G.R. No.

104269 November 11, 1993

DEPARTMENT OF AGRICULTURE, petitioner, vs. THE NATIONAL LABOR RELATIONS

COMMISSION, et al., respondents.

Roy Lago Salcedo for private respondents.

VITUG, J.:

For consideration are the incidents that flow from the familiar doctrine of non-suability of the state.

In this petition for certiorari, the Department of Agriculture seeks to nullify the Resolution, 1 dated 27
November 1991, of the National Labor Relations Commission (NLRC), Fifth Division, Cagayan de
Oro City, denying the petition for injunction, prohibition and mandamus that prays to enjoin
permanently the NLRC's Regional Arbitration Branch X and Cagayan de Oro City Sheriff from
enforcing the decision 2 of 31 May 1991 of the Executive Labor Arbiter and from attaching and
executing on petitioner's property.

The Department of Agriculture (herein petitioner) and Sultan Security Agency entered into a
contract3 on 01 April 1989 for security services to be provided by the latter to the said governmental
entity. Save for the increase in the monthly rate of the guards, the same terms and conditions were
also made to apply to another contract, dated 01 May 1990, between the same parties. Pursuant to
their arrangements, guards were deployed by Sultan Agency in the various premises of the petitioner.

On 13 September 1990, several guards of the Sultan Security Agency filed a complaint for
underpayment of wages, non-payment of 13th month pay, uniform allowances, night shift differential
pay, holiday pay and overtime pay, as well as for damages, 4 before the Regional Arbitration Branch X
of Cagayan de Oro City, docketed as NLRC Case No. 10-09-00455-90 (or 10-10-00519-90, its
original docket number), against the Department of Agriculture and Sultan Security Agency.

The Executive Labor Arbiter rendered a decision on 31 May finding herein petitioner
and jointly and severally liable with Sultan Security Agency for the payment of money claims,
aggregating P266,483.91, of the complainant security guards. The petitioner and Sultan Security
Agency did not appeal the decision of the Labor Arbiter. Thus, the decision became final and
executory.

On 18 July 1991, the Labor Arbiter issued a writ of execution. 5 commanding the City Sheriff to
enforce and execute the judgment against the property of the two respondents. Forthwith, or on 19
July 1991, the City Sheriff levied on execution the motor vehicles of the petitioner, i.e. one (1) unit
Toyota Hi-Ace, one (1) unit Toyota Mini Cruiser, and one (1) unit Toyota Crown. 6 These units were
put under the custody of Zacharias Roa, the property custodian of the petitioner, pending their sale at
public auction or the final settlement of the case, whichever would come first.

A petition for injunction, prohibition and mandamus, with prayer for preliminary writ of injunction was
filed by the petitioner with the National Labor Relations Commission (NLRC), Cagayan de Oro,
alleging, inter alia, that the writ issued was effected without the Labor Arbiter having duly acquired
jurisdiction over the petitioner, and that, therefore, the decision of the Labor Arbiter was null and void
and all actions pursuant thereto should be deemed equally invalid and of no legal, effect. The
petitioner also pointed out that the attachment or seizure of its property would hamper and jeopardize
petitioner's governmental functions to the prejudice of the public good.
On 27 November 1991, the NLRC promulgated its assailed resolution; viz:

WHEREFORE, premises considered, the following orders are issued:

1. The enforcement and execution of the judgments against petitioner in NLRC RABX
Cases Nos. 10-10-00455-90; 10-10-0481-90 and 10-10-00519-90 are temporarily
suspended for a period of two (2) months, more or less, but not extending beyond the
last quarter of calendar year 1991 to enable petitioner to source and raise funds to
satisfy the judgment awards against it;

2. Meantime, petitioner is ordered and directed to source for funds within the period
above-stated and to deposit the sums of money equivalent to the aggregate amount. it
has been adjudged to pay jointly and severally with respondent Sultan Security Agency
with the Regional Arbitration Branch X, Cagayan de Oro City within the same period for
proper dispositions;

3. In order to ensure compliance with this order, petitioner is likewise directed to put up
and post sufficient surety and supersedeas bond equivalent to at least to fifty (50%)
percent of the total monetary award issued by a reputable bonding company duly
accredited by the Supreme Court or by the Regional Trial Court of Misamis Oriental to
answer for the satisfaction of the money claims in case of failure or default on the part of
petitioner to satisfy the money claims;

4. The City Sheriff is ordered to immediately release the properties of petitioner levied
on execution within ten (10) days from notice of the posting of sufficient surety or
supersedeas bond as specified above. In the meanwhile, petitioner is assessed to pay
the costs and/or expenses incurred by the City Sheriff, if any, in connection with the
execution of the judgments in the above-stated cases upon presentation of the
appropriate claims or vouchers and receipts by the city Sheriff, subject to the conditions
specified in the NLRC Sheriff, subject to the conditions specified in the NLRC Manual of
Instructions for Sheriffs;

5. The right of any of the judgment debtors to claim reimbursement against each other
for any payments made in connection with the satisfaction of the judgments herein is
hereby recognized pursuant to the ruling in the Eagle Security case, (supra). In case of
dispute between the judgment debtors, the Executive Labor Arbiter of the Branch of
origin may upon proper petition by any of the parties conduct arbitration proceedings for
the purpose and thereby render his decision after due notice and hearings;

7. Finally, the petition for injunction is Dismissed for lack of basis. The writ of preliminary
injunction previously issued is Lifted and Set Aside and in lieu thereof, a Temporary
Stay of Execution is issued for a period of two (2) months but not extending beyond the
last quarter of calendar year 1991, conditioned upon the posting of a surety or
supersedeas bond by petitioner within ten (10) days from notice pursuant to paragraph
3 of this disposition. The motion to admit the complaint in intervention is  Denied for lack
of merit while the motion to dismiss the petition filed by Duty Sheriff is Noted

SO ORDERED.

In this petition for certiorari, the petitioner charges the NLRC with grave abuse of discretion for
refusing to quash the writ of execution. The petitioner faults the NLRC for assuming jurisdiction over a
money claim against the Department, which, it claims, falls under the exclusive jurisdiction of the
Commission on Audit. More importantly, the petitioner asserts, the NLRC has disregarded the
cardinal rule on the non-suability of the State.

The private respondents, on the other hand, argue that the petitioner has impliedly waived its
immunity from suit by concluding a service contract with Sultan Security Agency.

The basic postulate enshrined in the constitution that "(t)he State may not be sued without its
consent," 7 reflects nothing less than a recognition of the sovereign character of the State and an
express affirmation of the unwritten rule effectively insulating it from the jurisdiction of courts. 8 It is
based on the very essence of sovereignty. As has been aptly observed, by Justice Holmes, a
sovereign is exempt from suit, not because of any formal conception or obsolete theory, but on the
logical and practical ground that there can be no legal right as against the authority that makes the
law on which the right depends. 9 True, the doctrine, not too infrequently, is derisively called "the royal
prerogative of dishonesty" because it grants the state the prerogative to defeat any legitimate claim
against it by simply invoking its non-suability. 10 We have had occasion, to explain in its defense,
however, that a continued adherence to the doctrine of non-suability cannot be deplored, for the loss
of governmental efficiency and the obstacle to the performance of its multifarious functions would be
far greater in severity than the inconvenience that may be caused private parties, if such fundamental
principle is to be abandoned and the availability of judicial remedy is not to be accordingly
restricted. 11

The rule, in any case, is not really absolute for it does not say that the state may not be sued under
any circumstances. On the contrary, as correctly phrased, the doctrine only conveys, "the state may
not be sued without its consent;" its clear import then is that the State may at times be sued.  12 The
States' consent may be given expressly or impliedly. Express consent may be made through a
general law13 or a special law. 14 In this jurisdiction, the general law waiving the immunity of the state
from suit is found in Act No. 3083, where the Philippine government "consents and submits to be
sued upon any money claims involving liability arising from contract, express or implied, which could
serve as a basis of civil action between private parties." 15 Implied consent, on the other hand, is
conceded when the State itself commences litigation, thus opening itself to a counterclaim 16 or when
it enters into a contract. 17 In this situation, the government is deemed to have descended to the level
of the other contracting party and to have divested itself of its sovereign immunity. This rule, relied
upon by the NLRC and the private respondents, is not, however, without qualification. Not all
contracts entered into by the government operate as a waiver of its non-suability; distinction must still
be made between one which is executed in the exercise of its sovereign function and another which
is done in its proprietary capacity. 18

In the Unites States of America vs. Ruiz, 19 where the questioned transaction dealt with improvements
on the wharves in the naval installation at Subic Bay, we held:

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

xxx xxx xxx

 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 this be deemed to have actually given its consent to be sued
only when it enters into business contracts. It does not apply where the contracts relates
to the exercise of its sovereign functions. In this case the projects are an integral part of
the naval base which is devoted to the defense of both the United States and the
Philippines, indisputably a function of the government of the highest order; they are not
utilized for not dedicated to commercial or business purposes.

In the instant case, the Department of Agriculture has not pretended to have assumed a capacity
apart from its being a governmental entity when it entered into the questioned contract; nor that it
could have, in fact, performed any act proprietary in character.

But, be that as it may, the claims of private respondents, i.e. for underpayment of wages, holiday pay,
overtime pay and similar other items, arising from the Contract for Service, clearly constitute money
claims. Act No. 3083, aforecited, gives the consent of the State to be "sued upon any moneyed claim
involving liability arising from contract, express or implied, . . . Pursuant, however, to Commonwealth
Act ("C.A.") No. 327, as amended by Presidential Decree ("P.D.") No. 1145, the money claim first be
brought to the Commission on Audit. Thus, in Carabao, Inc., vs. Agricultural Productivity
Commission, 20 we ruled:

(C)laimants have to prosecute their money claims against the Government under
Commonwealth Act 327, stating that Act 3083 stands now merely as the general law
waiving the State's immunity from suit, subject to the general limitation expressed in
Section 7 thereof that "no execution shall issue upon any judgment rendered by any
Court against the Government of the (Philippines), and that the conditions provided in
Commonwealth Act 327 for filing money claims against the Government must be strictly
observed."

We fail to see any substantial conflict or inconsistency between the provisions of C.A. No. 327 and
the Labor Code with respect to money claims against the State. The Labor code, in relation to Act No.
3083, provides the legal basis for the State liability but the prosecution, enforcement or satisfaction
thereof must still be pursued in accordance with the rules and procedures laid down in C.A. No. 327,
as amended by P.D. 1445.

When the state gives its consent to be sued, it does thereby necessarily consent to unrestrained
execution against it. tersely put, when the State waives its immunity, all it does, in effect, is to give the
other party an opportunity to prove, if it can, that the State has a liability.  21 In Republic vs.
Villasor 22 this Court, in nullifying the issuance of an alias writ of execution directed against the funds
of the Armed Forces of the Philippines to satisfy a final and executory judgment, has explained, thus
—

The universal rule that where the State gives its consent to be sued by private parties
either by general or special law, it may limit the claimant's action "only up to the
completion of proceedings anterior to the stage of execution" and that the power of the
Courts ends when the judgment is rendered, since government funds and properties
may not be seized under writs or execution or garnishment to satisfy such judgments, is
based on obvious considerations of public policy. Disbursements of public funds must
be covered by the correspondent appropriation as required by law. The functions and
public services rendered by the State cannot be allowed to be paralyzed or disrupted by
 the diversion of public funds from their legitimate and specific objects, as appropriated
by law.23

WHEREFORE, the petition is GRANTED. The resolution, dated 27 November 1991, is hereby
REVERSED and SET ASIDE. The writ of execution directed against the property of the Department
of Agriculture is nullified, and the public respondents are hereby enjoined permanently from doing,
issuing and implementing any and all writs of execution issued pursuant to the decision rendered by
the Labor Arbiter against said petitioner.

SO ORDERED.

G.R. No. 101949 December 1, 1994

THE HOLY SEE, petitioner,

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

Padilla Law Office for petitioner.

Siguion Reyna, Montecillo & Ongsiako for private respondent.

QUIASON, J.:

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

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

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

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

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

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

The three lots were sold to Ramon Licup, through Msgr. Domingo A. Cirilos, Jr., acting as agent to
the sellers. Later, Licup assigned his rights to the sale to private respondent.
In view of the refusal of the squatters to vacate the lots sold to private respondent, a dispute arose as
to who of the parties has the responsibility of evicting and clearing the land of squatters. Complicating
the relations of the parties was the sale by petitioner of Lot 5-A to Tropicana Properties and
Development Corporation (Tropicana).

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

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

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

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

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

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

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

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

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

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

II

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

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

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

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

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

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

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

III

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

A. The Holy See

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

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

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

The Lateran Treaty established the statehood of the Vatican City "for the purpose of assuring to the
Holy See absolute and visible independence and of guaranteeing to it indisputable sovereignty also in
the field of international relations" (O'Connell, I International Law 311 [1965]).
In view of the wordings of the Lateran Treaty, it is difficult to determine whether the statehood is
vested in the Holy See or in the Vatican City. Some writers even suggested that the treaty created
two international persons — the Holy See and Vatican City (Salonga and Yap, supra, 37).

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

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

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

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

B. Sovereign Immunity

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SO ORDERED.

G.R. No. 90478 November 21, 1991

REPUBLIC OF THE PHILIPPINES (PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT), petitioner,
vs.
SANDIGANBAYAN, BIENVENIDO R. TANTOCO, JR. and DOMINADOR R.
SANTIAGO, respondents.

Dominador R. Santiago for and in his own behalf and as counsel for respondent Tantoco, Jr.

NARVASA, J.:

Private respondents Bienvenido R. Tantoco, Jr. and Dominador R. Santiago — together with
Ferdinand E. Marcos, Imelda R. Marcos, Bienvenido R. Tantoco, Sr., Gliceria R. Tantoco, and Maria
Lourdes Tantoco-Pineda-are defendants in Civil Case No. 0008 of the Sandiganbayan. The case was
commenced on July 21, 1987 by the Presidential Commission on Good Government (PCGG) in
behalf of the Republic of the Philippines. The complaint which initiated the action was denominated
one "for reconveyance, reversion, accounting, restitution and damages," and was avowedly filed
pursuant to Executive Order No. 14 of President Corazon C. Aquino.

After having been served with summons, Tantoco, Jr. and Santiago, instead of filing their answer,
jointly filed a "MOTION TO STRIKE OUT SOME PORTIONS OF THE COMPLAINT AND FOR BILL
OF PARTICULARS OF OTHER PORTIONS" dated Nov. 3, 1987. 1 The PCGG filed an opposition
thereto, 2 and the movants, a reply to the opposition. 3 By order dated January 29, 1988, the
Sandiganbayan, in order to expedite proceedings and accommodate the defendants, gave the PCGG
forty-five (45) days to expand its complaint to make more specific certain allegations. 4
Tantoco and Santiago then presented a "motion for leave to file interrogatories under Rule 25 of the Rules of Court" dated February 1, 1988, and "Interrogatories under Rule
25." 5
 Basically, they sought an answer to the question: "Who were the Commissioners of the PCGG
(aside from its Chairman, Hon. Ramon Diaz, who verified the complaint) who approved or authorized
the inclusion of Messrs. Bienvenido R. Tantoco, Jr. and Dominador R. Santiago as defendants in
the . . case?" 6 The PCGG responded by filing a motion dated February 9, 1988 to strike out said
motion and interrogatories as being impertinent, "queer," "weird," or "procedurally bizarre as the
purpose thereof lacks merit as it is improper, impertinent and irrelevant under any
guise." 7
On March 18, 1988, in compliance with the Order of January 29, 1988, the PCGG filed an Expanded Complaint.  8
 As this expanded complaint,
Tantoco and Santiago reiterated their motion for bill of particulars, through a Manifestation dated April
11, 1988. 9
Afterwards, by Resolution dated July 4, 1988, 10
 the Sandiganbayan denied the motion to strike out, for bill of particulars,
and for leave to file interrogatories, holding them to be without legal and factual basis. Also denied
was the PCGG's motion to strike out impertinent pleading dated February 9, 1988. The
Sandiganbayan declared inter alia the complaint to be "sufficiently definite and clear enough," there
are adequate allegations . . which clearly portray the supposed involvement and/or alleged
participation of defendants-movants in the transactions described in detail in said Complaint," and
"the other matters sought for particularization are evidentiary in nature which should be ventilated in
the pre-trial or trial proper . ." It also opined that "(s)ervice of interrogatories before joinder of issue
and without leave of court is premature . . (absent) any special or extraordinary circumstances . .
which would justify . . (the same)."

Tantoco and Santiago then filed an Answer with Compulsory Counterclaim under date of July 18,
1988. 11 In response, the PCGG presented a "Reply to Answer with Motion to Dismiss Compulsory
Counterclaim " 12
The case was set for pre-trial on July 31, 1989. 13
 On July 25, 1989, the PCGG submitted its PRE-TRIAL. 14 The pre-trial
was however reset to September 11, 1989, and all other parties were required to submit pre-trial
briefs on or before that date. 15
On July 27, 1989 Tantoco and Santiago filed with the Sandiganbayan a pleading denominated "Interrogatories to Plaintiff,"  16
 and on August 2, 1989, an
17
"Amended Interrogatories to Plaintiff"'   as well as a Motion for Production and Inspection of
Documents. 18

The amended interrogatories chiefly sought factual details relative to specific averments of PCGG's amended complaint, through such questions, for instance, as—

1. In connection with the allegations . . in paragraph 1 . ., what specific property or properties does the plaintiff claim it has the right to recover from defendants
Tantoco, Jr. and Santiago for being ill-gotten?

3. In connection with the allegations . . in paragraph 10 (a) . . what specific act or acts . . were committed by defendants Tantoco, Jr. and Santiago in "concert with"
defendant Ferdinand Marcos and in furtherance or pursuit, of the alleged systematic plan of said defendant Marcos to accumulate ill-gotten wealth?"

5. In connection with . . paragraph 13 . ., what specific act or acts of the defendants Tantoco, Jr. and Santiago . . were committed by said defendants as part, or in
furtherance, of the alleged plan to conceal assets of defendants Ferdinand and Imelda Marcos?
 7. In connection with . . paragraph 15(c) . . is it plaintiff's position or theory of the case that Tourist Duty Free Shops, Inc., including all the assets of said
corporation, are beneficially owned by either or both defendants Ferdinand and Imelda Marcos and that the defendants Tantoco, Jr. and Santiago, as well as, the
other stockholders of record of the same corporation are mere "dummies" of said defendants Ferdinand and /or Imelda R. Marcos?

On the other hand, the motion for production and inspection of documents prayed for examination and copying of—

1) the "official records and other evidence" on the basis of which the verification of the Amended Complaint asserted that the allegations thereof are "true and
correct;"

2) the documents listed in PCGG's Pre-Trial Brief as those "intended to be presented and . . marked as exhibits for the plaintiff;" and

3) "the minutes of the meeting of the PCGG which chronicles the discussion (if any) and the decision (of the Chairman and members) to file the complaint" in the
case at bar.

By Resolutions dated August 21, 1989 and August 25, 1989, the Sandiganbayan admitted the Amended Interrogatories and granted the motion for production and inspection of
documents (production being scheduled on September 14 and 15, 1989), respectively.

On September 1, 1989, the PCGG filed a Motion for Reconsideration of the Resolution of August 25, 1989 (allowing production and inspection of documents). It argued that

1) since the documents subject thereof would be marked as exhibits during the pre-trial on September 11, 1989 anyway, the order for "their production and inspection on
September 14 and 15, are purposeless and unnecessary;"

2) movants already know of the existence and contents of the document which "are clearly described . . (in) plaintiff's Pre-Trial Brief;"

3) the documents are "privileged in character" since they are intended to be used against the PCGG and/or its Commissioners in violation of Section 4, Executive Order No.
1, viz.:

(a) No civil action shall lie against the Commission or any member thereof for anything done or omitted in the discharge of the task contemplated by this Order.

(b) No member or staff of the Commission shall be required to testify or produce evidence in any judicial, legislative, or administrative proceeding concerning
matters within its official cognizance.

It also filed on September 4, 1989 an opposition to the Amended Interrogatories, 19

 which the Sandiganbayan treated as a motion for
reconsideration of the Resolution of August 21, 1989 (admitting the Amended Interrogatories). The
opposition alleged that —

1) the interrogatories "are not specific and do not name the person to whom they are propounded . .,"
or "who in the PCGG, in particular, . . (should) answer the interrogatories;"

2) the interrogatories delve into "factual matters which had already been decreed . . as part of the
proof of the Complaint upon trial . .;"

3) the interrogatories "are frivolous" since they inquire about "matters of fact . . which defendants . .
sought to . . (extract) through their aborted Motion for Bill of Particulars;"

4) the interrogatories "are really in the nature of a deposition, which is prematurely filed and irregularly
utilized . . (since) the order of trial calls for plaintiff to first present its evidence."

Tantoco and Santiago filed a reply and opposition on September 18, 1989.
After hearing, the Sandiganbayan promulgated two (2) Resolutions on September 29, 1989, the first,
denying reconsideration (of the Resolution allowing production of documents), and the second,
reiterating by implication the permission to serve the amended interrogatories on the plaintiff
(PCGG). 20

Hence, this petition for certiorari.

The PCGG contends that said orders, both dated September 29, 1989, should be nullified because rendered with grave abuse of discretion amounting to excess of jurisdiction.
More particularly, it claims —

a) as regards the order allowing the amended interrogatories to the plaintiff PCGG:

1) that said interrogatories are not specific and do not name the particular individuals to whom they are propounded, being addressed only to the PCGG;

2) that the interrogatories deal with factual matters which the Sandiganbayan (in denying the movants' motion for bill of particulars) had already declared to be part
of the PCGG's proof upon trial; and

3) that the interrogatories would make PCGG Commissioners and officers witnesses, in contravention of Executive Order No. 14 and related issuances; and

b) as regards the order granting the motion for production of documents:

1) that movants had not shown any good cause therefor;

2) that some documents sought to be produced and inspected had already been presented in Court and marked preliminarily as PCGG's exhibits, and the movants
had viewed, scrutinized and even offered objections thereto and made comments thereon; and

3) that the other documents sought to be produced are either —

(a) privileged in character or confidential in nature and their use is proscribed by the immunity provisions of Executive Order No. 1, or

(b) non-existent, or mere products of the movants' suspicion and fear.

