MODULE 3:

• Sec. 3, Article XVI, 1987 Constitution

ARTICLE XVI

GENERAL PROVISIONS

Section 1. The flag of the Philippines shall be red, white, and blue, with a sun and three stars, as
consecrated and honored by the people and recognized by law.

Section 2. The Congress may, by law, adopt a new name for the country, a national anthem, or a national
seal, which shall all be truly reflective and symbolic of the ideals, history, and traditions of the people.
Such law shall take effect only upon its ratification by the people in a national referendum.

Section 3. The State may not be sued without its consent.

Section 4. The Armed Forces of the Philippines shall be composed of a citizen armed force which shall
undergo military training and serve as may be provided by law. It shall keep a regular force necessary for
the security of the State.

Section 5. (1) All members of the armed forces shall take an oath or affirmation to uphold and defend this
Constitution.

(2) The State shall strengthen the patriotic spirit and nationalist consciousness of the military, and respect
for people’s rights in the performance of their duty.

(3) Professionalism in the armed forces and adequate remuneration and benefits of its members shall be
a prime concern of the State. The armed forces shall be insulated from partisan politics.

No member of the military shall engage, directly or indirectly, in any partisan political activity, except to
vote.

(4) No member of the armed forces in the active service shall, at any time, be appointed or designated in
any capacity to a civilian position in the Government, including government-owned or controlled
corporations or any of their subsidiaries.

(5) Laws on retirement of military officers shall not allow extension of their service.

(6) The officers and men of the regular force of the armed forces shall be recruited proportionately from
all provinces and cities as far as practicable.

(7) The tour of duty of the Chief of Staff of the armed forces shall not exceed three years. However, in
times of war or other national emergency declared by the Congress, the President may extend such tour
of duty.
Section 6. The State shall establish and maintain one police force, which shall be national in scope and
civilian in character, to be administered and controlled by a national police commission. The authority of
local executives over the police units in their jurisdiction shall be provided by law.

Section 7. The State shall provide immediate and adequate care, benefits, and other forms of assistance
to war veterans and veterans of military campaigns, their surviving spouses and orphans. Funds shall be
provided therefor and due consideration shall be given them in the disposition of agricultural lands of the
public domain and, in appropriate cases, in the utilization of natural resources.

Section 8. The State shall, from time to time, review to increase the pensions and other benefits due to
retirees of both the government and the private sectors.

Section 9. The State shall protect consumers from trade malpractices and from substandard or hazardous
products.

Section 10. The State shall provide the policy environment for the full development of Filipino capability
and the emergence of communication structures suitable to the needs and aspirations of the nation and
the balanced flow of information into, out of, and across the country, in accordance with a policy that
respects the freedom of speech and of the press.

Section 11. (1) The ownership and management of mass media shall be limited to citizens of the
Philippines, or to corporations, cooperatives or associations, wholly-owned and managed by such citizens.

The Congress shall regulate or prohibit monopolies in commercial mass media when the public interest
so requires. No combinations in restraint of trade or unfair competition therein shall be allowed.

(2) The advertising industry is impressed with public interest, and shall be regulated by law for the
protection of consumers and the promotion of the general welfare.

Only Filipino citizens or corporations or associations at least seventy per centum of the capital of which is
owned by such citizens shall be allowed to engage in the advertising industry.

The participation of foreign investors in the governing body of entities in such industry shall be limited to
their proportionate share in the capital thereof, and all the executive and managing officers of such
entities must be citizens of the Philippines.

Section 12. The Congress may create a consultative body to advise the President on policies affecting
indigenous cultural communities, the majority of the members of which shall come from such
communities.
 • Act No. 3083

REPUBLIC ACT No. 3083

An Act to Regulate the Filing, Processing and Settlement of Damage Claims Resulting from Nuclear
Incidents, to Appropriate Funds Therefor, and to Hold Harmless, Indemnify, and Defend the Designer,
Manufacturer, Contractor and/or Supplier that Shall Undertake to Design, Manufacture, Furnish
and/or Supply the Reactor Facility and Equipment for the Philippine Nuclear Research Reactor Project
and Other Similar Projects from Liability Arising from Nuclear Incidents, and for Other Purposes

Be it enacted by the Senate and House of Representatives of the Philippine Congress Assembled:

Section 1. In order to protect the inhabitants of the Philippines and to promote the peaceful uses of
atomic energy, in the interest of the general welfare of the Philippines, the Government of the Republic
of the Philippines shall indemnify and hold harmless and defend at its expense the designer,
manufacturer, contractor and/or supplier that shall undertake to design, manufacture for, or otherwise
furnish equipment or services to the Philippine Government, its instrumentality or agency, for the
reactor facility or other equipment for the Philippine Nuclear Research Reactor Project, from any and all
liability for personal injury or property damage arising out of or resulting from a nuclear incident, and
the National Science Development Board is hereby empowered to provide by contract with the
designer, manufacturer, contractor and/or supplier of nuclear equipment, that such designer,
manufacturer, contractor and/or supplier shall be indemnified, held harmless and defended at the
expense of the Philippine Government from any and all liability arising out of or resulting from a nuclear
incident: Provided, However, That the Government shall retain whatever rights it may otherwise have
under existing laws against said manufacturer, contractor, or supplier if the nuclear incident is the
proximate result of willful misconduct, or bad faith, on the part of any corporate officer, director, or
responsible officers of the designer, manufacturer, contractor and/or supplier, as the case may
be: Provided, further, That the total liability of the designer, manufacturer, contractor and/or supplier
shall not exceed the total value of the contract price: Provided, finally, That the total liability of said
designer, manufacturer, contractor and/or supplier shall be over and above the liabilities, obligations
and warranties assumed by it on the services, equipment, and materials furnished under its contract
with the National Science Development Board for the furnishing of the equipment and services for the
reactor facility or other equipment of the Philippine Nuclear Research Reactor Project.

Responsible officers as used in this section shall be determined in the indemnity agreement to be
executed between the National Science Development Board and said designer, manufacturer,
contractor and/or supplier.1avvphi1

Section 2. For the purposes of this Act:

(a) The term "Nuclear Research Reactor Project" is meant the reactor project established or to
be established under the Agreement for Cooperation between the Government of the Republic
of the Philippines and the Government of the United States of America signed on July 27, 1955,
including its amendments.

(b) The term "liability" means any liability for personal injury or property damage arising out of
or resulting from a nuclear incident.
 (c) The term "personal injury" means bodily injury, sickness, or disease, including death resulting
therefrom.

(d) The term "property damage" or "damage to property" means physical injury to or
destruction or radioactive contamination of property, or loss of use of property so injured,
destroyed or contaminated.

(e) The term "nuclear incident" means any occurrence causing personal injury or property
damage arising out of or resulting from the radioactive, toxic, explosive, or other hazardous
properties of radioactive material.

Section 3. In order to carry out the purpose of this Act and to adjudicate claims for compensation for
personal injury or property damage arising out of or resulting from a nuclear incident, there is hereby
created a Nuclear Indemnity Board to be composed of the Vice-Chairman of the National Science
Development Board as Chairman, the Commissioner of the Philippine Atomic Energy Commission and
one other member to be appointed by the President of the Philippines, with the consent of the
Commission on Appointments, who must be a diplomate in radiology or medical radio-therapy with at
least five years of clinical practice, as members.1awp++i1 The Vice-Chairman of the National Science
Development Board and the Commissioner of the Philippine Atomic Energy Commission shall serve ex
officio without extra compensation and the third member shall receive a per diem of fifty pesos for each
meeting actually attended: Provided, That the monthly total of such per diem shall not exceed two
hundred pesos.1awp++i1 The operating expenses of the Nuclear Indemnity Board shall be borne out of
the regular appropriation of the National Science Development Board.

No action, suit or proceeding for compensation for personal injury or property damage arising out of or
resulting from a nuclear incident may be instituted against the designer, manufacturer, contractor
and/or supplier of nuclear equipment, and all such claims for compensation shall be filed with the
Nuclear Indemnity Board which is hereby exclusively empowered to settle the above-mentioned claims
on a fair and reasonable basis taking into due account the purposes of this Act: Provided, However, That
any provision of law to the contrary notwithstanding, any such claim shall be barred unless brought
within ten years from the date of the event causing injury or damage and within two years from time to
time the injury or damage, or a subsequent aggravation thereof, came to the knowledge of, or could
have been ascertained by the exercise of ordinary care by the aggrieved party: Provided, further, That
the proper courts of the Republic of the Philippines shall have exclusive jurisdiction in the case of a
nuclear incident occurring in the course of carriage of fuel elements or other radioactive materials
capable of causing a nuclear incident belonging to or in the charge of the Philippine Government, or any
of its agencies or instrumentalities, where such nuclear incident occurs outside Philippine territory:
And Provided, finally, That the aggregate liability of the Philippine Government under this Act shall not
exceed the amount of five million pesos which is hereby appropriated out of any funds in the National
Treasury not otherwise appropriated.

Section 4. For the purpose of carrying out its functions under this Act the Nuclear Indemnity Board shall
have the following powers:

(a) To promulgate such rules and regulations as may be necessary to carry out the purposes of
this Act including rules or procedure governing the filing, processing and settlement of
claims: Provided, However, That the concurrence of at least two members shall be required in
order for the Board to make an award, order or decision: Provided, further, That in the hearing,
 investigation and determination of any question or controversy, and in exercising any duties and
powers under this Act, the Nuclear Indemnity Board shall act according to justice and equity and
substantial merits of the case, and shall use every and all reasonable means to ascertain the
facts in each case speedily and objectively and without regard to technicalities of law or
procedure;

(b) To issue subpoena and subpoena duces tecum;

(c) To administer oaths;

(d) To grant reasonable compensation in an amount not more than twenty-five pesos for each
day of attendance, but in no case to exceed more than one hundred pesos a month, to an
expert witness or resource person who is not a government official or employee, whose services
may be availed of by the Nuclear Indemnity Board as provided herein; and

(e) Such other powers as may be necessary to carry out the purposes of this Act.

Section 5. Upon a showing that the government’s liability in any one incident will probably exceed the
limit of liability imposed by the preceding section, the Board may, in its sound discretion, for the
purpose of ensuring the equitable and just distribution of damages, either issue orders apportioning the
payments and permitting partial payments to be made to claimants or issue an order setting aside a part
of the funds available for possible latent injuries not discovered until a later time, or both.

Section 6. When a nuclear incident occurs, the Board shall investigate or cause to be investigated the
cause or extent of the damage and may for that purpose compel all persons exposed to radiation to
report to the Board for examination not later than three months from the date of the order requiring
their appearance. In determining the amount of damages the Board may, in its sound discretion, take
into account the inexcusable violation of the foregoing obligation to report to the Board for
examination.

Section 7. The Nuclear Indemnity Board is hereby authorized to call upon the National Science
Development Board, the Philippine Atomic Energy Commission and other government agencies and
instrumentalities for assistance and cooperation in the discharge of its powers, duties and functions
under this Act.

Section 8. Any aggrieved claimant may appeal from any final order, award or decision of the Board to
the Supreme Court in accordance with the provisions of Rule forty-five of the Rules of Court. Findings of
fact by the Board shall be conclusive in the absence of fraud, collusion or evident mistake.

Section 9. This Act shall take effect upon its approval.

Approved: June 17, 1961.

 • Commonwealth Act No. 327, as amended by Presidential Decree No. 1445

Commonwealth Act No. 327.—An Act fixing the time within which the Auditor General shall render his
decisions and prescribing the manner of appeal therefrom.

Be it enacted by the National Assembly of the Philippines:

SECTION 1. In all cases involving the settlement of accounts or claims, other than those of accountable
officers, the Auditor General shall act and decide the same within sixty days, exclusive of Sundays and
holidays, after their presentation. If said accounts or claims need reference to other persons, office or
offices, or to a party interested, the period aforesaid shall be counted from the time the last comment
necessary to a proper decision is received by him. With respect to the accounts of accountable officers,
the Auditor General shall act on the same within one hundred days after their submission, Sundays and
holidays excepted.

In case of accounts or claims already submitted to but still pending decision by the Auditor General on or
before the approval of this Act, the periods provided in this section shall commence from the date of such
approval.

SEC. 2. The party aggrieved by the final decision of the Auditor General in the settlement of an account or
claim may, within thirty days from receipt of the decision, take an appeal in writing:

(a) To the President of the United States, pending the final and complete withdrawal of her sovereignty
over the Philippines, or

(b) To the President of the Philippines, or

(c) To the Supreme Court of the Philippines if the appellant is a private person or entity.

If there are more than one appellant, all appeals shall be taken to the same authority resorted to by the
first appellant.

From a decision adversely affecting the interests of the Government, the appeal may be taken by the
proper head of the department or in case of local governments by the head of the office or branch of the
Government immediately concerned.

The appeal shall specifically set forth the particular action of the Auditor General to which exception is
taken with the reasons and authorities relied on for reversing such decision.

SEC. 3. This Act shall take effect upon its approval.

Approved, June 18, 1938.

 • Supreme Court Decisions:

➢ Philippine Agila Satellite, Inc. v. Lichauco, et al. [G.R. No. 134887, July 27,
2006]

[G.R. NO. 134887 : July 27, 2006]

PHILIPPINE AGILA SATELLITE, INC. represented by MICHAEL C. U. DE GUZMAN, Petitioner, v. SEC.

JOSEFINA TRINIDAD LICHAUCO and the HON. OMBUDSMAN, Respondents.

DECISION

CARPIO MORALES, J.:

On June 6, 1994, a Memorandum of Understanding1 (MOU) was entered into by a consortium of private
telecommunications carriers and the Department of Transportation and Communications (DOTC)
represented by then Secretary Jesus B. Garcia, Jr. relative to the launching, ownership, operation and
management of a Philippine satellite by a Filipino-owned or controlled private consortium or
corporation.

Pursuant to Article IV of the MOU, the consortium of private telecommunications carriers formed a
corporation and adopted the corporate name Philippine Agila Satellite, Inc. (PASI), herein petitioner.

By letter2 dated June 28, 1996, PASI president Rodrigo A. Silverio (Silverio) requested the then DOTC
Secretary Amado S. Lagdameo, Jr. for official government confirmation of the assignment of Philippine
orbital slots 161 E and 153 E to PASI for its AGILA satellites.

In response to Silverio's letter, Secretary Lagdameo, by letter3 dated July 3, 1996, confirmed the
government's assignment of Philippine orbital slots 161 E and 153 E to PASI for its AGILA satellites.

PASI thereupon undertook preparations for the launching, operation and management of its satellites
by, among other things, obtaining loans, increasing its capital, conducting negotiations with its business
partners, and making an initial payment of US$ 3.5 million to Aerospatiale, a French satellite
manufacturer.

Michael de Guzman (de Guzman), PASI President and Chief Executive Officer (CEO), later informed Jesli
Lapuz (Lapuz), President and CEO of the Landbank of the Philippines, by letter4 of December 3, 1996, of
the government's assignment to PASI of orbital slots 161 E and 153 E and requested the bank's
confirmation of its participation in a club loan in the amount of US$ 11 million, the proceeds of which
would be applied to PASI's interim satellite.

It appears that Lapuz sent a copy of De Guzman's letter to then DOTC Undersecretary Josefina T.
Lichauco, (Lichauco) who, by letter5 of December 5, 1996, wrote Lapuz as follows:

1. Kindly be informed that there is simply no basis for Michael de Guzman to allege that the DOTC has
assigned two (2) slots to PASI. He conveniently neglected to attach as another annex, in addition to Sec.
Lagdameo's letter of 3 July 1996 (Annex "A") the letter of 28 June (Annex "B") in response to which the
July 3rd letter had been sent to PASI. Annex "B" precisely provides that one slot (153' E, to which the
interim satellite was supposed to migrate) was to be used for the migration of the Russian satellite in
time for the APEC Leaders' Summit. This particular endeavor was not successful. The interim satellite
"Gorizont" never moved from its orbital location of 130 E Longitude. Annex "C" is a letter from an official
of the Subic Bay Satellite Systems Inc., with its attachments, addressed to me stating that as of the 13th
of November, no such voyage to 153 E orbital slot had been commenced. In fact DHI hid this fact from
me, and in fact stated that Gorizont had already moved and was on its way to 153 E.

Since this timely migration did not happen in time for the APEC Leaders Meeting on 24 November, this
153 E Longitude slot can no longer be assigned to PASI.

The other slot 161 E Longitude is the one that can be made available for PASI's eventual launch, in 1998
most likely, in exchange for one free satellite transponder unit utilization, for all requirements of
Government. These have yet to be embodied in a contract between PASI and the DOTC.

2. I understand from my meeting with DHI/PASI this morning, and from the de Guzman letter you sent
to me, that the latter are still interested in pursuing their "interim satellite project" and are applying for
a loan with your bank. Of course they can always pursue this as a business venture of DHI/PASI which is
their own corporate business decision. The DOTC supports this venture but they will be getting only one
orbital slot for both the Interim Satellite Project and for the Launch Project. I understand from today's
meeting with them that this is technically feasible.

3. As regards the use of the name "Agila", Mr. de Guzman's allegation that DHI/PASI has registered
"Agila" as a "corporate alias/trademark" is FALSE. There is no such thing as registration of a "corporate
alias". Nor for that matter can the trade name of a satellite be registered for just any satellite, where it
was the President who chose the name for the first Philippine satellite in orbit. No one else coined that
name but he. He has therefore given the name "Agila I" to the Mabuhay satellite now in orbit at 144 E,
being the first Philippine satellite in orbit. He made this announcement in the presence of all the APEC
Heads of State just before the presentation to him of the Manila Action Plan for APEC. (Underscoring
supplied)cralawlibrary

Lichauco subsequently issued, in December 1997, a Notice of Offer6 for several orbital slots including
153 E.

PASI, claiming that the offer was without its knowledge and that it subsequently came to learn that
another company whose identity had not been disclosed had submitted a bid and won the award for
orbital slot 153 E, filed on January 23, 1998 a complaint7 before the Regional Trial Court (RTC) of
Mandaluyong City against Lichauco and the "Unknown Awardee," for injunction to enjoin the award of
orbital slot 153 E, declare its nullity, and for damages.

PASI also filed on February 23, 1998 a complaint before the Office of the Ombudsman against Secretary
Josefina Trinidad Lichauco. In his affidavit-complaint, de Guzman charged Lichauco with gross violation
of Section 3(e) of Republic Act No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act, as
amended, reading:

(e) Causing any undue injury to any party, including the Government, or giving any private party any
unwarranted benefits, advantage or preference in the discharge of his official, administrative or judicial
functions through manifest partiality, evident bad faith or gross inexcusable negligence. This provision
shall apply to officers and employees of officers or government corporations charged with the grant of
licenses or permits or other concessions.

The complaint was docketed as OMB Case No. 0-98-0416. The Evaluation and Preliminary Investigation
Bureau (EPIB) of the Office of the Ombudsman, by Evaluation Report8 dated April 15, 1998, found the
existence of a prejudicial question after considering that "the case filed with the RTC involves facts
intimately related to those upon which the criminal prosecution would be based and that the guilt or
the innocence of the accused would necessarily be determined in the resolution of the issues raised in
the civil case." It thus concluded that the filing of the complaint before the Ombudsman "is premature
since the issues involved herein are now subject of litigation in the case filed with the RTC," and
accordingly recommended its dismissal. Then Ombudsman Aniano A. Desierto approved on April 24,
1998 the recommendation of the EPIB.

PASI moved to reconsider9 the dismissal of the complaint, but was denied by Order10 dated July 17,
1998.

In the meantime, a motion to dismiss the civil case against respondent was denied by the trial court. On
elevation of the order of denial to the Court of Appeals, said court, by Decision dated February 21, 2000,
ordered the dismissal of the case. This Court, by Decision dated May 3, 2006, ordered the reinstatement
of the case, however.11

PASI is now before this Court via Petition for Review on Certiorari, arguing that the Ombudsman erred in
dismissing the complaint.

In issue are 1) whether there exists a prejudicial question and, if in the affirmative, 2) whether the
dismissal of the complaint on that account is in order.

Section 7, Rule 111 of the Rules on Criminal Procedure provides:

Section 7. Elements of prejudicial question. - The elements of a prejudicial question are: (a) the
previously instituted civil action involves an issue similar or intimately related to the issue raised in the
subsequent criminal action, and (b) the resolution of such issue determines whether or not the criminal
action may proceed.

The rationale for the principle of prejudicial question is that although it does not conclusively resolve the
guilt or innocence of the accused, it tests the sufficiency of the allegations in the complaint or
information in order to sustain the further prosecution of the criminal case.12 Hence, the need for its
prior resolution before further proceedings in the criminal action may be had.

PASI concedes that the issues in the civil case are similar or intimately related to the issue raised in the
criminal case. It contends, however, that the resolution of the issues in the civil case is not
determinative of the guilt or innocence of Lichauco, it arguing that even if she is adjudged liable for
damages, it does not necessarily follow that she would be convicted of the crime charged.
To determine the existence of a prejudicial question in the case before the Ombudsman, it is necessary
to examine the elements of Section 3(e) of R.A. 3019 for which Lichauco was charged and the causes of
action in the civil case.

Section 3(e) of R.A. 3019 which was earlier quoted has the following elements:

1. The accused is a public officer discharging administrative or official functions or private persons
charged in conspiracy with them;

2. The public officer committed the prohibited act during the performance of his official duty or in
relation to his public position;

3. The public officer acted with manifest partiality, evident bad faith or gross, inexcusable negligence;
andcralawlibrary

4. His action caused undue injury to the Government or any private party, or gave any party any
unwarranted benefit, advantage or preference to such parties.13

The civil case against Lichauco on the other hand involves three causes of action. The first, for
injunction, seeks to enjoin the award of orbital slot 153 E, the DOTC having previously assigned the same
to PASI; the second, for declaration of nullity of award, seeks to nullify the award given to the
undisclosed bidder for being beyond Lichauco's authority; and the third, for damages arising from
Lichauco's questioned acts.

If the award to the undisclosed bidder of orbital slot 153 E is, in the civil case, declared valid for being
within Lichauco's scope of authority to thus free her from liability for damages, there would be
no prohibited act to speak of nor would there be basis for undue injury claimed to have been suffered
by petitioner. The finding by the Ombudsman of the existence of a prejudicial question is thus well-
taken.

Respecting the propriety of the dismissal by the Ombudsman of the complaint due to the pendency of a
prejudicial question, PASI argues that since the Rules of Procedure of the Office of the Ombudsman is
silent on the matter, the Rules of Court, specifically Section 6, Rule 111 of the Rules of Court, which now
reads:

SECTION 6. Suspension by reason of prejudicial question. - A petition for suspension of the criminal
action based upon the pendency of a prejudicial question in a civil action may be filed in the office of the
prosecutor or the court conducting the preliminary investigation. When the criminal action has been
filed in court for trial, the petition to suspend shall be filed in the same criminal action at any time
before the prosecution rests. (Underscoring supplied),

applies in a suppletory character.

The Ombudsman, on the other hand, argues that the above-quoted provision of the Rules of Court
applies to cases which are at the preliminary or trial stage and not to those, like the case subject of the
present petition, at the evaluation stage.
The Ombudsman goes on to proffer that at the evaluation stage, the investigating officer may
recommend any of several causes of action including dismissal of the complaint for want of palpable
merit or subjecting the complaint to preliminary investigation, and the evaluation of the complaint
involves the discretion of the investigating officer which this Court cannot interfere with.

While the evaluation of a complaint involves the discretion of the investigating officer, its exercise
should not be abused14 or wanting in legal basis.

Rule II, Section 2 of the Rules of Procedure of the Office of the Ombudsman reads:

SECTION 2. Evaluation. - Upon evaluating the complaint, the investigating officer shall recommend
whether it may be:

a) dismissed outright for want of palpable merit;

b) referred to respondent for comment;

c) indorsed to the proper government office or agency which has jurisdiction over the case;

d) forwarded to the appropriate office or official for fact-finding investigation;

e) referred for administrative adjudication; or

f) subjected to a preliminary investigation. (Underscoring supplied)cralawlibrary

From the above-quoted provision, a complaint at the evaluation stage may be dismissed outright only
for want of palpable merit. Want of palpable merit obviously means that there is no basis for the charge
or charges. If the complaint has prima faciemerit, however, the investigating officer shall recommend
the adoption of any of the actions enumerated above from (b) to (f).15

When, in the course of the actions taken by those to whom the complaint is endorsed or forwarded, a
prejudicial question is found to be pending, Section 6, Rule 111 of the Rules of Court should be applied
in a suppletory character.16 As laid down in Yap v. Paras,17 said rule directs that the proceedings may
only be suspended, not dismissed, and that it may be made only upon petition,and not at the instance
of the judge alone or as in this case, the investigating officer.

To give imprimatur to the Ombudsman's dismissal of petitioner's criminal complaint due to prejudicial
question would not only run counter to the provision of Section 6 of Rule 111 of the Rules of Court. It
would sanction the extinguishment of criminal liability, if there be any, through prescription under
Article 89 vis a vis Articles 90 and 91 of the Revised Penal Code which respectively read:

ART. 89. How criminal liability is totally extinguished. - Criminal liability is totally extinguished:

1. By the death of the convict, as to the personal penalties; and as to pecuniary penalties, liability
therefore is extinguished only when the death of the offender occurs before final judgment;

2. By service of the sentence;

3. By amnesty, which completely extinguishes the penalty and all its effects;

4. By absolute pardon;

5. By prescription of the crime;

6. By prescription of the penalty;

7. By the marriage of the offended woman, as provided in Article 344 of this Code. (Underscoring
supplied)cralawlibrary

ART. 90. Prescription of crimes. - Crimes punishable by death, reclusion perpetuaor reclusion
temporal shall prescribe in twenty years.

Crimes punishable by other afflictive penalties shall prescribe in fifteen years.

Those punishable by a correctional penalty shall prescribe in ten years; with the exception of those
punishable by arresto mayor, which shall prescribe in five years.

The crime of libel or other similar offenses shall prescribe in one year.

The offenses of oral defamation and slander by deed shall prescribe in six months.

Light offenses prescribe in two months.

When the penalty fixed by law is a compound one, the highest penalty shall be made the basis of the
application of the rules contained in the first, second, and third paragraphs of this article. x x x

ART. 91. Computation of prescription of offenses. ' The period of prescription shall commence to run
from the day on which the crime is discovered by the offended party, the authorities, or their agents,
and shall be interrupted by the filing of the complaint or information, and shall commence to run again
when such proceedings terminate without the accused being convicted or acquitted, or are
unjustifiably stopped for any reason not imputable to him.

x x x x (Emphasis and underscoring supplied)cralawlibrary

WHEREFORE, the Order dated July 17, 1998 of respondent Ombudsman dismissing OMB Case No. 0-98-
0416 against respondent then Secretary Josefina Trinidad Lichauco is SET ASIDE.

The Ombudsman is ORDERED to REINSTATE to its docket for further proceedings, in line with the
foregoing ratiocination, OMB Case No. 0-98-0416.

SO ORDERED
 ➢ Republic v. Sandoval [G.R. No. 84607, March 19, 1993]

[G.R. No. 84607. March 19, 1993.]

REPUBLIC OF THE PHILIPPINES, GEN. RAMON MONTANO, GEN. ALFREDO LIM, GEN. ALEXANDER
AGUIRRE, COL. EDGAR DULA TORRES, COL. CEZAR NAZARENO, MAJ. FILEMON GASMEN, PAT.
NICANOR ABANDO, PFC SERAPIN CEBU, JR., GEN. BRIGIDO PAREDES, COL. ROGELIO MONFORTE, PFC
ANTONIO LUCERO, PAT. JOSE MENDIOLA, PAT. NELSON TUAZON, POLICE CORPORAL PANFILO ROGOS,
POLICE LT. JUAN B. BELTRAN, PAT. NOEL MANAGBAO, MARINE THIRD CLASS TRAINEE (3CT) NOLITO
NOGATO, 3CT ALEJANDRO B. NAGUIO, JR., EFREN ARCILLAS, 3CT AGERICO LUNA, 3CT BASILIO BORJA,
3CT MANOLITO LUSPO, 3CT CRISTITUTO GERVACIO, 3CT MANUEL DELA CRUZ, JR., MARINE (CDC) BN.,
(CIVIL DISTURBANCE CONTROL), MOBILE DISPERSAL TEAM (MDT), LT. ROMEO PAQUINTO, LT.
LAONGLAANG GOCE, MAJ. DEMETRIO DE LA CRUZ, POLICE CAPTAIN RODOLFO NAVAL, JOHN DOE,
RICHARD DOE, ROBERTO DOE AND OTHER DOES, Petitioners, v. HON. EDILBERTO G. SANDOVAL,
Regional Trial Court of Manila, Branch IX, ERLINDA C. CAYLAO, ANATALIA ANGELES PEREZ, MYRNA
BAUTISTA, CIPRIANA EVANGELIO, ELMA GRAMPA, AMELIA GUTIERREZ, NEMESIO LAKINDANUM,
PURITA YUMUL, MIGUEL ARABE, TERESITA ARJONA, RONALDO CAMPOMANES AND CARMENCITA
ARDONI VDA. DE CAMPOMANES, ROGELIO DOMUNICO, in their capacity as heirs of the deceased
(ROBERTO C. CAYLAO, SONNY "BOY" PEREZ, DIONESIO BAUTISTA, DANTE EVANGELIO, ADELFA ARIBE,
DANILO ARJONA, VICENTE CAMPOMANES, RONILO DOMUNICO) respectively; and (names of sixty-two
injured victims) EDDIE AGUINALDO, FELICISIMO ALBASIA, NAPOLEON BAUTISTA, DANILO CRUZ, EDDIE
MENSOLA, ALBERT PITALBO, VICENTE ROSEL, RUBEN CARRIEDO, JOY CRUZ, HONORIO LABAMBA, JR.,
EFREN MACARAIG, SOLOMON MANALOTO, ROMEO DURAN, NILO TAGUBAT, JUN CARSELLAR, JOEY
CLEMENTE, GERARDO COYOCA, LUISITO DACO, BENJAMIN DELA CRUZ, ARTHUR FONTANILLA, WILSON
GARCIA, CARLOS SIRAY, JOSE PERRAS, TOMAS VALLOS, ARNOLD ENAJE, MARIANITA DIMAPILIS,
FRANCISCO ANGELES, MARCELO ESGUERRA, JOSE FERRER, RODEL DE GUIA, ELVIS MENDOZA,
VICTORINO QUIJANO, JOEY ADIME, RESIENO ADUL, ALBERTO TARSONA, CARLOS ALCANTARA,
MAMERTO ALIAS, EMELITO ALMONTE, BENILDA ALONUEVO, EMMA ABADILLO, REYNALDO CABALLES,
JR., JAIME CALDETO, FABIAN CANTELEJO, RODRIGO CARABARA, ENRIQUE DELGADO, JUN DELOS
SANTOS, MARIO DEMASACA, FRANCISCO GONZALES, ERNESTO GONZALES, RAMIRO JAMIL, JUAN
LUCENA, PERLITO SALAYSAY, JOHNNY SANTOS, MARCELO SANTOS, EMIL SAYAO, BAYANI UMALI,
REMIGIO MAHALIN, BONG MANLULO, ARMANDO MATIENZO, CARLO MEDINA, LITO NOVENARIO, and
ROSELLA ROBALE, Respondents.

[G.R. No. 84645. March 19, 1993.]

ERLINDA C. CAYLAO, ANATALIA ANGELES PEREZ, MYRNA BAUTISTA, CIPRIANA EVANGELIO, ELMA
GRAMPA, AMELIA GUTIERREZ, NEMESIO LAKINDANUM, PURITA YUMUL, MIGUEL ARABE, TERESITA
ARJONA, RONALDO CAMPOMANES AND CARMENCITA ARDONI VDA. DE CAMPOMANES, ROGELIO
DOMUNICO, in their capacity as heirs of the deceased (ROBERTO C. CAYLAO, SONNY "BOY" PEREZ,
DIONESIO BAUTISTA, DANTE EVANGELIO, RODRIGO GRAMPA, ANGELITO GUTIERREZ, BERNABE
LAKINDANUM, ROBERTO YUMUL, LEOPOLDO ALONZO, ADELFA ARIBE, DANILO ARJONA, VICENTE
CAMPOMANES, RONILO DOMUNICO) respectively; and (names of sixty-two injured victims) EDDIE
AGUINALDO, FELICISIMO ALBASIA, NAPOLEON BAUTISTA, DANILO CRUZ, EDDIE MENSOLA, ALBERT
PITALBO, VICENTE ROSEL, RUBEN CARRIEDO, JOY CRUZ, HONORIO LABAMBA, JR. EFREN MACARAIG,
SOLOMON MANALOTO, ROMEO DURAN, NILO TAGUBAT, JUN CARSELLAR, JOEY CLEMENTE, GERARDO
COYOCA, LUISITO DACO, BENJAMIN DELA CRUZ, ARTHUR FONTANILLA, WILSON GARCIA, CARLOS
SIRAY, JOSE PERRAS, TOMAS VALLOS, ARNOLD ENAJE, MARIANITA DIMAPILIS, FRANCISCO ANGELES,
MARCELO ESGUERRA, JOSE FERRER, RODEL DE GUIA, ELVIS MENDOZA, VICTORINO QUIJANO, JOEY
ADIME, RESIENO ADUL, ALBERTO TARSONA, CARLOS ALCANTARA, MAMERTO ALIAS, EMELITO
ALMONTE, BENILDA ALONUEVO, EMMA ABADILLO, REYNALDO CABALLES, JR., JAIME CALDETO,
FABIAN CANTELEJO, RODRIGO CARABARA, ENRIQUE DELGADO, JUN DELOS SANTOS, MARIO
DEMASACA, FRANCISCO GONZALES, ERNESTO GONZALES, RAMIRO JAMIL, JUAN LUCENA, PERLITO
SALAYSAY, JOHNNY SANTOS, MARCELO SANTOS, EMIL SAYAO, BAYANI UMALI, REMIGIO MAHALIN,
BONG MANLULO, ARMANDO MATIENZO, CARLO MEDINA, LITO NOVENARIO, ROSELLA
ROBALE, Petitioners, v. REPUBLIC OF THE PHILIPPINES, and HONORABLE EDILBERTO G. SANDOVAL,
Regional Trial Court of Manila, Branch 9, Respondents.

DECISION

CAMPOS, JR., J.:

People may have already forgotten the tragedy that transpired on January 22, 1987. It is quite ironic
that then, some journalists called it a Black Thursday, as a grim reminder to the nation of the misfortune
that befell twelve (12) rallyists. But for most Filipinos now, the Mendiola massacre may now just as well
be a chapter in our history books. For those however, who have become widows and orphans, certainly
they would not settle for just that. They seek retribution for the lives taken that will never be brought
back to life again.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

Hence, the heirs of the deceased, together with those injured(Caylao group), instituted this petition,
docketed as G.R. No. 84645, under Section 1 of Rule 65 of the Rules of Court, seeking the reversal and
setting aside of the Orders of respondent Judge Sandoval, 1 dated May 31 and August 8, 1988,
dismissing the complaint for damages of herein petitioners against the Republic of the Philippines in Civil
Case. No. 88-43351.

Petitioner, the Republic of the Philippines, through a similar remedy, docketed as G.R. No. 84607, seeks
to set aside the Order of respondent Judge dated May 31, 1988, in Civil Case No. 88-43351 entitled
"Erlinda Caylao, Et. Al. v. Republic of the Philippines, Et. Al."cralaw virtua1aw library

The pertinent portion of the questioned Order 2 dated May 31, 1988, reads as
follows:jgc:chanrobles.com.ph

"With respect however to the other defendants, the impleaded Military Officers, since they are being
charged in their personal and official capacity, and holding them liable, if at all, would not result in
financial responsibility of the government, the principle of immunity from suit can not conveniently and
correspondingly be applied to them.

WHEREFORE, the case as against the defendant Republic of the Philippines is hereby dismissed. As
against the rest of the defendants the motion to dismiss is denied. They are given a period of ten (10)
days from receipt of this order within which to file their respective pleadings."cralaw virtua1aw library

On the other hand, the Order 3 , dated August 8, 1988, denied the motions filed by both parties, for a
reconsideration of the abovecited Order, respondent Judge finding no cogent reason to disturb the said
order.
The massacre was the culmination of eight days and seven nights of encampment by members of the
militant Kilusang Magbubukid sa Pilipinas (KMP) at the then Ministry (now Department) of Agrarian
Reform (MAR) at the Philippine Tobacco Administration Building along Elliptical Road in Diliman, Quezon
City.

The farmers and their sympathizers presented their demands for what they called "genuine agrarian
reform." The KMP, led by its national president, Jaime Tadeo, presented their problems and demands,
among which were: (a) giving lands for free to farmers; (b) zero retention of lands by landlords; and (c)
stop amortizations of land payments.

The dialogue between the farmers and the MAR officials began on January 15, 1987. The two days that
followed saw a marked increase in people at the encampment. It was only on January 19, 1987 that
Jaime Tadeo arrived to meet with then Minister Heherson Alvarez, only to be informed that the Minister
can only meet with him the following day. On January 20, 1987, the meeting was held at the MAR
conference room. Tadeo demanded that the minimum comprehensive land reform program be granted
immediately. Minister Alvarez, for his part, can only promise to do his best to bring the matter to the
attention of then President Aquino, during the cabinet meeting on January 21, 1987.

Tension mounted the following day. The farmers, now on their seventh day of encampment, barricaded
the MAR premises and prevented the employees from going inside their offices. They hoisted the KMP
flag together with the Philippine flag.

At around 6:30 p.m. of the same day, Minister Alvarez, in a meeting with Tadeo and his leaders, advised
the latter to instead wait for the ratification of the 1987 Constitution and just allow the government to
implement its comprehensive land reform program. Tadeo, however, countered by saying that he did
not believe in the Constitution and that a genuine land reform cannot be realized under a landlord-
controlled Congress. A heated discussion ensued between Tadeo and Minister Alvarez. This
notwithstanding, Minister Alvarez suggested a negotiating panel from each side to meet again the
following day.

On January 22, 1987, Tadeo’s group instead decided to march to Malacañang to air their demands.
Before the march started, Tadeo talked to the press and TV media. He uttered fiery words, the most
telling of which were: ". . . inalis namin ang barikada bilang kahilingan ng ating Presidente, pero
kinakailangan alisin din niya ang barikada sa Mendiola sapagkat bubutasin din namin iyon at dadanak
ang dugo . . ." 4

The farmers then proceeded to march to Malacañang, from Quezon Memorial Circle, at 10:00 a.m. They
were later joined by members of other sectoral organizations such as the Kilusang Mayo Uno (KMU),
Bagong Alyansang Makabayan (BAYAN), League of Filipino Students (LFS) and Kongreso ng Pagkakaisa ng
Maralitang Lungsod (KPML).

At around 1:00 p.m., the marchers reached Liwasang Bonifacio where they held a brief program. It was
at this point that some of the marchers entered the eastern side of the Post Office Building, and
removed the steel bars surrounding the garden. Thereafter, they joined the march to Malacañang. At
about 4:30 p.m., they reached C.M. Recto Avenue.

