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

On 30 December 2003, Northrail and CNMEG executed a Contract Agreement for the construction of
Section I, Phase I of the North Luzon Railway System from Caloocan to Malolos on a turnkey basis (the
Contract Agreement).7 The contract price for the Northrail Project was pegged at 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.

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:

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

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.
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 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

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.

 
G.R. No. L-26400 February 29, 1972

VICTORIA AMIGABLE, plaintiff-appellant, 
vs.
NICOLAS CUENCA, as Commissioner of Public Highways and REPUBLIC OF THE
PHILIPPINES, defendants-appellees.

MAKALINTAL, J.:p

This is an appeal from the decision of the Court of First Instance of Cebu in its Civil Case No. R-5977,
dismissing the plaintiff's complaint.

Victoria Amigable, the appellant herein, is the registered owner of Lot No. 639 of the Banilad Estate in
Cebu City as shown by Transfer Certificate of Title No. T-18060, which superseded Transfer Certificate of
Title No. RT-3272 (T-3435) issued to her by the Register of Deeds of Cebu on February 1, 1924. No
annotation in favor of the government of any right or interest in the property appears at the back of the
certificate. Without prior expropriation or negotiated sale, the government used a portion of said lot, with
an area of 6,167 square meters, for the construction of the Mango and Gorordo Avenues.

It appears that said avenues were already existing in 1921 although "they were in bad condition and very
narrow, unlike the wide and beautiful avenues that they are now," and "that the tracing of said roads was
begun in 1924, and the formal construction in 
1925." *

On March 27, 1958 Amigable's counsel wrote the President of the Philippines, requesting payment of the
portion of her lot which had been appropriated by the government. The claim was indorsed to the Auditor
General, who disallowed it in his 9th Indorsement dated December 9, 1958. A copy of said indorsement
was transmitted to Amigable's counsel by the Office of the President on January 7, 1959.

On February 6, 1959 Amigable filed in the court a quo a complaint, which was later amended on April 17,
1959 upon motion of the defendants, against the Republic of the Philippines and Nicolas Cuenca, in his
capacity as Commissioner of Public Highways for the recovery of ownership and possession of the 6,167
square meters of land traversed by the Mango and Gorordo Avenues. She also sought the payment of
compensatory damages in the sum of P50,000.00 for the illegal occupation of her land, moral damages in
the sum of P25,000.00, attorney's fees in the sum of P5,000.00 and the costs of the suit.

Within the reglementary period the defendants filed a joint answer denying the material allegations of the
complaint and interposing the following affirmative defenses, to wit: (1) that the action was premature, the
claim not having been filed first with the Office of the Auditor General; (2) that the right of action for the
recovery of any amount which might be due the plaintiff, if any, had already prescribed; (3) that the action
being a suit against the Government, the claim for moral damages, attorney's fees and costs had no valid
basis since as to these items the Government had not given its consent to be sued; and (4) that inasmuch
as it was the province of Cebu that appropriated and used the area involved in the construction of Mango
Avenue, plaintiff had no cause of action against the defendants.

During the scheduled hearings nobody appeared for the defendants notwithstanding due notice, so the
trial court proceeded to receive the plaintiff's evidence ex parte. On July 29, 1959 said court rendered its
decision holding that it had no jurisdiction over the plaintiff's cause of action for the recovery of
possession and ownership of the portion of her lot in question on the ground that the government cannot
be sued without its consent; that it had neither original nor appellate jurisdiction to hear, try and decide
plaintiff's claim for compensatory damages in the sum of P50,000.00, the same being a money claim
against the government; and that the claim for moral damages had long prescribed, nor did it have
jurisdiction over said claim because the government had not given its consent to be sued. Accordingly,
the complaint was dismissed. Unable to secure a reconsideration, the plaintiff appealed to the Court of
Appeals, which subsequently certified the case to Us, there being no question of fact involved.

The issue here is whether or not the appellant may properly sue the government under the facts of the
case.