This Court issued a temporary restraining order on October 27, 1989, directing the Sandiganbayan to desist from enforcing its questioned resolutions of September
29, 1989 in Civil Case No. 0008. 21

After the issues were delineated and argued at no little length by the parties, the Solicitor General withdrew "as counsel for plaintiff . . with the reservation, however,
conformably with Presidential Decree No. 478, the provisions of Executive Order No. 292, as well as the decisional law of 'Orbos v. Civil Service Commission, et
al.,' (G.R. No. 92561, September 12, 1990) 22
 to submit his comment/observation on incidents/matters pending
with this . . Court if called for by circumstances in the interest of the Government or if he is so
required by the Court." 23 This, the Court allowed by Resolution dated January 21, 1991. 24
Subsequently, PCGG Commissioner Maximo A. Maceren advised the Court that the cases from which the Solicitor General had withdrawn would henceforth be
under his (Maceren's) charge "and/or any of the following private attorneys: Eliseo B. Alampay, Jr., Mario E. Ongkiko, Mario Jalandoni and such other attorneys as
it may later authorize." 25
The facts not being in dispute, and it appearing that the parties have fully ventilated their respective positions, the Court now proceeds to decide the case.

Involved in the present proceedings are two of the modes of discovery provided in the Rules of Court: interrogatories to parties ,  26
 and production
and inspection of documents and things. 27 Now, it appears to the Court that among far too
many lawyers (and not a few judges), there is, if not a regrettable unfamiliarity and even
outright ignorance about the nature, purposes and operation of the modes of discovery, at
least a strong yet unreasoned and unreasonable disinclination to resort to them — which is a
great pity for the intelligent and adequate use of the deposition-discovery mechanism, coupled
with pre-trial procedure, could, as the experience of other jurisdictions convincingly
demonstrates, effectively shorten the period of litigation and speed up adjudication. 28 Hence, a
few words about these remedies is not at all inappropriate.

The resolution of controversies is, as everyone knows, the raison d'etre of courts. This
essential function is accomplished by first, the ascertainment of all the material and relevant
facts from the pleadings and from the evidence adduced by the parties, and second, after that
determination of the facts has been completed, by the application of the law thereto to the end
that the controversy may be settled authoritatively, definitely and finally.

It is for this reason that a substantial part of the adjective law in this jurisdiction is occupied
with assuring that all the facts are indeed presented to the Court; for obviously, to the extent
that adjudication is made on the basis of incomplete facts, to that extent there is faultiness in
the approximation of objective justice. It is thus the obligation of lawyers no less than of judges
to see that this objective is attained; that is to say, that there no suppression, obscuration,
misrepresentation or distortion of the facts; and that no party be unaware of any fact material a
relevant to the action, or surprised by any factual detail suddenly brought to his attention
during the trial. 29
Seventy-one years ago, in Alonso v. Villamor, 30
 this Court described the nature and object of litigation and in the
process laid down the standards by which judicial contests are to be conducted in this
jurisdiction. It said:

A litigation is not a game of technicalities in which one, more deeply schooled and
skilled in the subtle art of movement and position, entraps and destroys the other. It is,
rather a contest in which each contending party fully and fairly lays before the court the
facts in issue and then brushing aside as wholly trivial and indecisive all imperfections
of form and technicalities of procedure, asks that justice be done on the merits.
Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it
deserts its proper office as an aid to justice and becomes its great hindrance and chief
enemy, deserves scant consideration from courts. There should be no vested right in
technicalities. . . .

The message is plain. It is the duty of each contending party to lay before the court the facts in
issue-fully and fairly; i.e., to present to the court all the material and relevant facts known to
him, suppressing or concealing nothing, nor preventing another party, by clever and adroit
manipulation of the technical rules of pleading and evidence, from also presenting all the facts
within his knowledge.
Initially, that undertaking of laying the facts before the court is accomplished by the pleadings
filed by the parties; but that, only in a very general way. Only "ultimate facts" are set forth in the
pleadings; hence, only the barest outline of the facfual basis of a party's claims or defenses is
limned in his pleadings. The law says that every pleading "shall contain in a methodical and
logical form, a plain, concise and direct statement of the ultimate facts on which the party
pleading relies for his claim or defense, as the case may be, omitting the statement of mere
evidentiary facts." 31

Parenthetically, if this requirement is not observed, i.e., the ultimate facts are alleged too generally or "not averred with sufficient definiteness or particularity to
enable . . (an adverse party) properly to prepare his responsive pleading or to prepare for trial," a bill of particulars seeking a "more definite statement" may be
ordered by the court on motion of a party. The office of a bill of particulars is, however, limited to making more particular or definite the  ultimate facts in a pleading It
is not its office to supply evidentiary matters. And the common perception is that said evidentiary details are made known to the parties and the court only during the
trial, when proof is adduced on the issues of fact arising from the pleadings.

The truth is that "evidentiary matters" may be inquired into and learned by the parties before the trial. Indeed, it is the purpose and policy of the law that the parties
— before the trial if not indeed even before the pre-trial — should discover or inform themselves of all the facts relevant to the action, not only those known to them
individually, but also those known to adversaries; in other words, the desideratum is that civil trials should not be carried on in the dark; and the Rules of Court make
this ideal possible through the deposition-discovery mechanism set forth in Rules 24 to 29. The experience in other jurisdictions has been that ample discovery
before trial, under proper regulation, accomplished one of the most necessary of modern procedure: it not only eliminates unessential issue from trials thereby
shortening them considerably, but also requires parties to play the game with the cards on the table so that the possibility of fair settlement before trial is
measurably increased. . ." 32

As just intimated, the deposition-discovery procedure was designed to remedy the conceded inadequacy and cumbersomeness of the pre-trial functions of notice-
giving, issue-formulation and fact revelation theretofore performed primarily by the pleadings.

The various modes or instruments of discovery are meant to serve (1) as a device, along with the pre-trial hearing under Rule 20, to narrow and clarify the basic
issues between the parties, and (2) as a device for ascertaining the facts relative to those issues. The evident purpose is, to repeat, to enable parties, consistent
with recognized privileges, to obtain the fullest possible knowledge of the issues and facts before trials and thus prevent that said trials are carried on in the dark. 33

To this end, the field of inquiry that may be covered by depositions or interrogatories is as broad as when the interrogated party is called as a witness to testify orally
at trial. The inquiry extends to all facts which are relevant, whether they be ultimate or evidentiary, excepting only those matters which are privileged. The objective
is as much to give every party the fullest possible information of all the relevant facts before the trial as to obtain evidence for use upon said trial. The principle is
reflected in Section 2, Rule 24 (governing depositions) 34
 which generally allows the examination of a deponent —

1) "regarding any matter, not privileged, which is relevant to the subject of the pending
action, whether relating to the claim or defense of any other party;"

2) as well as:

(a) "the existence, description, nature, custody, condition and location of any books,
documents, or other tangible things" and

(b) "the identity and location of persons having knowledge of relevant facts."
What is chiefly contemplated is the discovery of every bit of information which may be useful in
the preparation for trial, such as the identity and location of persons having knowledge of
relevant facts; those relevant facts themselves; and the existence, description, nature, custody,
condition, and location of any books, documents, or other tangible things. Hence, "the
deposition-discovery rules are to be accorded a broad and liberal treatment. No longer can the
time-honored cry of "fishing expedition" serve to preclude a party from inquiring into the facts
underlying his opponent's case. Mutual knowledge of all the relevant facts gathered by both
parties is essential to proper litigation. To that end, either party may compel the other to
disgorge whatever facts he has in his possession. The deposition-discovery procedure simply
advances the stage at which the disclosure can be compelled from the time of trial to the
period preceding it, thus reducing the possibility, of surprise, . . . 35
In line with this principle of according liberal treatment to the deposition-discovery mechanism, such modes of discovery as (a) depositions (whether by oral
examination or written interrogatories) under Rule 24, (b) interrogatories to parties under Rule 25, and (c) requests for admissions under Rule 26, may be availed of
without leave of court, and generally, without court intervention. The Rules of Court explicitly provide that leave of court is not necessary to avail of said modes of
discovery after an answer to the complaint has been served. 36
 It is only when an answer has not yet been filed (but after
jurisdiction has been obtained over the defendant or property subject of the action) that prior
leave of court is needed to avail of these modes of discovery, the reason being that at that time
the issues are not yet joined and the disputed facts are not clear. 37

On the other hand, leave of court is required as regards discovery by (a) production or inspection of documents or things in accordance with Rule 27, or (b) physical
and mental examination of persons under Rule 28, which may be granted upon due application and a showing of due cause.

To ensure that availment of the modes of discovery is otherwise untrammeled and efficacious, the law imposes serious sanctions on the party who refuses to make
discovery, such as dismissing the action or proceeding or part thereof, or rendering judgment by default against the disobedient party; contempt of court, or arrest of
the party or agent of the party; payment of the amount of reasonable expenses incurred in obtaining a court order to compel discovery; taking the matters inquired
into as established in accordance with the claim of the party seeking discovery; refusal to allow the disobedient party support or oppose designated claims or
defenses; striking out pleadings or parts thereof; staying further proceedings. 38

Of course, there are limitations to discovery, even when permitted to be undertaken without leave and without judicial intervention. "As indicated by (the) Rules . . .,
limitations inevitably arise when it can be shown that the examination is being conducted in bad faith or in such a manner as to annoy, embarass, or oppress the
person subject to the inquiry. 39
 And . . . further limitations come into existence when the inquiry touches
upon the irrelevant or encroaches upon the recognized domains of privilege." 40

In fine, the liberty of a party to make discovery is well nigh unrestricted if the matters inquired into are otherwise relevant and not privileged, and the inquiry is made
in good faith and within the bounds of the law.

It is in light of these broad principles underlying the deposition-discovery mechanism, in relation of course to the particular rules directly involved, that the issues in
this case will now be resolved.

The petitioner's objections to the interrogatories served on it in accordance with Rule 25 of the Rules of Court cannot be sustained.

It should initially be pointed out — as regards the private respondents "Motion for Leave to File Interrogatories" dated February 1, 1988  41
 — that it was
correct for them to seek leave to serve interrogatories, because discovery was being availed
of before an answer had been served. In such a situation, i.e., "after jurisdiction has been
obtained over any defendant or over property subject of the action" but before answer, Section
1 of Rule 24 (treating of depositions), in relation to Section 1 of Rule 25 (dealing with
interrogatories to parties) explicitly requires "leave of court." 42 But there was no need for the
private respondents to seek such leave to serve their "Amended Interrogatories to Plaintiff"
(dated August 2, 1989 43) after they had filed their answer to the PCGG's complaint, just as
there was no need for the Sandiganbayan to act thereon.

1. The petitioner's first contention — that the interrogatories in question are defective because
they (a) do not name the particular individuals to whom they are propounded, being addressed
only to the PCGG, and (b) are "fundamentally the same matters . . (private respondents)
sought to be clarified through their aborted Motion . . for Bill of Particulars" — are untenable
and quickly disposed of.

The first part of petitioner's submission is adequately confuted by Section 1, Rule 25 which
states that if the party served with interrogatories is a juridical entity such as "a public or private
corporation or a partnership or association," the same shall be "answered . . by any officer
thereof competent to testify in its behalf." There is absolutely no reason why this proposition
should not be applied by analogy to the interrogatories served on the PCGG. That the
interrogatories are addressed only to the PCGG, without naming any specific commissioner o
officer thereof, is utterly of no consequence, and may not be invoked as a reason to refuse to
answer. As the rule states, the interrogatories shall be answered "by any officer thereof
competent to testify in its behalf."

That the matters on which discovery is desired are the same matters subject of a prior motion
for bill of particulars addressed to the PCGG's amended complaint — and denied for lack of
merit — is beside the point. Indeed, as already pointed out above, a bill of particulars may elicit
only ultimate facts, not so-called evidentiary facts. The latter are without doubt proper subject
of discovery. 44
Neither may it be validly argued that the amended interrogatories lack specificity. The merest glance at them disproves the argument. The interrogatories are made
to relate to individual paragraphs of the PCGG's expanded complaint and inquire about details of the ultimate facts therein alleged. What the PCGG may properly
do is to object to specific items of the interrogatories, on the ground of lack of relevancy, or privilege, or that the inquiries are being made in bad faith, or simply to
embarass or oppress it. 45
 But until such an objection is presented and sustained, the obligation to
answer subsists.

2. That the interrogatories deal with factual matters which will be part of the PCGG's proof
upon trial, is not ground for suppressing them either. As already pointed out, it is the precise
purpose of discovery to ensure mutual knowledge of all the relevant facts on the part of all
parties even before trial, this being deemed essential to proper litigation. This is why either
party may compel the other to disgorge whatever facts he has in his possession; and the stage
at which disclosure of evidence is made is advanced from the time of trial to the period
preceding it.

3. Also unmeritorious is the objection that the interrogatories would make PCGG
Commissioners and officers witnesses, in contravention of Executive Order No. 14 and related
issuances. In the first place, there is nothing at all wrong in a party's making his adversary his
witness . 46 This is expressly allowed by Section 6, Rule 132 of the Rules of Court, viz.:

Sec. 6. Direct examination of unwilling or hostile witnesses. — A party may . . . call an

adverse party or an officer, director, or managing agent of a public or private corporation
or of a partnership or association which is an adverse party, and interrogate him by
 leading questions and contradict and impeach him in all respects as if he had been
called by the adverse party, and the witness thus called may be contradicted and
impeached by or on behalf of the adverse party also, and may be cross-examined by
the adverse party only upon the subject-matter of his examination in chief.

The PCGG insinuates that the private respondents are engaged on a "fishing expedition,"
apart from the fact that the information sought is immaterial since they are evidently meant to
establish a claim against PCGG officers who are not parties to the action. It suffices to point
out that "fishing expeditions" are precisely permitted through the modes of
discovery. 47 Moreover, a defendant who files a counterclaim against the plaintiff is allowed by
the Rules to implead persons (therefore strangers to the action) as additional defendants on
said counterclaim. This may be done pursuant to Section 14, Rule 6 of the Rules, to wit:

Sec. 14. Bringing new parties. — When the presence of parties other than those to the
original action is required for the granting of complete relief in the determination of
a counterclaim or cross-claim, the court shall order them to be brought in as defendants,
if jurisdiction over them can be obtained."

The PCGG's assertion that it or its members are not amenable to any civil action "for anything
done or omitted in the discharge of the task contemplated by . . (Executive) Order (No. 1)," is
not a ground to refuse to answer the interrogatories. The disclosure of facto relevant to the
action and which are not self-incriminatory or otherwise privileged is one thing; the matter of
whether or not liability may arise from the facts disclosed in light of Executive Order
No. 1, is another. No doubt, the latter proposition may properly be set up by way of defense in
the action.

The apprehension has been expressed that the answers to the interrogatories may be utilized
as foundation for a counterclaim against the PCGG or its members and officers. They will be.
The private respondents have made no secret that this is in fact their intention. Withal, the
Court is unable to uphold the proposition that while the PCGG obviously feels itself at liberty to
bring actions on the basis of its study and appreciation of the evidence in its possession, the
parties sued should not be free to file counterclaims in the same actions against the PCGG or
its officers for gross neglect or ignorance, if not downright bad faith or malice in the
commencement or initiation of such judicial proceedings, or that in the actions that it may
bring, the PCGG may opt not to be bound by rule applicable to the parties it has sued, e.g., the
rules of discovery.

So, too, the PCGG's postulation that none of its members may be "required to testify or
produce evidence in any judicial . . proceeding concerning matters within its official
cognizance," has no application to a judicial proceeding it has itself initiated. As just suggested,
the act of bringing suit must entail a waiver of the exemption from giving evidence; by bringing
suit it brings itself within the operation and scope of all the rules governing civil actions,
including the rights and duties under the rules of discovery. Otherwise, the absurd would have
to be conceded, that while the parties it has impleaded as defendants may be required to
"disgorge all the facts" within their knowledge and in their possession, it may not itself be
subject to a like compulsion.

The State is, of course, immune from suit in the sense that it cannot, as a rule, be sued without
its consent. But it is axiomatic that in filing an action, it divests itself of its sovereign character
and sheds its immunity from suit, descending to the level of an ordinary litigant. The PCGG
cannot claim a superior or preferred status to the State, even while assuming to represent or
act for the State. 48
The suggestion 49
 that the State makes no implied waiver of immunity by filing suit except when in so
doing it acts in, or in matters concerning, its proprietary or non-governmental capacity, is
unacceptable; it attempts a distinction without support in principle or precedent. On the
contrary —

The consent of the State to be sued may be given expressly or impliedly. Express
consent may be manifested either through a general law or a special law. Implied
consent is given when the State itself commences litigation or when it enters into a
contract. 50
The immunity of the State from suits does not deprive it of the right to sue private parties in its own courts. The state as plaintiff may avail itself of the
different forms of actions open to private litigants. In short, by taking the initiative in an action against the private parties, the state surrenders its
privileged position and comes down to the level of the defendant. The latter automatically acquires, within certain limits, the right to set up whatever
claims and other defenses he might have against the state. . . . (Sinco, Philippine Political Law, Tenth E., pp. 36-37,  citing U.S. vs. Ringgold, 8 Pet. 150,
8 L. ed. 899)" 51

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 or 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. 52

The Court also finds itself unable to sustain the PCGG's other principal contention, of the nullity of the Sandiganbayan's Order for the production and inspection of
specified documents and things allegedly in its possession.

The Court gives short shrift to the argument that some documents sought to be produced and inspected had already been presented in Court and marked
preliminarily as PCGG's exhibits, the movants having in fact viewed, scrutinized and even offered objections thereto and made comments thereon. Obviously, there
is nothing secret or confidential about these documents. No serious objection can therefore be presented to the desire of the private respondents to have copies of
those documents in order to study them some more or otherwise use them during the trial for any purpose allowed by law.

The PCGG says that some of the documents are non-existent. This it can allege in response to the corresponding question in the interrogatories, and it will incur no
sanction for doing so unless it is subsequently established that the denial is false.

The claim that use of the documents is proscribed by Executive Order No. 1 has already been dealt with. The PCGG is however at liberty to allege and prove that
said documents fall within some other privilege, constitutional or statutory.

The Court finally finds that, contrary to the petitioner's theory, there is good cause for the production and inspection of the documents subject of the motion dated
August 3, 1989. 53
 Some of the documents are, according to the verification of the amended
complaint, the basis of several of the material allegations of said complaint. Others, admittedly,
are to be used in evidence by the plaintiff. It is matters such as these into which inquiry is
precisely allowed by the rules of discovery, to the end that the parties may adequately prepare
for pre-trial and trial. The only other documents sought to be produced are needed in relation
to the allegations of the counterclaim. Their relevance is indisputable; their disclosure may not
be opposed.

One last word. Due no doubt to the deplorable unfamiliarity respecting the nature, purposes
and operation of the modes of discovery earlier
54
mentioned,   there also appears to be a widely entertained idea that application of said modes
is a complicated matter, unduly expensive and dilatory. Nothing could be farther from the truth.
For example, as will already have been noted from the preceding discussion, all that is entailed
to activate or put in motion the process of discovery by interrogatories to parties under Rule 25
of the Rules of Court, is simply the delivery directly to a party of a letter setting forth a list of
least questions with the request that they be answered individually. 55 That is all. The service of
such a communication on the party has the effect of imposing on him the obligation of
answering the questions "separately and fully in writing underoath," and serving "a copy of the
answers on the party submitting the interrogatories within fifteen (15) days after service of the
interrogatories . . ." 56 The sanctions for refusing to make discovery have already been
mentioned. 57 So, too, discovery under Rule 26 is begun by nothing more complex than the
service on a party of a letter or other written communication containing a request that specific
facts therein set forth and/or particular documents copies of which are thereto appended, be
admitted in writing. 58 That is all. Again, the receipt of such a communication by the party has
the effect of imposing on him the obligation of serving the party requesting admission with "a
sworn statement either denying specifically the matters of which an admission is requested or
setting forth in detail the reasons why he cannot truthfully either admit or deny those matters,"
failing in which "(e)ach of the matters of which admission is requested shall be deemed
admitted." 59 The taking of depositions in accordance with Rule 24 (either on oral examination
or by written interrogatories) while somewhat less simple, is nonetheless by no means as
complicated as seems to be the lamentably extensive notion.

WHEREFORE, the petition is DENIED, without pronouncement as to costs. The temporary

restraining order issued on October 27, 1989 is hereby LIFTED AND SET ASIDE.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin, Griño-Aquino, Medialdea,
Regalado and Davide, Jr., JJ., concur.
Melencio-Herrera, J., I also join Justice Cruz's concurrence.

Romero, J., took no part.

Separate Opinions

CRUZ, J., concurring:

I am delighted to concurr with Mr. Justice Andres R. Narvasa in his scholarly ponencia which,

besides reaching a conclusion sustained by the applicable law and jurisprudence, makes for
reading both pleasurable and instructive. One function of the court not generally appreciated is
to educate the reader on the intricacies and even the mustique of the law. The opinion
performs this function with impressive expertise and makes the modes of discovery less
esoteric or inaccessible to many members of the bar.

 
 # Separate Opinions

CRUZ, J., concurring:

I am delighted to concurr with Mr. Justice Andres R. Narvasa in his scholarly ponencia which,
besides reaching a conclusion sustained by the applicable law and jurisprudence, makes for
coding both pleasurable and instructive. One function of the court not generally appreciated is
to educate the reader on the intricacies and even the mustique of the law. The opinion
performs this function with impressive expertise and makes the modes of discovery less
esoteric or inaccessible to many members of the bar.

December 1990 - Philippine Supreme Court Decisions/Resolutions

Philippine Supreme Court Jurisprudence

Philippine Supreme Court Jurisprudence > Year 1990 > December 1990 Decisions > G.R. No. 68514
December 17, 1990 - TRADERS ROYAL BANK v. INTERMEDIATE APPELLATE COURT, ET AL.:

THIRD DIVISION

[G.R. No. 68514. December 17, 1990.]

TRADERS ROYAL BANK, Petitioner, v. HON. INTERMEDIATE APPELLATE COURT and HON.