In anticipation of a civil disturbance, and acting upon reports received by the Capital Regional Command
(CAPCOM) that the rallyists would proceed to Mendiola to break through the police lines and rush
towards Malacañang, CAPCOM Commander General Ramon E. Montaño inspected the preparations and
adequacy of the government forces to quell impending attacks.

OPLAN YELLOW (Revised) was put into effect. Task Force Nazareno under the command of Col. Cesar
Nazareno was deployed at the vicinity of Malacañang. The civil disturbance control units of the Western
Police District under Police Brigadier General Alfredo S. Lim were also activated.

Intelligence reports were also received that the KMP was heavily infiltrated by CPP/NPA elements and
that an insurrection was impending. The threat seemed grave as there were also reports that San Beda
College and Centro Escolar University would be forcibly occupied.

In its report, the Citizens’ Mendiola Commission (a body specifically tasked to investigate the facts
surrounding the incident, Commission for short) stated that the government anti-riot forces were
assembled at Mendiola in a formation of three phalanges, in the following
manner:jgc:chanrobles.com.ph

"(1) The first line was composed of policemen from police stations Nos. 3, 4, 6, 7, 8, 9 and 10 and the
Chinatown detachment of the Western Police District. Police Colonel Edgar Dula Torres, Deputy
Superintendent of the Western Police District, was designated as ground commander of the CDC first
line of defense. The WPD CDC elements were positioned at the intersection of Mendiola and Legarda
Streets after they were ordered to move forward from the top of Mendiola bridge. The WPD forces
were in khaki uniform and carried the standard CDC equipment — aluminum shields, truncheons and
gas masks.

(2) At the second line of defense about ten (10) yards behind the WPD policemen were the elements of
the Integrated National Police (INP) Field Force stationed at Fort Bonifacio from the 61st and 62nd INP
Field Force, who carried also the standard CDC equipment — truncheons, shields and gas masks. The
INP Field Force was under the command of Police Major Demetrio dela Cruz.

(3) Forming the third line was the Marine Civil Disturbance Control Battalion composed of the first and
second companies of the Philippine Marines stationed at Fort Bonifacio. The marines were all equipped
with shields, truncheons and M-16 rifles (armalites) slung at their backs, under the command of Major
Felimon B. Gasmin. The Marine CDC Battalion was positioned in line formation ten (10) yards farther
behind the INP Field Force.

At the back of the marines were four (4) 6 x 6 army trucks, occupying the entire width of Mendiola
street, followed immediately by two water cannons, one on each side of the street and eight fire trucks,
four trucks on each side of the street. The eight fire trucks from Fire District I of Manila under Fire
Superintendent Mario C. Tanchanco, were to supply water to the two water cannons.

Stationed farther behind the CDC forces were the two Mobile Dispersal Teams (MDT) each composed of
two tear gas grenadiers, two spotters, an assistant grenadier, a driver and the team leader.

In front of the College of the Holy Spirit near Gate 4 of Malacañang stood the VOLVO Mobile
Communications Van of the Commanding General of CAPCOM/INP, General Ramon E. Montaño. At this
command post, after General Montaño had conferred with TF Nazareno Commander, Colonel Cezar
Nazareno, about the adequacy and readiness of his forces, it was agreed that Police General Alfredo S.
Lim would designate Police Colonel Edgar Dula Torres and Police Major Conrado Francisco as
negotiators with the marchers. Police General Lim then proceeded to the WPD CDC elements already
positioned at the foot of Mendiola bridge to relay to Police Colonel Torres and Police Major Francisco
the instructions that the latter would negotiate with the marchers." 5 (Emphasis supplied)

The marchers, at around 4:30 p.m., numbered about 10,000 to 15,000. From C.M. Recto Avenue, they
proceeded toward the police lines. No dialogue took place between the marchers and the anti-riot
squad. It was at this moment that a clash occurred and, borrowing the words of the Commission
"pandemonium broke loose." The Commission stated in its findings, to wit:jgc:chanrobles.com.ph

". . . There was an explosion followed by throwing of pillboxes, stones and bottles. Steel bars, wooden
clubs and lead pipes were used against the police. The police fought back with their shields and
truncheons. The police line was breached. Suddenly shots were heard. The demonstrators disengaged
from the government forces and retreated towards C.M. Recto Avenue. But sporadic firing continued
from the government forces.

After the firing ceased, two MDTs headed by Lt. Romeo Paguinto and Lt. Laonglaan Goce sped towards
Legarda Street and lobbed tear gas at the remaining rallyist still grouped in the vicinity of Mendiola.
After dispersing the crowd, the two MDTs, together with the two WPD MDTs, proceeded to Liwasang
Bonifacio upon order of General Montaño to disperse the rallyists assembled thereat. Assisting the
MDTs were a number of policemen from the WPD, attired in civilian clothes with white head bands, who
were armed with long firearms." 6 (Emphasis ours)

After the clash, twelve (12) marchers were officially confirmed dead, although according to Tadeo, there
were thirteen (13) dead, but he was not able to give the name and address of said victim. Thirty-nine
(39) were wounded by gunshots and twelve (12) sustained minor injuries, all belonging to the group of
the marchers.

Of the police and military personnel, three (3) sustained gunshot wounds and twenty (20) suffered
minor physical injuries such as abrasions, contusions and the like.

In the aftermath of the confrontation, then President Corazon C. Aquino issued Administrative Order
No. 11, 7 (A.O. 11, for brevity) dated January 22, 1987, which created the Citizens’ Mendiola
Commission. The body was composed of retired Supreme Court Justice Vicente Abad Santos as
Chairman, retired Supreme Court Justice Jose Y. Feria and Mr. Antonio U. Miranda, both as members.
A.O. 11 stated that the Commission was created precisely for the "purpose of conducting an
investigation of the disorder, deaths, and casualties that took place in the vicinity of Mendiola Bridge
and Mendiola Street and Claro M. Recto Avenue, Manila, in the afternoon of January 22, 1987." The
Commission was expected to have submitted its findings not later than February 6, 1987. But it failed to
do so. Consequently, the deadline was moved to February 16, 1987 by Administrative Order No. 13.
Again, the Commission was unable to meet this deadline. Finally, on February 27, 1987, it submitted its
report, in accordance with Administrative Order No. 17, issued on February 11, 1987.

In its report, the Commission recapitulated its findings, to wit:jgc:chanrobles.com.ph

"(1) The march to Mendiola of the KMP led by Jaime Tadeo, together with the other sectoral groups,
was not covered by any permit as required under Batas Pambansa Blg. 880, the Public Assembly Act of
1985, in violation of paragraph (a) Section 13, punishable under paragraph (a), Section 14 of said law.
(2) The crowd dispersal control units of the police and the military were armed with .38 and .45 caliber
handguns, and M-16 armalites, which is a prohibited act under paragraph 4(g), Section 13, and
punishable under paragraph (b), Section 14 of Batas Pambansa Blg. 880.

(3) The security men assigned to protect the WPD, INP Field Force, the Marines and supporting military
units, as well as the security officers of the police and military commanders were in civilian attire in
violation of paragraph (a), Section 10, Batas Pambansa 880.

(4) There was unnecessary firing by the police and military crowd dispersal control units in dispersing
the marchers, a prohibited act under paragraph (e), Section 13, and punishable under paragraph (b),
Section 14, Batas Pambansa Blg. 880.

(5) The carrying and use of steel bars, pillboxes, darts, lead pipe, wooden clubs with spikes, and guns by
the marchers as offensive weapons are prohibited acts punishable under paragraph (g), Section 13, and
punishable under paragraph (e), Section 14 of Batas Pambansa Blg. 880.

(6) The KMP farmers broke off further negotiations with the MAR officials and were determined to
march to Malacañang, emboldened as they are, by the inflammatory and incendiary utterances of their
leader, Jaime Tadeo — "bubutasin namin ang barikada. Dadanak and dugo . . . Ang nagugutom na
magsasaka ay gagawa ng sariling butas . . ."cralaw virtua1aw library

(7) There was no dialogue between the rallyists and the government forces. Upon approaching the
intersections of Legarda and Mendiola, the marchers began pushing the police lines and penetrated and
broke through the first line of the CDC contingent.

(8) The police fought back with their truncheons and shields. They stood their ground but the CDC line
was breached. There ensued gunfire from both sides. It is not clear who started the firing.

(9) At the onset of the disturbance and violence, the water cannons and tear gas were not put into
effective use to disperse the rioting crowd.

(10) The water cannons and fire trucks were not put into operation because (a) there was no order to
use them; (b) they were incorrectly prepositioned; and (c) they were out of range of the marchers.

(11) Tear gas was not used at the start of the disturbance to disperse the rioters. After the crowd had
dispersed and the wounded and dead were being carried away, the MDTs of the police and the military
with their tear gas equipment and components conducted dispersal operations in the Mendiola area
and proceeded to Liwasang Bonifacio to disperse the remnants of the marchers.

(12) No barbed wire barricade was used in Mendiola but no official reason was given for its absence." 8

From the results of the probe, the Commission recommended 9 the criminal prosecution of four
unidentified, uniformed individuals, shown either on tape or in pictures, firing at the direction of the
marchers. In connection with this, it was the Commission’s recommendation that the National Bureau of
Investigation (NBI) be tasked to undertake investigations regarding the identities of those who actually
fired their guns that resulted in the death of or injury to the victims of the incident. The Commission also
suggested that all the commissioned officers of both the Western Police District and the INP Field Force,
who were armed during the incident, be prosecuted for violation of paragraph 4(g) of Section 13, Batas
Pambansa Blg. 880, the Public Assembly Act of 1985. The Commission’s recommendation also included
the prosecution of the marchers, for carrying deadly or offensive weapons, but whose identities have
yet to be established. As for Jaime Tadeo, the Commission said that he should be prosecuted both for
violation of paragraph (a), Section 13, Batas Pambansa Blg. 880 for holding the rally without a permit
and for violation of Article 142, as amended, of the Revised Penal Code for inciting to sedition. As for the
following officers, namely: (1) Gen. Ramon E. Montaño; (2) Police Gen. Alfredo S. Lim; (3) Police Gen.
Edgar Dula Torres; (4) Police Maj. Demetrio dela Cruz; (5) Col. Cezar Nazareno; and (5) Maj. Felimon
Gasmin, for their failure to make effective use of their skill and experience in directing the dispersal
operations in Mendiola, administrative sanctions were recommended to be imposed.chanrobles law
library : red

The last and the most significant recommendation of the Commission was for the deceased and
wounded victims of the Mendiola incident to be compensated by the government. It was this portion
that petitioners (Caylao group) invoke in their claim for damages from the government.

Notwithstanding such recommendation, no concrete form of compensation was received by the victims.
Thus, on July 27, 1987, herein petitioners, (Caylao group) filed a formal letter of demand for
compensation from the Government. 10 This formal demand was indorsed by the office of the Executive
Secretary to the Department of Budget and Management (DBM) on August 13, 1987. The House
Committee on Human Rights, on February 10, 1988, recommended the expeditious payment of
compensation to the Mendiola victims. 11

After almost a year, on January 20, 1988, petitioners (Caylao group) were constrained to institute an
action for damages against the Republic of the Philippines, together with the military officers, and
personnel involved in the Mendiola incident, before the trial court. The complaint was docketed as Civil
Case No. 88-43351.

On February 23, 1988, the Solicitor General filed a Motion to Dismiss on the ground that the State
cannot be sued without its consent. Petitioners opposed said motion on March 16, 1988, maintaining
that the State has waived its immunity from suit and that the dismissal of the instant action is contrary
to both the Constitution and the International Law on Human Rights.

Respondent Judge Sandoval, in his first questioned Order, dismissed the complaint as against the
Republic of the Philippines on the ground that there was no waiver by the State. Petitioners (Caylao
group) filed a Motion for Reconsideration therefrom, but the same was denied by respondent judge in
his Order dated August 8, 1988. Consequently, Caylao and her co-petitioners filed the instant petition.

On the other hand, the Republic of the Philippines, together with the military officers and personnel
impleaded as defendants in the court below, filed its petition for certiorari.

Having arisen from the same factual beginnings and raising practically identical issues, the two (2)
petitions were consolidated and will therefore be jointly dealt with and resolved in this Decision.

The resolution of both petitions revolves around the main issue of whether or not the State has waived
its immunity from suit.

Petitioners (Caylao group) advance the argument that the State has impliedly waived its sovereign
immunity from suit. It is their considered view that by the recommendation made by the Commission
for the government to indemnify the heirs and victims of the Mendiola incident and by the public
addresses made by then President Aquino in the aftermath of the killings, the State has consented to be
sued.

Under our Constitution the principle of immunity of the government from suit is expressly provided in
Article XVI, Section 3. The principle is based on the very essence of sovereignty, and on the practical
ground that there can be no legal right as against the authority that makes the law on which the right
depends. 12 It also rests on reasons of public policy — that public service would be hindered, and the
public endangered, if the sovereign authority could be subjected to law suits at the instance of every
citizen and consequently controlled in the uses and dispositions of the means required for the proper
administration of the government. 13

This is not a suit against the State with its consent.

Firstly, the recommendation made by the Commission regarding indemnification of the heirs of the
deceased and the victims of the incident by the government does not in any way mean that liability
automatically attaches to the State. It is important to note that A.O. 11 expressly states that the purpose
of creating the Commission was to have a body that will conduct an "investigation of the disorder,
deaths and casualties that took place." 14 In the exercise of its functions, A.O. 11 provides guidelines,
and what is relevant to Our discussion reads:jgc:chanrobles.com.ph

"1. Its conclusions regarding the existence of probable cause for the commission of any offense and of
the persons probably guilty of the same shall be sufficient compliance with the rules on preliminary
investigation and the charges arising therefrom may be filed directly with the proper court." 15

In effect, whatever may be the findings of the Commission, the same shall only serve as the cause of
action in the event that any party decides to litigate his/her claim. Therefore, the Commission is merely
a preliminary venue. The Commission is not the end in itself. Whatever recommendation it makes
cannot in any way bind the State immediately, such recommendation not having become final and
executory. This is precisely the essence of it being a fact-finding body.

Secondly, whatever acts or utterances that then President Aquino may have done or said, the same are
not tantamount to the State having waived its immunity from suit. The President’s act of joining the
marchers, days after the incident, does not mean that there was an admission by the State of any
liability. In fact to borrow the words of petitioners (Caylao group), "it was an act of solidarity by the
government with the people." Moreover, petitioners rely on President Aquino’s speech promising that
the government would address the grievances of the rallyists. By this alone, it cannot be inferred that
the State has admitted any liability, much less can it be inferred that it has consented to the suit.

Although consent to be sued may be given impliedly, still it cannot be maintained that such consent was
given considering the circumstances obtaining in the instant case.

Thirdly, the case does not qualify as a suit against the State.

Some instances when a suit against the State is proper are: 16

(1) When the Republic is sued by name;

(2) When the suit is against an unincorporated government agency;

(3) When the suit is on its face against a government officer but the case is such that ultimate liability
will belong not to the officer but to the government.

While the Republic in this case is sued by name, the ultimate liability does not pertain to the
government. Although the military officers and personnel, then party defendants, were discharging their
official functions when the incident occurred, their functions ceased to be official the moment they
exceeded their authority. Based on the Commission findings, there was lack of justification by the
government forces in the use of firearms. 17 Moreover, the members of the police and military crowd
dispersal units committed a prohibited act under B.P. Blg. 880 18 as there was unnecessary firing by
them in dispersing the marchers. 19

As early as 1954, this Court has pronounced that an officer cannot shelter himself by the plea that he is a
public agent acting under the color of his office when his acts are wholly without authority. 20 Until
recently in 1991, 21 this doctrine still found application, this Court saying that immunity from suit
cannot institutionalize irresponsibility and non-accountability nor grant a privileged status not claimed
by any other official of the Republic. The military and police forces were deployed to ensure that the
rally would be peaceful and orderly as well as to guarantee the safety of the very people that they are
duty-bound to protect. However, the facts as found by the trial court showed that they fired at the
unruly crowd to disperse the latter.

While it is true that nothing is better settled than the general rule that a sovereign state and its political
subdivisions cannot be sued in the courts except when it has given its consent, it cannot be invoked by
both the military officers to release them from any liability, and by the heirs and victims to demand
indemnification from the government. The principle of state immunity from suit does not apply, as in
this case, when the relief demanded by the suit requires no affirmative official action on the part of the
State nor the affirmative discharge of any obligation which belongs to the State in its political capacity,
even though the officers or agents who are made defendants claim to hold or act only by virtue of a title
of the state and as its agents and servants. 22 This Court has made it quite clear that even a "high
position in the government does not confer a license to persecute or recklessly injure another." 23

The inescapable conclusion is that the State cannot be held civilly liable for the deaths that followed the
incident. Instead, the liability should fall on the named defendants in the lower court. In line with the
ruling of this court in Shauf v. Court of Appeals, 24 herein public officials, having been found to have
acted beyond the scope of their authority, may be held liable for damages.

WHEREFORE, finding no reversible error and no grave abuse of discretion committed by respondent
Judge in issuing the questioned orders, the instant petitions are hereby DISMISSED.

SO ORDERED.
 ➢ United States of America v. Guinto [G.R. No. 76607, February 26, 1990]

[G.R. No. 76607. February 26, 1990.]

UNITED STATES OF AMERICA, FREDERICK M. SMOUSE AND YVONNE REEVES, Petitioners, v. HON.
ELIODORO B. GUINTO, Presiding Judge, Branch LVII, Regional Trial Court, Angeles City, ROBERTO T.
VALENCIA, EMERENCIANA C. TANGLAO, AND PABLO C. DEL PILAR, Respondents.

[G.R. No. 79470. February 26, 1990.]

UNITED STATES OF AMERICA, ANTHONY LAMACHIA, T/SGT. USAF, WILFREDO BELSA, PETER
ORASCION AND ROSE CARTALLA, Petitioners, v. HON. RODOLFO D. RODRIGO, as Presiding Judge of
Branch 7, Regional Trial Court (BAGUIO CITY), La Trinidad, Benguet and FABIAN
GENOVE, Respondents.

[G.R. No. 80018. February 26, 1990.]

UNITED STATES OF AMERICA, TOMI J. KINGI, DARREL D. DYE and STEVEN F. BOSTICK, Petitioners, v.
HON. JOSEFINA D. CEBALLOS, As Presiding Judge, Regional Trial Court, Branch 66, Capas, Tarlac, and
LUIS BAUTISTA, Respondents.

[G.R. No. 80258. February 26, 1990.]

UNITED STATES OF AMERICA, MAJOR GENERAL MICHAEL P. C. CARNS, AIC ERNEST E. RIVENBURGH,
AIC ROBIN BLEVINS, SGT. NOEL A. GONZALES, SGT. THOMAS MITCHELL, SGT. WAYNE L. BENJAMIN, ET
AL., Petitioners, v. HON. CONCEPCION S. ALARCON VERGARA, as Presiding Judge, Branch 62 REGIONAL
TRIAL COURT, Angeles City, and RICKY SANCHEZ, FREDDIE SANCHEZ AKA FREDDIE RIVERA, EDWIN
MARIANO, AKA JESSIE DOLORES SANGALANG, ET AL., Respondents.

Luna, Sison & Manas Law Office for petitioners.

DECISION

CRUZ, J.:

These cases have been consolidated because they all involve the doctrine of state immunity. The United
States of America was not impleaded in the complaints below but has moved to dismiss on the ground
that they are in effect suits against it to which it has not consented. It is now contesting the denial of its
motions by the respondent judges.chanroblesvirtualawlibrary

In G.R. No. 76607, the private respondents are suing several officers of the U.S. Air Force stationed in
Clark Air Base in connection with the bidding conducted by them for contracts for barbering services in
the said base.

On February 24, 1986, the Western Pacific Contracting Office, Okinawa Area Exchange, U.S. Air Force,
solicited bids for such contracts through its contracting officer, James F. Shaw. Among those who
submitted their bids were private respondents Roberto T. Valencia, Emerenciana C. Tanglao, and Pablo
C. del Pilar. Valencia had been a concessionaire inside Clark for 34 years; del Pilar for 12 years; and
Tanglao for 50 years.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

The bidding was won by Ramon Dizon, over the objection of the private respondents, who claimed that
he had made a bid for four facilities, including the Civil Engineering Area, which was not included in the
invitation to bid.

The private respondents complained to the Philippine Area Exchange (PHAX). The latter, through its
representatives, petitioners Yvonne Reeves and Frederic M. Smouse, explained that the Civil Engineering
concession had not been awarded to Dizon as a result of the February 24, 1986 solicitation. Dizon was
already operating this concession, then known as the NCO club concession, and the expiration of the
contract had been extended from June 30, 1986 to August 31, 1986. They further explained that the
solicitation of the CE barbershop would be available only by the end of June and the private respondents
would be notified.chanrobles virtual lawlibrary

On June 30,1986, the private respondents filed a complaint in the court below to compel PHAX and the
individual petitioners to cancel the award to defendant Dizon, to conduct a rebidding for the barbershop
concessions and to allow the private respondents by a writ of preliminary injunction to continue
operating the concessions pending litigation. 1

Upon the filing of the complaint, the respondent court issued an ex parte order directing the individual
petitioners to maintain the status quo.

On July 22, 1986, the petitioners filed a motion to dismiss and opposition to the petition for preliminary
injunction on the ground that the action was in effect a suit against the United States of America, which
had not waived its non-suability. The individual defendants, as officials/employees of the U.S. Air Force,
were also immune from suit.

On the same date, July 22, 1986, the trial court denied the application for a writ of preliminary
injunction.

On October 10, 1988, the trial court denied the petitioners’ motion to dismiss, holding in part as
follows:chanrob1es virtual 1aw library

From the pleadings thus far presented to this Court by the parties, the Court’s attention is called by the
relationship between the plaintiffs as well as the defendants, including the US Government in that prior
to the bidding or solicitation in question, there was a binding contract between the plaintiffs as well as
the defendants, including the US Government. By virtue of said contract of concession, it is the Court’s
understanding that neither the US Government nor the herein principal defendants would become the
employer/s of the plaintiffs but that the latter are the employers themselves of the barbers, etc. with
the employer, the plaintiffs herein, remitting the stipulated percentage of commissions to the Philippine
Area Exchange. The same circumstance would become m effect when the Philippine Area Exchange
opened for bidding or solicitation the questioned barber shop concessions. To this extent, therefore,
indeed a commercial transaction has been entered, and for purposes of the said solicitation, would
necessarily be entered between the plaintiffs as well as the defendants.

The Court, further, is of the view that Article XVIII of the RP-US Bases Agreement does not cover such
kind of services falling under the concessionaireship, such as a barber shop concession. 2
On December 11, 1986, following the filing of the herein petition for certiorari and prohibition with
preliminary injunction, we issued a temporary restraining order against further proceedings in the court
below. 3

In G.R. No. 79470, Fabian Genove filed a complaint for damages against petitioners Anthony Lamachia,
Wilfredo Belsa, Rose Cartalla and Peter Orascion for his dismissal as cook in the U.S. Air Force Recreation
Center at the John Hay Air Station in Baguio City. It had been ascertained after investigation, from the
testimony of Belsa, Cartalla and Orascion, that Genove had poured urine into the soup stock used in
cooking the vegetables served to the club customers. Lamachia, as club manager, suspended him and
thereafter referred the case to a board of arbitrators conformably to the collective bargaining
agreement between the Center and its employees. The board unanimously found him guilty and
recommended his dismissal. This was effected on March 5, 1986, by Col. David C. Kimball, Commander
of the 3rd Combat Support Group, PACAF Clark Air Force Base. Genove’s reaction was to file his
complaint in the Regional Trial Court of Baguio City against the individual petitioners. 4

On March 13, 1987, the defendants, joined by the United States of America, moved to dismiss the
complaint, alleging that Lamachia, as an officer of the U.S. Air Force stationed at John Hay Air Station,
was immune from suit for the acts done by him in his official capacity. They argued that the suit was in
effect against the United States, which had not given its consent to be sued.chanrobles virtual lawlibrary

This motion was denied by the respondent judge on June 4, 1987, in an order which read in
part:chanrob1es virtual 1aw library

It is the understanding of the Court, based on the allegations of the complaint — which have been
hypothetically admitted by defendants upon the filing of their motion to dismiss — that although
defendants acted initially in their official capacities, their going beyond what their functions called for
brought them out of the protective mantle of whatever immunities they may have had in the beginning.
Thus, the allegation that the acts complained of were "illegal," done, with "extreme bad faith" and with
"pre-conceived sinister plan to harass and finally dismiss" the plaintiff, gains significance. 5

The petitioners then came to this Court seeking certiorari and prohibition with preliminary injunction.

In G.R. No. 80018, Luis Bautista, who was employed as a barracks boy in Camp O’Donnell, an extension
of Clark Air Base, was arrested following a buy-bust operation conducted by the individual petitioners
herein, namely, Tomi J. King, Darrel D. Dye and Stephen F. Bostick, officers of the U.S. Air Force and
special agents of the Air Force Office of Special Investigators (AFOSI). On the basis of the sworn
statements made by them, an information for violation of R.A. 6425, otherwise known as the Dangerous
Drugs Act, was filed against Bautista in the Regional Trial Court of Tarlac. The above-named officers
testified against him at his trial. As a result of the filing of the charge, Bautista was dismissed from his
employment. He then filed a complaint for damages against the individual petitioners herein claiming
that it was because of their acts that he was removed. 6

During the period for filing of the answer, Mariano Y. Navarro, a special counsel assigned to the
International Law Division, Office of the Staff Judge Advocate of Clark Air Base, entered a special
appearance for the defendants and moved for an extension within which to file an "answer and/or other
pleadings." His reason was that the Attorney General of the United States had not yet designated
counsel to represent the defendants, who were being sued for their official acts. Within the extended
period, the defendants, without the assistance of counsel or authority from the U.S. Department of
Justice, filed their answer. They alleged therein as affirmative defenses that they had only done their
duty in the enforcement of the laws of the Philippines inside the American bases pursuant to the RP-US
Military Bases Agreement.

On May 7, 1987, the law firm of Luna, Sison and Manas, having been retained to represent the
defendants, filed with leave of court a motion to withdraw the answer and dismiss the complaint. The
ground invoked was that the defendants were acting in their official capacity when they did the acts
complained of and that the complaint against them was in effect a suit against the United States without
its consent.chanrobles.com : virtual law library

The motion was denied by the respondent judge in his order dated September 11, 1987, which held that
the claimed immunity under the Military Bases Agreement covered only criminal and not civil cases.
Moreover, the defendants had come under the jurisdiction of the court when they submitted their
answer. 7

Following the filing of the herein petition for certiorari and prohibition with preliminary injunction, we
issued on October 14, 1987, a temporary restraining order. 8

In G.R. No. 80258, a complaint for damages was filed by the private respondents against the herein
petitioners (except the United States of America), for injuries allegedly sustained by the plaintiffs as a
result of the acts of the defendants. 9 There is a conflict of factual allegations here. According to the
plaintiffs, the defendants beat them up, handcuffed them and unleashed dogs on them which bit them
in several parts of their bodies and caused extensive injuries to them. The defendants deny this and
claim the plaintiffs were arrested for theft and were bitten by the dogs because they were struggling
and resisting arrest. The defendants stress that the dogs were called off and the plaintiffs were
immediately taken to the medical center for treatment of their wounds.

In a motion to dismiss the complaint, the United States of America and the individually named
defendants argued that the suit was in effect a suit against the United States, which had not given its
consent to be sued. The defendants were also immune from suit under the RP-US Bases Treaty for acts
done by them in the performance of their official functions.

The motion to dismiss was denied by the trial court in its order dated August 10, 1987, reading in part as
follows:chanrob1es virtual 1aw library

The defendants certainly cannot correctly argue that they are immune from suit. The allegations, of the
complaint which is sought to be dismissed, had to be hypothetically admitted and whatever ground the
defendants may have, had to be ventilated during the trial of the case on the merits. The complaint
alleged criminal acts against the individually-named defendants and from the nature of said acts it could
not be said that they are Acts of State, for which immunity should be invoked. If the Filipinos themselves
are duty bound to respect, obey and submit themselves to the laws of the country, with more reason,
the members of the United States Armed Forces who are being treated as guests of this country should
respect, obey and submit themselves to its laws. 10

and so was the motion for reconsideration. The defendants submitted their answer as required but
subsequently filed their petition for certiorari and prohibition with preliminary injunction with this
Court. We issued a temporary restraining order on October 27, 1987. 11
 II

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.

Even without such affirmation, we would still be bound by the generally accepted principles of
international law under the doctrine of incorporation. Under this doctrine, as accepted by the majority
of states, such principles are deemed incorporated in the law of every civilized state as a condition and
consequence of its membership in the society of nations. Upon its admission to such society, the state is
automatically obligated to comply with these principles in its relations with other states.

As applied to the local state, the doctrine of state immunity is based on the justification given by Justice
Holmes that "there can be no legal right against the authority which makes the law on which the right
depends." 12 There are other practical reasons for the enforcement of the doctrine. In the case of the
foreign state sought to be impleaded in the local jurisdiction, the added inhibition is expressed in the
maxim par in parem, non habet imperium. All states are sovereign equals and cannot assert jurisdiction
over one another. A contrary disposition would, in the language of a celebrated case, "unduly vex the
peace of nations." 13

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. 14 In such a situation, the state may move to dismiss the complaint on
the ground that it has been filed without its consent.

The doctrine is sometimes derisively called "the royal prerogative of dishonesty" because of the
privilege it grants the state to defeat any legitimate claim against it by simply invoking its non-suability.
That is hardly fair, at least in democratic societies, for the state is not an unfeeling tyrant unmoved by
the valid claims of its citizens. In fact, the doctrine is not absolute and does not say the state may not be
sued under any circumstance. On the contrary, the rule says that the state may not be sued without its
consent, which clearly imports that it may be sued if it consents.

The consent of the state to be sued may be manifested expressly or impliedly. Express consent may be
embodied in a general law or a special law. Consent is implied when the state enters into a contract or it
itself commences litigation.

The general law waiving the immunity of the state from suit is found in Act No. 3083, under which the
Philippine government "consents and submits to be sued upon any moneyed claim involving liability
arising from contract, express or implied, which could serve as a basis of civil action between private
parties." In Merritt v. Government of the Philippine Islands, 15 a special law was passed to enable a
person to sue the government for an alleged tort. When the government enters into a contract, it is
deemed to have descended to the level of the other contracting party and divested of its sovereign
immunity from suit with its implied consent. 16 Waiver is also implied when the government files a
complaint, thus opening itself to a counterclaim. 17

The above rules are subject to qualification. Express consent is effected only by the will of the legislature
through the medium of a duly enacted statute. 18 We have held that not all contracts entered into by
the government will operate as a waiver of its non-suability; distinction must be made between its
sovereign and proprietary acts. 19 As for the filing of a complaint by the government, suability will result
only where the government is claiming affirmative relief from the defendant. 20

In the case of the United States of America, the customary rule of international law on state immunity is
expressed with more specificity in the RP-US Bases Treaty. Article III thereof provides as
follows:chanrob1es virtual 1aw library

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, operation and defense thereof or appropriate for the
control thereof and all the rights, power and authority within the limits of the territorial waters and air
space adjacent to, or in the vicinity of, the bases which are necessary to provide access to them or
appropriate for their control.

The petitioners also rely heavily on Baer v. Tizon, 21 along with several other decisions, to support their
position that they are not suable in the cases below, the United States not having waived its sovereign
immunity from suit. It is emphasized that in Baer, the Court held:chanrob1es virtual 1aw library

The invocation of the doctrine of immunity from suit of a foreign state without its consent is
appropriate. More specifically, insofar as alien armed forces is concerned, the starting point is Raquiza v.
Bradford, a 1945 decision. In dismissing a habeas corpus petition for the release of petitioners confined
by American army authorities, Justice Hilado, speaking for the Court, cited Coleman v. Tennessee, where
it was explicitly declared: `It is well settled that a foreign army, permitted to march through a friendly
country or to be stationed in it, by permission of its government or sovereign, is exempt from the civil
and criminal jurisdiction of the place.’ Two years later, in Tubb and Tedrow v. Griess, this Court relied on
the ruling in Raquiza v. Bradford and cited in support thereof excerpts from the works of the following
authoritative writers: Vattel, Wheaton, Hall, Lawrence, Oppenheim, Westlake, Hyde, and McNair and
Lauterpacht. Accuracy demands the clarification that after the conclusion of the Philippine-American
Military Bases Agreement, the treaty provisions should control on such matter, the assumption being
that there was a manifestation of the submission to jurisdiction on the part of the foreign power
whenever appropriate. More to the point is Syquia v. Almeda Lopez, where plaintiffs as lessors sued the
Commanding General of the United States Army in the Philippines, seeking the restoration to them of
the apartment buildings they owned leased to the United States armed forces stationed in the Manila
area. A motion to dismiss on the ground of non-suability was filed and upheld by respondent Judge. The
matter was taken to this Court in a mandamus proceeding. It failed. It was the ruling that respondent
Judge acted correctly considering that the `action must be considered as one against the U.S.
Government.’ The opinion of Justice Montemayor continued: `It is clear that the courts of the
Philippines including the Municipal Court of Manila have no jurisdiction over the present case for
unlawful detainer. The question of lack of jurisdiction was raised and interposed at the very beginning of
the action. The U.S. Government has not given its consent to the filing of this suit which is essentially
against her, though not in name. Moreover, this is not only a case of a citizen filing a suit against his own
Government without the latter’s consent but it is of a citizen filing an action against a foreign
government without said government’s consent, which renders more obvious the lack of jurisdiction of
the courts of his country. The principles of law behind this rule are so elementary and of such general
acceptance that we deem it unnecessary to cite authorities in support thereof.’ Then came Marvel
Building Corporation v. Philippine War Damage Commission, where respondent, a United States Agency
established to compensate damages suffered by the Philippines during World War II was held as falling
within the above doctrine as the suit against it `would eventually be a charge against or financial liability
of the United States Government because . . ., the Commission has no funds of its own for the purpose
of paying money judgments.’ The Syquia ruling was again explicitly relied upon in Marquez Lim v.
Nelson, involving a complaint for the recovery of a motor launch, plus damages, the special defense
interposed being `that the vessel belonged to the United States Government, that the defendants
merely acted as agents of said Government, and that the United States Government is therefore the real
party in interest.’ So it was in Philippine Alien Property Administration v. Castelo, where it was held that
a suit against Alien Property Custodian and the Attorney General of the United States involving vested
property under the Trading with the Enemy Act is in substance a suit against the United States. To the
same effect is Parreno v. McGranery, as the following excerpt from the opinion of Justice Tuazon clearly
shows: `It is a widely accepted principle of international law, which is made a part of the law of the land
(Article II, Section 3 of the Constitution), that a foreign state may not be brought to suit before the
courts of another state or its own courts without its consent.’ Finally, there is Johnson v. Turner, an
appeal by the defendant, then Commanding General, Philippine Command (Air Force, with office at
Clark Field) from a decision ordering the return to plaintiff of the confiscated military payment
certificates known as scrip money. In reversing the lower court decision, this Tribunal, through Justice
Montemayor, relied on Syquia v. Almeda Lopez, explaining why it could not be sustained.chanrobles law
library

It bears stressing at this point that the above observations do not confer on the United States of
America a 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.

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. This was our ruling in United States of America v. Ruiz, 22 where the transaction in question
dealt with the improvement of the wharves in the naval installation at Subic Bay. As this was a clearly
governmental function, we held that the contract did not operate to divest the United States of its
sovereign immunity from suit. In the words of Justice Vicente Abad Santos:chanrob1es virtual 1aw
library

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 acts (jure gestionis). The result is that State immunity now extends only to acts jure
imperii. The restrictive application of State immunity is now the rule in the United States, the United
Kingdom and other states in Western Europe.

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

The other petitioners in the cases 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.

In Festejo v. Fernando, 23 a bureau director, acting without any authority whatsoever, appropriated
private land and converted it into public irrigation ditches. Sued for the value of the lots invalidly taken
by him, he moved to dismiss the complaint on the ground that the suit was in effect against the
Philippine government, which had not given its consent to be sued. This Court sustained the denial of
the motion and held that the doctrine of state immunity was not applicable. The director was being
sued in his private capacity for a personal tort.

With these considerations in mind, we now proceed to resolve the cases at hand.

III

It is clear from a study of the records of G.R. No. 80018 that the individually-named petitioners therein
were acting in the exercise of their official functions when they conducted the buy-bust operation
against the complainant and thereafter testified against him at his trial. The said petitioners were in fact
connected with the Air Force Office of Special Investigators and were charged precisely with the
function of preventing the distribution, possession and use of prohibited drugs and prosecuting those
guilty of such acts. It cannot for a moment be imagined that they were acting in their private or
unofficial capacity when they apprehended and later testified against the complainant. It follows that
for discharging their duties as agents of the United States, they cannot be directly impleaded for acts
imputable to their principal, which has not given its consent to be sued. As we observed in Sanders v.
Veridiano: 24

Given the official character of the above-described letters, we have to conclude that the petitioners
were, legally speaking, being sued as officers of the United States government. As they have acted on
behalf of that government, and within the scope of their authority, it is that government, and not the
petitioners personally, that is responsible for their acts.

The private respondent invokes Article 2180 of the Civil Code which holds the government liable if it acts
through a special agent. The argument, it would seem, is premised on the ground that since the officers
are designated "special agents," the United States government should be liable for their torts.

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

The said article establishes a rule of liability, not suability. The government may be held liable under this
rule only if it first allows itself to be sued through any of the accepted forms of consent.

Moreover, the agent performing his regular functions is not a special agent even if he is so
denominated, as in the case at bar. No less important, the said provision appears to regulate only the
relations of the local state with its inhabitants and, hence, applies only to the Philippine government and
not to foreign governments impleaded in our courts.

We reject the conclusion of the trial court that the answer filed by the special counsel of the Office of
the Sheriff Judge Advocate of Clark Air Base was a submission by the United States government to its
jurisdiction. As we noted in Republic v. Purisima, 25 express waiver of immunity cannot be made by a
mere counsel of the government but must be effected through a duly-enacted statute. Neither does
such answer come under the implied forms of consent as earlier discussed.chanrobles virtual lawlibrary

But even as we are certain that the individual petitioners in G.R. No. 80018 were acting in the discharge
of their official functions, we hesitate to make the same conclusion in G.R. No. 80258. The contradictory
factual allegations in this case deserve in our view a closer study of what actually happened to the
plaintiffs. The record is too meager to indicate if the defendants were really discharging their official
duties or had actually exceeded their authority when the incident in question occurred. Lacking this
information, this Court cannot directly decide this case. The needed inquiry must first be made by the
lower court so it may assess and resolve the conflicting claims of the parties on the basis of the evidence
that has yet to be presented at the trial. Only after it shall have determined in what capacity the
petitioners were acting at the time of the incident in question will this Court determine, if still necessary,
if the doctrine of state immunity is applicable.