In the case of Ministerio vs. Court of First Instance of Cebu,1 involving a claim for payment of the value of
a portion of land used for the widening of the Gorordo Avenue in Cebu City, this Court, through Mr.
Justice Enrique M. Fernando, held that where the government takes away property from a private
landowner for public use without going through the legal process of expropriation or negotiated sale, the
aggrieved party may properly maintain a suit against the government without thereby violating the
doctrine of governmental immunity from suit without its consent. We there said: .

... . If the constitutional mandate that the owner be compensated for property taken for
public use were to be respected, as it should, then a suit of this character should not be
summarily dismissed. The doctrine of governmental immunity from suit cannot serve as
an instrument for perpetrating an injustice on a citizen. Had the government followed the
procedure indicated by the governing law at the time, a complaint would have been filed
by it, and only upon payment of the compensation fixed by the judgment, or after tender
to the party entitled to such payment of the amount fixed, may it "have the right to enter in
and upon the land so condemned, to appropriate the same to the public use defined in
the judgment." If there were an observance of procedural regularity, petitioners would not
be in the sad plaint they are now. It is unthinkable then that precisely because there was
a failure to abide by what the law requires, the government would stand to benefit. It is
just as important, if not more so, that there be fidelity to legal norms on the part of
officialdom if the rule of law were to be maintained. It is not too much to say that when the
government takes any property for public use, which is conditioned upon the payment of
just compensation, to be judicially ascertained, it makes manifest that it submits to the
jurisdiction of a court. There is no thought then that the doctrine of immunity from suit
could still be appropriately invoked.

Considering that no annotation in favor of the government appears at the back of her certificate of title
and that she has not executed any deed of conveyance of any portion of her lot to the government, the
appellant remains the owner of the whole lot. As registered owner, she could bring an action to recover
possession of the portion of land in question at anytime because possession is one of the attributes of
ownership. However, since restoration of possession of said portion by the government is neither
convenient nor feasible at this time because it is now and has been used for road purposes, the only relief
available is for the government to make due compensation which it could and should have done years
ago. To determine the due compensation for the land, the basis should be the price or value thereof at the
time of the taking.2

As regards the claim for damages, the plaintiff is entitled thereto in the form of legal interest on the price
of the land from the time it was taken up to the time that payment is made by the government.3 In
addition, the government should pay for attorney's fees, the amount of which should be fixed by the trial
court after hearing.

WHEREFORE, the decision appealed from is hereby set aside and the case remanded to the court a
quo for the determination of compensation, including attorney's fees, to which the appellant is entitled as
above indicated. No pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar
JJ., concur.
G.R. Nos. L-71998-99 June 2, 1993

EMILIANO R. DE LOS SANTOS, SPOUSES NORMA A. PADILLA and ISIDORO L. PADILLA and the
HEIRS OF FRANCISCO DAYRIT, petitioners, 
vs.
THE HON. INTERMEDIATE APPELLATE COURT, HON. JUDGE CICERRO C. JURADO and
EDILBERTO CADIENTE, respondents.

Isidoro L. Padilla for petitioners.

Joaquin G. Mendoza for E. Cadiente.

ROMERO, J.:

Questioned in the instant petition for review on certiorari is the Decision of the then Intermediate Appellate
Court1affirming the December 1, 1982 order of the then Court of First Instance of Rizal, Branch XXII at
Pasig2 in civil Cases Nos. 46800 which states in toto:

It appearing that the construction of the road and creek in question was a project
undertaken under the authority of the Minister of Public Works, the funding of which was
the responsibility of the National Government and that the defendants impleaded herein
are Edilberto Cadiente and Nestor Agustin and not the Republic of the Philippines which
cannot be sued without its consent, this court hereby resolves to dismiss these two (2)
cases without pronouncement as to costs.

SO ORDERED.