GREGORIO S. CENDAÑA, in his capacity as DIRECTOR OF THE NATIONAL MEDIA
PRODUCTION CENTER (NMPC), Respondents.

San Juan, Africa, Gonzalez & San Agustin for Petitioner.

Romeo R. Bringas for Respondents.

DECISION

FERNAN, J.:

In this petition for review on certiorari, the Traders Royal Bank (Traders) seeks to nullify the decision
1 of the then Intermediate Appellate Court ordering the dismissal of the collection case against the
National Media Production Center (NMPC) and the Production Specialists, Inc. (PSI) insofar as the
NMPC is concerned, and the release of the garnishment on the moneys of the NMPC as well as any
attachment of its properties.
On April 9, 1981, Traders, a banking institution operating under Philippine laws, entered into a loan
agreement with the NMPC, a government instrumentality tasked with the function of disseminating
government information, programs and policies, represented by Director Gregorio S. Cendaña, and
the PSI, a corporation duly organized and existing under Philippine laws, represented by its president,
Romeo G. Jalosjos. 2

Under the loan agreement, Traders approved a credit accommodation in the amount of two million
five hundred twenty thousand pesos (P2,520,000) in favor of NMPC and PSI through a domestic
stand-by letter of credit to guarantee payment of the coverage or broadcast rights for the 1981
season of the Philippine Basketball Association (PBA). Among the conditions imposed were that
NMPC and PSI would deposit with Traders all collections obtained from the sponsoring companies
and that during the term of said letter of credit they would maintain in their current account with the
bank a balance of at least P500,000 or 20% of the face value of the letter of credit. 3

As of July 27, 1981, the PBA had actually drawn against said letter of credit the total amount of
P340,000. Inasmuch as NMPC and PSI did not make any payments on their obligation nor did they
comply with the conditions aforecited, Traders filed in the Court of First Instance of Rizal at Pasay
City a complaint against NMPC and PSI to collect the whole amount of P2,520,000 (Civil Case No.
9303-P). Alleging therein that the defendants were selling or disposing of substantial portions of their
assets. Traders prayed for the issuance of a writ of preliminary attachment. 4 The lower court issued
the writ prayed for 5 after Traders filed a bond of P2,520,000.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph

Pursuant to said writ, the deputy sheriff of Rizal collected an aggregate amount of P1,046,816.75
from the PSI whose president, Jalosjos, thereafter requested Traders through a letter that said
amount be considered as partial payment of defendants’ principal obligation, interest and attorney’s
fees. Traders acceded to the request and through a manifestation, prayed the court to issue an order
in the tenor of Jalosjos’ request. 6 Said prayer was granted by the lower court. 7

A few months later, the NMPC, through the Office of the Solicitor General, filed a motion to dismiss
the case on the ground of lack of jurisdiction as the NMPC, being an entity under the Office of the
President performing governmental functions, cannot be sued without its consent 8

On September 21, 1982, the lower court denied the motion to dismiss on the strength of the ruling in
Harry Lyons, Inc. v. The United States of America 9 that the state may be sued without its consent if it
entered into a contract with a private person. In its answer to the complaint, NMPC reiterated its
contention that it was immune from suit and alleged that the claim should have been filed with the
Commission on Audit pursuant to Article XII, D, Section 2(1) of the 1973 Constitution and Section 26
of Presidential Decree No. 1445 (Government Auditing Code of the Philippines). It filed a cross-claim
against PSI alleging that it merely acted as a guarantor of PSI in the loan agreement considering that
it had appointed PSI as production manager and exclusive marketing manager for the 1979, 1980
and 1981 PBA seasons. 10

The bond was thereafter renewed and pre-trial of the case was set. In the meantime, the deputy
sheriff garnished the collection from the sponsoring companies in the amount of P1,391,699.57 and
another P420,189.27 from NMPC’s account with Traders for a total of P1,811,888.84. 11

Before the trial, NMPC, through private counsel, filed another motion to dismiss reiterating the stand
of the Office of the Solicitor General on NMPC’s immunity from suit. 12 Traders opposed the motion
asserting that the lower court has jurisdiction over the subject or nature of the case and that the
complaint states facts sufficient to constitute a cause of action. 13 The NMPC, through private
counsel, filed a reply to the opposition.

On January 5, 1984, the lower court issued an order stating that "to maintain the authoritative dignity"
of the court, the order of September 21, 1982 denying the motion to dismiss should be respected. 14

Consequently, NMPC filed before the then Intermediate Appellate Court a petition for certiorari,
prohibition and mandamus alleging that the lower court gravely abused its discretion in denying the
motion to dismiss and in failing to dissolve the writ of attachment on the grounds that government
property cannot be attached, removed, concealed or disposed of and that the attachment bond of
Traders was not renewed. It asserted that if NMPC was at all liable, partial availment of the letter of
credit in the amount of P340,000 was "already more than satisfied" and that "as regards the undrawn
balance, NMPC already terminated the loan agreement and/or whatever security or guarantee NMPC
had previously executed to (sic) said letter of credit." 15 It prayed that the order denying the motions
to dismiss be annulled and that the lower court be commanded to desist from further proceeding with
the case and to dismiss the same and make permanent the mandatory injunction releasing the
garnished moneys of the government.chanrobles law library

The appellate court granted the petition in its decision of July 17, 1984. It found that as an
instrumentality of the government under the supervision of the Office of the President, NMPC, which
had not been duly incorporated so as to assume a separate juridical personality of its own, may not
be sued without its consent. It ruled that NMPC’s act of entering into a contract did not mean that it
voluntarily waived its immunity from suit "inasmuch as NMPC truly has no personality of its own." It
also held that although "review on certiorari of an order denying a motion to dismiss is not ordinarily
availing, a petition for certiorari would nonetheless be proper if the jurisdictional competence of the
Court is raised because jurisdiction may be raised at any point in the proceedings." 16

Traders moved for a reconsideration of said decision, but its motion was denied. Hence, the instant
petition for review on certiorari with prayer for the issuance of a restraining order.

Traders contends herein that although NMPC is a government instrumentality and hence, it may not
be sued without its consent, by entering into a loan agreement for the benefit of the PBA, it exercised
a proprietary function thereby abandoning its sovereign capacity and impliedly consented to be sued.
It also asserts that NMPC’s petition for certiorari, prohibition and mandamus in the appellate court
was improper.

On the procedural issue, We hold that the NMPC properly filed the petition for certiorari, prohibition
and mandamus in the Intermediate Appellate Court because it needed an adequate and expeditious
relief from the garnishment of government funds. 17

On the issue of suability of the NMPC, we role for the petitioner.

The doctrine of state immunity from suits is constitutionally recognized 18 and is germane to the
concept of sovereignty. As such, the doctrine may be waived by general or special law. Immunity
from suit may also be waived by an implied consent to be sued as when, through its officers and
agents, the state enters into a contract in furtherance of a legitimate aim and purpose. By doing so,
the state descends to the level of the citizen and its consent to be sued is implied from the very act of
entering into such contract. 19

A problem usually arises when a government entity, though unincorporated and therefore not
possessed of a distinct juridical personality, enters into a contract which, by its nature, is proprietary
in character. Should this transpire, the test of the state’s suability is this: "If said non-governmental
function is undertaken as an incident to its governmental function, there is no waiver thereby of the
sovereign immunity from suit extended to such government entity." 20 In others words, if the
transaction, contract or operation undertaken by the government entity is a necessary incident of its
prime governmental function, said entity is immune from suit. 21

With these jurisprudential background in mind, we thoroughly examined the records of this case to
determine whether by entering into the aforesaid contract with Traders, the NMPC, through its
Director, waived immunity from suit. The matter is further complicated by the fact that the action was
filed against the NMPC "represented by Gregorio Cendaña" 22 and not against the Republic of the
Philippines and therefore the consent, or absence thereof, on the part of the NMPC’s principal, the
Republic of the Philippines, should also be considered.chanrobles.com:cralaw:red

According to the Solicitor General, the NMPC was created on July 1, 1953 as a joint venture of the
Philippine Council for U.S. Aid (PHILCUSA) and the Foreign Operations Agency of the government. It
was principally engaged "in the public dissemination of government information to assist in the
hastening of the slow economic development of the country." 23

From then on, the NMPC had been shuttled from one supervising authority to another. Thus, on June
14, 1958, pursuant to Reorganization Plan No. 9-A and Executive Order No. 290, 24 NMPC was put
under the jurisdiction of the Department of General Services. 25 In 1969, it was placed directly under
the Office of then President Marcos. 26 After the declaration of martial law, President Marcos issued
a memorandum reiterating his degree to exercise control over the agency. 27 Pursuant thereto, on
May 28, 1974 Presidential Decree No. 473 appropriating thirty-six million pesos for the purchase and
installation of equipment for the use of NMPC was promulgated. 28 Finally, on December 24, 1986,
President Aquino issued Executive Order No. 100 29 which, in effect, abolished the NMPC by
creating the Philippine Information Agency to which all records, assets and equipment of the NMPC
were transferred.

With these facts at hand, we determined whether or not entering into a loan agreement to facilitate
the broadcast of a basketball season, either as a principal borrower or as a guarantor, was an
incident of what the Solicitor General described as the NMPC’s function of "public dissemination of
government information to assist in the hastening of the slow economic development of the country."
It should be noted that Presidential Decree No. 473 also describes the NMPC as "responsible for the
production of various publications that disseminate information to the general public in the Philippines
and abroad." 30

We find, however, that the available allegations and evidence on the nature of its functions and the
purpose of the contract it entered into are sufficient to warrant a ruling that the NMPC was engaged in
an undertaking which was not incidental to disseminating governmental information.chanrobles
lawlibrary : rednad

The general and bare allegation of the NMPC on its non-suability is weak even in the face of its own
admission that it was "in truth and in fact merely acting as guarantor" for PSI. 31 There is, however,
no explanation as to what liabilities the NMPC had as such "guarantor." A reading of the loan
agreement, in fact, reveals that there is no distinction as to the nature of the liability of the PSI and the
NMPC. In the contract, both are referred to collectively as the "clients" and "accountees." Hence, it
can safely be assumed that by the terms of the contract, the NMPC was engaged in a business
undertaking which was certainly beyond its function of disseminating governmental information. 32

While it is true that even statutory provisions expressly waiving state immunity from suit are construed
in strictissimi juris, 33 and therefore, extreme caution should be exercised in determining the
existence of an implied consent of the state, when the state itself, through the acts of a duly
authorized official of an agency, exceeds its authority, the doctrine may not be invoked as a shield in
the same manner that it cannot serve as an instrument for perpetrating an injustice. 34

The NMPC’s implied consent to be sued notwithstanding, the trial court did not have the power to
garnish NMPC deposits to answer for any eventual judgment against it. Being public funds, the
deposits are not within the reach of any garnishment or attachment proceedings. The reason for this
doctrine was succinctly stated by then Justice Claudio Teehankee in Commissioner of Public
Highways v. San Diego. 35

"The universal rule that where the State gives its consent to be sued by private parties either by
general or special law, it may limit claimant’s action `only up to the completion of proceedings anterior
to the stage of execution’ and that the power of the Courts ends when the judgment is rendered,
since government funds and properties may not be seized under writs of execution or garnishment to
satisfy such judgments, is based on obvious considerations of public policy. Disbursements of public
funds must be covered by the corresponding appropriations as required by law. The functions and
public services rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion
of public funds from their legitimate and specific objects, as appropriated by law."cralaw virtua1aw
library

There is more reason to apply said doctrine in this case considering that the waiver of non-suability is
only implied and not expressly allowed by statute.chanrobles law library

Hence, the proceedings below should continue to determine the liabilities of PSI and NMPC. Should
the court still find that NMPC is liable notwithstanding the PBA’s availment of only P340,000 of the
P2,520,000 value of the letter of credit and PSI’s partial payment of the principal obligation, interest
and attorney’s fees in the amount of P1,046,816.75, then after judgment, the procedure outlined in
Secs. 91-93 of Presidential Decree No. 1445 regarding claims against the government shall be
observed.

WHEREFORE, the decision of the then Intermediate Appellate Court insofar as it considers the
NMPC as immune from suit is hereby reversed and set aside. The writ of attachment issued by the
lower court in Civil Case No. 9303-P against the NMPC deposits with Traders Royal Bank is
immediately lifted and said court is directed to proceed with dispatch in resolving Civil Case No. 9303-
P.

SO ORDERED.

G.R. No. 70547 January 22, 1993

PHILIPPINE NATIONAL RAILWAYS and HONORIO CABARDO, petitioners,

vs.
INTERMEDIATE APPELLATE COURT, and BALIWAG TRANSIT, INC., respondents.

The Solicitor General for petitioner.

Leopoldo Sta. Maria for private respondents.

MELO, J.:

The imputation of culpa on the part of herein petitioners as a result of the collision between its strain,
bound for Manila from La Union, with a Baliwag transit bus at the railroad crossing on the road going
to Hagonoy, Bulacan on August l0, 1974, is the subject of the petition at bar directed against the
judgment of affirmance rendered by respondent court, through the Fourth Civil Cases Division (Sison,
Bidin (P), Veloso, JJ.), vis-a-vis the decretal portion handed down by the court of origin in:

1. Ordering the defendants, jointly and severally to pay the plaintiff the amount of
P179,511.52 as actual damages.

2. Ordering the defendants jointly and severally to pay the plaintiff P436,642.03 as
reimbursement for the damages paid by the plaintiff to death, injury and damage
claimants.

3. Ordering the defendants jointly and severally to pay exemplary damages in the
amount of P50, 000.00 to the plaintiff.

4. Ordering the defendants jointly and severally to pay the plaintiff attorney's fees in the
amount of P5, 000.00.

5. Ordering the defendants, jointly and severally to pay the plaintiff interest at the legal
rate on the above amounts due the plaintiff from August 10, 1974 until fully paid.

6. Ordering the defendants to pay the cost of this suit.

7. Ordering the dismissal of the defendants' counterclaim for lack of factual and legal
basis. (p. 101, Record on Appeal; p. 103. Rollo.)

Culled from the text of the assailed disposition are the facts of the case at bar which are hereunder
adopted verbatim:

The case arose from a collision of a passenger express train of defendant Philippine
National Railways, (PNR) coming from San Fernando, La Union and bound for Manila
and a passenger bus of Baliwag Transit, Inc. which was on its way to Hagonoy,
Bulacan, from Manila, but upon reaching the railroad crossing at Barrio Balungao,
Calumpit, Bulacan at about 1:30 in the afternoon of August 10, 1974, got stalled and
was hit by defendant's express train causing damages to plaintiff's bus and its
passengers, eighteen (18) of whom died and fifty-three (53) others suffered physical
injuries. Plaintiff alleging that the proximate cause of the collision was the negligence
and imprudence of defendant PNR and its locomotive engineer, Honorio Cirbado, in
operating its passenger train in a busy intersection without any bars, semaphores,
signal lights, flagman or switchman to warn the public of approaching train that would
pass through the crossing, filed the instant action for Damages against defendants. The
defendants, in their Answer traversed the material allegation of the Complaint and as
affirmative defense alleged that the collision was caused by the negligence, imprudence
and lack of foresight of plaintiff's bus driver, Romeo Hughes.

At the pre-trial conference held on June 23, 1976, the parties agreed on a partial
stipulation of facts and issues which as amplified at the continuation of the pre-trial
conference, on July 12, 1976, are as follows:

1 That plaintiff is a duly constituted corporation registered with the

Securities and Exchange Commission engaged in the business of
transportation and operating public utility buses for the public with lines
covering Manila, Caloocan City, Quezon City, Malabon, Rizal, Bulacan,
Pampanga and Nueva Ecija, and particularly from Manila to Hagonoy,
Bulacan and return in the month of August, l974 passing thru the town of
Calumpit Bulacan, temporarily while the bridge at Hagonoy, Bulacan was
under construction;

2 That defendant Philippine National Railways is a purely government

owned and controlled corporation duly registered and existing virtue of
Presidential Decree No. 741, with capacity to sue and be sued, and is
likewise engaged in transporting passengers and cargoes by trains and
buses and that, it operates a train line between San Fernando, La Union
and Manila particularly Passenger Express Train with Body No. 73,
passing along the intersection of Barrio Balungao, Calumpit, Bulacan, in
going to San Fernando, La Union from Manila and return;

3. That on August 10, 1974, at about 1:20 o'clock in the afternoon, a

Baliuag Transit Bus with Body No. 1066 and Plate No. XS-929 PUB-
Bulacan '74 was driven by its authorized driver Romeo Hughes and PNR
Train No. 73 was operated by Train Engineer Honorio Cabardo alias
Honorio Cirbado and at the railroad intersection at Barrio Balungao,
Calumpit, Bulacan, said passenger train No. 73 hit and bumped the right
mid portion of the plaintiff's passenger bus No. 1066, while the rear portion
of said bus was at the railroad track and its direction was towards
Hagonoy, Bulacan at about 1:30 o'clock in the afternoon;

4. That at the time of the collision there was a slight rainfall in the vicinity
of the scene of the accident and that there was at said intersection no
bars, semaphores, and signal lights that would warn the public of the
approaching train that was about to pass through the intersection and
likewise there was no warning devices to passing trains showing that they
were about to pass an intersection in going to Manila from San Fernando,
La Union and back;

5. That on account of said collision, the Baliuag Transit Bus with Body No.
1066 driven by Romeo Hughes was damaged and eighteen (18) of its
passengers died and the rest who were more than fifty three (53)
passengers suffered physical injuries;

6. That after the investigation the Chief of Police of Calumpit, Bulacan,

filed a criminal case of Reckless Imprudence Causing Multiple Homicide
with Multiple Physical Injuries and Damage to Property against Romeo
Hughes y Parfan, driver of the Baliuag Transit bus docketed under Crim.
Case No. 2392; while the train Engineer Honorio Cabardo alias Honorio
Cirbado was not included as an accused in said case, although his train
No. 73 was the one that hit and bumped the right rear portion of the said
bus;

7. That immediately after the said accident Major Manuel A. Macam, Chief
of the Municipal Police of Calumpit, Bulacan, together with some of his
policemen conducted an investigation of the accident;

8. That at the railroad crossing in Calumpit, Bulacan where the accident

took place there is no railroad crossing bar, however, during the pre-war
 days there was a railroad crossing bar at said intersection; that, however,
there was only one sign of railroad crossing "Stop, Look and Listen"
placed on a concrete slab and attached to a concrete post existing at the
approach of the railroad track from the Highway going towards Hagonoy,
Bulacan and that after the said railroad track there was a designated jeep
parking area at the right side in the direction from the Highway to Hagonoy
Bulacan;

9. That the train No. 73 driven by Train Engineer Honorio Cabardo alias
Honorio Cirbado stopped after passing the railroad crossing at a distance
of about 50 meters from the said intersection after the collision on August,
1974;

10. That the expected time of arrival of said Train No. 73 in Manila was
2:41 P.M. and its departure time from San Fernando, La Union was 9:00
A.M. and its expected arrival at Calumpit, Bulacan was 1:41 P.M. with no
stop at Calumpit, Bulacan.

SIMPLIFICATION OF ISSUES

11. That the principal issue in the instant case is who between the driver
Romeo Hughes of Baliuag Transit, Incorporated and the train engineer
Honorio Cabardo alias Honorio Cirbado of the Philippine National
Railways was negligent or whether or not both are negligent; that likewise
which of said companies was negligent at said railroad intersection;

12. That another additional issue is whether the Baliuag Transit

Incorporated has exercised the diligence of a good father of the family in
the selection and supervision of its employees. (pp.
85-87, Record on Appeal). ( Annex A, Petition; pp. 79-82, Rollo)

In addition, respondent court deemed it necessary to reflect the salient findings of the case for
damages as formulated by the trial court:

Posed for resolution are the following issues: Who between the driver Romeo Hughes
of the Baliuag Transit Incorporated and Honorio Cabardo, train Engineer of the
Philippine National Railways was negligent in the operation of their respective vehicles,
or whether or both were negligent? Could either of the companies Baliuag Transit
Incorporated and the Philippine National Railways be held accountable for the collision
because of negligence?

The defendants presented several statements or affidavits of alleged witnesses to the

collision, specifically Exhibits 2, 3, 4, 5, 6, 11, 13, 14, 15, 16, 17, 18 and 19; the Court is
at a loss as to why the persons who gave the said statements were not presented as
witnesses during the trial of the
case, as aptly said, the statements are hearsay evidence (Azcueta v. Cabangbang, —
45 O.G. 144); at most they be taken as proof only of the fact that statements of said
persons were taken and that investigation was conducted of the incident; the Court
cannot consider the averments in said statements as testimonies or evidence of truth.

Defendants endeavored to show that the proximate and immediate cause of the
collision was the negligence of the bus driver because the driver did not make a stop
before ascending the railtrack; he did not heed the warning or shoutings of bystanders
and passengers and proceeded in traversing the railtrack at a fast speed; that the bus
driver was in fact violating Section 42(d) of R.A. 4136, otherwise known as the Land
Transportation and Traffic Code for failure to "stop, look, and listen" at the intersection,
before crossing the railtrack; that it is incumbent upon him to take the necessary
precautions at the intersection because the railroad track is in itself a warning; and the
bus driver ignored such a warning and must assume the responsibility for the result of
the motion taken by him (U.S. v. Mananquil, 42 Phil. 90)

Except the testimony of the train engineer Cabardo, there is no admissible evidence to
show that indeed, the bus driver did not take the necessary precaution in traversing the
track. Note that he first noticed the bus when it was only 15 meters away from him; he
could not have possibly noticed the position of the bus before negotiating the track.

On the other hand, it was shown by plaintiff that the bus driver Romeo Hughes took the
necessary precautions in traversing the track.

The bus driver had stopped before traversing the track and in fact asked the conductor
to alight and made a "Look and Listen" before proceeding; the conductor had done just
that and made a signal to proceed when he did not see any oncoming train. (TSN,
October 2l, 1976, p. 4); plaintiff's bus drivers and conductors are enjoined to observe
such a precautionary measure in seminars conducted by the company. (TSN,
September 23, 1976. pp. 26-27).

