Republic of the Philippines

SUPREME COURT
Manila
EN BANC
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 Avancea 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.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
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 nongovernmental 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 forjure 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.
Teehankee, Aquino, Concepcion, Jr., Melencio-Herrera, Plana, * Escolin, Relova, Gutierrez, Jr.,
De la Fuente, Cuevas and Alampay, JJ., concur.
Fernando, C.J., took no part.

Separate Opinions

MAKASIAR, J., dissenting:

The petition should be dismissed and the proceedings in Civil Case No. 779-M in the defunct
CFI (now RTC) of Rizal be allowed to continue therein.
In the case of Lyons vs. the United States of America (104 Phil. 593), where the contract entered
into between the plaintiff (Harry Lyons, Inc.) and the defendant (U.S. Government) involved
stevedoring and labor services within the Subic Bay area, this Court further stated that inasmuch
as ". . . 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.
Navy 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."
When the U.S. Government, through its agency at Subic Bay, confirmed the acceptance of a bid
of a private company for the repair of wharves or shoreline in the Subic Bay area, it is deemed to
have entered into a contract and thus waived the mantle of sovereign immunity from suit and
descended to the level of the ordinary citizen. Its consent to be sued, therefore, is implied from
its act of entering into a contract (Santos vs. Santos, 92 Phil. 281, 284).
Justice and fairness dictate that a foreign government that commits a breach of its contractual
obligation in the case at bar by the unilateral cancellation of the award for the project by the
United States government, through its agency at Subic Bay should not be allowed to take undue
advantage of a party who may have legitimate claims against it by seeking refuge behind the
shield of non-suability. A contrary view would render a Filipino citizen, as in the instant case,
helpless and without redress in his own country for violation of his rights committed by the
agents of the foreign government professing to act in its name.
Appropriate are the words of Justice Perfecto in his dissenting opinion in Syquia vs. Almeda
Lopez, 84 Phil. 312, 325:
Although, generally, foreign governments are beyond the jurisdiction of domestic
courts of justice, such rule is inapplicable to cases in which the foreign
government enters into private contracts with the citizens of the court's
jurisdiction. A contrary view would simply run against all principles of decency
and violative of all tenets of morals.
Moral principles and principles of justice are as valid and applicable as well with
regard to private individuals as with regard to governments either domestic or

foreign. Once a foreign government enters into a private contract with the private
citizens of another country, such foreign government cannot shield its nonperformance or contravention of the terms of the contract under the cloak of nonjurisdiction. To place such foreign government beyond the jurisdiction of the
domestic courts is to give approval to the execution of unilateral contracts,
graphically described in Spanish as 'contratos leoninos', because one party gets
the lion's share to the detriment of the other. To give validity to such contract is to
sanctify bad faith, deceit, fraud. We prefer to adhere to the thesis that all parties in
a private contract, including governments and the most powerful of them, are
amenable to law, and that such contracts are enforceable through the help of the
courts of justice with jurisdiction to take cognizance of any violation of such
contracts if the same had been entered into only by private individuals.
Constant resort by a foreign state or its agents to the doctrine of State immunity in this
jurisdiction impinges unduly upon our sovereignty and dignity as a nation. Its application will
particularly discourage Filipino or domestic contractors from transacting business and entering
into contracts with United States authorities or facilities in the Philippines whether naval, air or
ground forces-because the difficulty, if not impossibility, of enforcing a validly executed contract
and of seeking judicial remedy in our own courts for breaches of contractual obligation
committed by agents of the United States government, always, looms large, thereby hampering
the growth of Filipino enterprises and creating a virtual monopoly in our own country by United
States contractors of contracts for services or supplies with the various U.S. offices and agencies
operating in the Philippines.
The sanctity of upholding agreements freely entered into by the parties cannot be over
emphasized. Whether the parties are nations or private individuals, it is to be reasonably assumed
and expected that the undertakings in the contract will be complied with in good faith.
One glaring fact of modern day civilization is that a big and powerful nation, like the United
States of America, can always overwhelm small and weak nations. The declaration in the United
Nations Charter that its member states are equal and sovereign, becomes hollow and meaningless
because big nations wielding economic and military superiority impose upon and dictate to small
nations, subverting their sovereignty and dignity as nations. Thus, more often than not, when
U.S. interest clashes with the interest of small nations, the American governmental agencies or
its citizens invoke principles of international law for their own benefit.
In the case at bar, the efficacy of the contract between the U.S. Naval authorities at Subic Bay on
one hand, and herein private respondent on the other, was honored more in the breach than in the
compliance The opinion of the majority will certainly open the floodgates of more violations of
contractual obligations. American authorities or any foreign government in the Philippines for
that matter, dealing with the citizens of this country, can conveniently seek protective cover
under the majority opinion. The result is disastrous to the Philippines.
This opinion of the majority manifests a neo-colonial mentality. It fosters economic imperialism
and foreign political ascendancy in our Republic.

The doctrine of government immunity from suit cannot and should not serve as an instrument for
perpetrating an injustice on a citizen (Amigable vs. Cuenca, L-26400, February 29, 1972, 43
SCRA 360; Ministerio vs. Court of First Instance, L-31635, August 31, 1971, 40 SCRA 464).
Under the doctrine of implied waiver of its non-suability, the United States government, through
its naval authorities at Subic Bay, should be held amenable to lawsuits in our country like any
other juristic person.
The invocation by the petitioner United States of America is not in accord with paragraph 3 of
Article III of the original RP-US Military Bases Agreement of March 14, 1947, which states that
"in the exercise of the above-mentioned rights, powers and authority, the United States agrees
that the powers granted to it will not be used unreasonably. . ." (Emphasis supplied).
Nor is such posture of the petitioners herein in harmony with the amendment dated May 27,
1968 to the aforesaid RP-US Military Bases Agreement, which recognizes "the need to promote
and maintain sound employment practices which will assure equality of treatment of all
employees ... and continuing favorable employer-employee relations ..." and "(B)elieving that an
agreement will be mutually beneficial and will strengthen the democratic institutions cherished
by both Governments, ... the United States Government agrees to accord preferential
employment of Filipino citizens in the Bases, thus (1) the U.S. Forces in the Philippines shall fill
the needs for civilian employment by employing Filipino citizens, etc." (Par. 1, Art. I of the
Amendment of May 27, 1968).
Neither does the invocation by petitioners of state immunity from suit express fidelity to
paragraph 1 of Article IV of the aforesaid amendment of May 2 7, 1968 which directs that "
contractors and concessionaires performing work for the U.S. Armed Forces shall be required by
their contract or concession agreements to comply with all applicable Philippine labor laws and
regulations, " even though paragraph 2 thereof affirms that "nothing in this Agreement shall
imply any waiver by either of the two Governments of such immunity under international law."
Reliance by petitioners on the non-suability of the United States Government before the local
courts, actually clashes with No. III on respect for Philippine law of the Memorandum of
Agreement signed on January 7, 1979, also amending RP-US Military Bases Agreement, which
stresses that "it is the duty of members of the United States Forces, the civilian component and
their dependents, to respect the laws of the Republic of the Philippines and to abstain from any
activity inconsistent with the spirit of the Military Bases Agreement and, in particular, from any
political activity in the Philippines. The United States shag take all measures within its authority
to insure that they adhere to them (Emphasis supplied).
The foregoing duty imposed by the amendment to the Agreement is further emphasized by No.
IV on the economic and social improvement of areas surrounding the bases, which directs that
"moreover, the United States Forces shall procure goods and services in the Philippines to the
maximum extent feasible" (Emphasis supplied).
Under No. VI on labor and taxation of the said amendment of January 6, 1979 in connection with
the discussions on possible revisions or alterations of the Agreement of May 27, 1968, "the

discussions shall be conducted on the basis of the principles of equality of treatment, the right to
organize, and bargain collectively, and respect for the sovereignty of the Republic of the
Philippines" (Emphasis supplied)
The majority opinion seems to mock the provision of paragraph 1 of the joint statement of
President Marcos and Vice-President Mondale of the United States dated May 4, 1978 that "the
United States re-affirms that Philippine sovereignty extends over the bases and that Its base shall
be under the command of a Philippine Base Commander, " which is supposed to underscore the
joint Communique of President Marcos and U.S. President Ford of December 7, 1975, under
which "they affirm that sovereign equality, territorial integrity and political independence of all
States are fundamental principles which both countries scrupulously respect; and that "they
confirm that mutual respect for the dignity of each nation shall characterize their friendship as
well as the alliance between their two countries. "
The majority opinion negates the statement on the delineation of the powers, duties and
responsibilities of both the Philippine and American Base Commanders that "in the performance
of their duties, the Philippine Base Commander and the American Base Commander shall be
guided by full respect for Philippine sovereignty on the one hand and the assurance of
unhampered U.S. military operations on the other hand and that "they shall promote cooperation
understanding and harmonious relations within the Base and with the general public in the
proximate vicinity thereof" (par. 2 & par. 3 of the Annex covered by the exchange of notes,
January 7, 1979, between Ambassador Richard W. Murphy and Minister of Foreign Affairs
Carlos P. Romulo, Emphasis supplied).

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 129406

March 6, 2006

REPUBLIC OF THE PHILIPPINES represented by the PRESIDENTIAL COMMISSION

ON GOOD GOVERNMENT (PCGG), Petitioner,
vs.
SANDIGANBAYAN (SECOND DIVISION) and ROBERTO S.
BENEDICTO, Respondents.
DECISION
GARCIA, J.:
Before the Court is this petition for certiorari under Rule 65 of the Rules of Court to nullify and
set aside the March 28, 19951 and March 13, 19972 Resolutions of the Sandiganbayan, Second
Division, in Civil Case No. 0034, insofar as said resolutions ordered the Presidential
Commission on Good Government (PCGG) to pay private respondent Roberto S. Benedicto or
his corporations the value of 227 shares of stock of the Negros Occidental Golf and Country
Club, Inc. (NOGCCI) at P150,000.00 per share, registered in the name of said private respondent
or his corporations.
The facts:
Civil Case No. 0034 entitled Republic of the Philippines, plaintiff, v. Roberto S. Benedicto, et
al., defendants, is a complaint for reconveyance, reversion, accounting, reconstitution and
damages. The case is one of several suits involving ill-gotten or unexplained wealth that
petitioner Republic, through the PCGG, filed with the Sandiganbayan against private respondent
Roberto S. Benedicto and others pursuant to Executive Order (EO) No. 14, 3 series of 1986.
Pursuant to its mandate under EO No. 1, 4 series of 1986, the PCGG issued writs placing under
sequestration all business enterprises, entities and other properties, real and personal, owned or
registered in the name of private respondent Benedicto, or of corporations in which he appeared
to have controlling or majority interest. Among the properties thus sequestered and taken over by
PCGG fiscal agents were the 227 shares in NOGCCI owned by private respondent Benedicto and
registered in his name or under the names of corporations he owned or controlled.
Following the sequestration process, PCGG representatives sat as members of the Board of
Directors of NOGCCI, which passed, sometime in October 1986, a resolution effecting a
corporate policy change. The change consisted of assessing a monthly membership due
of P150.00 for each NOGCCI share. Prior to this resolution, an investor purchasing more than

one NOGCCI share was exempt from paying monthly membership due for the second and
subsequent shares that he/she owned.
Subsequently, on March 29, 1987, the NOGCCI Board passed another resolution, this time
increasing the monthly membership due from P150.00 to P250.00 for each share.
As sequestrator of the 227 shares of stock in question, PCGG did not pay the corresponding
monthly membership due thereon totaling P2,959,471.00. On account thereof, the 227
sequestered shares were declared delinquent to be disposed of in an auction sale.
Apprised of the above development and evidently to prevent the projected auction sale of the
same shares, PCGG filed a complaint for injunction with the Regional Trial Court (RTC) of
Bacolod City, thereat docketed as Civil Case No. 5348. The complaint, however, was dismissed,
paving the way for the auction sale for the delinquent 227 shares of stock. On August 5, 1989, an
auction sale was conducted.
On November 3, 1990, petitioner Republic and private respondent Benedicto entered into a
Compromise Agreement in Civil Case No. 0034. The agreement contained a general release
clause5 whereunder petitioner Republic agreed and bound itself to lift the sequestration on the
227 NOGCCI shares, among other Benedictos properties, petitioner Republic acknowledging
that it was within private respondent Benedictos capacity to acquire the same shares out of his
income from business and the exercise of his profession.6 Implied in this undertaking is the
recognition by petitioner Republic that the subject shares of stock could not have been ill-gotten.
In a decision dated October 2, 1992, the Sandiganbayan approved the Compromise Agreement
and accordingly rendered judgment in accordance with its terms.
In the process of implementing the Compromise Agreement, either of the parties would, from
time to time, move for a ruling by the Sandiganbayan on the proper manner of implementing or
interpreting a specific provision therein.
On February 22, 1994, Benedicto filed in Civil Case No. 0034 a "Motion for Release from
Sequestration and Return of Sequestered Shares/Dividends" praying, inter alia, that his NOGCCI
shares of stock be specifically released from sequestration and returned, delivered or paid to him
as part of the parties Compromise Agreement in that case. In a Resolution7 promulgated on
December 6, 1994, the Sandiganbayan granted Benedictos aforementioned motion but placed
the subject shares under the custody of its Clerk of Court, thus:
WHEREFORE, in the light of the foregoing, the said "Motion for Release From Sequestration
and Return of Sequestered Shares/Dividends" is hereby GRANTED and it is directed that said
shares/dividends be delivered/placed under the custody of the Clerk of Court, Sandiganbayan,
Manila subject to this Courts disposition.
On March 28, 1995, the Sandiganbayan came out with the herein first assailed
Resolution,8 which clarified its aforementioned December 6, 1994 Resolution and directed the
immediate implementation thereof by requiring PCGG, among other things:

(b) To deliver to the Clerk of Court the 227 sequestered shares of [NOGCCI] registered in the
name of nominees of ROBERTO S. BENEDICTO free from all liens and encumbrances, or in
default thereof, to pay their value at P150,000.00 per share which can be deducted from [the
Republics] cash share in the Compromise Agreement. [Words in bracket added] (Emphasis
Supplied).
Owing to PCGGs failure to comply with the above directive, Benedicto filed in Civil Case No.
0034 a Motion for Compliance dated July 25, 1995, followed by an Ex-Parte Motion for Early
Resolution dated February 12, 1996. Acting thereon, the Sandiganbayan promulgated yet another
Resolution9 on February 23, 1996, dispositively reading:
WHEREFORE, finding merit in the instant motion for early resolution and considering that,
indeed, the PCGG has not shown any justifiable ground as to why it has not complied with its
obligation as set forth in the Order of December 6, 1994 up to this date and which Order was
issued pursuant to the Compromise Agreement and has already become final and executory,
accordingly, the Presidential Commission on Good Government is hereby given a final extension
of fifteen (15) days from receipt hereof within which to comply with the Order of December 6,
1994 as stated hereinabove.
On April 1, 1996, PCGG filed a Manifestation with Motion for Reconsideration, 10 praying for
the setting aside of the Resolution of February 23, 1996. On April 11, 1996, private respondent
Benedicto filed a Motion to Enforce Judgment Levy. Resolving these two motions, the
Sandiganbayan, in its second assailed Resolution11 dated March 13, 1997, denied that portion of
the PCGGs Manifestation with Motion for Reconsideration concerning the subject 227
NOGCCI shares and granted Benedictos Motion to Enforce Judgment Levy.
Hence, the Republics present recourse on the sole issue of whether or not the public respondent
Sandiganbayan, Second Division, gravely abused its discretion in holding that the PCGG is at
fault for not paying the membership dues on the 227 sequestered NOGCCI shares of stock, a
failing which eventually led to the foreclosure sale thereof.
The petition lacks merit.
To begin with, PCGG itself does not dispute its being considered as a receiver insofar as the
sequestered 227 NOGCCI shares of stock are concerned. 12 PCGG also acknowledges that as
such receiver, one of its functions is to pay outstanding debts pertaining to the sequestered entity
or property,13 in this case the 227 NOGCCI shares in question. It contends, however, that
membership dues owing to a golf club cannot be considered as an outstanding debt for which
PCGG, as receiver, must pay. It also claims to have exercised due diligence to prevent the loss
through delinquency sale of the subject NOGCCI shares, specifically inviting attention to the
injunctive suit, i.e., Civil Case No. 5348, it filed before the RTC of Bacolod City to enjoin the
foreclosure sale of the shares.
The filing of the injunction complaint adverted to, without more, cannot plausibly tilt the balance
in favor of PCGG. To the mind of the Court, such filing is a case of acting too little and too late.
It cannot be over-emphasized that it behooved the PCGGs fiscal agents to preserve, like a

