G.R. No.

L-30671 November 28, 1973

REPUBLIC OF THE PHILIPPINES, petitioner,

prayed for. Respondent Judge ought not to have

by the AFP Controller,..." 2. The paragraph

acted thus. The order thus impugned and the alias

immediately succeeding in such petition then alleged:

writ of execution must be nullified.

"12. Respondent Judge, Honorable Guillermo P.

vs.

Villasor, acted in excess of jurisdiction [or] with

HON. GUILLERMO P. VILLASOR, as Judge of the

In the petition filed by the Republic of the

grave abuse of discretion amounting to lack of

Court of First Instance of Cebu, Branch I, THE

Philippines on July 7, 1969, a summary of facts was

jurisdiction in granting the issuance of an alias writ

PROVINCIAL SHERIFF OF RIZAL, THE SHERIFF

set forth thus: "7. On July 3, 1961, a decision was

of execution against the properties of the Armed

OF QUEZON CITY, and THE SHERIFF OF THE

rendered in Special Proceedings No. 2156-R in favor

Forces of the Philippines, hence, the Alias Writ of

CITY OF MANILA, THE CLERK OF COURT, Court

of respondents P. J. Kiener Co., Ltd., Gavino Unchuan,

Execution and notices of garnishment issued

of First Instance of Cebu, P. J. KIENER CO.,

and International Construction Corporation, and

pursuant thereto are null and void." 3 In the answer

LTD., GAVINO UNCHUAN, AND

against the petitioner herein, confirming the

filed by respondents, through counsel Andres T.

INTERNATIONAL CONSTRUCTION

arbitration award in the amount of P1,712,396.40,

Velarde and Marcelo B. Fernan, the facts set forth

CORPORATION, respondents.

subject of Special Proceedings. 8. On June 24, 1969,

were admitted with the only qualification being that

respondent Honorable Guillermo P. Villasor, issued an

the total award was in the amount of P2,372,331.40. 4

Office of the Solicitor General Felix V. Makasiar and

Solicitor Bernardo P. Pardo for petitioner.
Andres T. Velarde and Marcelo B. Fernan for
respondents.

Order declaring the aforestated decision of July 3,

1961 final and executory, directing the Sheriffs of

The Republic of the Philippines, as mentioned at the

Rizal Province, Quezon City [as well as] Manila to

outset, did right in filing this certiorari and

execute the said decision. 9. Pursuant to the said

prohibition proceeding. What was done by respondent

Order dated June 24, 1969, the corresponding Alias

Judge is not in conformity with the dictates of the

Writ of Execution [was issued] dated June 26,

Constitution. .

1969, .... 10. On the strength of the afore-mentioned

FERNANDO, J.:
The Republic of the Philippines in this certiorari and
prohibition proceeding challenges the validity of an
order issued by respondent Judge Guillermo P.
Villasor, then of the Court of First Instance of Cebu,
Branch I, 1 declaring a decision final and executory
and of an alias writ of execution directed against the
funds of the Armed Forces of the Philippines
subsequently issued in pursuance thereof, the alleged
ground being excess of jurisdiction, or at the very
least, grave abuse of discretion. As thus simply and
tersely put, with the facts being undisputed and the
principle of law that calls for application
indisputable, the outcome is predictable. The
Republic of the Philippines is entitled to the writs

Alias Writ of Execution dated June 26, 1969, the

It is a fundamental postulate of constitutionalism

Provincial Sheriff of Rizal (respondent herein)

flowing from the juristic concept of sovereignty that

served notices of garnishment dated June 28, 1969

the state as well as its government is immune from

with several Banks, specially on the "monies due the

suit unless it gives its consent. It is readily

Armed Forces of the Philippines in the form of

understandable why it must be so. In the classic

deposits sufficient to cover the amount mentioned in

formulation of Holmes: "A sovereign is exempt from

the said Writ of Execution"; the Philippine Veterans

suit, not because of any formal conception or

Bank received the same notice of garnishment on

obsolete theory, but on the logical and practical

June 30, 1969 .... 11. The funds of the Armed Forces

ground that there can be no legal right as against the

of the Philippines on deposit with the Banks,

authority that makes the law on which the right

particularly, with the Philippine Veterans Bank and

depends." 5 Sociological jurisprudence supplies an

the Philippine National Bank [or] their branches are

answer not dissimilar. So it was indicated in a recent

public funds duly appropriated and allocated for the

decision, Providence Washington Insurance Co. v.

payment of pensions of retirees, pay and allowances

Republic of the Philippines, 6 with its affirmation that

"a continued adherence to the doctrine of nonsuability is not to be deplored for as against the
inconvenience that may be caused private parties,

of military and civilian personnel and for maintenance

and operations of the Armed Forces of the
Philippines, as per Certification dated July 3, 1969

the loss of governmental efficiency and the obstacle

law." 10 Such a principle applies even to an attempted

to the performance of its multifarious functions are

garnishment of a salary that had accrued in favor of

far greater if such a fundamental principle were

an employee. Director of Commerce and Industry v.

abandoned and the availability of judicial remedy

Concepcion, 11 speaks to that effect. Justice Malcolm

as ponente left no doubt on that score. Thus: "A rule
which has never been seriously questioned, is that
money in the hands of public officers, although it
may be due government employees, is not liable to
the creditors of these employees in the process of
garnishment. One reason is, that the State, by virtue
of its sovereignty, may not be sued in its own courts
except by express authorization by the Legislature,
and to subject its officers to garnishment would be
to permit indirectly what is prohibited directly.
Another reason is that moneys sought to be
garnished, as long as they remain in the hands of the
disbursing officer of the Government, belong to the
latter, although the defendant in garnishment may be
entitled to a specific portion thereof. And still
another reason which covers both of the foregoing is
that every consideration of public policy forbids
it." 12

were not thus restricted. With the well known

propensity on the part of our people to go to court,
at the least provocation, the loss of time and energy
required to defend against law suits, in the absence
of such a basic principle that constitutes such an
effective obstacle, could very well be imagined." 7
This fundamental postulate underlying the 1935
Constitution is now made explicit in the revised
charter. It is therein expressly provided: "The State
may not be sued without its consent." A corollary,
8

both dictated by logic and sound sense from a basic

concept is that public funds cannot be the object of
a garnishment proceeding even if the consent to be
sued had been previously granted and the state
liability adjudged. Thus in the recent case
of Commissioner of Public Highways v. San

Diego, 9 such a well-settled doctrine was restated in

the opinion of Justice Teehankee: "The universal rule
that where the State gives its consent to be sued by
private parties either by general or special law, it
may limit claimant's action 'only up to the completion
of proceedings anterior to the stage of execution'
and that the power of the Courts ends when the
judgment is rendered, since government funds and
properties may not be seized under writs of
execution or garnishment to satisfy such judgments,
is based on obvious considerations of public policy.
Disbursements of public funds must be covered by
the corresponding appropriation as required by law.
The functions and public services rendered by the
State cannot be allowed to be paralyzed or disrupted
by the diversion of public funds from their
legitimate and specific objects, as appropriated by

In the light of the above, it is made abundantly clear

why the Republic of the Philippines could rightfully
allege a legitimate grievance.
WHEREFORE, the writs of certiorari and prohibition
are granted, nullifying and setting aside both the
order of June 24, 1969 declaring executory the
decision of July 3, 1961 as well as the alias writ of
execution issued thereunder. The preliminary
injunction issued by this Court on July 12, 1969 is
hereby made permanent.
G.R. No. 155504

June 26, 2009

PROFESSIONAL VIDEO, INC., Petitioner,

vs.

TECHNICAL EDUCATION AND SKILLS

DEVELOPMENT AUTHORITY, Respondent.
DECISION
BRION, J.:
We resolve the petition filed by Professional Video,
Inc. (PROVI)1 to annul and set aside the Decision2 of
the Court of Appeals (CA) in CA-G.R. SP No. 67599,
and its subsequent Order denying PROVIs motion
for reconsideration.3 The assailed CA decision
nullified:
a. the Order4 dated July 16, 2001 of the Regional
Trial Court (RTC), Pasig City, in Civil Case No. 68527,
directing the attachment/garnishment of the
properties of respondent Technical Education and
Skills Development Authority (TESDA) amounting to
Thirty Five Million Pesos (P35,000,000.00); and
b. the RTCs August 24, 2001 Order5 denying
respondent TESDAs motion to discharge/quash writ
of attachment.
THE FACTUAL BACKGROUND
PROVI is an entity engaged in the sale of high
technology equipment, information technology
products and broadcast devices, including the supply
of plastic card printing and security facilities.
TESDA is an instrumentality of the government
established under Republic Act (R.A.) No. 7796 (the
TESDA Act of 1994) and attached to the
Department of Labor and Employment (DOLE) to
"develop and establish a national system of skills
standardization, testing, and certification in the
country."6 To fulfill this mandate, it sought to issue
security-printed certification and/or identification

polyvinyl (PVC) cards to trainees who have passed the

certification process.