The evidence disclosed that the train was running fast because by his own testimony,
the train engineer had testified that before reaching the station of Calumpit the terrain
was downgrade and levelled only after passing the Calumpit bridge (TSN, July 28,
1976, p. 14 ); the tendency of the train, coming from a high point is to accelerate as the
gravity will necessarily make it so, especially when it is pulling seven coaches loaded
with goods and passengers.

Moreover, upon impact, the bus loaded with passengers was dragged and thrown into a
ditch several meters away; the train had stopped only after the engine portion was
about 190 meters away from the fallen bus; several passengers were injured and at
least 20 died; such facts conclusively indicate that the train was speeding, because if it
were moving at moderate speed, it would not run some 190 meters after impact and
throw the bus at quite a distance especially so when it is claimed that the train's
emergency brakes were applied.

Further, the train was an express train; its departure was 9:00 A.M. at San Fernando, La
Union and expected in Manila at 2:41 P.M.; the collision occurred at 1:30 P.M. or 4 1/2
hours after it left La Union; surely, the train could have not negotiated such a distance in
so short a time if it were not running at fast speed.

It may be argued that a railroad is not subject to the same restrictions to the speed of its
train as a motorists (Mckelvey v. Delaware L. and W.R. Co. 253 App. D.V. 109, 300
NYS 1263 ); but it does not follow that a train will be permitted to run fast under all
conditions at any rate of speed it may choose. It must regulate its speed with proper
regard for the safety of human life and property (Johnson v. Southern Pacific Company
(Cal. App. 288 p. 81), considering the surrounding circumstances particularly the nature
of the locality (Atchinson, T. and SFR Co. v. Nicks (Arts) 165 p. 2d 167).
Cabardo's route included the passage over the said intersection; he could have noticed
that it is a very busy intersection because the crossroad leads to the Calumpit Poblacion
as well as to the neighboring town of Hagonoy; there was a parking lot by the side of the
track whereat passengers board jeepneys for the neighboring barrios and towns; stalls
abound in the vicinity and bystanders congregate nearby. A prudent train operator must,
under the circumstances, slacken his speed almost for the protection of motorists and
pedestrians, not only when a collision is inevitable but even if no hindrance is apparent
on the way;

Moreover, there was an intermittent rain at the time of the collision (see stipulation of
facts and photographs); the condition of the weather was such that even if for this
reason alone, the train engineer should have foreseen that danger of collision lurked
because of poor visibility of slippery road; he should have taken extra precaution by
considerably slackening its speed. This he failed to do even if the nature of his job
required him to observe care exercised by a prudent man.

Contributory negligence may not be ascribed to the bus driver; it was evident that he
had taken the necessary precautions before passing over the railway track; if the bus
was hit, it was for reasons beyond the control of the bus driver because he had no place
to go; there were vehicles to his left which prevented him in swerving towards that
direction; his bus stalled in view of the obstructions in his front where a sand and gravel
truck stopped because of a jeep maneuvering into a garage up front. All the wheels at
the bus have already passed the rail portion of the track and only the rear portion of the
bus' body occupied or covered the railtrack. This was evident because the part of the
bus hit by the train was the rear since the bus fell on a nearby ditch. Otherwise, if the
bus was really hit in mid-body, the bus could have been halved into two because of the
force of the impact.

The stipulation of facts between the parties show that there was no crossing bar at the
railroad intersection at Calumpit, Bulacan at the time of collision (par. 8, Stipulation of
Facts); the plaintiff contended and the defendants did not deny, that there were no
signal lights, semaphores, flagman or switchman thereat; the absence of such devices,
the plaintiff argues constitute negligence on the part of the Philippine National Railways.

A railroad is not required to have a gate (crossing bar) or a flagman, or to maintain

signals at every intersection; only at such places reasonably necessary; what is
considered reasonably necessary will depend on the amount of travel upon the road,
the frequency with which trains pass over it and the view which could be obtained of
trains as they approach the crossing, and other conditions (Pari v. Los Angeles, Ry.
Corporation (Cal A2d) 128 p2d 563; Swdyk v. Indiana Harbor Belt R. Co. 148 F. 2d 795,
and others).

As has been amply discussed, the crossroad at the intersection at Calumpit is one
which is a busy thoroughfare; it leads to the Poblacion at Calumpit and other barrios as
well as the town of Hagonoy; the vicinity is utilized as a parking and waiting area for
passengers of jeepneys that ply between the barrios, clearly, the flow of vehicular traffic
thereat is huge. It can be said also that, since there is no other railtrack going North
except that one passing at Calumpit, trains pass over it frequently;

A portion of the intersection is being used as a parking area with stalls and other
obstructions present making it difficult, if not impossible, to see approaching trains (see
photographs).
 The failure of the Philippine National Railways to put a cross bar, or signal light, flagman
or switchman, or semaphores is evidence of negligence and disregard of the safety of
the public, even if there is no law or ordinance requiring it, because public safety
demands that said devices or equipments be installed, in the light of aforesaid
jurisprudence. In the opinion of this Court the X sign or the presence of "STOP, LOOK,
LISTEN" warnings would not be sufficient protection of the motoring public as well as
the pedestrians, in the said intersection;

The parties likewise have stipulated that during the pre-war days, there was a railroad
crossing bar at the said intersection (Par-8, Stipulation of Facts). It appears that it was a
self imposed requirement which has been abandoned. In a case it was held that where
the use of a flagman was self imposed, the abandonment thereof may constitute
negligence. (Fleming v. Missouri and A. Ry. Co. 198 ARDC 290, 128 S.W. 2d 286 and
others; cited in Sec. 1082 SCRWARTZ, Vol. 2). Similarly, the abandonment by the PNR
of the use of the crossing bar at the intersection at Calumpit constitutes negligence, as
its installation has become imperative, because of the prevailing circumstances in the
place.

A railroad company has been adjudged guilty of negligence and civilly liable for
damages when it failed to install semaphores, or where it does not see to it that its
flagman or switchman comply with their duties faithfully, to motorist injured by a
crossing train as long as he had crossed without negligence on his part (Lilius vs. MRR,
39 Phil. 758). (Decision, pages 94-100, R A.; pp. 83-89, Rollo).

On the aspect of whether the Philippine National Railways enjoys immunity from suit, respondent
court initially noted that an exculpation of this nature that was raised for the first time on appeal may
no longer be entertained in view of the proscription under Section 2, Rule 9 of the Revised Rules of
Court, apart from the fact that the lawyer of petitioner agreed to stipulate inter alia that the railroad
company had capacity to sue and be sued. This being so, respondent court continued, PNR was
perforce estopped from disavowing the prejudicial repercussion of an admission in judicio. Even as
the laws governing the creation and rehabilitation of the PNR were entirely mute on its power to sue
and be sued, respondent court nonetheless opined that such prerogative was implied from the
general power to transact business pertinent or indispensable to the attainment of the goals of the
railroad company under Section 4 of Republic Act No. 4156 as amended by Republic Act No. 6366:

Sec. 4 General Powers — The Philippine National Railways shall have the following
general powers:

(a) To do all such other things and to transact all such business directly or indirectly
necessary, incidental or conducive to the attainment of the purpose of the corporation;
and

(b) Generally, to exercise all powers of a railroad corporation under the Corporation law.

in conjunction with Section 2(b) of Presidential Decree No. 741:

(b) To own or operate railroad transways, bus lines, trucklines, subways, and other
kinds of land transportation, vessels, and pipelines, for the purpose of transporting for
consideration, passengers, mail and property between any points in the Philippines;

Thus, respondent court utilized the doctrine of implied powers announced in National Airports
Corporation vs. Teodoro, Sr. and Philippine Airlines, Inc. (91 Phil. 203 [1952]), to the effect that the
power to sue and be sued is implicit from the faculty to transact private business. At any rate,
respondent court characterized the railroad company as a private entity created not to discharge a
governmental function but, among other things, to operate a transport service which is essentially a
business concern, and thus barred from invoking immunity from suit.

In brushing aside petitioners' asseveration that the bus driver outraced the train at the crossing,
respondent court observed that the bus was hit by the train at its rear portion then protruding over the
tracks as the bus could not move because another truck at its front was equally immobile due to a
jeep maneuvering into a nearby parking area. Under these tight conditions, respondent court blamed
the train engineer who admitted to have seen the maneuvering jeep at a distance (TSN, July 28,
1976, page 18) and had the last clear chance to apply the brakes, knowing fully well that the vehicles
following the jeep could not move away from the path of the train. Apart from these considerations, it
was perceived below that the train was running fast during the entire trip since the train stopped 190
meters from the point of impact and arrived at Calumpit, Bulacan earlier than its expected time of
arrival thereat.

Moreover, respondent court agreed with the conclusion reached by the trial court that the absence of
a crossing bar, signal light, flagman or switchman to warn the public of an approaching train
constitutes negligence per the pronouncement of this Court in Lilius vs. Manila Railroad Company (59
Phil 758 [1934]).

Concerning the exercise of diligence normally expected of an employer in the selection and
supervision of its employees, respondent court expressed the view that PNR was remiss on this
score since it allowed Honorio Cabardo, who finished only primary education and became an
engineer only through sheer experience, to operate the locomotive, not to mention the fact that such
plea in avoidance was not asserted in the answer and was thus belatedly raised on appeal.

Petitioner moved to reconsider, but respondent court was far from persuaded. Hence, the petition
before Us which, in essence, incorporates similar disputations anent PNR's immunity from suit and
the attempt to toss the burden of negligence from the train engineer to the bus driver of herein private
respondent.

The bone of contention for exculpation is premised on the familiar maxim in political law that the
State, by virtue of its sovereign nature and as reaffirmed by constitutional precept, is insulated from
suits without its consent (Article 16, Section 3, 1987 Constitution). However, equally conceded is the
legal proposition that the acquiescence of the State to be sued can be manifested expressly through
a general or special law, or indicated implicitly, as when the State commences litigation for the
purpose of asserting an affirmative relief or when it enters into a contract (Cruz, Philippine Political
Law, 1991 edition, page 33; Sinco, Philippine Political Law, Eleventh Edition, 1962, page 34). When
the State participates in a covenant, it is deemed to have descended from its superior position to the
level of an ordinary citizen and thus virtually opens itself to judicial process. Of course, We realize
that this Court qualified this form of consent only to those contracts concluded in a proprietary
capacity and therefore immunity will attach for those contracts entered into in a governmental
capacity, following the ruling in the 1985 case of United States of America vs. Ruiz (136 SCRA 487
[1985]; cited by Cruz, supra at pages 36-37). But the restrictive interpretation laid down therein is of
no practical worth nor can it give rise to herein petitioner PNR's exoneration since the case of  Malong
vs. Philippine National Railways (138 SCRA 63, [1985]); 3 Padilla, 1987 Constitution with Comments
and Cases, 1991 edition, page 644), decided three months after Ruiz was promulgated, was
categorical enough to specify that the Philippine National Railways "is not performing any
governmental function" (supra, at page 68).

In Malong, Justice Aquino, speaking for the Court en banc, declared:

 The Manila Railroad Company, the PNR's predecessor, as a common carrier, was not
immune from suit under Act No. 1510, its charter.

The PNR Charter, Republic Act No. 4156, as amended by Republic Act No. 6366 and
Presidential Decree No. 741, provides that the PNR is a government instrumentality
under government ownership during its 50-year term, 1964 to 2014. It is under the
Office of the President of the Philippines. Republic Act No. 6366 provides:

Sec. 1-a. Statement of policy. — The Philippine National Railways, being

a factor for socio-economic development and growth, shall be a part of the
infrastructure program of the government and as such shall remain in and
under government ownership during its corporate existence. The
Philippine National Railways must be administered with the view of
serving the interests of the public by providing them the maximum of
service and, while aiming at its greatest utility by the public, the economy
of operation must be ensured so that service can be rendered at the
minimum passenger and freight prices possible.

The charter also provides:

Sec. 4. General powers. — The Philippine National Railways shall have

the following general powers:

(a) To do all such other things and to transact all such business directly or
indirectly necessary, incidental or conducive to the attainment of the
purpose of the corporation; and

(b) Generally, to exercise all powers of a railroad corporation under the

Corporation Law. (This refers to Sections 81 to 102 of the Corporation
Law on railroad corporations, not reproduced in the Corporation Code.)

Section 36 of the Corporation Code provides that every corporation has the power to sue and be
sued in its corporate name. Section 13(2) of the Corporation Law provides that every corporation has
the power to sue and be sued in any court.

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 (Justice Holmes in
Kawananakoa vs. Polyblank, 205 U.S. 353, 51 L. 3d 834).

The public service would be hindered, and public safety endangered, if the supreme
authority could be subjected to suit at the instance of every citizen and, consequently,
controlled in the use and disposition of the means required for the proper administration
of the Government (The Siren vs. U.S., 7 Wall. 152, 19 L. ed. 129). (at pp.
65-66).

To the pivotal issue of whether the State acted in a sovereign capacity when it organized the PNR for
the purpose of engaging in transportation, Malong continued to hold that:

. . . in the instant case the State divested itself of its sovereign capacity when it
organized the PNR which is no different from its predecessor, the Manila Railroad
Company. The PNR did not become immune from suit. It did not remove itself from the
operation of Articles 1732 to 1766 of the Civil Code on common carriers.

The correct rule is that "not all government entities, whether corporate or noncorporate,
are immune from suits. Immunity from suit is determined by the character of the objects
for which the entity was organized." (Nat. Airports Corp. vs. Teodoro and Phil. Airlines,
Inc., 91 Phil. 203, 206; Santos vs. Santos, 92 Phil. 281, 285; Harry Lyons, Inc. vs. USA,
104 Phil. 593).

Suits against State agencies with respect to matters in which they have assumed to act
in a private or nongovernmental capacity are not suits against the State (81 C.J.S.
1319).

Suits against State agencies with relation to matters in which they have
assumed to act in a private or nongovernmental 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 the 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
implicating consents to suits against the corporation. (81 C.J.S. 1319).

The foregoing rule was applied to State Dock Commissions carrying on business
relating to pilots, terminals and transportation (Standard Oil Co. of New Jersey vs. U.S.,
27 Fed. 2nd 370) and to State Highways Commissions created to build public roads and
given appropriations in advance to discharge obligations incurred in their behalf
(Arkansas State Highway Commission vs. Dodge, 26 SW 2nd 879 and State Highway
Commission of Missouri vs. Bates, 296 SW 418, cited in National Airports case).

The point is that when the government enters into a commercial business it abandons
its sovereign capacity and is to be treated like any other private corporation (Bank of the
U.S. vs. Planters' Bank, 9 Wheat. 904, 6 L ed. 244, cited in Manila Hotel Employees
Association vs. Manila Hotel Company, et al., 73 Phil. 374, 388). The Manila Hotel case
also relied on the following rulings:

By engaging in a particular business through the instrumentality of a

corporation, the government divests itself pro hac vice of its sovereign
character, so as to render the corporation subject to the rules of law
governing private corporations.

When the State acts in its proprietary capacity, it is amenable to all the
rules of law which bind private individuals.

There is not one law for the sovereign and another for the subject, but
when the sovereign engages in business and the conduct of business
enterprises, and contracts with individuals, whenever the contract in any
form comes before the courts, the rights and obligation of the contracting
parties must be adjusted upon the same principles as if both contracting
parties were private persons. Both stand upon equality before the law, and
 the sovereign is merged in the dealer, contractor and suitor (People vs.
Stephens, 71 N.Y. 549).

It should be noted that in Philippine National Railways vs. Union de Maquinistas, etc., L-
31948, July 25, 1978, 84 SCRA 223, it was held that the PNR funds could be garnished
at the instance of a labor union.

It would be unjust if the heirs of the victim of an alleged negligence of the PNR
employees could not sue the PNR for damages. Like any private common carrier, the
PNR is subject to the obligations of persons engaged in that private enterprise. It is not
performing any governmental function.

Thus, the National Development Company is not immune from suit. It does not exercise
sovereign functions. It is an agency for the performance of purely corporate, proprietary
or business functions (National Development Company vs. Tobias, 117 Phil. 703, 705
and cases cited therein; National Development Company vs. NDC Employees and
Workers' Union, L-32387, August 19, 1975, 66 SCRA 18l, 184).

Other government agencies not enjoying immunity from suit are the Social Security
System (Social Security System vs. Court of Appeals,
L-41299, February 21, 1983, 120 SCRA 707) and the Philippine National Bank
(Republic vs. Philippine National Bank, 121 Phil. 26). (at pp. 66-68).

We come now to the question of whether respondent court properly agreed with the trial court in
imputing negligence on the part of the train engineer and his employer.

It was demonstrated beyond cavil in the course of the pre-trial hearings held for the purpose of
stipulating on crucial facts that the bus was hit on the rear portion thereof after it crossed the railroad
tracks. Then, too the train engineer was frank enough to say that he saw the jeep maneuvering into a
parking area near the crossing which caused the obstruction in the flow of traffic such that the gravel
and sand truck including the bus of herein private respondent were not able to move forward or to
take the opposite lane due to other vehicles. The unmindful demeanor of the train engineer in surging
forward despite the obstruction before him is definitely anathema to the conduct of a prudent person
placed under the same set of perceived danger. Indeed:

When it is apparent, or when in the exercise of reasonable diligence commensurate with

the surroundings it should be apparent, to the company that a person on its track or to
get on its track is unaware of his danger or cannot get out of the way, it becomes the
duty of the company to use such precautions, by warnings, applying brakes, or
otherwise, as may be reasonably necessary to avoid injury to him. (65 Am. Jur., Second
Edition. p. 649).

Likewise, it was established that the weather condition was characterized with intermittent rain which
should have prompted the train engineer to exercise extra precaution. Also, the train reached
Calumpit, Bulacan ahead of scheduled arrival thereat, indicating that the train was travelling more
than the normal speed of 30 kilometers per hour. If the train were really running at 30 kilometers per
hour when it was approaching the intersection, it would probably not have travelled 190 meters more
from the place of the accident (page 10, Brief for Petitioners). All of these factors, taken collectively,
engendered the concrete and yes, correct conclusion that the train engineer was negligent who,
moreover, despite the last opportunity within his hands vis-a-vis the weather condition including the
presence of people near the intersection, could have obviated the impending collision had he
slackened his speed and applied the brakes (Picart vs. Smith, 37 Phil. 809 [1918]).Withal, these
considerations were addressed to the trial judge who, unlike appellate magistrates, was in a better
position to assign weight on factual questions. Having resolved the question of negligence between
the train engineer and the bus driver after collating the mass of evidence, the conclusion reached
thereafter thus commands great respect especially so in this case where respondent court gave its
nod of approval to the findings of the court of origin (Co vs. Court of Appeals, 193 SCRA 198; 206
[1991]); Amigo vs. Teves, 50 O.G. 5799; Regalado, Remedial Law Compendium, Fifth edition, page
353).

What exacerbates against petitioners' contention is the authority in this jurisdiction to the effect that
the failure of a railroad company to install a semaphore or at the very least, to post a flagman or
watchman to warn the public of the passing train amounts to negligence (Lilius vs. Manila Railroad
Company, 59 Phil. 758 [1934]).

WHEREFORE, the petition is hereby DISMISSED and the decision of respondent court AFFIRMED.

SO ORDERED.

G.R. No. 79253 March 1, 1993

UNITED STATES OF AMERICA and MAXINE BRADFORD, petitioners,

vs.
HON. LUIS R. REYES, as Presiding Judge of Branch 22, Regional Trial Court of Cavite, and
NELIA T. MONTOYA, respondents.

Luna, Sison & Manas for petitioners.

Evelyn R. Dominguez for private respondent.

DAVIDE, JR., J.:

This is a petition for certiorari and prohibition under Rule 65 of the Rules of Court. Petitioners would
have Us annul and set aside, for having been issued with grave abuse of discretion amounting to lack
of jurisdiction, the Resolution of 17 July 1987 of Branch 22 of the Regional Trial Court (RTC) of Cavite
in Civil Case No. 224-87. The said resolution denied, for lack of merit, petitioners' motion to dismiss
the said case and granted the private respondent's motion for the issuance of a writ of preliminary
attachment. Likewise sought to be set aside is the writ of attachment subsequently issued by the RTC
on 28 July 1987.

The doctrine of state immunity is at the core of this controversy.

