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No.

1
AIR TRANSPORTATION OFFICE, vs.
G.R. No. 159402
SPOUSES DAVID* and ELISEA RAMOS
February 23, 2011
x-----------------------------------------------------------------------------------------x

RESOLUTION

BERSAMIN, J.:

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

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

Spouses David and Elisea Ramos (respondents) discovered that a portion of their land
registered under Transfer Certificate of Title No. T-58894 of the Baguio City land records with an
area of 985 square meters, more or less, was being used as part of the runway and running
shoulder of the Loakan Airport being operated by petitioner Air Transportation Office (ATO).
On August 11, 1995, the respondents agreed after negotiations to convey the affected portion
by deed of sale to the ATO in consideration of the amount ofP778,150.00. However, the ATO
failed to pay despite repeated verbal and written demands.

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

In their answer, the ATO and its co-defendants invoked as an affirmative defense the issuance
of Proclamation No. 1358, whereby President Marcos had reserved certain parcels of land that
included the respondents affected portion for use of the Loakan Airport. They asserted that the

RTC had no jurisdiction to entertain the action without the States consent considering that the
deed of sale had been entered into in the performance of governmental functions.
On November 10, 1998, the RTC denied the ATOs motion for a preliminary hearing of the
affirmative defense.

After the RTC likewise denied the ATOs motion for reconsideration on December 10, 1998, the
ATO commenced a special civil action for certiorari in the CA to assail the RTCs orders. The CA
dismissed the petition for certiorari, however, upon its finding that the assailed orders were not
tainted with grave abuse of discretion.[3]

Subsequently, February 21, 2001, the RTC rendered its decision on the merits,[4] disposing:

WHEREFORE, the judgment is rendered ORDERING the defendant Air Transportation Office to
pay the plaintiffs DAVID and ELISEA RAMOS the following: (1) The amount ofP778,150.00
being the value of the parcel of land appropriated by the defendant ATO as embodied in the
Deed of Sale, plus an annual interest of 12% from August 11, 1995, the date of the Deed of Sale
until fully paid; (2) The amount of P150,000.00 by way of moral damages and P150,000.00 as
exemplary damages; (3) the amount of P50,000.00 by way of attorneys fees plusP15,000.00
representing the 10, more or less, court appearances of plaintiffs counsel; (4) The costs of this
suit.
SO ORDERED.
In due course, the ATO appealed to the CA, which affirmed the RTCs decision on May 14,
2003,[5] viz:

IN VIEW OF ALL THE FOREGOING, the appealed decision is hereby AFFIRMED,


with MODIFICATION that the awarded cost therein is deleted, while that of moral and exemplary
damages is reduced to P30,000.00 each, and attorneys fees is lowered to P10,000.00.
No cost.
SO ORDERED.
Hence, this appeal by petition for review on certiorari.

Issue
The only issue presented for resolution is whether the ATO could be sued without the States
consent.

Ruling

The petition for review has no merit.


The immunity of the State from suit, known also as the doctrine of sovereign immunity or nonsuability of the State, is expressly provided in Article XVI of the 1987 Constitution, viz:
Section 3. The State may not be sued without its consent.
The immunity from suit is based on the political truism that the State, as a sovereign, can do no
wrong. Moreover, as the eminent Justice Holmes said in Kawananakoa v. Polyblank:[6]
The territory [of Hawaii], of course, could waive its exemption (Smith v. Reeves, 178 US 436, 44
L ed 1140, 20 Sup. Ct. Rep. 919), and it took no objection to the proceedings in the cases cited
if it could have done so. xxx But in the case at bar it did object, and the question raised is
whether the plaintiffs were bound to yield. Some doubts have been expressed as to the source
of the immunity of a sovereign power from suit without its own permission, but the answer has
been public property since before the days of Hobbes. Leviathan, chap. 26, 2. A sovereign is
exempt from suit, not because of any formal conception or obsolete theory, but on the
logical and practical ground that there can be no legal right as against the authority that
makes the law on which the right depends. Car on peut bien recevoir loy d'autruy, mais il est
impossible par nature de se donner loy. Bodin, Republique, 1, chap. 8, ed. 1629, p. 132; Sir
John Eliot, De Jure Maiestatis, chap. 3. Nemo suo statuto ligatur necessitative. Baldus, De Leg.
et Const. Digna Vox, 2. ed. 1496, fol. 51b, ed. 1539, fol. 61.[7]

Practical considerations dictate the establishment of an immunity from suit in favor of the
State. Otherwise, and the State is suable at the instance of every other individual, government
service may be severely obstructed and public safety endangered because of the number of
suits that the State has to defend against.[8] Several justifications have been offered to support
the adoption of the doctrine in the Philippines, but that offered in Providence Washington
Insurance Co. v. Republic of the Philippines[9] is the most acceptable explanation, according to
Father Bernas, a recognized commentator on Constitutional Law,[10] to wit:

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

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

the latter whose function was not in pursuit of a necessary function of government but was
essentially a business.[13]

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

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

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

We are not persuaded.

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

xxx

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

xxx

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

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

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

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

xxx

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

xxx

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

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

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

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

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

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

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

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

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

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

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

All assets, real and personal properties, funds and revenues owned by or vested in the
different offices of the ATO are transferred to the Authority. All contracts, records and
documents relating to the operations of the abolished agency and its offices and branches
are likewise transferred to the Authority. Any real property owned by the national
government or government-owned corporation or authority which is being used and
utilized as office or facility by the ATO shall be transferred and titled in favor of the
Authority.
Section 23 of R.A. No. 9497 enumerates the corporate powers vested in the CAAP, including
the power to sue and be sued, to enter into contracts of every class, kind and description,
to construct, acquire, own, hold, operate, maintain, administer and lease personal and real
properties, and to settle, under such terms and conditions most advantageous to it, any claim by
or against it.[18]

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

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

No pronouncement on costs of suit.

SO ORDERED.
No. 2
G.R. No. 90478

November 21, 1991

REPUBLIC OF THE PHILIPPINES (PRESIDENTIAL COMMISSION ON GOOD


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

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

NARVASA, J.:p

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

After having been served with summons, Tantoco, Jr. and Santiago, instead of filing their
answer, jointly filed a "MOTION TO STRIKE OUT SOME PORTIONS OF THE COMPLAINT
AND FOR BILL OF PARTICULARS OF OTHER PORTIONS" dated Nov. 3, 1987. 1 The PCGG
filed an opposition thereto, 2 and the movants, a reply to the opposition. 3 By order dated
January 29, 1988, the Sandiganbayan, in order to expedite proceedings and accommodate the
defendants, gave the PCGG forty-five (45) days to expand its complaint to make more specific
certain allegations. 4

Tantoco and Santiago then presented a "motion for leave to file interrogatories under Rule 25 of
the Rules of Court" dated February 1, 1988, and "Interrogatories under Rule 25." 5 Basically,
they sought an answer to the question: "Who were the Commissioners of the PCGG (aside from
its Chairman, Hon. Ramon Diaz, who verified the complaint) who approved or authorized the
inclusion of Messrs. Bienvenido R. Tantoco, Jr. and Dominador R. Santiago as defendants in
the . . case?" 6 The PCGG responded by filing a motion dated February 9, 1988 to strike out
said motion and interrogatories as being impertinent, "queer," "weird," or "procedurally bizarre
as the purpose thereof lacks merit as it is improper, impertinent and irrelevant under any
guise." 7

On March 18, 1988, in compliance with the Order of January 29, 1988, the PCGG filed an
Expanded Complaint. 8 As this expanded complaint, Tantoco and Santiago reiterated their
motion for bill of particulars, through a Manifestation dated April 11, 1988. 9

Afterwards, by Resolution dated July 4, 1988, 10 the Sandiganbayan denied the motion to strike
out, for bill of particulars, and for leave to file interrogatories, holding them to be without legal
and factual basis. Also denied was the PCGG's motion to strike out impertinent pleading dated
February 9, 1988. The Sandiganbayan declared inter alia the complaint to be "sufficiently
definite and clear enough," there are adequate allegations . . which clearly portray the supposed
involvement and/or alleged participation of defendants-movants in the transactions described in
detail in said Complaint," and "the other matters sought for particularization are evidentiary in
nature which should be ventilated in the pre-trial or trial proper . ." It also opined that "(s)ervice
of interrogatories before joinder of issue and without leave of court is premature . . (absent) any
special or extraordinary circumstances . . which would justify . . (the same)."

Tantoco and Santiago then filed an Answer with Compulsory Counterclaim under date of July
18, 1988. 11 In response, the PCGG presented a "Reply to Answer with Motion to Dismiss
Compulsory Counterclaim " 12

The case was set for pre-trial on July 31, 1989. 13 On July 25, 1989, the PCGG submitted its
PRE-TRIAL. 14 The pre-trial was however reset to September 11, 1989, and all other parties
were required to submit pre-trial briefs on or before that date.S 15

On July 27, 1989 Tantoco and Santiago filed with the Sandiganbayan a pleading denominated
"Interrogatories to Plaintiff," 16 and on August 2, 1989, an "Amended Interrogatories to Plaintiff"'
17 as well as a Motion for Production and Inspection of Documents. 18

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

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

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

5.
In connection with . . paragraph 13 . ., what specific act or acts of the defendants
Tantoco, Jr. and Santiago . . were committed by said defendants as part, or in furtherance, of
the alleged plan to conceal assets of defendants Ferdinand and Imelda Marcos?

7.
In connection with . . paragraph 15(c) . . is it plaintiff's position or theory of the case that
Tourist Duty Free Shops, Inc., including all the assets of said corporation, are beneficially owned
by either or both defendants Ferdinand and Imelda Marcos and that the defendants Tantoco, Jr.
and Santiago, as well as, the other stockholders of record of the same corporation are mere
"dummies" of said defendants Ferdinand and /or Imelda R. Marcos?

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

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

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

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

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

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

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

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

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

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

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

It also filed on September 4, 1989 an opposition to the Amended Interrogatories, 19 which the
Sandiganbayan treated as a motion for reconsideration of the Resolution of August 21, 1989
(admitting the Amended Interrogatories). The opposition alleged that

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

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

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

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

Tantoco and Santiago filed a reply and opposition on September 18, 1989.

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

Hence, this petition for certiorari.

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

a)

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

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

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

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

b)

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

1)

that movants had not shown any good cause therefor;

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

3)

that the other documents sought to be produced are either

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

(b)

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

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

After the issues were delineated and argued at no little length by the parties, the Solicitor
General withdrew "as counsel for plaintiff . . with the reservation, however, conformably with
Presidential Decree No. 478, the provisions of Executive Order No. 292, as well as the
decisional law of 'Orbos v. Civil Service Commission, et al.,' (G.R. No. 92561, September 12,
1990) 22 to submit his comment/observation on incidents/matters pending with this . . Court if
called for by circumstances in the interest of the Government or if he is so required by the
Court." 23 This, the Court allowed by Resolution dated January 21, 1991. 24

Subsequently, PCGG Commissioner Maximo A. Maceren advised the Court that the cases from
which the Solicitor General had withdrawn would henceforth be under his (Maceren's) charge
"and/or any of the following private attorneys: Eliseo B. Alampay, Jr., Mario E. Ongkiko, Mario
Jalandoni and such other attorneys as it may later authorize." 25

The facts not being in dispute, and it appearing that the parties have fully ventilated their
respective positions, the Court now proceeds to decide the case.

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

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

It is for this reason that a substantial part of the adjective law in this jurisdiction is occupied with
assuring that all the facts are indeed presented to the Court; for obviously, to the extent that
adjudication is made on the basis of incomplete facts, to that extent there is faultiness in the
approximation of objective justice. It is thus the obligation of lawyers no less than of judges to
see that this objective is attained; that is to say, that there no suppression, obscuration,
misrepresentation or distortion of the facts; and that no party be unaware of any fact material a
relevant to the action, or surprised by any factual detail suddenly brought to his attention during
the trial. 29

Seventy-one years ago, in Alonso v. Villamor, 30 this Court described the nature and object of
litigation and in the process laid down the standards by which judicial contests are to be
conducted in this jurisdiction. It said:

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

The message is plain. It is the duty of each contending party to lay before the court the facts in
issue-fully and fairly; i.e., to present to the court all the material and relevant facts known to him,
suppressing or concealing nothing, nor preventing another party, by clever and adroit
manipulation of the technical rules of pleading and evidence, from also presenting all the facts
within his knowledge.

Initially, that undertaking of laying the facts before the court is accomplished by the pleadings
filed by the parties; but that, only in a very general way. Only "ultimate facts" are set forth in the
pleadings; hence, only the barest outline of the factual basis of a party's claims or defenses is
limned in his pleadings. The law says that every pleading "shall contain in a methodical and
logical form, a plain, concise and direct statement of the ultimate facts on which the party
pleading relies for his claim or defense, as the case may be, omitting the statement of mere
evidentiary facts." 31

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

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

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

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

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

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

2)

as well as:

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

(b)

"the identity and location of persons having knowledge of relevant facts."

What is chiefly contemplated is the discovery of every bit of information which may be useful in
the preparation for trial, such as the identity and location of persons having knowledge of
relevant facts; those relevant facts themselves; and the existence, description, nature, custody,
condition, and location of any books, documents, or other tangible things. Hence, "the
deposition-discovery rules are to be accorded a broad and liberal treatment. No longer can the
time-honored cry of "fishing expedition" serve to preclude a party from inquiring into the facts
underlying his opponent's case. Mutual knowledge of all the relevant facts gathered by both
parties is essential to proper litigation. To that end, either party may compel the other to
disgorge whatever facts he has in his possession. The deposition-discovery procedure simply
advances the stage at which the disclosure can be compelled from the time of trial to the period
preceding it, thus reducing the possibility, of surprise, . . . 35

In line with this principle of according liberal treatment to the deposition-discovery mechanism,
such modes of discovery as (a) depositions (whether by oral examination or written
interrogatories) under Rule 24, (b) interrogatories to parties under Rule 25, and (c) requests for
admissions under Rule 26, may be availed of without leave of court, and generally, without court
intervention. The Rules of Court explicitly provide that leave of court is not necessary to avail of
said modes of discovery after an answer to the complaint has been served. 36 It is only when
an answer has not yet been filed (but after jurisdiction has been obtained over the defendant or
property subject of the action) that prior leave of court is needed to avail of these modes of
discovery, the reason being that at that time the issues are not yet joined and the disputed facts
are not clear. 37

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

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

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

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

It is in light of these broad principles underlying the deposition-discovery mechanism, in relation


of course to the particular rules directly involved, that the issues in this case will now be
resolved.

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

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

"Amended Interrogatories to Plaintiff" (dated August 2, 1989 43) after they had filed their answer
to the PCGG's complaint, just as there was no need for the Sandiganbayan to act thereon.

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

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

That the matters on which discovery is desired are the same matters subject of a prior motion
for bill of particulars addressed to the PCGG's amended complaint and denied for lack of
merit is beside the point. Indeed, as already pointed out above, a bill of particulars may elicit
only ultimate facts, not so-called evidentiary facts. The latter are without doubt proper subject of
discovery. 44

Neither may it be validly argued that the amended interrogatories lack specificity. The merest
glance at them disproves the argument. The interrogatories are made to relate to individual
paragraphs of the PCGG's expanded complaint and inquire about details of the ultimate facts
therein alleged. What the PCGG may properly do is to object to specific items of the
interrogatories, on the ground of lack of relevancy, or privilege, or that the inquiries are being
made in bad faith, or simply to embarass or oppress it. 45 But until such an objection is
presented and sustained, the obligation to answer subsists.

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

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

Sec. 6. Direct examination of unwilling or hostile witnesses. A party may . . . call an adverse
party or an officer, director, or managing agent of a public or private corporation or of a
partnership or association which is an adverse party, and interrogate him by leading questions
and contradict and impeach him in all respects as if he had been called by the adverse party,
and the witness thus called may be contradicted and impeached by or on behalf of the adverse
party also, and may be cross-examined by the adverse party only upon the subject-matter of his
examination in chief.

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

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

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

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

the PCGG may opt not to be bound by rule applicable to the parties it has sued, e.g., the rules
of discovery.

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

The State is, of course, immune from suit in the sense that it cannot, as a rule, be sued without
its consent. But it is axiomatic that in filing an action, it divests itself of its sovereign character
and sheds its immunity from suit, descending to the level of an ordinary litigant. The PCGG
cannot claim a superior or preferred status to the State, even while assuming to represent or act
for the State. 48

The suggestion 49 that the State makes no implied waiver of immunity by filing suit except when
in so doing it acts in, or in matters concerning, its proprietary or non-governmental capacity, is
unacceptable; it attempts a distinction without support in principle or precedent. On the contrary

The consent of the State to be sued may be given expressly or impliedly. Express consent may
be manifested either through a general law or a special law. Implied consent is given when the
State itself commences litigation or when it enters into a contract. 50

The immunity of the State from suits does not deprive it of the right to sue private parties in its
own courts. The state as plaintiff may avail itself of the different forms of actions open to private
litigants. In short, by taking the initiative in an action against the private parties, the state
surrenders its privileged position and comes down to the level of the defendant. The latter
automatically acquires, within certain limits, the right to set up whatever claims and other
defenses he might have against the state. . . . (Sinco, Philippine Political Law, Tenth E., pp. 3637, citing U.S. vs. Ringgold, 8 Pet. 150, 8 L. ed. 899)" 51

It can hardly be doubted that in exercising the right of eminent domain, the State exercises its
jus imperii, as distinguished from its proprietary rights or jus gestionis. Yet, even in that area, it
has been held that where private property has been taken in expropriation without just
compensation being paid, the defense of immunity from suit cannot be set up by the State
against an action for payment by the owner. 52

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

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

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

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

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

One last word. Due no doubt to the deplorable unfamiliarity respecting the nature, purposes and
operation of the modes of discovery earlier
mentioned, 54 there also appears to be a widely entertained idea that application of said modes
is a complicated matter, unduly expensive and dilatory. Nothing could be farther from the truth.
For example, as will already have been noted from the preceding discussion, all that is entailed
to activate or put in motion the process of discovery by interrogatories to parties under Rule 25
of the Rules of Court, is simply the delivery directly to a party of a letter setting forth a list of
least questions with the request that they be answered individually. 55 That is all. The service of
such a communication on the party has the effect of imposing on him the obligation of
answering the questions "separately and fully in writing underoath," and serving "a copy of the
answers on the party submitting the interrogatories within fifteen (15) days after service of the

interrogatories . . ." 56 The sanctions for refusing to make discovery have already been
mentioned. 57 So, too, discovery under Rule 26 is begun by nothing more complex than the
service on a party of a letter or other written communication containing a request that specific
facts therein set forth and/or particular documents copies of which are thereto appended, be
admitted in writing. 58 That is all. Again, the receipt of such a communication by the party has
the effect of imposing on him the obligation of serving the party requesting admission with "a
sworn statement either denying specifically the matters of which an admission is requested or
setting forth in detail the reasons why he cannot truthfully either admit or deny those matters,"
failing in which "(e)ach of the matters of which admission is requested shall be deemed
admitted." 59 The taking of depositions in accordance with Rule 24 (either on oral examination
or by written interrogatories) while somewhat less simple, is nonetheless by no means as
complicated as seems to be the lamentably extensive notion.

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


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

SO ORDERED.
No. 3
G.R. No. L-48214

December 19, 1978

ILDEFONSO SANTIAGO, represented by his Attorney-in-Fact, ALFREDO T. SANTIAGO,


petitioner,
vs.
THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, represented by the Director,
Bureau of Plant Industry, and the Regional Director, Region IX, Zamboanga City, respondent,

Ahmad D. Sahak for petitioner.

Solicitor General Estelito P. Mendoza, Assistant Solicitor General Octavio R. Ramirez and
Solicitor Mariano M. Martinez for respondents.

FERNANDO, J.:

The first impression yielded by a perusal of this petition for certiorari is its inherent weakness
considering the explicit provision in the present Constitution prohibiting a suit against the
Republic without its consent. 1 Here petitioner Ildefonso Santiago 2 filed on August 9, 1976 an
action in the Court of First Instance of Zamboanga City naming as defendant the government of
the Republic of the Philippines represented by the Director of the Bureau of Plant Industry. 3 His
plea was for the revocation of a deed of donation executed by him and his spouse in January of
1971, 4 with the Bureau of Plant Industry as the donee. As alleged in such complaint, such
Bureau, contrary to the terms of the donation, failed to "install lighting facilities and water system
on the property donated and to build an office building and parking [lot] thereon which should
have been constructed and ready for occupancy on or before December 7, 1974. 5 That led him
to conclude that under the circumstances, he was exempt from compliance with such an explicit
constitutional command. The lower court, in the order challenged in this petition, was of a
different view. It sustained a motion to dismiss on the part of the defendant Republic of the
Philippines, now named as one of the respondents, the other respondent being the Court of
First Instance of Zamboanga City, Branch II. It premised such an order on the settled "rule that
the state cannot be sued without its consent. This is so, because the New Constitution of the
Philippines expressly provides that the state may not be sued without its consent. 6 Solicitor
General Estelito P. Mendoza, 7 in the comment on the petition filed with this Court, is for the
affirmance of the order of dismissal of respondent Court precisely to accord deference to the
above categorical constitutional mandate.

On its face, such a submission carries persuasion. Upon further reflection, this Tribunal is
impressed with the unique aspect of this petition for certiorari, dealing as it does with a suit for
the revocation of a donation to the Republic, which allegedly fatted to conform with what was
agreed to by the donee. If an order of dismissal would suffice, then the element of unfairness
enters, the facts alleged being hypothetically admitted. It is the considered opinion of this Court
then that to conform to the high dictates of equity and justice, the presumption of consent could
be indulged in safely. That would serve to accord to petitioner as plaintiff, at the very least, the
right to be heard. certiorari lies.

1.
This is not to deny the obstacle posed by the constitutional provision. It is expressed in
language plain and unmistakable: "The State may not be sued without its consent. 8 The
Republic cannot be proceeded against unless it allows itself to be sued. Neither can a
department, bureau, agency, office, or instrumentality of the government where the suit,
according to the then Justice, now Chief Justice, Castro in Del Mar v. Philippine Veterans
Administration, 9 may result "in adverse consequences to the public treasury, whether in the
disbursements of funds or loss of property. 10 Such a doctrine was reiterated in the following
cases: Republic v. Villasor, 11 Sayson v. Singson, 12 Director of the Bureau of Printing v.
Francisco, 13 and Republic v. Purisima. 14

2. It is contended by counsel for petitioner that the above constitutional provision would be given
a retroactive application in this case if the suit for the revocation of donation were dismissed.
That is not the case at all. In Republic v. Purisima, this Court made clear that such a basic
postulate is part and parcel of the system of government implanted in the Philippines from the
time of the acquisition of sovereignty by the United States, and therefore, was implicit in the
1935 Constitution even in the absence of any explicit language to that effect. This it did in a

citation from Switzerland General Insurance Co., Ltd. v. Republic of the Philippines: 15 "The
doctrine of non-suability recognized in this jurisdiction even prior to the effectivity of the [1935]
Constitution is a logical corollary of the positivist concept of law which, to paraphrase Holmes,
negates the assertion of any legal right as against the state, in itself the source of the law on
which such a right may be predicated. Nor is this all. Even if such a principle does give rise to
problems, considering the vastly expanded role of government enabling it to engage in business
pursuits to promote the general welfare, it is not obeisance to the analytical school of thought
alone that calls for its continued applicability. 16 That is the teaching of the leading case of Mobil
Philippines Exploration, Inc. v. Customs Arrastre Service, 17 promulgated in December of
1966. As a matter of fact, the Switzerland General Insurance Co. decision was the thirty-seventh
of its kind after Mobil. Clearly, then, the contention that to dismiss the suit would be to give the
applicable constitutional provision a retroactive effect is, to put it at its mildest, untenable.