(1) unit of OMR scanner, one (1) unit of Server, and

seven (7) units of personal computer.

PROVI sent TESDA,10 the outstanding balance

remained unpaid.

TESDAs Pre-Qualification Bids Award Committee

(PBAC) conducted two (2) public biddings on June 25,
1999 and July 22, 1999 for the printing and encoding
of PVC cards. A failure of bidding resulted in both
instances since only two (2) bidders PROVI and
Sirex Phils. Corp. submitted proposals.

TESDA in turn undertook to pay PROVI thirty

percent (30%) of the total cost of the supplies
within thirty (30) days after receipt and acceptance
of the contracted supplies, with the balance payable
within thirty (30) days after the initial payment.

On July 11, 2001, PROVI filed with the RTC a

complaint for sum of money with damages against
TESDA. PROVI additionally prayed for the issuance
of a writ of preliminary attachment/garnishment
against TESDA. The case was docketed as Civil Case
No. 68527. In an Order dated July 16, 2001, the RTC
granted PROVIs prayer and issued a writ of
preliminary attachment against the properties of
TESDA not exempt from execution in the amount
of P35,000,000.00.11

Due to the failed bidding, the PBAC recommended

that TESDA enter into a negotiated contract with
PROVI. On December 29, 1999, TESDA and PROVI
signed and executed their "Contract Agreement
Project: PVC ID Card Issuance" (the Contract
Agreement) for the provision of goods and services
in the printing and encoding of PVC cards. 7 Under
this Contract Agreement, PROVI was to provide
TESDA with the system and equipment compliant
with the specifications defined in the Technical
Proposal. In return, TESDA would pay PROVI the
amount of Thirty-Nine Million Four Hundred and
Seventy-Five Thousand Pesos (P39,475,000) within
fifteen (15) days after TESDAs acceptance of the
contracted goods and services.
On August 24, 2000, TESDA and PROVI executed an
"Addendum to the Contract Agreement Project: PVC
ID Card Issuance" (Addendum),8 whose terms bound
PROVI to deliver one hundred percent (100%) of the
enumerated supplies to TESDA consisting of five
hundred thousand (500,000) pieces of security foil;
five (5) pieces of security die with TESDA seal; five
hundred thousand (500,000) pieces of pre-printed
and customized identification cards; one hundred
thousand (100,000) pieces of scannable answer
sheets; and five hundred thousand (500,000)
customized TESDA holographic laminate. In addition,
PROVI would install and maintain the following
equipment: one (1) unit of Micropoise, two (2) units of
card printer, three (3) units of flatbed scanner, one

According to PROVI, it delivered the following items

to TESDA on the dates indicated:
Date

Particulars

26 April
2000

48,500 preprinted cards

07 June
2000

330,000 preprinted cards

07 August 121,500 pre2000

printed cards
26 April
2000

100,000
scannable answer
sheets

06 June
2000

5 Micro-Poise
customized die

13 June
2000

35 boxes @
15,000 imp/box
Custom hologram
Foil

Amount

TESDA responded on July 24, 2001 by filing a Motion

to Discharge/Quash the Writ of Attachment,
arguing mainly that public funds cannot be the
18,810,000.00 subject of garnishment.12 The RTC denied TESDAs
motion, and subsequently ordered the manager of the
Land Bank of the Philippines to produce TESDAs
6,925,500.00
bank statement for the garnishment of the covered
amount.13

P 2,764,500.00

600,000.00

Faced with these rulings, TESDA filed a Petition for

Certiorari with the CA to question the RTC orders,
imputing grave abuse of discretion amounting to lack
375,000.00
or excess of jurisdiction on the trial court for
issuing a writ of preliminary attachment against
10,000,000.00 TESDAs public funds.14

The CA set aside the RTCs orders after finding

that: (a) TESDAs funds are public in nature and,
Total
P 39,475,000.00 therefore, exempt from garnishment; and (b)
TESDAs purchase of the PVC cards was a necessary
incident of its governmental function; consequently,
PROVI further alleged that out of TESDAs liability
it ruled that there was no legal basis for the
of P39,475,000.00, TESDA paid PROVI
issuance of a writ of preliminary
only P3,739,500.00, leaving an outstanding balance
attachment/garnishment.15 The CA subsequently
of P35,735,500.00, as evidenced by PROVIs
denied PROVIs motion for reconsideration;16 hence,
Statement of Account.9 Despite the two demand
the present petition.
letters dated March 8 and April 27, 2001 that

THE PETITION
The petition submits to this Court the single issue of
whether or not the writ of attachment against
TESDA and its funds, to cover PROVIs claim against
TESDA, is valid. The issue involves a pure question of
law and requires us to determine whether the CA was
correct in ruling that the RTC gravely abused its
discretion in issuing a writ of attachment against
TESDA.
PROVI argues that the CA should have dismissed
TESDAs petition for certiorari as the RTC did not
commit any grave abuse of discretion when it issued
the Orders dated July 16, 2001 and August 24, 2001.
According to PROVI, the RTC correctly found that
when TESDA entered into a purely commercial
contract with PROVI, TESDA went to the level of an
ordinary private citizen and could no longer use the
defense of state immunity from suit. PROVI further
contends that it has alleged sufficient ultimate facts
in the affidavit it submitted to support its
application for a writ of preliminary attachment.
Lastly, PROVI maintains that sufficient basis existed
for the RTCs grant of the writ of preliminary
attachment, since TESDA fraudulently misapplied or
embezzled the money earmarked for the payment of
the contracted supplies and services, as evidenced by
the Certification as to Availability of Funds.
TESDA claims that it entered the Contract
Agreement and Addendum in the performance of its
governmental function to develop and establish a
national system of skills standardization, testing, and
certification; in the performance of this
governmental function, TESDA is immune from suit.
Even assuming that it had impliedly consented to be
sued by entering into a contract with PROVI, TESDA
posits that the RTC still did not have the power to
garnish or attach its funds since these are public
funds. Lastly, TESDA points out that PROVI failed

to comply with the elements for the valid issuance of

a writ of preliminary attachment, as set forth in
Section 1, Rule 57 of the 1997 Rules of Civil
Procedure.
THE COURTS RULING
We find, as the CA did, that the RTCs questioned
order involved a gross misreading of the law and
jurisprudence amounting to action in excess of its
jurisdiction. Hence, we resolve to DENY PROVIs
petition for lack of merit.
TESDA is an instrumentality of the government
undertaking governmental functions.
R.A. No. 7796 created the Technical Education and
Skills Development Authority or TESDA under the
declared "policy of the State to provide relevant,
accessible, high quality and efficient technical
education and skills development in support of the
development of high quality Filipino middle-level
manpower responsive to and in accordance with
Philippine development goals and priorities."17 TESDA
replaced and absorbed the National Manpower and
Youth Council, the Bureau of Technical and
Vocational Education and the personnel and functions
pertaining to technical-vocational education in the
regional offices of the Department of Education,
Culture and Sports and the apprenticeship program
of the Bureau of Local Employment of the
DOLE.18 Thus, TESDA is an unincorporated
instrumentality of the government operating under
its own charter.
Among others, TESDA is empowered to: approve
trade skills standards and trade tests as established
and conducted by private industries; establish and
administer a system of accreditation of both public
and private institutions; establish, develop and
support the institutions' trainors' training and/or