Civil Cases Nos. 46800 and 46801 were both filed on July 13, 1982 by petitioners who are co-owners
under TCT No. 329945 of a parcel of land located in Barrio Wawa, Binangonan, Rizal with an area of
nineteen thousand sixty-one (19,061) square meters. In Civil Case No. 46800, petitioners alleged in the
petition for prohibition that in October 1981, without their knowledge or consent, Lorenzo Cadiente, a
private contractor and the Provincial Engineer of Rizal constructed a road nine (9) meters wide and one
hundred twenty-eight meters and seventy centimeters (128.70) long occupying a total area of one
thousand one hundred sixty-five (1,165) square meters of their land.

Petitioners added that aside from the road, the said respondents also constructed, without their
knowledge and consent, an artificial creek twenty three meters and twenty centimeters (23.20) wide and
one hundred twenty-eight meters and sixty-nine centimeters long (128.69) occupying an area of two
thousand nine hundred six (2,906) square meters of their property. Constructed in a zig-zag manner, the
creek meandered through their property.

Alleging that it completed, the road and the creek would "serve no public profitable and practicable
purpose but for respondents' personal profit, to the great damage and prejudice of the taxpayers and the
petitioners," the same petitioners invoked their rights under Art. IV Secs. 1 and 2, of the Bill of Rights of
the 1973 Constitution and prayed for the issuance of restraining order or a writ of preliminary injunction to
stop the construction. They also prayed that after hearing on the merits, judgment be rendered: (1)
declaring illegal the construction of the road and artificial creek which was made without their knowledge
and consent, "without due process and without just compensation and in violation of the provision of
statute law and of the Philippine Constitution;" (2) issuing a permanent prohibition; (3) ordering
respondents to pay petitioners "jointly and collectively" P15,00.00 as attorney's fees and P600.00 for each
appearance, and (4) ordering the respondents to pay the costs of the suit.3
An action for damages, Civil Case No. 46801 on the other hand, was founded on Art. 32, paragraphs 6
and 7 of the Civil Code and the constitutional provisions on the right against deprivation of property
without due process of law and without just compensation.

Thereafter, the two cases were consolidated. On November 11, 1982, the Solicitor General filed a motion
to dismiss both cases on the following grounds: (a) with respect to Civil Case No. 46800, the pendency of
Civil Case No. 46801 which involved the same parties and cause of action; (b) both cases were in reality
suits against the state which could not be maintained without the State's consent; and (c) lack of cause of
action.

Consequently, the lower court issued the aforequoted Order of December 1, 1982. Their motion for the
reconsideration of said Order having been denied, petitioners elevated (to) the cases to this Court through
an "appeal by certiorari" which was docketed as G. R. No. 63610. The Second Division of this Court,
however, referred the cases to the then Intermediate Appellate Court pursuant to Sec. 16 of the Interim
Rules.4 In due course, the Appellate court rendered a Decision on May 22, 1985 which disposed of the
cases thus:

Accordingly, the two actions cannot be maintained. They are in reality suits against the
state which has not given its consent to be sued (Minister [sic] vs. CFI, 40 SCRA 464;
Isberto vs. Raquiza, 67 SCRA 116; Begosa v. Chairman, PVA, 32 SCRA 466).
Appellants' remedy lies elsewhere.

Appellants assert that the taking of their property in the manner alleged in these two
cases was without due process of law. This is not correct. The appealed order has not
closed the door to appellants right, if any, to just compensation for the alleged area of
their land which was expropriated. The court below dismissed the cases for lack of
consent on the part of the state to be sued herein. We repeat appellants' remedy for just
compensation lies elsewhere.

WHEREFORE, the order appealed from is in full accord with the evidence and the law
and is hereby therefore affirmed in all its parts. Costs against appellants.

SO ORDERED.5

Consequently, petitioners elevated the cases to this Court through a petition for review on certiorari. The
petition is anchored on the ruling of the Court in Amigable v. Cuenca6 which states: ". . . . where the
government takes away property from a private landowner for public use without going through the legal
process of expropriation or negotiated sale," a suit may properly be maintained against the government.

We hold for the petitioners.

