the court a "suggestion" that the
defendant is entitled to immunity. In England, a similar procedure is followed, only the Foreign Office
issues a certification to that effect instead of submitting a "suggestion" (O'Connell, I International Law
130 [1965]; Note: Immunity from Suit of Foreign Sovereign Instrumentalities and Obligations, 50 Yale
Law Journal 1088 [1941]).
In the Philippines, the practice is for the foreign government or the international organization to first
secure an executive endorsement of its claim of sovereign or diplomatic immunity. But how the
Philippine Foreign Office conveys its endorsement to the courts varies. In International Catholic
Migration Commission v. Calleja, 190 SCRA 130 (1990), the Secretary of Foreign Affairs just sent a
letter directly to the Secretary of Labor and Employment, informing the latter that the respondent-
employer could not be sued because it enjoyed diplomatic immunity. In World Health Organization v.
Aquino, 48 SCRA 242 (1972), the Secretary of Foreign Affairs sent the trial court a telegram to that
effect. In Baer v. Tizon, 57 SCRA 1 (1974), the U.S. Embassy asked the Secretary of Foreign Affairs to
request the Solicitor General to make, in behalf of the Commander of the United States Naval Base at
Olongapo City, Zambales, a "suggestion" to respondent Judge. The Solicitor General embodied the
"suggestion" in a Manifestation and Memorandum as amicus curiae. 53
It is to be recalled that the Labor Arbiter, in both of his rulings, noted that it was imperative for
petitioners to secure from the Department of Foreign Affairs "a certification of respondents’ diplomatic
status and entitlement to diplomatic privileges including immunity from suits." 54 The requirement might
not necessarily be imperative. However, had GTZ obtained such certification from the DFA, it would
have provided factual basis for its claim of immunity that would, at the very least, establish a disputable
evidentiary presumption that the foreign party is indeed immune which the opposing party will have to
overcome with its own factual evidence. We do not see why GTZ could not have secured such
certification or endorsement from the DFA for purposes of this case. Certainly, it would have been
highly prudential for GTZ to obtain the same after the Labor Arbiter had denied the motion to dismiss.
Still, even at this juncture, we do not see any evidence that the DFA, the office of the executive branch
in charge of our diplomatic relations, has indeed endorsed 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,
15
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.1avvphi1
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."
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.
A final note. This decision should not be seen as deviation from the more common methodology
employed in ascertaining whether a party enjoys State immunity from suit, one which focuses on the
particular functions exercised by the party and determines whether these are proprietary or sovereign in
nature. The nature of the acts performed by the entity invoking immunity remains the most important
barometer for testing whether the privilege of State immunity from suit should apply. At the same time,
our Constitution stipulates that a State immunity from suit is conditional on its withholding of consent;
hence, the laws and circumstances pertaining to the creation and legal personality of an instrumentality
or agency invoking immunity remain relevant. Consent to be sued, as exhibited in this decision, is often
conferred by the very same statute or general law creating the instrumentality or agency.
WHEREFORE, the petition is DENIED. No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 171182               August 23, 2012
UNIVERSITY OF THE PHILIPPINES, JOSE V. ABUEVA, RAUL P. DE GUZMAN, RUBEN P.
ASPIRAS, EMMANUEL P. BELLO, WILFREDO P. DAVID, CASIANO S. ABRIGO, and JOSEFINA R.
LICUANAN,Petitioners, 
vs.
HON. AGUSTIN S. DIZON, his capacity as Presiding Judge of the Regional Trial Court of Quezon
City, Branch 80, STERN BUILDERS, INC., and SERVILLANO DELA CRUZ, Respondents.
DECISION
BERSAMIN, J.:
Trial judges should not immediately issue writs of execution or garnishment against the Government or
any of its subdivisions, agencies and instrumentalities to enforce money judgments. 1 They should bear
in mind that the primary jurisdiction to examine, audit and settle all claims of any sort due from the
Government or any of its subdivisions, agencies and instrumentalities pertains to the Commission on
Audit (COA) pursuant to Presidential Decree No. 1445 (Government Auditing Code of the Philippines).
The Case
On appeal by the University of the Philippines and its then incumbent officials (collectively, the UP) is
the decision promulgated on September 16, 2005, 2 whereby the Court of Appeals (CA) upheld the order
of the Regional Trial Court (RTC), Branch 80, in Quezon City that directed the garnishment of public
funds amounting to ₱ 16,370,191.74 belonging to the UP to satisfy the writ of execution issued to
enforce the already final and executory judgment against the UP.
Antecedents
On August 30, 1990, the UP, through its then President Jose V. Abueva, entered into a General
Construction Agreement with respondent Stern Builders Corporation (Stern Builders), represented by
its President and General Manager Servillano dela Cruz, for the construction of the extension building
and the renovation of the College of Arts and Sciences Building in the campus of the University of the
Philippines in Los Baños (UPLB).3
In the course of the implementation of the contract, Stern Builders submitted three progress billings
corresponding to the work accomplished, but the UP paid only two of the billings. The third billing worth
₱ 273,729.47 was not paid due to its disallowance by the Commission on Audit (COA). Despite the
lifting of the disallowance, the UP failed to pay the billing, prompting Stern Builders and dela Cruz to
sue the UP and its co-respondent officials to collect the unpaid billing and to recover various damages.
The suit, entitled Stern Builders Corporation and Servillano R. Dela Cruz v. University of the Philippines
Systems, Jose V. Abueva, Raul P. de Guzman, Ruben P. Aspiras, Emmanuel P. Bello, Wilfredo P.
16
David, Casiano S. Abrigo, and Josefina R. Licuanan, was docketed as Civil Case No. Q-93-14971 of
the Regional Trial Court in Quezon City (RTC).4
After trial, on November 28, 2001, the RTC rendered its decision in favor of the plaintiffs, 5 viz:
Wherefore, in the light of the foregoing, judgment is hereby rendered in favor of the plaintiff and against
the defendants ordering the latter to pay plaintiff, jointly and severally, the following, to wit:
1. ₱ 503,462.74 amount of the third billing, additional accomplished work and retention
money
2. ₱ 5,716,729.00 in actual damages
3. ₱ 10,000,000.00 in moral damages
4. ₱ 150,000.00 and ₱ 1,500.00 per appearance as attorney’s fees; and
5. Costs of suit.
SO ORDERED.
Following the RTC’s denial of its motion for reconsideration on May 7, 2002, 6 the UP filed a notice of
appeal on June 3, 2002.7 Stern Builders and dela Cruz opposed the notice of appeal on the ground of
its filing being belated, and moved for the execution of the decision. The UP countered that the notice of
appeal was filed within the reglementary period because the UP’s Office of Legal Affairs (OLS) in
Diliman, Quezon City received the order of denial only on May 31, 2002. On September 26, 2002, the
RTC denied due course to the notice of appeal for having been filed out of time and granted the private
respondents’ motion for execution.8
The RTC issued the writ of execution on October 4, 2002, 9 and the sheriff of the RTC served the writ of
execution and notice of demand upon the UP, through its counsel, on October 9, 2002. 10 The UP filed
an urgent motion to reconsider the order dated September 26, 2002, to quash the writ of execution
dated October 4, 2002, and to restrain the proceedings. 11 However, the RTC denied the urgent motion
on April 1, 2003.12
On June 24, 2003, the UP assailed the denial of due course to its appeal through a petition
for certiorari in the Court of Appeals (CA), docketed as CA-G.R. No. 77395.13
On February 24, 2004, the CA dismissed the petition for certiorari upon finding that the UP’s notice of
appeal had been filed late,14 stating:
Records clearly show that petitioners received a copy of the Decision dated November 28, 2001 and
January 7, 2002, thus, they had until January 22, 2002 within which to file their appeal. On January 16,
2002 or after the lapse of nine (9) days, petitioners through their counsel Atty. Nolasco filed a Motion for
Reconsideration of the aforesaid decision, hence, pursuant to the rules, petitioners still had six (6)
remaining days to file their appeal. As admitted by the petitioners in their petition (Rollo, p. 25), Atty.
Nolasco received a copy of the Order denying their motion for reconsideration on May 17, 2002, thus,
petitioners still has until May 23, 2002 (the remaining six (6) days) within which to file their appeal.
Obviously, petitioners were not able to file their Notice of Appeal on May 23, 2002 as it was only filed on
June 3, 2002.
In view of the said circumstances, We are of the belief and so holds that the Notice of Appeal filed by
the petitioners was really filed out of time, the same having been filed seventeen (17) days late of the
reglementary period. By reason of which, the decision dated November 28, 2001 had already become
final and executory. "Settled is the rule that the perfection of an appeal in the manner and within the
period permitted by law is not only mandatory but jurisdictional, and failure to perfect that appeal
renders the challenged judgment final and executory. This is not an empty procedural rule but is
grounded on fundamental considerations of public policy and sound practice." (Ram’s Studio and
Photographic Equipment, Inc. vs. Court of Appeals, 346 SCRA 691, 696). Indeed, Atty. Nolasco
received the order of denial of the Motion for Reconsideration on May 17, 2002 but filed a Notice of
Appeal only on June 3, 3003. As such, the decision of the lower court ipso facto became final when no
appeal was perfected after the lapse of the reglementary period. This procedural caveat cannot be
trifled with, not even by the High Court.15
The UP sought a reconsideration, but the CA denied the UP’s motion for reconsideration on April 19,
2004.16
On May 11, 2004, the UP appealed to the Court by petition for review on certiorari (G.R. No. 163501).
On June 23, 2004, the Court denied the petition for review.17 The UP moved for the reconsideration of
the denial of its petition for review on August 29, 2004, 18 but the Court denied the motion on October 6,
2004.19 The denial became final and executory on November 12, 2004.20
In the meanwhile that the UP was exhausting the available remedies to overturn the denial of due
course to the appeal and the issuance of the writ of execution, Stern Builders and dela Cruz filed in the
RTC their motions for execution despite their previous motion having already been granted and despite
the writ of execution having already issued. On June 11, 2003, the RTC granted another motion for
execution filed on May 9, 2003 (although the RTC had already issued the writ of execution on October
4, 2002).21
On June 23, 2003 and July 25, 2003, respectively, the sheriff served notices of garnishment on the
UP’s depository banks, namely: Land Bank of the Philippines (Buendia Branch) and the Development
Bank of the Philippines (DBP), Commonwealth Branch.22 The UP assailed the garnishment through an
urgent motion to quash the notices of garnishment;23 and a motion to quash the writ of execution dated
May 9, 2003.24
On their part, Stern Builders and dela Cruz filed their ex parte motion for issuance of a release order. 25
On October 14, 2003, the RTC denied the UP’s urgent motion to quash, and granted Stern Builders and
dela Cruz’s ex parte motion for issuance of a release order.26
The UP moved for the reconsideration of the order of October 14, 2003, but the RTC denied the motion
on November 7, 2003.27
17
On January 12, 2004, Stern Builders and dela Cruz again sought the release of the garnished
funds.28 Despite the UP’s opposition,29 the RTC granted the motion to release the garnished funds on
March 16, 2004.30 On April 20, 2004, however, the RTC held in abeyance the enforcement of the writs
of execution issued on October 4, 2002 and June 3, 2003 and all the ensuing notices of garnishment,
citing Section 4, Rule 52, Rules of Court, which provided that the pendency of a timely motion for
reconsideration stayed the execution of the judgment. 31
On December 21, 2004, the RTC, through respondent Judge Agustin S. Dizon, authorized the release
of the garnished funds of the UP,32 to wit:
WHEREFORE, premises considered, there being no more legal impediment for the release of the
garnished amount in satisfaction of the judgment award in the instant case, let the amount garnished be
immediately released by the Development Bank of the Philippines, Commonwealth Branch, Quezon
City in favor of the plaintiff.
SO ORDERED.
The UP was served on January 3, 2005 with the order of December 21, 2004 directing DBP to release
the garnished funds.33
On January 6, 2005, Stern Builders and dela Cruz moved to cite DBP in direct contempt of court for its
non-compliance with the order of release.34
Thereupon, on January 10, 2005, the UP brought a petition for certiorari in the CA to challenge the
jurisdiction of the RTC in issuing the order of December 21, 2004 (CA-G.R. CV No. 88125). 35 Aside from
raising the denial of due process, the UP averred that the RTC committed grave abuse of discretion
amounting to lack or excess of jurisdiction in ruling that there was no longer any legal impediment to the
release of the garnished funds. The UP argued that government funds and properties could not be
seized by virtue of writs of execution or garnishment, as held in Department of Agriculture v. National
Labor Relations Commission,36 and citing Section 84 of Presidential Decree No. 1445 to the effect that
"revenue funds shall not be paid out of any public treasury or depository except in pursuance of an
appropriation law or other specific statutory authority;" and that the order of garnishment clashed with
the ruling in University of the Philippines Board of Regents v. Ligot-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
On March 22, 2005, Stern Builders and dela Cruz filed in the RTC their amended motion for sheriff’s
assistance to implement the release order dated December 21, 2004, stating that the 60-day period of
the TRO of the CA had already lapsed.39 The UP opposed the amended motion and countered that the
implementation of the release order be suspended.40
On May 3, 2005, the RTC granted the amended motion for sheriff’s assistance and directed the sheriff
to proceed to the DBP to receive the check in satisfaction of the judgment. 41
The UP sought the reconsideration of the order of May 3, 2005.42
On May 16, 2005, DBP filed a motion to consign the check representing the judgment award and to
dismiss the motion to cite its officials in contempt of court.43
On May 23, 2005, the UP presented a motion to withhold the release of the payment of the judgment
award.44
On July 8, 2005, the RTC resolved all the pending matters,45 noting that the DBP had already delivered
to the sheriff Manager’s Check No. 811941 for ₱ 16,370,191.74 representing the garnished funds
payable to the order of Stern Builders and dela Cruz as its compliance with the RTC’s order dated
December 21, 2004.46 However, the RTC directed in the same order that Stern Builders and dela Cruz
should not encash the check or withdraw its amount pending the final resolution of the UP’s petition for
certiorari, to wit:47
To enable the money represented in the check in question (No. 00008119411) to earn interest during
the pendency of the defendant University of the Philippines application for a writ of injunction with the
Court of Appeals the same may now be deposited by the plaintiff at the garnishee Bank (Development
Bank of the Philippines), the disposition of the amount represented therein being subject to the final
outcome of the case of the University of the Philippines et al., vs. Hon. Agustin S. Dizon et al., (CA G.R.
88125) before the Court of Appeals.
Let it be stated herein that the plaintiff is not authorized to encash and withdraw the amount
represented in the check in question and enjoy the same in the fashion of an owner during the
pendency of the case between the parties before the Court of Appeals which may or may not be
resolved in plaintiff’s favor.
With the end in view of seeing to it that the check in question is deposited by the plaintiff at the
Development Bank of the Philippines (garnishee bank), Branch Sheriff Herlan Velasco is directed to
accompany and/or escort the plaintiff in making the deposit of the check in question.
SO ORDERED.
On September 16, 2005, the CA promulgated its assailed decision dismissing the UP’s petition for
certiorari, ruling that the UP had been given ample opportunity to contest the motion to direct the DBP
to deposit the check in the name of Stern Builders and dela Cruz; and that the garnished funds could be
the proper subject of garnishment because they had been already earmarked for the project, with the
UP holding the funds only in a fiduciary capacity,48 viz:
Petitioners next argue that the UP funds may not be seized for execution or garnishment to satisfy the
judgment award. Citing Department of Agriculture vs. NLRC, University of the Philippines Board of
Regents vs. Hon. Ligot-Telan, petitioners contend that UP deposits at Land Bank and the Development
Bank of the Philippines, being government funds, may not be released absent an appropriations bill
from Congress.
The argument is specious. UP entered into a contract with private respondents for the expansion and
renovation of the Arts and Sciences Building of its campus in Los Baños, Laguna. Decidedly, there was
already an appropriations earmarked for the said project. The said funds are retained by UP, in a
fiduciary capacity, pending completion of the construction project.
18
 We agree with the trial Court [sic] observation on this score:
"4. Executive Order No. 109 (Directing all National Government Agencies to Revert Certain
Accounts Payable to the Cumulative Result of Operations of the National Government and for
Other Purposes) Section 9. Reversion of Accounts Payable, provides that, all 1995 and prior
years documented accounts payable and all undocumented accounts regardless of the year
they were incurred shall be reverted to the Cumulative Result of Operations of the National
Government (CROU). This shall apply to accounts payable of all funds, except fiduciary
funds, as long as the purpose for which the funds were created have not been accomplished
and accounts payable under foreign assisted projects for the duration of the said project. In
this regard, the Department of Budget and Management issued Joint-Circular No. 99-6 4.0
(4.3) Procedural Guidelines which provides that all accounts payable that reverted to the
CROU may be considered for payment upon determination thru administrative process, of the
existence, validity and legality of the claim. Thus, the allegation of the defendants that
considering no appropriation for the payment of any amount awarded to plaintiffs appellee the
funds of defendant-appellants may not be seized pursuant to a writ of execution issued by the
regular court is misplaced. Surely when the defendants and the plaintiff entered into the
General Construction of Agreement there is an amount already allocated by the latter for the
said project which is no longer subject of future appropriation." 49
After the CA denied their motion for reconsideration on December 23, 2005, the petitioners appealed by
petition for review.
Matters Arising During the Pendency of the Petition
On January 30, 2006, Judge Dizon of the RTC (Branch 80) denied Stern Builders and dela Cruz’s
motion to withdraw the deposit, in consideration of the UP’s intention to appeal to the CA,50 stating:
Since it appears that the defendants are intending to file a petition for review of the Court of Appeals
resolution in CA-G.R. No. 88125 within the reglementary period of fifteen (15) days from receipt of
resolution, the Court agrees with the defendants stand that the granting of plaintiffs’ subject motion is
premature.
Let it be stated that what the Court meant by its Order dated July 8, 2005 which states in part that the
"disposition of the amount represented therein being subject to the final outcome of the case of the
University of the Philippines, et. al., vs. Hon. Agustin S. Dizon et al., (CA G.R. No. 88125 before the
Court of Appeals) is that the judgment or resolution of said court has to be final and executory, for if the
same will still be elevated to the Supreme Court, it will not attain finality yet until the highest court has
rendered its own final judgment or resolution.51
However, on January 22, 2007, the UP filed an Urgent Application for A Temporary Restraining Order
and/or A Writ of Preliminary Injunction, 52 averring that on January 3, 2007, Judge Maria Theresa dela
Torre-Yadao (who had meanwhile replaced Judge Dizon upon the latter’s appointment to the CA) had
issued another order allowing Stern Builders and dela Cruz to withdraw the deposit, 53 to wit:
It bears stressing that defendants’ liability for the payment of the judgment obligation has become
indubitable due to the final and executory nature of the Decision dated November 28, 2001. Insofar as
the payment of the [sic] judgment obligation is concerned, the Court believes that there is nothing more
the defendant can do to escape liability. It is observed that there is nothing more the defendant can do
to escape liability. It is observed that defendant U.P. System had already exhausted all its legal
remedies to overturn, set aside or modify the decision (dated November 28, 2001( rendered against it.
The way the Court sees it, defendant U.P. System’s petition before the Supreme Court concerns only
with the manner by which said judgment award should be satisfied. It has nothing to do with the legality
or propriety thereof, although it prays for the deletion of [sic] reduction of the award of moral damages.
It must be emphasized that this Court’s finding, i.e., that there was sufficient appropriation earmarked
for the project, was upheld by the Court of Appeals in its decision dated September 16, 2005. Being a
finding of fact, the Supreme Court will, ordinarily, not disturb the same was said Court is not a trier of
fact. Such being the case, defendants’ arguments that there was no sufficient appropriation for the
payment of the judgment obligation must fail.
While it is true that the former Presiding Judge of this Court in its Order dated January 30, 2006 had
stated that:
Let it be stated that what the Court meant by its Order dated July 8, 2005 which states in part that the
"disposition of the amount represented therein being subject to the final outcome of the case of the
University of the Philippines, et. al., vs. Hon. Agustin S. Dizon et al., (CA G.R. No. 88125 before the
Court of Appeals) is that the judgment or resolution of said court has to be final and executory, for if the
same will still be elevated to the Supreme Court, it will not attain finality yet until the highest court has
rendered its own final judgment or resolution.
it should be noted that neither the Court of Appeals nor the Supreme Court issued a preliminary
injunction enjoining the release or withdrawal of the garnished amount. In fact, in its present petition for
review before the Supreme Court, U.P. System has not prayed for the issuance of a writ of preliminary
injunction. Thus, the Court doubts whether such writ is forthcoming.
The Court honestly believes that if defendants’ petition assailing the Order of this Court dated
December 31, 2004 granting the motion for the release of the garnished amount was meritorious, the
Court of Appeals would have issued a writ of injunction enjoining the same. Instead, said appellate
court not only refused to issue a wit of preliminary injunction prayed for by U.P. System but denied the
petition, as well.54
The UP contended that Judge Yadao thereby effectively reversed the January 30, 2006 order of Judge
Dizon disallowing the withdrawal of the garnished amount until after the decision in the case would
have become final and executory.
Although the Court issued a TRO on January 24, 2007 to enjoin Judge Yadao and all persons acting
pursuant to her authority from enforcing her order of January 3, 2007,55 it appears that on January 16,
2007, or prior to the issuance of the TRO, she had already directed the DBP to forthwith release the
garnished amount to Stern Builders and dela Cruz; 56 and that DBP had forthwith complied with the
order on January 17, 2007 upon the sheriff’s service of the order of Judge Yadao. 57
These intervening developments impelled the UP to file in this Court a supplemental petition on January
26, 2007,58alleging that the RTC (Judge Yadao) gravely erred in ordering the immediate release of the
garnished amount despite the pendency of the petition for review in this Court.
The UP filed a second supplemental petition59 after the RTC (Judge Yadao) denied the UP’s motion for
the redeposit of the withdrawn amount on April 10, 2007,60 to wit:
19
This resolves defendant U.P. System’s Urgent Motion to Redeposit Judgment Award praying that fundamental considerations of public policy and sound practice. In fact, nothing is more settled in law
plaintiffs be directed to redeposit the judgment award to DBP pursuant to the Temporary Restraining than that once a judgment attains finality it thereby becomes immutable and unalterable. It may no
Order issued by the Supreme Court. Plaintiffs opposed the motion and countered that the Temporary longer be modified in any respect, even if the modification is meant to correct what is perceived to be
Restraining Order issued by the Supreme Court has become moot and academic considering that the an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be
act sought to be restrained by it has already been performed. They also alleged that the redeposit of made by the court rendering it or by the highest court of the land.
the judgment award was no longer feasible as they have already spent the same.
WHEREFORE, premises considered, finding defendant U.P. System’s Urgent Motion to Redeposit
It bears stressing, if only to set the record straight, that this Court did not – in its Order dated January 3, Judgment Award devoid of merit, the same is hereby DENIED.
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
SO ORDERED.
(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
Issues
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:
The UP now submits that:
a) the Decision in this case had long been final and executory after it was rendered on
November 28, 2001; I

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;
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.

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

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

e) the garnished amount had already been turned over to the plaintiffs and deposited in their
STATE UNIVERSITY’S FUNDS IN VIOLATION OF ARTICLE XIV, SECTION 5(5) OF THE
account with DBP.
CONSTITUTION.

The garnished amount, as discussed in the Order dated January 16, 2007, was already owned by the
III
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. IN THE ALTERNATIVE, THE UNIVERSITY INVOKES EQUITY AND THE REVIEW POWERS OF THIS
HONORABLE COURT TO MODIFY, IF NOT TOTALLY DELETE THE AWARD OF ₱ 10 MILLION AS
MORAL DAMAGES TO RESPONDENTS.
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 IV
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. 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.
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 V
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 THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE IMMEDIATE RELEASE OF
cause involved therein should be laid to rest. This doctrine of finality of judgment is grounded on THE JUDGMENT AWARD IN ITS ORDER DATED 16 JANUARY 2007 ON THE GROUND THAT
20
PETITIONER UNIVERSITY STILL HAS A PENDING MOTION FOR RECONSIDERATION OF THE 5,716,729.00, moral damages of ₱ 10,000,000.00 and attorney’s fees of ₱ 150,000.00 plus ₱ 1,500.00
ORDER DATED 3 JANUARY 2007. per appearance could be granted despite the finality of the judgment of the RTC.

VI Ruling

THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN NOT ORDERING THE REDEPOSIT OF THE The petition for review is meritorious.
GARNISHED AMOUNT TO THE DBP IN VIOLATION OF THE CLEAR LANGUAGE OF THE
SUPREME COURT RESOLUTION DATED 24 JANUARY 2007.
I.
UP’s funds, being government funds,
The UP argues that the amount earmarked for the construction project had been purposely set aside are not subject to garnishment
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
The UP was founded on June 18, 1908 through Act 1870 to provide advanced instruction in literature,
Construction Agreement, which stipulated that no deductions would be allowed for the payment of
philosophy, the sciences, and arts, and to give professional and technical training to deserving
claims, damages, losses and expenses, including attorney’s fees, in case of any litigation arising out of
students.63 Despite its establishment as a body corporate,64 the UP remains to be a "chartered
the performance of the work. The UP insists that the CA decision was inconsistent with the rulings in
institution"65 performing a legitimate government function. It is an institution of higher learning, not a
Commissioner of Public Highways v. San Diego 61 and Department of Agriculture v. NLRC62 to the effect
corporation established for profit and declaring any dividends.66 In enacting Republic Act No. 9500 (The
that government funds and properties could not be seized under writs of execution or garnishment to
University of the Philippines Charter of 2008), Congress has declared the UP as the national
satisfy judgment awards.
university67 "dedicated to the search for truth and knowledge as well as the development of future
leaders."68
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
Irrefragably, the UP is a government instrumentality, 69 performing the State’s constitutional mandate of
the UP’s limited budget allocated for the remuneration, job satisfaction and fulfillment of the best
promoting quality and accessible education.70 As a government instrumentality, the UP administers
available teachers; that Judge Yadao should have exhibited judicial courtesy towards the Court due to
special funds sourced from the fees and income enumerated under Act No. 1870 and Section 1 of
the pendency of the UP’s petition for review; and that she should have also desisted from declaring that
Executive Order No. 714,71 and from the yearly appropriations, to achieve the purposes laid down by
the TRO issued by this Court had become functus officio.
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,
Lastly, the UP states that the awards of actual damages of ₱ 5,716,729.00 and moral damages of ₱ 10 constitute a "special trust fund," the disbursement of which should always be aligned with the UP’s
million should be reduced, if not entirely deleted, due to its being unconscionable, inequitable and mission and purpose,73 and should always be subject to auditing by the COA.74
detrimental to public service.
Presidential Decree No. 1445 defines a "trust fund" as a fund that officially comes in the possession of
In contrast, Stern Builders and dela Cruz aver that the petition for review was fatally defective for its an agency of the government or of a public officer as trustee, agent or administrator, or that is received
failure to mention the other cases upon the same issues pending between the parties (i.e., CA-G.R. No. for the fulfillment of some obligation. 75 A trust fund may be utilized only for the "specific purpose for
77395 and G.R No. 163501); that the UP was evidently resorting to forum shopping, and to delaying the which the trust was created or the funds received." 76
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 funds of the UP are government funds that are public in character. They include the income
the UP retained the funds allotted for the project only in a fiduciary capacity; that the contract price had
accruing from the use of real property ceded to the UP that may be spent only for the attainment of its
been meanwhile adjusted to ₱ 22,338,553.25, an amount already more than sufficient to cover the
institutional objectives.77 Hence, the funds subject of this action could not be validly made the subject of
judgment award; that the UP’s prayer to reduce or delete the award of damages had no factual basis,
the RTC’s writ of execution or garnishment. The adverse judgment rendered against the UP in a suit to
because they had been gravely wronged, had been deprived of their source of income, and had
which it had impliedly consented was not immediately enforceable by execution against the
suffered untold miseries, discomfort, humiliation and sleepless years; that dela Cruz had even been
UP,78 because suability of the State did not necessarily mean its liability. 79
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 A marked distinction exists between suability of the State and its liability. As the Court succinctly stated
garnished amount from the DBP. in Municipality of San Fernando, La Union v. Firme:80

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 ₱
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