3. Petitioner's counsel invoked Santos v. Santos, 18 a 1952 decision. A more thorough analysis
ought to have cautioned him against reliance on such a case. It was therein clearly pointed out
that the government entity involved was originally the National Airports Corporation. Thereafter,
it "was abolished by Executive Order No. 365, series of 1950, and in its place and stead the
Civil Aeronautics Administration was created and took over all the assets and assumed all the
liabilities of the abolished corporation. The Civil Aeronautics Administration, even if it is not a
juridical entity, cannot legally prevent a party or parties from enforcing their proprietary rights
under the cloak or shield of lack of juridical personality, because to took over all the powers and
assumed all the obligations of the defunct corporation which had entered into the contract in
question." 19 Then came National Shipyard and Steel Corporation v. Court of Industrial
Relations, 20 a 1963 decision, where the then Justice, later Chief Justice, Concepcion, as
ponente, stated that a government-owned and controlled corporation "has a personality of its
own distinct and separate from that of the government. ... Accordingly, it may sue and be sued
and may be subjected to court processes just like any other corporation. (Section 13, Act 1459,
as amended). 21 In three recent decisions, Philippine National Bank v. Court of Industrial
Relations, 22 Philippine National Bank v. Honorable Judge Pabalan, 23 and Philippine National
Railways v. Union de Maquinistas, 24 this constitutional provision on non-suability was
unavailing in view of the suit being against a government-owned or controlled corporation. That
point apparently escaped the attention of counsel for petitioner. Hence Santos v. Santos is
hardly controlling.

4. It is to be noted further that the trend against the interpretation sought to be fastened in the
broad language of Santos v. Santos is quite discernible. Not long after, in Araneta v. Hon. M.
Gatmaitan, 25 decided in 1957, it was held that an action [against] Government officials, is
essentially one against the Government, ... . 26 In the same year, this Court, in Angat River
Irrigation System v. Angat River Workers 27 Union, after referring to the "basic and fundamental
principle of the law that the Government cannot be sued before courts of justice without its
consent," pointed out that "this privilege of non-suability of the Government" covers with the
mantle of its protection "an entity," in this case, the Angat River Irrigation System. 28 Then, in
1960, came Lim v. Brownell, Jr., 29 where there was a reaffirmation of the doctrine that a "claim
[constituting] a charge against, or financial liability to, the Government cannot be entertained by
the courts except with the consent of said government. 30 Bureau of Printing v. Bureau of
Printing Employees Association 31 came a year later; it reiterated such a doctrine. It was not
surprising therefore that in 1966, Mobil Philippines Exploration, Inc. was decided the way it was.
The remedy, where the liability is based on contract, according to this Court, speaking through

Justice J. P. Bengzon, is for plaintiff to file a claim with the general office in accordance with the
controlling statute, Commonwealth Act No. 327. 32 To repeat, that doctrine has been adhered to
ever since. The latest case in point is Travelers Indemnity Company v. Barber Steamship Lines,
Inc. 33 Justice Aquino's opinion concluded with this paragraph: "It is settled that the Bureau of
Customs, acting as part of the machinery of the national government in the operation of the
arrastre service, is immune from suit under the doctrine of non-suability of the State. The
claimant's remedy to recover the loss or damage to the goods under the custody of the customs
arrastre service is to file a claim with the Commission in Audit as contemplated in Act No. 3083
and Commonwealth Act No. 327. 34 With the explicit provision found in the present Constitution,
the fundamental principle of non-suability becomes even more exigent in its command.

5. The reliance on Santos v. Santos as a prop for this petition having failed, it would ordinarily
follow that this suit cannot prosper. Nonetheless, as set forth at the outset, there is a novel
aspect that suffices to call for a contrary conclusion. It would be manifestly unfair for the
Republic, as donee, alleged to have violated the conditions under which it received gratuitously
certain property, thereafter to put as a barrier the concept of non-suitability. That would be a
purely one-sided arrangement offensive to one's sense of justice. Such conduct, whether
proceeding from an individual or governmental agency, is to be condemned. As a matter of fact,
in case it is the latter that is culpable, the affront to decency is even more manifest. The
government, to paraphrase Justice Brandeis, should set the example. If it is susceptible to the
charge of having acted dishonorably, then it forfeits public trust-and rightly so.

6. Fortunately, the constitutional provision itself snows a waiver. Where there is consent, a suit
may be filed. Consent need not be express. It can be implied. So it was more than implied in
Ministerio v. Court of First Instance of Cebu: 35 "The doctrine of governmental immunity from
suit cannot serve as an instrument for perpetrating an injustice on a citizen. 36 The fact that this
decision arose from a suit against the Public Highways Commissioner and the Auditor General
for failure of the government to pay for land necessary to widen a national highway, the defense
of immunity without the consent proving unavailing, is not material. The analogy is quite
obvious. Where the government ordinarily benefited by the taking of the land, the failure to
institute the necessary condemnation proceedings should not be a bar to an ordinary action for
the collection of the just compensation due. Here, the alleged failure to abide by the conditions
under which a donation was given should not prove an insuperable obstacle to a civil action, the
consent likewise being presumed. This conclusion is strengthened by the fact that while a
donation partakes of a contract, there is no money claim, and therefore reliance on
Commonwealth Act No. 327 would be futile.

7. Our decision, it must be emphasized, goes no further than to rule that a donor, with the
Republic or any of its agency being the donee, is entitled to go to court in case of an alleged
breach of the conditions of such donation. He has the right to be heard. Under the
circumstances, the fundamental postulate of non-suability cannot stand in the way. It is made to
accommodate itself to the demands of procedural due process, which is the negation of
arbitrariness and inequity. The government, in the final analysis, is the beneficiary. It thereby
manifests its adherence to the highest ethical standards, which can only be ignored at the risk of
losing the confidence of the people, the repository of the sovereign power. The judiciary under
this circumstance has the grave responsibility of living up to the ideal of objectivity and

impartiality, the very essence of the rule of law. Only by displaying the neutrality expected of an
arbiter, even if it happens to be one of the departments of a litigant, can the decision arrived at,
whatever it may be, command respect and be entitled to acceptance.

WHEREFORE, the writ of certiorari prayed for is granted and the order of dismissal of October
20, 1977 is nullified, set aside and declared to be without force and effect. The Court of First
Instance of Zamboanga City, Branch II, is hereby directed to proceed with this case, observing
the procedure set forth in the Rules of Court. No costs.
No. 4
G.R. No. L-6060

September 30, 1954

FERNANDO A. FROILAN, plaintiff-appellee,


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

Quisumbing, Sycip, Quisumbing and Salazar, for appellant.


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

PARAS, C.J.:

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

1.
On February 3, 1951, plaintiff-appellee, Fernando A. Froilan, filed a complaint against
the defendant-appellant, Pan Oriental Shipping Co., alleging that he purchased from the
Shipping Commission the vessel FS-197 for P200,000, paying P50,000 down and agreeing to
pay the balance in installments; that to secure the payment of the balance of the purchase price,
he executed a chattel mortgage of said vessel in favor of the Shipping Commission; that for
various reason, among them the non-payment of the installments, the Shipping Commission
took possession of said vessel and considered the contract of sale cancelled; that the Shipping
Commission chartered and delivered said vessel to the defendant-appellant Pan Oriental
Shipping Co. subject to the approval of the President of the Philippines; that he appealed the
action of the Shipping Commission to the President of the Philippines and, in its meeting on
August 25, 1950, the Cabinet restored him to all his rights under his original contract with the

Shipping Commission; that he had repeatedly demanded from the Pan Oriental Shipping Co.
the possession of the vessel in question but the latter refused to do so. He, therefore, prayed
that, upon the approval of the bond accompanying his complaint, a writ of replevin be issued for
the seizure of said vessel with all its equipment and appurtenances, and that after hearing, he
be adjudged to have the rightful possession thereof (Rec. on App. pp. 2-8).

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

3.
On March 1, 1951, Pan Oriental Shipping Co. filed its answer denying the right of Froilan
to the possession of the said vessel; it alleged that the action of the Cabinet on August 25,
1950, restoring Froilan to his rights under his original contract with the Shipping Commission
was null and void; that, in any event, Froilan had not complied with the conditions precedent
imposed by the Cabinet for the restoration of his rights to the vessel under the original contract;
that it suffered damages in the amount of P22,764.59 for wrongful replevin in the month of
February, 1951, and the sum of P17,651.84 a month as damages suffered for wrongful replevin
from March 1, 1951; it alleged that it had incurred necessary and useful expenses on the vessel
amounting to P127,057.31 and claimed the right to retain said vessel until its useful and
necessary expenses had been reimbursed (Rec. on App. pp. 8-53).

4.
On November 10, 1951, after the leave of the lower court had been obtained, the
intervenor-appellee, Government of the Republic of the Philippines, filed a complaint in
intervention alleging that Froilan had failed to pay to the Shipping Commission (which name was
later changed to Shipping Administration) the balance due on the purchase price of the vessel in
question, the interest thereon, and its advances on insurance premium totalling P162,142.95,
excluding the dry-docking expenses incurred on said vessel by the Pan Oriental Shipping Co.;
that intervenor was entitled to the possession of the said vessel either under the terms of the
original contract as supplemented by Froilan's letter dated January 28, 1949, or in order that it
may cause the extrajudicial sale thereof under the Chattel Mortgage Law. It, therefore, prayed
that Froilan be ordered to deliver the vessel in question to its authorized representative, the
Board of Liquidators; that Froilan be declared to be without any rights on said vessel and the
amounts he paid thereon forfeited or alternately, that the said vessel be delivered to the Board
of Liquidators in order that the intervenor may have its chattel mortgage extrajudicially
foreclosed in accordance with the provisions of the Chattel Mortgage Law; and that pending the
hearing on the merits, the said vessel be delivered to it (Rec. on App. pp. 54-66).

5.
On November 29, 1951, the Pan Oriental Shipping Co. filed an answer to the complaint
in intervention alleging that the Government of the Republic of the Philippines was obligated to
deliver the vessel in question to it by virtue of a contract of bare-boat charter with option to
purchase executed on June 16, 1949, by the latter in favor of the former; it also alleged that it
had made necessary and useful expenses on the vessel and claimed the right of retention of the
vessel. It, therefore, prayed that, if the Republic of the Philippines succeeded in obtaining

possession of the said vessel, to comply with its obligations of delivering to it (Pan Oriental
Shipping co.) or causing its delivery by recovering it from Froilan (Rec. on App. pp. 69-81).

6.
On November 29, 1951, Froilan tendered to the Board of Liquidators, which was
liquidating the affairs of the Shipping Administration, a check in the amount of P162,576.96 in
payment of his obligation to the Shipping Administration for the said vessel as claimed in the
complaint in intervention of the Government of the Republic of the Philippines. The Board of
Liquidators issued an official report therefor stating that it was a 'deposit pending the issuance of
an order of the Court of First Instance of Manila' (Rec. on App. pp. 92-93).

7.
On December 7, 1951, the Government of the Republic of the Philippines brought the
matter of said payment and the circumstance surrounding it to the attention of the lower court
"in order that they may be taken into account by this Honorable Court in connection with the
questions that are not pending before it for determination" (Rec. on App. pp. 82-86).

8.
On February 3, 1952, the lower court held that the payment by Froilan of the amount of
P162,576.96 on November 29, 1951, to the Board of Liquidators constituted a payment and a
discharge of Froilan's obligation to the Government of the Republic of the Philippines and
ordered the dismissal of the latter's complaint in intervention. In the same order, the lower court
made it very clear that said order did not pre-judge the question involved between Froilan and
the Oriental Shipping Co. which was also pending determination in said court (Rec. on App. pp.
92-93). This order dismissing the complaint in intervention, but reserving for future adjudication
the controversy between Froilan and the Pan Oriental Shipping Co. has already become final
since neither the Government of the Republic of the Philippines nor the Pan Oriental Shipping
Co. had appealed therefrom.

9.
On May 10, 1952, the Government of the Republic of the Philippines filed a motion to
dismiss the counterclaim of the Pan Oriental Shipping Co. against it on the ground that the
purpose of said counterclaim was to compel the Government of the Republic of the Philippines
to deliver the vessel to it (Pan Oriental Shipping Co.) in the event that the Government of the
Republic of the Philippines recovers the vessel in question from Froilan. In view, however, of the
order of the lower court dated February 3, holding that the payment made by Froilan to the
Board of Liquidators constituted full payment of Froilan's obligation to the Shipping
Administration, which order had already become final, the claim of the Pan Oriental Shipping
Co. against the Republic of the Philippines was no longer feasible, said counterclaim was
barred by prior judgment and stated no cause of action. It was also alleged that movant was not
subject to the jurisdiction of the court in connection with the counterclaim. (Rec. on App. pp. 9497). This motion was opposed by the Pan Oriental Shipping Co. in its written opposition dated
June 4, 1952 (Rec. on app. pp. 19-104).

10.
In an order dated July 1, 1952, the lower court dismissed the counterclaim of the Pan
Oriental Shipping Co. as prayed for by the Republic of the Philippines (Rec. on App. pp. 104106).

11.
It if from this order of the lower court dismissing its counterclaim against the Government
of the Republic of the Philippines that Pan Oriental Shipping Co. has perfected the present
appeal (Rec. on App. p. 107).

The order of the Court of First Instance of Manila, dismissing the counterclaim of the defendant
Pan Oriental Shipping Co., from which the latter has appealed, reads as follows:

This is a motion to dismiss the counterclaim interposed by the defendant in its answer to the
complaint in intervention.

"The counterclaim states as follows:

"COUNTERCLAIM

"As counterclaim against the intervenor Republic of the Philippines, the defendant alleges:

"1.
That the defendant reproduces herein all the pertinent allegations of the foregoing
answer to the complaint in intervention

"2.
That, as shown by the allegations of the foregoing answer to the complaint in
intervention, the defendant Pan Oriental Shipping Company is entitled to the possession of the
vessel and the intervenor Republic of the Philippines is bound under the contract of charter with
option to purchase it entered into with the defendant to deliver that possession to the defendant
whether it actually has the said possession or it does not have that possession from the
plaintiff Fernando A. Froilan and deliver the same to the defendant;

"3.
That, notwithstanding demand, the intervenor Republic of the Philippines has not to date
complied with its obligation of delivering or causing the delivery of the vessel to the defendant
Pan Oriental Shipping Company.1wphl.nt

"RELIEF

"WHEREFORE, the defendant respectfully prays that judgment be rendered ordering the
intervenor Republic of the Philippines alternatively to deliver to the defendants the possession of
the said vessel, or to comply with its obligation to the defendant or causing the delivery to the
latter of the said vessel by recovering the same from plaintiff, with costs.

"The defendant prays for such other remedy as the Court may deem just and equitable in the
premises."

The ground of the motion to dismiss are (a) That the cause of action is barred by prior judgment;
(b) That the counterclaim states no cause of action; and (c) That this Honorable Court has no
jurisdiction over the intervenor government of the Republic of the Philippines in connection with
the counterclaim of the defendant Pan Oriental Shipping Co.

The intervenor contends that the complaint in intervention having been dismissed and no appeal
having been taken, the dismissal of said complaint is tantamount to a judgment.

The complaint in intervention did not contain any claim whatsoever against the defendant Pan
Oriental Shipping Co.; hence, the counterclaim has no foundation.

The question as to whether the Court has jurisdiction over the intervenor with regard to the
counterclaim, the Court is of the opinion that it has no jurisdiction over said intervenor.

It appearing, therefore, that the grounds of the motion to dismiss are well taken, the
counterclaim of the defendant is dismissed, without pronouncement as to costs.

The defendant's appeal is predicated upon the following assignments of error:

I.

The lower court erred in dismissing the counterclaim on the ground of prior judgment.

II.
The lower court erred in dismissing the counterclaim on the ground that the counterclaim
had no foundation because made to a complaint in intervention that contained no claim against
the defendant.

III.
The lower court erred in dismissing the counterclaim on the ground of alleged lack of
jurisdiction over the intervenor Republic of the Philippines.

We agree with appellant's contention that its counterclaim is not barred by prior judgment (order
of February 8, 1952, dismissing the complaint in intervention), first, because said counterclaim
was filed on November 29, 1951, before the issuance of the order invoked; and, secondly,
because in said order of February 8, the court dismissed the complaint in intervention, "without,
of course, precluding the determination of the right of the defendant in the instant case," and
subject to the condition that the "release and cancellation of the chattel mortgage does not,
however, prejudge the question involved between the plaintiff and the defendant which is still
the subject of determination in this case." It is to be noted that the first condition referred to the
right of the defendant, as distinguished from the second condition that expressly specified the
controversy between the plaintiff and the defendant. That the first condition reserved the right of
the defendant as against the intervenor, is clearly to be deduced from the fact that the order of
February 8 mentioned the circumstance that "the question of the expenses of drydocking
incurred by the defendant has been included in its counterclaim against the plaintiff," apparently
as one of the grounds for granting the motion to dismiss the complaint in intervention.

The defendant's failure to appeal from the order of February 8 cannot, therefore, be held as
barring the defendant from proceeding with its counterclaim, since, as already stated, said order
preserved its right as against the intervenor. Indeed, the maintenance of said right is in
consonance with Rule 30, section 2, of the Rules of Court providing that "if a counterclaim has
been pleaded by a defendant prior to the service upon him of the plaintiff's motion to dismiss,
the action shall not be dismissed against the defendant's objection unless the counterclaim can
remain pending for independent adjudication by the court."

The lower court also erred in holding that, as the intervenor had not made any claim against the
defendant, the latter's counterclaim had no foundation. The complaint in intervention sought to
recover possession of the vessel in question from the plaintiff, and this claim is logically adverse
to the position assumed by the defendant that it has a better right to said possession than the
plaintiff who alleges in his complaint that he is entitled to recover the vessel from the defendant.
At any rate a counterclaim should be judged by its own allegations, and not by the averments of
the adverse party. It should be recalled that the defendant's theory is that the plaintiff had
already lost his rights under the contract with the Shipping Administration and that, on the other
hand, the defendant is relying on the charter contract executed in its favor by the intervenor
which is bound to protect the defendant in its possession of the vessel. In other words, the
counterclaim calls for specific performance on the part of the intervenor. As to whether this
counterclaim is meritorious is another question which is not now before us.

The other ground for dismissing the defendant's counterclaim is that the State is immune from
suit. This is untenable, because by filing its complaint in intervention the Government in effect
waived its right of nonsuability.

The immunity of the state from suits does not deprive it of the right to sue private parties in its
own courts. The state as plaintiff may avail itself of the different forms of actions open to private
litigants. In short, by taking the initiative in an action against a private party, the state surrenders

its privileged position and comes down to the level of the defendant. The latter automatically
acquires, within certain limits, the right to set up whatever claims and other defenses he might
have against the state. The United States Supreme Court thus explains:

"No direct suit can be maintained against the United States. But when an action is brought by
the United States to recover money in the hands of a party who has a legal claim against them,
it would be a very rigid principle to deny to him the right of setting up such claim in a court of
justice, and turn him around to an application to Congress." (Sinco, Philippine Political Law,
Tenth Ed., pp. 36-37, citing U. S. vs. Ringgold, 8 Pet. 150, 8 L. ed. 899.)

It is however, contended for the intervenor that, if there was at all any waiver, it was in favor of
the plaintiff against whom the complaint in intervention was directed. This contention is
untenable. As already stated, the complaint in intervention was in a sense in derogation of the
defendant's claim over the possession of the vessel in question.

Wherefore, the appealed order is hereby reversed and set aside and the case remanded to the
lower court for further proceedings. So ordered, without costs.
No.5
G.R. No. L-8587

March 24, 1960

BENITO E. LIM, as administrator of the Intestate Estate of Arsenia Enriquez, plaintiff-appellant,


vs.
HERBERT BROWNELL, JR., Attorney General of the United States, and ASAICHI KAGAWA,
defendants-appellee, REPUBLIC OF THE PHILIPPINES, intervenor-appellee.

Angel S. Gamboa for appellant.


Townsend, Gilbert, Santos and Patajo for appellee.
Alfredo Catolico for intervenor.

GUTIERREZ DAVID, J.:

This is an appeal from an order of the Court of First Instance of Manila, dismissing plaintiff's
action for the recovery of real property for lack of jurisdiction over the subject matter.

The property in dispute consists of four parcels of land situated in Tondo, City of Manila, with a
total area of 29,151 square meters. The lands were, after the last world war, found by the Alien
Property Custodian of the United States to be registered in the name of Asaichi Kagawa,
national of an enemy country, Japan, as evidenced by Transfer Certificates of Title Nos. 64904
to 65140, inclusive, for which reason the said Alien Property Custodian, on March 14, 1946,
issued a vesting order on the authority of the Trading with the Enemy Act of the United States,
as amended, vesting in himself the ownership over two of the said lots, Lots Nos. 1 and 2. On
July, 6, 1948, the Philippine Alien Property Administrator (successor of the Alien Property
Custodian) under the authority of the same statute, issued a supplemental vesting order, vesting
in himself title to the remaining Lots Nos. 3 and 4. On August 3, 1948, the Philippine Alien
Property Administrator (acting on behalf of the President of the United States) and the President
of the Philippines, executed two formal agreements, one referring to Lots 1 and 2 and the other
to Lots 3 and 4, whereby the said Administrator transferred all the said four lots to the Republic
of the Philippines upon the latter's undertaking fully to indemnify the United States for all claims
in relation to the property transferred, which claims are payable by the United States of America
or the Philippine Alien Property Administrator of the United States under the Trading with the
Enemy Act, as amended, and for all such costs and expenses of administration as may by law
be charged against the property or proceeds thereof hereby transferred." The transfer
agreements were executed pursuant to section 3 of the Philippine Property Act of 1946 and
Executive Order No. 9921, dated January 10, 1948, of the President of the United States.

