October 7, 2023

STATE IMMUNITY (Sec. 3, Art. XVI (The General Provisions), 1987 Constitution)
- the immunity of the State from suit, known also as the doctrine of sovereign immunity or
non-suability of the State, is expressly provided in Article XVI of the 1987 Constitution, viz:
Section 3. The State may not be sued without its consent.
- The State may not be sued without its consent.
- the privilege by which a state may not be sued in the jurisdiction of another state based
on the international customary principle of sovereign equality
-
What is the implied consent of the state to be sued?
Implied Consent • Consent of the state to be sued is implied when it enters into a business contract
and when it files a suit exposing it of being sued through a counterclaim. 12. Business Contract • The
State by implication gives it its consent to be sued by entering into a business contract.

ROYAL PREROGATIVE of DISHONESTY

- True, the doctrine, not too infrequently, is derisively called "the royal prerogative of
dishonesty" because it grants the state the prerogative to defeat any legitimate claim
against it by simply invoking its non-suability

SUABLITY and LIABILITY of the STATE

- "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.
- Suability is the ability to sue and be sued; it is the result of the express or implied consent
of the State to be sued.
- Liability, on the other hand, is determined after hearing on the basis of the relevant laws
and the established facts.

CASES:

G.R. No. 70853

Republic vs. Feliciano

DOCTRINES OF THE CASE:

1. The doctrine of non-suability of the State has proper application in this case. The plaintiff
has impleaded the Republic of the Philippines as defendant in an action for recovery of
ownership and possession of a parcel of land, bringing the State to court just like any private
person who is claimed to be usurping a piece of property.

A suit for the recovery of property is not an action in rem, but an action in personam. It is an
action directed against a specific party or parties, ‘and any judgment therein binds only such
party or parties. The complaint filed by plaintiff, the private respondent herein, is directed
against the Republic of the Philippines, represented by the Land Authority, a governmental
agency created by Republic Act No. 3844.
2. By its caption and its allegation and prayer, the complaint is clearly a suit against the State,
which under settled jurisprudence is not permitted, except upon a showing that the State has
consented to be sued, either expressly or by implication through the use of statutory language
too plain to be misinterpreted.

There is no such showing in the instant case. Worse, the complaint itself fails to allege the
existence of such consent. This is a fatal defect, and on this basis alone, the complaint should
have been dismissed.

FACTS:
- Respondent Feliciano filed a complaint with the then Court of First Instance of Camarines Sur
against the Republic of the Philippines, represented by the Land Authority, for the recovery of
ownership and possession of a parcel of land.
- The claim of ownership by Feliciano was derived from deed of sale of the property traced from
informacion posesoria. However, the said property was subject of Proclamation No. 90 by
President Magsaysay for resettlement purposes.
- The Proclamation contained the reservation clause” subject to private rights, if any there be.
“Feliciano asserts that the subject property must be excluded from the coverage of the
resettlement project. The trial court dismissed the case on the ground of non-suability of the
State.

ISSUES:

- Whether the doctrine of non-suability of the State find application in an action for
recovery and possession of parcel of land.

- Whether the invocation of Proclamation No. 90 be considered as a waiver of State

Immunity.

HELD:
1. Yes. The doctrine of non-suability of the State has proper application in this case. The
plaintiff has impleaded the Republic of the Philippines as defendant in an action for
recovery of ownership and possession of a parcel of land, bringing the State to court just
like any private person who is claimed to be usurping a piece of property. A suit for the
recovery of property is not an action in rem, but an action in personam. It is an action
directed against a specific party or parties, and any judgment therein binds only such party
or parties. The complaint filed by plaintiff, the private respondent herein, is directed
against the Republic of the Philippines, represented by the Land Authority, a
governmental agency created by Republic Act No. 3844.
- By its caption and its allegation and prayer, the complaint is clearly a suit against the State,
which under settled jurisprudence is not permitted, except upon a showing that the State
has consented to be sued, either expressly or by implication through the use of statutory
language too plain to be misinterpreted. There is no such showing in the instant case.
Worse, the complaint itself fails to allege the existence of such consent. This is a fatal
defect, and on this basis alone, the complaint should have been dismissed.

2. No. No such consent can be drawn from the language of the Proclamation. The exclusion
of existing private rights from the reservation established by Proclamation No. 90 cannot
be construed as a waiver of the immunity of the State from suit. Waiver of immunity, being
a derogation of sovereignty, will not be inferred lightly, but must be construed in
 strictissimi juris. Moreover, the Proclamation is not a legislative act. The consent of the
State to be sued must emanate from statutory authority. Waiver of State immunity can
only be made by an act of the legislative body.

Case Full Text:

Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 70853 March 12, 1987

REPUBLIC OF THE PHILIPPINES, petitioner-appellee,

vs.
PABLO FELICIANO and INTERMEDIATE APPELLATE COURT, respondents-appellants.

YAP, J.:

Petitioner seeks the review of the decision of the Intermediate Appellate Court dated April
30, 1985 reversing the order of the Court of First Instance of Camarines Sur, Branch VI, dated
August 21, 1980, which dismissed the complaint of respondent Pablo Feliciano for recovery
of ownership and possession of a parcel of land on the ground of non-suability of the State.

The background of the present controversy may be briefly summarized as follows:

- On January 22, 1970, respondent Feliciano filed a complaint with the then Court of First
Instance of Camarines Sur against the Republic of the Philippines, represented by the Land
Authority, for the recovery of ownership and possession of a parcel of land, consisting of
four (4) lots with an aggregate area of 1,364.4177 hectares, situated in the Barrio of
Salvacion, Municipality of Tinambac, Camarines Sur.
- Plaintiff alleged that he bought the property in question from Victor Gardiola by virtue of
a Contract of Sale dated May 31, 1952, followed by a Deed of Absolute Sale on October
30, 1954; that Gardiola had acquired the property by purchase from the heirs of Francisco
Abrazado whose title to the said property was evidenced by an informacion posesoria that
upon plaintiff's purchase of the property, he took actual possession of the same,
introduced various improvements therein and caused it to be surveyed in July 1952, which
survey was approved by the Director of Lands on October 24, 1954;
- That on November 1, 1954, President Ramon Magsaysay issued Proclamation No. 90
reserving for settlement purposes, under the administration of the National Resettlement
and Rehabilitation Administration (NARRA), a tract of land situated in the Municipalities
of Tinambac and Siruma, Camarines Sur, after which the NARRA and its successor agency,
the Land Authority, started sub-dividing and distributing the land to the settlers; that the
property in question, while located within the reservation established under Proclamation
No. 90, was the private property of plaintiff and should therefore be excluded therefrom.
- Plaintiff prayed that he be declared the rightful and true owner of the property in question
consisting of 1,364.4177 hectares; that his title of ownership based on informacion
posesoria of his predecessor-in-interest be declared legal valid and subsisting and that
defendant be ordered to cancel and nullify all awards to the settlers.
The defendant, represented by the Land Authority, filed an answer, raising by way of
affirmative defenses lack of sufficient cause of action and prescription.

On August 29, 1970, the trial court, through Judge Rafael S. Sison, rendered a decision
declaring Lot No. 1, with an area of 701.9064 hectares, to be the private property of the
plaintiff, "being covered by a possessory information title in the name of his predecessor-in-
interest" and declaring said lot excluded from the NARRA settlement reservation. The court
declared the rest of the property claimed by plaintiff, i.e. Lots 2, 3 and 4, reverted to the
public domain.

A motion to intervene and to set aside the decision of August 29, 1970 was filed by eighty-six
(86) settlers, together with the barrio council of Pag-asay, alleging among other things that
intervenors had been in possession of the land in question for more than twenty (20) years
under claim of ownership.

On January 25, 1971, the court a quo reconsidered its decision, reopened the case and
directed the intervenors to file their corresponding pleadings and present their evidence; all
evidence already presented were to remain but plaintiff, as well as the Republic of the
Philippines, could present additional evidence if they so desire. The plaintiff presented
additional evidence on July 30, 1971, and the case was set for hearing for the reception of
intervenors' evidence on August 30 and August 31, 1971.

On August 30, 1971, the date set for the presentation of the evidence for intervenors, the
latter did not appear but submitted a motion for postponement and resetting of the hearing
on the next day, August 31, 1971. The trial court denied the motion for postponement and
allowed plaintiff to offer his evidence "en ausencia," after which the case would be deemed
submitted for decision. On the following day, August 31, 1971, Judge Sison rendered a
decision reiterating his decision of August 29, 1970.

A motion for reconsideration was immediately filed by the intervenors. But before this
motion was acted upon, plaintiff filed a motion for execution, dated November 18, 1971. On
December 10, 1971, the lower court, this time through Judge Miguel Navarro, issued an order
denying the motion for execution and setting aside the order denying intervenors' motion for
postponement. The case was reopened to allow intervenors to present their evidence.
Unable to secure a reconsideration of Judge Navarro's order, the plaintiff went to the
Intermediate Appellate Court on a petition for certiorari. Said petition was, however, denied
by the Intermediate Appellate Court, and petitioners brought the matter to this Court in G.R.
No. 36163, which was denied on May 3, 1973 Consequently, the case was remanded to the
court a quo for further proceedings.

On August 31, 1970, intervenors filed a motion to dismiss, principally on the ground that the
Republic of the Philippines cannot be sued without its consent and hence the action cannot
prosper. The motion was opposed by the plaintiff.

On August 21, 1980, the trial court, through Judge Esteban Lising, issued the questioned
order dismissing the case for lack of jurisdiction. Respondent moved for reconsideration,
while the Solicitor General, on behalf of the Republic of the Philippines filed its opposition
thereto, maintaining that the dismissal was proper on the ground of non-suability of the State
and also on the ground that the existence and/or authenticity of the purported possessory
information title of the respondents' predecessor-in-interest had not been demonstrated and
that at any rate, the same is not evidence of title, or if it is, its efficacy has been lost by
prescription and laches.

Upon denial of the motion for reconsideration, plaintiff again went to the Intermediate
Appellate Court on petition for certiorari. On April 30, 1985, the respondent appellate court
rendered its decision reversing the order of Judge Lising and remanding the case to the court
a quo for further proceedings. Hence this petition.

We find the petition meritorious. The doctrine of non-suability of the State has proper
application in this case. The plaintiff has impleaded the Republic of the Philippines as
defendant in an action for recovery of ownership and possession of a parcel of land, bringing
the State to court just like any private person who is claimed to be usurping a piece of
property. A suit for the recovery of property is not an action in rem, but an action in
personam. 1 It is an action directed against a specific party or parties, and any judgment
therein binds only such party or parties. The complaint filed by plaintiff, the private
respondent herein, is directed against the Republic of the Philippines, represented by the
Land Authority, a governmental agency created by Republic Act No. 3844.

By its caption and its allegation and prayer, the complaint is clearly a suit against the State,
which under settled jurisprudence is not permitted, except upon a showing that the State has
consented to be sued, either expressly or by implication through the use of statutory
language too plain to be misinterpreted.2 There is no such showing in the instant case.
Worse, the complaint itself fails to allege the existence of such consent. This is a fatal defect,
3 and on this basis alone, the complaint should have been dismissed.

The failure of the petitioner to assert the defense of immunity from suit when the case was
tried before the court a quo, as alleged by private respondent, is not fatal. It is now settled
that such defense "may be invoked by the courts sua sponte at any stage of the proceedings."
4

Private respondent contends that the consent of petitioner may be read from the
Proclamation itself, when it established the reservation " subject to private rights, if any there
be. " We do not agree. No such consent can be drawn from the language of the Proclamation.
The exclusion of existing private rights from the reservation established by Proclamation No.
90 can not be construed as a waiver of the immunity of the State from suit. Waiver of
immunity, being a derogation of sovereignty, will not be inferred lightly. but must be
construed in strictissimi juris. 5 Moreover, the Proclamation is not a legislative act.
The consent of the State to be sued must emanate from statutory authority. Waiver of State
immunity can only be made by an act of the legislative body.

Neither is there merit in respondent's submission, which the respondent appellate court
sustained, on the basis of our decision in the Begosa case, 6 that the present action is not a
suit against the State within the rule of State immunity from suit, because plaintiff does not
seek to divest the Government of any of its lands or its funds. It is contended that the
complaint involves land not owned by the State, but private land belonging to the plaintiff,
hence the Government is not being divested of any of its properties. There is some sophistry
involved in this argument, since the character of the land sought to be recovered still remains
to be established, and the plaintiff's action is directed against the State precisely to compel
the latter to litigate the ownership and possession of the property. In other words, the
plaintiff is out to establish that he is the owner of the land in question based, incidentally, on
an informacion posesoria of dubious value, and he seeks to establish his claim of ownership
by suing the Republic of the Philippines in an action in personam.

The inscription in the property registry of an informacion posesoria under the Spanish
Mortgage Law was a means provided by the law then in force in the Philippines prior to the
transfer of sovereignty from Spain to the United States of America, to record a claimant's
actual possession of a piece of land, established through an ex parte proceeding conducted
in accordance with prescribed rules. 7 Such inscription merely furnishes, at best, prima facie
evidence of the fact that at the time the proceeding was held, the claimant was in possession
of the land under a claim of right as set forth in his application. 8 The possessory information
could ripen into a record of ownership after the lapse of 20 years (later reduced to 10 years),
upon the fulfillment of the requisites prescribed in Article 393 of the Spanish Mortgage Law.

There is no showing in the case at bar that the informacion posesoria held by the respondent
had been converted into a record of ownership. Such possessory information, therefore,
remained at best mere prima facie evidence of possession. Using this possessory information,
the respondent could have applied for judicial confirmation of imperfect title under the Public
Land Act, which is an action in rem. However, having failed to do so, it is rather late for him
to pursue this avenue at this time. Respondent must also contend, as the records disclose,
with the fact admitted by him and stated in the decision of the Court a quo that settlers have
been occupying and cultivating the land in question since even before the outbreak of the
war, which puts in grave doubt his own claim of possession.

Worthy of note is the fact, as pointed out by the Solicitor General, that the informacion
posesoria registered in the Office of the Register of Deed of Camarines Sur on September 23,
1952 was a "reconstituted" possessory information; it was "reconstituted from the duplicate
presented to this office (Register of Deeds) by Dr. Pablo Feliciano," without the submission of
proof that the alleged duplicate was authentic or that the original thereof was lost.
Reconstitution can be validly made only in case of loss of the original. 10 These circumstances
raise grave doubts as to the authenticity and validity of the "informacion posesoria" relied
upon by respondent Feliciano. Adding to the dubiousness of said document is the fact that
"possessory information calls for an area of only 100 hectares," 11 whereas the land claimed
by respondent Feliciano comprises 1,364.4177 hectares, later reduced to 701-9064 hectares.
Courts should be wary in accepting "possessory information documents, as well as other
purportedly old Spanish titles, as proof of alleged ownership of lands.

WHEREFORE, judgment is hereby rendered reversing and setting aside the appealed decision
of the Intermediate Appellate Court, dated April 30, 1985, and affirming the order of the
court a quo, dated August 21, 1980, dismissing the complaint filed by respondent Pablo
Feliciano against the Republic of the Philippines. No costs.

SO ORDERED.

Narvasa, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.

 G.R. No. L-27299
Del Mar vs. PVA
QUIRICO DEL MAR, petitioner vs. THE PHILIPPINE VETERANS ADMINISTRATION, respondent

On June 20, 1964, Quirico del Mar (hereinafter referred to del Mar) filed with the Court of First
Instance of Cebu petition for mandamus (civil case R-8465) against the Philippine Veterans
Administration (hereinafter referred to the PVA to compel the latter to continue paying him
monthly life pension of P50 from the date of its cancellation in March 1950 to June 20, 1957,
and thereafter, or from June 22 1957 his monthly life pension, as increased by Republic Act
1920,1 of P100 and to pay to him as well the monthly living allowance of P10 for each of his
unmarried minor children below eighteen years of age,2 pursuant to the said Republic Act 1920
which took effect on June 22, 1957. Del Mar also asked for compensatory, moral and exemplary
damages.

In his petition below, del Mar averred that he served during World War II as chief judge advocate
of the Cebu Area Command (a duly recognized guerrilla organization) with the rank of major;
that he subsequently obtained an honorable discharge from the service on October 20, 1946 on
a certificate of permanent total physical disability; that upon proper claim presented and after
hearing and adjudication, the Philippine Veterans Board (the PVA's predecessor granted him a
monthly life pension of P50 effective January 28, 1947; that in March 1950, the said Board
discontinued payment of his monthly life pension on the ground that his receipt of a similar
pension from the United States Government, through the United States Veterans
Administration, by reason of military service rendered in the United States Army in the Far East
during World War II, precluded him from receiving any further monthly life pension from the
Philippine Government; that he wrote the said Board twice demanding that it continue paying
his monthly life pension, impugning the cancellation thereof as illegal; and that his demands
went unheeded.

The PVA reiterated its contention that del Mar's receipt of a similar pension from the United
States Government effectively barred him from claiming and receiving from the Philippine
Government the monthly life pension granted him as well as the monthly allowances he claimed
for his five living unmarried minor children below eighteen years of age. The PVA also asserted
that it is discretionary on its part to grant or discontinue the pension sought by del Mar. In
addition, it alleged that the action of del Mar was premature because of his failure to exhaust
administrative remedies before invoking judicial intervention, and that the court a quo was
without jurisdiction to try the case as del Mar demand partakes of a money claim against the
PVA — a mere agency of the Philippine Government — and, in effect, of a suit against the
Government which is not suitable without its consent. The PVA thus prayed for the dismissal of
the petition.

After due trial, the court a quo rendered judgment upholding del Mar claims. In its decision
dated February 27, 1965, the court (1) ordered the PVA to pay to del Mar his monthly life pension
corresponding to the period from April 1950 to May 1957 at the rate of P50 a month, adding up
to P4,334.86, and his monthly life pension corresponding to the period from June 22, 1957 to
February 1965 at the amount of P100 a month totalling P9,200, and thereafter to continue to
pay his monthly life pension at the rate of P100. a month; (2) directed del Mar to file with the
PVA the corresponding written application for the payment to him of the monthly living
allowance of P10 for each of his five living unmarried minor children from June 22, 1957; and
ordered the PVA to give due course to the written application as soon as del Mar shall have filed
the same with it, and once approved, to make the necessary payment of the accumulated unpaid
living allowances due to each of the said children from June 22, 1957 as well as the current ones
until each one of them ceases to be entitled to the same; and (3 directed the PVA in the event
of unavailability of funds to pay the claims aforementioned, to set aside funds from such as
intended to pay the veterans' living pensions, or to cause the same to be appropriated in its
budget in order to comply with the judgment. For lack of basis, the court a quo omitted to pass
judgment on del Mar's claim for moral and exemplary damages.

Hence, the present appeal by the PVA.

The PVA alleges that the court a quo erred (1) in not holding itself without jurisdiction to try civil
case R-8465; (2) in no finding as premature the petition for mandamus filed by del Mar due to
the failure of the latter to exhaust available administrative remedies before seeking judicial
intervention; (3) in declaring null and void section 6 of PVA Regulation No. 2 relied upon by it in
discontinuing the monthly life pension of del Mar since March 1950; (4) in not finding it
discretionary on the part of the PVA to grant or discontinue the said suspension; (5) in ordering
it to pay to del Mar the amounts stated in the judgment; and (6) in ordering it to give due course
to and approve the application which the said court directed del Mar to file for the payment to
the latter of the monthly living allowance for each of his living unmarried minor children below
eighteen years of age.

This appeal raises several questions which will be discussed in seriatim.

1. The PVA argues that the court a quo was without jurisdiction to try civil case R-8465 because
it involves a money claim against the said PVA — a mere agency of the Government performing
governmental functions with no juridical personality of its own — and, in reality, partakes of an
action against the Philippine Government which is immune from suit without its consent, citing
this Court's observation in Republic of the Philippine vs. Ramolete and Del Mar,3 to wit:

....a charge against the Government where the money involved is part of the public funds, is a
suit against the Government, and the happenstance that the action is directed against the PVA
as an entity and not against the Republic of the Philippines is of no moment. Perforce, the
Republic of the Philippines, on matters of administration of all benefits due to the veterans of
revolutions and wars, and to their heirs and beneficiaries, acts and has to act through its agency
and instrumentality, the PVA. The suit should therefore be regarded as one against the Republic
of the Philippines; the PVA is therefore exempt from the filing of an appeal bond.

The PVA labors under a muddled and mistaken appreciation of the aforecited observation. This
Court stated in precise language the sole issue for resolution in that case, thus:

Is the PVA exempt from the filing of an appeal bond? To resolve this issue, we must initially
determine whether the PVA is an agency or instrumentality of the Republic of the Philippines,
and, in the affirmative, whether it exercises governmental functions.

