CASE DIGEST (Constitution Law 1)

As of 05 September 2023

SUMMARY
#1CONSTI TAGS: CONCEPT, AND THE PHILIPPINES AS A STATE
NORTH COTOBATO VS GRP (G.R. No. 183591 dated October 14 2008) ISSUE: WoN the Memorandum of
Agreement on the Ancestral Domain
THE PROVINCE OF NORTH COTABATO, represented by GOVERNOR SACDALAN and/or VICE-GOVERNOR PIÑOL between the GRP and MILF is
vs. unconstitutional
THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES PEACE PANEL ON ANCESTRAL DOMAIN (GRP),
represented by SEC. GARCIA, ATTY. ARMAMENTO, ATTY. CANDELARIA, SULLIVAN and/or GEN. ESPERON, JR.

FACTS DISCUSSION/PRINCIPLES RULING

1. In pursuit of peace in Mindanao,
the GRP and MILF agreed to
undergo peace talks. The fruit of
the talks is the MOA-AD of the
GRP – MILF Tripoli Agreement on
Peace of 2001 in Kuala Lumpur,
Malaysia. The parties were about
to sign the agreement on 5
August 2008, but petitioners filed
for Mandamus and Prohibition
with Prayer for the Issuance of
Writ of Preliminary Injunction
and Temporary Restraining
Order.
ANTECEDENTS OF THE PETITIONS
2. The MOA-AD was preceded by a
long process of negotiation and
the concluding of several prior
agreements between the two
parties beginning in 1996.
3. Way back on July 18, 1997, the
In the MOA-AD, the term Association is referred to in paragraph 3 on The Supreme Court ruled in favor of the
TERRITORY, paragraph 11 on RESOURCES, and paragraph 4 on Province of Cotobato et al, that the MOA-
GOVERNANCE. It is in the last mentioned provision, the MOA-AD most AD is unconstitutional on the legal basis
clearly uses it to describe the envisioned relationship between the BJE that the MOA-AD cannot be reconciled
and the Central Government as "associative" relationship (OR state with the present Constitution and laws.
within the state) and characterized by shared authority and Not only its specific provisions but the
responsibility. It further states that the structure of governance is to be very concept underlying them,
based on executive, legislative, judicial, and administrative institutions particularly, the “associative relationship”
with defined powers and functions in the Comprehensive Compact. (state within the state) envisioned
between the GRP and the BJE, are
The BJE is granted the power to build, develop and maintain its own UNCONSTITUTIONAL.
institutions inclusive of civil service, electoral, financial and banking,
education, legislation, legal, economic, police and internal security force,
judicial system and correctional institutions. However, the concept of
association is not recognized under the 1987 Constitution.
Doctrine of Constitutional Supremacy
Further, the MOA-AD goes on with the provisions requiring
"amendments to the existing legal framework" which shall take effect
upon signing of the Comprehensive Compact and upon effecting the
aforesaid amendments, with due regard to the non-derogation of prior
agreements and within the stipulated timeframe to be contained in the
Comprehensive Compact.
 GRP and MILF Peace Panels
signed the Agreement on General
Cessation of Hostilities. And in
the following year, they signed
the General Framework of
Agreement of Intent
4. Formal peace talks were held in
Tripoli, Libya in 2001 dubbed as
the “Tripoli Agreement on Peace
of 2001” contained the basic
principles and agenda on the
three (3) major aspects --
Security, Rehabilitation, and
Ancestral Domain.
5. In four (4) years – In 2005,
several exploratory talks held in
Kuala Lumpur, eventually led to
the crafting of the final draft
MOA-AD.
6. And Fast forward in 2008, the
signing was scheduled in August
of the same year.
7. However, on July 23, 2008, the
Province of North Cotabato and
Vice-Governor Emmanuel Piñol
filed a petition, docketed as G.R.
No. 183591, for Mandamus and
Prohibition with Prayer for the
Issuance of Writ of Preliminary
Injunction and Temporary
Restraining Order. Invoking the
right to information on matters
of public concern, seeking to
compel respondents to disclose
and furnish them the complete
and official copies of the MOA-
In Manila Prince Hotel v. GSIS, G.R. No. 122156, Feb. 3, 1997, under the
Constitutional Supremacy doctrine, if a law or contract violates any
norm of the Constitution, that law or contract, whether promulgated by
the legislative or by the executive branch or entered into by private
persons for private purposes, is null and void and without any force and
effect. Thus, since the Constitution is the fundamental, paramount and
supreme law of the nation, it is deemed written in every statute and
contract.
Petitioners asserted that the powers granted to the BJE exceed those
granted to any local government under present laws, and even go
beyond those of the present ARMM.
As the petitions allege the acts or omissions on the part of respondent
that exceed their authority, by violating their duties under E.O. No. 3 and
the provisions of the Constitution and statutes, the petitions make a
prima facie case for Certiorari, Prohibition, and Mandamus.
In the case of Tañada v. Angara, the court wrote that "When an act of a
branch of government is seriously alleged to have infringed the
Constitution, it becomes not only the right but in fact the duty of the
judiciary to settle the dispute."
ON THE SUBSTANTIVE ISSUE
The provisions of the MOA-AD, there can be no question that they
cannot all be accommodated under the present Constitution and laws.
Respondents have admitted as much in the oral arguments, and the
MOA-AD itself recognizes the need to amend the existing legal
framework to render effective at least some of its provisions.
Respondents, nonetheless, counter that the MOA-AD is free of any legal
infirmity because any provisions therein which are inconsistent with the
present legal framework will not be effective until the necessary changes
to that framework are made. The validity of this argument will be
considered later.
No province, city, or municipality, not even the ARMM, is recognized
under our laws as having an "associative" relationship with the national
government. Indeed, the concept implies powers that go beyond
 AD including its attachments, and
to prohibit the signing of the
MOA-AD, pending the disclosure
of the contents of the MOA-AD
and the holding of a public
consultation thereon. Petitioners
also prayed that the MOA-AD be
declared UNCONSTITUTIONAL.
8. This was followed by a series of
petition, also for Mandamus and
Prohibition, who were filed by
Zamboanga Mayor Celso
Lobregat, Rep. Climaco and Rep.
Fabian praying for similar
injunctive reliefs, and that the
City of Zamboanga be excluded
from the BJE and, in the
alternative, that the MOA-AD be
declared null and void.
9. The City of Iligan also filed a
petition for Injunction and/or
Declaratory Relief, praying that
respondents be enjoined from
signing the MOA-AD or, if the
same had already been signed,
from implementing the same,
and that the MOA-AD be
declared unconstitutional and
additionally implead Executive
Secretary Ermita as respondent.
anything ever granted by the Constitution to any local or regional
government. It also implies the recognition of the associated entity as a
state. The Constitution, however, does not contemplate any state in this
jurisdiction other than the Philippine State, much less does it provide for
a transitory status that aims to prepare any part of Philippine territory
for independence.
Even the mere concept animating many of the MOA-AD's provisions,
therefore, already requires for its validity the amendment of
constitutional provisions, specifically the following provisions of Article
X:
SECTION 1. The territorial and political subdivisions of the
Republic of the Philippines are the provinces, cities, municipalities, and
barangays. There shall be autonomous regions in Muslim Mindanao and
the Cordilleras as hereinafter provided.
SECTION 15. There shall be created autonomous regions in
Muslim Mindanao and in the Cordilleras consisting of provinces, cities,
municipalities, and geographical areas sharing common and distinctive
historical and cultural heritage, economic and social structures, and
other relevant characteristics within the framework of this Constitution
and the national sovereignty as well as territorial integrity of the
Republic of the Philippines.
These provisions of the MOA indicate, among other things, that the
Parties aimed to vest in the BJE the status of an associated state or, at
any rate, a status closely approximating it.
Article II, Section 22 of the Constitution states: "The State recognizes and
promotes the rights of indigenous cultural communities within the
framework of national unity and development." However, an
associative arrangement does not uphold national unity. While there
may be a semblance of unity because of the associative ties between the
BJE and the national government, the act of placing a portion of
Philippine territory in a status which, in international practice, has
generally been a preparation for independence
 SUMMARY
#2CONSTI TAGS: TERRITORY
MAGALLONA vs ERMITA (G.R No. 187167 dated August 16, 2011) ISSUE: WoN RA 9522 is unconstitutional.

PROF. MERLIN M. MAGALLONA, AKBAYAN PARTY-LIST REP. RISA HONTIVEROS, PROF. HARRY C. ROQUE, JR., AND
UNIVERSITY OF THE PHILIPPINES COLLEGE OF LAW STUDENTS, et al Petitioners,
vs.
HON. EDUARDO ERMITA, EXECUTIVE SECRETARY, HON. ALBERTO ROMULO, Sec of DFA, HON. ROLANDO
ANDAYA, Sec of DBM, HON. DIONY VENTURA, ADMINISTRATOR OF THE NATIONAL MAPPING & RESOURCE
INFORMATION AUTHORITY, and HON. HILARIO DAVIDE, JR., REPRESENTATIVE OF THE PERMANENT MISSION OF
THE REPUBLIC OF THE PHILIPPINES TO THE UNITED NATIONS, Respondents.

FACTS DISCUSSION/PRINCIPLES RULING

1. R.A. 3046 was passed
demarcating the maritime
baselines of the Philippines. After
five decades, RA 9552 was
passed, amending RA 3046 to
comply with the terms of the
United Nations Convention on
the Law of the Sea (UNCLOS).
2. The new law shorterned one
baseline, optimized the location
of some basepoints around the
Philippine archipelago and
classified adjacent territories,
namely, the Kalayaan Island
Group and the Scarborough
Shoal, as regimes of islands
whose islands generate their own
applicable maritime zones.
3. Petitioners assailed the
constitutionality of the new law
on the ground that: it reduces
the Philippine maritime territory,
Petitioners, professors of law, law students and a legislator, in their The Supreme Court ruled in favor of the
respective capacities as "citizens, taxpayers or x x x legislators,"9 as the respondents, finding no basis to declare
case may be, assail the constitutionality of RA 9522 on two principal RA 9522 unconstitutional.
grounds, namely: (1) RA 9522 reduces Philippine maritime territory, and
logically, the reach of the Philippine state’s sovereign power, in violation RA 9522 is Not Unconstitutional
of Article 1 of the 1987 Constitution,10 embodying the terms of the RA 9522 is a Statutory Tool
Treaty of Paris11 and ancillary treaties,12 and (2) RA 9522 opens the to Demarcate the Country’s
country’s waters landward of the baselines to maritime passage by all Maritime Zones and Continental
Shelf Under UNCLOS III, not to
vessels and aircrafts, undermining Philippine sovereignty and national
Delineate Philippine Territory
security, contravening the country’s nuclear-free policy, and damaging
marine resources, in violation of relevant constitutional provisions.13 UNCLOS III has nothing to do with the
acquisition (or loss) of territory. It is a
In addition, petitioners contend that RA 9522’s treatment of the KIG as multilateral treaty regulating, among
"regime of islands" not only results in the loss of a large maritime area others, sea-use rights over maritime zones
but also prejudices the livelihood of subsistence fishermen.14 To (i.e., the territorial waters [12 nautical
buttress their argument of territorial diminution, petitioners facially miles from the baselines], contiguous zone
attack RA 9522 for what it excluded and included – its failure to [24 nautical miles from the baselines],
reference either the Treaty of Paris or Sabah and its use of UNCLOS III’s exclusive economic zone [200 nautical
framework of regime of islands to determine the maritime zones of the miles from the baselines]), and continental
KIG and the Scarborough Shoal. shelves that UNCLOS III delimits. UNCLOS
III was the culmination of decades-long
Commenting on the petition, respondent officials raised threshold issues negotiations among United Nations
questioning (1) the petition’s compliance with the case or controversy members to codify norms regulating the
requirement for judicial review grounded on petitioners’ alleged lack of
 in violation of Article 1 of the
Constitution and it opens the
country’s waters to maritime
passage by all vessels, thus
undermining Philippine
sovereignty. Respondents, on the
other hand, defended the new
law as the country’s compliance
with the terms of UNCLOS.
Respondents stressed that RA
9522 does not relinquish the
country’s claim over Sabah.
#3CONSTI TAGS: GOVERNMENT
PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION VS CIR (G.R. NO. L-32052 DATED JULY 25, 1975)
PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION, petitioner,
vs.
COURT OF INDUSTRIAL RELATIONS, REUEL ABRAHAM, MILAGROS ABUEG, AVELINO ACOSTA,et al
FACTS
1. Private respondents filed with
the CIR a petition, alleging their
employment relationship, the
overtime services in excess of the
regular eight hours a day
rendered by them, and the
locus standi and (2) the propriety of the writs of certiorari and
prohibition to assail the constitutionality of RA 9522. On the merits,
respondents defended RA 9522 as the country’s compliance with the
terms of UNCLOS III, preserving Philippine territory over the KIG or
Scarborough Shoal. Respondents add that RA 9522 does not undermine
the country’s security, environment and economic interests or relinquish
the Philippines’ claim over Sabah.
Respondents also question the normative force, under international law,
of petitioners’ assertion that what Spain ceded to the United States
under the Treaty of Paris were the islands and all the waters found
within the boundaries of the rectangular area drawn under the Treaty of
Paris.
SUMMARY
DISCUSSION
The principal issue that calls for resolution in this appeal by certiorari
from an order of respondent Court of Industrial Relations is one of
constitutional significance. It is concerned with the expanded role of
government necessitated by the increased responsibility to provide for
the general welfare. More specifically, it deals with the question of
whether petitioner, the Philippine Virginia Tobacco Administration,
conduct of States in the world’s oceans
and submarine areas, recognizing coastal
and archipelagic States graduated
authority over a limited span of waters
and submarine lands along their coasts.
UNCLOS III and its ancillary baselines laws
play no role in the acquisition,
enlargement or, as petitioners claim,
diminution of territory. Under traditional
international law typology, States acquire
(or conversely, lose) territory through
occupation, accretion, cession and
prescription, not by executing multilateral
treaties on the regulations of sea-use
rights or enacting statutes to comply with
the treatys terms to delimit maritime
zones and continental shelves. Territorial
claims to land features are outside
UNCLOS III, and are instead governed by
the rules on general international law.
ISSUE: WoN the traditional classification
of function of government as ministrant
and constituent applicable in the case at
bar.
RULING
No. The irrelevance of such a distinction
considering the needs of the times was
clearly pointed out by the present Chief
Justice. Under this traditional
classification, such constituent functions
are exercised by the State as attributes of
 failure to pay them overtime
compensation in accordance with
Commonwealth Act No. 444.
2. Their prayer was for the
differential between the amount
actually paid to them and the
mount allegedly due them.
3. Petitioner Philippine Virginia
Tobacco Administration denied
the allegations.
4. The then Presiding Judge Arsenio
T. Martinez of respondent Court
sustained the claims of private
respondents for overtime
services from December 23, 1963
up to the date the decision was
rendered on March 21, 1970, and
directing petitioner to pay the
same, minus what it had already
paid.
5. Petitioner claims that the matter
is beyond the jurisdiction of the
CIR as it is exercising
governmental functions and that
it is exempt from the operation
of C.A. 444, invoking the doctrine
announced in the leading
Agricultural Credit and
Cooperative Financing
Administration decision, and the
distinction between constituent
and ministrant functions of
governments as set forth in
Bacani v. National Coconut
Corporation.
discharges governmental and not proprietary functions. The landmark sovereignty, and not merely to promote
opinion of the then Justice, row Chief Justice, Makalintal in Agricultural the welfare, progress and prosperity of
Credit and Cooperative Financing Administration v. Confederation of the people – these latter functions being
Unions in Government Corporations and offices, points the way to the ministrant, the exercise of which is
right answer.1 It interpreted the then fundamental law as hostile to the optional on the part of the government.”
view of a limited or negative state. It is antithetical to the laissez faire
concept. For as noted in an earlier decision, the welfare state concept "is Nonetheless, as he explained so
not alien to the philosophy of [the 1935] Constitution."2 It is much more persuasively: “The growing complexities of
so under the present Charter, which is impressed with an even more modern society, however, have rendered
explicit recognition of social and economic rights.3 There is manifest, to this traditional classification of the
recall Laski, "a definite increase in the profundity of the social functions of government quite unrealistic,
conscience," resulting in "a state which seeks to realize more fully the not to say obsolete. The areas which used
common good of its members."4 It does not necessarily follow, however, to be left to private enterprise and
just because petitioner is engaged in governmental rather than initiative and which the government was
proprietary functions, that the labor controversy was beyond the called upon to enter optionally, and only
jurisdiction of the now defunct respondent Court. Nor is the objection ‘because it was better equipped to
raised that petitioner does not come within the coverage of the Eight- administer for the public welfare than is
Hour Labor Law persuasive.5 We cannot then grant the reversal sought. any private individual or group of
We affirm. individuals,’ continue to lose their well-
defined boundaries and to be absorbed
The facts are undisputed. On December 20, 1966, claimants, now private within activities that the government must
respondents, filed with respondent Court a petition wherein they alleged undertake in its sovereign capacity if it is
their employment relationship, the overtime services in excess of the to meet the increasing social challenges of
regular eight hours a day rendered by them, and the failure to pay them the times. Here as almost everywhere
overtime compensation in accordance with Commonwealth Act No. 444. else, the tendency is undoubtedly towards
Their prayer was for the differential between the amount actually paid a greater socialization of economic forces.
to them and the amount allegedly due them.6 There was an answer filed Here of course this development was
by petitioner Philippine Virginia Tobacco Administration denying the envisioned, indeed adopted as a national
allegations and raising the special defenses of lack of a cause of action policy, by the Constitution itself in its
and lack of jurisdiction.7 The issues were thereafter joined, and the case declaration of principle concerning the
set for trial, with both parties presenting their evidence.8 After the promotion of social justice.”
parties submitted the case for decision, the then Presiding Judge Arsenio
T. Martinez of respondent Court issued an order sustaining the claims of Thus was laid to rest the doctrine in
private respondents for overtime services from December 23, 1963 up to Bacani v. National Coconut Corporation,
the date the decision was rendered on March 21, 1970, and directing based on the Wilsonian classification of
petitioner to pay the same, minus what it had already paid. 9 There was the tasks incumbent on government into
a motion for reconsideration, but respondent Court en banc denied the constituent and ministrant in accordance
same. 10 Hence this petition for certiorari. with the laissez faire principle.
Petitioner Philippine Virginia Tobacco Administration, as had been WHEREFORE, the appealed Order of
noted, would predicate its plea for the reversal of the order complained March 21, 1970 and the Resolution of
of on the basic proposition that it is beyond the jurisdiction of respondent Court, denying a motion for
respondent Court as it is exercising governmental functions and that it is reconsideration are hereby affirmed.
exempt from the operation of Commonwealth Act No. 444. 11 While, to
repeat, its submission as to the governmental character of its operation
is to be given credence, it is not a necessary consequence that
respondent Court is devoid of jurisdiction. Nor could the challenged
order be set aside on the additional argument that the Eight-Hour Labor
Law is not applicable to it. So it was, at the outset, made clear.