On the theory that the lots in question still belonged to Arsenia Enriquez, the latter's son Benito
E. Lim filed on November 15, 1948 a formal notice of claim to the property with the Philippine
Alien Property Administrator. The notice was subsequently amended to permit Lim to prosecute
the claim as administrator of the intestate estate of the deceased Arsenia Enriquez, thus, in
effect, substituting the intestate estate as the claimant, it being alleged that the lots were once
the property of Arsenia Enriquez; that they were mortgaged by her to the Mercantile Bank of
China; that the mortgage having been foreclosed, the property was sold at public auction during
the war to the Japanese Asaichi Kagawa, who, by means of threat and intimidation succeeded
in preventing Arsenia Enriquez from exercising her right of redemption; and that Kagawa never
acquired any valid title to the property because he was ineligible under the Constitution to
acquire residential land in the Philippines by reason of alien age.

On March 7, 1950, the claim was disallowed by the Vested Property Claims Committee of the
Philippine Alien Property Administrator, and copy of the decision disallowing the claim was
received by claimant's counsel on the 15th of that month. The claimant, however, took no
appeal to the Philippine Alien Property Administrator, so that pursuant to the rules of procedure
governing claims before the Philippine Alien Property Administrator, the decision of the
committee became final on April 15, 1950, that is, twenty days after receipt of the decision by
claimant's counsel.

On November 13, 1950, the claimant Benito E. Lim, as administrator of the intestate estate of
Arsenia Enriquez, filed a complaint in the Court of First Instance of Manila against the Philippine
Alien Property Administrator (later substituted by the Attorney General of the United States) for
the recovery of the property in question with back rents. The complaint was later amended to
include Asaichi Kagawa as defendant. As amended, it alleged that the lands in question formerly

belonged to Arsenia Enriquez and were mortgaged by her to the Mercantile Bank of China; that
the mortgage having been foreclosed, she was sentenced to pay the mortgage debt within 3
months; that within those 3 months the bank commissioner, who had been appointed liquidator
of said bank, assured her that she could pay her mortgage debt little by little in monthly
installments, and pursuant to that arrangement the income derived from the mortgaged property
were thereafter applied to her indebtedness, that such payment of the mortgage debt continued
until a few months after the occupation of the City of Manila by the Japanese forces, when the
Bank of Taiwan, having taken over the administration and control of all banks in the Philippines,
including the Mercantile Bank of China, had the properties sold at public auction on October 26,
1942 by the sheriff of the city; that the properties were awarded to Asaichi Kagawa and the sale
was subsequently confirmed by the court; that if Arsenia Enriquez failed to redeem the
properties before the confirmation of the sale, it was because of the financial depression and
also because she was prevented from doing so by Kagawa through threats and intimidation;
that the auction sale was irregular and illegal because it was made without publication or notice
and because though the land was subdivided into lots, the same was sold as a whole; that
because of the irregularities mentioned, competitive bidding was prevented or stifled with the
result that the lands, which could have been easily sold for P300,000 at then prevailing prices,
were awarded to Kagawa whose bid was only P54,460.40, a price that was "grossly inadequate
and shocking to the conscience;" that the titles to the lands having been subsequently
transferred to Kagawa, the latter in June, 1943 illegally dispossessed Arsenia Enriquez and kept
possession of the properties until the liberation of the City of Manila; that as Arsenia Enriquez
was still the owner of the properties, the seizure thereof by the United States Attorney General's
predecessors on the assumption that they belong to Kagawa, as well as their decision
disallowing her claim, was contrary to law. Plaintiff, therefore, prayed that the sheriff's sale to
Kagawa and the vesting of the properties in the Philippine Alien Property Administrator and the
transfer thereof by the United States to the Republic of the Philippines be declared null and
void; that Arsenia Enriquez be adjudged owner of the said properties and the Register of Deeds
of Manila be ordered to issue the corresponding transfer certificates of title to her; and that the
defendant Attorney General of the United States be required to pay rental from March 14, 1946,
and the Government of the Philippines from August 3, 1948, at the rate of P30,000 per annum
with legal interest.The defendant Attorney General of the United States and the defendantintervenor Republic of the Philippines each filed an answer, alleging by way of affirmative
defenses (1) that the action with respect to Lots 1 and 2 had already prescribed, the same not
having been brought within the period prescribed in section 33 of the Trading with the Enemy
Act, as amended, and (2) that the lower court had no jurisdiction over the claim for rentals since
the action in that regard constituted a suit against the United States to which it had not given its
consent.

The defendant Asaichi Kagawa was summoned by publication, but having failed to file an
answer to the complaint, he was declared in default. Thereafter, a preliminary hearing on the
affirmative defenses was held at the instance of the United States Attorney General pursuant to
Section 5, Rule 8 of the Rules of Court. After said hearing, the court ordered the complaint
dismissed on the ground as stated in the dispositive part of the order that the "court has
no jurisdiction over the subject matter of this action, taking into consideration the provisions of
Sec. 34 (must be 33) of the Trading with the Enemy Act, as the requirements needed by the
above-mentioned Act have not been fulfilled by the herein plaintiff." From that order, plaintiff has
taken the present appeal.

Judging from the context of the order complained of, it would appear that the dismissal of
plaintiff's action was actually based upon the principle that a foreign state or its government
cannot be sued without its consent. Considering, however, the law applicable, we do not think
the order of dismissal can be sustained in its entirety. There is no denying that an action against
the Alien Property Custodian, or the Attorney General of the United States as his successor,
involving vested property under the Trading with the Enemy Act located in the Philippines, is in
substance an action against the United States. The immunity of the state from suit, however,
cannot be invoked where the action, as in the present case, is instituted by a person who is
neither an enemy or ally of an enemy for the purpose of establishing his right, title or interest in
vested property, and of recovering his ownership and possession. Congressional consent to
such suit has expressly been given by the United States. (Sec. 3, Philippine Property Act of
1946; Philippine Alien Property Administration vs. Castelo, et al., 89 Phil., 568.)

The order of dismissal, however, with respect to plaintiff's claim for damages against the
defendant Attorney General of the United States must be upheld. The relief available to a
person claiming enemy property which has been vested by the Philippines Alien Property
Custodian is limited to those expressly provided for in the Trading with the Enemy Act, which
does not include a suit for damages for the use of such vested property. That action, as held by
this Court in the Castelo case just cited, is not one of those authorized under the Act which may
be instituted in the appropriate courts of the Philippines under the provisions of section 3 of the
Philippine Property Act of 1946. Congressional consent to such suit has not been granted.

The claim for damages for the use of the property against the intervenor defendant Republic of
the Philippines to which is was transferred, likewise, cannot be maintained because of the
immunity of the state from suit. The claim obviously constitutes a charge against, or financial
liability to, the Government and consequently cannot be entertained by the courts except with
the consent of said government. (Syquia vs. Almeda Lopez, 84 Phil., 312; 47 Off. Gaz., 665;
Compaia General de Tabacos vs. Gov't of PI, 45 Phil., 663.) Plaintiff argues that by its
intervention, the Republic of the Philippines, in effect, waived its right of non-suability, but it will
be remembered that the Republic intervened in the case merely to unite with the defendant
Attorney General of the United States in resisting plaintiff's claims, and for that reason asked no
affirmative relief against any party in the answer in intervention it filed. On the other hand,
plaintiff in his original complaint made no claim against the Republic and only asked for
damages against it for the use of the property when the complaint was amended. In its answer
to the amended complaint, the Republic "reproduced and incorporated by reference" all the
affirmative defenses contained in the answer of the defendant Attorney General, one of which,
as already stated, is that the lower court had no jurisdiction over the claim for rentals because of
lack of consent to be sued. Clearly, this is not a case where the state takes the initiative in an
action against a private party by filing a complaint in intervention, thereby surrendering its
privileged position and coming down to the level of the defendant as what happened in the
case of Froilan vs. Pan Oriental Shipping Co., et al. 95 Phil., 905 cited by plaintiff but one
where the state, as one of the defendants merely resisted a claim against it precisely on the
ground, among others, of its privileged position which exempts it from suit..

With respect to the recovery or return of the properties vested, section 33 of the Trading with the
Enemy Act, as amended, provides:

SEC. 33. Return of property; notice; institution of suits, computation of time. No return may
be made pursuant to section 9 or 32 unless notice of claim has been filed: (a) in the case of any
property or interest acquired by the United States prior to December 18, 1941, by August 9,
1948; or (b) in the case of any property or interest acquired by the United States on or after
December 18, 1941, by April 30, 1949, or two years from the vesting of the property or interest
in respect of which the claim is made, whichever is later. No suit pursuant to section 9 may be
instituted after April 30, 1949, or after the expiration of two years from the date of the seizure by
or vesting in the Alien Property Custodian, as the case may be, of the property or interest in
respect of which relief is sought, whichever is later, but in computing such two years there shall
be excluded any period during which there was pending a suit or claim for return pursuant to
section 9 or 32(a) hereof. (USCA, Tit. 50, App., p. 216.)

From the above provisions, it is evident that a condition precedent to a suit for the return of
property vested under the Trading with the Enemy Act is that it should be filed not later than
April 30, 1949, or within two years from the date of vesting, whichever is later, but in computing
such two years, the period during which there was pending a suit or claim for the return of the
said property pursuant to secs. 9 or 32(a) of the Act shall be excluded. That limitation, as held in
a case, is jurisdictional. (See Cisatlantic Corporation, et al. vs. Brownell, Jr., Civil Code No. 8221, U.S. District Court, Southern District, New York, affirmed by the United States Court of
Appeals, 2nd Circuit, May 11, 1955 (Docket No. 23499), annexed as appendices "D" and "E" in
appellees' brief.) Such being the case, it is evident that the court below erred in dismissing the
complaint, at least insofar as lots 3 and 4 of the land in dispute are concerned. These lots were
vested only on July 6, 1948 and consequently the two-year period within which to file the action
for their recovery expired on July 7, 1950. But in computing that the two-year period, the time
during which plaintiff's claim with the Philippine Alien Property Administration was pending
from November 16, 1948 when the claim was filed to March 7, 1950 when it was dissallowed
should be excluded. The complaint thereof filed on November 13, 1950 is well within the
prescribed period. As a matter of fact, the Attorney General of the United States concedes that
the dismissal of the complaint with respect to these lots was erroneous. Indeed, he states that
he had never asked for the dismissal of the complaint with respect to them because the
complaint insofar as those properties were concerned was filed within the period provided for in
the law.

On the other hand, lots 1 and 2 were vested by the Alien Property Custodian on March 14,
1946. The two-year period, therefore, within which to file a suit for their return expired on March
14, 1948. As no suit or claim for the return of said properties pursuant to sections 9 or 32(a) of
the Trading with the Enemy Act was filed by plaintiff within two years from the date of vesting,
the "later" date and the last on which suit could be brought was April 30, 1949. The claim filed
by plaintiff with the Philippine Alien Property Administration on November 15, 1948 obviously
could not toll the two-year period that had already expired on March 14, 1948. And the
complaint in the present case having been filed only on November 13, 1950, the same is
already barred. (Pass vs. McGrath, 192 F. 2d 415; Kroll vs. McGrath, 91 F. Supp. 173.) The
lower court, therefore, had no jurisdiction to entertain the action insofar as these lots are
concerned.

Plaintiff contends that section 33 of the Trading with the Enemy Act cannot prevail over section
40 of the Code of Civil Procedure, which provides that an action to recover real property
prescribes after 10 years, on the theory that under international law questions relating to real
property are governed by the law of the place where the property is located and that
prescription, being remedial, is likewise governed by the laws of the forum. But the trading with
the Enemy Act, by consent of the Philippine Government, continued to be in force in the
Philippines even after July 4, 1946 (Brownell, Jr., vs. Sun Life Assurance Co. of Canada,* 50
Off. Gaz., 4814; Brownell, Jr. vs. Bautista, 95 Phil., 853) and consequently, is as much part of
the law of the land as section 40 of the Code of Civil Procedure. Contrary to plaintiff's claim,
therefore, there is here no conflict of laws involved. It should be stated that in an action under
the Trading with the Enemy Act for the recovery of property vested thereunder, the rights of the
parties must necessarily be governed by the terms of that Act. Indeed, section 7 (c) thereof
explicitly provides that the relief available to a claimant of vested property is limited to those
expressly provided for by its terms.

Needless to say, the defense of limitation as contained in section 33 of Trading with the Enemy
Act, as amended, may be invoked not only by the defendant Attorney General of the United
States but also by the intervenor Republic of the Philippines to which the lands in question were
transferred. To sustain plaintiff's claim and preclude the Republic from putting up that defense
would render nugatory the provisions of the Act. For in such case, a claimant who has failed to
file his claim or suit within the period provided for in section 33 of the Act and consequently has
forfeited whatever right she may have therein, could easily circumvent the law. It would also
mean that the transfer of vested property to the Republic would have the effect of permitting reexamination of the title to such vested property which has already become absolute in the name
of the United States, the transferor, for failure of the claimant to assert his claim within the
prescribed time. This absurdity, to say the least, cannot be countenanced.

In view of the foregoing, the order appealed from insofar as it dismisses the complaint with
respect to Lots 1 and 2 and the claim for damages against the Attorney General of the United
States and the Republic of the Philippines, is affirmed, but revoked insofar as it dismisses the
complaint with respect to Lots 3 and 4, as to which the case is hereby remanded to the court
below for further proceedings. Without costs.

No.6
REPUBLIC OF THE PHILIPPINES,
Petitioner,
G. R. No. 85284

February 28, 1990


-versusSANDIGANBAYAN, THIRD DIVISION,
SIMPLICIO A. PALANCA in His Own
Behalf as a Stockholder of BACOLOD
REAL ESTATE DEVELOPMENT CORPORATION
[BREDCO] and Other Stockholders
Similarly Situated,
Respondents.

RESOLUTION

PADILLA, J.:

This is a Petition for Certiorari to annul and set aside the resolution of the Sandiganbayan [Third
Division] dated 3 June 1988 granting the private respondents' motion to intervene in Civil Case
No. 0025 and admitting their answer in intervention as well as its resolution dated 25 August
1988, denying the petitioner's motion for reconsideration; Prohibition to order the respondent
court to cease and desist from proceeding with the intervention filed with it; and alternatively,
Mandamus to compel the respondent court to dismiss the intervention case.
The antecedents are as follows:
On 29 July 1987, the Republic of the Philippines, as Plaintiff, through its governmental
instrumentality the Presidential Commission on Good Government [PCGG] filed with the
respondent Sandiganbayan a complaint against Ferdinand E. Marcos, et al. for reconveyance,
reversion, accounting, restitution and damages, docketed therein as Civil Case No. 0025
[PCGG No. 26]. [1] On or about 3 September 1987, before the said Civil Case No. 0025 could
be set for hearing, private respondent Simplicio A. Palanca in his own behalf as a stockholder of
Bacolod Real Estate Development Corporation [BREDCO] and other stockholders similarly
situated, filed with the respondent Sandiganbayan a "Motion For Leave To Intervene" [2]
attaching thereto their "Answer in Intervention." [3]
In their motion, private respondents alleged that they be allowed to intervene in the present
action and to file the Answer in intervention hereto attached as Annex "A", the said stockholders

having a legal interest in the matter in litigation and in the disposition of the properties listed in
Annex "A" of the Complaint as BREDCO lots and shares of stock in Bacolod Real Estate
Development Corporation.
In justification, it is further respectfully alleged that:
1. Close examination of the Complaint, in particular par. 12 thereof under 'V. SPECIFIC
AVERMENTS OF DEFENDANTS' ILLEGAL ACTS', makes no mention at all about BREDCO
being the subject of any anomalous transaction engaged in by any of the defendants, in
consequence of which the listed BREDCO lots could have been gotten illegally. It is to be
observed, on the other hand, that the titles mentioned in aforesaid Annex of the complaint
covering the lots in question are not registered in the names of any of the defendants but in the
name of Bacolod Real Estate Development Corporation.
2. Similarly, the shares of stock in Bacolod Real Estate Development Corporation appealing
under Personal Property on page two of Annex "A" of the complaint are carried not in the names
of any of the defendants, but in the name of Marsteel Consolidated Inc. and were acquired
under the circumstances averred more in detail in the accompanying Answer in Intervention by
reason of which detail shares should not be involved in the present action.
3. If intervention is allowed, intervenors are prepared to prove that if ever any of the defendants
through Marsteel Consolidated, Inc. and Marsteel Corporation came to have any interest in
Bacolod Real Estate Development Corporation, it was only by way of accommodation on the
part of BREDCO stockholders who transferred their shareholdings aggregating 70% of the
subscribed capital to enable Marsteel Consolidated to secure adequate financing for the
reclamation and port development project [4]
The foregoing allegations were further expanded and elaborated in the private respondents'
Answer in Intervention.
On 2 December 1987, petitioner filed its Reply [5] to Answer In Intervention, while private
respondents filed a "Rejoinder to Reply With Motion To Release BREDCO Lots [6] and also a
"Motion To Calendar For Hearing" the motion to release BREDCO lots. [7]
On 22 January 1988, respondent court promulgated a Resolution [8] holding in abeyance action
on the private respondents' "Rejoinder to Reply with Motion to Release BREDCO Lots" and set
the Motion for Leave to Intervene for hearing on 2 February 1988.cralaw
On 11 March 1988, respondent court issued an Order [9] giving petitioner fifteen [15] days from
11 March 1988 within which to file its opposition and/or comment on the motion to intervene and
giving the private respondents in turn ten [10] days within which to file their reply thereto.cralaw
On 23 March 1988, petitioner filed its Motion to Dismiss "Answer In Intervention," on the
grounds that; [1] respondent court lacks jurisdiction and [2] intervenors have no legal interest in
the matter in litigation, [10] which the private respondents opposed. [11]
On 6 June 1988, respondent court promulgated a Resolution dated 3 June 1988 [12] granting
the private respondents' motion to intervene and admitting their Answer in Intervention.
Petitioner moved for reconsideration but this was denied by respondent court in its resolution of
25 August 1989. [13]
Hence, the instant petition.cralaw

The petitioner, through the Solicitor General, contends that in issuing the questioned resolutions
granting the Motion to Intervene and admitting the Answer-in-Intervention, respondent
Sandiganbayan acted in contravention of a national or public policy embodied in Executive
Orders Nos. 1, 2, 4 and related issuances, or otherwise acted in a way not in accord with law or
with the applicable decisions of this Court, because:
[a] Petitioner, being the sovereign state, cannot be sued without its consent, and the
Intervention is, in legal effect, a suit or counter- suit against the sovereign state, the Republic of
the Philippines;
[b] The cause of action of intervenors does not fall within the jurisdiction of the Sandiganbayan
as expressly spelled out in P.D. No. 1606 and Executive Order No. 14;
[c] Intervenors have no legal interest in the matter in litigation, and the subject matter is not in
custodia legis of respondent court; and
[d] Intervenors' claims, as contained in their Motion for Intervention and Answer-in-Intervention,
are claims between and/or among Ferdinand and Imelda Marcos and their cronies, i.e.,
"members of their immediate family close relatives, subordinates, and/or business associates,
dummies, agents and nominees" and are cognizable not by respondent court but by the regular
courts or other for a Even if there would be multiple litigations, as among themselves, the legal
effect remains, i.e., that there is only one case filed by the Republic against the named
defendants in Civil Case No. 0025, grounded on causes of action entirely distinct from any
cause of action which intervenors may have against Mr. Marcos and his cronies.
The petition is not impressed with merit.
The Rules of Court permit an aggrieved party, generally, to take a cause and apply for relief with
the appellate courts by way of either of two distinct and dissimilar modes through the broad
process of appeal or the limited special civil action of certiorari. An appeal brings up for review
errors of judgment committed by a court of competent jurisdiction over the subject of the suit or
the persons of the parties or any such error committed by the court in the exercise of its
jurisdiction amounting to nothing more than an error of judgment. On the other hand, the writ of
certiorari issues for the correction of errors of jurisdiction only or grave abuse of discretion
amounting to lack or excess of jurisdiction. The writ of certiorari cannot legally be used for any
other purpose. In terms of its function, the writ of certiorari serves to keep a lower court within
the bounds of its jurisdiction or to prevent it from committing such a grave abuse of discretion
amounting to excess of jurisdiction or to relieve parties from arbitrary acts of courts acts which
courts have no power or authority in law to perform. [14]
Hence, the main issue to be resolved in the present case, which is principally a petition for
certiorari to annul and set aside the questioned resolutions of respondent court is, whether or
not the Sandiganbayan has jurisdiction over the action for intervention, or if it has, whether
respondent court acted with grave abuse of discretion amounting to lack or excess of its
jurisdiction in rendering the questioned resolutions.cralaw
In the present case, petitioner merely contends that the cause of action of intervenors does not
fall within the jurisdiction of the Sandiganbayan as expressly spelled out in Presidential Decree
No. 1606 and Executive Order No. 14; it does not claim that respondent court committed grave
abuse of discretion amounting to lack or excess of its jurisdiction in rendering the questioned
resolutions.cralaw

The jurisdiction of the Sandiganbayan has already been settled in Presidential Commission on
Good Government vs. Hon. Emmanuel G. Penal, etc., et al. [15] where the Court held that:
Under Section 2 of the President's Executive Order No. 14 issued on May 7, 1986, all cases of
the Commission regarding the funds, Moneys, Assets, and Properties Illegally Acquired or I
Misappropriated by Former President Ferdinand Marcos, Mrs. Imelda Romualdez Marcos, their
Close Relatives, Subordinates, Business Associates, Dummies, Agents, or Nominees whether
civil or criminal, are lodged within the "exclusive and original jurisdiction of the Sandiganbayan"
and all incidents arising from, incidental to, or related to, such cases necessarily fall likewise
under the Sandiganbayan's exclusive and original jurisdiction, subject to review on certiorari
exclusively by the Supreme Court. [Emphasis supplied].

In reiterating the aforequoted ruling in six [6] subsequent cases [16] which were decided jointly,
again, the Court held that:
The exclusive jurisdiction conferred on the Sandiganbayan would evidently extend not only to
the principal causes of action, i.e., the recovery of alleged ill-gotten wealth, but also to 'all
incidents arising from, incidental to, or related to, such cases,' such as the dispute over the sale
of the shares, the propriety of the issuance of ancillary writs or provisional remedies relative
thereto, the sequestration thereof, which may not be made the subject of separate actions or
proceedings in another forum.

Intervention is not an independent action, but is ancillary and supplemental to an existing


litigation. [17] Hence, the private respondents' action for intervention in Civil Case No. 0025, not
being an independent action, is merely incidental to, or related to, the said civil case. Since the
respondent Sandiganbayan has the exclusive and original jurisdiction over Civil Case No. 0025,
it has likewise original and exclusive jurisdiction over the private respondents' action for
intervention therein.
Now, considering that respondent Sandiganbayan has jurisdiction not only over Civil Case No.
0025 but also over the private respondents' action for intervention, any error or irregularity that it
may have committed in rendering its questioned resolutions, in the exercise of its jurisdiction,
amounts to an error of judgment, which is not correctable in the present petition for certiorari but
by appeal. Accordingly, this case may be dismissed outright without the Court having to pass
upon the other issues raised in the petition. However, considering that the litigation below is of
great public interest and involves a matter of public policy, the Court has decided to review the
other errors allegedly committed by respondent court in rendering its questioned
resolutions.cralaw
In this jurisdiction, the law on "intervention" is found in the Rules of Court. [18] Thus, a person
may, before or during a trial, be permitted by the court, in its discretion, to intervene in an action,
if he has legal interest in the matter in litigation, or in the success of either of the parties or an
interest against both, or when he is so situated as to be adversely affected by a distribution or
other disposition of property in the custody of the court or of an officer thereof. [19]
The Court is not impressed with the contention of petitioner that the intervenors have no legal
interest in the matter in litigation. In this connection, it would suffice to quote what the

respondent court said in holding that the intervenors have a legal interest in the matter in
litigation. Thus:
Has Palanca shown a proper case for intervention by him and his co-stockholders who are
similarly situated as he is?