Indeed, the decisive point in the aforementioned case related to the status of the PVA as an
agency or instrumentality of the Republic of the Philippines exercising governmental functions
as to be entitled to exemption from the filing of the appeal bond per section 16 of Rule 141 of
the Rules of Court, not to the nature of the claim sought to be enforced by the private
respondent therein (del Mar) against the said PVA. Thus, in the said case, this Court made a
lengthy disquisition on the history, development and organization of the PVA to show
conclusively that the same is an entity or agency of the Republic of the Philippines performing
governmental functions. True, this Court referred to the claim of the private respondent therein
as "a claim for a sum of money against the Government, which claim, if adjudged finally to be
meritorious, would render the Republic of the Philippines liable therefor," since the funds from
which the claim was to be satisfied were funds appropriated by Congress for the PVA; but this
Court properly and advisedly omitted any study and consideration of the question of suitability
or non-suitability of the Government in connection therewith.

As a general proposition, the rule — well-settled in this jurisdiction — on the immunity of the
Government from suit without its consent holds true in all actions resulting in "adverse
consequences on the public treasury, whether in the disbursements of funds or loss of
property."4 Needless to state, in such actions, which, in effect, constitute suits against the
Government, the court has no option but to dismiss them. Nonetheless, the rule admits of an
exception. It finds no application where a claimant institutes an action against a functionary who
fails to comply with his statutory duty to release the amount claimed from the public funds
already appropriated by statute for the benefit of the said claimant.5 As clearly discernible from
the circumstances, the case at bar falls under the exception.

2. The second question posed by the PVA relates to del Mar alleged failure to exhaust
administrative remedies before resorting to court action. Suffice it to state that where a case as
in the present controversy — involves a question solely of a legal nature, there arises no need
for the litigant to resort to all administrative remedies available to him before seeking judicial
relief.6

3. The validity of section 6 of Regulation No. 2 of the "Rules and Regulations on Veterans'
Benefits" adopted by the PVA constitutes the core of the present controversy. The said section
6 reads as follows:

SEC. 6. Effect of receipt of USVA pension benefit — termination, reduction. — An award of a

similar disability compensation from the US Veterans Administration shall be a ground for the
cancellation of a disability pension granted under the Regulation: Provided, however, That if and
while the disability compensation awarded by the US Veterans Administration is less than the
pension granted hereunder, the difference in amount shall be assumed and paid by the PVA:
Provided, further, That upon proper application, the disability award previously cancelled may
be restored upon the termination of the US Veterans Administration award if the cause of such
termination is due to negative military service report of the pensioner certified by the US
Department of the Army and not for any other valid cause: Provided, finally, That the veteran is
medically determined to be still suffering from the disability for which he was previously
awarded a pension. Payment of pension thus restored shall take effect or shall commence only
from the date of approval of restoration and when funds become available.

Pursuant to the foregoing, the PVA cancelled and discontinued the monthly life pension of del
Mar reasoning that the latter's receipt of a similar pension from the United States Government
precluded his enjoying any like benefit from the Philippine Government. The PVA avers that it
adopted the aforequoted section 6 in order to carry out and implement section 9 of Republic
Act 65, as amended,7 particularly its excepting clause. Said section 9 reads:
SEC. 9. The persons mentioned in sections one and two hereof who are permanently
incapacitated from work owing to sickness, disease or injuries sustained in line of duty, shall be
given a life pension of one hundred pesos a month, and ten pesos a month for each of his
unmarried minor children below eighteen years of age, unless they are actually receiving a
similar pension from other Government funds, and shall receive, in addition, the necessary
hospitalization and medical care.8

The PVA reads the phrase "from other Government funds" in the excepting clause of the
aforecited provision as necessarily including funds of the United States Government. And
without question, the pension del Mar receives from the United States Veterans Administration
comes from the funds of the United States Government.

On the other hand, del Mar avers that section 6 of Regulation No. 2 illegally effects the
suspension of the operation of section 9 of Republic Act 65, as amended, and argues that under
section 209 of Republic Act 65, as amended, the power suspend the payment of the monthly life
pension awarded to disabled veteran belongs exclusively to the President of the Philippines, not
to the PVA which, in the case at bar, illegally arrogated unto itself the said power. Furthermore,
del Mar states, the PVA "deliberately misinterprets" the phrase from other Government funds"
in extending its scope to include United States Government funds.

The principle recognizing the necessity of vesting administrative authorities with the power to
promulgate rules and regulations to implement a given statute and to effectual its policies,
provided such rules and regulations conform to the terms and standards prescribed by the
statute as well purport to carry into effect its general policies, constitutes well established
doctrine in this jurisdiction. 10 In Teoxon v. Members of the Board of Administrators, Philippine
Veterans Administration, suprea, this Court fittingly stated: .

... the Constitution limits the authority of the President, in whom all executive power resides, to
take care that the laws be faithfully executed. No lesser administrative executive office or agency
then can, contrary to the express language of the Constitution, assert for itself a more extensive
prerogative. Necessarily, it is bound to observe the constitutional mandate. There must be strict
compliance with the legislative enactment. Its terms must be followed. The statute requires
adherence to, not departure from, its provisions. No deviation is allowable.

Section 11 of Republic Act 2665 11 empowers the PVA to adopt rules and regulations, thus:

SEC. 11. Policies, rules and regulations. — Subject to existing laws, the Administration shall have
the power to promulgate and issue rules and regulations as may be found necessary to govern
its operations and to carry out that aims and purposes of this Act and of all other laws to be
administered by the Administration.

Pursuant to this rule making authority, the PVA — allegedly' to implement section 9 of Republic
Act 65, as amended promulgated its "Rules and Regulations on Veterans' Benefits," section 6 of
Regulation No. 2 of which cancels the disability pension granted if the beneficiary receives a
similar compensation from the United States Veterans Administration. In effect, the PVA by
adopting section 6 of Regulation No. 2, suspended the operation of section 9' of Republic Act
65, as amended. This, Republic Act 65, as amended, forbids the PVA to do for it expressly
authorizes only the President of the Philippines to suspend the operation of any of its provisions
"if and when the Congress of the United States approves the pending GI Bill of Rights applicable
to the Philippines the provisions of which are identical or similar to the provisions of this Act."
Clearly then, section 6 of Regulation No. 2 not only negates the very spirit behind section 9 of
Republic Act 65, as amended, but also contravenes the express mandate of section 20 thereof.

The PVA's pretense that del Mar case falls under the clause of section 9 of Republic Act 65, as
amended, which excepts those who "are actually receiving a similar pension from other
Government funds" from the coverage of said section 9 — predicated upon its interpretation
that the phrase other Government funds" includes funds of the United States Government —
fails to persuade this Court as a valid argument to justify its cancellation of del Mar monthly life
pens Section 9 of Republic Act 65, as amended, in providing for the excepting clause, obviously
intends to prevent the receipt the same beneficiary of concurrent or multiple pensions benefits
similar to each other in nature and basis, although coursed through different departments or
agencies, but paid out of the funds of the same Government. Any contrary interpretation
resulting in the derogation of the interests of the beneficiary who likewise receives a similar
pension paid out funds of other Governments, conflicts with the establish axiom ordaining the
construction of pension laws of war veterans in favor of those seeking their benefits.

The record of the case at bar being completely bereft of any indication to show the suspension
by the President of the Philippines — pursuant to section 20 of Republic Act 65, amended — of
the operation of any of the provisions of the said statute, this Court perforce must uphold del
Mar claims.

4. The rest of the assigned errors relate to the allege undue interference by the court a quo with
the purely discretionary functions of the PVA in the matter of granting discontinuing the pension
benefits.

The law concedes to administrative bodies — like the PVA — the authority to act on and decide
claims and applications in accordance with their judgment, in the exercise of their adjudicatory
capacity. Because of their acquired expertise in specific matters within the purview of their
respective jurisdictions, the findings of these administrative bodies merit not only great weight
but also respect and finality. "There is limit, however, to such a deference paid to the actuations
or such bodies, Clearly, where there has been a failure to interpret and apply the statutory
provisions in question, judicial power should assert itself. Under the theory of separation of
power it is to the judiciary, and to the judiciary alone, that the final say on questions of law in
appropriate cases coming before it is vested." 12

All told, no roadblock stands in the way of del Mar's demand for the continuance of his monthly
life pension.

In view, however, of the further amendment by Congress of section 9 of Republic Act 65, as
amended, through Republic Act 5753 — the provisions of which took effect on June 21, 1969 —
there arises the need to modify the judgment a quo in order to make it conform to the said
statute as it now stands. Republic Act 5753, in further amending section 9 of Republic Act 65, as
amended, grants every totally disabled veteran of World War II "a life pension of two hundred
pesos a month, and thirty pesos a month for his wife and each of his unmarried minor children
below eighteen years of age."

ACCORDINGLY, this Court adjudges the appellee Quirico del Mar entitled to his life pension (1)
at the rate of P50 a month effective as of April 1950 to May 1957, per Republic Act 65; (2) at the
rate of P100 a month effective as of June 22, 1957 to May 1969, per Republic Act 65 as amended
by Republic Act 1920; and (3) at the rate of P200 a month effective as of June 21, 1969, per
Republic Act 65 as further amended by Republic Act 5753. This Court directs the appellant
Philippine Veterans Administration to compute and then to pay to the appellee del Mar his past
and accumulated monthly life pension at the aforementioned statutory rates.

Regarding the monthly living allowance the appellee del Mar asks for each of his five "living
unmarried minor children below eighteen years of age," it appearing that he has not filed any
proper application therefor with the appellant PVA but simply included them in his claim for the
restoration of his discontinued monthly life pension, the appellee del Mar may, if he so desires,
comply with section 15 of Republic Act 65, as amended, which requires that "[A]ny person who
desires to take advantage of the rights and privileges provided for in this Act should file his
application" with the Philippine Veterans Administration, and the latter is hereby ordered to
consider and pass upon the merits of such application, if filed, particular reference to the
entitlement qualifications of intended beneficiaries. No pronouncement as to costs.

G.R. No. 154705

Republic of Indonesia vs. James Vinzon
THE REPUBLIC OF INDONESIA, HIS EXCELLENCY AMBASSADOR SOERATMIN, and MINISTER
COUNSELLOR AZHARI KASIM, Petitioners, vs. JAMES VINZON, doing business under the name
and style of VINZON TRADE AND SERVICES, Respondent.

This is a petition for review on certiorari to set aside the Decision of the Court of Appeals dated
May 30, 2002 and its Resolution dated August 16, 2002, in CA-G.R. SP No. 66894 entitled "The
Republic of Indonesia, His Excellency Ambassador Soeratmin and Minister Counselor Azhari
Kasim v. Hon. Cesar Santamaria, Presiding Judge, RTC Branch 145, Makati City, and James Vinzon,
doing business under the name and style of Vinzon Trade and Services."

Petitioner, Republic of Indonesia, represented by its Counsellor, Siti Partinah, entered into a
Maintenance Agreement in August 1995 with respondent James Vinzon, sole proprietor of
Vinzon Trade and Services. The Maintenance Agreement stated that respondent shall, for a
consideration, maintain specified equipment at the Embassy Main Building, Embassy Annex
Building and the Wisma Duta, the official residence of petitioner Ambassador Soeratmin. The
equipment covered by the Maintenance Agreement are air conditioning units, generator sets,
electrical facilities, water heaters, and water motor pumps. It is likewise stated therein that the
agreement shall be effective for a period of four years and will renew itself automatically unless
cancelled by either party by giving thirty days prior written notice from the date of expiry.

Petitioners claim that sometime prior to the date of expiration of the said agreement, or before
August 1999, they informed respondent that the renewal of the agreement shall be at the
discretion of the incoming Chief of Administration, Minister Counsellor Azhari Kasim, who was
expected to arrive in February 2000. When Minister Counsellor Kasim assumed the position of
Chief of Administration in March 2000, he allegedly found respondent’s work and services
unsatisfactory and not in compliance with the standards set in the Maintenance Agreement.
Hence, the Indonesian Embassy terminated the agreement in a letter dated August 31, 2000.
Petitioners claim, moreover, that they had earlier verbally informed respondent of their decision
to terminate the agreement.
On the other hand, respondent claims that the aforesaid termination was arbitrary and unlawful.
Respondent cites various circumstances which purportedly negated petitioners’ alleged
dissatisfaction over respondent’s services: (a) in July 2000, Minister Counsellor Kasim still
requested respondent to assign to the embassy an additional full-time worker to assist one of
his other workers; (b) in August 2000, Minister Counsellor Kasim asked respondent to donate a
prize, which the latter did, on the occasion of the Indonesian Independence Day golf
tournament; and (c) in a letter dated August 22, 2000, petitioner Ambassador Soeratmin
thanked respondent for sponsoring a prize and expressed his hope that the cordial relations
happily existing between them will continue to prosper and be strengthened in the coming
years.

Hence, on December 15, 2000, respondent filed a complaint against petitioners docketed as Civil
Case No. 18203 in the Regional Trial Court (RTC) of Makati, Branch 145. On February 20, 2001,
petitioners filed a Motion to Dismiss, alleging that the Republic of Indonesia, as a foreign
sovereign State, has sovereign immunity from suit and cannot be sued as a party-defendant in
the Philippines. The said motion further alleged that Ambassador Soeratmin and Minister
Counsellor Kasim are diplomatic agents as defined under the Vienna Convention on Diplomatic
Relations and therefore enjoy diplomatic immunity. In turn, respondent filed on March 20, 2001,
an Opposition to the said motion alleging that the Republic of Indonesia has expressly waived
its immunity from suit. He based this claim upon the following provision in the Maintenance
Agreement:

"Any legal action arising out of this Maintenance Agreement shall be settled according to the
laws of the Philippines and by the proper court of Makati City, Philippines."

Respondent’s Opposition likewise alleged that Ambassador Soeratmin and Minister Counsellor
Kasim can be sued and held liable in their private capacities for tortious acts done with malice
and bad faith.

On May 17, 2001, the trial court denied herein petitioners’ Motion to Dismiss. It likewise denied
the Motion for Reconsideration subsequently filed.

The trial court’s denial of the Motion to Dismiss was brought up to the Court of Appeals by herein
petitioners in a petition for certiorari and prohibition. Said petition, docketed as CA-G.R. SP No.
66894, alleged that the trial court gravely abused its discretion in ruling that the Republic of
Indonesia gave its consent to be sued and voluntarily submitted itself to the laws and jurisdiction
of Philippine courts and that petitioners Ambassador Soeratmin and Minister Counsellor Kasim
waived their immunity from suit.

On May 30, 2002, the Court of Appeals rendered its assailed decision denying the petition for
lack of merit. On August 16, 2002, it denied herein petitioners’ motion for reconsideration.

Hence, this petition.

In the case at bar, petitioners raise the sole issue of whether or not the Court of Appeals erred
in sustaining the trial court’s decision that petitioners have waived their immunity from suit by
using as its basis the abovementioned provision in the Maintenance Agreement.

The petition is impressed with merit.

International law is founded largely upon the principles of reciprocity, comity, independence,
and equality of States which were adopted as part of the law of our land under Article II, Section
2 of the 1987 Constitution. The rule that a State may not be sued without its consent is a
necessary consequence of the principles of independence and equality of States. As enunciated
in Sanders v. Veridiano II, the practical justification for the doctrine of sovereign immunity is that
there can be no legal right against the authority that makes the law on which the right depends.
In the case of foreign States, the rule is derived from the principle of the sovereign equality of
States, as expressed in the maxim par in parem non habet imperium. All states
are sovereign equals and cannot assert jurisdiction over one another. A contrary attitude would
"unduly vex the peace of nations."

The rules of International Law, however, are neither unyielding nor impervious to change. The
increasing need of sovereign States to enter into purely commercial activities remotely
connected with the discharge of their governmental functions brought about a new concept of
sovereign immunity. This concept, the restrictive theory, holds that the immunity of the
sovereign is recognized only with regard to public acts or acts jure imperii, but not with regard
to private acts or acts jure gestionis.

In United States v. Ruiz,14 for instance, we held that the conduct of public bidding for the repair
of a wharf at a United States Naval Station is an act jure imperii. On the other hand, we
considered as an act jure gestionis the hiring of a cook in the recreation center catering to
American servicemen and the general public at the John Hay Air Station in Baguio City,15 as well
as the bidding for the operation of barber shops in Clark Air Base in Angeles City.16

Apropos the present case, the mere entering into a contract by a foreign State with a private
party cannot be construed as the ultimate test of whether or not it is an act jure imperii or jure
gestionis. Such act is only the start of the inquiry. Is the foreign State engaged in the regular
conduct of a business? If the foreign State is not engaged regularly in a business or commercial
activity, and in this case it has not been shown to be so engaged, 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.

Hence, the existence alone of a paragraph in a contract stating that any legal action arising out
of the agreement shall be settled according to the laws of the Philippines and by a specified
court of the Philippines is not necessarily a waiver of sovereign immunity from suit. The aforesaid
provision contains language not necessarily inconsistent with sovereign immunity. On the other
hand, such provision may also be meant to apply where the sovereign party elects to sue in the
local courts, or otherwise waives its immunity by any subsequent act. The applicability of
Philippine laws must be deemed to include Philippine laws in its totality, including the principle
recognizing sovereign immunity. Hence, the proper court may have no proper action, by way of
settling the case, except to dismiss it.

Submission by a foreign state to local jurisdiction must be clear and unequivocal. It must be given
explicitly or by necessary implication. We find no such waiver in this case.

Respondent concedes that the establishment of a diplomatic mission is a sovereign function. On

the other hand, he argues that the actual physical maintenance of the premises of the diplomatic
mission, such as the upkeep of its furnishings and equipment, is no longer a sovereign function
of the State.
We disagree. There is no dispute that the establishment of a diplomatic mission is an act jure
imperii. A sovereign State does not merely establish a diplomatic mission and leave it at that;
the establishment of a diplomatic mission encompasses its maintenance and upkeep. Hence, the
State may enter into contracts with private entities to maintain the premises, furnishings and
equipment of the embassy and the living quarters of its agents and officials. It is therefore clear
that petitioner Republic of Indonesia was acting in pursuit of a sovereign activity when it entered
into a contract with respondent for the upkeep or maintenance of the air conditioning units,
generator sets, electrical facilities, water heaters, and water motor pumps of the Indonesian
Embassy and the official residence of the Indonesian ambassador.

The Solicitor General, in his Comment, submits the view that, "the Maintenance Agreement was
entered into by the Republic of Indonesia in the discharge of its governmental functions. In such
a case, it cannot be deemed to have waived its immunity from suit." As to the paragraph in the
agreement relied upon by respondent, the Solicitor General states that it "was not a waiver of
their immunity from suit but a mere stipulation that in the event they do waive their immunity,
Philippine laws shall govern the resolution of any legal action arising out of the agreement and
the proper court in Makati City shall be the agreed venue thereof.

On the matter of whether or not petitioners Ambassador Soeratmin and Minister Counsellor
Kasim may be sued herein in their private capacities, Article 31 of the Vienna Convention on
Diplomatic Relations provides:

xxx

1. A diplomatic agent shall enjoy immunity from the criminal jurisidiction of the receiving State.
He shall also enjoy immunity from its civil and administrative jurisdiction, except in the case of:

(a) a real action relating to private immovable property situated in the territory of the receiving
State, unless he holds it on behalf of the sending State for the purposes of the mission;

(b) an action relating to succession in which the diplomatic agent is involved as executor,
administrator, heir or legatee as a private person and not on behalf of the sending State;

(c) an action relating to any professional or commercial activity exercised by the diplomatic agent
in the receiving State outside his official functions.

xxx

The act of petitioners Ambassador Soeratmin and Minister Counsellor Kasim in terminating the
Maintenance Agreement is not covered by the exceptions provided in the abovementioned
provision.

The Solicitor General believes that said act may fall under subparagraph (c) thereof, but said
provision clearly applies only to a situation where the diplomatic agent engages in any
professional or commercial activity outside official functions, which is not the case herein.

WHEREFORE, the petition is hereby GRANTED. The decision and resolution of the Court of
Appeals in CA G.R. SP No. 66894 are REVERSED and SET ASIDE and the complaint in Civil Case
No. 18203 against petitioners is DISMISSED.
 G.R. No. L-23139
Mobil Philippines Exploration vs. Customs Arraste Service
MOBIL PHILIPPINES EXPLORATION, INC., plaintiff-appellant, vs. CUSTOMS ARRASTRE SERVICE
and BUREAU of CUSTOMS, defendants-appellees.