responsible father of the family, the value of the shares of stock under their administration. But
far from acting as such father, what the fiscal agents did under the premises was to allow the
element of delinquency to set in before acting by embarking on a tedious process of going to
court after the auction sale had been announced and scheduled.
The PCGGs posture that to the owner of the sequestered shares rests the burden of paying the
membership dues is untenable. For one, it lost sight of the reality that such dues are basically
obligations attached to the shares, which, in the final analysis, shall be made liable, thru
delinquency sale in case of default in payment of the dues. For another, the PCGG as
sequestrator-receiver of such shares is, as stressed earlier, duty bound to preserve the value of
such shares. Needless to state, adopting timely measures to obviate the loss of those shares forms
part of such duty and due diligence.
The Sandiganbayan, to be sure, cannot plausibly be faulted for finding the PCGG liable for the
loss of the 227 NOGCCI shares. There can be no quibbling, as indeed the graft court so declared
in its assailed and related resolutions respecting the NOGCCI shares of stock, that PCGGs fiscal
agents, while sitting in the NOGCCI Board of Directors agreed to the amendment of the rule
pertaining to membership dues. Hence, it is not amiss to state, as did the Sandiganbayan, that the
PCGG-designated fiscal agents, no less, had a direct hand in the loss of the sequestered shares
through delinquency and their eventual sale through public auction. While perhaps anti-climactic
to so mention it at this stage, the unfortunate loss of the shares ought not to have come to pass
had those fiscal agents prudently not agreed to the passage of the NOGCCI board resolutions
charging membership dues on shares without playing representatives.
Given the circumstances leading to the auction sale of the subject NOGCCI shares, PCGGs
lament about public respondent Sandiganbayan having erred or, worse still, having gravely
abused its discretion in its determination as to who is at fault for the loss of the shares in question
can hardly be given cogency.
For sure, even if the Sandiganbayan were wrong in its findings, which does not seem to be in this
case, it is a well-settled rule of jurisprudence that certiorari will issue only to correct errors of
jurisdiction, not errors of judgment. Corollarily, errors of procedure or mistakes in the courts
findings and conclusions are beyond the corrective hand of certiorari.14 The extraordinary writ of
certiorari may be availed only upon a showing, in the minimum, that the respondent tribunal or
officer exercising judicial or quasi-judicial functions has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion. 15
The term "grave abuse of discretion" connotes capricious and whimsical exercise of judgment as
is equivalent to excess, or a lack of jurisdiction. 16 The abuse must be so patent and gross as to
amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or
to act at all in contemplation of law as where the power is exercised in an arbitrary and despotic
manner by reason of passion or hostility. 17 Sadly, this is completely absent in the present case.
For, at bottom, the assailed resolutions of the Sandiganbayan did no more than to direct PCGG to
comply with its part of the bargain under the compromise agreement it freely entered into with
private respondent Benedicto. Simply put, the assailed resolutions of the Sandiganbayan have
firm basis in fact and in law.

Lest it be overlooked, the issue of liability for the shares in question had, as both public and
private respondents asserted, long become final and executory. Petitioners narration of facts in
its present petition is even misleading as it conveniently fails to make reference to two (2)
resolutions issued by the Sandiganbayan. We refer to that courts resolutions of December 6,
199418 and February 23, 199619 as well as several intervening pleadings which served as basis
for the decisions reached therein. As it were, the present petition questions only and focuses on
the March 28, 199520 and March 13, 199721 resolutions, which merely reiterated and clarified the
graft courts underlying resolution of December 6, 1994. And to place matters in the proper
perspective, PCGGs failure to comply with the December 6, 1994 resolution prompted the
issuance of the clarificatory and/or reiteratory resolutions aforementioned.
In a last-ditch attempt to escape liability, petitioner Republic, through the PCGG, invokes state
immunity from suit.22 As argued, the order for it to pay the value of the delinquent shares would
fix monetary liability on a government agency, thus necessitating the appropriation of public
funds to satisfy the judgment claim. 23 But, as private respondent Benedicto correctly countered,
the PCGG fails to take stock of one of the exceptions to the state immunity principle, i.e., when
the government itself is the suitor, as in Civil Case No. 0034. Where, as here, the State itself is
no less the plaintiff in the main case, immunity from suit cannot be effectively invoked. 24 For, as
jurisprudence teaches, when the State, through its duly authorized officers, takes the initiative in
a suit against a private party, it thereby descends to the level of a private individual and thus
opens itself to whatever counterclaims or defenses the latter may have against it. 25 Petitioner
Republics act of filing its complaint in Civil Case No. 0034 constitutes a waiver of its immunity
from suit. Being itself the plaintiff in that case, petitioner Republic cannot set up its immunity
against private respondent Benedictos prayers in the same case.
In fact, by entering into a Compromise Agreement with private respondent Benedicto, petitioner
Republic thereby stripped itself of its immunity from suit and placed itself in the same level of its
adversary. When the State enters into contract, through its officers or agents, in furtherance of a
legitimate aim and purpose and pursuant to constitutional legislative authority, whereby mutual
or reciprocal benefits accrue and rights and obligations arise therefrom, the State may be sued
even without its express consent, precisely because by entering into a contract the sovereign
descends to the level of the citizen. Its consent to be sued is implied from the very act of entering
into such contract,26 breach of which on its part gives the corresponding right to the other party
to the agreement.
Finally, it is apropos to stress that the Compromise Agreement in Civil Case No. 0034 envisaged
the immediate recovery of alleged ill-gotten wealth without further litigation by the government,
and buying peace on the part of the aging Benedicto. 27 Sadly, that stated objective has come to
naught as not only had the litigation continued to ensue, but, worse, private respondent
Benedicto passed away on May 15, 2000, 28 with the trial of Civil Case No. 0034 still in swing, so
much so that the late Benedicto had to be substituted by the administratrix of his estate. 29
WHEREFORE, the instant petition is hereby DISMISSED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
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 therebyimpliedly 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.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-33112 June 15, 1978
PHILIPPINE NATIONAL BANK, petitioner,
vs.
HON. JUDGE JAVIER PABALAN, Judge of the Court of First Instance, Branch III, La
Union, AGOO TOBACCO PLANTERS ASSOCIATION, INC., PHILIPPINE VIRGINIA
TOBACCO ADMINISTRATION, and PANFILO P. JIMENEZ, Deputy Sheriff, La
Union, respondents.
Conrado E. Medina, Edgardo M. Magtalas & Walfrido Climaco for petitioner.
Felimon A. Aspirin fit respondent Agoo 'Tobacco Planters Association, Inc.
Virgilio C. Abejo for respondent Phil. Virginia Tobacco Administration.

FERNANDO, Acting C.J.:

The reliance of petitioner Philippine National Bank in this certiorari and prohibition proceeding
against respondent Judge Javier Pabalan who issued a writ of execution, 1 followed thereafter by
a notice of garnishment of the funds of respondent Philippine Virginia Tobacco
Administration, 2 deposited with it, is on the fundamental constitutional law doctrine of nonsuability of a state, it being alleged that such funds are public in character. This is not the first
time petitioner raised that issue. It did so before in Philippine National Bank v. Court of
industrial Relations, 3 decided only last January. It did not meet with success, this Court ruling in
accordance with the two previous cases of National Shipyard and Steel Corporation 4and Manila
Hotel Employees Association v. Manila Hotel Company, 5 that funds of public corporations
which can sue and be sued were not exempt from garnishment. As respondent Philippine
Virginia Tobacco Administration is likewise a public corporation possessed of the same
attributes, 6 a similar outcome is indicated. This petition must be dismissed.
It is undisputed that the judgment against respondent Philippine Virginia Tobacco
Administration had reached the stage of finality. A writ of execution was, therefore, in order. It
was accordingly issued on December 17, 1970. 7There was a notice of garnishment for the full
amount mentioned in such writ of execution in the sum of P12,724,66. 8 In view of the objection,
however, by petitioner Philippine National Bank on the above ground, coupled with an inquiry as
to whether or not respondent Philippine Virginia Tobacco Administration had funds deposited
with petitioner's La Union branch, it was not until January 25, 1971 that the order sought to be
set aside in this certiorari proceeding was issued by respondent Judge. 9 Its dispositive portion

reads as follows: Conformably with the foregoing, it is now ordered, in accordance with law, that
sufficient funds of the Philippine Virginia Tobacco Administration now deposited with the
Philippine National Bank, La Union Branch, shall be garnished and delivered to the plaintiff
immediately to satisfy the Writ of Execution for one-half of the amount awarded in the decision
of November 16, 1970." 10 Hence this certiorari and prohibition proceeding.
As noted at the outset, petitioner Philippine National Bank would invoke the doctrine of nonsuability. It is to be admitted that under the present Constitution, what was formerly implicit as a
fundamental doctrine in constitutional law has been set forth in express terms: "The State may
not be sued without its consent." 11 If the funds appertained to one of the regular departments or
offices in the government, then, certainly, such a provision would be a bar to garnishment. Such
is not the case here. Garnishment would lie. Only last January, as noted in the opening paragraph
of this decision, this Court, in a case brought by the same petitioner precisely invoking such a
doctrine, left no doubt that the funds of public corporations could properly be made the object of
a notice of garnishment. Accordingly, this petition must fail.
1. The alleged grave abuse of discretion, the basis of this certiorari proceeding, was sought to be
justified on the failure of respondent Judge to set aside the notice of garnishment of funds
belonging to respondent Philippine Virginia Tobacco Administration. This excerpt from the
aforecited decision of Philippine National Bank v. Court of Industrial Relations makes manifest
why such an argument is far from persuasive. "The premise that the funds could be spoken as
public character may be accepted in the sense that the People Homesite and Housing Corporation
was a government-owned entity. It does not follow though that they were exempt. from
garnishment. National Shipyard and Steel Corporation v. Court of Industrial Relations is
squarely in point. As was explicitly stated in the opinion of the then Justice, later Chief Justice,
Concepcion: "The allegation to the effect that the funds of the NASSCO are public funds of the
government, and that, as such, the same may not be garnished, attached or levied upon, is
untenable for, as a government owned and controlled corporation, the NASSCO has a
personality of its own. distinct and separate from that of the Government. It has pursuant to
Section 2 of Executive Order No. 356, dated October 23, 1950 ... , pursuant to which The
NASSCO has been established all the powers of a corporation under the Corporation Law ...
." Accordingly, it may be sue and be sued and may be subjected to court processes just like any
other corporation (Section 13, Act No. 1459, as amended.)" ... To repeat, the ruling was the
appropriate remedy for the prevailing party which could proceed against the funds of a corporate
entity even if owned or controlled by the government." 12
2. The National Shipyard and Steel Corporation decision was not the first of its kind. The ruling
therein could be inferred from the judgment announced in Manila Hotel Employees Association
v. Manila Hotel Company, decided as far back as 1941. 13 In the language of its ponente Justice
Ozaeta "On the other hand, it is well-settled that when the government enters into commercial
business, it abandons its sovereign capacity and is to be treated like any other corporation. (Bank
of the United States v. Planters' Bank, 9 Wheat. 904, 6 L.ed. 244). By engaging in a particular
business thru the instrumentality of a corporation, the government divests itself pro hac vice of
its sovereign character, so as to render the corporation subject to the rules of law governing
private corporations." 14 It is worth mentioning that Justice Ozaeta could find support for such a
pronouncement from the leading American Supreme Court case of united States v. Planters'

Bank, 15 with the opinion coming from the illustrious Chief Justice Marshall. It was handed down
more than one hundred fifty years ago, 1824 to be exact. It is apparent, therefore, that petitioner
Bank could it legally set forth as a bar or impediment to a notice of garnishment the doctrine of
non-suability.
WHEREFORE, this petition for certiorari and prohibition is dismissed. No costs.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-31635 August 31, 1971

ANGEL MINISTERIO and ASUNCION SADAYA, petitioners,
vs.
THE COURT OF FIRST INSTANCE OF CEBU, Fourth Branch, Presided by the
Honorable, Judge JOSE C. BORROMEO, THE PUBLIC HIGHWAY COMMISSIONER,
and THE AUDITOR GENERAL, respondents.
Eriberto Seno for petitioners.
Office of the Solicitor General Felix Q. Antonio, Acting First Assistant Solicitor General Antonio
A. Torres and Solicitor Norberto P. Eduardo for respondents.

FERNANDO, J.:
What is before this Court for determination in this appeal by certiorari to review a decision of
the Court of First Instance of Cebu is the question of whether or not plaintiffs, now petitioners,
seeking the just compensation to which they are entitled under the Constitution for the
expropriation of their property necessary for the widening of a street, no condemnation
proceeding having been filed, could sue defendants Public Highway Commissioner and the
Auditor General, in their capacity as public officials without thereby violating the principle of
government immunity from suit without its consent. The lower court, relying on what it
considered to be authoritative precedents, held that they could not and dismissed the suit. The
matter was then elevated to us. After a careful consideration and with a view to avoiding the
grave inconvenience, not to say possible injustice contrary to the constitutional mandate, that
would be the result if no such suit were permitted, this Court arrives at a different conclusion,
and sustains the right of the plaintiff to file a suit of this character. Accordingly, we reverse.
Petitioners as plaintiffs in a complaint filed with the Court of First Instance of Cebu, dated April
13, 1966, sought the payment of just compensation for a registered lot, containing an area of
1045 square meters, alleging that in 1927 the National Government through its authorized
representatives took physical and material possession of it and used it for the widening of the
Gorordo Avenue, a national road, Cebu City, without paying just compensation and without any
agreement, either written or verbal. There was an allegation of repeated demands for the payment
of its price or return of its possession, but defendants Public Highway Commissioner and the
Auditor General refused to restore its possession. It was further alleged that on August 25, 1965,

the appraisal committee of the City of Cebu approved Resolution No. 90, appraising the
reasonable and just price of Lot No. 647-B at P50.00 per square meter or a total price of
P52,250.00. Thereafter, the complaint was amended on June 30, 1966 in the sense that the
remedy prayed for was in the alternative, either the restoration of possession or the payment of
the just compensation.
In the answer filed by defendants, now respondents, through the then Solicitor General, now
Associate Justice, Antonio P. Barredo, the principal defense relied upon was that the suit in
reality was one against the government and therefore should be dismissed, no consent having
been shown. Then on July 11, 1969, the parties submitted a stipulation of facts to this effect:
"That the plaintiffs are the registered owners of Lot 647-B of the Banilad estate described in the
Survey plan RS-600 GLRO Record No. 5988 and more particularly described in Transfer
Certificate of Title No. RT-5963 containing an area of 1,045 square meters; That the National
Government in 1927 took possession of Lot 647-B Banilad estate, and used the same for the
widening of Gorordo Avenue; That the Appraisal Committee of Cebu City approved Resolution
No. 90, Series of 1965 fixing the price of Lot No. 647-B at P50.00 per square meter; That Lot
No. 647-B is still in the possession of the National Government the same being utilized as part of
the Gorordo Avenue, Cebu City, and that the National Government has not as yet paid the value
of the land which is being utilized for public use." 1
The lower court decision now under review was promulgated on January 30, 1969. As is evident
from the excerpt to be cited, the plea that the suit was against the government without its consent
having been manifested met with a favorable response. Thus: "It is uncontroverted that the land
in question is used by the National Government for road purposes. No evidence was presented
whether or not there was an agreement or contract between the government and the original
owner and whether payment was paid or not to the original owner of the land. It may be
presumed that when the land was taken by the government the payment of its value was made
thereafter and no satisfactory explanation was given why this case was filed only in 1966. But
granting that no compensation was given to the owner of the land, the case is undoubtedly
against the National Government and there is no showing that the government has consented to
be sued in this case. It may be contended that the present case is brought against the Public
Highway Commissioner and the Auditor General and not against the National Government.
Considering that the herein defendants are sued in their official capacity the action is one against
the National Government who should have been made a party in this case, but, as stated before,
with its consent." 2
Then came this petition for certiorari to review the above decision. The principal error assigned
would impugn the holding that the case being against the national government which was sued
without its consent should be dismissed, as it was in fact dismissed. As was indicated in the
opening paragraph of this opinion, this assignment of error is justified. The decision of the lower
court cannot stand. We shall proceed to explain why.
1. The government is immune from suit without its consent. 3 Nor is it indispensable that it be the
party proceeded against. If it appears that the action, would in fact hold it liable, the doctrine
calls for application. It follows then that even if the defendants named were public officials, such
a principle could still be an effective bar. This is clearly so where a litigation would result in a

financial responsibility for the government, whether in the disbursements of funds or loss of
property. Under such circumstances, the liability of the official sued is not personal. The party
that could be adversely affected is government. Hence the defense of non-suability may be
interposed. 4
So it has been categorically set forth in Syquia v. Almeda Lopez: 5 "However, and this is
important, where the judgment in such a case would result not only in the recovery of possession
of the property in favor of said citizen but also in a charge against or financial liability to the
Government, then the suit should be regarded as one against the government itself, and,
consequently, it cannot prosper or be validly entertained by the courts except with the consent of
said Government." 6
2. 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 v. Aligean: 7 "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." 8
3. It would follow then that the prayer in the amended complaint of petitioners being in the
alternative, the lower court, instead of dismissing the same, could have passed upon the claim of
plaintiffs there, now petitioners, for the recovery of the possession of the disputed lot, since no
proceeding for eminent domain, as required by the then Code of Civil Procedure, was
instituted. 9 However, as noted in Alfonso v. Pasay City, 10 this Court speaking through Justice
Montemayor, restoration would be "neither convenient nor feasible because it is now and has
been used for road purposes." 11 The only relief, in the opinion of this Court, would be for the
government "to make due compensation, ..."12 It was made clear in such decision that
compensation should have been made "as far back as the date of the taking." Does it result,
therefore, that petitioners would be absolutely remediless since recovery of possession is in
effect barred by the above decision? If the constitutional mandate that the owner be compensated
for property taken for public use 13 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." 14If 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. 15
Accordingly, the lower court decision is reversed so that the court may proceed with the
complaint and determine the compensation to which petitioners are entitled, taking into account
the ruling in the above Alfonso case: "As to the value of the property, although the plaintiff
claims the present market value thereof, the rule is that to determine due compensation for lands
appropriated by the Government, the basis should be the price or value at the time that it was
taken from the owner and appropriated by the Government." 16
WHEREFORE, the lower court decision of January 30, 1969 dismissing the complaint is
reversed and the case remanded to the lower court for proceedings in accordance with law.