programs; exact reasonable fees and charges for

such tests and trainings conducted, and retain such
earnings for its own use, subject to guidelines
promulgated by the Authority; and perform such
other duties and functions necessary to carry out
the provisions of the Act, consistent with the
purposes of the creation of TESDA. 19
Within TESDAs structure, as provided by R.A. No.
7769, is a Skills Standards and Certification Office
expressly tasked, among others, to develop and
establish a national system of skills standardization,
testing and certification in the country; and to
conduct research and development on various
occupational areas in order to recommend policies,
rules and regulations for effective and efficient
skills standardization, testing and certification
system in the country.20 The law likewise mandates
that "[T]here shall be national occupational skills
standards to be established by TESDA-accredited
industry committees. The TESDA shall develop and
implement a certification and accreditation program
in which private groups and trade associations are
accredited to conduct approved trade tests, and the
local government units to promote such trade testing
activities in their respective areas in accordance
with the guidelines to be set by the TESDA. The
Secretary of Labor and Employment shall determine
the occupational trades for mandatory certification.
All certificates relating to the national trade skills
testing and certification system shall be issued by
the TESDA through its Secretariat."21
All these measures are undertaken pursuant to the
constitutional command that "[T]he State affirms
labor as a primary social economic force," and shall
"protect the rights of workers and promote their
welfare";22 that "[T]he State shall protect and
promote the right of all citizens to quality education
at all levels, and shall take appropriate steps to make
such education accessible to all";23 in order "to

afford protection to labor" and "promote full

employment and equality of employment opportunities
for all."24
Under these terms, both constitutional and
statutory, we do not believe that the role and status
of TESDA can seriously be contested: it is an
unincorporated instrumentality of the government,
directly attached to the DOLE through the
participation of the Secretary of Labor as its
Chairman, for the performance of governmental
functions i.e., the handling of formal and non-formal
education and training, and skills development. As an
unincorporated instrumentality operating under a
specific charter, it is equipped with both express and
implied powers,25 and all State immunities fully apply
to it.26

TESDA, as an agency of the State, cannot be sued

without its consent.
The rule that a state may not be sued without its
consent is embodied in Section 3, Article XVI of the
1987 Constitution and has been an established
principle that antedates this Constitution. 27 It is as
well a universally recognized principle of international
law that exempts a state and its organs from the
jurisdiction of another state.28 The principle is based
on the very essence of sovereignty, and on the
practical ground that there can be no legal right as
against the authority that makes the law on which
the right depends.29 It also rests on reasons of
public policy that public service would be hindered,
and the public endangered, if the sovereign authority
could be subjected to law suits at the instance of
every citizen and, consequently, controlled in the
uses and dispositions of the means required for the
proper administration of the government. 30
The proscribed suit that the state immunity principle
covers takes on various forms, namely: a suit against

the Republic by name; a suit against an

unincorporated government agency; a suit against a
government agency covered by a charter with
respect to the agencys performance of governmental
functions; and a suit that on its face is against a
government officer, but where the ultimate liability
will fall on the government. In the present case, the
writ of attachment was issued against a government
agency covered by its own charter. As discussed
above, TESDA performs governmental functions, and
the issuance of certifications is a task within its
function of developing and establishing a system of
skills standardization, testing, and certification in
the country. From the perspective of this function,
the core reason for the existence of state immunity
applies i.e., the public policy reason that the
performance of governmental function cannot be
hindered or delayed by suits, nor can these suits
control the use and disposition of the means for the
performance of governmental functions. In
Providence Washington Insurance Co. v. Republic of
the Philippines,31 we said:
[A] continued adherence to the doctrine of nonsuability is not to be deplored for as against the
inconvenience that may be caused private parties,
the loss of governmental efficiency and the obstacle
to the performance of its multifarious functions are
far greater if such a fundamental principle were
abandoned and the availability of judicial remedy
were not thus restricted. With the well known
propensity on the part of our people to go to court,
at the least provocation, the loss of time and energy
required to defend against law suits, in the absence
of such a basic principle that constitutes such an
effective obstacle, could very well be imagined.
PROVI argues that TESDA can be sued because it
has effectively waived its immunity when it entered
into a contract with PROVI for a commercial purpose.
According to PROVI, since the purpose of its

contract with TESDA is to provide identification PVC

cards with security seal which TESDA will
thereafter sell to TESDA trainees, TESDA thereby
engages in commercial transactions not incidental to
its governmental functions.
TESDAs response to this position is to point out
that it is not engaged in business, and there is
nothing in the records to show that its purchase of
the PVC cards from PROVI is for a business purpose.
While TESDA admits that it will charge the trainees
with a fee for the PVC cards, it claims that this fee
is only to recover their costs and is not intended for
profit.
We agree with TESDA. As the appellate court found,
the PVC cards purchased by TESDA from PROVI are
meant to properly identify the trainees who passed
TESDAs National Skills Certification Program the
program that immediately serves TESDAs mandated
function of developing and establishing a national
system of skills standardization, testing, and
certification in the country. 32 Aside from the
express mention of this function in R.A. No. 7796,
the details of this function are provided under DOLE
Administrative Order No. 157, S. 1992, as
supplemented by Department Order Nos. 3 thru 3-F,
S. 1994 and Department Order No. 13, S. 1994. 33
Admittedly, the certification and classification of
trainees may be undertaken in ways other than the
issuance of identification cards, as the RTC stated in
its assailed Order.34 How the mandated certification
is to be done, however, lies within the discretion of
TESDA as an incident of its mandated function, and
is a properly delegated authority that this Court
cannot inquire into, unless its exercise is attended by
grave abuse of discretion.
That TESDA sells the PVC cards to its trainees for a
fee does not characterize the transaction as

industrial or business; the sale, expressly authorized

by the TESDA Act,35 cannot be considered
separately from TESDAs general governmental
functions, as they are undertaken in the discharge of
these functions. Along this line of reasoning, we held
in Mobil Philippines v. Customs Arrastre Services: 36
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 nongovernmental 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.
TESDAs funds are public in character, hence exempt
from attachment or garnishment.
Even assuming that TESDA entered into a
proprietary contract with PROVI and thereby gave
its implied consent to be sued, TESDAs funds are
still public in nature and, thus, cannot be the valid
subject of a writ of garnishment or attachment.
Under Section 33 of the TESDA Act, the TESDA
budget for the implementation of the Act shall be
included in the annual General Appropriation Act;
hence, TESDA funds, being sourced from the
Treasury, are moneys belonging to the government,
or any of its departments, in the hands of public
officials.37 We specifically spoke of the limits in
dealing with this fund in Republic v. Villasor 38 when
we said:
This fundamental postulate underlying the 1935
Constitution is now made explicit in the revised
charter. It is therein expressly provided, The State
may not be sued without its consent. A corollary,
both dictated by logic and sound sense, from such a
basic concept, is that public funds cannot be the
object of garnishment proceedings even if the
consent to be sued had been previously granted and

the state liability adjudged. Thus in the recent case

of Commissioner of Public Highways vs. San Diego,
such a well-settled doctrine was restated in the
opinion of Justice Teehankee:
The universal rule that where the State gives its
consent to be sued by private parties either by
general or special law, it may limit claimant's action
'only up to the completion of proceedings anterior to
the stage of execution' and that the power of the
Courts ends when the judgment is rendered, since
government funds and properties may not be seized
under writs of execution or garnishment to satisfy
such judgments, is based on obvious considerations
of public policy. Disbursements of public funds must
be covered by the corresponding appropriation as
required by law. The functions and public services
rendered by the State cannot be allowed to be
paralyzed or disrupted by the diversion of public
funds from their legitimate and specific objects, as
appropriated by law. [Emphasis supplied.]
We reiterated this doctrine in Traders Royal Bank v.
Intermediate Appellate Court,39 where we said:
The NMPCs implied consent to be sued
notwithstanding, the trial court did not have the
power to garnish NMPC deposits to answer for any
eventual judgment against it. Being public funds, the
deposits are not within the reach of any garnishment
or attachment proceedings. [Emphasis supplied.]
As pointed out by TESDA in its Memorandum, 40 the
garnished funds constitute TESDAs lifeblood in
government parlance, its MOOE41 whose withholding
via a writ of attachment, even on a temporary basis,
would paralyze TESDAs functions and services. As
well, these funds also include TESDAs Personal
Services funds from which salaries of TESDA
personnel are sourced. Again and for obvious reasons,
the release of these funds cannot be delayed.

