CONSTITUITONAL LAW 1

SY 2014-2015
Atty. Rovyne Jumao-as

4. Sovereignty
SOVEREIGN IMMUNITY (SEC 3, Art. XVI. General
Provisions)
- Classical or absolute theory vs. newer or restrictive
theory

China National Machinery v. Santamaria
Facts:
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).
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
Buyers 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. 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.
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
CNMEGs designation as the Prime Contractor
for the Northrail Project.
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.
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). In the Loan Agreement, EXIM Bank
agreed to extend Preferential Buyers 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.
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. The case was filed 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.
On 15 May 2007, RTC Br. 145 issued an Omnibus
Order denying CNMEGs Motion to Dismiss and
setting the case for summary hearing to
determine whether the injunctive reliefs
prayed for should be issued. CNMEG then filed
a Motion for Reconsideration, which was denied
by the trial court in an Order dated 10 March
2008. 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.
The appellate court dismissed the Petition for
Certiorari. Subsequently, CNMEG filed a Motion
for Reconsideration, which was denied by the
CA in a Resolution dated 5 December 2008.
Petitioners Argument: Petitioner claims 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, it is clear from the foregoing
provisions that the Northrail Project was a
purely commercial Transaction.
Respondents Argument: respondents alleged
that the Contract Agreement and the Load
Agreement were void for being contrary to (a)
the Constitution; (b) Rep. Act No. 9184,
otherwise known as the Government
Procurement Reform Act; (c) Presidential
Decree No. 1455, otherwise known as the
CONSTITUITONAL LAW 1
SY 2014-2015
Atty. Rovyne Jumao-as

Government Auditing Code; and (d) Executive
Order No. 292, Otherwise known as the
Administrative Code.

Issues:
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.



Ruling:
The instant petition is DENIED. Petitioner China
National Machinery and 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.
The Court explained the doctrine of sovereign
immunity in Holy See v. Rosario, 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 the regard to
public acts or acts jure imperii of a state, but
not with the regard to private acts or acts jure
gestionis. 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).
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.
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.

a. Suits against government instrumentalities

Professional Video Inc. (PROVI) Vs. TESDA
Facts:
PROVI is an entity in the sale of high
technology equipment and IT products
including supply of plastic card printing and
security facilities
TESDA is an instrumentality of the
government established under R.A. 7796
for national skills standardization, testing
and certification in the country (to know
more about TESDA read the attached full
text )
TESDA conducted public bidding for
printing and encoding of PVC cards for I.D.
of TESDA qualifiers. There was a failure of
bidding for there are only 2 bidders one
being PROVI
PBAC (TESDAs Pre-Qualification Bids
Award Committee) recommended a
negotiated contract with PROVI which they
signed and executed on Dec. 29, 1999.
They executed and addendum to the
contract agreement on August 24, 2000
PROVI was to provide materials and
equipment for the printing of I.Ds and then
after TESDA will pay the latter 14 days after
delivery of such materials and equipment*.
TESDA only paid 30% of the total cost of
the supplies.
PROVI was able to complete its delivery of
said supplies. Despite 2 demand letters
TESDA wasnt able to pay the outstanding
balance.
PROVI filed complaint to the RTC for sum
of money with damages, which they are
favored upon. TESDA funds are to be
garnished to pay 35M to PROVI
CONSTITUITONAL LAW 1
SY 2014-2015
Atty. Rovyne Jumao-as

TESDA elevated the case to the Court of
Appeals. CA then reversed the decision of
RTC finding that TESDAs funds are public in
nature and purchase of the PVC cards was a
necessary incident of its governmental
function.

Issue: WON the garnishment of TESDAs funds to
cover PROVIs claim is valid?

Held: NO.
TESDA is an agency of the state, cannot be
sued without its consent. TESDAs funds
are public in character, hence exempt from
garnishment. 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.
Being Public funds it is not within reach of
any garnishment proceedings.
Notwithstanding that it entered a contract
with PROVI it is not in relation to a
propriety act or function. It is in relation to
its governmental function of training, skills
accreditation skills. In that case TESDA a
unincorporated agency is immune from
suit and the SC defeated the claim of
PROVI.