SECOND DIVISION
THE DEPARTMENT OF HEALTH,
SECRETARY
MANUEL
M.
DAYRIT, USEC. MA. MARGARITA
GALON and USEC. ANTONIO M.
LOPEZ,
Petitioners,

- versus -

G.R. No. 169304

Present:
QUISUMBING, J., Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

Promulgated:
March 13, 2007
PHIL. PHARMAWEALTH, INC.,
Respondent.
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

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) Decision[1] 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) Resolution[2] 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
thePhilippines.
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, 2000[6] 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 respondents request were due on September 2000,
the last month of the quarter following the date of its filing. [8]
Sometime in September 2000, petitioner DOH, through petitioner Antonio M. Lopez,
chairperson of the pre-qualifications, bids and awards committee, issued an Invitation for
Bids[9] for the procurement of 1.2 million units vials of Penicillin G Benzathine (Penicillin G
Benzathine contract).
Despite the lack of response from petitioner DOH regarding respondents 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 P82.24 per unit, compared
to Cathay/YSS Laboratories (YSS) bid of P95.00 per unit. In view, however, of the nonaccreditation of respondents Penicillin G Benzathine product, the contract was awarded to YSS.
Respondent thus filed a complaint [10] for injunction, mandamus and damages with prayer
for the issuance of a writ of preliminary injunction and/or temporary restraining order with

the Regional Trial Court of Pasig City praying, inter alia, that the trial court nullify the award of
the Penicillin G Benzathine contract (IFB No. 2000-10-11 [14]) to YSS Laboratories, Inc. and
direct defendant DOH, defendant Romualdez, defendant Galon and defendant Lopez to declare
plaintiff Pharmawealth as

the lowest complying responsible bidder for the Benzathine contract, and that they accordingly
award the same to plaintiff company and adjudge defendants Romualdez, Galon and Lopez
liable, jointly and severally to plaintiff, for [the therein specified damages]. [11]
In their Comment,[12] petitioner DOH, Secretary Alberto Romualdez, Jr. who was later
succeeded by petitioner Secretary Manuel M. Dayrit, and individual petitioners Undersecretaries
Margarita Galon and Antonio Lopez argued for the dismissal of the complaint for lack of merit
in view of the express reservation made by petitioner DOH to accept or reject any or all bids
without incurring liability to the bidders, they positing that government agencies have such full
discretion.
Petitioners subsequently filed a Manifestation and Motion[13] (motion to dismiss) praying
for the outright dismissal of the complaint based on the doctrine of state immunity.Additionally,
they alleged that respondents representative was not duly authorized by its board of directors to
file the complaint.
To petitioners motion to dismiss, respondent filed its comment/opposition[14] 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 court [15] denied petitioners motion to dismiss.
Their motion for reconsideration having been denied, [16] petitioners filed a petition for
certiorari[17] with the Court of Appeals, before which they maintained that the suit is against the
state.
By the assailed Decision[18] of May 12, 2005, the Court of Appeals affirmed the trial
courts 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 58[23] 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 Appeals[28] 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)

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.

l\epublic of t~e fl~ihpplnr~ ~upreme QI:ourt Jlllanila SECOND DIVISION DEPARTMENT OF

HEAL Til, THE SECRETARY OF HEALTH, and MA. MARGARITA M. GALON, Petitioners,
-versusG.R. No. 182358 Present: CARPIO, ChaiiJJerson, BRION, PERALTA,* DEL
CASTILLO, and PHil~ PHARMA WEALTH, INC., Promulgated: ( :_i'IJ --, PEREZ,JJ ~ .
Respondent. FEB 2 D 2013 - _]_ ... --- ... ---"" X - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION DEL CASTILLO, J.: The state may not be sued
~ithout 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
Certiormi 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 wasissued by then Department of Health ([X)II) Secretary Alfredo G.
Romuald~~ ' Per Raffle dated February 4, 2013. Rollo, pp. 27-44. !d. at 7-21; penned by
Associate Justice Monina Arevalo-Zenarosa and concurred in by Presiding Justice Conrado M.
Vasquez, Jr. and Associate Justice Edgardo F. Sundiam. !d. at 22-23. CA rolla, pp. 156-164.
Records, pp. 16-17. Decision G.R. No. 182358 2 (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. 171C9 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 Products11 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 PPIs 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 6
Id. at 19-25. 7 Id. at 24. 8 Id. at 26. 9 Id. at 111. 10 Id. at 27. 11 Id. at 28-40. 12 Per Republic Act

No. 9711 or the Food and Drug Administration (FDA) Act of 2009 which was signed by the
President on August 18, 2009, the Bureau of Food and Drugs (BFAD) was renamed and is now
called the Food and Drug Administration (FDA). Decision G.R. No. 182358 3 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.
PPIs 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 letterreply15 dated November 23, 2000 Undersecretary Galon found untenable PPIs 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 13 Records, p. 41. 14 Id.
15 Id. at 42. 16 Id. at 43-44. 17 FOOD, DRUG, AND COSMETIC ACT. June 22, 1963. 18
FURTHER AMENDING REPUBLIC ACT NO 3720, ENTITLED AN ACT TO ENSURE
THE SAFETY AND PURITY OF FOODS, DRUGS, AND COSMETICS BEING MADE
AVAILABLE TO Decision G.R. No. 182358 4 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 Galons 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 Galons 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 P5 million, exemplary damages of P1 million, attorneys fees of P1 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 PPIs accreditation
was suspended because most of the drugs it was importing and distributing/selling to the public
were found by the THE PUBLIC BY CREATING THE FOOD AND DRUG
ADMINISTRATION WHICH SHALL ADMINISTER AND ENFORCE THE LAWS
PERTAINING THERETO, AS AMENDED, AND FOR OTHER PURPOSES. May 22, 1987.
19 Records, pp. 2-15. 20 Id. at 400-424. 21 Id. at 454-457. Administrative Order No. 14 was a
later issuance by DOH Secretary Dayrit which was subsequently included in PPIs amended and
supplemental complaint as one of the issuances sought to be nullified. It provided for new
accreditation guidelines and granted the Accreditation Committee the power to suspend or
revoke a suppliers accreditation after deliberation and notice, and without need of a hearing. 22
Id. at 489-505. Decision G.R. No. 182358 5 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 PPIs 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 PPIs accreditation to stop the distribution and sale of substandard drug products
which posed a serious health risk to the public. By exercising DOHs 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 PPIs prayer for a temporary restraining order, but only
covering PPIs 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 PPIs board of directors granting to the commencing officer
PPIs 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 23 Id. at 124. 24 Id. at 500-513. 25 Id. at 532-541. 26 Id. at 555-561;
penned by Judge Amelia A. Fabros. 27 Id. at 562-569. 28 See Order dated April 19, 2005, id. at
593. Decision G.R. No. 182358 6 PPI appealed to the CA. Ruling of the Court of Appeals
Docketed as CA-G.R. CV No. 85670, PPIs 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, PPIs 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. 29 Rollo, pp. 7-21. 30
Id. at 21. Emphases in the original. Decision G.R. No. 182358 7 Issue Petitioners now raise the
following lone issue for the Courts resolution: Should Civil Case No. 68200 be dismissed for
being a suit against the State?31 Petitioners Arguments Petitioners submit that because PPIs
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 PPIs 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. Respondents 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 31 Id. at 730. 32 G.R. No. 104269, November 11, 1993, 227 SCRA 693.
Decision G.R. No. 182358 8 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 nonsuability 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 States 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 nonsuability.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. 33 Id. at 698-699. Citations

omitted. 34 United States of America v. Judge Guinto, 261 Phil. 777, 790 (1990). 35 Id. at 792.
36 Id. at 793. 37 Id. at 795. 38 Equitable Insurance and Casualty Co., Inc. v. Smith, Bell & Co.
(Phils.), Inc., 127 Phil. 547, 549 (1967). Decision G.R. No. 182358 9 In this case, the DOH,
being an unincorporated agency of the government39 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, attorneys 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. 39
Department of Health v. Phil Pharmawealth, Inc., 547 Phil. 148, 154 (2007). 40 G.R. No.
159402, February 23, 2011, 644 SCRA 36. 41 Id. at 42-43. Citations omitted. 42 Department of
Health v. Phil Pharmawealth, Inc., supra at 154. 43 See Complaint, pp. 12-13, records, pp. 13-14;
Amended and Supplemental Complaint, p. 13, records, p. 422. Decision G.R. No. 182358 10 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 DOHs
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 PPIs accreditation
only came about after it failed to submit its comment as directed by Undersecretary Galon. It 44
United States of America v. Judge Guinto, supra note 34 at 791. 45 Department of Health v. Phil
Pharmawealth, Inc., supra note 39 at 153. 46 M. H. Wylie v. Rarang, G.R. No. 74135, May 28,
1992, 209 SCRA 357, 368. Citation omitted. See also United States of America v. Reyes, G.R.
No. 79253, March 1, 1993, 219 SCRA 192, 209 where the Court held: 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 or jurisdiction. (Citations
omitted) 47 United States of America v. Judge Guinto, supra note 34 at 791-792. See also
Department of Health v. Phil Pharmawealth, Inc., supra note 39 at 155. 48 See Section 26,
Republic Act No. 3720. 49 See Section 12, Chapter 3, Title IX, Book IV, Administrative Code of
1987. Decision G.R. No. 182358 11 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 PPIs 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 PPIs 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 PPIs 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 PPIs 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, PPIs drugs which are included in the Report on Violative Products are
out and being sold in the market. Based on the foregoing, we find PPIs 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 ones 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 Decision G.H. No. 182358 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 (~f 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.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-29993 October 23, 1978
LAUDENCIO TORIO, GUILLERMO EVANGELISTA, MANUEL DE GUZMAN,
ALFONSO R. MAGSANOC, JESUS MACARANAS, MAXIMO MANANGAN, FIDEL
MONTEMAYOR, MELCHOR VIRAY, RAMON TULAGAN, all Members of the
Municipal Council of Malasiqui in 1959, Malasiqui, Pangasinan, petitioners,
vs.
ROSALINA, ANGELINA, LEONARDO, EDUARDO, ARTEMIO, ANGELITA, ANITA,
ERNESTO, NORMA, VIRGINIA, REMEDIOS and ROBERTO, all surnamed
FONTANILLA, and THE HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-30183 October 23, 1978
MUNICIPALITY OF MALASIQUI, petitioner,
vs.
ROSALINA, ANGELINA, LEONARDO, EDUARDO, ARTEMIO, ANGELITA, ANITA,
ERNESTO, NORMA, VIRGINIA, REMEDIOS and ROBERTO, all surnamed
FONTANILLA, and the Honorable COURT OF APPEALS, respondents.
Julian M. Armas, Assistant Provincial Fiscal for petitioners.
Isidro L. Padilla for respondents.

MUOZ PALMA, J.:

These Petitions for review present the issue of whether or not the celebration of a town fiesta
authorized by a municipal council under Sec. 2282 of the Municipal Law as embodied in the
Revised Administrative Code is a governmental or a corporate or proprietary function of the
municipality.
A resolution of that issue will lead to another, viz the civil liability for damages of the
Municipality of Malasiqui, and the members of the Municipal Council of Malasiqui, province of
Pangasinan, for a death which occurred during the celebration of the town fiesta on January 22,
1959, and which was attributed to the negligence of the municipality and its council members.
The following facts are not in dispute:

On October 21, 1958, the Municipal Council of Malasiqui, Pangasinan, passed Resolution No.
159 whereby "it resolved to manage the 1959 Malasiqui town fiesta celebration on January 21,
22, and 23, 1959." Resolution No. 182 was also passed creating the "1959 Malasiqui 'Town
Fiesta Executive Committee" which in turn organized a sub-committee on entertainment and
stage, with Jose Macaraeg as Chairman. the council appropriated the amount of P100.00 for the
construction of 2 stages, one for the "zarzuela" and another for the cancionan Jose Macaraeg
supervised the construction of the stage and as constructed the stage for the "zarzuela" was "5-
meters by 8 meters in size, had a wooden floor high at the rear and was supported by 24 bamboo
posts 4 in a row in front, 4 in the rear and 5 on each side with bamboo braces." 1
The "zarzuela" entitled "Midas Extravaganza" was donated by an association of Malasiqui
employees of the Manila Railroad Company in Caloocan, Rizal. The troupe arrived in the
evening of January 22 for the performance and one of the members of the group was Vicente
Fontanilla. The program started at about 10:15 o'clock that evening with some speeches, and
many persons went up the stage. The "zarzuela" then began but before the dramatic part of the
play was reached, the stage collapsed and Vicente Fontanilla who was at the rear of the stage was
pinned underneath. Fontanilia was taken to tile San Carlos General Hospital where he died in the
afternoon of the following day.
The heirs of Vicente Fontanilia filed a complaint with the Court of First Instance of Manila on
September 11, 1959 to recover damages. Named party-defendants were the Municipality of
Malasiqui, the Municipal Council of Malasiqui and all the individual members of the Municipal
Council in 1959.
Answering the complaint defendant municipality invoked inter alia the principal defense that as a
legally and duly organized public corporation it performs sovereign functions and the holding of
a town fiesta was an exercise of its governmental functions from which no liability can arise to
answer for the negligence of any of its agents.
The defendant councilors inturn maintained that they merely acted as agents of the municipality
in carrying out the municipal ordinance providing for the management of the town fiesta
celebration and as such they are likewise not liable for damages as the undertaking was not one
for profit; furthermore, they had exercised due care and diligence in implementing the municipal
ordinance. 2
After trial, the Presiding Judge, Hon. Gregorio T. Lantin narrowed the issue to whether or not the
defendants exercised due diligence 'm the construction of the stage. From his findings he arrived
at the conclusion that the Executive Committee appointed by the municipal council had
exercised due diligence and care like a good father of the family in selecting a competent man to
construct a stage strong enough for the occasion and that if it collapsed that was due to forces
beyond the control of the committee on entertainment, consequently, the defendants were not
liable for damages for the death of Vicente Fontanilla. The complaint was accordingly dismissed
in a decision dated July 10, 1962. 3
The Fontanillas appealed to the Court of Appeals. In a decision Promulgated on October 31,
1968, the Court of Appeals through its Fourth Division composed at the time of Justices