A narration of the pertinent facts alleged by Palanca and the plaintiff indicates the answer.
In 1961, BREDCO was awarded by Bacolod City, a contract to undertake the reclamation and
port development of the city. As of 1975, a sizeable portion of land had already been reclaimed
from the sea and corresponding torrens titles issued in BREDCO's name. In that year, BREDCO
engaged MARSTEEL as a contractor to complete the project with power to negotiate in its name
or jointly and/or severally with BREDCO for loans to finance the reclamation and port
development, and to mortgage all reclaimed lots and other assets of the project as security. For
its services, MARSTEEL shall receive 65% of the excess of all revenues over all disbursements.
Accordingly, BREDCO conveyed to MARSTEEL 65% of each lot already reclaimed and that to
be reclaimed.cralaw
In 1977, MARSTEEL assigned to MCI, which owned 100% of its capital stock, all its rights,
interests, obligations, and undertakings in the project. To enable MCI to expand its base of
negotiation for loans needed in the reclamation and port development the BREDCO
stockholders transferred to MCI their respective shares of stock amounting to 70% of the capital
stock of BREDCO. In return, they 'shall be entitled to a share of 35% in excess of all revenues
over all disbursements of the projects,' it being understood that payment of the corresponding
share shall be due to BREDCO stockholders as owners of existing interests in the project,
regardless of the fact that by implementation of this AGREEMENT, they ceased to be
stockholders of BREDCO.cralaw
In September 1986, the Presidential Commission on Good Government (PCGG) sequestered
all assets, properties, records and documents' of MARSTEEL, MCI, and BREDCO'. In July
1987, the complaint at bar was filed and expanded in March 1988. The pleadings, original and
expanded, allege that the defendants, acting singly or collectively, amassed ill-gotten wealth
listed in Annex 'A' thereof, among which are the BREDCO lots and shares of stock, and pray
that the ill-gotten wealth be reconveyed to the plaintiff, plus damages. Significantly, however, the
bodies of the complaints do not mention anything about BREDCO, its project, lots, and stocks,
nor about MCI.cralaw
Under these alleged facts, Palanca has established a proper case for intervention. Firstly, he
and his co-stockholders have a legal interest in the matter in litigation, namely, their 70% of the
capital stock of BREDCO, which they transferred to MCI by way of alleged accommodation, or
its equivalent of 35% of the excess of all revenues over all disbursements, to which they are
entitled "as owners of existing interests in the project." Section 2, Rule 12, Revised Rules of
Court, provides that a person may be permitted "to intervene in an action, if he has legal interest
in the matter in litigation."
As a general rule, the right to intervene exists in favor of one who claims to be the owner or to
have some interest in the property which is the subject of litigation, and this without particular
regard to the value of the property or the right claimed therein. A third party may intervene in a
sequestration suit involving title to personal property, and have his claims to the possession of
the property vindicated therein. So, in an action for possession of real or personal property, an

intervenor may be admitted on the ground that he is an owner thereof, either to assist in the
defense, or to claim the property for himself, or to obtain some other relief germane to the
action. [59 Am Jur 2d, Parties, Sec. 152, p. 585].cralaw
Secondly, the same Section 2, Rule 12 further provides that intervention by a person may be
permitted "when he is so situated as to be adversely affected by a distribution or other
disposition of property in the custody of the court or of an officer thereof." On this point, the
Supreme Court observed:
We shall now speak of the case where the stranger desires to intervene for the purpose of
asserting a property right in the res, or thing, which is the subject-matter of the ligitation, without
becoming a formal plaintiff or defendant, and without acquiring the control over the course of a
litigation, which is conceded to the main actions (sic) therein. The mode of intervention to which
reference is now made is denominated in equity procedure the intervention pro interesse suo
and is somewhat analogous to the trial of a right of property in an action of law, its purpose
being to enable a person whose property gets into the clutches of a court, in a controversy
between others, to go into court and to procure it or its proceeds to be surrendered to him. It
often happens that a person who really owns property, or has a superior lien or other interest in
it, sees a litigation spring up between others who assert rights in or concerning it. If the court
takes possession of the res, or otherwise gets jurisdiction over it in such a controversy, the real
owner is not compelled to stand Idly by and see the property disposed of without asserting his
rights. Though it be granted that the litigation would not be technically binding on him because
of his not being a party, yet it might well happen that complications would ensue whereby his
rights would be materially prejudiced. For instance, the subject matter of the litigation might
consist of a fund to he distributed, and the conditions might be such that if it were turned over to
the particular litigant who should appear to have the better right in the original action, the person
really having a superior title might be left without redress. Accordingly, provision is made
whereby persons who have not been joined as parties in the original proceedings, may
intervene and assert a right antagonistic or superior to that of one or both of the parties.
[Bosworth vs. Terminal etc. Assoc. of St. Louis, 174 U.S. 182,187, 43 L. ed., 941, 943]. As
regards the right to intervene in this manner, it may be stated that if the party desiring to
intervene shows a legitimate and proper interest in the fund or property in question, the motion
to intervene should be granted, especially if such interest cannot be otherwise properly
protected. [Joaquin v. Herrera, 37 Phil. 705, 722-724].

Here, the BREDCO lots and stocks were sequestered and are now in custodia legis [Bernas,
The Constitution of the Republic of the Philippines, An Annotated Text, 1987 Ed., p. 129,
Footnote 42]. From the facts averred by Palanca and the plaintiff, it is easy to see that in the
event We decide to order the reconveyance of those assets to the plaintiff, Palanca and his costockholders in BREDCO stand to be adversely affected.
And thirdly, the legal interest of Palanca and his co-stockholders in the matter in litigation and
the possibility of a judgment ordering reconveyance in favor of the plaintiff, invest them with
legal interest in the success of the defendants, at least insofar as the BREDCO lots and shares
are concerned. Section 2, Rule 12, also permits intervention by a person who has legal interest
in the success of either of the parties. [20]
The petitioner's contention that the State cannot be sued without its consent and that private
respondents' action for intervention is, in legal effect, a suit or counter-suit against the sovereign
is also untenable. The Rules of Court [21] provide that the intervention shall be made by

complaint filed and served in regular form and may be answered as if it were an original
complaint; but where the intervenor unites with the defendant in resisting the claims of the
plaintiff, the intervention may be made in the form of an answer to the complaint. In order words,
a third person who makes himself a party to an existing litigation may either join the plaintiff in
claiming what is sought in the filing a complaint in intervention, or by uniting with the defendant
in resisting the claims of the plaintiff, by filing an answer in intervention.
In Froilan v. Pan Oriental Shipping Co., [22] the plaintiff therein, Fernando A. Froilan, filed a
complaint against the defendant, Pan Oriental Shipping Co. The Republic of the Philippines
intervened by filing a complaint in intervention. Thereafter, the defendant filed its answer to the
complaint in intervention and set up a counterclaim against the Republic of the Philippines. The
trial court dismissed the defendant's counterclaim against the Republic on the ground, among
others, that the state is immune from suit. On appeal, this Court held that the dismissal of the
counterclaim was untenable, because by filing its complaint in intervention, the Government in
effect waived its right to non-suability.
In another case, Lim vs. Brownell, Jr. and Kagawa, [23] the plaintiff Benito E. Lim, as
administrator of the intestate estate of Arsenia Enriquez, filed a complaint in the Court of First
Instance of Manila against the Alien Property Administrator [later substituted by the Attorney
General of the United States] for the recovery of four [4] parcels of land [which were
subsequently transferred to the Republic of the Philippines] with a prayer for the payment of
back rentals. The Republic of the Philippines intervened in the case. The defendant Attorney
General of the United States and the defendant-intervenor Republic of the Philippines each filed
an answer, alleging by way of affirmative defense, among others, that the lower court had no
jurisdiction over the claim for rentals since the action in that regard constituted a suit against the
Republic to which it had not given its consent. The trial court dismissed the complaint for lack of
jurisdiction. On appeal, this Court affirmed, with the following reasons:
The claim for damages for the use of the property against the intervenor defendant Republic of
the Philippines to which it was transferred, likewise, cannot be maintained because of the
immunity of the state from suit. The claim obviously constitutes a charge against, or financial
liability to, the Government and consequently cannot be entertained by the courts except with
the consent of said government. [Syquia vs. Almeda Lopez, 84 Phil. 312; 47 Off. Gaz., 665;
Compania General de Tabacos vs. Govt. of the P.I., 45 Phil., 663]. Plaintiff argues that by its
intervention, the Republic of the Philippines, in effect, waived its right of non-suability, but it will
be remembered that the Republic intervened in the case merely to unite with the defendant
Attorney General of the United States in resisting plaintiffs claims, and for that reason asked no
affirmative relief against any party in the answer in intervention. Clearly, this is not a case where
the State takes the initiative in an action against a private party by filing a complaint in
intervention, thereby surrendering its privileged position and coming down to the level of the
defendants what happened in the case of Froilan vs. Pan Oriental Shipping Co., et al.-95 Phil.
905 cited by the plaintiff but one where the State, as one of the defendants merely resisted a
claim against it precisely on the ground, among others, of its privileged position which exempts
it from suit. [Emphasis supplied].
In the present case, the private respondents intervened in Civil Case No. 0025 merely to unite
with the defendants therein in resisting the claims of petitioner, as plaintiff, and for that reason
asked for no affirmative relief against any party in their answer in intervention. In other words,
this is not a case where the private respondents take the initiative in an action against petitioner
by filing a complaint in intervention or a complaint. As observed by respondent Sandiganbayan:

In intervening, Palanca and his co-stockholders have for their purpose to exclude the BREDCO
lots and stocks or, at least, their 35% interest in the BREDCO project from any possible
judgment directing reconveyance of the alleged ill-gotten wealth to the plaintiff. They do not pray
for damages against the latter. In effect, they occupy a defensive position as regards those
shares of stock or interest. The fact that they interjected themselves into his litigation at their
own initiative does not alter the essential nature of their intervention." [24]
Private respondents' action for intervention in Civil Case No. 0025 is not, therefore, a suit or
counter-suit against petitioner Republic of the Philippines. Having arrived at the above
conclusions, the Court finds no need to further discuss the petitioner's pretense that the private
respondents' claims are claims as between and/or among Ferdinand and Imelda Marcos, et al.,
and that the same is not cognizable by respondent Sandiganbayan but by the regular courts. It
suffices to state that, as already stated, in intervening in Civil Case No. 0025, private
respondents merely joined the defendants therein in resisting the claims of petitioner, as
plaintiff, and that they asked no affirmative relief against any party in their answer in
intervention. They do not appear to have any controversy with the defendants, Ferdinand and
Imelda Marcos, et al.
ACCORDINGLY, the petition in the present case is hereby dismissed.
SO ORDERED.
No. 7
G.R. No. L-4699

November 26, 1952

TEODORA SANTOS, assisted by her husband DONATO DE CASTRO, JOSEFINA SANTOS,


assisted by her husband Santiago Rodriguez and EMILIANA SANTOS, plaintiffs-appellants,
vs.
LEONCIO SANTOS, THE ADMINISTRATOR OF THE CIVIL AERONAUTICS
ADMINISTRATION, and NATIONAL AIRPORTS CORPORATION, defendants-appellees.

Ramon Diokno and Jose W. Diokno for appellants.


Office of the Solicitor General Pompeyo Diaz and Solicitor Esmeraldo Umali for appellees.

PADILLA, J.:

Teodora Santos and her nieces Emiliana and Josefina surnamed Santos complain that from
1945 to 1949 Leoncio Santos collected from the Army of the United States of America rentals for
the use and occupation of a parcel of land, known as Lot No. 4 of CAA Survey Plan AERO R-1,
containing an area of 21,577 square meters, situated in the Municipality of Las Pias, Province
of Rizal, more particularly described in the complaint, belonging to them and Leoncio Santos in
common by inheritance from their ancestor, the late Paulino de los Santos, father of Teodora

Santos and Leoncio Santos and grandfather of Josefina Santos and Emiliana Santos, who died
sometime in 1919, in the proportion of 1/7 undivided share for Teodora Santos and 1/14
undivided share each for Josefina Santos and Emiliana Santos and 5/7 undivided share for
Leoncio Santos, for the accounting of which and payment of their respective shares therein they
made a demand upon Leoncio Santos but the latter failed and refused to do so. They also
complain that they made a demand upon Leoncio Santos to have the lot partitioned among
them but the later refused to do so, he having sold the lot to the Administrator of the Civil
Aeronautics Administration on or about 13 May 1949, who is now in possession thereof, and
that the sale of the lot made by Leoncio Santos to the Administrator of the Civil Aeronautics
Administration insofar as their shares in the lot are concerned is null and void. Upon these
allegations they pray that Leoncio Santos be ordered to render an accounting of the rentals and
such other fruits, products and benefits as he might have received from 1945 on and thereafter
and to pay and deliver 1/7 thereof to Teodora Santos and 1/14 thereof each to Josefina and
Emiliana surname Santos; that the parcel of land be partitioned among them in the proportion
above-stated; that the purported sale by Leoncio Santos to the National Airports Corporation,
the predecessor to the Civil Aeronautics Administration, insofar as theirs shares are concerned
be declared null and void; that the Administrator of the Civil Aeronautics Administration be
directed to vacate the portions of the lot belonging to them a reasonable rental until after
possession of their shares in the lot shall have been restored to them and to pay damages and
cost.

The Administrator of the Civil Aeronautics Administration moved to dismiss the complaint for
lack of jurisdiction and insufficiency of the complaint against him, invoking the case of
Metropolitan Transportation Service METRAN vs. Paredes, 45 Off. Gaz., 2835, where it has
been held that the suit was against the state which could not be brought without its consent.
This motion was granted on the ground that the Civil Aeronautics Administration not being a
juridical person has no capacity to sue and be sued and for that reason it cannot come under
the jurisdiction of the court.

The principle that the state or its government cannot be sued without its consent has its root in
the juridical and practical notion that the state can do no wrong. Demandable and enforceable
obligations which may be the subject of judicial action come into being either by law, contract,
quasi-contract, acts or omissions punishable by law, acts which do not constitute or amount to a
crime or a misdemeanor known at common law as torts and in civil law as culpa aquiliana or
extra contractual. An obligation or liability of the state created by statute is enforceable against
the officer or agent charged with the duty to execute the law. If there should be anything
demandable which had been paid or delivered to or collected by officers or agents of the state
without the authority of law, the action would not be against the state but against the responsible
officers or agents who received what was not due the state or made the unauthorized collection.
Punishable acts or omissions committed by officers or agents of the state are crimes and
violations of law perpetuated by such officers or agents and not by the state. The same
postulate may be applied to torts committed by officers or agents of the state. Nevertheless, if,
where and when the state or its government enters into a 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, and if the law granting the authority to enter into such contract does not provide for or
name the officer against whom action may be brought in the event of a breach thereof, the state
itself may be sued even without its consent, because by entering into a contract the sovereign

state has descended to the level of the citizen and its consent to be used is implied from the
very act of entering into such contract. If the dignity of the state, the sacredness of the
institution, the respect for the government are to be preserved and the dragging of its name in a
suit to be prevented, the legislative department should name the officer or agent against whom
the action may be brought in the event of breach of the contract entered into under its name and
authority. And the omission or failure of the legislative department to do so is no obstacle or
impediment for an individual or citizen, who is aggrieved by the breach of the contract, to bring
an action against the state itself for the reasons already adverted to, to wit; the descent of the
sovereign state to the level of the individual or citizen with whom it entered into a contract and
its consent to be sued implied from the act of entering into such contract.

The action brought in this case is for partition and accounting of rental received by the
defendant Leoncio Santos from 1945 to December 1949 for the use and occupation of a parcel
of land allegedly owned in common by the plaintiffs and the defendant Leoncio Santos in the
proportion stated in the complaint. It is also averred that the National Airports Corporation
created by Republic Act No. 224, which had acquired the parcel of land from the defendant
Leoncio Santos, was abolished by Executive Order no. 365, series of 1950, and in its place and
stead the Civil Aeronautics Administration was created and took over all the assets and
assumed all the liabilities of the abolished corporation. The Civil Aeronautics Administration,
even if it is not a juridical entity, cannot legally prevent a party or parties from enforcing their
propriety rights under the cloak or shield of lack of juridical personality, because it took over all
the powers and assumed all the obligations of the defunct corporation which had entered into
the contract in question. In National Airports Corporation vs. Teodoro *, G.R. No. L-5122, 30
April 1952, we held that the Civil Aeronautics Administration may be sued and that the principle
of state immunity from suit does not apply to it.

If the plaintiffs are not entitled to any share in the parcel of land sold by Leoncio Santos and
acquired by the National Airports Corporation, now in the possession of its successor, the Civil
Aeronautics Administration, the complaint would have to be dismissed. But if the right to such
shares as claimed be established, the plaintiffs should not and can be deprived of their
proprietary rights in the parcel of land sold by their co-owner without their knowledge and
consent. Leoncio Santos would be responsible for warranty and eviction to the Civil Aeronautics
Administration. If the Torrens title does not show such shares of the plaintiffs in the parcel of
land sold by Leoncio Santos to the National Airports Corporation, then the action would not lie
against the National Airports Corporation or its successor, the Civil Aeronautics Administration of
land and of their natural or civil fruits of which they had been deprived by the sale and
conveyance of the whole parcel of land to the National Airports Corporation by Leoncio Santos.
The accounting of rentals received would not affect the Civil Aeronautics Administration,
because it would be the exclusive liability of Leoncio Santos.

The order appealed from dismissing the complaint as to the Civil Aeronautics Administration is
reversed and the case remanded to the lower court for further proceedings in accordance with
law. No cost shall be taxed.
No. 8

[G.R. No. L-11786. September 26, 1958.]

HARRY LYONS, INC., Plaintiff-Appellant, v. THE UNITED STATES OF AMERICA (651 United
States Naval Supply Depot, U.S. Navy, Philippines), Defendant-Appellee.

Zosimo Rivas & Arturo A. Alafriz for Appellant.

Bonifacio S. Gutirrez for Appellee.

SYLLABUS

1. SOVEREIGN STATE; WHEN STATE MAY BE SUED WITHOUT ITS CONSENT. As a rule,
a sovereign state cannot be sued in its own courts, or in any other, without its consent.
However, where, as in the instant case, a sovereign state entered in to 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.

2. ID.; ID,; EXHAUSTION OF ADMINISTRATIVE REMEDIES; CASE AT BAR. The contract


entered into between the United States Government and appellant for stevedoring and
miscellaneous labor services lays down the procedure to be followed by the appellant should it
desire to obtain a remedy under the contract. Its remedy is to file its claim, not with the court, but
with the Contracting Officer who is empowered to act and render a decision. If dissatisfied with
his decision, plaintiff may appeal to the Secretary of the Navy where he would be "afforded an
opportunity to be heard and to offer evidence in support of its appeal", and the decision of the
Secretary shall be final and conclusive "unless determined by a court of competent jurisdiction
to have been fraudulent, arbitrary, capricious, or so grossly erroneous as necessary to imply
bad faith." Hence, it is only after the claim has been decided on appeal by the Secretary that
plaintiff can resort to a court of competent jurisdiction. It appearing in the complaint that
appellant has not complied with the aforesaid procedure, or stated differently, it has failed to first
exhaust its administrative remedies against said Government, the lower court acted properly in
dismissing the case.

DECISION

BAUTISTA ANGELO, J.:

Plaintiff brought this action before the Court of First Instance of Manila to collect several sums of
money arising from a contract entered into between plaintiff and defendant.

Defendant filed a motion to dismiss on the ground that the court has no jurisdiction over
defendant and over the subject matter of the action. The court sustained this motion on the
grounds that (a) the courts lacks jurisdiction over defendant, it being a sovereign state which
cannot be sued without its consent; and (b) plaintiff failed to exhaust the administrative
remedies provided for in Article XXI of the contract. Plaintiff took the case on appeal directly to
this Court.

It appears that plaintiff and defendant entered into a contract for stevedoring service at the U.S.
Naval Base, Subic Bay, Philippines, the contract to terminate on June 30, 1956. This contract
was entered into pursuant to the provisions of Section 2 (c) (1) of the Armed Services
Procurement Act of 1947 of the United States of America (Public Law 413, 80th Congress). It is
undisputed that the contract was entered into between plaintiff and the Government of the
United States of America.

"It is an established principle of jurisprudence in all civilized nations, resting on reasons of public
policy, because of the inconvenience and danger which would follow from any different rule, that
the sovereign cannot be sued in its own courts, or in any other, without its consent and
permission. Accordingly, other than those instances in which the United States has consented to
be sued, the United States is immune from suit upon claims against it or debts due by it. . . .
When consent to suit is not forthcoming, the only remedy of the party injured by an act of the
United States is by an appeal to Congress" (54 Am. Jur., Section 127, pp. 633-635).

"In the case of Syquia v. Lopez, Et Al., 47 Off. Gaz., 665; 84 Phil., 312 where an action was
brought against U.S. Army Officers not only for the recovery of possession of certain apartments
occupied boy military personnel under a contract of lease, but also to collect back rents and
rents at increased rates including damages, we held: . . . It is therefore, evident that the claim
and judgment will be a charge against and a financial liability to the U. S. Government because
the defendants had undoubtedly acted in their official capacities as agents of said
Government, . . . . Consequently, the present suit should be regarded as an action against the
United States Government. . . . Therefore, the suit cannot be entertained by the trial court for
lack of jurisdiction." (Johnson v. General Turner, Et Al., 94 Phil., 807).

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. Thus,
appellant cites the case of Santas v. Santos, 92 Phil. 281; 48 Off. Gaz., 4815, wherein this Court
made the following pronouncement:

". . . If, where and when the state or its government enters into a 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, and if the law granting the authority to enter into such contract does not provide for or
name the officer against whom action may be brought in the event of a breach thereof, the state
itself may be sued even without its consent, because by entering into a contract the sovereign
state has descended to the level of the citizen and consent to be sued is implied from the very
act entering into such contract. If the dignity of the state, the sacredness of the institution, the
respect for the government are to be preserved and the dragging of its name in a suit to be
prevented, the legislative department should name the officer or agent against whom the action
may be brought in the event of breach of the contract entered into under its name and authority.
And the omission or failure of the legislative department to do so is no obstacle or impediment
for an individual or citizen, who is aggrieved by the breach of the contract, to bring an action
against the state itself for the reasons already adverted to, to wit: the descent of the sovereign
state to the level of the individual or citizen with whom it entered into a contract and its consent
to be sued implied from the act of entering into such contract."
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. Navy Reservation, it is evident
that it can bring an action before our courts for any contractual liability that political entity may
assume under the contract. The trial court, therefore, has jurisdiction to entertain this case in so
far as appellee is concerned.