PROVI has not shown that it is entitled to the writ

of attachment.
Even without the benefit of any immunity from suit,
the attachment of TESDA funds should not have
been granted, as PROVI failed to prove that TESDA
"fraudulently misapplied or converted funds
allocated under the Certificate as to Availability of
Funds." Section 1, Rule 57 of the Rules of Court sets
forth the grounds for issuance of a writ of
preliminary attachment, as follows:
SECTION 1. Grounds upon which attachment may
issue. A plaintiff or any proper party may, at the
commencement of the action or at any time
thereafter, have the property of the adverse party
attached as security for the satisfaction of any
judgment that may be recovered in the following
cases:
(a) In an action for recovery of a specified
amount of money or damages, other than
moral and exemplary, on a cause of action
arising from law, contract, quasi-contract,
delict or quasi-delict against a party who is
about to depart from the Philippines with
intent to defraud his creditors;
(b) In an action for money or property
embezzled or fraudulently misapplied or
converted to his use by a public officer, or
an officer of a corporation, or an attorney,
factor, broker, agent or clerk, in the course
of his employment as such, or by any other
person in a fiduciary capacity, or for a willful
violation of duty;
(c) In an action to recover the possession of
property unjustly or fraudulently taken,
detained or converted, when the property or
any part thereof, has been concealed,

removed or disposed of to prevent its being

found or taken by the applicant or an
authorized person;
(d) In an action against a party who has been
guilty of fraud in contracting the debt or
incurring the obligation upon which the action
is brought, or in concealing or disposing of
the property for the taking, detention or
conversion of which the action is brought;
(e) In an action against a party who has
removed or disposed of his property, or is
about to do so, with intent to defraud his
creditors;
(f) In an action against a party who does not
reside and is not found in the Philippines, or
on whom summons may be served by
publication. [Emphasis supplied.]
Jurisprudence teaches us that the rule on the
issuance of a writ of attachment must be construed
strictly in favor of the defendant. Attachment, a
harsh remedy, must be issued only on concrete and
specific grounds and not on general averments merely
quoting the words of the pertinent rules.42 Thus, the
applicants affidavit must contain statements clearly
showing that the ground relied upon for the
attachment exists.
Section 1(b), Rule 57 of the Rules of Court, that
PROVI relied upon, applies only where money or
property has been embezzled or converted by a
public officer, an officer of a corporation, or some
other person who took advantage of his fiduciary
position or who willfully violated his duty.
PROVI, in this case, never entrusted any money or
property to TESDA. While the Contract Agreement
is supported by a Certificate as to Availability of

Funds (Certificate) issued by the Chief of TESDAs

Accounting Division, this Certificate does not
automatically confer ownership over the funds to
PROVI. Absent any actual disbursement, these funds
form part of TESDAs public funds, and TESDAs
failure to pay PROVI the amount stated in the
Certificate cannot be construed as an act of
fraudulent misapplication or embezzlement. In this
regard, Section 86 of Presidential Decree No. 1445
(The Accounting Code) provides:
Section 86. Certificate showing appropriation to
meet contract. Except in a case of a contract for
personal service, for supplies for current
consumption or to be carried in stock not exceeding
the estimated consumption for three months, or
banking transactions of government-owned or
controlled banks, no contract involving the
expenditure of public funds by any government
agency shall be entered into or authorized unless the
proper accounting official or the agency concerned
shall have certified to the officer entering into the
obligation that funds have been duly appropriated
for the purpose and that the amount necessary to
cover the proposed contract for the current fiscal
year is available for expenditure on account thereof,
subject to verification by the auditor concerned. The
certification signed by the proper accounting official
and the auditor who verified it, shall be attached to
and become an integral part of the proposed
contract, and the sum so certified shall not
thereafter be available for expenditure for any
other purpose until the obligation of the government
agency concerned under the contract is fully
extinguished. [Emphasis supplied.]
By law, therefore, the amount stated in the
Certification should be intact and remains devoted to
its purpose since its original appropriation. PROVI
can rebut the presumption that necessarily arises

from the cited provision only by evidence to the

contrary. No such evidence has been adduced.
Section 1 (d), Rule 57 of the Rules of Court applies
where a party is guilty of fraud in contracting a debt
or incurring an obligation, or in concealing or
disposing of the property for the taking, detention
or conversion of which the action is brought. In Wee
v. Tankiansee,43 we held that for a writ of
attachment to issue under this Rule, the applicant
must sufficiently show the factual circumstances of
the alleged fraud because fraudulent intent cannot
be inferred from the debtors mere non-payment of
the debt or failure to comply with his obligation. The
affidavit, being the foundation of the writ, must
contain particulars showing how the imputed fraud
was committed for the court to decide whether or
not to issue the writ. To reiterate, a writ of
attachment can only be granted on concrete and
specific grounds and not on general averments merely
quoting the words of the rules.44
The affidavit filed by PROVI through Elmer Ramiro,
its President and Chief Executive Officer, only
contained a general allegation that TESDA had
fraudulent misapplied or converted the amount
of P10,975,000.00 that was allotted to it. Clearly, we
cannot infer any finding of fraud from PROVIs vague
assertion, and the CA correctly ruled that the lower
court acted with grave abuse of discretion in
granting the writ of attachment despite want of any
valid ground for its issuance.1avvphi1
For all these reasons, we support the appellate
courts conclusion that no valid ground exists to
support the grant of the writ of attachment against
TESDA. The CAs annulment and setting aside of the
Orders of the RTC were therefore fully in order.
WHEREFORE, premises considered, we hereby DENY
the petition filed by petitioner Professional Video,

Inc., and AFFIRM the Court of Appeals Decision

dated July 23, 2002, and Resolution of September
27, 2002, in CA-G.R. SP No. 67599. Costs against the
petitioner.
SO ORDERED.
G.R. No. 186192

August 25, 2010

THE HEIRS OF MATEO PIDACAN AND ROMANA

BIGO, NAMELY: PACITA PIDACAN VDA. DE
ZUBIRI AND ADELA PIDACAN VDA. DE
ROBLES, Petitioners,
vs.
AIR TRANSPORTATION OFFICE, represented by
its Acting Director BIENVENIDO
MANGA, Respondent.
DECISION
NACHURA, J.:
Before this Court is a Petition1 for Review
on Certiorari under Rule 45 of the Rules of Civil
Procedure praying that the Orders2 issued by the
Regional Trial Court (RTC) of San Jose, Occidental
Mindoro, Branch 46, dated June 23, 2008 and
January 23, 2009, be set aside and that said RTC be
directed to issue a Writ of Execution enforcing this
Court's Decision in Heirs of Mateo Pidacan and

Romana Eigo v. Air Transportation Office (ATO).3

The facts are summarized as follows:
In 1935, spouses Mateo Pidacan and Romana Bigo,
predecessors-in-interest of petitioners-heirs namely,
Pacita Pidacan Vda. de Zubiri and Adela Pidacan Vda.
de Robles (petitioners), acquired a parcel of land
with an area of about 22 hectares, situated in San

Jose, Occidental Mindoro (the property).

the rate of 12% per annum until the same is fully

Thereafter, Original Certificate of Title (OCT) No.

paid.

2204 was issued in favor of said spouses.

Undaunted, the ATO went to the CA, which again
However, in 1948, respondent Air Transportation

remanded the case to the court a quo for the

Office (ATO)4 used a portion of the property as an

determination of just compensation on the basis of

airport. In 1974, the ATO constructed a perimeter

the market value prevailing in 1948. Petitioners

fence and a new terminal building on the property.

moved for reconsideration, but the motion was

The ATO also lengthened, widened, and cemented

denied. Aggrieved, petitioners filed a petition for

the airport's runway. Petitioners demanded from

review on certiorari before this Court.

ATO the payment of the value of the property as

well as the rentals for the use thereof but ATO

On June 15, 2007, we ruled in favor of petitioners,

refused. Eventually in 1988, OCT No. 2204 was

holding that ATO's act of converting petitioners'

cancelled and Transfer Certificate of Title No. T-

private property into an airport came within the

7160 was issued in favor of petitioners. Despite this

purview of eminent domain and as a consequence,

development, ATO still refused to pay petitioners.

petitioners were completely deprived of the

beneficial use and enjoyment of their property. We

Petitioners filed a complaint with the RTC against

declared that justice and fairness dictate that the

ATO for payment of the value of the property and

appropriate reckoning point for the valuation of

rentals due thereon. In 1994, the RTC promulgated a

petitioners' property was when the RTC made its

decision, ordering ATO to pay rentals and the value

order of expropriation in 2001. However, we deleted

of the land atP89.00 per square meter. ATO

the RTC's award of rental payments for lack of

appealed to the Court of Appeals (CA) which

evidence. Thus, we disposed of the case in this wise:

remanded the case to the court a quo for further

proceedings. The CA also held that just compensation

WHEREFORE, the petition is GRANTED. The

should had been determined as of the time the

assailed Decision dated August 20, 2003 and the

property was taken for public use.