1. A reference to the enactments creating petitioner corporation suffices

to demonstrate the merit of petitioner's plea that it performs
governmental and not proprietary functions. As originally established by
Republic Act No. 2265, 12 its purposes and objectives were set forth
thus: "(a) To promote the effective merchandising of Virginia tobacco in
the domestic and foreign markets so that those engaged in the industry
will be placed on a basis of economic security; (b) To establish and
maintain balanced production and consumption of Virginia tobacco and
its manufactured products, and such marketing conditions as will insure
and stabilize the price of a level sufficient to cover the cost of production
plus reasonable profit both in the local as well as in the foreign market;
(c) To create, establish, maintain, and operate processing, warehousing
and marketing facilities in suitable centers and supervise the selling and
buying of Virginia tobacco so that the farmers will enjoy reasonable
prices that secure a fair return of their investments; (d) To prescribe
rules and regulations governing the grading, classifying, and inspecting of
Virginia tobacco; and (e) To improve the living and economic conditions
of the people engaged in the tobacco industry." 13 The amendatory
statute, Republic Act No. 4155, 14 renders even more evident its nature
as a governmental agency. Its first section on the declaration of policy
reads: "It is declared to be the national policy, with respect to the local
Virginia tobacco industry, to encourage the production of local Virginia
tobacco of the qualities needed and in quantities marketable in both
domestic and foreign markets, to establish this industry on an efficient
and economic basis, and, to create a climate conducive to local cigarette
manufacture of the qualities desired by the consuming public, blending
imported and native Virginia leaf tobacco to improve the quality of
locally manufactured cigarettes." 15 The objectives are set forth thus:
"To attain this national policy the following objectives are hereby
adopted: 1. Financing; 2. Marketing; 3. The disposal of stocks of the
Agricultural Credit Administration (ACA) and the Philippine Virginia
Tobacco Administration (PVTA) at the best obtainable prices and
conditions in order that a reinvigorated Virginia tobacco industry may be
established on a sound basis; and 4. Improving the quality of locally
manufactured cigarettes through blending of imported and native
Virginia leaf tobacco; such importation with corresponding exportation
at a ratio of one kilo of imported to four kilos of exported Virginia
tobacco, purchased by the importer-exporter from the Philippine
Virginia Tobacco Administration." 16

It is thus readily apparent from a cursory perusal of such statutory

provisions why petitioner can rightfully invoke the doctrine announced
in the leading Agricultural Credit and Cooperative Financing
Administration decision 17 and why the objection of private respondents
with its overtones of the distinction between constituent and ministrant
functions of governments as set forth in Bacani v. National Coconut
Corporation 18 if futile. The irrelevance of such a distinction considering
the needs of the times was clearly pointed out by the present Chief
Justice, who took note, speaking of the reconstituted Agricultural Credit
Administration, that functions of that sort "may not be strictly what
President Wilson described as "constituent" (as distinguished from
"ministrant"),such as those relating to the maintenance of peace and the
prevention of crime, those regulating property and property rights,
those relating to the administration of justice and the determination of
political duties of citizens, and those relating to national defense and
foreign relations. Under this traditional classification, such constituent
functions are exercised by the State as attributes of sovereignty, and not
merely to promote the welfare, progress and prosperity of the people —
these latter functions being ministrant, the exercise of which is optional
on the part of the government." 19 Nonetheless, as he explained so
persuasively: "The growing complexities of modern society, however,
have rendered this traditional classification of the functions of
government quite unrealistic, not to say obsolete. The areas which used
to be left to private enterprise and initiative and which the government
was called upon to enter optionally, and only "because it was better
equipped to administer for the public welfare than is any private
individual or group of individuals", continue to lose their well-defined
boundaries and to be absorbed within activities that the government
must undertake in its sovereign capacity if it is to meet the increasing
social challenges of the times. Here as almost everywhere else the
tendency is undoubtedly towards a greater socialization of economic
forces. Here of course this development was envisioned, indeed adopted
as a national policy, by the Constitution itself in its declaration of
principle concerning the promotion of social justice." 20 Thus was laid to
rest the doctrine in Bacani v. National Coconut Corporation, 21 based on
the Wilsonian classification of the tasks incumbent on government into
constituent and ministrant in accordance with the laissez faire principle.
That concept, then dominant in economics, was carried into the
governmental sphere, as noted in a textbook on political science, 22 the
first edition of which was published in 1898, its author being the then
Professor, later American President, Woodrow Wilson. He took pains to
emphasize that what was categorized by him as constituent functions
had its basis in a recognition of what was demanded by the "strictest
[concept of] laissez faire, [as they] are indeed the very bonds of society."
23 The other functions he would minimize as ministrant or optional.

It is a matter of law that in the Philippines, the laissez faire principle

hardly commanded the authoritative position which at one time it held
in the United States. As early as 1919, Justice Malcolm in Rubi v.
Provincial Board 24 could affirm: "The doctrines of laissez faire and of
unrestricted freedom of the individual, as axioms of economic and
political theory, are of the past. The modern period has shown a
widespread belief in the amplest possible demonstration of government
activity." 25 The 1935 Constitution, as was indicated earlier, continued
that approach. As noted in Edu v. Ericta:26 "What is more, to erase any
doubts, the Constitutional Convention saw to it that the concept of
laissez-faire was rejected. It entrusted to our government the
responsibility of coping with social and economic problems with the
commensurate power of control over economic affairs. Thereby it could
live up to its commitment to promote the general welfare through state
action." 27 Nor did the opinion in Edu stop there: "To repeat, our
Constitution which took effect in 1935 erased whatever doubts there
might be on that score. Its philosophy is a repudiation of laissez-faire.
One of the leading members of the Constitutional Convention, Manuel
A. Roxas, later the first President of the Republic, made it clear when he
disposed of the objection of Delegate Jose Reyes of Sorsogon, who
noted the "vast extensions in the sphere of governmental functions" and
the "almost unlimited power to interfere in the affairs of industry and
agriculture as well as to compete with existing business" as "reflections
of the fascination exerted by [the then] current tendencies' in other
jurisdictions. He spoke thus: "My answer is that this constitution has a
definite and well defined philosophy, not only political but social and
economic.... If in this Constitution the gentlemen will find declarations of
economic policy they are there because they are necessary to safeguard
the interest and welfare of the Filipino people because we believe that
the days have come when in self-defense, a nation may provide in its
constitution those safeguards, the patrimony, the freedom to grow, the
freedom to develop national aspirations and national interests, not to be
hampered by the artificial boundaries which a constitutional provision
automatically imposes." 28

It would be then to reject what was so emphatically stressed in the

Agricultural Credit Administration decision about which the observation
was earlier made that it reflected the philosophy of the 1935
Constitution and is even more in consonance with the expanded role of
government accorded recognition in the present Charter if the plea of
petitioner that it discharges governmental function were not heeded.
That path this Court is not prepared to take. That would be to go
backward, to retreat rather than to advance. Nothing can thus be clearer
than that there is no constitutional obstacle to a government pursuing
lines of endeavor, formerly reserved for private enterprise. This is one
way, in the language of Laski, by which through such activities, "the
harsh contract which [does] obtain between the levels of the rich and
the poor" may be minimized. 29 It is a response to a trend noted by
Justice Laurel in Calalang v. Williams 30 for the humanization of laws and
the promotion of the interest of all component elements of society so
that man's innate aspirations, in what was so felicitously termed by the
First Lady as "a compassionate society" be attained. 31

2. The success that attended the efforts of petitioner to be adjudged as

performing governmental rather than proprietary functions cannot
militate against respondent Court assuming jurisdiction over this labor
dispute. So it was mentioned earlier. As far back as Tabora v.
Montelibano, 32 this Court, speaking through Justice Padilla, declared:
The NARIC was established by the Government to protect the people
against excessive or unreasonable rise in the price of cereals by
unscrupulous dealers. With that main objective there is no reason why
its function should not be deemed governmental. The Government owes
its very existence to that aim and purpose — to protect the people." 33
In a subsequent case, Naric Worker's Union v. Hon. Alvendia, 34 decided
four years later, this Court, relying on Philippine Association of Free
Labor Unions v. Tan, 35 which specified the cases within the exclusive
jurisdiction of the Court of Industrial Relations, included among which is
one that involves hours of employment under the Eight-Hour Labor Law,
ruled that it is precisely respondent Court and not ordinary courts that
should pass upon that particular labor controversy. For Justice J. B. L.
Reyes, the ponente, the fact that there were judicial as well as
administrative and executive pronouncements to the effect that the
Naric was performing governmental functions did not suffice to confer
competence on the then respondent Judge to issue a preliminary
injunction and to entertain a complaint for damages, which as pointed
out by the labor union, was connected with an unfair labor practice. This
is emphasized by the dispositive portion of the decision: "Wherefore, the
restraining orders complained of, dated May 19, 1958 and May 27, 1958,
are set aside, and the complaint is ordered dismissed, without prejudice
to the National Rice and Corn Corporation's seeking whatever remedy it
is entitled to in the Court of Industrial Relations." 36 Then, too, in a case
involving petitioner itself, Philippine Virginia Tobacco Administration, 37
where the point in dispute was whether it was respondent Court or a
court of first instance that is possessed of competence in a declaratory
relief petition for the interpretation of a collective bargaining
agreement, one that could readily be thought of as pertaining to the
judiciary, the answer was that "unless the law speaks clearly and
unequivocally, the choice should fall on the Court of Industrial
Relations." 38 Reference to a number of decisions which recognized in
the then respondent Court the jurisdiction to determine labor
controversies by government-owned or controlled corporations lends to
support to such an approach. 39 Nor could it be explained only on the
assumption that proprietary rather than governmental functions did call
for such a conclusion. It is to be admitted that such a view was not
previously bereft of plausibility. With the aforecited Agricultural Credit
and Cooperative Financing Administration decision rendering obsolete
the Bacani doctrine, it has, to use a Wilsonian phrase, now lapsed into
"innocuous desuetude." 40 Respondent Court clearly was vested with
jurisdiction.

3. The contention of petitioner that the Eight-Hour Labor Law 41 does

not apply to it hardly deserves any extended consideration. There is an
air of casualness in the way such an argument was advanced in its
petition for review as well as in its brief. In both pleadings, it devoted
less than a full page to its discussion. There is much to be said for
brevity, but not in this case. Such a terse and summary treatment
appears to be a reflection more of the inherent weakness of the plea
rather than the possession of an advocate's enviable talent for concision.
It did cite Section 2 of the Act, but its very language leaves no doubt that
"it shall apply to all persons employed in any industry or occupation,
whether public or private ... ." 42 Nor are private respondents included
among the employees who are thereby barred from enjoying the
statutory benefits. It cited Marcelo v. Philippine National Red Cross 43
and Boy Scouts of the Philippines v. Araos.44 Certainly, the activities to
which the two above public corporations devote themselves can easily
be distinguished from that engaged in by petitioner. A reference to the
pertinent sections of both Republic Acts 2265 and 2155 on which it relies
to obtain a ruling as to its governmental character should render clear
the differentiation that exists. If as a result of the appealed order,
financial burden would have to be borne by petitioner, it has only itself
to blame. It need not have required private respondents to render
overtime service. It can hardly be surmised that one of its chief problems
is paucity of personnel. That would indeed be a cause for astonishment.
It would appear, therefore, that such an objection based on this ground
certainly cannot suffice for a reversal. To repeat, respondent Court must
be sustained.

WHEREFORE, the appealed Order of March 21, 1970 and the Resolution
of respondent Court en banc of May 8, 1970 denying a motion for
reconsideration are hereby affirmed. The last sentence of the Order of
March 21, 1970 reads as follows: "To find how much each of them
[private respondents] is entitled under this judgment, the Chief of the
Examining Division, or any of his authorized representative, is hereby
directed to make a reexamination of records, papers and documents in
the possession of respondent PVTA pertinent and proper under the
premises and to submit his report of his findings to the Court for further
disposition thereof." Accordingly, as provided by the New Labor Code,
this case is referred to the National Labor Relations Commission for
further proceedings conformably to law. No costs.

SUMMARY
#4CONSTI TAGS: GOVERNMENT
GOVT. OF THE PI VS MONTE DE PIEDAD SAVINGS BANK (G.R. No. L-9959 dated December 13, 1916) ISSUE: WON the Government is a proper
party to the case under the doctrine of
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, represented by the Treasurer of the Philippine Islands, plaintiff- parens patriae.
appellee,
vs. WON the Philippine Government is bound
EL MONTE DE PIEDAD Y CAJA DE AHORRAS DE MANILA, defendant-appellant. by the statute of limitations.

William A. Kincaid and Thomas L. Hartigan for appellant.

Attorney-General Avanceña for appellee.
FACTS DISCUSSION/PRINCIPLES RULING
1. About $400,000, were subscribed By the royal order of December 3, 1892, the Governor-General of the 1. Yes. The ground upon which the right of
and paid into the treasury of the Philippine Islands was ordered to "inform this ministerio what is the total the Government to maintain the action
Philippine Islands by the sum available at the present time, taking into consideration the sums rests on the fact that the money, being
inhabitants of the Spanish delivered to the Monte de Piedad pursuant to the decree issued by your given to a charity became a public
Dominions of the relief of those general Government on February 1, 1883," and after the rights of the property, only applicable to the specific
damaged by the earthquake, claimants, whose names were published in the Official Gazette of Manila purposes to which it was intended to be
which took place in the Philippine on April 7, 1870, and their heirs had been established, as therein devoted. It is but within those limits
Islands on June 3, 1863. provided, as such persons "have an unquestionable right to be paid the consecrated to the public use, and
donations assigned to them therein, your general Government shall became part of the public resources for
2. Subsequent thereto a central convoke them all within a reasonable period and shall pay their shares to promoting the happiness and welfare of
relief board was appointed to such as shall identify themselves, without regard to their financial the Philippine Government. To deny the
distribute the moneys thus status," and finally "that when all the proceedings and operations herein Government’s right to maintain this action
voluntarily contributed and mentioned have been concluded and the Government can consider itself would be contrary to sound public policy.
allotted $365,703.50 to the free from all kinds of claims on the part of those interested in the
various sufferers named in its distribution of the funds deposited in the vaults of the Treasury, such The Supreme Court of the United States in
resolution. action may be taken as the circumstances shall require, after first Sohier vs. Mass. General Hospital, ruled
consulting the relief board and your general Government and taking that: ―insane persons and person not
3. By order of the Governor-General account of what sums have been delivered to the Monte de Piedad and known, or not in being, apply to the
of the Philippine Islands, a list of those that were expended in 1888 to relieve public calamities," and "in beneficiaries of charities, who are often in
these allotments, together with order that all the points in connection with the proceedings had as a capable of vindicating their rights, and
the names of those entitled result of the earthquake be clearly understood, it is indispensable that justly look for protection to the sovereign
thereto, was published in the the offices hereinbefore mentioned comply with the provisions authority, acting as parens patriae. They
Official Gazette of Manila. These contained in paragraphs 2 and 3 of the royal order of June 25, 1879." On show that this beneficent functions has
were later distributed up to the receipt of this Finance order by the Governor-General, the Department not ceased to exist under the change of
sum of $30,299.65, leaving a of Finance was called upon for a report in reference to the $80,000 government from a monarchy to a
balance of $365,403.85. turned over to the defendant, and that Department's report to the republic; but that it now resides in the
Governor-General dated June 28, 1893 legislative department, ready to be called
4. Upon the petition of the into exercise whenever required for the
 governing body of the Monte de
Piedad, the Philippine
Government, by order, directed
its treasurer to turn over to the
former the sum of $80,000 of the
relief fund in installments of
$20,000 each and were received
on the following dates: February
15, March 12, April 14, and June
2, 1883, and are still in the
possession of the Monte de
Piedad.
5. On account of various petitions
of the persons, and heirs of
others to whom the
abovementioned allotments
were made, the Philippine Islands
filed a suit against the Monte de
Piedad a recover, “through the
Attorney-General and in
representation of the
Government of the Philippine
Islands,” the $80.000, together
with interest.
6. After due trial, judgment was
entered in favor of the plaintiff.
Defendant appealed and made
the following contentions:
6.1. that the $80,000, given to
the Monte de Piedad y Caja
de Ahorros, were so given as
a donation, and that said
donation had been cleared;
6.2. that the Government of the
Philippine Islands has not
subrogated the Spanish
6.3. Government in its rights, as
The record in the case under consideration fails to disclose any further
definite action taken by either the Philippine Government or the Spanish
Government in regard to the $80,000 turned over to the Monte de
Piedad.
In the defendant's general ledger the following entries appear: "Public
Treasury: February 15, 1883, $20,000; March 12, 1883, $20,000; April 14,
1883, $20,000; June 2, 1883, $20,000, total $80,000." The book entry for
this total is as follows: "To the public Treasury derived from the
subscription for the earthquake of 1863, $80,000 received from general
Treasury as a returnable loan, and without interest." The account was
carried in this manner until January 1, 1899, when it was closed by
transferring the amount to an account called "Sagrada Mitra," which
latter account was a loan of $15,000 made to the defendant by the
Archbishop of Manila, without interest, thereby placing the "Sagrada
Mitra" account at $95,000 instead of $15,000. The above-mentioned
journal entry for January 1, 1899, reads: "Sagrada Mitra and
subscription, balance of these two account which on this date are united
in accordance with an order of the Exmo. Sr. Presidente of the Council
transmitted verbally to the Presidente Gerente of these institutions,
$95,000."
On March 16, 1902, the Philippine government called upon the
defendant for information concerning the status of the $80,000 and
received the reply
The foregoing documentary evidence shows the nature of the
transactions which took place between the Government of Spain and the
Philippine Government on the one side and the Monte de Piedad on the
other, concerning the $80,000. The Monte de Piedad, after setting forth
in its petition to the Governor-General its financial condition and its
absolute necessity for more working capital, asked that out of the sum of
$100,000 held in the Treasury of the Philippine Islands, at the disposal of
the central relief board, there be transferred to it the sum of $80,000 to
be held under the same conditions, to wit, "at the disposal of the relief
board." The Monte de Piedad agreed that if the transfer of these funds
should not be approved by the Government of Spain, the same would be
returned forthwith. It did not ask that the $80,000 be given to it as a
donation. The Governor-General, after reciting the substance of the
petition, stated that "this general Government has submitted for the
purposes of justice and right, and is a
clearly capable of being exercised in cases
of charities as in any other cases
whatever.
Chancellor Kent says: In this country, the
legislature or government of the State, as
parens patriae, has the right to enforce all
charities of public nature, by virtue of its
general superintending authority over the
public interests, where no other person is
entrusted with it. (4 Kent Com., 508,
note.)
2. No. In 25 Cyc., 1006, the rule, supported
by numerous authorities, is stated as
follows: In the absence of express
statutory provision to the contrary,
statute of limitations do not as a general
rule run against the sovereign or
government, whether state or federal. But
the rule is otherwise where the mischief
to be remedied are of such a nature that
the state must necessarily be included,
where the state goes into business in
concert or in competition with her
citizens, or where a party seeks to
enforces his private rights by suit in the
name of the state or government, so that
the latter is only a nominal party.
In the instant case the Philippine
Government is not a mere nominal party
because it, in bringing and prosecuting this
action, is exercising its sovereign functions
or powers and is seeking to carry out a
trust developed upon it when the
Philippine Islands were ceded to the
United States. For the foregoing reasons
 regards an important sum of
money abovementioned;
6.4. that the only persons who
could claim to be damaged
by this payment to the
Monte, if it was unlawful, are
the donors or the cestuis que
trustent, thus, the plaintiff is
not the proper party to bring
the action;
6.5.that the court erred in
holding in its decision that
there is no title for the
prescription of this suit
brought by the Insular
Government against the
defendant appellant.
determination of H. M. Government that the balance which, after strictly the judgment appealed from is affirmed.
applying the proceeds obtained from the subscription referred to, may
remain as a surplus, should be delivered to the Monte de Piedad, either
as a donation, or as a loan upon the security of the credit of the
institution," and "considering that no reasonable objection can be made
to granting the request herein contained," directed the transfer of the
$80,000 to be made with the understanding that "the Board of Directors
of the Monte de Piedad is solemnly bound to return, within eight days
after demand, the sums it may have so received, if H. M. Government
does not approve this resolution." It will be noted that the first and only
time the word "donation" was used in connection with the $80,000
appears in this resolution of the Governor-General. It may be inferred
from the royal orders that the Madrid Government did tacitly approve of
the transfer of the $80,000 to the Monte de Piedad as a loan without
interest, but that Government certainly did not approve such transfer as
a donation for the reason that the Governor-General was directed by the
royal order of December 3, 1892, to inform the Madrid Government of
the total available sum of the earthquake fund, "taking into
consideration the sums delivered to the Monte de Piedad pursuant to
the decree issued by your general Government on February 1, 1883."
This language, nothing else appearing, might admit of the interpretation
that the Madrid Government did not intend that the Governor-General
of the Philippine Islands should include the $80,000 in the total available
sum, but when considered in connection with the report of the
Department of Finance there can be no doubt that it was so intended.
That report refers expressly to the royal order of December 3d, and sets
forth in detail the action taken in order to secure the return of the
$80,000. The Department of Finance, acting under the orders of the
Governor-General, understood that the $80,000 was transferred to the
Monte de Piedad well knew that it received this sum as a loan interest."
The amount was thus carried in its books until January, 1899, when it
was transferred to the account of the "Sagrada Mitra" and was
thereafter known as the "Sagrada Mitra and subscription account."
Furthermore, the Monte de Piedad recognized and considered as late as
March 31, 1902, that it received the $80,000 "as a returnable loan, and
without interest." Therefore, there cannot be the slightest doubt the fact
that the Monte de Piedad received the $80,000 as a mere loan or
deposit and not as a donation. Consequently, the first alleged error is
entirely without foundation.
Counsel for the defendant, in support of their third assignment of error,

The contention of counsel, as thus stated, in untenable for two reason,

(1) because such contention is based upon the erroneous theory that the
sum in question was a donation to the Monte de Piedad and not a loan,
and (2) because the charity founded by the donations for the earthquake
sufferers is not and never was intended to be an ecclesiastical pious
work. The first proposition has already been decided adversely to the
defendant's contention. As to the second, the record shows clearly that
the fund was given by the donors for a specific and definite purpose —
the relief of the earthquake sufferers — and for no other purpose. The
money was turned over to the Spanish Government to be devoted to
that purpose. The Spanish Government remitted the money to the
Philippine Government to be distributed among the suffers. All officials,
including the King of Spain and the Governor-General of the Philippine
Islands, who took part in the disposal of the fund, acted in their purely
civil, official capacity, and the fact that they might have belonged to a
certain church had nothing to do with their acts in this matter. The
church, as such, had nothing to do with the fund in any way whatever
until the $80,000 reached the coffers of the Monte de Piedad (an
institution under the control of the church) as a loan or deposit. If the
charity in question had been founded as an ecclesiastical pious work, the
King of Spain and the Governor-General, in their capacities as vicar-
general of the Indies and as royal vice-patron, respectively, would have
disposed of the fund as such and not in their civil capacities, and such
functions could not have been transferred to the present Philippine
Government, because the right to so act would have arisen out of the
special agreement between the Government of Spain and the Holy See,
based on the union of the church and state which was completely
separated with the change of sovereignty.