But assuming that the trial court has jurisdiction to entertain this case, as set out above, did said
court err in dismissing the complaint on the ground that plaintiff has failed to comply with the
condition prescribed in the contract before an action could be taken in court against the U. S.
Government? Article XXI of the contract provides: "ARTICLE XXI. Disputes.

Except as otherwise provided in this contract, any dispute concerning a question of fact arising
under this contract which is not disposed of by agreement shall be decided by the Contracting
Officer, who shall reduce his decision to writing and mail or otherwise furnish a copy thereof to
the Contractor. Within 30 days from the date of receipt of such copy, the Contractor may appeal
by mailing or otherwise furnishing to the Contracting Officer a written appeal addressed to the
Secretary, and the decision of the Secretary or his duly authorized representative for the hearing
of such appeals, shall, unless determined by a court of competent jurisdiction to have been
fraudulent, arbitrary, capricious, or so grossly erroneous as necessary to imply bad faith, be final
and conclusive, provided that, if no such appeal is taken, the decision of the Contracting Officer
shall be final and conclusive. In connection with any appeal proceeding under this clause, the
Contractor shall be afforded an opportunity to be heard and to offer evidence in support of its

appeal. Pending final decision of a dispute hereunder, the Contractor shall proceed diligently
with the performance of the contract and in accordance with the Contracting Officers
decision."cralaw virtua1aw library

The foregoing lays down the procedure to be followed by plaintiff should it desire to obtain a
remedy under the contract. Its remedy is to file its claim, not with the court, but With the
Contracting Officer who is empowered to act and render a decision. If dissatisfied with his
decision, plaintiff may appeal to the Secretary of the Navy where he would be "afforded an
opportunity to be heard and to offer evidence in support of its appeal", and the decision of the
Secretary shall be final and conclusive "unless determined by a court of competent jurisdiction
to have been fraudulent, arbitrary, capricious, or so grossly erroneous as necessary to imply
bad faith." Hence, it is only after the claim has been decided on appeal by the Secretary that
plaintiff can resort to a court of competent jurisdiction.

"As this Court well said: If plaintiffs were aggrieved by the action or decision of the Director of
Lands, their remedy was to appeal to the Secretary of Agriculture and Commerce. But it does
not appear that they have done so. It does not even appear that they have pursued their protest
to its conclusion in the Bureau of Lands itself. Having failed to exhaust their remedy in the
administrative branch of the government, plaintiffs cannot now seek relief in the courts of
justice. (Eloy Miguel, Et. Al. v. Anacleta M. Vda. de Reyes, Et Al., 93 Phil., 642)." (Heirs of
Gregorio Lachica, Et Al., v. Fermin Ducusin, Et Al., 102 Phil., 551).

"In order to maintain a suit against the United States, plaintiff must show that the United States
has consented to suit and must bring himself within the terms of the consent, and it is also
generally held that he must first exhaust his administrative remedies." (91 C.J.S., p. 421)

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.

Wherefore, the order appealed from is affirmed, with costs.


No. 9
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 that the courts of the
Philippines including the Municipal Court of Manila have no jurisdiction over the present case for
unlawful detainer. The question of lack of jurisdiction was raised and interposed at the very
beginning of the action. The U.S. Government has not , given its consent to the filing of this suit
which is essentially against her, though not in name. Moreover, this is not only a case of a
citizen filing a suit against his own Government without the latter's consent but it is of a citizen
filing an action against a foreign government without said government's consent, which renders
more obvious the lack of jurisdiction of the courts of his country. The principles of law behind this
rule are so elementary and of such general acceptance that we deem it unnecessary to cite
authorities in support thereof. (At p. 323.)

In Syquia,the United States concluded contracts with private individuals but the contracts
notwithstanding the States was not deemed to have given or waived its consent to be sued for
the reason that the contracts were for jure imperii and not for jure gestionis.

WHEREFORE, the petition is granted; the questioned orders of the respondent judge are set
aside and Civil Case No. is dismissed. Costs against the private respondent.
No. 10
China national machinery v. Sta. Maria
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 before a
local court.
2.
Whether the Contract Agreement is an executive agreement, such that it cannot be
questioned by or before a local court.

First issue: Whether CNMEG is entitled to immunity

This Court explained the doctrine of sovereign immunity in Holy See v. Rosario,[24] to wit:
There are two conflicting concepts of sovereign immunity, each widely held and firmly
established. According to the classical or absolute theory, a sovereign cannot, without its
consent, be made a respondent in the courts of another sovereign. According to the newer or
restrictive theory, the immunity of the sovereign is recognized only with regard to public acts or
acts jure imperii of a state, but not with regard to private acts or acts jure gestionis. (Emphasis
supplied; citations omitted.)

xxx xxx xxx

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

In JUSMAG v. National Labor Relations Commission,[25] this Court affirmed the Philippines
adherence to the restrictive theory as follows:

The doctrine of state immunity from suit has undergone further metamorphosis. The view
evolved that the existence of a contract does not, per se, mean that sovereign states may, at all
times, be sued in local courts. The complexity of relationships between sovereign states,
brought about by their increasing commercial activities, mothered a more restrictive application
of the doctrine.

xxx xxx xxx

As it stands now, the application of the doctrine of immunity from suit has been restricted to
sovereign or governmental activities (jure imperii). The mantle of state immunity cannot be
extended to commercial, private and proprietary acts (jure gestionis).[26] (Emphasis supplied.)

Since the Philippines adheres to the restrictive theory, it is crucial to ascertain the legal nature of
the act involved whether the entity claiming immunity performs governmental, as opposed to
proprietary, functions. As held in United States of America v. Ruiz [27]
The restrictive application of State immunity is proper only when the proceedings arise out of
commercial transactions of the foreign sovereign, its commercial activities or economic affairs.
Stated differently, a State may be said to have descended to the level of an individual and can
thus be deemed to have tacitly given its consent to be sued only when it enters into business
contracts. It does not apply where the contract relates to the exercise of its sovereign functions.
[28]

A.

CNMEG is engaged in a proprietary activity.

A threshold question that must be answered is whether CNMEG performs governmental or


proprietary functions. A thorough examination of the basic facts of the case would show that
CNMEG is engaged in a proprietary activity.
The parties executed the Contract Agreement for the purpose of constructing the Luzon
Railways, viz:[29]
WHEREAS the Employer (Northrail) desired to construct the railways form Caloocan to Malolos,
section I, Phase I of Philippine North Luzon Railways Project (hereinafter referred to as THE
PROJECT);

AND WHEREAS the Contractor has offered to provide the Project on Turnkey basis, including
design, manufacturing, supply, construction, commissioning, and training of the 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 Philippines entered
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, in
Department 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 of Contract,[48] which is an integral part of the Contract Agreement,[49] states:
33. SETTLEMENT OF DISPUTES AND ARBITRATION

33.1. Amicable Settlement

Both parties shall attempt to amicably settle all disputes or controversies arising from this
Contract before the commencement of arbitration.

33.2. Arbitration

All disputes or controversies arising from this Contract which cannot be settled between the
Employer and the Contractor shall be submitted to arbitration in accordance with the UNCITRAL
Arbitration Rules at present in force and as may be amended by the rest of this Clause. The
appointing authority shall be Hong Kong International Arbitration Center. The place of arbitration
shall be in Hong Kong at Hong Kong International Arbitration Center (HKIAC).

Under the above provisions, if any dispute arises between Northrail and CNMEG, both parties
are bound to submit the matter to the HKIAC for arbitration. In case the HKIAC makes an
arbitral award in favor of Northrail, its enforcement in the Philippines would be subject to the
Special Rules on Alternative Dispute Resolution (Special Rules). Rule 13 thereof provides for
the Recognition and Enforcement of a Foreign Arbitral Award. Under Rules 13.2 and 13.3 of the
Special Rules, the party to arbitration wishing to have an arbitral award recognized and
enforced in the Philippines must petition the proper regional trial court (a) where the assets to
be attached or levied upon is located; (b) where the acts to be enjoined are being performed; (c)
in the principal place of business in the Philippines of any of the parties; (d) if any of the parties
is an individual, where any of those individuals resides; or (e) in the National Capital Judicial
Region.
From all the foregoing, it is clear that CNMEG has agreed that it will not be afforded immunity
from suit. Thus, the courts have the competence and jurisdiction to ascertain the validity of the
Contract Agreement.

Second issue: Whether the Contract Agreement is an executive agreement

Article 2(1) of the Vienna Convention on the Law of Treaties (Vienna Convention) defines a
treaty as follows:

[A]n international agreement concluded between States in written form and governed by
international law, whether embodied in a single instrument or in two or more related instruments
and whatever its particular designation.

In Bayan Muna v. Romulo, this Court held that an executive agreement is similar to a treaty,
except that the former (a) does not require legislative concurrence; (b) is usually less formal;
and (c) deals with a narrower range of subject matters.[50]
Despite these differences, to be considered an executive agreement, the following three
requisites provided under the Vienna Convention must nevertheless concur: (a) the agreement
must be between states; (b) it must be written; and (c) it must governed by international law.
The first and the third requisites do not obtain in the case at bar.

A.

CNMEG is neither a government nor a government agency.

The Contract Agreement was not concluded between the Philippines and China, but between
Northrail and CNMEG.[51] By the terms of the Contract Agreement, Northrail is a governmentowned 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 the
Regional Trial Court of Makati, Branch 145, for further proceedings as regards the validity of the
contracts subject of Civil Case No. 06-203.
No pronouncement on costs of suit.
SO ORDERED.
No. 11
G.R. No. L-30671

November 28, 1973

REPUBLIC OF THE PHILIPPINES, petitioner,


vs.
HON. GUILLERMO P. VILLASOR, as Judge of the Court of First Instance of Cebu, Branch I,
THE PROVINCIAL SHERIFF OF RIZAL, THE SHERIFF OF QUEZON CITY, and THE SHERIFF
OF THE CITY OF MANILA, THE CLERK OF COURT, Court of First Instance of Cebu, P. J.
KIENER CO., LTD., GAVINO UNCHUAN, AND INTERNATIONAL CONSTRUCTION
CORPORATION, respondents.

Office of the Solicitor General Felix V. Makasiar and Solicitor Bernardo P. Pardo for petitioner.

Andres T. Velarde and Marcelo B. Fernan for respondents.

FERNANDO, J.:

The Republic of the Philippines in this certiorari and prohibition proceeding challenges the
validity of an order issued by respondent Judge Guillermo P. Villasor, then of the Court of First
Instance of Cebu, Branch I, 1 declaring a decision final and executory and of an alias writ of
execution directed against the funds of the Armed Forces of the Philippines subsequently issued
in pursuance thereof, the alleged ground being excess of jurisdiction, or at the very least, grave
abuse of discretion. As thus simply and tersely put, with the facts being undisputed and the
principle of law that calls for application indisputable, the outcome is predictable. The Republic
of the Philippines is entitled to the writs prayed for. Respondent Judge ought not to have acted
thus. The order thus impugned and the alias writ of execution must be nullified.

In the petition filed by the Republic of the Philippines on July 7, 1969, a summary of facts was
set forth thus: "7. On July 3, 1961, a decision was rendered in Special Proceedings No. 2156-R
in favor of respondents P. J. Kiener Co., Ltd., Gavino Unchuan, and International Construction
Corporation, and against the petitioner herein, confirming the arbitration award in the amount of
P1,712,396.40, subject of Special Proceedings. 8. On June 24, 1969, respondent Honorable
Guillermo P. Villasor, issued an Order declaring the aforestated decision of July 3, 1961 final
and executory, directing the Sheriffs of Rizal Province, Quezon City [as well as] Manila to
execute the said decision. 9. Pursuant to the said Order dated June 24, 1969, the
corresponding Alias Writ of Execution [was issued] dated June 26, 1969, .... 10. On the strength
of the afore-mentioned Alias Writ of Execution dated June 26, 1969, the Provincial Sheriff of
Rizal (respondent herein) served notices of garnishment dated June 28, 1969 with several
Banks, specially on the "monies due the Armed Forces of the Philippines in the form of deposits
sufficient to cover the amount mentioned in the said Writ of Execution"; the Philippine Veterans
Bank received the same notice of garnishment on June 30, 1969 .... 11. The funds of the Armed
Forces of the Philippines on deposit with the Banks, particularly, with the Philippine Veterans
Bank and the Philippine National Bank [or] their branches are public funds duly appropriated
and allocated for the payment of pensions of retirees, pay and allowances of military and civilian
personnel and for maintenance and operations of the Armed Forces of the Philippines, as per
Certification dated July 3, 1969 by the AFP Controller,..." 2. The paragraph immediately
succeeding in such petition then alleged: "12. Respondent Judge, Honorable Guillermo P.
Villasor, acted in excess of jurisdiction [or] with grave abuse of discretion amounting to lack of
jurisdiction in granting the issuance of an alias writ of execution against the properties of the
Armed Forces of the Philippines, hence, the Alias Writ of Execution and notices of garnishment
issued pursuant thereto are null and void." 3 In the answer filed by respondents, through
counsel Andres T. Velarde and Marcelo B. Fernan, the facts set forth were admitted with the
only qualification being that the total award was in the amount of P2,372,331.40. 4

The Republic of the Philippines, as mentioned at the outset, did right in filing this certiorari and
prohibition proceeding. What was done by respondent Judge is not in conformity with the
dictates of the Constitution. .

It is a fundamental postulate of constitutionalism flowing from the juristic concept of sovereignty


that the state as well as its government is immune from suit unless it gives its consent. It is
readily understandable why it must be so. In the classic formulation of Holmes: "A sovereign is
exempt from suit, not because of any formal conception or obsolete theory, but on the logical
and practical ground that there can be no legal right as against the authority that makes the law
on which the right depends." 5 Sociological jurisprudence supplies an answer not dissimilar. So
it was indicated in a recent decision, Providence Washington Insurance Co. v. Republic of the
Philippines, 6 with its affirmation that "a continued adherence to the doctrine of non-suability is
not to be deplored for as against the inconvenience that may be caused private parties, the loss
of governmental efficiency and the obstacle to the performance of its multifarious functions are
far greater if such a fundamental principle were abandoned and the availability of judicial
remedy were not thus restricted. With the well known propensity on the part of our people to go
to court, at the least provocation, the loss of time and energy required to defend against law
suits, in the absence of such a basic principle that constitutes such an effective obstacle, could
very well be imagined." 7

This fundamental postulate underlying the 1935 Constitution is now made explicit in the revised
charter. It is therein expressly provided: "The State may not be sued without its consent." 8 A
corollary, both dictated by logic and sound sense from a basic concept is that public funds
cannot be the object of a garnishment proceeding even if the consent to be sued had been
previously granted and the state liability adjudged. Thus in the recent case of Commissioner of
Public Highways v. San Diego, 9 such a well-settled doctrine was restated in the opinion of
Justice Teehankee: "The universal rule that where the State gives its consent to be sued by
private parties either by general or special law, it may limit claimant's action 'only up to the
completion of proceedings anterior to the stage of execution' and that the power of the Courts
ends when the judgment is rendered, since government funds and properties may not be seized
under writs of execution or garnishment to satisfy such judgments, is based on obvious
considerations of public policy. Disbursements of public funds must be covered by the
corresponding appropriation as required by law. The functions and public services rendered by
the State cannot be allowed to be paralyzed or disrupted by the diversion of public funds from
their legitimate and specific objects, as appropriated by law." 10 Such a principle applies even to
an attempted garnishment of a salary that had accrued in favor of an employee. Director of
Commerce and Industry v. Concepcion, 11 speaks to that effect. Justice Malcolm as ponente left
no doubt on that score. Thus: "A rule which has never been seriously questioned, is that money
in the hands of public officers, although it may be due government employees, is not liable to
the creditors of these employees in the process of garnishment. One reason is, that the State,
by virtue of its sovereignty, may not be sued in its own courts except by express authorization
by the Legislature, and to subject its officers to garnishment would be to permit indirectly what is
prohibited directly. Another reason is that moneys sought to be garnished, as long as they
remain in the hands of the disbursing officer of the Government, belong to the latter, although
the defendant in garnishment may be entitled to a specific portion thereof. And still another
reason which covers both of the foregoing is that every consideration of public policy forbids it."
12

In the light of the above, it is made abundantly clear why the Republic of the Philippines could
rightfully allege a legitimate grievance.

WHEREFORE, the writs of certiorari and prohibition are granted, nullifying and setting aside
both the order of June 24, 1969 declaring executory the decision of July 3, 1961 as well as the
alias writ of execution issued thereunder. The preliminary injunction issued by this Court on July
12, 1969 is hereby made permanent.
No.12
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 4 and
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. 7 There 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.


No. 13
G.R. No. 154200

July 24, 2007

NATIONAL ELECTRIFICATION ADMINISTRATION and its BOARD OF ADMINISTRATORS,


Petitioners,
vs.
DANILO MORALES, Respondent.

DECISION

AUSTRIA-MARTINEZ, J>:

The sole issue for resolution in the Petition for Review on Certiorari1 before us is whether the
Court of Appeals (CA) committed an error of law in its July 4, 2002 Decision2 in CA-G.R. SP No.
62919 in ordering the implementation of a writ of execution against the funds of the National
Electrification Administration (NEA).

There being no dispute as to the facts,3 the following findings of the CA are adopted:4

Danilo Morales and 105 other employees5 (Morales, et al.) of the NEA filed with the Regional
Trial Court (RTC), Branch 88, Quezon City, a class suit6 against their employer for payment of
rice allowance, meal allowance, medical/dental/optical allowance, childrens allowance and
longevity pay purportedly authorized under Republic Act (R.A.) No. 6758.7 In its December 16,
1999 Decision,8 the RTC ordered NEA, thus:

WHEREFORE, foregoing considered, the petition is hereby GRANTED directing the respondent
NEA, its Board of Administrators to forthwith settle the claims of the petitioners and other
employees similarly situated and extend to them the benefits and allowances to which they are
entitled but which until now they have been deprived of as enumerated under Section 5 of DBM
CCC No. 10 and their inclusion in the Provident Funds Membership, retroactive from the date of
their appointments up to the present or until their separation from the service.

No costs.

SO ORDERED.9

Upon motion of Morales, et al., the RTC issued a Writ of Execution dated February 22, 2000,10
which reads:

NOW, THEREFORE, you are hereby directed to cause respondents National Electrification
Administration (NEA) and its Board of Administrators with principal office address at 1050 CDC
Bldg., Quezon Avenue, Quezon City to forthwith settle the claims of the petitioners and other
employees similarly situated and extend to them the benefits and allowances to which they are
entitled but which until now they have been deprived of as enumerated under Sec. 5 of DBM
CCC No. 10 and you are further directed to cause their inclusion in the Provident Fund
Membership, retroactive from the date of their appointments up to the present or until their
separation from the service.11

Thereafter, a Notice of Garnishment12 was issued against the funds of NEA with Development
Bank of the Philippines (DBP) to the extent of P16,581,429.00.

NEA filed a Motion to Quash Writs of Execution/Garnishment,13 claiming that the garnished
public funds are exempt from execution under Section 414 of Presidential Decree (P.D.) No.
1445,15 but manifesting that it is willing to pay the claims of Morales, et al.,16 only that it has no
funds to cover the same, although it already requested the Department of Budget and
Management (DBM) for a supplemental budget.17

In its Order of May 17, 2000, the RTC denied the Motion to Quash but, at the same time, held in
abeyance the implementation of the Writ of Execution, thus:

WHEREFORE, the motion to quash writs of execution/ garnishment is DENIED but the
implementation of the judgment is placed on hold for ninety (90) days reckoned from this day.
The respondents are directed to formally inform this Court and the petitioners of the prospect of
obtaining funds from Department of Budget and Management within 30 days from receipt and
every 30 days thereafter, until the 90 day period has lapsed.

The motion to direct DBP to release to the petitioners the NEA funds garnished earlier
amounting to P16,591.429 is also DENIED.

SO ORDERED.18 (Emphasis ours)

Morales, et al. filed a Partial Motion for Reconsideration19 but the RTC denied it.20

Meanwhile, in a letter dated June 28, 2000, former DBM Secretary Benjamin E. Diokno
informed NEA Administrator Conrado M. Estrella III of the denial of the NEA request for a
supplemental budget on the ground that the claims under R.A. No. 6758 which the RTC had
ordered to be settled cannot be paid because Morales, et al. are not "incumbents of positions as
of July 1, 1989 who are actually receiving and enjoying such benefits."21

Moreover, in an Indorsement dated March 23, 2000, the Commission on Audit (COA) advised
NEA against making further payments in settlement of the claims of Morales, et al.. Apparently,
COA had already passed upon claims similar to those of Morales, et al. in its earlier "Decision
No. 95-074" dated January 25, 1995. Portions of the Indorsement read as follows:

This Office concurs with the above view. The court may have exceeded its jurisdiction when it
entertained the petition for the entitlement of the after-hired employees which had already been
passed upon by this Commission in COA Decision No. 95-074 dated January 25, 1995. There, it
was held that: "the adverse action of this Commission sustaining the disallowance made by the
Auditor, NEA, on the payment of fringe benefits granted to NEA employees hired from July 1,
1989 to October 31, 1989 is hereby reconsidered. Accordingly, subject disallowance is lifted."

Thus, employees hired after the extended date of October 31, 1989, pursuant to the above COA
decision cannot defy that decision by filing a petition for mandamus in the lower court.
Presidential Decree No. 1445 and the 1987 Constitution prescribe that the only mode for appeal
from decisions of this Commission is on certiorari to the Supreme Court in the manner provided

by law and the Rules of Court. Clearly, the lower court had no jurisdiction when it entertained
the subject case of mandamus. And void decisions of the lower court can never attain finality,
much less be executed. Moreover, COA was not made a party thereto, hence, it cannot be
compelled to allow the payment of claims on the basis of the questioned decision.

PREMISES CONSIDERED, the auditor of NEA should post-audit the disbursement vouchers on
the bases of this Commission's decision particularly the above-cited COA Decision No. 94-074
[sic] and existing rules and regulations, as if there is no decision of the court in the subject
special civil action for mandamus. At the same time, management should be informed of the
intention of this Office to question the validity of the court decision before the Supreme Court
through the Office of the Solicitor General.22 (Emphasis ours)

Parenthetically, the records at hand do not indicate when Morales, et al. were appointed. Even
the December 16, 1999 RTC Decision is vague for it merely states that they were appointed
after June 30, 1989, which could mean that they were appointed either before the cut-off date of
October 31, 1989 or after.23 Thus, there is not enough basis for this Court to determine that the
foregoing COA Decision No. 95-074 adversely affects Morales, et al.. Moreover, the records do
not show whether COA actually questioned the December 16, 1999 RTC Decision before this
Court.