That the principle of state immunity from suit cannot be invoked to defeat petitioners' claim has long been
settled. In Ministerio v. Court of First Instance of Cebu,7 the Court held:

. . . . The doctrine of governmental immunity from suit cannot serve as an instrument for
perpetrating an injustice on a citizen. Had the government followed the procedure
indicated by the governing law at the time, a complaint would have been filed by it, and
only upon payment of the compensation fixed by the judgment, or after tender to the
party entitled to such payment of the amount fixed, may it "have the right to enter in and
upon the land so condemned" to appropriate the same to the public use defined in the
judgment. If there were an observance of procedural regularity, petitioners would not be
in the said plaint they are now. It is unthinkable then that precisely because there was a
failure to abide by what the law requires, the government would stand to benefit. It just as
important, if not more so, that there be fidelity to legal norms on the part of the officialdom
 if the rule of law were to be maintained. It is not too much to say that when the
government takes any property for public use, which is conditioned upon the payment of
just compensation, to be judicially ascertained, it makes manifest that it submits to the
jurisdiction of a court. There is no thought then that the doctrine of immunity from suit
could still be appropriately invoked.

We find the facts of the Ministerio case on all fours with the instant cases insofar as the fact that the
respondent government officials executed a shortcut in appropriating petitioners' property for public use is
concerned. As in the Amigable case, no expropriation proceedings were initiated before construction of
the projects began. In like manner, nowhere in his pleadings in the cases at bar does the Solicitor
General mention that the fact that expropriation proceedings had in fact been undertaken before the road
and artificial creek were constructed. Thus, quoting the answer of the defendants in Civil Case No. 46801,
the Solicitor General summarized the facts which defendants considered as constituting justification for
the construction as follows:

10. The construction of the road and creek in question on the property which at the time
was said to be public property, was initiated, and construction effected, through the usual
and ordinary course, as shown by the following:

a. November 5, 1979 — Engr. Data who was the incumbent District

Engineer submitted (thru channels) plans, program of works and detailed
estimates for approval of higher authorities, thru the initiation of Mayor
Ynares and Assemblyman Gilberto Duavit;

b. February 18, 1980 — Regional Director Eduardo L. Lagunilla, MPW

Region IV, EDSA, Quezon City endorsed said request to the Minister of
Public Works;.

c. February 13, 1981 — Assemblyman Gilberto Duavit sent a hand-

written follow-up note regarding the project;

d. June 17, 1981 — The undersigned defendant Nestor Agustin was

designated Chief Civil Engineer of the Rizal Engineer District, Vice Engr.
Cresencio Data who reached his compulsory retirement age;

e. September 23, 1981 — Funds in the amount of P588,000.00 was

released for partial implementation of the project. The total amount
requested was P1,200,000. 00;

f. October 19, 1981 — The undersigned submitted a request to the

MPWH Central Office seeking authority to effect implementation of the
project;

g. October 29, 1981 — The Regional Director approved the plans and
program of works for the project in the amount of P588,000.00;

h. November 11, 1981 — The Honorable Minister Jesus S. Hipolito

granted the request to undertake the implementation of the project;

i. November 25, 1981 — Project implementation was started;

j. March 3, 1982 — Construction of rock bulkhead was completed;

 k. November 23, 1982 — P249,000.00 was released for improvement
(deepening and diverting of flow) of Binangonan River which was a
complimentary structure of Binangonan port system;

l. April 9, 1982 — Implementation was started. Contract for this project

was approved by the Regional Director in favor of EDILBERTO
CADIENTE CONSTRUCTION;

m. May 21, 1982 — Deepening slightly of the adjacent portion of the rock
bulkhead was completed.

11. The construction of the structures was done in good faith;

The construction of the roadway and deepening of the creek was designated to generate
for the municipality of Binangonan, Rizal more benefits in the form of substantial revenue
from fishing industry, parking area, market rentals, development site, and road system
improvements. The area covered by said public improvements is part of the Laguna Lake
area which is submerged in water even during dry season. The municipal mayor of
Binangonan, Rizal stated that said area is public property.8