Four cases of rotary drill parts were shipped from abroad on S.S. "Leoville" sometime in
November of 1962, consigned to Mobil Philippines Exploration, Inc., Manila. The shipment
arrived at the Port of Manila on April 10, 1963, and was discharged to the custody of the Customs
Arrastre Service, the unit of the Bureau of Customs then handling arrastre operations therein.
The Customs Arrastre Service later delivered to the broker of the consignee three cases only of
the shipment.

On April 4, 1964 Mobil Philippines Exploration, Inc., filed suit in the Court of First Instance of
Manila against the Customs Arrastre Service and the Bureau of Customs to recover the value of
the undelivered case in the amount of P18,493.37 plus other damages.

On April 20, 1964 the defendants filed a motion to dismiss the complaint on the ground that not
being persons under the law, defendants cannot be sued.

After plaintiff opposed the motion, the court, on April 25, 1964, dismissed the complaint on the
ground that neither the Customs Arrastre Service nor the Bureau of Customs is suable. Plaintiff
appealed to Us from the order of dismissal.

Raised, therefore, in this appeal is the purely legal question of the defendants' suability under
the facts stated.

Appellant contends that not all government entities are immune from suit; that defendant
Bureau of Customs as operator of the arrastre service at the Port of Manila, is discharging
proprietary functions and as such, can be sued by private individuals.

The Rules of Court, in Section 1, Rule 3, provide:

SECTION 1. Who may be parties.—Only natural or juridical persons or entities authorized by law
may be parties in a civil action.

Accordingly, a defendant in a civil suit must be (1) a natural person; (2) a juridical person or (3)
an entity authorized by law to be sued. Neither the Bureau of Customs nor (a fortiori) its function
unit, the Customs Arrastre Service, is a person. They are merely parts of the machinery of
Government. The Bureau of Customs is a bureau under the Department of Finance (Sec. 81,
Revised Administrative Code); and as stated, the Customs Arrastre Service is a unit of the Bureau
of Custom, set up under Customs Administrative Order No. 8-62 of November 9, 1962 (Annex
"A" to Motion to Dismiss, pp. 13-15, Record an Appeal). It follows that the defendants herein
cannot he sued under the first two abovementioned categories of natural or juridical persons.

Nonetheless it is urged that by authorizing the Bureau of Customs to engage in arrastre service,
the law thereby impliedly authorizes it to be sued as arrastre operator, for the reason that the
nature of this function (arrastre service) is proprietary, not governmental. Thus, insofar as
arrastre operation is concerned, appellant would put defendants under the third category of
"entities authorized by law" to be sued. Stated differently, it is argued that while there is no law
expressly authorizing the Bureau of Customs to sue or be sued, still its capacity to be sued is
implied from its very power to render arrastre service at the Port of Manila, which it is alleged,
amounts to the transaction of a private business.

The statutory provision on arrastre service is found in Section 1213 of Republic Act 1937 (Tariff
and Customs Code, effective June 1, 1957), and it states:

SEC. 1213. Receiving, Handling, Custody and Delivery of Articles.—The Bureau of Customs shall
have exclusive supervision and control over the receiving, handling, custody and delivery of
articles on the wharves and piers at all ports of entry and in the exercise of its functions it is
hereby authorized to acquire, take over, operate and superintend such plants and facilities as
may be necessary for the receiving, handling, custody and delivery of articles, and the
convenience and comfort of passengers and the handling of baggage; as well as to acquire fire
protection equipment for use in the piers: Provided, That whenever in his judgment the
receiving, handling, custody and delivery of articles can be carried on by private parties with
greater efficiency, the Commissioner may, after public bidding and subject to the approval of the
department head, contract with any private party for the service of receiving, handling, custody
and delivery of articles, and in such event, the contract may include the sale or lease of
government-owned equipment and facilities used in such service.

In Associated Workers Union, et al. vs. Bureau of Customs, et al., L-21397, resolution of August
6, 1963, this Court indeed held "that the foregoing statutory provisions authorizing the grant by
contract to any private party of the right to render said arrastre services necessarily imply that
the same is deemed by Congress to be proprietary or non-governmental function." The issue in
said case, however, was whether laborers engaged in arrastre service fall under the concept of
employees in the Government employed in governmental functions for purposes of the
prohibition in Section 11, Republic Act 875 to the effect that "employees in the Government . . .
shall not strike," but "may belong to any labor organization which does not impose the obligation
to strike or to join in strike," which prohibition "shall apply only to employees employed in
governmental functions of the Government . . . .

Thus, the ruling therein was that the Court of Industrial Relations had jurisdiction over the
subject matter of the case, but not that the Bureau of Customs can be sued. Said issue of suability
was not resolved, the resolution stating only that "the issue on the personality or lack of
personality of the Bureau of Customs to be sued does not affect the jurisdiction of the lower
court over the subject matter of the case, aside from the fact that amendment may be made in
the pleadings by the inclusion as respondents of the public officers deemed responsible, for the
unfair labor practice acts charged by petitioning Unions".

Now, the fact that a non-corporate government entity performs a function proprietary in nature
does not necessarily result in its being suable. If said non-governmental function is undertaken
as an incident to its governmental function, there is no waiver thereby of the sovereign immunity
from suit extended to such government entity. This is the doctrine recognized in Bureau of
Printing, et al. vs. Bureau of Printing Employees Association, et al., L-15751, January 28, 1961:

The Bureau of Printing is an office of the Government created by the Administrative Code of
1916 (Act No. 2657). As such instrumentality of the Government, it operates under the direct
supervision of the Executive Secretary, Office of the President, and is "charged with the
execution of all printing and binding, including work incidental to those processes, required by
the National Government and such other work of the same character as said Bureau may, by law
or by order of the (Secretary of Finance) Executive Secretary, be authorized to undertake . . . ."
(Sec. 1644, Rev. Adm. Code.) It has no corporate existence, and its appropriations are provided
for in the General Appropriations Act. Designed to meet the printing needs of the Government,
it is primarily a service bureau and, obviously, not engaged in business or occupation for
pecuniary profit.

xxx xxx xxx

. . . Clearly, while the Bureau of Printing is allowed to undertake private printing jobs, it cannot
be pretended that it is thereby an industrial or business concern. The additional work it executes
for private parties is merely incidental to its function, and although such work may be deemed
proprietary in character, there is no showing that the employees performing said proprietary
function are separate and distinct from those emoloyed in its general governmental functions.

xxx xxx xxx

Indeed, as an office of the Government, without any corporate or juridical personality, the
Bureau of Printing cannot be sued (Sec. 1, Rule 3, Rules of Court.) Any suit, action or proceeding
against it, if it were to produce any effect, would actually be a suit, action or proceeding against
the Government itself, and the rule is settled that the Government cannot be sued without its
consent, much less over its objection. (See Metran vs. Paredes, 45 Off. Gaz. 2835; Angat River
Irrigation System, et al. vs. Angat River Workers Union, et al., G.R. Nos. L-10943-44, December
28, 1957.)

The situation here is not materially different. The Bureau of Customs, to repeat, is part of the
Department of Finance (Sec. 81, Rev. Adm. Code), with no personality of its own apart from that
of the national government. Its primary function is governmental, that of assessing and
collecting lawful revenues from imported articles and all other tariff and customs duties, fees,
charges, fines and penalties (Sec. 602, R.A. 1937). To this function, arrastre service is a necessary
incident. For practical reasons said revenues and customs duties can not be assessed and
collected by simply receiving the importer's or ship agent's or consignee's declaration of
merchandise being imported and imposing the duty provided in the Tariff law. Customs
authorities and officers must see to it that the declaration tallies with the merchandise actually
landed. And this checking up requires that the landed merchandise be hauled from the ship's
side to a suitable place in the customs premises to enable said customs officers to make it, that
is, it requires arrastre operations.1

Clearly, therefore, although said arrastre function may be deemed proprietary, it is a necessary
incident of the primary and governmental function of the Bureau of Customs, so that engaging
in the same does not necessarily render said Bureau liable to suit. For otherwise, it could not
perform its governmental function without necessarily exposing itself to suit. Sovereign
immunity, granted as to the end, should not be denied as to the necessary means to that end.

And herein lies the distinction between the present case and that of National Airports
Corporation vs. Teodoro, 91 Phil. 203, on which appellant would rely. For there, the Civil
Aeronautics Administration was found have for its prime reason for existence not a
governmental but a proprietary function, so that to it the latter was not a mere incidental
function:
Among the general powers of the Civil Aeronautics Administration are, under Section 3, to
execute contracts of any kind, to purchase property, and to grant concessions rights, and under
Section 4, to charge landing fees, royalties on sales to aircraft of aviation gasoline, accessories
and supplies, and rentals for the use of any property under its management.

These provisions confer upon the Civil Aeronautics Administration, in our opinion, the power to
sue and be sued. The power to sue and be sued is implied from the power to transact private
business. . . .

xxx xxx xxx

The Civil Aeronautics Administration comes under the category of a private entity. Although not
a body corporate it was created, like the National Airports Corporation, not to maintain a
necessary function of government, but to run what is essentially a business, even if revenues be
not its prime objective but rather the promotion of travel and the convenience of the travelling
public. . . .

Regardless of the merits of the claim against it, the State, for obvious reasons of public policy,
cannot be sued without its consent. Plaintiff should have filed its present claim to the General
Auditing Office, it being for money under the provisions of Commonwealth Act 327, which state
the conditions under which money claims against the Government may be filed.

It must be remembered that statutory provisions waiving State immunity from suit are strictly
construed and that waiver of immunity, being in derogation of sovereignty, will not be lightly
inferred. (49 Am. Jur., States, Territories and Dependencies, Sec. 96, p. 314; Petty vs. Tennessee-
Missouri Bridge Com., 359 U.S. 275, 3 L. Ed. 804, 79 S. Ct. 785). From the provision authorizing
the Bureau of Customs to lease arrastre operations to private parties, We see no authority to
sue the said Bureau in the instances where it undertakes to conduct said operation itself. The
Bureau of Customs, acting as part of the machinery of the national government in the operation
of the arrastre service, pursuant to express legislative mandate and as a necessary incident of
its prime governmental function, is immune from suit, there being no statute to the contrary.

WHEREFORE, the order of dismissal appealed from is hereby affirmed, with costs against
appellant. So ordered.

G.R. No. L-5156

Festejo vs Fernando
The defendant, as Director of the Bureau of Public Works, without authority obtained first from
the Court of First Instance of Ilocos Sur, without obtaining first a right of way, and without the
consent and knowledge of the plaintiff, and against her express objection unlawfully took
possession of portions of the three parcels of land described above, and caused an irrigation
canal to be constructed on the portion of the three parcels of land on or about the month of
February 1951 the aggregate area being 24,179 square meters to the damage and prejudice of
the plaintiff. ----- R. on A., p. 3.

causing her various damages. Consequently, he requested a judgment condemning the

defendant:
. . . to return or cause to be returned the possession of the portions of land unlawfully occupied
and appropriated in the aggregate area of 24,179 square meters and to return the land to its
former condition under the expenses of the defendant. . . .

In the remote event that the portions of land unlawfully occupied and appropriated can not be
returned to the plaintiff, then to order the defendant to pay to the plaintiff the sum of
P19,343.20 as value of the portions totalling an area of 24,179 square meters; ---- R. on A., p. 5.

and in addition to pay P9,756.19 of damages and P5,000 of attorney's fees, with the costs R. on
A., pp. 5-6.

The defendant, through the Attorney General, filed a motion to dismiss the lawsuit on the
grounds that the Court does not have jurisdiction to render a valid judgment against him, since
judicially the claim is against the Republic of the Philippines, and the Republic of the Philippines
has not submitted its consent to the lawsuit. The lower court upheld the motion and dismissed
the claim without prejudice and without costs.

On appeal, the plaintiff contends that it was a mistake to consider the claim as one against the
Republic and to dismiss the lawsuit under it.

The motion against "Isaias Fernando, Director of Public Works, in charge and responsible for the
construction of irrigation systems in the Philippines" is one directed personally against him, for
acts that I assume to execute in his official concept. The law does not exempt him from liability
for any overreach he commits or causes to be committed in the performance of his official duties.
A similar case is that of Nelson v. Bobcock (1933) 18 minn. 584, NW 49, 90 ALR 1472. There the
Commissioner of Highways, when improving a piece of the road occupied or appropriated land
adjacent to the right of way. The Supreme Court of the State declared that the owner is
personally liable for the damages caused. He further declared that the ratification of what his
subordinates did was tantamount to an order to them. Here the Court said.

We think the evidence and conceded facts permitted the jury in finding that in the trespass on
plaintiff's land defendant committed acts outside the scope of his authority. When he went
outside the boundaries of the right of way upon plaintiff's land and damaged it or destroyed its
former condition an dusefulness, he must be held to have designedly departed from the duties
imposed on him by law. There can be no claim that he thus invaded plaintiff's land southeasterly
of the right of way innocently. Surveys clearly marked the limits of the land appropriated for the
right of way of this trunk highway before construction began. . . .

"Ratification may be equivalent to command, and cooperation may be inferred from

acquiescence where there is power to restrain." It is unnecessary to consider other cases cited,
. . ., for as before suggested, the jury could find or infer that, in so far as there was actual trespass
by appropriation of plaintiff's land as a dumping place for the rock to be removed from the
additional appropriated right of way, defendant planned, approved, and ratified what was done
by his subordinates. — Nelson vs. Bobcock, 90 A.L.R., 1472, 1476, 1477.

The doctrine on the civil liability of officials in similar cases is summarized as follows:

Ordinarily the officer or employee committing the tort is personally liable therefor, and may be
sued as any other citizen and held answerable for whatever injury or damage results from his
tortious act. — 49 Am. Jur. 289.
. . . If an officer, even while acting under color of his office, exceeds the power conferred on him
by law, he cannot shelter himself under the plea that he is a public agent. — 43 Am. Jur. 86.

It is a general rule that an officer-executive, administrative quasi-judicial, ministerial, or

otherwise who acts outside the scope of his jurisdiction and without authorization of law may
thereby render himself amenable to personal liability in a civil suit. If he exceed the power
conferred on him by law, he cannot shelter himself by the plea that he is a public agent acting
under the color of his office, and not personally. In the eye of the law, his acts then are wholly
without authority. — 43 Am. Jur. 89-90.

Article 32 of the Civil Code states:

ART. 32. Any public officer or emplyee, or any private individual, who directly or indirectly
obstructs, defeats, violates or in any manner impedes or impairs any of the following rights and
liberties of another person shall be liable to the latter for damages:

xxx xxx xxx

(6) The right against deprivation of property without due process of law;

xxx xxx xxx

In any of the cases referred to this article, whether or not the defendant's acts or omission
constitutes a criminal offense, the aggrieved party has a right ot commence an entirely separate
and distinct civil action for damages, and for other relief. Such civil action shall proceed
independently of any criminal prosecution (if the latter be instituted), and may be proved by a
preponderance of evidence.

The indemnity shall include moral damages Exemplary damages may also be adjudicated.

See also Lung v. Aldanese, 45 Phil., 784; Syquia v. Almeda, No. L-1648, August 17, 1947; Marquez
v. Nelson, No. L-2412, September 1950.

The order appealed against is reversed and the continuation of the processing of the complaint
is ordered as provided by the regulations. No special order as to costs. So it is ordered.

Padilla, Reyes, Jugo, Bautista Angelo and Labrador, MM., are satisfied.

Separate Opinions

CONCEPCION, J., dissenting:

To my mind, the allegations of the complaint lead to no other conclusion than that appellee
Isaias Fernando is a party in this case, not in his personal capacity, but as an officer of the
Government. According to said pleading the defendant is "Isaias Fernando, Director, Bureau of
Public Works." Moreover, in paragraphs 4 and 5 of the complaint, it is alleged:
4. That the defendant as Director of the Bureau of Public Works, is in charge of irrigation projects
and systems, and the official responsible for the construction of irrigation system in the
Philippines;

5. That the defendant, as Director of the Bureau of Public Works, without authority obtained
first from the Court of First Instance of Ilocos Sur, without obtaining first a right of way, and
without the consent and knowledge of the plaintiff, and against her express objection, unlawfully
took possession of portions of the three parcels of land described above, and caused an
irrigation canal to be constructed on the portion of the three parcels of land on or about the
month of February 1951 the aggregate area being 24,179 square meters to the damage and
prejudice of the plaintiff. (Emphasis supplied.)

The emphasis thus placed upon the allegation that the acts complained of were performed by
said defendant "as Director of the Bureau of Public Works," clearly shows that the designation
of his office was included in the title of the case to indicate that he was being sued in his official
capacity. This conclusion is bolstered up by the fact that, among other things, plaintiff prays, in
the complaint, for a judgment

Ordering the defendant to return or caused to be returned the possession of the portions of
land unlawfully occupied and appropriated in the aggregate area of 24,179 square meters and
to return the land to its former condition under the expense of the defendant. (Paragraph a, of
the complaint).

We take judicial notice of the fact that the irrigation projects and system reffered to in the
complaint — of which the defendant, Isaias Fernando, according to the same pleading, is "in
charge" and for which he is "responsible" as Director of the Bureau of Public Works — are
established and operated with public funds, which pursuant to the Constitution, must be
appropriated by law. Irrespective of the manner in which the construction may have been
undertaken by the Bureau of Public Works, the system or canal is, therefore, a property of the
Government. Consequently, in praying that possession of the portions of land occupied by the
irrigation canal involved in the present case be returned to plaintiff therein, and that said land
be restored to its former condition, plaintiff seeks to divest the Government of its possession of
said irrigation canal, and, what is worse, to cause said property of the Government to be
removed or destroyed. As held in Syquia vs. Lopez (47 Off. Gaz., 665), the Government is,
accordingly, "the real party in interest as defendant" in the case at bar. In other words, the same
partakes of the nature of a suit against the state and may not be maintained without its consent.

G.R. No. 115634

Calub vs. CA
QUISUMBING, J.:

For review is the decision.[1] dated May 27, 1994, of the Court of Appeals in CA-G.R. SP No.
29191, denying the petition filed by herein petitioners for certiorari, prohibition and mandamus,
in order to annul the Order dated May 27, 1992, by the Regional Trial Court of Catbalogan, Samar.
Said Order had denied petitioners' (a) Motion to Dismiss the replevin case filed by herein private
respondents, as well as (b) petitioners' Motion for Reconsideration of the Order of said trial court
dated April 24, 1992, granting an application for a Writ of replevin..[2]
The pertinent facts of the case, borne by the records, are as follows:

On January 28, 1992, the Forest Protection and Law Enforcement Team of the Community
Environment and Natural Resources Office (CENRO) of the DENR apprehended two (2) motor
vehicles, described as follows:
"1. Motor Vehicle with Plate No. HAK-733 loaded with one thousand and twenty six (1,026)
board feet of illegally sourced lumber valued at P8,544.75, being driven by one Pio Gabon and
owned by [a certain] Jose Vargas.