Salvador V. Esguerra, Nicasio A. Yatco and Eulogio S. Serrano reversed the trial court's decision
and ordered all the defendants-appellees to pay jointly and severally the heirs of Vicente
Fontanilla the sums of P12,000.00 by way of moral and actual damages: P1200.00 its attorney's
fees; and the costs. 4
The case is now before Us on various assignments of errors all of which center on the
proposition stated at the sentence of this Opinion and which We repeat:
Is the celebration of a town fiesta an undertaking in the excercise of a municipality's
governmental or public function or is it or a private or proprietary character?
1. Under Philippine laws municipalities are political bodies corporate and as such ag endowed
with the faculties of municipal corporations to be exercised by and through their respective
municipal governments in conformity with law, and in their proper corporate name, they may
inter alia sue and be sued, and contract and be contracted with. 5
The powers of a municipality are twofold in character public, governmental or political on the
one hand, and corporate, private, or proprietary on the other. Governmental powers are those
exercised by the corporation in administering the powers of the state and promoting the public
welfare and they include the legislative, judicial public, and political Municipal powers on the
other hand are exercised for the special benefit and advantage of the community and include
those which are ministerial private and corporate. 6
As to when a certain activity is governmental and when proprietary or private, that is generally a
difficult matter to determine. The evolution of the municipal law in American Jurisprudence, for
instance, has shown that; none of the tests which have evolved and are stated in textbooks have
set down a conclusive principle or rule, so that each case will have to be determined on the basis
of attending circumstances.
In McQuillin on Municipal Corporations, the rule is stated thus: "A municipal corporation proper
has ... a public character as regards the state at large insofar as it is its agent in government, and
private (so-called) insofar as it is to promote local necessities and conveniences for its own
community. 7
Another statement of the test is given in City of Kokomo v. Loy, decided by the Supreme Court of
Indiana in 1916, thus:
Municipal corporations exist in a dual capacity, and their functions are two fold.
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 the 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 in. individual capacity, and not for the state or
sovereign power. (112 N. E 994-995)
In the early Philippine case of Mendoza v. de Leon 1916, the Supreme Court, through Justice
Grant T. Trent, relying mainly on American Jurisprudence classified certain activities of the
municipality as governmental, e.g.: regulations against fire, disease, preservation of public peace,
maintenance of municipal prisons, establishment of schools, post-offices, etc. while the
following are corporate or proprietary in character, viz: municipal waterwork, slaughter houses,
markets, stables, bathing establishments, wharves, ferries, and fisheries. 8 Maintenance of parks,
golf courses, cemeteries and airports among others, are also recognized as municipal or city
activities of a proprietary character. 9
2. This 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.
If the injury is caused in the course of the performance of a governmental function or duty no
recovery, as a rule, can be. had from the municipality unless there is an existing statute on the
matter, 10 nor from its officers, so long as they performed their duties honestly and in good faith
or that they did not act wantonly and maliciously. 11 In Palafox, et al., v. Province of Ilocos
Norte, et al., 1958, a truck driver employed by the provincial government of Ilocos Norte ran
over Proceto Palafox in the course of his work at the construction of a road. The Supreme Court
in affirming the trial court's dismissal of the complaint for damages held that the province could
not be made liable because its employee was in the performance of a governmental function
the construction and maintenance of roads and however tragic and deplorable it may be, the
death of Palafox imposed on the province no duty to pay monetary consideration. 12
With respect to proprietary functions, the settled rule is that a municipal corporation can be held
liable to third persons ex contract 13 or ex delicto. 14
Municipal corporations are subject to be sued upon contracts and in tort. ...
xxx xxx xxx
The rule of law is a general one, that the superior or employer must answer civilly
for the negligence or want of skill of its agent or servant in the course or fine of
his employment, by which another, who is free from contributory fault, is injured.
Municipal corporations under the conditions herein stated, fall within the
operation of this rule of law, and are liable, accordingly, to civil actions for
damages when the requisite elements of liability co-exist. ... (Dillon on Municipal
Corporations, 5th ed. Sec. 1610,1647, cited in Mendoza v. de Leon, supra. 514)
3. Coming to the cam before Us, and applying the general tests given above, We hold that the ho
of the town fiesta in 1959 by the municipality of Malsiqui Pangasinan was an exercise of a
private or proprietary function of the municipality.
Section 2282 of the Chatter on Municipal Law of the Revised Administrative Code provides:

Section 2282. Celebration of fiesta. fiesta may be held in each municipality not
oftener than once a year upon a date fixed by the municipal council A fiesta s not
be held upon any other date than that lawfully fixed therefor, except when, for
weighty reasons, such as typhoons, foundations, earthquakes, epidemics, or other
public ties, the fiesta cannot be hold in the date fixed in which case it may be held
at a later date in the same year, by resolution of the council.
This provision simply gives authority to the municipality to accelebrate a yearly fiesta but it does
not impose upon it a duty to observe one. Holding a fiesta even if the purpose is to commemorate
a religious or historical event of the town is in essence an act for the special benefit of the
community and not for the general welfare of the public performed in pursuance of a policy of
the state. The mere fact that the celebration, as claimed was not to secure profit or gain but
merely to provide entertainment to the town inhabitants is not a conclusive test. For instance, the
maintenance of parks is not a source of income for the nonetheless it is private undertaking as
distinguished from the maintenance of public schools, jails, and the like which are for public
service.
As stated earlier, there can be no hard and fast rule for purposes of determining the true nature of
an undertaking or function of a municipality; the surrounding circumstances of a particular case
are to be considered and will be decisive. The basic element, however beneficial to the public the
undertaking may be, is that it is governmental in essence, otherwise. the function becomes
private or proprietary in character. Easily, no overnmental or public policy of the state is
involved in the celebration of a town fiesta. 15
4. It follows that under the doctrine of respondent superior, petitioner-municipality is to be held
liable for damages for the death of Vicente Fontanilia if that was at- tributable to the negligence
of the municipality's officers, employees, or agents.
Art. 2176, Civil Code: Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage done. . .
Art. 2180, Civil Code: The obligation imposed by article 2176 is demandable not
only for one's own acts or omission, but also for those of persons for whom one is
responsible. . .
On this point, the Court of Appeals found and held that there was negligence.
The trial court gave credence to the testimony of Angel Novado, a witness of the defendants
(now petitioners), that a member of the "extravaganza troupe removed two principal braces
located on the front portion of the stage and u them to hang the screen or "telon", and that when
many people went up the stage the latter collapsed. This testimony was not believed however by
respondent appellate court, and rightly so. According to said defendants, those two braces were
"mother" or "principal" braces located semi-diagonally from the front ends of the stage to the
front posts of the ticket booth located at the rear of the stage and were fastened with a bamboo
twine. 16 That being the case, it becomes incredible that any person in his right mind would
remove those principal braces and leave the front portion of the stage practically unsuported

Moreover, if that did happen, there was indeed negligence as there was lack of suspension over
the use of the stage to prevent such an occurrence.
At any rate, the guitarist who was pointed to by Novado as the person who removed the two
bamboo braces denied having done go. The Court of Appeals said "Amor by himself alone could
not have removed the two braces which must be about ten meters long and fastened them on top
of the stags for the curtain. The stage was only five and a half meters wide. Surely, it, would be
impractical and unwieldy to use a ten meter bamboo pole, much more two poles for the stage
curtain. 17
The appellate court also found that the stage was not strong enough considering that only
P100.00 was appropriate for the construction of two stages and while the floor of the "zarzuela"
stage was of wooden planks, the Post and braces used were of bamboo material We likewise
observe that although the stage was described by the Petitioners as being supported by "24"
posts, nevertheless there were only 4 in front, 4 at the rear, and 5 on each side. Where were the
rest?
The Court of Appeals thus concluded
The court a quo itself attributed the collapse of the stage to the great number of
onlookers who mounted the stage. The municipality and/or its agents had the
necessary means within its command to prevent such an occurrence. Having filed
to take the necessary steps to maintain the safety of the stage for the use of the
participants in the stage presentation prepared in connection with the celebration
of the town fiesta, particularly, in preventing non participants or spectators from
mounting and accumulating on the stage which was not constructed to meet the
additional weight- the defendant-appellees were negligent and are liable for the
death of Vicente Fontanilla . (pp. 30-31, rollo, L-29993)
The findings of the respondent appellate court that the facts as presented to it establish
negligence as a matter of law and that the Municipality failed to exercise the due diligence of a
good father of the family, will not disturbed by Us in the absence of a clear showing of an abuse
of discretion or a gross misapprehension of facts." 18
Liability rests on negligence which is "the want of such care as a person of ordinary prudence
would exercise under the circumstances of the case." 19
Thus, private respondents argue that the "Midas Extravaganza" which was to be performed
during the town fiesta was a "donation" offered by an association of Malasiqui employees of the
Manila Railroad Co. in Caloocan, and that when the Municipality of Malasiqui accepted the
donation of services and constructed precisely a "zarzuela stage" for the purpose, the participants
in the stage show had the right to expect that the Municipality through its "Committee on
entertainment and stage" would build or put up a stage or platform strong enough to sustain the
weight or burden of the performance and take the necessary measures to insure the personal
safety of the participants. 20 We agree.

Quite relevant to that argument is the American case of Sanders v. City of Long Beach, 1942,
which was an action against the city for injuries sustained from a fall when plaintiff was
descending the steps of the city auditorium. The city was conducting a "Know your City Week"
and one of the features was the showing of a motion picture in the city auditorium to which the
general public was invited and plaintiff Sanders was one of those who attended. In sustaining the
award for Damages in favor of plaintiff, the District Court of Appeal, Second district, California,
held inter alia that the "Know your City Week" was a "proprietary activity" and not a
"governmental one" of the city, that defendant owed to plaintiff, an invitee the duty of exercising
ordinary care for her safety, and plaintiff was entitled to assume that she would not be exposed to
a danger (which in this case consisted of lack of sufficient illumination of the premises) that
would come to her through a violation of defendant duty. 21
We can say that the deceased Vicente Fontanilla was similarly situated as Sander The
Municipality of Malasiqui resolved to celebrate the town fiesta in January of 1959; it created a
committee in charge of the entertainment and stage; an association of Malasiqui residents
responded to the call for the festivities and volunteered to present a stage show; Vicente
Fontanilla was one of the participants who like Sanders had the right to expect that he would be
exposed to danger on that occasion.
Lastly, petitioner or appellant Municipality cannot evade ability and/or liability under the c that it
was Jose Macaraeg who constructed the stage. The municipality acting through its municipal
council appointed Macaraeg as chairman of the sub-committee on entertainment and in charge of
the construction of the "zarzuela" stage. Macaraeg acted merely as an agent of the Municipality.
Under the doctrine of respondent superior mentioned earlier, petitioner is responsible or liable
for the negligence of its agent acting within his assigned tasks. 22
... when it is sought to render a municipal corporation liable for the act of servants or agents, a
cardinal inquiry is, whether they are the servants or agents of the corporation. If the corporation
appoints or elects them, can control them in the discharge of their duties, can continue or remove
the can hold them responsible for the manner in which they discharge their trust, and if those
duties relate to the exercise of corporate powers, and are for the benefit of the corporation in its
local or special interest, they may justly be regarded as its agents or servants, and the maxim of
respondent superior applies." ... (Dillon on Municipal Corporations, 5th Ed., Vol IV, p. 2879)
5. The remaining question to be resolved centers on the liability of the municipal councilors who
enacted the ordinance and created the fiesta committee.
The Court of Appeals held the councilors jointly and solidarity liable with the municipality for
damages under Article 27 of the Civil Code which provides that d any person suffering ing
material or moral loss because a public servant or employee refuses or neglects, without just
cause to perform his official duty may file an action for damages and other relief at the latter. 23
In their Petition for review the municipal councilors allege that the Court of Appeals erred in
ruling that the holding of a town fiesta is not a governmental function and that there was
negligence on their part for not maintaining and supervising the safe use of the stage, in applying

Article 27 of the Civil Code against them and in not holding Jose Macaraeg liable for the
collapse of the stage and the consequent death of Vicente Fontanilla. 24
We agree with petitioners that the Court of Appeals erred in applying Article 27 of the Civil
Code against the for this particular article covers a case of nonfeasance or non-performance by a
public officer of his official duty; it does not apply to a case of negligence or misfeasance in
carrying out an official duty.
If We are led to set aside the decision of the Court of Appeals insofar as these petitioners are
concerned, it is because of a plain error committed by respondent court which however is not
invoked in petitioners' brief.
In Miguel v. The Court of appeal. et al., the Court, through Justice, now Chief Justice, Fred Ruiz
Castro, held that the Supreme Court is vested with ample authority to review matters not
assigned as errors in an appeal if it finds that their consideration and resolution are indispensable
or necessary in arriving at a just decision in a given case, and that tills is author under Sec. 7,
Rule 51 of the Rules of Court. 25 We believe that this pronouncement can well be applied in the
instant case.
The Court of Appeals in its decision now under review held that the celebration of a town fiesta
by the Municipality of Malasiqui was not a governmental function. We upheld that ruling. The
legal consequence thereof is that the Municipality stands on the same footing as an ordinary
private corporation with the municipal council acting as its board of directors. It is an elementary
principle that a corporation has a personality, separate and distinct from its officers, directors, or
persons composing it 26 and the latter are not as a rule co-responsible in an action for damages
for tort or negligence culpa aquilla committed by the corporation's employees or agents unless
there is a showing of bad faith or gross or wanton negligence on their part. 27
xxx xxx xxx
The ordinary doctrine is that a director, merely by reason of his office, is not
personally Stable for the torts of his corporation; he Must be shown to have
personally voted for or otherwise participated in them ... Fletcher Encyclopedia
Corporations, Vol 3A Chapt 11, p. 207)
Officers of a corporation 'are not held liable for the negligence of the corporation
merely because of their official relation to it, but because of some wrongful or
negligent act by such officer amounting to a breach of duty which resulted in an
injury ... To make an officer of a corporation liable for the negligence of the
corporation there must have been upon his part such a breach of duty as
contributed to, or helped to bring about, the injury; that is to say, he must be a
participant in the wrongful act. ... (pp. 207-208, Ibid.)
xxx xxx xxx

Directors who merely employ one to give a fireworks Ambition on the corporate
are not personally liable for the negligent acts of the exhibitor. (p. 211, Ibid.)
On these people We absolve Use municipal councilors from any liability for the death of Vicente
Fontanilla. The records do not show that said petitioners directly participated in the defective
construction of the "zarzuela" stage or that they personally permitted spectators to go up the
platform.
6. One last point We have to resolve is on the award of attorney's fees by respondent court.
Petitioner-municipality assails the award.
Under paragraph 11, Art. 2208 of the Civil Code attorney's fees and expenses of litigation may
be granted when the court deems it just and equitable. In this case of Vicente Fontanilla,
although respondent appellate court failed to state the grounds for awarding attorney's fees, the
records show however that attempts were made by plaintiffs, now private respondents, to secure
an extrajudicial compensation from the municipality: that the latter gave prorases and assurances
of assistance but failed to comply; and it was only eight month after the incident that the
bereaved family of Vicente Fontanilla was compelled to seek relief from the courts to ventilate
what was believed to be a just cause. 28
We hold, therefore, that there is no error committed in the grant of attorney's fees which after all
is a matter of judicial discretion. The amount of P1,200.00 is fair and reasonable.
PREMISES CONSIDERED, We AFFIRM in toto the decision of the Court of Appeals insofar as
the Municipality of Malasiqui is concerned (L-30183), and We absolve the municipal councilors
from liability and SET ASIDE the judgment against them (L-9993).
Without pronouncement as to costs.
SO ORDERED,

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-52179

April 8, 1991

MUNICIPALITY OF SAN FERNANDO, LA UNION, petitioner

vs.
HON. JUDGE ROMEO N. FIRME, JUANA RIMANDO-BANIA, IAUREANO BANIA,
JR., SOR MARIETA BANIA, MONTANO BANIA, ORJA BANIA, AND LYDIA R.
BANIA, 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 Bania, 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 RimandoBania, Laureano Bania, Jr., Sor Marietta Bania, Montano Bania, Orja Bania and Lydia R.
Bania are heirs of the deceased Laureano Bania 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 Bania 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-Bania, Mrs. Priscilla B.
Surell, Laureano Bania Jr., Sor Marietta Bania, Mrs. Fe B. Soriano, Montano Bania,
Orja Bania and Lydia B. Bania the sums of P1,500.00 as funeral expenses and
P24,744.24 as the lost expected earnings of the late Laureano Bania 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.

FIRST DIVISION
REPUBLIC OF THE PHILIPPINES,
Petitioner,

G.R. No. 161657

Present:

- versus -

PUNO, C.J.,Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.