21
allowed itself to be sued. When the state does waive its sovereign immunity, it is only giving the plaintiff
the chance to prove, if it can, that the defendant is liable.
Also, in Republic v. Villasor,81 where the issuance of an alias writ of execution directed against the funds
of the Armed Forces of the Philippines to satisfy a final and executory judgment was nullified, the Court
said:
xxx The universal rule that where the State gives its consent to be sued by private parties either by
general or special law, it may limit claimant’s action "only up to the completion of proceedings anterior
to the stage of execution" and that the power of the Courts ends when the judgment is rendered, since
government funds and properties may not be seized under writs of execution or garnishment to satisfy
such judgments, is based on obvious considerations of public policy. Disbursements of public funds
must be covered by the corresponding appropriation as required by law. The functions and public
services rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public
funds from their legitimate and specific objects, as appropriated by law.
The UP correctly submits here that the garnishment of its funds to satisfy the judgment awards of actual
and moral damages (including attorney’s fees) was not validly made if there was no special
appropriation by Congress to cover the liability. It was, therefore, legally unwarranted for the CA to
agree with the RTC’s holding in the order issued on April 1, 2003 that no appropriation by Congress to
allocate and set aside the payment of the judgment awards was necessary because "there (were)
already an appropriations (sic) earmarked for the said project." 82 The CA and the RTC thereby
unjustifiably ignored the legal restriction imposed on the trust funds of the Government and its agencies
and instrumentalities to be used exclusively to fulfill the purposes for which the trusts were created or
for which the funds were received except upon express authorization by Congress or by the head of a
government agency in control of the funds, and subject to pertinent budgetary laws, rules and
regulations.83
Indeed, an appropriation by Congress was required before the judgment that rendered the UP liable for
moral and actual damages (including attorney’s fees) would be satisfied considering that such monetary
liabilities were not covered by the "appropriations earmarked for the said project." The Constitution
strictly mandated that "(n)o money shall be paid out of the Treasury except in pursuance of an
appropriation made by law."84
II
COA must adjudicate private respondents’ claim
before execution should proceed
The execution of the monetary judgment against the UP was within the primary jurisdiction of the COA.
This was expressly provided in Section 26 of Presidential Decree No. 1445, to wit:
Section 26. General jurisdiction. - The authority and powers of the Commission shall extend to and
comprehend all matters relating to auditing procedures, systems and controls, the keeping of the
general accounts of the Government, the preservation of vouchers pertaining thereto for a period of ten
years, the examination and inspection of the books, records, and papers relating to those accounts; and
the audit and settlement of the accounts of all persons respecting funds or property received or held by
them in an accountable capacity, as well as the examination, audit, and settlement of all debts and
claims of any sort due from or owing to the Government or any of its subdivisions, agencies and
instrumentalities. The said jurisdiction extends to all government-owned or controlled corporations,
including their subsidiaries, and other self-governing boards, commissions, or agencies of the
Government, and as herein prescribed, including non governmental entities subsidized by the
government, those funded by donations through the government, those required to pay levies or
government share, and those for which the government has put up a counterpart fund or those partly
funded by the government.
It was of no moment that a final and executory decision already validated the claim against the UP. The
settlement of the monetary claim was still subject to the primary jurisdiction of the COA despite the final
decision of the RTC having already validated the claim.85 As such, Stern Builders and dela Cruz as the
claimants had no alternative except to first seek the approval of the COA of their monetary claim.
On its part, the RTC should have exercised utmost caution, prudence and judiciousness in dealing with
the motions for execution against the UP and the garnishment of the UP’s funds. The RTC had no
authority to direct the immediate withdrawal of any portion of the garnished funds from the depository
banks of the UP. By eschewing utmost caution, prudence and judiciousness in dealing with the
execution and garnishment, and by authorizing the withdrawal of the garnished funds of the UP, the
RTC acted beyond its jurisdiction, and all its orders and issuances thereon were void and of no legal
effect, specifically: (a) the order Judge Yadao issued on January 3, 2007 allowing Stern Builders and
dela Cruz to withdraw the deposited garnished amount; (b) the order Judge Yadao issued on January
16, 2007 directing DBP to forthwith release the garnish amount to Stern Builders and dela Cruz; (c) the
sheriff’s report of January 17, 2007 manifesting the full satisfaction of the writ of execution; and (d) the
order of April 10, 2007 deying the UP’s motion for the redeposit of the withdrawn amount. Hence, such
orders and issuances should be struck down without exception.
Nothing extenuated Judge Yadao’s successive violations of Presidential Decree No. 1445. She was
aware of Presidential Decree No. 1445, considering that the Court circulated to all judges its
Administrative Circular No. 10-2000, 86 issued on October 25, 2000, enjoining them "to observe utmost
caution, prudence and judiciousness in the issuance of writs of execution to satisfy money judgments
against government agencies and local government units" precisely in order to prevent the
circumvention of Presidential Decree No. 1445, as well as of the rules and procedures of the COA, to
wit:
In order to prevent possible circumvention of the rules and procedures of the Commission on
Audit, judges are hereby enjoined to observe utmost caution, prudence and judiciousness in the
issuance of writs of execution to satisfy money judgments against government agencies and
local government units.
Judges should bear in mind that in Commissioner of Public Highways v. San Diego (31 SCRA 617, 625
1970), this Court explicitly stated:
"The universal rule that where the State gives its consent to be sued by private parties either by general
or special law, it may limit claimant’s action ‘only up to the completion of proceedings anterior to the
stage of execution’ and that the power of the Court ends when the judgment is rendered, since
government funds and properties may not be seized under writs of execution or garnishment to satisfy
such judgments, is based on obvious considerations of public policy. Disbursements of public funds
must be covered by the corresponding appropriation as required by law. The functions and public
services rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public
funds from their legitimate and specific objects, as appropriated by law.
Moreover, it is settled jurisprudence that upon determination of State liability, the prosecution,
enforcement or satisfaction thereof must still be pursued in accordance with the rules and
22
procedures laid down in P.D. No. 1445, otherwise known as the Government Auditing Code of
the Philippines (Department of Agriculture v. NLRC, 227 SCRA 693, 701-02 1993 citing Republic
vs. Villasor, 54 SCRA 84 1973). All money claims against the Government must first be filed with
the Commission on Audit which must act upon it within sixty days. Rejection of the claim will
authorize the claimant to elevate the matter to the Supreme Court on certiorari and in effect, sue
the State thereby (P.D. 1445, Sections 49-50).
However, notwithstanding the rule that government properties are not subject to levy and execution
unless otherwise provided for by statute (Republic v. Palacio, 23 SCRA 899 1968; Commissioner of
Public Highways v. San Diego, supra) or municipal ordinance (Municipality of Makati v. Court of
Appeals, 190 SCRA 206 1990), the Court has, in various instances, distinguished between government
funds and properties for public use and those not held for public use. Thus, in Viuda de Tan Toco v.
Municipal Council of Iloilo (49 Phil 52 1926, the Court ruled that "where property of a municipal or other
public corporation is sought to be subjected to execution to satisfy judgments recovered against such
corporation, the question as to whether such property is leviable or not is to be determined by the
usage and purposes for which it is held." The following can be culled from Viuda de Tan Toco v.
Municipal Council of Iloilo:
1. Properties held for public uses – and generally everything held for governmental purposes –
are not subject to levy and sale under execution against such corporation. The same rule
applies to funds in the hands of a public officer and taxes due to a municipal corporation.
2. Where a municipal corporation owns in its proprietary capacity, as distinguished from its public or
government capacity, property not used or used for a public purpose but for quasi-private purposes, it is
the general rule that such property may be seized and sold under execution against the corporation.
3. Property held for public purposes is not subject to execution merely because it is temporarily used for
private purposes. If the public use is wholly abandoned, such property becomes subject to execution.
This Administrative Circular shall take effect immediately and the Court Administrator shall see to it that
it is faithfully implemented.
Although Judge Yadao pointed out that neither the CA nor the Court had issued as of then any writ of
preliminary injunction to enjoin the release or withdrawal of the garnished amount, she did not need any
writ of injunction from a superior court to compel her obedience to the law. The Court is disturbed that
an experienced judge like her should look at public laws like Presidential Decree No. 1445 dismissively
instead of loyally following and unquestioningly implementing them. That she did so turned her court
into an oppressive bastion of mindless tyranny instead of having it as a true haven for the seekers of
justice like the UP.
III
Period of appeal did not start without effective
service of decision upon counsel of record;
Fresh-period rule announced in
Neypes v. Court of Appeals
can be given retroactive application
The UP next pleads that the Court gives due course to its petition for review in the name of equity in
order to reverse or modify the adverse judgment against it despite its finality. At stake in the UP’s plea
for equity was the return of the amount of ₱ 16,370,191.74 illegally garnished from its trust funds.
Obstructing the plea is the finality of the judgment based on the supposed tardiness of UP’s appeal,
which the RTC declared on September 26, 2002. The CA upheld the declaration of finality on February
24, 2004, and the Court itself denied the UP’s petition for review on that issue on May 11, 2004 (G.R.
No. 163501). The denial became final on November 12, 2004.
It is true that a decision that has attained finality becomes immutable and unalterable, and cannot be
modified in any respect,87 even if the modification is meant to correct erroneous conclusions of fact and
law, and whether the modification is made by the court that rendered it or by this Court as the highest
court of the land.88 Public policy dictates that once a judgment becomes final, executory and
unappealable, the prevailing party should not be deprived of the fruits of victory by some subterfuge
devised by the losing party. Unjustified delay in the enforcement of such judgment sets at naught the
role and purpose of the courts to resolve justiciable controversies with finality. 89Indeed, all litigations
must at some time end, even at the risk of occasional errors.
But the doctrine of immutability of a final judgment has not been absolute, and has admitted several
exceptions, among them: (a) the correction of clerical errors; (b) the so-called nunc pro tunc entries that
cause no prejudice to any party; (c) void judgments; and (d) whenever circumstances transpire after the
finality of the decision that render its execution unjust and inequitable. 90 Moreover, in Heirs of Maura So
v. Obliosca,91 we stated that despite the absence of the preceding circumstances, the Court is not
precluded from brushing aside procedural norms if only to serve the higher interests of justice and
equity. Also, in Gumaru v. Quirino State College, 92 the Court nullified the proceedings and the writ of
execution issued by the RTC for the reason that respondent state college had not been represented in
the litigation by the Office of the Solicitor General.
We rule that the UP’s plea for equity warrants the Court’s exercise of the exceptional power to
disregard the declaration of finality of the judgment of the RTC for being in clear violation of the UP’s
right to due process.
Both the CA and the RTC found the filing on June 3, 2002 by the UP of the notice of appeal to be tardy.
They based their finding on the fact that only six days remained of the UP’s reglementary 15-day period
within which to file the notice of appeal because the UP had filed a motion for reconsideration on
January 16, 2002 vis-à-vis the RTC’s decision the UP received on January 7, 2002; and that because
the denial of the motion for reconsideration had been served upon Atty. Felimon D. Nolasco of the
UPLB Legal Office on May 17, 2002, the UP had only until May 23, 2002 within which to file the notice
of appeal.
The UP counters that the service of the denial of the motion for reconsideration upon Atty. Nolasco was
defective considering that its counsel of record was not Atty. Nolasco of the UPLB Legal Office but the
OLS in Diliman, Quezon City; and that the period of appeal should be reckoned from May 31, 2002, the
date when the OLS received the order. The UP submits that the filing of the notice of appeal on June 3,
2002 was well within the reglementary period to appeal.
We agree with the submission of the UP.
Firstly, the service of the denial of the motion for reconsideration upon Atty. Nolasco of the UPLB Legal
Office was invalid and ineffectual because he was admittedly not the counsel of record of the UP. The
rule is that it is on the counsel and not the client that the service should be made. 93
23
That counsel was the OLS in Diliman, Quezon City, which was served with the denial only on May 31,
2002. As such, the running of the remaining period of six days resumed only on June 1,
2002,94 rendering the filing of the UP’s notice of appeal on June 3, 2002 timely and well within the
remaining days of the UP’s period to appeal.
Verily, the service of the denial of the motion for reconsideration could only be validly made upon the
OLS in Diliman, and no other. The fact that Atty. Nolasco was in the employ of the UP at the UPLB
Legal Office did not render the service upon him effective. It is settled that where a party has appeared
by counsel, service must be made upon such counsel. 95 Service on the party or the party’s employee is
not effective because such notice is not notice in law.96 This is clear enough from Section 2, second
paragraph, of Rule 13, Rules of Court, which explicitly states that: "If any party has appeared by
counsel, service upon him shall be made upon his counsel or one of them, unless service upon the
party himself is ordered by the court. Where one counsel appears for several parties, he shall only be
entitled to one copy of any paper served upon him by the opposite side." As such, the period to appeal
resumed only on June 1, 2002, the date following the service on May 31, 2002 upon the OLS in Diliman
of the copy of the decision of the RTC, not from the date when the UP was notified. 97
Accordingly, the declaration of finality of the judgment of the RTC, being devoid of factual and legal
bases, is set aside.
Secondly, even assuming that the service upon Atty. Nolasco was valid and effective, such that the
remaining period for the UP to take a timely appeal would end by May 23, 2002, it would still not be
correct to find that the judgment of the RTC became final and immutable thereafter due to the notice of
appeal being filed too late on June 3, 2002.
In so declaring the judgment of the RTC as final against the UP, the CA and the RTC applied the rule
contained in the second paragraph of Section 3, Rule 41 of the Rules of Court to the effect that the filing
of a motion for reconsideration interrupted the running of the period for filing the appeal; and that the
period resumed upon notice of the denial of the motion for reconsideration. For that reason, the CA and
the RTC might not be taken to task for strictly adhering to the rule then prevailing.
However, equity calls for the retroactive application in the UP’s favor of the fresh-period rule that the
Court first announced in mid-September of 2005 through its ruling in Neypes v. Court of Appeals, 98 viz:
To standardize the appeal periods provided in the Rules and to afford litigants fair opportunity to appeal
their cases, the Court deems it practical to allow a fresh period of 15 days within which to file the notice
of appeal in the Regional Trial Court, counted from receipt of the order dismissing a motion for a new
trial or motion for reconsideration.
The retroactive application of the fresh-period rule, a procedural law that aims "to regiment or make the
appeal period uniform, to be counted from receipt of the order denying the motion for new trial, motion
for reconsideration (whether full or partial) or any final order or resolution," 99 is impervious to any serious
challenge. This is because there are no vested rights in rules of procedure. 100 A law or regulation is
procedural when it prescribes rules and forms of procedure in order that courts may be able to
administer justice.101 It does not come within the legal conception of a retroactive law, or is not subject of
the general rule prohibiting the retroactive operation of statues, but is given retroactive effect in actions
pending and undetermined at the time of its passage without violating any right of a person who may
feel that he is adversely affected.
We have further said that a procedural rule that is amended for the benefit of litigants in furtherance of
the administration of justice shall be retroactively applied to likewise favor actions then pending, as
equity delights in equality.102 We may even relax stringent procedural rules in order to serve substantial
justice and in the exercise of this Court’s equity jurisdiction.103 Equity jurisdiction aims to do complete
justice in cases where a court of law is unable to adapt its judgments to the special circumstances of a
case because of the inflexibility of its statutory or legal jurisdiction. 104
It is cogent to add in this regard that to deny the benefit of the fresh-period rule to the UP would amount
to injustice and absurdity – injustice, because the judgment in question was issued on November 28,
2001 as compared to the judgment in Neypes that was rendered in 1998; absurdity, because parties
receiving notices of judgment and final orders issued in the year 1998 would enjoy the benefit of the
fresh-period rule but the later rulings of the lower courts like that herein would not. 105
Consequently, even if the reckoning started from May 17, 2002, when Atty. Nolasco received the
denial, the UP’s filing on June 3, 2002 of the notice of appeal was not tardy within the context of the
fresh-period rule. For the UP, the fresh period of 15-days counted from service of the denial of the
motion for reconsideration would end on June 1, 2002, which was a Saturday. Hence, the UP had until
the next working day, or June 3, 2002, a Monday, within which to appeal, conformably with Section 1 of
Rule 22, Rules of Court, which holds that: "If the last day of the period, as thus computed, falls on a
Saturday, a Sunday, or a legal holiday in the place where the court sits, the time shall not run until the
next working day."
IV
Awards of monetary damages,
being devoid of factual and legal bases,
did not attain finality and should be deleted
Section 14 of Article VIII of the Constitution prescribes that express findings of fact and of law should be
made in the decision rendered by any court, to wit:
Section 14. No decision shall be rendered by any court without expressing therein clearly and distinctly
the facts and the law on which it is based.
No petition for review or motion for reconsideration of a decision of the court shall be refused due
course or denied without stating the legal basis therefor.
Implementing the constitutional provision in civil actions is Section 1 of Rule 36, Rules of Court, viz:
Section 1. Rendition of judgments and final orders. — A judgment or final order determining the merits
of the case shall be in writing personally and directly prepared by the judge, stating clearly and distinctly
the facts and the law on which it is based, signed by him, and filed with the clerk of the court. (1a)
The Constitution and the Rules of Court apparently delineate two main essential parts of a judgment,
namely: the body and the decretal portion. Although the latter is the controlling part, 106 the importance of
the former is not to be lightly regarded because it is there where the court clearly and distinctly states its
findings of fact and of law on which the decision is based. To state it differently, one without the other is
ineffectual and useless. The omission of either inevitably results in a judgment that violates the letter
and the spirit of the Constitution and the Rules of Court.
24
The term findings of fact that must be found in the body of the decision refers to statements of fact, not
to conclusions of law.107 Unlike in pleadings where ultimate facts alone need to be stated, the
Constitution and the Rules of Court require not only that a decision should state the ultimate facts but
also that it should specify the supporting evidentiary facts, for they are what are called the findings of
fact.
The importance of the findings of fact and of law cannot be overstated. The reason and purpose of the
Constitution and the Rules of Court in that regard are obviously to inform the parties why they win or
lose, and what their rights and obligations are. Only thereby is the demand of due process met as to the
parties. As Justice Isagani A. Cruz explained in Nicos Industrial Corporation v. Court of Appeals:108
It is a requirement of due process that the parties to a litigation be informed of how it was decided, with
an explanation of the factual and legal reasons that led to the conclusions of the court. The court cannot
simply say that judgment is rendered in favor of X and against Y and just leave it at that without any
justification whatsoever for its action. The losing party is entitled to know why he lost, so he may appeal
to a higher court, if permitted, should he believe that the decision should be reversed. A decision that
does not clearly and distinctly state the facts and the law on which it is based leaves the parties in the
dark as to how it was reached and is especially prejudicial to the losing party, who is unable to pinpoint
the possible errors of the court for review by a higher tribunal.
Here, the decision of the RTC justified the grant of actual and moral damages, and attorney’s fees in
the following terse manner, viz:
xxx The Court is not unmindful that due to defendants’ unjustified refusal to pay their outstanding
obligation to plaintiff, the same suffered losses and incurred expenses as he was forced to re-mortgage
his house and lot located in Quezon City to Metrobank (Exh. "CC") and BPI Bank just to pay its
monetary obligations in the form of interest and penalties incurred in the course of the construction of
the subject project.109
The statement that "due to defendants’ unjustified refusal to pay their outstanding obligation to plaintiff,
the same suffered losses and incurred expenses as he was forced to re-mortgage his house and lot
located in Quezon City to Metrobank (Exh. "CC") and BPI Bank just to pay its monetary obligations in
the form of interest and penalties incurred in the course of the construction of the subject project" was
only a conclusion of fact and law that did not comply with the constitutional and statutory prescription.
The statement specified no detailed expenses or losses constituting the ₱ 5,716,729.00 actual
damages sustained by Stern Builders in relation to the construction project or to other pecuniary
hardships. The omission of such expenses or losses directly indicated that Stern Builders did not prove
them at all, which then contravened Article 2199, Civil Code, the statutory basis for the award of actual
damages, which entitled a person to an adequate compensation only for such pecuniary loss suffered
by him as he has duly proved. As such, the actual damages allowed by the RTC, being bereft of factual
support, were speculative and whimsical. Without the clear and distinct findings of fact and law, the
award amounted only to an ipse dixit on the part of the RTC,110 and did not attain finality.
There was also no clear and distinct statement of the factual and legal support for the award of moral
damages in the substantial amount of ₱ 10,000,000.00. The award was thus also speculative and
whimsical. Like the actual damages, the moral damages constituted another judicial ipse dixit, the
inevitable consequence of which was to render the award of moral damages incapable of attaining
finality. In addition, the grant of moral damages in that manner contravened the law that permitted the
recovery of moral damages as the means to assuage "physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury."111 The contravention of the law was manifest considering that Stern Builders, as an artificial
person, was incapable of experiencing pain and moral sufferings. 112 Assuming that in granting the
substantial amount of ₱ 10,000,000.00 as moral damages, the RTC might have had in mind that dela
Cruz had himself suffered mental anguish and anxiety. If that was the case, then the RTC obviously
disregarded his separate and distinct personality from that of Stern Builders. 113 Moreover, his moral and
emotional sufferings as the President of Stern Builders were not the sufferings of Stern Builders. Lastly,
the RTC violated the basic principle that moral damages were not intended to enrich the plaintiff at the
expense of the defendant, but to restore the plaintiff to his status quo ante as much as possible. Taken
together, therefore, all these considerations exposed the substantial amount of ₱ 10,000,000.00
allowed as moral damages not only to be factually baseless and legally indefensible, but also to be
unconscionable, inequitable and unreasonable.
Like the actual and moral damages, the ₱ 150,000.00, plus ₱ 1,500.00 per appearance, granted as
attorney’s fees were factually unwarranted and devoid of legal basis. The general rule is that a
successful litigant cannot recover attorney’s fees as part of the damages to be assessed against the
losing party because of the policy that no premium should be placed on the right to litigate. 114 Prior to
the effectivity of the present Civil Code, indeed, such fees could be recovered only when there was a
stipulation to that effect. It was only under the present Civil Code that the right to collect attorney’s fees
in the cases mentioned in Article 2208115 of the Civil Code came to be recognized. 116 Nonetheless, with
attorney’s fees being allowed in the concept of actual damages, 117 their amounts must be factually and
legally justified in the body of the decision and not stated for the first time in the decretal
portion.118 Stating the amounts only in the dispositive portion of the judgment is not enough; 119 a
rendition of the factual and legal justifications for them must also be laid out in the body of the
decision.120
That the attorney’s fees granted to the private respondents did not satisfy the foregoing requirement
suffices for the Court to undo them.121 The grant was ineffectual for being contrary to law and public
policy, it being clear that the express findings of fact and law were intended to bring the case within the
exception and thereby justify the award of the attorney’s fees. Devoid of such express findings, the
award was a conclusion without a premise, its basis being improperly left to speculation and
conjecture.122
Nonetheless, the absence of findings of fact and of any statement of the law and jurisprudence on
which the awards of actual and moral damages, as well as of attorney’s fees, were based was a fatal
flaw that invalidated the decision of the RTC only as to such awards. As the Court declared in Velarde
v. Social Justice Society,123 the failure to comply with the constitutional requirement for a clear and
distinct statement of the supporting facts and law "is a grave abuse of discretion amounting to lack or
excess of jurisdiction" and that "(d)ecisions or orders issued in careless disregard of the constitutional
mandate are a patent nullity and must be struck down as void." 124 The other item granted by the RTC
(i.e., ₱ 503,462.74) shall stand, subject to the action of the COA as stated herein.
WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS
ASIDE the decision of the Court of Appeals under review; ANNULS the orders for the garnishment of
the funds of the University of the Philippines and for the release of the garnished amount to Stern
Builders Corporation and Servillano dela Cruz; and DELETES from the decision of the Regional Trial
Court dated November 28, 2001 for being void only the awards of actual damages of ₱ 5,716,729.00,
moral damages of ₱ 10,000,000.00, and attorney's fees of ₱ 150,000.00, plus ₱ 1,500.00 per
appearance, in favor of Stern Builders Corporation and Servillano dela Cruz.
The Court ORDERS Stem Builders Corporation and Servillano dela Cruz to redeposit the amount of ₱
16,370,191.74 within 10 days from receipt of this decision.
25
Costs of suit to be paid by the private respondents. The undersigned personally served the copy of the Summons together with the complaint issued in the
above-entitled case upon defendant The Department of Public Works and Highways, Region III, San
Fernando Pampanga on May 6, 2002 through Nora Cortez, Clerk III of said office as shown by her
SO ORDERED.
signature and stamped mark received by said office appearing on the original Summons.

Republic of the Philippines

WHEREFORE, the original Summons respectfully returned to the Court "DULY SERVED", for its record
SUPREME COURT
and information.
Manila
FIRST DIVISION
G.R. No. 175299               September 14, 2011 Malolos, Bulacan, May 9, 2002.

REPUBLIC OF THE PHILIPPINES, represented by the Department of Public Works and Subsequently, on July 30, 2002, Domingo filed a Motion to Declare Defendant in Default 9 in view of the
Highways, through the Hon. Secretary, HERMOGENES EBDANE, Petitioner,  failure of the DPWH Region III to file a responsive pleading within the reglementary period as required
vs. under the Rules of Court. During the hearing of the motion on August 8, 2002, the RTC directed the
ALBERTO A. DOMINGO, Respondent. counsel of Domingo to submit proof of service of said motion on the DPWH Region III. Thereafter, the
motion was deemed submitted for resolution.10Counsel for Domingo timely filed a
Manifestation,11 showing compliance with the order of the trial court.
DECISION

In an Order12 dated September 2, 2002, the RTC declared the DPWH Region III in default and
LEONARDO – DE CASTRO, J.:
thereafter set the date for the reception of Domingo’s evidence ex parte.

In this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, the Court is called upon to
After the ex parte presentation of Domingo’s evidence, the RTC rendered judgment on February 18,
reverse and set aside the Decision2 dated May 19, 2006 and the Resolution3 dated October 25, 2006 of
2003, finding that:
the Court of Appeals in CA-G.R. SP No. 78813, as well as to declare null and void the Decision 4 dated
February 18, 2003 of the Regional Trial Court (RTC) of Malolos, Bulacan, Branch 18, in Civil Case No.
333-M-2002. From the evidence presented by [Domingo], testimonial and documentary, it was convincingly proven
that [Domingo] is entitled to the relief prayed for.
As culled from the records, the factual antecedents of the case are as follows:
In his seven causes of actions, [Domingo] has religiously undertaken what is incumbent upon him in the
contracts of lease signed by both [Domingo] and [the DPWH Region III]. As a matter of course, the
On April 26, 2002, herein respondent Alberto A. Domingo filed a Complaint for Specific Performance
[DPWH Region III] has the duty to pay [Domingo] the amount equivalent to the services performed by
with Damages5against the Department of Public Works and Highways (DPWH), Region III, which was
[Domingo] which [in] this case now amount to ₱6,320,163.05 excluding interest.
docketed as Civil Case No. 333-M-2002 in the RTC of Malolos, Bulacan, Branch 18. Domingo averred
that from April to September 1992, he entered into seven contracts with the DPWH Region III for the
lease of his construction equipment to said government agency. 6 The lease contracts were allegedly Considering that there was a long delay in the payment of the obligation on the part of the [DPWH
executed in order to implement the emergency projects of the DPWH Region III, which aimed to control Region III], Article 2209 of the New Civil Code finds application as to imputation of legal interest at six
the flow of lahar from Mt. Pinatubo in the adjacent towns in the provinces of Tarlac and Pampanga. (6%) percent per annum, in the absence of stipulation of interest on the amount due.
After the completion of the projects, Domingo claimed that the unpaid rentals of the DPWH Region III
amounted to ₱6,320,163.05. Despite repeated demands, Domingo asserted that the DPWH Region III
With respect to the claim for attorney’s fees, although as a general rule, attorney’s fees cannot be
failed to pay its obligations. Domingo was, thus, compelled to file the above case for the payment of the
rewarded because of the policy that no premium should be placed on the right to litigate, this rule does
₱6,320,163.05 balance, plus ₱200,000.00 as moral and compensatory damages, ₱100,000.00 as
not apply in the case at bar in the face of the stubborn refusal of [the DPWH Region III] to respect the
exemplary damages, and ₱200,000.00 as attorney’s fees. 7
valid claim of [Domingo] x x x. Award of attorney’s fees in the amount of ₱30,000.00 appears proper.
Moreover, as to [the] demand for moral and exemplary damages, the same are hereby denied for lack
Thereafter, summons was issued by the RTC. The Proof of Service8 of the Sheriff dated May 9, 2002 of persuasive and sufficient evidence.13
stated, thus:
Thus, the RTC disposed:

Wherefore, premises considered, judgment is hereby rendered in favor of plaintiff Alberto Domingo and
PROOF OF SERVICE against defendant DPWH Region III, ordering defendant to pay plaintiff:

26
 1. the sum of Six Million Three Hundred Twenty Thousand One Hundred Sixty[-]Three and Anent the claim that the procedure for service of summons upon the Republic was not followed
05/100 Pesos (₱6,320,163.05) representing the principal obligation of the defendant plus because service should have been made on the OSG or the Legal Service Department of the DPWH,
interest at six percent (6%) per annum from 1993 until the obligation is fully paid; We are likewise not persuaded. A perusal of the Revised Administrative Code of the Philippines
suggests nothing of this import. x x x.
2. to pay attorney’s fees in the total amount of Thirty Thousand Pesos (₱30,000.00) and
xxxx
14
3. to pay the costs of suit.
Clearly, nothing [in the functions of the OSG] remotely suggests that service of summons upon the
Republic should be made exclusively on the OSG. What the [provisions] merely state is that the OSG
On March 12, 2003, Domingo filed a Motion for Issuance of Writ of Execution, 15 asserting that the
will represent the government in all proceedings involving it. It cannot be deduced nor implied from this,
DPWH Region III failed to file an appeal or a motion for new trial and/or reconsideration despite its
however, that summons should be served upon it alone.
receipt of a copy of the RTC decision on February 19, 2003. On March 20, 2003, the RTC granted the
aforesaid motion of Domingo. 16 A Writ of Execution17 was then issued on March 24, 2003, commanding
the sheriff to enforce the RTC Decision dated February 18, 2003. The same conclusion applies to the legal service branch of the DPWH, as there is also nothing in the
law that suggests that service of summons on the DPWH should be made upon it alone. x x x.
On August 27, 2003, the Republic of the Philippines, represented by the Office of the Solicitor General
(OSG), filed with the Court of Appeals a Petition for Annulment of Judgment with Prayer for the xxxx
Issuance of a Temporary Restraining Order and/or a Writ of Preliminary Injunction. 18 The petition was
docketed as CA-G.R. SP No. 78813. The Republic argued that it was not impleaded as an
Obviously, petitioner’s conclusion that the proper procedure for service of summons was not observed
indispensable party in Civil Case No. 333-M-2002. The seven contracts sued upon in the trial court
is a mere conjecture because We find nothing in the provisions invoked by it that such indeed is the
stated that they were entered into by the Regional Director, Assistant Regional Director and/or Project
procedure sanctioned by law. We are thus inclined to give more credence to [the Republic’s] argument
Manager of the DPWH Region III for and in behalf of the Republic of the Philippines, which purportedly
that it was the regional office’s fault if it failed to bring the subject case to the attention of the OSG for
was the real party to the contract. Moreover, the Republic averred that, under the law, the statutory
proper representation. To allow it to benefit from its own omission in order to evade its just and valid
representatives of the government for purposes of litigation are either the Solicitor General or the Legal
obligation would be the height of injustice.
Service Branch of the Executive Department concerned. Since no summons was issued to either of
said representatives, the trial court never acquired jurisdiction over the Republic. The absence of
indispensable parties allegedly rendered null and void the subsequent acts of the trial court because of Finally, anent the argument that the Republic is estopped from questioning the jurisdiction of the trial
its lack of authority to act, not only as to the absent parties, but even as to those present. The Republic court, We rule in the negative. The existence of another case against the regional office of the DPWH
prayed for the annulment of the RTC Decision dated February 18, 2003 and the dismissal of the said where the OSG appeared is of no moment as it concerns a totally different transaction. Thus, it would
case, without prejudice to the original action being refiled in the proper court. be erroneous for Us to rule on that basis alone, that the OSG is already acknowledging the service of
summons upon the regional office, especially considering the categorical stand taken by the OSG on
the matter in the case now before Us. Be that as it may, however, We still rule, as We have discussed
On May 19, 2006, the Court of Appeals promulgated its decision, dismissing the Petition for Annulment
above, that [Domingo’s] position is more impressed with merit.
of Judgment filed by the Republic. The appellate court elaborated that:

WHEREFORE, in view of the foregoing, the instant Petition for Annulment of Judgment is hereby
The hair-splitting distinction being made by [the Republic] between the DPWH as a department under
DISMISSED.19
the Republic, and the Regional Office of the DPWH fails to persuade Us. Instead, We uphold
[Domingo’s] position that the regional office is an extension of the department itself and service of
summons upon the former is service upon the latter. x x x. The Republic filed a Motion for Reconsideration20 of the above decision, but the Court of Appeals
denied the same in the assailed Resolution dated October 25, 2006.
xxxx
Consequently, the Republic filed the instant petition before this Court. In a Resolution 21 dated February
19, 2007, we denied the Republic’s petition for failure to properly verify the petition and that the jurat in
x x x [A] regional office of the DPWH is part of the composition of the department itself and is therefore,
the verification and certification against forum shopping did not contain any competent evidence of the
not an entity that is altogether separate from the department. This conclusion lends credence to
affiant’s identity. In addition, the Integrated Bar of the Philippines (IBP) dues payment (under IBP O.R.
[Domingo’s] position that service of summons upon the regional office is service upon the department
No. 663485) of one of the counsels who signed the petition was not updated. The Republic filed a
itself because the former is essentially part of the latter. Indeed, what militates heavily against [the
Motion for Reconsideration22 of the above resolution.23On July 2, 2007, the Court resolved24 to grant the
Republic’s] theory is the simple fact that the regional office is not a different entity at all, but, as can be
Republic’s motion, thereby reinstating its petition.
gleaned from the manner of its creation, a part of the department itself, so much so that it does not
even have a juridical personality of its own. x x x.
In assailing the judgment of the Court of Appeals, the Republic brings to fore the following arguments:

27
 I.
If in the act by which the Republic consents to be sued, no designation is made as to the
officer to be served with summons, then the process can only be served upon the Solicitor
General.
[II.]
The State is not bound by the errors or mistakes of its agents.
III.
Respondent can recover on the government contracts sued upon in Civil Case No. [3]33-M-
2002 only on a quantum meruit basis.25
In essence, the primary issue that must be resolved in the instant petition is whether the Court of
Appeals correctly dismissed the Petition for Annulment of Judgment filed by the Republic.
Section 1, Rule 4726 of the Rules of Court provides for the remedy of annulment by the Court of Appeals
of judgments or final orders and resolutions of Regional Trial Courts for which the ordinary remedies of
new trial, appeal, petition for relief or other appropriate remedies are no longer available through no
fault of the petitioner.
Under the first paragraph of Section 2, Rule 4727 of the Rules of Court, the annulment may be based
only on the grounds of extrinsic fraud and lack of jurisdiction. As a ground for annulment of judgment,
lack of jurisdiction refers to either lack of jurisdiction over the person of the defending party or over the
subject matter of the claim.28
In the petition at bar, the Republic argues that the RTC failed to acquire jurisdiction over the former.
The Republic reiterates that the service of summons upon the DPWH Region III alone was insufficient.
According to the Republic, the applicable rule of procedure in this case is Section 13, Rule 14 of the
Rules of Court, which mandates that when the defendant is the Republic of the Philippines, the service
of summons may be effected on the Office of the Solicitor General (OSG). The DPWH and its regional
office are simply agents of the Republic, which is the real party in interest in Civil Case No. 333-M-
2002. The Republic posits that, since it was not impleaded in the case below and the RTC did not
acquire jurisdiction over it, the proceedings in Civil Case No. 333-M-2002 are null and void.
On the other hand, Domingo argues that the DPWH Region III is part of the DPWH itself; hence, a suit
against the regional office is a suit against the said department and the Republic as well. Domingo
stresses that the case he filed was against the Republic, that is, against the DPWH Region III, and it
was clear that the summons and a copy of the complaint was duly served on the said regional office.
Likewise, Domingo submits that the Republic is estopped from raising the issue of jurisdiction in the
instant case given that he has filed two other civil actions for specific performance and damages
against the DPWH Region III and, in the said cases, the OSG formally entered its appearance for and
in behalf of the Republic. Domingo alleges that the foregoing action of the OSG proved that it
recognized the validity of the service of summons upon the DPWH Region III and the jurisdiction of the
trial court over the said regional office.
The Court finds merit in the Republic’s petition.
Summons is a writ by which the defendant is notified of the action brought against him. Service of such
writ is the means by which the court acquires jurisdiction over his person. Jurisdiction over the person
of the defendant is acquired through coercive process, generally by the service of summons issued by
the court, or through the defendant's voluntary appearance or submission to the court.29
Section 13, Rule 14 of the Rules of Court states that:
SEC. 13. Service upon public corporations. – When the defendant is the Republic of the Philippines,
service may be effected on the Solicitor General; in case of a province, city or municipality, or like public
corporations, service may be effected on its executive head, or on such other officer or officers as the
law or the court may direct. (Emphasis ours.)
Jurisprudence further instructs that when a suit is directed against an unincorporated government
agency, which, because it is unincorporated, possesses no juridical personality of its own, the suit is
against the agency's principal, i.e., the State.30 In the similar case of Heirs of Mamerto Manguiat v.
Court of Appeals,31 where summons was served on the Bureau of Telecommunications which was an
agency attached to the Department of Transportation and Communications, we held that:
Rule 14, Section 13 of the 1997 Rules of Procedure provides:
SEC. 13. Service upon public corporations. — When the defendant is the Republic of the Philippines,
service may be effected on the Solicitor General; in case of a province, city or municipality, or like public
corporations, service may be effected on its executive head, or on such other officer or officers as the
law or the court may direct.
It is clear under the Rules that where the defendant is the Republic of the Philippines, service of
summons must be made on the Solicitor General. The BUTEL is an agency attached to the Department
of Transportation and Communications created under E.O. No. 546 on July 23, 1979, and is in charge
of providing telecommunication facilities, including telephone systems to government offices. It also
provides its services to augment limited or inadequate existing similar private communication facilities.
It extends its services to areas where no communication facilities exist yet; and assists the private
sector engaged in telecommunication services by providing and maintaining backbone
telecommunication network. It is indisputably part of the Republic, and summons should have been
served on the Solicitor General.
We now turn to the question of whether summons was properly served according to the Rules of Court.
Petitioners rely solely on the sheriff's return to prove that summons was properly served. We quote its
contents, viz:
"THIS IS TO CERTIFY that on the 19th day of May 1999, the undersigned caused the service of
Summons and Complaint upon defendant J.A. Development Corporation at the address indicated in the
summons, the same having been received by a certain Jacqueline delos Santos, a person employed
thereat, of sufficient age and discretion to receive such process, who signed on the lower portion of the
Summons to acknowledge receipt thereof.
28
Likewise, copy of the Summons and Complaint was served upon defendant Bureau of
Telecommunications at the address indicated in the Summons, a copy of the same was received by a
certain Cholito Anitola, a person employed thereat, who signed on the lower portion of the Summons to
acknowledge receipt thereof."
It is incumbent upon the party alleging that summons was validly served to prove that all requirements
were met in the service thereof. We find that this burden was not discharged by the petitioners. The
records show that the sheriff served summons on an ordinary employee and not on the Solicitor
General. Consequently, the trial court acquired no jurisdiction over BUTEL, and all proceedings therein
are null and void.32 (Emphases supplied.)
In the instant case, the Complaint for Specific Performance with Damages filed by Domingo specifically
named as defendant the DPWH Region III. As correctly argued by the Republic, the DPWH and its
regional office are merely the agents of the former (the Republic), which is the real party in interest in
Civil Case No. 333-M-2002. Thus, as mandated by Section 13, Rule 14 of the Rules of Court, the
summons in this case should have been served on the OSG.
Quite inexplicably, the Court of Appeals failed to apply, nay, to even consider, the provisions of Section
13, Rule 14 of the Rules of Court in rendering its assailed Decision. A perusal of the Decision dated
May 19, 2006 shows that the appellate court mainly dissertated regarding the functions and
organizational structures of the DPWH and the OSG, as provided for in the Revised Administrative
Code of 1987, in an attempt to demonstrate the relationship between the DPWH and its regional
offices, as well as to refute the claim that the service of summons upon the Republic should be made
exclusively upon the OSG. Such an oversight on the part of the Court of Appeals is most unfortunate
given the relevance and materiality of Section 13, Rule 14 of the Rules of Court to the instant case, in
addition to the fact that the Republic itself quoted the aforesaid provision in its petition before the
appellate court.33
The Court, nonetheless, subscribes to the ruling of the Court of Appeals that the Republic is not
estopped from raising the issue of jurisdiction in the case at bar in view of the alleged entry of
appearance of the OSG, in behalf of the Republic, in the other civil cases supposedly filed by Domingo
against the DPWH Region III. As held by the appellate court, the other civil cases presumably pertained
to transactions involving Domingo and the DPWH Region III, which were totally different from the
contracts involved in the instant case. The fact that the OSG entered its appearance in the other civil
cases, notwithstanding that the summons therein were only served upon the DPWH Region III, has no
bearing in the case now before us. All this indicates is that, despite the improper service of summons in
these other civil cases, there appeared to be notice to the OSG and voluntary appearance on the
latter’s part.
Here, there was no indication, and Domingo did not insist otherwise, that the OSG had any notice of the
filing of Civil Case No. 333-M-2002. Domingo speculates that, in the subsequent civil actions against
the DPWH Region III, the latter most likely brought the said cases to the attention of the OSG. On the
other hand, Domingo opines that the DPWH Region III apparently neglected to inform the OSG of the
pendency of Civil Case No. 333-M-2002. Accordingly, Domingo asserted that he should not be faulted
therefor. The Court disagrees. Domingo ought to bear in mind that it is the duty of the plaintiff to
implead all the necessary or indispensable parties for the complete determination of the action. 34 It was,
thus, incumbent upon him to name and implead the proper defendant in this case, i.e., the Republic,
and cause the service of summons to be made upon the officer mandated by law, that is, the OSG. As
Domingo failed to discharge this burden, he cannot now be allowed to shift the blame on the DPWH
Region III or hold in estoppel the OSG.1âwphi1
In sum, the Court holds that the Republic was not validly served with summons in Civil Case No. 333-
M-2002. Hence, the RTC failed to acquire jurisdiction over the person of the Republic. Consequently,
the proceedings had before the trial court and its Decision dated February 18, 2003 are hereby
declared void.
In accordance with Section 7, Rule 4735 of the Rules of Court, a judgment of annulment shall set aside
the questioned judgment or final order or resolution and render the same null and void, without
prejudice to the original action being refiled in the proper court.
In view of the above ruling of the Court declaring the nullity of the proceedings in the RTC, the Court
shall no longer pass upon the other issues raised by the parties in the instant petition.
WHEREFORE, the petition is GRANTED. The Decision dated May 19, 2006 and the Resolution dated
October 25, 2006 of the Court of Appeals in CA-G.R. SP No. 78813 are REVERSED. The Decision
dated February 18, 2003 of the Regional Trial Court of Malolos, Bulacan, Branch 18, in Civil Case No.
333-M-2002 is hereby ANNULLED and SET ASIDE, without prejudice to the filing of the original action
in the proper Regional Trial Court.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 179918               September 8, 2010
SHELL PHILIPPINES EXPLORATION B.V., represented by its Managing Director, Jeremy
Cliff, Petitioner, 
vs.
EFREN JALOS, JOVEN CAMPANG, ARNALDO MIJARES, CARLITO TRIVINO, LUCIANO
ASERON, CHARLITO ALDOVINO, ROBERTO FADERA, RENATO MANTALA, GERTRUDES
MENESES, NORBERTO HERNANDEZ, JOSE CABASE, DANILO VITTO, EDWIN MARIN, SAMUEL
MARIN, ARMANDO MADERA, EDGARDO MARINO, HERMINO RELOX, ROLANDO TARROBACO,
ERNESTO RELOX, ROSALITO RUGAS, ELDIE DIMALIBOT, PLARIDEL MUJE, REYMUNDO
CARMONA, RONILO RIOFLORIDO, LEONIDES MANCIA, JONAR GERANCE, RODEL CASAPAO,
CARMENCITA MENDOZA, SEVERINO MEDRANO, EDWIN MENDOZA, DOMINEZ SANTIAGO,
ROGER MUJE, REYNALDO MORALES, WILLIAM MENDOZA, NELSON SOLIS, ALBERTO MATRE,
MARGARITO GADO, BONIFACIO LEOTERIO, NEMESIO PEREZ, JR., ARIEL MENDOZA, PEPITO
MENDOZA, SALVADOR FALCULAN, JR., CEASAR ROBLEDO, SUZIMO CERNA, VIRGILIO
VATAL, JIMMY ALBAO, CRISANTO SABIDA, LAUDRINO MIRANDA, LEOPOLDO MISANA, JIMMY
DELACION, FREJEDO MAGPILI, ROLANDO DIMALIBOT, PEDRO MAPALAD, FAUSTINO
BALITOSTOS, LEONARDO DIMALIBOT, MARIANO MAGYAYA, RAUL MIRANO, ERNESTO
MATRE, ROMEO ROBLEDO, GILBERT SADICON, ROMEO SIENA, NESTOR SADICON, NOEL
SIENA, REDENTER CAMPANG, ARNEL HERNENDEZ, RESTITUTO BAUTISTA, JOSE MUJE,
DANILO BILARMINO, ADRIAN MAGANGO, VALERIANO SIGUE, BERNIE MORALES, JOSEPH
SALAZAR, PABLITO MENDOZA, JR., ERWIN BAUTISTA, RUBEN BAUTISTA, ALEXANDER
ROVERO, EDUARDO QUARTO, RUBEN RIOFLORIDO, NESTOR DELACION, SEVERINO
29
MEDRANO, JOEY FAJECULAY, NICOLAS MEDRANO, FELIX MEDRANO, RODELIO CASAPAO, verification and certification against forum shopping, and the requisites for a suit brought by pauper
FELIPE LOLONG, MARCELINO LOLONG, ELDY DIMALIBOT, ROBERTO CASAPAO, SIMEON litigants.4
CASAPAO, HENRY DIMALIBOT, RONALDO MORALES, PEPING CASAPAO, JOEL GERANCE,
JAYREE DIMALIBOT, MARIO DIMALIBOT, SANTO DIMALIBOT, ZERAPIN DIMALIBOT,
On March 24, 2004 the RTC dismissed the complaint. It ruled that the action was actually pollution-
FLORENCIO ROVERO, Respondents.
related, although denominated as one for damages. The complaint should thus be brought first before
the PAB, the government agency vested with jurisdiction over pollution-related cases. 5
DECISION
Jalos, et al assailed the RTC’s order through a petition for certiorari6 before the Court of Appeals (CA).
ABAD, J.: In due course, the latter court reversed such order and upheld the jurisdiction of the RTC over the
action. It said that Shell was not being sued for committing pollution, but for constructing and operating
a natural gas pipeline that caused fish decline and considerable reduction in the fishermen’s income.
This case is about a question of jurisdiction over an action against a petroleum contractor, whose
The claim for damages was thus based on a quasi-delict over which the regular courts have jurisdiction.
pipeline operation has allegedly driven the fish away from coastal areas, inflicting loss of earnings
among fishermen.
The CA also rejected Shell’s assertion that the suit was actually against the State. It observed that the
government was not even impleaded as party defendant. It gave short shrift to Shell’s insistence that,
The Facts and the Case
under the service contract, the government was solidarily liable with Shell for damages caused to third
persons. Besides, the State should be deemed to have given its consent to be sued when it entered
On December 11, 1990 petitioner Shell Philippines Exploration B.V. (Shell) and the Republic of the into the contract with Shell.
Philippines entered into Service Contract 38 for the exploration and extraction of petroleum in
northwestern Palawan. Two years later, Shell discovered natural gas in the Camago-Malampaya area
The CA also held that the complaint sufficiently alleged an actionable wrong. Jalos, et al invoked their
and pursued its development of the well under the Malampaya Natural Gas Project. This entailed the
right to fish the sea and earn a living, which Shell had the correlative obligation to respect. Failure to
construction and installation of a pipeline from Shell’s production platform to its gas processing plant in
observe such obligation resulted in a violation of the fishermen’s rights and thus gave rise to a cause of
Batangas. The pipeline spanned 504 kilometers and crossed the Oriental Mindoro Sea.
action for damages.7

On May 19, 2003, respondents Efren Jalos, Joven Campang, Arnaldo Mijares, and 75 other individuals
Finally, the CA held that Jalos, et al substantially complied with the technical requirements for filing the
(Jalos, et al) filed a complaint for damages 1 against Shell before the Regional Trial Court (RTC), Branch
action. But since they failed to prove the requisites of a class suit, only those who have verified the
41, Pinamalayan, Oriental Mindoro. Jalos, et al claimed that they were all subsistence fishermen from
complaint should be deemed party plaintiffs.8
the coastal barangay of Bansud, Oriental Mindoro whose livelihood was adversely affected by the
construction and operation of Shell’s natural gas pipeline.
Shell moved for reconsideration of the CA’s decision but the same was denied. 9 Hence, it filed this
petition for review under Rule 45.
Jalos, et al claimed that their fish catch became few after the construction of the pipeline. As a result,
their average net income per month fell from a high of ₱4,848.00 to only ₱573.00. They said that "the
pipeline greatly affected biogenically hard-structured communities such as coral reefs and led [to] stress The Issues Presented
to the marine life in the Mindoro Sea." They now have to stay longer and farther out at sea to catch fish,
as the pipeline’s operation has driven the fish population out of coastal waters. 2
The case presents the following issues:

Instead of filing an answer, Shell moved for dismissal of the complaint. It alleged that the trial court had
1. Whether or not the complaint is a pollution case that falls within the primary jurisdiction of
no jurisdiction over the action, as it is a "pollution case" under Republic Act (R.A.) 3931, as amended by
the PAB;
Presidential Decree (P.D.) 984 or the Pollution Control Law. Under these statutes, the Pollution
Adjudication Board (PAB) has primary jurisdiction over pollution cases and actions for related
damages.3 2. Whether or not the complaint sufficiently alleges a cause of action against Shell; and

Shell also claimed that it could not be sued pursuant to the doctrine of state immunity without the 3. Whether or not the suit is actually against the State and is barred under the doctrine of
State’s consent. Shell said that under Service Contract 38, it served merely as an agent of the state immunity.
Philippine government in the development of the Malampaya gas reserves.
The Court’s Rulings
Moreover, said Shell, the complaint failed to state a cause of action since it did not specify any
actionable wrong or particular act or omission on Shell’s part that could have caused the alleged injury
First. Although the complaint of Jalos, et al does not use the word "pollution" in describing the cause of
to Jalos, et al. The complaint likewise failed to comply with requirements of a valid class suit,
the alleged fish decline in the Mindoro Sea, it is unmistakable based on their allegations that Shell’s
30
pipeline produced some kind of poison or emission that drove the fish away from the coastal areas.
While the complaint did not specifically attribute to Shell any specific act of "pollution," it alleged that
"the pipeline greatly affected biogenically hard-structured communities such as coral reefs and led [to]
stress to the marine life in the Mindoro Sea."10 This constitutes "pollution" as defined by law.
Section 2(a) of P.D. 984 defines "pollution" as "any alteration of the physical, chemical and biological
properties of any water x x x as will or is likely to create or render such water x x x harmful, detrimental
or injurious to public health, safety or welfare or which will adversely affect their utilization for domestic,
commercial, industrial, agricultural, recreational or other legitimate purposes."
It is clear from this definition that the stress to marine life claimed by Jalos, et al is caused by some kind
of pollution emanating from Shell’s natural gas pipeline. The pipeline, they said, "greatly affected" or
altered the natural habitat of fish and affected the coastal waters’ natural function as fishing grounds.
Inevitably, in resolving Jalos, et al’s claim for damages, the proper tribunal must determine whether or
not the operation of the pipeline adversely altered the coastal waters’ properties and negatively affected
its life sustaining function. The power and expertise needed to determine such issue lies with the PAB.
Executive Order 192 (1987) transferred to the PAB the powers and functions of the National Pollution
and Control Commission provided in R.A. 3931, as amended by P.D. 984. 11 These empowered the PAB
to "[d]etermine the location, magnitude, extent, severity, causes and effects" of water pollution. 12 Among
its functions is to "[s]erve as arbitrator for the determination of reparation, or restitution of the damages
and losses resulting from pollution." In this regard, the PAB has the power to conduct
hearings,13 impose penalties for violation of P.D. 984,14 and issue writs of execution to enforce its orders
and decisions.15 The PAB’s final decisions may be reviewed by the CA under Rule 43 of the Rules of
Court.16
Jalos, et al had, therefore, an administrative recourse before filing their complaint with the regular
courts.17 The laws creating the PAB and vesting it with powers are wise. The definition of the term
"pollution" itself connotes the need for specialized knowledge and skills, technical and scientific, in
determining the presence, the cause, and the effects of pollution. These knowledge and skills are not
within the competence of ordinary courts.18 Consequently, resort must first be made to the PAB, which
is the agency possessed of expertise in determining pollution-related matters.1avvphil
To this extent, the failure of Jalos, et al to allege in their complaint that they had first taken resort to
PAB before going to court means that they failed to state a cause of action that the RTC could act on.
This warranted the dismissal of their action.19
Second. Still, Shell points out that the complaint also states no cause of action because it failed to
specify any actionable wrong or particular act or omission on Shell’s part. The Court cannot agree.
As mentioned above, the complaint said that the natural gas pipeline’s construction and operation
"greatly affected" the marine environment, drove away the fish, and resulted in reduced income for
Jalos, et al. True, the complaint did not contain some scientific explanation regarding how the
construction and operation of the pipeline disturbed the waters and drove away the fish from their usual
habitat as the fishermen claimed. But lack of particulars is not a ground for dismissing the complaint.
A cause of action is the wrongful act or omission committed by the defendant in violation of the primary
rights of the plaintiff.20 Its elements consist of: (1) a right existing in favor of the plaintiff, (2) a duty on the
part of the defendant to respect the plaintiff’s right, and (3) an act or omission of the defendant in
violation of such right.21 To sustain a motion to dismiss for lack of cause of action, however, the
complaint must show that the claim for relief does not exist and not only that the claim was defectively
stated or is ambiguous, indefinite or uncertain. 22
Here, all the elements of a cause of action are present. First, Jalos, et al undoubtedly had the right to
the preferential use of marine and fishing resources which is guaranteed by no less than the
Constitution.23 Second, Shell had the correlative duty to refrain from acts or omissions that could impair
Jalos, et al’s use and enjoyment of the bounties of the seas. Lastly, Shell’s construction and operation
of the pipeline, which is an act of physical intrusion into the marine environment, is said to have
disrupted and impaired the natural habitat of fish and resulted in considerable reduction of fish catch
and income for Jalos, et al.
Thus, the construction and operation of the pipeline may, in itself, be a wrongful act that could be the
basis of Jalos, et al’s cause of action. The rules do not require that the complaint establish in detail the
causal link between the construction and operation of the pipeline, on the one hand, and the fish
decline and loss of income, on the other hand, it being sufficient that the complaint states the ultimate
facts on which it bases its claim for relief. The test for determining the sufficiency of a cause of action
rests on whether the complaint alleges facts which, if true, would justify the relief demanded. 24 In this
case, a valid judgment for damages can be made in favor of Jalos, et al, if the construction and
operation of the pipeline indeed caused fish decline and eventually led to the fishermen’s loss of
income, as alleged in the complaint.
Third. Shell claims that it cannot be sued without the State’s consent under the doctrine of state
immunity from suit. But, to begin with, Shell is not an agent of the Republic of the Philippines. It is but a
service contractor for the exploration and development of one of the country’s natural gas reserves.
While the Republic appointed Shell as the exclusive party to conduct petroleum operations in the
Camago-Malampayo area under the State’s full control and supervision, 25 it does not follow that Shell
has become the State’s "agent" within the meaning of the law.
An agent is a person who binds himself to render some service or to do something in representation or
on behalf of another, with the consent or authority of the latter.26 The essence of an agency is the
agent’s ability to represent his principal and bring about business relations between the latter and third
persons.27 An agent’s ultimate undertaking is to execute juridical acts that would create, modify or
extinguish relations between his principal and third persons. 28 It is this power to affect the principal’s
contractual relations with third persons that differentiates the agent from a service contractor.
Shell’s main undertaking under Service Contract 38 is to "[p]erform all petroleum operations and
provide all necessary technology and finance" as well as other connected services29 to the Philippine
government. As defined under the contract, petroleum operation means the "searching for and
obtaining Petroleum within the Philippines", including the "transportation, storage, handling and sale" of
petroleum whether for export or domestic consumption. 30 Shell’s primary obligation under the contract is
not to represent the Philippine government for the purpose of transacting business with third persons.
Rather, its contractual commitment is to develop and manage petroleum operations on behalf of the
State.
Consequently, Shell is not an agent of the Philippine government, but a provider of services, technology
and financing31 for the Malampaya Natural Gas Project. It is not immune from suit and may be sued for
claims even without the State’s consent. Notably, the Philippine government itself recognized that Shell
could be sued in relation to the project. This is evident in the stipulations agreed upon by the parties
under Service Contract 38.
31
Article II, paragraph 8, Annex "B" of Service Contract 3832 states that legal expenses, including
"judgments obtained against the Parties or any of them on account of the Petroleum Operations", can
be recovered by Shell as part of operating expenses to be deducted from gross proceeds. Article II,
paragraph 9B of the same document allows a similar recovery for "[a]ll actual expenditures incurred and
paid by CONTRACTOR [Shell] in settlement of any and all losses, claims, damages, judgments, and
any other expenses not covered by insurance, including legal services." This signifies that the State
itself acknowledged the suability of Shell. Since payment of claims and damages pursuant to a
judgment against Shell can be deducted from gross proceeds, the State will not be required to perform
any additional affirmative act to satisfy such a judgment.
In sum, while the complaint in this case sufficiently alleges a cause of action, the same must be filed
with the PAB, which is the government agency tasked to adjudicate pollution-related cases. Shell is not
an agent of the State and may thus be sued before that body for any damages caused by its
operations. The parties may appeal the PAB’s decision to the CA. But pending prior determination by
the PAB, courts cannot take cognizance of the complaint.
WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the Court of Appeals in
CA-G.R. CV 82404 dated November 20, 2006. Respondent Efren Jalos, et al’s complaint for damages
against Shell Philippines Exploration B.V. in Civil Case P-1818-03 of the Regional Trial Court, Branch
41, Pinamalayan, Oriental Mindoro is ordered DISMISSED without prejudice to its refiling with the
Pollution Adjudication Board or PAB.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
A.M. No. 08-2-01-0               February 11, 2010
RE: PETITION FOR RECOGNITION OF THE EXEMPTION OF THE GOVERNMENT SERVICE
INSURANCE SYSTEM FROM PAYMENT OF LEGAL FEES. GOVERNMENT SERVICE INSURANCE
SYSTEM, Petitioner.
RESOLUTION
CORONA, J.:
May the legislature exempt the Government Service Insurance System (GSIS) from legal fees imposed
by the Court on government-owned and controlled corporations and local government units? This is the
central issue in this administrative matter.
The GSIS seeks exemption from the payment of legal fees imposed on government-owned or
controlled corporations under Section 22,1 Rule 141 (Legal Fees) of the Rules of Court. The said
provision states:
SEC. 22. Government exempt. – The Republic of the Philippines, its agencies and instrumentalities are
exempt from paying the legal fees provided in this Rule. Local government corporations
and government-owned or controlled corporations with or without independent charter are not
exempt from paying such fees.
However, all court actions, criminal or civil, instituted at the instance of the provincial, city or municipal
treasurer or assessor under Sec. 280 of the Local Government Code of 1991 shall be exempt from the
payment of court and sheriff’s fees. (emphasis supplied)
The GSIS anchors its petition on Section 39 of its charter, RA2 8291 (The GSIS Act of 1997):
SEC. 39. Exemption from Tax, Legal Process and Lien. – It is hereby declared to be the policy of the
State that the actuarial solvency of the funds of the GSIS shall be preserved and maintained at all times
and that contribution rates necessary to sustain the benefits under this Act shall be kept as low as
possible in order not to burden the members of the GSIS and their employers. Taxes imposed on the
GSIS tend to impair the actuarial solvency of its funds and increase the contribution rate
necessary to sustain the benefits of this Act. Accordingly, notwithstanding any laws to the
contrary, the GSIS, its assets, revenues including accruals thereto, and benefits paid, shall be
exempt from all taxes, assessments, fees, charges or duties of all kinds. These exemptions shall
continue unless expressly and specifically revoked and any assessment against the GSIS as of the
approval of this Act are hereby considered paid.Consequently, all laws, ordinances, regulations,
issuances, opinions or jurisprudence contrary to or in derogation of this provision are hereby
deemed repealed, superseded and rendered ineffective and without legal force and effect.
Moreover, these exemptions shall not be affected by subsequent laws to the contrary unless this
section is expressly, specifically and categorically revoked or repealed by law and a provision is
enacted to substitute or replace the exemption referred to herein as an essential factor to maintain and
protect the solvency of the fund, notwithstanding and independently of the guaranty of the national
government to secure such solvency or liability.
The funds and/or the properties referred to herein as well as the benefits, sums or monies
corresponding to the benefits under this Act shall be exempt from attachment, garnishment, execution,
levy or other processes issued by the courts, quasi-judicial agencies or administrative bodies including
Commission on Audit (COA) disallowances and from all financial obligations of the members, including
his pecuniary accountability arising from or caused or occasioned by his exercise or performance of his
official functions or duties, or incurred relative to or in connection with his position or work except when
his monetary liability, contractual or otherwise, is in favour of the GSIS. (emphasis supplied)
The GSIS then avers that courts still assess and collect legal fees in actions and proceedings instituted
by the GSIS notwithstanding its exemption from taxes, assessments, fees, charges, or duties of all
kinds under Section 39. For this reason, the GSIS urges this Court to recognize its exemption from
payment of legal fees.
According to the GSIS, the purpose of its exemption is to preserve and maintain the actuarial solvency
of its funds and to keep the contribution rates necessary to sustain the benefits provided by RA 8291 as
low as possible. Like the terms "taxes," "assessments," "charges," and "duties," the term "fees" is used
in the law in its generic and ordinary sense as any form of government imposition. The word "fees,"
defined as "charge[s] fixed by law for services of public officers or for the use of a privilege under
control of government," is qualified by the phrase "of all kinds."3 Hence, it includes the legal fees
prescribed by this Court under Rule 141. Moreover, no distinction should be made based on the kind of
32
fees imposed on the GSIS or the GSIS’ ability to pay because the law itself does not distinguish based
on those matters.
The GSIS argues that its exemption from the payment of legal fees would not mean that RA 8291 is
superior to the Rules of Court. It would merely show "deference" by the Court to the legislature as a co-
equal branch.4 This deference will recognize the "compelling and overriding" State interest in the
preservation of the actuarial solvency of the GSIS for the benefit of its members.5
The GSIS further contends that the right of government workers to social security is an aspect of social
justice. The right to social security is also guaranteed under Article 22 of the Universal Declaration of
Human Rights and Article 9 of the International Covenant on Economic, Social and Cultural Rights. The
Court has the power to promulgate rules concerning the protection and enforcement of constitutional
rights, including the right to social security, but the GSIS is not compelling the Court to promulgate such
rules. The GSIS is merely asking the Court to recognize and allow the exercise of the right of the GSIS
"to seek relief from the courts of justice sans payment of legal fees."6
Required to comment on the GSIS’ petition, 7 the Office of the Solicitor General (OSG) maintains that
the petition should be denied.8 According to the OSG, the issue of the GSIS’ exemption from legal fees
has been resolved by the issuance by then Court Administrator Presbitero J. Velasco, Jr.9 of
OCA10 Circular No. 93-2004:
TO : ALL JUDGES, CLERKS OF COURT AND COURT PERSONNEL OF THE METROPOLITAN
TRIAL COURTS, MUNICIPAL TRIAL COURTS IN CITIES, MUNICIPAL TRIAL COURTS, MUNICIPAL
CIRCUIT TRIAL COURTS, SHARI’A CIRCUIT COURTS
SUBJECT : REMINDER ON THE STRICT OBSERVANCE OF ADMINISTRATIVE CIRCULAR NO. 3-
98 (Re: Payment of Docket and Filing Fees in Extra-Judicial Foreclosure); SECTION 21, RULE 141 OF
THE RULES OF COURT; SECTION 3 OF PRESIDENTIAL DECREE NO. 385; and ADMINISTRATIVE
CIRCULAR NO. 07-99 (Re: Exercise of Utmost Caution, Prudence, and Judiciousness in Issuance of
Temporary Restraining Orders and Writs of Preliminary Injunctions)
Pursuant to the Resolution of the Third Division of the Supreme Court dated 05 April 2004 and to give
notice to the concern raised by the [GSIS] to expedite extrajudicial foreclosure cases filed in court, we
wish to remind all concerned [of] the pertinent provisions of Administrative Circular No. 3-98, to wit:
2. No written request/petition for extrajudicial foreclosure of mortgages, real or chattel, shall
be acted upon by the Clerk of Court, as Ex-Officio Sheriff, without the corresponding filing fee
having been paid and the receipt thereof attached to the request/petition as provided for in
Sec. 7(c), of Rule 141 of the Rules of Court.
3. No certificate of sale shall be issued in favor of the highest bidder until all fees provided for
in the aforementioned sections and paragraph 3 of Section 9 (I) of Rule 141 of the Rules of
Court shall have been paid.The sheriff shall attach to the records of the case a certified copy
of the Official Receipt [O.R.] of the payment of the fees and shall note the O.R. number in the
duplicate of the Certificate of Sale attached to the records of the case.
Moreover, to settle any queries as to the status of exemption from payment of docket and legal fees of
government entities, Section 21, Rule 141 of the Rules of Court explicitly provides:
SEC. 21. Government exempt. – The Republic of the Philippines, its agencies and instrumentalities
are exempt from paying the legal fees provided in this Rule. Local governments and government-
owned or controlled corporations with or without independent charters are not exempt from
paying such fees.11
x x x           x x x          x x x
The OSG contends that there is nothing in Section 39 of RA 8291 that exempts the GSIS from fees
imposed by the Court in connection with judicial proceedings. The exemption of the GSIS from "taxes,
assessments, fees, charges or duties of all kinds" is necessarily confined to those that do not involve
pleading, practice and procedure. Rule 141 has been promulgated by the Court pursuant to its
exclusive rule-making power under Section 5(5), Article VIII of the Constitution. Thus, it may not be
amended or repealed by Congress.
On this Court’s order,12 the Office of the Chief Attorney (OCAT) submitted a report and
recommendation13 on the petition of the GSIS and the comment of the OSG thereon. According to the
OCAT, the claim of the GSIS for exemption from the payment of legal fees has no legal basis. Read in
its proper and full context, Section 39 intends to preserve the actuarial solvency of GSIS funds by
exempting the GSIS from government impositions through taxes. Legal fees imposed under Rule 141
are not taxes.
The OCAT further posits that the GSIS could not have been exempted by Congress from the payment
of legal fees. Otherwise, Congress would have encroached on the rule-making power of this Court.
According to the OCAT, this is the second time that the GSIS is seeking exemption from paying legal
fees.14 The OCAT also points out that there are other government-owned or controlled corporations and
local government units which asked for exemption from paying legal fees citing provisions in their
respective charters that are similar to Section 39 of RA 8291. 15 Thus, the OCAT recommends that the
petition of GSIS be denied and the issue be settled once and for all for the guidance of the concerned
parties.
Faced with the differing opinions of the GSIS, the OSG and the OCAT, we now proceed to probe into
the heart of this matter: may Congress exempt the GSIS from the payment of legal fees? No.
The GSIS urges the Court to show deference to Congress by recognizing the exemption of the GSIS
under Section 39 of RA 8291 from legal fees imposed under Rule 141. Effectively, the GSIS wants this
Court to recognize a power of Congress to repeal, amend or modify a rule of procedure promulgated by
the Court. However, the Constitution and jurisprudence do not sanction such view.
Rule 141 (on Legal Fees) of the Rules of Court was promulgated by this Court in the exercise of its
rule-making powers under Section 5(5), Article VIII of the Constitution:
Sec. 5. The Supreme Court shall have the following powers:
x x x           x x x          x x x
(5) Promulgate rules concerning the protection and enforcement of constitutional rights, pleading,
practice, and procedure in all courts, the admission to the practice of law, the Integrated Bar, and
33
legal assistance to the underprivileged. Such rules shall provide a simplified and inexpensive procedure
for the speedy disposition of cases, shall be uniform for all courts of the same grade, and shall not
diminish, increase, or modify substantive rights. Rules of procedure of special courts and quasi-judicial
bodies shall remain effective unless disapproved by the Supreme Court.
x x x           x x x          x x x (emphasis supplied)
The power to promulgate rules concerning pleading, practice and procedure in all courts is a traditional
power of this Court.16 It necessarily includes the power to address all questions arising from or
connected to the implementation of the said rules.
The Rules of Court was promulgated in the exercise of the Court’s rule-making power. It is essentially
procedural in nature as it does not create, diminish, increase or modify substantive rights. Corollarily,
Rule 141 is basically procedural. It does not create or take away a right but simply operates as a means
to implement an existing right. In particular, it functions to regulate the procedure of exercising a right of
action and enforcing a cause of action.17 In particular, it pertains to the procedural requirement of paying
the prescribed legal fees in the filing of a pleading or any application that initiates an action or
proceeding.18
Clearly, therefore, the payment of legal fees under Rule 141 of the Rules of Court is an integral part of
the rules promulgated by this Court pursuant to its rule-making power under Section 5(5), Article VIII of
the Constitution. In particular, it is part of the rules concerning pleading, practice and procedure in
courts. Indeed, payment of legal (or docket) fees is a jurisdictional requirement.19 It is not simply the
filing of the complaint or appropriate initiatory pleading but the payment of the prescribed docket fee
that vests a trial court with jurisdiction over the subject-matter or nature of the action. 20 Appellate docket
and other lawful fees are required to be paid within the same period for taking an appeal. 21 Payment of
docket fees in full within the prescribed period is mandatory for the perfection of an appeal. 22 Without
such payment, the appellate court does not acquire jurisdiction over the subject matter of the action and
the decision sought to be appealed from becomes final and executory.23
An interesting aspect of legal fees is that which relates to indigent or pauper litigants. In proper cases,
courts may waive the collection of legal fees. This, the Court has allowed in Section 21, Rule 3 and
Section 19, Rule 141 of the Rules of Court in recognition of the right of access to justice by the poor
under Section 11, Article III of the Constitution. 24 Mindful that the rule with respect to indigent litigants
should not be ironclad as it touches on the right of access to justice by the poor, 25 the Court
acknowledged the exemption from legal fees of indigent clients of the Public Attorney’s Office under
Section 16-D of the Administrative Code of 1987, as amended by RA 9406.26 This was not an
abdication by the Court of its rule-making power but simply a recognition of the limits of that power. In
particular, it reflected a keen awareness that, in the exercise of its rule-making power, the Court may
not dilute or defeat the right of access to justice of indigent litigants.
The GSIS cannot successfully invoke the right to social security of government employees in support of
its petition. It is a corporate entity whose personality is separate and distinct from that of its individual
members. The rights of its members are not its rights; its rights, powers and functions pertain to it solely
and are not shared by its members. Its capacity to sue and bring actions under Section 41(g) of RA
8291, the specific power which involves the exemption that it claims in this case, pertains to it and not
to its members. Indeed, even the GSIS acknowledges that, in claiming exemption from the payment of
legal fees, it is not asking that rules be made to enforce the right to social security of its members but
that the Court recognize the alleged right of the GSIS "to seek relief from the courts of justice sans
payment of legal fees."27
However, the alleged right of the GSIS does not exist. The payment of legal fees does not take away
the capacity of the GSIS to sue. It simply operates as a means by which that capacity may be
implemented.
Since the payment of legal fees is a vital component of the rules promulgated by this Court concerning
pleading, practice and procedure, it cannot be validly annulled, changed or modified by Congress. As
one of the safeguards of this Court’s institutional independence, the power to promulgate rules of
pleading, practice and procedure is now the Court’s exclusive domain. That power is no longer shared
by this Court with Congress, much less with the Executive.28
Speaking for the Court, then Associate Justice (now Chief Justice) Reynato S. Puno traced the history
of the rule-making power of this Court and highlighted its evolution and development in Echegaray v.
Secretary of Justice:291avvphi1
Under the 1935 Constitution, the power of this Court to promulgate rules concerning pleading, practice
and procedure was granted but it appeared to be co-existent with legislative power for it was subject to
the power of Congress to repeal, alter or supplement. Thus, its Section 13, Article VIII provides:
Sec. 13. The Supreme Court shall have the power to promulgate rules concerning pleading, practice
and procedure in all courts, and the admission to the practice of law. Said rules shall be uniform for all
courts of the same grade and shall not diminish, increase, or modify substantive rights. The existing
laws on pleading, practice and procedure are hereby repealed as statutes, and are declared Rules of
Court, subject to the power of the Supreme Court to alter and modify the same. The Congress shall
have the power to repeal, alter or supplement the rules concerning pleading, practice and procedure,
and the admission to the practice of law in the Philippines.
The said power of Congress, however, is not as absolute as it may appear on its surface. In In re
Cunanan, Congress in the exercise of its power to amend rules of the Supreme Court regarding
admission to the practice of law, enacted the Bar Flunkers Act of 1953 which considered as a passing
grade, the average of 70% in the bar examinations after July 4, 1946 up to August 1951 and 71% in the
1952 bar examinations. This Court struck down the law as unconstitutional. In his ponencia, Mr.
Justice Diokno held that "x x x the disputed law is not a legislation; it is a judgment - a judgment
promulgated by this Court during the aforecited years affecting the bar candidates concerned; and
although this Court certainly can revoke these judgments even now, for justifiable reasons, it is no less
certain that only this Court, and not the legislative nor executive department, that may do so. Any
attempt on the part of these departments would be a clear usurpation of its function, as is the case with
the law in question." The venerable jurist further ruled: "It is obvious, therefore, that the ultimate power
to grant license for the practice of law belongs exclusively to this Court, and the law passed by
Congress on the matter is of permissive character, or as other authorities say, merely to fix the
minimum conditions for the license." By its ruling, this Court qualified the absolutist tone of the
power of Congress to "repeal, alter or supplement the rules concerning pleading, practice and
procedure, and the admission to the practice of law in the Philippines.
The ruling of this Court in In re Cunanan was not changed by the 1973 Constitution. For the 1973
Constitution reiterated the power of this Court "to promulgate rules concerning pleading, practice and
procedure in all courts, x x x which, however, may be repealed, altered or supplemented by the
Batasang Pambansa x x x." More completely, Section 5(2)5 of its Article X provided:
x x x           x x x          x x x
34
Sec. 5. The Supreme Court shall have the following powers.
x x x           x x x          x x x
(5) Promulgate rules concerning pleading, practice, and procedure in all courts, the admission to the
practice of law, and the integration of the Bar, which, however, may be repealed, altered, or
supplemented by the Batasang Pambansa. Such rules shall provide a simplified and inexpensive
procedure for the speedy disposition of cases, shall be uniform for all courts of the same grade, and
shall not diminish, increase, or modify substantive rights.
Well worth noting is that the 1973 Constitution further strengthened the independence of the
judiciary by giving to it the additional power to promulgate rules governing the integration of the Bar.
The 1987 Constitution molded an even stronger and more independent judiciary. Among others, it
enhanced the rule making power of this Court. Its Section 5(5), Article VIII provides:
x x x           x x x          x x x
Section 5. The Supreme Court shall have the following powers:
x x x           x x x          x x x
(5) Promulgate rules concerning the protection and enforcement of constitutional rights,
pleading, practice and procedure in all courts, the admission to the practice of law, the Integrated Bar,
and legal assistance to the underprivileged. Such rules shall provide a simplified and inexpensive
procedure for the speedy disposition of cases, shall be uniform for all courts of the same grade, and
shall not diminish, increase, or modify substantive rights. Rules of procedure of special courts and
quasi-judicial bodies shall remain effective unless disapproved by the Supreme Court.
The rule making power of this Court was expanded. This Court for the first time was given the
power to promulgate rules concerning the protection and enforcement of constitutional rights. The Court
was also granted for the first time the power to disapprove rules of procedure of special courts and
quasi-judicial bodies. But most importantly, the 1987 Constitution took away the power of
Congress to repeal, alter, or supplement rules concerning pleading, practice and procedure. In
fine, the power to promulgate rules of pleading, practice and procedure is no longer shared by this
Court with Congress, more so with the Executive.
The separation of powers among the three co-equal branches of our government has erected an
impregnable wall that keeps the power to promulgate rules of pleading, practice and procedure within
the sole province of this Court. The other branches trespass upon this prerogative if they enact laws or
issue orders that effectively repeal, alter or modify any of the procedural rules promulgated by this
Court. Viewed from this perspective, the claim of a legislative grant of exemption from the payment of
legal fees under Section 39 of RA 8291 necessarily fails.
Congress could not have carved out an exemption for the GSIS from the payment of legal fees without
transgressing another equally important institutional safeguard of the Court’s independence — fiscal
autonomy.30Fiscal autonomy recognizes the power and authority of the Court to levy, assess and collect
fees,31 including legal fees. Moreover, legal fees under Rule 141 have two basic components, the
Judiciary Development Fund (JDF) and the Special Allowance for the Judiciary Fund (SAJF). 32 The
laws which established the JDF and the SAJF33expressly declare the identical purpose of these funds to
"guarantee the independence of the Judiciary as mandated by the Constitution and public
policy."34 Legal fees therefore do not only constitute a vital source of the Court’s financial resources but
also comprise an essential element of the Court’s fiscal independence. Any exemption from the
payment of legal fees granted by Congress to government-owned or controlled corporations and local
government units will necessarily reduce the JDF and the SAJF. Undoubtedly, such situation is
constitutionally infirm for it impairs the Court’s guaranteed fiscal autonomy and erodes its
independence.
WHEREFORE, the petition of the Government Service Insurance System for recognition of its
exemption from the payment of legal fees imposed under Section 22 of Rule 141 of the Rules of Court
on government-owned or controlled corporations and local government units is hereby DENIED.
The Office of the Court Administrator is hereby directed to promptly issue a circular to inform all courts
in the Philippines of the import of this resolution.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 182431               November 17, 2010
LAND BANK OF THE PHILIPPINES, Petitioner, 
vs.
ESTHER ANSON RIVERA, ANTONIO G. ANSON AND CESAR G. ANSON, Respondents.
DECISION
PEREZ, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure filed by
Petitioner Land Bank of the Philippines (LBP) assailing the Decision1 of the Court of Appeals dated 9
October 2007 in CA G.R. SP No. 87463, ordering the payment by LBP of just compensation and
interest in favor of respondents Esther Anson Rivera, Antonio G. Anson and Cesar G. Anson, and at
the same time directed LBP to pay the costs of suit. Likewise assailed is the Resolution 2 of the Court of
Appeals dated 18 March 2008 denying the Motion for Reconsideration of LBP. 3
The respondents are the co-owners of a parcel of agricultural land embraced by Original Certificate of
Title No. P-082, and later transferred in their names under Transfer Certificate of Title No. T-95690 that
was placed under the coverage of Operation Land Transfer pursuant to Presidential Decree No. 27 in
1972. Only 18.8704 hectares of the total are of 20.5254 hectares were subject of the coverage.
35
After the Department of Agrarian Reform (DAR) directed payment, LBP approved the payment of (LV is Land Valuation; AGP is Average Gross Production; GSP is Government Support Price and A is
₱265,494.20, exclusive of the advance payments made in the form of lease rental amounting to the Area of the Land)
₱75,415.88 but inclusive of 6% increment of ₱191,876.99 pursuant to DAR Administrative Order No.
13, series of 1994.4
WHERE: AGP = 99.36 cavans per hectare