If "the whole matter is one of trusteeship," and it being true that the
Spanish Government could not, as counsel say, transfer the ownership of
the fund to the Monte de Piedad, the question arises, who may sue to
recover this loan? It needs no argument to show that the Spanish or
Philippine Government, as trustee, could maintain an action for this
purpose had there been no change of sovereignty and if the right of
action has not prescribed. But those governments were something more
than mere common law trustees of the fund. In order to determine their
exact status with reference to this fund, it is necessary to examine the
law in force at the time there transactions took place, which are the law
of June 20, 1894, the royal decree of April 27. 1875, and the instructions
promulgated on the latter date. These legal provisions were applicable
to the Philippine Islands (Benedicto vs. De la Rama, 3 Phil. Rep., 34)

The funds collected as a result of the national subscription opened in

Spain by royal order of the Spanish Government and which were
remitted to the Philippine Government to be distributed among the
earthquake sufferers by the Central Relief Board constituted, under
article 1 of the law of June 20, 1894, and article 2 of the instructions of
April 27, 1875, a special charity of a temporary nature as distinguished
from a permanent public charitable institution. As the Spanish
Government initiated the creation of the fund and as the donors turned
their contributions over to that Government, it became the duty of the
latter, under article 7 of the instructions, to exercise supervision and
control over the moneys thus collected to the end that the will of the
donors should be carried out. The relief board had no power whatever
to dispose of the funds confided to its charge for other purposes than to
distribute them among the sufferers, because paragraph 3 of article 11
of the instructions conferred the power upon the secretary of the
interior of Spain, and no other, to dispose of the surplus funds, should
there be any, by assigning them to some other charitable purpose or
institution. The secretary could not dispose of any of the funds in this
manner so long as they were necessary for the specific purpose for
which they were contributed. The secretary had the power, under the
law above mentioned to appoint and totally or partially change the
personnel of the relief board and to authorize the board to defend the
rights of the charity in the courts. The authority of the board consisted
only in carrying out the will of the donors as directed by the Government
whose duty it was to watch over the acts of the board and to see that
the funds were applied to the purposes for which they were
contributed .The secretary of the interior, as the representative of His
Majesty's Government, exercised these powers and duties through the
Governor-General of the Philippine Islands. The Governments of Spain
and of the Philippine Islands in complying with their duties conferred
upon them by law, acted in their governmental capacities in attempting
to carry out the intention of the contributors. It will this be seen that
those governments were something more, as we have said, than mere
trustees of the fund.

#5CONSTI TAGS: GOVERNMENT
LAWYERS LEAGUE FOR A BETTER PHIL. VS CORAZON AQUINO (G.R. No. 76180 dated October 24, 1986)
FACTS
1. On February 25, 1986, President
Corazon Aquino issued
Proclamation No. 1 announcing
that she and Vice President
Laurel were taking power.
It is further contended that the obligation on the part of the Monte de
Piedad to return the $80,000 to the Government, even considering it a
loan, was wiped out on the change of sovereignty, or inn other words,
the present Philippine Government cannot maintain this action for that
reason. This contention, if true, "must result from settled principles of
rigid law," as it cannot rest upon any title to the fund in the Monte de
Piedad acquired prior to such change. While the obligation to return the
$80,000 to the Spanish Government was still pending, war between the
United States and Spain ensued. Under the Treaty of Paris of December
10, 1898, the Archipelago, known as the Philippine Islands, was ceded to
the United States, the latter agreeing to pay Spain the sum of
$20,000,000. Under the first paragraph of the eighth article, Spain
relinquished to the United States "all buildings, wharves, barracks, forts,
structures, public highways, and other immovable property which, in
conformity with law, belonged to the public domain, and as such
belonged to the crown of Spain." As the $80,000 were not included
therein, it is said that the right to recover this amount did not, therefore,
pass to the present sovereign. This, in our opinion, does not follow as a
necessary consequence, as the right to recover does not rest upon the
proposition that the $80,000 must be "other immovable property"
mentioned in article 8 of the treaty, but upon contractual obligations
incurred before the Philippine Islands were ceded to the United States.
We will not inquire what effect his cession had upon the law of June 20,
1849, the royal decree of April 27, 1875, and the instructions
promulgated on the latter date. In Vilas vs. Manila (220 U. S., 345)
SUMMARY
ISSUE: WoN the government of Corazon
Aquino is legitimate
DISCUSSION/PRINCIPLES RULING
The petition is dismissed outright for lack of jurisdiction and for lack for Yes. The legitimacy of the Aquino
cause of action. government is not a justiciable matter but
belongs to the realm of politics where only
Prescinding from petitioner's lack of personality to sue or to bring this the people are the judge.
action, (Tan vs. Macapagal, 43 SCRA 677), it is elementary that this Court

2. On March 25, 1986, proclamation
No.3 was issued providing the
basis of the Aquino government
assumption of power by stating
that the “new government was
installed through a direct
exercise of the power of the
Filipino people assisted by units
of the New Armed Forces of the
Philippines.”
assumes no jurisdiction over petitions for declaratory relief. More The Court further held that:
importantly, the petition amounts in effect to a suit against the The people have accepted the Aquino
incumbent President of the Republic, President Corazon C. Aquino, and it government which is in effective control of
is equally elementary that incumbent Presidents are immune from suit the entire country;
or from being brought to court during the period of their incumbency It is not merely a de facto government but
and tenure. in fact and law a de jure government; and
The community of nations has recognized
The petition furthermore states no cause of action. Petitioner's the legitimacy of the new government.
allegation of ambiguity or vagueness of the aforequoted provision is
manifestly gratuitous, it being a matter of public record and common
public knowledge that the Constitutional Commission refers therein to
incumbent President Corazon C. Aquino and Vice-President Salvador H.
Laurel, and to no other persons, and provides for the extension of their
term to noon of June 30, 1992 for purposes of synchronization of
elections. Hence, the second paragraph of the cited section provides for
the holding on the second Monday of May, 1992 of the first regular
elections for the President and Vice-President under said 1986
Constitution. In previous cases, the legitimacy of the government of
President Corazon C. Aquino was likewise sought to be questioned with
the claim that it was not established pursuant to the 1973 Constitution.
The said cases were dismissed outright by this court which held that:
Petitioners have no personality to sue and their petitions state no cause
of action. For the legitimacy of the Aquino government is not a
justiciable matter. It belongs to the realm of politics where only the
people of the Philippines are the judge. And the people have made the
judgment; they have accepted the government of President Corazon C.
Aquino which is in effective control of the entire country so that it is not
merely a de facto government but in fact and law a de jure government.
Moreover, the community of nations has recognized the legitimacy of
tlie present government. All the eleven members of this Court, as
reorganized, have sworn to uphold the fundamental law of the Republic
under her government. (Joint Resolution of May 22, 1986 in G.R. No.
73748 [Lawyers League for a Better Philippines, etc. vs. President
Corazon C. Aquino, et al.]; G.R. No. 73972 [People's Crusade for
Supremacy of the Constitution. etc. vs. Mrs. Cory Aquino, et al.]; and
G.R. No. 73990 [Councilor Clifton U. Ganay vs. Corazon C. Aquino, et al.])
For the above-quoted reason, which are fully applicable to the petition
at bar, mutatis mutandis, there can be no question that President
Corazon C. Aquino and Vice-President Salvador H. Laurel are the
incumbent and legitimate President and Vice-President of the Republic
of the Philippines.or the above-quoted reasons, which are fully
applicable to the petition at bar,

ACCORDINGLY, the petition is hereby dismissed.

Teehankee, C.J., Feria, Yap, Fernan, Narvasa, Alampay and Paras, JJ.,
concur.

MELENCIO-HERRERA, J., concurring:

GUTIERREZ, Jr., J., concurring:

FELICIANO, JJ., concurring.

The petitioner asks the Court to declare who are "the incumbent
President and Vice President elected in the February 7, 1986 elections"
as stated in Article XVIII, Section 5 of the Draft Constitution adopted by
the Constitutional Commission of 1986.

We agree that the petition deserves outright dismissal as this Court has
no original jurisdiction over petitions for declaratory relief.

As to lack of cause of action, the petitioner's prayer for a declaration as

to who were elected President and Vice President in the February 7,
1986 elections should be addressed not to this Court but to other
departments of government constitutionally burdened with the task of
making that declaration.

The 1935 Constitution, the 1913 Constitution as amended, and the 1986
Draft Constitution uniformly provide 'that boards of canvassers in each
province and city shall certified who were elected President and Vice
President in their respective areas. The certified returns are transmitted
to the legislature which proclaims, through the designated Presiding
Head, who were duty elected.

Copies of the certified returns from the provincial and city boards of
canvassers have not been furnished this Court nor is there any need to
do so. In the absence of a legislature, we cannot assume the function of
 stating, and neither do we have any factual or legal capacity to officially
declare, who were elected President and Vice President in the February
7, 1986 elections.

As to who are the incumbent President and Vice President referred to in

the 1986 Draft Constitution, we agree that there is no doubt the 1986
Constitutional Commission referred to President Corazon C. Aquino and
Vice President Salvador H. Laurel.

Finally, we agree with the Resolution of the Court in G.R. Nos. 73748,
73972, and 73990.

For the foregoing reasons, we vote to DISMISS the instant petition.

CRUZ, J., concurring:

I vote to dismiss this petition on the ground that the Constitution we are
asked to interpret has not yet been ratified and is therefore not yet
effective. I see here no actual conflict of legal rights susceptible of
judicial determination at this time. (Aetna Life Insurance Co. vs.
Haworth, 300 U.S. 227; PACU vs. Secretary of Education, 97 Phil. 806.)

SUMMARY
#6CONSTI TAGS: SOVEREIGNTY
PERALTA VS DIRECTOR OF PRISONS (G.R. No. L-49 dated November 12, 1945) ISSUE: WoN the sentence which
imprisonment during the Japanese
WILLIAM F. PERALTA, petitioner, military occupation was valid
vs.
THE DIRECTOR OF PRISONS, respondent. WoN the legal effect of the reoccupation
of the Philippines and restoration of the
William F. Peralta in his own behalf. Commonwealth Government; that is
Office of the Solicitor General Tañada for respondent. whether or not, by the principle of
City Fiscal Mabanag as amicus curiae. postliminy, the punitive sentence which
petitioner is now serving fell through or
ceased to be valid from that time
FACTS DISCUSSION/PRINCIPLES RULING
1. Petitioner-defendant, a member In the case of Co Kim Cham vs. Valdez Tan Keh and Dizon (G. R. No. Yes. Valid. Although the crimes covered
 of the Metropolitan Constabulary
of Manila charged with the
supervision and control of the
production, procurement and
distribution of goods and other
necessaries as defined in section
1 of Act No. 9 of the National
Assembly of the so-called
Republic of the Philippines, was
prosecuted for the crime of
robbery as defined and penalized
by section 2 (a) of Act No. 65 of
the same Assembly. He was
found guilty and sentenced to life
imprisonment, which he
commenced to serve on August
21, 1944, by the Court of Special
and Exclusive Criminal
Jurisdiction, created in section 1
of Ordinance No. 7 promulgated
by the President of the so-called
Republic of the Philippines,
pursuant to the authority
conferred upon him by the
Constitution and laws of the said
Republic. And the procedure
followed in the trial was the
summary one established in
Chapter II of Executive Order No.
157 of the Chairman of the
Executive Commission, made
applicable to the trial violations
of said Act No. 65 by section 9
thereof and section 5 of said
Ordinance No. 7.
2. The petition for habeas corpus is
based on the ground that the
Court of Special and Executive
Criminal Jurisdiction created by
Ordinance No. 7 "was a political
L-5, pp. 113, 127, ante), recently decided, this Court, speaking are defined in the Revised Penal Code,
through the Justice who pens this decision, they were altered and penalized by said
Act No. 65 with different and heavier
As the so-called Republic of the Philippines was a de penalties, as new crimes and offenses
facto government of the second kind (of paramount force), as the demanded by military necessity, incident
government established in Castine, Maine, during its occupation by
to a state of war, and necessary for the
the British forces and as that of Tampico, Mexico, occupied during the
war with that the country by the United State Army, the question control of the country by the belligerent
involved in the present case cannot be decided in the light of the occupant, the protection and safety of the
Constitution of the Commonwealth Government; because the army of occupation, its support and
belligerent occupant was totally independent of the constitution of the efficiency, and the success of its
occupied territory in carrying out the administration over said territory; operations.
and the doctrine laid down by the Supreme Court of the United States
in the cases involving the validity of judicial and legislative acts of the The criminal acts penalized by said Act No.
Confederate States, considered as de facto governments of the third 65 are those committed by persons
kind, does not apply to the acts of the so-called Republic of the
charged or connected with the supervision
Philippines which is a de facto government of paramount force. The
Constitution of the so-called Republic of the Philippines can neither be and control of the production,
applied, since the validity of an act of a belligerent occupant cannot be procurement and distribution of foods and
tested in the light of another act of the same occupant, whose criminal other necessaries; and the penalties
jurisdiction is drawn entirely from the law martial as defined in the imposed upon the violators are different
usages of nations. from and much heavier than those
provided by the Revised Penal Code for
In the case of United States vs. Rice (4 Wheaton, 246), the Supreme the same ordinary crimes. The acts
Court of the United States held that, by the military occupation of penalized by said Act were taken out of
Castine, Maine, the sovereignty of the United States in the territory the territorial law or Revised Penal Code,
was, of course, suspended, and the laws of the United States could and referred to what is called martial law
no longer be rightfully enforced there or be obligatory upon the
by international jurists in order, not only
inhabitants who remained and submitted to the belligerent occupant.
By the surrender the inhabitants passed under a temporary allegiance to prevent food and other necessaries
to the British government, and were bound by such laws, and such from reaching the “guerrillas” which were
only, as it chose to recognize and impose. And Oppenheim, in his harassing the belligerent occupant but
Treatise on International Law, says that, in carrying out the also to preserve the food supply and other
administration over the occupied territory and its inhabitants, "the necessaries
(belligerent) occupant is totally independent of the constitution and
the laws of the territory, since occupation is an aim of warfare, and the
maintenance and safety of his forces, and the purpose of war, stand
We therefore hold that the punitive
in the foreground of his interest and must be promoted under all sentence under consideration, although
circumstances or conditions. (Vol. II, Sixth Edition, Revised, 1944, p. good and valid during the military
342.)
occupation of the Philippines by the
Japanese forces, ceased to be good and
The doctrine laid down in the decisions of the Supreme Court of the valid ipso facto upon the reoccupation of
United States (in the cases of Texas vs. White, 7 Wall and others) that these Island and the restoration therein
the judicial and legislative acts of the Confederate States which
 instrumentality of the military
forces of the Japanese Imperial
Army, the aims and purposes of
which are repugnant to those
aims and political purposes of the
Commonwealth of the
Philippines, as well as those of
the United States of America, and
therefore, null and void ab
initio," that the provisions of said
Ordinance No. 7 are violative of
the fundamental laws of the
Commonwealth of the
Philippines and "the petitioner
has been deprived of his
constitutional rights"; that the
petitioner herein is being
punished by a law created to
serve the political purpose of the
Japanese Imperial Army in the
Philippines, and "that the
penalties provided for are much
(more) severe than the penalties
provided for in the Revised Penal
Code."
3. The Solicitor General, in his
answer in behalf of the
respondent, states that, in his
own opinion, for the reasons
expressed in his brief in the case
of People of the Philippines,
plaintiff-appellant, vs. Benedicto
Jose y Santos, defendant-
appellee, G. R. No. L-22 (p. 612,
post), the acts and proceedings
taken and had before the said
Court of Special and Exclusive
Criminal Jurisdiction which
resulted in the conviction and
imprisonment of the herein
impaired the rights of the citizens under the Constitution of the United of the Commonwealth Government.
States or of the States, or were in conflict with those constitutions,
were null and void, is not applicable to the present case. Because that In view of all the foregoing, the writ
doctrine rests on the propositions that "the concession (of of habeas corpus prayed for is hereby
belligerency) made to the Confederate Government . . . sanctioned no granted and it is ordered that the
hostile legislation . . . and it impaired in no respect the rights of loyal petitioner be released forthwith, without
and citizens as they existed at the commencement of hostilities" pronouncement as to costs. So ordered.
(Williams vs. Bruffy, supra);that the Union is perpetual and
indissoluble, and the obligation of allegiance to the to the estate and
obedience to her laws and the estate constitution, subject to the
Constitution of the United States, remained unimpaired during the
War of Secession (Texas vs. White, supra) and that the Confederate
States "in most, if not in all instances, merely transferred the existing
state organizations to the support of a new and different national
head. the same constitution, the same laws for the protection of the
property and personal rights remained and were administered by the
same officers." (Sprott vs. United States, supra). In fine, because in
the case of the Confederate States, the constitution of each state and
that of the United States or the Union continued in force in those
states during the War of Secession; while the Constitution of the
Commonwealth Government was suspended during the occupation of
the Philippines by the Japanese forces of the belligerent occupant at
regular war with the United States.
The question which we have to resolve in the present case in the light
of the law of nations are, first, the validity of the creation of the Court
of Special and Exclusive Criminal Jurisdiction, and of the summary
procedure adopted for that court; secondly, the validity of the
sentence which imprisonment during the Japanese military
occupation; and thirdly, if they were then valid, the effect on said
punitive sentence of the reoccupation of the Philippines and the
restoration therein of the Commonwealth Government.
(3) The last question is the legal effect of the reoccupation of the
Philippines and restoration of the Commonwealth Government; that is
whether or not, by the principle of postliminy, the punitive sentence
which petitioner is now serving fell through or ceased to be valid from
that time.
In order to resolve this last question, it is not necessary to enter into
an elaborate discussion on the matter. It is sufficient to quote the
opinion on the subject of several international jurists and our recent
 petitioner, should now be denied
force and efficacy, and therefore
the petition for habeas corpus
should be granted. The reasons
advanced by the Solicitor General
in said brief and in his reply
memorandum in support of his
contention are, that the Court of
Special and Exclusive Criminal
Jurisdiction created, and the
summary procedure prescribed
therefor, by said Ordinance No. 7
in connection with Executive
Order No. 157 of the Chairman of
the Executive Commission are
tinged with political complexion;
that the procedure prescribed in
Ordinance No. 7 does not afford
a fair trial, violates the
Constitution of the
Commonwealth, and impairs the
Constitutional rights of accused
persons under their legitimate
Constitution. And he cites, in
support of this last proposition,
the decisions of the Supreme
Court of the United States in the
cases of Texas vs. White (7 Wall.,
700, 743); Horn vs. Lockart (17
Wall., 570, 581); United States vs.
Home Insurance Co. (22 Wall.,
99, 104); Sprott vs. United States
(20 Wall., 459).
4. The City Fiscal of Manila
appeared before this Court as
amicus curiae. In his
memorandum he submits that
the petition for habeas corpus be
denied on the following grounds:
That the Court of Special and
decision in the case of Co Kim Cham vs. Valdez Tan Keh and Dizon,
supra.
Hall, commenting on the effect of the principle of postliminy upon
sentences of the tribunals continued or created by the belligerent
occupant, opines "that judicial acts done under this control, when they
are not of a political complexion, administrative acts so done, to the
extent that they take effect during the continuance of his control, and
the various acts done during the same time by private persons under
the sanction of municipal law, remain good. . . . Political acts on the
other hand fall through as of course, whether they introduce any
positive change into the organization of the country, or whether they
only suspend the working of that already in existence. The execution
also of punitive sentences ceases as of course when they have had
reference to acts not criminal by the municipal law of the state, such
for example as acts directed against the security or control of the
invader." (Hall's International Law, seventh edition, p. 518.)
Westlake, speaking of the duration of the validity of punitive
sentences for offenses such as the one in question, which is within
the admitted power or competence of the belligerent occupant to
punish, says that: "To the extent to which the legal power of the
occupant is admitted he can make law for the duration of his
occupation. Like any other legislator he is morally subject to the duty
of giving sufficient notice of his enactments or regulations, not indeed
so as to be debarred from carrying out his will without notice, when
required by military necessity and so far as practically carrying out his
will can be distinguished from punishment, but always remembering
that to punish for breach of a regulation a person who was justifiably
ignorant of it would be outrageous. But the law made by the occupant
within his admitted power, whether morally justifiable or not, will bind
any member of the occupied population as against any other member
of it, and will bind as between them all and their national government,
so far as it produces an effect during the occupation. When the
occupation comes to an end the authority of the national government
is restored, either by the progress of operations during the war or by
the conclusion of a peace, no redress can be had for what has been
actually carried out but nothing further can follow from the occupant's
legislation. A prisoner detained under it must be released, and no civil
right conferred by it can be further enforced. The enemy's law
depends on him for enforcement as well as for enactment. The
invaded state is not subject to the indignity of being obliged to execute
 Exclusive Criminal Jurisdiction
and the Acts, Ordinances and
Executive Orders, creating it are
not of a political complexion, for
said Court was created, and the
crimes and offenses placed under
its jurisdiction were penalized
heavily, in response to an urgent
necessity, according to the
preamble of Ordinance No. 7;
that the right to appeal in a
criminal case is not a
constitutional right; and that the
summary procedure established
in said Ordinance No. 7 is not
violative of the provision of
Article III, section 1 (18) of the
Constitution of the
Commonwealth, to the effect
that no person shall be
compelled to be a witness
against himself, nor of the
provision of section 1 (1) of the
same Article that no person shall
be deprived of life, liberty, or
property without due process of
law.
5. The features of the summary
procedure adopted by Ordinance
No. 7, assailed by the petitioner
and the Solicitor General as
impairing the constitutional
rights of an accused are: that
court may interrogate the
accused and witnesses before
trial in order to clarify the points
in dispute; that the refusal of the
accused to answer the questions
may be considered unfavorable
his commands. (Westlake, International Law, Part II, War, pp. 97, 98.)
And Wheaton, who, as above stated, considers as war crimes such
offenses as those penalized in Ordinance No. 7 and Act No. 65, says:
"In general, the cast of the occupant possess legal validity, and under
international law should not be abrogated by the subsequent
government. But this rule does not necessarily apply to acts that
exceed the occupant's power (e.g., alienation of the domains of the
State or the sovereign), to sentences for 'war treason' and 'war
crimes,' to acts of a political character, and to those that beyond the
period of occupation. When occupation ceases, no reparation is
legally due for what has already been carried out." (Wheaton's
International Law, supra, p. 245.)
We have already held in our recent decision in the case of Co Kim
Cham vs. Valdez Tan Keh and Dizon, supra, that all judgments of
political complexion of the courts during the Japanese regime, ceased
to be valid upon the reoccupation of the islands by virtue of the
principle or right of postliminium. Applying that doctrine to the present
case, the sentence which convicted the petitioner of a crime of a
political complexion must be considered as having ceased to be
valid ipso facto upon the reoccupation or liberation of the Philippines
by General Douglas MacArthur.
It may not be amiss to say in this connection that it is not necessary
and proper to invoke the proclamation of General Douglas MacArthur
declaring null and void all laws, among them Act No. 65, of the so-
called Republic of the Philippines under which petitioner was
convicted, in order to give retroactive effect to the nullification of said
penal act and invalidate sentence rendered against petitioner under
said law, a sentence which, before the proclamation, had already
become null and of no effect.
We therefore hold that the punitive sentence under consideration,
although good and valid during the military occupation of the
Philippines by the Japanese forces, ceased to be good and valid ipso
facto upon the reoccupation of these Island and the restoration
therein of the Commonwealth Government.
In view of all the foregoing, the writ of habeas corpus prayed for is
hereby granted and it is ordered that the petitioner be released
 to him; that if from the facts
admitted at the preliminary forthwith, without pronouncement as to costs. So ordered.
interrogatory it appears that the
defendant is guilty, he may be
immediately convicted; and that
the sentence of the sentence of
the court is not appealable,
except in case of death penalty
which cannot be executed unless
and until reviewed and affirmed
by a special division of the
Supreme Court composed of
three Justices.
6. Before proceeding further, and in
order to determine the law
applicable to the questions
involved in the present case, it is
necessary to bear in mind the
nature and status of the
government established in these
Islands by the Japanese forces of
occupation under the designation
of Republic of the Philippines.