Resolution dated March 17, 2004 of the Court of

Appeals in CA-G.R. CV No. 72404 are SET ASIDE.

On remand, the RTC ruled again in favor of

The Decision dated February 1, 2001 of the Regional

petitioners, ordering ATO, among others, to pay

Trial Court of San Jose, Occidental Mindoro, Branch

petitioners the amount of P304.00 per sq m for the

46 in Civil Case No. R-800 is AFFIRMED with

area expropriated or a total of P65,584,048.00,

MODIFICATION, as follows:

imposing interest at the rate of 12% per annum from

February 1, 2001 until full payment, and to pay

1. The actual area occupied by respondent

monthly rentals for the use and occupation of the

ATO covered by Transfer Certificate of

property from January 1, 1957 to January 31, 2001,

Title No. T-7160, totaling 215,737 square

for a total amount of P6,249,645.40, with interest at

meters[,] is declared expropriated in favor

of the ATO.

2. The ATO is ordered to pay petitioners the

monetary claims against the government with the

ONE WHO IS LEGALLY BOUND TO

amount of P304.39 per square meter for the

Commission on Audit pursuant to paragraph 4,

PURSUE AND GET THE MONETARY CLAIM

area expropriated, or a total

Section 6 of P.D. No. 1445 vis-a-vis Rule VIII of

OF THE PETITIONERS AS DECIDED BY

of P65,668,185.43 with interest at the rate

[the] 1997 COA Revised Rules of Procedure.

THIS HONORABLE COURT FROM OTHER

of 6% per annum from February 1, 2001, until

the same is fully paid.

GOVERNMENT OFFICES[?]14
SO ORDERED.

12

Petitioners claim that ATO is now in estoppel

No pronouncement as to costs.

Petitioners filed their Motion for

because it did not invoke any doctrine which provides

Reconsideration which the RTC, however, denied in

that any decision against ATO cannot be executed;

SO ORDERED.5

its Order dated January 23, 2009.

that Administrative Circular No. 10-2000 is merely

On July 10, 2007, ATO filed a Motion for Partial

Hence, this Petition raising the following issues:

13

intended to prevent possible circumvention of

Reconsideration which we denied with finality in our

Commission on Audit (COA) rules and regulations

which cannot happen in this case as this Court

Resolution dated September 12, 2007. On October

1. W[H]ETHER OR NOT RESPONDENT AIR

already decided with finality on ATO's liability; that

25, 2007, Entry of Judgment7 was made. Thus, on

TRANSPORTATION OFFICE IS ALREADY

said circular only enjoins judges to observe utmost

February 20, 2008, petitioners filed a Motion for

IN LEGAL ESTOPPEL TO OPPOSE

caution but does not per se prohibit the issuance of

Execution8 before the RTC. On February 27, 2008,

PETITIONERS' MOTION FOR EXECUTION

writs of execution for money claims against the

the ATO, through the Office of the Solicitor

BECAUSE IT HAS LITIGATED AND

government;15 and that it is incumbent upon the RTC

General, filed an Opposition to petitioners' Motion.

OPPOSED THE CLAIM OF THE

to direct ATO to look for the necessary funds in

PETITIONERS FROM THE RTC OF SAN

order to satisfy the decision of this Court.

On June 23, 2008, the RTC issued an Order denying

JOSE, OCCIDENTAL MINDORO, THE

Moreover, petitioners manifest that, on March 3,

petitioners' Motion for Execution on the ground that

COURT OF APPEALS, AND ALL THE WAY

2009, Ruben F. Ciron, Director General of ATO,

the prosecution, enforcement, or satisfaction of

UP TO THIS HONORABLE COURT[;]

wrote petitioners' counsel,16 the pertinent portions

State liability must be pursued in accordance with

of which state:

the rules and procedures laid down in Commonwealth

2. WHETHER OR NOT THE FINAL

Act No. 327,10 as amended by Presidential Decree

DECISION OF THIS HONORABLE COURT

This is in connection with your claim for

(P.D.) No. 1445. The RTC also relied on this Court's

CANNOT BE EXECUTED BY THE TRIAL

compensation over the portion of lot occupied by San

Administrative Circular No. 10-2000, dated October

COURT IN THE LIGHT OF PARAGRAPH 4,

Jose Airport subject of the case named Heirs of

25, 2000, which enjoined all judges to observe

SECTION 6 OF P.D. NO. 1445 VIS-A-VIS

Mateo Pidacan, et. al. (Petitioners) v. Air

utmost caution, prudence, and judiciousness in the

RULE VIII OF THE 1997 COA REVISED

Transportation Office (Respondent), docketed as

issuance of writs of execution to satisfy money

RULES OF PROCEDURE AND

G.R. No. 162779, covered by TCT No. 7160 affecting

judgments against government agencies and local

ADMINISTRATIVE CIRCULAR NO. 10-

215,737 square meters ordering the defendant to

government units. Thus, the RTC disposed:

2000, DATED OCTOBER 25, 2000[; AND]

pay the plaintiffs just compensation with legal

WHEREFORE, foregoing premises considered, the

3. IN THE LIGHT OF THE FINAL

Motion For the Issuance of a Writ of Execution filed

DECISION OF THIS HONORABLE

In this regard, we are pleased to inform you that the

by the plaintiffs is hereby DENIED. However, the

COURT[,] IS IT NOT THAT RESPONDENT

funding for the initial payment for the acquisition of

plaintiffs are implored to file and pursue their

AIR TRANSPORTATION OFFICE IS THE

the above-described lot encroached by San Jose

11

interest.

Airport was earmarked in the 2007 General

without just compensation, no statute, decree, or

project and reaped the fruits of petitioners-

Appropriation[s] Act for ATO-DOTC Infrastructure

executive order can mandate that its own

contractors' honest toil and labor.

Program. However, its release was held by the

determination shall prevail over the court's findings.

Department of Budget and Management (DBM) with

Much less can the courts be precluded from looking

Incidentally, respondent likewise argues that the

the advice to file the individual claims directly with

into the "just-ness" of the decreed compensation.

State may not be sued in the instant case, invoking

the constitutional doctrine of Non-suability of the

the Commission for Adjudication by the Commission

Proper, Commission on Audit, Commonwealth Avenue,

In view of this mandate, this Court has finally spoken

State, otherwise known as the Royal Prerogative of

Quezon City on a quantum meruit basis.17

in our Decision on June 15, 2007, declaring the

Dishonesty.

property to be expropriated in favor of ATO and

In its Comment,18 ATO, through the Office of the

ordering the latter to pay petitioners just

Respondent's argument is misplaced inasmuch as the

Government Corporate Counsel (OGCC), argues that

compensation. This ruling had already become final

Principle of State Immunity finds no application in

the RTC faithfully complied with Administrative

and executory. Our Decision is clear and

the case before us.

Circular No. 10-2000 by not indiscriminately issuing

unambiguous. Nothing is left to be done, save for its

any writ of execution to enforce money claims

execution.

Under these circumstances, respondent may not

validly invoke the Royal Prerogative of Dishonesty

against the government in accordance with existing

jurisprudence and the provisions of P.D. No. 1445.

Moreover, it bears stressing that the Director

and conveniently hide under the State's cloak of

Section 2619 of P.D. No. 1445 provides that all money

General of ATO informed petitioners that the

invincibility against suit, considering that this

claims against the government or any of its

funding for the initial payment for the acquisition of

principle yields to certain settled exceptions. True

subdivisions, agencies, and instrumentalities must be

the property was already earmarked in the 2007

enough, the rule, in any case, is not absolute for it

filed with the COA. The OGCC also submits that

General Appropriations Act for ATO-Department of

does not say that the state may not be sued under

petitioners failed to properly observe the principle

Transportation and Communication Infrastructure

any circumstance.

of the hierarchy of courts by directly filing their

Program. Under the circumstances, such earmarking

Petition before this Court without raising pure

may be considered as the appropriation required by

Thus, in Amigable v. Cuenca, this Court, in effect,

questions of law.

law in order that petitioners may be paid just

shred the protective shroud which shields the State

compensation long due them.

from suit, reiterating our decree in the landmark

case of Ministerio v. CFI of Cebu that "the doctrine

We grant the Petition.

Well-settled in this jurisdiction that the
determination of just compensation is a judicial
Thus, inExport Processing Zone
Authority v. Judge Dulay,21 we declared:
prerogative.