The readings disclose the following material operative facts:

Private respondent, hereinafter referred to as Montoya, is an American citizen who, at the time
material to this case, was employed as an identification (I.D.) checker at the U.S. Navy Exchange
(NEX) at the Joint United States Military Assistance Group (JUSMAG) headquarters in Quezon City.
She is married to one Edgardo H. Montoya, a Filipino-American serviceman employed by the U.S.
Navy and stationed in San Francisco, California. Petitioner Maxine Bradford, hereinafter referred to
as Bradford, is likewise an American citizen who was the activity exchange manager at the said
JUSMAG Headquarters.
As a consequence of an incident which occurred on 22 January 1987 whereby her body and
belongings were searched after she had bought some items from the retail store of the NEX
JUSMAG, where she had purchasing privileges, and while she was already at the parking area,
Montoya filed on
7 May 1987 a complaint 1 with the Regional Trial Court of her place of residence — Cavite — against
Bradford for damages due to the oppressive and discriminatory acts committed by the latter in excess
of her authority as store manager of the NEX JUSMAG. The complaint, docketed as Civil Case No.
224-87 and subsequently raffled off to Branch 22 at Imus, Cavite, alleges the following, material
operative facts:

xxx xxx xxx

3. That on January 22, 1987, after working as the duty ID checker from 7:45 to 11:45
a.m., plaintiff went shopping and left the store at l2:00 noon of that day;

4. That on the way to her car while already outside the store, Mrs. Yong Kennedy, also
an ID checker, upon the instruction of the store manager, Ms. Maxine Bradford,
approached plaintiff and informed her that she needed to search her bags;

5. That plaintiff went to defendant, who was then outside the store talking to some men,
to protest the search but she was informed by the defendant that the search is to be
made on all Jusmag employees that day;

6. That the search was thereafter made on the person, car and bags of the plaintiff by
Mrs. Yong Kennedy in the presence of the defendant and numerous curious onlookers;

7. That having found nothing irregular on her person and belongings, plaintiff was
allowed to leave the premises;

8. That feeling aggrieved, plaintiff checked the records and discovered that she was the
only one whose person and belonging was (sic) searched that day contrary to
defendant's allegation as set forth in par. 5 hereof and as evidenced by the
memorandum dated January 30, 1987 made by other Filipino Jusmag employees, a
photocopy of which is hereto attached as ANNEX "A" and made integral (sic) part
hereof:

9. That moreover, a check with Navy Exchange Security Manager, R.L. Roynon on
January 27, 1987 was made and she was informed by Mr. Roynon that it is a matter of
policy that customers and employees of NEX Jusmag are not searched outside the
store unless there is a very strong evidence of a wrongdoing;

10. That plaintiff knows of no circumstances sufficient to trigger suspicion of a

wrongdoing on her part but on the other hand, is aware of the propensity of defendant to
lay suspicion on Filipinos for theft and/or shoplifting;

11. That plaintiff formally protested the illegal search on February 14, 1987 in a letter
addressed to Mr. R.L. Roynon, a photocopy of which is hereto attached as ANNEX "B"
and made integral (sic) part hereof; but no action was undertaken by the said officer;

12. That the illegal search on the person and belongings of the plaintiff in front of many
people has subjected the plaintiff to speculations of theft, shoplifting and such other
 wrongdoings and has exposed her to contempt and ridicule which was caused her
undue embarrassment and indignity;

13. That since the act could not have been motivated by other (sic) reason than racial
discrimination in our own land, the act constitute (sic) a blow to our national pride and
dignity which has caused the plaintiff a feeling of anger for which she suffers sleepless
nights and wounded feelings;

14. That considering the above, plaintiff is entitled to be compensated by way of moral
damages in the amount of P500,000.00;

15. That to serve as a deterrent to those inclined to follow the oppressive act of the
defendant, exemplary damages in the amount of P100,000.00 should also be awarded. 2

She then prayed for judgment ordering Bradford to pay her P500,000.00 as moral damages,
P100,000.00 as exemplary damages and reasonable attorney's fees plus the costs of the suit. 3

Summons and a copy of the complaint were served on Bradford on 13 May 1987. In response
thereto, she filed two (2) motions for extension of time to file her Answer which were both granted by
the trial court. The first was filed through Atty. Miguel Famularcano, Jr., who asked for a 20-day
extension from 28 May 1987. The second, filed through the law firm of Luna, Sison and Manas,
sought a 15-day extension from 17 June 1987. 4 Thus, Bradford had up to 1 July 1987 to file her
Answer. Instead of doing so, however, she, together with the government of the United States of
America (hereinafter referred to as the public petitioner), filed on 25 June 1987, also through the law
firm of Luna, Sison and Manas, a Motion to Dismiss 5 based on the following grounds:

1) (This) action is in effect a suit against the United States of America, a foreign
sovereign immune from suit without its consent for the cause of action pleaded in the
complaint; and

2) Defendant, Maxine Bradford, as manager of the US Navy Exchange Branch at

JUSMAG, Quezon City, is immune from suit for act(s) done by her in the performance of
her official functions under the Philippines-United States Military Assistance Agreement
of 1947 and Military Bases Agreement of 1947, as amended. 6

In support of the motion, the petitioners claimed that JUSMAG, composed of an Army, Navy and Air
Group, had been established under the Philippine-United States Military Assistance Agreement
entered into on 21 March 1947 to implement the United States' program of rendering military
assistance to the Philippines. Its headquarters in Quezon City is considered a temporary installation
under the provisions of Article XXI of the Military Bases Agreement of 1947. Thereunder, "it is
mutually agreed that the United States shall have the rights, power and authority within the bases
which are necessary for the establishment, use and operation and defense thereof or appropriate for
the control thereof." The 1979 amendment of the Military Bases Agreement made it clear that the
United States shall have "the use of certain facilities and areas within the bases and shall have
effective command and control over such facilities and over United States personnel, employees,
equipment and material." JUSMAG maintains, at its Quezon City headquarters, a Navy Exchange
referred to as the NEX-JUSMAG. Checking of purchases at the NEX is a routine procedure observed
at base retail outlets to protect and safeguard merchandise, cash and equipment pursuant to
paragraphs 2 and 4(b) of NAVRESALEACT SUBIC INST. 5500.1. 7 Thus, Bradford's order to have
purchases of all employees checked on 22 January 1987 was made in the exercise of her duties as
Manager of the NEX-JUSMAG.
They further claimed that the Navy Exchange (NAVEX), an instrumentality of the U.S. Government, is
considered essential for the performance of governmental functions. Its mission is to provide a
convenient and reliable source, at the lowest practicable cost, of articles and services required for the
well-being of Navy personnel, and of funds to be used for the latter's welfare and recreation.
Montoya's complaint, relating as it does to the mission, functions and responsibilities of a unit of the
United States Navy, cannot then be allowed. To do so would constitute a violation of the military
bases agreement. Moreover, the rights, powers and authority granted by the Philippine government to
the United States within the U.S. installations would be illusory and academic unless the latter has
effective command and control over such facilities and over American personnel, employees,
equipment and material. Such rights, power and authority within the bases can only be exercised by
the United States through the officers and officials of its armed forces, such as Bradford.  Baer
vs. Tizon8 and United States of America vs.
9
Ruiz  were invoked to support these claims.

On 6 July 1987, Montoya filed a motion for preliminary attachment 10 on the ground that Bradford was
about to depart from the country and was in the process of removing and/or disposing of her
properties with intent to defraud her creditors. On 14 July 1987, Montoya filed her opposition to the
motion to dismiss 11 alleging therein that the grounds proffered in the latter are bereft of merit because
(a) Bradford, in ordering the search upon her person and belongings outside the NEX JUSMAG store
in the presence of onlookers, had committed an improper, unlawful and highly discriminatory act
against a Filipino employee and had exceeded the scope of her authority; (b) having exceeded her
authority, Bradford cannot rely on the sovereign immunity of the public petitioner because her liability
is personal; (c) Philippine courts are vested with jurisdiction over the case because Bradford is a
civilian employee who had committed the challenged act outside the U.S. Military Bases; such act is
not one of those exempted from the jurisdiction of Philippine courts; and (d) Philippine courts can
inquire into the factual circumstances of the case to determine whether or not Bradford had acted
within or outside the scope of her authority.

On 16 July 1987, public petitioner and Bradford filed a reply to Montoya's opposition and an
opposition to the motion for preliminary attachment. 12

On 17 July 1987, 13 the trial court 14 resolved both the motion to dismiss and the motion for preliminary
attachment in this wise:

On the motion to dismiss, the grounds and arguments interposed for the dismissal of
this case are determined to be not indubitable. Hence, the motion is denied for lack of
merit.

The motion for preliminary attachment is granted in the interest of justice, upon the
plaintiff's filing of a bond in the sum of P50,000.00.

Upon Montoya's filing of the required bond, the trial court issued on 28 July 1987 an
Order 15 decreeing the issuance of a writ of attachment and directing the sheriff to serve the writ
immediately at the expense of the private respondent. The writ of attachment was issued on that
same date. 16

Instead of filing a motion to reconsider the last two (2) orders, or an answer — insofar as Bradford is
concerned — both the latter and the public petitioner filed on 6 August 1987 the instant petition to
annul and set aside the above Resolution of 17 July 1987 and the writ of attachment issued pursuant
thereto. As grounds therefor, they allege that:
 10. The respondent judge committed a grave abuse of discretion amounting to lack of
jurisdiction in denying the motion to dismiss the complaint in Civil Case No. 224-87 "for
lack of merit." For the action was in effect a suit against the United States of America, a
foreign sovereign immune from suit without its consent for the cause of action pleaded
in the complaint, while its co-petitioner was immune from suit for act(s) done by her in
the performance of her official functions as manager of the US Navy Exchange Branch
at the Headquarters of JUSMAG, under the Philippines-United States Military
Assistance Agreement of 1947 and Military Bases Agreement of 1947, as amended. 17

On 5 August 1987, the trial court set Civil Case No. 224-87 for pre-trial and trial on 27 August 1987 at
9:30 a.m. 18

On 12 August 1987, this Court resolved to require the respondents to comment on the petition. 19

On 19 August 1987, petitioners filed with the trial court a Motion

to Suspend Proceedings 20 which the latter denied in its Order of 21 August 1987. 21

In the meantime, however, for failure to file an answer, Bradford was declared in default in Civil Case
No. 224-87 and Montoya was allowed to present her evidence ex-parte. 22 She thus took the witness
stand and presented Mrs. Nam Thi Moore and Mrs. Miss Yu as her witnesses.

On 10 September 1987, the trial court rendered its decision 23 in Civil Case No. 224-87, the
dispositive portion of which reads:

Prescinding from the foregoing, it is hereby determined that the unreasonable search on
the plaintiff's person and bag caused (sic) done recklessly and oppressively by the
defendant, violated, impaired and undermined the plaintiff's liberty guaranteed by the
Constitution, entitling her to moral and exemplary damages against the defendant. The
search has unduly subjected the plaintiff to intense humiliation and indignities and had
consequently ridiculed and embarrassed publicly said plaintiff so gravely and
immeasurably.

WHEREFORE, judgment is hereby rendered for the plaintiff and against the defendant
Maxine Bradford assessing the latter to pay unto the former the sums of P300,000.00
for moral damages, P100,000.00 for exemplary damages and P50,000.00 for actual
expenses and attorney's fees.

No costs.

SO ORDERED. 24

Bradford received a copy of the decision on 21 September 1987. On that same date, she and the
public petitioner filed with this Court a Petition for Restraining Order 25 which sought to have the trial
court's decision vacated and to prevent the execution of the same; it was also prayed that the trial
court be enjoined from continuing with Civil Case No. 224-87. We noted this pleading in the
Resolution of 23 September 1987. 26

In the meantime, since no motion for reconsideration or appeal had been interposed by Bradford
challenging the 10 September 1987 Decision which she had received on 21 September 1987,
respondent Judge issued on 14 October 1987 an order directing that an entry of final judgment be
made. A copy thereof was received by Bradford on 21 October, 1987. 27
Also on 14 October 1987, Montoya filed her Comment with Opposition to the Petition for Restraining
Order. 28 Respondent Judge had earlier filed his own Comment to the petition on 14 September
1987. 29

On 27 October 1987, Montoya filed before the trial court a motion for the execution of the Decision of
10 September 1987 which petitioners opposed on the ground that although this Court had not yet
issued in this case a temporary restraining order, it had nevertheless resolved to require the
respondents to comment on the petition. It was further averred that execution thereof would cause
Bradford grave injury; moreover, enforcement of a writ of execution may lead to regrettable incidents
and unnecessarily complicate the situation in view of the public petitioner's position on the issue of
the immunity of its employees. In its Resolution of 11 November 1987, the trial court directed the
issuance of a writ of execution. 30

Consequently, the petitioners filed on 4 December 1987, a Manifestation and Motion reciting the
foregoing incidents obtaining before the trial court and praying that their petition for a restraining order
be resolved. 31

On 7 December 1987, this Court issued a Temporary Restraining Order "ENJOINING the
respondents and the Provincial Sheriff of Pasig, Metro Manila, from enforcing the Decision dated
September 10, 1987, and the Writs of Attachment and Execution issued in Civil Case No. 224-87." 32

On 28 November 1988, after the private respondent filed a Rejoinder to the Consolidated Reply to the
Comments filed by the petitioners, this Court gave due course to the petition and required the parties
to submit their respective memoranda-Petitioners filed their Memorandum on 8 February
1989 33 while private respondent filed her Memorandum on 14 November
34
1990. 

The kernel issue presented in this case is whether or not the trial court committed grave abuse of
discretion in denying the motion to dismiss based on the following grounds: (a) the complaint in Civil
Case No. 224-87 is in effect a suit against the public petitioner, a foreign sovereign immune from suit
which has not given consent to such suit and (b) Bradford is immune from suit for acts done by her in
the performance of her official functions as manager of the U.S. Navy Exchange of JUSMAG
pursuant to the Philippines-United States Military Assistance Agreement of 1947 and the Military
Bases Agreement of 1947, as amended.

Aside from maintaining the affirmative view, the public petitioner and Bradford even go further by
asserting that even if the latter's act were ultra vires she would still be immune from suit for the rule
that public officers or employees may be sued in their personal capacity for ultra vires and tortious
acts is "domestic law" and not applicable in International Law. It is claimed that the application of the
immunity doctrine does not turn upon the lawlessness of the act or omission attributable to the foreign
national for if this were the case, the concept of immunity would be meaningless as inquiry into the
lawlessness or illegality of the act or omission would first have to be made before considering the
question of immunity; in other words, immunity will lie only if such act or omission is found to be
lawful.

On the other hand, Montoya submits that Bradford is not covered by the protective mantle of the
doctrine of sovereign immunity from suit as the latter is a mere civilian employee of JUSMAG
performing non-governmental and proprietary functions. And even assuming arguendo that Bradford
is performing governmental functions, she would still remain outside the coverage of the doctrine of
state immunity since the act complained of is ultra vires or outside the scope of her authority. What is
being questioned is not the fact of search alone, but also the manner in which the same was
conducted as well as the fact of discrimination against Filipino employees. Bradford's authority to
order a search, it is asserted, should have been exercised with restraint and should have been in
accordance with the guidelines and procedures laid down by the cited "NAVRESALEACT, Subic
Inst." Moreover, ultra vires acts of a public officer or employee, especially tortious and criminal acts,
are his private acts and may not be considered as acts of the State. Such officer or employee alone is
answerable for any liability arising therefrom and may thus be proceeded against in his personal
capacity.

Montoya further argues that both the acts and person of Bradford are not exempt from the Philippine
courts' jurisdiction because (a) the search was conducted in a parking lot at Scout Borromeo, Quezon
City, outside the JUSMAG store and, therefore, outside the territorial control of the U.S. Military
Bases in the Philippines; (b) Bradford does not possess diplomatic immunity under Article 16(b) of the
1953 Military Assistance Agreement creating the JUSMAG which provides that only the Chief of the
Military Advisory Group and not more than six (6) other senior members thereof designated by him
will be accorded diplomatic immunity; 35 and (c) the acts complained of do not fall under those
offenses where the U.S. has been given the right to exercise its jurisdiction (per Article 13 of the 1947
Military Bases Agreement, as amended by the, Mendez-Blair Notes of 10 August 1965). 36

Finally, Montoya maintains that at the very least, Philippine courts may inquire into the factual
circumstances of the case to determine whether petitioner Bradford is immune from suit or exempt
from Philippine jurisdiction. To rule otherwise would render the Philippine courts powerless as they
may be easily divested of their jurisdiction upon the mere invocation of this principle of immunity from
suit.

A careful review of the records of this case and a judicious scrutiny of the arguments of both parties
yield nothing but the weakness of the petitioners' stand. While this can be easily demonstrated, We
shall first consider some procedural matters.

Despite the fact that public petitioner was not impleaded as a defendant in Civil Case No. 224-87, it
nevertheless joined Bradford in the motion to dismiss — on the theory that the suit was in effect
against it — without, however, first having obtained leave of court to intervene therein. This was a
procedural lapse, if not a downright improper legal tack. Since it was not impleaded as an original
party, the public petitioner could, on its own volition, join in the case only by intervening therein; such
intervention, the grant of which is discretionary upon the court, 37 may be allowed only upon a prior
motion for leave with notice to all the parties in the action. Of course, Montoya could have also
impleaded the public petitioner as an additional defendant by amending the complaint if she so
believed that the latter is an indispensible or necessary party.

Since the trial court entertained the motion to dismiss and the subsequent pleadings filed by the
public petitioner and Bradford, it may be deemed to have allowed the public petitioner to intervene.
Corollarily, because of its voluntary appearance, the public petitioner must be deemed to have
submitted itself to the jurisdiction of the trial court.

Moreover, the said motion does not specify any of the grounds for a motion to dismiss enumerated in
Section 1, Rule 16 of the Rules of Court. It merely recites state immunity on the part of the public
petitioner and immunity on the part of Bradford for the reason that the act imputed to her was done in
the performance of her official functions. The upshot of this contention is actually lack of cause of
action — a specific ground for dismissal under the aforesaid Rule — because
assuming arguendo that Montoya's rights had been violated by the public petitioner and Bradford,
resulting in damage or injury to the former, both would not be liable therefor, and no action may be
maintained thereon, because of the principle of state immunity.
The test of the sufficiency of the facts to constitute a cause of action is whether or not, admitting the
facts alleged in the complaint, the court could render a valid judgment upon the same, in accordance
with the prayer in the complaint. 38

A motion to dismiss on the ground of failure to state a cause of action hypothetically admits the truth
of the allegations in the complaint.

In deciding a motion to dismiss, a court may grant, deny, allow amendments to the pleadings or defer
the hearing and determination of the same if the ground alleged does not appear to be
indubitable. 39 In the instant case, while the trial court concluded that "the grounds and arguments
interposed for the dismissal" are not "indubitable," it denied the motion for lack of merit. What the trial
court should have done was to defer there solution on the motion instead of denying it for lack of
merit.

In any event, whatever may or should have been done, the public petitioner and Bradford were not
expected to accept the verdict, making their recourse to this Court via the instant petition inevitable.
Thus, whether the trial court should have deferred resolution on or denied outright the motion to
dismiss for lack of merit is no longer pertinent or relevant.

The complaint in Civil Case No. 224-87 is for damages arising from what Montoya describes as an
"illegal search" on her "person and belongings" conducted outside the JUSMAG premises in front of
many people and upon the orders of Bradford, who has the propensity for laying suspicion on
Filipinos for theft or shoplifting. It is averred that the said search was directed only against Montoya.

Howsoever viewed, it is beyond doubt that Montoya's cause of action is premised on the theory that
the acts complained of were committed by Bradford not only outside the scope of her authority — or
more specifically, in her private capacity — but also outside the territory where she exercises such
authority, that is, outside the NEX-JUSMAG — particularly, at the parking area which has not been
shown to form part of the facility of which she was the manager. By their motion to dismiss, public
petitioner and Bradford are deemed to have hypothetically admitted the truth of the allegation in the
complaint which support this theory.

The doctrine of state immunity and the exceptions thereto are summarized in Shauf vs. Court of
Appeals, 40 thus:

I. The rule that a state may not be sued without its consent, now expressed in Article
XVI Section 3, of the 1987 Constitution, is one of the generally accepted principles of
international law that we have adopted as part of the law of our land under Article II,
Section 2. This latter provision merely reiterates a policy earlier embodied in the 1935
and 1973 Constitutions and also intended to manifest our resolve to abide by the rules
of the international community. 41

While the doctrine appears to prohibit only suits against the state without its consent, it
is also applicable to complaints filed against officials of the state for acts allegedly
performed by them in the discharge of their duties. The rule is that if the judgment
against such officials will require the state itself to perform an affirmative act to satisfy
the same, such as the appropriation of the amount needed to pay the damages
awarded against them, the suit must be regarded as against the state itself although it
has not been formally impleaded. 42 It must be noted, however, that the rule is not so all-
encompassing as to be applicable under all circumstances.
 It is a different matter where the public official is made to account in his capacity as
such for acts contrary to law and injurious to the rights of plaintiff. As was clearly set
forth by Justice Zaldivar in Director of the Bureau of Telecommunications, et al. vs.
Aligaen, etc., et al. 43 "Inasmuch as the State authorizes only legal acts by its officers,
unauthorized acts of government officials or officers are not acts of the State, and an
action against the officials or officers by one whose rights have been invaded or violated
by such acts, for the protection of his rights, is not a suit against the State within the rule
of immunity of the State from suit. In the same tenor, it has been said that an action at
law or suit in equity against a State officer or the director of a State department on the
ground that, while claiming to act or the State, he violates or invades the personal and
property rights of the plaintiff, under an unconstitutional act or under an assumption of
authority which he does not have, is not a suit against the State within
the constitutional provision that the State may not be sued without its consent." 44 The
rationale for this ruling is that the doctrinaire of state immunity cannot be used as an
instrument for perpetrating an injustice. 45

In the case of Baer, etc. vs. Tizon, etc., et al.,  46 it was ruled that:

There should be no misinterpretation of the scope of the decision reached

by this Court. Petitioner, as the Commander of the United States Naval
Base in Olongapo, does not possess diplomatic immunity. He may
therefore be proceeded against in his personal capacity, or when the
action taken by him cannot be imputed to the government which he
represents.

Also, in Animos, et al. vs. Philippine Veterans Affairs Office, et al.,  47 we held that:

. . . it is equally well-settled that where a litigation may have adverse

consequences on the public treasury, whether in the disbursements of
funds or loss of property, the public official proceeded against not being
liable in his personal capacity, then the doctrine of non-suability may
appropriately be invoked. It has no application, however, where the suit
against such a functionary had to be instituted because of his failure to
comply with the duty imposed by statute appropriating public funds for the
benefit of plaintiff or petitioner. . . . .

The aforecited authorities are clear on the matter. They state that the doctrine of
immunity from suit will not apply and may not be invoked where the public official is
being sued in his private and personal capacity as an ordinary citizen. The cloak of
protection afforded the officers and agents of the government is removed the moment
they are sued in their individual capacity. This situation usually arises where the public
official acts without authority or in excess of the powers vested in him. It is a well-settled
principle of law that a public official may be liable in his personal private capacity for
whatever damage he may have caused by his act done
with malice and in bad faith, or beyond the scope of his authority or jurisdiction. 48

The agents and officials of the United States armed forces stationed in Clark Air Base
are no exception to this rule. In the case of United States of America, et al. vs. Guinto,
etc., et al., ante, 49 we declared:

It bears stressing at this point that the above observations do not confer
on the United States of America Blanket immunity for all acts done by it or
 its agents in the Philippines. Neither may the other petitioners claim that
they are also insulated from suit in this country merely because they have
acted as agents of the United States in the discharge of their official
functions.

Since it is apparent from the complaint that Bradford was sued in her private or personal capacity for
acts allegedly done beyond the scope and even beyond her place of official functions, said complaint
is not then vulnerable to a motion to dismiss based on the grounds relied upon by the petitioners
because as a consequence of the hypothetical admission of the truth of the allegations therein, the
case falls within the exception to the doctrine of state immunity.