In G.R. No. 79470, private respondent Genove was employed as a cook in the Main Club located at the
U.S. Air Force Recreation Center, also known as the Open Mess Complex, at John Hay Air Station. As
manager of this complex, petitioner Lamachia is responsible for eleven diversified activities generating
an annual income of $2 million. Under his executive management are three service restaurants, a
cafeteria, a bakery, a Class VI store, a coffee and pantry shop, a main cashier cage, an administrative
office, and a decentralized warehouse which maintains a stock level of $200,000.00 per month in resale
items. He supervises 167 employees, one of whom was Genove, with whom the United States
government has concluded a collective bargaining agreement.

From these circumstances, the Court can assume that the restaurant services offered at the John Hay Air
Station partake of the nature of a business enterprise undertaken by the United States government in its
proprietary capacity. Such services are not extended to the American servicemen for free as a perquisite
of membership in the Armed Forces of the United States. Neither does it appear that they are
exclusively offered to these servicemen; on the contrary, it is well known that they are available to the
general public as well, including the tourists in Baguio City, many of whom make it a point to visit John
Hay for this reason. All persons availing themselves of this facility pay for the privilege like all other
customers as in ordinary restaurants. Although the prices are concededly reasonable and relatively low,
such services are undoubtedly operated for profit, as a commercial and not a governmental activity.

The consequence of this finding is that the petitioners cannot invoke the doctrine of state immunity to
justify the dismissal of the damage suit against them by Genove. Such defense will not prosper even if it
be established that they were acting as agents of the United States when they investigated and later
dismissed Genove. For that matter, not even the United States government itself can claim such
immunity. The reason is that by entering into the employment contract with Genove in the discharge of
its proprietary functions, it impliedly divested itself of its sovereign immunity from suit.

But these considerations notwithstanding, we hold that the complaint against the petitioners in the
court below must still be dismissed. While suable, the petitioners are nevertheless not liable. It is
obvious that the claim for damages cannot be allowed on the strength of the evidence before us, which
we have carefully examined.

The dismissal of the private respondent was decided upon only after a thorough investigation where it
was established beyond doubt that he had polluted the soup stock with urine. The investigation, in fact,
did not stop there. Despite the definitive finding of Genove’s guilt, the case was still referred to the
board of arbitrators provided for in the collective bargaining agreement. This board unanimously
affirmed the findings of the investigators and recommended Genove’s dismissal. There was nothing
arbitrary about the proceedings. The petitioners acted quite properly in terminating the private
respondent’s employment for his unbelievably nauseating act. It is surprising that he should still have
the temerity to file his complaint for damages after committing his utterly disgusting offense.

Concerning G.R. No. 76607, we also find that the barbershops subject of the concessions granted by the
United States government are commercial enterprises operated by private persons. They are not
agencies of the United States Armed Forces nor are their facilities demandable as a matter of right by
the American servicemen. These establishments provide for the grooming needs of their customers and
offer not only the basic haircut and shave (as required in most military organizations) but such other
amenities as shampoo, massage, manicure and other similar indulgences. And all for a fee. Interestingly,
one of the concessionaires, private respondent Valencia, was even sent abroad to improve his tonsorial
business, presumably for the benefit of his customers . No less significantly, if not more so, all the
barbershop concessionaires are, under the terms of their contracts, required to remit to the United
States government fixed commissions in consideration of the exclusive concessions granted to them in
their respective areas.

This being the case, the petitioners cannot plead any immunity from the complaint filed by the private
respondents in the court below. The contracts in question being decidedly commercial, the conclusion
reached in the United States of America v. Ruiz case cannot be applied here.

The Court would have directly resolved the claims against the defendants as we have done in G.R. No.
79470, except for the paucity of the record in the case at hand. The evidence of the alleged irregularity
in the grant of the barbershop concessions is not before us. This means that, as in G.R. No. 80258, the
respondent court will have to receive that evidence first, so it can later determine on the basis thereof if
the plaintiffs are entitled to the relief they seek. Accordingly, this case must also be remanded to the
court below for further proceedings.

IV

There are a number of other cases now pending before us which also involve the question of the
immunity of the United States from the jurisdiction of the Philippines. This is cause for regret, indeed, as
they mar the traditional friendship between two countries long allied in the cause of democracy. It is
hoped that the so-called "irritants" in their relations will be resolved in a spirit of mutual
accommodation and respect, without the inconvenience and asperity of litigation and always with
justice to both parties.

WHEREFORE, after considering all the above premises, the Court hereby renders judgment as
follows:chanrob1es virtual 1aw library

1. In G.R. No. 76607, the petition is DISMISSED and the respondent judge is directed to proceed with the
hearing and decision of Civil Case No. 4772. The temporary restraining order dated December 11, 1986,
is LIFTED.

2. In G.R. No. 79470, the petition is GRANTED and Civil Case No. 829-R(298) is DISMISSED.

3. In G.R. No. 80018, the petition is GRANTED and Civil Case No. 115-C-87 is DISMISSED. The temporary
restraining order dated October 14, 1987, is made permanent.

4. In G.R. No. 80258, the petition is DISMISSED and the respondent court is directed to proceed with the
hearing and decision of Civil Case No. 4996. The temporary restraining order dated October 27, 1987, is
LIFTED.chanrobles.com:cralaw:red

All without any pronouncement as to costs.

SO ORDERED.
 ➢ Sanders v. Veridiano, 162 SCRA 88

G.R. No. L-46930 June 10, 1988

DALE SANDERS, AND A.S. MOREAU, JR, petitioners,

vs.
HON. REGINO T. VERIDIANO II, as Presiding Judge, Branch I, Court of First Instance of Zambales,
Olongapo City, ANTHONY M. ROSSI and RALPH L. WYERS, respondents.

CRUZ, J.:

The basic issue to be resolved in this case is whether or not the petitioners were performing their official
duties when they did the acts for which they have been sued for damages by the private respondents.
Once this question is decided, the other answers will fall into place and this petition need not detain us
any longer than it already has.

Petitioner Sanders was, at the time the incident in question occurred, the special services director of the
U.S. Naval Station (NAVSTA) in Olongapo City. 1 Petitioner Moreau was the commanding officer of the
Subic Naval Base, which includes the said station. 2 Private respondent Rossi is an American citizen with
permanent residence in the Philippines,3 as so was private respondent Wyer, who died two years
ago. 4 They were both employed as gameroom attendants in the special services department of the
NAVSTA, the former having been hired in 1971 and the latter in 1969. 5

On October 3, 1975, the private respondents were advised that their employment had been converted
from permanent full-time to permanent part-time, effective October 18, 1975. 6 Their reaction was to
protest this conversion and to institute grievance proceedings conformably to the pertinent rules and
regulations of the U.S. Department of Defense. The result was a recommendation from the hearing
officer who conducted the proceedings for the reinstatement of the private respondents to permanent
full-time status plus backwages. The report on the hearing contained the observation that "Special
Services management practices an autocratic form of supervision." 7

In a letter addressed to petitioner Moreau on May 17, 1976 (Annex "A" of the complaint), Sanders
disagreed with the hearing officer's report and asked for the rejection of the abovestated
recommendation. The letter contained the statements that: a ) "Mr. Rossi tends to alienate most co-
workers and supervisors;" b) "Messrs. Rossi and Wyers have proven, according to their immediate
supervisors, to be difficult employees to supervise;" and c) "even though the grievants were under oath
not to discuss the case with anyone, (they) placed the records in public places where others not involved
in the case could hear."

On November 7, 1975, before the start of the grievance hearings, a-letter (Annex "B" of the complaint)
purportedly corning from petitioner Moreau as the commanding general of the U.S. Naval Station in
Subic Bay was sent to the Chief of Naval Personnel explaining the change of the private respondent's
employment status and requesting concurrence therewith. The letter did not carry his signature but was
signed by W.B. Moore, Jr. "by direction," presumably of Moreau.
On the basis of these antecedent facts, the private respondent filed in the Court of First Instance of
Olongapo City a for damages against the herein petitioners on November 8, 1976.8 The plaintiffs claimed
that the letters contained libelous imputations that had exposed them to ridicule and caused them
mental anguish and that the prejudgment of the grievance proceedings was an invasion of their
personal and proprietary rights.

The private respondents made it clear that the petitioners were being sued in their private or personal
capacity. However, in a motion to dismiss filed under a special appearance, the petitioners argued that
the acts complained of were performed by them in the discharge of their official duties and that,
consequently, the court had no jurisdiction over them under the doctrine of state immunity.

After extensive written arguments between the parties, the motion was denied in an order dated March
8, 1977, 9 on the main ground that the petitioners had not presented any evidence that their acts were
official in nature and not personal torts, moreover, the allegation in the complaint was that the
defendants had acted maliciously and in bad faith. The same order issued a writ of preliminary
attachment, conditioned upon the filing of a P10,000.00 bond by the plaintiffs, against the properties of
petitioner Moreau, who allegedly was then about to leave the Philippines. Subsequently, to make
matters worse for the defendants, petitioner Moreau was declared in a default by the trial court in its
order dated August 9, 1977. The motion to lift the default order on the ground that Moreau's failure to
appear at the pre-trial conference was the result of some misunderstanding, and the motion for
reconsideration of the denial of the motion to dismiss, which was filed by the petitioner's new lawyers,
were denied by the respondent court on September 7, 1977.

This petition for certiorari, prohibition and preliminary injunction was thereafter filed before this Court,
on the contention that the above-narrated acts of the respondent court are tainted with grave abuse of
discretion amounting to lack of jurisdiction.

We return now to the basic question of whether the petitioners were acting officially or only in their
private capacities when they did the acts for which the private respondents have sued them for
damages.

It is stressed at the outset that the mere allegation that a government functionary is being sued in his
personal capacity will not automatically remove him from the protection of the law of public officers
and, if appropriate, the doctrine of state immunity. By the same token, the mere invocation of official
character will not suffice to insulate him from suability and liability for an act imputed to him as a
personal tort committed without or in excess of his authority. These well-settled principles are
applicable not only to the officers of the local state but also where the person sued in its courts pertains
to the government of a foreign state, as in the present case.

The respondent judge, apparently finding that the complained acts were prima facie personal and
tortious, decided to proceed to trial to determine inter alia their precise character on the strength of the
evidence to be submitted by the parties. The petitioners have objected, arguing that no such evidence
was needed to substantiate their claim of jurisdictional immunity. Pending resolution of this question,
we issued a temporary restraining order on September 26, 1977, that has since then suspended the
proceedings in this case in the court a quo.
In past cases, this Court has held that where the character of the act complained of can be determined
from the pleadings exchanged between the parties before the trial, it is not necessary for the court to
require them to belabor the point at a trial still to be conducted. Such a proceeding would be
superfluous, not to say unfair to the defendant who is subjected to unnecessary and avoidable
inconvenience.

Thus, in Baer v. Tizon, 10 we held that a motion to dismiss a complaint against the commanding general
of the Olongapo Naval Base should not have been denied because it had been sufficiently shown that
the act for which he was being sued was done in his official capacity on behalf of the American
government. The United States had not given its consent to be sued. It was the reverse situation
in Syquia v. Almeda Lopez," where we sustained the order of the lower court granting a where we
motion to dismiss a complaint against certain officers of the U.S. armed forces also shown to be acting
officially in the name of the American government. The United States had also not waived its immunity
from suit. Only three years ago, in United States of America v. Ruiz, 12 we set aside the denial by the
lower court of a motion to dismiss a complaint for damages filed against the United States and several
of its officials, it appearing that the act complained of was governmental rather than proprietary, and
certainly not personal. In these and several other cases 13 the Court found it redundant to prolong the
other case proceedings after it had become clear that the suit could not prosper because the acts
complained of were covered by the doctrine of state immunity.

It is abundantly clear in the present case that the acts for which the petitioners are being called to
account were performed by them in the discharge of their official duties. Sanders, as director of the
special services department of NAVSTA, undoubtedly had supervision over its personnel, including the
private respondents, and had a hand in their employment, work assignments, discipline, dismissal and
other related matters. It is not disputed that the letter he had written was in fact a reply to a request
from his superior, the other petitioner, for more information regarding the case of the private
respondents.14 Moreover, even in the absence of such request, he still was within his rights in reacting
to the hearing officer's criticism—in effect a direct attack against him—-that Special Services was
practicing "an autocratic form of supervision."

As for Moreau,what he is claimed to have done was write the Chief of Naval Personnel for concurrence
with the conversion of the private respondents' type of employment even before the grievance
proceedings had even commenced. Disregarding for the nonce the question of its timeliness, this act is
clearly official in nature, performed by Moreau as the immediate superior of Sanders and directly
answerable to Naval Personnel in matters involving the special services department of NAVSTA In fact,
the letter dealt with the financial and budgetary problems of the department and contained
recommendations for their solution, including the re-designation of the private respondents. There was
nothing personal or private about it.

Given the official character of the above-described letters, we have to conclude that the petitioners
were, legally speaking, being sued as officers of the United States government. As they have acted on
behalf of that government, and within the scope of their authority, it is that government, and not the
petitioners personally, that is responsible for their acts. Assuming that the trial can proceed and it is
proved that the claimants have a right to the payment of damages, such award will have to be satisfied
not by the petitioners in their personal capacities but by the United States government as their principal.
This will require that government to perform an affirmative act to satisfy the judgment, viz, the
appropriation of the necessary amount to cover the damages awarded, thus making the action a suit
against that government without its consent.
There should be no question by now that such complaint cannot prosper unless the government sought
to be held ultimately liable has given its consent to' be sued. So we have ruled not only in Baer but in
many other decisions where we upheld the doctrine of state immunity as applicable not only to our own
government but also to foreign states sought to be subjected to the jurisdiction of our courts. 15

The practical justification for the doctrine, as Holmes put it, is that "there can be no legal right against
the authority which makes the law on which the right depends.16 In the case of foreign states, the rule is
derived from the principle of the sovereign equality of states which wisely admonishes that par in parem
non habet imperium and that a contrary attitude would "unduly vex the peace of nations." 17 Our
adherence to this precept is formally expressed in Article II, Section 2, of our Constitution, where we
reiterate from our previous charters that the Philippines "adopts the generally accepted principles of
international law as part of the law of the land.

All this is not to say that in no case may a public officer be sued as such without the previous consent of
the state. To be sure, there are a number of well-recognized exceptions. It is clear that a public officer
may be sued as such to compel him to do an act required by law, as where, say, a register of deeds
refuses to record a deed of sale; 18 or to restrain a Cabinet member, for example, from enforcing a law
claimed to be unconstitutional; 19 or to compel the national treasurer to pay damages from an already
appropriated assurance fund; 20 or the commissioner of internal revenue to refund tax over-payments
from a fund already available for the purpose; 21 or, in general, to secure a judgment that the officer
impleaded may satisfy by himself without the government itself having to do a positive act to assist him.
We have also held that where the government itself has violated its own laws, the aggrieved party may
directly implead the government even without first filing his claim with the Commission on Audit as
normally required, as the doctrine of state immunity "cannot be used as an instrument for perpetrating
an injustice." 22

This case must also be distinguished from such decisions as Festejo v. Fernando, 23 where the Court held
that a bureau director could be sued for damages on a personal tort committed by him when he acted
without or in excess of authority in forcibly taking private property without paying just compensation
therefor although he did convert it into a public irrigation canal. It was not necessary to secure the
previous consent of the state, nor could it be validly impleaded as a party defendant, as it was not
responsible for the defendant's unauthorized act.

The case at bar, to repeat, comes under the rule and not under any of the recognized exceptions. The
government of the United States has not given its consent to be sued for the official acts of the
petitioners, who cannot satisfy any judgment that may be rendered against them. As it is the American
government itself that will have to perform the affirmative act of appropriating the amount that may be
adjudged for the private respondents, the complaint must be dismissed for lack of jurisdiction.

The Court finds that, even under the law of public officers, the acts of the petitioners are protected by
the presumption of good faith, which has not been overturned by the private respondents. Even
mistakes concededly committed by such public officers are not actionable as long as it is not shown that
they were motivated by malice or gross negligence amounting to bad faith.24 This, to, is well settled
.25 Furthermore, applying now our own penal laws, the letters come under the concept of privileged
communications and are not punishable, 26 let alone the fact that the resented remarks are not
defamatory by our standards. It seems the private respondents have overstated their case.
A final consideration is that since the questioned acts were done in the Olongapo Naval Base by the
petitioners in the performance of their official duties and the private respondents are themselves
American citizens, it would seem only proper for the courts of this country to refrain from taking
cognizance of this matter and to treat it as coming under the internal administration of the said base.

The petitioners' counsel have submitted a memorandum replete with citations of American cases, as if
they were arguing before a court of the United States. The Court is bemused by such attitude. While
these decisions do have persuasive effect upon us, they can at best be invoked only to support our own
jurisprudence, which we have developed and enriched on the basis of our own persuasions as a people,
particularly since we became independent in 1946.

We appreciate the assistance foreign decisions offer us, and not only from the United States but also
from Spain and other countries from which we have derived some if not most of our own laws. But we
should not place undue and fawning reliance upon them and regard them as indispensable mental
crutches without which we cannot come to our own decisions through the employment of our own
endowments We live in a different ambience and must decide our own problems in the light of our own
interests and needs, and of our qualities and even idiosyncrasies as a people, and always with our own
concept of law and justice.

The private respondents must, if they are still sominded, pursue their claim against the petitioners in
accordance with the laws of the United States, of which they are all citizens and under whose
jurisdiction the alleged offenses were committed. Even assuming that our own laws are applicable, the
United States government has not decided to give its consent to be sued in our courts, which therefore
has not acquired the competence to act on the said claim,.

WHEREFORE, the petition is GRANTED. The challenged orders dated March 8,1977, August 9,1977, and
September 7, 1977, are SET ASIDE. The respondent court is directed to DISMISS Civil Case No. 2077-O.
Our Temporary restraining order of September 26,1977, is made PERMANENT. No costs.

SO ORDERED.
 ➢ Vinzons-Chato v. Fortune Tobacco Corporation [G.R. No. 141309, December
23, 2008]

G.R. No. 141309 December 23, 2008

LIWAYWAY VINZONS-CHATO, petitioner,

vs.
FORTUNE TOBACCO CORPORATION, respondent.

RESOLUTION

NACHURA, J.:

It is a fundamental principle in the law of public officers that a duty owing to the public in general
cannot give rise to a liability in favor of particular individuals.1 The failure to perform a public duty can
constitute an individual wrong only when a person can show that, in the public duty, a duty to himself as
an individual is also involved, and that he has suffered a special and peculiar injury by reason of its
improper performance or non-performance.2

By this token, the Court reconsiders its June 19, 2007 Decision3 in this case.

As culled from the said decision, the facts, in brief, are as follows:

On June 10, 1993, the legislature enacted Republic Act No. 7654 (RA 7654), which took effect on
July 3, 1993. Prior to its effectivity, cigarette brands 'Champion," "Hope," and "More" were
considered local brands subjected to an ad valorem tax at the rate of 20-45%. However, on July
1, 1993, or two days before RA 7654 took effect, petitioner issued RMC 37-93 reclassifying
"Champion," "Hope," and "More" as locally manufactured cigarettes bearing a foreign brand
subject to the 55% ad valorem tax. RMC 37-93 in effect subjected "Hope," "More,"
and "Champion" cigarettes to the provisions of RA 7654, specifically, to Sec. 142, (c)(1) on locally
manufactured cigarettes which are currently classified and taxed at 55%, and which imposes
an ad valorem tax of "55% provided that the minimum tax shall not be less than Five Pesos
(P5.00) per pack."

On July 2, 1993, at about 5:50 p.m., BIR Deputy Commissioner Victor A. Deoferio, Jr.
sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in
particular. On July 15, 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy
of RMC 37-93. On July 20, 1993, respondent filed a motion for reconsideration requesting the
recall of RMC 37-93, but was denied in a letter dated July 30, 1993. The same letter assessed
respondent for ad valorem tax deficiency amounting to P9,598,334.00 (computed on the basis
of RMC 37-93) and demanded payment within 10 days from receipt thereof. On August 3, 1993,
respondent filed a petition for review with the Court of Tax Appeals (CTA), which on September
30, 1993, issued an injunction enjoining the implementation of RMC 37-93. In its decision dated
August 10, 1994, the CTA ruled that RMC 37-93 is defective, invalid, and unenforceable and
further enjoined petitioner from collecting the deficiency tax assessment issued pursuant to
RMC No. 37-93. This ruling was affirmed by the Court of Appeals, and finally by this Court
 in Commissioner of Internal Revenue v. Court of Appeals. It was held, among others, that RMC
37-93, has fallen short of the requirements for a valid administrative issuance.

On April 10, 1997, respondent filed before the RTC a complaint for damages against petitioner in
her private capacity. Respondent contended that the latter should be held liable for damages
under Article 32 of the Civil Code considering that the issuance of RMC 37-93 violated its
constitutional right against deprivation of property without due process of law and the right to
equal protection of the laws.

Petitioner filed a motion to dismiss contending that: (1) respondent has no cause of action
against her because she issued RMC 37-93 in the performance of her official function and within
the scope of her authority. She claimed that she acted merely as an agent of the Republic and
therefore the latter is the one responsible for her acts; (2) the complaint states no cause of
action for lack of allegation of malice or bad faith; and (3) the certification against forum
shopping was signed by respondent's counsel in violation of the rule that it is the plaintiff or the
principal party who should sign the same.

On September 29, 1997, the RTC denied petitioner's motion to dismiss holding that to rule on
the allegations of petitioner would be to prematurely decide the merits of the case without
allowing the parties to present evidence. It further held that the defect in the certification
against forum shopping was cured by respondent's submission of the corporate secretary's
certificate authorizing its counsel to execute the certification against forum shopping. x x x x

xxxx

The case was elevated to the Court of Appeals via a petition for certiorari under Rule 65.
However, same was dismissed on the ground that under Article 32 of the Civil Code, liability may
arise even if the defendant did not act with malice or bad faith. The appellate court ratiocinated
that Section 38, Book I of the Administrative Code is the general law on the civil liability of public
officers while Article 32 of the Civil Code is the special law that governs the instant case.
Consequently, malice or bad faith need not be alleged in the complaint for damages. It also
sustained the ruling of the RTC that the defect of the certification against forum shopping was
cured by the submission of the corporate secretary's certificate giving authority to its counsel to
execute the same.4 [Citations and underscoring omitted.]

In the aforesaid June 19, 2007 Decision, we affirmed the disposition of the Court of Appeals (CA) and
directed the trial court to continue with the proceedings in Civil Case No. 97-341-MK.5

Petitioner, on July 20, 2007, subsequently moved for the reconsideration of the said decision.6 After
respondent filed its comment, the Court, in its April 14, 2008 Resolution,7 denied with finality
petitioner's motion for reconsideration.

Undaunted, petitioner filed, on April 29, 2008 her Motion to Refer [the case] to the Honorable Court En
Banc.8 She contends that the petition raises a legal question that is novel and is of paramount
importance. The earlier decision rendered by the Court will send a chilling effect to public officers, and
will adversely affect the performance of duties of superior public officers in departments or agencies
with rule-making and quasi-judicial powers. With the said decision, the Commissioner of Internal
Revenue will have reason to hesitate or refrain from performing his/her official duties despite the due
process safeguards in Section 228 of the National Internal Revenue Code.9 Petitioner hence moves for
the reconsideration of the June 19, 2007 Decision.10

In its June 25, 2008 Resolution,11 the Court referred the case to the En Banc. Respondent consequently
moved for the reconsideration of this resolution.

We now resolve both motions.

There are two kinds of duties exercised by public officers: the "duty owing to the public collectively" (the
body politic), and the "duty owing to particular individuals, thus:

1. Of Duties to the Public. - The first of these classes embraces those officers whose duty is
owing primarily to the public collectively --- to the body politic --- and not to any particular
individual; who act for the public at large, and who are ordinarily paid out of the public treasury.

The officers whose duties fall wholly or partially within this class are numerous and the
distinction will be readily recognized. Thus, the governor owes a duty to the public to see that
the laws are properly executed, that fit and competent officials are appointed by him, that
unworthy and ill-considered acts of the legislature do not receive his approval, but these, and
many others of a like nature, are duties which he owes to the public at large and no one
individual could single himself out and assert that they were duties owing to him alone. So,
members of the legislature owe a duty to the public to pass only wise and proper laws, but no
one person could pretend that the duty was owing to himself rather than to another. Highway
commissioners owe a duty that they will be governed only by considerations of the public good
in deciding upon the opening or closing of highways, but it is not a duty to any particular
individual of the community.

These illustrations might be greatly extended, but it is believed that they are sufficient to define
the general doctrine.

2. Of Duties to Individuals. - The second class above referred to includes those who, while they
owe to the public the general duty of a proper administration of their respective offices, yet
become, by reason of their employment by a particular individual to do some act for him in an
official capacity, under a special and particular obligation to him as an individual. They serve
individuals chiefly and usually receive their compensation from fees paid by each individual who
employs them.

A sheriff or constable in serving civil process for a private suitor, a recorder of deeds in recording
the deed or mortgage of an individual, a clerk of court in entering up a private judgment, a
notary public in protesting negotiable paper, an inspector of elections in passing upon the
qualifications of an elector, each owes a general duty of official good conduct to the public, but
he is also under a special duty to the particular individual concerned which gives the latter a
peculiar interest in his due performance.12

In determining whether a public officer is liable for an improper performance or non-performance of a

duty, it must first be determined which of the two classes of duties is involved. For, indeed, as the
eminent Floyd R. Mechem instructs, "[t]he liability of a public officer to an individual or the public is
based upon and is co-extensive with his duty to the individual or the public. If to the one or the other he
owes no duty, to that one he can incur no liability."13

Stated differently, when what is involved is a "duty owing to the public in general", an individual cannot
have a cause of action for damages against the public officer, even though he may have been injured by
the action or inaction of the officer. In such a case, there is damage to the individual but no wrong to
him. In performing or failing to perform a public duty, the officer has touched his interest to his
prejudice; but the officer owes no duty to him as an individual.14 The remedy in this case is not judicial
but political.15

The exception to this rule occurs when the complaining individual suffers a particular or special injury on
account of the public officer's improper performance or non-performance of his public duty. An
individual can never be suffered to sue for an injury which, technically, is one to the public only; he must
show a wrong which he specially suffers, and damage alone does not constitute a wrong.16 A contrary
precept (that an individual, in the absence of a special and peculiar injury, can still institute an action
against a public officer on account of an improper performance or non-performance of a duty owing to
the public generally) will lead to a deluge of suits, for if one man might have an action, all men might
have the like-the complaining individual has no better right than anybody else.17 If such were the case,
no one will serve a public office. Thus, the rule restated is that an individual cannot have a particular
action against a public officer without a particular injury, or a particular right, which are the grounds
upon which all actions are founded.18

Juxtaposed with Article 3219 of the Civil Code, the principle may now translate into the rule that an
individual can hold a public officer personally liable for damages on account of an act or omission that
violates a constitutional right only if it results in a particular wrong or injury to the former. This is
consistent with this Court's pronouncement in its June 19, 2007 Decision (subject of petitioner's motion
for reconsideration) that Article 32, in fact, allows a damage suit for "tort for impairment of rights and
liberties."20

It may be recalled that in tort law, for a plaintiff to maintain an action for damages for the injuries of
which he complains, he must establish that such injuries resulted from a breach of duty which the
defendant owed the plaintiff, meaning a concurrence of injury to the plaintiff and legal responsibility by
the person causing it. Indeed, central to an award of tort damages is the premise that an individual was
injured in contemplation of law.21 Thus, in Lim v. Ponce de Leon,22 we granted the petitioner's claim for
damages because he, in fact, suffered the loss of his motor launch due to the illegal seizure thereof.
In Cojuangco, Jr. v. Court of Appeals,23 we upheld the right of petitioner to the recovery of damages as
there was an injury sustained by him on account of the illegal withholding of his horserace prize
winnings.

In the instant case, what is involved is a public officer's duty owing to the public in general. The
petitioner, as the then Commissioner of the Bureau of Internal Revenue, is being taken to task for
Revenue Memorandum Circular (RMC) No. 37-93 which she issued without the requisite notice, hearing
and publication, and which, in Commissioner of Internal Revenue v. Court of Appeals,24 we declared as
having "fallen short of a valid and effective administrative issuance."25 A public officer, such as the
petitioner, vested with quasi-legislative or rule-making power, owes a duty to the public to promulgate
rules which are compliant with the requirements of valid administrative regulations. But it is a duty
owed not to the respondent alone, but to the entire body politic who would be affected, directly or
indirectly, by the administrative rule.

Furthermore, as discussed above, to have a cause of action for damages against the petitioner,
respondent must allege that it suffered a particular or special injury on account of the non-performance
by petitioner of the public duty. A careful reading of the complaint filed with the trial court reveals
that no particular injury is alleged to have been sustained by the respondent. The phrase "financial and
business difficulties"26 mentioned in the complaint is a vague notion, ambiguous in concept, and cannot
translate into a "particular injury." In contrast, the facts of the case eloquently demonstrate that the
petitioner took nothing from the respondent, as the latter did not pay a single centavo on the tax
assessment levied by the former by virtue of RMC 37-93.

With no "particular injury" alleged in the complaint, there is, therefore, no delict or wrongful act or
omission attributable to the petitioner that would violate the primary rights of the respondent. Without
such delict or tortious act or omission, the complaint then fails to state a cause of action, because a
cause of action is the act or omission by which a party violates a right of another.27

A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or is created; (2) an obligation on the part of the
named defendant to respect or not to violate such right; and (3) an act or omission on the part of such
defendant violative of the right of the plaintiff or constituting a breach of the obligation of defendant to
plaintiff for which the latter may maintain an action for recovery of damages.28

The remedy of a party whenever the complaint does not allege a cause of action is to set up this defense
in a motion to dismiss, or in the answer. A motion to dismiss based on the failure to state a cause of
action in the complaint hypothetically admits the truth of the facts alleged therein. However, the
hypothetical admission is limited to the "relevant and material facts well-pleaded in the complaint and
inferences deducible therefrom. The admission does not extend to conclusions or interpretations of law;
nor does it cover allegations of fact the falsity of which is subject to judicial notice."29

The complaint may also be dismissed for lack of cause of action if it is obvious from the complaint and its
annexes that the plaintiff is not entitled to any relief.30

The June 19, 2007 Decision and the dissent herein reiterates that under Article 32 of the Civil Code, the
liability of the public officer may accrue even if he/she acted in good faith, as long as there is a violation
of constitutional rights, citing Cojuangco, Jr. v. Court of Appeals,31 where we said:

Under the aforecited article, it is not necessary that the public officer acted with malice or bad faith. To
be liable, it is enough that there was a violation of the constitutional rights of petitioners, even on the
pretext of justifiable motives or good faith in the performance of duties.32

The complaint in this case does not impute bad faith on the petitioner. Without any allegation of bad
faith, the cause of action in the respondent's complaint (specifically, paragraph 2.02 thereof) for
damages under Article 32 of the Civil Code would be premised on the findings of this Court
in Commissioner of Internal Revenue v. Court of Appeals (CIR v. CA),33 where we ruled that RMC No. 37-
93, issued by petitioner in her capacity as Commissioner of Internal Revenue, had "fallen short of a valid
and effective administrative issuance." This is a logical inference. Without the decision in CIR v. CA, the
bare allegations in the complaint that respondent's rights to due process of law and to equal protection
of the laws were violated by the petitioner's administrative issuance would be conclusions of law, hence
not hypothetically admitted by petitioner in her motion to dismiss.

But in CIR v. CA, this Court did not declare RMC 37-93 unconstitutional; certainly not from either the due
process of law or equal protection of the laws perspective. On due process, the majority, after
determining that RMC 37-93 was a legislative rule, cited an earlier Revenue Memorandum Circular (RMC
No. 10-86) requiring prior notice before RMC's could become "operative." However, this Court did not
make an express finding of violation of the right to due process of law. On the aspect of equal
protection, CIR v. CA said: "Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of
taxation;" a statement that does not amount to a positive indictment of petitioner for violation of
respondent's constitutional right. Even if one were to ascribe a constitutional infringement by RMC 37-
93 on the non-uniformity of tax provisions, the nature of the constitutional transgression falls under
Section 28, Article VI-not Section 1, Article III-of the Constitution.

This Court's own summation in CIR v. CA: "All taken, the Court is convinced that the hastily promulgated
RMC 37-93 has fallen short of a valid and effective administrative issuance," does not lend itself to an
interpretation that the RMC is unconstitutional. Thus, the complaint's reliance on CIR v. CA-which is
cited in, and a copy of which is annexed to, the complaint-as suggestive of a violation of due process and
equal protection, must fail.

Accordingly, from the foregoing discussion, it is obvious that paragraph 2.02 of respondent's complaint
loses the needed crutch to sustain a valid cause of action against the petitioner, for what is left of the
paragraph is merely the allegation that only respondent's "Champion", "Hope" and "More" cigarettes
were reclassified.

If we divest the complaint of its reliance on CIR v. CA, what remains of respondent's cause of action for
violation of constitutional rights would be paragraph 2.01, which reads:

2.01. On or about July 1, 1993, defendant issued Revenue Memorandum Circular No. 37-93
(hereinafter referred to as RMC No. 37-93) reclassifying specifically "Champion", "Hope" and
"More" as locally manufactured cigarettes bearing a foreign brand. A copy of the aforesaid
circular is attached hereto and made an integral part hereof as ANNEX "A". The issuance of a
circular and its implementation resulted in the "deprivation of property" of plaintiff. They were
done without due process of law and in violation of the right of plaintiff to the equal protection
of the laws. (Italics supplied.)

But, as intimated above, the bare allegations, "done without due process of law" and "in violation of the
right of plaintiff to the equal protection of the laws" are conclusions of law. They are not hypothetically
admitted in petitioner's motion to dismiss and, for purposes of the motion to dismiss, are not deemed
as facts.

In Fluor Daniel, Inc. Philippines v. EB. Villarosa & Partners Co., Ltd.,34 this Court declared that the test of
sufficiency of facts alleged in the complaint as constituting a cause of action is whether or not, admitting
the facts alleged, the court could render a valid verdict in accordance with the prayer of the complaint.
In the instant case, since what remains of the complaint which is hypothetically admitted, is only the
allegation on the reclassification of respondent's cigarettes, there will not be enough facts for the court
to render a valid judgment according to the prayer in the complaint.

Furthermore, in an action for damages under Article 32 of the Civil Code premised on violation of due
process, it may be necessary to harmonize the Civil Code provision with subsequent legislative
enactments, particularly those related to taxation and tax collection. Judicial notice may be taken of the
provisions of the National Internal Revenue Code, as amended, and of the law creating the Court of Tax
Appeals. Both statutes provide ample remedies to aggrieved taxpayers; remedies which, in fact, were
availed of by the respondent-without even having to pay the assessment under protest-as recounted by
this Court in CIR v. CA, viz.:

In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune Tobacco
requested for a review, reconsideration and recall of RMC 37-93. The request was denied on 29
July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune Tobacco for ad
valorem tax deficiency amounting to P9,598,334.00.

On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA.35

The availability of the remedies against the assailed administrative action, the opportunity to avail of the
same, and actual recourse to these remedies, contradict the respondent's claim of due process
infringement.

At this point, a brief examination of relevant American jurisprudence may be instructive.

42 U.S. Code 1983, a provision incorporated into the Civil Rights Act of 1871, presents a parallel to our
own Article 32 of the Civil Code, as it states:

Every person who, under color of any statute, ordinance, regulation, custom, usage, or any State
or Territory, subjects, or causes to be subjected, any citizen of the United States or other person
within the jurisdiction thereof to the deprivation of any rights, privileges or immunities secured
by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity
or other proper proceeding for redress.

This provision has been employed as the basis of tort suits by many petitioners intending to win liability
cases against government officials when they violate the constitutional rights of citizens.

Webster Bivens v. Six Unknown Named Agents of Federal Bureau of Investigation,36 has emerged as the
leading case on the victim's entitlement to recover money damages for any injuries suffered as a result
of flagrant and unconstitutional abuses of administrative power. In this case, federal narcotics officers
broke into Bivens' home at 6:30 a.m. without a search warrant and in the absence of probable cause.
The agents handcuffed Bivens, searched his premises, employed excessive force, threatened to arrest
his family, subjected him to a visual strip search in the federal court house, fingerprinted, photographed,
interrogated and booked him. When Bivens was brought before a United States Commissioner,
however, charges against him were dismissed. On the issue of whether violation of the Fourth
Amendment "by a federal agent acting under color of authority gives rise to a cause of action for
damages consequent upon his constitutional conduct," the U.S. Supreme Court held that Bivens is
entitled to recover damages for injuries he suffered as a result of the agents' violation of the Fourth
Amendment.

A number of subsequent decisions have upheld Bivens. For instance, in Scheuer v. Rhodes,37 a liability
suit for money damages was allowed against Ohio Governor James Rhodes by petitioners who
represented three students who had been killed by Ohio National Guard troops at Kent State University
as they protested against U.S. involvement in Vietnam. In Wood v. Strickland,38 local school board
members were sued by high school students who argued that they had been deprived of constitutional
due process rights when they were expelled from school for having spiked a punch bowl at a school
function without the benefit of a full hearing. In Butz v. Economou,39 Economou, whose registration
privilege as a commodities futures trader was suspended, without prior warning, by Secretary of
Agriculture Earl Butz, sued on a Bivens action, alleging that the suspension was aimed at "chilling" his
freedom of expression right under the First Amendment. A number of other cases40 with virtually the
same conclusion followed.

However, it is extremely dubious whether a Bivens action against government tax officials and
employees may prosper, if we consider the pronouncement of the U.S. Supreme Court in Schweiker v.
Chilicky,41 that a Bivens remedy will not be allowed when other "meaningful safeguards or remedies for
the rights of persons situated as (is the plaintiff)" are available. It has also been held that a Bivens action
is not appropriate in the civil service system42 or in the military justice system.43

In Frank Vennes v. An Unknown Number of Unidentified Agents of the United States of

America,44 petitioner Vennes instituted a Bivens action against agents of the Internal Revenue Service
(IRS) who alleged that he (Vennes) owed $250,000 in tax liability, instituted a jeopardy assessment,
confiscated Vennes' business, forced a total asset sale, and put Vennes out of business, when in fact he
owed not a dime. The U.S. Court of Appeals, Eighth Circuit, ruled:

The district court dismissed these claims on the ground that a taxpayer's remedies under the
Internal Revenue Code preclude such a Bivens action. Vennes cites to us no contrary authority,
and we have found none. Though the Supreme Court has not addressed this precise question, it
has strongly suggested that the district court correctly applied Bivens:

When the design of a Government program suggests that Congress has provided what it
considers adequate remedial mechanisms for constitutional violations that may occur in
the course of its administration, we have not created additional Bivens remedies.

xxxx

Congress has provided specific and meaningful remedies for taxpayers who challenge
overzealous tax assessment and collection activities. A taxpayer may challenge a jeopardy
assessment both administratively and judicially, and may sue the government for a tax refund,
and have authorized taxpayer actions against the United States to recover limited damages
resulting from specific types of misconduct by IRS employees. These carefully crafted legislative
remedies confirm that, in the politically sensitive realm of taxation, Congress's refusal to permit
unrestricted damage action by taxpayers has not been inadvertent. Thus, the district court
correctly dismissed Vennes's Bivens claims against IRS agents for their tax assessment and
collection activities.
In still another Bivens action, instituted by a taxpayer against IRS employees for alleged violation of due
process rights concerning a tax dispute, the U.S. District Court of Minnesota said:

In addition, the (Tax) Code provides taxpayers with remedies, judicial and otherwise, for
correcting and redressing wrongful acts taken by IRS employees in connection with any
collection activities. Although these provisions do not provide taxpayers with an all-
encompassing remedy for wrongful acts of IRS personnel, the rights established under the Code
illustrate that it provides all sorts of rights against the overzealous officialdom, including, most
fundamentally, the right to sue the government for a refund if forced to overpay taxes, and it
would make the collection of taxes chaotic if a taxpayer could bypass the remedies provided by
Congress simply by bringing a damage suit against IRS employees.45

American jurisprudence obviously validates the contention of the petitioner.