2. Motor Vehicle with Plate No. FCN-143 loaded with one thousand two hundred twenty four
and ninety seven (1,224.97) board feet of illegally-sourced lumber valued at P9,187.27, being
driven by one Constancio Abuganda and owned by [a certain] Manuela Babalcon. …".[3]
Constancio Abuganda and Pio Gabon, the drivers of the vehicles, failed to present proper
documents and/or licenses. Thus, the apprehending team seized and impounded the vehicles
and its load of lumber at the DENR-PENR (Department of Environment and Natural Resources-
Provincial Environment and Natural Resources) Office in Catbalogan..[4] Seizure receipts were
issued but the drivers refused to accept the receipts..[5] Felipe Calub, Provincial Environment
and Natural Resources Officer, then filed before the Provincial Prosecutor's Office in Samar, a
criminal complaint against Abuganda, in Criminal Case No. 3795, for violation of Section 68 [78),
Presidential Decree 705 as amended by Executive Order 277, otherwise known as the Revised
Forestry Code.[6]

On January 31, 1992, the impounded vehicles were forcibly taken by Gabon and Abuganda from
the custody of the DENR, prompting DENR Officer Calub this time to file a criminal complaint for
grave coercion against Gabon and Abuganda. The complaint was, however, dismissed by the
Public Prosecutor..[7]

On February 11, 1992, one of the two vehicles, with plate number FCN 143, was again
apprehended by a composite team of DENR-CENR in Catbalogan and Philippine Army elements
of the 802nd Infantry Brigade at Barangay Buray, Paranas, Samar. It was again loaded with forest
products with an equivalent volume of 1,005.47 board feet, valued at P10,054.70. Calub duly
filed a criminal complaint against Constancio Abuganda, a certain Abegonia, and several John
Does, in Criminal Case No. 3625, for violation of Section 68 [78], Presidential Decree 705 as
amended by Executive Order 277, otherwise known as the Revised Forestry Code..[8]

In Criminal Cases Nos. 3795 and 3625, however, Abegonia and Abuganda were acquitted on the
ground of reasonable doubt. But note the trial court ordered that a copy of the decision be
furnished the Secretary of Justice, in order that the necessary criminal action may be filed against
Noe Pagarao and all other persons responsible for violation of the Revised Forestry Code. For it
appeared that it was Pagarao who chartered the subject vehicle and ordered that cut timber be
loaded on it..[9]

Subsequently, herein private respondents Manuela Babalcon, the vehicle owner, and Constancio
Abuganda, the driver, filed a complaint for the recovery of possession of the two (2) impounded
vehicles with an application for replevin against herein petitioners before the RTC of Catbalogan.
The trial court granted the application for replevin and issued the corresponding writ in an Order
dated April 24, 1992..[10] Petitioners filed a motion to dismiss which was denied by the trial
court.[11]
Thus, on June 15, 1992, petitioners filed with the Supreme Court the present Petition for
Certiorari, Prohibition and Mandamus with application for Preliminary Injunction and/or a
Temporary Restraining Order. The Court issued a TRO, enjoining respondent RTC judge from
conducting further proceedings in the civil case for replevin; and enjoining private respondents
from taking or attempting to take the motor vehicles and forest products seized from the custody
of the petitioners. The Court further instructed the petitioners to see to it that the motor vehicles
and other forest products seized are kept in a secured place and protected from deterioration,
said property being in custodia legis and subject to the direct order of the Supreme Court..[12]
In a Resolution issued on September 28, 1992, the Court referred said petition to respondent
appellate court for appropriate disposition..[13]

On May 27, 1994, the Court of Appeals denied said petition for lack of merit. It ruled that the
mere seizure of a motor vehicle pursuant to the authority granted by Section 68 [78] of P.D. No.
705 as amended by E.O. No. 277 does not automatically place said conveyance in custodia legis.
According to the appellate court, such authority of the Department Head of the DENR or his duly
authorized representative to order the confiscation and disposition of illegally obtained forest
products and the conveyance used for that purpose is not absolute and unqualified. It is subject
to pertinent laws, regulations, or policies on that matter, added the appellate court. The DENR
Administrative Order No. 59, series of 1990, is one such regulation, the appellate court said. For
it prescribes the guidelines in the confiscation, forfeiture and disposition of conveyances used in
the commission of offenses penalized under Section 68 [78] of P.D. No. 705 as amended by E.O.
No. 277..[14]

Additionally, respondent Court of Appeals noted that the petitioners failed to observe the
procedure outlined in DENR Administrative Order No. 59, series of 1990. They were unable to
submit a report of the seizure to the DENR Secretary, to give a written notice to the owner of
the vehicle, and to render a report of their findings and recommendations to the Secretary.
Moreover, petitioners' failure to comply with the procedure laid down by DENR Administrative
Order No. 59, series of 1990, was confirmed by the admission of petitioners' counsel that no
confiscation order has been issued prior to the seizure of the vehicle and the filing of the replevin
suit. Therefore, in failing to follow such procedure, according to the appellate court, the subject
vehicles could not be considered in custodia legis.[15]

Respondent Court of Appeals also found no merit in petitioners' claim that private respondents'
complaint for replevin is a suit against the State. Accordingly, petitioners could not shield
themselves under the principle of state immunity as the property sought to be recovered in the
instant suit had not yet been lawfully adjudged forfeited in favor of the government. Moreover,
according to respondent appellate court, there could be no pecuniary liability nor loss of
property that could ensue against the government. It reasoned that a suit against a public officer
who acted illegally or beyond the scope of his authority could not be considered a suit against
the State; and that a public officer might be sued for illegally seizing or withholding the
possession of the property of another..[16]

Respondent court brushed aside other grounds raised by petitioners based on the claim that the
subject vehicles were validly seized and held in custody because they were contradicted by its
own findings..[17] Their petition was found without merit.[18]

Now, before us, the petitioners assign the following errors:.[19]

(1) THE COURT OF APPEALS ERRED IN HOLDING THAT MERE SEIZURE OF A CONVEYANCE
PURSUANT TO SECTION 68-A [78-A] OF P.D. NO. 705 AS AMENDED BY EXECUTIVE ORDER 277
DOES NOT PLACE SAID CONVEYANCE IN CUSTODIA LEGIS;

(2) THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE OPERATIVE ACT GIVING RISE FOR
THE SUBJECT CONVEYANCE TO BE IN CUSTODIA LEGIS IS ITS LAWFUL SEIZURE BY THE DENR
PURSUANT TO SECTION 68-A [78-A] OF P.D. NO. 705, AS AMENDED BY E.O. NO. 277; AND

(3) THE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPLAINT FOR REPLEVIN AGAINST
THE PETITIONERS IS NOT A SUIT AGAINST THE STATE.
In brief, the pertinent issues for our consideration are:

(1) Whether or not the DENR-seized motor vehicle, with plate number FCN 143, is in custodia
legis.

(2) Whether or not the complaint for the recovery of possession of impounded vehicles, with an
application for replevin, is a suit against the State.

We will now resolve both issues.

The Revised Forestry Code authorizes the DENR to seize all conveyances used in the commission
of an offense in violation of Section 78. Section 78 states:
Sec. 78. Cutting, Gathering, and or Collecting Timber, or Other Forest Products without License.
Any person who shall cut, gather, collect, remove timber or other forest products from any
forestland, or timber from alienable or disposable public land, or from private land, without any
authority, or possess timber or other forest products without the legal documents as required
under existing forest laws and regulations, shall be punished with the penalties imposed under
Articles 309 and 310 of the Revised Penal Code.

The Court shall further order the confiscation in favor of the government of the timber or any
forest products cut, gathered, collected, removed, or possessed, as well as the machinery,
equipment, implements and tools illegally used in the area where the timber or forest products
are found.
This provision makes mere possession of timber or other forest products without the
accompanying legal documents unlawful and punishable with the penalties imposed for the
crime of theft, as prescribed in Articles 309-310 of the Revised Penal Code. In the present case,
the subject vehicles were loaded with forest products at the time of the seizure. But admittedly
no permit evidencing authority to possess and transport said load of forest products was duly
presented. These products, in turn, were deemed illegally sourced. Thus there was a prima facie
violation of Section 68 [78] of the Revised Forestry Code, although as found by the trial court,
the persons responsible for said violation were not the ones charged by the public prosecutor.

The corresponding authority of the DENR to seize all conveyances used in the commission of an
offense in violation of Section 78 of the Revised Forestry Code is pursuant to Sections 78-A and
89 of the same Code. They read as follows:
Sec. 78-A. Administrative Authority of the Department Head or His Duly Authorized
Representative to Order Confiscation. -- In all cases of violation of this Code or other forest laws,
rules and regulations, the Department Head or his duly authorized representative, may order
the confiscation of any forest products illegally cut, gathered, removed, or possessed or
abandoned, and all conveyances used either by land, water or air in the commission of the
offense and to dispose of the same in accordance with pertinent laws, regulations or policies on
the matter.

Sec. 89. Arrest; Institution of criminal actions. -- A forest officer or employee of the Bureau
[Department] or any personnel of the Philippine Constabulary/Philippine National Police shall
arrest even without warrant any person who has committed or is committing in his presence any
of the offenses defined in this Chapter. He shall also seize and confiscate, in favor of the
Government, the tools and equipment used in committing the offense... [Emphasis supplied.]
Note that DENR Administrative Order No. 59, series of 1990, implements Sections 78-A and 89
of the Forestry Code, as follows:
Sec. 2. Conveyances Subject to Confiscation and Forfeiture. -- All conveyances used in the
transport of any forest product obtained or gathered illegally whether or not covered with
transport documents, found spurious or irregular in accordance with Sec. 68-A [78-A] of P.D. No.
705, shall be confiscated in favor of the government or disposed of in accordance with pertinent
laws, regulations or policies on the matter.

Sec. 4. Who are Authorized to Seize Conveyance. -- The Secretary or his duly authorized
representative such as the forest officers and/or natural resources officers, or deputized officers
of the DENR are authorized to seize said conveyances subject to policies and guidelines pertinent
thereto. Deputized military personnel and officials of other agencies apprehending illegal logs
and other forest products and their conveyances shall notify the nearest DENR field offices, and
turn over said forest products and conveyances for proper action and disposition. In case where
the apprehension is made by DENR field officer, the conveyance shall be deposited with the
nearest CENRO/PENRO/RED Office as the case may be, for safekeeping wherever it is most
convenient and secured. [Emphasis supplied.]
Upon apprehension of the illegally-cut timber while being transported without pertinent
documents that could evidence title to or right to possession of said timber, a warrantless seizure
of the involved vehicles and their load was allowed under Section 78 and 89 of the Revised
Forestry Code.

Note further that petitioners' failure to observe the procedure outlined in DENR Administrative
Order No. 59, series of 1990 was justifiably explained. Petitioners did not submit a report of the
seizure to the Secretary nor give a written notice to the owner of the vehicle because on the 3rd
day following the seizure, Gabon and Abuganda, drivers of the seized vehicles, forcibly took the
impounded vehicles from the custody of the DENR. Then again, when one of the motor vehicles
was apprehended and impounded for the second time, the petitioners, again were not able to
report the seizure to the DENR Secretary nor give a written notice to the owner of the vehicle
because private respondents immediately went to court and applied for a writ of replevin. The
seizure of the vehicles and their load was done upon their apprehension for a violation of the
Revised Forestry Code. It would be absurd to require a confiscation order or notice and hearing
before said seizure could be effected under the circumstances.

Since there was a violation of the Revised Forestry Code and the seizure was in accordance with
law, in our view the subject vehicles were validly deemed in custodia legis. It could not be subject
to an action for replevin. For it is property lawfully taken by virtue of legal process and
considered in the custody of the law, and not otherwise..[20]

In Mamanteo, et. al. v. Deputy Sheriff Magumun, A.M. No. P-98-1264, promulgated on July 28,
1999, the case involves property to be seized by a Deputy Sheriff in a replevin suit. But said
property were already impounded by the DENR due to violation of forestry laws and, in fact,
already forfeited in favor of the government by order of the DENR. We said that such property
was deemed in custodia legis. The sheriff could not insist on seizing the property already subject
of a prior warrant of seizure. The appropriate action should be for the sheriff to inform the trial
court of the situation by way of partial Sheriff's Return, and wait for the judge's instructions on
the proper procedure to be observed.

Note that property that is validly deposited in custodia legis cannot be the subject of a replevin
suit. In Mamanteo v. Deputy Sheriff Magumun, we elucidated further:
". . . the writ of replevin has been repeatedly used by unscrupulous plaintiffs to retrieve their
chattel earlier taken for violation of the Tariff and Customs Code, tax assessment, attachment or
execution. Officers of the court, from the presiding judge to the sheriff, are implored to be
vigilant in their execution of the law otherwise, as in this case, valid seizure and forfeiture
proceedings could easily be undermined by the simple devise of a writ of replevin...".[21]
On the second issue, is the complaint for the recovery of possession of the two impounded
vehicles, with an application for replevin, a suit against the State?

Well established is the doctrine that the State may not be sued without its consent..[22] And a
suit against a public officer for his official acts is, in effect, a suit against the State if its purpose
is to hold the State ultimately liable..[23] However, the protection afforded to public officers by
this doctrine generally applies only to activities within the scope of their authority in good faith
and without willfulness, malice or corruption.[24] In the present case, the acts for which the
petitioners are being called to account were performed by them in the discharge of their official
duties. The acts in question are clearly official in nature.[25] In implementing and enforcing
Sections 78-A and 89 of the Forestry Code through the seizure carried out, petitioners were
performing their duties and functions as officers of the DENR, and did so within the limits of
their authority. There was no malice nor bad faith on their part. Hence, a suit against the
petitioners who represent the DENR is a suit against the State. It cannot prosper without the
State's consent.

Given the circumstances in this case, we need not pursue the Office of the Solicitor General's
line for the defense of petitioners concerning exhaustion of administrative remedies. We ought
only to recall that exhaustion must be raised at the earliest time possible, even before filing the
answer to the complaint or pleading asserting a claim, by a motion to dismiss..[26] If not invoked
at the proper time, this ground for dismissal could be deemed waived and the court could take
cognizance of the case and try it.[27]

ACCORDINGLY, the Petition is GRANTED, and the assailed Decision of the Court of Appeals in CA-
G.R. SP No. 29191 is SET ASIDE. Consequently, the Order issued by the Regional Trial Court of
Catbalogan, dated May 27, 1992, and the Writ of replevin issued in the Order dated April 24,
1992, are ANNULLED. The Sheriff of the Regional Trial Court of Catbalogan, Branch 29, is directed
to take possession of the subject motor vehicle, with plate number FCN 143, for delivery to the
custody of and appropriate disposition by petitioners. Let a copy of this decision be provided the
Honorable Secretary of Justice for his appropriate action, against any and all persons responsible
for the above cited violation of the Revised Forestry Code.

Costs against private respondents.

SO ORDERED.
 G.R. No. 76607
USA vs Guinto
These cases have been consolidated because they all involve the doctrine of state immunity.
The United States of America was not impleaded in the complaints below but has moved to
dismiss on the ground that they are in effect suits against it to which it has not consented. It is
now contesting the denial of its motions by the respondent judges.

In G.R. No. 76607, the private respondents are suing several officers of the U.S. Air Force
stationed in Clark Air Base in connection with the bidding conducted by them for contracts for
barber services in the said base.

On February 24, 1986, the Western Pacific Contracting Office, Okinawa Area Exchange, U.S. Air
Force, solicited bids for such contracts through its contracting officer, James F. Shaw. Among
those who submitted their bids were private respondents Roberto T. Valencia, Emerenciana C.
Tanglao, and Pablo C. del Pilar. Valencia had been a concessionaire inside Clark for 34 years; del
Pilar for 12 years; and Tanglao for 50 years.

The bidding was won by Ramon Dizon, over the objection of the private respondents, who
claimed that he had made a bid for four facilities, including the Civil Engineering Area, which was
not included in the invitation to bid.

The private respondents complained to the Philippine Area Exchange (PHAX). The latter, through
its representatives, petitioners Yvonne Reeves and Frederic M. Smouse explained that the Civil
Engineering concession had not been awarded to Dizon as a result of the February 24, 1986
solicitation. Dizon was already operating this concession, then known as the NCO club
concession, and the expiration of the contract had been extended from June 30, 1986 to August
31, 1986. They further explained that the solicitation of the CE barbershop would be available
only by the end of June and the private respondents would be notified.

On June 30, 1986, the private respondents filed a complaint in the court below to compel PHAX
and the individual petitioners to cancel the award to defendant Dizon, to conduct a rebidding
for the barbershop concessions and to allow the private respondents by a writ of preliminary
injunction to continue operating the concessions pending litigation. 1

Upon the filing of the complaint, the respondent court issued an ex parte order directing the
individual petitioners to maintain the status quo.

On July 22, 1986, the petitioners filed a motion to dismiss and opposition to the petition for
preliminary injunction on the ground that the action was in effect a suit against the United States
of America, which had not waived its non-suability. The individual defendants, as official
employees of the U.S. Air Force, were also immune from suit.

On the same date, July 22, 1986, the trial court denied the application for a writ of preliminary
injunction.

On October 10, 1988, the trial court denied the petitioners' motion to dismiss, holding in part as
follows:
From the pleadings thus far presented to this Court by the parties, the Court's attention is called
by the relationship between the plaintiffs as well as the defendants, including the US
Government, in that prior to the bidding or solicitation in question, there was a binding contract
between the plaintiffs as well as the defendants, including the US Government. By virtue of said
contract of concession it is the Court's understanding that neither the US Government nor the
herein principal defendants would become the employer/s of the plaintiffs but that the latter
are the employers themselves of the barbers, etc. with the employer, the plaintiffs herein,
remitting the stipulated percentage of commissions to the Philippine Area Exchange. The same
circumstance would become in effect when the Philippine Area Exchange opened for bidding or
solicitation the questioned barber shop concessions. To this extent, therefore, indeed a
commercial transaction has been entered, and for purposes of the said solicitation, would
necessarily be entered between the plaintiffs as well as the defendants.

The Court, further, is of the view that Article XVIII of the RP-US Bases Agreement does not cover
such kind of services falling under the concessionaireship, such as a barber shop concession. 2

On December 11, 1986, following the filing of the herein petition for certiorari and prohibition
with preliminary injunction, we issued a temporary restraining order against further proceedings
in the court below. 3

In G.R. No. 79470, Fabian Genove filed a complaint for damages against petitioners Anthony
Lamachia, Wilfredo Belsa, Rose Cartalla and Peter Orascion for his dismissal as cook in the U.S.
Air Force Recreation Center at the John Hay Air Station in Baguio City. It had been ascertained
after investigation, from the testimony of Belsa Cartalla and Orascion, that Genove had poured
urine into the soup stock used in cooking the vegetables served to the club customers. Lamachia,
as club manager, suspended him and thereafter referred the case to a board of arbitrators
conformably to the collective bargaining agreement between the Center and its employees. The
board unanimously found him guilty and recommended his dismissal. This was effected on
March 5, 1986, by Col. David C. Kimball, Commander of the 3rd Combat Support Group, PACAF
Clark Air Force Base. Genove's reaction was to file Ms complaint in the Regional Trial Court of
Baguio City against the individual petitioners. 4

On March 13, 1987, the defendants, joined by the United States of America, moved to dismiss
the complaint, alleging that Lamachia, as an officer of the U.S. Air Force stationed at John Hay
Air Station, was immune from suit for the acts done by him in his official capacity. They argued
that the suit was in effect against the United States, which had not given its consent to be sued.

This motion was denied by the respondent judge on June 4, 1987, in an order which read in part:

It is the understanding of the Court, based on the allegations of the complaint — which have
been hypothetically admitted by defendants upon the filing of their motion to dismiss — that
although defendants acted initially in their official capacities, their going beyond what their
functions called for brought them out of the protective mantle of whatever immunities they may
have had in the beginning. Thus, the allegation that the acts complained of were illegal, done.
with extreme bad faith and with pre-conceived sinister plan to harass and finally dismiss the
plaintiff, gains significance. 5

The petitioners then came to this Court seeking certiorari and prohibition with preliminary
injunction.
In G.R. No. 80018, Luis Bautista, who was employed as a barracks boy in Camp O' Donnell, an
extension of Clark Air Base, was arrested following a buy-bust operation conducted by the
individual petitioners herein, namely, Tomi J. King, Darrel D. Dye and Stephen F. Bostick, officers
of the U.S. Air Force and special agents of the Air Force Office of Special Investigators (AFOSI).
On the basis of the sworn statements made by them, an information for violation of R.A. 6425,
otherwise known as the Dangerous Drugs Act, was filed against Bautista in the Regional Trial
Court of Tarlac. The above-named officers testified against him at his trial. As a result of the filing
of the charge, Bautista was dismissed from his employment. He then filed a complaint for
damages against the individual petitioners herein claiming that it was because of their acts that
he was removed. 6

During the period for filing of the answer, Mariano Y. Navarro a special counsel assigned to the
International Law Division, Office of the Staff Judge Advocate of Clark Air Base, entered a special
appearance for the defendants and moved for an extension within which to file an "answer
and/or other pleadings." His reason was that the Attorney General of the United States had not
yet designated counsel to represent the defendants, who were being sued for their official acts.
Within the extended period, the defendants, without the assistance of counsel or authority from
the U.S. Department of Justice, filed their answer. They alleged therein as affirmative defenses
that they had only done their duty in the enforcement of the laws of the Philippines inside the
American bases pursuant to the RP-US Military Bases Agreement.

On May 7, 1987, the law firm of Luna, Sison and Manas, having been retained to represent the
defendants, filed with leave of court a motion to withdraw the answer and dismiss the
complaint. The ground invoked was that the defendants were acting in their official capacity
when they did the acts complained of and that the complaint against them was in effect a suit
against the United States without its consent.

The motion was denied by the respondent judge in his order dated September 11, 1987, which
held that the claimed immunity under the Military Bases Agreement covered only criminal and
not civil cases. Moreover, the defendants had come under the jurisdiction of the court when
they submitted their answer.7

Following the filing of the herein petition for certiorari and prohibition with preliminary
injunction, we issued on October 14, 1987, a temporary restraining order. 8

In G.R. No. 80258, a complaint for damages was filed by the private respondents against the
herein petitioners (except the United States of America), for injuries allegedly sustained by the
plaintiffs as a result of the acts of the defendants. 9 There is a conflict of factual allegations here.
According to the plaintiffs, the defendants beat them up, handcuffed them and unleashed dogs
on them which bit them in several parts of their bodies and caused extensive injuries to them.
The defendants deny this and claim the plaintiffs were arrested for theft and were bitten by the
dogs because they were struggling and resisting arrest, The defendants stress that the dogs were
called off and the plaintiffs were immediately taken to the medical center for treatment of their
wounds.