HON. VICENTE A. HIDALGO, in his capacity

as Presiding Judge of the Regional Trial Court
of
Manila,
Branch
37, CARMELO
V. CACHERO, in his capacity as Sheriff IV,
Regional Trial Court of Manila, and TARCILA
Promulgated:
LAPERAL MENDOZA,
Respondents.
October 4, 2007
x----------------------------------------------------------------------------------------x

DECISION
GARCIA, J.:

Via this verified petition for certiorari and prohibition under Rule 65 of the Rules of Court, the
Republic of the Philippines (Republic, for short), thru the Office of the Solicitor General (OSG),
comes to this Court to nullify and set aside the decision dated August 27, 2003 and other related
issuances of the Regional Trial Court (RTC) of Manila, Branch 37, in its Civil Case No. 9994075. In directly invoking the Courts original jurisdiction to issue the extraordinary writs
of certiorari and prohibition, without challenge from any of the respondents, the Republic gave
as justification therefor the fact that the case involves an over TWO BILLION PESO judgment
against the State, allegedly rendered in blatant violation of the Constitution, law and
jurisprudence.
By any standard, the case indeed involves a colossal sum of money which, on the face of the
assailed decision, shall be the liability of the national government or, in fine, the taxpayers. This
consideration, juxtaposed with the constitutional and legal questions surrounding the
controversy, presents special and compelling reasons of public interests why direct recourse to
the Court should be allowed, as an exception to the policy on hierarchy of courts.

At the core of the litigation is a 4,924.60-square meter lot once covered by Transfer Certificate of
Title (TCT) No. 118527 of the Registry of Deeds of Manila in the name of the herein private
respondent Tarcila Laperal Mendoza (Mendoza), married to Perfecto Mendoza. The lot is
situated at No. 1440 Arlegui St., San Miguel, Manila, near the Malacaang Palace complex. On
this lot, hereinafter referred to as the Arlegui property, now stands the Presidential Guest House
which was home to two (2) former Presidents of the Republic and now appears to be used as
office building of the Office of the President. [1]
The facts:
Sometime in June 1999, Mendoza filed a suit with the RTC of Manila for reconveyance and the
corresponding declaration of nullity of a deed of sale and title against the Republic, the Register
of Deeds of Manila and one Atty. Fidel Vivar. In her complaint, as later amended, docketed
as Civil Case No. 99-94075 and eventually raffled to Branch 35 of the court, Mendoza
essentially alleged being the owner of the disputed Arlegui property which the Republic
forcibly dispossessed her of and over which the Register of Deeds of Manila issued TCT No.
118911 in the name of the Republic.

Answering, the Republic set up, among other affirmative defenses, the States immunity from
suit.
The intervening legal tussles are not essential to this narration. What is material is that in an
Order of March 17, 2000, the RTC of Manila, Branch 35, dismissed Mendozas complaint. The
court would also deny, in another order dated May 12, 2000, Mendozas omnibus motion for
reconsideration. On a petition for certiorari, however, the Court of Appeals (CA), in CA-G.R. SP
No. 60749, reversed the trial courts assailed orders and remanded the case to the court a quo for
further proceedings.[2] On appeal, this Court, in G.R. No. 155231, sustained the CAs reversal
action.[3]
From Branch 35 of the trial court whose then presiding judge inhibited himself from hearing the
remanded Civil Case No. 99-94075, the case was re-raffled to Branch 37 thereof, presided by the
respondent judge.
On May 5, 2003, Mendoza filed a Motion for Leave of Court to file a Third Amended
Complaint with a copy of the intended third amended complaint thereto attached. In the May 16,
2003 setting to hear the motion, the RTC, in open court and in the presence of the Republics

counsel, admitted the third amended complaint, ordered the Republic to file its answer thereto
within five (5) days from May 16, 2003 and set a date for pre-trial.
In her adverted third amended complaint for recovery and reconveyance of the Arlegui
property, Mendoza sought the declaration of nullity of a supposed deed of sale dated July 15,
1975 which provided the instrumentation toward the issuance of TCT No. 118911 in the name of
the Republic. And aside from the cancellation of TCT No. 118911, Mendoza also asked for the
reinstatement of her TCT No. 118527. [4] In the same third amended complaint, Mendoza averred
that, since time immemorial, she and her predecessors-in-interest had been in peaceful and
adverse possession of the property as well as of the owners duplicate copy of TCT No. 118527.
Such possession, she added, continued until the first week of July 1975 when a group of armed
men representing themselves to be members of the Presidential Security Group [PSG] of the then
President Ferdinand E. Marcos, had forcibly entered [her] residence and ordered [her] to turn
over to them her Copy of TCT No. 118525 and compelled her and the members of her household
to vacate the same ; thus, out of fear for their lives, [she] handed her Owners Duplicate
Certificate Copy of TCT No. 118527 and had left and/or vacated the subject property. Mendoza
further alleged the following:
1. Per verification, TCT No. 118527 had already been cancelled by virtue of a deed of sale in
favor of the Republic allegedly executed by her and her deceased husband on July 15, 1975 and
acknowledged before Fidel Vivar which deed was annotated at the back of TCT No. 118527
under PE: 2035/T-118911 dated July 28, 1975; and
2. That the aforementioned deed of sale is fictitious as she (Mendoza) and her husband have not
executed any deed of conveyance covering the disputed property in favor of the Republic, let
alone appearing before Fidel Vivar.
Inter alia, she prayed for the following:
4. Ordering the Republic to pay plaintiff [Mendoza] a reasonable compensation or rental
for the use or occupancy of the subject property in the sum of FIVE HUNDRED
THOUSAND (P500,000.00) PESOS a month with a five (5%) per cent yearly
increase, plus interest thereon at the legal rate, beginning July 1975 until it finally
vacates the same;
5. Ordering the Republic to pay plaintiffs counsel a sum equivalent to TWENTY FIVE
(25%) PER CENT of the current value of the subject property and/or whatever
amount is recovered under the premises; Further, plaintiff prays for such other
relief, just and equitable under the premises.

On May 21, 2003, the Republic, represented by the OSG, filed a Motion for Extension (With
Motion for Cancellation of scheduled pre-trial). In it, the Republic manifested its inability to
simply adopt its previous answer and, accordingly, asked that it be given a period of thirty (30)
days from May 21, 2003 or until June 20, 2003 within which to submit an Answer.[5] June 20,
2003 came and went, but no answer was filed. On July 18, 2003 and again on August 19, 2003,
the OSG moved for a 30-day extension at each instance. The filing of the last two motions for
extension proved to be an idle gesture, however, since the trial court had meanwhile issued an
order[6] dated July 7, 2003 declaring the petitioner Republic as in default and allowing the private
respondent to present her evidence ex-parte.
The evidence for the private respondent, as plaintiff a quo, consisted of her testimony denying
having executed the alleged deed of sale dated July 15, 1975 which paved the way for the
issuance of TCT No. 118911. According to her, said deed is fictitious or inexistent, as evidenced
by separate certifications, the first (Exh. E), issued by the Register of Deeds for Manila and the
second (Exh. F), by the Office of Clerk of Court, RTC Manila. Exhibit E[7] states that a copy of
the supposed conveying deed cannot, despite diligent efforts of records personnel, be located,
while Exhibit F[8] states that Fidel Vivar was not a commissioned notary public for and in the
City of Manila for the year 1975. Three other witnesses[9] testified, albeit their testimonies
revolved around the appraisal and rental values of the Arlegui property.
Eventually, the trial court rendered a judgment by default[10] for Mendoza and against the
Republic. To the trial court, the Republic had veritably confiscated Mendozas property, and
deprived her not only of the use thereof but also denied her of the income she could have had
otherwise realized during all the years she was illegally dispossessed of the same.
Dated August 27, 2003, the trial courts decision dispositively reads as follows:
WHEREFORE, judgment is hereby rendered:
1.

Declaring the deed of sale dated July 15, 1975, annotated at

the back of [TCT] No. 118527 as PE:2035/T-118911, as nonexistent and/or fictitious, and, therefore, null and void from the
beginning;

2.

Declaring that [TCT] No. 118911 of the defendant Republic

of the Philippines has no basis, thereby making it null and void
from the beginning;

3.

Ordering the defendant Register of Deeds for the City of

Manila to reinstate plaintiff [Mendozas TCT] No. 118527;

4.

Ordering the defendant Republic to pay just compensation in

the sum of ONE HUNDRED FORTY THREE MILLION SIX
HUNDRED THOUSAND (P143,600,000.00) PESOS, plus
interest at the legal rate, until the whole amount is paid in full for
the acquisition of the subject property;

5.

Ordering the plaintiff, upon payment of the just

compensation for the acquisition of her property, to execute the
necessary deed of conveyance in favor of the defendant Republic ;
and, on the other hand, directing the defendant Register of Deeds,
upon presentation of the said deed of conveyance, to cancel
plaintiffs TCT No. 118527 and to issue, in lieu thereof, a new
Transfer Certificate of Title in favor of the defendant Republic;

6.

Ordering the defendant Republic to pay the plaintiff the sum

of ONE BILLION FOUR HUNDRED EIGHTY MILLION SIX
HUNDRED TWENTY SEVEN THOUSAND SIX HUNDRED
EIGHTY EIGHT (P1,480,627,688.00) PESOS, representing the
reasonable rental for the use of the subject property, the interest
thereon at the legal rate, and the opportunity cost at the rate of
three (3%) per cent per annum, commencing July 1975
continuously up to July 30, 2003, plus an additional interest at the
legal rate, commencing from this date until the whole amount is
paid in full;

7.

Ordering the defendant Republic to pay the plaintiff

attorneys fee, in an amount equivalent to FIFTEEN (15%) PER
CENT of the amount due to the plaintiff.
With pronouncement as to the costs of suit.
SO ORDERED. (Words in bracket and emphasis added.)

Subsequently, the Republic moved for, but was denied, a new trial per order of the trial court of
October 7, 2003.[11] Denied also was its subsequent plea for reconsideration. [12] These twin denial
orders were followed by several orders and processes issued by the trial court on separate dates
as hereunder indicated:
1.

November 27, 2003 - - Certificate of Finality declaring the August 27, 2003
decision final and executory.[13]

2.

December 17, 2003 - - Order denying the Notice of Appeal filed on November 27,
2003, the same having been filed beyond the reglementary period. [14]

3.

December 19, 2003 - - Order[15] granting the private respondents motion for
execution.

4.

December 22, 2003 - - Writ of Execution.[16]

Hence, this petition for certiorari.

By Resolution[17] of November 20, 2006, the case was set for oral arguments. On January 22,
2007, when this case was called for the purpose, both parties manifested their willingness to
settle the case amicably, for which reason the Court gave them up to February 28, 2007 to submit
the compromise agreement for approval. Following several approved extensions of the February
28, 2007 deadline, the OSG, on August 6, 2007, manifested that it is submitting the case for
resolution on the merits owing to the inability of the parties to agree on an acceptable
compromise.
In this recourse, the petitioner urges the Court to strike down as a nullity the trial courts order
declaring it in default and the judgment by default that followed. Sought to be nullified, too, also
on the ground that they were issued in grave abuse of discretion amounting to lack or in excess
of jurisdiction, are the orders and processes enumerated immediately above issued after the
rendition of the default judgment.
Petitioner lists five (5) overlapping grounds for allowing its petition. It starts off by impugning
the order of default and the judgment by default. To the petitioner, the respondent judge
committed serious jurisdictional error when he proceeded to hear the case and eventually
awarded the private respondent a staggering amount without so much as giving the petitioner the
opportunity to present its defense.
Petitioners posture is simply without merit.
Deprivation of procedural due process is obviously the petitioners threshold theme. Due process,
in its procedural aspect, guarantees in the minimum the opportunity to be heard. [18] Grave abuse
of discretion, however, cannot plausibly be laid at the doorstep of the respondent judge on
account of his having issued the default order against the petitioner, then proceeding with the
hearing and eventually rendering a default judgment. For, what the respondent judge did hew

with what Section 3, Rule 9 of the Rules of Court prescribes and allows in the event the
defending party fails to seasonably file a responsive pleading. The provision reads:
SEC. 3. Default; declaration of.- If the defending party fails to answer within the time
allowed therefor, the court shall, upon motion of the claiming party with notice to
the defending party, and proof of such failure, declare the defending party in
default. Thereupon, the court shall proceed to render judgment granting the
claimant such relief as his pleading may warrant, unless the court in its discretion
requires the claimant to submit evidence . [19]
While the ideal lies in avoiding orders of default, [20] the policy of the law being to have every
litigated case tried on its full merits,[21] the act of the respondent judge in rendering the default
judgment after an order of default was properly issued cannot be struck down as a case of grave
abuse of discretion.
The term grave abuse of discretion, in its juridical sense, connotes capricious, despotic,
oppressive or whimsical exercise of judgment as is equivalent to lack of jurisdiction. [22] The
abuse must be of such degree as to amount to an evasion of a positive duty or a virtual refusal to
perform a duty enjoined by law, as where the power is exercised in a capricious manner. The
word capricious, usually used in tandem with arbitrary, conveys the notion of willful and
unreasoning action.[23]
Under the premises, the mere issuance by the trial court of the order of default followed by a
judgment by default can easily be sustained as correct and doubtless within its jurisdiction.
Surely, a disposition directing the Republic to pay an enormous sum without the trial court
hearing its side does not, without more, vitiate, on due procedural ground, the validity of the
default judgment. The petitioner may have indeed been deprived of such hearing, but this does
not mean that its right to due process had been violated. For, consequent to being declared in
default, the defaulting defendant is deemed to have waived his right to be heard or to take part in
the trial. The handling solicitors simply squandered the Republics opportunity to be heard. But
more importantly, the law itself imposes such deprivation of the right to participate as a form of
penalty against one unwilling without justification to join issue upon the allegations tendered by
the plaintiff.
And going to another point, the petitioner would ascribe jurisdictional error on the respondent
judge for denying its motion for new trial based on any or a mix of the following factors, viz., (1)
the failure to file an answer is attributable to the negligence of the former handling solicitor; (2)
the meritorious nature of the petitioners defense; and (3) the value of the property involved.

The Court is not convinced. Even as the Court particularly notes what the trial court had said on
the matter of negligence: that all of the petitioners pleadings below bear at least three signatures,
that of the handling solicitor, the assistant solicitor and the Solicitor General himself, and hence
accountability should go up all the way to the top of the totem pole of authority, the cited reasons
advanced by the petitioner for a new trial are not recognized under Section 1, Rule 37 of the
Rules of Court for such recourse. [24] Withal, there is no cogent reason to disturb the denial by the
trial court of the motion for new trial and the denial of the reiterative motion for reconsideration.
Then, too, the issuance by the trial court of the Order dated December 17, 2003 [25] denying the
petitioners notice of appeal after the court caused the issuance on November 27, 2003 of a
certificate of finality of its August 27, 2003 decision can hardly be described as arbitrary, as the
petitioner would have this Court believe. In this regard, the Court takes stock of the following
key events and material dates set forth in the assailed December 17, 2003 order, supra: (a) The
petitioner, thru the OSG, received on August 29, 2003 a copy of the RTC decision in this case,
hence had up to September 13, 2003, a Saturday, within which to perfect an appeal; (b)
On September 15, 2003, a Monday, the OSG filed its motion for new trial, which the RTC
denied, the OSG receiving a copy of the order of denial on October 9, 2003; and (c) On October
24, 2003, the OSG sought reconsideration of the order denying the motion for new trial. The
motion for reconsideration was denied per Order dated November 25, 2003, a copy of which the
OSG received on the same date.
Given the foregoing time perspective, what the trial court wrote in its aforementioned impugned
order of December 17, 2003 merits approval:
In the case at bar, it is clear that the motion for new trial filed on the fifteenth (15 th) day
after the decision was received on August 29, 2003 was denied and the moving
party has only the remaining period from notice of notice of denial within which
to file a notice of appeal. xxx
Accordingly, when defendants [Republic et al.] filed their motion for new trial on the last
day of the fifteen day (15) prescribed for taking an appeal, which motion was
subsequently denied, they had one (1) day from receipt of a copy of the order
denying new trial within which to perfect [an] appeal . Since defendants had
received a copy of the order denying their motion for new trial on 09 October
2003, reckoned from that date, they only have one (1) day left within which to
file the notice of appeal. But instead of doing so, the defendants filed a motion
for reconsideration which was later declared by the Court as pro forma
motion in the Order dated 25 November 2003. The running of the prescriptive
period, therefore, can not be interrupted by a pro forma motion. Hence the filing

of the notice of appeal on 27 November 2007 came much too late for by then the
judgment had already become final and executory. [26] (Words in bracket added;
Emphasis in the original.)
It cannot be over-emphasized at this stage that the special civil action of certiorari is limited to
resolving only errors of jurisdiction; it is not a remedy to correct errors of judgment. Hence, the
petitioners lament, partly covered by and discussed under the first ground for allowing its
petition, about the trial court taking cognizance of the case notwithstanding private respondents
claim or action being barred by prescription and/or laches cannot be considered favorably. For,
let alone the fact that an action for the declaration of the inexistence of a contract, as here, does
not prescribe;[27] that a void transfer of property can be recovered by accion
reivindicatoria;[28] and that the legal fiction of indefeasibility of a Torrens title cannot be used as
a shield to perpetuate fraud,[29] the trial courts disinclination not to appreciate in favor of the
Republic the general principles of prescription or laches constitutes, at best, errors of judgment
not correctable by certiorari.
The evidence adduced below indeed adequately supports a conclusion that the Office of the
President, during the administration of then President Marcos, wrested possession of the property
in question and somehow secured a certificate of title over it without a conveying deed having
been executed to legally justify the cancellation of the old title (TCT No. 118527) in the name of
the private respondent and the issuance of a new one (TCT No. 118911) in the name of petitioner
Republic. Accordingly, granting private respondents basic plea for recovery of the Arlegui
property, which was legally hers all along, and the reinstatement of her cancelled certificate of
title are legally correct as they are morally right. While not exactly convenient because the Office
of the President presently uses it for mix residence and office purposes, restoring private
respondent to her possession of the Arlegui property is still legally and physically feasible. For
what is before us, after all, is a registered owner of a piece of land who, during the early days of
the martial law regime, lost possession thereof to the Government which appropriated the same
for some public use, but without going through the legal process of expropriation, let alone
paying such owner just compensation.
The Court cannot, however, stop with just restoring the private respondent to her possession and
ownership of her property. The restoration ought to be complemented by some form of monetary
compensation for having been unjustly deprived of the beneficial use thereof, but not, however,
in the varying amounts and level fixed in the assailed decision of the trial court and set to be
executed by the equally assailed writ of execution. The Court finds the monetary award set forth
therein to be erroneous. And the error relates to basic fundamentals of law as to constitute grave
abuse of discretion.