Finally, we invite attention to Section 227, Republic Act No. 8424 (Tax Reform Act of 1997), which
provides:

Section 227. Satisfaction of Judgment Recovered Against any Internal Revenue Officer. - When
an action is brought against any Internal Revenue officer to recover damages by reason of any
act done in the performance of official duty, and the Commissioner is notified of such action in
time to make defense against the same, through the Solicitor General, any judgment, damages
or costs recovered in such action shall be satisfied by the Commissioner, upon approval of the
Secretary of Finance, or if the same be paid by the person sued shall be repaid or reimbursed to
him.

No such judgment, damages or costs shall be paid or reimbursed in behalf of a person who has
acted negligently or in bad faith, or with willful oppression.

Because the respondent's complaint does not impute negligence or bad faith to the petitioner, any
money judgment by the trial court against her will have to be assumed by the Republic of the
Philippines. As such, the complaint is in the nature of a suit against the State.46

WHEREFORE, premises considered, we GRANT petitioner's motion for reconsideration of the June 19,
2007 Decision and DENY respondent's motion for reconsideration of the June 25, 2008 Resolution. Civil
Case No. CV-97-341-MK, pending with the Regional Trial Court of Marikina City, is DISMISSED.

SO ORDERED.
 ➢ Department of Health v. Philippine Pharmawealth [G.R. No. 182358,
February 20, 2013]

G.R. No. 182358 February 20, 2013

DEPARTMENT OF HEALTH, THE SECRETARY OF HEALTH, and MA. MARGARITA M. GALON, Petitioners,
vs.
PHIL PHARMA WEALTH, INC., Respondent.

DECISION

DEL CASTILLO, J.:

The state may not be sued without its consent. Likewise, public officials may not be sued for acts done in
the perfom1ance of their official functions or within the scope of their authority.

This Petition for Review on Certiorari1 assails the October 25, 2007 Decision2 of the Court of Appeals
(CA) in CA-G.R. CV No. 85670, and its March 31, 2008 Reso1ution3 denying petitioners' Motion for
Reconsideration.4

Factual Antecedents

On December 22, 1998, Administrative Order (AO) No. 27 series of 19985 was issued by then
Department of Health (DOH) Secretary Alfredo G. Romualdez (Romualdez). AO 27 set the guidelines and
procedure for accreditation of government suppliers of pharmaceutical products for sale or distribution
to the public, such accreditation to be valid for three years but subject to annual review.

On January 25, 2000, Secretary Romualdez issued AO 10 series of 20006 which amended AO 27. Under
Section VII7 of AO 10, the accreditation period for government suppliers of pharmaceutical products was
reduced to two years. Moreover, such accreditation may be recalled, suspended or revoked after due
deliberation and proper notice by the DOH Accreditation Committee, through its Chairman.

Section VII of AO 10 was later amended by AO 66 series of 2000,8 which provided that the two-year
accreditation period may be recalled, suspended or revoked only after due deliberation, hearing and
notice by the DOH Accreditation Committee, through its Chairman.

On August 28, 2000, the DOH issued Memorandum No. 171-C9 which provided for a list and category of
sanctions to be imposed on accredited government suppliers of pharmaceutical products in case of
adverse findings regarding their products (e.g. substandard, fake, or misbranded) or violations
committed by them during their accreditation.

In line with Memorandum No. 171-C, the DOH, through former Undersecretary Ma. Margarita M. Galon
(Galon), issued Memorandum No. 209 series of 2000,10 inviting representatives of 24 accredited drug
companies, including herein respondent Phil Pharmawealth, Inc. (PPI) to a meeting on October 27, 2000.
During the meeting, Undersecretary Galon handed them copies of a document entitled "Report on
Violative Products"11 issued by the Bureau of Food and Drugs12 (BFAD), which detailed violations or
adverse findings relative to these accredited drug companies’ products. Specifically, the BFAD found that
PPI’s products which were being sold to the public were unfit for human consumption.

During the October 27, 2000 meeting, the 24 drug companies were directed to submit within 10 days, or
until November 6, 2000, their respective explanations on the adverse findings covering their respective
products contained in the Report on Violative Products.

Instead of submitting its written explanation within the 10-day period as required, PPI belatedly sent a
letter13 dated November 13, 2000 addressed to Undersecretary Galon, informing her that PPI has
referred the Report on Violative Products to its lawyers with instructions to prepare the corresponding
reply. However, PPI did not indicate when its reply would be submitted; nor did it seek an extension of
the 10-day period, which had previously expired on November 6, 2000, much less offer any explanation
for its failure to timely submit its reply. PPI’s November 13, 2000 letter states:

Madam,

This refers to your directive on 27 October 2000, on the occasion of the meeting with selected
accredited suppliers, during which you made known to the attendees of your requirement for them to
submit their individual comments on the Report on Violative Products (the "Report") compiled by your
office and disseminated on that date.

In this connection, we inform you that we have already instructed our lawyers to prepare on our behalf
the appropriate reply to the Report furnished to us. Our lawyers in time shall revert to you and furnish
you the said reply.

Please be guided accordingly.

Very truly yours,

(signed)
ATTY. ALAN A.B. ALAMBRA

Vice-President for Legal and Administrative Affairs14

In a letter-reply15 dated November 23, 2000 Undersecretary Galon found "untenable" PPI’s November
13, 2000 letter and therein informed PPI that, effective immediately, its accreditation has been
suspended for two years pursuant to AO 10 and Memorandum No. 171-C.

In another December 14, 2000 letter16 addressed to Undersecretary Galon, PPI through counsel
questioned the suspension of its accreditation, saying that the same was made pursuant to Section VII of
AO 10 which it claimed was patently illegal and null and void because it arrogated unto the DOH
Accreditation Committee powers and functions which were granted to the BFAD under Republic Act
(RA) No. 372017 and Executive Order (EO) No. 175.18 PPI added that its accreditation was suspended
without the benefit of notice and hearing, in violation of its right to substantive and administrative due
process. It thus demanded that the DOH desist from implementing the suspension of its accreditation,
under pain of legal redress.
On December 28, 2000, PPI filed before the Regional Trial Court of Pasig City a Complaint19 seeking to
declare null and void certain DOH administrative issuances, with prayer for damages and injunction
against the DOH, former Secretary Romualdez and DOH Undersecretary Galon. Docketed as Civil Case
No. 68200, the case was raffled to Branch 160. On February 8, 2002, PPI filed an Amended and
Supplemental Complaint,20 this time impleading DOH Secretary Manuel Dayrit (Dayrit). PPI claimed that
AO 10, Memorandum No. 171-C, Undersecretary Galon’s suspension order contained in her November
23, 2000 letter, and AO 14 series of 200121 are null and void for being in contravention of Section 26(d)
of RA 3720 as amended by EO 175, which states as follows:

SEC. 26. x x x

(d) When it appears to the Director [of the BFAD] that the report of the Bureau that any article of food
or any drug, device, or cosmetic secured pursuant to Section twenty-eight of this Act is adulterated,
misbranded, or not registered, he shall cause notice thereof to be given to the person or persons
concerned and such person or persons shall be given an opportunity to be heard before the Bureau and
to submit evidence impeaching the correctness of the finding or charge in question.

For what it claims was an undue suspension of its accreditation, PPI prayed that AO 10, Memorandum
No. 171-C, Undersecretary Galon’s suspension order contained in her November 23, 2000 letter, and AO
14 be declared null and void, and that it be awarded moral damages of ₱5 million, exemplary damages
of ₱1 million, attorney’s fees of ₱1 million, and costs of suit. PPI likewise prayed for the issuance of
temporary and permanent injunctive relief.

In their Amended Answer,22 the DOH, former Secretary Romualdez, then Secretary Dayrit, and
Undersecretary Galon sought the dismissal of the Complaint, stressing that PPI’s accreditation was
suspended because most of the drugs it was importing and distributing/selling to the public were found
by the BFAD to be substandard for human consumption. They added that the DOH is primarily
responsible for the formulation, planning, implementation, and coordination of policies and programs in
the field of health; it is vested with the comprehensive power to make essential health services and
goods available to the people, including accreditation of drug suppliers and regulation of importation
and distribution of basic medicines for the public.

Petitioners added that, contrary to PPI’s claim, it was given the opportunity to present its side within the
10-day period or until November 6, 2000, but it failed to submit the required comment/reply. Instead, it
belatedly submitted a November 13, 2000 letter which did not even constitute a reply, as it merely
informed petitioners that the matter had been referred by PPI to its lawyer. Petitioners argued that due
process was afforded PPI, but because it did not timely avail of the opportunity to explain its side, the
DOH had to act immediately – by suspending PPI’s accreditation – to stop the distribution and sale of
substandard drug products which posed a serious health risk to the public. By exercising DOH’s mandate
to promote health, it cannot be said that petitioners committed grave abuse of discretion.

In a January 8, 2001 Order,23 the trial court partially granted PPI’s prayer for a temporary restraining
order, but only covering PPI’s products which were not included in the list of violative products or drugs
as found by the BFAD.

In a Manifestation and Motion24 dated July 8, 2003, petitioners moved for the dismissal of Civil Case No.
68200, claiming that the case was one against the State; that the Complaint was improperly verified;
and lack of authority of the corporate officer to commence the suit, as the requisite resolution of PPI’s
board of directors granting to the commencing officer – PPI’s Vice President for Legal and Administrative
Affairs, Alan Alambra, – the authority to file Civil Case No. 68200 was lacking. To this, PPI filed its
Comment/Opposition.25

Ruling of the Regional Trial Court

In a June 14, 2004 Order,26 the trial court dismissed Civil Case No. 68200, declaring the case to be one
instituted against the State, in which case the principle of state immunity from suit is applicable.

PPI moved for reconsideration,27 but the trial court remained steadfast.28

PPI appealed to the CA.

Ruling of the Court of Appeals

Docketed as CA-G.R. CV No. 85670, PPI’s appeal centered on the issue of whether it was proper for the
trial court to dismiss Civil Case No. 68200.

The CA, in the herein assailed Decision,29 reversed the trial court ruling and ordered the remand of the
case for the conduct of further proceedings. The CA concluded that it was premature for the trial court
to have dismissed the Complaint. Examining the Complaint, the CA found that a cause of action was
sufficiently alleged – that due to defendants’ (petitioners’) acts which were beyond the scope of their
authority, PPI’s accreditation as a government supplier of pharmaceutical products was suspended
without the required notice and hearing as required by Section 26(d) of RA 3720 as amended by EO 175.
Moreover, the CA held that by filing a motion to dismiss, petitioners were deemed to have
hypothetically admitted the allegations in the Complaint – which state that petitioners were being sued
in their individual and personal capacities – thus negating their claim that Civil Case No. 68200 is an
unauthorized suit against the State.

The CA further held that instead of dismissing the case, the trial court should have deferred the hearing
and resolution of the motion to dismiss and proceeded to trial. It added that it was apparent from the
Complaint that petitioners were being sued in their private and personal capacities for acts done beyond
the scope of their official functions. Thus, the issue of whether the suit is against the State could best be
threshed out during trial on the merits, rather than in proceedings covering a motion to dismiss.

The dispositive portion of the CA Decision reads:

WHEREFORE, the appeal is hereby GRANTED. The Order dated June 14, 2004 of the Regional Trial Court
of Pasig City, Branch 160, is hereby REVERSED and SET-ASIDE. ACCORDINGLY, this case is REMANDED to
the trial court for further proceedings.

SO ORDERED.30

Petitioners sought, but failed, to obtain a reconsideration of the Decision. Hence, they filed the present
Petition.
 Issue

Petitioners now raise the following lone issue for the Court’s resolution:

Should Civil Case No. 68200 be dismissed for being a suit against the State?31

Petitioners’ Arguments

Petitioners submit that because PPI’s Complaint prays for the award of damages against the DOH, Civil
Case No. 68200 should be considered a suit against the State, for it would require the appropriation of
the needed amount to satisfy PPI’s claim, should it win the case. Since the State did not give its consent
to be sued, Civil Case No. 68200 must be dismissed. They add that in issuing and implementing the
questioned issuances, individual petitioners acted officially and within their authority, for which reason
they should not be held to account individually.

Respondent’s Arguments

Apart from echoing the pronouncement of the CA, respondent insists that Civil Case No. 68200 is a suit
against the petitioners in their personal capacity for acts committed outside the scope of their authority.

Our Ruling

The Petition is granted.

The doctrine of non-suability.

The discussion of this Court in Department of Agriculture v. National Labor Relations Commission32 on
the doctrine of non-suability is enlightening.

The basic postulate enshrined in the constitution that ‘(t)he State may not be sued without its consent,’
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. It is based on the
very essence of sovereignty. x x x [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. 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 nonsuability. 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.

The rule, in any case, is not really absolute for it does not say that the state may not be sued under any
circumstance. 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. The State’s
consent may be given either expressly or impliedly. Express consent may be made through a general law
or a special law. x x x Implied consent, on the other hand, is conceded when the State itself commences
litigation, thus opening itself to a counterclaim or when it enters into a contract. 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, x x x 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.33

As a general rule, a state may not be sued. However, if it consents, either expressly or impliedly, then it
may be the subject of a suit.34 There is express consent when a law, either special or general, so
provides. On the other hand, there is implied consent when the state "enters into a contract or it itself
commences litigation."35 However, it must be clarified that when a state enters into a contract, it does
not automatically mean that it has waived its non-suability. 36 The State "will be deemed to have
impliedly waived its non-suability [only] if it has entered into a contract in its proprietary or private
capacity. [However,] when the contract involves its sovereign or governmental capacity[,] x x x no such
waiver may be implied."37 "Statutory provisions waiving [s]tate immunity are construed in strictissimi
juris. For, waiver of immunity is in derogation of sovereignty."38

The DOH can validly invoke state immunity.

a) DOH is an unincorporated agency which performs sovereign or governmental functions.

In this case, the DOH, being an "unincorporated agency of the government"39 can validly invoke the
defense of immunity from suit because it has not consented, either expressly or impliedly, to be sued.
Significantly, the DOH is an unincorporated agency which performs functions of governmental character.

The ruling in Air Transportation Office v. Ramos40 is relevant, viz:

An unincorporated government agency without any separate juridical personality of its own enjoys
immunity from suit because it is invested with an inherent power of sovereignty. Accordingly, a claim for
damages against the agency cannot prosper; otherwise, the doctrine of sovereign immunity is violated.
However, the need to distinguish between an unincorporated government agency performing
governmental function and one performing proprietary functions has arisen. The immunity has been
upheld in favor of the former because its function is governmental or incidental to such function; it has
not been upheld in favor of the latter whose function was not in pursuit of a necessary function of
government but was essentially a business.41

b) The Complaint seeks to hold the DOH solidarily and jointly liable with the other defendants for
damages which constitutes a charge or financial liability against the state.

Moreover, it is settled that if a Complaint seeks to "impose a charge or financial liability against the
state,"42 the defense of non-suability may be properly invoked. In this case, PPI specifically prayed, in its
Complaint and Amended and Supplemental Complaint, for the DOH, together with Secretaries
Romualdez and Dayrit as well as Undersecretary Galon, to be held jointly and severally liable for moral
damages, exemplary damages, attorney’s fees and costs of suit.43 Undoubtedly, in the event that PPI
succeeds in its suit, the government or the state through the DOH would become vulnerable to an
imposition or financial charge in the form of damages. This would require an appropriation from the
national treasury which is precisely the situation which the doctrine of state immunity aims to protect
the state from.

The mantle of non-suability extends to complaints filed against public officials for acts done in the
performance of their official functions.

As regards the other petitioners, to wit, Secretaries Romualdez and Dayrit, and Undersecretary Galon, it
must be stressed that the doctrine of state immunity extends its protective mantle also to complaints
filed against state officials for acts done in the discharge and performance of their duties.44 "The
suability of a government official depends on whether the official concerned was acting within his
official or jurisdictional capacity, and whether the acts done in the performance of official functions will
result in a charge or financial liability against the government."45 Otherwise stated, "public officials can
be held personally accountable for acts claimed to have been performed in connection with official
duties where they have acted ultra vires or where there is showing of bad faith."46 Moreover, "[t]he 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 x x x. In such a situation, the state may move to
dismiss the [C]omplaint on the ground that it has been filed without its consent." 47

It is beyond doubt that the acts imputed against Secretaries Romualdez and Dayrit, as well as
Undersecretary Galon, were done while in the performance and discharge of their official functions or in
their official capacities, and not in their personal or individual capacities. Secretaries Romualdez and
Dayrit were being charged with the issuance of the assailed orders. On the other hand, Undersecretary
Galon was being charged with implementing the assailed issuances. By no stretch of imagination could
the same be categorized as ultra vires simply because the said acts are well within the scope of their
authority. Section 4 of RA 3720 specifically provides that the BFAD is an office under the Office of the
Health Secretary. Also, the Health Secretary is authorized to issue rules and regulations as may be
necessary to effectively enforce the provisions of RA 3720.48 As regards Undersecretary Galon, she is
authorized by law to supervise the offices under the DOH’s authority,49 such as the BFAD. Moreover,
there was also no showing of bad faith on their part. The assailed issuances were not directed only
against PPI. The suspension of PPI’s accreditation only came about after it failed to submit its comment
as directed by Undersecretary Galon. It is also beyond dispute that if found wanting, a financial charge
will be imposed upon them which will require an appropriation from the state of the needed amount.
Thus, based on the foregoing considerations, the Complaint against them should likewise be dismissed
for being a suit against the state which absolutely did not give its consent to be sued. Based on the
foregoing considerations, and regardless of the merits of PPI’s case, this case deserves a dismissal.
Evidently, the very foundation of Civil Case No. 68200 has crumbled at this initial juncture.

PPI was not denied due process.

However, we cannot end without a discussion of PPI’s contention that it was denied due process when
its accreditation was suspended "without due notice and hearing." It is undisputed that during the
October 27, 2000 meeting, Undersecretary Galon directed representatives of pharmaceutical
companies, PPI included, to submit their comment and/or reactions to the Report on Violative Products
furnished them within a period of 10 days. PPI, instead of submitting its comment or explanation, wrote
a letter addressed to Undersecretary Galon informing her that the matter had already been referred to
its lawyer for the drafting of an appropriate reply. Aside from the fact that the said letter was belatedly
submitted, it also failed to specifically mention when such reply would be forthcoming. Finding the
foregoing explanation to be unmeritorious, Undersecretary Galon ordered the suspension of PPI’s
accreditation for two years. Clearly these facts show that PPI was not denied due process. It was given
the opportunity to explain its side. Prior to the suspension of its accreditation, PPI had the chance to
rebut, explain, or comment on the findings contained in the Report on Violative Products that several of
PPI’s products are not fit for human consumption. However, PPI squandered its opportunity to explain.
Instead of complying with the directive of the DOH Undersecretary within the time allotted, it instead
haughtily informed Undersecretary Galon that the matter had been referred to its lawyers. Worse, it
impliedly told Undersecretary Galon to just wait until its lawyers shall have prepared the appropriate
reply. PPI however failed to mention when it will submit its "appropriate reply" or how long
Undersecretary Galon should wait. In the meantime, PPI’s drugs which are included in the Report on
Violative Products are out and being sold in the market. Based on the foregoing, we find PPI’s
contention of denial of due process totally unfair and absolutely lacking in basis. At this juncture, it
would be trite to mention that "[t]he essence of due process in administrative proceedings is the
opportunity to explain one’s side or seek a reconsideration of the action or ruling complained of. As long
as the parties are given the opportunity to be heard before judgment is rendered, the demands of due
process are sufficiently met. What is offensive to due process is the denial of the opportunity to be
heard. The Court has repeatedly stressed that parties who chose not to avail themselves of the
opportunity to answer charges against them cannot complain of a denial of due process."50

Incidentally, we find it inieresting that in the earlier case of Department q( Health v. Phil Pharmawealth,
Inc. 51 respondent filed a Complaint against DOH anchored on the same issuances which it assails in the
present case. In the earlier case of Department of Health v. Phil Pharmawealth, Jnc., 52 PPI submitted to
the DOH a request for the inclusion of its products in the list of accredited drugs as required by AO 27
series of 1998 which was later amended by AO 10 series of 2000. In the instant case, however, PPI
interestingly claims that these issuances are null and void.

WHEREFORE, premises considered, the Petition is GRANTED. Civil Case No. 68200 is ordered DISMISSED.

SO ORDERED.

➢ Shauf v. Court of Appeals [G.R. No. 90314 November 27, 1990]

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.

➢ Wylie v. Rarang [G.R. No. 74135, May 28, 1992]

[G.R. No. 74135. May 28, 1992.]

M. H. WYLIE and CAPT. JAMES WILLIAMS, Petitioners, v. AURORA I. RARANG and THE HONORABLE
INTERMEDIATE APPELLATE COURT, Respondents.
DECISION
GUTIERREZ, JR., J.:

The pivotal issue in this petition centers on the extent of the "immunity from suit" of the officials of a
United States Naval Base inside Philippine territory.

In February, 1978, petitioner M. H. Wylie was the assistant administrative officer while petitioner Capt.
James Williams was the commanding officer of the U. S. Naval Base in Subic Bay, Olongapo City. Private
respondent Aurora I. Rarang was an employee in the Office of the Provost Marshal assigned as
merchandise control guard.

M. H. Wylie, in his capacity as assistant administrative officer of the U.S. Naval Station supervised the
publication of the "Plan of the Day" (POD) which was published daily the US Naval Base station. The POD
featured important announcements, necessary precautions, and general matters of interest to military
personnel. One of the regular features of the POD was the "action line inquiry." On February 3, 1978,
the POD published, under the "NAVSTA ACTION LINE INQUIRY" the following:jgc:chanrobles.com.ph

"Question: I have observed that Merchandise Control inspector/inspectress are (sic) consuming for their
own benefit things they have confiscate from Base Personnel. The observation is even more aggravated
by consuming such confiscated items as cigarettes and food stuffs PUBLICLY. This is not to mention
‘Auring’ who is in herself, a disgrace to her division and to the Office of the Provost Marshal. In lieu of
this observation, may I therefore, ask if the head of the Merchandise Control Division is aware of this
malpractice?chanrobles.com : virtual law library

Answer: Merchandise Control Guards and all other personnel are prohibited from appropriating
confiscated items for their own consumption or use. Two locked containers are installed at the Main
Gate area for deposit of confiscated items and the OPM evidence custodian controls access to these
containers.
Merchandise Control Guards are permitted to eat their meals at their worksite due to heavy workload.
Complaints regarding merchandise control guards procedure or actions may be made directly at the
Office of the Provost Marshal for immediate and necessary action. Specific dates and time along with
details of suspected violations would be most appreciated. Telephone 4-3430/4-3234 for further
information or to report noted or suspected irregularities. Exhibits E & E-1." (Rollo, pp. 11-12)

The private respondent was the only one who was named "Auring" in the Office of the Provost Marshal.
That the private respondent was the same "Auring" referred to in the POD was conclusively proven
when on February 7, 1978, petitioner M. H. Wylie wrote her a letter of apology for the "inadvertent"
publication. The private respondent then commenced an action for damages in the Court of First
Instance of Zambales (now Regional Trial Court) against M. H. Wylie, Capt. James Williams and the U. S.
Naval Base. She alleged that the article constituted false, injurious, and malicious defamation and libel
tending to impeach her honesty, virtue and reputation exposing her to public hatred, contempt and
ridicule; and that the libel was published and circulated in the English language and read by almost all
the U. S. Naval Base personnel. She prayed that she be awarded P300,000.00 as moral damages
exemplary damages which the court may find proper; and P50,000.00 as attorney’s fees.

In response to the complaint, the defendants filed a motion to dismiss anchored on three
grounds:chanrobles.com : virtual law library

"1. Defendants M. H. Wylie and Capt. James Williams acted in the performance of their official functions
as officers of the United States Navy and are, therefore, immune from suit;

2. The United States Naval Base is an instrumentality of the US government which cannot be sued
without its consent; and

3. This Court has no jurisdiction over the subject matter as well as the parties in this case." (Record on
Appeal, pp. 133-134)

The motion was, however, denied.

In their answer, the defendants reiterated the lack of jurisdiction of the court over the case.

In its decision, the trial court ruled that the acts of defendants M. H. Wylie and Capt. James Williams
were not official acts of the government of the United States of America in the operation and control of
the Base but personal and tortious acts which are exceptions to the general rule that a sovereign
country cannot be sued in the court of another country without its consent. In short, the trial court ruled
that the acts and omissions of the two US officials were not imputable against the US government but
were done in the individual and personal capacities of the said officials. The trial court dismissed the suit
against the US Naval Base. The dispositive portion of the decision reads as
follows:jgc:chanrobles.com.ph

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants jointly
and severally, as follows:chanrob1es virtual 1aw library

1) Ordering defendants M. H. Wylie and Capt. James Williams to pay the plaintiff Aurora Rarang the sum
of one hundred thousand (100,000.00) pesos by way of moral and exemplary damages;
2) Ordering defendants M. H. Wylie and Capt. James Williams to pay the plaintiff the sum of thirty
thousand (P30,000.00) pesos by way of attorney’s fees and expenses of litigation; and

3) To pay the costs of this suit.

Counterclaims are dismissed.

Likewise, the suit against the U. S. Naval Base is ordered dismissed." (Record on Appeal, p. 154)

On appeal, the petitioners reiterated their stance that they are immune from suit since the subject
publication was made in their official capacities as officers of the U. S. Navy. They also maintained that
they did not intentionally and maliciously cause the questioned publication.cralawnad

The private respondent, not satisfied with the amount of damages awarded to her, also appealed the
trial court’s decision.

Acting on these appeals, the Intermediate Appellate Court, now Court of Appeals, modified the trial
court’s decision, to wit:jgc:chanrobles.com.ph

"WHEREFORE, the judgment of the court below is modified so that the defendants are ordered to pay
the plaintiff, jointly and severally, the sum of P175,000.00 as moral damages and the sum of P60,000.00
as exemplary damages. The rest of the judgment appealed from is hereby affirmed in toto. Costs against
the defendants-appellants." (Rollo, p. 44)

The appellate court denied a motion for reconsideration filed by the petitioners.

Hence, this petition.

In a resolution dated March 9, 1987, we gave due course to the petition.

The petitioner persist that they made the questioned publication in the performance of their official
functions as administrative assistant, in the case of M. H. Wylie, and commanding officer, in the case of
Capt. James Williams of the US Navy assigned to the U. S. Naval Station, Subic Bay, Olongapo City and
were, therefore, immune from suit for their official actions.

In the case of United States of America v. Guinto (182 SCRA 644 [1990]), we discussed the principle of
the state immunity from suit as follows:jgc:chanrobles.com.ph

"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."cralaw virtua1aw library

x x x

Even without such affirmation, we would still be bound by the generally accepted principles of
international law under the doctrine of incorporation. Under this doctrine, as accepted by the majority
of states, such principles are deemed incorporated in the law of every civilized state as a condition and
consequence of its membership in the society of nations. Upon its admission to such society, the state is
automatically obligated to comply with these principles in its relations with other states.

As applied to the local state, the doctrine of state immunity is based on the justification given by Justice
Holmes that ‘there can be no legal right against the authority which makes the law on which the right
depends.’ ((Kawanakoa v. Polybank, 205 U.S. 349) There are other practical reasons for the enforcement
of the doctrine. In the case of the foreign state sought to be impleaded in the local jurisdiction, the
added inhibition is expressed in the maxim par in parem, non habet imperium. All states are sovereign
equals and cannot assert jurisdiction over one another. a contrary disposition would, in the language of
a celebrated case, ‘unduly vex the peace of nations.’ (Da Haber v. Queen of Portugal, 17 Q. B. 171)

While the doctrine appears to prohibit only suits against the state without its consent, it is also
applicable to complaints filed against officials of the state for acts allegedly performed by them in the
discharge of their duties. the rule is that if the judgment against such officials will require the state itself
to perform an affirmative act to satisfy the same, such as the appropriation of the amount needed to
pay the damages awarded against them, the suit must be regarded as against the state itself although it
has not been formally impleaded. (Garcia v. Chief of Staff, 16 SCRA 120) In such a situation, the state
may move to dismiss the complaint on the ground that it has been filed without its consent.

The doctrine is sometimes derisively called ‘the royal prerogative of dishonesty’ because of the privilege
it grants the state to defeat any legitimate claim against it by simply invoking its non-suability. That is
hardly fair, at least in democratic societies, for the state is not an unfeeling tyrant unmoved by the valid
claims of its citizens. In fact, the doctrine is not absolute and does not say the state may not be sued
under any circumstance. On the contrary, the rule says that the state may not be sued without its
consent, which clearly imports that it may be sued if it consents.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph

The consent of the state to be sued may be manifested expressly or impliedly. Express consent may be
embodied in a general law or a special law. Consent is implied when the state enters into a contract it
itself commences litigation.

x x x

The above rules are subject to qualification. Express consent is effected only by the will of the legislature
through the medium of a duly enacted statute. (Republic v. Purisima, 78 SCRA 470) We have held that
not all contracts entered into by the government will operate as a waiver of its non-suability; distinction
must be made between its sovereign and proprietary acts. (United States of America v. Ruiz, 136 SCRA
487) As for the filing of a complaint by the government, suability will result only where the government
is claiming affirmative relief from the defendant. (Lim v. Brownell, 107 Phil. 345)" (at pp. 652-655).

In the same case we had opportunity to discuss extensively the nature and extent of immunity from suit
of United States personnel who are assigned and stationed in Philippine territory, to
wit:jgc:chanrobles.com.ph

"In the case of the United States of America, the customary rule of international law on state immunity
is expressed with more specificity in the RP-US Bases Treaty. Article III thereof provides as
follows:chanrob1es virtual 1aw library

‘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, operation and defense thereof or appropriate for the
control thereof and all the rights, power and authority within the limits of the territorial waters and air
space adjacent to, or in the vicinity of, the bases which are necessary to provide access to them or
appropriate for their control.’

The petitioners also rely heavily on Baer v. Tizon, (57 SCRA 1) along with several other decisions, to
support their position that they are not suable in the cases below, the United States not having waived
its sovereign immunity from suit. It is emphasized that in Baer, the Court held:chanrob1es virtual 1aw
library

‘The invocation of the doctrine of immunity from suit of a foreign state without its consent is
appropriate. More specifically, insofar as alien armed forces is concerned, the starting point is Raquiza v.
Bradford, a 1945 decision. In dismissing a habeas corpus petition for the release of petitioners confined
by American army authorities, Justice Hilado, speaking for the Court, cited Coleman v. Tennessee, where
it was explicitly declared: ‘It is well settled that a foreign army, permitted to march through a friendly
country or to be stationed in it, by permission of its government or sovereign, is exempt from the civil
and criminal jurisdiction of the place.’ Two years later, in Tubb and Tedrow v. Griess, this Court relied on
the ruling in Raquiza v. Bradford and cited in support thereof excepts from the works of the following
authoritative writers: Vattel, Wheaton, Hall, Lawrence, Oppenheim, Westlake, Hyde, and McNair and
Lauterpacht. Accuracy demands the clarification that after the conclusion of he Philippine-American
Military Bases Agreement, the treaty provisions should control on such matter, the assumption being
that there was a manifestation of the submission to jurisdiction on the part of the foreign power
whenever appropriate. More to the point is Syquia v. Almeda Lopez, where plaintiffs as lessors sued the
Commanding General of the United States Army in the Philippines, seeking the restoration to them of
the apartment buildings they owned leased to the United States armed forces station in the Manila
area. a motion to dismiss on the ground of non-suability was filed and upheld by respondent Judge. The
matter was taken to this Court in a mandamus proceeding. It failed. It was the ruling that respondent
Judge acted correctly considering that the ‘action must be considered as one against the U.S.
Government.’ The opinion of Justice Montemayor continued: ‘It is clear that the courts of he Philippines
including the Municipal Court of Manila have no jurisdiction over the present case for unlawful detainer.
The question of lack of jurisdiction was raised and interposed at the very beginning of the action. The
U.S. Government has not given its consent to the filing of this suit which is essentially against her,
though not in name. Moreover, this is not only a case of a citizen filing a suit against his own
Government without the latter’s consent but it is of a citizen filing an action against a foreign
government without said government’s consent, which renders more obvious the lack of jurisdiction of
the courts of his country. The principles of law behind this rule are so elementary and of such general
acceptance that we deem it unnecessary to cite authorities in support thereof.’

x x x

It bears stressing at this point that the above observations do not confer on the United States of
America a 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.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph

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. This was our ruling in United States of America v. Ruiz, (136 SCRA 487) where the transaction in
question dealt with the improvement of the wharves in the naval installation at Subic Bay. As this was a
clearly governmental function, we held that the contract did not operate to divest the United States of
its sovereign immunity from suit. In the words of Justice Vicente Abad Santos:chanrob1es virtual 1aw
library

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

x x x

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 concent to be sued only when it enters into business contracts. It does not apply
where the contract relates to the exercise of its sovereign functions. In this case the projects are integral
part of the naval base which is devoted to the defense of both the United States and the Philippines,
indisputably a function of the government of the highest order; they are not utilized for nor dedicated to
commercial or business purposes.’

The other petitioners in the cases 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." (At pp. 655-658)

In the light of these precedents, we proceed to resolve the present case.

The POD was published under the direction and authority of the commanding officer, U.S. Naval Station
Subic Bay. The administrative assistant, among his other duties, is tasked to prepare and distribute the
POD. On February 3, 1978, when the questioned article was published in the POD, petitioner Capt.
James Williams was the commanding officer while petitioner M.H. Wylie was the administrative
assistant of the US Naval Station of Subic bay.

The NAVSTA ACTION LINE INQUIRY is a regular feature of the POD. It is a telephone answering device in
the office of the Administrative Assistant. The Action Line is intended to provide personnel access to the
Commanding Officer on matters they feel should be brought to his attention for correction or
investigation. The matter of inquiry may be phoned in or mailed to the POD. (TSN, September 9, 1980,
pp. 12-13, Jerry Poblon) According to M. H. Wylie, the action line naming "Auring" was received about
three (3) weeks prior to its being published in the POD on February 3, 1978. It was forwarded to
Rarang’s office of employment, the Provost Marshal, for comment. The Provost Marshal office’s
response." . . included a short note stating that if the article was published, to remove the name."
(Exhibit 8-A, p. 5) The Provost Marshal’s response was then forwarded to the executive officer and to
the commanding officer for approval. The approval of the commanding officer was forwarded to the
office of the Administrative Assistant for inclusion in the POD. A certain Mrs. Dologmodin, a clerk typist
in the office of the Administrative Assistant prepared the smooth copy of the POD. Finally, M. H. Wylie,
the administrative assistant signed the smooth copy of the POD but failed to notice the reference to
"Auring" in the action line inquiry. (Exh. 8-A, pp. 4-5, Questions Nos. 14-15)

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 the 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.

Killing a person in cold blood while on patrol duty, running over a child while driving with reckless
imprudence on an official trip, or slandering a person during office hours could not possibly be covered
by the immunity agreement. Our laws and, we presume, those of the United States do not allow the
commission of crimes in the name of official duty.

The case of Chavez v. Sandiganbayan, 193 SCRA 282 [1991] gives the law on immunity from suit of public
officials:jgc:chanrobles.com.ph

"The general rule is that public officials can be held personally accountable for acts claimed to have been
performed in connection with official duties where they have acted ultra vires or where there is showing
of bad faith.chanrobles law library

x x x

"Moreover, the petitioner’s argument that the immunity proviso under Section 4(a) of Executive Order
No. 1 also extends to him is not well-taken. A mere invocation of the immunity clause does not ipso
facto result in the charges being automatically dropped.

"In the case of Presidential Commission on Good Government v. Peña (159 SCRA 556 [1988] then Chief
Justice Claudio Teehankee, added a clarification of the immunity accorded PCGG officials under Section
4(a) of Executive Order No. 1 as follows:jgc:chanrobles.com.ph

"‘With respect to the qualifications expressed by Mr. Justice Feliciano in his separate opinion, I just wish
to point out two things: First, the main opinion does not claim absolute immunity for he members of the
Commission. The cited section of Executive Order No. 1 provides the Commission’s members immunity
from suit thus: ‘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.’ No absolute immunity like that
sought by Mr. Marcos in his Constitution for himself and his subordinates is herein involved. It is
understood that the immunity granted the members of the Commission by virtue of the unimaginable
magnitude of its task to recover the plundered wealth and the State’s exercise of police power was
immunity from liability for damages in the official discharge of the task granted the members of the
Commission much in the same manner that judges are immune from suit in the official discharge of the
functions of their office. . . . (at pp. 581-582).

x x x

"Immunity from suit cannot institutionalize irresponsibility and non-accountability nor grant a privileged
status not claimed by any other official of the Republic. (id., at page 586)

"Where the petitioner exceeds his authority as Solicitor General, acts in bad faith, or, as contended by
the private respondent, ‘maliciously conspir(es) with the PCGG commissioners in persecuting
respondent Enrile by filing against him an evidently baseless suit in derogation of the latter’s
constitutional rights and liberties’ (Rollo, p. 417), there can be no question that a complaint for damages
does not confer a license to persecute or recklessly injure another. The actions governed by Articles 19,
20, 21 and 32 of the Civil Code on Human Relations may be taken against public officers or private
citizens alike. . . ." (pp. 289-291).

We apply the same ruling to this case.

The subject article in US Newsletter POD dated February 3, 1978 mentions a certain "Auring" as." . . a
disgrace to her division and to the Office of the Provost Marshal." The same article explicitly implies that
Auring was consuming and appropriating for herself confiscated items like cigarettes and foodstuffs.
There is no question that the Auring alluded to in the Article was the private respondent as she was the
only Auring in the Office of the Provost Marshal. Moreover, as a result of this article, the private
respondent was investigated by her supervisor. Before the article came out, the private respondent had
been the recipient of commendations by her superiors for honesty in the performance of her duties.