In a motion to dismiss the complaint, the United States of America and the individually named
defendants argued that the suit was in effect a suit against the United States, which had not
given its consent to be sued. The defendants were also immune from suit under the RP-US Bases
Treaty for acts done by them in the performance of their official functions.
The motion to dismiss was denied by the trial court in its order dated August 10, 1987, reading
in part as follows:

The defendants certainly cannot correctly argue that they are immune from suit. The allegations,
of the complaint which is sought to be dismissed, had to be hypothetically admitted and
whatever ground the defendants may have, had to be ventilated during the trial of the case on
the merits. The complaint alleged criminal acts against the individually-named defendants and
from the nature of said acts it could not be said that they are Acts of State, for which immunity
should be invoked. If the Filipinos themselves are duty bound to respect, obey and submit
themselves to the laws of the country, with more reason, the members of the United States
Armed Forces who are being treated as guests of this country should respect, obey and submit
themselves to its laws. 10

and so was the motion for reconsideration. The defendants submitted their answer as required
but subsequently filed their petition for certiorari and prohibition with preliminary injunction
with this Court. We issued a temporary restraining order on October 27, 1987. 11

II

The rule that a state may not be sued without its consent, now expressed in Article XVI, Section
3, of the 1987 Constitution, is one of the generally accepted principles of international law that
we have adopted as part of the law of our land under Article II, Section 2. This latter provision
merely reiterates a policy earlier embodied in the 1935 and 1973 Constitutions and also
intended to manifest our resolve to abide by the rules of the international community.

Even without such affirmation, we would still be bound by the generally accepted principles of
international law under the doctrine of incorporation. Under this doctrine, as accepted by the
majority of states, such principles are deemed incorporated in the law of every civilized state as
a condition and consequence of its membership in the society of nations. Upon its admission to
such society, the state is automatically obligated to comply with these principles in its relations
with other states.

As applied to the local state, the doctrine of state immunity is based on the justification given by
Justice Holmes that "there can be no legal right against the authority which makes the law on
which the right depends." 12 There are other practical reasons for the enforcement of the
doctrine. In the case of the foreign state sought to be impleaded in the local jurisdiction, the
added inhibition is expressed in the maxim par in parem, non habet imperium. All states are
sovereign equals and cannot assert jurisdiction over one another. A contrary disposition would,
in the language of a celebrated case, "unduly vex the peace of nations." 13

While the doctrine appears to prohibit only suits against the state without its consent, it is also
applicable to complaints filed against officials of the state for acts allegedly performed by them
in the discharge of their duties. The rule is that if the judgment against such officials will require
the state itself to perform an affirmative act to satisfy the same, such as the appropriation of the
amount needed to pay the damages awarded against them, the suit must be regarded as against
the state itself although it has not been formally impleaded. 14 In such a situation, the state may
move to dismiss the complaint on the ground that it has been filed without its consent.

The doctrine is sometimes derisively called "the royal prerogative of dishonesty" because of the
privilege it grants the state to defeat any legitimate claim against it by simply invoking its non-
suability. That is hardly fair, at least in democratic societies, for the state is not an unfeeling tyrant
unmoved by the valid claims of its citizens. In fact, the doctrine is not absolute and does not say
the state may not be sued under any circumstance. On the contrary, the rule says that the state
may not be sued without its consent, which clearly imports that it may be sued if it consents.

The consent of the state to be sued may be manifested expressly or impliedly. Express consent
may be embodied in a general law or a special law. Consent is implied when the state enters into
a contract or it itself commences litigation.

The general law waiving the immunity of the state from suit is found in Act No. 3083, under
which the Philippine government "consents and submits to be sued upon any moneyed claim
involving liability arising from contract, express or implied, which could serve as a basis of civil
action between private parties." In Merritt v. Government of the Philippine Islands, 15 a special
law was passed to enable a person to sue the government for an alleged tort. When the
government enters into a contract, it is deemed to have descended to the level of the other
contracting party and divested of its sovereign immunity from suit with its implied consent. 16
Waiver is also implied when the government files a complaint, thus opening itself to a
counterclaim. 17

The above rules are subject to qualification. Express consent is effected only by the will of the
legislature through the medium of a duly enacted statute. 18 We have held that not all contracts
entered into by the government will operate as a waiver of its non-suability; distinction must be
made between its sovereign and proprietary acts. 19 As for the filing of a complaint by the
government, suability will result only where the government is claiming affirmative relief from
the defendant. 20

In the case of the United States of America, the customary rule of international law on state
immunity is expressed with more specificity in the RP-US Bases Treaty. Article III thereof provides
as follows:

It is mutually agreed that the United States shall have the rights, power and authority within the
bases which are necessary for the establishment, use, operation and defense thereof or
appropriate for the control thereof and all the rights, power and authority within the limits of
the territorial waters and air space adjacent to, or in the vicinity of, the bases which are
necessary to provide access to them or appropriate for their control.

The petitioners also rely heavily on Baer v. Tizon, 21 along with several other decisions, to
support their position that they are not suable in the cases below, the United States not having
waived its sovereign immunity from suit. It is emphasized that in Baer, the Court held:

The invocation of the doctrine of immunity from suit of a foreign state without its consent is
appropriate. More specifically, insofar as alien armed forces is concerned, the starting point is
Raquiza v. Bradford, a 1945 decision. In dismissing a habeas corpus petition for the release of
petitioners confined by American army authorities, Justice Hilado speaking for the Court, cited
Coleman v. Tennessee, where it was explicitly declared: 'It is well settled that a foreign army,
permitted to march through a friendly country or to be stationed in it, by permission of its
government or sovereign, is exempt from the civil and criminal jurisdiction of the place.' Two
years later, in Tubb and Tedrow v. Griess, this Court relied on the ruling in Raquiza v. Bradford
and cited in support thereof excerpts from the works of the following authoritative writers:
Vattel, Wheaton, Hall, Lawrence, Oppenheim, Westlake, Hyde, and McNair and Lauterpacht.
Accuracy demands the clarification that after the conclusion of the Philippine-American Military
Bases Agreement, the treaty provisions should control on such matter, the assumption being
that there was a manifestation of the submission to jurisdiction on the part of the foreign power
whenever appropriate. More to the point is Syquia v. Almeda Lopez, where plaintiffs as lessors
sued the Commanding General of the United States Army in the Philippines, seeking the
restoration to them of the apartment buildings they owned leased to the United States armed
forces stationed in the Manila area. A motion to dismiss on the ground of non-suability was filed
and upheld by respondent Judge. The matter was taken to this Court in a mandamus proceeding.
It failed. It was the ruling that respondent Judge acted correctly considering that the 4 action
must be considered as one against the U.S. Government. The opinion of Justice Montemayor
continued: 'It is clear that the courts of the Philippines including the Municipal Court of Manila
have no jurisdiction over the present case for unlawful detainer. The question of lack of
jurisdiction was raised and interposed at the very beginning of the action. The U.S. Government
has not given its consent to the filing of this suit which is essentially against her, though not in
name. Moreover, this is not only a case of a citizen filing a suit against his own Government
without the latter's consent but it is of a citizen firing an action against a foreign government
without said government's consent, which renders more obvious the lack of jurisdiction of the
courts of his country. The principles of law behind this rule are so elementary and of such general
acceptance that we deem it unnecessary to cite authorities in support thereof then came Marvel
Building Corporation v. Philippine War Damage Commission, where respondent, a United States
Agency established to compensate damages suffered by the Philippines during World War II was
held as falling within the above doctrine as the suit against it would eventually be a charge
against or financial liability of the United States Government because ... , the Commission has
no funds of its own for the purpose of paying money judgments.' The Syquia ruling was again
explicitly relied upon in Marquez Lim v. Nelson, involving a complaint for the recovery of a motor
launch, plus damages, the special defense interposed being 'that the vessel belonged to the
United States Government, that the defendants merely acted as agents of said Government, and
that the United States Government is therefore the real party in interest.' So it was in Philippine
Alien Property Administration v. Castelo, where it was held that a suit against Alien Property
Custodian and the Attorney General of the United States involving vested property under the
Trading with the Enemy Act is in substance a suit against the United States. To the same effect is
Parreno v. McGranery, as the following excerpt from the opinion of justice Tuazon clearly shows:
'It is a widely accepted principle of international law, which is made a part of the law of the land
(Article II, Section 3 of the Constitution), that a foreign state may not be brought to suit before
the courts of another state or its own courts without its consent.' Finally, there is Johnson v.
Turner, an appeal by the defendant, then Commanding General, Philippine Command (Air Force,
with office at Clark Field) from a decision ordering the return to plaintiff of the confiscated
military payment certificates known as scrip money. In reversing the lower court decision, this
Tribunal, through Justice Montemayor, relied on Syquia v. Almeda Lopez, explaining why it could
not be sustained.

It bears stressing at this point that the above observations do not confer on the United States of
America a blanket immunity for all acts done by it or its agents in the Philippines. Neither may
the other petitioners claim that they are also insulated from suit in this country merely because
they have acted as agents of the United States in the discharge of their official functions.

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. This was our ruling in United States of America v. Ruiz, 22 where
the transaction in question dealt with the improvement of the wharves in the naval installation
at Subic Bay. As this was a clearly governmental function, we held that the contract did not
operate to divest the United States of its sovereign immunity from suit. In the words of Justice
Vicente Abad Santos:

The traditional rule of immunity exempts a State from being sued in the courts of another State
without its consent or waiver. This rule is a necessary consequence of the principles of
independence and equality of States. However, the rules of International Law are not petrified;
they are constantly developing and evolving. And because the activities of states have multiplied,
it has been necessary to distinguish them — between sovereign and governmental acts (jure
imperii) and private, commercial and proprietary acts (jure gestionis). The result is that State
immunity now extends only to acts jure imperii The restrictive application of State immunity is
now the rule in the United States, the United kingdom and other states in Western Europe.

xxx xxx xxx

The restrictive application of State immunity is proper only when the proceedings arise out of
commercial transactions of the foreign sovereign, its commercial activities or economic affairs.
Stated differently, a State may be said to have descended to the level of an individual and can
thus be deemed to have tacitly given its consent to be sued only when it enters into business
contracts. It does not apply where the contract relates to the exercise of its sovereign functions.
In this case the projects are an integral part of the naval base which is devoted to the defense of
both the United States and the Philippines, indisputably a function of the government of the
highest order; they are not utilized for nor dedicated to commercial or business purposes.

The other petitioners in the cases before us all aver they have acted in the discharge of their
official functions as officers or agents of the United States. However, this is a matter of evidence.
The charges against them may not be summarily dismissed on their mere assertion that their
acts are imputable to the United States of America, which has not given its consent to be sued.
In fact, the defendants are sought to be held answerable for personal torts in which the United
States itself is not involved. If found liable, they and they alone must satisfy the judgment.

In Festejo v. Fernando, 23 a bureau director, acting without any authority whatsoever,

appropriated private land and converted it into public irrigation ditches. Sued for the value of
the lots invalidly taken by him, he moved to dismiss the complaint on the ground that the suit
was in effect against the Philippine government, which had not given its consent to be sued. This
Court sustained the denial of the motion and held that the doctrine of state immunity was not
applicable. The director was being sued in his private capacity for a personal tort.

With these considerations in mind, we now proceed to resolve the cases at hand.

III

It is clear from a study of the records of G.R. No. 80018 that the individually-named petitioners
therein were acting in the exercise of their official functions when they conducted the buy-bust
operation against the complainant and thereafter testified against him at his trial. The said
petitioners were in fact connected with the Air Force Office of Special Investigators and were
charged precisely with the function of preventing the distribution, possession and use of
prohibited drugs and prosecuting those guilty of such acts. It cannot for a moment be imagined
that they were acting in their private or unofficial capacity when they apprehended and later
testified against the complainant. It follows that for discharging their duties as agents of the
United States, they cannot be directly impleaded for acts imputable to their principal, which has
not given its consent to be sued. As we observed in Sanders v. Veridiano: 24

Given the official character of the above-described letters, we have to conclude that the
petitioners were, legally speaking, being sued as officers of the United States government. As
they have acted on behalf of that government, and within the scope of their authority, it is that
government, and not the petitioners personally, that is responsible for their acts.

The private respondent invokes Article 2180 of the Civil Code which holds the government liable
if it acts through a special agent. The argument, it would seem, is premised on the ground that
since the officers are designated "special agents," the United States government should be liable
for their torts.

There seems to be a failure to distinguish between suability and liability and a misconception
that the two terms are synonymous. 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.

The said article establishes a rule of liability, not suability. The government may be held liable
under this rule only if it first allows itself to be sued through any of the accepted forms of
consent.

Moreover, the agent performing his regular functions is not a special agent even if he is so
denominated, as in the case at bar. No less important, the said provision appears to regulate
only the relations of the local state with its inhabitants and, hence, applies only to the Philippine
government and not to foreign governments impleaded in our courts.

We reject the conclusion of the trial court that the answer filed by the special counsel of the
Office of the Sheriff Judge Advocate of Clark Air Base was a submission by the United States
government to its jurisdiction. As we noted in Republic v. Purisima, 25 express waiver of
immunity cannot be made by a mere counsel of the government but must be effected through
a duly-enacted statute. Neither does such answer come under the implied forms of consent as
earlier discussed.

But even as we are certain that the individual petitioners in G.R. No. 80018 were acting in the
discharge of their official functions, we hesitate to make the same conclusion in G.R. No. 80258.
The contradictory factual allegations in this case deserve in our view a closer study of what
actually happened to the plaintiffs. The record is too meager to indicate if the defendants were
really discharging their official duties or had actually exceeded their authority when the incident
in question occurred. Lacking this information, this Court cannot directly decide this case. The
needed inquiry must first be made by the lower court so it may assess and resolve the conflicting
claims of the parties on the basis of the evidence that has yet to be presented at the trial. Only
after it shall have determined in what capacity the petitioners were acting at the time of the
incident in question will this Court determine, if still necessary, if the doctrine of state immunity
is applicable.
In G.R. No. 79470, private respondent Genove was employed as a cook in the Main Club located
at the U.S. Air Force Recreation Center, also known as the Open Mess Complex, at John Hay Air
Station. As manager of this complex, petitioner Lamachia is responsible for eleven diversified
activities generating an annual income of $2 million. Under his executive management are three
service restaurants, a cafeteria, a bakery, a Class VI store, a coffee and pantry shop, a main
cashier cage, an administrative office, and a decentralized warehouse which maintains a stock
level of $200,000.00 per month in resale items. He supervises 167 employees, one of whom was
Genove, with whom the United States government has concluded a collective bargaining
agreement.

From these circumstances, the Court can assume that the restaurant services offered at the John
Hay Air Station partake of the nature of a business enterprise undertaken by the United States
government in its proprietary capacity. Such services are not extended to the American
servicemen for free as a perquisite of membership in the Armed Forces of the United States.
Neither does it appear that they are exclusively offered to these servicemen; on the contrary, it
is well known that they are available to the general public as well, including the tourists in Baguio
City, many of whom make it a point to visit John Hay for this reason. All persons availing
themselves of this facility pay for the privilege like all other customers as in ordinary restaurants.
Although the prices are concededly reasonable and relatively low, such services are undoubtedly
operated for profit, as a commercial and not a governmental activity.

The consequence of this finding is that the petitioners cannot invoke the doctrine of state
immunity to justify the dismissal of the damage suit against them by Genove. Such defense will
not prosper even if it be established that they were acting as agents of the United States when
they investigated and later dismissed Genove. For that matter, not even the United States
government itself can claim such immunity. The reason is that by entering into the employment
contract with Genove in the discharge of its proprietary functions, it impliedly divested itself of
its sovereign immunity from suit.

But these considerations notwithstanding, we hold that the complaint against the petitioners in
the court below must still be dismissed. While suable, the petitioners are nevertheless not liable.
It is obvious that the claim for damages cannot be allowed on the strength of the evidence before
us, which we have carefully examined.

The dismissal of the private respondent was decided upon only after a thorough investigation
where it was established beyond doubt that he had polluted the soup stock with urine. The
investigation, in fact, did not stop there. Despite the definitive finding of Genove's guilt, the case
was still referred to the board of arbitrators provided for in the collective bargaining agreement.
This board unanimously affirmed the findings of the investigators and recommended Genove's
dismissal. There was nothing arbitrary about the proceedings. The petitioners acted quite
properly in terminating the private respondent's employment for his unbelievably nauseating
act. It is surprising that he should still have the temerity to file his complaint for damages after
committing his utterly disgusting offense.

Concerning G.R. No. 76607, we also find that the barbershops subject of the concessions granted
by the United States government are commercial enterprises operated by private person's. They
are not agencies of the United States Armed Forces nor are their facilities demandable as a
matter of right by the American servicemen. These establishments provide for the grooming
needs of their customers and offer not only the basic haircut and shave (as required in most
military organizations) but such other amenities as shampoo, massage, manicure and other
similar indulgences. And all for a fee. Interestingly, one of the concessionaires, private
respondent Valencia, was even sent abroad to improve his tonsorial business, presumably for
the benefit of his customers. No less significantly, if not more so, all the barbershop
concessionaires are under the terms of their contracts, required to remit to the United States
government fixed commissions in consideration of the exclusive concessions granted to them in
their respective areas.

This being the case, the petitioners cannot plead any immunity from the complaint filed by the
private respondents in the court below. The contracts in question being decidedly commercial,
the conclusion reached in the United States of America v. Ruiz case cannot be applied here.

The Court would have directly resolved the claims against the defendants as we have done in
G.R. No. 79470, except for the paucity of the record in the case at hand. The evidence of the
alleged irregularity in the grant of the barbershop concessions is not before us. This means that,
as in G.R. No. 80258, the respondent court will have to receive that evidence first, so it can later
determine on the basis thereof if the plaintiffs are entitled to the relief they seek. Accordingly,
this case must also be remanded to the court below for further proceedings.

IV

There are a number of other cases now pending before us which also involve the question of the
immunity of the United States from the jurisdiction of the Philippines. This is cause for regret,
indeed, as they mar the traditional friendship between two countries long allied in the cause of
democracy. It is hoped that the so-called "irritants" in their relations will be resolved in a spirit
of mutual accommodation and respect, without the inconvenience and asperity of litigation and
always with justice to both parties.

WHEREFORE, after considering all the above premises, the Court hereby renders judgment as
follows:

1. In G.R. No. 76607, the petition is DISMISSED and the respondent judge is directed to proceed
with the hearing and decision of Civil Case No. 4772. The temporary restraining order dated
December 11, 1986, is LIFTED.

2. In G.R. No. 79470, the petition is GRANTED and Civil Case No. 829-R(298) is DISMISSED.

3. In G.R. No. 80018, the petition is GRANTED and Civil Case No. 115-C-87 is DISMISSED. The
temporary restraining order dated October 14, 1987, is made permanent.

4. In G.R. No. 80258, the petition is DISMISSED and the respondent court is directed to proceed
with the hearing and decision of Civil Case No. 4996. The temporary restraining order dated
October 27, 1987, is LIFTED.

All without any pronouncement as to costs.

SO ORDERED.
 G.R. No. L-35645
USA vs. Ruiz
UNITED STATES OF AMERICA, CAPT. JAMES E. GALLOWAY, WILLIAM I. COLLINS and ROBERT
GOHIER, petitioners, vs. HON. V. M. RUIZ, Presiding Judge of Branch XV, Court of First
Instance of Rizal and ELIGIO DE GUZMAN & CO., INC., respondents.

This is a petition to review, set aside certain orders and restrain the respondent judge from trying
Civil Case No. 779M of the defunct Court of First Instance of Rizal.

The factual background is as follows:

At times material to this case, the United States of America had a naval base in Subic, Zambales.
The base was one of those provided in the Military Bases Agreement between the Philippines
and the United States.

Sometime in May, 1972, the United States invited the submission of bids for the following
projects

1. Repair offender system, Alava Wharf at the U.S. Naval Station Subic Bay, Philippines.

2. Repair typhoon damage to NAS Cubi shoreline; repair typhoon damage to shoreline
revetment, NAVBASE Subic; and repair to Leyte Wharf approach, NAVBASE Subic Bay,
Philippines.