SUMMARY
#7CONSTI TAGS: SOVEREIGNTY
PEOPLE VS PERFECTO (G.R. No. L-18463 dated October 4, 1922) ISSUE: WoN article 256 of the Spanish
Penal Code, punishing "Any person who,
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee, by . . . writing, shall defame, abuse, or
vs. insult any Minister of the Crown or other
GREGORIO PERFECTOR, defendant-appellant. person in authority . . .," is still in force.

Alfonso E. Mendoza and the appellant in behalf of the latter.

Attorney-General Villa-Real for appellee.

FACTS DISCUSSION/PRINCIPLES RULING

About August 20, 1920, the The Libel Law is a complete and comprehensive law on the subject of The crime of lese majeste disappeared
Secretary of the Philippine Senate,
Fernando M. Guerrero, discovered
that certain documents which
constituted the records of testimony
given by witnesses in the
investigation of oil companies, had
disappeared from his office. Shortly
thereafter, the Philippine Senate,
having been called into special
session by the Governor-General,
the Secretary for the Senate
informed that body of the loss of the
documents and of the steps taken
by him to discover the guilty party.
The day following the convening of
the Senate, September 7, 1920, the
newspaper La Nacion, edited by Mr.
Gregorio Perfecto, published an
article
The Philippine Senate, in its session
of September 9, 1920, adopted a
resolution authorizing its committee
on elections and privileges to report
as to the action which should be
taken with reference to the article
published in La Nacion. On
September 15, 1920, the Senate
adopted a resolution authorizing the
President of the Senate to indorse
to the Attorney-General, for his
study and corresponding action, all
the papers referring to the case of
the newspaper La Nacion and its
editor, Mr. Gregorio Perfecto. As a
result, an information was filed in
the municipal court of the City of
Manila by an assistant city fiscal, in
which the editorial in question was
set out and in which it was alleged
that the same constituted a violation
of article 256 of the Penal Code.
The defendant Gregorio Perfecto
was found guilty in the municipal
libel. The well-known rule of statutory construction is, that where the
later statute clearly covers the old subject-matter of antecedent acts,
and it plainly appears to have been the purpose of the legislature to
give expression in it to the whole law on the subject, previous laws are
held to be repealed by necessary implication. (1 Lewis' Sutherland
Statutory Construction, p. 465.) For identical reasons, it is evident that
Act No. 277 had the effect so much of this article as punishes
defamation, abuse, or insults by writing.
Act No. 292 of the Philippine Commission, the Treason and Sedition
Law, may also have affected article 256, but as to this point, it is not
necessary to make a pronouncement.
Article 256 is found in Chapter V of title III of Book II of the Spanish
Penal Code. Title I of Book II punishes the crimes of treason, crimes
that endanger the peace or independence of the state, crimes against
international law, and the crime of piracy. Title II of the same book
punishes the crimes of lese majeste, crimes against the Cortes and its
members and against the council of ministers, crimes against the form
of government, and crimes committed on the occasion of the exercise
of rights guaranteed by the fundamental laws of the state, including
crime against religion and worship. Title III of the same Book, in which
article 256 is found, punishes the crimes of rebellion, sedition,
assaults upon persons in authority, and their agents, and contempts,
insults, injurias, and threats against persons in authority, and
insults, injurias, and threats against their agents and other public
officers, the last being the title to Chapter V. The first two articles in
Chapter V define and punish the offense of contempt committed by
any one who shall be word or deed defame, abuse, insult, or
threathen a minister of the crown, or any person in authority. The with
an article condemning challenges to fight duels intervening, comes
article 256, now being weighed in the balance. It reads as follows:
"Any person who, by word, deed, or writing, shall defame, abuse, or
insult any Minister of the Crown or other person in authority, while
engaged in the performance of official duties, or by reason of such
performance, provided that the offensive minister or person, or the
offensive writing be not addressed to him, shall suffer the penalty
of arresto mayor," — that is, the defamation, abuse, or insult of
any Minister of the Crown of the Monarchy of Spain (for there could
not be a Minister of the Crown in the United States of America), or
other person in authority in the Monarchy of Spain.
It cannot admit of doubt that all those provisions of the Spanish Penal
Code having to do with such subjects as treason, lese majeste,
in the Philippines with the ratification of
the Treaty of Paris. Ministers of the
Crown have no place under the
American flag.
To summarize, the result is, that all the
members of the court are of the opinion,
although for different reasons, that the
judgment should be reversed and the
defendant and appellant acquitted, with
costs de officio. So ordered.
The Court stated that during the Spanish
Government, Article 256 of the SPC was
enacted to protect Spanish officials as
representatives of the King. However, the
Court explains that in the present case, we
no longer have Kings nor its
representatives for the provision to
protect. Also, with the change of
sovereignty over the Philippines from
Spanish to American, it means that the
invoked provision of the SPC had been
automatically abrogated. The Court
determined Article 256 of the SPC to be
‘political’ in nature for it is about the
relation of the State to its inhabitants,
thus, the Court emphasized that ‘it is a
general principle of the public law that on
acquisition of territory, the previous
political relations of the ceded region are
totally abrogated.’ Hence, Article 256 of
the SPC is considered no longer in force
and cannot be applied to the present case.
Therefore, respondent was acquitted.
court and again in the Court of First
Instance of Manila.
During the course of the trial in the
Court of First Instance, after the
prosecution had rested, the defense
moved for the dismissal of the case.
On the subject of whether or not
article 256 of the Penal Code, under
which the information was
presented, is in force, the trial
judge, the Honorable George R.
Harvey
religion and worship, rebellion, sedition, and contempts of ministers of
the crown, are not longer in force. Our present task, therefore, is a
determination of whether article 256 has met the same fate, or, more
specifically stated, whether it is in the nature of a municipal law or
political law, and is consistent with the Constitution and laws of the
United States and the characteristics and institutions of the American
Government.
It is a general principle of the public law that on acquisition of territory
the previous political relations of the ceded region are totally
abrogated. "Political" is here used to denominate the laws regulating
the relations sustained by the inhabitants to the sovereign. (American
Insurance Co. vs. Canter [1828], 1 Pet., 511; Chicago, Rock Island
and Pacific Railway Co. vs. McGlinn [1885], 114 U.S., 542;
Roa vs. Collector of Customs [1912], 23 Phil., 315.) Mr. Justice Field
of the United States Supreme Court stated the obvious when in the
course of his opinion in the case of Chicago, Rock Island and Pacific
Railway Co. vs. McGlinn, supra, he said: "As a matter of course, all
laws, ordinances and regulations in conflict with the political character,
institutions and Constitution of the new government are at once
displaced. Thus, upon a cession of political jurisdiction and legislative
power — and the latter is involved in the former — to the United
States, the laws of the country in support of an established religion
or abridging the freedom of the press, or authorizing cruel and
unusual punishments, and he like, would at once cease to be of
obligatory force without any declaration to that effect." To quote again
from the United States Supreme Court: "It cannot be admitted that the
King of Spain could, by treaty or otherwise, impart to the United
States any of his royal prerogatives; and much less can it be admitted
that they have capacity to receive or power to exercise them. Every
nation acquiring territory, by treaty or otherwise, must hold it subject to
the Constitution and laws of its own government, and not according to
those of the government ceding it." (Pollard vs. Hagan [1845], 3 Hos.,
210.)
On American occupation of the Philippines, by instructions of the
President to the Military Commander dated May 28, 1898, and by
proclamation of the latter, the municipal laws of the conquered
territory affecting private rights of person and property and providing
for the punishment of crime were nominally continued in force in so far
as they were compatible with the new order of things. But President
McKinley, in his instructions to General Merritt, was careful to say:
"The first effect of the military occupation of the enemy's territory is
the severance of the former political relation of the inhabitants and the
establishment of a new political power." From that day to this, the
ordinarily it has been taken for granted that the provisions under
consideration were still effective. To paraphrase the language of the
United States Supreme Court in Weems vs. United States ([1910],
217 U. S., 349), there was not and could not be, except as precise
questions were presented, a careful consideration of the codal
provisions and a determination of the extent to which they accorded
with or were repugnant to the "'great principles of liberty and law'
which had been 'made the basis of our governmental system.' " But
when the question has been squarely raised, the appellate court has
been forced on occasion to hold certain portions of the Spanish codes
repugnant t democratic institutions and American constitutional
principles. (U.S. vs. Sweet [1901], 1 Phil., 18; U.S. vs. Balcorta [1913],
25 Phil., 273; U.S. vs. Balcorta [1913], 25 Phil., 533;
Weems vs. U.S., supra.)

The nature of the government which has been set up in the

Philippines under American sovereignty was outlined by President
McKinley in that Magna Charta of Philippine liberty, his instructions to
the Commission, of April 7, 1900.

The courts have naturally taken the same view. Mr. Justice Elliott,
speaking for our Supreme Court, in the case of United States vs. Bull
([1910], 15 Phil., 7), said: "The President and Congress framed the
government on the model with which American are familiar, and which
has proven best adapted for the advancement of the public interests
and the protection of individual rights and privileges."

Therefore, it has come with somewhat of a shock to hear the

statement made that the happiness, peace, and prosperity of the
people of the Philippine Islands and their customs, habits, and
prejudices, to follow the language of President McKinley, demand
obeisance to authority, and royal protection for that authority.

According to our view, article 256 of the Spanish Penal Code was
enacted by the Government of Spain to protect Spanish officials who
were the representatives of the King. With the change of sovereignty,
a new government, and a new theory of government, as set up in the
Philippines. It was in no sense a continuation of the old, although
merely for convenience certain of the existing institutions and laws
were continued. The demands which the new government made, and
makes, on the individual citizen are likewise different. No longer is
there a Minister of the Crown or a person in authority of such exalted
position that the citizen must speak of him only with bated breath. "In
the eye of our Constitution and laws, every man is a sovereign, a ruler
and a freeman, and has equal rights with every other man. We have
no rank or station, except that of respectability and intelligence as
opposed to indecency and ignorance, and the door to this rank stands
open to every man to freely enter and abide therein, if he is qualified,
and whether he is qualified or not depends upon the life and character
and attainments and conduct of each person for himself. Every man
may lawfully do what he will, so long as it is not malum in
se or malum prohibitum or does not infringe upon the qually sacred
rights of others." (State vs. Shepherd [1903], 177 Mo., 205; 99 A. S.
R., 624.)

It is true that in England, from which so many of the laws and

institutions of the United States are derived, there were once statutes
of scandalum magnatum, under which words which would not be
actionable if spoken of an ordinary subject were made actionable if
spoken of a peer of the realm or of any of the great officers of the
Crown, without proof of any special damage. The Crown of England,
unfortunately, took a view less tolerant that that of other sovereigns,
as for instance, the Emperors Augustus, Caesar, and Tiberius. These
English statutes have, however, long since, become obsolete, while in
the United States, the offense of scandalum magnatum is not known.
In the early days of the American Republic, a sedition law was
enacted, making it an offense to libel the Government, the Congress,
or the President of the United States, but the law met with so much
popular disapproval, that it was soon repealed. "In this country no
distinction as to persons is recognized, and in practice a person
holding a high office is regarded as a target at whom any person may
let fly his poisonous words. High official position, instead of affording
immunity from slanderous and libelous charges, seems rather to be
regarded as making his character free plunder for any one who
desires to create a senation by attacking it." (Newell, Slander and
Libel, 3d ed., p. 245; Sillars vs. Collier [1890], 151 Mass., 50; 6 L.R.A.,
680.)

Article 256 of the Penal Code is contrary to the genius and

fundamental principles of the American character and system of
government. The gulf which separates this article from the spirit which
inspires all penal legislation of American origin, is as wide as that
which separates a monarchy from a democratic Republic like that of
 the United States. This article was crowded out by implication as soon
as the United States established its authority in the Philippine Islands.
Penalties out of all proportion to the gravity of the offense, grounded
in a distorted monarchical conception of the nature of political
authority, as opposed to the American conception of the protection of
the interests of the public, have been obliterated by the present
system of government in the Islands.  1awph!l.net

From an entirely different point of view, it must be noted that this

article punishes contempts against executive officials, although its
terms are broad enough to cover the entire official class. Punishment
for contempt of non-judicial officers has no place in a government
based upon American principles. Our official class is not, as in
monarchies, an agent of some authority greater than the people but it
is an agent and servant of the people themselves. These officials are
only entitled to respect and obedience when they are acting within the
scope of their authority and jurisdiction. The American system of
government is calculated to enforce respect and obedience where
such respect and obedience is due, but never does it place around
the individual who happens to occupy an official position by mandate
of the people any official halo, which calls for drastic punishment for
contemptuous remarks.

The crime of lese majeste disappeared in the Philippines with the

ratification of the Treaty of Paris. Ministers of the Crown have no
place under the American flag.

To summarize, the result is, that all the members of the court are of
the opinion, although for different reasons, that the judgment should
be reversed and the defendant and appellant acquitted, with costs de
officio. So ordered.