Public respondents' belief that the property involved is public, even if buttressed by statements of other
public officials, is no reason for the unjust taking of petitioners' property. As TCT No. 329945 shows, the
property was registered under the Torrens system in the names of "Emiliano R. de los Santos, married to
Corazon Dayrit; and Norma Alabastro, married to Isidro L. Padilla" as early as March 29, 1971. Had the
public respondents, including the other officials involved in the construction, performed their functions by
exercising even the ordinary diligence expected of them as public officials, they would not have failed to
note that the property is a private one. A public infrastructure losses its laudability if, in the process of
undertaking it, private rights are disregarded. In this connection, the Court said in Republic v.
Sandiganbayan:9

It can hardly be doubted that in exercising the right of eminent domain, the State
exercises its  jus imperii, as distinguished from its proprietary rights of jus gestionis. Yet,
even in that area, it has been held that where private property has been taken in
expropriation without just compensation being paid, the defense of immunity from suit
cannot be set up by the State against an action for payment by the owner.

Public respondents' assertion that the project had been completed on May 21, 1982 meets strong
opposition from the petitioners who insist that the project "until now is not yet finished."10 This factual
issue needs determination which only the trial court can undertake. Thus, the need for a full blown trial on
the merits. We do not subscribe to the appellate court's suggestion that the remedy of the petitioners "lies
elsewhere."

The filing of another case to determine just compensation is superfluous. The issue may be threshed out
below for practical reasons in the event that it is shown later that it is no longer possible to prohibit the
public respondents from continuing with the public work. As held in the Amigable case, damages may be
awarded the petitioners in the form of legal interest on the price of the land to be reckoned from the time
of the unlawful taking.

WHEREFORE, the petition is hereby GRANTED and Civil Cases Nos. 46800 and 46801 shall be
REMANDED to the lower court for trial on the merits after the Republic of the Philippines shall have been
impleaded as defendant in both cases.

Feliciano, Davide, Jr., Romero, and Melo, JJ. concur.

Bidin, J. took no part.

G.R. No. 185918               April 18, 2012

LOCKHEED DETECTIVE AND WATCHMAN AGENCY, INC., Petitioner, 

vs.
UNIVERSITY OF THE PHILIPPINES, Respondent.

DECISION

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, assailing the August 20, 2008 Amended Decision1 and December 23, 2008 Resolution2 of the
Court of Appeals (CA) in CA-G.R. SP No. 91281.

The antecedent facts of the case are as follows:

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

In 1998, several security guards assigned to UP filed separate complaints against Lockheed and UP for
payment of underpaid wages, 25% overtime pay, premium pay for rest days and special holidays, holiday
pay, service incentive leave pay, night shift differentials, 13th month pay, refund of cash bond, refund of
deductions for the Mutual Benefits Aids System (MBAS), unpaid wages from December 16-31, 1998, and
attorney’s fees.

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

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

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

1. JOSE SABALAS P77,983.62

2. TIRSO DOMASIAN 76,262.70
3. JUAN TAPEL 80,546.03
4. DINDO MURING 80,546.03
5. ALEXANDER ALLORDE 80,471.78
6. WILFREDO ESCOBAR 80,160.63
 7. FERDINAND VELASQUEZ 78,595.53
8. ANTHONY GONZALES 76,869.97
9. SAMUEL ESCARIO 80,509.78
10. PEDRO FAILORINA 80,350.87
11. MATEO TANELA 70,590.58
12. JOB SABALAS 59,362.40
13. ANDRES DACANAYAN 77,403.73
14. EDDIE OLIVAR 77,403.73

P1,077,057.38

plus 10% attorney’s fees 107,705.74

GRAND TOTAL AWARD P1,184,763.12

Third party respondent University of the Philippines is hereby declared to be liable to Third Party
Complainant and cross claimant Lockheed Detective and Watchman Agency for the unpaid legislated
salary increases of the latter’s security guards for the years 1996 to 1998, in the total amount of
P13,066,794.14, out of which amount the amounts due complainants here shall be paid.

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

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

SO ORDERED.3

Both Lockheed and UP appealed the Labor Arbiter’s decision. By Decision4 dated April 12, 2002, the
NLRC modified the Labor Arbiter’s decision. The NLRC held:

WHEREFORE, the decision appealed from is hereby modified as follows:

1. Complainants’ claims for premium pay for work on rest day and special holiday, and 5 days
service incentive leave pay, are hereby dismissed for lack of basis.