It may be argued that Captain James Williams as commanding officer of the naval base is far removed in
the chain of command from the offensive publication and it would be asking too much to hold him
responsible for everything which goes wrong on the base. This may be true as a general rule. In this
particular case, however, the records show that the offensive publication was sent to the commanding
officer for approval and he approved it. The factual findings of the two courts below are based on the
records. The petitioners have shown no convincing reasons why our usual respect for the findings of the
trial court and the respondent court should be withheld in this particular case and why their decisions
should be reversed.

Article 2176 of the Civil Code prescribes a civil liability for damages caused by a person’s act or omission
constituting fault or negligence, to wit:jgc:chanrobles.com.ph

"Article 2176. Whoever by act or omission, causes damage to another, there being fault or negligence is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this
Chapter."cralaw virtua1aw library

"Fault" or "negligence" in this Article covers not only acts "not punishable by law" but also acts criminal
in character, whether intentional or voluntary or negligent." (Andamo v. Intermediate Appellate Court,
191 SCRA 195 [1990]).

Moreover, Article 2219(7) of the Civil Code provides that moral damages may be recovered in case of
libel, slander or any other form of defamation. In effect, the offended party in these cases is given the
right to receive from the guilty party moral damages for injury to his feeling and reputation in addition
to punitive or exemplary damages. (Occena v. Icamina, 181 SCRA 328 [1990]. In another case, Heirs of
Basilisa Justiva v. Gustilo, 7 SCRA 72 [1963], we ruled that the allegation of forgery of documents could
be a defamation, which in the light of Article 2219(7) of the Civil Code could by analogy be ground for
payment of moral damages, considering the wounded feelings and besmirched reputation of the
defendants.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

Indeed the imputation of theft contained in the POD dated February 3, 1978 is a defamation against the
character and reputation of the private Respondent. Petitioner Wylie himself admitted that the Office of
the Provost Marshal explicitly recommended the deletion of the name Auring if the article were to be
published. The petitioners, however, were negligent because under their direction they issued the
publication without deleting the name "Auring." Such act or omission is ultra vires and cannot be part of
official duty. it was a tortious act which ridiculed the private Respondent. As a result of the petitioner’s
act, the private respondent, according to the record, suffered besmirched reputation, serious anxiety,
wounded feeling and social humiliation, specially so, since the article was baseless and false. The
petitioners, alone, in their personal capacities are liable for the damages they caused the
private Respondent.

WHEREFORE, the petition is hereby DISMISSED. The questioned decision and resolution of the then
Intermediate Appellate Court, now Court of Appeals, are AFFIRMED.

➢ Republic v. Sandiganbayan [G.R. No. 142476, March 20, 2001]

[G.R. No. 142476. March 20, 2001.]

REPUBLIC OF THE PHILIPPINES, Petitioner, v. THE HONORABLE SANDIGANBAYAN (FIRST

DIVISION), Respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:
The issue in the petition is whether or not the Republic of the Philippines may withdraw funds derived
from the sale of an erroneously sequestered aircraft and ordered by this Court to be deposited in
escrow for the benefit of the person who may be legally entitled to the funds.chanrob1es virtua1 1aw
1ibrary

Before us is the petition for certiorari and mandamus under Section 65 of the 1997 Rules of Procedure,
as amended, filed by the Republic of the Philippines (Republic) assailing the Resolution of the
Sandiganbayan dated September 3, 1999 in Civil Case No. 0033, "Republic of the Philippines v. Eduardo
M. Cojuangco, Jr., Et. Al." and its Resolution dated February 17, 2000.

On July 31, 1987, petitioner Republic and the Presidential Commission on Good Government (PCGG)
filed with respondent Sandiganbayan the said Civil Case No. 0033 for reconveyance, reversion,
accounting, restitution and damages against Eduardo Cojuangco, Jr. and 60 other defendants. On the
strength of this complaint, the PCGG issued several sequestration orders, one of which covers an
aircraft, more particularly described as follows:chanrob1es virtual 1aw library

Avions Dassault — Breguet Falcon 50

Jet Model — 1982

Manufacturer’s Serial No. 082

Cert. of Reg. No. RP-C754

The records show that:chanrob1es virtual 1aw library

1. The Falcon jet was leased by the United Coconut Chemicals Inc. (Unichem) from Faysound Ltd., a
company in the United States;

2. The lease over the aircraft lapsed in 1987, at which time the aircraft should have been returned by
Unichem to Faysound Ltd., its owner-lessor;

3. In Civil Case No. 0033, Cojuangco or any of the defendants has not claimed ownership or interest in
the Falcon jet;

4. Unichem has not been sequestered. Only the shares of Cojuangco in Unichem were sequestered; and

5. But no one, not even the owner, Faysound Ltd., came forward or questioned before the
Sandiganbayan the legality of PCGG’s sequestration of the aircraft.

On March 20, 1989, or two (2) years after the lease of the Falcon Falcon jet expired, the PCGG filed with
the Sandiganbayan a "Motion For Authority To Sell Sequestered Aircraft Pending Litigation" on the
ground that it is fast deteriorating. The Sandiganbayan, in its Resolution dated May 18, 1989, denied
PCGG’s motion, holding that it found "no justification prima facie or otherwise . . . for the seizure from
the lessee." Forthwith, the PCGG filed with this Court a petition for certiorari (G.R. No. 88336) alleging in
the main that the Sandiganbayan acted with grave abuse of discretion in denying its motion to sell the
aircraft and praying that the Resolution of May 18, 1989 be nullified. On June 6, 1989, this Court issued a
temporary restraining order directing the Sandiganbayan to cease and desist from enforcing its assailed
May 18, 1989 Resolution. This TRO aimed to "prevent the Sandiganbayan from taking further actions
proceeding upon or pursuant to its assumption that the airplane has been unlawfully sequestered and
should not be in the custody of the PCGG, since that was the bone of contention to be resolved at that
posture of the case."cralaw virtua1aw library

Relying on the temporary restraining order issued by this Court, the PCGG, on September 28, 1989, sold
the aircraft to Walter Fuller Aircraft, Inc., (Fuller Aircraft), a US corporation, for US $7,138,168.65 which
was deposited in escrow with the PNB. 1 The sale was without authority from the
Sandiganbayan.chanrob1es virtua1 1aw 1ibrary

On December 26, 1990, the Supreme Court en banc dismissed PCGG’s petition in G.R. No. 88336, now in
192 SCRA 743, holding that "the decision to sell the aircraft is not within the limited administrative
powers of the PCGG but requires the sanction of the Sandiganbayan which can grant or withhold the
same in the exercise of sound discretion and on the basis of the evidence before it." The dispositive
portion of this Court’s Decision reads:chanrob1es virtual 1aw library

‘WHEREFORE, the petition at bar is hereby DISMISSED. The PCGG is hereby ordered to deposit the
proceeds of the sale of the subject aircraft under a special time deposit with the Philippine National
Bank for the account of the Sandiganbayan in escrow for the person or persons, natural or juridical, who
may be adjudged lawfully entitled thereto. The Solicitor General is also ordered to submit to this Court,
within ten (10) days from notice hereof, certified true copies of the bill of the sale and all other
pertinent documents regarding the sale of said aircraft to Walter Fuller Aircraft, Inc." 2

According to petitioner Republic, the Certificate of Time Deposit No. 463109 dated July 28, 1999 shows
that as of that date, the amount of US$8,568,905.55 was deposited with the PNB for the account of the
Sandiganbayan in trust for the beneficial owner. 3

Meanwhile, Faysound Ltd., filed with the District Court of Arkansas in the United States an action (No.
LR-C-89-834) to recover the Falcon jet from Fuller Aircraft, the buyer in the 1989 PCGG sale.

In a judgment dated October 29, 1990, the District Court ordered that title to the Falcon jet be returned
by Fuller Aircraft to Faysound, Ltd., thus:jgc:chanrobles.com.ph

"Pursuant to the Memorandum Opinion filed contemporaneously herewith, summary judgment is

hereby granted in favor of plaintiff Faysound Limited. On the motion for summary judgment filed by
defendant Walter Fuller Aircraft Sales, Inc., the same is hereby denied and judgment on said motion is
rendered in favor of plaintiff Faysound Limited.

In conformity with this ruling, title to the Falcon 50, which is the subject of this litigation, is vested in the
plaintiff Faysound Limited free and clear of any and all encumbrances save for the costs of any repairs
made on said plane by the Falcon Jet Corporation. The claim for storage charged on behalf of Falcon Jet
is denied since Faysound bears no responsibility for the presence of the plane at the Falcon Jet facility in
Little Rock Arkansas. At any rate, Falcon Jet interpled the plane into the custody of the Court and under
these circumstances cannot claim storage for the plane. Storage charges may be claimed by Falcon jet
against Faysound Limited beginning with the date of this judgment." 4
Considering that it was deprived of the aircraft sold to it, Fuller Aircraft sued the Republic and PCGG for
breach of warranty with damages (No. CA3-90-2785-R) in the District Court of Texas, Dallas Division. On
December 2, 1993, this court rendered against the Republic and PCGG a decision 5 which partly
reads:jgc:chanrobles.com.ph

"BE IT REMEMBERED, in accordance with the Court’s findings of Fact and Conclusions of Law, made on
the 21st day of October, 1993, as follows:jgc:chanrobles.com.ph

"IT IS ORDERED, ADJUDGED, AND DECREED, that judgment be and the same is hereby entered in favor
of the Plaintiff Walter Fuller Aircraft Sales, Inc. and against the Defendants The Republic of the
Philippines and the Presidential Commission on Good Government, jointly and severally, in the amount
of Fourteen Million Nine-Hundred Twenty-Eight Thousand Four Hundred Fifty-Seven Dollars and
Twenty-Nine Cents ($14,928,457.29). The principal amount of this judgment includes prejudgment
interest at the rate of 10% compounded on the attorney’s fees award, for the period from April 9, 1990,
through October 27, 1993, as follows:chanrob1es virtual 1aw library

$9,750,000.00

975,000.00 interest through April 1991

——————

$10,725,000.00

1,072,500.00 interest through April 1992

——————

$11,795,000.00

1,179,750.00 interest through April 1993

——————

$12,977,250.00

718,193.01 interest through October

—————— 27, 1992 at $3,555.41 per

day ($1,297.275 divided

$13,945,443.01 by 365 days x 202 days)

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that the Defendants, jointly and severally, shall pay
post judgment interest at the legal rate of 3.385% per annum pursuant to 18 U.S.C. & 1961 from and
after October 28, 1993, until such time as this Judgment is satisfied in full." chanrob1es virtua1 1aw
1ibrary
On October 14, 1996, the PCGG, in order to settle the money judgment against it, entered into an
"Agreement" 6 with Fuller Aircraft providing, among others, that the Republic of the Philippines agreed
to pay Fuller $11 million on October 15, 1996 and $3 million, in equal monthly installments, beginning
November 15, 1996 and ending October 15, 1997 in settlement of Fuller Aircraft’s claim which, per
decision of the Texas Court, amounts to $14,928,457.29.

On April 13, 1998, the PCGG filed with the Sandiganbayan an "Ex-Parte Motion to Withdraw" dated April
7, 1998 wherein it sought that:jgc:chanrobles.com.ph

". . . the plaintiffs Urgent Motion to Withdraw Funds Deposited in Escrow dated October 9, 1996, be
deemed withdrawn and the PNB be immediately directed to release the funds on deposit to the Bureau
of Treasury for transmission to Walter Fuller Sales Inc.. with the above Agreement and decisions of the
US Federal Courts."cralaw virtua1aw library

On September 3, 1999, the Sandiganbayan issued the first questioned Resolution denying petitioner’s
motion to release the "Falcon Jet escrow account" because: (a) it does not appear from the records that
the person lawfully entitled to the escrow deposit has been determined; (b) the motion contravenes the
ruling of the Supreme Court in Republic v. Sandiganbayan 7 requiring the PCGG to deposit the proceeds
of the sale of the sequestered aircraft with the PNB; and (c) although the records disclose two
authenticated copies of foreign judgments, 8 there is no indication that copies of the deed of sale of me
aircraft and the compromise agreement have been duly authenticated.

The PCGG then filed a motion for reconsideration but the same was denied by the Sandiganbayan in its
Resolution dated February 17, 2000.

Hence, the instant petition. Petitioner Republic contends that respondent Sandiganbayan gravely
abused its discretion when it denied PCGG’S motion to release the funds deposited in escrow with the
PNB to the Bureau of Treasury for transmission to Fuller Aircraft.

The Sandiganbayan failed to file a comment on the instant petition. Thus, this Court has no way of
determining why it failed to resolve in more than one decade who is lawfully entitled to the escrow
deposit.

As shown by the records, Faysound Ltd. is the owner of the Falcon jet. In fact, this is admitted by
petitioner Republic itself. As mentioned earlier, Cojuangco or any of the defendants in Civil Case No.
0033 has no interest in it. Clearly, this aircraft was erroneously sequestered. It is thus patently illegal for
the PCGG to sell it to Fuller Aircraft.

Petitioner does not disclaim its financial obligation to Fuller Aircraft under the "Agreement." Because of
its failure to fulfill the same, Petitioner, as previously stated, filed with the Sandiganbayan a motion for
the release of the escrow deposit to the Bureau of Treasury for transmittal to Fuller Aircraft. Petitioner
alleged that for the delay in the final settlement of its financial liability, the Government of the
Philippines must pay an interest surcharge in favor of Fuller Aircraft in the sum of US$2,000.00 a day.
Moreover, petitioner is under heavy diplomatic pressure.

Considering the circumstances obtaining in this case, we rule that petitioner Republic cannot be held
liable under the "Agreement." It must be stressed that petitioner did not authorize the PCGG to enter
into such contract with Fuller Aircraft. Granting that the PCGG was so authorized, however, it exceeded
its authority. Worse, the sale of the aircraft was without the approval of the Sandiganbayan. This Court,
in G.R. No. 88336, held:jgc:chanrobles.com.ph

". . . From the preceding discussion of the cases herein before cited and the contending submissions of
the parties in the present recourse, we cannot but make the observation that the decision to sell the
aircraft is not within the limited administrative powers of the PCGG but requires the sanction of the
Sandiganbayan which can grant or withhold the same in the exercise of sound discretion and on the
basis of the evidence before it. Without such approval by the judicial authority concerned, and no abuse
of discretion on its part having been established, it irresistibly follows that any sale of said aircraft under
the circumstances obtaining in this case would constitute a prohibited and invalid disposition by the
PCGG." (Emphasis supplied.)

Moreover, inasmuch as the sale of the aircraft by the PCGG to Fuller Aircraft is void, it follows that the
"Agreement" between the PCGG and Fuller Aircraft is likewise a nullity.

Correspondingly, petitioner Republic cannot be bound by the terms of the said "Agreement" and thus,
there can be no cause of action against it.

In Chavez v. Sandiganbayan, 9 this Court ruled that the PCGG or any of its member may be held civilly
liable if they did not act in good faith and within the scope of their authority in the performance of their
official duties. Likewise, in Director of Bureau of Communications v. Aligaen, 10 this Court held that
unauthorized acts by its government officials or officers are not acts of the State.chanrob1es virtua1
1aw 1ibrary

Petitioner must, therefore, take immediate appropriate action against the PCGG personnel involved in
the unauthorized sale of the aircraft.

Meanwhile, it is the legal duty of petitioner Republic to return to Fuller Aircraft, through the PCGG, the
escrow deposit in the sum of US $8,568,905.55 as of July 1999. Otherwise, petitioner may enrich itself
unjustly and may be held liable for keeping the said amount indefinitely to the prejudice of Fuller
Aircraft whose right to the escrow deposit has not been questioned by any party in Civil Case No. 0033.

WHEREFORE, the petition is GRANTED. The challenged Resolutions dated September 3, 1999 and
February 17, 2000 are REVERSED and SET ASIDE. Respondent Sandiganbayan is directed to order the
release of the subject escrow account to the PCGG for transmission to Walter Fuller Aircraft Sales, Inc.
Within ten (10) days from its compliance, the PCGG is ordered to submit to the Sandiganbayan the
corresponding report. No costs.

SO ORDERED.
 ➢ United States of America v. Reyes [G.R. No. 79253, March 1, 1993]

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 complaint1 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 Dismiss5 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.
Ruiz9 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
1990. 34

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:

xxx xxx xxx

(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.
 ➢ Department of Health Secretary v. Philippine Pharmawealth [G.R. No.
169304, March 13, 2007]

G.R. No. 169304 March 13, 2007

THE DEPARTMENT OF HEALTH, SECRETARY MANUEL M. DAYRIT, USEC. MA. MARGARITA GALON and
USEC. ANTONIO M. LOPEZ, Petitioners,
vs.
PHIL. PHARMAWEALTH, INC., Respondent.

DECISION

CARPIO MORALES, J.:

Assailed via petition for review are issuances of the Court of Appeals in CA-G.R. SP No. 84457, to wit: a)
Decision1 dated May 12, 2005 which affirmed the order issued by Judge Leoncio M. Janolo, Jr. of the
Regional Trial Court of Pasig City, Branch 264 denying petitioners’ motion to dismiss Civil Case No.
68208; and b) Resolution2 dated August 9, 2005 which denied petitioners’ motion for reconsideration.

Phil. Pharmawealth, Inc. (respondent) is a domestic corporation engaged in the business of

manufacturing and supplying pharmaceutical products to government hospitals in the Philippines.

On December 22, 1998, then Secretary of Health Alberto G. Romualdez, Jr. issued Administrative Order
(A.O.) No. 27,3 Series of 1998, outlining the guidelines and procedures on the accreditation of
government suppliers for pharmaceutical products.

A.O. No. 27 was later amended by A.O. No. 10,4 Series of 2000, providing for additional guidelines for
accreditation of drug suppliers aimed at ensuring that only qualified bidders can transact business with
petitioner Department of Health (DOH). Part V of A.O. No. 10 reads, in part:

1. Drug Manufacturer, Drug Trader and Drug Importer shall be allowed to apply for
accreditation.

2. Accreditation shall be done by the Central Office-Department of Health.

3. A separate accreditation is required for the drug suppliers and for their specific products.

xxxx

12. Only products accredited by the Committee shall be allowed to be procured by the DOH and
all other entities under its jurisdiction.5 (Underscoring supplied)

On May 9, 20006 and May 29, 2000,7 respondent submitted to petitioner DOH a request for the inclusion
of additional items in its list of accredited drug products, including the antibiotic "Penicillin G
Benzathine." Based on the schedule provided by petitioner DOH, it appears that processing of and
release of the result of respondent’s request were due on September 2000, the last month of the
quarter following the date of its filing.8
Sometime in September 2000, petitioner DOH, through petitioner Antonio M. Lopez, chairperson of the
pre-qualifications, bids and awards committee, issued an Invitation for Bids9 for the procurement of 1.2
million units vials of Penicillin G Benzathine (Penicillin G Benzathine contract).

Despite the lack of response from petitioner DOH regarding respondent’s request for inclusion of
additional items in its list of accredited products, respondent submitted its bid for the Penicillin G
Benzathine contract. When the bids were opened on October 11, 2000, only two companies
participated, with respondent submitting the lower bid at ₱82.24 per unit, compared to Cathay/YSS
Laboratories’ (YSS) bid of ₱95.00 per unit. In view, however, of the non-accreditation of respondent’s
Penicillin G Benzathine product, the contract was awarded to YSS.

Respondent thus filed a complaint10 for injunction, mandamus and damages with prayer for the issuance
of a writ of preliminary injunction and/or temporary restraining order with the Regional Trial Court of
Pasig City praying, inter alia, that the trial court "nullify the award of the Penicillin G Benzathine contract
(IFB No. 2000-10-11 [14]) to YSS Laboratories, Inc. and direct defendant DOH, defendant Romualdez,
defendant Galon and defendant Lopez to declare plaintiff Pharmawealth as

the lowest complying responsible bidder for the Benzathine contract, and that they accordingly award
the same to plaintiff company" and "adjudge defendants Romualdez, Galon and Lopez liable, jointly and
severally to plaintiff, for [the therein specified damages]."11

In their Comment,12 petitioner DOH, Secretary Alberto Romualdez, Jr. who was later succeeded by
petitioner Secretary Manuel M. Dayrit, and individual petitioners Undersecretaries Margarita Galon and
Antonio Lopez argued for the dismissal of the complaint for lack of merit in view of the express
reservation made by petitioner DOH to accept or reject any or all bids without incurring liability to the
bidders, they positing that government agencies have such full discretion.

Petitioners subsequently filed a Manifestation and Motion13 (motion to dismiss) praying for the outright
dismissal of the complaint based on the doctrine of state immunity. Additionally, they alleged that
respondent’s representative was not duly authorized by its board of directors to file the complaint.

To petitioners’ motion to dismiss, respondent filed its comment/opposition14 contending, in the main,
that the doctrine of state immunity is not applicable considering that individual petitioners are being
sued both in their official and personal capacities, hence, they, not the state, would be liable for
damages.

By Order of December 8, 2003, the trial court15 denied petitioners’ motion to dismiss.

Their motion for reconsideration having been denied,16 petitioners filed a petition for certiorari17 with
the Court of Appeals, before which they maintained that the suit is against the state.

By the assailed Decision18 of May 12, 2005, the Court of Appeals affirmed the trial court’s Order. And by
Resolution of August 9, 2005, it denied petitioners’ motion for reconsideration.

Hence, the instant petition for review which raises the sole issue of whether the Court of Appeals erred
in upholding the denial of petitioners’ motion to dismiss.
The petition fails.

The suability of a government official depends on whether the official concerned was acting within his
official or jurisdictional capacity, and whether the acts done in the performance of official functions will
result in a charge or financial liability against the government. In the first case, the Constitution itself
assures the availability of judicial review,19 and it is the official concerned who should be impleaded as
the proper party.20

In its complaint, respondent sufficiently imputes grave abuse of discretion against petitioners in their
official capacity. Since judicial review of acts alleged to have been tainted with grave abuse of discretion
is guaranteed by the Constitution, it necessarily follows that it is the official concerned who should be
impleaded as defendant or respondent in an appropriate suit.21

Moreover, part of the reliefs prayed for by respondent is the enjoinment of the implementation, as well
as the nullification of the award to YSS, the grant of which may not be enforced against individual
petitioners and their successors except in their official capacities as officials of the DOH.22

As regards petitioner DOH, the defense of immunity from suit will not avail despite its being an
unincorporated agency of the government, for the only causes of action directed against it are
preliminary injunction and mandamus. Under Section 1, Rule 5823 of the Rules of Court, preliminary
injunction may be directed against a party or a court, agency or a person. Moreover, the defense of
state immunity from suit does not apply in causes of action which do not seek to impose a charge or
financial liability against the State.24

As regards individual petitioners’ suability for damages, the following discussion on the applicability of
the defense of state immunity from suit is relevant.

The rule that a state may not be sued without its consent, now embodied in Section 3, Article XVI of the
1987 Constitution, is one of the generally accepted principles of international law, which we have now
adopted as part of the law of the land.25

While the doctrine of state immunity appears to prohibit only suits against the state without its consent,
it is also applicable to complaints filed against officials of the state for acts allegedly performed by them
in the discharge of their duties.26 The suit is regarded as one against the state where satisfaction of the
judgment against the officials will require the state itself to perform a positive act, such as the
appropriation of the amount necessary to pay the damages awarded against them.27

The rule, however, is not so all-encompassing as to be applicable under all circumstances. Shauf v. Court
of Appeals28 elucidates:

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.,29 ‘ Inasmuch as the State
authorizes only legal acts by its officers, unauthorized acts of government officials or officers are not
acts of the State, and an action against the officials or officers by one whose rights have been invaded or
violated by such acts, for the protection of his rights, is not a suit against the State within the rule of
immunity of the State from suit. In the same tenor, it has been said that an action at law or suit in equity
against a State officer or the director of a State department on the ground that, while claiming to act for
the State, he violates or invades the personal and property rights of the plaintiff, under an
unconstitutional act or under an assumption of authority which he does not have, is not a suit against
the State within the constitutional provision that the State may not be sued without its consent.’ The
rationale for this ruling is that the doctrine of state immunity cannot be used as an instrument for
perpetrating an injustice. (Emphasis and underscoring supplied)1avvphi1

Hence, the rule does not apply where the public official is charged in his official capacity for acts that are
unauthorized or unlawful and injurious to the rights of others. 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.30

In the present case, suing individual petitioners in their personal capacities for damages in connection
with their alleged act of "illegal[ly] abus[ing] their official positions to make sure that plaintiff
Pharmawealth would not be awarded the Benzathine contract [which act was] done in bad faith and
with full knowledge of the limits and breadth of their powers given by law"31 is permissible, in
consonance with the foregoing principles. For an officer who exceeds the power conferred on him by
law cannot hide behind the plea of sovereign immunity and must bear the liability personally.32

It bears stressing, however, that the statements in the immediately foregoing paragraph in no way
reflect a ruling on the actual liability of petitioners to respondent. The mere allegation that a
government official is being sued in his personal capacity does not automatically remove the same from
the protection of the doctrine of state immunity. Neither, upon the other hand, does the mere
invocation of official character suffice to insulate such official from suability and liability for an act
committed without or in excess of his or her authority.33 These are matters of evidence which should be
presented and proven at the trial.

WHEREFORE, the petition is DENIED. The assailed Decision dated May 12, 2005 and Resolution dated
August 9, 2005 issued by the Court of Appeals are AFFIRMED.

SO ORDERED.
 ➢ Rayo v. CFI of Bulacan, 110 SCRA 460

G.R. No. L-55273-83 December 19, 1981

GAUDENCIO RAYO, BIENVINIDO PASCUAL, TOMAS MANUEL, MARIANO CRUZ, PEDRO BARTOLOME,
BERNARDINO CRUZ JOSE PALAD , LUCIO FAJARDO, FRANCISCO RAYOS, ANGEL TORRES, NORBERTO
TORRES, RODELIO JOAQUIN, PEDRO AQUINO, APOLINARIO BARTOLOME, MAMERTO BERNARDO,
CIRIACO CASTILLO, GREGORIO CRUZ, SIMEON ESTRELLA, EPIFANIO MARCELO, HERMOGENES SAN
PEDRO, JUAN SANTOS, ELIZABETH ABAN, MARCELINA BERNABE, BUENAVENTURA CRUZ, ANTONIO
MENESES, ROMAN SAN PEDRO, LOPEZ ESPINOSA, GODOFREDO PUNZAL, JULIANA GARCIA, LEBERATO
SARMIENTO, INOCENCIO DE LEON, CARLOS CORREA, REYNALDO CASIMIRO, ANTONIO GENER,
GAUDENCIO CASTILLO, MATIAS PEREZ, CRISPINIANO TORRES, CRESENCIO CRUZ, PROTACIO BERNABE,
MARIANO ANDRES, CRISOSTOMO CRUZ, MARCOS EUSTAQUIO, PABLO LEGASPI, VICENTE PASCUAL,
ALEJANDRA SISON, EUFRACIO TORRES, ROGELIO BARTOLOME, RODOLFO BERNARDO, APOLONIO
CASTILLO, MARCELINO DALMACIO, EUTIQUIO LEGASPI, LORENZO LUCIANO and GREGORIO
PALAD, petitioners,
vs.
COURT OF FIRST INSTANCE OF BULACAN, BRANCH V, STA. MARIA, and NATIONAL POWER
CORPORATION, respondents.

ABAD SANTOS, J.:

The relevant antecedents of this case are narrated in the petition and have not been controverted,
namely:

3. At about midnight on October 26, 1978, during the height of that infamous typhoon
"KADING" the respondent corporation, acting through its plant superintendent,
Benjamin Chavez, opened or caused to be opened simultaneously all the three
floodgates of the Angat Dam. And as a direct and immediate result of the sudden,
precipitate and simultaneous opening of said floodgates several towns in Bulacan were
inundated. Hardest-hit was Norzagaray. About a hundred of its residents died or were
reported to have died and properties worth million of pesos destroyed or washed away.
This flood was unprecedented in Norzagaray.

4. Petitioners, who were among the many unfortunate victims of that man-caused
flood, filed with the respondent Court eleven complaints for damages against the
respondent corporation and the plant superintendent of Angat Dam, Benjamin Chavez,
docketed as Civil Cases Nos. SM-950 951, 953, 958, 959, 964, 965, 966, 981, 982 and
983. These complaints though separately filed have a common/similar cause of action.
...

5. Respondent corporation filed separate answers to each of these eleven complaints.

Apart from traversing the material averments in the complaints and setting forth
counterclaims for damages respondent corporation invoked in each answer a special
and affirmative defense that "in the operation of the Angat Dam," it is "performing a
 purely governmental function", hence it "can not be sued without the express consent
of the State." ...

6. On motion of the respondent corporation a preliminary hearing was held on its

affirmative defense as though a motion to dismiss were filed. Petitioners opposed the
prayer for dismissal and contended that respondent corporation is performing not
governmental but merely proprietary functions and that under its own organic act,
Section 3 (d) of Republic Act No. 6395, it can sue and be sued in any court. ...

7. On July 29, 1980 petitioners received a copy of the questioned order of the
respondent Court dated December 21, 1979 dismissing all their complaints as against
the respondent corporation thereby leaving the superintendent of the Angat Dam,
Benjamin Chavez, as the sole party-defendant. ...

8. On August 7, 1980 petitioners filed with the respondent Court a motion for
reconsideration of the questioned order of dismissal. ...

9. The respondent Court denied petitioners' motion for reconsideration in its order
dated October 3, 1980. ... Hence, the present petition for review on certiorari under
Republic Act No. 5440. (Rollo, pp. 3-6.)

The Order of dismissal dated December 12, 1979, reads as follows:

Under consideration is a motion to dismiss embodied as a special affirmative defense in

the answer filed by defendant NPC on the grounds that said defendant performs a
purely governmental function in the operation of the Angat Dam and cannot therefore
be sued for damages in the instant cases in connection therewith.

Plaintiffs' opposition to said motion to discuss, relying on Sec. 3 (d) of Republic Act 6396
which imposes on the NPC the power and liability to sue and be sued in any court, is not
tenable since the same refer to such matters only as are within the scope of the other
corporate powers of said defendant and not matters of tort as in the instant cases. It
being an agency performing a purely governmental function in the operation of the
Angat Dam, said defendant was not given any right to commit wrongs upon individuals.
To sue said defendant for tort may require the express consent of the State.

WHEREFORE, the cases against defendant NPC are hereby dismissed. (Rollo, p. 60.)

The Order dated October 3, 1980, denying the motion for reconsideration filed by the plaintiffs is pro
forma; the motion was simply denied for lack of merit. (Rollo, p. 74.)

The petition to review the two orders of the public respondent was filed on October 16, 1980, and on
October 27, 1980, We required the respondents to comment. It was only on April 13, 1981, after a
number of extensions, that the Solicitor General filed the required comment. (Rollo, pp. 107-114.)

On May 27, 1980, We required the parties to file simultaneous memoranda within twenty (20) days
from notice. (Rollo, p. 115.) Petitioners filed their memorandum on July 22, 1981. (Rollo, pp. 118-125.)
The Solicitor General filed a number of motions for extension of time to file his memorandum. We
granted the seventh extension with a warning that there would be no further extension. Despite the
warning the Solicitor General moved for an eighth extension which We denied on November 9, 1981. A
motion for a ninth extension was similarly denied on November 18, 1981. The decision in this case is
therefore, without the memorandum of the Solicitor General.

The parties are agreed that the Order dated December 21, 1979, raises the following issues:

1. Whether respondent National Power Corporation performs a governmental function with respect to
the management and operation of the Angat Dam; and

2. Whether the power of respondent National Power Corporation to sue and be sued under its organic
charter includes the power to be sued for tort.

The petition is highly impressed with merit.

It is not necessary to write an extended dissertation on whether or not the NPC performs a
governmental function with respect to the management and operation of the Angat Dam. It is sufficient
to say that the government has organized a private corporation, put money in it and has allowed it to
sue and be sued in any court under its charter. (R.A. No. 6395, Sec. 3 (d).) As a government owned and
controlled corporation, it has a personality of its own, distinct and separate from that of the
Government. (See National Shipyards and Steel Corp. vs. CIR, et al., L-17874, August 31, 1963, 8 SCRA
781.) Moreover, the charter provision that the NPC can "sue and be sued in any court" is without
qualification on the cause of action and accordingly it can include a tort claim such as the one instituted
by the petitioners.

WHEREFORE, the petition is hereby granted; the Orders of the respondent court dated December 12,
1979 and October 3, 1980, are set aside; and said court is ordered to reinstate the complaints of the
petitioners. Costs against the NPC.

SO ORDERED.
 ➢ Air Transportation Office v. Spouses Ramos, G.R. No. 159402, 23 February
2011

G.R. No. 159402 February 23, 2011

AIR TRANSPORTATION OFFICE, Petitioner,

vs.
SPOUSES DAVID* ELISEA RAMOS, Respondents.

RESOLUTION

BERSAMIN, J.:

The State’s immunity from suit does not extend to the petitioner because it is an agency of the State
engaged in an enterprise that is far from being the State’s exclusive prerogative.

Under challenge is the decision promulgated on May 14, 2003,1 by which the Court of Appeals (CA)
affirmed with modification the decision rendered on February 21, 2001 by the Regional Trial Court,
Branch 61 (RTC), in Baguio City in favor of the respondents.2

Antecedents

Spouses David and Elisea Ramos (respondents) discovered that a portion of their land registered under
Transfer Certificate of Title No. T-58894 of the Baguio City land records with an area of 985 square
meters, more or less, was being used as part of the runway and running shoulder of the Loakan Airport
being operated by petitioner Air Transportation Office (ATO). On August 11, 1995, the respondents
agreed after negotiations to convey the affected portion by deed of sale to the ATO in consideration of
the amount of ₱778,150.00. However, the ATO failed to pay despite repeated verbal and written
demands.

Thus, on April 29, 1998, the respondents filed an action for collection against the ATO and some of its
officials in the RTC (docketed as Civil Case No. 4017-R and entitled Spouses David and Elisea Ramos v. Air
Transportation Office, Capt. Panfilo Villaruel, Gen. Carlos Tanega, and Mr. Cesar de Jesus).

In their answer, the ATO and its co-defendants invoked as an affirmative defense the issuance of
Proclamation No. 1358, whereby President Marcos had reserved certain parcels of land that included
the respondents’ affected portion for use of the Loakan Airport. They asserted that the RTC had no
jurisdiction to entertain the action without the State’s consent considering that the deed of sale had
been entered into in the performance of governmental functions.

On November 10, 1998, the RTC denied the ATO’s motion for a preliminary hearing of the affirmative
defense.

After the RTC likewise denied the ATO’s motion for reconsideration on December 10, 1998, the ATO
commenced a special civil action for certiorari in the CA to assail the RTC’s orders. The CA dismissed the
petition for certiorari, however, upon its finding that the assailed orders were not tainted with grave
abuse of discretion.3
Subsequently, February 21, 2001, the RTC rendered its decision on the merits,4 disposing:

WHEREFORE, the judgment is rendered ORDERING the defendant Air Transportation Office to pay the
plaintiffs DAVID and ELISEA RAMOS the following: (1) The amount of ₱778,150.00 being the value of the
parcel of land appropriated by the defendant ATO as embodied in the Deed of Sale, plus an annual
interest of 12% from August 11, 1995, the date of the Deed of Sale until fully paid; (2) The amount of
₱150,000.00 by way of moral damages and ₱150,000.00 as exemplary damages; (3) the amount of
₱50,000.00 by way of attorney’s fees plus ₱15,000.00 representing the 10, more or less, court
appearances of plaintiff’s counsel; (4) The costs of this suit.

SO ORDERED.

In due course, the ATO appealed to the CA, which affirmed the RTC’s decision on May 14, 2003,5 viz:

IN VIEW OF ALL THE FOREGOING, the appealed decision is hereby AFFIRMED, with MODIFICATION that
the awarded cost therein is deleted, while that of moral and exemplary damages is reduced to
₱30,000.00 each, and attorney’s fees is lowered to ₱10,000.00.

No cost.

SO ORDERED.

Hence, this appeal by petition for review on certiorari.

Issue

The only issue presented for resolution is whether the ATO could be sued without the State’s consent.

Ruling

The petition for review has no merit.

The immunity of the State from suit, known also as the doctrine of sovereign immunity or non-suability
of the State, is expressly provided in Article XVI of the 1987 Constitution, viz:

Section 3. The State may not be sued without its consent.

The immunity from suit is based on the political truism that the State, as a sovereign, can do no wrong.
Moreover, as the eminent Justice Holmes said in Kawananakoa v. Polyblank:6

The territory [of Hawaii], of course, could waive its exemption (Smith v. Reeves, 178 US 436, 44 L ed
1140, 20 Sup. Ct. Rep. 919), and it took no objection to the proceedings in the cases cited if it could have
done so. xxx But in the case at bar it did object, and the question raised is whether the plaintiffs were
bound to yield. Some doubts have been expressed as to the source of the immunity of a sovereign
power from suit without its own permission, but the answer has been public property since before the
days of Hobbes. Leviathan, chap. 26, 2. A sovereign is exempt from suit, not because of any formal
conception or obsolete theory, but on the logical and practical ground that there can be no legal right as
against the authority that makes the law on which the right depends. "Car on peut bien recevoir loy
d'autruy, mais il est impossible par nature de se donner loy." Bodin, Republique, 1, chap. 8, ed. 1629, p.
132; Sir John Eliot, De Jure Maiestatis, chap. 3. Nemo suo statuto ligatur necessitative. Baldus, De Leg. et
Const. Digna Vox, 2. ed. 1496, fol. 51b, ed. 1539, fol. 61.7

Practical considerations dictate the establishment of an immunity from suit in favor of the State.
Otherwise, and the State is suable at the instance of every other individual, government service may be
severely obstructed and public safety endangered because of the number of suits that the State has to
defend against.8 Several justifications have been offered to support the adoption of the doctrine in the
Philippines, but that offered in Providence Washington Insurance Co. v. Republic of the Philippines9 is
"the most acceptable explanation," according to Father Bernas, a recognized commentator on
Constitutional Law,10 to wit:

[A] continued adherence to the doctrine of non-suability is not to be deplored for as against the
inconvenience that may be caused private parties, the loss of governmental efficiency and the obstacle
to the performance of its multifarious functions are far greater if such a fundamental principle were
abandoned and the availability of judicial remedy were not thus restricted. With the well-known
propensity on the part of our people to go to court, at the least provocation, the loss of time and energy
required to defend against law suits, in the absence of such a basic principle that constitutes such an
effective obstacle, could very well be imagined.

An unincorporated government agency without any separate juridical personality of its own enjoys
immunity from suit because it is invested with an inherent power of sovereignty. Accordingly, a claim for
damages against the agency cannot prosper; otherwise, the doctrine of sovereign immunity is
violated.11 However, the need to distinguish between an unincorporated government agency
performing governmental function and one performing proprietary functions has arisen. The immunity
has been upheld in favor of the former because its function is governmental or incidental to such
function;12 it has not been upheld in favor of the latter whose function was not in pursuit of a necessary
function of government but was essentially a business.13

Should the doctrine of sovereignty immunity or non-suability of the State be extended to the ATO?