Republic vs. NLRC
FACTS:
Pantranco North Express, Inc. (PNEI) was one of the
several companies whose assets were confiscated by
the Presidential Commission on Good Government
(PCGG) after the 1986 EDSA Revolution.
In December 1978, PNEIs assets were foreclosed
and its full ownership was transferred to its creditor,
the National Investment Development Corporation
(NIDC), a subsidiary of the Philippine National Bank
(PNB). Sometime in January 1988, the sequestration
(confiscation) order was lifted to give way to the sale
of PNEI, which was, at the time, managed by the
Asset Privatization Trust (APT).
Due to the worsening financial condition of PNEI, it
filed a Petition for Suspension of Payments with the
SEC on May 7, 1992, and thereby presented a report
recommending the sale of the company through
privatization, as well as the retrenchment of about
500 of its employees. This resulted to the labor
complaints against the company, as follows:

A. NLRC NCR Case No. 00-08-05380-93

This was filed on August 27, 1993 by
Pantranco Employees Association-PTGWO
(PEA-PTGWO) against PNEI and APT for
unfair labor practice, for non-payment of
13th month pay, and various other claims.
During the hearings, only PNEI made an
appearance, while the APT only submitted a
position paper with a motion to dismiss the
case. On February 14, 1994, Labor Arbiter
Eduardo Carpio decided against PNEI and
APT:

"WHEREFORE, premises considered,
judgment is hereby rendered ordering
respondents to jointly and severally pay all
the covered employees the following:

1. 13th month pay and P1,000.00 cash gift
for the year 1992;
2. Medicine allowance from 1991 to
September 1993 when the company ceased
its operations:
3. Uniform allowance pursuant to Art. XIII of
the CBA;
4. Separation pay equivalent to one (1)
month for every year of service, a fraction
of six (6) months to be considered as one
(1) whole year; and
5. 10% of the total award as attorneys
fees.
No appeal was made by either PNEI or APT;
a writ of execution was eventually issued
by Labor Arbiter Carpio, to be implemented
by Sheriff Atienza. The sale of the levied
properties of PNEI resulted to only the
partial satisfaction of the judgment.
Another writ was executed, and Sheriff
Atienza served a notice of garnishment on
the LandBank of the Philippines upon the
credits, interests, and bank deposits of PNEI
or APT, in order to cover the balance of the
judgment in the sum of P 68,947,756.10.
The LBP responded that since the APT is a
GOCC, it could not be the subject of
garnishment.

B. NLRC-NCR-00-05-03587-93
CONSTITUITONAL LAW 1
SY 2014-2015
Atty. Rovyne Jumao-as


This was filed by Pantranco Association of
Concerned Employees Union (PACEU)
against PNEI, APT, and Department of
Transportation and Communication (DOTC)
involving claims for separation pay, 13
th

month pay, and other benefits.

During the hearing on June 30, 1993, the
respondents requested that they be given
until July 8, 1993 to file their position paper
together with their computation of the
claims. On said date, the respondents failed
to appear and failed to file the required
position paper. Thus the case was deemed
submitted for resolution.

On July 21, 1993, Labor Arbiter Aquino
decided:

"WHEREFORE, premises considered,
judgment is hereby rendered ordering
respondent Pantranco North Express, Inc.
to pay individual complainants the following
amount as computed.

Respondent company is further directed to
pay individual complainants the uniformed
amount of P1,000.00 representing unpaid
gift check and uniform allowance in the
amount of P5,868.00 for male complainants
and the amount of P5,058.00 for female
complainants for the year 1991, 1992 and
1993. In the case of complainants Rogelio
Murillo, Oronico Ponciano, Pereya
Francisco, Bernardo Santos and Felizardo
Lambino respondent is directed to pay each
of them the amount of P6,660.00 for the
period 1991, 1992 and 1993.

Respondent is likewise directed to pay the
attorneys fees equivalent to 10% of the
total monetary award of P39,736,459.13.
None of the parties appealed; a writ of
execution was issued commanding the
Sheriff to proceed to the premises of PNEI.
Various properties of PNEI were levied upon
and sold at public auction. Meanwhile, APT
filed an Urgent Ex-Parte Motion to Quash
Execution, and PEA-PTGWO filed a Motion
for Intervention claiming interest over said
properties because of its own monetary
claims against PNEI.
Both motions were denied, but PEA-PTGWO
appealed to the NLRC for the reversal of the
dismissal. The subsequent motion for
reconsideration was denied by NLRC.
C. NLRC CASE NO. SUB-RAB-01-12-7-0225-93

The complaint was filed by Antonio
Cabugao against PNEI and APT, similarly
involving claims for separation pay, 13
th

month pay, and other benefits. Despite
receiving summonses, PNEI and APT failed
to file their answers.