SUMMARY
#8CONSTI TAGS: STATE IMMUNITY
GERMAN AGENCY FOR TECHNICAL COOPERATION VS COURT OF APPEALS (G.R. No. 152318 dated April 16, ISSUE: WoN GTZ can invoke State
2009) immunity from suit

DEUTSCHE GESELLSCHAFT FÜR TECHNISCHE ZUSAMMENARBEIT, also known as GERMAN AGENCY FOR
TECHNICAL COOPERATION, (GTZ) HANS PETER PAULENZ and ANNE NICOLAY, Petitioners,
vs.
HON. COURT OF APPEALS, HON. ARIEL CADIENTE SANTOS, Labor Arbiter of the Arbitration Branch, National
Labor Relations Commission, and BERNADETTE CARMELLA MAGTAAS, CAROLINA DIONCO, CHRISTOPHER
RAMOS, MELVIN DELA PAZ, RANDY TAMAYO and EDGARDO RAMILLO, Respondents.
FACTS DISCUSSION/PRINCIPLES RULING
1. On 7 September 1971, the In the arraignment, both governments likewise named their respective NO, GTZ cannot invoke State immunity
governments of the Federal implementing organizations for SHINE. The Philippines designated from suit even if their activities performed
Republic of Germany and the the Department of Health (DOH) and the Philippine Health Insurance pertaining to SHINE project are
Republic of the Philippines Corporation (Philhealth) with the implementation of SHINE. For their government in nature. The principle of
part, the German government "charge[d] the Deustche Gesellschaft
ratified an Agreement concerning state immunity from suit, whether a local
für Technische Zusammenarbeit[5 ] (GTZ[6 ]) GmbH, Eschborn, with
Technical Co-operation the implementation of its contributions."7 state or a foreign state, is reflected in
(Agreement) in Bonn, capital of Section 9, Article XVI of the Constitution,
what was then West Germany. Private respondents were engaged as contract employees hired by which states that the State may not be
The Agreement affirmed the GTZ to work for SHINE on various dates between December of 1998 sued without its consent. In this case,
countries’ "common interest in to September of 1999. Bernadette Carmela Magtaas was hired as an GTZ’s counsel described GTZ as the
promoting the technical and "information systems manager and project officer of SHINE;" 8 Carolina implementing agency of the Government
economic development of their Dionco as a "Project Assistant of SHINE;"9 Christopher Ramos as "a of the Federal Republic of Germany,
States, and recogni[zed] the project assistant and liason personnel of NHI related SHINE activities however it does not automatically mean
benefits to be derived by both by GTZ;"10 Melvin Dela Paz and Randy Tamayo as that it has the ability to invoke State
programmers;11 and Edgardo Ramilo as "driver, messenger and
States from closer technical co- immunity from suit. They had failed to
multipurpose service man."12 The employment contracts of all six
operation," and allowed for the private respondents all specified Dr. Rainer Tollkotter, identified as an adduce evidence, a certification from
conclusion of "arrangements adviser of GTZ, as the "employer." At the same time, all the contracts Department of Foreign Affairs which could
concerning individual projects of commonly provided that "[i]t is mutually agreed and understood that have been their factual basis for its claim
technical co-operation."1 While [Dr. Tollkotter, as employer] is a seconded GTZ expert who is hiring of immunity. At the same time, it appears
the Agreement provided for a the Employee on behalf of GTZ and for a Philippine-German bilateral that GTZ was actually organized not
limited term of effectivity of five project named ‘Social Health Insurance—Networking and through a legislative public charter, but
(5) years, it nonetheless was Empowerment (SHINE)’ which will end at a given time." 13 under private law, in the same way that
stated that "[t]he Agreement Philippine corporations can be organized
shall be tacitly extended for In September of 1999, Anne Nicolay (Nicolay), a Belgian national, under the Corporation Code even if fully
assumed the post of SHINE Project Manager. Disagreements
successive periods of one year owned by the Philippine government. The
eventually arose between Nicolay and private respondents in matters
unless either of the two apparent equivalent under Philippine law
such as proposed salary adjustments, and the course Nicolay was
Contracting Parties denounces it taking in the implementation of SHINE different from her is that of a corporation organized under
in writing three months prior to predecessors. The dispute culminated in a letter 14 dated 8 June 2000, the Corporation Code but owned by the
its expiry," and that even upon signed by the private respondents, addressed to Nicolay, and copies Philippine government, or a government-
the Agreement’s expiry, its furnished officials of the DOH, Philheath, and the director of the owned or controlled corporation (GOCC)
provisions would "continue to Manila office of GTZ. The letter raised several issues which private without original charter. And it bears
 apply to any projects agreed
upon x x x until their
completion."2
2. On 10 December 1999, the
Philippine government, through
then Foreign Affairs Secretary
Domingo Siazon, and the German
government, agreed to an
Arrangement in furtherance of
the 1971 Agreement. This
Arrangement affirmed the
common commitment of both
governments to promote jointly a
project called, Social Health
Insurance—Networking and
Empowerment (SHINE), which
was designed to "enable
Philippine families–especially
poor ones–to maintain their
health and secure health care of
sustainable quality."3 It appears
that SHINE had already been in
existence even prior to the
effectivity of the Arrangement,
though the record does not
indicate when exactly SHINE was
constituted. Nonetheless, the
Arrangement stated the various
obligations of the Filipino and
German governments.
respondents claim had been brought up several times in the past, but
have not been given appropriate response. It was claimed that SHINE
under Nicolay had veered away from its original purpose to facilitate
the development of social health insurance by shoring up the national
health insurance program and strengthening local initiatives, as
Nicolay had refused to support local partners and new initiatives on
the premise that community and local government unit schemes were
not sustainable—a philosophy that supposedly betrayed Nicolay’s
lack of understanding of the purpose of the project. Private
respondents further alleged that as a result of Nicolay’s "new thrust,
resources have been used inappropriately;" that the new management
style was "not congruent with the original goals of the project;" that
Nicolay herself suffered from "cultural insensitivity" that consequently
failed to sustain healthy relations with SHINE’s partners and staff.
The letter ended with these ominous words:
The issues that we [the private respondents] have stated here are
very crucial to us in working for the project. We could no longer find
any reason to stay with the project unless ALL of these issues be
addressed immediately and appropriately.15
In response, Nicolay wrote each of the private respondents a letter
dated 21 June 2000, all similarly worded except for their respective
addressees. She informed private respondents that the "project’s
orientations and evolution" were decided in consensus with partner
institutions, Philhealth and the DOH, and thus no longer subject to
modifications. More pertinently, she stated:
You have firmly and unequivocally stated in the last paragraph of your
8th June 2000 letter that you and the five other staff "could no longer
find any reason to stay with the project unless ALL of these issues be
addressed immediately and appropriately." Under the foregoing
premises and circumstances, it is now imperative that I am to accept
your resignation, which I expect to receive as soon as possible. 16
Taken aback, private respondents replied with a common letter,
clarifying that their earlier letter was not intended as a resignation
letter, but one that merely intended to raise attention to what they
perceived as vital issues.17 Negotiations ensued between private
respondents and Nicolay, but for naught. Each of the private
respondents received a letter from Nicolay dated 11 July 2000,
notice that Section 36 of the Corporate
Code states that every corporation
incorporated under this Code has the
power and capacity to sue and be sued in
its corporate name. The Court is thus
holds and so rules that GTZ consistently
has been unable to establish with
satisfaction that it enjoys the immunity
from suit generally enjoyed by its parent
country, the Federal Republic of Germany.
The nature of the acts performed by the
entity invoking immunity remains the
most important barometer for testing
whether the privilege of State immunity
from suit should apply. At the same time,
our Constitution stipulates that a State
immunity from suit is conditional on its
withholding of consent; hence, the laws
and circumstances pertaining to the
creation and legal personality of an
instrumentality or agency invoking
immunity remain relevant. Consent to be
sued, as exhibited in this decision, is often
conferred by the very same statute or
general law creating the instrumentality or
agency
informing them of the pre-termination of their contracts of employment
on the grounds of "serious and gross insubordination, among others,
resulting to loss of confidence and trust."18

On 21 August 2000, the private respondents filed a complaint for

illegal dismissal with the NLRC. Named as respondents therein where
GTZ, the Director of its Manila office Hans Peter Paulenz, its Assistant
Project Manager Christian Jahn, and Nicolay.

On 25 October 2005, GTZ, through counsel, filed a Motion to Dismiss,

on the ground that the Labor Arbiter had no jurisdiction over the case,
as its acts were undertaken in the discharge of the governmental
functions and sovereign acts of the Government of the Federal
Republic of Germany. This was opposed by private respondents with
the arguments that GTZ had failed to secure a certification that it was
immune from suit from the Department of Foreign Affairs, and that it
was GTZ and not the German government which had implemented
the SHINE Project and entered into the contracts of employment.

On 27 November 2000, the Labor Arbiter issued an Order19 denying

the Motion to Dismiss. The Order cited, among others, that GTZ was
a private corporation which entered into an employment contract; and
that GTZ had failed to secure from the DFA a certification as to its
diplomatic status.

On 7 February 2001, GTZ filed with the Labor Arbiter a "Reiterating

Motion to Dismiss," again praying that the Motion to Dismiss be
granted on the jurisdictional ground, and reprising the arguments for
dismissal it had earlier raised.20 No action was taken by the Labor
Arbiter on this new motion. Instead, on 15 October 2001, the Labor
Arbiter rendered a Decision21 granting the complaint for illegal
dismissal. The Decision concluded that respondents were dismissed
without lawful cause, there being "a total lack of due process both
substantive and procedural [sic]."22 GTZ was faulted for failing to
observe the notice requirements in the labor law. The Decision
likewise proceeded from the premise that GTZ had treated the letter
dated 8 June 2000 as a resignation letter, and devoted some focus in
debunking this theory.

The Decision initially offered that it "need not discuss the jurisdictional
aspect considering that the same had already been lengthily
discussed in the Order de[n]ying respondents’ Motion to
Dismiss."23 Nonetheless, it proceeded to discuss the jurisdictional
aspect, in this wise:

Under pain of being repetitious, the undersigned Labor Arbiter has

jurisdiction to entertain the complaint on the following grounds:

Firstly, under the employment contract entered into between

complainants and respondents, specifically Section 10
thereof, it provides that "contract partners agree that his
contract shall be subject to the LAWS of the jurisdiction of the
locality in which the service is performed."

Secondly, respondent having entered into contract, they can

no longer invoke the sovereignty of the Federal Republic of
Germany.

Lastly, it is imperative to be immune from suit, respondents

should have secured from the Department of Foreign Affairs a
certification of respondents’ diplomatic status and entitlement
to diplomatic privileges including immunity from suits. Having
failed in this regard, respondents cannot escape liability from
the shelter of sovereign immunity.[sic]24

Notably, GTZ did not file a motion for reconsideration to the

Labor Arbiter’s Decision or elevate said decision for appeal to
the NLRC. Instead, GTZ opted to assail the decision by way of
a special civil action for certiorari filed with the Court of
Appeals.25 On 10 December 2001, the Court of Appeals
promulgated a Resolution26 dismissing GTZ’s petition, finding
that "judicial recourse at this stage of the case is uncalled for[,]
[t]he appropriate remedy of the petitioners [being] an appeal to
the NLRC x x x."27 A motion for reconsideration to this
Resolution proved fruitless for GTZ.28

Thus, the present petition for review under Rule 45, assailing the
decision and resolutions of the Court of Appeals and of the Labor
Arbiter. GTZ’s arguments center on whether the Court of Appeals
could have entertained its petition for certiorari despite its not having
undertaken an appeal before the NLRC; and whether the complaint
for illegal dismissal should have been dismissed for lack of jurisdiction
on account of GTZ’s insistence that it enjoys immunity from suit. No
special arguments are directed with respect to petitioners Hans Peter
Paulenz and Anne Nicolay, respectively the then Director and the then
Project Manager of GTZ in the Philippines; so we have to presume
that the arguments raised in behalf of GTZ’s alleged immunity from
suit extend to them as well.

The Court required the Office of the Solicitor General (OSG) to file a
Comment on the petition. In its Comment dated 7 November 2005,
the OSG took the side of GTZ, with the prayer that the petition be
granted on the ground that GTZ was immune from suit, citing in
particular its assigned functions in implementing the SHINE program
—a joint undertaking of the Philippine and German governments
which was neither proprietary nor commercial in nature.

The Court of Appeals had premised the dismissal of GTZ’s petition on

its procedural misstep in bypassing an appeal to NLRC and
challenging the Labor Arbiter’s Decision directly with the appellate
court by way of a Rule 65 petition. In dismissing the petition, the

Court of Appeals relied on our ruling in Air Service Cooperative v.

Court of Appeals.29 The central issue in that case was whether a
decision of a Labor Arbiter rendered without jurisdiction over the
subject matter may be annulled in a petition before a Regional Trial
Court. That case may be differentiated from the present case, since
the Regional Trial Court does not have original or appellate
jurisdiction to review a decision rendered by a Labor Arbiter. In
contrast, there is no doubt, as affirmed by jurisprudence, that the
Court of Appeals has jurisdiction to review, by way of its original
certiorari jurisdiction, decisions ruling on complaints for illegal
dismissal.

Nonetheless, the Court of Appeals is correct in pronouncing the

general rule that the proper recourse from the decision of the Labor
Arbiter is to first appeal the same to the NLRC. Air Services is in fact
clearly detrimental to petitioner’s position in one regard. The Court
therein noted that on account of the failure to correctly appeal the
decision of the Labor Arbiter to the NLRC, such judgment
consequently became final and executory.30 GTZ goes as far as to
"request" that the Court re-examine Air Services, a suggestion that is
needlessly improvident under the circumstances. Air Services affirms
doctrines grounded in sound procedural rules that have allowed for
the considered and orderly disposition of labor cases.
The OSG points out, citing Heirs of Mayor Nemencio Galvez v. Court
of Appeals,31 that even when appeal is available, the Court has
nonetheless allowed a writ of certiorari when the orders of the lower
court were issued either in excess of or without jurisdiction. Indeed,
the Court has ruled before that the failure to employ available
intermediate recourses, such as a motion for reconsideration, is not a
fatal infirmity if the ruling assailed is a patent nullity. This approach
suggested by the OSG allows the Court to inquire directly into what is
the main issue–whether GTZ enjoys immunity from suit.

The arguments raised by GTZ and the 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.,32 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. 33

Beyond dispute is the tenability of the comment points 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
Republic’s 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,34 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 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. The following lucid discussion from
Justice Isagani Cruz is pertinent:

Where suit is filed not against the government itself or its officials but
against one of its entities, it must be ascertained whether or not the
State, as the principal that may ultimately be held liable, has given its
consent to be sued. This ascertainment will depend in the first
instance on whether the government agency impleaded is
incorporated or unincorporated.

An incorporated agency has a charter of its own that invests it with a

separate juridical personality, like the Social Security System, the
University of the Philippines, and the City of Manila. By contrast, the
unincorporated agency is so called because it has no separate
juridical personality but is merged in the general machinery of the
government, like the Department of Justice, the Bureau of Mines and
the Government Printing Office.

If the agency is incorporated, the test of its suability is found in its

charter. The simple rule is that it is suable if its charter says so, and
this is true regardless of the functions it is performing. Municipal
corporations, for example, like provinces and cities, are agencies of
the State when they are engaged in governmental functions and
therefore should enjoy the sovereign immunity from suit.
Nevertheless, they are subject to suit even in the performance of such
functions because their charter provides that they can sue and be
sued.35

State immunity from suit may be waived by general or special

law.36 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. These include the

National Irrigation Administration, 37 the former Central Bank,38 and the
National Power Corporation.39 In SSS v. Court of Appeals,40 the Court
through Justice Melencio-Herrera explained that by virtue of an
express provision in its charter allowing it to sue and be sued, the
Social Security System did not enjoy immunity from suit:

We come now to the amendability of the SSS to judicial action and

legal responsibility for its acts. To our minds, there should be no
question on this score considering that the SSS is a juridical entity
with a personality of its own. It has corporate powers separate and
distinct from the Government. SSS' own organic act specifically
provides that it can sue and be sued in Court. These words "sue and
be sued" embrace all civil process incident to a legal action. So that,
even assuming that the SSS, as it claims, enjoys immunity from suit
as an entity performing governmental functions, by virtue of the
explicit provision of the aforecited enabling law, the Government must
be deemed to have waived immunity in respect of the SSS, although it
does not thereby concede its liability. That statutory law has given to
the private citizen a remedy for the enforcement and protection of his
rights. The SSS thereby has been required to submit to the jurisdiction
of the Courts, subject to its right to interpose any lawful defense.
Whether the SSS performs governmental or proprietary functions thus
becomes unnecessary to belabor. For by that waiver, a private citizen
may bring a suit against it for varied objectives, such as, in this case,
to obtain compensation in damages arising from contract, and even
for tort.

A recent case squarely in point anent the principle, involving the

National Power Corporation, is that of Rayo v. Court of First Instance
of Bulacan, 110 SCRA 457 (1981), wherein this Court, speaking
through Mr. Justice Vicente Abad Santos, ruled:

"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. 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." 41

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,
governmental in nature as 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."42 The Labor Arbiter accepted that claim in his Order denying
the Motion to Dismiss,43 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." 44 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.45

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.

GTZ itself provides a more helpful clue, inadvertently, through its own
official Internet website.46 In the "Corporate Profile" section of the
English language version of its site, GTZ describes itself as follows:

As an international cooperation enterprise for sustainable

development with worldwide operations, the federally owned
Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH
supports the German Government in achieving its development-policy
objectives. It provides viable, forward-looking solutions for political,
economic, ecological and social development in a globalised world.
Working under difficult conditions, GTZ promotes complex reforms
and change processes. Its corporate objective is to improve people’s
living conditions on a sustainable basis.

GTZ is a federal enterprise based in Eschborn near Frankfurt am

Main. It was founded in 1975 as a company under private law. The
German Federal Ministry for Economic Cooperation and Development
(BMZ) is its major client. The company also operates on behalf of
other German ministries, the governments of other countries and
international clients, such as the European Commission, the United
Nations and the World Bank, as well as on behalf of private
enterprises. GTZ works on a public-benefit basis. All surpluses
generated are channeled [sic] back into its own international
cooperation projects for sustainable development. 47

GTZ’s own website elicits that petitioner is "federally owned," a

"federal enterprise," and "founded in 1975 as a company under
private law." GTZ clearly has a very meaningful relationship with the
Federal Republic of Germany, which apparently owns it. At the same
time, it appears that GTZ was actually organized not through a
legislative public charter, but under private law, in the same way that
Philippine corporations can be organized under the Corporation Code
even if fully owned by the Philippine government.

This self-description of GTZ in its own official website gives further

cause for pause in adopting petitioners’ argument that GTZ is entitled
to immunity from suit because it is "an implementing agency." The
above-quoted statement does not dispute the characterization of GTZ
as an "implementing agency of the Federal Republic of Germany," yet
it bolsters the notion that as a company organized under private law, it
has a legal personality independent of that of the Federal Republic of
Germany.

The Federal Republic of Germany, in its own official website, 48 also

makes reference to GTZ and describes it in this manner:

x x x Going by the principle of "sustainable development," the German

Technical Cooperation (Deutsche Gesellschaft für Technische
Zusammenarbeit GmbH, GTZ) takes on non-profit projects in
international "technical cooperation." The GTZ is a private company
owned by the Federal Republic of Germany.49

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."50

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,51 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.

This absence of basis in fact leads to another important point, alluded

to by the Labor Arbiter in his rulings. Our ruling in Holy See v. Del
Rosario52 provided a template on how a foreign entity desiring to
invoke State immunity from suit could duly prove such immunity
before our local courts. The principles enunciated in that case were
derived from public international law. We stated then:

In Public International Law, when a state or international agency

wishes to plead sovereign or diplomatic immunity in a foreign court, it
requests the Foreign Office of the state where it is sued to convey to
the court that said defendant is entitled to immunity.

In the United States, the procedure followed is the process of

"suggestion," where the foreign state or the international organization
sued in an American court requests the Secretary of State to make a
determination as to whether it is entitled to immunity. If the Secretary
of State finds that the defendant is immune from suit, he, in turn, asks
the Attorney General to submit to the court a "suggestion" that the
defendant is entitled to immunity. In England, a similar procedure is
followed, only the Foreign Office issues a certification to that effect
instead of submitting a "suggestion" (O'Connell, I International Law
130 [1965]; Note: Immunity from Suit of Foreign Sovereign
Instrumentalities and Obligations, 50 Yale Law Journal 1088 [1941]).

In the Philippines, the practice is for the foreign government or the

international organization to first secure an executive endorsement of
its claim of sovereign or diplomatic immunity. But how the Philippine
Foreign Office conveys its endorsement to the courts varies. In
International Catholic Migration Commission v. Calleja, 190 SCRA
130 (1990), the Secretary of Foreign Affairs just sent a letter directly
to the Secretary of Labor and Employment, informing the latter that
the respondent-employer could not be sued because it enjoyed
diplomatic immunity. In World Health Organization v. Aquino, 48
SCRA 242 (1972), the Secretary of Foreign Affairs sent the trial court
a telegram to that effect. In Baer v. Tizon, 57 SCRA 1 (1974), the U.S.
Embassy asked the Secretary of Foreign Affairs to request the
Solicitor General to make, in behalf of the Commander of the United
States Naval Base at Olongapo City, Zambales, a "suggestion" to
respondent Judge. The Solicitor General embodied the "suggestion"
in a Manifestation and Memorandum as amicus curiae.53

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."54 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 GTZ’s 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 GTZ’s claim of
State’s 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 GTZ’s claim, or
that the OSG had solicited the DFA’s 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. 1avvphi1

Holy See made reference to Baer v. Tizon,55 and that in the said case,
the United States Embassy asked the Secretary of Foreign Affairs to
request the Solicitor General to make a "suggestion" to the trial court,
accomplished by way of a Manifestation and Memorandum, that the
petitioner therein enjoyed immunity as the Commander of the Subic
Bay Naval Base. Such circumstance is actually not narrated in the text
of Baer itself and was likely supplied in Holy See because its author,
Justice Camilio Quiason, had appeared as the Solicitor in behalf of
the OSG in Baer. Nonetheless, as narrated in Holy See, it was the
Secretary of Foreign Affairs which directed the OSG to intervene in
behalf of the United States government in the Baer case, and such
fact is manifest enough of the endorsement by the Foreign Office. We
do not find a similar circumstance that bears here.

The Court is thus holds and so rules that GTZ consistently has been
unable to establish with satisfaction that it enjoys the immunity from
suit generally enjoyed by its parent country, the Federal Republic of
Germany. Consequently, both the Labor Arbiter and the Court of
Appeals acted within proper bounds when they refused to
acknowledge that GTZ is so immune by dismissing the complaint
against it. Our finding has additional ramifications on the failure of
GTZ to properly appeal the Labor Arbiter’s decision to the NLRC. As
pointed out by the OSG, the direct recourse to the Court of Appeals
while bypassing the NLRC could have been sanctioned had the Labor
Arbiter’s decision been a "patent nullity." Since the Labor Arbiter acted
properly in deciding the complaint, notwithstanding GTZ’s claim of
immunity, we cannot see how the decision could have translated into
a "patent nullity."