In its challenged decision,14 the CA answered in the negative, holding:

On the first assignment of error, appellants seek to impress upon Us that the subject contract of sale
partook of a governmental character. Apropos, the lower court erred in applying the High Court’s ruling
in National Airports Corporation vs. Teodoro (91 Phil. 203 [1952]), arguing that in Teodoro, the matter
involved the collection of landing and parking fees which is a proprietary function, while the case at bar
involves the maintenance and operation of aircraft and air navigational facilities and services which are
governmental functions.

We are not persuaded.

Contrary to appellants’ conclusions, it was not merely the collection of landing and parking fees which
was declared as proprietary in nature by the High Court in Teodoro, but management and maintenance
of airport operations as a whole, as well. Thus, in the much later case of Civil Aeronautics Administration
vs. Court of Appeals (167 SCRA 28 [1988]), the Supreme Court, reiterating the pronouncements laid
down in Teodoro, declared that the CAA (predecessor of ATO) is an agency not immune from suit, it
being engaged in functions pertaining to a private entity. It went on to explain in this wise:

xxx

The Civil Aeronautics Administration comes under the category of a private entity. Although not a body
corporate it was created, like the National Airports Corporation, not to maintain a necessary function of
government, but to run what is essentially a business, even if revenues be not its prime objective but
rather the promotion of travel and the convenience of the travelling public. It is engaged in an
enterprise which, far from being the exclusive prerogative of state, may, more than the construction of
public roads, be undertaken by private concerns. [National Airports Corp. v. Teodoro, supra, p. 207.]

xxx

True, the law prevailing in 1952 when the Teodoro case was promulgated was Exec. Order 365
(Reorganizing the Civil Aeronautics Administration and Abolishing the National Airports Corporation).
Republic Act No. 776 (Civil Aeronautics Act of the Philippines), subsequently enacted on June 20, 1952,
did not alter the character of the CAA’s objectives under Exec. Order 365. The pertinent provisions cited
in the Teodoro case, particularly Secs. 3 and 4 of Exec. Order 365, which led the Court to consider the
CAA in the category of a private entity were retained substantially in Republic Act 776, Sec. 32(24) and
(25). Said Act provides:

Sec. 32. Powers and Duties of the Administrator. – Subject to the general control and supervision of the
Department Head, the Administrator shall have among others, the following powers and duties:

xxx

(24) To administer, operate, manage, control, maintain and develop the Manila International Airport and
all government-owned aerodromes except those controlled or operated by the Armed Forces of the
Philippines including such powers and duties as: (a) to plan, design, construct, equip, expand, improve,
repair or alter aerodromes or such structures, improvement or air navigation facilities; (b) to enter into,
make and execute contracts of any kind with any person, firm, or public or private corporation or entity;
…

(25) To determine, fix, impose, collect and receive landing fees, parking space fees, royalties on sales or
deliveries, direct or indirect, to any aircraft for its use of aviation gasoline, oil and lubricants, spare parts,
accessories and supplies, tools, other royalties, fees or rentals for the use of any of the property under
its management and control.

xxx

From the foregoing, it can be seen that the CAA is tasked with private or non-governmental functions
which operate to remove it from the purview of the rule on State immunity from suit. For the correct
rule as set forth in the Teodoro case states:

xxx
Not all government entities, whether corporate or non-corporate, are immune from suits. Immunity
from suits is determined by the character of the objects for which the entity was organized. The rule is
thus stated in Corpus Juris:

Suits against State agencies with relation to matters in which they have assumed to act in private or
non-governmental capacity, and various suits against certain corporations created by the state for public
purposes, but to engage in matters partaking more of the nature of ordinary business rather than
functions of a governmental or political character, are not regarded as suits against the state. The latter
is true, although the state may own stock or property of such a corporation for by engaging in business
operations through a corporation, the state divests itself so far of its sovereign character, and by
implication consents to suits against the corporation. (59 C.J., 313) [National Airports Corporation v.
Teodoro, supra, pp. 206-207; Italics supplied.]

This doctrine has been reaffirmed in the recent case of Malong v. Philippine National Railways [G.R. No.
L-49930, August 7, 1985, 138 SCRA 63], where it was held that the Philippine National Railways,
although owned and operated by the government, was not immune from suit as it does not exercise
sovereign but purely proprietary and business functions. Accordingly, as the CAA was created to
undertake the management of airport operations which primarily involve proprietary functions, it
cannot avail of the immunity from suit accorded to government agencies performing strictly
governmental functions.15

In our view, the CA thereby correctly appreciated the juridical character of the ATO as an agency of the
Government not performing a purely governmental or sovereign function, but was instead involved in
the management and maintenance of the Loakan Airport, an activity that was not the exclusive
prerogative of the State in its sovereign capacity. Hence, the ATO had no claim to the State’s immunity
from suit. We uphold the CA’s aforequoted holding.

We further observe the doctrine of sovereign immunity cannot be successfully invoked to defeat a valid
claim for compensation arising from the taking without just compensation and without the proper
expropriation proceedings being first resorted to of the plaintiffs’ property.16 Thus, in De los Santos v.
Intermediate Appellate Court,17 the trial court’s dismissal based on the doctrine of non-suability of the
State of two cases (one of which was for damages) filed by owners of property where a road 9 meters
wide and 128.70 meters long occupying a total area of 1,165 square meters and an artificial creek 23.20
meters wide and 128.69 meters long occupying an area of 2,906 square meters had been constructed by
the provincial engineer of Rizal and a private contractor without the owners’ knowledge and consent
was reversed and the cases remanded for trial on the merits. The Supreme Court ruled that the doctrine
of sovereign immunity was not an instrument for perpetrating any injustice on a citizen. In exercising the
right of eminent domain, the Court explained, the State exercised its jus imperii, as distinguished from
its proprietary rights, or jus gestionis; yet, even in that area, where private property had been taken in
expropriation without just compensation being paid, the defense of immunity from suit could not be set
up by the State against an action for payment by the owners.

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

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

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

xxx

Under its Transitory Provisions, R.A. No. 9497 established in place of the ATO the Civil Aviation Authority
of the Philippines (CAAP), which thereby assumed all of the ATO’s powers, duties and rights, assets, real
and personal properties, funds, and revenues, viz:

CHAPTER XII
TRANSITORTY PROVISIONS

Section 85. Abolition of the Air Transportation Office. – The Air Transportation Office (ATO) created
under Republic Act No. 776, a sectoral office of the Department of Transportation and Communications
(DOTC), is hereby abolished.1avvphi1

All powers, duties and rights vested by law and exercised by the ATO is hereby transferred to the
Authority.

All assets, real and personal properties, funds and revenues owned by or vested in the different offices
of the ATO are transferred to the Authority. All contracts, records and documents relating to the
operations of the abolished agency and its offices and branches are likewise transferred to the
Authority. Any real property owned by the national government or government-owned corporation or
authority which is being used and utilized as office or facility by the ATO shall be transferred and titled
in favor of the Authority.

Section 23 of R.A. No. 9497 enumerates the corporate powers vested in the CAAP, including the power
to sue and be sued, to enter into contracts of every class, kind and description, to construct, acquire,
own, hold, operate, maintain, administer and lease personal and real properties, and to settle, under
such terms and conditions most advantageous to it, any claim by or against it.18

With the CAAP having legally succeeded the ATO pursuant to R.A. No. 9497, the obligations that the ATO
had incurred by virtue of the deed of sale with the Ramos spouses might now be enforced against the
CAAP.

WHEREFORE, the Court denies the petition for review on certiorari, and affirms the decision
promulgated by the Court of Appeals.

No pronouncement on costs of suit.

SO ORDERED.
 ➢ Municipality of San Fernando v. Firme 195 SCRA 692

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

MUNICIPALITY OF SAN FERNANDO, LA UNION, petitioner

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

Mauro C. Cabading, Jr. for petitioner.

Simeon G. Hipol for private respondent.

MEDIALDEA, J.:

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

The antecedent facts are as follows:

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

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

On December 11, 1966, the private respondents instituted a compliant for damages against the Estate
of Macario Nieveras and Bernardo Balagot, owner and driver, respectively, of the passenger jeepney,
which was docketed Civil Case No. 2183 in the Court of First Instance of La Union, Branch I, San
Fernando, La Union. However, the aforesaid defendants filed a Third Party Complaint against the
petitioner and the driver of a dump truck of petitioner.

Thereafter, the case was subsequently transferred to Branch IV, presided over by respondent judge and
was subsequently docketed as Civil Case No. 107-Bg. By virtue of a court order dated May 7, 1975, the
private respondents amended the complaint wherein the petitioner and its regular employee, Alfredo
Bislig were impleaded for the first time as defendants. Petitioner filed its answer and raised affirmative
defenses such as lack of cause of action, non-suability of the State, prescription of cause of action and
the negligence of the owner and driver of the passenger jeepney as the proximate cause of the collision.

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

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

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

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

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

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

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

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

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

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

The Complaint is dismissed as to defendants Estate of Macario Nieveras and Bernardo Balagot.
 SO ORDERED. (Rollo, p. 30)

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

Finally, the respondent judge issued an order dated December 3, 1979 providing that if defendants
municipality and Bislig further wish to pursue the matter disposed of in the order of July 26, 1979, such
should be elevated to a higher court in accordance with the Rules of Court. Hence, this petition.

Petitioner maintains that the respondent judge committed grave abuse of discretion amounting to
excess of jurisdiction in issuing the aforesaid orders and in rendering a decision. Furthermore, petitioner
asserts that while appeal of the decision maybe available, the same is not the speedy and adequate
remedy in the ordinary course of law.

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

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

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

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

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

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

Express consent may be embodied in a general law or a special law. The standing consent of the State to
be sued in case of money claims involving liability arising from contracts is found in Act No. 3083. A
special law may be passed to enable a person to sue the government for an alleged quasi-delict, as in
Merritt v. Government of the Philippine Islands (34 Phil 311). (see United States of America v. Guinto,
G.R. No. 76607, February 26, 1990, 182 SCRA 644, 654.)
Consent is implied when the government enters into business contracts, thereby descending to the level
of the other contracting party, and also when the State files a complaint, thus opening itself to a
counterclaim. (Ibid)

Municipal corporations, for example, like provinces and cities, are agencies of the State when they are
engaged in governmental functions and therefore should enjoy the sovereign immunity from suit.
Nevertheless, they are subject to suit even in the performance of such functions because their charter
provided that they can sue and be sued. (Cruz, Philippine Political Law, 1987 Edition, p. 39)

A distinction should first be made between suability and liability. "Suability depends on the consent of
the state to be sued, liability on the applicable law and the established facts. The circumstance that a
state is suable does not necessarily mean that it is liable; on the other hand, it can never be held liable if
it does not first consent to be sued. Liability is not conceded by the mere fact that the state has allowed
itself to be sued. When the state does waive its sovereign immunity, it is only giving the plaintiff the
chance to prove, if it can, that the defendant is liable." (United States of America vs. Guinto, supra, p.
659-660)

Anent the issue of whether or not the municipality is liable for the torts committed by its employee, the
test of liability of the municipality depends on whether or not the driver, acting in behalf of the
municipality, is performing governmental or proprietary functions. As emphasized in the case of Torio
vs. Fontanilla (G. R. No. L-29993, October 23, 1978. 85 SCRA 599, 606), the distinction of powers
becomes important for purposes of determining the liability of the municipality for the acts of its agents
which result in an injury to third persons.

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

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

It has already been remarked that municipal corporations are suable because their charters grant them
the competence to sue and be sued. Nevertheless, they are generally not liable for torts committed by
them in the discharge of governmental functions and can be held answerable only if it can be shown
that they were acting in a proprietary capacity. In permitting such entities to be sued, the State merely
gives the claimant the right to show that the defendant was not acting in its governmental capacity
when the injury was committed or that the case comes under the exceptions recognized by law. Failing
this, the claimant cannot recover. (Cruz, supra, p. 44.)
In the case at bar, the driver of the dump truck of the municipality insists that "he was on his way to the
Naguilian river to get a load of sand and gravel for the repair of San Fernando's municipal streets."
(Rollo, p. 29.)

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

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

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

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

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

SO ORDERED.

➢ Bureau of Printing v. Bureau of Printing Employees Association, 1 SCRA 340

G.R. No. L-15751 January 28, 1961

BUREAU OF PRINTING, SERAFIN SALVADOR and MARIANO LEDESMA, petitioners,

vs.
THE BUREAU OF PRINTING EMPLOYEES ASSOCIATION (NLU), PACIFICO ADVINCULA, ROBERTO
MENDOZA, PONCIANO ARGANDA and TEODULO TOLERAN, respondents.

Office of the Solicitor General for petitioners.

Eulogio R. Lerum for respondents.

GUTIERREZ DAVID, J.:

This is a petition for certiorari and prohibition with preliminary injunction to annul Certain orders of the
respondent Court of Industrial Relations and to restrain it from further proceeding in the action for
unfair labor practice pending before it on the ground of lack of jurisdiction. Giving due course to the
petition, this Court ordered the issuance of the writ of preliminary injunction prayed for without bond.
The action in question was — upon complaint of the respondents Bureau of Printing Employees
Association (NLU) Pacifico Advincula, Roberto Mendoza, Ponciano Arganda and Teodulo Toleran — filed
by an acting prosecutor of the Industrial Court against herein petitioner Bureau of Printing, Serafin
Salvador, the Acting Secretary of the Department of General Services, and Mariano Ledesma the
Director of the Bureau of Printing. The complaint alleged that Serafin Salvador and Mariano Ledesma
have been engaging in unfair labor practices by interfering with, or coercing the employees of the
Bureau of Printing particularly the members of the complaining association petition, in the exercise of
their right to self-organization an discriminating in regard to hire and tenure of their employment in
order to discourage them from pursuing the union activities.

Answering the complaint, the petitioners Bureau of Printing, Serafin Salvador and Mariano Ledesma
denied the charges of unfair labor practices attributed to the and, by way of affirmative defenses,
alleged, among other things, that respondents Pacifico Advincula, Roberto Mendoza Ponciano Arganda
and Teodulo Toleran were suspended pending result of an administrative investigation against them for
breach of Civil Service rules and regulations petitions; that the Bureau of Printing has no juridical
personality to sue and be sued; that said Bureau of Printing is not an industrial concern engaged for the
purpose of gain but is an agency of the Republic performing government functions. For relief, they
prayed that the case be dismissed for lack of jurisdiction. Thereafter, before the case could be heard,
petitioners filed an "Omnibus Motion" asking for a preliminary hearing on the question of jurisdiction
raised by them in their answer and for suspension of the trial of the case on the merits pending the
determination of such jurisdictional question. The motion was granted, but after hearing, the trial judge
of the Industrial Court in an order dated January 27, 1959 sustained the jurisdiction of the court on the
theory that the functions of the Bureau of Printing are "exclusively proprietary in nature," and,
consequently, denied the prayer for dismissal. Reconsideration of this order having been also denied by
the court in banc, the petitioners brought the case to this Court through the present petition for
certiorari and prohibition.

We find the petition to be meritorious.

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

It is true, as stated in the order complained of, that the Bureau of Printing receives outside jobs and that
many of its employees are paid for overtime work on regular working days and on holidays, but these
facts do not justify the conclusion that its functions are "exclusively proprietary in nature." Overtime
work in the Bureau of Printing is done only when the interest of the service so requires (sec. 566, Rev.
Adm. Code). As a matter of administrative policy, the overtime compensation may be paid, but such
payment is discretionary with the head of the Bureau depending upon its current appropriations, so that
it cannot be the basis for holding that the functions of said Bureau are wholly proprietary in character.
Anent the additional work it executes for private persons, we find that such work is done upon request,
as distinguished from those solicited, and only "as the requirements of Government work will permit"
(sec. 1654, Rev. Adm. Code), and "upon terms fixed by the Director of Printing, with the approval of the
Department Head" (sec. 1655, id.). As shown by the uncontradicted evidence of the petitioners, most of
these works consist of orders for greeting cards during Christmas from government officials, and for
printing of checks of private banking institutions. On those greeting cards, the Government seal, of
which only the Bureau of Printing is authorized to use, is embossed, and on the bank cheeks, only the
Bureau of Printing can print the reproduction of the official documentary stamps appearing thereon.
The volume of private jobs done, in comparison with government jobs, is only one-half of 1 per cent,
and in computing the costs for work done for private parties, the Bureau does not include profit because
it is not allowed to make any. Clearly, while the Bureau of Printing is allowed to undertake private
printing jobs, it cannot be pretended that it is thereby an industrial or business concern. The additional
work it executes for private parties is merely incidental to its function, and although such work may be
deemed proprietary in character, there is no showing that the employees performing said proprietary
function are separate and distinct from those employed in its general governmental functions.

From what has been stated, it is obvious that the Court of Industrial Relations did not acquire
jurisdiction over the respondent Bureau of Printing, and is thus devoid of any authority to take
cognizance of the case. This Court has already held in a long line of decisions that the Industrial Court
has no jurisdiction to hear and determine the complaint for unfair labor practice filed against institutions
or corporations not organized for profit and, consequently, not an industrial or business organization.
This is so because the Industrial Peace Act was intended to apply only to industrial employment, and to
govern the relations between employers engaged in industry and occupations for purposes of gain, and
their industrial employees. (University of the Philippines, et al. vs. CIR, et al., G.R. No. L-15416, April 28,
1960; University of Sto. Tomas vs. Villanueva, et al., G.R. No. L-13748, October 30, 1959; La Consolacion
College vs. CIR, G.R. No. L-13282, April 22, 1960; See also the cases cited therein.) .

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

The record also discloses that the instant case arose from the filing of administrative charges against
some officers of the respondent Bureau of Printing Employees' Association by the Acting Secretary of
General Services. Said administrative charges are for insubordination, grave misconduct and acts
prejudicial to public service committed by inciting the employees, of the Bureau of Printing to walk out
of their jobs against the order of the duly constituted officials. Under the law, the Heads of Departments
and Bureaus are authorized to institute and investigate administrative charges against erring
subordinates. For the Industrial Court now to take cognizance of the case filed before it, which is in
effect a review of the acts of executive officials having to do with the discipline of government
employees under them, would be to interfere with the discharge of such functions by said officials.
WHEREFORE, the petition for a writ of prohibition is granted. The orders complained of are set aside and
the complaint for unfair labor practice against the petitioners is dismissed, with costs against
respondents other than the respondent court.
 ➢ Mobil Philippines v. Customs Arrastre Services Division, 18 SCRA 1120

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

MOBIL PHILIPPINES EXPLORATION, INC., plaintiff-appellant,

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

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

Felipe T. Cuison for defendants-appellees.

BENGZON, J.P., J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Now, the fact that a non-corporate government entity performs a function proprietary in nature does
not necessarily result in its being suable. If said non-governmental function is undertaken as an incident
to its governmental function, there is no waiver thereby of the sovereign immunity from suit extended
to such government entity. This is the doctrine recognized in Bureau of Printing, et al. vs. Bureau of
Printing Employees Association, et al., L-15751, January 28, 1961:

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

xxx xxx xxx

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

xxx xxx xxx

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

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

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

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

Among the general powers of the Civil Aeronautics Administration are, under Section 3, to
execute contracts of any kind, to purchase property, and to grant concessions rights, and under
Section 4, to charge landing fees, royalties on sales to aircraft of aviation gasoline, accessories
and supplies, and rentals for the use of any property under its management.

These provisions confer upon the Civil Aeronautics Administration, in our opinion, the power to
sue and be sued. The power to sue and be sued is implied from the power to transact private
business. . . .

xxx xxx xxx

The Civil Aeronautics Administration comes under the category of a private entity. Although not
a body corporate it was created, like the National Airports Corporation, not to maintain a
necessary function of government, but to run what is essentially a business, even if revenues be
not its prime objective but rather the promotion of travel and the convenience of the travelling
public. . . .

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

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

WHEREFORE, the order of dismissal appealed from is hereby affirmed, with costs against appellant. So
ordered.
 ➢ Merritt v. Government of the Philippines Islands, 34 Phil. 311;

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

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

Crossfield and O'Brien for plaintiff.

Attorney-General Avanceña for defendant..

TRENT, J.:

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

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

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

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

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

By reason of the resulting collision, the plaintiff was so severely injured that, according to Dr.
Saleeby, who examined him on the very same day that he was taken to the General Hospital, he
was suffering from a depression in the left parietal region, a would in the same place and in the
back part of his head, while blood issued from his nose and he was entirely unconscious.
 The marks revealed that he had one or more fractures of the skull and that the grey matter and
brain was had suffered material injury. At ten o'clock of the night in question, which was the
time set for performing the operation, his pulse was so weak and so irregular that, in his
opinion, there was little hope that he would live. His right leg was broken in such a way that the
fracture extended to the outer skin in such manner that it might be regarded as double and the
would be exposed to infection, for which reason it was of the most serious nature.

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

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

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

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

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

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

An Act authorizing E. Merritt to bring suit against the Government of the Philippine Islands and
authorizing the Attorney-General of said Islands to appear in said suit.

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

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

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

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

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

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

Enacted, February 3, 1915.

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

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

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

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

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

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

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

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

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

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

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

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

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

In Denning vs. State (123 Cal., 316), the provisions of the Act of 1893, relied upon and considered, are as
follows:

All persons who have, or shall hereafter have, claims on contract or for negligence against the
state not allowed by the state board of examiners, are hereby authorized, on the terms and
conditions herein contained, to bring suit thereon against the state in any of the courts of this
state of competent jurisdiction, and prosecute the same to final judgment. The rules of practice
in civil cases shall apply to such suits, except as herein otherwise provided.

And the court said:

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

A statute of Massachusetts enacted in 1887 gave to the superior court "jurisdiction of all claims against
the commonwealth, whether at law or in equity," with an exception not necessary to be here
mentioned. In construing this statute the court, in Murdock Grate Co. vs. Commonwealth (152 Mass.,
28), said:
 The statute we are discussing disclose no intention to create against the state a new and
heretofore unrecognized class of liabilities, but only an intention to provide a judicial tribunal
where well recognized existing liabilities can be adjudicated.

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

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

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

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

That the obligation to indemnify for damages which a third person causes to another by his fault
or negligence is based, as is evidenced by the same Law 3, Title 15, Partida 7, on that the person
obligated, by his own fault or negligence, takes part in the act or omission of the third party who
caused the damage. It follows therefrom that the state, by virtue of such provisions of law, is
not responsible for the damages suffered by private individuals in consequence of acts
performed by its employees in the discharge of the functions pertaining to their office, because
neither fault nor even negligence can be presumed on the part of the state in the organization
of branches of public service and in the appointment of its agents; on the contrary, we must
presuppose all foresight humanly possible on its part in order that each branch of service serves
the general weal an that of private persons interested in its operation. Between these latter and
the state, therefore, no relations of a private nature governed by the civil law can arise except in
a case where the state acts as a judicial person capable of acquiring rights and contracting
obligations. (Supreme Court of Spain, January 7, 1898; 83 Jur. Civ., 24.)

That the Civil Code in chapter 2, title 16, book 4, regulates the obligations which arise out of
fault or negligence; and whereas in the first article thereof. No. 1902, where the general
principle is laid down that where a person who by an act or omission causes damage to another
through fault or negligence, shall be obliged to repair the damage so done, reference is made to
acts or omissions of the persons who directly or indirectly cause the damage, the following
articles refers to this persons and imposes an identical obligation upon those who maintain fixed
relations of authority and superiority over the authors of the damage, because the law
presumes that in consequence of such relations the evil caused by their own fault or negligence
is imputable to them. This legal presumption gives way to proof, however, because, as held in
the last paragraph of article 1903, responsibility for acts of third persons ceases when the
persons mentioned in said article prove that they employed all the diligence of a good father of
a family to avoid the damage, and among these persons, called upon to answer in a direct and
not a subsidiary manner, are found, in addition to the mother or the father in a proper case,
 guardians and owners or directors of an establishment or enterprise, the state, but not always,
except when it acts through the agency of a special agent, doubtless because and only in this
case, the fault or negligence, which is the original basis of this kind of objections, must be
presumed to lie with the state.

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

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

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

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

For the foregoing reasons, the judgment appealed from must be reversed, without costs in this instance.
Whether the Government intends to make itself legally liable for the amount of damages above set
forth, which the plaintiff has sustained by reason of the negligent acts of one of its employees, by
legislative enactment and by appropriating sufficient funds therefor, we are not called upon to
determine. This matter rests solely with the Legislature and not with the courts.
 ➢ Department of Agriculture v. NLRC, 227 SCRA 693

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 counterclaim16 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.

➢ Amigable v. Cuenca, 43 SCRA 460

G.R. No. L-26400 February 29, 1972

VICTORIA AMIGABLE, plaintiff-appellant,

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

MAKALINTAL, J.:p

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

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

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

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

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

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

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

The issue here is whether or not the appellant may properly sue the government under the facts of the
case.
In the case of Ministerio vs. Court of First Instance of Cebu,1 involving a claim for payment of the value of
a portion of land used for the widening of the Gorordo Avenue in Cebu City, this Court, through Mr.
Justice Enrique M. Fernando, held that where the government takes away property from a private
landowner for public use without going through the legal process of expropriation or negotiated sale,
the aggrieved party may properly maintain a suit against the government without thereby violating the
doctrine of governmental immunity from suit without its consent. We there said: .

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

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

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

WHEREFORE, the decision appealed from is hereby set aside and the case remanded to the court a
quo for the determination of compensation, including attorney's fees, to which the appellant is entitled
as above indicated. No pronouncement as to costs.
 ➢ EPG Construction v. Secretary Vigilar, G.R. No. 131544, 16 March 2001;

[G.R. No. 131544. March 16, 2001.]

EPG CONSTRUCTION CO., CIPER ELECTRICAL & ENGINEERING, SEPTA CONSTRUCTION CO., PHIL.
PLUMBING CO., HOME CONSTRUCTION INC., WORLD BUILDERS CO., GLASS WORLD INC.,
PERFORMANCE BUILDERS DEV’T. CO., DE LEON-ARANETA CONST. CO., J.D. MACAPAGAL CONST. CO.,
All represented by their Atty. IN FACT, MARCELO D, FORONDA, Petitioners, v. HON. GREGORIO R.
VIGILAR, In His Capacity as Secretary of Public Works and Highways, Respondent.

DECISION

BUENA, J.:

Sought to be reversed in the instant Petition for Certiorari is the Decision, dated 07 November 1997, of
the Regional Trial Court of Quezon City, Branch 226, in Civil Case No. Q-96-29243, 1 dismissing the
Petition for Mandamus filed by herein petitioners against herein respondent Hon. Gregorio Vigilar, in his
capacity as Secretary of the Department of Public Works and Highways (DPWH).chanrob1es virtua1 1aw
1ibrary

The tapestry of facts unfurls.

In 1983, the Ministry of Human Settlement, through the BLISS Development Corporation, initiated a
housing project on a government property along the east bank of the Manggahan Floodway in Pasig
City. For this purpose, the Ministry of Human Settlement entered into a Memorandum of Agreement
(MOA) with the Ministry of Public Works and Highways, 2 where the latter undertook to develop the
housing site and construct thereon 145 housing units.

By virtue of the MOA, the Ministry of Public Works and Highways forged individual contracts with herein
petitioners EPG Construction Co., Ciper Electrical and Engineering, Septa Construction Co., Phil.
Plumbing Co., Home Construction Inc., World Builders Inc., Glass World Inc., Performance Builders
Development Co. and De Leon Araneta Construction Co., for the construction of the housing units.
Under the contracts, the scope of construction and funding therefor covered only around "2/3 of each
housing unit." 3 After complying with the terms of said contracts, and by reason of the verbal request
and assurance of then DPWH Undersecretary Aber Canlas that additional funds would be available and
forthcoming, petitioners agreed to undertake and perform "additional constructions" 4 for the
completion of the housing units, despite the absence of appropriations and written contracts to cover
subsequent expenses for the "additional constructions."cralaw virtua1aw library

Petitioners then received payment for the construction work duly covered by the individual written
contracts, thereby leaving an unpaid balance of P5,918,315.63, 5 which amount represents the expenses
for the "additional constructions" for the completion of the existing housing units. On 14 November
1988, petitioners sent a demand letter to the DPWH Secretary and submitted that their claim for
payment was favorably recommended by DPWH Assistant Secretary for Legal Services Dominador
Madamba, who recognized the existence of implied contracts covering the additional constructions.
Notwithstanding, DPWH Assistant Secretary Madamba opined that payment of petitioners’ money
claims should be based on quantum meruit and should be forwarded to the Commission on Audit (COA)
for its due consideration and approval. The money claims were then referred to COA which returned the
same to the DPWH Auditor for auditorial action. On the basis of the Inspection Report of the Auditor’s
Technical Staff, the DPWH Auditor interposed no objection to the payment of the money claims subject
to whatever action the COA may adopt.

In a Second Indorsement dated 27 July 1992, the COA returned the documents to the DPWH, stating
that funds should first be made available before COA could pass upon and act on the money claims. In a
Memorandum dated 30 July 1992, then DPWH Secretary Jose De Jesus requested the Secretary of
Budget and Management to release public funds for the payment of petitioners’ money claims, stating
that the "amount is urgently needed in order to settle once and for all this (sic) outstanding obligations
of the government." In a Letter of the Undersecretary of Budget and Management dated 20 December
1994, the amount of P5,819,316.00 was then released for the payment of petitioners’ money claims,
under Advise of Allotment No. A4-1303-04-41-303.

In an Indorsement dated 27 December 1995, the COA referred anew the money claims to the DPWH
pursuant to COA Circular 95-006, thus:jgc:chanrobles.com.ph

"Respectfully returned thru the Auditor to the Honorable Secretary, Department of Public Works and
Highways, Port Area, Manila, the above-captioned subject (Re: Claim of Ten (10) contractors for
payment of Work accomplishments on the construction of the COGEO II Housing Project, Pasig, Metro
Manila) and reiterating the policy of this office as embodied in COA Circular No. 95-006 dated May 18,
1995 totally lifting its pre-audit activities on all financial transactions of the agencies of the government
involving implementation/prosecution of projects and/or payment of claims without exception so as to
vest on agency heads the prerogative to exercise fiscal responsibility thereon.

"The audit of the transaction shall be done after payment."cralaw virtua1aw library

In a letter dated 26 August 1996, respondent DPWH Secretary Gregorio Vigilar denied the subject
money claims prompting herein petitioners to file before the Regional Trial Court of Quezon City, Branch
226, a Petition for Mandamus praying that herein respondent be ordered:jgc:chanrobles.com.ph

"1) To pay petitioners the total of P5,819,316.00;chanrob1es virtua1 1aw 1ibrary

"2) To pay petitioners moral and exemplary damages in the amount to be fixed by the Court and sum of
P500,000.00 as attorney’s fees.

On 18 February 1997, the lower court conducted a pre-trial conference where the parties appeared and
filed their respective pre-trial briefs. Further, respondent submitted a Memorandum to which
petitioners filed a Rejoinder.

On 07 November 1997, the lower court denied the Petition for Mandamus, in a Decision which disposed
as follows:jgc:chanrobles.com.ph

"WHEREFORE, in view of all the foregoing, the instant Petition for Mandamus is dismissed. The order of
September 24, 1997, submitting the Manifestation and Motion for Resolution, is hereby withdrawn.

"SO ORDERED."cralaw virtua1aw library

Hence, this petition where the core issue for resolution focuses on the right of petitioners-contractors to
compensation for a public works housing project.

In the case before us, respondent, citing among others Sections 46 6 and 47, 7 Chapter 7, Sub-Title B,
Title I, Book V of the Administrative Code of 1987 (E.O 292), posits that the "existence of appropriations
and availability of funds as certified to and verified by the proper accounting officials are conditions sine
qua non for the execution of government contracts." 8 Respondent harps on the fact that "the
additional work was pursued through the verbal request of then DPWH Undersecretary Aber P. Canlas,
despite the absence of the corresponding supplemental contracts and appropriate funding." 9 According
to respondent, "sans showing of certificate of availability of funds, the implied contracts are considered
fatally defective and considered inexistent and void ab initio." Respondent concludes that "inasmuch as
the additional work done was pursued in violation of the mandatory provisions of the laws concerning
contracts involving expenditure of public funds and in excess of the public official’s contracting
authority, the same is not binding on the government and impose no liability therefor." 10

Although this Court agrees with respondent’s postulation that the "implied contracts", which covered
the additional constructions, are void, in view of violation of applicable laws, auditing rules and lack of
legal requirements, 11 we nonetheless find the instant petition laden with merit and uphold, in the
interest of substantial justice, petitioners-contractors’ right to be compensated for the "additional
constructions" on the public works housing project, applying the principle of quantum meruit.

Interestingly, this case is not of first impression. In Eslao v. Commission on Audit, 12 this Court likewise
allowed recovery by the contractor on the basis of quantum meruit, following our pronouncement in
Royal Trust Construction v. Commission on Audit, 13 thus:jgc:chanrobles.com.ph

"In Royal Trust Construction v. COA, a case involving the widening and deepening of the Betis River in
Pampanga at the urgent request of the local officials and with the knowledge and consent of the
Ministry of Public Works, even without a written contract and the covering appropriation, the project
was undertaken to prevent the overflowing of the neighboring areas and to irrigate the adjacent
farmlands. The contractor sought compensation for the completed portion in the sum of over P1 million.
While the payment was favorably recommended by the Ministry of Public Works, it was denied by the
respondent COA on the ground of violation of mandatory legal provisions as the existence of
corresponding appropriations covering the contract cost. Under COA Res. No. 36-58 dated November
15, 1986, its existing policy is to allow recovery from covering contracts on the basis of quantum meruit
if there is delay in the accomplishment of the required certificate of availability of funds to support a
contract." (Emphasis ours)

In the Royal Construction case, this Court, applying the principle of quantum meruit in allowing recovery
by the contractor, elucidated:jgc:chanrobles.com.ph

"The work done by it (the contractor) was impliedly authorized and later expressly acknowledged by the
Ministry of Public Works, which has twice recommended favorable action on the petitioner’s request for
payment. Despite the admitted absence of a specific covering appropriation as required under COA
Resolution No. 36-58, the petitioner may nevertheless be compensated for the services rendered by it,
concededly for the public benefit, from the general fund allotted by law to the Betis River project.
Substantial compliance with the said resolution, in view of the circumstances of this case, should suffice.
The Court also feels that the remedy suggested by the respondent, to wit, the filing of a complaint in
court for recovery of the compensation claimed, would entail additional expense, inconvenience and
delay which in fairness should be imposed on the petitioner.

"Accordingly, in the interest of substantial justice and equity, the respondent Commission on Audit is
DIRECTED to determine on a quantum meruit basis the total compensation due to the petitioner for the
services rendered by it in the channel improvement of the Betis River in Pampanga and to allow the
payment thereof immediately upon completion of the said determination." (Emphasis ours)chanrob1es
virtua1 1aw 1ibrary

Similarly, this Court applied the doctrine of quantum meruit in Melchor v. Commission on Audit 14 and
explained that where payment is based on quantum meruit, the amount of recovery would only be the
reasonable value of the thing or services rendered regardless of any agreement as to value. 15

Notably, the peculiar circumstances present in the instant case buttress petitioners’ claim for
compensation for the additional constructions, despite the illegality and void nature of the "implied
contracts" forged between the DPWH and petitioners-contractors. On this matter, it bears stressing that
the illegality of the subject contracts proceeds from an express declaration or prohibition by law, 16 and
not from any intrinsic illegality. Stated differently, the subject contracts are not illegal per se.

Of equal significance are circumstances attendant and peculiar in this case which necessitate allowance
of petitioners’ money claims — on the basis of quantum meruit — for work accomplished on the
government housing project.

To begin with, petitioners-contractors assented and agreed to undertake additional constructions for
the completion of the housing units, believing in good faith and in the interest of the government and, in
effect, the public in general, that appropriations to cover the additional constructions and completion of
the public works housing project would be available and forthcoming. On this particular score, the
records reveal that the verbal request and assurance of then DPWH Undersecretary Canlas led
petitioners-contractors to undertake the completion of the government housing project, despite the
absence of covering appropriations, written contracts, and certification of availability of funds, as
mandated by law and pertinent auditing rules and issuances. To put it differently, the "implied
contracts," declared void in this case, covered only the completion and final phase of construction of the
housing units, which structures, concededly, were already existing, albeit not yet finished in their
entirety at the time the "implied contracts" were entered into between the government and the
contractors.

Further, petitioners-contractors sent to the DPWH Secretary a demand letter pressing for their money
claims, on the strength of a favorable recommendation from the DPWH Assistant Secretary for Legal
Affairs to the effect that implied contracts existed and that the money claims had ample basis applying
the principle of quantum meruit. Moreover, as can be gleaned from the records, even the DPWH
Auditor interposed no objection to the payment of the money claims, subject to whatever action the
COA may adopt.

Beyond this, the sum of P5,819,316.00 representing the amount of petitioners’ money claims, had
already been released by the Department of Budget and Management (DBM), under Advise of
Allotment No. A4-1303-04-41-303. Equally important is the glaring fact that the construction of the
housing units had already been completed by petitioners-contractors and the subject housing units had
been, since their completion, under the control and disposition of the government pursuant to its public
works housing project.

To our mind, it would be the apex of injustice and highly inequitable for us to defeat petitioners-
contractors’ right to be duly compensated for actual work performed and services rendered, where both
the government and the public have, for years, received and accepted benefits from said housing
project and reaped the fruits of petitioners-contractors’ honest toil and labor.

Incidentally, respondent likewise argues that the State may not be sued in the instant case, invoking the
constitutional doctrine of Non-suability of the State, 17 otherwise known as the Royal Prerogative of
Dishonesty.

Respondent’s argument is misplaced inasmuch as the Principle of State Immunity finds no application in
the case before us.

Under these circumstances, respondent may not validly invoke the Royal Prerogative of Dishonesty and
conveniently hide under the State’s cloak of invincibility against suit, considering that this principle
yields to certain settled exceptions. True enough, the rule, in any case, is not absolute for it does not say
that the state may not be sued under any circumstance. 18

Thus, in Amigable v. Cuenca, 19 this Court, in effect, shred the protective shroud which shields the State
from suit, reiterating our decree in the landmark case of Ministerio v. CFI of Cebu 20 that "the doctrine
of governmental immunity from suit cannot serve as an instrument for perpetrating an injustice on a
citizen." It is just as important, if not more so, that there be fidelity to legal norms on the part of
officialdom if the rule of law were to be maintained. 21

Although the Amigable and Ministerio cases generously tackled the issue of the State’s immunity from
suit vis a vis the payment of just compensation for expropriated property, this Court nonetheless finds
the doctrine enunciated in the aforementioned cases applicable to the instant controversy, considering
that the ends of justice would be subverted if we were to uphold, in this particular instance, the State’s
immunity from suit.