On 1 December 1994, the respondents instituted Civil Case No. 94-03 for determination and payment GSP = Php 35.00 per cavan
of just compensation before the Regional Trial Court (RTC), Branch 3 of Legaspi City, 5 claiming that the A= 18.8704 hectares
landholding involved was irrigated with two cropping seasons a year with an average gross production
per season of 100 cavansof 50 kilos/hectare, equivalent of 200 cavans/year/hectare; and that the fair COMPUTATION:
market value of the property was not less that ₱130,000.00/hectare, or ₱2,668,302.00 for the entire LV = (99.36 x2.5 x 35.00) 18.8704
landholding of 20.5254 hectares.
LV = 8,694 x 18.8704
LV = Php 164,059.26
LBP filed its answer,6 stating that rice and corn lands placed under the coverage of Presidential Decree
No. 277were governed and valued in accordance with the provisions of Executive Order No. 2288 as
implemented by DAR Administrative Order No. 2, Series of 1987 and other statutes and administrative With increment of 6% interest per annum compounded annually beginning October 21, 1972 until
issuances; that the administrative valuation of lands covered by Presidential Decree No. 27 and October 21, 1994 and immediately after said date with 12% interest per annum until the value is fully
Executive Order No. 228 rested solely in DAR and LBP was the only financing arm; that the funds that paid in accordance with extant jurisprudence, computed as follows:
LBP would use to pay compensation were public funds to be disbursed only in accordance with existing
laws and regulations; that the supporting documents were not yet received by LBP; and that the
constitutionality of Presidential Decree No. 27 and Executive Order No. 228 was already settled. To be compounded annually at 6% per annum from October 21, 1972 up to October 24, 1994. The
formula is –
On 6 October 2004, the RTC rendered its decision, holding:
CA = P(1+R)n
ACCORDINGLY, the just compensation of the land partly covered by TCT No. T-95690 is fixed at
Php1,297,710.63. Land Bank of the Philippines is hereby ordered to pay Esther Anson, Cesar Anson (CA is Compounded Amount; P is Principal; R is Rate; and n is the number of years)
and Antonio Anson the aforesaid value of the land, plus interest of 12% per annum or Php194.36 per
day effective October 7, 2004, until the value is fully paid, in cash or in bond or in any other mode of
WHERE: P = Php 164,059.26
payment at the option of the landowners in accordance with Sec. 18, RA 6657. 9
R= 6% per annum
LBP filed a Motion for Reconsideration10 which the RTC denied in its Order dated 29 October 2004.11 N= 22 years
COMPUTATION:
LBP next filed a petition for Review to the Court of Appeals docketed as CA G.R. SP No. 87463. The CA = 164,059.26 x (1+06) 22
Court of Appeals rendered a decision dated 9 October 2007, the fallo of which reads:12
CA = 164,059.26 x (1.06) 22
WHEREFORE, the DECISION DATED OCTOBER 6, 2004 is MODIFIED, ordering petitioner LAND CA = 164,059.26 x 3.60353741
BANK OF THE PHILIPPINES to pay to the respondents just compensation (inclusive of interests as of CA = Php 591,193.68
October 6, 2004) in the amount of ₱823,957.23, plus interest of 12% per annum on the amount of
₱515,777.57, or ₱61,893.30 per annum, beginning October 7, 2004 until the just compensation is fully
paid in accordance with this decision. Plus simple interest of 12% per annum from October 22, 1994 up to October 21, 2003, the formula of
which is:
In arriving at its computation, the Court of Appeals explained:
I=PxRxT
In computing the just compensation of the property, pursuant to Executive Order No. 228, Sec. 2
thereof, the formula is – (I is the Interest; P is the Principal; R is the Rate and T is the time)

LV = AGP x 2.5 x GSP x A WHERE: P = Php591,193.68

R = 12% per annum

36
 T = 9 years We DENY the petitioner’s motion for partial reconsideration for the following reasons, to wit:
COMPUTATION:
1. Anent the first ground, the decision of October 9, 2007 has explained in detail why the
I= 591,193.68 x 12 x 9 obligation of the petitioner should be charged 12% interest. Considering that the motion fails
I= 70,943.24 x 9 to persuasively show that a modification of the decision thereon would be justified, we reject
such ground for lack of merit.
I= Php638,489.18

2. Regarding costs of suit, they are allowed to the prevailing party as a matter of course,
(Plus interest of 12% per annum from October 22, 2003 up to October 6, 2004 or a period of 350 days) unless there be special reasons for the court to decree otherwise (Sec. 1, Rule 43, Rules of
Court). In appeals, the Court has the power to render judgment for costs as justice may
COMPUTATION: require (Sec. 2, Rule 142, Rules of Court).

In view of the foregoing, the award of costs to the respondents was warranted under the
I = (591,193.68 x .12) x 350 circumstances.14

350
Before this Court, LBP raises the same issues for resolution:
I = 194.3605 x 350
I = Php68,027.77 I. Is it valid or lawful to award 12% rate of interest per annum in favor of respondents
notwithstanding the 6% rate of interest per annum compounded annually prescribed under
DAR A.O. No. 13, series of 1994, DAR A.O. No. 02, series of 2004, and DAR A.O. No. 06,
Total Interest Php 706,516.95 series of 2008, "xxx from November 1994 up to the time of actual payment?

RECAPITULATION:
Compounded Amount Php 591,193.68
Total Interest 706,516.95
TOTAL AMOUNT Php 1,297,710.63
The Court of Appeals pointed out that:
Pursuant to AO 13, considering that the landholding involved herein was tenanted prior to October 21,
1972, the rate of 6% per annum is imposed, compounded annually from October 21, 1972 until October
21, 1994, the date of the effectivity of AO 13. Beyond October 21, 1994, only the simple rate of 6% per
annum interest is imposable until October 6, 2004 (the date of the rendition of the decision of the RTC)
on the total value (that is, P164,059.26 plus the compounded increments up to October 21, 1994) but
minus the lease rentals of P75,415.88. Only the simple rate of 6% is applicable up to then because the
obligation to pay was not founded on a written agreement that stipulated a different rate of interest.
From October 7, 2004 until the full payment, the simple interest rate is raised to 12% per annum. The
reason is that the amount thus determined had by then acquired the character of a forbearance in
money.13
LBP disagreed with the imposition of 12% interest and its liability to pay the costs of suit. It filed a
Motion for Reconsideration which was denied in the Court of Appeals’ Resolution dated 18 March 2008.
The Court of Appeals held:
II. Is it valid or lawful to adjudge petitioner LBP, which is performing a governmental function,
liable for costs of suit?15
At the outset, the Court notes that the parcels of land subject matter of this case were acquired under
Presidential Decree No. 27, but the complaint for just compensation was filed in the RTC on 1
December 1994 after Republic Act No. 6657 already took into effect. 16 Thus, our pronouncement
in LBP v. Soriano17 finds application. We quote:
x x x [I]f just compensation is not settled prior to the passage of Republic Act No. 6657, it should be
computed in accordance with the said law, although the property was acquired under Presidential
Decree No. 27. The fixing of just compensation should therefore be based on the parameters set out in
Republic Act No. 6657, with Presidential Decree No. 27 and Executive Order No. 228 having only
suppletory effect.
In the instant case, while the subject lands were acquired under Presidential Decree No. 27, the
complaint for just compensation was only lodged before the court on 23 November 2000 or long after
the passage of Republic Act No. 6657 in 1998. Therefore, Section 17 of Republic Act No. 6657
should be the principal basis of the computation for just compensation. As a matter of fact, the
factors enumerated therein had already been translated into a basic formula by the DAR pursuant to its
rule-making power under Section 49 of Republic Act No. 6657. The formula outlines in DAR
Administrative Order No. 5, series of 1998 should be applied in computing just compensation, thus:
LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1)
Where:
LV = Land Value

37
 CNI = Capitalized Net Income
CS = Comparable Sales
MV = Market Value per Tax Declaration
In the case before Us, the just compensation was computed based on Executive Order No. 228, which
computation the parties do not contest. Consequently, we reiterate our rule in LBP v. Soriano that
"while we uphold the amount derived from the old formula, since the application of the new formula is a
matter of law and thus, should be made applicable, the parties are not precluded from asking for any
additional amount as may be warranted by the new formula."18
That settled, we now proceed to resolve the issue of the propriety of the imposition of 12% interest on
just compensation awarded to the respondents. The Court of Appeals imposed interest of 12% per
annum on the amount of ₱515,777.57 beginning 7 October 2004, until full payment.
We agree with the Court of Appeals.
In Republic v. Court of Appeals, 19 we affirmed the award of 12% interest on just compensation due to
the landowner. The court decreed:
The constitutional limitation of "just compensation" is considered to be the sum equivalent to the market
value of the property, broadly described to be the price fixed by the seller in open market in the usual
and ordinary course of legal action and competition or the fair value of the property as between one
who receives, and one who desires to sell, if fixed at the time of the actual taking by the government.
Thus, if property is taken for public use before compensation is deposited with the court having
jurisdiction over the case, the final compensation must include interest on its just value to be computed
from the time the property is taken to the time when compensation is actually paid or deposited with the
court. In fine, between the taking of the property and the actual payment, legal interests accrue in order
to place the owner in a position as good as (but not better than) the position he was in before the taking
occurred.
The Bulacan trial court, in its 1979 decision, was correct in imposing interest on the zonal value of the
property to be computed from the time petitioner instituted condemnation proceedings and "took" the
property in September 1969. This allowance of interest on the amount found to be the value of the
property as of the time of the taking computed, being an effective forbearance, at 12% per annum
should help eliminate the issue of the constant fluctuation and inflation of the value of the currency over
time.20
We similarly upheld Republic’s 12% per annum interest rate on the unpaid expropriation compensation
in the following cases: Reyes v. National Housing Authority,21 Land Bank of the Philippines v.
Wycoco,22 Republic v. Court of Appeals,23 Land Bank of the Philippines v. Imperial,24 Philippine Ports
Authority v. Rosales-Bondoc,25Nepomuceno v. City of Surigao, 26 and Curata v. Philippine Ports
Authority.27
Conformably with the foregoing resolution, this Court rules that a 12% interest per annum on just
compensation, due to the respondents, from the finality of this decision until its satisfaction, is proper. 28
We now proceed to the issue of whether or not the Court of Appeals correctly adjudged LBP liable to
pay the cost of suit.
According to LBP, it performs a governmental function when it disburses the Agrarian Reform Fund to
satisfy awards of just compensation. Hence, it cannot be made to pay costs in eminent domain
proceedings.1avvphi1
LBP cites Sps. Badillo v. Hon. Tayag, 29 to further bolster its claim that it is exempt from the payment of
costs of suit. The Court in that case made the following pronouncement:
On the other hand, the NHA contends that it is exempt from paying all kinds of fees and charges,
because it performs governmental functions. It cites Public Estates Authority v. Yujuico, which holds
that the Public Estates Authority (PEA), a government-owned and controlled corporation, is exempt
from paying docket fees whenever it files a suit in relation to its governmental functions.
We agree. People's Homesite and Housing Corporation v. Court of Industrial Relations declares that
the provision of mass housing is a governmental function:
Coming now to the case at bar, We note that since 1941 when the National Housing Commission
(predecessor of PHHC, which is now known as the National Housing Authority [NHA] was created, the
Philippine government has pursued a mass housing and resettlement program to meet the needs of
Filipinos for decent housing. The agency tasked with implementing such governmental program was
the PHHC.
These can be gleaned from the provisions of Commonwealth Act 648, the charter of said agency.
We rule that the PHHC is a governmental institution performing governmental functions.
This is not the first time We are ruling on the proper characterization of housing as an activity of the
government. In the 1985 case of National Housing Corporation v. Juco and the NLRC (No. L-64313,
January 17, 1985, 134 SCRA 172), We ruled that housing is a governmental function.
While it has not always been easy to distinguish governmental from proprietary functions, the Court's
declaration in the Decision quoted above is not without basis. Indeed, the characterization of
governmental functions has veered away from the traditional constituent-ministrant classification that
has become unrealistic, if not obsolete. Justice Isagani A. Cruz avers: "[I]t is now obligatory upon the
State itself to promote social justice, to provide adequate social services to promote a rising standard of
living, to afford protection to labor to formulate and implement urban and agrarian reform programs, and
to adopt other measures intended to ensure the dignity, welfare and security of its citizens.....These
functions, while traditionally regarded as merely ministrant and optional, have been made compulsory
by the Constitution."30
We agree with the LBP. The relevant provision of the Rules of Court states:
Rule 142
Costs
38
Section 1. Costs ordinarily follow results of suit. – Unless otherwise provided in these rules, costs
shall be allowed to the prevailing party as a matter of course but the court shall have power, for
special reasons adjudge that either party shall pay the costs of an action, or that the same be divided,
as may be equitable. No costs shall be allowed against the Republic of the Philippines unless
otherwise provided by law.
landowner in such amount as may be agreed upon by the landowner and the DAR and LBP, in
accordance with the criteria provided in Secs. 16 and 17, and other pertinent provisions hereof, or as
may be finally determined by the court, as the just compensation for the land."
xxxx

In Heirs of Vidad v. Land Bank of the Philippines,31this Court extensively discussed the role of LBP in
It must be observed that once an expropriation proceeding for the acquisition of private agricultural
the implementation of the agrarian reform program.
lands is commenced by the DAR, the indispensable role of Land Bank begins.

LBP is an agency created primarily to provide financial support in all phases of agrarian reform
xxxx
pursuant to Section 74 of Republic Act (RA) No. 3844 and Section 64 of RA No. 6657. It is vested
with the primary responsibility and authority in the valuation and compensation of covered
landholdings to carry out the full implementation of the Agrarian Reform Program. It may agree It is evident from the afore-quoted jurisprudence that the role of LBP in the CARP is more than just the
with the DAR and the land owner as to the amount of just compensation to be paid to the latter and may ministerial duty of keeping and disbursing the Agrarian Reform Funds. As the Court had previously
also disagree with them and bring the matter to court for judicial determination. declared, the LBP is primarily responsible for the valuation and determination of compensation for all
private lands. It has the discretion to approve or reject the land valuation and just compensation for a
private agricultural land placed under the CARP. In case the LBP disagrees with the valuation of land
xxxx
and determination of just compensation by a party, the DAR, or even the courts, the LBP not only has
the right, but the duty, to challenge the same, by appeal to the Court of Appeals or to this Court, if
To the contrary, the Court had already recognized in Sharp International Marketing v. Court of appropriate.32
Appeals that the LBP plays a significant role under the CARL and in the implementation of the CARP,
thus:
It is clear from the above discussions that since LBP is performing a governmental function in agrarian
reform proceeding, it is exempt from the payment of costs of suit as provided under Rule 142, Section 1
As may be gleaned very clearly from EO 229, the LBP is an essential part of the government sector of the Rules of Court.
with regard to the payment of compensation to the landowner. It is, after all, the instrumentality that is
charged with the disbursement of public funds for purposes of agrarian reform. It is therefore part, an
WHEREFORE, premises considered, the petition is GRANTED. The decision of the Court of Appeals in
indispensable cog, in the governmental machinery that fixes and determines the amount compensable
CA G.R. SP No. 87463 dated 9 October 2007 is AFFIRMED with the MODIFICATION that LBP is
to the landowner. Were LBP to be excluded from that intricate, if not sensitive, function of establishing
hereby held exempted from the payment of costs of suit. In all other respects, the Decision of the Court
the compensable amount, there would be no amount "to be established by the government" as required
of Appeals is AFFIRMED. No costs.
in Sec. 6, EO 229. This is precisely why the law requires the [Deed of Absolute Sale (DAS)], even if
already approved and signed by the DAR Secretary, to be transmitted still to the LBP for its review,
evaluation and approval. SO ORDERED.

It needs no exceptional intelligence to understand the implications of this transmittal. It simply means Republic of the Philippines
that if LBP agrees on the amount stated in the DAS, after its review and evaluation, it becomes its duty SUPREME COURT
to sign the deed. But not until then. For, it is only in that event that the amount to be compensated shall Manila
have been "established" according to law. Inversely, if the LBP, after review and evaluation, refuses to
sign, it is because as a party to the contract it does not give its consent thereto. This necessarily
SECOND DIVISION
implies the exercise of judgment on the part of LBP, which is not supposed to be a mere rubber
stamp in the exercise. Obviously, were it not so, LBP could not have been made a distinct member of
[Presidential Agrarian Reform Council (PARC)], the super body responsible for the successful G.R. No. 169304               March 13, 2007
implementation of the CARP. Neither would it have been given the power to review and evaluate the
DAS already signed by the DAR Secretary. If the function of the LBP in this regard is merely to sign the
DAS without the concomitant power of review and evaluation, its duty to "review/evaluate" mandated in THE DEPARTMENT OF HEALTH, SECRETARY MANUEL M. DAYRIT, USEC. MA. MARGARITA
Adm. Order No. 5 would have been a mere surplus age, meaningless, and a useless ceremony. GALON and USEC. ANTONIO M. LOPEZ, Petitioners, 
vs.
PHIL. PHARMAWEALTH, INC., Respondent.
xxxx
DECISION
Even more explicit is R.A. 6657 with respect to the indispensable role of LBP in the determination of the
amount to be compensated to the landowner. Under Sec. 18 thereof, "the LBP shall compensate the
CARPIO MORALES, J.:
39
Assailed via petition for review are issuances of the Court of Appeals in CA-G.R. SP No. 84457, to wit:
a) Decision1dated May 12, 2005 which affirmed the order issued by Judge Leoncio M. Janolo, Jr. of the
Regional Trial Court of Pasig City, Branch 264 denying petitioners’ motion to dismiss Civil Case No.
68208; and b) Resolution2 dated August 9, 2005 which denied petitioners’ motion for reconsideration.
Phil. Pharmawealth, Inc. (respondent) is a domestic corporation engaged in the business of
manufacturing and supplying pharmaceutical products to government hospitals in the Philippines.
On December 22, 1998, then Secretary of Health Alberto G. Romualdez, Jr. issued Administrative
Order (A.O.) No. 27,3 Series of 1998, outlining the guidelines and procedures on the accreditation of
government suppliers for pharmaceutical products.
A.O. No. 27 was later amended by A.O. No. 10,4 Series of 2000, providing for additional guidelines for
accreditation of drug suppliers aimed at ensuring that only qualified bidders can transact business with
petitioner Department of Health (DOH). Part V of A.O. No. 10 reads, in part:
1. Drug Manufacturer, Drug Trader and Drug Importer shall be allowed to apply for
accreditation.
2. Accreditation shall be done by the Central Office-Department of Health.
3. A separate accreditation is required for the drug suppliers and for their specific products.
xxxx
12. Only products accredited by the Committee shall be allowed to be procured by the DOH
and all otherentities under its jurisdiction. 5 (Underscoring supplied)
6 7
On May 9, 2000  and May 29, 2000,  respondent submitted to petitioner DOH a request for the
inclusion of additional items in its list of accredited drug products, including the antibiotic "Penicillin G
Benzathine." Based on the schedule provided by petitioner DOH, it appears that processing of and
release of the result of respondent’s request were due on September 2000, the last month of the
quarter following the date of its filing.8
Sometime in September 2000, petitioner DOH, through petitioner Antonio M. Lopez, chairperson of the
pre-qualifications, bids and awards committee, issued an Invitation for Bids 9 for the procurement of 1.2
million units vials of Penicillin G Benzathine (Penicillin G Benzathine contract).
Despite the lack of response from petitioner DOH regarding respondent’s request for inclusion of
additional items in its list of accredited products, respondent submitted its bid for the Penicillin G
Benzathine contract. When the bids were opened on October 11, 2000, only two companies
participated, with respondent submitting the lower bid at ₱82.24 per unit, compared to Cathay/YSS
Laboratories’ (YSS) bid of ₱95.00 per unit. In view, however, of the non-accreditation of respondent’s
Penicillin G Benzathine product, the contract was awarded to YSS.
Respondent thus filed a complaint 10 for injunction, mandamus and damages with prayer for the
issuance of a writ of preliminary injunction and/or temporary restraining order with the Regional Trial
Court of Pasig City praying, inter alia, that the trial court "nullify the award of the Penicillin G Benzathine
contract (IFB No. 2000-10-11 [14]) to YSS Laboratories, Inc. and direct defendant DOH, defendant
Romualdez, defendant Galon and defendant Lopez to declare plaintiff Pharmawealth as
the lowest complying responsible bidder for the Benzathine contract, and that they accordingly award
the same to plaintiff company" and "adjudge defendants Romualdez, Galon and Lopez liable, jointly
and severally to plaintiff, for [the therein specified damages]." 11
In their Comment,12 petitioner DOH, Secretary Alberto Romualdez, Jr. who was later succeeded by
petitioner Secretary Manuel M. Dayrit, and individual petitioners Undersecretaries Margarita Galon and
Antonio Lopez argued for the dismissal of the complaint for lack of merit in view of the express
reservation made by petitioner DOH to accept or reject any or all bids without incurring liability to the
bidders, they positing that government agencies have such full discretion.
Petitioners subsequently filed a Manifestation and Motion 13 (motion to dismiss) praying for the outright
dismissal of the complaint based on the doctrine of state immunity. Additionally, they alleged that
respondent’s representative was not duly authorized by its board of directors to file the complaint.
To petitioners’ motion to dismiss, respondent filed its comment/opposition14 contending, in the main,
that the doctrine of state immunity is not applicable considering that individual petitioners are being
sued both in their official and personal capacities, hence, they, not the state, would be liable for
damages.
By Order of December 8, 2003, the trial court15 denied petitioners’ motion to dismiss.
Their motion for reconsideration having been denied,16 petitioners filed a petition for certiorari17 with the
Court of Appeals, before which they maintained that the suit is against the state.
By the assailed Decision18 of May 12, 2005, the Court of Appeals affirmed the trial court’s Order. And by
Resolution of August 9, 2005, it denied petitioners’ motion for reconsideration.
Hence, the instant petition for review which raises the sole issue of whether the Court of Appeals erred
in upholding the denial of petitioners’ motion to dismiss.
The petition fails.
The suability of a government official depends on whether the official concerned was acting within his
official or jurisdictional capacity, and whether the acts done in the performance of official functions will
result in a charge or financial liability against the government. In the first case, the Constitution itself
assures the availability of judicial review,19 and it is the official concerned who should be impleaded as
the proper party.20
In its complaint, respondent sufficiently imputes grave abuse of discretion against petitioners in their
official capacity. Since judicial review of acts alleged to have been tainted with grave abuse of
discretion is guaranteed by the Constitution, it necessarily follows that it is the official concerned who
should be impleaded as defendant or respondent in an appropriate suit.21
40
Moreover, part of the reliefs prayed for by respondent is the enjoinment of the implementation, as well with full knowledge of the limits and breadth of their powers given by law" 31 is permissible, in
as the nullification of the award to YSS, the grant of which may not be enforced against individual consonance with the foregoing principles. For an officer who exceeds the power conferred on him by
petitioners and their successors except in their official capacities as officials of the DOH.22 law cannot hide behind the plea of sovereign immunity and must bear the liability personally. 32