2. The respondent University of the Philippines is still solidarily liable with Lockheed in the
payment of the rest of the claims covering the period of their service contract.

The Financial Analyst is hereby ordered to recompute the awards of the complainants in accordance with
the foregoing modifications.

SO ORDERED.5
The complaining security guards and UP filed their respective motions for reconsideration. On August 14,
2002, however, the NLRC denied said motions.

As the parties did not appeal the NLRC decision, the same became final and executory on October 26,
2002.6 A writ of execution was then issued but later quashed by the Labor Arbiter on November 23, 2003
on motion of UP due to disputes regarding the amount of the award. Later, however, said order quashing
the writ was reversed by the NLRC by Resolution7 dated June 8, 2004, disposing as follows:

WHEREFORE, premises considered, we grant this instant appeal. The Order dated 23 November 2003 is
hereby reversed and set aside. The Labor Arbiter is directed to issue a Writ of Execution for the
satisfaction of the judgment award in favor of Third-Party complainants.

SO ORDERED.8

UP moved to reconsider the NLRC resolution. On December 28, 2004, the NLRC upheld its resolution but
with modification that the satisfaction of the judgment award in favor of Lockheed will be only against the
funds of UP which are not identified as public funds.

The NLRC order and resolution having become final, Lockheed filed a motion for the issuance of an alias
writ of execution. The same was granted on May 23, 2005.9

On July 25, 2005, a Notice of Garnishment10 was issued to Philippine National Bank (PNB) UP Diliman
Branch for the satisfaction of the award of ₱12,142,522.69 (inclusive of execution fee).

In a letter11 dated August 9, 2005, PNB informed UP that it has received an order of release dated August
8, 2005 issued by the Labor Arbiter directing PNB UP Diliman Branch to release to the NLRC Cashier,
through the assigned NLRC Sheriff Max L. Lago, the judgment award/amount of ₱12,142,522.69. PNB
likewise reminded UP that the bank only has 10 working days from receipt of the order to deliver the
garnished funds and unless it receives a notice from UP or the NLRC before the expiry of the 10-day
period regarding the issuance of a court order or writ of injunction discharging or enjoining the
implementation and execution of the Notice of Garnishment and Writ of Execution, the bank shall be
constrained to cause the release of the garnished funds in favor of the NLRC.

On August 16, 2005, UP filed an Urgent Motion to Quash Garnishment.12 UP contended that the funds
being subjected to garnishment at PNB are government/public funds. As certified by the University
Accountant, the subject funds are covered by Savings Account No. 275-529999-8, under the name of UP
System Trust Receipts, earmarked for Student Guaranty Deposit, Scholarship Fund, Student Fund,
Publications, Research Grants, and Miscellaneous Trust Account. UP argued that as public funds, the
subject PNB account cannot be disbursed except pursuant to an appropriation required by law. The Labor
Arbiter, however, dismissed the urgent motion for lack of merit on August 30, 2005.13

On September 2, 2005, the amount of ₱12,062,398.71 was withdrawn by the sheriff from UP’s PNB
account.14

On September 12, 2005, UP filed a petition for certiorari before the CA based on the following grounds:

I.

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

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

Respondents NLRC and Arbiter LORA acted without jurisdiction or gravely abused their
discretion in a manner amounting to lack or excess of jurisdiction when, by means of an Alias Writ
of Execution against petitioner UP, they authorized respondent Sheriff to garnish UP’s public
funds. Similarly, respondent LORA gravely abused her discretion when she resolved petitioner’s
Motion to Quash Notice of Garnishment addressed to, and intended for, the NLRC, and when she
unilaterally and arbitrarily disregarded an official Certification that the funds garnished are
public/government funds, and thereby allowed respondent Sheriff to withdraw the same from
PNB.

III.