20

Our ruling in EPG Construction Co. v. Hon.

of governmental immunity from suit cannot serve as

Vigilar, citing Amigable v. Cuenca, etc., et

al.23 and Ministerio, et al. v. CFI of Cebu, etc., et
al.,24 is instructive:

an instrument for perpetrating an injustice on a

22

citizen." It is just as important, if not more so, that

there be fidelity to legal norms on the part of
officialdom if the rule of law were to be maintained.

To our mind, it would be the apex of injustice and

The determination of "just compensation" in eminent

highly inequitable for us to defeat petitioners-

Although the Amigable and Ministerio cases

domain cases is a judicial function. 1wphi1 The

contractors' right to be duly compensated for actual

generously tackled the issue of the State's immunity

executive department or the legislature may make

work performed and services rendered, where both

from suit vis-a-vis the payment of just compensation

the initial determinations but when a party claims a

the government and the public have, for years,

for expropriated property, this Court nonetheless

violation of the guarantee in the Bill of Rights that

received and accepted benefits from said housing

finds the doctrine enunciated in the aforementioned

private property may not be taken for public use

cases applicable to the instant controversy,

considering that the ends of justice would be

2008 and January 23, 2009, are hereby SET ASIDE.

Airport being operated by petitioner Air

subverted if we were to uphold, in this particular

The said Regional Trial Court is hereby DIRECTED to

Transportation Office (ATO). On August 11, 1995,

instance, the State's immunity from suit.1wphi1

issue a Writ of Execution enforcing this Court's

the respondents agreed after negotiations to convey

Decision in Heirs of Mateo Pidacan and Romana Eigo

the affected portion by deed of sale to the ATO in

v. Air Transportation Office (ATO) dated June 15,

2007. No pronouncement as to costs.

consideration of the amount of P778,150.00.

To be sure, this Court as the staunch guardian of

the citizens' rights and welfare cannot sanction an

26

injustice so patent on its face, and allow itself to be

an instrument in the perpetration thereof. Justice

verbal and written demands.

SO ORDERED.

and equity sternly demand that the State's cloak of

invincibility against suit be shred in this particular

However, the ATO failed to pay despite repeated

Thus, on April 29, 1998, the respondents filed an

G.R. No. 159402

February 23, 2011

instance, and that petitioners-contractors be duly

action for collection against the ATO and some of its

officials in the RTC (docketed as Civil Case No. 4017-

compensated on the basis of quantum meruit for

AIR TRANSPORTATION OFFICE, Petitioner,

R and entitled Spouses David and Elisea Ramos v. Air

construction done on the public works housing

vs.

Transportation Office, Capt. Panfilo Villaruel, Gen.

project.

SPOUSES DAVID ELISEA RAMOS, Respondents.

*

RESOLUTION

It is almost trite to say that execution is the fruit

and the end of the suit and is the life of the law. A
judgment, if left unexecuted, would be nothing but
an empty victory for the prevailing party. Litigation
must end sometime and somewhere. An effective and
efficient administration of justice requires that,
once a judgment has become final, the winning party
be not deprived of the fruits of the verdict. Courts
must, therefore, guard against any scheme calculated
to bring about that result. Constituted as they are to
put an end to controversies, courts should frown
upon any attempt to prolong them.25 Petitioners have
been deprived of the beneficial use and enjoyment of
their property for a considerable length of time.
Now that they prevailed before this Court, it would
be highly unjust and inequitable under the particular
circumstances that payment of just compensation be
withheld from them. We, therefore, write finis to

BERSAMIN, J.:

Proclamation No. 1358, whereby President Marcos

The States immunity from suit does not extend to

the petitioner because it is an agency of the State
engaged in an enterprise that is far from being the
States exclusive prerogative.
Under challenge is the decision promulgated on May
14, 2003,1 by which the Court of Appeals (CA)
affirmed with modification the decision rendered on
February 21, 2001 by the Regional Trial Court,
Branch 61 (RTC), in Baguio City in favor of the
respondents.2
Antecedents
Spouses David and Elisea Ramos (respondents)

WHEREFORE, the instant Petition is GRANTED. The

under Transfer Certificate of Title No. T-58894 of

Jose, Occidental Mindoro, Branch 46, dated June 23,

In their answer, the ATO and its co-defendants

invoked as an affirmative defense the issuance of

this litigation.

Orders issued by the Regional Trial Court of San

Carlos Tanega, and Mr. Cesar de Jesus).

discovered that a portion of their land registered

the Baguio City land records with an area of 985
square meters, more or less, was being used as part
of the runway and running shoulder of the Loakan

had reserved certain parcels of land that included

the respondents affected portion for use of the
Loakan Airport. They asserted that the RTC had no
jurisdiction to entertain the action without the
States consent considering that the deed of sale
had been entered into in the performance of
governmental functions.
On November 10, 1998, the RTC denied the ATOs
motion for a preliminary hearing of the affirmative
defense.
After the RTC likewise denied the ATOs motion for
reconsideration on December 10, 1998, the ATO
commenced a special civil action for certiorari in the
CA to assail the RTCs orders. The CA dismissed the
petition for certiorari, however, upon its finding that
the assailed orders were not tainted with grave
abuse of discretion.3

Subsequently, February 21, 2001, the RTC rendered

The only issue presented for resolution is whether

132; Sir John Eliot, De Jure Maiestatis, chap. 3.

its decision on the merits, disposing:

the ATO could be sued without the States consent.

Nemo suo statuto ligatur necessitative. Baldus, De

Leg. et Const. Digna Vox, 2. ed. 1496, fol. 51b, ed.

WHEREFORE, the judgment is rendered ORDERING

Ruling

1539, fol. 61.7

the defendant Air Transportation Office to pay the

plaintiffs DAVID and ELISEA RAMOS the following:

The petition for review has no merit.

(1) The amount of P778,150.00 being the value of the

Practical considerations dictate the establishment of

an immunity from suit in favor of the State.

parcel of land appropriated by the defendant ATO as

The immunity of the State from suit, known also as

Otherwise, and the State is suable at the instance of

embodied in the Deed of Sale, plus an annual interest

the doctrine of sovereign immunity or non-suability

every other individual, government service may be

of 12% from August 11, 1995, the date of the Deed

of the State, is expressly provided in Article XVI of

severely obstructed and public safety endangered

of Sale until fully paid; (2) The amount

the 1987 Constitution, viz:

because of the number of suits that the State has to

of P150,000.00 by way of moral damages

defend against.8 Several justifications have been

and P150,000.00 as exemplary damages; (3) the

Section 3. The State may not be sued without its

offered to support the adoption of the doctrine in

amount of P50,000.00 by way of attorneys fees

consent.

the Philippines, but that offered in Providence

plusP15,000.00 representing the 10, more or less,

court appearances of plaintiffs counsel; (4) The

The immunity from suit is based on the political

costs of this suit.

truism that the State, as a sovereign, can do no

SO ORDERED.

in Kawananakoa v. Polyblank:

In due course, the ATO appealed to the CA, which

The territory [of Hawaii], of course, could waive its

affirmed the RTCs decision on May 14, 2003,5 viz:

exemption (Smith v. Reeves, 178 US 436, 44 L ed

wrong. Moreover, as the eminent Justice Holmes said

6

1140, 20 Sup. Ct. Rep. 919), and it took no objection

IN VIEW OF ALL THE FOREGOING, the appealed

to the proceedings in the cases cited if it could have

decision is hereby AFFIRMED,

done so. xxx But in the case at bar it did object, and

with MODIFICATION that the awarded cost

the question raised is whether the plaintiffs were

therein is deleted, while that of moral and exemplary

bound to yield. Some doubts have been expressed as

damages is reduced to P30,000.00 each, and

to the source of the immunity of a sovereign power

attorneys fees is lowered to P10,000.00.

from suit without its own permission, but the answer

has been public property since before the days of
Hobbes. Leviathan, chap. 26, 2. A sovereign is

No cost.

exempt from suit, not because of any formal

SO ORDERED.