As regards petitioner DOH, the defense of immunity from suit will not avail despite its being an
unincorporated agency of the government, for the only causes of action directed against it are
preliminary injunction and mandamus. Under Section 1, Rule 5823 of the Rules of Court, preliminary
injunction may be directed against a party or a court, agency or a person. Moreover, the defense of
state immunity from suit does not apply in causes of action which do not seek to impose a charge or
financial liability against the State.24
As regards individual petitioners’ suability for damages, the following discussion on the applicability of
the defense of state immunity from suit is relevant.
The rule that a state may not be sued without its consent, now embodied in Section 3, Article XVI of the
1987 Constitution, is one of the generally accepted principles of international law, which we have now
adopted as part of the law of the land.25
While the doctrine of state immunity appears to prohibit only suits against the state without its consent,
it is also applicable to complaints filed against officials of the state for acts allegedly performed by them
in the discharge of their duties.26 The suit is regarded as one against the state where satisfaction of the
judgment against the officials will require the state itself to perform a positive act, such as the
appropriation of the amount necessary to pay the damages awarded against them.27
It bears stressing, however, that the statements in the immediately foregoing paragraph in no way
reflect a ruling on the actual liability of petitioners to respondent. The mere allegation that a government
official is being sued in his personal capacity does not automatically remove the same from the
protection of the doctrine of state immunity. Neither, upon the other hand, does the mere invocation of
official character suffice to insulate such official from suability and liability for an act committed without
or in excess of his or her authority.33 These are matters of evidence which should be presented and
proven at the trial.
WHEREFORE, the petition is DENIED. The assailed Decision dated May 12, 2005 and Resolution
dated August 9, 2005 issued by the Court of Appeals are AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 168289               March 22, 2010

The rule, however, is not so all-encompassing as to be applicable under all circumstances. Shauf v.
Court of Appeals28 elucidates:
THE MUNICIPALITY OF HAGONOY, BULACAN, represented by the HON. FELIX V. OPLE,
Municipal Mayor, and FELIX V. OPLE, in his personal capacity, Petitioners, 
It is a different matter where the public official is made to account in his capacity as such for acts
vs.
contrary to law and injurious to the rights of plaintiff. As was clearly set forth by Justice Zaldivar in
HON. SIMEON P. DUMDUM, JR., in his capacity as the Presiding Judge of the REGIONAL TRIAL
Director of the Bureau of Telecommunications, et al. vs. Aligaen, etc., et al.,29 ‘ Inasmuch as the State
COURT, BRANCH 7, CEBU CITY; HON. CLERK OF COURT & EX-OFFICIO SHERIFF of the
authorizes only legal acts by its officers, unauthorized acts of government officials or officers are not
REGIONAL TRIAL COURT of CEBU CITY; HON. CLERK OF COURT & EX-OFFICIO SHERIFF of
acts of the State, and an action against the officials or officers by one whose rights have been invaded
the REGIONAL TRIAL COURT of BULACAN and his DEPUTIES; and EMILY ROSE GO KO LIM
or violated by such acts, for the protection of his rights, is not a suit against the State within the rule of
CHAO, doing business under the name and style KD SURPLUS, Respondents.
immunity of the State from suit. In the same tenor, it has been said that an action at law or suit in equity
against a State officer or the director of a State department on the ground that, while claiming to act for
the State, he violates or invades the personal and property rights of the plaintiff, under an DECISION
unconstitutional act or under an assumption of authority which he does not have, is not a suit against
the State within the constitutional provision that the State may not be sued without its consent.’ The
PERALTA, J.:
rationale for this ruling is that the doctrine of state immunity cannot be used as an instrument for
perpetrating an injustice. (Emphasis and underscoring supplied)1avvphi1
This is a Joint Petition1 under Rule 45 of the Rules of Court brought by the Municipality of Hagonoy,
Bulacan and its former chief executive, Mayor Felix V. Ople in his official and personal capacity, from
Hence, the rule does not apply where the public official is charged in his official capacity for acts that
the January 31, 2005 Decision2 and the May 23, 2005 Resolution3 of the Court of Appeals in CA-G.R.
are unauthorized or unlawful and injurious to the rights of others. Neither does it apply where the public
SP No. 81888. The assailed decision affirmed the October 20, 2003 Order 4 issued by the Regional Trial
official is clearly being sued not in his official capacity but in his personal capacity, although the acts
Court of Cebu City, Branch 7 in Civil Case No. CEB-28587 denying petitioners’ motion to dismiss and
complained of may have been committed while he occupied a public position. 30
motion to discharge/dissolve the writ of preliminary attachment previously issued in the case. The
assailed resolution denied reconsideration.
In the present case, suing individual petitioners in their personal capacities for damages in connection
with their alleged act of "illegal[ly] abus[ing] their official positions to make sure that plaintiff
The case stems from a Complaint5 filed by herein private respondent Emily Rose Go Ko Lim Chao
Pharmawealth would not be awarded the Benzathine contract [which act was] done in bad faith and
against herein petitioners, the Municipality of Hagonoy, Bulacan and its chief executive, Felix V. Ople
41
(Ople) for collection of a sum of money and damages. It was alleged that sometime in the middle of the
year 2000, respondent, doing business as KD Surplus and as such engaged in buying and selling
surplus trucks, heavy equipment, machinery, spare parts and related supplies, was contacted by
petitioner Ople. Respondent had entered into an agreement with petitioner municipality through Ople for
the delivery of motor vehicles, which supposedly were needed to carry out certain developmental
undertakings in the municipality. Respondent claimed that because of Ople’s earnest representation
that funds had already been allocated for the project, she agreed to deliver from her principal place of
business in Cebu City twenty-one motor vehicles whose value totaled ₱5,820,000.00. To prove this,
she attached to the complaint copies of the bills of lading showing that the items were consigned,
delivered to and received by petitioner municipality on different dates. 6 However, despite having made
several deliveries, Ople allegedly did not heed respondent’s claim for payment. As of the filing of the
complaint, the total obligation of petitioner had already totaled ₱10,026,060.13 exclusive of penalties
and damages. Thus, respondent prayed for full payment of the said amount, with interest at not less
than 2% per month, plus ₱500,000.00 as damages for business losses, ₱500,000.00 as exemplary
damages, attorney’s fees of ₱100,000.00 and the costs of the suit.
On February 13, 2003, the trial court issued an Order7 granting respondent’s prayer for a writ of
preliminary attachment conditioned upon the posting of a bond equivalent to the amount of the claim.
On March 20, 2003, the trial court issued the Writ of Preliminary Attachment 8 directing the sheriff "to
attach the estate, real and personal properties" of petitioners.
Instead of addressing private respondent’s allegations, petitioners filed a Motion to Dismiss9 on the
ground that the claim on which the action had been brought was unenforceable under the statute of
frauds, pointing out that there was no written contract or document that would evince the supposed
agreement they entered into with respondent. They averred that contracts of this nature, before being
undertaken by the municipality, would ordinarily be subject to several preconditions such as a public
bidding and prior approval of the municipal council which, in this case, did not obtain. From this,
petitioners impress upon us the notion that no contract was ever entered into by the local government
with respondent.10 To address the claim that respondent had made the deliveries under the agreement,
they advanced that the bills of lading attached to the complaint were hardly probative, inasmuch as
these documents had been accomplished and handled exclusively by respondent herself as well as by
her employees and agents.11
Petitioners also filed a Motion to Dissolve and/or Discharge the Writ of Preliminary Attachment Already
Issued,12invoking immunity of the state from suit, unenforceability of the contract, and failure to
substantiate the allegation of fraud. 13
On October 20, 2003, the trial court issued an Order14 denying the two motions. Petitioners moved for
reconsideration, but they were denied in an Order15 dated December 29, 2003.
Believing that the trial court had committed grave abuse of discretion in issuing the two orders,
petitioners elevated the matter to the Court of Appeals via a petition for certiorari under Rule 65. In it,
they faulted the trial court for not dismissing the complaint despite the fact that the alleged contract was
unenforceable under the statute of frauds, as well as for ordering the filing of an answer and in effect
allowing private respondent to prove that she did make several deliveries of the subject motor vehicles.
Additionally, it was likewise asserted that the trial court committed grave abuse of discretion in not
discharging/dissolving the writ of preliminary attachment, as prayed for in the motion, and in effect
disregarding the rule that the local government is immune from suit.
On January 31, 2005, following assessment of the parties’ arguments, the Court of Appeals, finding no
merit in the petition, upheld private respondent’s claim and affirmed the trial court’s order. 16 Petitioners
moved for reconsideration, but the same was likewise denied for lack of merit and for being a mere
scrap of paper for having been filed by an unauthorized counsel.17 Hence, this petition.
In their present recourse, which raises no matter different from those passed upon by the Court of
Appeals, petitioners ascribe error to the Court of Appeals for dismissing their challenge against the trial
court’s October 20 and December 29, 2003 Orders. Again, they reason that the complaint should have
been dismissed at the first instance based on unenforceability and that the motion to dissolve/discharge
the preliminary attachment should have been granted. 18
Commenting on the petition, private respondent notes that with respect to the Court of Appeals’ denial
of the certiorari petition, the same was rightly done, as the fact of delivery may be properly and
adequately addressed at the trial of the case on the merits; and that the dissolution of the writ of
preliminary attachment was not proper under the premises inasmuch as the application for the writ
sufficiently alleged fraud on the part of petitioners. In the same breath, respondent laments that the
denial of petitioners’ motion for reconsideration was rightly done by the Court of Appeals, because it
raised no new matter that had not yet been addressed.19
After the filing of the parties’ respective memoranda, the case was deemed submitted for decision.
We now rule on the petition.
To begin with, the Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code, 20 requires for
enforceability certain contracts enumerated therein to be evidenced by some note or memorandum.
The term "Statute of Frauds" is descriptive of statutes that require certain classes of contracts to be in
writing; and that do not deprive the parties of the right to contract with respect to the matters therein
involved, but merely regulate the formalities of the contract necessary to render it enforceable. 21
In other words, the Statute of Frauds only lays down the method by which the enumerated contracts
may be proved. But it does not declare them invalid because they are not reduced to writing inasmuch
as, by law, contracts are obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present. 22 The object is to prevent fraud and perjury in the
enforcement of obligations depending, for evidence thereof, on the unassisted memory of witnesses by
requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the
party to be charged.23 The effect of noncompliance with this requirement is simply that no action can be
enforced under the given contracts.24 If an action is nevertheless filed in court, it shall warrant a
dismissal under Section 1(i),25 Rule 16 of the Rules of Court, unless there has been, among others, total
or partial performance of the obligation on the part of either party. 26
It has been private respondent’s consistent stand, since the inception of the instant case that she has
entered into a contract with petitioners. As far as she is concerned, she has already performed her part
of the obligation under the agreement by undertaking the delivery of the 21 motor vehicles contracted
for by Ople in the name of petitioner municipality. This claim is well substantiated — at least for the
initial purpose of setting out a valid cause of action against petitioners — by copies of the bills of lading
attached to the complaint, naming petitioner municipality as consignee of the shipment. Petitioners
have not at any time expressly denied this allegation and, hence, the same is binding on the trial court
for the purpose of ruling on the motion to dismiss. In other words, since there exists an indication by
way of allegation that there has been performance of the obligation on the part of respondent, the case
42
is excluded from the coverage of the rule on dismissals based on unenforceability under the statute of
frauds, and either party may then enforce its claims against the other.
No other principle in remedial law is more settled than that when a motion to dismiss is filed, the
material allegations of the complaint are deemed to be hypothetically admitted. 27 This hypothetical
admission, according to Viewmaster Construction Corporation v. Roxas28 and Navoa v. Court of
Appeals,29 extends not only to the relevant and material facts well pleaded in the complaint, but also to
inferences that may be fairly deduced from them. Thus, where it appears that the allegations in the
complaint furnish sufficient basis on which the complaint can be maintained, the same should not be
dismissed regardless of the defenses that may be raised by the defendants. 30 Stated differently, where
the motion to dismiss is predicated on grounds that are not indubitable, the better policy is to deny the
motion without prejudice to taking such measures as may be proper to assure that the ends of justice
may be served.31
It is interesting to note at this point that in their bid to have the case dismissed, petitioners theorize that
there could not have been a contract by which the municipality agreed to be bound, because it was not
shown that there had been compliance with the required bidding or that the municipal council had
approved the contract. The argument is flawed. By invoking unenforceability under the Statute of
Frauds, petitioners are in effect acknowledging the existence of a contract between them and private
respondent — only, the said contract cannot be enforced by action for being non-compliant with the
legal requisite that it be reduced into writing. Suffice it to say that while this assertion might be a viable
defense against respondent’s claim, it is principally a matter of evidence that may be properly ventilated
at the trial of the case on the merits.
Verily, no grave abuse of discretion has been committed by the trial court in denying petitioners’ motion
to dismiss this case. The Court of Appeals is thus correct in affirming the same.
We now address the question of whether there is a valid reason to deny petitioners’ motion to discharge
the writ of preliminary attachment.
Petitioners, advocating a negative stance on this issue, posit that as a municipal corporation, the
Municipality of Hagonoy is immune from suit, and that its properties are by law exempt from execution
and garnishment. Hence, they submit that not only was there an error committed by the trial court in
denying their motion to dissolve the writ of preliminary attachment; they also advance that it should not
have been issued in the first place. Nevertheless, they believe that respondent has not been able to
substantiate her allegations of fraud necessary for the issuance of the writ.32
Private respondent, for her part, counters that, contrary to petitioners’ claim, she has amply discussed
the basis for the issuance of the writ of preliminary attachment in her affidavit; and that petitioners’ claim
of immunity from suit is negated by Section 22 of the Local Government Code, which vests municipal
corporations with the power to sue and be sued. Further, she contends that the arguments offered by
petitioners against the writ of preliminary attachment clearly touch on matters that when ruled upon in
the hearing for the motion to discharge, would amount to a trial of the case on the merits. 33
The general rule spelled out in Section 3, Article XVI of the Constitution is that the state and its political
subdivisions may not be sued without their consent. Otherwise put, they are open to suit but only when
they consent to it. Consent is implied when the government enters into a business contract, as it then
descends to the level of the other contracting party; or it may be embodied in a general or special
law34 such as that found in Book I, Title I, Chapter 2, Section 22 of the Local Government Code of 1991,
which vests local government units with certain corporate powers —one of them is the power to sue
and be sued.
Be that as it may, a difference lies between suability and liability. As held in City of Caloocan v.
Allarde,35 where the suability of the state is conceded and by which liability is ascertained judicially, the
state is at liberty to determine for itself whether to satisfy the judgment or not. Execution may not issue
upon such judgment, because statutes waiving non-suability do not authorize the seizure of property to
satisfy judgments recovered from the action. These statutes only convey an implication that the
legislature will recognize such judgment as final and make provisions for its full satisfaction. Thus,
where consent to be sued is given by general or special law, the implication thereof is limited only to the
resultant verdict on the action before execution of the judgment.36
Traders Royal Bank v. Intermediate Appellate Court,37 citing Commissioner of Public Highways v. San
Diego,38 is instructive on this point. In that case which involved a suit on a contract entered into by an
entity supervised by the Office of the President, the Court held that while the said entity opened itself to
suit by entering into the subject contract with a private entity; still, the trial court was in error in ordering
the garnishment of its funds, which were public in nature and, hence, beyond the reach of garnishment
and attachment proceedings. Accordingly, the Court ordered that the writ of preliminary attachment
issued in that case be lifted, and that the parties be allowed to prove their respective claims at the trial
on the merits. There, the Court highlighted the reason for the rule, to wit:
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 appropriations 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. x x x39
With this in mind, the Court holds that the writ of preliminary attachment must be dissolved and, indeed,
it must not have been issued in the very first place. While there is merit in private respondent’s position
that she, by affidavit, was able to substantiate the allegation of fraud in the same way that the fraud
attributable to petitioners was sufficiently alleged in the complaint and, hence, the issuance of the writ
would have been justified. Still, the writ of attachment in this case would only prove to be useless and
unnecessary under the premises, since the property of the municipality may not, in the event that
respondent’s claim is validated, be subjected to writs of execution and garnishment — unless, of
course, there has been a corresponding appropriation provided by law.401avvphi1
Anent the other issues raised by petitioners relative to the denial of their motion to dissolve the writ of
attachment, i.e., unenforceability of the contract and the veracity of private respondent’s allegation of
fraud, suffice it to say that these pertain to the merits of the main action. Hence, these issues are not to
be taken up in resolving the motion to discharge, lest we run the risk of deciding or prejudging the main
case and force a trial on the merits at this stage of the proceedings.41
There is one final concern raised by petitioners relative to the denial of their motion for reconsideration.
They complain that it was an error for the Court of Appeals to have denied the motion on the ground
that the same was filed by an unauthorized counsel and, hence, must be treated as a mere scrap of
paper.42
43
It can be derived from the records that petitioner Ople, in his personal capacity, filed his Rule 65 petition
with the Court of Appeals through the representation of the law firm Chan Robles & Associates. Later
on, municipal legal officer Joselito Reyes, counsel for petitioner Ople, in his official capacity and for
petitioner municipality, filed with the Court of Appeals a Manifestation with Entry of Appearance 43 to the
effect that he, as counsel, was "adopting all the pleadings filed for and in behalf of [Ople’s personal
representation] relative to this case."44
It appears, however, that after the issuance of the Court of Appeals’ decision, only Ople’s personal
representation signed the motion for reconsideration. There is no showing that the municipal legal
officer made the same manifestation, as he previously did upon the filing of the petition. 45 From this, the
Court of Appeals concluded that it was as if petitioner municipality and petitioner Ople, in his official
capacity, had never moved for reconsideration of the assailed decision, and adverts to the ruling in
Ramos v. Court of Appeals46 and Municipality of Pililla, Rizal v. Court of Appeals 47 that only under well-
defined exceptions may a private counsel be engaged in lawsuits involving a municipality, none of
which exceptions obtains in this case. 48
The Court of Appeals is mistaken. As can be seen from the manner in which the Manifestation with
Entry of Appearance is worded, it is clear that petitioner municipality’s legal officer was intent on
adopting, for both the municipality and Mayor Ople, not only the certiorari petition filed with the Court of
Appeals, but also all other pleadings that may be filed thereafter by Ople’s personal representation,
including the motion for reconsideration subject of this case. In any event, however, the said motion for
reconsideration would warrant a denial, because there seems to be no matter raised therein that has
not yet been previously addressed in the assailed decision of the Court of Appeals as well as in the
proceedings below, and that would have otherwise warranted a different treatment of the issues
involved.
WHEREFORE, the Petition is GRANTED IN PART. The January 31, 2005 Decision of the Court of
Appeals in CA-G.R. SP No. 81888 is AFFIRMED insofar as it affirmed the October 20, 2003 Decision of
the Regional Trial Court of Cebu City, Branch 7 denying petitioners’ motion to dismiss in Civil Case No.
CEB-28587. The assailed decision is REVERSED insofar as it affirmed the said trial court’s denial of
petitioners’ motion to discharge the writ of preliminary attachment issued in that case. Accordingly, the
August 4, 2003 Writ of Preliminary Attachment issued in Civil Case No. CEB-28587 is ordered lifted.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 203834               July 9, 2014
HEIRS OF DIOSDADO M. MENDOZA, namely: LICINIA V. MENDOZA, PETER VAL V. MENDOZA,
CONSTANCIA V. MENDOZA YOUNG, CRISTINA V. MENDOZA FIGUEROA, DIOSDADO V.
MENDOZA, JR., JOSEPHINE V. MENDOZA JASA, and RIZALINA V. MENDOZA PUSO, Petitioners, 
vs.
DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS and the DPWH SECRETARY, Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review on certiorari1 assailing the 20 June 2012 Decision2 and the 15
October 2012 Resolution3 of the Court of Appeals in CA-G.R. CV No. 86433. The Court of Appeals set
aside the 29 October 2001 Decision4 of the Regional.Trial Court of Manila, Branch 36, in Civil Case No.
90-53649.
The Antecedent Facts
The case stemmed from an action for specific performance and damages, with prayer for preliminary
injunction, filed by Diosdado M. Mendoza (Mendoza), doing businessunder the name and style of D’
Superior Builders (Superior Builders) against the defendants Department of Public Works and
Highways (DPWH), then DPWH Secretary Fiorello R. Estuar (Estuar), Undersecretary Edmundo V. Mir
(Mir), Nestor Abarca (Abarca), United Technologies, Inc. (UTI), UTI’s President Pedro Templo (Templo)
and UTI’s Project Manager Rodante Samonte (Samonte). The case was docketed as Civil Case No.
90-53649.
Mendoza was the winning bidder for the construction of the 15-kilometer Madaymen Masala Amsuling
Road in Benguet and the engineers’ quarters and laboratory, designatedas Package VI, of the Highland
Agriculture Development Project (HADP). His total bid for materials and labor was ₱16,176,878.58. He
was also the winning bidder for the construction of the 15-kilometer barangay roads (Sinipsip-Akiki,
SinipsipMaalad, and Madaymen) in Benguet, designated as Package IX of the HADP, with a bid of
₱10,527,192.14. The DPWH hired UTI as consultant for Packages VI and IX, under the direct charge of
Templo and Samonte.
On 2 March 1989, Mendoza received the Notice to Proceed for Package VI of the HADP. During the
pre-construction survey, Mendoza alleged that he discovered that the whole stretch of the 15-kilometer
project had no right-of-way, in violation of Ministry Order No. 65. He brought the matter to the attention
of the DPWH and UTI but according to him, it was only resolved on 29 November 1989 when the
affected landowners and farmers allowed passage at Mendoza’s risk. Mendoza alleged that the
defendants, except for Estuar, conspired to make it appear that Superior Builders incurred negative
slippage of29% and recommended the forfeiture of the contract.
44
Mendoza further alleged that as regards Package IX, the DPWH did not execute any contract despite
the Superior Builders’ compliance with all the post-evaluation requirements. The DPWH also
recommended the rebidding of Package IX. Package IX was, in effect, canceled together with the
forfeiture of the contract for Package VI. The DPWH blacklisted the Superior Builders from participating
inany bidding or entering into any contract with it for a period of one year.
On 2 August 1990, the Regional Trial Court of Manila, Branch 36 (trial court) issued a Temporary
Restraining Order enjoining the defendants from rebidding Package VI and fromawarding Package IX
to another contractor, and to cease and desistfrom withholding the equipment of Superior Builders.
On 20 August 1990, the DPWH, Estuar, Mir and Abarca filed an opposition to the prayer for the
issuance of a preliminary injunction, citing Section 1 of Presidential Decree No. 1818 that the trial court
has no jurisdiction to issue a writ of preliminary injunction. They likewise alleged that Superior Builders
failed to exhaust its administrative remedies. They further alleged that the owner of the road,
GregorioAbalos (Abalos) issued a certification that he never disallowed passage to Superior Builders’
vehicles and equipment and road right-of-way was never a problem. They also alleged that Superior
Builders started mobilization from 12 to 15 July 1989 and resumed its operationsfor one week in
December 1989. They also alleged that on 20 November 1989, the Office of the Sangguniang
Panlalawiganof Benguet passed Resolution No. 1176 recommending the termination of the contract
between the DPWH and Superior Builders. They reiterated the allegations in their Opposition in their
Answer.
For their part, UTI, Templo and Samonte alleged that Superior Builders had 10 calendar days to
commence with the project from the time it received the Notice to Proceed on 2 March 1989 or until 12
March 1989 but it failed to do so. They alleged that Superior Builders only mobilized one bulldozer and
one loader out of the 47 units required in the contract. They alleged that at the time of the filing of the
case, Superior Builders had only mobilized eight units, a majority of which were not working. They
alleged that Superior Builders failed to mobilize sufficient number of materials, equipment and
personnel and that by 25 October 1989, it already incurred negative slippage of 27.97% that they were
compelled to recommend the termination of the contract for Package VI and rebidding of Package IX.
The Decision of the Trial Court
In its 29 October 2001 Decision, the trial court ruled that the termination of the contract over Package VI
and the non-award of Package IX to Superior Builders were arbitrary and unjustified. The trial court
ruled that under the original plan, Package VI was inaccessible from the starting point which is a
privately-owned road. The trial court ruled that there was no showing of any attempt by the government
to secure right-of-way by expropriation or other legal means. The trial court held that Superior Builders
could not be faulted for its failure to perform the obligation within the stipulated period because the
DPWH made it impossible by its failure to acquire the necessary right-of-way and as such, nonegative
slippage could be attributed to Superior Builders. The trial court further ruled that inentering into a
contract, the DPWH divested itself of immunity from suit and assumed the character of an ordinary
litigant.
The dispositive portion of the trial court’s decision reads:
WHEREFORE, judgment is hereby rendered ordering defendants Department of Public Works and
Highway thru its Secretary, United Technologies, Inc. and Rodante Samonte to pay plaintiff Diosdado
M. Mendoza, jointly and severally, ₱1,565,317.70 as reimbursement for materials and labor on the
accomplishment and ₱1,617,187.86 performance bond forfeited, ₱8,817,926.00 as rental value for
eight (8) units of equipment for twenty-six (26) months from December 21, 1989 to January 24, 1992 at
₱339,151.00 per month, with interest at the legal rate until fully paid; ₱300,000.00 for moral damages,
₱150,000.00 for attorney’s fees, and costs.
The writ of preliminary injunction earlier issued is declared moot and academic but defendant
Department of Public Works and Highways thru its Secretary is ordered to turn over to plaintiff, and the
latter is authorized to take delivery of the construction equipment still under the control of the DPWH.
The counterclaim of the private defendants not being substantiated is dismissed.
SO ORDERED.5
The DPWH and the DPWH Secretary (respondents before us) appealed from the trial court’s decision.
The Decision of the Court of Appeals
In its 20 June 2012 Decision, the Court of Appeals set aside the trial court’s decision and dismissed
Mendoza’s complaint for specific performance and damages for lack of merit.
The Court of Appeals ruled that the DPWH’s forfeiture order of Package VI of the HADP as well asthe
non-award of Package IX to Superior Builders was justified. The Court of Appeals found that Superior
Builders incurred a negative slippage of31.852%, which is double the limit set by the government under
DPWH Circular No. 102, series of 1988. Tracing the slippages incurred by Superior Builders,the Court
of Appeals declared:
As early as May 25, 1989, or about two (2) months after the notice to proceed was issued, defendant
UTI,the consultant for the government’s HADP, issued a "first warning"to plaintiff-appellee D’ Superior
Builders for having already incurred a slippage of 7.648% due to late implementation, with time
elapseof 13.80%. Defendant UTI instructed plaintiff-appellee D’ Superior Builders to submit a "catch-up"
program to address the slippage.
Subsequently, on June 25, 1989, plaintiff-appellee D’ Superior Builders incurred a slippage of 11.743%
with corresponding time elapse of 19.63% (106 days from effectivityof contract) and was given a
"second warning."
On July 25, 1989, the negative slippage reached 16.32%, with corresponding time elapse of 25.18%
(136 days from effectivity of the contract). As a consequence, plaintiff-appellee D’ Superior Builders
was issued a "final warning."
In its August 11, 1989 letter, defendant UTI reminded plaintiffappellee D’ Superior Builders of
itsprevious instructions to bring the construction materials for the engineers’ quarters, office, and
laboratory. Defendant UTI noted:
"We could not find reasons why you cannot immediately bring your construction materials at site, 50
kms. from Baguio City, whenin fact, there [were] [continuous] deliveries of some construction materials
under Contract Package XI, whose site is located 102 kms. from Baguio City." Thereafter, on
September 25, 1989, the negative slippage of plaintiff-appellee D’ Superior Builders reached 21.109%
45
with elapsed time of 36.66% (equivalent to 198 calendar days), or already at "terminal stage" pursuant
to DPWH Circular No. 102. Defendant UTI, thus, urged plaintiff-appellee D’ Superior Builders to show
positive actions and speed up its operations, otherwise the former would be compelled to recommend
the termination of its contract.
The following month, on October 25, 1989, plaintiff-appellee D’ Superior Builders’ negative slippage
reached 27.970%, still at "terminal stage."The consultant mentioned several reasons for the slippage,
such as: (1) late implementation of construction of the engineers’ building, (2) non-implementation of
work itemsdue to lack or non-operational equipment as site, and (3) continued absence of plaintiff-
appellee’s Project Manager.
In November 1989, the negative slippage of plaintiff-appellee D’ Superior Builders was already
31.852%, or more than double the limit of what is considered as being at "terminal stage", which is
15%.6
Superior Builders’ performance prompted the Sangguniang Panlalawigan of the Province of Benguet to
pass a Resolution on 20 November 1989 recommending the termination of the contract for Package VI
that also eventually led to the forfeiture of the contract for Package VI. The Court of Appeals noted that
there were letters and monthly conferences where UTI, through Samonte and UTI’s Resident Engineer
Federico Vinson, Jr. (Vinson), consistently reminded Superior Builders of its obligations and
deficiencies. The Court of Appeals concluded that the delay in the execution of Package VI was due to
Superior Builders’ delay, particularly its failure to mobilize itspersonnel and equipment to the project
site.
The Court of Appeals ruled that the area where there was a right-ofway problem was only the first 3.2
kilometers of the 15.5-kilometer project. Hence, Superior Builders could have worked on the other
areas and the right-of-way issue could not justify the 31.852% negative slippage it incurred. The Court
of Appeals faulted the trial court for skirting the issue on state immunity from suit. The Court of Appeals
ruled that there should be a distinction whether the DPWH entered the contracts for Package VI and
Package XI in its governmental or proprietary capacity. In this case, the Court of Appeals ruled that the
DPWH’s contractual obligation was made in the exercise of its governmental functions and was imbued
with public interest.
The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, premises considered, the appeal is GRANTED. The assailed Decision dated October
29, 2001 of the Regional Trial Court (RTC), National Capital Judicial Region, Branch 36, Manila in Civil
Case No. 90-53649 is hereby REVERSED and SET ASIDE. Plaintiff-appellee’s complaint for specific
performanceand damages with prayer for preliminary injunction is hereby DISMISSED for lack of merit.
No costs.
SO ORDERED.7
The heirs of Mendoza, namely, Licinia V. Mendoza, Peter Val V. Mendoza, Constancia V. Mendoza
Young, Cristina V. Mendoza Figueroa, Diosdado V. Mendoza, Jr., Josephine V. Mendoza Jasa, and
Rizalina V. Mendoza Puso (petitioners in this case)filed a motion for reconsideration, at the same time
seeking to substitute Mendoza as the plaintiff-appellee in view of Mendoza’s death on 25 April 2005
during the pendency of the case before the Court of Appeals.
In its 15 October 2012 Resolution, the Court of Appeals granted the motion for substitution. In the same
resolution, the Court of Appeals denied the motion for reconsideration for lack of merit.
The Court of Appeals ruled that first, petitioners were not denied due process when they were not
informed that the case was re-raffled when the original ponenteinhibited himself from the case. The
Court of Appeals ruled that there was no requirement of notification under Section 2(b), Rule III of the
Internal Rules of the Court of Appeals (IRCA). Further, the action on the inhibition was attached to the
rolloand duly paged in compliance with Section 4, Rule V of the IRCA. Second, the Court of Appeals
ruled that contrary to petitioners’ claim, the issue on the absence of road right-of-way was considered in
its 20 June 2012 decision. The Court of Appeals emphasized that under DPWH CircularNo. 102, series
of 1988, the allowable rate of slippage is only 15%. In this case, Superior Builders reached 31.852%
negative slippage and thus, the termination of the contract was justified. The Court of Appeals noted
that Abalos issued a certification that he never disallowed the passage of Superior Builders’ vehicles
and equipment. The Court of Appeals alsonoted that as early as May 1989, Superior Builders was
instructed to carry out road works where there were no right-of-way problems. Third, the Court of
Appeals ruled that mere entering into a contract by the government does not automatically amount to a
waiver of immunity from suit. The Court of Appeals ruled that in this case, the road construction was in
the exercise of the DPWH’s governmental functions. The Court of Appeals also ruled that it was
established that Superior Builders was at fault and thatit exceeded the allowable limit of slippage set by
law. Petitioners came to thisCourt assailing the 20 June 2012 Decision and 15 October 2012 Resolution
ofthe Court of Appeals.
The Issues
Petitioners raise two issues before us:
(1) Whether the Court of Appeals committed a reversible error in ruling that the forfeiture of
the contract in Package VI of HADP and the non-payment of the cost of materials, labor on
the accomplishment and the rental value of the heavy equipment were justified; and
(2) Whether the Court of Appeals committed a reversible error in ruling that the DPWH has
no juridical personality of its own and that Mendoza’s action was a suit against the State.
The Ruling of this Court
We deny the petition.
On Negative Slippages
The first issue raised by petitionersrequires a review of the negative slippages incurred by Superior
Builders and the reasons for the slippages.
The records of the case showed thatSuperior Builders incurred the following negative slippages:
1. As of 25 May 1989 – 7.648%
2. As of 25 June 1989 - 11.743%
46
 3. As of 25 July 1989 – 16.32%
4. As of 25 September 1989 - 21.109%
5. As of 25 October 1989 – 27.970%
6. As of November 1989 - 31.852%
Presidential Decree No. 1870,series of 1983 (PD 1870), 8 states:
1. Whenever a contractor is behind schedule in its contract work and incur 15% or more negative
slippage based on its approved PERT/CPM, the implementing agency, at the discretion of the Minister
concerned, may undertake by administration the whole ora portion of the unfinished work, or have the
whole or a portion of such unfinished work done by another qualified contractor through negotiated
contract at the current valuation price.
Undeniably, the negative slippage incurred by Superior Builders, which reached 31.852%, far exceeded
the allowable slippage under PD 1870.
Under Department Order No. 102,series of 1988 (DO 102),9 the following calibrated actions are
required to be done for infrastructure projects that reached certain levels of negative slippage:
1. Negative slippage of 5% ("Early Warning" Stage): The contractor shall be given a warning
and required to submit a "catch-up" program to eliminate the slippage. The PM/RD/DE10 shall
provide thorough supervision and monitoring of the work.
2. Negative slippage of 10% ("ICU" Stage): The contractor shall be given a second warning
and required to submit a detailed action program on a fortnightly (two weeks) basis which
commits him to accelerate the work and accomplish specific physical targets which will
reduce the slippage over a defined time period. Furthermore, the contractor shall be
instructed to specify the additional input resources – money, manpower, materials, machines,
and management – which he should mobilize for this action program. The PM/RD/DE shall
exercise closer supervision and meet the contractor every other week toevaluate the
progress of work and resolve any problems and bottlenecks.
3. Negative slippage of 15% ("Make-or-Break" Stage): The contractor shall be issued a final
warning and required to come up with a more detailed program of activities with weekly
physical targets, together with the required additional input resources. On-site supervision
shall be done at least once a week. At the sametime, the PM/RD/DE shall prepare
contingency plans for the termination/rescission of the contract and/or take-over of the work
by administration or contract.
4. Negative slippage beyond 15% ("Terminal" Stage): The PM/RD/DE shall initiate
termination/rescission of the contract and/or take-over of the remaining work byadministration
orassignment to another contractor/appropriate agency. Proper transitory measures shall be
taken to minimize work disruptions, e.g., take-over by administration while rebidding is going
on. The discretion of the DPWH to terminate or rescind the contract comes into play when the
contractor shall have incurreda negative slippage of 15% or more.11
In this case, Superior Builders was warned of its considerable delay in the implementation of the project
as early as 29 April 198912 when the progress slippage reached 4.534% due to the late implementation
of the project. Thereafter, Superior Builders received the first,13 second14 and final15 warnings when the
negative slippages reached 7.648%, 11.743% and 16.32%, respectively. By the time the contract was
terminated, the negative slippage already reached 31.852% or more than twice the terminal stage
under DO 102.
Petitioners claimed that the negative slippages were attributable to the government. Petitioners cited
the right-of-way problem because the construction site was privately owned.The construction of the
building for the field office laboratory and engineers’ quarters was also delayed because it took months
for the DPWH to approve the revision of the building layout.
We note that Superior Builders received the Notice to Proceed dated 22 February 1989 on 2 March
1989.16 The Notice to Proceed stated that "the number of days allowable under [the] contract will be
counted from the date [the contractor] commence[s] work or not later than the 8th of March 1989."17 On
17 April 1989, more thana month after the project was supposed to start, Mendoza wrote Templo that
Superior Builders would start the construction of Package VI and that their "Survey Team [would]
immediately start the preconstruction survey of the project x x x."18In two separate letters dated 27April
1989, both addressed to Samonte, Mendoza informed UTI that: (1) there was an existing building on
the site where the bunkhouse was supposed to be constructed, which had to be cleared and
demolished first; and (2) the first fivekilometers of Package VI allegedly belonged to private residents
who were asking for compensation before they could proceed with the road construction. 19
The right-of-way problem was confirmed in a letter dated 2 May 1989 sent by Vinson to DPWH Director
Heraldo B. Daway of the Cordillera Administrative Region. 20 In a letter dated 9 May 1989 addressed to
"The Project Manager," Mendoza requested for the temporary suspension of work effective 22 April
1989 due to the right-of-way problem regarding the first five kilometers of the project. 21 Samonte denied
the request in a letter dated 24 May 1989 on the ground that Superior Builders can carry out work in
sections without right-of-way conflict. Samonte likewise reminded Superior Builders to mobilize all the
required construction resources in order not to prejudice its performance on the project. 22
Apparently, despite the denial of its request for temporary suspension of work, Superior Builders did not
mobilize all the required resources as directed by Samonte. In a letter dated 15 June 1989 to Mir,
Mendoza stated that Superior Builders had started the "mobilization of equipment and personnel since
last week,"23 meaning, the mobilization of the construction resources started on the first week ofJune.
However, in a letter dated 24 June 1989, Vinson called the Superior Builders’ attention that as of 21
June 1989, it only mobilized one dozer and one loader at the jobsite. 24
The Minutes of the Meeting dated 7 July 198925 showed that Gloria Areniego (Areniego), the Superior
Builders’ representative, assured the delivery of additional equipment on site"next week" or the second
week of July. The minutes also showed that Superior Builders was again advised to start working on
the sections not affected by the right-of-way problem.26 In addition, Samonte asked Areniego for the
time when Superior Builders would start the demolition of the building where the engineers’ office and
quarters would be built. Areniego promised that it would start on July 14. 27 However, Superior Builders
still failed to comply, prompting Vinson to send another letter dated 22 July 1989 to Superior Builders,
noting that "since the arrival of your One (1) unit Dozer and One (1) unit Loader last 21 June 1989, no
other construction equipment had been mobilized on site to date." 28
The right-of-way problem turned out to affect only the first 3.2 kilometers of the project. However, as the
Court of Appeals pointed out, Superior Builders was not able to go beyond the 3.2 kilometers because
47
of the limited equipment it mobilized on the project site. Further, the Court of Appeals noted that
Superior Builders’ bulldozer broke down after three days of work, proving that Superior Builders had
been remiss in its responsibilities as a contractor. In addition, Abalos denied in a certification that he
disallowed the passage of Superior Builders’ vehicles and equipment on the road within his property
from the time of the commencement of the contract in March 1989.29
In short, Superior Builders could have proceeded with the project, as it was constantly reminded to do
so, but it capitalized on the right-of-way problem to justify its delays.
In a letter30 dated 2 October 1989 by Bial A. Palaez (Palaez), Provincial Planning and Development
Coordinator, addressed to Benguet Provincial Governor Andres R. Bugnosen (Bugnosen), Palaez
informed Bugnosen that when he visited the project with Kibungan Mayor Albert Mayamnes on 14 July
1989, they observed the following: (1) Superior Builders only constructed 100linear meters of road at
Masala; (2) there was no sign of work activity; and (3) there were only one bulldozer, one payloader
and a fiera on the project site, which were all under repair and not functional. When they visited the
project on 31 August 1989, there were no activities and they were not able to meet the project engineer
or the workers on the project site. In addition, the construction of the building for engineering purposes
had not started as of 27 September 1989. Thus, the Provincial Government of Benguet passed
Resolution No. 117631 on 20 November 1989 recommending to the DPWH the "Termination of Contract
or Disqualification of Contractor Pertinent to HADP Project."
Given the foregoing, the DPWH was justified in forfeiting Package VI for Superior Builders’ failure to
comply with its contractual obligations. We also note that Package IX of the HADP was tied to the
completion of Package VI because the Asian Development Bank could not approve the award of
Package IX to Superior Builders unless its work on Package VI was satisfactory to the DPWH. 32 This
explains why Package IX had to be rebid despite the initial award of the project to Superior Builders.
The Court of Appeals likewise correctly ruled that the DPWH should not be made to pay for the rental of
the unserviceable equipment of Superior Builders. The Court of Appeals noted that (1) Superior
Builders failed to mobilize its equipment despite having the first 7.5% advance payment under the
contract, and (2) even when the trial court issueda temporary restraining order on 2 August 1990 in
favor of Superior Builders, it failed to remove the equipment from the project site. As regards the
delivery and value of the materials, the Court of Appeals found that the supposed delivery was only
signed by Areniego without verification from UTI’s Quantity Engineer and Resident Engineer. Thus, we
agree with the Court of Appeals that Superior Builders should be made tobear its own losses.
On Governmental v. Proprietary Functions
The general rule is that a state may not be sued, but it may be the subject of a suit if it consents to be
sued, either expressly or impliedly.33 There is express consent when a law so provides, while there is
implied consent when the State enters into a contract or it itself commences litigation. 34 This Court
explained that in order to determine implied waiver when the State or its agency entered into a contract,
there is a need to distinguish whether the contract was entered into in its governmental or proprietary
capacity, thus:
x x x. However, it must be clarified that when a state enters into a contract, it does not automatically
mean that it has waived its nonsuability. The State "will be deemedto have impliedly waived its
nonsuability [only] if it has entered into a contract in its proprietary or private capacity. [However,] when
the contract involves its sovereign or governmental capacity[,] x x x no suchwaiver may be implied."
Statutory provisions waiving [s]tate immunity are construed in strictissimi juris. For, waiver of immunity
is in derogation of sovereignty.35
In Air Transportation Office v. Ramos,36 the Court expounded:
An unincorporated agency without any separate juridical personality of its own enjoys immunityfrom suit
because it is invested with an inherent power of sovereignty. x x x. 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 incidentalto such function; 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.37
Having made this distinction, wereiterate that the DPWH is an unincorporated government agency
without any separate juridical personality of its own and it enjoys immunity from suit. 38 The then Ministry
of Public Works and Highways, now DPWH, was created under Executive Order No. 710, series of
1981 (EO 710). EO 710 abolished the old Ministry of PublicWorks and the Ministry of Public Highways
and transferred their functions to the newly-created Ministry of Public Works of Highways. Section 4 of
EO 710 provides:
SECTION 4. The Ministry shall exercise supervision and control over the following staff bureaus which
are created in the Ministry:
(1) Bureau of Construction, which shall provide technical services on the construction,
rehabilitation, betterment, and improvement of infrastructure facilities;