As a result, there was no basis for petitioners in foregoing the appeal

to the NLRC by filing directly with the Court of Appeals the petition for
certiorari. It then follows that the Court of Appeals acted correctly in
dismissing the petition on that ground. As a further consequence,
since petitioners failed to perfect an appeal from the Labor Arbiter’s
Decision, the same has long become final and executory. All other
questions related to this case, such as whether or not private
respondents were illegally dismissed, are no longer susceptible to
review, respecting as we do the finality of the Labor Arbiter’s Decision.

SUMMARY
#9CONSTI TAGS: STATE IMMUNITY
CHINA NATIONAL MACHINERY & EQUIPMENT CORP VS STA. MARIA (G.R. No. 185572 dated February 7, 2012) ISSUE: WoN CNMEG is entitled to
immunity, precluding it from being sued
CHINA NATIONAL MACHINERY & EQUIPMENT CORP. (GROUP), Petitioner, before a local court.
vs.
HON. CESAR D. SANTAMARIA, in his official capacity as Presiding Judge of Branch 145, Regional Trial Court of
Makati City, HERMINIO HARRY L. ROQUE, JR., JOEL R. BUTUYAN, ROGER R. RAYEL, ROMEL R. BAGARES,
CHRISTOPHER FRANCISCO C. BOLASTIG, LEAGUE OF URBAN POOR FOR ACTION (LUPA), KILUSAN NG MARALITA
SA MEYCAUAYAN (KMM-LUPA CHAPTER), DANILO M. CALDERON, VICENTE C. ALBAN, MERLYN M. VAAL, LOLITA
S. QUINONES, RICARDO D. LANOZO, JR., CONCHITA G. GOZO, MA. TERESA D. ZEPEDA, JOSEFINA A. LANOZO, and
SERGIO C. LEGASPI, JR., KALIPUNAN NG DAMAYANG MAHIHIRAP (KADAMAY), EDY CLERIGO, RAMMIL DINGAL,
NELSON B. TERRADO, CARMEN DEUNIDA, and EDUARDO LEGSON, Respondents.
FACTS DISCUSSION/PRINCIPLES RULING
1. On 14 September 2002, This is a Petition for Review on Certiorari with Prayer for the Issuance There are two conflicting concepts of
petitioner China National of a Temporary Restraining Order (TRO) and/or Preliminary Injunction sovereign immunity, each widely held and
Machinery & Equipment Corp. assailing the 30 September 2008 Decision and 5 December 2008 firmly established. According to the
(Group) (CNMEG), represented Resolution of the Court of Appeals (CA) in CA–G.R. SP No. 103351. 1
classical or absolute theory, a sovereign
by its chairperson, Ren Hongbin, cannot, without its consent, be made a
On 14 September 2002, petitioner China National Machinery &
entered into a Memorandum of respondent in the courts of another
Equipment Corp. (Group) (CNMEG), represented by its chairperson,
Understanding with the North Ren Hongbin, entered into a Memorandum of Understanding with the sovereign. According to the newer or
Luzon Railways Corporation North Luzon Railways Corporation (Northrail), represented by its restrictive theory, the immunity of the
(Northrail), represented by its president, Jose L. Cortes, Jr. for the conduct of a feasibility study on a sovereign is recognized only with regard
president, Jose L. Cortes, Jr. for possible railway line from Manila to San Fernando, La Union (the to public acts or acts jure imperii of a
the conduct of a feasibility study Northrail Project). 2
state, but not with regard to private acts
on a possible railway line from or acts jure gestionis.
Manila to San Fernando, La On 30 August 2003, the Export Import Bank of China (EXIM Bank)
Union (the Northrail Project). and the Department of Finance of the Philippines (DOF) entered into Since the Philippines adheres to the
a Memorandum of Understanding (Aug 30 MOU), wherein China restrictive theory, it is crucial to ascertain
2. On 30 August 2003, the Export agreed to extend Preferential Buyer’s Credit to the Philippine the legal nature of the act involved –
government to finance the Northrail Project. The Chinese government
3 

Import Bank of China (EXIM whether the entity claiming immunity

designated EXIM Bank as the lender, while the Philippine government
Bank) and the Department of named the DOF as the borrower. Under the Aug 30 MOU, EXIM Bank
4  performs governmental, as opposed to
Finance of the Philippines (DOF) agreed to extend an amount not exceeding USD 400,000,000 in favor proprietary, functions. The restrictive
entered into a Memorandum of of the DOF, payable in 20 years, with a 5-year grace period, and at application of State immunity is proper
Understanding (Aug 30 MOU), the rate of 3% per annum. 5
only when the proceedings arise out of
wherein China agreed to extend commercial transactions of the foreign
Preferential Buyer’s Credit to the On 1 October 2003, the Chinese Ambassador to the Philippines, sovereign, its commercial activities or
Philippine government to finance Wang Chungui (Amb. Wang), wrote a letter to DOF Secretary Jose economic affairs. Stated differently, a
the Northrail Project. The Isidro Camacho (Sec. Camacho) informing him of CNMEG’s State may be said to have descended to
Chinese government designated designation as the Prime Contractor for the Northrail Project. 6
the level of an individual and can thus be
 EXIM Bank as the lender, while
the Philippine government
named the DOF as the borrower.
Under the Aug 30 MOU, EXIM
Bank agreed to extend an
amount not exceeding USD
400,000,000 in favor of the DOF,
payable in 20 years, with a 5-year
grace period, and at the rate of
3% per annum.
3. 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
CNMEG’s designation as the
Prime Contractor for the
Northrail Project.
4. 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).
The contract price for the
Northrail Project was pegged at
USD 421,050,000.
5. On 26 February 2004, the
Philippine government and EXIM
Bank entered into a counterpart
financial agreement – Buyer
Credit Loan Agreement No. BLA
04055 (the Loan Agreement). In
the Loan Agreement, EXIM Bank
agreed to extend Preferential
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). The contract price for the Northrail Project
7 
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). In the Loan
9  government. The Feasibility Study was
Agreement, EXIM Bank agreed to extend Preferential Buyer’s 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. The case was
11  controlled corporation, and its assignment
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. On 29 March 2006,
13 
CNMEG filed an Urgent Motion for Reconsideration of this
Order. Before RTC Br. 145 could rule thereon, CNMEG filed a Motion
14 
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
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.
It was CNMEG that initiated the
undertaking, and not the Chinese
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.
The use of the term “state corporation” to
refer to CNMEG was only descriptive of its
nature as a government-owned and/or -
as the Primary Contractor did not imply
that it was acting on behalf of China in the
performance of the latter’s 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.
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 “immunity from
suit is determined by the character of the
objects for which the entity was
organized.”
 Buyer’s 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.
6. 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. RTC Br.
145 issued an Order dated 17
March 2006 setting the case for
hearing on the issuance of
injunctive reliefs. On 29 March
2006, CNMEG filed an Urgent
Motion for Reconsideration of
this Order. 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.
hearing to determine whether the injunctive reliefs prayed for should In the case at bar, it is readily apparent
be issued. CNMEG then filed a Motion for Reconsideration, which
16  17 
that CNMEG cannot claim immunity from
was denied by the trial court in an Order dated 10 March 2008. Thus,18 
suit, even if it contends that it performs
CNMEG filed before the CA a Petition for Certiorari with Prayer for the governmental functions. Its designation as
Issuance of TRO and/or Writ of Preliminary Injunction dated 4 April
the Primary Contractor does not
2008.19
automatically grant it immunity, just as
the term “implementing agency” has no
In the assailed Decision dated 30 September 2008, the appellate
court dismissed the Petition for Certiorari. Subsequently, CNMEG
20  precise definition for purposes of
filed a Motion for Reconsideration, which was denied by the CA in a
21  ascertaining whether GTZ was immune
Resolution dated 5 December 2008. Thus, CNMEG filed the instant
22  from suit. Although CNMEG claims to be a
Petition for Review on Certiorari dated 21 January 2009, raising the government-owned corporation, it failed
following issues: 
23
to adduce evidence that it has not
consented to be sued under Chinese law.
Whether or not petitioner CNMEG is an agent of the sovereign Thus, following this Court’s ruling in
People’s Republic of China. Deutsche Gesellschaft, in the absence of
evidence to the contrary, CNMEG is to be
Whether or not the Northrail contracts are products of an executive presumed to be a government-owned and
agreement between two sovereign states.
-controlled corporation without an original
charter. As a result, it has the capacity to
Whether or not the certification from the Department of Foreign Affairs
sue and be sued under Section 36 of the
is necessary under the foregoing circumstances.
Corporation Code.
Whether or not the act being undertaken by petitioner CNMEG is an
act jure imperii. An agreement to submit any dispute to
arbitration may be construed as an
Whether or not the Court of Appeals failed to avoid a procedural limbo implicit waiver of immunity from suit.
in the lower court.
In the United States, the Foreign
Whether or not the Northrail Project is subject to competitive public Sovereign Immunities Act of 1976 provides
bidding. for a waiver by implication of state
immunity. In the said law, the agreement
Whether or not the Court of Appeals ignored the ruling of this to submit disputes to arbitration in a
Honorable Court in the Neri case. foreign country is construed as an implicit
waiver of immunity from suit. Although
CNMEG prays for the dismissal of Civil Case No. 06-203 before RTC there is no similar law in the Philippines,
Br. 145 for lack of jurisdiction. It likewise requests this Court for the there is a reason to apply the legal
issuance of a TRO and, later on, a writ of preliminary injunction to
reasoning behind the waiver in this case.
restrain public respondent from proceeding with the disposition of Civil
Case No. 06-203.
7. On 15 May 2007, RTC Br. 145
issued an Omnibus Order
denying CNMEG’s Motion to
Dismiss and setting the case for
summary hearing to determine
whether the injunctive reliefs
prayed for should be issued.
CNMEG then filed a Motion for
Reconsideration, which was
denied by the trial court in an
Order dated 10 March 2008.
Thus, CNMEG filed before the CA
a Petition for Certiorari with
Prayer for the Issuance of TRO
and/or Writ of Preliminary
Injunction dated 4 April 2008.
8. In the assailed Decision dated 30
September 2008, the appellate
court dismissed the Petition for
Certiorari. Subsequently, CNMEG
filed a Motion for
Reconsideration, which was
denied by the CA in a Resolution
dated 5 December 2008.
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, to wit:
24 
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.)
x x x           x x x          x x x
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, this Court 25 
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.
 x x x           x x x          x x x

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). (Emphasis
26 

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 Employer’s personnel;

AND WHEREAS the Loan Agreement of the Preferential Buyer’s

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; (b) the letter of Amb. Wang dated 1 October 2003
30 

addressed to Sec. Camacho; and (c) the Loan Agreement.

31  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 CNMEG’s proposal

to undertake a Feasibility Study (the "Study") at no cost to
NORTHRAIL CORP.;

WHEREAS, the NORTHRAIL CORP. also welcomes CNMEG’s

interest in undertaking the Project with Supplier’s 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 CNMEG’s 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;

x x x           x x x          x x x

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 CNMEG’s
presentation of the Study. (Emphasis supplied)
33 

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 People’s Republic of China
which initiated our Government’s involvement in the Project.

3. Among the various state corporations of the People’s

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. (Emphasis supplied.)
34 

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. The use of the
35 

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 latter’s 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 Borrower’s
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 People’s 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 People’s
Republic of China and the appointment of the Borrower’s Chinese
Process Agent is legal, valid, binding and enforceable and any
judgment obtained in the People’s 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 petitioner’s 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, it is clear from the foregoing provisions
38 

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. Wang’s letter dated 1 October 2003, and the Loan
Agreement would reveal the desire of CNMEG to construct the Luzon
Railways in pursuit of a purely commercial activity performed in the
ordinary course of its business.

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 Court’s ruling in Deutsche Gesellschaft Für

Technische Zusammenarbeit (GTZ) v. CA must be examined. In
40 

Deutsche Gesellschaft, Germany and the Philippines entered into a

Technical Cooperation Agreement, pursuant to which both signed an
arrangement promoting the Social Health Insurance–Networking 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 Germany’s
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
Republic’s 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.

x x x           x x x          x x x

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.

x x x           x x x          x x x

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.

x x x           x x x          x x x

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. (Emphasis supplied.)
41 

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 Court’s 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, this Court reiterated the oft-cited doctrine that the
42 

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.
 x x x           x x x          x x x

In the Philippines, the practice is for the foreign government or the

international organization to first secure an executive endorsement of
its claim of sovereign or diplomatic immunity. But how the Philippine
Foreign Office conveys its endorsement to the courts varies.
In International Catholic Migration Commission v. Calleja, 190 SCRA
130 (1990), the Secretary of Foreign Affairs just sent a letter directly
to the Secretary of Labor and Employment, informing the latter that
the respondent-employer could not be sued because it enjoyed
diplomatic immunity. In World Health Organization v. Aquino, 48
SCRA 242 (1972), the Secretary of Foreign Affairs sent the trial court
a telegram to that effect. In Baer v. Tizon, 57 SCRA 1 (1974), the U.S.
Embassy asked the Secretary of Foreign Affairs to request the
Solicitor General to make, in behalf of the Commander of the United
States Naval Base at Olongapo City, Zambales, a "suggestion" to
respondent Judge. The Solicitor General embodied the "suggestion"
in a Manifestation and Memorandum as amicus curiae.

In the case at bench, the Department of Foreign Affairs, through the

Office of Legal Affairs moved with this Court to be allowed to
intervene on the side of petitioner. The Court allowed the said
Department to file its memorandum in support of petitioner’s claim of
sovereign immunity.

In some cases, the defense of sovereign immunity was submitted

directly to the local courts by the respondents through their private
counsels (Raquiza v. Bradford, 75 Phil. 50 [1945]; Miquiabas v.
Philippine-Ryukyus Command, 80 Phil. 262 [1948]; United States of
America v. Guinto, 182 SCRA 644 [1990] and companion cases). In
cases where the foreign states bypass the Foreign Office, the courts
can inquire into the facts and make their own determination as to the
nature of the acts and transactions involved. (Emphasis supplied.)
43 

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), emphasized the DFA’s competence and authority to provide
44 

such necessary determination, to wit:

The DFA’s 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. (Emphasis supplied.)
45 

Further, the fact that this authority is exclusive to the DFA was also
emphasized in this Court’s 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 GTZ’s 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 GTZ’s claim of
State’s 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 GTZ’s claim, or
that the OSG had solicited the DFA’s 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. (Emphasis supplied.)
46 

In the case at bar, CNMEG offers the Certification executed by the

Economic and Commercial Office of the Embassy of the People’s
Republic of China, stating that the Northrail Project is in pursuit of a
sovereign activity. Surely, this is not the kind of certification that can
47 

establish CNMEG’s 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, which is an integral part of the Contract

48 

Agreement, states:
49 

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. By the terms of the
51 

Contract Agreement, Northrail is a government-owned or -controlled

corporation, while CNMEG is a corporation duly organized and
created under the laws of the People’s Republic of China. Thus, both
52 

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, described CNMEG as a "state
53 

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, which under Article 1.1 of the

54 

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. CNMEG’s 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.

SUMMARY
#10CONSTI TAGS: STATE IMMUNITY
THE HOLY SEE VS ROSARIO (G.R. No. 101949 dated December 1, 1994) ISSUE: WoN the petitioner Holy See is
immune from suit.
THE HOLY SEE, petitioner,
vs.
THE HON. ERIBERTO U. ROSARIO, JR., as Presiding Judge of the Regional Trial Court of Makati, Branch 61 and
STARBRIGHT SALES ENTERPRISES, INC., respondents.

Padilla Law Office for petitioner.

Siguion Reyna, Montecillo & Ongsiako for private respondent.

FACTS DISCUSSION/PRINCIPLES RULING
1. This petition arose from a This is a petition for certiorari under Rule 65 of the Revised Rules of The logical question is whether the foreign
controversy over a parcel of land, Court to reverse and set aside the Orders dated June 20, 1991 and state is engaged in the activity in the
Lot 5-A, located in the September 19, 1991 of the Regional Trial Court, Branch 61, Makati, regular course of business. If the foreign
Municipality of Parañaque, Metro Manila in Civil Case No. 90-183. state is not engaged regularly in a business
Metro Manila and registered in or trade, the particular act or transaction
The Order dated June 20, 1991 denied the motion of petitioner to
the name of petitioner. Said Lot must then be tested by its nature. If the
dismiss the complaint in Civil Case No. 90-183, while the Order dated
5-A is contiguous to Lots 5-B and September 19, 1991 denied the motion for reconsideration of the June act is in pursuit of a sovereign activity, or
5-D registered in the name of the 20,1991 Order. an incident thereof, then it is an act jure
Philippine Realty Corporation imperii, especially when it is not
(PRC). The three lots were sold to Petitioner is the Holy See who exercises sovereignty over the Vatican undertaken for gain or profit.
Ramon Licup, through Msgr. City in Rome, Italy, and is represented in the Philippines by the Papal
Domingo A. Cirilos, Jr., acting as Nuncio. Lot 5-A was acquired by petitioner as a
agent to the sellers. Later, Licup donation from the Archdiocese of Manila.
assigned his rights to the sale to Private respondent, Starbright Sales Enterprises, Inc., is a domestic The donation was made not for
private respondent, Starbright corporation engaged in the real estate business. commercial purpose, but for the use of
Enterprises. petitioner to construct thereon the official
This petition arose from a controversy over a parcel of land consisting place of residence of the Papal Nuncio.
2. The squatters refused to vacate of 6,000 square meters (Lot 5-A, Transfer Certificate of Title No.
390440) located in the Municipality of Parañaque, Metro Manila and
the lots sold to private The right of a foreign sovereign to acquire
registered in the name of petitioner.
respondent so a dispute arose as property, real or personal, in a receiving
to who of the parties has the state, necessary for the creation and
Said Lot 5-A is contiguous to Lots 5-B and 5-D which are covered by
responsibility of evicting and Transfer Certificates of Title Nos. 271108 and 265388 respectively maintenance of its diplomatic mission, is
clearing the land of squatters and registered in the name of the Philippine Realty Corporation recognized in the 1961 Vienna Convention
occurred. Complicating the (PRC). on Diplomatic Relations.
relations of the parties was the
sale by petitioner of Lot 5-A to The three lots were sold to Ramon Licup, through Msgr. Domingo A. In Article 31(a) of the Convention, a
Tropicana Properties and Cirilos, Jr., acting as agent to the sellers. Later, Licup assigned his diplomatic envoy is granted immunity
Development Corporation rights to the sale to private respondent. from the civil and administrative
(Tropicana). jurisdiction of the receiving state over any
In view of the refusal of the squatters to vacate the lots sold to private real action relating to private immovable
3. Private respondent filed a respondent, a dispute arose as to who of the parties has the property situated in the territory of the
complaint for annulment of the responsibility of evicting and clearing the land of squatters. receiving state which the envoy holds on
Complicating the relations of the parties was the sale by petitioner of
sale of the three parcels of land, behalf of the sending state for the
and specific performance and
damages against petitioner,
represented by the Papal Nuncio,
and three other defendants:
namely, Msgr. Domingo A. Cirilos,
Jr., the PRC and Tropicana.
purposes of the mission. If this immunity is
Lot 5-A to Tropicana Properties and Development Corporation provided for a diplomatic envoy, with all
(Tropicana). the more reason should immunity be
recognized as regards the sovereign itself,
I which in this case is the Holy See.
On January 23, 1990, private respondent filed a complaint with the
Regional Trial Court, Branch 61, Makati, Metro Manila for annulment
of the sale of the three parcels of land, and specific performance and
damages against petitioner, represented by the Papal Nuncio, and
three other defendants: namely, Msgr. Domingo A. Cirilos, Jr., the
PRC and Tropicana (Civil Case No.
90-183).
The complaint alleged that: (1) on April 17, 1988, Msgr. Cirilos, Jr., on
behalf of petitioner and the PRC, agreed to sell to Ramon Licup Lots
5-A, 5-B and 5-D at the price of P1,240.00 per square meters; (2) the
agreement to sell was made on the condition that earnest money of
P100,000.00 be paid by Licup to the sellers, and that the sellers clear
the said lots of squatters who were then occupying the same; (3)
Licup paid the earnest money to Msgr. Cirilos; (4) in the same month,
Licup assigned his rights over the property to private respondent and
informed the sellers of the said assignment; (5) thereafter, private
respondent demanded from Msgr. Cirilos that the sellers fulfill their
undertaking and clear the property of squatters; however, Msgr.
Cirilos informed private respondent of the squatters' refusal to vacate
the lots, proposing instead either that private respondent undertake
the eviction or that the earnest money be returned to the latter; (6)
private respondent counterproposed that if it would undertake the
eviction of the squatters, the purchase price of the lots should be
reduced from P1,240.00 to P1,150.00 per square meter; (7) Msgr.
Cirilos returned the earnest money of P100,000.00 and wrote private
respondent giving it seven days from receipt of the letter to pay the
original purchase price in cash; (8) private respondent sent the
earnest money back to the sellers, but later discovered that on March
30, 1989, petitioner and the PRC, without notice to private
respondent, sold the lots to Tropicana, as evidenced by two separate
Deeds of Sale, one over Lot 5-A, and another over Lots 5-B and 5-D;
and that the sellers' transfer certificate of title over the lots were
cancelled, transferred and registered in the name of Tropicana; (9)
Tropicana induced petitioner and the PRC to sell the lots to it and thus
enriched itself at the expense of private respondent; (10) private
respondent demanded the rescission of the sale to Tropicana and the
reconveyance of the lots, to no avail; and (11) private respondent is
willing and able to comply with the terms of the contract to sell and
has actually made plans to develop the lots into a townhouse project,
but in view of the sellers' breach, it lost profits of not less than
P30,000.000.00.