Eligio de Guzman & Co., Inc. responded to the invitation and submitted bids. Subsequent
thereto, the company received from the United States two telegrams requesting it to confirm its
price proposals and for the name of its bonding company. The company complied with the
requests. [In its complaint, the company alleges that the United States had accepted its bids
because "A request to confirm a price proposal confirms the acceptance of a bid pursuant to
defendant United States' bidding practices." (Rollo, p. 30.) The truth of this allegation has not
been tested because the case has not reached the trial stage.]

In June, 1972, the company received a letter which was signed by Wilham I. Collins, Director,
Contracts Division, Naval Facilities Engineering Command, Southwest Pacific, Department of the
Navy of the United States, who is one of the petitioners herein. The letter said that the company
did not qualify to receive an award for the projects because of its previous unsatisfactory
performance rating on a repair contract for the sea wall at the boat landings of the U.S. Naval
Station in Subic Bay. The letter further said that the projects had been awarded to third parties.
In the abovementioned Civil Case No. 779-M, the company sued the United States of America
and Messrs. James E. Galloway, William I. Collins and Robert Gohier all members of the
Engineering Command of the U.S. Navy. The complaint is to order the defendants to allow the
plaintiff to perform the work on the projects and, in the event that specific performance was no
longer possible, to order the defendants to pay damages. The company also asked for the
issuance of a writ of preliminary injunction to restrain the defendants from entering into
contracts with third parties for work on the projects.

The defendants entered their special appearance for the purpose only of questioning the
jurisdiction of this court over the subject matter of the complaint and the persons of defendants,
the subject matter of the complaint being acts and omissions of the individual defendants as
agents of defendant United States of America, a foreign sovereign which has not given her
consent to this suit or any other suit for the causes of action asserted in the complaint." (Rollo,
p. 50.)

Subsequently the defendants filed a motion to dismiss the complaint which included an
opposition to the issuance of the writ of preliminary injunction. The company opposed the
motion. The trial court denied the motion and issued the writ. The defendants moved twice to
reconsider but to no avail. Hence the instant petition which seeks to restrain perpetually the
proceedings in Civil Case No. 779-M for lack of jurisdiction on the part of the trial court.

The petition is highly impressed with merit.

The traditional rule of State immunity exempts a State from being sued in the courts of another
State without its consent or waiver. This rule is a necessary consequence of the principles of
independence and equality of States. However, the rules of International Law are not petrified;
they are constantly developing and evolving. And because the activities of states have multiplied,
it has been necessary to distinguish them-between sovereign and governmental acts (jure
imperii) and private, commercial and proprietary acts (jure gestionis). The result is that State
immunity now extends only to acts jure imperil The restrictive application of State immunity is
now the rule in the United States, the United Kingdom and other states in western Europe. (See
Coquia and Defensor Santiago, Public International Law, pp. 207-209 [1984].)

The respondent judge recognized the restrictive doctrine of State immunity when he said in his
Order denying the defendants' (now petitioners) motion: " A distinction should be made
between a strictly governmental function of the sovereign state from its private, proprietary or
non- governmental acts (Rollo, p. 20.) However, the respondent judge also said: "It is the Court's
considered opinion that entering into a contract for the repair of wharves or shoreline is certainly
not a governmental function altho it may partake of a public nature or character. As aptly pointed
out by plaintiff's counsel in his reply citing the ruling in the case of Lyons, Inc., [104 Phil. 594
(1958)], and which this Court quotes with approval, viz.:

It is however contended that when a sovereign state enters into a contract with a private person,
the state can be sued upon the theory that it has descended to the level of an individual from
which it can be implied that it has given its consent to be sued under the contract. ...

xxx xxx xxx

We agree to the above contention, and considering that the United States government, through
its agency at Subic Bay, entered into a contract with appellant for stevedoring and miscellaneous
labor services within the Subic Bay Area, a U.S. Naval Reservation, it is evident that it can bring
an action before our courts for any contractual liability that that political entity may assume
under the contract. The trial court, therefore, has jurisdiction to entertain this case ... (Rollo, pp.
20-21.)

The reliance placed on Lyons by the respondent judge is misplaced for the following reasons:

In Harry Lyons, Inc. vs. The United States of America, supra, plaintiff brought suit in the Court of
First Instance of Manila to collect several sums of money on account of a contract between
plaintiff and defendant. The defendant filed a motion to dismiss on the ground that the court
had no jurisdiction over defendant and over the subject matter of the action. The court granted
the motion on the grounds that: (a) it had no jurisdiction over the defendant who did not give
its consent to the suit; and (b) plaintiff failed to exhaust the administrative remedies provided in
the contract. The order of dismissal was elevated to this Court for review.

In sustaining the action of the lower court, this Court said:

It appearing in the complaint that appellant has not complied with the procedure laid down in
Article XXI of the contract regarding the prosecution of its claim against the United States
Government, or, stated differently, it has failed to first exhaust its administrative remedies
against said Government, the lower court acted properly in dismissing this case.(At p. 598.)

It can thus be seen that the statement in respect of the waiver of State immunity from suit was
purely gratuitous and, therefore, obiter so that it has no value as an imperative authority.

The restrictive application of State immunity is proper only when the proceedings arise out of
commercial transactions of the foreign sovereign, its commercial activities or economic affairs.
Stated differently, a State may be said to have descended to the level of an individual and can
thus be deemed to have tacitly given its consent to be sued only when it enters into business
contracts. It does not apply where the contract relates to the exercise of its sovereign functions.
In this case the projects are an integral part of the naval base which is devoted to the defense of
both the United States and the Philippines, indisputably a function of the government of the
highest order; they are not utilized for nor dedicated to commercial or business purposes.

That the correct test for the application of State immunity is not the conclusion of a contract by
a State but the legal nature of the act is shown in Syquia vs. Lopez, 84 Phil. 312 (1949). In that
case the plaintiffs leased three apartment buildings to the United States of America for the use
of its military officials. The plaintiffs sued to recover possession of the premises on the ground
that the term of the leases had expired. They also asked for increased rentals until the
apartments shall have been vacated.

The defendants who were armed forces officers of the United States moved to dismiss the suit
for lack of jurisdiction in the part of the court. The Municipal Court of Manila granted the motion
to dismiss; sustained by the Court of First Instance, the plaintiffs went to this Court for review
on certiorari. In denying the petition, this Court said:

On the basis of the foregoing considerations we are of the belief and we hold that the real party
defendant in interest is the Government of the United States of America; that any judgment for
back or Increased rentals or damages will have to be paid not by defendants Moore and Tillman
and their 64 co-defendants but by the said U.S. Government. On the basis of the ruling in the
case of Land vs. Dollar already cited, and on what we have already stated, the present action
must be considered as one against the U.S. Government. It is clear hat the courts of the
Philippines including the Municipal Court of Manila have no jurisdiction over the present case
for unlawful detainer. The question of lack of jurisdiction was raised and interposed at the very
beginning of the action. The U.S. Government has not , given its consent to the filing of this suit
which is essentially against her, though not in name. Moreover, this is not only a case of a citizen
filing a suit against his own Government without the latter's consent but it is of a citizen filing an
action against a foreign government without said government's consent, which renders more
obvious the lack of jurisdiction of the courts of his country. The principles of law behind this rule
are so elementary and of such general acceptance that we deem it unnecessary to cite
authorities in support thereof. (At p. 323.)
In Syquia,the United States concluded contracts with private individuals but the contracts
notwithstanding the States was not deemed to have given or waived its consent to be sued for
the reason that the contracts were for jure imperii and not for jure gestionis.

WHEREFORE, the petition is granted; the questioned orders of the respondent judge are set
aside and Civil Case No. is dismissed. Costs against the private respondent.

Teehankee, Aquino, Concepcion, Jr., Melencio-Herrera, Plana, * Escolin, Relova, Gutierrez, Jr., De
la Fuente, Cuevas and Alampay, JJ., concur.

Fernando, C.J., took no part.

Separate Opinions

MAKASIAR, J., dissenting:

The petition should be dismissed and the proceedings in Civil Case No. 779-M in the defunct CFI
(now RTC) of Rizal be allowed to continue therein.

In the case of Lyons vs. the United States of America (104 Phil. 593), where the contract entered
into between the plaintiff (Harry Lyons, Inc.) and the defendant (U.S. Government) involved
stevedoring and labor services within the Subic Bay area, this Court further stated that inasmuch
as ". . . the United States Government. through its agency at Subic Bay, entered into a contract
with appellant for stevedoring and miscellaneous labor services within the Subic Bay area, a U.S.
Navy Reservation, it is evident that it can bring an action before our courts for any contractual
liability that that political entity may assume under the contract."

When the U.S. Government, through its agency at Subic Bay, confirmed the acceptance of a bid
of a private company for the repair of wharves or shoreline in the Subic Bay area, it is deemed
to have entered into a contract and thus waived the mantle of sovereign immunity from suit and
descended to the level of the ordinary citizen. Its consent to be sued, therefore, is implied from
its act of entering into a contract (Santos vs. Santos, 92 Phil. 281, 284).

Justice and fairness dictate that a foreign government that commits a breach of its contractual
obligation in the case at bar by the unilateral cancellation of the award for the project by the
United States government, through its agency at Subic Bay should not be allowed to take undue
advantage of a party who may have legitimate claims against it by seeking refuge behind the
shield of non-suability. A contrary view would render a Filipino citizen, as in the instant case,
helpless and without redress in his own country for violation of his rights committed by the
agents of the foreign government professing to act in its name.

Appropriate are the words of Justice Perfecto in his dissenting opinion in Syquia vs. Almeda
Lopez, 84 Phil. 312, 325:

Although, generally, foreign governments are beyond the jurisdiction of domestic courts of
justice, such rule is inapplicable to cases in which the foreign government enters into private
contracts with the citizens of the court's jurisdiction. A contrary view would simply run against
all principles of decency and violative of all tenets of morals.
Moral principles and principles of justice are as valid and applicable as well with regard to private
individuals as with regard to governments either domestic or foreign. Once a foreign
government enters into a private contract with the private citizens of another country, such
foreign government cannot shield its non-performance or contravention of the terms of the
contract under the cloak of non-jurisdiction. To place such foreign government beyond the
jurisdiction of the domestic courts is to give approval to the execution of unilateral contracts,
graphically described in Spanish as 'contratos leoninos', because one party gets the lion's share
to the detriment of the other. To give validity to such contract is to sanctify bad faith, deceit,
fraud. We prefer to adhere to the thesis that all parties in a private contract, including
governments and the most powerful of them, are amenable to law, and that such contracts are
enforceable through the help of the courts of justice with jurisdiction to take cognizance of any
violation of such contracts if the same had been entered into only by private individuals.

Constant resort by a foreign state or its agents to the doctrine of State immunity in this
jurisdiction impinges unduly upon our sovereignty and dignity as a nation. Its application will
particularly discourage Filipino or domestic contractors from transacting business and entering
into contracts with United States authorities or facilities in the Philippines whether naval, air or
ground forces-because the difficulty, if not impossibility, of enforcing a validly executed contract
and of seeking judicial remedy in our own courts for breaches of contractual obligation
committed by agents of the United States government, always, looms large, thereby hampering
the growth of Filipino enterprises and creating a virtual monopoly in our own country by United
States contractors of contracts for services or supplies with the various U.S. offices and agencies
operating in the Philippines.

The sanctity of upholding agreements freely entered into by the parties cannot be over
emphasized. Whether the parties are nations or private individuals, it is to be reasonably
assumed and expected that the undertakings in the contract will be complied with in good faith.

One glaring fact of modern day civilization is that a big and powerful nation, like the United
States of America, can always overwhelm small and weak nations. The declaration in the United
Nations Charter that its member states are equal and sovereign, becomes hollow and
meaningless because big nations wielding economic and military superiority impose upon and
dictate to small nations, subverting their sovereignty and dignity as nations. Thus, more often
than not, when U.S. interest clashes with the interest of small nations, the American
governmental agencies or its citizens invoke principles of international law for their own benefit.

In the case at bar, the efficacy of the contract between the U.S. Naval authorities at Subic Bay on
one hand, and herein private respondent on the other, was honored more in the breach than in
the compliance The opinion of the majority will certainly open the floodgates of more violations
of contractual obligations. American authorities or any foreign government in the Philippines for
that matter, dealing with the citizens of this country, can conveniently seek protective cover
under the majority opinion. The result is disastrous to the Philippines.

This opinion of the majority manifests a neo-colonial mentality. It fosters economic imperialism
and foreign political ascendancy in our Republic.

The doctrine of government immunity from suit cannot and should not serve as an instrument
for perpetrating an injustice on a citizen (Amigable vs. Cuenca, L-26400, February 29, 1972, 43
SCRA 360; Ministerio vs. Court of First Instance, L-31635, August 31, 1971, 40 SCRA 464).
Under the doctrine of implied waiver of its non-suability, the United States government, through
its naval authorities at Subic Bay, should be held amenable to lawsuits in our country like any
other juristic person.

The invocation by the petitioner United States of America is not in accord with paragraph 3 of
Article III of the original RP-US Military Bases Agreement of March 14, 1947, which states that
"in the exercise of the above-mentioned rights, powers and authority, the United States agrees
that the powers granted to it will not be used unreasonably. . ." (Emphasis supplied).

Nor is such posture of the petitioners herein in harmony with the amendment dated May 27,
1968 to the aforesaid RP-US Military Bases Agreement, which recognizes "the need to promote
and maintain sound employment practices which will assure equality of treatment of all
employees ... and continuing favorable employer-employee relations ..." and "(B)elieving that an
agreement will be mutually beneficial and will strengthen the democratic institutions cherished
by both Governments, ... the United States Government agrees to accord preferential
employment of Filipino citizens in the Bases, thus (1) the U.S. Forces in the Philippines shall fill
the needs for civilian employment by employing Filipino citizens, etc." (Par. 1, Art. I of the
Amendment of May 27, 1968).

Neither does the invocation by petitioners of state immunity from suit express fidelity to
paragraph 1 of Article IV of the aforesaid amendment of May 2 7, 1968 which directs that "
contractors and concessionaires performing work for the U.S. Armed Forces shall be required by
their contract or concession agreements to comply with all applicable Philippine labor laws and
regulations, " even though paragraph 2 thereof affirms that "nothing in this Agreement shall
imply any waiver by either of the two Governments of such immunity under international law."

Reliance by petitioners on the non-suability of the United States Government before the local
courts, actually clashes with No. III on respect for Philippine law of the Memorandum of
Agreement signed on January 7, 1979, also amending RP-US Military Bases Agreement, which
stresses that "it is the duty of members of the United States Forces, the civilian component and
their dependents, to respect the laws of the Republic of the Philippines and to abstain from any
activity inconsistent with the spirit of the Military Bases Agreement and, in particular, from any
political activity in the Philippines. The United States shag take all measures within its authority
to insure that they adhere to them (Emphasis supplied).

The foregoing duty imposed by the amendment to the Agreement is further emphasized by No.
IV on the economic and social improvement of areas surrounding the bases, which directs that
"moreover, the United States Forces shall procure goods and services in the Philippines to the
maximum extent feasible" (Emphasis supplied).

Under No. VI on labor and taxation of the said amendment of January 6, 1979 in connection with
the discussions on possible revisions or alterations of the Agreement of May 27, 1968, "the
discussions shall be conducted on the basis of the principles of equality of treatment, the right
to organize, and bargain collectively, and respect for the sovereignty of the Republic of the
Philippines" (Emphasis supplied)

The majority opinion seems to mock the provision of paragraph 1 of the joint statement of
President Marcos and Vice-President Mondale of the United States dated May 4, 1978 that "the
United States re-affirms that Philippine sovereignty extends over the bases and that Its base shall
be under the command of a Philippine Base Commander, " which is supposed to underscore the
joint Communique of President Marcos and U.S. President Ford of December 7, 1975, under
which "they affirm that sovereign equality, territorial integrity and political independence of all
States are fundamental principles which both countries scrupulously respect; and that "they
confirm that mutual respect for the dignity of each nation shall characterize their friendship as
well as the alliance between their two countries. "

The majority opinion negates the statement on the delineation of the powers, duties and
responsibilities of both the Philippine and American Base Commanders that "in the performance
of their duties, the Philippine Base Commander and the American Base Commander shall be
guided by full respect for Philippine sovereignty on the one hand and the assurance of
unhampered U.S. military operations on the other hand and that "they shall promote
cooperation understanding and harmonious relations within the Base and with the general
public in the proximate vicinity thereof" (par. 2 & par. 3 of the Annex covered by the exchange
of notes, January 7, 1979, between Ambassador Richard W. Murphy and Minister of Foreign
Affairs Carlos P. Romulo, Emphasis supplied).

Separate Opinions
MAKASIAR, J., dissenting:
The petition should be dismissed and the proceedings in Civil Case No. 779-M in the defunct CFI
(now RTC) of Rizal be allowed to continue therein.

In the case of Lyons vs. the United States of America (104 Phil. 593), where the contract entered
into between the plaintiff (Harry Lyons, Inc.) and the defendant (U.S. Government) involved
stevedoring and labor services within the Subic Bay area, this Court further stated that inasmuch
as ". . . the United States Government. through its agency at Subic Bay, entered into a contract
with appellant for stevedoring and miscellaneous labor services within the Subic Bay area, a U.S.
Navy Reservation, it is evident that it can bring an action before our courts for any contractual
liability that that political entity may assume under the contract."

When the U.S. Government, through its agency at Subic Bay, confirmed the acceptance of a bid
of a private company for the repair of wharves or shoreline in the Subic Bay area, it is deemed
to have entered into a contract and thus waived the mantle of sovereign immunity from suit and
descended to the level of the ordinary citizen. Its consent to be sued, therefore, is implied from
its act of entering into a contract (Santos vs. Santos, 92 Phil. 281, 284).

Justice and fairness dictate that a foreign government that commits a breach of its contractual
obligation in the case at bar by the unilateral cancellation of the award for the project by the
United States government, through its agency at Subic Bay should not be allowed to take undue
advantage of a party who may have legitimate claims against it by seeking refuge behind the
shield of non-suability. A contrary view would render a Filipino citizen, as in the instant case,
helpless and without redress in his own country for violation of his rights committed by the
agents of the foreign government professing to act in its name.

Appropriate are the words of Justice Perfecto in his dissenting opinion in Syquia vs. Almeda
Lopez, 84 Phil. 312, 325:

Although, generally, foreign governments are beyond the jurisdiction of domestic courts of
justice, such rule is inapplicable to cases in which the foreign government enters into private
contracts with the citizens of the court's jurisdiction. A contrary view would simply run against
all principles of decency and violative of all tenets of morals.
Moral principles and principles of justice are as valid and applicable as well with regard to private
individuals as with regard to governments either domestic or foreign. Once a foreign
government enters into a private contract with the private citizens of another country, such
foreign government cannot shield its non-performance or contravention of the terms of the
contract under the cloak of non-jurisdiction. To place such foreign government beyond the
jurisdiction of the domestic courts is to give approval to the execution of unilateral contracts,
graphically described in Spanish as 'contratos leoninos', because one party gets the lion's share
to the detriment of the other. To give validity to such contract is to sanctify bad faith, deceit,
fraud. We prefer to adhere to the thesis that all parties in a private contract, including
governments and the most powerful of them, are amenable to law, and that such contracts are
enforceable through the help of the courts of justice with jurisdiction to take cognizance of any
violation of such contracts if the same had been entered into only by private individuals.

Constant resort by a foreign state or its agents to the doctrine of State immunity in this
jurisdiction impinges unduly upon our sovereignty and dignity as a nation. Its application will
particularly discourage Filipino or domestic contractors from transacting business and entering
into contracts with United States authorities or facilities in the Philippines whether naval, air or
ground forces-because the difficulty, if not impossibility, of enforcing a validly executed contract
and of seeking judicial remedy in our own courts for breaches of contractual obligation
committed by agents of the United States government, always, looms large, thereby hampering
the growth of Filipino enterprises and creating a virtual monopoly in our own country by United
States contractors of contracts for services or supplies with the various U.S. offices and agencies
operating in the Philippines.

The sanctity of upholding agreements freely entered into by the parties cannot be over
emphasized. Whether the parties are nations or private individuals, it is to be reasonably
assumed and expected that the undertakings in the contract will be complied with in good faith.

One glaring fact of modern day civilization is that a big and powerful nation, like the United
States of America, can always overwhelm small and weak nations. The declaration in the United
Nations Charter that its member states are equal and sovereign, becomes hollow and
meaningless because big nations wielding economic and military superiority impose upon and
dictate to small nations, subverting their sovereignty and dignity as nations. Thus, more often
than not, when U.S. interest clashes with the interest of small nations, the American
governmental agencies or its citizens invoke principles of international law for their own benefit.