(2) Bureau of Design, which shall undertake project development, engineering surveys, and
Petitioners assail the Court of Appeals’ ruling that the contract entered into by the DPWH was made in
designs of infrastructure facilities;
the exercise of its governmental, not proprietary, function and was imbued with public interest.
Petitioners likewise assail the Court of Appeals’ ruling that the DPWH has no juridical personality of its
own and thus, the suit was against the agency’s principal, the State. Petitioners further argue that the (3) Bureau of Equipment, which shall provide technical services on the management of
DPWH entered into a contract with Mendoza and by its act of entering into a contract, it already waived construction and maintenance equipment and ancillary facilities;
its immunity from suit.
(4) Bureau of Maintenance, which shall provide technical services on the maintenance and
The doctrine of immunity from suit is anchored on Section 3, Article XVI of the 1987 Constitution which repair of infrastructure facilities; and
provides:

Section 3. The State may not besued without its consent.

48
 (5) Bureau of Materials and Quality Control, which shall provide research and technical It is clear from the enumeration of its functions that the DPWH performs governmental functions.
services on quality control and on the management of materials plants and ancillary facilities Section 5(d) states that it has the power to "[i]dentify, plan, secure funding for, program, design,
for the production and processing of construction materials. construct or undertake prequalification, bidding, and award of contracts of public works projects x x x"
while Section 5(e) states that itshall "[p]rovide the works supervision function for all public works
constructionand ensure that actual construction is done in accordance with approved government plans
The Ministry of Public Works and Highways was later reorganized under Executive Order No. 124,
and specifications."
series of 1987 (EO 124). Under Section 5 of EO 124, the Ministry shall have the following powersand
functions:
The contracts that the DPWH entered into with Mendoza for the construction of Packages VI and IX of
the HADP were done in the exercise of its governmental functions. Hence, petitioners cannot claim that
Sec. 5. Powers and Functions. — The Ministry, in order to carry out its mandate, shall have the
there was an implied waiver by the DPWH simply by entering into a contract.1âwphi1 Thus, the Court of
following powers and functions:
Appeals correctly ruled that the DPWH enjoys immunity from suit and may not be sued without its
consent.
(a) Provide technical services for the planning, design, construction, maintenance, and/or
operation of infrastructure facilities;
WHEREFORE, we DENY the petition. We AFFIRM the 20 June 2012 Decision and the 15 October
2012 Resolution of the Court of Appeals in CA-G.R. CV. No. 86433.
(b) Develop and implement effective codes, standards, and reasonable guidelines to ensure
the safety of all public and private structures in the country and assure efficiency and proper
SO ORDERED.
quality in the construction of public works;

(c) Ascertain that all public works plans and project implementation designs are consistent
with current standards and guidelines;

(d) Identify, plan, secure funding for, program, design, construct or undertake prequalification,
bidding, and award of contracts of public works projects with the exception only of specialized Republic of the Philippines
projects undertaken by Government corporate entities withestablished technical capability SUPREME COURT
and as directed by the President of the Philippines or as provided by law; Manila

(e) Provide the works supervision function for all public works construction and ensure that FIRST DIVISION
actual construction is done in accordance with approved government plans and
specifications;
G.R. No. 161657               October 4, 2007

(f) Assist other agencies, including the local governments, in determining the most suitable
REPUBLIC OF THE PHILIPPINES, Petitioner, 
entity to undertake the actual construction of public works and projects;
vs.
HON. VICENTE A. HIDALGO, in his capacity as Presiding Judge of the Regional Trial Court of
(g) Maintain or cause to be maintained all highways, flood control, and other public works Manila, Branch 37, CARMELO V. CACHERO, in his capacity as Sheriff IV, Regional Trial Court of
throughout the country except those that are the responsibility of other agencies as directed Manila, and TARCILA LAPERAL MENDOZA, Respondents.
by the President of the Philippines as provided by law;
DECISION
(h) Provide an integrated planning for highways, flood control and water resource
development systems, and other public works;
GARCIA, J.:

(i) Classify roads and highways intonational, regional, provincial, city, municipal, and
barangay roads and highways, based on objective criteria it shall adopt; provide or authorize
the conversion of roads and highways from one category to another;
(j) Delegate, to any agency it determines to have the adequate technical capability, any of the
foregoing powers and functions.
Via this verified petition for certiorari and prohibition under Rule 65 of the Rules of Court, the Republic
of the Philippines ("Republic," for short), thru the Office of the Solicitor General (OSG), comes to this
Court to nullify and set aside the decision dated August 27, 2003 and other related issuances of the
Regional Trial Court (RTC) of Manila, Branch 37, in its Civil Case No. 99-94075. In directly invoking the
Court’s original jurisdiction to issue the extraordinary writs of certiorari and prohibition, without
challenge from any of the respondents, the Republic gave as justification therefor the fact that the case