On August 24, 1994, a decision was made
ordering respondents to pay complainant
the total amount of P 208,954.60.

In addition to the writs issued by labor
arbiters, PNEI was also facing suits to pay
certain amounts to different creditors.
Losses incurred by PNEI continued to mount
due to cash flow problems.


Sheriff Atienza attempted to satisfy the
judgment against APT funds. Thus, a
petition was filed by the Republic,
represented by the APT, which sought to
set aside the writs of execution and notice
of garnishment against APT, and to be
given temporary restraining order.

ISSUE:
WON, given these case settings, the APT itself
can be held liable for the obligations of PNEI.

HELD:
The Solicitor-General initially pointed out that
the APT, being an instrumentality of the
Republic of the Phil., is immune from suits.

However, Proclamation No. 50, which
mandated the APT to "take title to and
possession of, conserve, provisionally manage
and dispose of assets" that have been
identified for privatization or disposition,
clearly provides that the said instrumentality
can "sue and be sued." This provision shows
that APT can be haled to court.

CONSTITUITONAL LAW 1
SY 2014-2015
Atty. Rovyne Jumao-as

Nonetheless, suability does not necessarily
mean liability on the part of the particular
instrumentality or agency of the government;
thus, it would be unjust to construe the
decreed joint and solidary liability of APT as
extending beyond what APT has held in PNEI.
The liability of APT under these
circumstances, as merely being a conservator
of PNEIs assets, should only be co-extensive
with the amount of assets taken over from
the latter.

WHEREFORE, the petition is GRANTED. The
notice of garnishment directed against the
funds of APT is NULLIFIED and the temporary
restraining order issued by this Court is made
PERMANENT. No costs.


DOH vs Phil Pharmaware Inc.
Facts:
Phil. Pharmawealth, Inc. is a domestic
corporation engaged in the business of
manufacturing and supplying pharmaceutical
products to government hospitals in the Philippines.
Secretary of Health Alberto G. Romualdez, Jr. issued
Administrative Order (A.O.) No. 27,

Series of 1998,
outlining the guidelines and procedures on the
accreditation of government suppliers for
pharmaceutical products. It was later amended by
A.O. No. 10,

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.
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. In September
2000, petitioner DOH, through Antonio M. Lopez,
chairperson of the pre-qualifications, bids and
awards committee, issued an Invitation for Bids for
the procurement of 1.2 million units vials of
Penicillin G Benzathine. Despite the lack of response
from petitioner DOH regarding respondents request
for inclusion of additional items in its list of
accredited products, respondent submitted its bid
for the Penicillin G Benzathine contract. Only two
companies participated, with respondent submitting
the lower bid at 82.24/unit compared to Cathay/YSS
laboratories bid of 95.00/unit. The contract was
awarded to YSS in view of the non-accreditation of
respondents Penicillin G product.
Respondent thus filed a complaint for
injunction, mandamus and damages with prayer for
the issuance of a writ of preliminary injunction
and/or TRO praying that the trial court nullify the
award of the Penicillin contract to YSS.
Petitoner DOH, argued for the dismissal of the
complaint for lack of merit in view of the express
reservation made by petitioner DOH to accept or
reject any or all bids without incurring liability to the
bidders, they positing that government agencies
have such full discretion. Petitioners subsequently
filed a Manifestation and Motion

to dismiss praying
for the outright dismissal of the complaint based
on the doctrine of state immunity. Additionally,
they alleged that respondents representative was
not duly authorized by its board of directors to file
the complaint.
Issue: Whether or not doctrine of state immunity is
not applicable considering that individual
petitioners are being sued both in their official and
personal capacities.
Held: 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 and it is the official concerned who
should be impleaded as the proper party. Petitioner
cannot avail the defense of immunity from suit
despite it being an unincorporated agency of the
government, for the casuses of action directed
against it are preliminary injunction and
mandamus. Under sec 1, Rule 58 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.
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. The rule, however, 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
CONSTITUITONAL LAW 1
SY 2014-2015
Atty. Rovyne Jumao-as