Private respondent thus prayed for: (1) the annulment of the Deeds of
Sale between petitioner and the PRC on the one hand, and Tropicana
on the other; (2) the reconveyance of the lots in question; (3) specific
performance of the agreement to sell between it and the owners of the
lots; and (4) damages.

On June 8, 1990, petitioner and Msgr. Cirilos separately moved to

dismiss the complaint — petitioner for lack of jurisdiction based on
sovereign immunity from suit, and Msgr. Cirilos for being an improper
party. An opposition to the motion was filed by private respondent.

On June 20, 1991, the trial court issued an order denying, among
others, petitioner's motion to dismiss after finding that petitioner "shed
off [its] sovereign immunity by entering into the business contract in
question" (Rollo, pp. 20-21).

On July 12, 1991, petitioner moved for reconsideration of the order.

On August 30, 1991, petitioner filed a "Motion for a Hearing for the
Sole Purpose of Establishing Factual Allegation for claim of Immunity
as a Jurisdictional Defense." So as to facilitate the determination of its
defense of sovereign immunity, petitioner prayed that a hearing be
conducted to allow it to establish certain facts upon which the said
defense is based. Private respondent opposed this motion as well as
the motion for reconsideration.

On October 1, 1991, the trial court issued an order deferring the

resolution on the motion for reconsideration until after trial on the
merits and directing petitioner to file its answer (Rollo, p. 22).

Petitioner forthwith elevated the matter to us. In its petition, petitioner

invokes the privilege of sovereign immunity only on its own behalf and
on behalf of its official representative, the Papal Nuncio.

On December 9, 1991, a Motion for Intervention was filed before us

by the Department of Foreign Affairs, claiming that it has a legal
interest in the outcome of the case as regards the diplomatic immunity
of petitioner, and that it "adopts by reference, the allegations
contained in the petition of the Holy See insofar as they refer to
arguments relative to its claim of sovereign immunity from suit" (Rollo,
p. 87).

Private respondent opposed the intervention of the Department of

Foreign Affairs. In compliance with the resolution of this Court, both
parties and the Department of Foreign Affairs submitted their
respective memoranda.

II

A preliminary matter to be threshed out is the procedural issue of

whether the petition for certiorari under Rule 65 of the Revised Rules
of Court can be availed of to question the order denying petitioner's
motion to dismiss. The general rule is that an order denying a motion
to dismiss is not reviewable by the appellate courts, the remedy of the
movant being to file his answer and to proceed with the hearing
before the trial court. But the general rule admits of exceptions, and
one of these is when it is very clear in the records that the trial court
has no alternative but to dismiss the complaint (Philippine National
Bank v. Florendo, 206 SCRA 582 [1992]; Zagada v. Civil Service
Commission, 216 SCRA 114 [1992]. In such a case, it would be a
sheer waste of time and energy to require the parties to undergo the
rigors of a trial.

The other procedural question raised by private respondent is the

personality or legal interest of the Department of Foreign Affairs to
intervene in the case in behalf of the Holy See (Rollo, pp. 186-190).

In Public International Law, when a state or international agency

wishes to plead sovereign or diplomatic immunity in a foreign court, it
requests the Foreign Office of the state where it is sued to convey to
the court that said defendant is entitled to immunity.

In the United States, the procedure followed is the process of

"suggestion," where the foreign state or the international organization
sued in an American court requests the Secretary of State to make a
determination as to whether it is entitled to immunity. If the Secretary
of State finds that the defendant is immune from suit, he, in turn, asks
the Attorney General to submit to the court a "suggestion" that the
defendant is entitled to immunity. In England, a similar procedure is
followed, only the Foreign Office issues a certification to that effect
instead of submitting a "suggestion" (O'Connell, I International Law
130 [1965]; Note: Immunity from Suit of Foreign Sovereign
Instrumentalities and Obligations, 50 Yale Law Journal 1088 [1941]).

In the Philippines, the practice is for the foreign government or the

international organization to first secure an executive endorsement of
its claim of sovereign or diplomatic immunity. But how the Philippine
Foreign Office conveys its endorsement to the courts varies.
In International Catholic Migration Commission v. Calleja, 190 SCRA
130 (1990), the Secretary of Foreign Affairs just sent a letter directly
to the Secretary of Labor and Employment, informing the latter that
the respondent-employer could not be sued because it enjoyed
diplomatic immunity. In World Health Organization v. Aquino, 48
SCRA 242 (1972), the Secretary of Foreign Affairs sent the trial court
a telegram to that effect. In Baer v. Tizon, 57 SCRA 1 (1974), the U.S.
Embassy asked the Secretary of Foreign Affairs to request the
Solicitor General to make, in behalf of the Commander of the United
States Naval Base at Olongapo City, Zambales, a "suggestion" to
respondent Judge. The Solicitor General embodied the "suggestion"
in a Manifestation and Memorandum as amicus curiae.

In the case at bench, the Department of Foreign Affairs, through the

Office of Legal Affairs moved with this Court to be allowed to
intervene on the side of petitioner. The Court allowed the said
Department to file its memorandum in support of petitioner's claim of
sovereign immunity.

In some cases, the defense of sovereign immunity was submitted

directly to the local courts by the respondents through their private
counsels (Raquiza v. Bradford, 75 Phil. 50 [1945]; Miquiabas v.
Philippine-Ryukyus Command, 80 Phil. 262 [1948]; United States of
America v. Guinto, 182 SCRA 644 [1990] and companion cases). In
cases where the foreign states bypass the Foreign Office, the courts
can inquire into the facts and make their own determination as to the
nature of the acts and transactions involved.

III

The burden of the petition is that respondent trial court has no

jurisdiction over petitioner, being a foreign state enjoying sovereign
immunity. On the other hand, private respondent insists that the
doctrine of non-suability is not anymore absolute and that petitioner
has divested itself of such a cloak when, of its own free will, it entered
into a commercial transaction for the sale of a parcel of land located in
the Philippines.

A. The Holy See

Before we determine the issue of petitioner's non-suability, a brief look

into its status as a sovereign state is in order.

Before the annexation of the Papal States by Italy in 1870, the Pope
was the monarch and he, as the Holy See, was considered a subject
of International Law. With the loss of the Papal States and the
limitation of the territory under the Holy See to an area of 108.7 acres,
the position of the Holy See in International Law became controversial
(Salonga and Yap, Public International Law 36-37 [1992]).

In 1929, Italy and the Holy See entered into the Lateran Treaty, where
Italy recognized the exclusive dominion and sovereign jurisdiction of
the Holy See over the Vatican City. It also recognized the right of the
Holy See to receive foreign diplomats, to send its own diplomats to
foreign countries, and to enter into treaties according to International
Law (Garcia, Questions and Problems In International Law, Public
and Private 81 [1948]).

The Lateran Treaty established the statehood of the Vatican City "for
the purpose of assuring to the Holy See absolute and visible
independence and of guaranteeing to it indisputable sovereignty also
in the field of international relations" (O'Connell, I International Law
311 [1965]).

In view of the wordings of the Lateran Treaty, it is difficult to determine

whether the statehood is vested in the Holy See or in the Vatican City.
Some writers even suggested that the treaty created two international
persons — the Holy See and Vatican City (Salonga and Yap, supra,
37).

The Vatican City fits into none of the established categories of states,
and the attribution to it of "sovereignty" must be made in a sense
different from that in which it is applied to other states (Fenwick,
International Law 124-125 [1948]; Cruz, International Law 37 [1991]).
In a community of national states, the Vatican City represents an
entity organized not for political but for ecclesiastical purposes and
international objects. Despite its size and object, the Vatican City has
an independent government of its own, with the Pope, who is also
head of the Roman Catholic Church, as the Holy See or Head of
State, in conformity with its traditions, and the demands of its mission
in the world. Indeed, the world-wide interests and activities of the
Vatican City are such as to make it in a sense an "international state"
(Fenwick, supra., 125; Kelsen, Principles of International Law 160
[1956]).

One authority wrote that the recognition of the Vatican City as a state
has significant implication — that it is possible for any entity pursuing
objects essentially different from those pursued by states to be
invested with international personality (Kunz, The Status of the Holy
See in International Law, 46 The American Journal of International
Law 308 [1952]).

Inasmuch as the Pope prefers to conduct foreign relations and enter

into transactions as the Holy See and not in the name of the Vatican
City, one can conclude that in the Pope's own view, it is the Holy See
that is the international person.

The Republic of the Philippines has accorded the Holy See the status
of a foreign sovereign. The Holy See, through its Ambassador, the
Papal Nuncio, has had diplomatic representations with the Philippine
government since 1957 (Rollo, p. 87). This appears to be the
universal practice in international relations.

B. Sovereign Immunity

As expressed in Section 2 of Article II of the 1987 Constitution, we

have adopted the generally accepted principles of International Law.
Even without this affirmation, such principles of International Law are
deemed incorporated as part of the law of the land as a condition and
consequence of our admission in the society of nations (United States
of America v. Guinto, 182 SCRA 644 [1990]).

There are two conflicting concepts of sovereign immunity, each widely

held and firmly established. According to the classical or absolute
theory, a sovereign cannot, without its consent, be made a
respondent in the courts of another sovereign. According to the newer
or restrictive theory, the immunity of the sovereign is recognized only
with regard to public acts or acts jure imperii of a state, but not with
regard to private acts or acts jure gestionis
(United States of America v. Ruiz, 136 SCRA 487 [1987]; Coquia and
Defensor-Santiago, Public International Law 194 [1984]).

Some states passed legislation to serve as guidelines for the

executive or judicial determination when an act may be considered
as jure gestionis. The United States passed the Foreign Sovereign
Immunities Act of 1976, which defines a commercial activity as "either
a regular course of commercial conduct or a particular commercial
transaction or act." Furthermore, the law declared that the
"commercial character of the activity shall be determined by reference
to the nature of the course of conduct or particular transaction or act,
rather than by reference to its purpose." The Canadian Parliament
enacted in 1982 an Act to Provide For State Immunity in Canadian
Courts. The Act defines a "commercial activity" as any particular
transaction, act or conduct or any regular course of conduct that by
reason of its nature, is of a "commercial character."

The restrictive theory, which is intended to be a solution to the host of

problems involving the issue of sovereign immunity, has created
problems of its own. Legal treatises and the decisions in countries
which follow the restrictive theory have difficulty in characterizing
whether a contract of a sovereign state with a private party is an
act jure gestionis or an act jure imperii.

The restrictive theory came about because of the entry of sovereign

states into purely commercial activities remotely connected with the
discharge of governmental functions. This is particularly true with
respect to the Communist states which took control of nationalized
business activities and international trading.

This Court has considered the following transactions by a foreign

state with private parties as acts jure imperii: (1) the lease by a
foreign government of apartment buildings for use of its military
officers (Syquia v. Lopez, 84 Phil. 312 [1949]; (2) the conduct of public
bidding for the repair of a wharf at a United States Naval Station
(United States of America v. Ruiz, supra.); and (3) the change of
employment status of base employees (Sanders v. Veridiano, 162
SCRA 88 [1988]).

On the other hand, this Court has considered the following

transactions by a foreign state with private parties as acts jure
gestionis: (1) the hiring of a cook in the recreation center, consisting of
three restaurants, a cafeteria, a bakery, a store, and a coffee and
pastry shop at the John Hay Air Station in Baguio City, to cater to
American servicemen and the general public (United States of
America v. Rodrigo, 182 SCRA 644 [1990]); and (2) the bidding for
the operation of barber shops in Clark Air Base in Angeles City
(United States of America v. Guinto, 182 SCRA 644 [1990]). The
operation of the restaurants and other facilities open to the general
public is undoubtedly for profit as a commercial and not a
governmental activity. By entering into the employment contract with
the cook in the discharge of its proprietary function, the United States
government impliedly divested itself of its sovereign immunity from
suit.

In the absence of legislation defining what activities and transactions

shall be considered "commercial" and as constituting acts jure
gestionis, we have to come out with our own guidelines, tentative they
may be.

Certainly, the mere entering into a contract by a foreign state with a

private party cannot be the ultimate test. Such an act can only be the
start of the inquiry. The logical question is whether the foreign state is
engaged in the activity in the regular course of business. If the foreign
state is not engaged regularly in a business or trade, the particular act
or transaction must then be tested by its nature. If the act is in pursuit
of a sovereign activity, or an incident thereof, then it is an act jure
imperii, especially when it is not undertaken for gain or profit.

As held in United States of America v. Guinto, (supra):

There is no question that the United States of

America, like any other state, will be deemed to have
impliedly waived its non-suability if it has entered into
a contract in its proprietary or private capacity. It is
only when the contract involves its sovereign or
governmental capacity that no such waiver may be
implied.

In the case at bench, if petitioner has bought and sold lands in the
ordinary course of a real estate business, surely the said transaction
can be categorized as an act jure gestionis. However, petitioner has
denied that the acquisition and subsequent disposal of Lot 5-A were
made for profit but claimed that it acquired said property for the site of
its mission or the Apostolic Nunciature in the Philippines. Private
respondent failed to dispute said claim.

Lot 5-A was acquired by petitioner as a donation from the

Archdiocese of Manila. The donation was made not for commercial
purpose, but for the use of petitioner to construct thereon the official
place of residence of the Papal Nuncio. The right of a foreign
sovereign to acquire property, real or personal, in a receiving state,
necessary for the creation and maintenance of its diplomatic mission,
is recognized in the 1961 Vienna Convention on Diplomatic Relations
(Arts. 20-22). This treaty was concurred in by the Philippine Senate
and entered into force in the Philippines on November 15, 1965.

In Article 31(a) of the Convention, a diplomatic envoy is granted

immunity from the civil and administrative jurisdiction of the receiving
state over any real action relating to private immovable property
situated in the territory of the receiving state which the envoy holds on
behalf of the sending state for the purposes of the mission. If this
immunity is provided for a diplomatic envoy, with all the more reason
should immunity be recognized as regards the sovereign itself, which
in this case is the Holy See.

The decision to transfer the property and the subsequent disposal

thereof are likewise clothed with a governmental character. Petitioner
did not sell Lot
5-A for profit or gain. It merely wanted to dispose off the same
because the squatters living thereon made it almost impossible for
petitioner to use it for the purpose of the donation. The fact that
squatters have occupied and are still occupying the lot, and that they
stubbornly refuse to leave the premises, has been admitted by private
respondent in its complaint (Rollo, pp. 26, 27).

The issue of petitioner's non-suability can be determined by the trial

court without going to trial in the light of the pleadings, particularly the
admission of private respondent. Besides, the privilege of sovereign
immunity in this case was sufficiently established by the Memorandum
and Certification of the Department of Foreign Affairs. As the
department tasked with the conduct of the Philippines' foreign
relations (Administrative Code of 1987, Book IV, Title I, Sec. 3), the
Department of Foreign Affairs has formally intervened in this case and
officially certified that the Embassy of the Holy See is a duly
accredited diplomatic mission to the Republic of the Philippines
exempt from local jurisdiction and entitled to all the rights, privileges
and immunities of a diplomatic mission or embassy in this country
(Rollo, pp. 156-157). The determination of the executive arm of
government that a state or instrumentality is entitled to sovereign or
diplomatic immunity is a political question that is conclusive upon the
courts (International Catholic Migration Commission v. Calleja, 190
SCRA 130 [1990]). Where the plea of immunity is recognized and
affirmed by the executive branch, it is the duty of the courts to accept
this claim so as not to embarrass the executive arm of the
government in conducting the country's foreign relations (World
Health Organization v. Aquino, 48 SCRA 242 [1972]). As
in International Catholic Migration Commission and in World Health
Organization, we abide by the certification of the Department of
Foreign Affairs.

Ordinarily, the procedure would be to remand the case and order the
trial court to conduct a hearing to establish the facts alleged by
petitioner in its motion. In view of said certification, such procedure
would however be pointless and unduly circuitous (Ortigas & Co. Ltd.
Partnership v. Judge Tirso Velasco, G.R. No. 109645, July 25, 1994).

IV

Private respondent is not left without any legal remedy for the redress
of its grievances. Under both Public International Law and
Transnational Law, a person who feels aggrieved by the acts of a
foreign sovereign can ask his own government to espouse his cause
through diplomatic channels.

Private respondent can ask the Philippine government, through the

Foreign Office, to espouse its claims against the Holy See. Its first
task is to persuade the Philippine government to take up with the Holy
See the validity of its claims. Of course, the Foreign Office shall first
make a determination of the impact of its espousal on the relations
between the Philippine government and the Holy See
(Young, Remedies of Private Claimants Against Foreign States,
Selected Readings on Protection by Law of Private Foreign
Investments 905, 919 [1964]). Once the Philippine government
decides to espouse the claim, the latter ceases to be a private cause.
 According to the Permanent Court of International Justice, the
forerunner of the International Court of Justice:

By taking up the case of one of its subjects and by

reporting to diplomatic action or international judicial
proceedings on his behalf, a State is in reality
asserting its own rights — its right to ensure, in the
person of its subjects, respect for the rules of
international law (The Mavrommatis Palestine
Concessions, 1 Hudson, World Court Reports 293,
302 [1924]).

WHEREFORE, the petition for certiorari is GRANTED and the

complaint in Civil Case No. 90-183 against petitioner is DISMISSED.

SO ORDERED.

SUMMARY
#11CONSTI TAGS: STATE IMMUNITY
UP VS DIZON (G.R. No. 171182 dated August 23, 2012) ISSUE: WoN UP funds are subject to
garnishment.
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.