49
involves an over TWO BILLION PESO judgment against the State, allegedly rendered in blatant
violation of the Constitution, law and jurisprudence.
By any standard, the case indeed involves a colossal sum of money which, on the face of the assailed
decision, shall be the liability of the national government or, in fine, the taxpayers. This consideration,
juxtaposed with the constitutional and legal questions surrounding the controversy, presents special
and compelling reasons of public interests why direct recourse to the Court should be allowed, as an
exception to the policy on hierarchy of courts.
At the core of the litigation is a 4,924.60-square meter lot once covered by Transfer Certificate of Title
(TCT) No. 118527 of the Registry of Deeds of Manila in the name of the herein private respondent
Tarcila Laperal Mendoza (Mendoza), married to Perfecto Mendoza. The lot is situated at No. 1440
Arlegui St., San Miguel, Manila, near the Malacañang Palace complex. On this lot, hereinafter referred
to as the Arlegui property, now stands the Presidential Guest House which was home to two (2)
former Presidents of the Republic and now appears to be used as office building of the Office of the
President.1
The facts:
Sometime in June 1999, Mendoza filed a suit with the RTC of Manila for reconveyance and the
corresponding declaration of nullity of a deed of sale and title against the Republic, the Register of
Deeds of Manila and one Atty. Fidel Vivar. In her complaint, as later amended, docketed as Civil Case
No. 99-94075 and eventually raffled to Branch 35 of the court, Mendoza essentially alleged being the
owner of the disputed Arlegui property which the Republic forcibly dispossessed her of and over
which the Register of Deeds of Manila issued TCT No. 118911 in the name of the Republic.
Answering, the Republic set up, among other affirmative defenses, the State’s immunity from suit.
The intervening legal tussles are not essential to this narration. What is material is that in an Order of
March 17, 2000, the RTC of Manila, Branch 35, dismissed Mendoza’s complaint. The court would also
deny, in another order dated May 12, 2000, Mendoza’s omnibus motion for reconsideration. On a
petition for certiorari, however, the Court of Appeals (CA), in CA-G.R. SP No. 60749, reversed the trial
court’s assailed orders and remanded the case to the court a quo for further proceedings.2 On appeal,
this Court, in G.R. No. 155231, sustained the CA’s reversal action. 3
From Branch 35 of the trial court whose then presiding judge inhibited himself from hearing the
remanded Civil Case No. 99-94075, the case was re-raffled to Branch 37 thereof, presided by the
respondent judge.
On May 5, 2003, Mendoza filed a Motion for Leave of Court to file a Third Amended Complaint with a
copy of the intended third amended complaint thereto attached. In the May 16, 2003 setting to hear the
motion, the RTC, in open court and in the presence of the Republic’s counsel, admitted the third
amended complaint, ordered the Republic to file its answer thereto within five (5) days from May 16,
2003 and set a date for pre-trial.
In her adverted third amended complaint for recovery and reconveyance of the Arlegui property,
Mendoza sought the declaration of nullity of a supposed deed of sale dated July 15, 1975 which
provided the instrumentation toward the issuance of TCT No. 118911 in the name of the Republic. And
aside from the cancellation of TCT No. 118911, Mendoza also asked for the reinstatement of her TCT
No. 118527.4 In the same third amended complaint, Mendoza averred that, since time immemorial, she
and her predecessors-in-interest had been in peaceful and adverse possession of the property as well
as of the owner’s duplicate copy of TCT No. 118527. Such possession, she added, continued "until the
first week of July 1975 when a group of armed men representing themselves to be members of the
Presidential Security Group [PSG] of the then President Ferdinand E. Marcos, had forcibly entered [her]
residence and ordered [her] to turn over to them her … Copy of TCT No. 118525 … and compelled her
and the members of her household to vacate the same …; thus, out of fear for their lives, [she] handed
her Owner’s Duplicate Certificate Copy of TCT No. 118527 and had left and/or vacated the subject
property." Mendoza further alleged the following:
1. Per verification, TCT No. 118527 had already been cancelled by virtue of a deed of sale in
favor of the Republic allegedly executed by her and her deceased husband on July 15, 1975
and acknowledged before Fidel Vivar which deed was annotated at the back of TCT No.
118527 under PE: 2035/T-118911 dated July 28, 1975; and
2. That the aforementioned deed of sale is fictitious as she (Mendoza) and her husband have
not executed any deed of conveyance covering the disputed property in favor of the Republic,
let alone appearing before Fidel Vivar.
Inter alia, she prayed for the following:
4. Ordering the … Republic to pay plaintiff [Mendoza] a reasonable compensation or rental
for the use or occupancy of the subject property in the sum of FIVE HUNDRED THOUSAND
(P500,000.00) PESOS a month with a five (5%) per cent yearly increase, plus interest
thereon at the legal rate, beginning July 1975 until it finally vacates the same;
5. Ordering the … Republic to pay plaintiff’s counsel a sum equivalent to TWENTY FIVE
(25%) PER CENT of the current value of the subject property and/or whatever amount is
recovered under the premises; Further, plaintiff prays for such other relief, just and equitable
under the premises.
On May 21, 2003, the Republic, represented by the OSG, filed a Motion for Extension (With Motion for
Cancellation of scheduled pre-trial). In it, the Republic manifested its inability to simply adopt its
previous answer and, accordingly, asked that it be given a period of thirty (30) days from May 21, 2003
or until June 20, 2003 within which to submit an Answer.5 June 20, 2003 came and went, but no
answer was filed. On July 18, 2003 and again on August 19, 2003, the OSG moved for a 30-day
extension at each instance. The filing of the last two motions for extension proved to be an idle gesture,
however, since the trial court had meanwhile issued an order 6 dated July 7, 2003 declaring the
petitioner Republic as in default and allowing the private respondent to present her evidence ex-parte.
The evidence for the private respondent, as plaintiff a quo, consisted of her testimony denying having
executed the alleged deed of sale dated July 15, 1975 which paved the way for the issuance of TCT
No. 118911. According to her, said deed is fictitious or inexistent, as evidenced by separate
certifications, the first (Exh. "E"), issued by the Register of Deeds for Manila and the second
(Exh. "F"), by the Office of Clerk of Court, RTC Manila. Exhibit "E"7states that a copy of the supposed
conveying deed cannot, despite diligent efforts of records personnel, be located, while
Exhibit "F"8 states that Fidel Vivar was not a commissioned notary public for and in the City of Manila
for the year 1975. Three other witnesses 9 testified, albeit their testimonies revolved around the
appraisal and rental values of the Arlegui property.
50
Eventually, the trial court rendered a judgment by default10 for Mendoza and against the Republic. To
the trial court, the Republic had veritably confiscated Mendoza’s property, and deprived her not only of
the use thereof but also denied her of the income she could have had otherwise realized during all the
years she was illegally dispossessed of the same.
Dated August 27, 2003, the trial court’s decision dispositively reads as follows:
WHEREFORE, judgment is hereby rendered:
1. Declaring the deed of sale dated July 15, 1975, annotated at the back of [TCT] No. 118527
as PE:2035/T-118911, as non-existent and/or fictitious, and, therefore, null and void from the
beginning;
2. Declaring that [TCT] No. 118911 of the defendant Republic of the Philippines has no basis,
thereby making it null and void from the beginning;
3. Ordering the defendant Register of Deeds for the City of Manila to reinstate plaintiff
[Mendoza’s TCT] No. 118527;
4. Ordering the defendant Republic … to pay just compensation in the sum of ONE
HUNDRED FORTY THREE MILLION SIX HUNDRED THOUSAND
(P143,600,000.00) PESOS, plus interest at the legal rate, until the whole amount is paid in
full for the acquisition of the subject property;
5. Ordering the plaintiff, upon payment of the just compensation for the acquisition of her
property, to execute the necessary deed of conveyance in favor of the defendant Republic …;
and, on the other hand, directing the defendant Register of Deeds, upon presentation of the
said deed of conveyance, to cancel plaintiff’s TCT No. 118527 and to issue, in lieu thereof, a
new Transfer Certificate of Title in favor of the defendant Republic;
6. Ordering the defendant Republic … to pay the plaintiff the sum of ONE BILLION FOUR
HUNDRED EIGHTY MILLION SIX HUNDRED TWENTY SEVEN THOUSAND SIX
HUNDRED EIGHTY EIGHT (P1,480,627,688.00) PESOS, representing the reasonable rental
for the use of the subject property, the interest thereon at the legal rate, and the opportunity
cost at the rate of three (3%) per cent per annum, commencing July 1975 continuously up to
July 30, 2003, plus an additional interest at the legal rate, commencing from this date until the
whole amount is paid in full;
7. Ordering the defendant Republic … to pay the plaintiff attorney’s fee, in an amount
equivalent to FIFTEEN (15%) PER CENT of the amount due to the plaintiff.
With pronouncement as to the costs of suit.
SO ORDERED. (Words in bracket and emphasis added.)
Subsequently, the Republic moved for, but was denied, a new trial per order of the trial court of October
7, 2003.11Denied also was its subsequent plea for reconsideration. 12 These twin denial orders were
followed by several orders and processes issued by the trial court on separate dates as hereunder
indicated:
1. November 27, 2003 - - Certificate of Finality declaring the August 27, 2003 decision final
and executory.13
2. December 17, 2003 - - Order denying the Notice of Appeal filed on November 27, 2003,
the same having been filed beyond the reglementary period. 14
3. December 19, 2003 - - Order15 granting the private respondent’s motion for execution.
4. December 22, 2003 - - Writ of Execution. 16
Hence, this petition for certiorari.
By Resolution17 of November 20, 2006, the case was set for oral arguments. On January 22, 2007,
when this case was called for the purpose, both parties manifested their willingness to settle the case
amicably, for which reason the Court gave them up to February 28, 2007 to submit the compromise
agreement for approval. Following several approved extensions of the February 28, 2007 deadline, the
OSG, on August 6, 2007, manifested that it is submitting the case for resolution on the merits owing to
the inability of the parties to agree on an acceptable compromise.
In this recourse, the petitioner urges the Court to strike down as a nullity the trial court’s order declaring
it in default and the judgment by default that followed. Sought to be nullified, too, also on the ground
that they were issued in grave abuse of discretion amounting to lack or in excess of jurisdiction, are the
orders and processes enumerated immediately above issued after the rendition of the default judgment.
Petitioner lists five (5) overlapping grounds for allowing its petition. It starts off by impugning the order of
default and the judgment by default. To the petitioner, the respondent judge committed serious
jurisdictional error when he proceeded to hear the case and eventually awarded the private respondent
a staggering amount without so much as giving the petitioner the opportunity to present its defense.
Petitioner’s posture is simply without merit.
Deprivation of procedural due process is obviously the petitioner’s threshold theme. Due process, in its
procedural aspect, guarantees in the minimum the opportunity to be heard. 18 Grave abuse of discretion,
however, cannot plausibly be laid at the doorstep of the respondent judge on account of his having
issued the default order against the petitioner, then proceeding with the hearing and eventually
rendering a default judgment. For, what the respondent judge did hew with what Section 3, Rule 9 of
the Rules of Court prescribes and allows in the event the defending party fails to seasonably file a
responsive pleading. The provision reads:
SEC. 3. Default; declaration of.- If the defending party fails to answer within the time allowed therefor,
the court shall, upon motion of the claiming party with notice to the defending party, and proof of such
failure, declare the defending party in default. Thereupon, the court shall proceed to render judgment
granting the claimant such relief as his pleading may warrant, unless the court in its discretion requires
the claimant to submit evidence ….19
51
While the ideal lies in avoiding orders of default, 20 the policy of the law being to have every litigated
case tried on its full merits,21 the act of the respondent judge in rendering the default judgment after an
order of default was properly issued cannot be struck down as a case of grave abuse of discretion.
The term "grave abuse of discretion," in its juridical sense, connotes capricious, despotic, oppressive or
whimsical exercise of judgment as is equivalent to lack of jurisdiction. 22 The abuse must be of such
degree as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by
law, as where the power is exercised in a capricious manner. The word "capricious," usually used in
tandem with "arbitrary," conveys the notion of willful and unreasoning action. 23
Under the premises, the mere issuance by the trial court of the order of default followed by a judgment
by default can easily be sustained as correct and doubtless within its jurisdiction. Surely, a disposition
directing the Republic to pay an enormous sum without the trial court hearing its side does not, without
more, vitiate, on due procedural ground, the validity of the default judgment. The petitioner may have
indeed been deprived of such hearing, but this does not mean that its right to due process had been
violated. For, consequent to being declared in default, the defaulting defendant is deemed to have
waived his right to be heard or to take part in the trial. The handling solicitors simply squandered the
Republic’s opportunity to be heard. But more importantly, the law itself imposes such deprivation of the
right to participate as a form of penalty against one unwilling without justification to join issue upon the
allegations tendered by the plaintiff.
And going to another point, the petitioner would ascribe jurisdictional error on the respondent judge for
denying its motion for new trial based on any or a mix of the following factors, viz., (1) the failure to file
an answer is attributable to the negligence of the former handling solicitor; (2) the meritorious nature of
the petitioner’s defense; and (3) the value of the property involved.
The Court is not convinced. Even as the Court particularly notes what the trial court had said on the
matter of negligence: that all of the petitioner’s pleadings below bear at least three signatures, that of
the handling solicitor, the assistant solicitor and the Solicitor General himself, and hence accountability
should go up all the way to the top of the totem pole of authority, the cited reasons advanced by the
petitioner for a new trial are not recognized under Section 1, Rule 37 of the Rules of Court for such
recourse.24 Withal, there is no cogent reason to disturb the denial by the trial court of the motion for new
trial and the denial of the reiterative motion for reconsideration.
Then, too, the issuance by the trial court of the Order dated December 17, 2003 25 denying the
petitioner’s notice of appeal after the court caused the issuance on November 27, 2003 of a certificate
of finality of its August 27, 2003 decision can hardly be described as arbitrary, as the petitioner would
have this Court believe. In this regard, the Court takes stock of the following key events and material
dates set forth in the assailed December 17, 2003 order, supra: (a) The petitioner, thru the OSG,
received on August 29, 2003 a copy of the RTC decision in this case, hence had up to September 13,
2003, a Saturday, within which to perfect an appeal; (b) On September 15, 2003, a Monday, the OSG
filed its motion for new trial, which the RTC denied, the OSG receiving a copy of the order of denial on
October 9, 2003; and (c) On October 24, 2003, the OSG sought reconsideration of the order denying
the motion for new trial. The motion for reconsideration was denied per Order dated November 25,
2003, a copy of which the OSG received on the same date.
Given the foregoing time perspective, what the trial court wrote in its aforementioned impugned order of
December 17, 2003 merits approval:
In the case at bar, it is clear that the motion for new trial filed on the fifteenth (15th) day after the
decision was received on August 29, 2003 was denied and the moving party has only the remaining
period from notice of notice of denial within which to file a notice of appeal. xxx
Accordingly, when defendants [Republic et al.] filed their motion for new trial on the last day of the
fifteen day (15) prescribed for taking an appeal, which motion was subsequently denied, they had one
(1) day from receipt of a copy of the order denying … new trial within which to perfect [an] appeal ….
Since defendants had received a copy of the order denying their motion for new trial on 09 October
2003, reckoned from that date, they only have one (1) day left within which to file the notice of appeal.
But instead of doing so, the defendants filed a motion for reconsideration which was later declared by
the Court as pro forma motion in the Order dated 25 November 2003. The running of the prescriptive
period, therefore, can not be interrupted by a pro forma motion. Hence the filing of the notice of appeal
on 27 November 2007 came much too late for by then the judgment had already become final and
executory.26 (Words in bracket added; Emphasis in the original.)
It cannot be over-emphasized at this stage that the special civil action of certiorari is limited to resolving
only errors of jurisdiction; it is not a remedy to correct errors of judgment. Hence, the petitioner’s
lament, partly covered by and discussed under the first ground for allowing its petition, about the trial
court taking cognizance of the case notwithstanding private respondent’s claim or action being barred
by prescription and/or laches cannot be considered favorably. For, let alone the fact that an action for
the declaration of the inexistence of a contract, as here, does not prescribe;27 that a void transfer of
property can be recovered by accion reivindicatoria; 28 and that the legal fiction of indefeasibility of a
Torrens title cannot be used as a shield to perpetuate fraud,29 the trial court’s disinclination not to
appreciate in favor of the Republic the general principles of prescription or laches constitutes, at best,
errors of judgment not correctable by certiorari.
The evidence adduced below indeed adequately supports a conclusion that the Office of the President,
during the administration of then President Marcos, wrested possession of the property in question and
somehow secured a certificate of title over it without a conveying deed having been executed to legally
justify the cancellation of the old title (TCT No. 118527) in the name of the private respondent and the
issuance of a new one (TCT No. 118911) in the name of petitioner Republic. Accordingly, granting
private respondent’s basic plea for recovery of the Arlegui property, which was legally hers all along,
and the reinstatement of her cancelled certificate of title are legally correct as they are morally right.
While not exactly convenient because the Office of the President presently uses it for mix residence
and office purposes, restoring private respondent to her possession of the Arlegui property is still legally
and physically feasible. For what is before us, after all, is a registered owner of a piece of land who,
during the early days of the martial law regime, lost possession thereof to the Government which
appropriated the same for some public use, but without going through the legal process of
expropriation, let alone paying such owner just compensation.
The Court cannot, however, stop with just restoring the private respondent to her possession and
ownership of her property. The restoration ought to be complemented by some form of monetary
compensation for having been unjustly deprived of the beneficial use thereof, but not, however, in the
varying amounts and level fixed in the assailed decision of the trial court and set to be executed by the
equally assailed writ of execution. The Court finds the monetary award set forth therein to be
erroneous. And the error relates to basic fundamentals of law as to constitute grave abuse of discretion.
As may be noted, private respondent fixed the assessed value of her Arlegui property at
₱2,388,990.00. And in the prayer portion of her third amended complaint for recovery, she asked to be
restored to the possession of her property and that the petitioner be ordered to pay her, as reasonable
compensation or rental use or occupancy thereof, the sum of ₱500,000.00 a month, or ₱6 Million a
52
year, with a five percent (5%) yearly increase plus interest at the legal rate beginning July 1975. From
July 1975 when the PSG allegedly took over the subject property to July 2003, a month before the trial
court rendered judgment, or a period of 28 years, private respondent’s total rental claim would, per the
OSG’s computation, only amount to ₱371,440,426.00. In its assailed decision, however, the trial court
ordered the petitioner to pay private respondent the total amount of over ₱1.48 Billion or the mind-
boggling amount of ₱1,480,627,688.00, to be exact, representing the reasonable rental for the property,
the interest rate thereon at the legal rate and the opportunity cost. This figure is on top of
the ₱143,600,000.00 which represents the acquisition cost of the disputed property. All told, the trial
court would have the Republic pay the total amount of about ₱1.624 Billion, exclusive of interest, for
the taking of a property with a declared assessed value of ₱2,388,900.00. This is not to mention the
award of attorney’s fees in an amount equivalent to 15% of the amount due the private respondent.
In doing so, the respondent judge brazenly went around the explicit command of Rule 9, Section 3(d) of
the Rules of Court30 which defines the extent of the relief that may be awarded in a judgment by
default, i.e., only so much as has been alleged and proved. The court acts in excess of jurisdiction if it
awards an amount beyond the claim made in the complaint or beyond that proved by the
evidence.31 While a defaulted defendant may be said to be at the mercy of the trial court, the Rules of
Court and certainly the imperatives of fair play see to it that any decision against him must be in
accordance with law.32 In the abstract, this means that the judgment must not be characterized by
outrageous one-sidedness, but by what is fair, just and equitable that always underlie the enactment of
a law.
Given the above perspective, the obvious question that comes to mind is the level of compensation
which – for the use and occupancy of the Arlegui property - would be fair to both the petitioner and the
private respondent and, at the same time, be within acceptable legal bounds. The process of balancing
the interests of both parties is not an easy one. But surely, the Arlegui property cannot possibly be
assigned, even perhaps at the present real estate business standards, a monthly rental value of at least
₱500,000.00 or ₱6,000,000.00 a year, the amount private respondent particularly sought and attempted
to prove. This asking figure is clearly unconscionable, if not downright ridiculous, attendant
circumstances considered. To the Court, an award of ₱20,000.00 a month for the use and occupancy of
the Arlegui property, while perhaps a little bit arbitrary, is reasonable and may be granted pro hac
viceconsidering the following hard realities which the Court takes stock of:
1. The property is relatively small in terms of actual area and had an assessed value of only
P2,388,900.00;
2. What the martial law regime took over was not exactly an area with a new and imposing
structure, if there was any; and
3. The Arlegui property had minimal rental value during the relatively long martial law years,
given the very restrictive entry and egress conditions prevailing at the vicinity at that time and
even after.
To be sure, the grant of monetary award is not without parallel. In Alfonso v. Pasay City,33 a case where
a registered owner also lost possession of a piece of lot to a municipality which took it for a public
purposes without instituting expropriation proceedings or paying any compensation for the lot, the
Court, citing Herrera v. Auditor General,34ordered payment of just compensation but in the form of
interest when a return of the property was no longer feasible.
The award of attorney’s fees equivalent to 15% of the amount due the private respondent, as reduced
herein, is affirmed.
The assessment of costs of suit against the petitioner is, however, nullified, costs not being allowed
against the Republic, unless otherwise provided by law.35
The assailed trial court’s issuance of the writ of execution36 against government funds to satisfy its
money judgment is also nullified. It is basic that government funds and properties may not be seized
under writs of execution or garnishment to satisfy such judgments. 37 Republic v. Palacio38 teaches that
a judgment against the State generally operates merely to liquidate and establish the plaintiff’s claim in
the absence of express provision; otherwise, they can not be enforced by processes of law.
Albeit title to the Arlegui property remains in the name of the petitioner Republic, it is actually
the Office of the President which has beneficial possession of and use over it since the 1975
takeover. Accordingly, and in accord with the elementary sense of justice, it behooves that office to
make the appropriate budgetary arrangements towards paying private respondent what is due her
under the premises. This, to us, is the right thing to do. The imperatives of fair dealing demand no less.
And the Court would be remiss in the discharge of its duties as dispenser of justice if it does not exhort
the Office of the President to comply with what, in law and equity, is its obligation. If the same office will
undertake to pay its obligation with reasonable dispatch or in a manner acceptable to the private
respondent, then simple justice, while perhaps delayed, will have its day. Private respondent is in the
twilight of her life, being now over 90 years of age.39 Any delay in the implementation of this disposition
would be a bitter cut.1âwphi1
WHEREFORE, the decision of the Regional Trial Court of Manila dated August 27, 2003 insofar as it
nullified TCT No. 118911 of petitioner Republic of the Philippines and ordered the Register of Deeds of
Manila to reinstate private respondent Tarcila L. Mendoza’s TCT No. 118527, or to issue her a new
certificate of title is AFFIRMED. Should it be necessary, the Register of Deeds of Manila shall execute
the necessary conveying deed to effect the reinstatement of title or the issuance of a new title to her.
It is MODIFIED in the sense that for the use and occupancy of the Arlegui property, petitioner Republic
is ordered to pay private respondent the reasonable amount of ₱20,000.00 a month beginning July
1975 until it vacates the same and the possession thereof restored to the private respondent, plus an
additional interest of 6% per annum on the total amount due upon the finality of this Decision until the
same is fully paid. Petitioner is further ordered to pay private respondent attorney's fees equivalent to
15% of the amount due her under the premises.
Accordingly, a writ of certiorari is hereby ISSUED in the sense that:
1. The respondent court’s assailed decision of August 27, 2003 insofar as it ordered the
petitioner Republic of the Philippines to pay private respondent Tarcila L. Mendoza the sum
of One Billion Four Hundred Eighty Million Six Hundred Twenty Seven Thousand Six
Hundred Eighty Eight Pesos (₱1,480,627,688.00) representing the purported rental use of
the property in question, the interest thereon and the opportunity cost at the rate of 3% per
annum plus the interest at the legal rate added thereon is nullified. The portion assessing
the petitioner Republic for costs of suit is also declared null and void.
2. The Order of the respondent court dated December 19, 2003 for the issuance of a writ of
execution and the Writ of Execution dated December 22, 2003 against government funds are
53
 hereby declared null and void. Accordingly, the presiding judge of the respondent court, the
private respondent, their agents and persons acting for and in their behalves are permanently
enjoined from enforcing said writ of execution.
However, consistent with the basic tenets of justice, fairness and equity, petitioner Republic, thru
the Office of the President, is hereby strongly enjoined to take the necessary steps, and, with
reasonable dispatch, make the appropriate budgetary arrangements to pay private respondent Tarcila
L. Mendoza or her assigns the amount adjudged due her under this disposition.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 206510               September 16, 2014
MOST REV. PEDRO D. ARIGO, Vicar Apostolic of Puerto Princesa D.D.; MOST REV.
DEOGRACIAS S. INIGUEZ, JR., Bishop-Emeritus of Caloocan, FRANCES Q. QUIMPO,
CLEMENTE G. BAUTISTA, JR., Kalikasan-PNE, MARIA CAROLINA P. ARAULLO, RENATO M.
REYES, JR., Bagong Alyansang Makabayan, HON. NERI JAVIER COLMENARES, Bayan Muna
Partylist, ROLAND G. SIMBULAN, PH.D., Junk VF A Movement, TERESITA R. PEREZ, PH.D.,
HON. RAYMOND V. PALATINO, Kabataan Party-list, PETER SJ. GONZALES, Pamalakaya,
GIOVANNI A. TAPANG, PH. D., Agham, ELMER C. LABOG, Kilusang Mayo Uno, JOAN MAY E.
SALVADOR, Gabriela, JOSE ENRIQUE A. AFRICA, THERESA A. CONCEPCION, MARY JOAN A.
GUAN, NESTOR T. BAGUINON, PH.D., A. EDSEL F. TUPAZ, Petitioners, 
vs.
SCOTT H. SWIFT in his capacity as Commander of the US. 7th Fleet, MARK A. RICE in his
capacity as Commanding Officer of the USS Guardian, PRESIDENT BENIGNO S. AQUINO III in
his capacity as Commander-in-Chief of the Armed Forces of the Philippines, HON. ALBERT F.
DEL ROSARIO, Secretary, pepartment of Foreign Affair.s, HON. PAQUITO OCHOA, JR.,
Executiv~.:Secretary, Office of the President, . HON. VOLTAIRE T. GAZMIN, Secretary,
Department of National Defense, HON. RAMON JESUS P. P AJE, Secretary, Department of
Environment and Natural Resoz!rces, VICE ADMIRAL JOSE LUIS M. ALANO, Philippine Navy
Flag Officer in Command, Armed Forces of the Philippines, ADMIRAL RODOLFO D. ISO RENA,
Commandant, Philippine Coast Guard, COMMODORE ENRICO EFREN EVANGELISTA,
Philippine Coast Guard Palawan, MAJOR GEN. VIRGILIO 0. DOMINGO, Commandant of Armed
Forces of the Philippines Command and LT. GEN. TERRY G. ROBLING, US Marine Corps
Forces. Pacific and Balikatan 2013 Exercise Co-Director, Respondents.
DECISION
VILLARAMA, JR, J.:
Before us is a petition for the issuance of a Writ of Kalikasan with prayer for the issuance of a
Temporary Environmental Protection Order (TEPO) under Rule 7 of A.M. No. 09-6-8-SC, otherwise
known as the Rules of Procedure for Environmental Cases (Rules), involving violations of
environmental laws and regulations in relation to the grounding of the US military ship USS Guardian
over the Tubbataha Reefs.
Factual Background
The name "Tubbataha" came from the Samal (seafaring people of southern Philippines) language
which means "long reef exposed at low tide." Tubbataha is composed of two huge coral atolls - the
north atoll and the south atoll - and the Jessie Beazley Reef, a smaller coral structure about 20
kilometers north of the atolls. The reefs of Tubbataha and Jessie Beazley are considered part of
Cagayancillo, a remote island municipality of Palawan. 1
In 1988, Tubbataha was declared a National Marine Park by virtue of Proclamation No. 306 issued by
President Corazon C. Aquino on August 11, 1988. Located in the middle of Central Sulu Sea, 150
kilometers southeast of Puerto Princesa City, Tubbataha lies at the heart of the Coral Triangle, the
global center of marine biodiversity.
In 1993, Tubbataha was inscribed by the United Nations Educational Scientific and Cultural
Organization (UNESCO) as a World Heritage Site. It was recognized as one of the Philippines' oldest
ecosystems, containing excellent examples of pristine reefs and a high diversity of marine life. The
97,030-hectare protected marine park is also an important habitat for internationally threatened and
endangered marine species. UNESCO cited Tubbataha's outstanding universal value as an important
and significant natural habitat for in situ conservation of biological diversity; an example representing
significant on-going ecological and biological processes; and an area of exceptional natural beauty and
aesthetic importance.2
On April 6, 2010, Congress passed Republic Act (R.A.) No. 10067,3 otherwise known as the
"Tubbataha Reefs Natural Park (TRNP) Act of 2009" "to ensure the protection and conservation of the
globally significant economic, biological, sociocultural, educational and scientific values of the
Tubbataha Reefs into perpetuity for the enjoyment of present and future generations." Under the "no-
take" policy, entry into the waters of TRNP is strictly regulated and many human activities are prohibited
and penalized or fined, including fishing, gathering, destroying and disturbing the resources within the
TRNP. The law likewise created the Tubbataha Protected Area Management Board (TPAMB) which
shall be the sole policy-making and permit-granting body of the TRNP.
The USS Guardian is an Avenger-class mine countermeasures ship of the US Navy. In December
2012, the US Embassy in the Philippines requested diplomatic clearance for the said vessel "to enter
and exit the territorial waters of the Philippines and to arrive at the port of Subic Bay for the purpose of
routine ship replenishment, maintenance, and crew liberty."4 On January 6, 2013, the ship left Sasebo,
Japan for Subic Bay, arriving on January 13, 2013 after a brief stop for fuel in Okinawa, Japan.1âwphi1
On January 15, 2013, the USS Guardian departed Subic Bay for its next port of call in Makassar,
Indonesia. On January 17, 2013 at 2:20 a.m. while transiting the Sulu Sea, the ship ran aground on the
northwest side of South Shoal of the Tubbataha Reefs, about 80 miles east-southeast of Palawan. No
cine was injured in the incident, and there have been no reports of leaking fuel or oil.
On January 20, 2013, U.S. 7th Fleet Commander, Vice Admiral Scott Swift, expressed regret for the
incident in a press statement.5 Likewise, US Ambassador to the Philippines Harry K. Thomas, Jr., in a
meeting at the Department of Foreign Affairs (DFA) on February 4, "reiterated his regrets over the
grounding incident and assured Foreign Affairs Secretazy Albert F. del Rosario that the United States
54
will provide appropriate compensation for damage to the reef caused by the ship."6 By March 30, 2013,
the US Navy-led salvage team had finished removing the last piece of the grounded ship from the coral
reef.
On April 1 7, 2013, the above-named petitioners on their behalf and in representation of their respective
sector/organization and others, including minors or generations yet unborn, filed the present petition
agairtst Scott H. Swift in his capacity as Commander of the US 7th Fleet, Mark A. Rice in his capacity
as Commanding Officer of the USS Guardian and Lt. Gen. Terry G. Robling, US Marine Corps Forces,
Pacific and Balikatan 2013 Exercises Co-Director ("US respondents"); President Benigno S. Aquino III
in his capacity as Commander-in-Chief of the Armed Forces of the Philippines (AFP), DF A Secretary
Albert F. Del Rosario, Executive Secretary Paquito Ochoa, Jr., Secretary Voltaire T. Gazmin
(Department of National Defense), Secretary Jesus P. Paje (Department of Environment and Natural
Resources), Vice-Admiral Jose Luis M. Alano (Philippine Navy Flag Officer in Command, AFP), Admiral
Rodolfo D. Isorena (Philippine Coast Guard Commandant), Commodore Enrico Efren Evangelista
(Philippine Coast Guard-Palawan), and Major General Virgilio 0. Domingo (AFP Commandant),
collectively the "Philippine respondents."
The Petition
Petitioners claim that the grounding, salvaging and post-salvaging operations of the USS Guardian
cause and continue to cause environmental damage of such magnitude as to affect the provinces of
Palawan, Antique, Aklan, Guimaras, Iloilo, Negros Occidental, Negros Oriental, Zamboanga del Norte,
Basilan, Sulu, and Tawi-Tawi, which events violate their constitutional rights to a balanced and healthful
ecology. They also seek a directive from this Court for the institution of civil, administrative and criminal
suits for acts committed in violation of environmental laws and regulations in connection with the
grounding incident.
Specifically, petitioners cite the following violations committed by US respondents under R.A. No.
10067: unauthorized entry (Section 19); non-payment of conservation fees (Section 21 ); obstruction of
law enforcement officer (Section 30); damages to the reef (Section 20); and destroying and disturbing
resources (Section 26[g]). Furthermore, petitioners assail certain provisions of the Visiting Forces
Agreement (VFA) which they want this Court to nullify for being unconstitutional.
The numerous reliefs sought in this case are set forth in the final prayer of the petition, to wit:
WHEREFORE, in view of the foregoing, Petitioners respectfully pray that the Honorable Court: 1.
Immediately issue upon the filing of this petition a Temporary Environmental Protection Order (TEPO)
and/or a Writ of Kalikasan, which shall, in particular,
a. Order Respondents and any person acting on their behalf, to cease and desist all
operations over the Guardian grounding incident;
b. Initially demarcating the metes and bounds of the damaged area as well as an additional
buffer zone;
c. Order Respondents to stop all port calls and war games under 'Balikatan' because of the
absence of clear guidelines, duties, and liability schemes for breaches of those duties, and
require Respondents to assume responsibility for prior and future environmental damage in
general, and environmental damage under the Visiting Forces Agreement in particular.
d. Temporarily define and describe allowable activities of ecotourism, diving, recreation, and
limited commercial activities by fisherfolk and indigenous communities near or around the
TRNP but away from the damaged site and an additional buffer zone;
2. After summary hearing, issue a Resolution extending the TEPO until further orders of the
Court;
3. After due proceedings, render a Decision which shall include, without limitation:
a. Order Respondents Secretary of Foreign Affairs, following the dispositive portion of Nicolas
v. Romulo, "to forthwith negotiate with the United States representatives for the appropriate
agreement on [environmental guidelines and environmental accountability] under Philippine
authorities as provided in Art. V[] of the VFA ... "
b. Direct Respondents and appropriate agencies to commence administrative, civil, and
criminal proceedings against erring officers and individuals to the full extent of the law, and to
make such proceedings public;
c. Declare that Philippine authorities may exercise primary and exclusive criminal jurisdiction
over erring U.S. personnel under the circumstances of this case;
d. Require Respondents to pay just and reasonable compensation in the settlement of all
meritorious claims for damages caused to the Tubbataha Reef on terms and conditions no
less severe than those applicable to other States, and damages for personal injury or death,
if such had been the case;
e. Direct Respondents to cooperate in providing for the attendance of witnesses and in the
collection and production of evidence, including seizure and delivery of objects connected
with the offenses related to the grounding of the Guardian;
f. Require the authorities of the Philippines and the United States to notify each other of the
disposition of all cases, wherever heard, related to the grounding of the Guardian;
g. Restrain Respondents from proceeding with any purported restoration, repair, salvage or
post salvage plan or plans, including cleanup plans covering the damaged area of the
Tubbataha Reef absent a just settlement approved by the Honorable Court;
h. Require Respondents to engage in stakeholder and LOU consultations in accordance with
the Local Government Code and R.A. 10067;
i. Require Respondent US officials and their representatives to place a deposit to the TRNP
Trust Fund defined under Section 17 of RA 10067 as a bona .fide gesture towards full
reparations;
j. Direct Respondents to undertake measures to rehabilitate the areas affected by the
grounding of the Guardian in light of Respondents' experience in the Port Royale grounding
in 2009, among other similar grounding incidents;
55
 k. Require Respondents to regularly publish on a quarterly basis and in the name of
transparency and accountability such environmental damage assessment, valuation, and
valuation methods, in all stages of negotiation;
l. Convene a multisectoral technical working group to provide scientific and technical support
to the TPAMB;
m. Order the Department of Foreign Affairs, Department of National Defense, and the
Department of Environment and Natural Resources to review the Visiting Forces Agreement
and the Mutual Defense Treaty to consider whether their provisions allow for the exercise of
erga omnes rights to a balanced and healthful ecology and for damages which follow from
any violation of those rights;
n. Narrowly tailor the provisions of the Visiting Forces Agreement for purposes of protecting
the damaged areas of TRNP;
o. Declare the grant of immunity found in Article V ("Criminal Jurisdiction") and Article VI of
the Visiting Forces Agreement unconstitutional for violating equal protection and/or for
violating the preemptory norm of nondiscrimination incorporated as part of the law of the land
under Section 2, Article II, of the Philippine Constitution;
p. Allow for continuing discovery measures;
q. Supervise marine wildlife rehabilitation in the Tubbataha Reefs in all other respects; and
4. Provide just and equitable environmental rehabilitation measures and such other reliefs as
are just and equitable under the premises.7 (Underscoring supplied.)
Since only the Philippine respondents filed their comment8 to the petition, petitioners also filed a motion
for early resolution and motion to proceed ex parte against the US respondents. 9
Respondents' Consolidated Comment
In their consolidated comment with opposition to the application for a TEPO and ocular inspection and
production orders, respondents assert that: ( 1) the grounds relied upon for the issuance of a TEPO or
writ of Kalikasan have become fait accompli as the salvage operations on the USS Guardian were
already completed; (2) the petition is defective in form and substance; (3) the petition improperly raises
issues involving the VFA between the Republic of the Philippines and the United States of America; and
( 4) the determination of the extent of responsibility of the US Government as regards the damage to
the Tubbataha Reefs rests exdusively with the executive branch.
The Court's Ruling
As a preliminary matter, there is no dispute on the legal standing of petitioners to file the present
petition.
Locus standi is "a right of appearance in a court of justice on a given question."10 Specifically, it is "a
party's personal and substantial interest in a case where he has sustained or will sustain direct injury as
a result" of the act being challenged, and "calls for more than just a generalized grievance." 11 However,
the rule on standing is a procedural matter which this Court has relaxed for non-traditional plaintiffs like
ordinary citizens, taxpayers and legislators when the public interest so requires, such as when the
subject matter of the controversy is of transcendental importance, of overreaching significance to
society, or of paramount public interest.12
In the landmark case of Oposa v. Factoran, Jr.,13 we recognized the "public right" of citizens to "a
balanced and healthful ecology which, for the first time in our constitutional history, is solemnly
incorporated in the fundamental law." We declared that the right to a balanced and healthful ecology
need not be written in the Constitution for it is assumed, like other civil and polittcal rights guaranteed in
the Bill of Rights, to exist from the inception of mankind and it is an issue of transcendental importance
with intergenerational implications.1âwphi1 Such right carries with it the correlative duty to refrain from
impairing the environment. 14
On the novel element in the class suit filed by the petitioners minors in Oposa, this Court ruled that not
only do ordinary citizens have legal standing to sue for the enforcement of environmental rights, they
can do so in representation of their own and future generations. Thus:
Petitioners minors assert that they represent their generation as well as generations yet unborn. We
find no difficulty in ruling that they can, for themselves, for others of their generation and for the
succeeding generations, file a class suit. Their personality to sue in behalf of the succeeding
generations can only be based on the concept of intergenerational responsibility insofar as the right to a
balanced and healthful ecology is concerned. Such a right, as hereinafter expounded, considers the
"rhythm and harmony of nature." Nature means the created world in its entirety. Such rhythm and
harmony indispensably include, inter alia, the judicious disposition, utilization, management, renewal
and conservation of the country's forest, mineral, land, waters, fisheries, wildlife, off-shore areas and
other natural resources to the end that their exploration, development and utilization be equitably
accessible to the present a:: well as future generations. Needless to say, every generation has a
responsibility to the next to preserve that rhythm and harmony for the full 1:njoyment of a balanced and
healthful ecology. Put a little differently, the minors' assertion of their right to a sound environment
constitutes, at the same time, the performance of their obligation to ensure the protection of that right
for the generations to come.15 (Emphasis supplied.)
The liberalization of standing first enunciated in Oposa, insofar as it refers to minors and generations
yet unborn, is now enshrined in the Rules which allows the filing of a citizen suit in environmental
cases. The provision on citizen suits in the Rules "collapses the traditional rule on personal and direct
interest, on the principle that humans are stewards of nature."16
Having settled the issue of locus standi, we shall address the more fundamental question of whether
this Court has jurisdiction over the US respondents who did not submit any pleading or manifestation in
this case.
The immunity of the State from suit, known also as the doctrine of sovereign immunity or non-suability
of the State,17is expressly provided in Article XVI of the 1987 Constitution which states:
Section 3. The State may not be sued without its consent.
56
In United States of America v. Judge Guinto,18 we discussed the principle of state immunity from suit, as -that all states are soverr~ign equals and cannot assert jurisdiction over one another. The implication, in
follows: broad terms, is that if the judgment against an official would rec 1uire the state itself to perform an
affirmative act to satisfy the award, such as the appropriation of the amount needed to pay the
damages decreed against him, the suit must be regarded as being against the state itself, although it
The rule that a state may not be sued without its consent, now · expressed in Article XVI, Section 3, of
has not been formally impleaded. 21 (Emphasis supplied.)
the 1987 Constitution, is one of the generally accepted principles of international law that we have
adopted as part of the law of our land under Article II, Section 2. x x x.
In the same case we also mentioned that in the case of diplomatic immunity, the privilege is not an
immunity from the observance of the law of the territorial sovereign or from ensuing legal liability; it is,
Even without such affirmation, we would still be bound by the generally accepted principles of
rather, an immunity from the exercise of territorial jurisdiction. 22
international law under the doctrine of incorporation. Under this doctrine, as accepted by the majority of
states, such principles are deemed incorporated in the law of every civilized state as a condition and
consequence of its membership in the society of nations. Upon its admission to such society, the state In United States of America v. Judge Guinto, 23 one of the consolidated cases therein involved a Filipino
is automatically obligated to comply with these principles in its relations with other states. employed at Clark Air Base who was arrested following a buy-bust operation conducted by two officers
of the US Air Force, and was eventually dismissed from his employment when he was charged in court
for violation of R.A. No. 6425. In a complaint for damages filed by the said employee against the military
As applied to the local state, the doctrine of state immunity is based on the justification given by Justice
officers, the latter moved to dismiss the case on the ground that the suit was against the US
Holmes that ''there can be no legal right against the authority which makes the law on which the right
Government which had not given its consent. The RTC denied the motion but on a petition for certiorari
depends." [Kawanakoa v. Polybank, 205 U.S. 349] There are other practical reasons for the
and prohibition filed before this Court, we reversed the RTC and dismissed the complaint. We held that
enforcement of the doctrine. In the case of the foreign state sought to be impleaded in the local
petitioners US military officers were acting in the exercise of their official functions when they conducted
jurisdiction, the added inhibition is expressed in the maxim par in parem, non habet imperium. All states
the buy-bust operation against the complainant and thereafter testified against him at his trial. It follows
are sovereign equals and cannot assert jurisdiction over one another. A contrary disposition would, in
that for discharging their duties as agents of the United States, they cannot be directly impleaded for
the language of a celebrated case, "unduly vex the peace of nations." [De Haber v. Queen of Portugal,
acts imputable to their principal, which has not given its consent to be sued.
17 Q. B. 171]

This traditional rule of State immunity which exempts a State from being sued in the courts of another
While the doctrine appears to prohibit only suits against the state without its consent, it is also
State without the former's consent or waiver has evolved into a restrictive doctrine which distinguishes
applicable to complaints filed against officials of the state for acts allegedly performed by them in the
sovereign and governmental acts (Jure imperil") from private, commercial and proprietary acts (Jure
discharge of their duties. The rule is that if the judgment against such officials will require the state itself
gestionis). Under the restrictive rule of State immunity, State immunity extends only to acts Jure imperii.
to perform an affirmative act to satisfy the same,. such as the appropriation of the amount needed to
The restrictive application of State immunity is proper only when the proceedings arise out of
pay the damages awarded against them, the suit must be regarded as against the state itself although it
commercial transactions of the foreign sovereign, its commercial activities or economic affairs. 24
has not been formally impleaded. [Garcia v. Chief of Staff, 16 SCRA 120] In such a situation, the state
may move to dismiss the comp.taint on the ground that it has been filed without its
consent.19 (Emphasis supplied.) In Shauf v. Court of Appeals,25 we discussed the limitations of the State immunity principle, thus:

Under the American Constitution, the doctrine is expressed in the Eleventh Amendment which reads:
The Judicial power of the United States shall not be construed to extend to any suit in law or equity,
commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens
or Subjects of any Foreign State.
In the case of Minucher v. Court of Appeals,20 we further expounded on the immunity of foreign states
from the jurisdiction of local courts, as follows:
The precept that a State cannot be sued in the courts of a foreign state is a long-standing rule of
customary international law then closely identified with the personal immunity of a foreign sovereign
from suit and, with the emergence of democratic states, made to attach not just to the person of the
head of state, or his representative, but also distinctly to the state itself in its sovereign capacity. If the
acts giving rise to a suit arc those of a foreign government done by its foreign agent, although not
necessarily a diplomatic personage, but acting in his official capacity, the complaint could be barred by
the immunity of the foreign sovereign from suit without its consent. Suing a representative of a state is
believed to be, in effect, suing the state itself. The proscription is not accorded for the benefit of an
individual but for the State, in whose service he is, under the maxim -par in parem, non habet imperium
It is a different matter where the public official is made to account in his capacity as such for acts
contrary to law and injurious to the rights of plaintiff. As was clearly set forth by JustiGe Zaldivar in
Director of the Bureau of Telecommunications, et al. vs. Aligaen, etc., et al. : "Inasmuch as the State
authorizes only legal acts by its officers, unauthorized acts of government officials or officers are not
acts of the State, and an action against the officials or officers by one whose rights have been invaded
or violated by such acts, for the protection of his rights, is not a suit against the State within the rule of
immunity of the State from suit. In the same tenor, it has been said that an action at law or suit in equity
against a State officer or the director of a State department on the ground that, while claiming to act for
the State, he violates or invades the personal and property rights of the plaintiff, under an
unconstitutional act or under an assumption of authority which he does not have, is not a suit against
the State within the constitutional provision that the State may not be sued without its consent." The
rationale for this ruling is that the doctrine of state immunity cannot be used as an instrument for
perpetrating an injustice.
xxxx
The aforecited authorities are clear on the matter. They state that the doctrine of immunity from suit will
not apply and may not be invoked where the public official is being sued in his private and personal
capacity as an ordinary citizen. The cloak of protection afforded the officers and agents of the
57
government is removed the moment they are sued in their individual capacity. This situation usually
arises where the public official acts without authority or in excess of the powers vested in him. It is a
well-settled principle of law that a public official may be liable in his personal private capacity for
whatever damage he may have caused by his act done with malice and in bad faith, or beyond the
scope of his authority or jurisdiction.26 (Emphasis supplied.) In this case, the US respondents were sued
in their official capacity as commanding officers of the US Navy who had control and supervision over
the USS Guardian and its crew. The alleged act or omission resulting in the unfortunate grounding of
the USS Guardian on the TRNP was committed while they we:re performing official military duties.
Considering that the satisfaction of a judgment against said officials will require remedial actions and
appropriation of funds by the US government, the suit is deemed to be one against the US itself. The
principle of State immunity therefore bars the exercise of jurisdiction by this Court over the persons of
respondents Swift, Rice and Robling.
During the deliberations, Senior Associate Justice Antonio T. Carpio took the position that the conduct
of the US in this case, when its warship entered a restricted area in violation of R.A. No. 10067 and
caused damage to the TRNP reef system, brings the matter within the ambit of Article 31 of the United
Nations Convention on the Law of the Sea (UNCLOS). He explained that while historically, warships
enjoy sovereign immunity from suit as extensions of their flag State, Art. 31 of the UNCLOS creates an
exception to this rule in cases where they fail to comply with the rules and regulations of the coastal
State regarding passage through the latter's internal waters and the territorial sea.
According to Justice Carpio, although the US to date has not ratified the UNCLOS, as a matter of long-
standing policy the US considers itself bound by customary international rules on the "traditional uses of
the oceans" as codified in UNCLOS, as can be gleaned from previous declarations by former
Presidents Reagan and Clinton, and the US judiciary in the case of United States v. Royal Caribbean
Cruise Lines, Ltd.27
The international law of the sea is generally defined as "a body of treaty rules arid customary norms
governing the uses of the sea, the exploitation of its resources, and the exercise of jurisdiction over
maritime regimes. It is a branch of public international law, regulating the relations of states with respect
to the uses of the oceans."28 The UNCLOS is a multilateral treaty which was opened for signature on
December 10, 1982 at Montego Bay, Jamaica. It was ratified by the Philippines in 1984 but came into
force on November 16, 1994 upon the submission of the 60th ratification.
The UNCLOS is a product of international negotiation that seeks to balance State sovereignty (mare
clausum) and the principle of freedom of the high seas (mare liberum). 29 The freedom to use the world's
marine waters is one of the oldest customary principles of international law.30 The UNCLOS gives to the
coastal State sovereign rights in varying degrees over the different zones of the sea which are: 1)
internal waters, 2) territorial sea, 3) contiguous zone, 4) exclusive economic zone, and 5) the high seas.
It also gives coastal States more or less jurisdiction over foreign vessels depending on where the
vessel is located.31
Insofar as the internal waters and territorial sea is concerned, the Coastal State exercises sovereignty,
subject to the UNCLOS and other rules of international law. Such sovereignty extends to the air space
over the territorial sea as well as to its bed and subsoil.32
In the case of warships,33 as pointed out by Justice Carpio, they continue to enjoy sovereign immunity
subject to the following exceptions:
Article 30
Non-compliance by warships with the laws and regulations of the coastal State
If any warship does not comply with the laws and regulations of the coastal State concerning passage
through the territorial sea and disregards any request for compliance therewith which is made to it, the
coastal State may require it to leave the territorial sea immediately.
Article 31
Responsibility of the flag State for damage caused by a warship
or other government ship operated for non-commercial purposes
The flag State shall bear international responsibility for any loss or damage to the coastal State
resulting from the non-compliance by a warship or other government ship operated for non-commercial
purposes with the laws and regulations of the coastal State concerning passage through the territorial
sea or with the provisions of this Convention or other rules of international law.
Article 32
Immunities of warships and other government ships operated for non-commercial purposes
With such exceptions as are contained in subsection A and in articles 30 and 31, nothing in this
Convention affects the immunities of warships and other government ships operated for non-
commercial purposes. (Emphasis supplied.) A foreign warship's unauthorized entry into our internal
waters with resulting damage to marine resources is one situation in which the above provisions may
apply. But what if the offending warship is a non-party to the UNCLOS, as in this case, the US?
An overwhelming majority - over 80% -- of nation states are now members of UNCLOS, but despite this
the US, the world's leading maritime power, has not ratified it.
While the Reagan administration was instrumental in UNCLOS' negotiation and drafting, the U.S.
delegation ultimately voted against and refrained from signing it due to concerns over deep seabed
mining technology transfer provisions contained in Part XI. In a remarkable, multilateral effort to induce
U.S. membership, the bulk of UNCLOS member states cooperated over the succeeding decade to
revise the objection.able provisions. The revisions satisfied the Clinton administration, which signed the
revised Part XI implementing agreement in 1994. In the fall of 1994, President Clinton transmitted
UNCLOS and the Part XI implementing agreement to the Senate requesting its advice and consent.
Despite consistent support from President Clinton, each of his successors, and an ideologically diverse
array of stakeholders, the Senate has since withheld the consent required for the President to
internationally bind the United States to UNCLOS.
While UNCLOS cleared the Senate Foreign Relations Committee (SFRC) during the 108th and 110th
Congresses, its progress continues to be hamstrung by significant pockets of political ambivalence over
U.S. participation in international institutions. Most recently, 111 th Congress SFRC Chairman Senator
John Kerry included "voting out" UNCLOS for full Senate consideration among his highest priorities.
This did not occur, and no Senate action has been taken on UNCLOS by the 112th Congress. 34
Justice Carpio invited our attention to the policy statement given by President Reagan on March 10,
1983 that the US will "recognize the rights of the other , states in the waters off their coasts, as reflected
58
in the convention [UNCLOS], so long as the rights and freedom of the United States and others under
international law are recognized by such coastal states", and President Clinton's reiteration of the US
policy "to act in a manner consistent with its [UNCLOS] provisions relating to traditional uses of the
oceans and to encourage other countries to do likewise." Since Article 31 relates to the "traditional uses
of the oceans," and "if under its policy, the US 'recognize[s] the rights of the other states in the waters
off their coasts,"' Justice Carpio postulates that "there is more reason to expect it to recognize the rights
of other states in their internal waters, such as the Sulu Sea in this case."
As to the non-ratification by the US, Justice Carpio emphasizes that "the US' refusal to join the UN
CLOS was centered on its disagreement with UN CLOS' regime of deep seabed mining (Part XI) which
considers the oceans and deep seabed commonly owned by mankind," pointing out that such "has
nothing to do with its [the US'] acceptance of customary international rules on navigation."
It may be mentioned that even the US Navy Judge Advocate General's Corps publicly endorses the
ratification of the UNCLOS, as shown by the following statement posted on its official website:
The Convention is in the national interest of the United States because it establishes stable maritime
zones, including a maximum outer limit for territorial seas; codifies innocent passage, transit passage,
and archipelagic sea lanes passage rights; works against "jurisdictiomtl creep" by preventing coastal
nations from expanding their own maritime zones; and reaffirms sovereign immunity of warships,
auxiliaries anJ government aircraft.
xxxx
Economically, accession to the Convention would support our national interests by enhancing the ability
of the US to assert its sovereign rights over the resources of one of the largest continental shelves in
the world. Further, it is the Law of the Sea Convention that first established the concept of a maritime
Exclusive Economic Zone out to 200 nautical miles, and recognized the rights of coastal states to
conserve and manage the natural resources in this Zone.35
We fully concur with Justice Carpio's view that non-membership in the UNCLOS does not mean that the
US will disregard the rights of the Philippines as a Coastal State over its internal waters and territorial
sea. We thus expect the US to bear "international responsibility" under Art. 31 in connection with the
USS Guardian grounding which adversely affected the Tubbataha reefs. Indeed, it is difficult to imagine
that our long-time ally and trading partner, which has been actively supporting the country's efforts to
preserve our vital marine resources, would shirk from its obligation to compensate the damage caused
by its warship while transiting our internal waters. Much less can we comprehend a Government
exercising leadership in international affairs, unwilling to comply with the UNCLOS directive for all
nations to cooperate in the global task to protect and preserve the marine environment as provided in
Article 197, viz:
Article 197
Cooperation on a global or regional basis
States shall cooperate on a global basis and, as appropriate, on a regional basis, directly or through
competent international organizations, in formulating and elaborating international rules, standards and
recommended practices and procedures consistent with this Convention, for the protection and
preservation of the marine environment, taking into account characteristic regional features.
In fine, the relevance of UNCLOS provisions to the present controversy is beyond dispute. Although the
said treaty upholds the immunity of warships from the jurisdiction of Coastal States while navigating
the.latter's territorial sea, the flag States shall be required to leave the territorial '::;ea immediately if they
flout the laws and regulations of the Coastal State, and they will be liable for damages caused by their
warships or any other government vessel operated for non-commercial purposes under Article 31.
Petitioners argue that there is a waiver of immunity from suit found in the VFA. Likewise, they invoke
federal statutes in the US under which agencies of the US have statutorily waived their immunity to any
action. Even under the common law tort claims, petitioners asseverate that the US respondents are
liable for negligence, trespass and nuisance.
We are not persuaded.
The VFA is an agreement which defines the treatment of United States troops and personnel visiting
the Philippines to promote "common security interests" between the US and the Philippines in the
region. It provides for the guidelines to govern such visits of military personnel, and further defines the
rights of the United States and the Philippine government in the matter of criminal jurisdiction,
movement of vessel and aircraft, importation and exportation of equipment, materials and
supplies.36 The invocation of US federal tort laws and even common law is thus improper considering
that it is the VF A which governs disputes involving US military ships and crew navigating Philippine
waters in pursuance of the objectives of the agreement.
As it is, the waiver of State immunity under the VF A pertains only to criminal jurisdiction and not to
special civil actions such as the present petition for issuance of a writ of Kalikasan. In fact, it can be
inferred from Section 17, Rule 7 of the Rules that a criminal case against a person charged with a
violation of an environmental law is to be filed separately:
SEC. 17. Institution of separate actions.-The filing of a petition for the issuance of the writ of kalikasan
shall not preclude the filing of separate civil, criminal or administrative actions.
In any case, it is our considered view that a ruling on the application or non-application of criminal
jurisdiction provisions of the VF A to US personnel who may be found responsible for the grounding of
the USS Guardian, would be premature and beyond the province of a petition for a writ of Kalikasan.
We also find it unnecessary at this point to determine whether such waiver of State immunity is indeed
absolute. In the same vein, we cannot grant damages which have resulted from the violation of
environmental laws. The Rules allows the recovery of damages, including the collection of
administrative fines under R.A. No. 10067, in a separate civil suit or that deemed instituted with the
criminal action charging the same violation of an environmental law.37
Section 15, Rule 7 enumerates the reliefs which may be granted in a petition for issuance of a writ of
Kalikasan, to wit:
SEC. 15. Judgment.-Within sixty (60) days from the time the petition is submitted for decision, the court
shall render judgment granting or denying the privilege of the writ of kalikasan.
The reliefs that may be granted under the writ are the following:
59
 (a) Directing respondent to permanently cease and desist from committing acts or neglecting
the performance of a duty in violation of environmental laws resulting in environmental
destruction or damage;
(b) Directing the respondent public official, govemment agency, private person or entity to
protect, preserve, rehabilitate or restore the environment;
(c) Directing the respondent public official, government agency, private person or entity to
monitor strict compliance with the decision and orders of the court;
(d) Directing the respondent public official, government agency, or private person or entity to
make periodic reports on the execution of the final judgment; and
(e) Such other reliefs which relate to the right of the people to a balanced and healthful
ecology or to the protection, preservation, rehabilitation or restoration of the environment,
except the award of damages to individual petitioners. (Emphasis supplied.)
We agree with respondents (Philippine officials) in asserting that this petition has become moot in the
sense that the salvage operation sought to be enjoined or restrained had already been accomplished
when petitioners sought recourse from this Court. But insofar as the directives to Philippine
respondents to protect and rehabilitate the coral reef stn icture and marine habitat adversely affected by
the grounding incident are concerned, petitioners are entitled to these reliefs notwithstanding the
completion of the removal of the USS Guardian from the coral reef. However, we are mindful of the fact
that the US and Philippine governments both expressed readiness to negotiate and discuss the matter
of compensation for the damage caused by the USS Guardian. The US Embassy has also declared it is
closely coordinating with local scientists and experts in assessing the extent of the damage and
appropriate methods of rehabilitation.
Exploring avenues for settlement of environmental cases is not proscribed by the Rules. As can be
gleaned from the following provisions, mediation and settlement are available for the consideration of
the parties, and which dispute resolution methods are encouraged by the court, to wit:
RULE3
xxxx
SEC. 3. Referral to mediation.-At the start of the pre-trial conference, the court shall inquire from the
parties if they have settled the dispute; otherwise, the court shall immediately refer the parties or their
counsel, if authorized by their clients, to the Philippine Mediation Center (PMC) unit for purposes of
mediation. If not available, the court shall refer the case to the clerk of court or legal researcher for
mediation.
Mediation must be conducted within a non-extendible period of thirty (30) days from receipt of notice of
referral to mediation.
The mediation report must be submitted within ten (10) days from the expiration of the 30-day period.
SEC. 4. Preliminary conference.-If mediation fails, the court will schedule the continuance of the pre-
trial. Before the scheduled date of continuance, the court may refer the case to the branch clerk of court
for a preliminary conference for the following purposes:
(a) To assist the parties in reaching a settlement;
xxxx
SEC. 5. Pre-trial conference; consent decree.-The judge shall put the parties and their counsels under
oath, and they shall remain under oath in all pre-trial conferences.
The judge shall exert best efforts to persuade the parties to arrive at a settlement of the dispute. The
judge may issue a consent decree approving the agreement between the parties in accordance with
law, morals, public order and public policy to protect the right of the people to a balanced and healthful
ecology.
xxxx
SEC. 10. Efforts to settle.- The court shall endeavor to make the parties to agree to compromise or
settle in accordance with law at any stage of the proceedings before rendition of judgment.
(Underscoring supplied.)
The Court takes judicial notice of a similar incident in 2009 when a guided-missile cruiser, the USS Port
Royal, ran aground about half a mile off the Honolulu Airport Reef Runway and remained stuck for four
days. After spending $6.5 million restoring the coral reef, the US government was reported to have paid
the State of Hawaii $8.5 million in settlement over coral reef damage caused by the grounding. 38
To underscore that the US government is prepared to pay appropriate compensation for the damage
caused by the USS Guardian grounding, the US Embassy in the Philippines has announced the
formation of a US interdisciplinary scientific team which will "initiate discussions with the Government of
the Philippines to review coral reef rehabilitation options in Tubbataha, based on assessments by
Philippine-based marine scientists." The US team intends to "help assess damage and remediation
options, in coordination with the Tubbataha Management Office, appropriate Philippine government
entities, non-governmental organizations, and scientific experts from Philippine universities." 39
A rehabilitation or restoration program to be implemented at the cost of the violator is also a major relief
that may be obtained under a judgment rendered in a citizens' suit under the Rules, viz:
RULES
SECTION 1. Reliefs in a citizen suit.-If warranted, the court may grant to the plaintiff proper reliefs
which shall include the protection, preservation or rehabilitation of the environment and the payment of
attorney's fees, costs of suit and other litigation expenses. It may also require the violator to submit a
program of rehabilitation or restoration of the environment, the costs of which shall be borne by the
violator, or to contribute to a special trust fund for that purpose subject to the control of the
court.1âwphi1
60
In the light of the foregoing, the Court defers to the Executive Branch on the matter of compensation
and rehabilitation measures through diplomatic channels. Resolution of these issues impinges on our
relations with another State in the context of common security interests under the VFA. It is settled that
"[t]he conduct of the foreign relations of our government is committed by the Constitution to the
executive and legislative-"the political" --departments of the government, and the propriety of what may
be done in the exercise of this political power is not subject to judicial inquiry or decision." 40
On the other hand, we cannot grant the additional reliefs prayed for in the petition to order a review of
the VFA and to nullify certain immunity provisions thereof.
As held in BAYAN (Bagong Alyansang Makabayan) v. Exec. Sec. Zamora,41 the VFA was duly
concurred in by the Philippine Senate and has been recognized as a treaty by the United States as
attested and certified by the duly authorized representative of the United States government. The VF A
being a valid and binding agreement, the parties are required as a matter of international law to abide
by its terms and provisions.42 The present petition under the Rules is not the proper remedy to assail
the constitutionality of its provisions. WHEREFORE, the petition for the issuance of the privilege of the
Writ of Kalikasan is hereby DENIED.
No pronouncement as to costs.
SO ORDERED.
THIRD DIVISION
January 17, 2018
G.R. No. 190289
THE CITY OF BACOLOD, HON. MAYOR EVELIO R. LEONARDIA, ATTY. ALLAN L. ZAMORA and
ARCH. LEMUEL D. REYNALDO, in their personal capacities and in their capacities as Officials of
the City of Bacolod, Petitioners 
vs.
PHUTURE VISIONS CO., INC., Respondent
DECISION
VELASCO, JR., J.:
Nature of the Case
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court of the
Decision1 dated February 27, 2009 and the Resolution2 dated October 27, 2009 of the Court of Appeals
(CA) in CAG. R. SP No. 03322. The assailed rulings reversed the dismissal of respondent's Petition for
Mandamus and Damages with Prayer for Issuance of a Temporary Mandatory Order and/or Writ of
Preliminary Mandatory Injunction (Petition for Mandamus and Damages) by the Regional Trial Court of
Bacolod City, Branch 49.3
The Facts
The instant case stems from the Petition for Mandamus and Damages filed by respondent Phuture
Visions Co., Inc. (Phuture) on March 5, 2007 against petitioners City of Bacolod, Hon. Mayor Evelio R.
Leonardia, Atty. Allan L. Zamora (now deceased) and Arch. Lemuel D. Reynaldo. In the Petition for
Mandamus and Damages, Phuture alleged the following:
Phuture was incorporated in 2004. In May 2005, its Articles of Incorporation (AOI) was amended to,
among others, include the operation of lotto betting stations and/or other gaming outlets as one of its
secondary purposes. Eventually, it applied with the Philippine Amusement and Gaming Corporation (P
AGCOR) for an authority to operate bingo games at the SM City Bacolod Mall (SM Bacolod), as well as
with SM Prime Holdings (SM Prime) for the lease of a space in the said building. Phuture was issued a
provisional Grant of Authority (GOA) on December 5, 2006 by P AGCOR, subject to compliance with
certain requirements, and received an Award Notice from SM Prime on January 10, 2007. 4
Thereafter, Phuture processed, completed and submitted to the Permits and Licensing Division of the
City Mayor of Bacolod City its Application for Permit to Engage in Business, Trade or Occupation to
operate bingo games at SM Bacolod and paid the fees therefor. It was then issued a claim slip for its
permit on February 19, 2007, which was to be claimed on March 16, 2007.5 In the meantime, Phuture
further amended its AOI on February 27, 2007 to reflect its engagement in bingo operations as its
primary purpose.
Phuture commenced bingo operations at SM Bacolod on March 2, 2007, prior to the issuance of the
actual hard copy of the mayor's permit. However, at around 6:10 a.m. of March 3, 2007, respondent
learned that its bingo outlet was padlocked by agents of the Office of the City Legal Officer and that a
copy of a Closure Order dated March 2, 2007 was posted at the entrance of the bingo outlet. 6
61
Phuture claimed that the closure of its bingo outlet at SM Bacolod is tainted with malice and bad faith
and that petitioners did not have the legal authority to shut down said bingo operations, especially since
PAGCOR itself had already issued a provisional GOA in its favor.
On March 7, 2007, the RTC conducted a summary hearing to determine the sufficiency of the form and
substance of the application for the issuance of a temporary mandatory order and/or preliminary
mandatory injunction to remove the padlock installed at respondent's place of business at SM Bacolod
and allow it to conduct unhampered bingo operations. 7 In the course of the summary hearing,
specifically on March 9, 2007, petitioners released in open court to respondent's counsel the hard copy
of the Mayor's Permit dated February 19, 2007 which indicated the kind of business allowed is
"Professional Services, Band/Entertainment Services." Phuture's counsel, however, refused to receive
the same, protesting that it was not the Mayor's Permit which respondent had applied for.8
On March 19, 2007, petitioners filed their Comment and Answer with Counterclaim, denying the
allegations set forth in the Petition for Mandamus and Damages and presenting a slightly different set of
facts,9 as follows:
On January 10, 2007, Phuture applied for the renewal of its mayor's permit with "professional services,
band/entertainment services" as its declared line of business, providing the address of the business as
"RH Building, 26 Lacson Street, Barangay 5" instead of SM Bacolod where respondent's bingo
operations was located.10
Upon submission of the requirements on February 19, 2007 and while the application was being
processed, Phuture was issued a "claim slip" for it to claim the actual mayor's permit on March 16, 2007
if the requirements were found to be in order.11 However, petitioners found discrepancies in Phuture's
submitted requirements, wherein the application form was notarized earlier than the amendment of its
AOI to reflect the company's primary purpose for bingo operations. Aside from this, respondent failed to
pay the necessary permit fee/assessment fee under the applicable tax ordinances of the City of
Bacolod.12
Also, without waiting for the release of the mayor's permit, respondent started the operation of its bingo
outlet at SM Bacolod. This prompted the former City Legal Officer, Atty. Allan Zamora, to issue a
Closure Order dated March 2, 2007, pursuant to City Tax Ordinance No. 93- 001, Series of
1993,13 which declares unlawful for any person to operate any business in the City of Bacolod without
first obtaining a permit therefor from the City Mayor and paying the necessary permit fee and other
charges to the City Treasurer.
The Closure Order was presented by petitioners' representative to respondent's lawyers to negotiate a
possible peaceful solution before its implementation. However, respondent simply ignored the
information relayed to them and thus, at around 6:00 a.m. on March 3, 2007, the Composite
Enforcement Unit under the Office of the City Legal Officer implemented the Closure Order. 14
Petitioners contended that the claim slip so heavily relied upon by respondent was a mere oversight or
human error of the City Government's employee who processed the same, who was likewise duped by
the tampered entries that respondent's application was for a permit for bingo operations when, in tn1th,
it was only for the renewal of a previously-issued permit albeit for a different line of business, i.e.,
"professional services, band/entertainment services."15
Ruling of the Regional Trial Court
In a Decision16 dated March 20, 2007, the R TC denied the prayer for the issuance of a temporary
mandatory order and dismissed the case for lack of merit, to wit:
In view of the foregoing disquisitions, it follows that the prayer for issuance of a temporary mandatory
order prayed for must be denied.
WHEREFORE, in the light of all the foregoing discussions, the instant petition is ordered DISMISSED
for lack of merit, without prejudice to filing an application of a Mayor's Permit specifically for bingo
operation. Respondents' counterclaim is ordered DISMISSED, without prejudice to filing appropriate
action with a court of competent jurisdiction.
Without pronouncement as to costs.
SO ORDERED.17
Phuture filed an Urgent Motion for Partial Reconsideration on April 2, 2007, but the same was denied
by the RTC in its Order dated September 6, 2007. 18 Thus, respondent elevated the matter to the CA on
appeal.19
Ruling of the Court of Appeals
In the assailed Decision dated February 27, 2009, the CA partially granted the appeal by affirming the
trial court's denial of the application for a temporary mandatory order but reversing the dismissal of the
suit for damages and ordering the case to be reinstated and remanded to the court of origin for further
proceedings. The dispositive portion of the assailed Decision reads:
WHEREFORE, based on the foregoing premises, the appeal is PARTLY GRANTED. The Decision of
Branch 49 of the Regional Trial Court of Bacolod City dated 20 March 2007 and Order dated 06
September 2007, denying the application for a Temporary Mandatory Order is AFFIRMED. The
dismissal of the main action is REVERSED and is hereby REINSTATED and REMANDED to the court
of origin for further proceedings.
SO ORDERED.20
The CA pronounced that the issue of whether the RTC erred in dismissing the prayer for temporary
mandatory order for the removal of the padlock allegedly installed illegally at respondent's place of
business at SM Bacolod, as well as the prayer ordering petitioners to allow respondent to conduct
unhampered bingo operations during the pendency of the case, had already been rendered moot since,
with the onset of another year, it was necessary to apply for another business permit with the Mayor's
Office.21
Nevertheless, the CA proceeded to rule on the issue on whether the closure of respondent's bingo
operations at SM Bacolod was effected in a manner consistent with law. While it ruled that the Mayor's
power to issue licenses and permits is discretionary, and thus, cannot be compelled by mandamus, it
found that respondent was not given due notice and hearing as to the closure of its business
62
establishment at SM Bacolod. Based on the CA's finding on the manner by which the closure of the
bingo operations was effected, it concluded that respondent was denied its proprietary right without due
process of law. Accordingly, the CA ordered the case to be reinstated and remanded to the RTC to
determine if damages should be awarded.22
Petitioners timely interposed a Motion for Reconsideration, 23 protesting the CA's order to remand the
case to the R TC for trial on the aspect of damages. The CA, however, maintained its position, issuing
the now assailed Resolution. Agggrieved, petitioners brought the matter before this Court through the
present recourse.
The Petition
Petitioners again limit their argument to the CA's order to remand the case to the R TC for trial on the
aspect of damages. According to petitioners, hearing the action for damages effectively violates the
City's immunity from suit since respondent had not yet obtained the consent of the City Government of
Bacolod to be included in the claim for damages. They also argue that the other petitioners, the City
Mayor and other officials impleaded, are similarly immune from suit since the acts they performed were
within their lawful duty and functions.24 Moreover, petitioners maintain that they were merely performing
governmental or sovereign acts and exercised their legal rights and duties to implement the provisions
of the City Ordinance.25 Finally, petitioners contend that the assailed Decision contained inconsistencies
such that the CA declared mandamus to be an inappropriate remedy, yet allowed the case for damages
to prosper.26
In its Comment,27 respondent Phuture argues that the grounds raised by petitioners should not be
considered since these were only invoked for the first time on appeal. Aside from this, respondent
asserts that the case for damages should proceed since petitioners allegedly caused the illegal closure
of its bingo outlet without proper notice and hearing and with obvious discrimination.
In their Reply to the Comment dated August 26, 2010, petitioners oppose respondent's arguments,
saying that the issues they raised in the instant petition cannot be considered as having been raised for
the first time since they are intertwined and bear relevance and close relation to the issues resolved by
the trial court. They further reiterate that they cannot be held liable for damages since they were merely
performing governmental or sovereign acts in the issuance of a mayor's permit. Thus, they argue that
whatever damages that respondent may have incurred belong to the concept of damnum absque
injuria for which the law provides no remedy.28
The Issues
Stripped of the verbiage, the sole issue in this case is whether petitioners can be made liable to pay
respondent damages.
The Court's Ruling
The petition is meritorious.
Petitioners have not given their
consent to be sued
The principle of immunity from suit is embodied in Section 3, Article XVI of the 1987 Philippine
Constitution which states that "[t]he State cannot be sued without its consent." The purpose behind this
principle is to prevent the loss of governmental efficiency as a result of the time and energy it would
require to defend itself against lawsuits.29 The State and its political subdivisions are open to suit only
when they consent to it.
Consent may be express or implied, such as when the government exercises its proprietary functions,
or where such is embodied in a general or special law.30 In the present case, respondent sued
petitioners for the latter's refusal to issue a mayor's permit for bingo operations and for closing its
business on account of the lack of such permit. However, while the authority of city mayors to issue or
grant licenses and business permits is granted by the Local Government Code (LGC), 31 which also
vests local government units with corporate powers, one of which is the power to sue and be sued, this
Court has held that the power to issue or grant licenses and business permits is not an exercise of the
government's proprietary function. Instead, it is in an exercise of the police power of the State, ergo a
governmental act. This is clearly elucidated by the Court in Acebedo Optical Company, Inc. v. The
Honorable Court of Appeals:32
The Court of Appeals erred in adjudging subject business permit as having been issued by respondent
City Mayor in the performance of proprietary functions of Iligan City. As hereinabove elaborated upon,
the issuance of business licenses and permits by a municipality or city is essentially regulatory in
nature. The authority, which devolved upon local government units to issue or grant such licenses or
permits, is essentially in the exercise of the police power of the State within the contemplation of the
general welfare clause of the Local Government Code. (emphasis supplied)
No consent to be sued and be liable for damages can thus be implied from the mere conferment and
exercise of the power to issue business permits and licences. Accordingly, there is merit in petitioners'
argument that they cannot be sued by respondent since the City's consent had not been secured for
this purpose. This is notwithstanding petitioners' failure to raise this exculpatory defense at the first
instance before the trial court or even before the appellate court.
As this Court has repeatedly held, waiver of immunity from suit, being in derogation of sovereignty, will
not be lightly inferred.33 Moreover, it deserves mentioning that the City of Bacolod as a government
agency or instrumentality cannot be estopped by the omission, mistake or error of its officials or
agents.34 Estoppel does not also lie against the government or any of its agencies arising from
unauthorized or illegal acts of public officers.35 Hence, we cannot hold petitioners estopped from
invoking their immunity from suit on account of having raised it only for the first time on appeal. On this
score, Justice Barredo's Opinion in Insurance Co. of North America v. Osaka Shosen Kaisha36 is
particularly illuminating:
x x x [T]he real reason why, from the procedural point of view, a suit against the state filed without its
consent must be dismissed is because, necessarily, any such complaint cannot state a cause of action,
since, as the above decision confirms, "there can be no legal right as against the authority that makes
the law on which the right depends." x x x
The question that arises now is, may failure to state a cause of action be alleged as a ground of
dismissal for the first-time on appeal?
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x x x The requirement that this defense should be raised at the trial is only to give the plaintiff a chance
to cure the defect of his complaint, but if, as in this case, the lack of consent of the state cannot be
cured because it is a matter of judicial notice that there is no law allowing the present suit, (only
Congress that can give such consent) the reason for the rule cannot obtain, hence it is clear that such
non-suability may be raised even on appeal. After all, the record on appeal can be examined to find out
if the consent of the state is alleged in the complaint.
xxxx
x x x It is plain, however, that as far as the date is concerned, this rule of waiver cannot apply, for the
simple reason that in the case of the state as already stated, the waiver may not be made by anyone
other than Congress, so any appearance in any form made on its behalf would be ineffective and
invalid if not authorized by a law duly passed by Congress. Besides, the state has to act thru subalterns
who are not always prepared to act in the premises with the necessary capability, and instances there
can be when thru ignorance, negligence or malice, the interest of the state may not be properly
protected because of the erroneous appearance made on its behalf by a government lawyer or some
other officer, hence, as a matter of public policy, the law must be understood as insulating the state
from such undesirable contingencies and leaving it free to invoke its sovereign attributes at any time
and at any stage of a judicial proceeding, under the principle that the mistakes and ommissions of its
officers do not bind it.
Petitioners are not liable for damages
As to the primary issue of whether petitioners are liable to respondent for damages, respondent
Phuture alleged that petitioners are guilty of surreptitiously padlocking its SM bingo outlet in a "patently
arbitrary, whimsical, capricious, oppressive, irregular, immoral and shamelessly politically motivated"
manner and with clear discrimination since the majority owners of the company are the sons of
petitioner Mayor Leonardia's political rival, then Congressman Monico Puentevella. 37 Such contention is
clearly but non sequitur, grounded as it is in pure conjecture.
Sticking closely to the facts, it is best to recapitulate that while the CA ruled that respondent was not
given due notice and hearing as to the closure of its business establishment at SM Bacolod, it
nevertheless remanded the issue of the award of damages to the trial court for further proceedings.
Such action would only be an exercise in futility, as the trial court had already ruled in its September 6,
2007 Decision that respondent Phuture had no right and/or authority to operate bingo games at SM
Bacolod because it did not have a Business Permit and has not paid assessment for bingo operation.
Thus, it held that petitioners acted lawfully in stopping respondent's bingo operation on March 2, 2007
and closing its establishment for lack of any business permit.
The trial court further found that the Mayor's Office had already decided and released a Business
Permit for "Professional Services, Band/Entertainment Services" dated January 19, 2007 to
respondent, which cannot reasonably expect to receive a Mayor's Permit for "Bingo Operations" unless
and until it files a new application for bingo operations, submit the necessary requirements therefor, and
pay the corresponding assessment.38
Aside from this, the R TC had also found that respondent's reliance on the GOA issued by PAGCOR,
the SM Award Notice, and the "questionable" Claim Slip and Application paper tainted with
alteration/falsification did not appear to be a right that is clear and unmistakable. From this, the trial
court concluded that the right being claimed by respondent to operate bingo games at SM Bacolod was,
at the very least, doubtful.39
Based on the above observations made by the trial court, it appears that respondent had no clear and
unmistakable legal right to operate its bingo operations at the onset. Respondent failed to establish that
it had duly applied for the proper permit for bingo operations with the Office of the Mayor and, instead,
merely relied on the questionable claim stub to support its claim. The trial court also found that the
application form submitted by respondent pertained to a renewal of respondent's business for
"Professional Services, Band/Entertainment Services" located at "RH Bldg., 26th Lacson St." and not at
SM Bacolod. These factual findings by the trial court belie respondent's claim that it had the right to
operate its bingo operations at SM Bacolod.
Certainly, respondent's claim that it had applied for a license for bingo operations is questionable since,
as it had admitted in its Petition for Mandamus and Damages, the primary purpose in its AOI was only
amended to reflect bingo operations on February 14, 2007 or more than a month after it had
supposedly applied for a license for bingo operations with the Office of the Mayor. It is settled that a
judicial admission is binding on the person who makes it, and absent any showing that it was made
through palpable mistake, no amount of rationalization can offset such admission. 40 This admission
clearly casts doubt on respondent's so-called right to operate its business of bingo operations.
Petitioners, in ordering the closure of respondent's bingo operations, were exercising their duty to
implement laws and ordinances which include the local government's authority to issue licenses and
permits for business operations in the city. This authority is granted to them as a delegated exercise of
the police power of the State. It must be emphasized that the nature of bingo operations is a form of
gambling; thus, its operation is a mere privilege which could not only be regulated, but may also very
well be revoked or closed down when public interests so require.41
In this jurisdiction, we adhere to the principle that injury alone does not give respondent the right to
recover damages, but it must also have a right of action for the legal wrong inflicted by petitioners. In
order that the law will give redress for an act causing damage, there must be damnum et injuria that act
must be not only hurtful, but wrongful. The case of The Orchard Golf & Country Club, Inc., et al. v.
Ernesto V Yu and Manuel C. Yuhico,42 citing Spouses Custodio v. Court of Appeals,43 is instructive, to
wit:
x x [T]he mere fact that the plaintiff suffered losses does not give rise to a right to recover damages. To
warrant the recovery of damages, there must be both a right of action for a legal wrong inflicted by the
defendant, and damage resulting to the plaintiff therefrom. Wrong without damage, or damage without
wrong, does not constitute a cause of action, since damages are merely part of the remedy allowed for
the injury caused by a breach or wrong.
xxxx
In order that a plaintiff may maintain an action for the injuries of which he complains, he must establish
that such injuries resulted from a breach of duty which the defendant owed to the plaintiff - a
concurrence of injury to the plaintiff and legal responsibility by the person causing it. The underlying
basis for the award of tort damages is the premise that an individual was injured in contemplation of
law. Thus, there must first be the breach of some duty and the imposition of liability for that breach
before damages may be awarded; it is not sufficient to state that there should be tort liability merely
because the plaintiff suffered some pain and suffering.
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In other words, in order that the law will give redress for an act causing damage, that act must be not
only hurtful, but wrongful.1âwphi1 There must be damnum et injuria. If, as may happen in many cases,
a person sustains actual damage, that is, harm or loss to his person or property, without sustaining any
legal injury, that is, an act or omission which the law does not deem an injury, the damage is regarded
as damnum absque injuria.

Considering that respondent had no legal right to operate the bingo operations at the outset, then it is
not entitled to the damages which it is demanding from petitioners.

WHEREFORE, the petition is hereby GRANTED. The Decision dated February 27, 2009 and the
Resolution dated October 27, 2009 of the Court of Appeals in CA-G.R. SP No. 03322 are
hereby ANNULLED and SET ASIDE. The Decision dated March 20, 2007 of the Regional Trial Court of
Bacolod City, Branch 49 is hereby REINSTATED.

SO ORDERED.

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