In the case at bar, the efficacy of the contract between the U.S. Naval authorities at Subic Bay on
one hand, and herein private respondent on the other, was honored more in the breach than in
the compliance The opinion of the majority will certainly open the floodgates of more violations
of contractual obligations. American authorities or any foreign government in the Philippines for
that matter, dealing with the citizens of this country, can conveniently seek protective cover
under the majority opinion. The result is disastrous to the Philippines.

This opinion of the majority manifests a neo-colonial mentality. It fosters economic imperialism
and foreign political ascendancy in our Republic.

The doctrine of government immunity from suit cannot and should not serve as an instrument
for perpetrating an injustice on a citizen (Amigable vs. Cuenca, L-26400, February 29, 1972, 43
SCRA 360; Ministerio vs. Court of First Instance, L-31635, August 31, 1971, 40 SCRA 464).
Under the doctrine of implied waiver of its non-suability, the United States government, through
its naval authorities at Subic Bay, should be held amenable to lawsuits in our country like any
other juristic person.

The invocation by the petitioner United States of America is not in accord with paragraph 3 of
Article III of the original RP-US Military Bases Agreement of March 14, 1947, which states that
"in the exercise of the above-mentioned rights, powers and authority, the United States agrees
that the powers granted to it will not be used unreasonably. . ." (Emphasis supplied).

Nor is such posture of the petitioners herein in harmony with the amendment dated May 27,
1968 to the aforesaid RP-US Military Bases Agreement, which recognizes "the need to promote
and maintain sound employment practices which will assure equality of treatment of all
employees ... and continuing favorable employer-employee relations ..." and "(B)elieving that an
agreement will be mutually beneficial and will strengthen the democratic institutions cherished
by both Governments, ... the United States Government agrees to accord preferential
employment of Filipino citizens in the Bases, thus (1) the U.S. Forces in the Philippines shall fill
the needs for civilian employment by employing Filipino citizens, etc." (Par. 1, Art. I of the
Amendment of May 27, 1968).

Neither does the invocation by petitioners of state immunity from suit express fidelity to
paragraph 1 of Article IV of the aforesaid amendment of May 2 7, 1968 which directs that "
contractors and concessionaires performing work for the U.S. Armed Forces shall be required by
their contract or concession agreements to comply with all applicable Philippine labor laws and
regulations, " even though paragraph 2 thereof affirms that "nothing in this Agreement shall
imply any waiver by either of the two Governments of such immunity under international law."

Reliance by petitioners on the non-suability of the United States Government before the local
courts, actually clashes with No. III on respect for Philippine law of the Memorandum of
Agreement signed on January 7, 1979, also amending RP-US Military Bases Agreement, which
stresses that "it is the duty of members of the United States Forces, the civilian component and
their dependents, to respect the laws of the Republic of the Philippines and to abstain from any
activity inconsistent with the spirit of the Military Bases Agreement and, in particular, from any
political activity in the Philippines. The United States shag take all measures within its authority
to insure that they adhere to them (Emphasis supplied).

The foregoing duty imposed by the amendment to the Agreement is further emphasized by No.
IV on the economic and social improvement of areas surrounding the bases, which directs that
"moreover, the United States Forces shall procure goods and services in the Philippines to the
maximum extent feasible" (Emphasis supplied).

Under No. VI on labor and taxation of the said amendment of January 6, 1979 in connection with
the discussions on possible revisions or alterations of the Agreement of May 27, 1968, "the
discussions shall be conducted on the basis of the principles of equality of treatment, the right
to organize, and bargain collectively, and respect for the sovereignty of the Republic of the
Philippines" (Emphasis supplied)

The majority opinion seems to mock the provision of paragraph 1 of the joint statement of
President Marcos and Vice-President Mondale of the United States dated May 4, 1978 that "the
United States re-affirms that Philippine sovereignty extends over the bases and that Its base shall
be under the command of a Philippine Base Commander, " which is supposed to underscore the
joint Communique of President Marcos and U.S. President Ford of December 7, 1975, under
which "they affirm that sovereign equality, territorial integrity and political independence of all
States are fundamental principles which both countries scrupulously respect; and that "they
confirm that mutual respect for the dignity of each nation shall characterize their friendship as
well as the alliance between their two countries. "

The majority opinion negates the statement on the delineation of the powers, duties and
responsibilities of both the Philippine and American Base Commanders that "in the performance
of their duties, the Philippine Base Commander and the American Base Commander shall be
guided by full respect for Philippine sovereignty on the one hand and the assurance of
unhampered U.S. military operations on the other hand and that "they shall promote
cooperation understanding and harmonious relations within the Base and with the general
public in the proximate vicinity thereof" (par. 2 & par. 3 of the Annex covered by the exchange
of notes, January 7, 1979, between Ambassador Richard W. Murphy and Minister of Foreign
Affairs Carlos P. Romulo, Emphasis supplied).
 G.R. No. L-11154
Merritt vs. Government of the Philippines
E. MERRITT, plaintiff-appellant vs. GOVERNMENT OF THE PHILIPPINE ISLANDS, defendant-
appellant.

This is an appeal by both parties from a judgment of the Court of First Instance of the city of
Manila in favor of the plaintiff for the sum of P14,741, together with the costs of the cause.

Counsel for the plaintiff insist that the trial court erred (1) "in limiting the general damages which
the plaintiff suffered to P5,000, instead of P25,000 as claimed in the complaint," and (2) "in
limiting the time when plaintiff was entirely disabled to two months and twenty-one days and
fixing the damage accordingly in the sum of P2,666, instead of P6,000 as claimed by plaintiff in
his complaint."

The Attorney-General on behalf of the defendant urges that the trial court erred: (a) in finding
that the collision between the plaintiff's motorcycle and the ambulance of the General Hospital
was due to the negligence of the chauffeur; (b) in holding that the Government of the Philippine
Islands is liable for the damages sustained by the plaintiff as a result of the collision, even if it be
true that the collision was due to the negligence of the chauffeur; and (c) in rendering judgment
against the defendant for the sum of P14,741.

The trial court's findings of fact, which are fully supported by the record, are as follows:

It is a fact not disputed by counsel for the defendant that when the plaintiff, riding on a
motorcycle, was going toward the western part of Calle Padre Faura, passing along the west side
thereof at a speed of ten to twelve miles an hour, upon crossing Taft Avenue and when he was
ten feet from the southwestern intersection of said streets, the General Hospital ambulance,
upon reaching said avenue, instead of turning toward the south, after passing the center thereof,
so that it would be on the left side of said avenue, as is prescribed by the ordinance and the
Motor Vehicle Act, turned suddenly and unexpectedly and long before reaching the center of
the street, into the right side of Taft Avenue, without having sounded any whistle or horn, by
which movement it struck the plaintiff, who was already six feet from the southwestern point or
from the post place there.

By reason of the resulting collision, the plaintiff was so severely injured that, according to Dr.
Saleeby, who examined him on the very same day that he was taken to the General Hospital, he
was suffering from a depression in the left parietal region, a would in the same place and in the
back part of his head, while blood issued from his nose and he was entirely unconscious.

The marks revealed that he had one or more fractures of the skull and that the grey matter and
brain was had suffered material injury. At ten o'clock of the night in question, which was the
time set for performing the operation, his pulse was so weak and so irregular that, in his opinion,
there was little hope that he would live. His right leg was broken in such a way that the fracture
extended to the outer skin in such manner that it might be regarded as double and the would
be exposed to infection, for which reason it was of the most serious nature.

At another examination six days before the day of the trial, Dr. Saleeby noticed that the plaintiff's
leg showed a contraction of an inch and a half and a curvature that made his leg very weak and
painful at the point of the fracture. Examination of his head revealed a notable readjustment of
the functions of the brain and nerves. The patient apparently was slightly deaf, had a light
weakness in his eyes and in his mental condition. This latter weakness was always noticed when
the plaintiff had to do any difficult mental labor, especially when he attempted to use his money
for mathematical calculations.

According to the various merchants who testified as witnesses, the plaintiff's mental and physical
condition prior to the accident was excellent, and that after having received the injuries that
have been discussed, his physical condition had undergone a noticeable depreciation, for he had
lost the agility, energy, and ability that he had constantly displayed before the accident as one
of the best constructors of wooden buildings and he could not now earn even a half of the
income that he had secured for his work because he had lost 50 per cent of his efficiency. As a
contractor, he could no longer, as he had before done, climb up ladders and scaffoldings to reach
the highest parts of the building.

As a consequence of the loss the plaintiff suffered in the efficiency of his work as a contractor,
he had to dissolved the partnership he had formed with the engineer. Wilson, because he was
incapacitated from making mathematical calculations on account of the condition of his leg and
of his mental faculties, and he had to give up a contract he had for the construction of the Uy
Chaco building."

We may say at the outset that we are in full accord with the trial court to the effect that the
collision between the plaintiff's motorcycle and the ambulance of the General Hospital was due
solely to the negligence of the chauffeur.

The two items which constitute a part of the P14,741 and which are drawn in question by the
plaintiff are (a) P5,000, the award awarded for permanent injuries, and (b) the P2,666, the
amount allowed for the loss of wages during the time the plaintiff was incapacitated from
pursuing his occupation. We find nothing in the record which would justify us in increasing the
amount of the first. As to the second, the record shows, and the trial court so found, that the
plaintiff's services as a contractor were worth P1,000 per month. The court, however, limited the
time to two months and twenty-one days, which the plaintiff was actually confined in the
hospital. In this we think there was error, because it was clearly established that the plaintiff was
wholly incapacitated for a period of six months. The mere fact that he remained in the hospital
only two months and twenty-one days while the remainder of the six months was spent in his
home, would not prevent recovery for the whole time. We, therefore, find that the amount of
damages sustained by the plaintiff, without any fault on his part, is P18,075.

As the negligence which caused the collision is a tort committed by an agent or employee of the
Government, the inquiry at once arises whether the Government is legally-liable for the
damages resulting therefrom.

Act No. 2457, effective February 3, 1915, reads:

An Act authorizing E. Merritt to bring suit against the Government of the Philippine Islands and
authorizing the Attorney-General of said Islands to appear in said suit.

Whereas a claim has been filed against the Government of the Philippine Islands by Mr. E.
Merritt, of Manila, for damages resulting from a collision between his motorcycle and the
ambulance of the General Hospital on March twenty-fifth, nineteen hundred and thirteen;
Whereas it is not known who is responsible for the accident nor is it possible to determine the
amount of damages, if any, to which the claimant is entitled; and

Whereas the Director of Public Works and the Attorney-General recommended that an Act be
passed by the Legislature authorizing Mr. E. Merritt to bring suit in the courts against the
Government, in order that said questions may be decided: Now, therefore,

By authority of the United States, be it enacted by the Philippine Legislature, that:

SECTION 1. E. Merritt is hereby authorized to bring suit in the Court of First Instance of the city
of Manila against the Government of the Philippine Islands in order to fix the responsibility for
the collision between his motorcycle and the ambulance of the General Hospital, and to
determine the amount of the damages, if any, to which Mr. E. Merritt is entitled on account of
said collision, and the Attorney-General of the Philippine Islands is hereby authorized and
directed to appear at the trial on the behalf of the Government of said Islands, to defendant said
Government at the same.

SEC. 2. This Act shall take effect on its passage.

Enacted, February 3, 1915.

Did the defendant, in enacting the above quoted Act, simply waive its immunity from suit or did
it also concede its liability to the plaintiff? If only the former, then it cannot be held that the Act
created any new cause of action in favor of the plaintiff or extended the defendant's liability to
any case not previously recognized.

All admit that the Insular Government (the defendant) cannot be sued by an individual without
its consent. It is also admitted that the instant case is one against the Government. As the
consent of the Government to be sued by the plaintiff was entirely voluntary on its part, it is our
duty to look carefully into the terms of the consent, and render judgment accordingly.

The plaintiff was authorized to bring this action against the Government "in order to fix the
responsibility for the collision between his motorcycle and the ambulance of the General
Hospital and to determine the amount of the damages, if any, to which Mr. E. Merritt is entitled
on account of said collision, . . . ." These were the two questions submitted to the court for
determination. The Act was passed "in order that said questions may be decided." We have
"decided" that the accident was due solely to the negligence of the chauffeur, who was at the
time an employee of the defendant, and we have also fixed the amount of damages sustained
by the plaintiff as a result of the collision. Does the Act authorize us to hold that the Government
is legally liable for that amount? If not, we must look elsewhere for such authority, if it exists.

The Government of the Philippine Islands having been "modeled after the Federal and State
Governments in the United States," we may look to the decisions of the high courts of that
country for aid in determining the purpose and scope of Act No. 2457.

In the United States the rule that the state is not liable for the torts committed by its officers or
agents whom it employs, except when expressly made so by legislative enactment, is well
settled. "The Government," says Justice Story, "does not undertake to guarantee to any person
the fidelity of the officers or agents whom it employs, since that would involve it in all its
operations in endless embarrassments, difficulties and losses, which would be subversive of the
public interest." (Claussen vs. City of Luverne, 103 Minn., 491, citing U. S. vs. Kirkpatrick, 9
Wheat, 720; 6 L. Ed., 199; and Beers vs. States, 20 How., 527; 15 L. Ed., 991.)

In the case of Melvin vs. State (121 Cal., 16), the plaintiff sought to recover damages from the
state for personal injuries received on account of the negligence of the state officers at the state
fair, a state institution created by the legislature for the purpose of improving agricultural and
kindred industries; to disseminate information calculated to educate and benefit the industrial
classes; and to advance by such means the material interests of the state, being objects similar
to those sought by the public school system. In passing upon the question of the state's liability
for the negligent acts of its officers or agents, the court said:

No claim arises against any government is favor of an individual, by reason of the misfeasance,
laches, or unauthorized exercise of powers by its officers or agents. (Citing Gibbons vs. U. S., 8
Wall., 269; Clodfelter vs. State, 86 N. C., 51, 53; 41 Am. Rep., 440; Chapman vs. State, 104 Cal.,
690; 43 Am. St. Rep., 158; Green vs. State, 73 Cal., 29; Bourn vs. Hart, 93 Cal., 321; 27 Am. St.
Rep., 203; Story on Agency, sec. 319.)

As to the scope of legislative enactments permitting individuals to sue the state where the cause
of action arises out of either fort or contract, the rule is stated in 36 Cyc., 915, thus:

By consenting to be sued a state simply waives its immunity from suit. It does not thereby
concede its liability to plaintiff, or create any cause of action in his favor, or extend its liability to
any cause not previously recognized. It merely gives a remedy to enforce a preexisting liability
and submits itself to the jurisdiction of the court, subject to its right to interpose any lawful
defense.

In Apfelbacher vs. State (152 N. W., 144, advanced sheets), decided April 16, 1915, the Act of
1913, which authorized the bringing of this suit, read:

SECTION 1. Authority is hereby given to George Apfelbacher, of the town of Summit, Waukesha
County, Wisconsin, to bring suit in such court or courts and in such form or forms as he may be
advised for the purpose of settling and determining all controversies which he may now have
with the State of Wisconsin, or its duly authorized officers and agents, relative to the mill
property of said George Apfelbacher, the fish hatchery of the State of Wisconsin on the Bark
River, and the mill property of Evan Humphrey at the lower end of Nagawicka Lake, and relative
to the use of the waters of said Bark River and Nagawicka Lake, all in the county of Waukesha,
Wisconsin.

In determining the scope of this act, the court said:

Plaintiff claims that by the enactment of this law the legislature admitted liability on the part of
the state for the acts of its officers, and that the suit now stands just as it would stand between
private parties. It is difficult to see how the act does, or was intended to do, more than remove
the state's immunity from suit. It simply gives authority to commence suit for the purpose of
settling plaintiff's controversies with the estate. Nowhere in the act is there a whisper or
suggestion that the court or courts in the disposition of the suit shall depart from well
established principles of law, or that the amount of damages is the only question to be settled.
The act opened the door of the court to the plaintiff. It did not pass upon the question of liability,
but left the suit just where it would be in the absence of the state's immunity from suit. If the
Legislature had intended to change the rule that obtained in this state so long and to declare
liability on the part of the state, it would not have left so important a matter to mere inference,
but would have done so in express terms. (Murdock Grate Co. vs. Commonwealth, 152 Mass.,
28; 24 N.E., 854; 8 L. R. A., 399.)

In Denning vs. State (123 Cal., 316), the provisions of the Act of 1893, relied upon and
considered, are as follows:

All persons who have, or shall hereafter have, claims on contract or for negligence against the
state not allowed by the state board of examiners, are hereby authorized, on the terms and
conditions herein contained, to bring suit thereon against the state in any of the courts of this
state of competent jurisdiction, and prosecute the same to final judgment. The rules of practice
in civil cases shall apply to such suits, except as herein otherwise provided.

And the court said:

This statute has been considered by this court in at least two cases, arising under different facts,
and in both it was held that said statute did not create any liability or cause of action against the
state where none existed before, but merely gave an additional remedy to enforce such liability
as would have existed if the statute had not been enacted. (Chapman vs. State, 104 Cal., 690; 43
Am. St. Rep., 158; Melvin vs. State, 121 Cal., 16.)

A statute of Massachusetts enacted in 1887 gave to the superior court "jurisdiction of all claims
against the commonwealth, whether at law or in equity," with an exception not necessary to be
here mentioned. In construing this statute the court, in Murdock Grate Co. vs. Commonwealth
(152 Mass., 28), said:

The statute we are discussing disclose no intention to create against the state a new and
heretofore unrecognized class of liabilities, but only an intention to provide a judicial tribunal
where well recognized existing liabilities can be adjudicated.

In Sipple vs. State (99 N. Y., 284), where the board of the canal claims had, by the terms of the
statute of New York, jurisdiction of claims for damages for injuries in the management of the
canals such as the plaintiff had sustained, Chief Justice Ruger remarks: "It must be conceded that
the state can be made liable for injuries arising from the negligence of its agents or servants,
only by force of some positive statute assuming such liability."

It being quite clear that Act No. 2457 does not operate to extend the Government's liability to
any cause not previously recognized, we will now examine the substantive law touching the
defendant's liability for the negligent acts of its officers, agents, and employees. Paragraph 5 of
article 1903 of the Civil Code reads:

The state is liable in this sense when it acts through a special agent, but not when the damage
should have been caused by the official to whom properly it pertained to do the act performed,
in which case the provisions of the preceding article shall be applicable.

The supreme court of Spain in defining the scope of this paragraph said:

That the obligation to indemnify for damages which a third person causes to another by his fault
or negligence is based, as is evidenced by the same Law 3, Title 15, Partida 7, on that the person
obligated, by his own fault or negligence, takes part in the act or omission of the third party who
caused the damage. It follows therefrom that the state, by virtue of such provisions of law, is not
responsible for the damages suffered by private individuals in consequence of acts performed
by its employees in the discharge of the functions pertaining to their office, because neither fault
nor even negligence can be presumed on the part of the state in the organization of branches of
public service and in the appointment of its agents; on the contrary, we must presuppose all
foresight humanly possible on its part in order that each branch of service serves the general
weal an that of private persons interested in its operation. Between these latter and the state,
therefore, no relations of a private nature governed by the civil law can arise except in a case
where the state acts as a judicial person capable of acquiring rights and contracting obligations.
(Supreme Court of Spain, January 7, 1898; 83 Jur. Civ., 24.)

That the Civil Code in chapter 2, title 16, book 4, regulates the obligations which arise out of fault
or negligence; and whereas in the first article thereof. No. 1902, where the general principle is
laid down that where a person who by an act or omission causes damage to another through
fault or negligence, shall be obliged to repair the damage so done, reference is made to acts or
omissions of the persons who directly or indirectly cause the damage, the following articles
refers to this persons and imposes an identical obligation upon those who maintain fixed
relations of authority and superiority over the authors of the damage, because the law presumes
that in consequence of such relations the evil caused by their own fault or negligence is
imputable to them. This legal presumption gives way to proof, however, because, as held in the
last paragraph of article 1903, responsibility for acts of third persons ceases when the persons
mentioned in said article prove that they employed all the diligence of a good father of a family
to avoid the damage, and among these persons, called upon to answer in a direct and not a
subsidiary manner, are found, in addition to the mother or the father in a proper case, guardians
and owners or directors of an establishment or enterprise, the state, but not always, except
when it acts through the agency of a special agent, doubtless because and only in this case, the
fault or negligence, which is the original basis of this kind of objections, must be presumed to lie
with the state.

That although in some cases the state might by virtue of the general principle set forth in article
1902 respond for all the damage that is occasioned to private parties by orders or resolutions
which by fault or negligence are made by branches of the central administration acting in the
name and representation of the state itself and as an external expression of its sovereignty in
the exercise of its executive powers, yet said article is not applicable in the case of damages said
to have been occasioned to the petitioners by an executive official, acting in the exercise of his
powers, in proceedings to enforce the collections of certain property taxes owing by the owner
of the property which they hold in sublease.