To be sure, this Court — as the staunch guardian of the citizens’ rights and welfare — cannot sanction an
injustice so patent on its face, and allow itself to be an instrument in the perpetration thereof. Justice
and equity sternly demand that the State’s cloak of invincibility against suit be shred in this particular
instance, and that petitioners-contractors be duly compensated — on the basis of quantum meruit —
for construction done on the public works housing project.chanrob1es virtua1 1aw 1ibrary

IN VIEW WHEREOF, the instant petition is GRANTED. The assailed decision of the Regional Trial Court
dated 07 November 1997 is REVERSED AND SET ASIDE.

ACCORDINGLY, the Commission on Audit is hereby directed to determine and ascertain with dispatch,
on a quantum meruit basis, the total compensation due to petitioners-contractors for the additional
constructions on the housing project and to allow payment thereof upon the completion of said
determination. No costs.

SO ORDERED.
 ➢ Froilan v. Pan Oriental Shipping, G.R. No. L- 6060, 30 September 1950;

G.R. No. L-6060 September 30, 1954

FERNANDO A. FROILAN, plaintiff-appellee,

vs.
PAN ORIENTAL SHIPPING CO., defendant-appellant,
REPUBLIC OF THE PHILIPPINES, intervenor-appellee.

Quisumbing, Sycip, Quisumbing and Salazar, for appellant.

Ernesto Zaragoza for appellee.
Hilarion U. Jarencio for the intervenor.

PARAS, C.J.:

The factual antecedents of this case are sufficiently recited in the brief filed by the intervenor-appellee
as follows:

1. On February 3, 1951, plaintiff-appellee, Fernando A. Froilan, filed a complaint against the

defendant-appellant, Pan Oriental Shipping Co., alleging that he purchased from the Shipping
Commission the vessel FS-197 for P200,000, paying P50,000 down and agreeing to pay the
balance in installments; that to secure the payment of the balance of the purchase price, he
executed a chattel mortgage of said vessel in favor of the Shipping Commission; that for various
reason, among them the non-payment of the installments, the Shipping Commission took
possession of said vessel and considered the contract of sale cancelled; that the Shipping
Commission chartered and delivered said vessel to the defendant-appellant Pan Oriental
Shipping Co. subject to the approval of the President of the Philippines; that he appealed the
action of the Shipping Commission to the President of the Philippines and, in its meeting on
August 25, 1950, the Cabinet restored him to all his rights under his original contract with the
Shipping Commission; that he had repeatedly demanded from the Pan Oriental Shipping Co. the
possession of the vessel in question but the latter refused to do so. He, therefore, prayed that,
upon the approval of the bond accompanying his complaint, a writ of replevin be issued for the
seizure of said vessel with all its equipment and appurtenances, and that after hearing, he be
adjudged to have the rightful possession thereof (Rec. on App. pp. 2-8).

2. On February 3, 1951, the lower court issued the writ of replevin prayed for by Froilan and by
virtue thereof the Pan Oriental Shipping Co. was divested of its possession of said vessel (Rec. on
App. p. 47).

3. On March 1, 1951, Pan Oriental Shipping Co. filed its answer denying the right of Froilan to
the possession of the said vessel; it alleged that the action of the Cabinet on August 25, 1950,
restoring Froilan to his rights under his original contract with the Shipping Commission was null
and void; that, in any event, Froilan had not complied with the conditions precedent imposed by
the Cabinet for the restoration of his rights to the vessel under the original contract; that it
suffered damages in the amount of P22,764.59 for wrongful replevin in the month of February,
1951, and the sum of P17,651.84 a month as damages suffered for wrongful replevin from
March 1, 1951; it alleged that it had incurred necessary and useful expenses on the vessel
amounting to P127,057.31 and claimed the right to retain said vessel until its useful and
necessary expenses had been reimbursed (Rec. on App. pp. 8-53).

4. On November 10, 1951, after the leave of the lower court had been obtained, the intervenor-
appellee, Government of the Republic of the Philippines, filed a complaint in intervention
alleging that Froilan had failed to pay to the Shipping Commission (which name was later
changed to Shipping Administration) the balance due on the purchase price of the vessel in
question, the interest thereon, and its advances on insurance premium totalling P162,142.95,
excluding the dry-docking expenses incurred on said vessel by the Pan Oriental Shipping Co.;
that intervenor was entitled to the possession of the said vessel either under the terms of the
original contract as supplemented by Froilan's letter dated January 28, 1949, or in order that it
may cause the extrajudicial sale thereof under the Chattel Mortgage Law. It, therefore, prayed
that Froilan be ordered to deliver the vessel in question to its authorized representative, the
Board of Liquidators; that Froilan be declared to be without any rights on said vessel and the
amounts he paid thereon forfeited or alternately, that the said vessel be delivered to the Board
of Liquidators in order that the intervenor may have its chattel mortgage extrajudicially
foreclosed in accordance with the provisions of the Chattel Mortgage Law; and that pending the
hearing on the merits, the said vessel be delivered to it (Rec. on App. pp. 54-66).

5. On November 29, 1951, the Pan Oriental Shipping Co. filed an answer to the complaint in
intervention alleging that the Government of the Republic of the Philippines was obligated to
deliver the vessel in question to it by virtue of a contract of bare-boat charter with option to
purchase executed on June 16, 1949, by the latter in favor of the former; it also alleged that it
had made necessary and useful expenses on the vessel and claimed the right of retention of the
vessel. It, therefore, prayed that, if the Republic of the Philippines succeeded in obtaining
possession of the said vessel, to comply with its obligations of delivering to it (Pan Oriental
Shipping co.) or causing its delivery by recovering it from Froilan (Rec. on App. pp. 69-81).

6. On November 29, 1951, Froilan tendered to the Board of Liquidators, which was liquidating
the affairs of the Shipping Administration, a check in the amount of P162,576.96 in payment of
his obligation to the Shipping Administration for the said vessel as claimed in the complaint in
intervention of the Government of the Republic of the Philippines. The Board of Liquidators
issued an official report therefor stating that it was a 'deposit pending the issuance of an order
of the Court of First Instance of Manila' (Rec. on App. pp. 92-93).

7. On December 7, 1951, the Government of the Republic of the Philippines brought the matter
of said payment and the circumstance surrounding it to the attention of the lower court "in
order that they may be taken into account by this Honorable Court in connection with the
questions that are not pending before it for determination" (Rec. on App. pp. 82-86).

8. On February 3, 1952, the lower court held that the payment by Froilan of the amount of
P162,576.96 on November 29, 1951, to the Board of Liquidators constituted a payment and a
discharge of Froilan's obligation to the Government of the Republic of the Philippines and
ordered the dismissal of the latter's complaint in intervention. In the same order, the lower
court made it very clear that said order did not pre-judge the question involved between Froilan
and the Oriental Shipping Co. which was also pending determination in said court (Rec. on App.
pp. 92-93). This order dismissing the complaint in intervention, but reserving for future
adjudication the controversy between Froilan and the Pan Oriental Shipping Co. has already
 become final since neither the Government of the Republic of the Philippines nor the Pan
Oriental Shipping Co. had appealed therefrom.

9. On May 10, 1952, the Government of the Republic of the Philippines filed a motion to dismiss
the counterclaim of the Pan Oriental Shipping Co. against it on the ground that the purpose of
said counterclaim was to compel the Government of the Republic of the Philippines to deliver
the vessel to it (Pan Oriental Shipping Co.) in the event that the Government of the Republic of
the Philippines recovers the vessel in question from Froilan. In view, however, of the order of
the lower court dated February 3, holding that the payment made by Froilan to the Board of
Liquidators constituted full payment of Froilan's obligation to the Shipping Administration,
which order had already become final, the claim of the Pan Oriental Shipping Co. against the
Republic of the Philippines was no longer feasible, said counterclaim was barred by prior
judgment and stated no cause of action. It was also alleged that movant was not subject to the
jurisdiction of the court in connection with the counterclaim. (Rec. on App. pp. 94-97). This
motion was opposed by the Pan Oriental Shipping Co. in its written opposition dated June 4,
1952 (Rec. on app. pp. 19-104).

10. In an order dated July 1, 1952, the lower court dismissed the counterclaim of the Pan
Oriental Shipping Co. as prayed for by the Republic of the Philippines (Rec. on App. pp. 104-106).

11. It if from this order of the lower court dismissing its counterclaim against the Government of
the Republic of the Philippines that Pan Oriental Shipping Co. has perfected the present appeal
(Rec. on App. p. 107).

The order of the Court of First Instance of Manila, dismissing the counterclaim of the defendant Pan
Oriental Shipping Co., from which the latter has appealed, reads as follows:

This is a motion to dismiss the counterclaim interposed by the defendant in its answer to the
complaint in intervention.

"The counterclaim states as follows:

"COUNTERCLAIM

"As counterclaim against the intervenor Republic of the Philippines, the defendant alleges:

"1. That the defendant reproduces herein all the pertinent allegations of the foregoing answer
to the complaint in intervention

"2. That, as shown by the allegations of the foregoing answer to the complaint in intervention,
the defendant Pan Oriental Shipping Company is entitled to the possession of the vessel and the
intervenor Republic of the Philippines is bound under the contract of charter with option to
purchase it entered into with the defendant to deliver that possession to the defendant —
whether it actually has the said possession or it does not have that possession from the plaintiff
Fernando A. Froilan and deliver the same to the defendant;
 "3. That, notwithstanding demand, the intervenor Republic of the Philippines has not to date
complied with its obligation of delivering or causing the delivery of the vessel to the defendant
Pan Oriental Shipping Company.1âwphïl.nêt

"RELIEF

"WHEREFORE, the defendant respectfully prays that judgment be rendered ordering the
intervenor Republic of the Philippines alternatively to deliver to the defendants the possession
of the said vessel, or to comply with its obligation to the defendant or causing the delivery to
the latter of the said vessel by recovering the same from plaintiff, with costs.

"The defendant prays for such other remedy as the Court may deem just and
equitable in the premises."

The ground of the motion to dismiss are (a) That the cause of action is barred by prior judgment;
(b) That the counterclaim states no cause of action; and (c) That this Honorable Court has no
jurisdiction over the intervenor government of the Republic of the Philippines in connection
with the counterclaim of the defendant Pan Oriental Shipping Co.

The intervenor contends that the complaint in intervention having been dismissed and no
appeal having been taken, the dismissal of said complaint is tantamount to a judgment.

The complaint in intervention did not contain any claim whatsoever against the defendant Pan
Oriental Shipping Co.; hence, the counterclaim has no foundation.

The question as to whether the Court has jurisdiction over the intervenor with regard to the
counterclaim, the Court is of the opinion that it has no jurisdiction over said intervenor.

It appearing, therefore, that the grounds of the motion to dismiss are well taken, the
counterclaim of the defendant is dismissed, without pronouncement as to costs.

The defendant's appeal is predicated upon the following assignments of error:

I. The lower court erred in dismissing the counterclaim on the ground of prior judgment.

II. The lower court erred in dismissing the counterclaim on the ground that the counterclaim had
no foundation because made to a complaint in intervention that contained no claim against the
defendant.

III. The lower court erred in dismissing the counterclaim on the ground of alleged lack of
jurisdiction over the intervenor Republic of the Philippines.

We agree with appellant's contention that its counterclaim is not barred by prior judgment (order of
February 8, 1952, dismissing the complaint in intervention), first, because said counterclaim was filed on
November 29, 1951, before the issuance of the order invoked; and, secondly, because in said order of
February 8, the court dismissed the complaint in intervention, "without, of course, precluding the
determination of the right of the defendant in the instant case," and subject to the condition that the
"release and cancellation of the chattel mortgage does not, however, prejudge the question involved
between the plaintiff and the defendant which is still the subject of determination in this case." It is to
be noted that the first condition referred to the right of the defendant, as distinguished from the second
condition that expressly specified the controversy between the plaintiff and the defendant. That the first
condition reserved the right of the defendant as against the intervenor, is clearly to be deduced from
the fact that the order of February 8 mentioned the circumstance that "the question of the expenses of
drydocking incurred by the defendant has been included in its counterclaim against the plaintiff,"
apparently as one of the grounds for granting the motion to dismiss the complaint in intervention.

The defendant's failure to appeal from the order of February 8 cannot, therefore, be held as barring the
defendant from proceeding with its counterclaim, since, as already stated, said order preserved its right
as against the intervenor. Indeed, the maintenance of said right is in consonance with Rule 30, section 2,
of the Rules of Court providing that "if a counterclaim has been pleaded by a defendant prior to the
service upon him of the plaintiff's motion to dismiss, the action shall not be dismissed against the
defendant's objection unless the counterclaim can remain pending for independent adjudication by the
court."

The lower court also erred in holding that, as the intervenor had not made any claim against the
defendant, the latter's counterclaim had no foundation. The complaint in intervention sought to recover
possession of the vessel in question from the plaintiff, and this claim is logically adverse to the position
assumed by the defendant that it has a better right to said possession than the plaintiff who alleges in
his complaint that he is entitled to recover the vessel from the defendant. At any rate a counterclaim
should be judged by its own allegations, and not by the averments of the adverse party. It should be
recalled that the defendant's theory is that the plaintiff had already lost his rights under the contract
with the Shipping Administration and that, on the other hand, the defendant is relying on the charter
contract executed in its favor by the intervenor which is bound to protect the defendant in its
possession of the vessel. In other words, the counterclaim calls for specific performance on the part of
the intervenor. As to whether this counterclaim is meritorious is another question which is not now
before us.

The other ground for dismissing the defendant's counterclaim is that the State is immune from suit. This
is untenable, because by filing its complaint in intervention the Government in effect waived its right of
nonsuability.

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 a private party, 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. The United States Supreme Court thus explains:

"No direct suit can be maintained against the United States. But when an action is
brought by the United States to recover money in the hands of a party who has a legal
claim against them, it would be a very rigid principle to deny to him the right of setting
up such claim in a court of justice, and turn him around to an application to Congress."
(Sinco, Philippine Political Law, Tenth Ed., pp. 36-37, citing U. S. vs. Ringgold, 8 Pet. 150,
8 L. ed. 899.)
It is however, contended for the intervenor that, if there was at all any waiver, it was in favor of the
plaintiff against whom the complaint in intervention was directed. This contention is untenable. As
already stated, the complaint in intervention was in a sense in derogation of the defendant's claim over
the possession of the vessel in question.

Wherefore, the appealed order is hereby reversed and set aside and the case remanded to the lower
court for further proceedings. So ordered, without costs.

➢ Lim v. Brownell, 107 Phil. 345;

G.R. No. L-8587 March 24, 1960

BENITO E. LIM, as administrator of the Intestate Estate of Arsenia Enriquez, plaintiff-appellant,

vs.
HERBERT BROWNELL, JR., Attorney General of the United States, and ASAICHI KAGAWA, defendants-
appellee, REPUBLIC OF THE PHILIPPINES, intervenor-appellee.

Angel S. Gamboa for appellant.

Townsend, Gilbert, Santos and Patajo for appellee.
Alfredo Catolico for intervenor.

GUTIERREZ DAVID, J.:

This is an appeal from an order of the Court of First Instance of Manila, dismissing plaintiff's action for
the recovery of real property for lack of jurisdiction over the subject matter.

The property in dispute consists of four parcels of land situated in Tondo, City of Manila, with a total
area of 29,151 square meters. The lands were, after the last world war, found by the Alien Property
Custodian of the United States to be registered in the name of Asaichi Kagawa, national of an enemy
country, Japan, as evidenced by Transfer Certificates of Title Nos. 64904 to 65140, inclusive, for which
reason the said Alien Property Custodian, on March 14, 1946, issued a vesting order on the authority of
the Trading with the Enemy Act of the United States, as amended, vesting in himself the ownership over
two of the said lots, Lots Nos. 1 and 2. On July, 6, 1948, the Philippine Alien Property Administrator
(successor of the Alien Property Custodian) under the authority of the same statute, issued a
supplemental vesting order, vesting in himself title to the remaining Lots Nos. 3 and 4. On August 3,
1948, the Philippine Alien Property Administrator (acting on behalf of the President of the United States)
and the President of the Philippines, executed two formal agreements, one referring to Lots 1 and 2 and
the other to Lots 3 and 4, whereby the said Administrator transferred all the said four lots to the
Republic of the Philippines upon the latter's undertaking fully to indemnify the United States for all
claims in relation to the property transferred, which claims are payable by the United States of America
or the Philippine Alien Property Administrator of the United States under the Trading with the Enemy
Act, as amended, and for all such costs and expenses of administration as may by law be charged against
the property or proceeds thereof hereby transferred." The transfer agreements were executed pursuant
to section 3 of the Philippine Property Act of 1946 and Executive Order No. 9921, dated January 10,
1948, of the President of the United States.
On the theory that the lots in question still belonged to Arsenia Enriquez, the latter's son Benito E. Lim
filed on November 15, 1948 a formal notice of claim to the property with the Philippine Alien Property
Administrator. The notice was subsequently amended to permit Lim to prosecute the claim as
administrator of the intestate estate of the deceased Arsenia Enriquez, thus, in effect, substituting the
intestate estate as the claimant, it being alleged that the lots were once the property of Arsenia
Enriquez; that they were mortgaged by her to the Mercantile Bank of China; that the mortgage having
been foreclosed, the property was sold at public auction during the war to the Japanese Asaichi Kagawa,
who, by means of threat and intimidation succeeded in preventing Arsenia Enriquez from exercising her
right of redemption; and that Kagawa never acquired any valid title to the property because he was
ineligible under the Constitution to acquire residential land in the Philippines by reason of alien age.

On March 7, 1950, the claim was disallowed by the Vested Property Claims Committee of the Philippine
Alien Property Administrator, and copy of the decision disallowing the claim was received by claimant's
counsel on the 15th of that month. The claimant, however, took no appeal to the Philippine Alien
Property Administrator, so that pursuant to the rules of procedure governing claims before the
Philippine Alien Property Administrator, the decision of the committee became final on April 15, 1950,
that is, twenty days after receipt of the decision by claimant's counsel.

On November 13, 1950, the claimant Benito E. Lim, as administrator of the intestate estate of Arsenia
Enriquez, filed a complaint in the Court of First Instance of Manila against the Philippine Alien Property
Administrator (later substituted by the Attorney General of the United States) for the recovery of the
property in question with back rents. The complaint was later amended to include Asaichi Kagawa as
defendant. As amended, it alleged that the lands in question formerly belonged to Arsenia Enriquez and
were mortgaged by her to the Mercantile Bank of China; that the mortgage having been foreclosed, she
was sentenced to pay the mortgage debt within 3 months; that within those 3 months the bank
commissioner, who had been appointed liquidator of said bank, assured her that she could pay her
mortgage debt little by little in monthly installments, and pursuant to that arrangement the income
derived from the mortgaged property were thereafter applied to her indebtedness, that such payment
of the mortgage debt continued until a few months after the occupation of the City of Manila by the
Japanese forces, when the Bank of Taiwan, having taken over the administration and control of all banks
in the Philippines, including the Mercantile Bank of China, had the properties sold at public auction on
October 26, 1942 by the sheriff of the city; that the properties were awarded to Asaichi Kagawa and the
sale was subsequently confirmed by the court; that if Arsenia Enriquez failed to redeem the properties
before the confirmation of the sale, it was because of the financial depression and also because she was
prevented from doing so by Kagawa through threats and intimidation; that the auction sale was
irregular and illegal because it was made without publication or notice and because though the land was
subdivided into lots, the same was sold as a whole; that because of the irregularities mentioned,
competitive bidding was prevented or stifled with the result that the lands, which could have been easily
sold for P300,000 at then prevailing prices, were awarded to Kagawa whose bid was only P54,460.40, a
price that was "grossly inadequate and shocking to the conscience;" that the titles to the lands having
been subsequently transferred to Kagawa, the latter in June, 1943 illegally dispossessed Arsenia
Enriquez and kept possession of the properties until the liberation of the City of Manila; that as Arsenia
Enriquez was still the owner of the properties, the seizure thereof by the United States Attorney
General's predecessors on the assumption that they belong to Kagawa, as well as their decision
disallowing her claim, was contrary to law. Plaintiff, therefore, prayed that the sheriff's sale to Kagawa
and the vesting of the properties in the Philippine Alien Property Administrator and the transfer thereof
by the United States to the Republic of the Philippines be declared null and void; that Arsenia Enriquez
be adjudged owner of the said properties and the Register of Deeds of Manila be ordered to issue the
corresponding transfer certificates of title to her; and that the defendant Attorney General of the United
States be required to pay rental from March 14, 1946, and the Government of the Philippines from
August 3, 1948, at the rate of P30,000 per annum with legal interest.The defendant Attorney General of
the United States and the defendant-intervenor Republic of the Philippines each filed an answer,
alleging by way of affirmative defenses (1) that the action with respect to Lots 1 and 2 had already
prescribed, the same not having been brought within the period prescribed in section 33 of the Trading
with the Enemy Act, as amended, and (2) that the lower court had no jurisdiction over the claim for
rentals since the action in that regard constituted a suit against the United States to which it had not
given its consent.

The defendant Asaichi Kagawa was summoned by publication, but having failed to file an answer to the
complaint, he was declared in default. Thereafter, a preliminary hearing on the affirmative defenses was
held at the instance of the United States Attorney General pursuant to Section 5, Rule 8 of the Rules of
Court. After said hearing, the court ordered the complaint dismissed on the ground — as stated in the
dispositive part of the order — that the "court has no jurisdiction over the subject matter of this action,
taking into consideration the provisions of Sec. 34 (must be 33) of the Trading with the Enemy Act, as
the requirements needed by the above-mentioned Act have not been fulfilled by the herein plaintiff."
From that order, plaintiff has taken the present appeal.

Judging from the context of the order complained of, it would appear that the dismissal of plaintiff's
action was actually based upon the principle that a foreign state or its government cannot be sued
without its consent. Considering, however, the law applicable, we do not think the order of dismissal can
be sustained in its entirety. There is no denying that an action against the Alien Property Custodian, or
the Attorney General of the United States as his successor, involving vested property under the Trading
with the Enemy Act located in the Philippines, is in substance an action against the United States. The
immunity of the state from suit, however, cannot be invoked where the action, as in the present case, is
instituted by a person who is neither an enemy or ally of an enemy for the purpose of establishing his
right, title or interest in vested property, and of recovering his ownership and possession. Congressional
consent to such suit has expressly been given by the United States. (Sec. 3, Philippine Property Act of
1946; Philippine Alien Property Administration vs. Castelo, et al., 89 Phil., 568.)

The order of dismissal, however, with respect to plaintiff's claim for damages against the defendant
Attorney General of the United States must be upheld. The relief available to a person claiming enemy
property which has been vested by the Philippines Alien Property Custodian is limited to those expressly
provided for in the Trading with the Enemy Act, which does not include a suit for damages for the use of
such vested property. That action, as held by this Court in the Castelo case just cited, is not one of those
authorized under the Act which may be instituted in the appropriate courts of the Philippines under the
provisions of section 3 of the Philippine Property Act of 1946. Congressional consent to such suit has not
been granted.

The claim for damages for the use of the property against the intervenor defendant Republic of the
Philippines to which is was transferred, likewise, cannot be maintained because of the immunity of the
state from suit. The claim obviously constitutes a charge against, or financial liability to, the Government
and consequently cannot be entertained by the courts except with the consent of said government.
(Syquia vs. Almeda Lopez, 84 Phil., 312; 47 Off. Gaz., 665; Compañia General de Tabacos vs. Gov't of PI,
45 Phil., 663.) Plaintiff argues that by its intervention, the Republic of the Philippines, in effect, waived
its right of non-suability, but it will be remembered that the Republic intervened in the case merely to
unite with the defendant Attorney General of the United States in resisting plaintiff's claims, and for that
reason asked no affirmative relief against any party in the answer in intervention it filed. On the other
hand, plaintiff in his original complaint made no claim against the Republic and only asked for damages
against it for the use of the property when the complaint was amended. In its answer to the amended
complaint, the Republic "reproduced and incorporated by reference" all the affirmative defenses
contained in the answer of the defendant Attorney General, one of which, as already stated, is that the
lower court had no jurisdiction over the claim for rentals because of lack of consent to be sued. Clearly,
this is not a case where the state takes the initiative in an action against a private party by filing a
complaint in intervention, thereby surrendering its privileged position and coming down to the level of
the defendant — as what happened in the case of Froilan vs. Pan Oriental Shipping Co., et al. 95 Phil.,
905 cited by plaintiff — but one where the state, as one of the defendants merely resisted a claim
against it precisely on the ground, among others, of its privileged position which exempts it from suit..

With respect to the recovery or return of the properties vested, section 33 of the Trading with the
Enemy Act, as amended, provides:

SEC. 33. Return of property; notice; institution of suits, computation of time. — No return may be
made pursuant to section 9 or 32 unless notice of claim has been filed: (a) in the case of any
property or interest acquired by the United States prior to December 18, 1941, by August 9,
1948; or (b) in the case of any property or interest acquired by the United States on or after
December 18, 1941, by April 30, 1949, or two years from the vesting of the property or interest
in respect of which the claim is made, whichever is later. No suit pursuant to section 9 may be
instituted after April 30, 1949, or after the expiration of two years from the date of the seizure
by or vesting in the Alien Property Custodian, as the case may be, of the property or interest in
respect of which relief is sought, whichever is later, but in computing such two years there shall
be excluded any period during which there was pending a suit or claim for return pursuant to
section 9 or 32(a) hereof. (USCA, Tit. 50, App., p. 216.)

From the above provisions, it is evident that a condition precedent to a suit for the return of property
vested under the Trading with the Enemy Act is that it should be filed not later than April 30, 1949, or
within two years from the date of vesting, whichever is later, but in computing such two years, the
period during which there was pending a suit or claim for the return of the said property pursuant to
secs. 9 or 32(a) of the Act shall be excluded. That limitation, as held in a case, is jurisdictional. (See
Cisatlantic Corporation, et al. vs. Brownell, Jr., Civil Code No. 8-221, U.S. District Court, Southern District,
New York, affirmed by the United States Court of Appeals, 2nd Circuit, May 11, 1955 (Docket No.
23499), annexed as appendices "D" and "E" in appellees' brief.) Such being the case, it is evident that the
court below erred in dismissing the complaint, at least insofar as lots 3 and 4 of the land in dispute are
concerned. These lots were vested only on July 6, 1948 and consequently the two-year period within
which to file the action for their recovery expired on July 7, 1950. But in computing that the two-year
period, the time during which plaintiff's claim with the Philippine Alien Property Administration was
pending — from November 16, 1948 when the claim was filed to March 7, 1950 when it was dissallowed
— should be excluded. The complaint thereof filed on November 13, 1950 is well within the prescribed
period. As a matter of fact, the Attorney General of the United States concedes that the dismissal of the
complaint with respect to these lots was erroneous. Indeed, he states that he had never asked for the
dismissal of the complaint with respect to them because the complaint insofar as those properties were
concerned was filed within the period provided for in the law.

On the other hand, lots 1 and 2 were vested by the Alien Property Custodian on March 14, 1946. The
two-year period, therefore, within which to file a suit for their return expired on March 14, 1948. As no
suit or claim for the return of said properties pursuant to sections 9 or 32(a) of the Trading with the
Enemy Act was filed by plaintiff within two years from the date of vesting, the "later" date and the last
on which suit could be brought was April 30, 1949. The claim filed by plaintiff with the Philippine Alien
Property Administration on November 15, 1948 obviously could not toll the two-year period that had
already expired on March 14, 1948. And the complaint in the present case having been filed only on
November 13, 1950, the same is already barred. (Pass vs. McGrath, 192 F. 2d 415; Kroll vs. McGrath, 91
F. Supp. 173.) The lower court, therefore, had no jurisdiction to entertain the action insofar as these lots
are concerned.

Plaintiff contends that section 33 of the Trading with the Enemy Act cannot prevail over section 40 of
the Code of Civil Procedure, which provides that an action to recover real property prescribes after 10
years, on the theory that under international law questions relating to real property are governed by the
law of the place where the property is located and that prescription, being remedial, is likewise
governed by the laws of the forum. But the trading with the Enemy Act, by consent of the Philippine
Government, continued to be in force in the Philippines even after July 4, 1946 (Brownell, Jr., vs. Sun Life
Assurance Co. of Canada,* 50 Off. Gaz., 4814; Brownell, Jr. vs. Bautista, 95 Phil., 853) and consequently,
is as much part of the law of the land as section 40 of the Code of Civil Procedure. Contrary to plaintiff's
claim, therefore, there is here no conflict of laws involved. It should be stated that in an action under
the Trading with the Enemy Act for the recovery of property vested thereunder, the rights of the parties
must necessarily be governed by the terms of that Act. Indeed, section 7 (c) thereof explicitly provides
that the relief available to a claimant of vested property is limited to those expressly provided for by its
terms.

Needless to say, the defense of limitation as contained in section 33 of Trading with the Enemy Act, as
amended, may be invoked not only by the defendant Attorney General of the United States but also by
the intervenor Republic of the Philippines to which the lands in question were transferred. To sustain
plaintiff's claim and preclude the Republic from putting up that defense would render nugatory the
provisions of the Act. For in such case, a claimant who has failed to file his claim or suit within the period
provided for in section 33 of the Act and consequently has forfeited whatever right she may have
therein, could easily circumvent the law. It would also mean that the transfer of vested property to the
Republic would have the effect of permitting re-examination of the title to such vested property which
has already become absolute in the name of the United States, the transferor, for failure of the claimant
to assert his claim within the prescribed time. This absurdity, to say the least, cannot be countenanced.

In view of the foregoing, the order appealed from insofar as it dismisses the complaint with respect to
Lots 1 and 2 and the claim for damages against the Attorney General of the United States and the
Republic of the Philippines, is affirmed, but revoked insofar as it dismisses the complaint with respect to
Lots 3 and 4, as to which the case is hereby remanded to the court below for further proceedings.
Without costs.
 ➢ United States v. Ruiz,136 SCRA 487;

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

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

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

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

ABAD SANTOS, J.:

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

The factual background is as follows:

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

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

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

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

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

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

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

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

The petition is highly impressed with merit.

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

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

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

xxx xxx xxx

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

The reliance placed on Lyons by the respondent judge is misplaced for the following reasons:

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

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

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

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

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

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

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

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

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

➢ Holy See v. Rosario [G.R. No. 101949, December 1, 1994]

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.

➢ China National Machinery & Equipment Corporation (Group) v. Sta. Maria,

665 SCRA 189

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.)

xxx xxx xxx

The restrictive theory came about because of the entry of sovereign states into purely commercial
activities remotely connected with the discharge of governmental functions. This is particularly true with
respect to the Communist states which took control of nationalized business activities and international
trading.
In JUSMAG v. National Labor Relations Commission,25 this Court affirmed the Philippines’ adherence to
the restrictive theory as follows:

The doctrine of state immunity from suit has undergone further metamorphosis. The view evolved that
the existence of a contract does not, per se, mean that sovereign states may, at all times, be sued in
local courts. The complexity of relationships between sovereign states, brought about by their
increasing commercial activities, mothered a more restrictive application of the doctrine.

xxx xxx xxx

As it stands now, the application of the doctrine of immunity from suit has been restricted to sovereign
or governmental activities (jure imperii). The mantle of state immunity cannot be extended to
commercial, private and proprietary acts (jure gestionis).26 (Emphasis supplied.)

Since the Philippines adheres to the restrictive theory, it is crucial to ascertain the legal nature of the act
involved – whether the entity claiming immunity performs governmental, as opposed to proprietary,
functions. As held in United States of America v. Ruiz –27

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;

xxx xxx xxx

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.
 xxx xxx xxx

State immunity from suit may be waived by general or special law. The special law can take the form of
the original charter of the incorporated government agency. Jurisprudence is replete with examples of
incorporated government agencies which were ruled not entitled to invoke immunity from suit, owing
to provisions in their charters manifesting their consent to be sued.

xxx xxx xxx

It is useful to note that on the part of the Philippine government, it had designated two entities, the
Department of Health and the Philippine Health Insurance Corporation (PHIC), as the implementing
agencies in behalf of the Philippines. The PHIC was established under Republic Act No. 7875, Section 16
(g) of which grants the corporation the power "to sue and be sued in court." Applying the previously
cited jurisprudence, PHIC would not enjoy immunity from suit even in the performance of its functions
connected with SHINE, however, (sic) governmental in nature as (sic) they may be.

Is GTZ an incorporated agency of the German government? There is some mystery surrounding that
question. Neither GTZ nor the OSG go beyond the claim that petitioner is "the implementing agency of
the Government of the Federal Republic of Germany." On the other hand, private respondents
asserted before the Labor Arbiter that GTZ was "a private corporation engaged in the implementation of
development projects." The Labor Arbiter accepted that claim in his Order denying the Motion to
Dismiss, though he was silent on that point in his Decision. Nevertheless, private respondents argue in
their Comment that the finding that GTZ was a private corporation "was never controverted, and is
therefore deemed admitted." In its Reply, GTZ controverts that finding, saying that it is a matter of
public knowledge that the status of petitioner GTZ is that of the "implementing agency," and not that of
a private corporation.

In truth, private respondents were unable to adduce any evidence to substantiate their claim that GTZ
was a "private corporation," and the Labor Arbiter acted rashly in accepting such claim without
explanation. But neither has GTZ supplied any evidence defining its legal nature beyond that of the
bare descriptive "implementing agency." There is no doubt that the 1991 Agreement designated GTZ
as the "implementing agency" in behalf of the German government. Yet the catch is that such term
has no precise definition that is responsive to our concerns. Inherently, an agent acts in behalf of a
principal, and the GTZ can be said to act in behalf of the German state. But that is as far as
"implementing agency" could take us. The term by itself does not supply whether GTZ is incorporated
or unincorporated, whether it is owned by the German state or by private interests, whether it has
juridical personality independent of the German government or none at all.

xxx xxx xxx

Again, we are uncertain of the corresponding legal implications under German law surrounding "a
private company owned by the Federal Republic of Germany." Yet taking the description on face
value, the apparent equivalent under Philippine law is that of a corporation organized under the
Corporation Code but owned by the Philippine government, or a government-owned or controlled
corporation without original charter. And it bears notice that Section 36 of the Corporate Code states
that "[e]very corporation incorporated under this Code has the power and capacity 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.

xxx xxx xxx

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

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.

➢ Republic of Indonesia v. Vinzon [G.R. No. 154705, June 26, 2003]

G.R. No. 154705 June 26, 2003

THE REPUBLIC OF INDONESIA, HIS EXCELLENCY AMBASSADOR SOERATMIN, and MINISTER

COUNSELLOR AZHARI KASIM, Petitioners,
vs.
JAMES VINZON, doing business under the name and style of VINZON TRADE AND
SERVICES, Respondent.

DECISION

AZCUNA, J:

This is a petition for review on certiorari to set aside the Decision of the Court of Appeals dated May 30,
2002 and its Resolution dated August 16, 2002, in CA-G.R. SP No. 66894 entitled "The Republic of
Indonesia, His Excellency Ambassador Soeratmin and Minister Counselor Azhari Kasim v. Hon. Cesar
Santamaria, Presiding Judge, RTC Branch 145, Makati City, and James Vinzon, doing business under the
name and style of Vinzon Trade and Services."
Petitioner, Republic of Indonesia, represented by its Counsellor, Siti Partinah, entered into a
Maintenance Agreement in August 1995 with respondent James Vinzon, sole proprietor of Vinzon Trade
and Services. The Maintenance Agreement stated that respondent shall, for a consideration, maintain
specified equipment at the Embassy Main Building, Embassy Annex Building and the Wisma Duta, the
official residence of petitioner Ambassador Soeratmin. The equipment covered by the Maintenance
Agreement are air conditioning units, generator sets, electrical facilities, water heaters, and water motor
pumps. It is likewise stated therein that the agreement shall be effective for a period of four years and
will renew itself automatically unless cancelled by either party by giving thirty days prior written notice
from the date of expiry.1

Petitioners claim that sometime prior to the date of expiration of the said agreement, or before August
1999, they informed respondent that the renewal of the agreement shall be at the discretion of the
incoming Chief of Administration, Minister Counsellor Azhari Kasim, who was expected to arrive in
February 2000. When Minister Counsellor Kasim assumed the position of Chief of Administration in
March 2000, he allegedly found respondent’s work and services unsatisfactory and not in compliance
with the standards set in the Maintenance Agreement. Hence, the Indonesian Embassy terminated the
agreement in a letter dated August 31, 2000.2 Petitioners claim, moreover, that they had earlier verbally
informed respondent of their decision to terminate the agreement.

On the other hand, respondent claims that the aforesaid termination was arbitrary and unlawful.
Respondent cites various circumstances which purportedly negated petitioners’ alleged dissatisfaction
over respondent’s services: (a) in July 2000, Minister Counsellor Kasim still requested respondent to
assign to the embassy an additional full-time worker to assist one of his other workers; (b) in August
2000, Minister Counsellor Kasim asked respondent to donate a prize, which the latter did, on the
occasion of the Indonesian Independence Day golf tournament; and (c) in a letter dated August 22,
2000, petitioner Ambassador Soeratmin thanked respondent for sponsoring a prize and expressed his
hope that the cordial relations happily existing between them will continue to prosper and be
strengthened in the coming years.

Hence, on December 15, 2000, respondent filed a complaint3 against petitioners docketed as Civil Case
No. 18203 in the Regional Trial Court (RTC) of Makati, Branch 145. On February 20, 2001, petitioners
filed a Motion to Dismiss, alleging that the Republic of Indonesia, as a foreign sovereign State, has
sovereign immunity from suit and cannot be sued as a party-defendant in the Philippines. The said
motion further alleged that Ambassador Soeratmin and Minister Counsellor Kasim are diplomatic agents
as defined under the Vienna Convention on Diplomatic Relations and therefore enjoy diplomatic
immunity.4 In turn, respondent filed on March 20, 2001, an Opposition to the said motion alleging that
the Republic of Indonesia has expressly waived its immunity from suit. He based this claim upon the
following provision in the Maintenance Agreement:

"Any legal action arising out of this Maintenance Agreement shall be settled according to the laws of the
Philippines and by the proper court of Makati City, Philippines."

Respondent’s Opposition likewise alleged that Ambassador Soeratmin and Minister Counsellor Kasim
can be sued and held liable in their private capacities for tortious acts done with malice and bad faith.5

On May 17, 2001, the trial court denied herein petitioners’ Motion to Dismiss. It likewise denied the
Motion for Reconsideration subsequently filed.
The trial court’s denial of the Motion to Dismiss was brought up to the Court of Appeals by herein
petitioners in a petition for certiorari and prohibition. Said petition, docketed as CA-G.R. SP No. 66894,
alleged that the trial court gravely abused its discretion in ruling that the Republic of Indonesia gave its
consent to be sued and voluntarily submitted itself to the laws and jurisdiction of Philippine courts and
that petitioners Ambassador Soeratmin and Minister Counsellor Kasim waived their immunity from suit.