As may be noted, private respondent fixed the assessed value of her Arlegui
property at P2,388,990.00. And in the prayer portion of her third amended complaint for
recovery, she asked to be restored to the possession of her property and that the petitioner be
ordered to pay her, as reasonable compensation or rental use or occupancy thereof, the sum
of P500,000.00 a month, or P6 Million a year, with a five percent (5%) yearly increase plus
interest at the legal rate beginning July 1975. From July 1975 when the PSG allegedly took over
the subject property to July 2003, a month before the trial court rendered judgment, or a period
of 28 years, private respondents total rental claim would, per the OSGs computation, only
amount toP371,440,426.00. In its assailed decision, however, the trial court ordered the
petitioner to pay private respondent the total amount of over P1.48 Billion or the mind-boggling
amount ofP1,480,627,688.00, to be exact, representing the reasonable rental for the property, the
interest rate thereon at the legal rate and the opportunity cost. This figure is on top of
theP143,600,000.00 which represents the acquisition cost of the disputed property. All told, the
trial court would have the Republic pay the total amount of about P1.624 Billion, exclusive of
interest, for the taking of a property with a declared assessed value of P2,388,900.00. This is not
to mention the award of attorneys fees in an amount equivalent to 15% of the amount due the
private respondent.
In doing so, the respondent judge brazenly went around the explicit command of Rule 9, Section
3(d) of the Rules of Court [30] which defines the extent of the relief that may be awarded in a
judgment by default, i.e., only so much as has been alleged and proved. The court acts in excess
of jurisdiction if it awards an amount beyond the claim made in the complaint or beyond that
proved by the evidence.[31] While a defaulted defendant may be said to be at the mercy of the
trial court, the Rules of Court and certainly the imperatives of fair play see to it that any decision
against him must be in accordance with law. [32] In the abstract, this means that the judgment must
not be characterized by outrageous one-sidedness, but by what is fair, just and equitable that
always underlie the enactment of a law.
Given the above perspective, the obvious question that comes to mind is the level of
compensation which for the use and occupancy of the Arlegui property - would be fair to both
the petitioner and the private respondent and, at the same time, be within acceptable legal
bounds. The process of balancing the interests of both parties is not an easy one. But surely,
theArlegui property cannot possibly be assigned, even perhaps at the present real estate
business standards, a monthly rental value of at least P500,000.00 or P6,000,000.00 a year, the
amount private respondent particularly sought and attempted to prove. This asking figure is
clearly unconscionable, if not downright ridiculous, attendant circumstances considered. To the

Court, an award of P20,000.00 a month for the use and occupancy of the Arlegui property,
while perhaps a little bit arbitrary, is reasonable and may be granted pro hac vice considering the
following hard realities which the Court takes stock of:
1.

The property is relatively small in terms of actual area and had an assessed value of
only P2,388,900.00;
2.
What the martial law regime took over was not exactly an area with a new and
imposing structure, if there was any; and
3.

The Arlegui
property had
minimal
rental
value
during
the
relatively long martial law years, given the very restrictive entry and egress
conditions prevailing at the vicinity at that time and even after.

To be sure, the grant of monetary award is not without parallel. In Alfonso v. Pasay City,[33] a
case where a registered owner also lost possession of a piece of lot to a municipality which took
it for a public purposes without instituting expropriation proceedings or paying any
compensation for the lot, the Court, citing Herrera v. Auditor General,[34] ordered payment of
just compensation but in the form of interest when a return of the property was no longer
feasible.
The award of attorneys fees equivalent to 15% of the amount due the private respondent, as
reduced herein, is affirmed.
The assessment of costs of suit against the petitioner is, however, nullified, costs not being
allowed against the Republic, unless otherwise provided by law.[35]
The assailed trial courts issuance of the writ of execution[36] against government funds to satisfy
its money judgment is also nullified. It is basic that government funds and properties may not be
seized under writs of execution or garnishment to satisfy such judgments. [37] Republic v.
Palacio[38] teaches that a judgment against the State generally operates merely to liquidate and
establish the plaintiffs claim in the absence of express provision; otherwise, they can not be
enforced by processes of law.
Albeit title to the Arlegui property remains in the name of the petitioner Republic, it is actually
the Office of the President which has beneficial possession of and use over it since the 1975
takeover. Accordingly, and in accord with the elementary sense of justice, it behooves that office
to make the appropriate budgetary arrangements towards paying private respondent what is due
her under the premises. This, to us, is the right thing to do. The imperatives of fair dealing

demand no less. And the Court would be remiss in the discharge of its duties as dispenser of
justice if it does not exhort the Office of the President to comply with what, in law and equity, is
its obligation. If the same office will undertake to pay its obligation with reasonable dispatch or
in a manner acceptable to the private respondent, then simple justice, while perhaps delayed, will
have its day. Private respondent is in the twilight of her life, being now over 90 years of
age.[39] Any delay in the implementation of this disposition would be a bitter cut.
WHEREFORE, the decision of the Regional Trial Court of Manila dated August 27, 2003
insofar as it nullified TCT No. 118911 of petitioner Republic of the Philippines and ordered the
Register of Deeds of Manila to reinstate private respondent Tarcila L. Mendozas TCT No.
118527, or to issue her a new certificate of title is AFFIRMED. Should it be necessary, the
Register of Deeds of Manila shall execute the necessary conveying deed to effect the
reinstatement of title or the issuance of a new title to her.
It is MODIFIED in the sense that for the use and occupancy of the Arlegui property, petitioner
Republic is ordered to pay private respondent the reasonable amount of P20,000.00 a month
beginning July 1975 until it vacates the same and the possession thereof restored to the private
respondent, plus an additional interest of 6% per annum on the total amount due upon the finality
of this Decision until the same is fully paid. Petitioner is further ordered to pay private
respondent attorney's fees equivalent to 15% of the amount due her under the premises.
Accordingly, a writ of certiorari is hereby ISSUED in the sense that:
1. The respondent courts assailed decision of August 27, 2003 insofar as it ordered the petitioner
Republic of the Philippines to pay private respondent Tarcila L. Mendoza the sum of One Billion
Four Hundred Eighty Million Six Hundred Twenty Seven Thousand Six Hundred Eighty Eight
Pesos (P1,480,627,688.00) representing the purported rental use of the property in question, the
interest thereon and the opportunity cost at the rate of 3% per annum plus the interest at the legal
rate added thereon is nullified. The portion assessing the petitioner Republic for costs of suit is
also declared null and void.
2. The Order of the respondent court dated December 19, 2003 for the issuance of a writ of
execution and the Writ of Execution dated December 22, 2003 against government funds are
hereby declared null and void. Accordingly, the presiding judge of the respondent court, the
private respondent, their agents and persons acting for and in their behalves are permanently
enjoined from enforcing said writ of execution.

However, consistent with the basic tenets of justice, fairness and equity, petitioner Republic, thru
the Office of the President, is hereby strongly enjoined to take the necessary steps, and, with
reasonable dispatch, make the appropriate budgetary arrangements to pay private respondent
Tarcila L. Mendoza or her assigns the amount adjudged due her under this disposition.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

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

CORTS, 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 263530850-7 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 [SeeViuda 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

3Repui.Jlir of t(Je l)(Jtlipptnes5 ~upreme QCourt ;iflllantla FIRST DIVISION 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, -versusHON. AGUSTIN S. DIZON, m his capacity as
Presiding Judge of the Regional Trial Court of Quezon City, Branch 80, STERN BUILDERS,
INC., and SERVILLANO DELA CRUZ, Respondents. G.R. No. 171182 Present: LEONARDODE CASTRO, Acting Chairperson, BERSAMIN, DEL CASTILLO, VILLARAMA, JR., and
PERLAS-BERNABE, JJ. Promulgated: 2 3 AUG 2012, X------------------------------------------------------------------------ ---------------X DECISION BERSAMIN, J.: Trial judges should not
immediately tssue 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). Administrative Circular No. I 0-2000 dated October 25. 2000 Decision
G.R. No. 171182 2 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 P16,370,191.74
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
Baos (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 P273,729.47 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 corespondent 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, 2 Rollo,
pp. 39-54; penned by Associate Justice Ruben T. Reyes (later Presiding Justice and Member of
the Court, but now retired), with Associate Justice Josefina Guevara-Salonga (retired) and
Associate Justice Fernanda Lampas-Peralta concurring. 3 Id. at 92-105. Decision G.R. No.
171182 3 Casiano S. Abrigo, and Josefina R. Licuanan, was docketed as Civil Case No. Q-9314971 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. P503,462.74
amount of the third billing, additional accomplished work and retention money 2. P5,716,729.00
in actual damages 3. P10,000,000.00 in moral damages 4. P150,000.00 and P1,500.00 per
appearance as attorneys fees; and 5. Costs of suit. SO ORDERED. Following the RTCs 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 UPs 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 4 Id. at 75-83. 5 Id. at 133-138. 6 Id. at 162. 7 Id. at 163-164. 8 Id. at 169-171. 9 Id. at 172173. Decision G.R. No. 171182 4 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 UPs 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. (Rams 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 10 Id. at 174. 11 Id. at 174-182. 12 Id. at 185-187. 13 Id. at 188-213. 14 Id. at 217-223;

penned by Associate Justice B.A. Adefuin-Dela Cruz (retired), with Associate Justice Eliezer R.
delos Santos (deceased) and Associate Justice Jose Catral Mendoza (now a Member of the
Court) concurring. Decision G.R. No. 171182 5 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 UPs 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 UPs 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 15 Id. at 221. 16 Id. at 243. 17 Id. at 282. 18 Id. at 283-291. 19 Id. at 293.
20 Id. at 417. 21 Id. at 172-173; and 301. 22 Id. at 312. 23 Id. at 302-309. 24 Id. at 314-319.
Decision G.R. No. 171182 6 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 UPs urgent
motion to quash, and granted Stern Builders and dela Cruzs 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 UPs 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. 25 Id. at 321-322. 26 Id. at 323325. 27 Id. at 326-328. 28 Id. at 332-333. 29 Id. at 334-336. 30 Id. at 339. 31 Id. at 340. 32 Id. at
341. Decision G.R. No. 171182 7 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
[r]evenue 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 sheriffs assistance to
implement the release order dated December 21, 2004, stating that the 60-day period of the TRO
of the 33 Id. at 341. 34 Id. at 342-344. 35 Id. at 346-360. 36 G.R. No. 104269, November 11,
1993, 227 SCRA 693. 37 G.R. No. 110280, October 21, 1993, 227 SCRA 342. 38 Rollo, pp.
366-367; penned by Associate Justice Reyes, with Associate Justice Tria Tirona (retired) and
Associate Justice Jose C. Reyes, Jr. concurring. Decision G.R. No. 171182 8 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
sheriffs 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 Managers Check No. 811941 for P16,370,191.74 representing the
garnished funds payable to the order of Stern Builders and dela Cruz as its compliance with the
RTCs 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 UPs 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 39 Id. at 452-453. 40 Id. at 455-460. 41 Id. at 472-476. 42 Id. at 477-482. 43 Id. at 484. 44
Id. at 485-489. 45 Id. at 492-494. 46 Id. at 484. 47 Id. at 492-494. Decision G.R. No. 171182 9
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 plaintiffs 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 UPs 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 Baos, 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 48 Id. at
51. Decision G.R. No. 171182 10 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 Cruzs motion to withdraw the deposit, in
consideration of the UPs 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 CAG.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 49 Id. at
51-52. 50 Id. at 569. 51 Id. Decision G.R. No. 171182 11 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 latters 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. Systems
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
Courts 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. 52 Id. at 556-561. 53 Id. at 562-565. Decision G.R. No.
171182 12 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 [c]ourt 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 sheriffs 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 UPs motion for the redeposit of the withdrawn amount on April 10, 2007,60
to wit: This resolves defendant U.P. Systems 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 54 Id. at 563-564. 55 Id. at 576-581. 56 Id. at 625-628. 57 Id. at 687-688. 58 Id. at
605-615. 59 Id. at 705-714. 60 Id. at 719-721. Decision G.R. No. 171182 13 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 plaintiffs motion to allow the release of said deposit. It must be recalled
that the Court found plaintiffs 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. Systems appeal was
upheld by the Supreme Court; c) a writ of execution had been issued; d) defendant U.P. Systems

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. Systems motion to redeposit the judgment amount. Granting said
motion is not only contrary to law, but it will also render this Courts final executory judgment
nugatory. Litigation must end and terminate sometime and somewhere, and it is essential to an
Decision G.R. No. 171182 14 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. Systems Urgent
Motion to Redeposit Judgment Award devoid of merit, the same is hereby DENIED. SO
ORDERED. Issues The UP now submits that: I 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 UNIVERSITYS 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
P10 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. Decision G.R. No. 171182 15 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 attorneys 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 attorneys 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 UPs
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 UPs 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 P5,716,729.00 and moral damages of P10 million should be
reduced, if not 61 G.R. No. L-30098, February 18, 1970, 31 SCRA 616, 625. 62 G.R. No.
104269, November 11, 1993, 227 SCRA 693, 701-702. Decision G.R. No. 171182 16 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., CAG.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 P22,338,553.25, an
amount already more than sufficient to cover the judgment award; that the UPs 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
Courts 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 UPs prayer for the deletion of the awards of actual damages of
P5,716,729.00, moral damages of P10,000,000.00 and attorneys fees of P150,000.00 plus
P1,500.00 per appearance could be granted despite the finality of the judgment of the RTC.
Ruling The petition for review is meritorious. Decision G.R. No. 171182 17 I. UPs 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 institution65 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 States 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 63 Section 2, Act No. 1870. 64
Section 1, Act No. 1870. 65 Section 2(12) of Executive Order No. 292 reads: xxx xxx Chartered
institution refers to any agency organized or operating under a special charter, and vested by law
with functions relating to specific constitutional policies or objectives. This term includes the
state universities and colleges and the monetary authority of the State. xxx 66 University of the
Philippines and Anonas v. Court of Industrial Relations, 107 Phil 848, 850 (1960). 67 Section 2,
R.A. No. 9500. 68 Section 3, R.A. No. 9500. 69 Section 2(10), of Executive Order No. 292
provides: xxx xxx Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This term includes regulatory agencies,
chartered institutions and government-owned or controlled corporations. xxx 70 Section 1,
Article XIV, 1987 Constitution. 71 Entitled Fiscal Control and Management of the Funds of the
University of the Philippines, promulgated on August 1, 1981. Decision G.R. No. 171182 18
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 UPs 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 RTCs 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 72 Section 3, R.A. No. 9500. 73
Section 13(m), R.A. No. 9500. 74 Section 13, Act 1870; Section 6, Executive Order No. 714;
Section 26, R.A. No. 9500. 75 Section 3(4), P.D. No. 1445. 76 Section 4(3), P.D. No. 1445. 77
Section 22(a), R.A. No. 9500. 78 Philippine Rock Industries, Inc. v. Board of Liquidators, G.R.
No. 84992, December 15, 1989, 180 SCRA 171, 175. 79 Republic v. National Labor Relations
Commission, G.R. No. 120385, October 17, 1996, 263 SCRA 290, 300. 80 G.R. No. L-52179,
April 8, 1991, 195 SCRA 692, 697. Decision G.R. No. 171182 19 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 claimants 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 attorneys 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 RTCs 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 81 G.R.
No. L-30671, November 28, 1973, 54 SCRA 83, 87. 82 Rollo, p. 51. 83 Section 84(2), P.D. No.