conception or obsolete theory, but on the logical and

Washington Insurance Co. v. Republic of the

Philippines9 is "the most acceptable explanation,"
according to Father Bernas, a recognized
commentator on Constitutional Law,10 to wit:
[A] continued adherence to the doctrine of nonsuability is not to be deplored for as against the
inconvenience that may be caused private parties,
the loss of governmental efficiency and the obstacle
to the performance of its multifarious functions are
far greater if such a fundamental principle were
abandoned and the availability of judicial remedy
were not thus restricted. With the well-known
propensity on the part of our people to go to court,
at the least provocation, the loss of time and energy
required to defend against law suits, in the absence
of such a basic principle that constitutes such an
effective obstacle, could very well be imagined.

practical ground that there can be no legal right as

Hence, this appeal by petition for review on

An unincorporated government agency without any

against the authority that makes the law on which

certiorari.

separate juridical personality of its own enjoys

the right depends. "Car on peut bien recevoir loy

immunity from suit because it is invested with an

d'autruy, mais il est impossible par nature de se

inherent power of sovereignty. Accordingly, a claim

donner loy." Bodin, Republique, 1, chap. 8, ed. 1629, p.

for damages against the agency cannot prosper;

Issue

otherwise, the doctrine of sovereign immunity is

violated. However, the need to distinguish between
11

an unincorporated government agency performing

governmental function and one performing
proprietary functions has arisen. The immunity has
been upheld in favor of the former because its

vs. Court of Appeals (167 SCRA 28 [1988]), the

Supreme Court, reiterating the pronouncements laid
down in Teodoro, declared that the CAA
(predecessor of ATO) is an agency not immune from
suit, it being engaged in functions pertaining to a
private entity. It went on to explain in this wise:

Sec. 32. Powers and Duties of the Administrator.

xxx

(24) To administer, operate, manage, control,

Subject to the general control and supervision of the

Department Head, the Administrator shall have
among others, the following powers and duties:
xxx

function is governmental or incidental to such

function;12 it has not been upheld in favor of the
latter whose function was not in pursuit of a
necessary function of government but was essentially

The Civil Aeronautics Administration comes under

a business.13

the category of a private entity. Although not a body

corporate it was created, like the National Airports

Should the doctrine of sovereignty immunity or non-

Corporation, not to maintain a necessary function of

suability of the State be extended to the ATO?

government, but to run what is essentially a business,

even if revenues be not its prime objective but

In its challenged decision, the CA answered in the

rather the promotion of travel and the convenience

negative, holding:

of the travelling public. It is engaged in an enterprise

14

which, far from being the exclusive prerogative of

maintain and develop the Manila International

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

On the first assignment of error, appellants seek to

state, may, more than the construction of public

impress upon Us that the subject contract of sale

roads, be undertaken by private concerns. [National

(25) To determine, fix, impose, collect and receive

partook of a governmental character. Apropos, the

Airports Corp. v. Teodoro, supra, p. 207.]

landing fees, parking space fees, royalties on sales or

lower court erred in applying the High Courts ruling

in National Airports Corporation vs. Teodoro (91 Phil.

203 [1952]), arguing that in Teodoro, the matter

involved the collection of landing and parking fees
which is a proprietary function, while the case at bar
involves the maintenance and operation of aircraft
and air navigational facilities and services which are
governmental functions.
We are not persuaded.

deliveries, direct or indirect, to any aircraft for its

xxx

use of aviation gasoline, oil and lubricants, spare

parts, accessories and supplies, tools, other

True, the law prevailing in 1952 when

royalties, fees or rentals for the use of any of the

the Teodoro case was promulgated was Exec. Order

property under its management and control.

365 (Reorganizing the Civil Aeronautics

Administration and Abolishing the National Airports

xxx

Corporation). Republic Act No. 776 (Civil Aeronautics

Act of the Philippines), subsequently enacted on June

From the foregoing, it can be seen that the CAA is

20, 1952, did not alter the character of the CAAs

tasked with private or non-governmental functions

objectives under Exec. Order 365. The pertinent

which operate to remove it from the purview of the

Contrary to appellants conclusions, it was not merely

provisions cited in the Teodoro case, particularly

rule on State immunity from suit. For the correct

the collection of landing and parking fees which was

Secs. 3 and 4 of Exec. Order 365, which led the

rule as set forth in the Teodoro case states:

declared as proprietary in nature by the High Court

Court to consider the CAA in the category of a

in Teodoro, but management and maintenance of

private entity were retained substantially in Republic

airport operations as a whole, as well. Thus, in the

Act 776, Sec. 32(24) and (25). Said Act provides:

much later case of Civil Aeronautics Administration

xxx

Not all government entities, whether corporate or

In our view, the CA thereby correctly appreciated

Lastly, the issue of whether or not the ATO could be

non-corporate, are immune from suits. Immunity

the juridical character of the ATO as an agency of

sued without the States consent has been rendered

from suits is determined by the character of the

objects for which the entity was organized. The rule
is thus stated in Corpus Juris:

the Government not performing a purely

moot by the passage of Republic Act No.

governmental or sovereign function, but was instead

9497, otherwise known as the Civil Aviation

involved in the management and maintenance of the

Authority Act of 2008.

Loakan Airport, an activity that was not the exclusive

Suits against State agencies with relation to matters

prerogative of the State in its sovereign capacity.

in which they have assumed to act in private or non-

Hence, the ATO had no claim to the States immunity

governmental capacity, and various suits against

from suit. We uphold the CAs aforequoted holding.

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

Section 4. Creation of the Authority. There is
hereby created an independent regulatory body with

certain corporations created by the state for public

purposes, but to engage in matters partaking more of

We further observe the doctrine of sovereign

quasi-judicial and quasi-legislative powers and

the nature of ordinary business rather than

immunity cannot be successfully invoked to defeat a

possessing corporate attributes to be known as the

functions of a governmental or political character,

valid claim for compensation arising from the taking

Civil Aviation Authority of the Philippines (CAAP),

are not regarded as suits against the state. The

without just compensation and without the proper

herein after referred to as the "Authority" attached

latter is true, although the state may own stock or

expropriation proceedings being first resorted to of

to the Department of Transportation and

property of such a corporation for by engaging in

16

the plaintiffs property. Thus, in De los Santos v.

Communications (DOTC) for the purpose of policy

business operations through a corporation, the state

Intermediate Appellate Court,17 the trial courts

coordination. For this purpose, the existing Air

divests itself so far of its sovereign character, and

dismissal based on the doctrine of non-suability of

transportation Office created under the provisions

by implication consents to suits against the

the State of two cases (one of which was for

of Republic Act No. 776, as amended is hereby

corporation. (59 C.J., 313) [National Airports

damages) filed by owners of property where a road 9

abolished.

Corporation v. Teodoro, supra, pp. 206-207; Italics

meters wide and 128.70 meters long occupying a total

supplied.]

area of 1,165 square meters and an artificial creek

xxx

23.20 meters wide and 128.69 meters long occupying

This doctrine has been reaffirmed in the recent case

an area of 2,906 square meters had been

Under its Transitory Provisions, R.A. No. 9497

of Malong v. Philippine National Railways [G.R. No. L-

constructed by the provincial engineer of Rizal and a

established in place of the ATO the Civil Aviation

49930, August 7, 1985, 138 SCRA 63], where it was

private contractor without the owners knowledge

Authority of the Philippines (CAAP), which thereby

held that the Philippine National Railways, although

and consent was reversed and the cases remanded

assumed all of the ATOs powers, duties and rights,

owned and operated by the government, was not

for trial on the merits. The Supreme Court ruled

assets, real and personal properties, funds, and

immune from suit as it does not exercise sovereign

that the doctrine of sovereign immunity was not an

but purely proprietary and business functions.

instrument for perpetrating any injustice on a

Accordingly, as the CAA was created to undertake

citizen. In exercising the right of eminent domain,

the management of airport operations which

the Court explained, the State exercised its jus

primarily involve proprietary functions, it cannot avail

imperii, as distinguished from its proprietary rights,

of the immunity from suit accorded to government

or jus gestionis; yet, even in that area, where private

agencies performing strictly governmental

property had been taken in expropriation without

functions.

just compensation being paid, the defense of

15

immunity from suit could not be set up by the State

against an action for payment by the owners.

revenues, viz:
CHAPTER XII
TRANSITORTY PROVISIONS
Section 85. Abolition of the Air Transportation
Office. The Air Transportation Office (ATO)
created under Republic Act No. 776, a sectoral
office of the Department of Transportation and
Communications (DOTC), is hereby abolished. 1avvphi1

All powers, duties and rights vested by law and

SO ORDERED.

On 14 September 2002, petitioner China National

exercised by the ATO is hereby transferred to the

Machinery & Equipment Corp. (Group) (CNMEG),

Authority.