On July 18, 2000, Morales, et al. filed a Motion for an Order to Implement Writ of Execution,
pointing out that the reason cited in the May 17, 2000 RTC Order for suspension of the
implementation of the writ of execution no longer exists given that DBM already denied NEAs
request for funding.24 They also filed a Petition to Cite NEA Board of Administrators Mario
Tiaoqui, Victoria Batungbacal, Federico Puno and Remedios Macalingcag in Contempt of
Court25 for allegedly withholding appropriations to cover their claims.

Acting first on the petition for contempt, the RTC issued a Resolution dated December 11, 2000,
to wit:

The court is aware of its order dated May 17, 2000, particularly the directive upon respondents
to inform this court and the petitioners of the prospect of obtaining funds from the Department of
Budget and Management within the period specified. From the comments of the respondents, it
appears they did or are doing their best to secure the needed funds to satisfy the judgment
sought to be enforced. In this regard, Administrative Circular No. 10-2000 of the Supreme Court
provides:

"In order to prevent possible circumvention of the rules and procedures of the Commission on
Audit, judges are hereby enjoined to observe utmost caution, prudence and judiciousness in the
issuance of writs of execution to satisfy money judgments against government agencies and
local government units.

Judges should bear in mind that in Commissioner of Public Highways v. San Diego (31 SCRA
617, 625 [1970], this Court explicitly stated:

"The universal rule that where the State gives its consent to be sued by private parties either by
general or special law, it may limit claimant's action only up to the completion of proceedings
anterior to the stage of execution and 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 judgment, 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 v. 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)."

WHEREFORE, foregoing considered, petition to cite respondents in contempt of court is


premature, hence the same is hereby DENIED.

SO ORDERED.26 (Emphasis ours)

Subsequently, the RTC issued an Order dated January 8, 2001, denying the Motion for an Order
to Implement Writ of Execution, citing the same SC Administrative Circular No. 10-2000.

Upon a Petition for Certiorari27 filed by Morales, et al., the CA rendered the July 4, 2002
Decision assailed herein, the decretal portion of which reads:

WHEREFORE, the petition is hereby GRANTED. The Order dated January 8, 2001 and the
Resolution of December 11, 2000 of the public respondent Judge are declared NULL and VOID.

Accordingly, the respondent judge is directed to implement the Writ of Execution relative thereto.

SO ORDERED..28

The CA held that NEA can no longer take shelter under the provisions of P.D. No. 1445 and SC
Administrative Circular No. 10-2000 because it is a government-owned or controlled corporation
(GOCC) created under P.D. No. 269, effective August 6, 1973.29 Citing Philippine National Bank
v. Court of Industrial Relations,30 the CA held that, as such GOCC, petitioner NEA may be
subjected to court processes just like any other corporation; specifically, its properties may be
proceeded against by way of garnishment or levy.31

NEA and its Board of Directors (petitioners) immediately filed herein petition for review. It is their
contention that the CA erred in directing implementation of the writ of execution on two grounds:
first, execution is premature as Morales, et al. (respondents) have yet to file their judgment
claim with the COA in accordance with P.D. No. 1445 and SC Administrative Circular No. 102000;32 and second, execution is not feasible without DBM as an indispensable party to the
petition for certiorari for it is said department which can certify that funds are available to cover
the judgment claim.33

The petition is meritorious.

Indeed, respondents cannot proceed against the funds of petitioners because the December 16,
1999 RTC Decision sought to be satisfied is not a judgment for a specific sum of money
susceptible of execution by garnishment; it is a special judgment requiring petitioners to settle
the claims of respondents in accordance with existing regulations of the COA.

In its plain text, the December 16, 1999 RTC Decision merely directs petitioners to "settle the
claims of [respondents] and other employees similarly situated."34 It does not require
petitioners to pay a certain sum of money to respondents. The judgment is only for the
performance of an act other than the payment of money, implementation of which is governed
by Section 11, Rule 39 of the Rules of Court, which provides:

Section 11. Execution of special judgments. - When a judgment requires the performance of any
act other than those mentioned in the two preceding sections, a certified copy of the judgment
shall be attached to the writ of execution and shall be served by the officer upon the party
against whom the same is rendered, or upon any other person required thereby, or by law, to
obey the same, and such party or person may be punished for contempt if he disobeys such
judgment.

Garnishment cannot be employed to implement such form of judgment. Under Section 9 of Rule
39, to wit:

Section 9. Execution of judgments for money, how enforced. -

xxxx

(c) Garnishment of debts and credits. - The officer may levy on debts due the judgment obligor
and other credits, including bank deposits, financial interests, royalties, commissions and other
personal property not capable of manual delivery in the possession or control of third parties.
Levy shall be made by serving notice upon the person owing such debts or having in his
possession or control such credits to which the judgment obligor is entitled. The garnishment
shall cover only such amount as will satisfy the judgment and all lawful fees.

Garnishment is proper only when the judgment to be enforced is one for payment of a sum of
money.

The RTC exceeded the scope of its judgment when, in its February 22, 2000 Writ of Execution,
it directed petitioners to "extend to [respondents] the benefits and allowances to which they are
entitled but which until now they have been deprived of as enumerated under Sec. 5 of DBM
CCC No. 10 and x x x to cause their inclusion in the Provident Fund Membership."35 Worse, it
countenanced the issuance of a notice of garnishment against the funds of petitioners with DBP
to the extent of P16,581,429.00 even when no such amount was awarded in its December 16,
1999 Decision.

However, in its subsequent Orders dated May 17, 2000 and January 8, 2001, the RTC
attempted to set matters right by directing the parties to now await the outcome of the legal
processes for the settlement of respondents claims.

That is only right.

Without question, petitioner NEA is a GOCC36 -- a juridical personality separate and distinct
from the government, with capacity to sue and be sued.37 As such GOCC, petitioner NEA
cannot evade execution; its funds may be garnished or levied upon in satisfaction of a judgment
rendered against it.38 However, before execution may proceed against it, a claim for payment of
the judgment award must first be filed with the COA.39

Under Commonwealth Act No. 327,40 as amended by Section 26 of P.D. No. 1445, it is the
COA which has primary jurisdiction to examine, audit and settle "all debts and claims of any
sort" due from or owing the Government or any of its subdivisions, agencies and
instrumentalities, including government-owned or controlled corporations and their
subsidiaries.41 With respect to money claims arising from the implementation of R.A. No. 6758,
their allowance or disallowance is for COA to decide, subject only to the remedy of appeal by
petition for certiorari to this Court.42

All told, the RTC acted prudently in halting implementation of the writ of execution to allow the
parties recourse to the processes of the COA. It may be that the tenor of the March 23, 2000
Indorsement issued by COA already spells doom for respondents claims; but it is not for this
Court to preempt the action of the COA on the post-audit to be conducted by it per its
Indorsement dated March 23, 2000.1avvphi1

In fine, it was grave error for the CA to reverse the RTC and direct immediate implementation of
the writ of execution through garnishment of the funds of petitioners,

WHEREFORE, the petition is GRANTED. The July 4, 2002 Decision of the Court of Appeals is
REVERSED and SET ASIDE. The Resolution dated December 11, 2000 and Order dated
January 8, 2001 of the Regional Trial Court, Branch 88, Quezon City in Special Civil Action No.
Q-99-38275 are REINSTATED.

SO ORDERED.
No.14
LOCKHEED DETECTIVE AND WATCHMAN AGENCY, INC.,
Petitioner,
G.R. No. 185918

Present:

- versus -

LEONARDO-DE CASTRO,

Acting Chairperson,
PERALTA, *
BERSAMIN,
VILLARAMA, JR., and
REYES,** JJ
UNIVERSITY OF THE PHILIPPINES,
Respondent.
Promulgated:
April 18, 2012
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the August 20, 2008 Amended Decision[1] and December 23,
2008 Resolution[2] of the Court of Appeals (CA) in CA-G.R. SP No. 91281.
The antecedent facts of the case are as follows:
Petitioner Lockheed Detective and Watchman Agency, Inc. (Lockheed) entered into a contract
for security services with respondent University of the Philippines (UP).
In 1998, several security guards assigned to UP filed separate complaints against Lockheed
and UP for payment of underpaid wages, 25% overtime pay, premium pay for rest days and
special holidays, holiday pay, service incentive leave pay, night shift differentials, 13th month
pay, refund of cash bond, refund of deductions for the Mutual Benefits Aids System (MBAS),
unpaid wages from December 16-31, 1998, and attorneys fees.
On February 16, 2000, the Labor Arbiter rendered a decision as follows:
WHEREFORE, premises considered, respondents Lockheed Detective and Watchman Agency,
Inc. and UP as job contractor and principal, respectively, are hereby declared to be solidarily
liable to complainants for the following claims of the latter which are found meritorious.
Underpaid wages/salaries, premium pay for work on rest day and special holiday, holiday pay, 5
days service incentive leave pay, 13th month pay for 1998, refund of cash bond (deducted at
P50.00 per month from January to May 1996, P100.00 per month from June 1996 and P200.00
from November 1997), refund of deduction for Mutual Benefits Aids System at the rate of
P50.00 a month, and attorneys fees; in the total amount of P1,184,763.12 broken down as
follows per attached computation of the Computation and [E]xamination Unit of this
Commission, which computation forms part of this Decision:
1. JOSE SABALAS P77,983.62

2. TIRSO DOMASIAN 76,262.70


3. JUAN TAPEL 80,546.03
4. DINDO MURING 80,546.03
5. ALEXANDER ALLORDE 80,471.78
6. WILFREDO ESCOBAR 80,160.63
7. FERDINAND VELASQUEZ 78,595.53
8. ANTHONY GONZALES 76,869.97
9. SAMUEL ESCARIO 80,509.78
10. PEDRO FAILORINA 80,350.87
11. MATEO TANELA 70,590.58
12. JOB SABALAS 59,362.40
13. ANDRES DACANAYAN 77,403.73
14. EDDIE OLIVAR 77,403.73
P1,077,057.38
plus 10% attorneys fees 107,705.74
GRAND TOTAL AWARD P1,184,763.12
Third party respondent University of the Philippines is hereby declared to be liable to Third Party
Complainant and cross claimant Lockheed Detective and Watchman Agency for the unpaid
legislated salary increases of the latters security guards for the years 1996 to 1998, in the total
amount of P13,066,794.14, out of which amount the amounts due complainants here shall be
paid.
The other claims are hereby DISMISSED for lack of merit (night shift differential and 13th month
pay) or for having been paid in the course of this proceedings (salaries for December 15-31,
1997 in the amount of P40,140.44).
The claims of Erlindo Collado, Rogelio Banjao and Amor Banjao are hereby DISMISSED as
amicably settled for and in consideration of the amounts of P12,315.72, P12,271.77 and
P12,819.33, respectively.
SO ORDERED.[3]
Both Lockheed and UP appealed the Labor Arbiters decision. By Decision[4] dated April 12,
2002, the NLRC modified the Labor Arbiters decision. The NLRC held:
WHEREFORE, the decision appealed from is hereby modified as follows:
1.
Complainants claims for premium pay for work on rest day and special holiday, and 5 days
service incentive leave pay, are hereby dismissed for lack of basis.

2.
The respondent University of the Philippines is still solidarily liable with Lockheed in the
payment of the rest of the claims covering the period of their service contract.
The Financial Analyst is hereby ordered to recompute the awards of the complainants in
accordance with the foregoing modifications.
SO ORDERED.[5]
The complaining security guards and UP filed their respective motions for reconsideration. On
August 14, 2002, however, the NLRC denied said motions.
As the parties did not appeal the NLRC decision, the same became final and executory on
October 26, 2002.[6] A writ of execution was then issued but later quashed by the Labor Arbiter
on November 23, 2003 on motion of UP due to disputes regarding the amount of the award.
Later, however, said order quashing the writ was reversed by the NLRC by Resolution[7] dated
June 8, 2004, disposing as follows:
WHEREFORE, premises considered, we grant this instant appeal. The Order dated 23
November 2003 is hereby reversed and set aside. The Labor Arbiter is directed to issue a Writ
of Execution for the satisfaction of the judgment award in favor of Third-Party complainants.
SO ORDERED.[8]
UP moved to reconsider the NLRC resolution. On December 28, 2004, the NLRC upheld its
resolution but with modification that the satisfaction of the judgment award in favor of Lockheed
will be only against the funds of UP which are not identified as public funds.
The NLRC order and resolution having become final, Lockheed filed a motion for the issuance
of an alias writ of execution. The same was granted on May 23, 2005.[9]
On July 25, 2005, a Notice of Garnishment[10] was issued to Philippine National Bank (PNB)
UP Diliman Branch for the satisfaction of the award of P12,142,522.69 (inclusive of execution
fee).
In a letter[11] dated August 9, 2005, PNB informed UP that it has received an order of release
dated August 8, 2005 issued by the Labor Arbiter directing PNB UP Diliman Branch to release to
the NLRC Cashier, through the assigned NLRC Sheriff Max L. Lago, the judgment
award/amount of P12,142,522.69. PNB likewise reminded UP that the bank only has 10 working
days from receipt of the order to deliver the garnished funds and unless it receives a notice from
UP or the NLRC before the expiry of the 10-day period regarding the issuance of a court order
or writ of injunction discharging or enjoining the implementation and execution of the Notice of
Garnishment and Writ of Execution, the bank shall be constrained to cause the release of the
garnished funds in favor of the NLRC.
On August 16, 2005, UP filed an Urgent Motion to Quash Garnishment.[12] UP contended that
the funds being subjected to garnishment at PNB are government/public funds. As certified by
the University Accountant, the subject funds are covered by Savings Account No. 275-5299998, under the name of UP System Trust Receipts, earmarked for Student Guaranty Deposit,
Scholarship Fund, Student Fund, Publications, Research Grants, and Miscellaneous Trust
Account. UP argued that as public funds, the subject PNB account cannot be disbursed except
pursuant to an appropriation required by law. The Labor Arbiter, however, dismissed the urgent
motion for lack of merit on August 30, 2005.[13]

On September 2, 2005, the amount of P12,062,398.71 was withdrawn by the sheriff from UPs
PNB account.[14]
On September 12, 2005, UP filed a petition for certiorari before the CA based on the following
grounds:
I.
The concept of solidary liability by an indirect employer notwithstanding, respondent NLRC
gravely abused its discretion in a manner amounting to lack or excess of jurisdiction by misusing
such concept to justify the garnishment by the executing Sheriff of public/government funds
belonging to UP.
II.
Respondents NLRC and Arbiter LORA acted without jurisdiction or gravely abused their
discretion in a manner amounting to lack or excess of jurisdiction when, by means of an Alias
Writ of Execution against petitioner UP, they authorized respondent Sheriff to garnish UPs public
funds. Similarly, respondent LORA gravely abused her discretion when she resolved petitioners
Motion to Quash Notice of Garnishment addressed to, and intended for, the NLRC, and when
she unilaterally and arbitrarily disregarded an official Certification that the funds garnished are
public/government funds, and thereby allowed respondent Sheriff to withdraw the same from
PNB.
III.
Respondents gravely abused their discretion in a manner amounting to lack or excess of
jurisdiction when they, despite prior knowledge, effected the execution that caused paralyzation
and dislocation to petitioners governmental functions.[15]
On March 12, 2008, the CA rendered a decision[16] dismissing UPs petition for certiorari. Citing
Republic v. COCOFED,[17] which defines public funds as moneys belonging to the State or to
any political subdivisions of the State, more specifically taxes, customs, duties and moneys
raised by operation of law for the support of the government or the discharge of its obligations,
the appellate court ruled that the funds sought to be garnished do not seem to fall within the
stated definition.
On reconsideration, however, the CA issued the assailed Amended Decision. It held that without
departing from its findings that the funds covered in the savings account sought to be garnished
do not fall within the classification of public funds, it reconsiders the dismissal of the petition in
light of the ruling in the case of National Electrification Administration v. Morales[18] which
mandates that all money claims against the government must first be filed with the Commission
on Audit (COA).
Lockheed moved to reconsider the amended decision but the same was denied in the assailed
CA Resolution dated December 23, 2008. The CA cited Manila International Airport Authority v.
Court of Appeals[19] which held that UP ranks with MIAA, a government instrumentality
exercising corporate powers but not organized as a stock or non-stock corporation. While said
corporations are government instrumentalities, they are loosely called government corporate
entities but not government-owned and controlled corporations in the strict sense.
Hence this petition by Lockheed raising the following arguments:

1.
RESPONDENT UP IS A GOVERNMENT ENTITY WITH A SEPARATE AND DISTINCT
PERSONALITY FROM THE NATIONAL GOVERNMENT AND HAS ITS OWN CHARTER
GRANTING IT THE RIGHT TO SUE AND BE SUED. IT THEREFORE CANNOT AVAIL OF THE
IMMUNITY FROM SUIT OF THE GOVERNMENT. NOT HAVING IMMUNITY FROM SUIT,
RESPONDENT UP CAN BE HELD LIABLE AND EXECUTION CAN THUS ENSUE.
2.
MOREOVER, IF THE COURT LENDS IT ASSENT TO THE INVOCATION OF THE
DOCTRINE OF STATE IMMUNITY, THIS WILL RESULT [IN] GRAVE INJUSTICE.
3.
FURTHERMORE, THE PROTESTATIONS OF THE RESPONDENT ARE TOO LATE IN
THE DAY, AS THE EXECUTION PROCEEDINGS HAVE ALREADY BEEN TERMINATED.[20]
Lockheed contends that UP has its own separate and distinct juridical entity from the national
government and has its own charter. Thus, it can be sued and be held liable. Moreover,
Executive Order No. 714 entitled Fiscal Control and Management of the Funds of UP
recognizes that as an institution of higher learning, UP has always granted full management and
control of its affairs including its financial affairs.[21] Therefore, it cannot shield itself from its
private contractual liabilities by simply invoking the public character of its funds. Lockheed also
cites several cases wherein it was ruled that funds of public corporations which can sue and be
sued were not exempt from garnishment.
Lockheed likewise argues that the rulings in the NEA and MIAA cases are inapplicable. It
contends that UP is not similarly situated with NEA because the jurisdiction of COA over the
accounts of UP is only on a post-audit basis. As to the MIAA case, the liability of MIAA pertains
to the real estate taxes imposed by the City of Paranaque while the obligation of UP in this case
involves a private contractual obligation. Lockheed also argues that the declaration in MIAA
specifically citing UP was mere obiter dictum.
Lockheed moreover submits that UP cannot invoke state immunity to justify and perpetrate an
injustice. UP itself admitted its liability and thus it should not be allowed to renege on its
contractual obligations. Lockheed contends that this might create a ruinous precedent that
would likely affect the relationship between the public and private sectors.
Lastly, Lockheed contends that UP cannot anymore seek the quashal of the writ of execution
and notice of garnishment as they are already fait accompli.
For its part, UP contends that it did not invoke the doctrine of state immunity from suit in the
proceedings a quo and in fact, it did not object to being sued before the labor department. It
maintains, however, that suability does not necessarily mean liability. UP argues that the CA
correctly applied the NEA ruling when it held that all money claims must be filed with the COA.
As to alleged injustice that may result for invocation of state immunity from suit, UP reiterates
that it consented to be sued and even participated in the proceedings below. Lockheed cannot
now claim that invocation of state immunity, which UP did not invoke in the first place, can result
in injustice.
On the fait accompli argument, UP argues that Lockheed cannot wash its hands from liability for
the consummated garnishment and execution of UPs trust fund in the amount of
P12,062,398.71. UP cites that damage was done to UP and the beneficiaries of the fund when
said funds, which were earmarked for specific educational purposes, were misapplied, for
instance, to answer for the execution fee of P120,123.98 unilaterally stipulated by the sheriff.
Lockheed, being the party which procured the illegal garnishment, should be held primarily

liable. The mere fact that the CA set aside the writ of garnishment confirms the liability of
Lockheed to reimburse and indemnify in accordance with law.
The petition has no merit.
We agree with UP that there was no point for Lockheed in discussing the doctrine of state
immunity from suit as this was never an issue in this case. Clearly, UP consented to be sued
when it participated in the proceedings below. What UP questions is the hasty garnishment of its
funds in its PNB account.
This Court finds that the CA correctly applied the NEA case. Like NEA, UP is a juridical
personality separate and distinct from the government and has the capacity to sue and be sued.
Thus, also like NEA, it cannot evade execution, and its funds may be subject to garnishment or
levy. However, before execution may be had, a claim for payment of the judgment award must
first be filed with the COA. Under Commonwealth Act No. 327,[22] as amended by Section 26 of
P.D. No. 1445,[23] it is the COA which has primary jurisdiction to examine, audit and settle all
debts and claims of any sort due from or owing the Government or any of its subdivisions,
agencies and instrumentalities, including government-owned or controlled corporations and their
subsidiaries. With respect to money claims arising from the implementation of Republic Act No.
6758,[24] their allowance or disallowance is for COA to decide, subject only to the remedy of
appeal by petition for certiorari to this Court.[25]
We cannot subscribe to Lockheeds argument that NEA is not similarly situated with UP because
the COAs jurisdiction over the latter is only on post-audit basis. A reading of the pertinent
Commonwealth Act provision clearly shows that it does not make any distinction as to which of
the government subdivisions, agencies and instrumentalities, including government-owned or
controlled corporations and their subsidiaries whose debts should be filed before the COA.
As to the fait accompli argument of Lockheed, contrary to its claim that there is nothing that can
be done since the funds of UP had already been garnished, since the garnishment was
erroneously carried out and did not go through the proper procedure (the filing of a claim with
the COA), UP is entitled to reimbursement of the garnished funds plus interest of 6% per
annum, to be computed from the time of judicial demand to be reckoned from the time UP filed
a petition for certiorari before the CA which occurred right after the withdrawal of the garnished
funds from PNB.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. Petitioner
Lockheed Detective and Watchman Agency, Inc. is ordered to REIMBURSE respondent
University of the Philippines the amount of P12,062,398.71 plus interest of 6% per annum, to be
computed from September 12, 2005 up to the finality of this Decision, and 12% interest on the
entire amount from date of finality of this Decision until fully paid.
No pronouncement as to costs.
SO ORDERED.
No. 15
G.R. No. 171182

August 23, 2012

UNIVERSITY OF THE PHILIPPINES, JOSE V. ABUEVA, RAUL P. DE GUZMAN, RUBEN P.


ASPIRAS, EMMANUEL P. BELLO, WILFREDO P. DAVID, CASIANO S. ABRIGO, and
JOSEFINA R. LICUANAN, Petitioners,
vs.
HON. AGUSTIN S. DIZON, his capacity as Presiding Judge of the Regional Trial Court of
Quezon City, Branch 80, STERN BUILDERS, INC., and SERVILLANO DELA CRUZ,
Respondents.