In the recent cases of Williams vs. Rarang  50 and Minucher vs. Court of Appeals, 51 this Court
reiterated this exception. In the former, this Court observed:

There is no question, therefore, that the two (2) petitioners actively participated in
screening the features and articles in the POD as part of their official functions. Under
the rule that U.S. officials in the performance of their official functions are immune from
suit, then it should follow that petitioners may not be held liable for the questioned
publication.

It is to be noted, however, that the petitioners were sued in their personal capacities for
their alleged tortious acts in publishing a libelous article.

The question, therefore, arises — are American naval officers who commit a crime or
tortious act while discharging official functions still covered by the principle of state
immunity from suit? Pursuing the question further, does the grant of rights, power, and
authority to the United States under the RP-US Bases Treaty cover immunity of its
officers from crimes and torts? Our answer is No.

In the latter, even on the claim of diplomatic immunity — which Bradford does not in fact pretend to
have in the instant case as she is not among those granted diplomatic immunity under Article 16(b) of
the 1953 Military Assistance Agreement creating the JUSMAG 52 — this Court ruled:

Even Article 31 of the Vienna Convention on Diplomatic Relations admits of exceptions.

It reads:

1. A diplomatic agent shall enjoy immunity from the criminal jurisdiction of

the receiving State. He shall also enjoy immunity from its civil and
administrative jurisdiction except in the case of:

x x x           x x x          x x x

(c) an action relating to any professional or commercial

activity exercised by the diplomatic agent in the receiving
State outside his official functions (Emphasis supplied).

There can be no doubt that on the basis of the allegations in the complaint, Montoya has a sufficient
and viable cause of action. Bradford's purported non-suability on the ground of state immunity is then
a defense which may be pleaded in the answer and proven at the trial.

Since Bradford did not file her Answer within the reglementary period, the trial court correctly declared
her in default upon motion of the private respondent. The judgment then rendered against her on 10
September 1987 after the ex parte reception of the evidence for the private respondent and before
this Court issued the Temporary Restraining Order on 7 December 1987 cannot be impugned. The
filing of the instant petition and the knowledge thereof by the trial court did not prevent the latter from
proceeding with Civil Case No.
224-87. "It is elementary that the mere pendency of a special civil action for certiorari, commenced in
relation to a case pending before a lower Court, does not interrupt the course of the latter when there
is no writ of injunction restraining it." 53

WHEREFORE, the instant petition is DENIED for lack of merit. The Temporary Restraining Order of 7
December 1987 is hereby LIFTED.

Costs against petitioner Bradford.

SO ORDERED.

G.R. No. 102667           February 23, 2000

AMADO J. LANSANG, petitioner,
vs.
COURT OF APPEALS, GENERAL ASSEMBLY OF THE BLIND, INC., and JOSE
IGLESIAS, respondents.

QUISUMBING, J.:

Before us is a petition to review the decision of the Court of Appeals in C.A. G.R. CV No. 27244,
which set aside the ruling of the Regional Trial Court, Manila, Branch 8, in Civil Case No. 88-43887,
and ordered petitioner Amado J. Lansang to pay private respondent Jose Iglesias P50,000.00 in
moral damages, P10,000.00 in exemplary damages and P5,000.00 in attorney's fees.

Like public streets, public parks are beyond the commerce of man. However, private respondents
were allegedly awarded a "verbal contract of lease" in 1970 by the National Parks Development
Committee (NPDC), a government initiated civic body engaged in the development of national parks,
including Rizal Park,1 but actually administered by high profile civic leaders and journalists. Whoever
in NPDC gave such "verbal" accommodation to private respondents was unclear, for indeed no
document or instrument appears on record to show the grantor of the verbal license to private
respondents to occupy a portion of the government park dedicated to the national hero's memory.

Private respondents were allegedly given office and library space as well as kiosks area selling food
and drinks. One such kiosk was located along T.M. Kalaw St., in front of the Army and Navy Club.
Private respondent General Assembly of the Blind, Inc. (GABI) was to remit to NPDC, 40 percent of
the profits derived from operating the kiosks, 2 without again anything shown in the record who
received the share of the profits or how they were used or spent.

With the change of government after the EDSA Revolution, the new Chairman of the NPDC, herein
petitioner, sought to clean up Rizal Park. In a written notice dated February 23, 1988 and received by
private respondents on February 29, 1988, petitioner terminated the so-called verbal agreement with
GABI and demanded that the latter vacate the premises and the kiosks it ran privately within the
public park.3 In another notice dated March 5, 1988, respondents were given until March 8, 1988 to
vacate.4

The latter notice was signed by private respondent Iglesias, GABI president, allegedly to indicate his
conformity to its contents. However, Iglesias, who is totally blind, claims that he was deceived into
signing the notice. He was allegedly told by Ricardo Villanueva, then chief warden of Rizal Park, that
he was merely acknowledging receipt of the notice. Although blind, Iglesias as president was
knowledgeable enough to run GABI as well as its business.

On the day of the supposed eviction, GABI filed an action for damages and injunction in the Regional
Trial Court against petitioner, Villanueva, and "all persons acting on their behalf". 5 The trial court
issued a temporary restraining order on the same day. 6

The TRO expired on March 28, 1988. The following day, GABI was finally evicted by NPDC.

GABI's action for damages and injunction was subsequently dismissed by the RTC, ruling that the
complaint was actually directed against the State which could not be sued without its consent.
Moreover, the trial court ruled that GABI could not claim damages under the alleged oral lease
agreement since GABI was a mere accommodation concessionaire. As such, it could only recover
damages upon proof of the profits it could realize from the conclusion. The trial court noted that no
such proof was presented.1âwphi1.nêt

On appeal, the Court of Appeals reversed the decision of the trial court.

The Court of Appeals ruled that the mere allegation that a government official is being sued in his
official capacity is not enough to protect such official from liability for acts done without or in excess of
his authority.7 Granting that petitioner had the authority to evict GABI from Rizal Park, "the abusive
and capricious manner in which that authority was exercised amounted to a legal wrong for which he
must now be held liable for damages"8 according to the Court of Appeals.

The Court of Appeals noted that, as the trial court observed, the eviction of GABI came at the heels of
two significant incidents. First, after private respondent Iglesias extended monetary support to striking
workers of the NPDC, and second, after Iglesias sent the Tanodbayan, a letter on November 26,
1987, denouncing alleged graft and corruption in the NPDC. 9 These, according to the Court of
Appeals, should not have been taken against GABI, which had been occupying Rizal Park for nearly
20 years. GABI was evicted purportedly for violating its verbal agreement with NPDC. 10 However, the
Court of Appeals pointed out that NPDC failed to present proof of such violation. 11

The Court of Appeals found petitioner liable for damages under Articles 19, 21, and 24 of the Civil
Code.12

The Court of Appeals absolved from liability all other persons impleaded in GABI's complaint since it
appeared that they were merely acting under the orders of petitioner. The new officers of NPDC,
additionally impleaded by GABI, were likewise absolved from liability, absent any showing that they
participated in the acts complained of. Petitioner was ordered to pay private respondent Iglesias
moral and exemplary damages and attorney's fees.

Hence, this petition, in which petitioner raises the following issues:

I. WHETHER OR NOT RESPONDENT COURT ERRED IN NOT HOLDING THAT PRIVATE

RESPONDENTS' COMPLAINT AGAINST PETITIONER, AS CHAIRMAN OF NPDC, AND HIS
CO-DEFENDANTS IN CIVIL CASE NO. 88-43887, IS IN EFFECT A SUIT AGAINST THE
STATE WHICH CANNOT BE SUED WITHOUT ITS CONSENT.

II. WHETHER OR NOT RESPONDENT COURT ERRED IN NOT HOLDING THAT

PETITIONER'S ACT OF TERMINATING RESPONDENT GABI'S CONCESSION IS VALID
AND DONE IN THE LAWFUL PERFORMANCE OF OFFICIAL DUTY. 13
Petitioner insists that the complaint filed against him is in reality a complaint against the State, which
could not prosper without the latter's consent. He anchors his argument on the fact that NPDC is a
government agency, and that when he ordered the eviction of GABI, he was acting in his capacity as
chairman of NPDC. Petitioner avers that the mere allegation that he was being sued in his personal
capacity did not remove the case from the coverage of the law of public officers and the doctrine of
state immunity.

Petitioner points out that Iglesias signed the notice of eviction to indicate his conformity thereto. He
contends that as evidence of private respondents' bad faith, they sued petitioner instead of complying
with their undertaking to vacate their library and kiosk at Rizal Park.

Petitioner adds that during the actual eviction, no untoward incident occurred. GABI's properties were
properly inventoried and stored.

According to petitioner, the Court of Appeals' observation that the eviction was prompted by Iglesias'
support for striking NPDC workers and the letter-complaint sent to the Tanodbayan is merely
conjectural.

Finally, petitioner avers that the move to evict GABI and award the spaces it occupied to another
group was an executive policy decision within the discretion of NPDC. GABI's possession of the
kiosks as concessionaire was by mere tolerance of NPDC and, thus, such possession may be
withdrawn at any time, with or without cause.

On the other hand, private respondents aver that petitioner acted beyond the scope of his authority
when he showed malice and bad faith in ordering GABI's ejectment from Rizal Park. Quoting from the
decision of the Court of Appeals, private respondents argue that petitioner is liable for damages for
performing acts "to injure an individual rather than to discharge a public duty." 14

While private respondents recognize the authority of petitioner to terminate the agreement with GABI
"if [the contract] is prejudicial to the interest of the NPDC," 15 they maintain that petitioner's personal
interest, and not that of the NPDC, was the root cause of GABI's ejecment.

The doctrine of state immunity from suit applies to complaints filed against public officials for acts
done in the performance of their duties. The rule is that the suit must be regarded as one against the
state where satisfaction of the judgment against the public official concerned will require the state
itself to perform a positive act, such as appropriation of the amount necessary to pay the damages
awarded to the plaintiff.16

The rule does not apply where the public official is charged in his official capacity for acts that are
unlawful and injurious to the rights of others. 17 Public officials are not exempt, in their personal
capacity, from liability arising from acts committed in bad faith. 18

Neither does it apply where the public official is clearly being sued not in his official capacity but in his
personal capacity, although the acts complained of may have been committed while he occupied a
public position.

We are convinced that petitioner is being sued not in his capacity as NPDC chairman but in his
personal capacity. The complaint filed by private respondents in the RTC merely identified petitioner
as chairman of the NPDC, but did not categorically state that he is being sued in that capacity. 19 Also,
it is evident from paragraph 4 of said complaint that petitioner was sued allegedly for having personal
motives in ordering the ejectment of GABI from Rizal Park.
 4. Defendant AMADO J. LANSANG, JR., the Chairman of the National Parks Development
Committee, acting under the spirit of revenge, ill-will, evil motive and personal resentment
against plaintiff JOSE IGLESIAS, served on the plaintiff corporation a letter, dated February
23, 1988 terminating plaintiffs lease agreement with a demand for the plaintiff corporation to
vacate its office premises. . .20 (Emphasis supplied.)

The parties do not dispute that it was petitioner who ordered the ejectment of GABI from their office
and kiosk at Rizal Park. There is also no dispute that petitioner, as chairman of the NPDC which was
the agency tasked to administer Rizal Park, had the authority to terminate the agreement with
GABI21 and order the organization's ejectment. The question now is whether or not petitioner abused
his authority in ordering the ejectment of private respondents.

We find, however, no evidence of such abuse of authority on record. As earlier stated, Rizal Park is
beyond the commerce of man and, thus, could not be the subject of a lease contract. Admittedly,
there was no written contract. That private respondents were allowed to occupy office and kiosk
spaces in the park was only a matter of accommodation by the previous administrator. This being so,
also admittedly, petitioner may validly discontinue the accommodation extended to private
respondents, who may be ejected from the park when necessary. Private respondents cannot and
does not claim a vested right to continue to occupy Rizal Park.

The Court of Appeals awarded private respondent Iglesias moral and exemplary damages and
attorney's fees. However, we find no evidence on record to support Iglesias' claim that he suffered
moral injury as a result of GABI's ejectment from Rizal Park. Absent any satisfactory proof upon
which the Court may base the amount of damages suffered, the award of moral damages cannot be
sustained.22

Neither can we sustain the award of exemplary damages, which may only be awarded in addition to
moral, temperate, liquidated, or compensatory damages. 23 We also disallow the award for attorney's
fees, which can only be recovered per stipulation of the parties, which is absent in this case. There is
no showing that any of the exceptions justifying the award of attorney's fees absent a stipulation is
present in this case.24

WHEREFORE, the instant petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV
No. 27244 is hereby SET ASIDE, and the DISMISSAL of the complaint for damages by the trial court
for want of merit is AFFIRMED. No costs.

SO ORDERED.1âwphi1.nêt

G.R. No. 90314               November 27, 1990

LOIDA Q. SHAUF and JACOB SHAUF, Petitioners,

vs.
HON. COURT OF APPEALS, DON E. DETWILER and ANTHONY PERSI, Respondents.

REGALADO, J.:

In this petition for review on certiorari, petitioners would have us reverse and set aside the decision
rendered by respondent Court of Appeals on August 22, 1989, in CA-G.R. CV No. 17932, entitled
"Loida Shauf and Jacob Shauf, Plaintiffs-Appellants, versus Don Detwiler and Anthony Persi,
Defendants-Appellants,"1 dismissing petitioners’ complaint for damages filed before the Regional Trial
Court, Branch LVI, Angeles City, in Civil Case No. 2783 thereof, and its subsequent resolution
denying petitioners’ motion for the reconsideration of its aforesaid decision.
As found by respondent court, 2 Clark Air Base is one of the bases established and maintained by the
United States by authority of the agreement between the Philippines and the United States
concerning military bases which entered into force on March 26, 1947.

The Third Combat Support Group, a unit of Clark Air Base, maintains a Central Civilian Personnel
Office (CCPO) charged with the responsibility for civilian personnel management and administration.
It is through its civilian personnel officer that the base commander is responsible for direction and
administration of civilian personnel program, including advising management and operating officials
on civilian personnel matters. Acting for the commander, the civilian personnel officer is the
administrative official in charge of the activities of the CCPO, and the commander relies on him to
carry out all aspects of the civilian personnel program. The CCPO personnel program encompasses
placement and staffing, position management and classification.

The Third Combat Support Group also maintains an Education Branch, Personnel Division, which
provides an education program for military personnel, U.S. civilian employees, and adult dependents,
assigned or attached to Clark Air Base. Its head, the education director, is responsible directly to the
base director of personnel for administering the education services program for Clark Air Base. In this
capacity, and within broad agency policies, is delegated to him the full responsibility and authority for
the technical, administrative and management functions of the program. As part of his duties, the
education director provides complete academic and vocational guidance for military dependents,
including counseling, testing and test interpretation. During the time material to the complaint, private
respondent Don Detwiler was civilian personnel officer, while private respondent Anthony Persi was
education director.3

Petitioner Loida Q. Shauf, a Filipino by origin and married to an American who is a member of the
United States Air Force, applied for the vacant position of Guidance Counselor, GS17109, in the
Base Education Office at Clark Air Base, for which she is eminently qualified. As found by the trial
court, she received a Master of Arts degree from the University of Sto. Tomas, Manila, in 1971 and
has completed 34 semester hours in psychology-guidance and 25 quarter hours in human behavioral
science; she has also completed all course work in human behavior and counseling psychology for a
doctoral degree; she is a civil service eligible; and, more importantly, she had functioned as a
Guidance Counselor at the Clark Air Base at the GS 1710-9 level for approximately four years at the
time she applied for the same position in 1976. 4

By reason of her non-selection to the position, petitioner Loida Q. Shauf filed an equal employment
opportunity complaint against private respondents, for alleged discrimination against the former by
reason of her nationality and sex. The controversy was investigated by one Rudolph Duncan, an
appeals and grievance examiner assigned to the Office of Civilian Personnel Operations, Appellate
Division, San Antonio, Texas, U.S.A. and what follows are taken from his findings embodied in a
report duly submitted by him to the Equal Opportunity Officer on February 22, 1977.5

On or about October 1976, the position of Guidance Counselor, GS 1710-9, became vacant in the
Base Education Office, Clark Air Base. A standard Form 52 was submitted to the Civilian Personnel
Office to fill said position. The Civilian Personnel Division took immediate steps to fill the position by
advertisement in the Clark Air Base Daily Bulletin #205 dated October 21, 1976. As a result of the
advertisement, one application was received by the Civilian Personnel Office and two applications
were retrieved from the applicants supply file in the Civilian Personnel Office. These applications
were that of Mrs. Jean Hollenshead, an employee of the DOD Schools at Clark Air Base, Mrs. Lydia
B. Gaillard, an unemployed dependent, and Mrs. Loida Q. Shauf. All three applications were reviewed
and their experiences were considered qualifying for the advertised position.
On November 11, 1976, the application of Loida Q. Shauf was referred to Mr. Anthony Persi, with the
applications of Mrs. Jean Hollenshead and Mrs. Lydia Gaillard, to be considered for the position of
Guidance Counselor, GS 1710-9, Mr. Persi, after review of the applications, stated that upon
screening the applications he concluded that two applicants had what he considered minimum
qualifications for the position. The two applicants were Mrs. Hollenshead and Mrs. Gaillard. In the
case of Loida Q. Shauf, Mr. Persi felt that her application was quite complete except for a reply to an
inquiry form attached to the application. This inquiry form stated that the National Personnel Records
Center, St. Louis, Missouri, was unable to find an official personnel folder for Loida Q. Shauf. Mr.
Persi said that as a result of the National Personnel Records Center, GSA, not being able to find any
records on Loida Q. Shauf, this raised some questions in his mind as to the validity of her work
experience. As a result of his reservations on Loida Q. Shauf’s work experience and his conclusions
that the two other applications listed minimum qualifications, Mr. Persi decided to solicit additional
names for consideration.

Subsequently in his correspondence dated November 12, 1976, Mr. Persi returned the three
applications to the Civilian Personnel Office without a selection decision. Mr. Persi also requested in
his correspondence that the Civilian Personnel Office initiate immediate inquiry to the Central
Oversea Rotation and Recruiting Office (CORRO) for the submission of a list of highly qualified
candidates. He further stated in his correspondence that the three applicants who had indicated an
interest would be considered with the CORRO input for selection.

As a result of Mr. Persi’s request, an AF Form 1188 "Oversea Civilian Personnel Request" was
submitted to CORRO on November 12, 1976. This request in fact asked for one Guidance Counselor,
GS 1710-9. The form listed the fact that local candidates are available. However, instead of getting a
list of candidates for consideration, Mr. Persi was informed by CORRO, through the Civilian
Personnel Office in their December 15, 1976 message that a Mr. Edward B. Isakson from Loring
AFB, Maine, was selected for the position. Mr. Persi stated, when informed of CORRO’s selection,
that he had heard of Mr. Isakson and, from what he had heard, Mr. Isakson was highly qualified for
the position; therefore, he wished to have the selection stand. This statement was denied by Mr.
Persi. Mr. Isakson was placed on the rolls at Clark Air Base on January 24, 1977. 6

Said examiner, however, also stated in his findings that, by reason of petitioner Loida Q. Shauf’s
credentials which he recited therein, she is and was at the time of the vacancy, 7 highly qualified for
the position of Guidance Counselor, GS 1710-9. In connection with said complaint, a Notice of
Proposed Disposition of Discrimination Complaint, dated May 16, 1977, 8 was served upon petitioner
Loida Q. Shauf stating that because the individual selected did not meet the criteria of the
qualification requirements, it was recommended "that an overhire GS 1710-9 Assistant Education
Advisor position be established for a 180 day period. x x x. The position should be advertised for local
procurement on a best qualified basis with the stipulation that if a vacancy occurs in a permanent GS
1710-9 position the selectee would automatically be selected to fill the vacancy. If a position is not
vacated in the 180 day period the temporary overhire would be released but would be selected to fill a
future vacancy if the selectee is available."

During that time, private respondents already knew that a permanent GS 1710-9 position would
shortly be vacant, that is, the position of Mrs. Mary Abalateo whose appointment was to expire on
August 6, 1977 and this was exactly what private respondent Detwiler had in mind when he denied on
June 27, 1977 Mrs. Abalateo’s request for extension of March 31, 1977. However, private
respondents deny that Col. Charles J. Corey represented to petitioner Loida Q. Shauf that she would
be appointed to the overhire position and to a permanent GS 1710-9 position as soon as it became
vacant, which allegedly prompted the latter to accept the proposed disposition.
Contrary to her expectations, petitioner Loida Q. Shauf was never appointed to the position occupied
by Mrs. Abalateo whose appointment was extended indefinitely by private respondent Detwiler. 9

Feeling aggrieved by what she considered a shabby treatment accorded her, petitioner Loida Q.
Shauf wrote the U.S. Civil Service Commission questioning the qualifications of Edward Isakson.
Thereafter, said commission sent a communication addressed to private respondent
Detwiler,10 finding Edward Isakson not qualified to the position of Guidance Counselor, GS 1710-9,
and requesting that action be taken to remove him from the position and that efforts be made to place
him in a position for which he qualifies. Petitioner Loida Q. Shauf avers that said recommendation
was ignored by private respondent Detwiler and that Isakson continued to occupy said position of
guidance counselor.

Petitioner Loida Q. Shauf likewise wrote the Base Commander of Clark Air Base requesting a hearing
on her complaint for discrimination. Consequently, a hearing was held on March 29, 1978 before the
U.S. Department of Air Force in Clark Air Base.11

Before the Department of Air Force could render a decision, petitioner Loida Q. Shauf filed a
complaint for damages, dated April 27, 1978, against private respondents Don Detwiler and Anthony
Persi before the Regional Trial Court, Branch LVI at Angeles City, docketed as Civil Case No. 2783,
for the alleged discriminatory acts of herein private respondents in maliciously denying her application
for the GS 1710-9 position.

Private respondents, as defendants in Civil Case No. 2783, filed a motion to dismiss on the ground
that as officers of the United States Armed Forces performing official functions in accordance with the
powers vested in them under the Philippine-American Military Bases Agreement, they are immune
from suit. The motion to dismiss was denied by the trial court. A motion for reconsideration was
likewise denied.