1445. Decision G.R. No. 171182 20 Indeed, an appropriation by Congress was required before
the judgment that rendered the UP liable for moral and actual damages (including attorneys
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 governmentowned or controlled corporations, including their subsidiaries, and other self-governing boards,
commissions, or agencies of the Government, and as herein prescribed, including
nongovernmental 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 84 Section 29
(1), Article VI, Constitution. 85 National Home Mortgage Finance Corporation v. Abayari, G.R.
No. 166508, October 2, 2009, 602 SCRA 242, 256. Decision G.R. No. 171182 21 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 UPs 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 sheriffs
report of January 17, 2007 manifesting the full satisfaction of the writ of execution; and (d) the
order of April 10, 2007 deying the UPs motion for the redeposit of the withdrawn amount.
Hence, such orders and issuances should be struck down without exception. Nothing extenuated

Judge Yadaos 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: 86 Entitled EXERCISE OF UTMOST CAUTION, PRUDENCE
AND JUDICIOUSNESS IN THE ISSUANCE OF WRITS OF EXECUTION TO SATISFY
MONEY JUDGMENTS AGAINST GOVERNMENT AGENCIES AND LOCAL
GOVERNMENT UNITS. Decision G.R. No. 171182 22 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 claimants
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 [w]here 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. Decision G.R. No. 171182 23 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 UPs plea for equity was the return of the amount of
P16,370,191.74 illegally garnished from its trust funds. Obstructing the plea is the finality of the
judgment based on the supposed tardiness of UPs 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 UPs petition for review on that issue on May Decision G.R. No. 171182
24 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 87 Airline Pilots Association of the Philippines v. Philippine
Airlines, Inc., G.R. No. 168382, June 6, 2011, 650 SCRA 545, 557; Florentino v. Rivera, G.R.
No. 167968, January 23, 2006, 479 SCRA 522, 528; Siy v. National Labor Relations
Commission, G.R. No. 158971, August 25, 2005, 468 SCRA 154, 161-162. 88 FGU Insurance
Corporation v. Regional Trial Court of Makati, Branch 66, G.R. No. 161282, February 23, 2011,
644 SCRA 50, 56. 89 Edillo v. Dulpina, G.R. No. 188360, January 21, 2010, 610 SCRA 590,
602. 90 Apo Fruits Corporation v. Court of Appeals, G.R. No. 164195, December 4, 2009, 607
SCRA 200, 214. 91 G.R. No. 147082, January 28, 2008, 542 SCRA 406, 418. 92 G.R. No.
164196, June 22, 2007, 525 SCRA 412, 426. Decision G.R. No. 171182 25 college had not been
represented in the litigation by the Office of the Solicitor General. We rule that the UPs plea for
equity warrants the Courts exercise of the exceptional power to disregard the declaration of
finality of the judgment of the RTC for being in clear violation of the UPs 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 UPs
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--vis the RTCs 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 93 Antonio
v. Court of Appeals, No. L-35434, November 9, 1988, 167 SCRA 127, 131-132. Decision G.R.
No. 171182 26 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 UPs notice of appeal on
June 3, 2002 timely and well within the remaining days of the UPs 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
partys 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 94 Pursuant to Section 1, Rule 22 of the Rules of Court, the day of the act or event
from which the designated period of time begins to run is to be excluded and the date of
performance included. 95 Anderson v. National Labor Relations Commission, G.R. No.
111212, January 22, 1996, 252 SCRA 116, 124. 96 Prudential Bank v. Business Assistance
Group, Inc., G.R. No. 158806, December 16, 2004, 447 SCRA 187, 193; Cabili v. Badelles, No.
L-17786, 116 Phil. 494, 497 (1962); Martinez v. Martinez, No. L-4075, 90 Phil. 697, 700 (1952);
Vivero v. Santos, No. L-8105, 98 Phil. 500, 504 (1956); Perez v. Araneta, No. L- 11788, 103
Phil. 1141 (1958); Visayan Surety and Insurance Corp. v. Central Bank of the Philippines, No.
L-12199, 104 Phil. 562, 569 (1958). 97 Notor v. Daza, No. L-320, 76 Phil. 850 (1946). Decision
G.R. No. 171182 27 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 UPs 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 98 G.R. No. 141524, September 14, 2005, 469

SCRA 633. 99 Id. at 644. 100 Jamero v. Melicor, G.R. No. 140929, May 26, 2005, 459 SCRA
113, 120. 101 Lopez v. Gloria, No. L-13846, 40 Phil 28 (1919). Decision G.R. No. 171182 28
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 Courts 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 freshperiod 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 UPs 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. 102 Go v. Sunbanun, G.R. No.
168240, February 9, 2011, 642 SCRA 367, 370. 103 Buenaflor v. Court of Appeals, G.R. No.
142021, November 29, 2000, 346 SCRA 563, 567; Soriano v. Court of Appeals, G.R. No.
100525, May 25, 1993, 222 SCRA 545, 546-547. 104 Reyes v. Lim, G.R. No. 134241, August
11, 2003, 408 SCRA 560, 560-567. 105 De los Santos v. Vda. de Mangubat, G.R. No. 149508,
October 10, 2007, 535 SCRA 411, 423. Decision G.R. No. 171182 29 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 106 Pelejo v. Court of Appeals, No.
L-60800, August 31, 1982, 116 SCRA 406, 410. 107 Braga v. Millora, No. 1395, 3 Phil. 458
(1904). Decision G.R. No. 171182 30 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 attorneys 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 108 G.R. No. 88709, February 11, 1992,
206 SCRA 127, 132. 109 Rollo, p. 137. Decision G.R. No. 171182 31 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
P5,716,729.00 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 P10,000,000.00. 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 P10,000,000.00 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 110 Translated, the phrase means: He himself said it. It refers to an
unsupported statement that rests solely on the authority of the individual asserting the statement.
111 Article 2217, Civil Code. 112 Crystal v. Bank of the Philippine Islands, G.R. No. 172428,
November 28, 2008, 572 SCRA 697, 705. Decision G.R. No. 171182 32 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
P10,000,000.00 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 P150,000.00, plus P1,500.00 per appearance, granted as attorneys fees were
factually unwarranted and devoid of legal basis. The general rule is that a successful litigant
cannot recover attorneys 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
attorneys fees in the cases mentioned in Article 2208115 of the Civil Code came to be
recognized.116 Nonetheless, with attorneys fees being allowed in the concept 113 Section 2,
Corporation Code; Martinez v. Court of Appeals, G.R. No. 131673, September 10, 2004, 438
SCRA 130, 149; Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No.
114286, April 19, 2001, 356 SCRA 671, 682; Booc v. Bantuas, A.M. No. P-01-1464, March 13,
2001, 354 SCRA 279, 283. 114 Heirs of Justiva v. Gustilo, L-16396, January 31, 1963, 7 SCRA
72, 73; Firestone Tire & Rubber Co. of the Phil. v. Ines Chaves & Co., Ltd., No. L-17106,
October 19, 1996, 18 SCRA 356, 358. 115 Article 2208. In the absence of stipulation, attorney's

fees and expenses of litigation, other than judicial costs, cannot be recovered, except: (1) When
exemplary damages are awarded; (2) When the defendant's act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) In criminal
cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil
action or proceeding against the plaintiff; (5) Where the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim; (6) In actions
for legal support; (7) In actions for the recovery of wages of household helpers, laborers and
skilled workers; (8) In actions for indemnity under workmen's compensation and employer's
liability laws; (9) In a separate civil action to recover civil liability arising from a crime; (10)
When at least double judicial costs are awarded; (11) In any other case where the court deems it
just and equitable that attorney's fees and expenses of litigation should be recovered. In all cases,
the attorney's fees and expenses of litigation must be reasonable. 116 See Reyes v. Yatco, No. L11425, 100 Phil. 964 (1957); Tan Ti v. Alvear, No. 8228, 26 Phil. 566 (1914); Castueras, et al. v.
Hon. Bayona, et al., No. L-13657, 106 Phil. 340 (1959). Decision G.R. No. 171182 33 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 attorneys 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 attorneys 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 attorneys 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., P503,462.74) 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 117 Fores v. Miranda, No.
L-12163, 105 Phil. 266 (1959). 118 Buduhan v. Pakurao, G.R. No. 168237, February 22, 2006,
483 SCRA 116, 127. 119 Gloria v. De Guzman, Jr., G.R. No. 116183, October 6, 1995, 249
SCRA 126, 136. 120 Policarpio v. Court of Appeals, G.R. No. 94563, March 5, 1991, 194 SCRA
729, 742. 121 Koa v. Court of Appeals, G.R. No. 84847, March 5, 1993, 219 SCRA 541, 549;
Central Azucarera de Bais v. Court of Appeals, G.R. No. 87597, August 3, 1990, 188 SCRA
328, 340. 122 Ballesteros v. Abion, G.R. No. 143361, February 9, 2006, 482 SCRA 23. 123 G.R.
No. 159357, April 28, 2004, 428 SCRA 283. 124 Id. at 309. Decision 34 G.R. No. 171182

Appeals under review; ANNULS the orders for the garnishment of the funds '1J 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 ~1 0,000,000.00, and attorney's fees of 1!150,000.00, plus PI
,500.00 per appearance, in favor of Stern Builders Corporation and Servillano dela Cruz. The
Com1 ORDERS Stem Builders Corporation and Servillano dela Cruz to redeposit the amount
ofl!16,370,191.74 within 10 days from receipt of this decision. Costs of suit to be paid by the
private respondents. SO ORDERED

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 77765 August 15, 1988
SEBASTIAN COSCULLUELA, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and the REPUBLIC OF THE PHILIPPINES,
represented by NATIONAL IRRIGATION ADMINISTRATION, respondents.
Pio G. Villoso for petitioner.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari which seeks to set aside the decision of the Court of
Appeals nullifying the orders of the trial court on the ground that said orders in effect, sought the
enforcement of a writ of execution against government funds. The petitioner contends that to set
aside the writ of execution would be an abridgment of his right to just compensation and due
process of law. The public respondents on the other hand, state that government funds cannot be
disbursed without proper appropriation and that a writ of execution cannot legally issue against
the State.
On March 8, 1976, the Republic of the Philippines filed a complaint with the Court of First
Instance of Iloilo to expropriate two parcels of land in the municipality of Barotac, Iloilo owned
by petitioner Sebastian Cosculluela and one Mita Lumampao, for the construction of the canal
network of the Barotac Irrigation Project.
On April 4, 1976, the trial court rendered a decision granting the expropriation and ordered the
public respondent to pay the following amounts:
1. To Mita Lumampao, the sum of P20,000 minus P4,001.82 which she had
already withdrawn plus P3,000 attorney's fees; and
2. Sebastian Cosculluela, the sum of P200,000.00 which is the reasonable
estimate of his actual and consequential loss by reason of the taking of his 3
hectares of land, destruction of the sugarcane therein and the reduce in the yield
of his sugarcane farm due to water lagging and seepage; plus attorney's fees of
P10,000 and litigation expenses of P5,000.00. (p. 36, Rollo)

On appeal, the Court of Appeals modified the trial court's decision in that the attorney's fees and
litigation expenses were reduced from P10,000.00 and P5,000.00 to P5,000.00 and P2,500.00
respectively. The decision became final and executory on September 21, 1985.
On May 7, 1986, on motion of the petitioner, the trial court ordered the issuance of a writ of
execution to implement the judgment of the appellate court.
On August 11, 1986, the respondent Republic filed a motion to set aside the order of May 7,
1986 as well as the writ of execution issued pursuant thereto, contending that the funds of the
National Irrigation Authority (NIA) are government funds and therefore, cannot be disbursed
without a government appropriation.
On October 6, 1986, the lower court issued an order modifying its order of May 7, 1986,
directing instead that the respondenit Republic deposit with the Philippine National Bank (PNB)
in the name of the petitioner, the amount adjudged in favor of the latter.
The respondent filed a petition with the Court of Appeals to annul the orders of May 7 and
October 6, 1986.
On November 25, 1986, the appellate court rendered the questioned decision setting aside the
aforementioned orders of the trial court on the ground that public or government funds are not
subject to levy and execution.
In this instant petition, the petitioner assails the decision of the appellate court as being violative
of his right to just compensation and due process of law. He maintains that these constitutional
guarantees transcend all administrative and procedural laws and jurisprudence for as between
these said laws and the constitutional rights of private citizens, the latter must prevail.
As admitted by the respondent Republic, the NIA took possession of the expropriated property in
1975 and for around ten (10) years already, it has been servicing the farmers on both sides of the
Barotac Viejo Irrigation Project in Iloilo Province and has been collecting fees therefor by way
of taxes at the expense of the petitioner. On the other hand, the petitioner, who is already more
than eighty (80) years old and sickly, is undergoing frequent hospitalization, and is made to
suffer further by the unconscionable delay in the payment of just compensation based on a final
and executory judgment.
The respondent Republic, on the other hand, argues that while it has no intention of keeping the
land and dishonoring the judgment, the manner by which the same will have to be satisfied must
not be inconsistent with prevailing jurisprudence, and that is, that public funds such as those of
the respondent NIA cannot be disbursed without the proper appropriation.
We rule for the petitioner.
One of the basic principles enshrined in our Constitution is that no person shall be deprived of
his private property without due process of law; and in expropriation cases, an essential element
of due process is that there must be just compensation whenever private property is taken for

public use. Thus, in the case of Province of Pangasinan v. CFI Judge of Pangasinan, Branch
VIII (80 SCRA 117, 120-121), this Court speaking through then Chief Justice Fernando ruled:
There is full and ample recognition of the power of eminent domain by Justice
Street in a leading case of Visayan Refining Co. v. Camus (4C) Phil. 550 [1919])
decided prior to the Commonwealth, the matter being governed by the Philippine
Autonomy Act of 1916, otherwise known as the Jones Law. It was characterized
as "inseparable from sovereignty being essential to the existence of the State and
inherent in government even in its most primitive forms." (Ibid, 558) Nonetheless,
he was careful to point out: "In other words, the provisions now generally found
in the modern laws of constitutions of civilized countries to the effect that private
property shall not be taken for public use without just compensation have their
origin in the recognition of a necessity for restraining the sovereign and protecting
the individual. (Ibid, 559) Moreover, he did emphasize: "Nevertheless it should be
noted that the whole problem of expropriation is resolvable in its ultimate analysis
into a constitutional question of due process of law. ... Even were there no organic
or constitutional provision in force requiring compensation to be paid, the seizure
of one's property without payment, even though intended for a public use, would
undoubtedly be held to be a taking without due process of law and a denial of the
equal protection of the laws. That aspect of the matter was stressed in the recent
case of J. M. Tuason and Co., Inc. v. Land Tenure Administration. (31 SCRA
413) Conformably to such a fundamental principle then, in accordance with a
constitutional mandate, this Court has never hesitated to assure that there be just
compensation. If it were otherwise, the element of arbitrariness certainly would
enter. It is bad enough that an owner of a property, in the event of the exercise of
this sovereign prerogative, has no choice but to yield to such a taking. It is
infinitely worse if thereafter, he is denied all these years the payment to which he
is entitled. This is one of the instances where law and morals speak to the same
effect. (Cf. Province of Tayabas v. Perez, 66 Phil. 467 [1938] and other related
cases).
The property of the petitioner was taken by the government in 1975. The following year,
respondent NIA made the required deposit of P2,097.30 with the Philippine National Bank and
within the same year, the Barotac Viejo Irrigation Project was finished. Since then, for more than
a period of ten (10) years, the project has been of service to the farmers nearby in the province of
Iloilo. It is, thus, inconceivable how this project could have been started without the necessary
appropriation for just compensation. Needless to state, no government instrumentality, agency,
or subdivision has any business initiating expropriation proceedings unless it has adequate funds,
supported by proper appropriation acts, to pay for the property to be seized from the owner. Not
only was the government able to make an initial deposit of P2,097.30 but the project was
finished in only a year's time. We agree with the petitioner that before the respondent NIA
undertook the construction of the Barotac Viejo Irrigation Project, the same was duly authorized,
with the corresponding funds appropriated for the payment of expropriated land and to pay for
equipment, salaries of personnel, and other expenses incidental to the project. The NIA officials
responsible for the project have to do plenty of explaining as to where they misdirected the funds
intended for the expropriated property.