DECISION

BERSAMIN, J.:

Trial judges should not immediately issue writs of execution or garnishment against the
Government or any of its subdivisions, agencies and instrumentalities to enforce money
judgments.1 They should bear in mind that the primary jurisdiction to examine, audit and settle
all claims of any sort due from the Government or any of its subdivisions, agencies and
instrumentalities pertains to the Commission on Audit (COA) pursuant to Presidential Decree
No. 1445 (Government Auditing Code of the Philippines).

The Case

On appeal by the University of the Philippines and its then incumbent officials (collectively, the
UP) is the decision promulgated on September 16, 2005,2 whereby the Court of Appeals (CA)
upheld the order of the Regional Trial Court (RTC), Branch 80, in Quezon City that directed the
garnishment of public funds amounting to P 16,370,191.74 belonging to the UP to satisfy the
writ of execution issued to enforce the already final and executory judgment against the UP.

Antecedents

On August 30, 1990, the UP, through its then President Jose V. Abueva, entered into a General
Construction Agreement with respondent Stern Builders Corporation (Stern Builders),
represented by its President and General Manager Servillano dela Cruz, for the construction of
the extension building and the renovation of the College of Arts and Sciences Building in the
campus of the University of the Philippines in Los 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 P 273,729.47 was not paid due to its disallowance by the Commission on
Audit (COA). Despite the lifting of the disallowance, the UP failed to pay the billing, prompting
Stern Builders and dela Cruz to sue the UP and its co-respondent officials to collect the unpaid
billing and to recover various damages. The suit, entitled Stern Builders Corporation and
Servillano R. Dela Cruz v. University of the Philippines Systems, Jose V. Abueva, Raul P. de
Guzman, Ruben P. Aspiras, Emmanuel P. Bello, Wilfredo P. David, Casiano S. Abrigo, and
Josefina R. Licuanan, was docketed as Civil Case No. Q-93-14971 of the Regional Trial Court in
Quezon City (RTC).4

After trial, on November 28, 2001, the RTC rendered its decision in favor of the plaintiffs,5 viz:

Wherefore, in the light of the foregoing, judgment is hereby rendered in favor of the plaintiff and
against the defendants ordering the latter to pay plaintiff, jointly and severally, the following, to
wit:

1. P 503,462.74 amount of the third billing, additional accomplished work and retention money

2. P 5,716,729.00 in actual damages

3. P 10,000,000.00 in moral damages

4. P 150,000.00 and P 1,500.00 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 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 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

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.

The UP was served on January 3, 2005 with the order of December 21, 2004 directing DBP to
release the garnished funds.33

On January 6, 2005, Stern Builders and dela Cruz moved to cite DBP in direct contempt of court
for its non-compliance with the order of release.34

Thereupon, on January 10, 2005, the UP brought a petition for certiorari in the CA to challenge
the jurisdiction of the RTC in issuing the order of December 21, 2004 (CA-G.R. CV No.
88125).35 Aside from raising the denial of due process, the UP averred that the RTC committed
grave abuse of discretion amounting to lack or excess of jurisdiction in ruling that there was no
longer any legal impediment to the release of the garnished funds. The UP argued that
government funds and properties could not be seized by virtue of writs of execution or
garnishment, as held in Department of Agriculture v. National Labor Relations Commission,36
and citing Section 84 of Presidential Decree No. 1445 to the effect that "revenue funds shall not
be paid out of any public treasury or depository except in pursuance of an appropriation law or
other specific statutory authority;" and that the order of garnishment clashed with the ruling in
University of the Philippines Board of Regents v. Ligot-Telan37 to the effect that the funds
belonging to the UP were public funds.

On January 19, 2005, the CA issued a temporary restraining order (TRO) upon application by
the UP.38

On March 22, 2005, Stern Builders and dela Cruz filed in the RTC their amended motion for
sheriffs assistance to implement the release order dated December 21, 2004, stating that the
60-day period of the TRO of the CA had already lapsed.39 The UP opposed the amended
motion and countered that the implementation of the release order be suspended.40

On May 3, 2005, the RTC granted the amended motion for 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 P 16,370,191.74 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 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 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 CA-G.R. No. 88125 within the reglementary period of fifteen (15) days
from receipt of resolution, the Court agrees with the defendants stand that the granting of
plaintiffs subject motion is premature.

Let it be stated that what the Court meant by its Order dated July 8, 2005 which states in part
that the "disposition of the amount represented therein being subject to the final outcome of the
case of the University of the Philippines, et. al., vs. Hon. Agustin S. Dizon et al., (CA G.R. No.
88125 before the Court of Appeals) is that the judgment or resolution of said court has to be
final and executory, for if the same will still be elevated to the Supreme Court, it will not attain
finality yet until the highest court has rendered its own final judgment or resolution.51

However, on January 22, 2007, the UP filed an Urgent Application for A Temporary Restraining
Order and/or A Writ of Preliminary Injunction,52 averring that on January 3, 2007, Judge Maria
Theresa dela Torre-Yadao (who had meanwhile replaced Judge Dizon upon the 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.

The Court honestly believes that if defendants petition assailing the Order of this Court dated
December 31, 2004 granting the motion for the release of the garnished amount was
meritorious, the Court of Appeals would have issued a writ of injunction enjoining the same.
Instead, said appellate court not only refused to issue a wit of preliminary injunction prayed for
by U.P. System but denied the petition, as well.54

The UP contended that Judge Yadao thereby effectively reversed the January 30, 2006 order of
Judge Dizon disallowing the withdrawal of the garnished amount until after the decision in the
case would have become final and executory.

Although the Court issued a TRO on January 24, 2007 to enjoin Judge Yadao and all persons
acting pursuant to her authority from enforcing her order of January 3, 2007,55 it appears that
on January 16, 2007, or prior to the issuance of the TRO, she had already directed the DBP to
forthwith release the garnished amount to Stern Builders and dela Cruz; 56 and that DBP had
forthwith complied with the order on January 17, 2007 upon the 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
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 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:

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 P
10 MILLION AS MORAL DAMAGES TO RESPONDENTS.

IV

THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE IMMEDIATE


RELEASE OF THE JUDGMENT AWARD IN ITS ORDER DATED 3 JANUARY 2007 ON THE
GROUND OF EQUITY AND JUDICIAL COURTESY.

THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE IMMEDIATE


RELEASE OF THE JUDGMENT AWARD IN ITS ORDER DATED 16 JANUARY 2007 ON THE
GROUND THAT PETITIONER UNIVERSITY STILL HAS A PENDING MOTION FOR
RECONSIDERATION OF THE ORDER DATED 3 JANUARY 2007.

VI

THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN NOT ORDERING THE REDEPOSIT


OF THE GARNISHED AMOUNT TO THE DBP IN VIOLATION OF THE CLEAR LANGUAGE OF
THE SUPREME COURT RESOLUTION DATED 24 JANUARY 2007.

The UP argues that the amount earmarked for the construction project had been purposely set
aside only for the aborted project and did not include incidental matters like the awards of actual

damages, moral damages and 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 P 5,716,729.00 and moral damages
of P 10 million should be reduced, if not entirely deleted, due to its being unconscionable,
inequitable and detrimental to public service.

In contrast, Stern Builders and dela Cruz aver that the petition for review was fatally defective
for its failure to mention the other cases upon the same issues pending between the parties
(i.e., CA-G.R. No. 77395 and G.R No. 163501); that the UP was evidently resorting to forum
shopping, and to delaying the satisfaction of the final judgment by the filing of its petition for
review; that the ruling in Commissioner of Public Works v. San Diego had no application
because there was an appropriation for the project; that the UP retained the funds allotted for
the project only in a fiduciary capacity; that the contract price had been meanwhile adjusted to P
22,338,553.25, 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 P 5,716,729.00, moral damages of P 10,000,000.00 and attorneys fees of P
150,000.00 plus P 1,500.00 per appearance could be granted despite the finality of the
judgment of the RTC.

Ruling

The petition for review is meritorious.

I.
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 institution"65 performing a legitimate government function. It is an institution of higher
learning, not a corporation established for profit and declaring any dividends.66 In enacting
Republic Act No. 9500 (The University of the Philippines Charter of 2008), Congress has
declared the UP as the national university67 "dedicated to the search for truth and knowledge
as well as the development of future leaders."68

Irrefragably, the UP is a government instrumentality,69 performing the 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 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 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

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
government-owned or controlled corporations, including their subsidiaries, and other selfgoverning boards, commissions, or agencies of the Government, and as herein prescribed,
including non governmental entities subsidized by the government, those funded by donations
through the government, those required to pay levies or government share, and those for which
the government has put up a counterpart fund or those partly funded by the government.

It was of no moment that a final and executory decision already validated the claim against the
UP. The settlement of the monetary claim was still subject to the primary jurisdiction of the COA
despite the final decision of the RTC having already validated the claim.85 As such, Stern
Builders and dela Cruz as the claimants had no alternative except to first seek the approval of
the COA of their monetary claim.

On its part, the RTC should have exercised utmost caution, prudence and judiciousness in
dealing with the motions for execution against the UP and the garnishment of the 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:

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 "where property of a municipal or other public corporation is sought to be subjected to
execution to satisfy judgments recovered against such corporation, the question as to whether
such property is leviable or not is to be determined by the usage and purposes for which it is
held." The following can be culled from Viuda de Tan Toco v. Municipal Council of Iloilo:

1. Properties held for public uses and generally everything held for governmental purposes
are not subject to levy and sale under execution against such corporation. The same rule
applies to funds in the hands of a public officer and taxes due to a municipal corporation.

2. Where a municipal corporation owns in its proprietary capacity, as distinguished from its
public or government capacity, property not used or used for a public purpose but for quasiprivate 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 P 16,370,191.74 illegally garnished
from its trust funds. Obstructing the plea is the finality of the judgment based on the supposed
tardiness of 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 11, 2004 (G.R. No. 163501). The denial became final on November
12, 2004.

It is true that a decision that has attained finality becomes immutable and unalterable, and
cannot be modified in any respect,87 even if the modification is meant to correct erroneous
conclusions of fact and law, and whether the modification is made by the court that rendered it
or by this Court as the highest court of the land.88 Public policy dictates that once a judgment
becomes final, executory and unappealable, the prevailing party should not be deprived of the
fruits of victory by some subterfuge devised by the losing party. Unjustified delay in the
enforcement of such judgment sets at naught the role and purpose of the courts to resolve
justiciable controversies with finality.89 Indeed, all litigations must at some time end, even at the
risk of occasional errors.

But the doctrine of immutability of a final judgment has not been absolute, and has admitted
several exceptions, among them: (a) the correction of clerical errors; (b) the so-called nunc pro
tunc entries that cause no prejudice to any party; (c) void judgments; and (d) whenever
circumstances transpire after the finality of the decision that render its execution unjust and
inequitable.90 Moreover, in Heirs of Maura So v. Obliosca,91 we stated that despite the
absence of the preceding circumstances, the Court is not precluded from brushing aside
procedural norms if only to serve the higher interests of justice and equity. Also, in Gumaru v.
Quirino State College,92 the Court nullified the proceedings and the writ of execution issued by
the RTC for the reason that respondent state college had not been represented in the litigation
by the Office of the Solicitor General.

We rule that the 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 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 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 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 fresh-period rule to the UP would
amount to injustice and absurdity injustice, because the judgment in question was issued on
November 28, 2001 as compared to the judgment in Neypes that was rendered in 1998;
absurdity, because parties receiving notices of judgment and final orders issued in the year
1998 would enjoy the benefit of the fresh-period rule but the later rulings of the lower courts like
that herein would not.105

Consequently, even if the reckoning started from May 17, 2002, when Atty. Nolasco received the
denial, the 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."

IV
Awards of monetary damages,
being devoid of factual and legal bases,
did not attain finality and should be deleted

Section 14 of Article VIII of the Constitution prescribes that express findings of fact and of law
should be made in the decision rendered by any court, to wit:

Section 14. No decision shall be rendered by any court without expressing therein clearly and
distinctly the facts and the law on which it is based.

No petition for review or motion for reconsideration of a decision of the court shall be refused
due course or denied without stating the legal basis therefor.

Implementing the constitutional provision in civil actions is Section 1 of Rule 36, Rules of Court,
viz:

Section 1. Rendition of judgments and final orders. A judgment or final order determining the
merits of the case shall be in writing personally and directly prepared by the judge, stating
clearly and distinctly the facts and the law on which it is based, signed by him, and filed with the
clerk of the court. (1a)

The Constitution and the Rules of Court apparently delineate two main essential parts of a
judgment, namely: the body and the decretal portion. Although the latter is the controlling
part,106 the importance of the former is not to be lightly regarded because it is there where the
court clearly and distinctly states its findings of fact and of law on which the decision is based.
To state it differently, one without the other is ineffectual and useless. The omission of either

inevitably results in a judgment that violates the letter and the spirit of the Constitution and the
Rules of Court.

The term findings of fact that must be found in the body of the decision refers to statements of
fact, not to conclusions of law.107 Unlike in pleadings where ultimate facts alone need to be
stated, the Constitution and the Rules of Court require not only that a decision should state the
ultimate facts but also that it should specify the supporting evidentiary facts, for they are what
are called the findings of fact.

The importance of the findings of fact and of law cannot be overstated. The reason and purpose
of the Constitution and the Rules of Court in that regard are obviously to inform the parties why
they win or lose, and what their rights and obligations are. Only thereby is the demand of due
process met as to the parties. As Justice Isagani A. Cruz explained in Nicos Industrial
Corporation v. Court of Appeals:108

It is a requirement of due process that the parties to a litigation be informed of how it was
decided, with an explanation of the factual and legal reasons that led to the conclusions of the
court. The court cannot simply say that judgment is rendered in favor of X and against Y and
just leave it at that without any justification whatsoever for its action. The losing party is entitled
to know why he lost, so he may appeal to a higher court, if permitted, should he believe that the
decision should be reversed. A decision that does not clearly and distinctly state the facts and
the law on which it is based leaves the parties in the dark as to how it was reached and is
especially prejudicial to the losing party, who is unable to pinpoint the possible errors of the
court for review by a higher tribunal.

Here, the decision of the RTC justified the grant of actual and moral damages, and 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
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 P 5,716,729.00 actual damages sustained by Stern Builders in relation

to the construction project or to other pecuniary hardships. The omission of such expenses or
losses directly indicated that Stern Builders did not prove them at all, which then contravened
Article 2199, Civil Code, the statutory basis for the award of actual damages, which entitled a
person to an adequate compensation only for such pecuniary loss suffered by him as he has
duly proved. As such, the actual damages allowed by the RTC, being bereft of factual support,
were speculative and whimsical. Without the clear and distinct findings of fact and law, the
award amounted only to an ipse dixit on the part of the RTC,110 and did not attain finality.

There was also no clear and distinct statement of the factual and legal support for the award of
moral damages in the substantial amount of P 10,000,000.00. The award was thus also
speculative and whimsical. Like the actual damages, the moral damages constituted another
judicial ipse dixit, the inevitable consequence of which was to render the award of moral
damages incapable of attaining finality. In addition, the grant of moral damages in that manner
contravened the law that permitted the recovery of moral damages as the means to assuage
"physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar injury."111 The contravention of the law
was manifest considering that Stern Builders, as an artificial person, was incapable of
experiencing pain and moral sufferings.112 Assuming that in granting the substantial amount of
P 10,000,000.00 as moral damages, the RTC might have had in mind that dela Cruz had
himself suffered mental anguish and anxiety. If that was the case, then the RTC obviously
disregarded his separate and distinct personality from that of Stern Builders.113 Moreover, his
moral and emotional sufferings as the President of Stern Builders were not the sufferings of
Stern Builders. Lastly, the RTC violated the basic principle that moral damages were not
intended to enrich the plaintiff at the expense of the defendant, but to restore the plaintiff to his
status quo ante as much as possible. Taken together, therefore, all these considerations
exposed the substantial amount of P 10,000,000.00 allowed as moral damages not only to be
factually baseless and legally indefensible, but also to be unconscionable, inequitable and
unreasonable.

Like the actual and moral damages, the P 150,000.00, plus P 1,500.00 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 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., P 503,462.74) shall stand, subject to the
action of the COA as stated herein.

WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS
ASIDE the decision of the Court of Appeals under review; ANNULS the orders for the
garnishment of the funds of the University of the Philippines and for the release of the garnished
amount to Stern Builders Corporation and Servillano dela Cruz; and DELETES from the
decision of the Regional Trial Court dated November 28, 2001 for being void only the awards of
actual damages of P 5,716,729.00, moral damages of P 10,000,000.00, and attorney's fees of P
150,000.00, plus P 1,500.00 per appearance, in favor of Stern Builders Corporation and
Servillano dela Cruz.

The Court ORDERS Stem Builders Corporation and Servillano dela Cruz to redeposit the
amount of P 16,370,191.74 within 10 days from receipt of this decision.

Costs of suit to be paid by the private respondents.

SO ORDERED.
No. 16
G.R. No. L-20869

August 28, 1975

ALICIA O. ARCEGA, assisted by her husband RAF. L. ARCEGA, doing business under the firm
name of "FAIRMONT ICE CREAM CO.," petitioner,
vs.
THE COURT OF APPEALS, THE CENTRAL BANK OF THE PHILIPPINES, and THE
PHILIPPINE NATIONAL BANK, respondents.

Raf. L. Arcega for petitioner.

Nat. M. Balboa, F.E. Evangelista & Santiago V. Reyes for respondent Central Bank of the
Philippines.

Tomas Besa for respondent Philippine National Bank.

CASTRO, J.:

On August 17, 1956 the petitioner Alicia O. Arcega, doing business under the firm name
"Fairmont Ice Cream Company," filed a complaint with the Court of First Instance of Manila,
Branch I, docketed as civil case 30443, against the respondents Central Bank of the Philippines
and Philippine National Bank, for the refund, under four causes of action, of the total sum of
P18,030.13 representing allegedly unauthorized payments made by her in the concept of the
17% special excise tax on foreign exchange levied under Section 1 of Republic Act 601, as
amended by Republic Acts 1175 and 1197.

The refund prayed for involves purchases of foreign exchange from the Philippine National Bank
to cover the costs and transportation and other charges incident to the importation into the
Philippines (1) under the first cause of action, of coffee roasted, vanilla, fruit cocktail, peaches,
butter and pecan nuts which were used as "flavors" for the petitioner's ice cream product; (2)
under the second cause of action, of paper containers and corresponding covers, specially
manufactured by her supplier Sealright Pacific, Ltd., which were utilized as containers in the
manufacture and distribution of ice cream; (3) under the third cause of action, of ice cream
wooden spoons individually wrapped used as accessories to or inseparable articles in the
manufacture, sale and distribution in retail of ice cream; and (4) under the fourth cause of
action, of machineries, equipment and spare parts which were used by the petitioner in her
factory.

The Philippine National Bank moved to dismiss the complaint on the ground that it does not
state a sufficient cause of action because, although the PNB is being sued as an agent of the
Central Bank, there is no allegation in the complaint that it had contracted in its own name or
exceeded its authority as such agent, hence, even assuming that the averments of the
complaint could be established, it cannot be held liable for the amount of the special excise tax
it had collected from the petitioner. The trial court denied the motion.

The Central Bank also moved to dismiss the complaint on the grounds that (1) the trial court has
no jurisdiction over the subject-matter of the action, because the judgment sought will constitute
a financial charge against the Government, and therefore the suit is one against the
Government, which cannot prosper without its consent, and in this case no such consent has
been given; (2) the complaint states no cause of action; and (3) there is a misjoinder of party
defendant, for neither the Treasurer of the Philippines nor the Secretary of Finance was
impleaded as Party defendant, notwithstanding that either of them, representing the
Government of the Philippines, is an indispensable party, not only because the foreign
exchange tax accrued to the National Treasury but also because, December 31, 1955, the
expiry date of the foreign exchange tax law, the authority to order the refund of special excise
taxes or to approve exemptions under the foreign exchange tax law upon tie Secretary of
Finance.

After the filing by the petitioner of an opposition to the Central Bank's motion to dismiss, by the
Central Bank of a reply thereto, and by the petitioner of a rejoinder to the Central Bank's reply,
the trial court, on November 23, 1956, dismissed the complaint on the three grounds set forth in
the Central Bank's motion to dismiss.

On December 12, 1956 the petitioner Arcega filed a motion for reconsideration of the resolution
of November 23, 1956, to which an opposition was filed by the Central Bank. A certificate dated
December 18, 1956 and signed by Jose Carmona, Chief Accountant of the Central Bank, was
attached as an annex to the Central Bank's opposition, certifying "that the balance of
P7,137,747.71 as of December 29, 1955 of the total amount collected as special excise tax on
sales of foreign exchange was turned over to the Treasurer of the Philippines on June 20,
1956." In an order dated December 12, 1955 the court denied the petitioner's motion for
reconsideration. She appealed to the Court of Appeals.

Holding that the suit is indirectly against the Republic of the Philippines which cannot be sued
without its consent, the Court of Appeals affirmed the dismissal of the complaint.

The petitioner interposed the present appeal by certiorari, presenting for resolution two issues:
first, whether the trial court has jurisdiction over the subject-matter of the action, or, stated
differently, whether a suit against the Central Bank for refund of the 17% foreign exchange tax
collected by it under Republic Act 601, as amended, is actually a suit against the State; and,
second, assuming arguendo that the trial court has jurisdiction, whether the dismissal of the
petitioner's complaint upon a motion to dismiss constitutes a denial of her constitutional right to
due process of law in the sense that such dismissal deprived her of the right to present
evidence to prove the truth of the essential allegations of her complaint.

1.
The suability of the Central Bank for the refund of taxes collected by it under Republic
Act 601, as amended, was upheld in Central Azucarera Don Pedro vs. Central Bank of the
Philippines, 1 which ruling merited elaboration in Olizon vs. Central Bank 2 as follows:

It is next urged that inasmuch as the amounts here involved have already been turned over to
the national treasury the present action may no longer be maintained since it would, in effect, be
a suit against the State without its consent.

We cannot agree to the proposition. This suit is brought against the Central Bank of the
Philippines, an entity authorized by its charter to sue and be sued. The consent of the State to
thus be sued, therefore, has been given.

This doctrine was reiterated in Philippines Acetylene Co. vs. Central Bank of the Philippines 3
where it was pointedly stated that "sec. 5 of Republic Act No. 601 (as amended) directs that
refund of taxes be made by the Central Bank."

The courts below, therefore, erred in dismissing the complaint on the ground that the Central
Bank was non-suable for the refund of taxes it had collected under the statute..