Consequently, private respondents filed an Answer reiterating the issue of jurisdiction and
alleging, inter alia, that defendant Persi’s request to Central Oversea Rotation and Recruiting Office
(CORRO) was not for appointment of a person to the position of Guidance Counselor, GS 1710-9, but
for referrals whom defendant Persi would consider together with local candidates for the position; that
the extension of the employment of Mrs. Abalato was in accordance with applicable regulation and
was not related to plaintiff Loida Q. Shauf’s discrimination complaint; that the decision was a joint
decision of management and CCPO reached at a meeting on June 29, 1977 and based on a letter of
the deputy director of civilian personnel, Headquarters Pacific Air Forces, dated June 15, 1977; and
that the ruling was made known to and amplified by the director and the deputy director of civilian
personnel in letters to petitioner Loida Q. Shauf dated August 30, 1977 and September 19, 1977.

The parties submitted a Partial Stipulation of Facts in the court a quo providing, in part, as follows:

a) In October 1976, the position of guidance counselor, GS-1710-9, at Clark Air Base was
vacant;

b) Plaintiff Loida Q, Shauf, a qualified dependent locally available, was among those who
applied for said vacant position of guidance counselor, GS-1710-9;

c) Plaintiff Loida Q. Shauf at the time she filed her aforesaid application was qualified for the
position of guidance counselor, GS-1710-9;

d) Civilian Personnel Office accomplished and forwarded to CORRO an AF Form 1188

covering the position of guidance counselor, GS-1710-9, applied for by plaintiff Loida Q. Shauf;
 e) U.S. Department of Defense Instructions (DODI) No. 1400.23 under Policy and Procedures
provides that-

"Where qualified dependents of military or civilian personnel of the Department of Defense are locally
available for appointment to positions in foreign areas which are designated for U.S. citizen
occupancy and for which recruitment outside the current work force is appropriate, appointment to the
position will be limited to such dependents unless precluded by treaties or other agreements which
provide for preferential treatment for local nationals."

And Air Force Regulation 40-301 dated 12 May 1976 in par. 2 c (1) thereof provides that-

"c. Selection or Referral of Eligible Applicants From the 50 States:

(1)CORRO makes selection, except as provided in (3) below, for oversea positions of Grades
GS-11 and below (and wage grade equivalents) for which it has received an AF Form 1188,
and for higher grade positions if requested by the oversea activity." 12

Likewise, a Supplement to Partial Stipulation of Facts was filed by the parties on October 6, 1978,
which reads:

1. Under date of 30 September 1978, plaintiff Loida Q. Shauf through her counsel, Quasha Asperilla
Ancheta Valmonte Peña & Marcos, lodged an appeal before the Civil Service Commission, Appeals
Review Board, from the decision of the Secretary of the Air Force dated 1 September 1978 affirming
the EEO Complaints Examiner’s Findings and Recommended Decision in the Discrimination
Complaint of Mrs. Loida Q. Shauf, No. SF 071380181 dated 3 July 1978, x x x;

2. The aforesaid appeal has not been decided up to now by the Civil Service Commission, Appeals
Review Board; and

3. Plaintiff Loida Q. Shauf has not instituted any action before any federal district court of the United
States impugning the validity of the decision of the Secretary of the Air Force dated 1 September
1978 affirming the EEO Complaints Examiner’s Findings and Recommended Decision in the
Discrimination Complaint of Mrs. Loida Q. Shauf, No. SF 071380181 dated 3 July 1978. 13

Thereafter, on March 8, 1988, the trial court rendered judgment in favor of herein petitioner Loida Q.
Shauf, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering the defendants jointly and severally to pay the
plaintiffs:

1) The amount $39,662.49 as actual damages or its equivalent in Philippine pesos in October
1976 as reported by the Central Bank of the Philippines or any authorized agency of the
Government;

2) The amount of P100,000.00 as moral and exemplary damages;

3) Twenty (20%) percent of $39,662.49 or its equivalent in Philippine Pesos in October 1976
as reported by the Central Bank of the Philippines or any authorized agency of the
Government, as attorney’s gees, and;

4) Cost(s) of suit.
 SO ORDERED.14

Both parties appealed from the aforecited decision to respondent Court of Appeals.

In their appeal, plaintiffs-appellants (herein petitioners) raised the following assignment of errors:

1. Lower court gravely erred in holding that the actual and exemplary damages and attorney’s
fees may be paid in Philippine Pesos based on the exchange rate prevailing during October
1976 as determined by the Central Bank;

2. Lower court gravely erred in limiting the amount of moral and exemplary damages
recoverable by plaintiff to P100,000.0015

On the other hand, defendants-appellants (private respondents herein) argued that:

1. The trial court erred in not dismissing the complaint on the ground that defendants-
appellants, as officers/officials of the United States Armed Forces, are immune from suit for
acts done or statements made by them in the performance of their official governmental
functions in accordance with the powers possessed by them under the Philippine-American
Military Bases Agreement of 1947, as amended;

2. The trial court erred in not dismissing the complaint for a) non-exhaustion of administrative
remedies; and b) lack of jurisdiction of the trial court over the subject matter of the case in view
of the exclusive jurisdiction of an appropriate U.S. District Court over an appeal from an
agency decision on a complaint of discrimination under the U.S. Federal Law on Equality of
opportunity for civilian employees;

3. The trial court erred in holding that plaintiff-appellant Loida Q. Shauf was refused
appointment as guidance counselor by the defendants-appellants on account of her six
(female), color (brown), and national origin (Filipino by birth) and that the trial court erred in
awarding damages to plaintiffs-appellants. 16

As stated at the outset, respondent Court of Appeals reversed the decision of the trial court,
dismissed herein petitioners’complaint and denied their motion for reconsideration. Hence this
petition, on the basis of he following grounds:

The respondent Honorable Court of Appeals has decided a question of substance not in accord with
law and/or with applicable decisions of this Honorable Court. Respondent court committed grave error
in dismissing plaintiffs-appellants’ complaint and-

(a) in holding that private respondents are immune from suit for discriminatory acts performed
without or in excess of, their authority as officers of the U.S. Armed Forces;

(b) for applying the doctrine of state immunity from suit when it is clear that the suit is not
against the U.S. Government or its Armed Forces; and

(c) for failing to recognize the fact that the instant action is a pure and simple case for
damages based on the discriminatory and malicious acts committed by private respondents in
their individual capacity who by force of circumstance and accident are officers of the U.S.
Armed Forces, against petitioner Loida Shauf solely on account of the latter’s sex (female),
color (brown), and national origin (Filipino). 17
Petitioners aver that private respondents are being sued in their private capacity for discriminatory
acts performed beyond their authority, hence the instant action is not a suit against the United States
Government which would require its consent.

Private respondents, on the other hand, claim that in filing the case, petitioners sought a judicial
review by a Philippine court of the official actuations of respondents as officials of a military unit of the
U.S. Air Force stationed at Clark Air Base. The acts complained of were done by respondents while
administering the civil service laws of the United States. The acts sued upon being a governmental
activity of respondents, the complaint is barred by the immunity of the United States, as a foreign
sovereign, from suit without its consent and by the immunity of the officials of the United States
armed forces for acts committed in the performance of their official functions pursuant to the grant to
the United States armed forces of rights, power and authority within the bases under the Military
Bases Agreement. It is further contended that the rule allowing suits against public officers and
employees for unauthorized acts, torts and criminal acts is a rule of domestic law, not of international
law. It applies to cases involving the relations between private suitors and their government or state,
not the relations between one government and another from which springs the doctrine of immunity of
a foreign sovereign.

I. The rule that a state may not be sued without its consent, now expressed in Article XVI, Section 3,
of the 1987 Constitution, is one of the generally accepted principles of international law that we have
adopted as part of the law of our land under Article II, Section 2. This latter provision merely reiterates
a policy earlier embodied in the 1935 and 1973 Constitutions and also intended to manifest our
resolve to abide by the rules of the international community. 18

While the doctrine appears to prohibit only suits against the state without its consent, it is also
applicable to complaints filed against officials of the state for acts allegedly performed by them in the
discharge of their duties. The rule is that if the judgment against such officials will require the state
itself to perform an affirmative act to satisfy the same, such as the appropriation of the amount
needed to pay the damages awarded against them, the suit must be regarded as against the state
itself although it has been formally impleaded. 19 It must be noted, however, that the rule is not also all-
encompassing as to be applicable under all circumstances.

It is a different matter where the public official is made to account in his capacity as such for acts
contrary to law and injurious to the rights of plaintiff. As we clearly set forth by Justice Zaldivar
in Director of the Bureau of Telecommunications, et al. Vs. Aligaen, etc., et al.:20 "Inasmuch as the
State authorizes only legal acts by its officers, unauthorized acts of government officials or officers
are not acts of the State, and an action against the officials or officers by one whose rights have been
invaded or violated by such acts, for the protection of his rights, is not a suit against the State within
the rule of immunity of the State from suit. In the same tenor, it has been said that an action at law or
suit in equity against a State officer or the director of a State department on the ground that, while
claiming to act for the State, he violates or invades the personal and property rights of the plaintiff,
under an unconstitutional act or under an assumption of authority which he does not have, is not a
suit against the State within the constitutional provision that the State may not be sued without its
consent."21 The rationale for this ruling is that the doctrine of state immunity cannot be used as an
instrument for perpetrating an injustice.22

In the case of Baer, etc. vs. Tizon, etc., et al.,23 it was ruled that:

There should be no misinterpretation of the scope of the decision reached by this Court. Petitioner, as
the Commander of the United States Naval Base in Olongapo, does not possess diplomatic immunity.
He may therefore be proceeded against in his personal capacity, or when the action taken by him
cannot be imputed to the government which he represents.
Also, in animos, et al. Vs. Philippine Veterans Affairs Office, et al.,24 we held that:

"x x x it is equally well-settled that where a litigation may have adverse consequences on the public
treasury, whether in the disbursements of funds or loss of property, the public official proceeded
against not being liable in his personal capacity, then the doctrine of non-suability may appropriately
be invoked. It has no application, however, where the suit against such a functionary had to be
instituted because of his failure to comply with the duty imposed by statute appropriating public funds
for the benefit of plaintiff or petitioner. x x x.

The aforecited authorities are clear on the matter. They state that the doctrine of immunity from suit
will not apply and may not be invoked where the public official is being sued in his private and
personal capacity as an ordinary citizen. The cloak of protection afforded the officers and agents of
the government is removed the moment they are sued in their individual capacity. This situation
usually arises where the public official acts without authority or in excess of the powers vested in him.
It is a well-settled principle of law that a public official may be liable in his personal private capacity for
whatever damage he may have caused by his act done with malice and in bad faith, or beyond the
scope of his authority or jurisdiction.25

The agents and officials of the United States armed forces stationed in Clark Air Base are no
exception to this rule. In the case of United States of America, et al. Vs. Guinto, etc., et al., ante, 26 we
declared:

It bears stressing at this point that the above observation do not confer on the United States of
America blanket immunity for all acts done by it or its agents in the Philippines. Neither may the other
petitioners claim that they are also insulated from suit in this country merely because they have acted
as agents of the United States in the discharge of their official functions.

II. The court below, in finding that private respondents are guilty of discriminating against petitioner
Loida Q. Shauf on account of her sex, color and origin, categorically emphasized that:

There is ample evidence to sustain plaintiffs’ complaint that plaintiff Loida Q. Shauf was refused
appointment as Guidance Counselor by the defendants on account of her sex, color and origin.

She is a female, brown in color and a Filipino by origin, although married to an American who is a
member of the United States Air Force. She is qualified for the vacant position of Guidance Counselor
in the office of the education director at Clark Air Base. She received a Master of Arts Degree from
the University of Santo Tomas, Manila, in 1971 and has completed 34 semester hours in psychology-
guidance and 25 quarter hours in human behavioral science. She has also completed all course work
in human behavior and counseling psychology for a doctoral degree. She is a civil service eligible.
More important, she had functioned as a Guidance Counselor at the Clark Air Base at the GS-1710-9
level for approximately four years at the time she applied for the same position in 1976.

In filling the vacant position of Guidance Counselor, defendant Persi did not even consider the
application of plaintiff Loida Q. Shauf, but referred the vacancy to CORRO which appointed Edward
B. Isakson who was not eligible to the position.

In defending his act, defendant Persi gave as his excuse that there was a question in his mind
regarding validity of plaintiff Loida Q. Shauf’s work experience because of lack of record. But his
assertion is belied by the fact that plaintiff Loida Q. Shauf had previously been employed as Guidance
Counselor at the Clark Air Base in 1971 and this would have come out if defendant Persi had taken
the trouble of interviewing her. Nor can defendant free himself from any blame for the non-
appointment of plaintiff Loida Q. Shauf by claiming that it was CORRO that appointed Edward B.
Isakson. This would not have happened if defendant Persi adhered to the regulation that limits the
appointment to the position of Guidance Counselor, GS-1710-9 to qualified dependents of military
personnel of the Department of Defense who are locally available like the plaintiff Loida Q. Shauf. He
should not have referred the matter to CORRO. Furthermore, defendant Persi should have protested
the appointment of Edward B. Isakson who was ineligible for the position. He, however, remained
silent because he was satisfied with the appointment.

Likewise, the acts of the defendant Detwiler in rejecting the appointment of plaintiff Loida Q. Shauf
were undoubtedly discriminatory.

Plaintiff Loida Q. Shauf twice applied for the position of Guidance Counselor sometime in 1975 and in
October 1978. Although she was qualified for the postision, her appointment was rejected ny the
defendant Detwiler. The two who were appointed, a certain Petrucci and Edward B. Isakson, were
ordered removed by the U.S. Civil Service Commission. Instead of replacing Petrucci with the plaintiff
Loida Q. Shauf, the defendant Detwiler had the position vacated by Petrucci abolished. And in the
case of Edward Isakson, the defendant Detwiler ignored the order of the U.S. Civil Service
Commission to have him removed according to the testimony of plaintiff Loida Q. Shauf.

In connection with her complaint against the defendants, plaintiff Loida Q. Shauf was presented a
Notice of Proposed Disposition of her Discrimination Complaint by Col. Charles J. Corey, Vice
Commander, Third Combat Support Group, Clark Air Base, which would entitle her to a temporary
appointment as Guidance Counselor with the implied assurance that she would be appointed in a
permanent capacity in the event of a vacancy.

At the time of the issuance of said Notice, defendants knew that there would be a vacancy in a
permanent position as Guidance Counselor occupied by Mrs. Mary Abalateo and it was understood
between Col. Corey and plaintiff Loida Q. Shauf that this position would be reserved for her. Knowing
this arrangement, defendant Detwiler rejected the request for extension of services of Mrs. Mary
Abalateo. However, after plaintiff Loida Q. Shauf consented to the terms of the Notice of Proposed
Disposition of her Discrimination Complaint, defendant Detwiler extended the services of Mrs. Mary
Abalateo indefinitely. This act barred plaintiff Loida Q. Shauf from applying for the position of Mrs.
Mary Abalateo.

To rebut the evidence of the plaintiffs, defendant cited the findings and conclusions of Mr. Rudolph
Duncan, who was appointed to investigate plaintiff Loida Q. Shauf’s complaint for discrimination and
Col. Charles J. Corey, Vice Commander, Third Combat Support Group that defendants were not
guilty of Discrimination.

It is pointed out, however, that Mr. Rudolph Duncan found plaintiff loida Q. Shauf to be highly
qualified for the position of Guidance Counselor at the GS-1710-9 level and that management should
have hired a local applicant. While Col. Corey characterized the act of defendant Persi as sloppy and
recommend that he be reprimanded. In any event their findings and conclusions are not binding with
this Court.

To blunt the accusation of discrimination against them, defendants maintained that the extension of
the appointment of Mrs. Mary Abalateo was a joint decision of management and Central Civilian
Personnel Office, Clark Air Base. Nonetheless, having earlier rejected by himself the request for
extension of the services of Mrs. Mary Abalateo, defendant Detwiler should not have concurred to
such an extension as the reversal of his stand gave added substance to the charge of discrimination
against him.
To further disprove the charge that the defendants discriminated against plaintiff Loida Q. Shauf for
her non-appointment as Guidance Counselor on account of her being a Filipino and a female,
counsel for the defendants cited the following: (1) that Mrs. Mary Abalateo whose appointment was
extended by the defendant Detwiler is likewise a female and a Filipino by origin; (2) that there are
Filipinos employed in the office of the defendant Persi; and (3) that there were two other women who
applied in 1976 with the plaintiff Loida Q. Shauf for the position of Guidance Counselor.

The contention of the defendants based on the allegations enumerated in Nos. 1 and 2 of the
preceding paragraph is without merit as there is no evidence to show that Mrs. Mary Abalateo and the
Filipinos in the office of the defendant Persi were appointed by the defendants. Moreover, faced with
a choice between plaintiff Loida Q. Shauf or Mrs. Mary Abalateo, it was to be expected that defendant
Detwiler chose to retain Mrs. Mary Abalateo as Guidance Counselor in retaliation for the complaint of
discrimination filed against him by plaintiff Loida Q. Shauf. Finally, as to the contention based on the
allegation in No. 3 of the preceding paragraph that there were two other women applicants in 1976
with plaintiff Loida Q. Shauf, the record reveals that they had minimum qualifications unlike plaintiff
Loida Q. Shauf who was highly qualified. 27

Elementary is the rule that the conclusions and findings of fact of the trial court are entitled to great
weight on appeal and should not be disturbed unless for strong and cogent reasons. 28 Absent any
substancial proof, therefore, that the trial court’s decision was grounded entirely on speculations,
surmises or conjectures, the same must be accorded full consideration and respect. This should be
so because the trial court is, after all, in a much better position to observe and correctly appreciate
the respective parties’ evidence as they were presented. 29

In the case at bar, there is nothing in the record which suggests any arbitrary, irregular or abusive
conduct or motive on the part of the trial judge in ruling that private respondents committed acts of
discrimination for which they should be held personally liable. His conclusion on the matter is
sufficiently borne out by the evidence on record. We are thus constrained to uphold his findings of
fact.

Respondent Court of Appeals, in its questioned decision, states that private respondents did, in fact,
discriminate against petitioner Loida Q. Shauf. However, it deemed such acts insufficient to prevent
an application of the doctrine of state immunity, contrary to the findings made by the trial court. It
reasons out that "the parties invoked are all American citizens (although plaintiff is a Filipina by origin)
and the appointment of personnel inside the base is clearly a sovereign act of the United States. This
is an internal affair in which we cannot interfere without having to touch some delicate constitutional
issues."30 In other words, it believes that the alleged discriminatory acts are not so grave in character
as would justify the award of damages.

In view of the apparent discrepancy between the findings of fact of respondent Court of Appeals and
the trial court, we are tasked to review the evidence in order to arrive at the correct findings based on
the record. A consideration of the evidence presented supports our view that the court  a quo was
correct in holding herein private respondents personally liable and in ordering the indemnification of
petitioner Loida Q. Shauf. The records are clear that even prior to the filing of the complaint in this
case, there were various reports and communications issued on the matter which, while they make
no categorical statement of the private respondents’ liability, nevertheless admit of facts from which
the intent of private respondents to discriminate against Loida Q. Shauf is easily discernible. Witness
the following pertinent excerpts from the documents extant in the folder of Plaintiff’s Exhibits:

1. Notice of Proposed Disposition of Discrimination Complaint, dated May 16, 1977 (Exhibit "G").
B. Mr. Anthony Persi was totally inept in the recruitment practices employed in attempting on fill the
GS 1710-9 Assistant Education applicable DOD regulations. In addition, he failed to conduct an
interview of qualified personnel in the local environment and when the qualifications of the
complainant (sic) were questioned by Mr. Persi he did not request a review by the CCPO nor request
an interview with the complainant (sic). Mr. Persi failed to follow Department of Defense Instructions
Number 1400.23, under Policy and Procedures which states-"Where qualified dependents of military
or civilian personnel of the Department of Defense are locally available for appointment to positions in
foreign areas which are designated for US citizen occupancy and for which recruitment outside the
current work force is appropriate, appointment to the positions will be limited to such dependents
unless precluded by treaties or other agreements which provide for preferential treatment for local
nationals." Attachment to Air Force Supplement to FFM 213.2106 (b) (6) lists the positions of
Guidance Counsellor, GS 1710-9, as positions to be filled by locally available dependents. An added
point is the lack of qualifications of the individual selected for the GS 1710-9 positions as outlined
under X-118 Civil Service Handbook. x x x31

2. Letter of the Director of the U.S. Civil Service Commission, San Francisco Region, dated October
27, 1977, addressed to Mr. Don Detwiler, concerning Mr. Edward B. Isakson whose file was reviewed
by the Commission (Exhibit "K").

The position of Guidance Counsellor is one for which the Commission has established a mandatory
education requirement that may not be waived. An individual may not be assigned to such a position
without meeting the minimum qualification requirements. The requirements, as given in Handbook X-
118, are completion of all academic requirements for a bachelor’s degree from an accredited college
or university and successful completion of a teacher education program under an "approved program"
or successful completion of required kinds of courses.

On review of his record, we find that Mr. Isakson has a bachelor’s degree but he does not show
completion of a teacher education program. To qualify for Guidance Counselor on the basis of
coursework and semester hour credit, he would need to have 24 semester hours in Education and 12
semester hours in a combination of Psychology and Guidance subjects directly related to education.
We do not find that he meets these requirements.

xxx

We can appreciate the fact that Mr. Isakson may be working toward meeting the Guidance Counselor
requirements. Nonetheless, he does not appear to meet them at this time. We must, therefore,
request that action be taken to remove him from the position and that efforts be made to place him in
a position for which he qualifies.32

3. Letter of the Staff Judge Advocate of the Department of the Airforce addressed to Mr. Detwiler,
dated January 25, 1977 (Exhibit "L").

1. The attached memo from Captain John Vento of this office is forwarded for your review and
any action you deem appropriate. I concur with his conclusion that there is no evidence of sex
or ethnic bias in this matter. I also concur, however, that there were certain irregularities in the
handling of this selection.

xxx

3. Considering the above, it is most unfortunate that the filing of this latest Guidance Counselor
vacancy was not handled wholly in accordance with prescribed policies and regulations. This is
not to suggest that Mrs. Shauf should necessarily have been hired. But, she and other
 qualified candidates should have been given the consideration to which they were entitled. (At
no time now or in the past have Mrs. Shauf’s qualifications ever been questioned.) Had that
happened and management chose to select some qualified candidate other than Mrs. Shauf,
there would be no basis for her complaint.