The present case must be distinguished from earlier cases where payment for property
expropriated by the National Government may not be realized upon execution. As a rule, the
legislature must first appropriate the additional amount to pay the award. (See Commissioner of
Public Highways v. San Diego, 31 SCRA 616 and Visayan Refining Co. v. Camus & Paredes, 40
Phil. 550).
In the present case, the Barotac Viejo Project was a package project of government. Money was
allocated for an entire project. Before bulldozers and ditch diggers tore up the place and before
millions of pesos were put into the development of the project, the basic responsibility of paying
the owners for property seized from them should have been met.
Another distinction lies in the fact that the NIA collects fees for the use of the irrigation system
constructed on the petitioner's land. It does not have to await an express act of Congress to locate
funds for this specific purpose. The rule in earlier precedents that 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 (Commissioner of Public Highways v. San
Diego, supra, at p. 625) is not applicable here. There is no showing of any public service to be
disrupted if the fees collected from the farmers of Iloilo for the use of irrigation water from the
disrupted property were utilized to pay for that property.
We must emphasize that nowhere in any expropriation case has there been a deviation from the
rule that the Government must pay for expropriated property. In the Commissioner of Public
Highways case, the Court stressed that it is incumbent upon the legislature to appropriate the
necessary amount because it cannot keep the land and dishonor the judgment.
This case illustrates the expanded meaning of "public use" in the eminent domain clause.
(Constitution, Article III, Section 9.) The petitioner's land was not taken for the construction of a
road, bridge, school, public buildings, or other traditional objects of expropriation. When the
National Housing Authority expropriates raw land to convert into housing projects
for rent or sale to private persons or the NIA expropriates land to construct irrigation systems
and sells water rights to farmers, it would be the height of abuse and ignominy for the agencies
to start earning from those properties while ignoring final judgments ordering the payment of just
compensation to the former owners.
Just 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.
Thus, in the case of Provincial Government of Sorsogon v. Rosa E. Vda. de Villaroyo (153
SCRA 291), we ruled:
The petitioners have been waiting for more than thirty years to be paid for their
land which was taken for use as a public high school. As a matter of fair
procedure, it is the duty of the Government whenever it takes property from
private persons against their will to supply all required documentation and

facilitate payment of just compensation. The imposition of unreasonable

requirements and vexatious delays before effecting payment is not only galling
and arbitrary but a rich source of discontent with government. There should be
some kind of swift and effective recourse against unfeeling and uncaring acts of
middle or lower level bureaucrats.
Under ordinary circumstances, immediate return to the owners of the unpaid
property is the obvious remedy. ln cases where land is taken for public use, public
interest, however, must, be considered. The children of Gubat, Sorsogon have
been using the disputed land as their high school athletic grounds for thirty years.
(Emphasis supplied)
In the present case, the irrigation project was completed and has been in operation
since 1976. The project is benefitting the farmers specifically and the community
in general. Obviously, the petitioner's land cannot be returned to him. However, it
is high time that the petitioner be paid what was due him eleven years ago. It is
arbitrary and capricious for a government agency to initiate expropriation
proceedings, seize a person's property, allow the judgment of the court to become
final and executory and then refuse to pay on the ground that there are no
appropriations for the property earlier taken and profitably used. We condemn in
the strongest possible terms the cavalier attitude of government officials who
adopt such a despotic and irresponsible stance.
WHEREFORE, the petition is hereby GRANTED. The decision and order of the respondent
appellate court dated November 25, 1987 and February 16, 1987 respectively are ANNULLED
and SET ASIDE. The Regional Trial Court of Iloilo City is ordered to immediately execute the
final judgment in Civil Case No. 10530 and effect payment of P200,000.00 as just compensation
deducting therefrom the partial payment already deposited by the respondent at the institution of
the action below with legal interest from September 21, 1985, plus P5,000.00 attorney's fees and
P2,500.00 litigation expenses.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

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 Paraaque,
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).
I
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. 90183 against petitioner is DISMISSED.
SO ORDERED.

FIRST DIVISION

[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 Attach 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 Iigo, an informer of the Intelligence Unit of the military. Jose
Iigo, 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 Iigo,
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 defendants 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.
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 attach 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 Minuchers 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 Courts
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 Scalzos 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 Scalzos 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 counsel[6] 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 Attach 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' affairs[12] 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 Attach of the
United States diplomatic mission and was accredited as such by the Philippine Government. An
attach 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.
xxxxxxxxx
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.
xxxxxxxxx
"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 Attach 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 nonimmigrant 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 suit [20] 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,
Appeals[26] elaborates:

however,

has

its

limitations. Thus, Shauf

vs.

Court

of

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.
xxxxxxxxx
(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 buybust 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.

Republic of the Philippines

Supreme Court
Manila
EN BANC

CHINA
NATIONAL
MACHINERY
&
EQUIPMENT CORP. (GROUP),
Petitioner,

G.R. No. 185572

Present:
versus

CORONA, C.J.,
CARPIO,
VELASCO, JR.,
LEONARDO-DE CASTRO,
BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
MENDOZA,
SERENO,
REYES, and
PERLAS-BERNABE, JJ.

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.

Promulgated:
February 7, 2012
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
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 CAG.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 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. [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
CNMEGs 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 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.[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 CNMEGs 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 Peoples
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

2.

before a local court.

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.
activity.

CNMEG is engaged in a proprietary

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 Employers personnel;
AND WHEREAS the Loan Agreement of the Preferential Buyers 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 CNMEGs proposal
to undertake a Feasibility Study (the Study) at no cost to NORTHRAIL
CORP.;
WHEREAS, the NORTHRAIL CORP. also welcomes CNMEGs
interest in undertaking the Project with Suppliers 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 CNMEGs 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 CNMEGs 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 Peoples Republic
of China which initiated our Governments involvement in the Project.
3.
Among the various state corporations of the Peoples
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 latters 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 Borrowers 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 Peoples
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 Peoples
Republic of China and the appointment of the Borrowers Chinese Process Agent is
legal, valid, binding and enforceable and any judgment obtained in the Peoples
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 petitioners 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. Wangs 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 Courts ruling in Deutsche Gesellschaft Fr Technische Zusammenarbeit
(GTZ) v. CA[40] must be examined. In Deutsche Gesellschaft, Germany and the Philippinesentered
into a Technical Cooperation Agreement, pursuant to which both signed an arrangement promoting
the Social Health InsuranceNetworking 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 Germanys 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 Republics 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
Courts 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 petitioners 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, inDepartment
of Foreign Affairs (DFA) v. National Labor Relations Commission (NLRC),[44] emphasized the DFAs
competence and authority to provide such necessary determination, to wit:
The DFAs 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
Courts 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 GTZs
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 GTZs claim
of States 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 GTZs claim, or that the OSG had solicited the
DFAs 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 Peoples 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 CNMEGs 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
Agreement,[49] states:

of

Contract,[48] which

is

an

integral

part

33. SETTLEMENT OF DISPUTES AND ARBITRATION

33.1. Amicable Settlement

of

the

Contract

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 Peoples 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. CNMEGs 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 theRegional
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.

FIRST DIVISION
[G.R. No. 125865. January 28, 2000]
JEFFREY LIANG (HUEFENG), petitioner, vs. PEOPLE OF THE
PHILIPPINES, respondent.
DECISION
YNARES-SANTIAGO, J.:
Petitioner is an economist working with the Asian Development Bank (ADB). Sometime in
1994, for allegedly uttering defamatory words against fellow ADB worker Joyce Cabal, he was
charged before the Metropolitan Trial Court (MeTC) of Mandaluyong City with two counts of
grave oral defamation docketed as Criminal Cases Nos. 53170 and 53171. Petitioner was
arrested by virtue of a warrant issued by the MeTC. After fixing petitioners bail at P2,400.00 per
criminal charge, the MeTC released him to the custody of the Security Officer of ADB. The next
day, the MeTC judge received an "office of protocol" from the Department of Foreign Affairs
(DFA) stating that petitioner is covered by immunity from legal process under Section 45 of the
Agreement between the ADB and the Philippine Government regarding the Headquarters of the
ADB (hereinafter Agreement) in the country. Based on the said protocol communication that
petitioner is immune from suit, the MeTC judge without notice to the prosecution dismissed the
two criminal cases. The latter filed a motion for reconsideration which was opposed by the DFA.
When its motion was denied, the prosecution filed a petition for certiorari and mandamus with
the Regional Trial Court (RTC) of Pasig City which set aside the MeTC rulings and ordered the
latter court to enforce the warrant of arrest it earlier issued. After the motion for reconsideration
was denied, petitioner elevated the case to this Court via a petition for review arguing that he is
covered by immunity under the Agreement and that no preliminary investigation was held before
the criminal cases were filed in court.
The petition is not impressed with merit.
First, courts cannot blindly adhere and take on its face the communication from the DFA that
petitioner is covered by any immunity. The DFAs determination that a certain person is covered
by immunity is only preliminary which has no binding effect in courts. In receiving ex-parte the
DFAs advice and in motu proprio dismissing the two criminal cases without notice to the
prosecution, the latters right to due process was violated. It should be noted that due process is a
right of the accused as much as it is of the prosecution. The needed inquiry in what capacity
petitioner was acting at the time of the alleged utterances requires for its resolution evidentiary
basis that has yet to be presented at the proper time.[1] At any rate, it has been ruled that the mere
invocation of the immunity clause does not ipso facto result in the dropping of the charges. [2]
Second, under Section 45 of the Agreement which provides:

"Officers and staff of the Bank including for the purpose of this Article experts
and consultants performing missions for the Bank shall enjoy the following
privileges and immunities:
a.).......immunity from legal process with respect to acts performed by
them in their official capacity except when the Bank waives the
immunity."
the immunity mentioned therein is not absolute, but subject to the exception that the act was
done in "official capacity." It is therefore necessary to determine if petitioners case falls within
the ambit of Section 45(a). Thus, the prosecution should have been given the chance to rebut the
DFA protocol and it must be accorded the opportunity to present its controverting evidence,
should it so desire.
Third, slandering a person could not possibly be covered by the immunity agreement because our
laws do not allow the commission of a crime, such as defamation, in the name of official
duty.[3] The imputation of theft is ultra vires and cannot be part of official functions. It is wellsettled 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 or in bad faith or beyond the
scope of his authority or jurisdiction. [4] It appears that even the governments chief legal counsel,
the Solicitor General, does not support the stand taken by petitioner and that of the DFA.
Fourth, under the Vienna Convention on Diplomatic Relations, a diplomatic agent, assuming
petitioner is such, enjoys immunity from criminal jurisdiction of the receiving state except in the
case of an action relating to any professional or commercial activity exercised by the diplomatic
agent in the receiving state outside his official functions. [5] As already mentioned above, the
commission of a crime is not part of official duty.
Finally, on the contention that there was no preliminary investigation conducted, suffice it to say
that preliminary investigation is not a matter of right in cases cognizable by the MeTC such as
the one at bar.[6] Being purely a statutory right, preliminary investigation may be invoked only
when specifically granted by law.[7] The rule on criminal procedure is clear that no preliminary
investigation is required in cases falling within the jurisdiction of the MeTC. [8] Besides, the
absence of preliminary investigation does not affect the courts jurisdiction nor does it impair the
validity of the information or otherwise render it defective. [9]
WHEREFORE, the petition is DENIED.
SO ORDERED.

FIRST DIVISION

[G.R. No. 125865. March 26, 2001]

JEFFREY
LIANG
(HUEFENG), petitioner,
PHILIPPINES, respondent.

vs.

PEOPLE

OF

THE

RESOLUTION
YNARES-SANTIAGO, J.:
This resolves petitioners Motion for Reconsideration of our Decision dated January 28,
2000, denying the petition for review.
The Motion is anchored on the following arguments:
1) THE DFAS DETERMINATION OF IMMUNITY IS A POLITICAL QUESTION
TO BE MADE BY THE EXECUTIVE BRANCH OF THE GOVERNMENT AND
IS CONCLUSIVE UPON THE COURTS.
2) THE IMMUNITY OF INTERNATIONAL ORGANIZATIONS IS ABSOLUTE.
3) THE IMMUNITY EXTENDS TO ALL STAFF OF THE ASIAN DEVELOPMENT
BANK (ADB).
4) DUE PROCESS WAS FULLY AFFORDED THE COMPLAINANT TO REBUT
THE DFA PROTOCOL.
5) THE DECISION OF JANUARY 28, 2000 ERRONEOUSLY MADE A FINDING
OF FACT ON THE MERITS, NAMELY, THE SLANDERING OF A PERSON
WHICH PREJUDGED PETITIONERS CASE BEFORE THE METROPOLITAN
TRIAL COURT (MTC)-MANDALUYONG.
6) THE VIENNA CONVENTION ON DIPLOMATIC RELATIONS IS NOT
APPLICABLE TO THIS CASE.
This case has its origin in two criminal Informations[1] for grave oral defamation filed
against petitioner, a Chinese national who was employed as an Economist by the Asian
Development Bank (ADB), alleging that on separate occasions on January 28 and January 31,
1994, petitioner allegedly uttered defamatory words to Joyce V. Cabal, a member of the clerical
staff of ADB. On April 13, 1994, the Metropolitan Trial Court of Mandaluyong City, acting
pursuant to an advice from the Department of Foreign Affairs that petitioner enjoyed immunity
from legal processes, dismissed the criminal Informations against him. On a petition for
certiorari and mandamus filed by the People, the Regional Trial Court of Pasig City, Branch 160,
annulled and set aside the order of the Metropolitan Trial Court dismissing the criminal cases. [2]
Petitioner, thus, brought a petition for review with this Court. On January 28, 2000, we
rendered the assailed Decision denying the petition for review. We ruled, in essence, that the

immunity granted to officers and staff of the ADB is not absolute; it is limited to acts performed
in an official capacity. Furthermore, we held that the immunity cannot cover the commission of a
crime such as slander or oral defamation in the name of official duty.
On October 18, 2000, the oral arguments of the parties were heard. This Court also granted
the Motion for Intervention of the Department of Foreign Affairs. Thereafter, the parties were
directed to submit their respective memorandum.
For the most part, petitioners Motion for Reconsideration deals with the diplomatic
immunity of the ADB, its officials and staff, from legal and judicial processes in the Philippines,
as well as the constitutional and political bases thereof. It should be made clear that nowhere in
the assailed Decision is diplomatic immunity denied, even remotely. The issue in this case,
rather, boils down to whether or not the statements allegedly made by petitioner were uttered
while in the performance of his official functions, in order for this case to fall squarely under the
provisions of Section 45 (a) of the Agreement Between the Asian Development Bank and the
Government of the Republic of the Philippines Regarding the Headquarters of the Asian
Development Bank, to wit:
Officers ands staff of the Bank, including for the purpose of this Article experts and consultants
performing missions for the Bank, shall enjoy the following privileges and immunities:
(a) Immunity from legal process with respect to acts performed by them in their official capacity
except when the Bank waives the immunity.
After a careful deliberation of the arguments raised in petitioners and intervenors Motions
for Reconsideration, we find no cogent reason to disturb our Decision of January 28, 2000. As
we have stated therein, the slander of a person, by any stretch, cannot be considered as falling
within the purview of the immunity granted to ADB officers and personnel. Petitioner argues
that the Decision had the effect of prejudging the criminal case for oral defamation against
him. We wish to stress that it did not. What we merely stated therein is that slander, in general,
cannot be considered as an act performed in an official capacity. The issue of whether or not
petitioners utterances constituted oral defamation is still for the trial court to determine.
WHEREFORE, in view of the foregoing, the Motions for Reconsideration filed by
petitioner and intervenor Department of Foreign Affairs are DENIED with FINALITY.
SO ORDERED.