FACTS DISCUSSION/PRINCIPLES RULING

1. UP failed to pay in a contract it
entered with Stern Builders
Corporation. The RTC ruled in
favour of Stern Builders
Corporation. Consequently, the
RTC authorized eventually the
release of the garnished funds of
Trial judges should not immediately issue writs of execution or NO. The UP is a government
garnishment against the Government or any of its subdivisions, instrumentality, performing the State’s
agencies and instrumentalities to enforce money judgments. They 1 
constitutional mandate of promoting
should bear in mind that the primary jurisdiction to examine, audit and quality and accessible education.
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. Presidential Decree No. 1445 defines a
“trust fund” as a fund that officially comes
 the UP directing DBP to release
the funds. While UP brought a
petition for certiorari in the CA to
challenge the jurisdiction of the
RTC in issuing the order averring
that the UP funds, being
government funds and
properties, could not be seized
by virtue of writs of execution or
garnishment.
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 Baños (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 ₱ 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
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, whereby the Court of Appeals (CA) upheld the
2 
order of the Regional Trial Court (RTC), Branch 80, in Quezon City
that directed the garnishment of public funds amounting to ₱
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
Following the RTC’s denial of its motion for reconsideration on May 7,
2002, the UP filed a notice of appeal on June 3, 2002. Stern Builders
6  7 
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 UP’s 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 A marked distinction exists between
The RTC issued the writ of execution on October 4, 2002, and the
9 
sheriff of the RTC served the writ of execution and notice of demand
upon the UP, through its counsel, on October 9, 2002. The UP filed
10 
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. However, the RTC denied the urgent motion on
11 
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 UP’s notice of appeal had been filed
late, stating:
14 
Records clearly show that petitioners received a copy of the Decision
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. A trust fund may be utilized
only for the “specific purpose for which
the trust was created or the funds
received.” 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. Hence, the funds subject of
this action could not be validly made the
subject of the RTC’s 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, because suability of the
State did not necessarily mean its liability.
suability of the State and its liability.
As the Court succinctly stated in
Municipality of San Fernando, La Union v.
Firme: 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

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, viz:
5 
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. ₱ 503,462.74 amount of
the third billing, additional
accomplished work and
retention money
2. ₱ 5,716,729.00 in actual
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." (Ram’s 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
prove, if it can, that the defendant is
liable.
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.Indeed, an
appropriation by Congress was required
before the judgment that rendered the UP
liable for moral and actual damages
(including attorney’s 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.”

damages
The UP sought a reconsideration, but the CA denied the UP’s motion
3. ₱ 10,000,000.00 in moral
for reconsideration on April 19, 2004. 16

damages
On May 11, 2004, the UP appealed to the Court by petition for review
4. ₱ 150,000.00 and ₱
on certiorari (G.R. No. 163501).
1,500.00 per appearance as
attorney’s fees; and
On June 23, 2004, the Court denied the petition for review. The UP
17 

moved for the reconsideration of the denial of its petition for review on
5. Costs of suit.
August 29, 2004, but the Court denied the motion on October 6,
18 

2004. The denial became final and executory on November 12,

19 
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 UP’s depository banks, namely: Land
Bank of the Philippines (Buendia Branch) and the Development Bank
of the Philippines (DBP), Commonwealth Branch. The UP assailed
22 

the garnishment through an urgent motion to quash the notices of

garnishment; and a motion to quash the writ of execution dated May
23 

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 UP’s urgent motion to
quash, and granted Stern Builders and dela Cruz’s 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. Despite the UP’s opposition, the RTC
28  29 

granted the motion to release the garnished funds on March 16,

2004. On April 20, 2004, however, the RTC held in abeyance the
30 

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, to32 
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). Aside from raising the denial of due process, the UP averred
35 

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, and citing Section 84 of
36 

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-Telan to the
37 

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 sheriff’s 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. The UP opposed the amended
39 

motion and countered that the implementation of the release order be

suspended. 40

On May 3, 2005, the RTC granted the amended motion for sheriff’s
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, noting
45 

that the DBP had already delivered to the sheriff Manager’s Check
No. 811941 for ₱ 16,370,191.74 representing the garnished funds
payable to the order of Stern Builders and dela Cruz as its compliance
with the RTC’s order dated December 21, 2004. However, the RTC
46 

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 UP’s 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 plaintiff’s 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 UP’s 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, viz:
48 

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 Baños, 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 Cruz’s motion to withdraw the deposit, in
consideration of the UP’s intention to appeal to the CA, stating:
50 

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, averring that on January 3, 2007, Judge Maria Theresa
52 

dela Torre-Yadao (who had meanwhile replaced Judge Dizon upon

the latter’s appointment to the CA) had issued another order allowing
Stern Builders and dela Cruz to withdraw the deposit, to wit:
53 

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. System’s 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 Court’s 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, it appears that on January 16,
55 

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;  and that DBP had forthwith complied with the order
56 

on January 17, 2007 upon the sheriff’s 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, alleging that the RTC
58 

(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 petition after the RTC (Judge

59 

Yadao) denied the UP’s motion for the redeposit of the withdrawn
amount on April 10, 2007, to wit:
60 

This resolves defendant U.P. System’s 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 plaintiff’s motion to allow the
release of said deposit. It must be recalled that the Court found
plaintiff’s 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. System’s appeal was

upheld by the Supreme Court;

c) a writ of execution had been issued;

d) defendant U.P. System’s 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. System’s motion to redeposit the
judgment amount. Granting said motion is not only contrary to law, but
it will also render this Court’s 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. System’s

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 UNIVERSITY’S 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 ₱ 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 attorney’s 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 attorney’s 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 Diego and Department of
61 

Agriculture v. NLRC to the effect that government funds and

62 

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 UP’s 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 UP’s 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 ₱

5,716,729.00 and moral damages of ₱ 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 ₱ 22,338,553.25, an amount already
more than sufficient to cover the judgment award; that the UP’s 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 Court’s 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 UP’s prayer for the deletion of the awards of actual damages of ₱
5,716,729.00, moral damages of ₱ 10,000,000.00 and attorney’s fees
of ₱ 150,000.00 plus ₱ 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.
UP’s 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. Despite its establishment as a body corporate, the UP
63  64 

remains to be a "chartered institution" performing a legitimate

65 

government function. It is an institution of higher learning, not a

corporation established for profit and declaring any dividends. In
66 

enacting Republic Act No. 9500 (The University of the Philippines

Charter of 2008), Congress has declared the UP as the national
university "dedicated to the search for truth and knowledge as well as
67 

the development of future leaders." 68

Irrefragably, the UP is a government instrumentality, performing the

69 

State’s constitutional mandate of promoting quality and accessible

education. As a government instrumentality, the UP administers
70 
special funds sourced from the fees and income enumerated under
Act No. 1870 and Section 1 of Executive Order No. 714, and from the71 

yearly appropriations, to achieve the purposes laid down by Section 2

of Act 1870, as expanded in Republic Act No. 9500. All the funds
72 

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 UP’s mission and purpose, and should always be
73 

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. A trust fund may be utilized only
75 

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. Hence, the funds subject of this action
77 

could not be validly made the subject of the RTC’s 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, because suability of the State did not
78 

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, where the issuance of an alias writ of

81 
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
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.

The UP correctly submits here that the garnishment of its funds to

satisfy the judgment awards of actual and moral damages (including
attorney’s 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 RTC’s 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." The CA and the RTC thereby
82 

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 attorney’s 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 self-governing 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. As
85 

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 UP’s 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 sheriff’s report of January 17, 2007
manifesting the full satisfaction of the writ of execution; and (d) the
order of April 10, 2007 deying the UP’s motion for the redeposit of the
withdrawn amount. Hence, such orders and issuances should be
struck down without exception.

Nothing extenuated Judge Yadao’s 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, issued on October 25, 2000,
86 

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
claimant’s 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 quasi-private purposes, it is
the general rule that such property may be seized and sold under
execution against the corporation.
3. Property held for public purposes is not subject to execution merely
because it is temporarily used for private purposes. If the public use is
wholly abandoned, such property becomes subject to execution.

This Administrative Circular shall take effect immediately and the

Court Administrator shall see to it that it is faithfully implemented.

Although Judge Yadao pointed out that neither the CA nor the Court
had issued as of then any writ of preliminary injunction to enjoin the
release or withdrawal of the garnished amount, she did not need any
writ of injunction from a superior court to compel her obedience to the
law. The Court is disturbed that an experienced judge like her should
look at public laws like Presidential Decree No. 1445 dismissively
instead of loyally following and unquestioningly implementing them.
That she did so turned her court into an oppressive bastion of
mindless tyranny instead of having it as a true haven for the seekers
of justice like the UP.

III
Period of appeal did not start without effective
service of decision upon counsel of record;
Fresh-period rule announced in
Neypes v. Court of Appeals
can be given retroactive application

The UP next pleads that the Court gives due course to its petition for
review in the name of equity in order to reverse or modify the adverse
judgment against it despite its finality. At stake in the UP’s plea for
equity was the return of the amount of ₱ 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 UP’s 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 UP’s
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, even if the
87 

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. Public policy
88 

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. Indeed, all litigations must at some time end, even at the risk
89 

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. Moreover, in Heirs of Maura So v.
90 

Obliosca, we stated that despite the absence of the preceding

91 

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, the Court nullified
92 

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 UP’s plea for equity warrants the Court’s exercise of
the exceptional power to disregard the declaration of finality of the
judgment of the RTC for being in clear violation of the UP’s 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 UP’s 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-à-vis the RTC’s
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, rendering the filing of the UP’s notice of appeal on June 3,
94 

2002 timely and well within the remaining days of the UP’s 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. Service on the party or the party’s employee is not
95 

effective because such notice is not notice in law. This is clear

96 

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 UP’s 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, viz:
98 

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," is impervious to any serious challenge. This is because
99 

there are no vested rights in rules of procedure. A law or regulation is

100 

procedural when it prescribes rules and forms of procedure in order

that courts may be able to administer justice. It does not come within
101 

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. We may even relax stringent procedural
102 

rules in order to serve substantial justice and in the exercise of this

Court’s equity jurisdiction. Equity jurisdiction aims to do complete
103 

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 UP’s 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, the importance of
106 

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. Unlike
107 

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 attorney’s 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 ₱ 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, and
110 

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
₱ 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." The contravention of the law was
111 

manifest considering that Stern Builders, as an artificial person, was

incapable of experiencing pain and moral sufferings. Assuming that
112 

in granting the substantial amount of ₱ 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. Moreover, his moral and emotional sufferings
113 

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 ₱ 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 ₱ 150,000.00, plus ₱

1,500.00 per appearance, granted as attorney’s fees were factually
unwarranted and devoid of legal basis. The general rule is that a
successful litigant cannot recover attorney’s 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. Prior
114 

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 attorney’s fees in
the cases mentioned in Article 2208 of the Civil Code came to be
115 

recognized. Nonetheless, with attorney’s fees being allowed in the

116 

concept of actual damages, their amounts must be factually and

117 

legally justified in the body of the decision and not stated for the first
time in the decretal portion. Stating the amounts only in the
118 

dispositive portion of the judgment is not enough; a rendition of the

119 

factual and legal justifications for them must also be laid out in the
body of the decision. 120
That the attorney’s fees granted to the private respondents did not
satisfy the foregoing requirement suffices for the Court to undo
them. The grant was ineffectual for being contrary to law and public
121 

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 attorney’s 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 attorney’s 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, the failure to
123 

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." The
124 

other item granted by the RTC (i.e., ₱ 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 ₱ 5,716,729.00, moral damages of ₱ 10,000,000.00, and
attorney's fees of ₱ 150,000.00, plus ₱ 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 ₱ 16,370,191.74 within 10 days from
receipt of this decision.

Costs of suit to be paid by the private respondents.

SO ORDERED.
 SUMMARY
#12CONSTI TAGS: STATE IMMUNITY
LOCKHEED DETECTIVE & WATCHMAN AGENCY VS UP (G.R. No. 185918 dated April 18, 2012) ISSUE: WoN

LOCKHEED DETECTIVE AND WATCHMAN AGENCY, INC., Petitioner,

vs.
UNIVERSITY OF THE PHILIPPINES, Respondent.

https://www.projectjurisprudence.com/2018/06/case-digest-lockheed-v-up.html#:~:text=In%201998%2C
%20several%20securitya%20guards,of%20cash%20bond%2C%20refund%20of
FACTS DISCUSSION/PRINCIPLES RULING
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 and December 23, 2008 Resolution of
1  2 

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 attorney’s 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 attorney’s
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% attorney’s 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 latter’s 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 Arbiter’s decision. By

Decision dated April 12, 2002, the NLRC modified the Labor Arbiter’s
4 

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. A writ of execution was then
6 

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 dated June 8, 2004, disposing as follows:
7 

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 was issued to Philippine

10 

National Bank (PNB) UP Diliman Branch for the satisfaction of the

award of ₱12,142,522.69 (inclusive of execution fee).

In a letter dated August 9, 2005, PNB informed UP that it has

11 

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 ₱12,142,522.69. 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. UP contended that the funds being subjected to
12 

garnishment at PNB are government/public funds. As certified by the

University Accountant, the subject funds are covered by Savings
Account No. 275-529999-8, 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 ₱12,062,398.71 was withdrawn

by the sheriff from UP’s 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 UP’s public funds.
Similarly, respondent LORA gravely abused her discretion
when she resolved petitioner’s 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 petitioner’s governmental
functions.15

On March 12, 2008, the CA rendered a decision dismissing UP’s

16 

petition for certiorari. Citing Republic v. COCOFED, which defines

17 

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 which mandates that all money claims
18 

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 which held that UP ranks with MIAA, a government
19 

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." Therefore, it cannot shield itself from its private
21 

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 UP’s trust fund in the amount of ₱12,062,398.71. 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 ₱120,123.98 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, as amended by Section 26 of
22 

P.D. No. 1445, it is the COA which has primary jurisdiction to

23 

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, their 24 

allowance or disallowance is for COA to decide, subject only to the

remedy of appeal by petition for certiorari to this Court.
25 
1âwphi1

We cannot subscribe to Lockheed’s argument that NEA is not

similarly situated with UP because the COA’s 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 ₱12,062,398.71 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.
 SUMMARY
#13CONSTI TAGS: STATE IMMUNITY
AMIGABLE VS CUENCA (G.R. No. L-26400 dated February 29, 1972) ISSUE: WoN the appellant may properly
sue the government under the facts of the
VICTORIA AMIGABLE, plaintiff-appellant, case.
vs.
NICOLAS CUENCA, as Commissioner of Public Highways and REPUBLIC OF THE PHILIPPINES, defendants-
appellees.
FACTS DISCUSSION/PRINCIPLES RULING
1. Amigable is the registered owner Victoria Amigable, the appellant herein, is the registered owner of Lot YES. Where the government takes away
of a lot covered by a Transfer No. 639 of the Banilad Estate in Cebu City as shown by Transfer property from a private landowner for
Certificate of Title, where no Certificate of Title No. T-18060, which superseded Transfer Certificate public use without going through the legal
annotation in favor of the of Title No. RT-3272 (T-3435) issued to her by the Register of Deeds process of expropriation or negotiated
of Cebu on February 1, 1924. No annotation in favor of the
government of any right or sale, the aggrieved party may properly
government of any right or interest in the property appears at the back
interest in the property appears of the certificate. Without prior expropriation or negotiated sale, the maintain a suit against the government
at the back of the certificate. government used a portion of said lot, with an area of 6,167 square without thereby violating the doctrine of
Without prior expropriation or meters, for the construction of the Mango and Gorordo Avenues. governmental immunity from suit without
negotiated sale, the government its consent. The doctrine of governmental
used a portion of said lot for the It appears that said avenues were already existing in 1921 although immunity from suit cannot serve as an
construction of the Mango and "they were in bad condition and very narrow, unlike the wide and instrument for perpetrating an injustice on
Gorordo Avenues. beautiful avenues that they are now," and "that the tracing of said a citizen. Had the government followed
roads was begun in 1924, and the formal construction in the procedure indicated by the governing
2. It appears that said avenues 1925." * law at the time, a complaint would have
already existed since 1921. In On March 27, 1958 Amigable's counsel wrote the President of the Philippines, requesting
been filed by it, and only upon payment of
1958, Amigable’s counsel wrote payment of the portion of her lot which had been appropriated by the government. The claim was the compensation fixed by the judgment,
indorsed to the Auditor General, who disallowed it in his 9th Indorsement dated December 9,
the President of the Philippines, 1958. A copy of said indorsement was transmitted to Amigable's counsel by the Office of the
or after tender to the party entitled to
requesting payment of the President on January 7, 1959. such payment of the amount fixed, may it
portion of her lot, which had “have the right to enter in and upon the
been appropriated by the On February 6, 1959 Amigable filed in the court a quo a complaint, land so condemned, to appropriate the
government. The claim was which was later amended on April 17, 1959 upon motion of the same to the public use defined in the
indorsed to the Auditor General, defendants, against the Republic of the Philippines and Nicolas judgment.” If there were an observance of
Cuenca, in his capacity as Commissioner of Public Highways for the
who disallowed it. Amigable then procedural regularity, petitioners would
recovery of ownership and possession of the 6,167 square meters of
filed in the court a quo a land traversed by the Mango and Gorordo Avenues. She also sought not be in the sad plaint they are now. It is
complaint against the Republic of the payment of compensatory damages in the sum of P50,000.00 for unthinkable then that precisely because
the Philippines and Nicolas the illegal occupation of her land, moral damages in the sum of there was a failure to abide by what the
Cuenca, in his capacity as
Commissioner of Public Highways
for the recovery of ownership
and possession of the land
traversed by the Mango and
Gorordo Avenues. She also
sought the payment of
compensatory damages for the
illegal occupation of her land,
moral damages, attorney’s fees
and the costs of the suit. The
Government had not given its
consent to be sued.
law requires, the government would stand
P25,000.00, attorney's fees in the sum of P5,000.00 and the costs of to benefit. It is not too much to say that
the suit. when the government takes any property
for public use, which is conditioned upon
Within the reglementary period the defendants filed a joint answer the payment of just compensation, to be
denying the material allegations of the complaint and interposing the judicially ascertained, it makes manifest
following affirmative defenses, to wit: (1) that the action was that it submits to the jurisdiction of a
premature, the claim not having been filed first with the Office of the
court. There is no thought then that the
Auditor General; (2) that the right of action for the recovery of any
amount which might be due the plaintiff, if any, had already doctrine of immunity from suit could still
prescribed; (3) that the action being a suit against the Government, be appropriately invoked.
the claim for moral damages, attorney's fees and costs had no valid
basis since as to these items the Government had not given its
consent to be sued; and (4) that inasmuch as it was the province of
Cebu that appropriated and used the area involved in the construction
of Mango Avenue, plaintiff had no cause of action against the
defendants.
During the scheduled hearings nobody appeared for the defendants
notwithstanding due notice, so the trial court proceeded to receive the
plaintiff's evidence ex parte. On July 29, 1959 said court rendered its
decision holding that it had no jurisdiction over the plaintiff's cause of
action for the recovery of possession and ownership of the portion of
her lot in question on the ground that the government cannot be sued
without its consent; that it had neither original nor appellate jurisdiction
to hear, try and decide plaintiff's claim for compensatory damages in
the sum of P50,000.00, the same being a money claim against the
government; and that the claim for moral damages had long
prescribed, nor did it have jurisdiction over said claim because the
government had not given its consent to be sued. Accordingly, the
complaint was dismissed. Unable to secure a reconsideration, the
plaintiff appealed to the Court of Appeals, which subsequently
certified the case to Us, there being no question of fact involved.
The issue here is whether or not the appellant may properly sue the
government under the facts of the case.
In the case of Ministerio vs. Court of First Instance of Cebu,  involving
1
a claim for payment of the value of a portion of land used for the
widening of the Gorordo Avenue in Cebu City, this Court, through Mr.
Justice Enrique M. Fernando, held that where the government takes
away property from a private landowner for public use without going
through the legal process of expropriation or negotiated sale, the
aggrieved party may properly maintain a suit against the government
without thereby violating the doctrine of governmental immunity from
suit without its consent. We there said: .

... . If the constitutional mandate that the owner be

compensated for property taken for public use were to
be respected, as it should, then a suit of this character
should not be summarily dismissed. The doctrine of
governmental immunity from suit cannot serve as an
instrument for perpetrating an injustice on a citizen.
Had the government followed the procedure indicated
by the governing law at the time, a complaint would
have been filed by it, and only upon payment of the
compensation fixed by the judgment, or after tender to
the party entitled to such payment of the amount fixed,
may it "have the right to enter in and upon the land so
condemned, to appropriate the same to the public use
defined in the judgment." If there were an observance
of procedural regularity, petitioners would not be in the
sad plaint they are now. It is unthinkable then that
precisely because there was a failure to abide by what
the law requires, the government would stand to
benefit. It is just as important, if not more so, that there
be fidelity to legal norms on the part of officialdom if
the rule of law were to be maintained. It is not too
much to say that when the government takes any
property for public use, which is conditioned upon the
payment of just compensation, to be judicially
ascertained, it makes manifest that it submits to the
jurisdiction of a court. There is no thought then that the
doctrine of immunity from suit could still be
appropriately invoked.

Considering that no annotation in favor of the government appears at

the back of her certificate of title and that she has not executed any
deed of conveyance of any portion of her lot to the government, the
appellant remains the owner of the whole lot. As registered owner,
she could bring an action to recover possession of the portion of land
in question at anytime because possession is one of the attributes of
ownership. However, since restoration of possession of said portion
by the government is neither convenient nor feasible at this time
because it is now and has been used for road purposes, the only relief
available is for the government to make due compensation which it
could and should have done years ago. To determine the due
compensation for the land, the basis should be the price or value
thereof at the time of the taking.
2

As regards the claim for damages, the plaintiff is entitled thereto in the
form of legal interest on the price of the land from the time it was
taken up to the time that payment is made by the government.  In 3

addition, the government should pay for attorney's fees, the amount of
which should be fixed by the trial court after hearing.

WHEREFORE, the decision appealed from is hereby set aside and

the case remanded to the court a quo for the determination of
compensation, including attorney's fees, to which the appellant is
entitled as above indicated. No pronouncement as to costs.