That the responsibility of the state is limited by article 1903 to the case wherein it acts through
a special agent (and a special agent, in the sense in which these words are employed, is one who
receives a definite and fixed order or commission, foreign to the exercise of the duties of his
office if he is a special official) so that in representation of the state and being bound to act as
an agent thereof, he executes the trust confided to him. This concept does not apply to any
executive agent who is an employee of the acting administration and who on his own
responsibility performs the functions which are inherent in and naturally pertain to his office
and which are regulated by law and the regulations." (Supreme Court of Spain, May 18, 1904;
98 Jur. Civ., 389, 390.)

That according to paragraph 5 of article 1903 of the Civil Code and the principle laid down in a
decision, among others, of the 18th of May, 1904, in a damage case, the responsibility of the
state is limited to that which it contracts through a special agent, duly empowered by a definite
order or commission to perform some act or charged with some definite purpose which gives
rise to the claim, and not where the claim is based on acts or omissions imputable to a public
official charged with some administrative or technical office who can be held to the proper
responsibility in the manner laid down by the law of civil responsibility. Consequently, the trial
court in not so deciding and in sentencing the said entity to the payment of damages, caused by
an official of the second class referred to, has by erroneous interpretation infringed the
provisions of articles 1902 and 1903 of the Civil Code. (Supreme Court of Spain, July 30, 1911;
122 Jur. Civ., 146.)

It is, therefore, evidence that the State (the Government of the Philippine Islands) is only liable,
according to the above quoted decisions of the Supreme Court of Spain, for the acts of its agents,
officers and employees when they act as special agents within the meaning of paragraph 5 of
article 1903, supra, and that the chauffeur of the ambulance of the General Hospital was not
such an agent.

For the foregoing reasons, the judgment appealed from must be reversed, without costs in this
instance. Whether the Government intends to make itself legally liable for the amount of
damages above set forth, which the plaintiff has sustained by reason of the negligent acts of one
of its employees, by legislative enactment and by appropriating sufficient funds therefor, we are
not called upon to determine. This matter rests solely with the Legislature and not with the
courts.
 G.R. No. 171182
UP vs Dizon
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.

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

The Case

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

Antecedents

On August 30, 1990, the UP, through its then President Jose V. Abueva, entered into a General
Construction Agreement with respondent Stern Builders Corporation (Stern Builders),
represented by its President and General Manager Servillano dela Cruz, for the construction of
the extension building and the renovation of the College of Arts and Sciences Building in the
campus of the University of the Philippines in Los 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 Builders Corporation and Servillano R.
Dela Cruz v. University of the Philippines Systems, Jose V. Abueva, Raul P. de Guzman, Ruben P.
Aspiras, Emmanuel P. Bello, Wilfredo P. David, Casiano S. Abrigo, and Josefina R. Licuanan, was
docketed as Civil Case No. Q-93-14971 of the Regional Trial Court in Quezon City (RTC).4

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

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

1. ₱ 503,462.74 amount of the third billing, additional accomplished work and retention money
2. ₱ 5,716,729.00 in actual damages

3. ₱ 10,000,000.00 in moral damages

4. ₱ 150,000.00 and ₱ 1,500.00 per appearance as attorney’s fees; and

5. Costs of suit.

SO ORDERED.

Following the RTC’s denial of its motion for reconsideration on May 7, 2002,6 the UP filed a
notice of appeal on June 3, 2002.7 Stern Builders and dela Cruz opposed the notice of appeal on
the ground of its filing being belated, and moved for the execution of the decision. The UP
countered that the notice of appeal was filed within the reglementary period because the 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

The RTC issued the writ of execution on October 4, 2002,9 and the sheriff of the RTC served the
writ of execution and notice of demand upon the UP, through its counsel, on October 9, 2002.10
The UP filed an urgent motion to reconsider the order dated September 26, 2002, to quash the
writ of execution dated October 4, 2002, and to restrain the proceedings.11 However, the RTC
denied the urgent motion on April 1, 2003.12

On June 24, 2003, the UP assailed the denial of due course to its appeal through a petition for
certiorari in the Court of Appeals (CA), docketed as CA-G.R. No. 77395.13

On February 24, 2004, the CA dismissed the petition for certiorari upon finding that the UP’s
notice of appeal had been filed late,14 stating:

Records clearly show that petitioners received a copy of the Decision dated November 28, 2001
and January 7, 2002, thus, they had until January 22, 2002 within which to file their appeal. On
January 16, 2002 or after the lapse of nine (9) days, petitioners through their counsel Atty.
Nolasco filed a Motion for Reconsideration of the aforesaid decision, hence, pursuant to the
rules, petitioners still had six (6) remaining days to file their appeal. As admitted by the
petitioners in their petition (Rollo, p. 25), Atty. Nolasco received a copy of the Order denying
their motion for reconsideration on May 17, 2002, thus, petitioners still has until May 23, 2002
(the remaining six (6) days) within which to file their appeal. Obviously, petitioners were not able
to file their Notice of Appeal on May 23, 2002 as it was only filed on June 3, 2002.

In view of the said circumstances, We are of the belief and so holds that the Notice of Appeal
filed by the petitioners was really filed out of time, the same having been filed seventeen (17)
days late of the reglementary period. By reason of which, the decision dated November 28, 2001
had already become final and executory. "Settled is the rule that the perfection of an appeal in
the manner and within the period permitted by law is not only mandatory but jurisdictional, and
failure to perfect that appeal renders the challenged judgment final and executory. This is not
an empty procedural rule but is grounded on fundamental considerations of public policy and
sound practice." (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

The UP sought a reconsideration, but the CA denied the UP’s motion for reconsideration on April
19, 2004.16

On May 11, 2004, the UP appealed to the Court by petition for review on certiorari (G.R. No.
163501).

On June 23, 2004, the Court denied the petition for review.17 The UP moved for the
reconsideration of the denial of its petition for review on August 29, 2004,18 but the Court
denied the motion on October 6, 2004.19 The denial became final and executory on November
12, 2004.20

In the meanwhile that the UP was exhausting the available remedies to overturn the denial of
due course to the appeal and the issuance of the writ of execution, Stern Builders and dela Cruz
filed in the RTC their motions for execution despite their previous motion having already been
granted and despite the writ of execution having already issued. On June 11, 2003, the RTC
granted another motion for execution filed on May 9, 2003 (although the RTC had already issued
the writ of execution on October 4, 2002).21

On June 23, 2003 and July 25, 2003, respectively, the sheriff served notices of garnishment on
the UP’s depository banks, namely: Land Bank of the Philippines (Buendia Branch) and the
Development Bank of the Philippines (DBP), Commonwealth Branch.22 The UP assailed the
garnishment through an urgent motion to quash the notices of garnishment;23 and a motion to
quash the writ of execution dated May 9, 2003.24

On their part, Stern Builders and dela Cruz filed their ex parte motion for issuance of a release
order.25

On October 14, 2003, the RTC denied the 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.28 Despite the UP’s opposition,29 the RTC granted the motion to release the garnished
funds on March 16, 2004.30 On April 20, 2004, however, the RTC held in abeyance the
enforcement of the writs of execution issued on October 4, 2002 and June 3, 2003 and all the
ensuing notices of garnishment, citing Section 4, Rule 52, Rules of Court, which provided that
the pendency of a timely motion for reconsideration stayed the execution of the judgment.31

On December 21, 2004, the RTC, through respondent Judge Agustin S. Dizon, authorized the
release of the garnished funds of the UP,32 to wit:

WHEREFORE, premises considered, there being no more legal impediment for the release of the
garnished amount in satisfaction of the judgment award in the instant case, let the amount
garnished be immediately released by the Development Bank of the Philippines, Commonwealth
Branch, Quezon City in favor of the plaintiff.

SO ORDERED.

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

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

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

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

On March 22, 2005, Stern Builders and dela Cruz filed in the RTC their amended motion for
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.39 The UP opposed the amended motion
and countered that the implementation of the release order be suspended.40

On May 3, 2005, the RTC granted the amended motion for 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,45 noting 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, 2004.46 However, the RTC directed in the same order that Stern
Builders and dela Cruz should not encash the check or withdraw its amount pending the final
resolution of the 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,48 viz:

Petitioners next argue that the UP funds may not be seized for execution or garnishment to
satisfy the judgment award. Citing Department of Agriculture vs. NLRC, University of the
Philippines Board of Regents vs. Hon. Ligot-Telan, petitioners contend that UP deposits at Land
Bank and the Development Bank of the Philippines, being government funds, may not be
released absent an appropriations bill from Congress.

The argument is specious. UP entered into a contract with private respondents for the expansion
and renovation of the Arts and Sciences Building of its campus in Los 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,50
stating:

Since it appears that the defendants are intending to file a petition for review of the Court of
Appeals resolution in CA-G.R. No. 88125 within the reglementary period of fifteen (15) days from
receipt of resolution, the Court agrees with the defendants stand that the granting of plaintiffs’
subject motion is premature.

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

However, on January 22, 2007, the UP filed an Urgent Application for A Temporary Restraining
Order and/or A Writ of Preliminary Injunction,52 averring that on January 3, 2007, Judge Maria
Theresa dela Torre-Yadao (who had meanwhile replaced Judge Dizon upon the latter’s
appointment to the CA) had issued another order allowing Stern Builders and dela Cruz to
withdraw the deposit,53 to wit:

It bears stressing that defendants’ liability for the payment of the judgment obligation has
become indubitable due to the final and executory nature of the Decision dated November 28,
2001. Insofar as the payment of the [sic] judgment obligation is concerned, the Court believes
that there is nothing more the defendant can do to escape liability. It is observed that there is
nothing more the defendant can do to escape liability. It is observed that defendant U.P. System
had already exhausted all its legal remedies to overturn, set aside or modify the decision (dated
November 28, 2001( rendered against it. The way the Court sees it, defendant U.P. 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, 2007,55 it appears that
on January 16, 2007, or prior to the issuance of the TRO, she had already directed the DBP to
forthwith release the garnished amount to Stern Builders and dela Cruz; 56 and that DBP had
forthwith complied with the order on January 17, 2007 upon the 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, 2007,58 alleging that the RTC (Judge Yadao) gravely erred in ordering the immediate
release of the garnished amount despite the pendency of the petition for review in this Court.

The UP filed a second supplemental petition59 after the RTC (Judge Yadao) denied the UP’s
motion for the redeposit of the withdrawn amount on April 10, 2007,60 to wit:

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 Diego61
and Department of Agriculture v. NLRC62 to the effect that government funds and properties
could not be seized under writs of execution or garnishment to satisfy judgment awards.

Furthermore, the UP contends that the CA contravened Section 5, Article XIV of the Constitution
by allowing the garnishment of UP funds, because the garnishment resulted in a substantial
reduction of the 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.63 Despite its establishment as a body corporate,64 the UP remains to be a
"chartered institution"65 performing a legitimate government function. It is an institution of
higher learning, not a corporation established for profit and declaring any dividends.66 In
enacting Republic Act No. 9500 (The University of the Philippines Charter of 2008), Congress has
declared the UP as the national university67 "dedicated to the search for truth and knowledge
as well as the development of future leaders."68

Irrefragably, the UP is a government instrumentality,69 performing the State’s constitutional

mandate of promoting quality and accessible education.70 As a government instrumentality, the
UP administers special funds sourced from the fees and income enumerated under Act No. 1870
and Section 1 of Executive Order No. 714,71 and from the yearly appropriations, to achieve the
purposes laid down by Section 2 of Act 1870, as expanded in Republic Act No. 9500.72 All the
funds going into the possession of the UP, including any interest accruing from the deposit of
such funds in any banking institution, constitute a "special trust fund," the disbursement of
which should always be aligned with the UP’s mission and purpose,73 and should always be
subject to auditing by the COA.74

Presidential Decree No. 1445 defines a "trust fund" as a fund that officially comes in the
possession of an agency of the government or of a public officer as trustee, agent or
administrator, or that is received for the fulfillment of some obligation.75 A trust fund may be
utilized only for the "specific purpose for which the trust was created or the funds received."76

The funds of the UP are government funds that are public in character. They include the income
accruing from the use of real property ceded to the UP that may be spent only for the attainment
of its institutional objectives.77 Hence, the funds subject of this action could not be validly made
the subject of the 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,78 because suability of the State did not necessarily mean its liability.79

A marked distinction exists between suability of the State and its liability. As the Court succinctly
stated in Municipality of San Fernando, La Union v. Firme:80

A distinction should first be made between suability and liability. "Suability depends on the
consent of the state to be sued, liability on the applicable law and the established facts. The
circumstance that a state is suable does not necessarily mean that it is liable; on the other hand,
it can never be held liable if it does not first consent to be sued. Liability is not conceded by the
mere fact that the state has allowed itself to be sued. When the state does waive its sovereign
immunity, it is only giving the plaintiff the chance to prove, if it can, that the defendant is liable.

Also, in Republic v. Villasor,81 where the issuance of an alias writ of execution directed against
the funds of the Armed Forces of the Philippines to satisfy a final and executory judgment was
nullified, the Court said:

xxx The universal rule that where the State gives its consent to be sued by private parties either
by general or special law, it may limit 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."82 The CA
and the RTC thereby unjustifiably ignored the legal restriction imposed on the trust funds of the
Government and its agencies and instrumentalities to be used exclusively to fulfill the purposes
for which the trusts were created or for which the funds were received except upon express
authorization by Congress or by the head of a government agency in control of the funds, and
subject to pertinent budgetary laws, rules and regulations.83

Indeed, an appropriation by Congress was required before the judgment that rendered the UP
liable for moral and actual damages (including 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.85 As such, Stern Builders
and dela Cruz as the claimants had no alternative except to first seek the approval of the COA of
their monetary claim.

On its part, the RTC should have exercised utmost caution, prudence and judiciousness in dealing
with the motions for execution against the UP and the garnishment of the 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. 10-2000,86 issued on October 25, 2000, enjoining them "to observe
utmost caution, prudence and judiciousness in the issuance of writs of execution to satisfy
money judgments against government agencies and local government units" precisely in order
to prevent the circumvention of Presidential Decree No. 1445, as well as of the rules and
procedures of the COA, to wit:

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

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

"The universal rule that where the State gives its consent to be sued by private parties either by
general or special law, it may limit 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,87 even if the modification is meant to correct erroneous
conclusions of fact and law, and whether the modification is made by the court that rendered it
or by this Court as the highest court of the land.88 Public policy dictates that once a judgment
becomes final, executory and unappealable, the prevailing party should not be deprived of the
fruits of victory by some subterfuge devised by the losing party. Unjustified delay in the
enforcement of such judgment sets at naught the role and purpose of the courts to resolve
justiciable controversies with finality.89 Indeed, all litigations must at some time end, even at
the risk of occasional errors.

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

We rule that the 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,
2002,94 rendering the filing of the UP’s notice of appeal on June 3, 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.95 Service on the party
or the party’s employee is not effective because such notice is not notice in law.96 This is clear
enough from Section 2, second paragraph, of Rule 13, Rules of Court, which explicitly states that:
"If any party has appeared by counsel, service upon him shall be made upon his counsel or one
of them, unless service upon the party himself is ordered by the court. Where one counsel
appears for several parties, he shall only be entitled to one copy of any paper served upon him
by the opposite side." As such, the period to appeal resumed only on June 1, 2002, the date
following the service on May 31, 2002 upon the OLS in Diliman of the copy of the decision of the
RTC, not from the date when the UP was notified.97

Accordingly, the declaration of finality of the judgment of the RTC, being devoid of factual and
legal bases, is set aside.

Secondly, even assuming that the service upon Atty. Nolasco was valid and effective, such that
the remaining period for the UP to take a timely appeal would end by May 23, 2002, it would
still not be correct to find that the judgment of the RTC became final and immutable thereafter
due to the notice of appeal being filed too late on June 3, 2002.

In so declaring the judgment of the RTC as final against the UP, the CA and the RTC applied the
rule contained in the second paragraph of Section 3, Rule 41 of the Rules of Court to the effect
that the filing of a motion for reconsideration interrupted the running of the period for filing the
appeal; and that the period resumed upon notice of the denial of the motion for reconsideration.
For that reason, the CA and the RTC might not be taken to task for strictly adhering to the rule
then prevailing.

However, equity calls for the retroactive application in the 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,98 viz:

To standardize the appeal periods provided in the Rules and to afford litigants fair opportunity
to appeal their cases, the Court deems it practical to allow a fresh period of 15 days within which
to file the notice of appeal in the Regional Trial Court, counted from receipt of the order
dismissing a motion for a new trial or motion for reconsideration.

The retroactive application of the fresh-period rule, a procedural law that aims "to regiment or
make the appeal period uniform, to be counted from receipt of the order denying the motion
for new trial, motion for reconsideration (whether full or partial) or any final order or
resolution,"99 is impervious to any serious challenge. This is because there are no vested rights
in rules of procedure.100 A law or regulation is procedural when it prescribes rules and forms of
procedure in order that courts may be able to administer justice.101 It does not come within
the legal conception of a retroactive law, or is not subject of the general rule prohibiting the
retroactive operation of statues, but is given retroactive effect in actions pending and
undetermined at the time of its passage without violating any right of a person who may feel
that he is adversely affected.
We have further said that a procedural rule that is amended for the benefit of litigants in
furtherance of the administration of justice shall be retroactively applied to likewise favor actions
then pending, as equity delights in equality.102 We may even relax stringent procedural rules in
order to serve substantial justice and in the exercise of this Court’s equity jurisdiction.103 Equity
jurisdiction aims to do complete justice in cases where a court of law is unable to adapt its
judgments to the special circumstances of a case because of the inflexibility of its statutory or
legal jurisdiction.104

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

Consequently, even if the reckoning started from May 17, 2002, when Atty. Nolasco received the
denial, the 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,106 the importance of the former is not to be lightly regarded because it is there where the
court clearly and distinctly states its findings of fact and of law on which the decision is based.
To state it differently, one without the other is ineffectual and useless. The omission of either
inevitably results in a judgment that violates the letter and the spirit of the Constitution and the
Rules of Court.

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

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

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

Here, the decision of the RTC justified the grant of actual and moral damages, and 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,110 and did not attain finality.
There was also no clear and distinct statement of the factual and legal support for the award of
moral damages in the substantial amount of ₱ 10,000,000.00. The award was thus also
speculative and whimsical. Like the actual damages, the moral damages constituted another
judicial ipse dixit, the inevitable consequence of which was to render the award of moral
damages incapable of attaining finality. In addition, the grant of moral damages in that manner
contravened the law that permitted the recovery of moral damages as the means to assuage
"physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar injury."111 The contravention of the law
was manifest considering that Stern Builders, as an artificial person, was incapable of
experiencing pain and moral sufferings.112 Assuming that in granting the substantial amount of
₱ 10,000,000.00 as moral damages, the RTC might have had in mind that dela Cruz had himself
suffered mental anguish and anxiety. If that was the case, then the RTC obviously disregarded
his separate and distinct personality from that of Stern Builders.113 Moreover, his moral and
emotional sufferings as the President of Stern Builders were not the sufferings of Stern Builders.
Lastly, the RTC violated the basic principle that moral damages were not intended to enrich the
plaintiff at the expense of the defendant, but to restore the plaintiff to his status quo ante as
much as possible. Taken together, therefore, all these considerations exposed the substantial
amount of ₱ 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.114 Prior to the effectivity of the present Civil Code, indeed, such fees could be recovered
only when there was a stipulation to that effect. It was only under the present Civil Code that
the right to collect attorney’s fees in the cases mentioned in Article 2208115 of the Civil Code
came to be recognized.116 Nonetheless, with attorney’s fees being allowed in the concept of
actual damages,117 their amounts must be factually and legally justified in the body of the
decision and not stated for the first time in the decretal portion.118 Stating the amounts only in
the dispositive portion of the judgment is not enough;119 a rendition of the factual and legal
justifications for them must also be laid out in the body of the decision.120

That the attorney’s fees granted to the private respondents did not satisfy the foregoing
requirement suffices for the Court to undo them.121 The grant was ineffectual for being contrary
to law and public policy, it being clear that the express findings of fact and law were intended to
bring the case within the exception and thereby justify the award of the 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,123 the failure to comply with the constitutional requirement
for a clear and distinct statement of the supporting facts and law "is a grave abuse of discretion
amounting to lack or excess of jurisdiction" and that "(d)ecisions or orders issued in careless
disregard of the constitutional mandate are a patent nullity and must be struck down as
void."124 The other item granted by the RTC (i.e., ₱ 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.