CHINA NATIONAL MACHINERY & EQUIPMENT CORP. (GROUP), v. HON. CESAR D.

SANTAMARIA, in his official capacity as Presiding Judge of Branch 145, Regional

Trial Court of Makati City, HERMINIO HARRY L. ROQUE, JR., JOEL R. BUTUYAN,
ROGER R. RAYEL, ROMEL R. BAGARES, CHRISTOPHER FRANCISCO C. BOLASTIG,
LEAGUE OF URBAN POOR FOR ACTION (LUPA), KILUSAN NG MARALITA SA
MEYCAUAYAN (KMM-LUPA CHAPTER), DANILO M. CALDERON, VICENTE C. ALBAN,
MERLYN M. VAAL, LOLITA S. QUINONES, RICARDO D. LANOZO, JR., CONCHITA G.
GOZO, MA. TERESA D. ZEPEDA, JOSEFINA A. LANOZO, and SERGIO C. LEGASPI, JR.,
KALIPUNAN NG DAMAYANG MAHIHIRAP (KADAMAY), EDY CLERIGO, RAMMIL
DINGAL, NELSON B. TERRADO, CARMEN DEUNIDA, and EDUARDO LEGSON G.R. No.
185572, February 7, 2012, SERENO, J.

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.

Facts:

Northrail and CNMEG executed a Contract Agreement for the construction of Section I, Phase
I of the North Luzon Railway System. Export Import Bank of China and the Department of
Finance of the Philippines (DOF) entered into a Memorandum of Understanding, wherein
China agreed to extend Preferential Buyer’s Credit to the Philippine government to finance
the Northrail Project. Thereafter, Roque et al. 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. CNMEG filed a Motion to Dismiss, 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.

Issue:

Ruling:

NO. CNMEG is engaged in a proprietary activity. 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.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).