When the State enters into a Business Contract. 3.
3. The Company’s complaint is to order the petitioners herein to allow the
USA V RUIZ
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.
PONENTE: ASSOCIATE JUSTICE VICENTE ABAD SANTOS
FACTS
1. 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.
Facts of Civil Case No. 779M
1. 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.
2. May 1972 - The United States invited the submission of bids for
some repair projects.
3. Eligio de Guzman & Co., Inc. (“The Company”) responded to the
invitation and submitted bids.
4. 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 construed this as an acceptance of
its offer, so they complied with the requests.
5. June 1972 - The Company received a letter which was signed by
William I. Collins, Department of the Navy of the United States, also
one of the petitioners herein informing that the company did not
qualify to receive an award for the projects because of its previous
unsatisfactory performance rating in repairs, and that the projects
were awarded to third parties.
2. The Company sued USA and all petitioners herein, who are all members
of the Engineering Command of the U.S. Navy.
The Company to perform the work on the projects and, in the event that
specific performance was no longer possible, to order the petitioners herein
to pay damages. The Company also asked for the issuance of a writ of
preliminary injunction to restrain the petitioners herein from entering into
contracts with third parties for work on the projects.
4. Petitoners herein 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 The Company, the subject matter of the
complaint being acts and omissions of the individual petitioners as agents of
USA, 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.
5. Petitioners filed a motion to dismiss The Company’s complaint which
included an opposition to the issuance of the writ of preliminary injunction.
6. The company opposed the motion.
7. The trial court denied the motion and issued the writ.
8. Petitoners 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.
9. The petition is highly impressed with merit.
ISSUE/S
1. Whether or not the US Naval Base in bidding for said contracts exercise
governmental functions to be able to invoke state immunity.
2. Does the court have jurisdiction over the case?
HOLDINGS/RULINGS
1. Yes. The Supreme Court held that the contract relates to the exercise of
its sovereign functions. The restrictive application of State immunity is
proper only when the proceedings arise out of commercial transactions of
the foreign sovereign. In this case, the projects are an integral part of the
Naval Base which is devoted to the national 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.
2. No. By virtue of state immunity, the courts of the Philippines have no
jurisdiction over the case for the US Government has not given consent to
the filing of this suit.
APPLICATION/S
1. The Supreme Court distinguished between contracts entered into by the
State in jure imperii (sovereign acts) and in jure gestionis (commercial or
proprietary acts).
2. Under the restrictive application, immunity is only available in respect of
acts resulting from the exercise of a sovereign power. As such, states may
not claim immunity in respect of commercial activities or over commercial
assets.
3. Where the contract is in pursuit of a sovereign activity, there is no waiver
of immunity, and no implied consent may be derived therefrom.

CONCLUSION/S
1. The petition is GRANTED.
2. The questioned orders of the respondent judge are set aside and Civil
Case No. 779M is DISMISSED.
3. Costs against the the private respondent.

DISSENTING OPINION
PONENTE: CHIEF JUSTICE FELIX VALENCIA MAKASIAR
1. The petition should be DISMISSED.
2. The proceedings in Civil Case No. 779M in the defunct CFI (now RTC) of
Rizal be allowed to continue therein.
- When the U.S. Government, through its agency at Subic Bay,
confirmed the acceptance of a bid of a private company for the repair of
wharves or shoreline in the Subic Bay area, it is deemed to have
entered into a contract and thus waived the mantle of sovereign
immunity from suit and descended to the level of the ordinary citizen. Its
consent to be sued, therefore, is implied from its act of entering into a
contract (Santos vs. Santos, 92 Phil. 281, 284).