On May 30, 2002, the Court of Appeals rendered its assailed decision denying the petition for lack of
merit.6 On August 16, 2002, it denied herein petitioners’ motion for reconsideration.7

Hence, this petition.

In the case at bar, petitioners raise the sole issue of whether or not the Court of Appeals erred in
sustaining the trial court’s decision that petitioners have waived their immunity from suit by using as its
basis the abovementioned provision in the Maintenance Agreement.

The petition is impressed with merit.

International law is founded largely upon the principles of reciprocity, comity, independence, and
equality of States which were adopted as part of the law of our land under Article II, Section 2 of the
1987 Constitution.8 The rule that a State may not be sued without its consent is a necessary
consequence of the principles of independence and equality of States.9 As enunciated in Sanders v.
Veridiano II,10 the practical justification for the doctrine of sovereign immunity is that there can be no
legal right against the authority that makes the law on which the right depends. In the case of foreign
States, the rule is derived from the principle of the sovereign equality of States, as expressed in the
maxim par in parem non habet imperium. All states are sovereign equals and cannot assert jurisdiction
over one another.11 A contrary attitude would "unduly vex the peace of nations."12

The rules of International Law, however, are neither unyielding nor impervious to change. The
increasing need of sovereign States to enter into purely commercial activities remotely connected with
the discharge of their governmental functions brought about a new concept of sovereign immunity. This
concept, the restrictive theory, holds that the immunity of the sovereign is recognized only with regard
to public acts or acts jure imperii, but not with regard to private acts or acts jure gestionis.13

In United States v. Ruiz,14 for instance, we held that the conduct of public bidding for the repair of a
wharf at a United States Naval Station is an act jure imperii. On the other hand, we considered as an
act jure gestionis the hiring of a cook in the recreation center catering to American servicemen and the
general public at the John Hay Air Station in Baguio City,15 as well as the bidding for the operation of
barber shops in Clark Air Base in Angeles City.16

Apropos the present case, the mere entering into a contract by a foreign State with a private party
cannot be construed as the ultimate test of whether or not it is an act jure imperii or jure gestionis. Such
act is only the start of the inquiry. Is the foreign State engaged in the regular conduct of a business? If
the foreign State is not engaged regularly in a business or commercial activity, and in this case it has not
been shown to be so engaged, 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.17
Hence, the existence alone of a paragraph in a contract stating that any legal action arising out of the
agreement shall be settled according to the laws of the Philippines and by a specified court of the
Philippines is not necessarily a waiver of sovereign immunity from suit. The aforesaid provision contains
language not necessarily inconsistent with sovereign immunity. On the other hand, such provision may
also be meant to apply where the sovereign party elects to sue in the local courts, or otherwise waives
its immunity by any subsequent act. The applicability of Philippine laws must be deemed to include
Philippine laws in its totality, including the principle recognizing sovereign immunity. Hence, the proper
court may have no proper action, by way of settling the case, except to dismiss it.

Submission by a foreign state to local jurisdiction must be clear and unequivocal. It must be given
explicitly or by necessary implication. We find no such waiver in this case.

Respondent concedes that the establishment of a diplomatic mission is a sovereign function.1âwphi1 On

the other hand, he argues that the actual physical maintenance of the premises of the diplomatic
mission, such as the upkeep of its furnishings and equipment, is no longer a sovereign function of the
State.18

We disagree. There is no dispute that the establishment of a diplomatic mission is an act jure imperii. A
sovereign State does not merely establish a diplomatic mission and leave it at that; the establishment of
a diplomatic mission encompasses its maintenance and upkeep. Hence, the State may enter into
contracts with private entities to maintain the premises, furnishings and equipment of the embassy and
the living quarters of its agents and officials. It is therefore clear that petitioner Republic of Indonesia
was acting in pursuit of a sovereign activity when it entered into a contract with respondent for the
upkeep or maintenance of the air conditioning units, generator sets, electrical facilities, water heaters,
and water motor pumps of the Indonesian Embassy and the official residence of the Indonesian
ambassador.

The Solicitor General, in his Comment, submits the view that, "the Maintenance Agreement was entered
into by the Republic of Indonesia in the discharge of its governmental functions. In such a case, it cannot
be deemed to have waived its immunity from suit." As to the paragraph in the agreement relied upon by
respondent, the Solicitor General states that it "was not a waiver of their immunity from suit but a mere
stipulation that in the event they do waive their immunity, Philippine laws shall govern the resolution of
any legal action arising out of the agreement and the proper court in Makati City shall be the agreed
venue thereof.19

On the matter of whether or not petitioners Ambassador Soeratmin and Minister Counsellor Kasim may
be sued herein in their private capacities, Article 31 of the Vienna Convention on Diplomatic Relations
provides:

xxx

1. A diplomatic agent shall enjoy immunity from the criminal jurisidiction of the receiving State. He shall
also enjoy immunity from its civil and administrative jurisdiction, except in the case of:

(a) a real action relating to private immovable property situated in the territory of the receiving
State, unless he holds it on behalf of the sending State for the purposes of the mission;
 (b) an action relating to succession in which the diplomatic agent is involved as executor,
administrator, heir or legatee as a private person and not on behalf of the sending State;

(c) an action relating to any professional or commercial activity exercised by the diplomatic
agent in the receiving State outside his official functions.

xxx

The act of petitioners Ambassador Soeratmin and Minister Counsellor Kasim in terminating the
Maintenance Agreement is not covered by the exceptions provided in the abovementioned provision.

The Solicitor General believes that said act may fall under subparagraph (c) thereof,20 but said provision
clearly applies only to a situation where the diplomatic agent engages in any professional or commercial
activity outside official functions, which is not the case herein.

WHEREFORE, the petition is hereby GRANTED. The decision and resolution of the Court of Appeals in CA
G.R. SP No. 66894 are REVERSED and SET ASIDE and the complaint in Civil Case No. 18203 against
petitioners is DISMISSED.

No costs.

SO ORDERED.

➢ Minucher v. Court of Appeals [G.R. No. 142396, February 11, 2003]

G.R. No. 142396 February 11, 2003

KHOSROW MINUCHER, petitioner,

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

DECISION

VITUG, J.:

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

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

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

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

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

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

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

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

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

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

"That his arrest as a heroin trafficker x x x had been well publicized throughout the world, in various
newspapers, particularly in Australia, America, Central Asia and in the Philippines. He was identified in
the papers as an international drug trafficker. x x x

In fact, the arrest of defendant and Torabian was likewise on television, not only in the Philippines, but
also in America and in Germany. His friends in said places informed him that they saw him on TV with
said news.

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

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

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

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

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

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

The Manila RTC thus continued with its hearings on the case. On 17 November 1995, the trial court
reached a decision; it adjudged:
"WHEREFORE, and in view of all the foregoing considerations, judgment is hereby rendered for the
plaintiff, who successfully established his claim by sufficient evidence, against the defendant in the
manner following:

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

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

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

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

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

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

Scalzo contends that the Vienna Convention on Diplomatic Relations, to which the Philippines is a
signatory, grants him absolute immunity from suit, describing his functions as an agent of the United
States Drugs Enforcement Agency as "conducting surveillance operations on suspected drug dealers in
the Philippines believed to be the source of prohibited drugs being shipped to the U.S., (and) having
ascertained the target, (he then) would inform the Philippine narcotic agents (to) make the actual
arrest." Scalzo has submitted to the trial court a number of documents -
 1. Exh. '2' - Diplomatic Note No. 414 dated 29 May 1990;

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

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

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

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

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

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

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

The documents, according to Scalzo, would show that: (1) the United States Embassy accordingly
advised the Executive Department of the Philippine Government that Scalzo was a member of the
diplomatic staff of the United States diplomatic mission from his arrival in the Philippines on 14 October
1985 until his departure on 10 August 1988; (2) that the United States Government was firm from the
very beginning in asserting the diplomatic immunity of Scalzo with respect to the case pursuant to the
provisions of the Vienna Convention on Diplomatic Relations; and (3) that the United States Embassy
repeatedly urged the Department of Foreign Affairs to take appropriate action to inform the trial court
of Scalzo’s diplomatic immunity. The other documentary exhibits were presented to indicate that: (1)
the Philippine government itself, through its Executive Department, recognizing and respecting the
diplomatic status of Scalzo, formally advised the "Judicial Department" of his diplomatic status and his
entitlement to all diplomatic privileges and immunities under the Vienna Convention; and (2) the
Department of Foreign Affairs itself authenticated Diplomatic Note No. 414. Scalzo additionally
presented Exhibits "9" to "13" consisting of his reports of investigation on the surveillance and
subsequent arrest of Minucher, the certification of the Drug Enforcement Administration of the United
States Department of Justice that Scalzo was a special agent assigned to the Philippines at all times
relevant to the complaint, and the special power of attorney executed by him in favor of his previous
counsel6 to show (a) that the United States Embassy, affirmed by its Vice Consul, acknowledged Scalzo to
be a member of the diplomatic staff of the United States diplomatic mission from his arrival in the
Philippines on 14 October 1985 until his departure on 10 August 1988, (b) that, on May 1986, with the
cooperation of the Philippine law enforcement officials and in the exercise of his functions as member of
the mission, he investigated Minucher for alleged trafficking in a prohibited drug, and (c) that the
Philippine Department of Foreign Affairs itself recognized that Scalzo during his tour of duty in the
Philippines (14 October 1985 up to 10 August 1988) was listed as being an Assistant Attaché of the
United States diplomatic mission and accredited with diplomatic status by the Government of the
Philippines. In his Exhibit 12, Scalzo described the functions of the overseas office of the United States
Drugs Enforcement Agency, i.e., (1) to provide criminal investigative expertise and assistance to foreign
law enforcement agencies on narcotic and drug control programs upon the request of the host country,
2) to establish and maintain liaison with the host country and counterpart foreign law enforcement
officials, and 3) to conduct complex criminal investigations involving international criminal conspiracies
which affect the interests of the United States.

The Vienna Convention on Diplomatic Relations was a codification of centuries-old customary law and,
by the time of its ratification on 18 April 1961, its rules of law had long become stable. Among the city
states of ancient Greece, among the peoples of the Mediterranean before the establishment of the
Roman Empire, and among the states of India, the person of the herald in time of war and the person of
the diplomatic envoy in time of peace were universally held sacrosanct.7 By the end of the 16th century,
when the earliest treatises on diplomatic law were published, the inviolability of ambassadors was firmly
established as a rule of customary international law.8 Traditionally, the exercise of diplomatic
intercourse among states was undertaken by the head of state himself, as being the preeminent
embodiment of the state he represented, and the foreign secretary, the official usually entrusted with
the external affairs of the state. Where a state would wish to have a more prominent diplomatic
presence in the receiving state, it would then send to the latter a diplomatic mission. Conformably with
the Vienna Convention, the functions of the diplomatic mission involve, by and large, the representation
of the interests of the sending state and promoting friendly relations with the receiving state.9

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

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

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

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

"x x x x x x x x x

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

"x x x x x x x x x

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

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

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

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

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

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

"While the doctrine (of state immunity) appears to prohibit only suits against the state without its
consent, it is also applicable to complaints filed against officials of the state for acts allegedly performed
by them in the discharge of their duties. x x x. It cannot for a moment be imagined that they were acting
in their private or unofficial capacity when they apprehended and later testified against the
complainant. It follows that for discharging their duties as agents of the United States, they cannot be
directly impleaded for acts imputable to their principal, which has not given its consent to be sued. x x x
As they have acted on behalf of the government, and within the scope of their authority, it is that
government, and not the petitioners personally, [who were] responsible for their acts."25
This immunity principle, however, has its limitations. Thus, Shauf vs. Court of Appeals26 elaborates:

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

"x x x x x x x x x

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

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

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

SO ORDERED.

➢ Lasco v. UNRFNRE [G.R. Nos. 109095- 109107, February 23, 1995]

G.R. Nos. 109095-109107 February 23, 1995

ELDEPIO LASCO, RODOLFO ELISAN, URBANO BERADOR, FLORENTINO ESTOBIO, MARCELINO

MATURAN, FRAEN BALIBAG, CARMELITO GAJOL, DEMOSTHENES MANTO, SATURNINO BACOL,
SATURNINO LASCO, RAMON LOYOLA, JOSENIANO B. ESPINA, all represented by MARIANO R.
ESPINA, petitioner,
vs.
UNITED NATIONS REVOLVING FUND FOR NATURAL RESOURCES EXPLORATION (UNRFNRE)
represented by its operations manager, DR. KYRIACOS LOUCA, OSCAR N. ABELLA, LEON G. GONZAGA,
JR., MUSIB M. BUAT, Commissioners of National Labor Relations Commission (NLRC), Fifth Division,
Cagayan de Oro City and IRVING PETILLA, Labor Arbiter of Butuan City, respondents.

QUIASON, J.:

This is a petition for certiorari under Rule 65 of the Revised Rules of Court to set aside the Resolution
dated January 25, 1993 of the National Labor Relations Commission (NLRC), Fifth Division, Cagayan de
Oro City.

We dismiss the petition.

Petitioners were dismissed from their employment with private respondent, the United Nations
Revolving Fund for Natural Resources Exploration (UNRFNRE), which is a special fund and subsidiary
organ of the United Nations. The UNRFNRE is involved in a joint project of the Philippine Government
and the United Nations for exploration work in Dinagat Island.

Petitioners are the complainants in NLRC Cases Nos. SRAB 10-03-00067-91 to 10-03-00078-91 and SRAB
10-07-00159-91 for illegal dismissal and damages.

In its Motion to Dismiss, private respondent alleged that respondent Labor Arbiter had no jurisdiction
over its personality since it enjoyed diplomatic immunity pursuant to the 1946 Convention on the
Privileges and Immunities of the United Nations. In support thereof, private respondent attached a
letter from the Department of Foreign Affairs dated August 26, 1991, which acknowledged its immunity
from suit. The letter confirmed that private respondent, being a special fund administered by the United
Nations, was covered by the 1946 Convention on the Privileges and Immunities of the United Nations of
which the Philippine Government was an original signatory (Rollo, p. 21).

On November 25, 1991, respondent Labor Arbiter issued an order dismissing the complaints on the
ground that private respondent was protected by diplomatic immunity. The dismissal was based on the
letter of the Foreign Office dated September 10, 1991.

Petitioners' motion for reconsideration was denied. Thus, an appeal was filed with the NLRC, which
affirmed the dismissal of the complaints in its Resolution dated January 25, 1993.

Petitioners filed the instant petition for certiorari without first seeking a reconsideration of the NLRC
resolution.

II

Article 223 of the Labor Code of the Philippines, as amended, provides that decisions of the NLRC are
final and executory. Thus, they may only be questioned through certiorari as a special civil action under
Rule 65 of the Revised Rules of Court.

Ordinarily, certiorari as a special civil action will not lie unless a motion for reconsideration is first filed
before the respondent tribunal, to allow it an opportunity to correct its assigned errors (Liberty
Insurance Corporation v. Court of Appeals, 222 SCRA 37 [1993]).

In the case at bench, petitioners' failure to file a motion for reconsideration is fatal to the instant
petition. Moreover, the petition lacks any explanation for such omission, which may merit its being
considered as falling under the recognized exceptions to the necessity of filing such motion.

Notwithstanding, we deem it wise to give due course to the petition because of the implications of the
issue in our international relations.

Petitioners argued that the acts of mining exploration and exploitation are outside the official functions
of an international agency protected by diplomatic immunity. Even assuming that private respondent
was entitled to diplomatic immunity, petitioners insisted that private respondent waived it when it
engaged in exploration work and entered into a contract of employment with petitioners.

Petitioners, likewise, invoked the constitutional mandate that the State shall afford full protection to
labor and promote full employment and equality of employment opportunities for all (1987
Constitution, Art. XIII, Sec. 3).

The Office of the Solicitor General is of the view that private respondent is covered by the mantle of
diplomatic immunity. Private respondent is a specialized agency of the United Nations. Under Article
105 of the Charter of the United Nations:

1. The Organization shall enjoy in the territory of its Members such privileges and
immunities as are necessary for the fulfillment of its purposes.
 2. Representatives of the Members of the United Nations and officials of the
Organization shall similarly enjoy such privileges and immunities as are necessary for the
independent exercise of their functions in connection with the organization.

Corollary to the cited article is the Convention on the Privileges and Immunities of the Specialized
Agencies of the United Nations, to which the Philippines was a signatory (Vol. 1, Philippine Treaty Series,
p. 621). We quote Sections 4 and 5 of Article III thereof:

Sec. 4. The specialized agencies, their property and assets, wherever located and by
whomsoever held shall enjoy immunity from every form of legal process except insofar
as in any particular case they have expressly waived their immunity. It is, however,
understood that no waiver of immunity shall extend to any measure of execution
(Emphasis supplied).

Sec. 5. The premises of the specialized agencies shall be inviolable. The property and
assets of the specialized agencies, wherever located and by whomsoever held, shall be
immune from search, requisition, confiscation, expropriation and any other form of
interference, whether by executive, administrative, judicial or legislative action
(Emphasis supplied).

As a matter of state policy as expressed in the Constitution, the Philippine Government adopts the
generally accepted principles of international law (1987 Constitution, Art. II, Sec. 2). Being a member of
the United Nations and a party to the Convention on the Privileges and Immunities of the Specialized
Agencies of the United Nations, the Philippine Government adheres to the doctrine of immunity granted
to the United Nations and its specialized agencies. Both treaties have the force and effect of law.

In World Health Organization v. Aquino, 48 SCRA 242, (1972), we had occasion to rule that:

It is a recognized principle of international law and under our system of separation of

powers that diplomatic immunity is essentially a political question and courts should
refuse to look beyond a determination by the executive branch of the government, and
where the plea of diplomatic immunity is recognized and affirmed by the executive
branch of the government as in the case at bar, it is then the duty of the courts to
accept the claim of immunity upon appropriate suggestion by the principal law officer of
the government, the Solicitor General or other officer acting under his direction. Hence,
in adherence to the settled principle that courts may not so exercise their jurisdiction by
seizure and detention of property, as to embarrass the executive arm of the
government in conducting foreign relations, it is accepted doctrine that "in such cases
the judicial department of (this) government follows the action of the political branch
and will not embarrass the latter by assuming an antagonistic jurisdiction (Emphasis
supplied).

We recognize the growth of international organizations dedicated to specific universal endeavors, such
as health, agriculture, science and technology and environment. It is not surprising that their existence
has evolved into the concept of international immunities. The reason behind the grant of privileges and
immunities to international organizations, its officials and functionaries is to secure them legal and
practical independence in fulfilling their duties (Jenks, International Immunities 17 [1961]).
Immunity is necessary to assure unimpeded performance of their functions. The purpose is "to shield
the affairs of international organizations, in accordance with international practice, from political
pressure or control by the host country to the prejudice of member States of the organization, and to
ensure the unhampered performance of their functions" (International Catholic Migration Commission
v. Calleja, 190 SCRA 130 [1990]).

In the International Catholic Migration Commission case, we held that there is no conflict between the
constitutional duty of the State to protect the rights of workers and to promote their welfare, and the
grant of immunity to international organizations. Clauses on jurisdictional immunity are now standard in
the charters of the international organizations to guarantee the smooth discharge of their functions.

The diplomatic immunity of private respondent was sufficiently established by the letter of the
Department of Foreign Affairs, recognizing and confirming the immunity of UNRFNRE in accordance with
the 1946 Convention on Privileges and Immunities of the United Nations where the Philippine
Government was a party. The issue whether an international organization is entitled to diplomatic
immunity is a "political question" and such determination by the executive branch is conclusive on the
courts and quasi-judicial agencies (The Holy See v. Hon. Eriberto U. Rosario, Jr., G.R. No. 101949, Dec. 1,
1994; International Catholic Migration Commission v. Calleja, supra).

Our courts can only assume jurisdiction over private respondent if it expressly waived its immunity,
which is not so in the case at bench (Convention on the Privileges and Immunities of the Specialized
Agencies of the United Nations, Art. III, Sec. 4).

Private respondent is not engaged in a commercial venture in the Philippines. Its presence here is by
virtue of a joint project entered into by the Philippine Government and the United Nations for mineral
exploration in Dinagat Island. Its mission is not to exploit our natural resources and gain pecuniarily
thereby but to help improve the quality of life of the people, including that of petitioners.

This is not to say that petitioner have no recourse. Section 31 of the Convention on the Privileges and
Immunities of the Specialized Agencies of the United Nations states that "each specialized agency shall
make a provision for appropriate modes of settlement of: (a) disputes arising out of contracts or other
disputes of private character to which the specialized agency is a party."

WHEREFORE, the petition is DISMISSED.

SO ORDERED.

➢ Republic v. Villasor, 54 SCRA 83

G.R. No. L-30671 November 28, 1973

REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
HON. GUILLERMO P. VILLASOR, as Judge of the Court of First Instance of Cebu, Branch I, THE
PROVINCIAL SHERIFF OF RIZAL, THE SHERIFF OF QUEZON CITY, and THE SHERIFF OF THE CITY OF
MANILA, THE CLERK OF COURT, Court of First Instance of Cebu, P. J. KIENER CO., LTD., GAVINO
UNCHUAN, AND INTERNATIONAL CONSTRUCTION CORPORATION, respondents.

Office of the Solicitor General Felix V. Makasiar and Solicitor Bernardo P. Pardo for petitioner.

Andres T. Velarde and Marcelo B. Fernan for respondents.

FERNANDO, J.:

The Republic of the Philippines in this certiorari and prohibition proceeding challenges the validity of an
order issued by respondent Judge Guillermo P. Villasor, then of the Court of First Instance of Cebu,
Branch I,1 declaring a decision final and executory and of an alias writ of execution directed against the
funds of the Armed Forces of the Philippines subsequently issued in pursuance thereof, the alleged
ground being excess of jurisdiction, or at the very least, grave abuse of discretion. As thus simply and
tersely put, with the facts being undisputed and the principle of law that calls for application
indisputable, the outcome is predictable. The Republic of the Philippines is entitled to the writs prayed
for. Respondent Judge ought not to have acted thus. The order thus impugned and the alias writ of
execution must be nullified.

In the petition filed by the Republic of the Philippines on July 7, 1969, a summary of facts was set forth
thus: "7. On July 3, 1961, a decision was rendered in Special Proceedings No. 2156-R in favor of
respondents P. J. Kiener Co., Ltd., Gavino Unchuan, and International Construction Corporation, and
against the petitioner herein, confirming the arbitration award in the amount of P1,712,396.40, subject
of Special Proceedings. 8. On June 24, 1969, respondent Honorable Guillermo P. Villasor, issued an
Order declaring the aforestated decision of July 3, 1961 final and executory, directing the Sheriffs of
Rizal Province, Quezon City [as well as] Manila to execute the said decision. 9. Pursuant to the said Order
dated June 24, 1969, the corresponding Alias Writ of Execution [was issued] dated June 26, 1969, .... 10.
On the strength of the afore-mentioned Alias Writ of Execution dated June 26, 1969, the Provincial
Sheriff of Rizal (respondent herein) served notices of garnishment dated June 28, 1969 with several
Banks, specially on the "monies due the Armed Forces of the Philippines in the form of deposits
sufficient to cover the amount mentioned in the said Writ of Execution"; the Philippine Veterans Bank
received the same notice of garnishment on June 30, 1969 .... 11. The funds of the Armed Forces of the
Philippines on deposit with the Banks, particularly, with the Philippine Veterans Bank and the Philippine
National Bank [or] their branches are public funds duly appropriated and allocated for the payment of
pensions of retirees, pay and allowances of military and civilian personnel and for maintenance and
operations of the Armed Forces of the Philippines, as per Certification dated July 3, 1969 by the AFP
Controller,..."2. The paragraph immediately succeeding in such petition then alleged: "12. Respondent
Judge, Honorable Guillermo P. Villasor, acted in excess of jurisdiction [or] with grave abuse of discretion
amounting to lack of jurisdiction in granting the issuance of an alias writ of execution against the
properties of the Armed Forces of the Philippines, hence, the Alias Writ of Execution and notices of
garnishment issued pursuant thereto are null and void."3 In the answer filed by respondents, through
counsel Andres T. Velarde and Marcelo B. Fernan, the facts set forth were admitted with the only
qualification being that the total award was in the amount of P2,372,331.40.4
The Republic of the Philippines, as mentioned at the outset, did right in filing this certiorari and
prohibition proceeding. What was done by respondent Judge is not in conformity with the dictates of
the Constitution. .

It is a fundamental postulate of constitutionalism flowing from the juristic concept of sovereignty that
the state as well as its government is immune from suit unless it gives its consent. It is readily
understandable why it must be so. In the classic formulation of Holmes: "A sovereign is exempt from
suit, not because of any formal conception or obsolete theory, but on the logical and practical ground
that there can be no legal right as against the authority that makes the law on which the right
depends."5 Sociological jurisprudence supplies an answer not dissimilar. So it was indicated in a recent
decision, Providence Washington Insurance Co. v. Republic of the Philippines,6 with its affirmation that "a
continued adherence to the doctrine of non-suability is not to be deplored for as against the
inconvenience that may be caused private parties, the loss of governmental efficiency and the obstacle
to the performance of its multifarious functions are far greater if such a fundamental principle were
abandoned and the availability of judicial remedy were not thus restricted. With the well known
propensity on the part of our people to go to court, at the least provocation, the loss of time and energy
required to defend against law suits, in the absence of such a basic principle that constitutes such an
effective obstacle, could very well be imagined."7

This fundamental postulate underlying the 1935 Constitution is now made explicit in the revised charter.
It is therein expressly provided: "The State may not be sued without its consent."8 A corollary, both
dictated by logic and sound sense from a basic concept is that public funds cannot be the object of a
garnishment proceeding even if the consent to be sued had been previously granted and the state
liability adjudged. Thus in the recent case of Commissioner of Public Highways v. San Diego,9 such a well-
settled doctrine was restated in the opinion of Justice Teehankee: "The universal rule that where the
State gives its consent to be sued by private parties either by general or special law, it may limit
claimant's action 'only up to the completion of proceedings anterior to the stage of execution' and that
the power of the Courts ends when the judgment is rendered, since government funds and properties
may not be seized under writs of execution or garnishment to satisfy such judgments, is based on
obvious considerations of public policy. Disbursements of public funds must be covered by the
corresponding appropriation as required by law. The functions and public services rendered by the State
cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate
and specific objects, as appropriated by law." 10 Such a principle applies even to an attempted
garnishment of a salary that had accrued in favor of an employee. Director of Commerce and Industry v.
Concepcion, 11 speaks to that effect. Justice Malcolm as ponente left no doubt on that score. Thus: "A
rule which has never been seriously questioned, is that money in the hands of public officers, although it
may be due government employees, is not liable to the creditors of these employees in the process of
garnishment. One reason is, that the State, by virtue of its sovereignty, may not be sued in its own
courts except by express authorization by the Legislature, and to subject its officers to garnishment
would be to permit indirectly what is prohibited directly. Another reason is that moneys sought to be
garnished, as long as they remain in the hands of the disbursing officer of the Government, belong to
the latter, although the defendant in garnishment may be entitled to a specific portion thereof. And still
another reason which covers both of the foregoing is that every consideration of public policy forbids
it." 12

In the light of the above, it is made abundantly clear why the Republic of the Philippines could rightfully
allege a legitimate grievance.
WHEREFORE, the writs of certiorari and prohibition are granted, nullifying and setting aside both the
order of June 24, 1969 declaring executory the decision of July 3, 1961 as well as the alias writ of
execution issued thereunder. The preliminary injunction issued by this Court on July 12, 1969 is hereby
made permanent.

➢ Municipality of Makati v. Court of Appeals, 190 SCRA 206

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

MUNICIPALITY OF MAKATI, petitioner,

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

Defante & Elegado for petitioner.

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

RESOLUTION

CORTÉS, J.:

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

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

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

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

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

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

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

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

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

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

xxx xxx xxx

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

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

xxx xxx xxx

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

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

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

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

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

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

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

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

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

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

➢ University of the Philippines v. Dizon [G.R. No. 171182, August 23, 2012]

G.R. No. 171182 August 23, 2012

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

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

DECISION

BERSAMIN, J.:

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

The Case

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

Antecedents

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

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

After trial, on November 28, 2001, the RTC rendered its decision in favor of the plaintiffs,5 viz:

Wherefore, in the light of the foregoing, judgment is hereby rendered in favor of the plaintiff and
against the defendants ordering the latter to pay plaintiff, jointly and severally, the following, to wit:

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

2. ₱ 5,716,729.00 in actual damages

3. ₱ 10,000,000.00 in moral damages

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

5. Costs of suit.

SO ORDERED.

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

The RTC issued the writ of execution on October 4, 2002,9 and the sheriff of the RTC served the writ of
execution and notice of demand upon the UP, through its counsel, on October 9, 2002.10 The UP filed an
urgent motion to reconsider the order dated September 26, 2002, to quash the writ of execution dated
October 4, 2002, and to restrain the proceedings.11 However, the RTC denied the urgent motion on April
1, 2003.12

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

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

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

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

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

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

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

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

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

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

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

The UP moved for the reconsideration of the order of October 14, 2003, but the RTC denied the motion
on November 7, 2003.27
On January 12, 2004, Stern Builders and dela Cruz again sought the release of the garnished
funds.28 Despite the UP’s opposition,29 the RTC granted the motion to release the garnished funds on
March 16, 2004.30 On April 20, 2004, however, the RTC held in abeyance the enforcement of the writs of
execution issued on October 4, 2002 and June 3, 2003 and all the ensuing notices of garnishment, citing
Section 4, Rule 52, Rules of Court, which provided that the pendency of a timely motion for
reconsideration stayed the execution of the judgment.31

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

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

SO ORDERED.

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

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

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

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

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

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

The UP sought the reconsideration of the order of May 3, 2005.42

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

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

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

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

Let it be stated herein that the plaintiff is not authorized to encash and withdraw the amount
represented in the check in question and enjoy the same in the fashion of an owner during the
pendency of the case between the parties before the Court of Appeals which may or may not be
resolved in plaintiff’s favor.

With the end in view of seeing to it that the check in question is deposited by the plaintiff at the
Development Bank of the Philippines (garnishee bank), Branch Sheriff Herlan Velasco is directed to
accompany and/or escort the plaintiff in making the deposit of the check in question.

SO ORDERED.

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

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

The argument is specious. UP entered into a contract with private respondents for the expansion and
renovation of the Arts and Sciences Building of its campus in Los Baños, Laguna. Decidedly, there was
already an appropriations earmarked for the said project. The said funds are retained by UP, in a
fiduciary capacity, pending completion of the construction project.
 We agree with the trial Court [sic] observation on this score:

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

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

Matters Arising During the Pendency of the Petition

On January 30, 2006, Judge Dizon of the RTC (Branch 80) denied Stern Builders and dela Cruz’s motion to
withdraw the deposit, in consideration of the UP’s intention to appeal to the CA,50 stating:

Since it appears that the defendants are intending to file a petition for review of the Court of Appeals
resolution in CA-G.R. No. 88125 within the reglementary period of fifteen (15) days from receipt of
resolution, the Court agrees with the defendants stand that the granting of plaintiffs’ subject motion is
premature.

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

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

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

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

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

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

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

The Court honestly believes that if defendants’ petition assailing the Order of this Court dated
December 31, 2004 granting the motion for the release of the garnished amount was meritorious, the
Court of Appeals would have issued a writ of injunction enjoining the same. Instead, said appellate court
not only refused to issue a wit of preliminary injunction prayed for by U.P. System but denied the
petition, as well.54

The UP contended that Judge Yadao thereby effectively reversed the January 30, 2006 order of Judge
Dizon disallowing the withdrawal of the garnished amount until after the decision in the case would
have become final and executory.

Although the Court issued a TRO on January 24, 2007 to enjoin Judge Yadao and all persons acting
pursuant to her authority from enforcing her order of January 3, 2007,55 it appears that on January 16,
2007, or prior to the issuance of the TRO, she had already directed the DBP to forthwith release the
garnished amount to Stern Builders and dela Cruz; 56 and that DBP had forthwith complied with the
order on January 17, 2007 upon the sheriff’s service of the order of Judge Yadao.57
These intervening developments impelled the UP to file in this Court a supplemental petition on January
26, 2007,58 alleging that the RTC (Judge Yadao) gravely erred in ordering the immediate release of the
garnished amount despite the pendency of the petition for review in this Court.

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

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

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

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

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

c) a writ of execution had been issued;

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

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

The garnished amount, as discussed in the Order dated January 16, 2007, was already owned by the
plaintiffs, having been delivered to them by the Deputy Sheriff of this Court pursuant to par. (c), Section
9, Rule 39 of the 1997 Rules of Civil Procedure. Moreover, the judgment obligation has already been
fully satisfied as per Report of the Deputy Sheriff.

Anent the Temporary Restraining Order issued by the Supreme Court, the same has become functus
oficio, having been issued after the garnished amount had been released to the plaintiffs. The judgment
debt was released to the plaintiffs on January 17, 2007, while the Temporary Restraining Order issued
by the Supreme Court was received by this Court on February 2, 2007. At the time of the issuance of the
Restraining Order, the act sought to be restrained had already been done, thereby rendering the said
Order ineffectual.

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

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

SO ORDERED.

Issues

The UP now submits that:

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

II

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

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

III

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

IV

THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE IMMEDIATE RELEASE OF THE
JUDGMENT AWARD IN ITS ORDER DATED 3 JANUARY 2007 ON THE GROUND OF EQUITY AND JUDICIAL
COURTESY.
 V

THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE IMMEDIATE RELEASE OF THE
JUDGMENT AWARD IN ITS ORDER DATED 16 JANUARY 2007 ON THE GROUND THAT PETITIONER
UNIVERSITY STILL HAS A PENDING MOTION FOR RECONSIDERATION OF THE ORDER DATED 3 JANUARY
2007.

VI

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

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

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

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

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

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

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

Ruling

The petition for review is meritorious.

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

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

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

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

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

The funds of the UP are government funds that are public in character. They include the income
accruing from the use of real property ceded to the UP that may be spent only for the attainment of its
institutional objectives.77 Hence, the funds subject of this action could not be validly made the subject of
the RTC’s writ of execution or garnishment. The adverse judgment rendered against the UP in a suit to
which it had impliedly consented was not immediately enforceable by execution against the
UP,78 because suability of the State did not necessarily mean its liability.79
A marked distinction exists between suability of the State and its liability. As the Court succinctly stated
in Municipality of San Fernando, La Union v. Firme:80

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

Also, in Republic v. Villasor,81 where the issuance of an alias writ of execution directed against the funds
of the Armed Forces of the Philippines to satisfy a final and executory judgment was nullified, the Court
said:

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

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

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

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

The execution of the monetary judgment against the UP was within the primary jurisdiction of the COA.
This was expressly provided in Section 26 of Presidential Decree No. 1445, to wit:
Section 26. General jurisdiction. - The authority and powers of the Commission shall extend to and
comprehend all matters relating to auditing procedures, systems and controls, the keeping of the
general accounts of the Government, the preservation of vouchers pertaining thereto for a period of ten
years, the examination and inspection of the books, records, and papers relating to those accounts; and
the audit and settlement of the accounts of all persons respecting funds or property received or held by
them in an accountable capacity, as well as the examination, audit, and settlement of all debts and
claims of any sort due from or owing to the Government or any of its subdivisions, agencies and
instrumentalities. The said jurisdiction extends to all government-owned or controlled corporations,
including their subsidiaries, and other self-governing boards, commissions, or agencies of the
Government, and as herein prescribed, including non governmental entities subsidized by the
government, those funded by donations through the government, those required to pay levies or
government share, and those for which the government has put up a counterpart fund or those partly
funded by the government.

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

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

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

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

Judges should bear in mind that in Commissioner of Public Highways v. San Diego (31 SCRA 617, 625
1970), this Court explicitly stated:
"The universal rule that where the State gives its consent to be sued by private parties either by general
or special law, it may limit claimant’s action ‘only up to the completion of proceedings anterior to the
stage of execution’ and that the power of the Court ends when the judgment is rendered, since
government funds and properties may not be seized under writs of execution or garnishment to satisfy
such judgments, is based on obvious considerations of public policy. Disbursements of public funds must
be covered by the corresponding appropriation as required by law. The functions and public services
rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public funds
from their legitimate and specific objects, as appropriated by law.

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

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

1. Properties held for public uses – and generally everything held for governmental purposes – are not
subject to levy and sale under execution against such corporation. The same rule applies to funds in
the hands of a public officer and taxes due to a municipal corporation.

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

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

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

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

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

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

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

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

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

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

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

We agree with the submission of the UP.

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

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

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

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

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

In so declaring the judgment of the RTC as final against the UP, the CA and the RTC applied the rule
contained in the second paragraph of Section 3, Rule 41 of the Rules of Court to the effect that the filing
of a motion for reconsideration interrupted the running of the period for filing the appeal; and that the
period resumed upon notice of the denial of the motion for reconsideration. For that reason, the CA and
the RTC might not be taken to task for strictly adhering to the rule then prevailing.
However, equity calls for the retroactive application in the UP’s favor of the fresh-period rule that the
Court first announced in mid-September of 2005 through its ruling in Neypes v. Court of Appeals,98 viz:

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

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

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

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

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

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

Section 14 of Article VIII of the Constitution prescribes that express findings of fact and of law should be
made in the decision rendered by any court, to wit:
Section 14. No decision shall be rendered by any court without expressing therein clearly and distinctly
the facts and the law on which it is based.

No petition for review or motion for reconsideration of a decision of the court shall be refused due
course or denied without stating the legal basis therefor.

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

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

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

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

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

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

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

xxx The Court is not unmindful that due to defendants’ unjustified refusal to pay their outstanding
obligation to plaintiff, the same suffered losses and incurred expenses as he was forced to re-mortgage
his house and lot located in Quezon City to Metrobank (Exh. "CC") and BPI Bank just to pay its monetary
obligations in the form of interest and penalties incurred in the course of the construction of the subject
project.109
The statement that "due to defendants’ unjustified refusal to pay their outstanding obligation to
plaintiff, the same suffered losses and incurred expenses as he was forced to re-mortgage his house and
lot located in Quezon City to Metrobank (Exh. "CC") and BPI Bank just to pay its monetary obligations in
the form of interest and penalties incurred in the course of the construction of the subject project" was
only a conclusion of fact and law that did not comply with the constitutional and statutory prescription.
The statement specified no detailed expenses or losses constituting the ₱ 5,716,729.00 actual damages
sustained by Stern Builders in relation to the construction project or to other pecuniary hardships. The
omission of such expenses or losses directly indicated that Stern Builders did not prove them at all,
which then contravened Article 2199, Civil Code, the statutory basis for the award of actual damages,
which entitled a person to an adequate compensation only for such pecuniary loss suffered by him as he
has duly proved. As such, the actual damages allowed by the RTC, being bereft of factual support, were
speculative and whimsical. Without the clear and distinct findings of fact and law, the award amounted
only to an ipse dixit on the part of the RTC,110 and did not attain finality.

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

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

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

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

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

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

Costs of suit to be paid by the private respondents.

SO ORDERED.