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

jurisdiction when they, despite prior knowledge, effected the execution that caused paralyzation
and dislocation to petitioner’s governmental functions.15

On March 12, 2008, the CA rendered a decision16 dismissing UP’s petition for certiorari. Citing Republic v.
COCOFED,17 which defines public funds as moneys belonging to the State or to any political subdivisions
of the State, more specifically taxes, customs, duties and moneys raised by operation of law for the
support of the government or the discharge of its obligations, the appellate court ruled that the funds
sought to be garnished do not seem to fall within the stated definition.

On reconsideration, however, the CA issued the assailed Amended Decision. It held that without
departing from its findings that the funds covered in the savings account sought to be garnished do not
fall within the classification of public funds, it reconsiders the dismissal of the petition in light of the ruling
in the case of National Electrification Administration v. Morales18 which mandates that all money claims
against the government must first be filed with the Commission on Audit (COA).

Lockheed moved to reconsider the amended decision but the same was denied in the assailed CA
Resolution dated December 23, 2008. The CA cited Manila International Airport Authority v. Court of
Appeals19 which held that UP ranks with MIAA, a government instrumentality exercising corporate powers
but not organized as a stock or non-stock corporation. While said corporations are government
instrumentalities, they are loosely called government corporate entities but not government-owned and
controlled corporations in the strict sense.

Hence this petition by Lockheed raising the following arguments:

1. RESPONDENT UP IS A GOVERNMENT ENTITY WITH A SEPARATE AND DISTINCT

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

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

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

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

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

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

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

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

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

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

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

On the fait accompli argument, UP argues that Lockheed cannot wash its hands from liability for the
consummated garnishment and execution of UP’s trust fund in the amount of ₱12,062,398.71. UP cites
that damage was done to UP and the beneficiaries of the fund when said funds, which were earmarked
for specific educational purposes, were misapplied, for instance, to answer for the execution fee of
₱120,123.98 unilaterally stipulated by the sheriff. Lockheed, being the party which procured the illegal
garnishment, should be held primarily liable. The mere fact that the CA set aside the writ of garnishment
confirms the liability of Lockheed to reimburse and indemnify in accordance with law.

The petition has no merit.

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

This Court finds that the CA correctly applied the NEA case. Like NEA, UP is a juridical personality
separate and distinct from the government and has the capacity to sue and be sued. Thus, also like NEA,
it cannot evade execution, and its funds may be subject to garnishment or levy. However, before
execution may be had, a claim for payment of the judgment award must first be filed with the COA. Under
Commonwealth Act No. 327,22 as amended by Section 26 of P.D. No. 1445,23 it is the COA which has
primary jurisdiction to examine, audit and settle "all debts and claims of any sort" due from or owing the
Government or any of its subdivisions, agencies and instrumentalities, including government-owned or
controlled corporations and their subsidiaries. With respect to money claims arising from the
implementation of Republic Act No. 6758,24 their allowance or disallowance is for COA to decide, subject
only to the remedy of appeal by petition for certiorari to this Court.25 1âwphi1
We cannot subscribe to Lockheed’s argument that NEA is not similarly situated with UP because the
COA’s jurisdiction over the latter is only on post-audit basis. A reading of the pertinent Commonwealth Act
provision clearly shows that it does not make any distinction as to which of the government subdivisions,
agencies and instrumentalities, including government-owned or controlled corporations and their
subsidiaries whose debts should be filed before the COA.

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

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

No pronouncement as to costs.

SO ORDERED.

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

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 Philippines9 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 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; …

(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 constructed by
the provincial engineer of Rizal and a private contractor without the owners’ knowledge and consent was
reversed and the cases remanded for trial on the merits. The Supreme Court ruled that the doctrine of
sovereign immunity was not an instrument for perpetrating any injustice on a citizen. In exercising the
right of eminent domain, the Court explained, the State exercised its jus imperii, as distinguished from its
proprietary rights, or jus gestionis; yet, even in that area, where private property had been taken in
expropriation without just compensation being paid, the defense of immunity from suit could not be set up
by the State against an action for payment by the owners.

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

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

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

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.