4. It is my understanding that Mrs. Shauf has filed a formal EEO complaint. While I am
convinced that there was no discrimination in this case, my experience with EEO complaints
teaches me that, if Civil Service Commission finds that nonselection resulted from any kind of
management malpractice, it is prone to brand it as a "discriminatory practice." This usually
results in a remedial order which can often be distasteful to management. x x x. 33

The initial burden is on the plaintiff to establish a prima facie case or discrimination. Once the
discriminatory act is proven, the burden shifts to the defendant to articulate some legitimate,
undiscriminatory reason for the plaintiff’s rejection. 34 Any such justification is wanting in the case at
bar, despite the prima facie case for petitioner Loida Q. Shauf. Private respondents’ defense is based
purely on outright denials which are insufficient to discharge the onus probandi imposed upon them.
They equally rely on the assertion that they are immune from suit by reason of their official functions.
As correctly pointed out by petitioners in their Memorandum, the mere invocation by private
respondents of the official character of their duties cannot shield them from liability especially when
the same were clearly done beyond the scope of their authority, again citing the Guinto, case, supra:

The other petitioners in the case before us all aver they have acted in the discharge of their official
functions as officers or agents of the United States. However, this is a matter of evidence. The
charges against them may not be summarily dismissed on their mere assertion that their acts are
imputable to the United States of America, which has not given its consent to be sued. In fact, the
defendants are sought to be held answerable for personal torts in which the United States itself is not
involved. If found liable, they and they alone must satisfy the judgment.

III. Article XIII, Section 3, of the 1987 Constitution provides that the State shall afford full protection to
labor, local and overseas, organized and unorganized, and promote full employment and equality of
employment opportunities for all. This is a carry-over from Article II, Section 9, of the 1973
Constitution ensuring equal work opportunities regardless of sex, race, or creed.

Under the Constitution of the United States, the assurance of equality in employment and work
opportunities regardless of sex, race, or creed is also given by the equal protection clause of the Bill
of Rights. The 14th Amendment, in declaring that no state shall deprive a person of his life, liberty, or
property without due process of law or deny to any person within its jurisdiction the equal protection of
the laws, undoubtedly intended not only that there should be no arbitrary spoliation of property, but
that equal protection and security should be given to all under like circumstances in the enjoyment of
their personal and civil rights, and that all persons should be equally entitled to pursue their
happiness ands acquire and enjoy property. It extends its protection to all persons without regard to
race, color, or class. It means equality of opportunity to all in like circumstances. 35

The words "life, liberty, and property" as used in constitutions are representative terms and are
intended to cover every right to which a member of the body politic in entitled under the law. These
terms include the right of self-defense, freedom of speech, religious and political freedom, exemption
from arbitrary arrests, the right to freely buy and sell as others may, the right to labor, to contract, to
terminate contracts, to acquire property, and the right to all our liberties, personal, civil and political-in
short, all that makes life worth living.36
There is no doubt that private respondents Persi and Detwiler, in committing the acts complained of
have, in effect, violated the basic constitutional right of petitioner Loida Q. Shauf to earn a living which
is very much an integral aspect of the right to life. For this, they should be held accountable.

While we recognize petitioner Loida Q. Shauf’s entitlement to an award of moral damages, we

however find no justification for the award of actual or compensatory damages, based on her
supposedly unearned income from March, 1975 up to April, 1978 in the total amount of $39,662.49,
as erroneously granted by the trial court.

Evidence that the plaintiff could have bettered her position had it not been for the defendants’
wrongful act cannot serve as basis for an award of damages, because it is highly
speculative.37 Petitioner Loida Q. Shauf’s claim is merely premised on the possibility that had she
been employed, she would have earned said amount. But, the undeniable fact remains that she was
never so employed. Petitioner never acquired any vested right to the salaries pertaining to the
position of GS 1710-9 to which she was never appointed. Damages which are merely possible are
speculative.38 In determining actual damages, the court cannot rely on speculation, conjecture or
guesswork. Without the actual proof of loss, the award of actual damages is
erroneous.39 Consequently, the award of actual damages made by the trial court should be deleted.
Attorney’s fees, however, may be granted and we believe that an award thereof in the sum of
P20,000.00 is reasonable under the circumstances.1âwphi1

IV. Finally, private respondents postulate that petitioner Loida Q. Shauf failed to avail herself of her
remedy under the United States federal legislation on equality of opportunity for civilian employees,
which is allegedly exclusive of any other remedy under American law, let alone remedies before a
foreign court and under a foreign law such as the Civil Code of the Philippines.

In a letter of the Department of the Air Force in Washington, D.C., dated September 1, 1978 and
addressed to petitioner Loida Q. Shauf, 40 the appeal rights of the latter from the Air Force decision
were enumerated as follows:

-You may appeal to the Civil Service Commission within 15 calendar days of receipt of the
decision. Your appeal should be addressed to the Civil Service Commission, Appeals Review
Board, 1990 E Street, N.Q., Washington, D.C. 20415. The appeal and any representation in
support thereof must be submitted in duplicate.

-In lieu of an appeal to the Commission you may file a civil action in an appropriate U.S.
District Court within 30 days of receipt of the decision.

-If you elect to appeal to the Commission’s Appeals Review Board, you may file a civil action in
a U.S. District Court within 30 days of receipt of the Commission’s final decision.

-A civil action may also be filed anytime after 180 days of the date of initial appeal to the
Commission, if a final decision has not been rendered.

As earlier noted, in a Supplement to Partial Stipulation of Facts filed by the parties on October 6,
1978, it was manifested to the trial court that an appeal was lodged by counsel for petitioners on
September 30, 1978 before the Civil Service Commission. Appeals Review Board from the decision
of the Secretary of the Air Force in the discrimination case filed by petitioner Loida Q. Shauf, No. SF
071380181. Said appeal has not been decided up to now.

Furthermore, it is basic that remedial statutes are to be construed liberally. The term "may," as used
in adjective rules, is only permissive and not mandatory, and we see no reason why the so-called
rules on the above procedural options communicated to said petitioner should depart from this
fundamental . petitioner Loida Q. Shauf is not limited to these remedies, but is entitled as a matter of
plain and simple justice to choose that remedy, not otherwise proscribed, which will best advance and
protect her interests. There is, thus, nothing to enjoin her from seeking redress in Philippine courts
which should not be ousted of jurisdiction on the dubious and inconclusive representations of private
respondents on that score.

WHEREFORE, the challenged decision and resolution of respondent Court of Appeals in CA-G.R. CV
No. 17932 are hereby ANNULLED and SET ASIDE. Private respondents are hereby ORDERED,
jointly and severally, to pay petitioners the sum of P100,000.00 as moral damages, P20,000.00 as
and for attorney’s fees, and the costs of suit.

SO ORDERED.

[G.R. No. L-25916. April 30, 1970.]

GAUDENCIO A. BEGOSA, Plaintiff-Appellee, v. CHAIRMAN, PHILIPPINE VETERANS

ADMINISTRATION; and MEMBERS OF THE BOARD OF ADMINISTRATORS, PHILIPPINE
VETERANS ADMINISTRATION, Defendants-Appellants.

Jose V . Rosales for Plaintiff-Appellee.

Solicitor General, for Defendants-Appellants.

SYLLABUS

1. REMEDIAL LAW; PARTIES; DOCTRINE OF NON-SUABILITY OF STATE, EXCEPTION.— It is

well settled that where a litigation may have adverse consequences on the public treasury, whether in
the disbursements of funds or loss of property, the public official proceeded against not being liable in
his personal capacity, then the doctrine of non-suability may appropriately be invoked. It has no
application, however, where the suit against such a functionary had to be instituted because of his
failure to comply with the duty imposed by statute appropriating public funds for the benefit of plaintiff
or petitioner

2. ID.; ADMINISTRATIVE LAW; EXHAUSTION OF ADMINISTRATIVE REMEDY UNNECESSARY

WHERE QUESTION IS LEGAL; CASE AT BAR.— It is well established that the principle requiring
the previous exhaustion of administrative remedies is not applicable ‘where the question in dispute is
purely a legal one,’ or where the controverted act is ‘patently illegal’ or was performed without
jurisdiction or in excess of jurisdiction, or where the respondent is a department Secretary, whose
acts as an alter-ego of the President bear the implied or assumed approval of the latter, unless
actually disapproved by him, or where there are circumstances indicating the urgency of judicial
intervention. Where there is a stipulation of facts, as in this case, the question before the lower court
being solely one of law and on the face of the decision, the actuation of appellants being patently
illegal, the doctrine of exhaustion of administrative remedies certainly does not come into play.

3. ID.; ID.; FINDINGS OF REGULATORY AGENCIES ENTITLED TO RESPECT.— It has often been
announced, and rightly so, that as much as possible the findings of regulatory agencies which are
expected to acquire expertise by their jurisdiction being confined to specific matters, deserve to be
accorded respect and finality. There is a limit, however, to such a deference paid to the actuations of
such bodies. Clearly, where there has been a failure to interpret and apply the statutory provisions in
question, judicial power should assert itself. Under the theory of separation of powers, it is to the
judiciary, and to the judiciary alone, that the final say on questions of law in appropriate cases coming
before it is vested.

DECISION

FERNANDO, J.:

Plaintiff Gaudencio A. Begosa, now appellee, sought the aid of the judiciary to obtain the benefits to
which he believed he was entitled under the Veterans’ Bill of Rights. 1 To such a move, there was an
insistent objection, both vigorous and persistent, on the part of defendants, the chairman and the
members of the Philippine Veterans Administration, now appellants. The lower court, then presided
by the then Judge, now Justice of the Court of Appeals, the Honorable Edilberto Soriano, found for
plaintiffs, after a careful and meticulous study of the applicable statutory provisions. Not being
satisfied with such a judgment, defendants appealed, relying once more on the principal grounds
raised below that plaintiff should have exhausted his administrative remedies before coming to court
and that he was in fact suing the State without its consent having been obtained. As neither defense
is sufficiently meritorious, we affirm the lower court decision.

As noted in such decision, appellee’s complaint was predicated on his having been "an enlisted man
in good standing of the Philippine Commonwealth Army, inducted in the service of the USAFFE" and
having taken "active participation in the battle of Bataan" as well as the "liberation drive against the
enemy" thereafter having become "permanently incapacitated from work due to injuries he sustained
in line of duty . . ." 2 It was likewise asserted in his complaint that after having submitted all the
supporting papers relative to his complaint, there was a disapproval on the part of defendants on the
ground of his having been dishonorably discharged, although such an event did not take place until
almost five years after the end of the war on November 7, 1950 and while he was in the service of a
different organization that such a penalty was imposed on him. 3

Then came the allegation that there was an approval on his claim on September 2, 1964 but effective
only as of October 5 of that year, and for amount much less than that to which he was entitled under
the law. 4 The relief sought was the payment, as of the date to which he believed his right to pension
should have been respected, of the sums, which he felt were legally due and owing to him.chanrobles
virtual lawlibrary

The then Judge Soriano noted that there was an admission of certain allegations to the complaint
with others being denied, and that the following affirmative and special defenses were interposed:
"Defendants’ answer admits certain allegations of said complaint, while denying others; set up the
following affirmative and special defenses: (1) payment of disability pension under Republic Act No.
65, as amended, by the Philippine Veterans Administration commences from the date the proper
application therefor is approved; (2) plaintiff has not exhausted all administrative remedies before
resorting to court action, hence the present action is premature; (3) inasmuch as the instant action
pertains to money claim against the Government, it must first be presented before the Auditor
General as provided by existing law on the matter (C.A. 327); and (4) plaintiff’s claim is in reality a suit
against the Government which cannot be entertained by this Court for lack of jurisdiction because the
Government has not given its consent, . . ." 5 The case was then submitted on an agreed statement
of facts and the respective memoranda of the parties.
In the decision now on appeal, the question of when appellee is entitled to his pension as well as how
much it would amount to were fully discussed by the lower court. Thus, as to the former: "From the
facts just set out, it will be noted that plaintiff filed his said claim for disability pension as far back as
March 4, 1955; that it was erroneously disapproved on June 21, 1955, because his dishonorable
discharge from the Army was not a good or proper ground for the said disapproval, and that on
reconsideration asked for by him on November 1, 1957, which he continued to follow up, the Board of
Administrators, Philippine Veterans Administration, composed of herein defendants, which took over
the duties of the Philippine Veterans Board, finally approved his claim on September 2, 1964, at the
rate of P30.00 a month." 6 After stating that in fairness and good conscience the said claims could be
made effective as of June 21, 1955, when it was erroneously disapproved by appellants, and not on
September 2, 1964 when it was approved on reconsideration, as appellee should not for obvious
reason be made to suffer for the error of another, the then Judge Soriano observed further: "Had it
not been for the said error, it appears that there was no good ground to deny the said claim, so the
latter was valid and meritorious even as of the date of its filing on March 4, 1955, hence to make the
same effective only as of the date of its approval on September 2, 1964 — according to defendant’s
stand —would be greatly unfair and prejudicial to plaintiff. This is especially true in the light of the
well-known intent of the legislature in passing these pension laws of war veterans, and the no less
well-known spirit in which they should be construed or interpreted by the courts in favor of their
beneficiaries." 7

On the question of how much plaintiff should receive according to law, the appealed decision contains
the following: "The next question for resolution refers to the monthly rate or amount to which plaintiff
is entitled by way of pension. According to plaintiff, he should be given a disability pension of P50.00
a month from June 21, 1955 (the effective date of his claim as above found by this Court) until June
21, 1957, and P100.00 a month for life from June 22, 1957 when Section 9 of Republic Act No. 65, as
amended by Republic Act No. 1362, was further amended by Republic Act No. 1920). This contention
is well taken because the very letter of the Philippine Veterans Administration to plaintiff (Annex F of
the [Agreed Statements of Facts]) contains the following: ‘Note: Re-rating is not required, permanent
disability.’ By ‘permanent disability’, as this Court understands it, is meant that plaintiff is permanently
incapacitated from work. Under Section 9 of Republic Act No. 65, as amended by Republic Act No.
1362, which was the law in force when plaintiff’s claim for pension should have been approved on
June 21, 1955, he was entitled to a pension of P50.00 a month as such permanently incapacitated
person, which monthly rate or amount was increased to P100.00 a month when the said Section 9
was further amended by Republic Act No. 1920 on June 22, 1957." 8 Why the action of appellants in
the form of resolution could not prevail as against the law was made clear by the decision in this wise:
"For one thing, the said resolution may not change or amend the meaning of the term ‘permanent
disability’ as used by Congress itself in enacting the said Section 9 of Republic Act No. 65, as
amended. For another, as of June 21, 1955 and as of June 21, 1957, plaintiff was already entitled to
the said pension of P50.00 and P100.00 a month respectively, and his said right cannot be adversely
affected by a resolution which was allegedly adopted only in 1963." 9 Necessarily, there was in the
decision likewise a recognition of the monthly allowance for each of appellee’s unmarried minor
children below 18 years of age at the time he was entitled to the pension to which under the statute
he could validly lay claim.chanroblesvirtuallawlibrary

After rejecting as untenable the defenses that there was no exhaustion of administrative remedies,
that the action is in the nature of money claim which should first be presented before the Auditor
General, and that said action is in reality a suit against the Government without the latter’s consent,
the decision concludes with the following:" [Wherefore], judgment is hereby rendered in accordance
with the prayer of plaintiff’s amended complaint, to wit, that defendants make plaintiff’s pension
effective June 21, 1955 at the rate of P50.00 a month up to June 21, 1957 at the rate of P100.00 a
month, plus P10.00 a month each for his four unmarried minor children below 18 years old from June
22, 1957 up to September 1, 1964; and the difference of P70.00 a month, plus P10.00 for his one
unmarried minor child below 18 years old from September 2, 1954, and thereafter, with costs against
said dependents." 10

Appellants elevated the matter to us. The careful and painstaking way in which the controlling
statutory provisions were considered and applied by the then Judge Soriano must have impelled
them to place their faith in the alleged failure to respect the doctrines of non-suability and exhaustion
of administrative remedies to obtain a reversal. The appealed decision, however, as will now be
shown is not subject to such a reproach. The appeal then, as noted at the outset, is not to be
attended with success.

1. The fourth assignment of error assails what it considers to be the failing of the lower court in not
holding that the complaint in this case is in effect a suit against the State which has not given its
consent thereto. We have recently had occasion to reaffirm the force and primacy of the doctrine of
non-suability. 11 It does not admit of doubt, then, that if the suit were in fact against the State, the
lower court should have dismissed the complaint. Nor is it to be doubted that while ostensibly an
action may be against a public official, the defendant may in reality be the government. As a result, it
is equally well-settled that where a litigation may have adverse consequences on the public treasury,
whether in the disbursements of funds or loss of property, the public official proceeded against not
being liable in his personal capacity, then the doctrine of non-suability may appropriately be invoked.
It has no application, however, where the suit against such a functionary had to be instituted because
of his failure to comply with the duty imposed by statute appropriating public funds for the benefit of
plaintiff or petitioner. Such is the present case.chanroblesvirtual|awlibrary

The doctrine announced by us in Ruiz v. Cabahug 12 finds relevance: "We hold that under the facts
and circumstances alleged in the amended complaint, which should be taken on its face value, the
suit is not one against the Government, or a claim against it, but one against the officials to compel
them to act in accordance with the rights to be established by the contending architects, or to prevent
them from making payment and recognition until the contending architects have established their
respective rights and interests in the funds retained and in the credit for the work done." 13 As a
matter of fact, in an earlier case where we sustained the power of a private citizen claiming title to and
right of possession of a certain property to sue an officer or agent of the government alleged to be
illegally withholding the same, we likewise expressed this caveat: "However, and this is important,
where the judgment in such a case would result not only in the recovery of possession of the property
in favor of said citizen but also in a charge against or financial liability to the Government, then the
suit should be regarded as one against the government itself, and, consequently, it cannot prosper or
be validly entertained by the courts except with the consent of said Government." 14

2. Nor is the third assignment of error to the effect that the lower court did not require appellee to
exhaust his administrative remedies before coming to court any more persuasive. An excerpt from the
leading case of Gonzales v. Hechanova, 15 the opinion being penned by the present Chief Justice,
clearly demonstrates why appellants’ argument in this respect is unavailing: "Respondents assail
petitioner’s right to the reliefs prayed for because he ‘has not exhausted all administrative remedies
available to him before coming to court.’ We have already held, however, that the principle requiring
the previous exhaustion of administrative remedies is not applicable ‘where the question in dispute is
purely a legal one’, or where the controverted act is ‘patently illegal’ or was performed without
jurisdiction or in excess of jurisdiction, or where the respondent is a department secretary, whose acts
as an alter-ego of the President bear the implied or assumed approval of the latter, unless actually
disapproved by him, or where there are circumstances indicating the urgency of judicial intervention."
16 The Gonzales doctrine, it is to be noted, summarized the views announced in earlier cases. 17
The list of subsequent cases reiterating such a doctrine is quite impressive. 18 To be more specific,
where there is a stipulation of facts, as in this case, the question before the lower court being solely
one of law and on the face of the decision, the actuation of appellants being patently illegal, the
doctrine of exhaustion of administrative remedies certainly does not come into play.

3. The other errors assigned, namely the alleged failure of the lower court to comply with the law in
fixing the amounts to which appellee is entitled instead of following the rules and regulations on
veterans’ benefits promulgated by appellants and the alleged interference with the purely
discretionary matter of a coordinate administrative agent, the Philippine Veterans Administration, can
easily be disposed of. It is to be admitted that appellants as chairman and members of the Philippine
Veterans Administration, formerly the Philippine Veterans Board, are officials of an administrative
body. 19 Nor may exception be taken to the general principle that as much as possible the courts
should view with the utmost sympathy the exercise of power of administrative tribunals whether in its
rule-making or adjudicatory capacity. It has often been announced, and rightly so, that as much as
possible the findings of these regulatory agencies which are expected to acquire expertise by their
jurisdiction being confined to specific matters, deserve to be accorded respect and finality. There is a
limit, however, to such a deference paid to the actuations of such bodies. Clearly, where there has
been a failure to interpret and apply the statutory provisions in question, judicial power should assert
itself. Under the theory of separation of powers, it is to the judiciary and to the judiciary alone, that the
final say on questions of law appropriate cases coming before it is vested.chanrobles.com : virtual law
library

When the then Judge Soriano, therefore, as he was called upon to do, saw to it that there was strict
compliance with the amounts of pension required by the law to be granted plaintiff and disregarded
the regulation promulgated under the rule-making power of appellants, the effect of which would
make appellee suffer the consequences of an error committed by them, it cannot be truly said that his
decision may be assailed as being offensive to authoritative doctrines. On the contrary, it can stand
the test of the utmost scrutiny. Precisely because the commands of the law were duly carried out, it
cannot be set aside.

WHEREFORE, the decision of the then Judge Edilberto Soriano of the Court of First Instance of
Manila promulgated on January 22, 1966, is affirmed. Without pronouncement as to costs.

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.20 Subsequently, CNMEG filed a Motion for Reconsideration, 21 which was denied by the CA
in a Resolution dated 5 December 2008. 22 Thus, CNMEG filed the instant Petition for Review on
Certiorari dated 21 January 2009, raising the following issues: 23

Whether or not petitioner CNMEG is an agent of the sovereign People’s Republic of China.

Whether or not the Northrail contracts are products of an executive agreement between two
sovereign states.

Whether or not the certification from the Department of Foreign Affairs is necessary under the
foregoing circumstances.

Whether or not the act being undertaken by petitioner CNMEG is an act jure imperii.

Whether or not the Court of Appeals failed to avoid a procedural limbo in the lower court.

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.47 Surely, this is not the kind of certification that can establish CNMEG’s entitlement
to immunity from suit, as Holy See unequivocally refers to the determination of the "Foreign Office of
the state where it is sued."

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.