Zaldivar in Director of the Bureau of
Telecommunications, et al. vs. Aligaen, etc., et al:
In as much 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.
In the present case, suing individual petitioners in
their personal capacities for damages in connection
with their alleged act of illegally abusing their
official positions to make sure that plaintiff
Pharmawealth would not be awarded the
Benzathine contract was done in bad faith and with
full knowledge of the limits of their powers given
by law 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.

Thus the petition is denied.

b. Suits against officer

DOH v. Phil. Pharmawealth, Supra

CALUB vs CA
Facts:
On January 28, 1992, Forest protection and law
enforcement team of CENRO of DENR apprehended
two motor vehicles.
1. Vehicle with plate number HAK-733, loaded with
1,026 board feet of illegal sourced lumber, driven by
Pio Gabon owned by Jose Vargas.
2. Vehicle with plate number FCN-143, loaded with
1,224.97 board feet of illegal sourced lumber, driven
by Constancio Abuganda owned by Manuel
Babalcon.

Upon failure to present proper documents and
licenses, Felipe Calub, Provincial Environment and
Natural Resources Officer, filed immediately a
criminal case (Criminal case 3795) against Abuganda
in violating Revised Forestry Code.

On January 31, 1992 the impounded vehicles were
forcibly taken by Gadon and Abuganda from the
custody of DENR. Subsequently, Calub filed a
criminal complaint for grave coercion against Gabon
and Abuganda, the complaint was DISMISSED.

On February 11, 1992, vehicle with plate number
FCN-143 was again apprehended. Calub duty filed a
criminal case (Criminal case 3625) in violation of
Revised Forestry Code to Abuganda, a certain
Abegonia, and several John Does.

Abegonia and Abuganda were acquitted on the
ground of reasonable doubt.

Subsequenty, the respondents, Babalcon and
Abuganda, filed a complaint for the recovery of the
two (2) impounded vehicle with an application for
replevin against the petitioners. Thus, on June 15,
1992, the petitioner filed a TRO with regards to the
replevin, the TRO was approved.

On May 1994, the CA decided to deny the petition
due to lack of merit. It ruled that mere seizure of a
motor vehicle pursuant to authority granted by
Revised Forestry Code does not place the said
conveyance in custodia legis. The CA added that
disposition and confiscation will be subject to laws,
regulations and policies, in this case, Administrative
Order. 59, series of 1990.

In addition, the the CA noted that the petitioner
failed to observe proper procedure outlined in AO
50, series of 1990 upon failure to submit a report of
seizure to the DENR secretary.

The CA also found no merit in the petitioners claim
that the respondents claim for replevin is a suit
against the state. This is due to the fact that the
petitioners could not shield themselves under the
principle of state immunity as the property to be
recovered had not yet been lawfully adjudged
forfeited in favor of the government. It reasoned out
that a suit against public officer who acted illegally
or beyond the scope of authority could not be
considered as suit against the state.
CONSTITUITONAL LAW 1
SY 2014-2015
Atty. Rovyne Jumao-as


ISSUE:
1. W/N the DENR-seized motor vehicle, with plate
number FCN 143, is in custodial egis.
2. W/N the complaint for the recovery of possession
of impounded vehicles, with an application for
replevin, is a suit against the state.

HELD:
1. YES. Under Section 78 and 89 of Revised Forestry
Code (RFC), warrantless seizure of the involved
vehicles and load is allowed. The failure to submit a
report was justifiably explained. The failure to give
notice on the first seizure was due to the fact the
vehicle was forcibly took by the respondents. Also,
on the second seizure, the respondents immediately
went to court for a writ of replevin.

Since there was a violation of RFC and the seizure
was in accordance with law, subject vehicles were
validly deemed in custodia legis. The action for
replevin is improper for the property is lawfully
taken and is considered as custody of the law.

2. YES. It was held that suit against public official
acting within its authority and in good faith, and in
performance of their duty and function, will be
deemed a suit against the state.