2.
In resolving the second issue we find it needless to dwell on the alleged denial of
constitutional due process.

Upon the first cause of action, the petitioner alleges that she used the coffee roasted, vanilla,
fruit cocktail, peaches, butter and pecan nuts as "flavors" for her ice cream product. The
respondent Central Bank, in its motion to dismiss, contended that these items are not "flavors,"
and that what is exempt from the 17% foreign exchange tax under Section 2 of Republic Act 601
is the importation of "flavors." The motion to dismiss, therefore, assails the correctness of the
allegation that the abovenamed commodities were used as "flavors." It was thus improper for
the court a quo to grant the motion upon the presumption that the averment in the motion are
true and those of the complaint are not. The court should have either denied the motion, without
prejudice to the defendant bank's right to plead, as a special defense in its answer, the very
issue upon which said motion was predicated, or proceeded to the reception of evidence on the
issue of fact thus raised before revolving the same. 4

The second and third causes of action must however fall. For the importation of containers and
ice cream wooden spoons to be exempt from the foreign exchange tax, these articles must be
used by the importer in the manufacture or preparation of a local product and the product so
manufactured or prepared must be consigned or exported abroad; here there is no allegation in
the complaint that the ice cream wooden spoons and paper containers used by the petitioner in
her ice cream industry and her ice cream product were consigned or exported abroad.

The fourth cause of action suffers from lack of particularity. Under Republic Act 601, as
amended, the cost of importations of" machinery, equipment, accessories and spare parts for
the use of industries, miners, mining enterprises, planters and farmers" was exempt from the
17% foreign exchange tax, but the complaint does not allege (a) when the corresponding letters
of credit were opened, (b) the kind of "machinery, equipment, accessories and spare parts"
imported by the petitioner to be used in her ice cream industry, (c) when the goods arrived, and
(d) when the foreign exchange tax was paid. The proper course of action the trial court should
have taken was to treat the motion to dismiss as one for a bill of particulars and consequently
require the plaintiff to submit a bill of particulars. 5

ACCORDINGLY, the judgment appealed from is set aside. Another one is hereby entered (a)
dismissing the complaint as to the second and third causes of action, and (b) remanding the
case to the trial court for further proceedings on the first and fourth causes of action,
conformably with this decision and with law, after impleading the National Treasurer and the
Secretary of Finance as parties defendants. No pronouncement as to costs.
No. 17
Rayo v. CFI
The relevant antecedents of this case are narrated in the petition and have not been
controverted, namely:

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

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

5.
Respondent corporation filed separate answers to each of these eleven complaints.
Apart from traversing the material averments in the complaints and setting forth counterclaims
for damages respondent corporation invoked in each answer a special and affirmative defense
that "in the operation of the Angat Dam," it is "performing a purely governmental function",
hence it "can not be sued without the express consent of the State." ...

6.
On motion of the respondent corporation a preliminary hearing was held on its
affirmative defense as though a motion to dismiss were filed. Petitioners opposed the prayer for
dismissal and contended that respondent corporation is performing not governmental but merely
proprietary functions and that under its own organic act, Section 3 (d) of Republic Act No. 6395,
it can sue and be sued in any court. ...

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

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

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

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

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


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

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

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

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

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

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

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

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

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

The petition is highly impressed with merit.

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

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

SO ORDERED.
No. 18
G.R. No. 70547

January 22, 1993

PHILIPPINE NATIONAL RAILWAYS and HONORIO CABARDO, petitioners,


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

The Solicitor General for petitioner.

Leopoldo Sta. Maria for private respondents.

MELO, J.:

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

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

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

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

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

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

6.

Ordering the defendants to pay the cost of this suit.

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

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

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

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

1
That plaintiff is a duly constituted corporation registered with the Securities and
Exchange Commission engaged in the business of transportation and operating public utility
buses for the public with lines covering Manila, Caloocan City, Quezon City, Malabon, Rizal,
Bulacan, Pampanga and Nueva Ecija, and particularly from Manila to Hagonoy, Bulacan and

return in the month of August, l974 passing thru the town of Calumpit Bulacan, temporarily while
the bridge at Hagonoy, Bulacan was under construction;

2
That defendant Philippine National Railways is a purely government owned and
controlled corporation duly registered and existing virtue of Presidential Decree No. 741, with
capacity to sue and be sued, and is likewise engaged in transporting passengers and cargoes
by trains and buses and that, it operates a train line between San Fernando, La Union and
Manila particularly Passenger Express Train with Body No. 73, passing along the intersection of
Barrio Balungao, Calumpit, Bulacan, in going to San Fernando, La Union from Manila and
return;

3.
That on August 10, 1974, at about 1:20 o'clock in the afternoon, a Baliuag Transit Bus
with Body No. 1066 and Plate No. XS-929 PUB-Bulacan '74 was driven by its authorized driver
Romeo Hughes and PNR Train No. 73 was operated by Train Engineer Honorio Cabardo alias
Honorio Cirbado and at the railroad intersection at Barrio Balungao, Calumpit, Bulacan, said
passenger train No. 73 hit and bumped the right mid portion of the plaintiff's passenger bus No.
1066, while the rear portion of said bus was at the railroad track and its direction was towards
Hagonoy, Bulacan at about 1:30 o'clock in the afternoon;

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

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

6.
That after the investigation the Chief of Police of Calumpit, Bulacan, filed a criminal case
of Reckless Imprudence Causing Multiple Homicide with Multiple Physical Injuries and Damage
to Property against Romeo Hughes y Parfan, driver of the Baliuag Transit bus docketed under
Crim. Case No. 2392; while the train Engineer Honorio Cabardo alias Honorio Cirbado was not
included as an accused in said case, although his train No. 73 was the one that hit and bumped
the right rear portion of the said bus;

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

8.
That at the railroad crossing in Calumpit, Bulacan where the accident took place there is
no railroad crossing bar, however, during the pre-war days there was a railroad crossing bar at
said intersection; that, however, there was only one sign of railroad crossing "Stop, Look and
Listen" placed on a concrete slab and attached to a concrete post existing at the approach of
the railroad track from the Highway going towards Hagonoy, Bulacan and that after the said
railroad track there was a designated jeep parking area at the right side in the direction from the
Highway to Hagonoy Bulacan;

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

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

SIMPLIFICATION OF ISSUES

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

12.
That another additional issue is whether the Baliuag Transit Incorporated has exercised
the diligence of a good father of the family in the selection and supervision of its employees.
(pp.
85-87, Record on Appeal). ( Annex A, Petition; pp. 79-82, Rollo)

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

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

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

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

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

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

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

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

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

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

It may be argued that a railroad is not subject to the same restrictions to the speed of its train as
a motorists (Mckelvey v. Delaware L. and W.R. Co. 253 App. D.V. 109, 300 NYS 1263 ); but it
does not follow that a train will be permitted to run fast under all conditions at any rate of speed
it may choose. It must regulate its speed with proper regard for the safety of human life and
property (Johnson v. Southern Pacific Company (Cal. App. 288 p. 81), considering the
surrounding circumstances particularly the nature of the locality (Atchinson, T. and SFR Co. v.
Nicks (Arts) 165 p. 2d 167).

Cabardo's route included the passage over the said intersection; he could have noticed that it is
a very busy intersection because the crossroad leads to the Calumpit Poblacion as well as to
the neighboring town of Hagonoy; there was a parking lot by the side of the track whereat
passengers board jeepneys for the neighboring barrios and towns; stalls abound in the vicinity
and bystanders congregate nearby. A prudent train operator must, under the circumstances,
slacken his speed almost for the protection of motorists and pedestrians, not only when a
collision is inevitable but even if no hindrance is apparent on the way;

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

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

nearby ditch. Otherwise, if the bus was really hit in mid-body, the bus could have been halved
into two because of the force of the impact.

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

A railroad is not required to have a gate (crossing bar) or a flagman, or to maintain signals at
every intersection; only at such places reasonably necessary; what is considered reasonably
necessary will depend on the amount of travel upon the road, the frequency with which trains
pass over it and the view which could be obtained of trains as they approach the crossing, and
other conditions (Pari v. Los Angeles, Ry. Corporation (Cal A2d) 128 p2d 563; Swdyk v. Indiana
Harbor Belt R. Co. 148 F. 2d 795, and others).

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

A portion of the intersection is being used as a parking area with stalls and other obstructions
present making it difficult, if not impossible, to see approaching trains (see photographs).

The failure of the Philippine National Railways to put a cross bar, or signal light, flagman or
switchman, or semaphores is evidence of negligence and disregard of the safety of the public,
even if there is no law or ordinance requiring it, because public safety demands that said
devices or equipments be installed, in the light of aforesaid jurisprudence. In the opinion of this
Court the X sign or the presence of "STOP, LOOK, LISTEN" warnings would not be sufficient
protection of the motoring public as well as the pedestrians, in the said intersection;

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

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

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

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

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

(b)

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

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

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

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

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

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

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

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

The bone of contention for exculpation is premised on the familiar maxim in political law that the
State, by virtue of its sovereign nature and as reaffirmed by constitutional precept, is insulated
from suits without its consent (Article 16, Section 3, 1987 Constitution). However, equally
conceded is the legal proposition that the acquiescence of the State to be sued can be
manifested expressly through a general or special law, or indicated implicitly, as when the State
commences litigation for the purpose of asserting an affirmative relief or when it enters into a
contract (Cruz, Philippine Political Law, 1991 edition, page 33; Sinco, Philippine Political Law,
Eleventh Edition, 1962, page 34). When the State participates in a covenant, it is deemed to
have descended from its superior position to the level of an ordinary citizen and thus virtually
opens itself to judicial process. Of course, We realize that this Court qualified this form of
consent only to those contracts concluded in a proprietary capacity and therefore immunity will
attach for those contracts entered into in a governmental capacity, following the ruling in the
1985 case of United States of America vs. Ruiz (136 SCRA 487 [1985]; cited by Cruz, supra at
pages 36-37). But the restrictive interpretation laid down therein is of no practical worth nor can
it give rise to herein petitioner PNR's exoneration since the case of Malong vs. Philippine

National Railways (138 SCRA 63, [1985]); 3 Padilla, 1987 Constitution with Comments and
Cases, 1991 edition, page 644), decided three months after Ruiz was promulgated, was
categorical enough to specify that the Philippine National Railways "is not performing any
governmental function" (supra, at page 68).

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

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

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

Sec. 1-a.
Statement of policy. The Philippine National Railways, being a factor for socioeconomic development and growth, shall be a part of the infrastructure program of the
government and as such shall remain in and under government ownership during its corporate
existence. The Philippine National Railways must be administered with the view of serving the
interests of the public by providing them the maximum of service and, while aiming at its
greatest utility by the public, the economy of operation must be ensured so that service can be
rendered at the minimum passenger and freight prices possible.

The charter also provides:

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

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

(b)
Generally, to exercise all powers of a railroad corporation under the Corporation Law.
(This refers to Sections 81 to 102 of the Corporation Law on railroad corporations, not
reproduced in the Corporation Code.)

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

A sovereign is exempt from suit, not because of any formal conception or obsolete theory, but
on the logical and practical ground that there can be no legal right as against the authority that
makes the law on which the right depends (Justice Holmes in Kawananakoa vs. Polyblank, 205
U.S. 353, 51 L. 3d 834).

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

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

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

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

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

Suits against State agencies with relation to matters in which they have assumed to act in a
private or nongovernmental capacity, and various suits against certain corporations created by
the State for public purposes, but to engage in matters partaking more of the nature of ordinary
business rather than functions of a governmental or political character, are not regarded as suits
against the State.

The latter is true, although the State may own the stock or property of such a corporation, for by
engaging in business operations through a corporation the State divests itself so far of its
sovereign character, and by implicating consents to suits against the corporation. (81 C.J.S.
1319).

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

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

By engaging in a particular business through the instrumentality of a corporation, the


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

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

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

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

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

Thus, the National Development Company is not immune from suit. It does not exercise
sovereign functions. It is an agency for the performance of purely corporate, proprietary or
business functions (National Development Company vs. Tobias, 117 Phil. 703, 705 and cases
cited therein; National Development Company vs. NDC Employees and Workers' Union, L32387, August 19, 1975, 66 SCRA 18l, 184).

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

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

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

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

Likewise, it was established that the weather condition was characterized with intermittent rain
which should have prompted the train engineer to exercise extra precaution. Also, the train
reached Calumpit, Bulacan ahead of scheduled arrival thereat, indicating that the train was
travelling more than the normal speed of 30 kilometers per hour. If the train were really running
at 30 kilometers per hour when it was approaching the intersection, it would probably not have
travelled 190 meters more from the place of the accident (page 10, Brief for Petitioners). All of
these factors, taken collectively, engendered the concrete and yes, correct conclusion that the
train engineer was negligent who, moreover, despite the last opportunity within his hands vis-avis the weather condition including the presence of people near the intersection, could have
obviated the impending collision had he slackened his speed and applied the brakes (Picart vs.

Smith, 37 Phil. 809 [1918]).Withal, these considerations were addressed to the trial judge who,
unlike appellate magistrates, was in a better position to assign weight on factual questions.
Having resolved the question of negligence between the train engineer and the bus driver after
collating the mass of evidence, the conclusion reached thereafter thus commands great respect
especially so in this case where respondent court gave its nod of approval to the findings of the
court of origin (Co vs. Court of Appeals, 193 SCRA 198; 206 [1991]); Amigo vs. Teves, 50 O.G.
5799; Regalado, Remedial Law Compendium, Fifth edition, page 353).

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

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

SO ORDERED.
No. 19
[G.R. No. L-5122. April 30, 1952.]

NATIONAL AIRPORTS CORPORATION, Petitioner, v. JOSE TEODORO SR., as Judge of the


Court of First Instance of Negros Occidental and PHILIPPINE AIRLINES, INC., Respondents.

Solicitor General Pompeyo Diaz and Solicitor Augusto M. Luciano for Petitioner.

Ozaeta, Roxas, Lichauco & Picazo for Respondents.

SYLLABUS

1. LEADING AND PRACTICE; ACTIONS AGAINST THE STATE; WHEN MAY BE SUED
WITHOUT ITS CONSENT. Not all government entities, whether corporate or non-corporate,
are immune to suits. Immunity from suits is determined by the character of the objects for which
the entity was organized. "Suits against state agencies with relation to matters in which they
have assumed to act in a private or non-governmental capacity, and various suits against
certain corporations created by the state for public purposes, but to engage in matters partaking
more of the nature of ordinary business rather than functions of a governmental or political

character, are not regarded as suits against the state. The latter is true, although the state may
own the stock or property of such a corporation, for by engaging in business operations through
a corporation the state divests itself so far of its sovereign character, and by implication
consents to suits against the corporation." (59 C.J., 313.)

2. ID.; ID.; ID.; CIVIL AERONAUTICS ADMINISTRATION. Among the general powers of the
Civil Aeronautics Administration are, under section 3 of Executive Order No. 365, to execute
contracts of any kind, to purchase property, and to grant concession 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 the power to sue and be sued, which is implied from
the power to transact private business. And if it has the power to sue and be sued on its behalf,
the Civil Aeronautics Administration with greater reason should have the power to prosecute and
defend suits for and against the National Airports Corporation, having acquired all the
properties, funds and choses in action and assumed all the liabilities of the latter.

3. ID.; ID.; ID.; ID.; NATIONAL AIRPORTS CORPORATION. The National Airports
Corporation is abolished for all purposes; it can not be regarded as still in existence even for the
limited object of winding up its affairs. No trustees, assignees or receivers have been
designated to make a liquidation thereof and, what is more, there is nothing to liquidate, as
everything the National Airports Corporation had, has been taken over by the Civil Aeronautics
Administration. To all legal intents and practical purposes, said corporation is dead and the Civil
Aeronautics Administration is its heir or legal representative, acting by the law of its creation
upon its own rights and in its own name.

DECISION

TUASON, J.:

The National Airports Corporation was organized under Republic Act No. 224, which expressly
made the provisions of the Corporation Law applicable to the said corporation. On November
10, 1950, the National Airports Corporation was abolished by Executive Order No. 365 and to
take its place the Civil Aeronautics Administration was created. Before the abolition, the
Philippine Airlines, Inc. paid to the National Airports Corporation P65,245 as fees for landing and
parking on Bacolod Airport No. 2 for the period up to and including July 31, 1948. These fees
are said to have been due and payable to the Capitol Subdivision, Inc. which owned the land
used by the National Airports Corporation as airport, and the owner commenced an action in the

Court of First Instance of Negros Occidental against the Philippine Airlines, Inc., in 1951 to
recover the above amount. The Philippine Airlines, Inc. countered with a third-party complaint
against the National Airports Corporation, which by that time had been dissolved, and served
summons on the Civil Aeronautics Administration. The third-party plaintiff alleged that it had paid
to the National Airports Corporation the fees claimed by the Capitol Subdivision, Inc. "on the
belief and assumption that the third-party defendant was the lessee of the lands subject of the
complaint and that the third-party defendant and its predecessor in interest were the operators
and maintainers of said Bacolod Airport No. 2 and, further, that the third-party defendant would
pay to the landowners, particularly the Capitol subdivision, Inc., the reasonable rentals for the
use of their lands.."

The Solicitor-General, after answering the third-party complaint, filed a motion to dismiss on the
ground that the court lacks jurisdiction to entertain the third-party complaint, first, because the
National Airports Corporation "has lost its juridical personality," and, second, because the Civil
Aeronautics Administration "being an office or agency of the Republic of the Philippines,
unincorporated and not possessing juridical personality under the law, is incapable of suing and
being sued. "Section 7 of Executive Order No. 365 reads:jgc:chanrobles.com.ph

"All records, properties, equipment, assets, rights, choses in action, obligations, liabilities and
contracts of the National Airports Corporation abolished under this Order, are hereby transferred
to, vested in, and assumed by, the Civil Aeronautics Administration. All works, construction, and
improvements made by the National Airports Corporation or any agency of the National
Government in or upon government airfields, including all appropriations or the unreleased and
unexpended balances thereof, shall likewise be transferred to the Civil Aeronautics
Administration."cralaw virtua1aw library

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 concession 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. And if it has the power to sue and be sued on its behalf, the Civil Aeronautics
Administration with greater reason should have the power to prosecute and defend suits for and
against the National Airports Corporation, having acquired all the properties, funds and choses
in action and assumed all the liabilities of the latter. To deny the National Airports Corporations
creditors access to the courts of justice against the Civil Aeronautics Administration is to say that
the government could impair the obligation of its corporations by the simple expedient of
converting them into unincorporated agencies.

But repudiation of the National Airports Corporations obligations was far from the intention in its
dissolution and the setting up of the Civil Aeronautics Administration. Nor would such scheme
work even if the executive order had so expressly provided.

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

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

This rule has been applied to such government agencies as State Dock Commissions carrying
on business relating to pilots, terminals and transportation (Standard Oil Co. of New Jersey v.
U.S., 26 Fed. (2d) 480), and State Highway Commissions created to build public roads, and
given appropriations in advance to discharge obligations incurred in that behalf (Arkansas State
Highway Commission v. Dodge, 26 S W (2d) 879; State Highway Commission of Missouri v.
Bates, 269, S W 418.) .

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

In the light of a well-established precedents, and as a matter of simple justice to the parties who
dealt with the National Airports Corporation on the faith of equality in the enforcement of their
mutual commitments, the Civil Aeronautics Administration may not, and should not, claim for
itself the privileges and immunities of the sovereign state.

The case of National Airports Corporation v. Hon. V. Jimenez Yanzon Et. Al., (89 Phil. 745),
relied upon by counsel, is not controlling. That was a labor dispute and can be distinguished
from the case at bar in at least one fundamental respect.

Involving labor demands and labor-management relations, any decision in that case would, if
given force and effect, operate prospectively and for an indefinite period against the Civil
Aeronautics Administration whose rights and obligations with respect to its officers and
employees were regulated by the general law on civil service. Moreover, some of the petitioners
might already have ceased. By Sections 5 and 8 of Executive Order No. 365 all employees of
the National Airports Corporation were, upon the latters dissolution, automatically separated
from the service, and the part of the personnel whose employment was "necessary and
convenient" to the Civil Aeronautics Administration would have to be reappointed and, what was
more important, "in accordance with the Civil Service rules and regulations." If the petitioners in
that case had been absorbed into the Civil Aeronautics Administration, the matters raised in
their petition were outside the jurisdiction of the Court of Industrial Relations, and of this Court
on Appeal, to entertain. Their rights, privileges, hours of work, and rates of compensation were
already governed by the Civil Service Law.

The Philippine Airlines third-party complaint is premised on the assumption that the National
Airports Corporation is still in existence, at least for the limited object of winding up its affairs
under Section 77 of the Corporation Law. Our opinion is that by its abolition that corporation
stands abolished for all purposes. No trustees, assignees or receivers have been designated to
make a liquidation and, what is more, there is nothing to liquidate. Everything the National
Airports Corporation had, has been taken over by the Civil Aeronautics Administration. To all
legal intents and practical purposes, the National Airports Corporation is dead and the Civil
Aeronautics Administration is its heir or legal representative, acting by the law of its creation
upon its own rights and in its own name. The better practice then should have been to make the
Civil Aeronautics Administration the third-party defendant instead of the National Airports
Corporation. The error, however, is purely procedural, not put in issue, and may be corrected by
amendment of the pleadings if deemed necessary.

Wherefore, the petition is denied with costs against the Civil Aeronautics Administration.
No.20
G.R. No. L-15751

January 28, 1961

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


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

Office of the Solicitor General for petitioners.


Eulogio R. Lerum for respondents.

GUTIERREZ DAVID, J.:

This is a petition for certiorari and prohibition with preliminary injunction to annul Certain orders
of the respondent Court of Industrial Relations and to restrain it from further proceeding in the
action for unfair labor practice pending before it on the ground of lack of jurisdiction. Giving due
course to the petition, this Court ordered the issuance of the writ of preliminary injunction prayed
for without bond.

The action in question was upon complaint of the respondents Bureau of Printing Employees
Association (NLU) Pacifico Advincula, Roberto Mendoza, Ponciano Arganda and Teodulo
Toleran filed by an acting prosecutor of the Industrial Court against herein petitioner Bureau
of Printing, Serafin Salvador, the Acting Secretary of the Department of General Services, and
Mariano Ledesma the Director of the Bureau of Printing. The complaint alleged that Serafin
Salvador and Mariano Ledesma have been engaging in unfair labor practices by interfering with,
or coercing the employees of the Bureau of Printing particularly the members of the complaining
association petition, in the exercise of their right to self-organization an discriminating in regard
to hire and tenure of their employment in order to discourage them from pursuing the union
activities.

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

We find the petition to be meritorious.

The Bureau of Printing is an office of the Government created by the Administrative Code of
1916 (Act No. 2657). As such instrumentality of the Government, it operates under the direct

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

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

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

Indeed, as an office of the Government, without any corporate or juridical personality, the
Bureau of Printing cannot be sued. (Sec. 1, Rule 3, Rules of Court). Any suit, action or
proceeding against it, if it were to produce any effect, would actually be a suit, action or
proceeding against the Government itself, and the rule is settled that the Government cannot be
sued without its consent, much less over its objection. (See Metran vs. Paredes, 45 Off. Gaz.
2835; Angat River Irrigation System, et al. vs. Angat River Workers' Union, et. al., G.R. Nos. L10943-44, December 28, 1957).

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

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