G.R. No. 185572

February 7, 2012

All assets, real and personal properties, funds

CHINA NATIONAL MACHINERY & EQUIPMENT

the North Luzon Railways Corporation (Northrail),

and revenues owned by or vested in the different

CORP. (GROUP), Petitioner,

represented by its president, Jose L. Cortes, Jr. for

offices of the ATO are transferred to the

vs.

the conduct of a feasibility study on a possible

Authority. All contracts, records and documents

HON. CESAR D. SANTAMARIA, in his official

railway line from Manila to San Fernando, La Union

relating to the operations of the abolished

capacity as Presiding Judge of Branch 145,

(the Northrail Project).2

agency and its offices and branches are

Regional Trial Court of Makati City, HERMINIO

likewisetransferred to the Authority. Any real

HARRY L. ROQUE, JR., JOEL R. BUTUYAN,

On 30 August 2003, the Export Import Bank of

property owned by the national government or

ROGER R. RAYEL, ROMEL R. BAGARES,

China (EXIM Bank) and the Department of Finance of

government-owned corporation or authority which

CHRISTOPHER FRANCISCO C. BOLASTIG,

the Philippines (DOF) entered into a Memorandum of

is being used and utilized as office or facilityby

LEAGUE OF URBAN POOR FOR ACTION (LUPA),

Understanding (Aug 30 MOU), wherein China agreed

the ATO shall be transferred and titled in favor

KILUSAN NG MARALITA SA MEYCAUAYAN

to extend Preferential Buyers Credit to the

of the Authority.

(KMM-LUPA CHAPTER), DANILO M. CALDERON,

Philippine government to finance the Northrail

VICENTE C. ALBAN, MERLYN M. VAAL, LOLITA

Project.3 The Chinese government designated EXIM

Section 23 of R.A. No. 9497 enumerates the

S. QUINONES, RICARDO D. LANOZO, JR.,

Bank as the lender, while the Philippine government

corporate powers vested in the CAAP, including the

CONCHITA G. GOZO, MA. TERESA D. ZEPEDA,

named the DOF as the borrower. 4 Under the Aug 30

power to sue and be sued, to enter into contracts of

JOSEFINA A. LANOZO, and SERGIO C.

MOU, EXIM Bank agreed to extend an amount not

every class, kind and description, to construct,

LEGASPI, JR., KALIPUNAN NG DAMAYANG

exceeding USD 400,000,000 in favor of the DOF,

acquire, own, hold, operate, maintain, administer and

MAHIHIRAP (KADAMAY), EDY CLERIGO,

payable in 20 years, with a 5-year grace period, and

lease personal and real properties, and to settle,

RAMMIL DINGAL, NELSON B. TERRADO,

at the rate of 3% per annum. 5

under such terms and conditions most advantageous

CARMEN DEUNIDA, and EDUARDO

to it, any claim by or against it.

LEGSON, Respondents.

represented by its chairperson, Ren Hongbin,

entered into a Memorandum of Understanding with

18

On 1 October 2003, the Chinese Ambassador to the

Philippines, Wang Chungui (Amb. Wang), wrote a

With the CAAP having legally succeeded the ATO

DECISION

pursuant to R.A. No. 9497, the obligations that the

ATO had incurred by virtue of the deed of sale with

letter to DOF Secretary Jose Isidro Camacho (Sec.

Camacho) informing him of CNMEGs designation as

SERENO, J.:

the Prime Contractor for the Northrail Project. 6

This is a Petition for Review on Certiorari with

On 30 December 2003, Northrail and CNMEG

the Ramos spouses might now be enforced against

the CAAP.

Prayer for the Issuance of a Temporary Restraining

executed a Contract Agreement for the construction

WHEREFORE, the Court denies the petition for

Order (TRO) and/or Preliminary Injunction assailing

of Section I, Phase I of the North Luzon Railway

review on certiorari, and affirms the decision

the 30 September 2008 Decision and 5 December

System from Caloocan to Malolos on a turnkey basis

promulgated by the Court of Appeals.

2008 Resolution of the Court of Appeals (CA) in CA

(the Contract Agreement).7 The contract price for

G.R. SP No. 103351.

the Northrail Project was pegged at USD

No pronouncement on costs of suit.

421,050,000.8

On 26 February 2004, the Philippine government and

2006, arguing that the trial court did not have

Whether or not the act being undertaken by

EXIM Bank entered into a counterpart financial

jurisdiction over (a) its person, as it was an agent of

petitioner CNMEG is an act jure imperii.

agreement Buyer Credit Loan Agreement No. BLA

the Chinese government, making it immune from suit,

04055 (the Loan Agreement).9 In the Loan

and (b) the subject matter, as the Northrail Project

Whether or not the Court of Appeals failed to avoid

Agreement, EXIM Bank agreed to extend

was a product of an executive agreement.

a procedural limbo in the lower court.

15

Preferential Buyers Credit in the amount of USD

400,000,000 in favor of the Philippine government in

On 15 May 2007, RTC Br. 145 issued an Omnibus

Whether or not the Northrail Project is subject to

order to finance the construction of Phase I of the

Order denying CNMEGs Motion to Dismiss and

competitive public bidding.

Northrail Project.

setting the case for summary hearing to determine

10

whether the injunctive reliefs prayed for should be

Whether or not the Court of Appeals ignored the

On 13 February 2006, respondents filed a Complaint

issued. CNMEG then filed a Motion for

ruling of this Honorable Court in the Neri case.

for Annulment of Contract and Injunction with

Reconsideration, which was denied by the trial

Urgent Motion for Summary Hearing to Determine

court in an Order dated 10 March 2008.18Thus,

CNMEG prays for the dismissal of Civil Case No. 06-

the Existence of Facts and Circumstances Justifying

CNMEG filed before the CA a Petition for Certiorari

203 before RTC Br. 145 for lack of jurisdiction. It

the Issuance of Writs of Preliminary Prohibitory and

with Prayer for the Issuance of TRO and/or Writ of

likewise requests this Court for the issuance of a

Mandatory Injunction and/or TRO against CNMEG,

Preliminary Injunction dated 4 April 2008.

TRO and, later on, a writ of preliminary injunction to

16

17

19

restrain public respondent from proceeding with the

the Office of the Executive Secretary, the DOF, the

disposition of Civil Case No. 06-203.

Department of Budget and Management, the National

In the assailed Decision dated 30 September 2008,

Economic Development Authority and Northrail. The

the appellate court dismissed the Petition for

case was docketed as Civil Case No. 06-203 before

Certiorari.20Subsequently, CNMEG filed a Motion for

The crux of this case boils down to two main issues,

the Regional Trial Court, National Capital Judicial

Reconsideration, which was denied by the CA in a

namely:

Region, Makati City, Branch 145 (RTC Br. 145). In the

Resolution dated 5 December 2008.

Complaint, respondents alleged that the Contract

filed the instant Petition for Review on Certiorari

Agreement and the Loan Agreement were void for

dated 21 January 2009, raising the following

being contrary to (a) the Constitution; (b) Republic

issues:

11

21

22

Thus, CNMEG

23

Act No. 9184 (R.A. No. 9184), otherwise known as the

Government Procurement Reform Act; (c)

Whether or not petitioner CNMEG is an agent of the

Presidential Decree No. 1445, otherwise known as

sovereign Peoples Republic of China.

the Government Auditing Code; and (d) Executive

Order No. 292, otherwise known as the

Whether or not the Northrail contracts are

Administrative Code.

products of an executive agreement between two

12

1. Whether CNMEG is entitled to immunity,

precluding it from being sued before a local
court.
2. Whether the Contract Agreement is an
executive agreement, such that it cannot be
questioned by or before a local court.
First issue: Whether CNMEG is entitled to

sovereign states.

immunity

setting the case for hearing on the issuance of

Whether or not the certification from the

This Court explained the doctrine of sovereign

injunctive reliefs. On 29 March 2006, CNMEG filed

Department of Foreign Affairs is necessary under

an Urgent Motion for Reconsideration of this

the foregoing circumstances.

RTC Br. 145 issued an Order dated 17 March 2006

13

Order. Before RTC Br. 145 could rule thereon,

14

CNMEG filed a Motion to Dismiss dated 12 April

immunity in Holy See v. Rosario,24 to wit:

There are two conflicting concepts of sovereign
immunity, each widely held and firmly established.
According to the classical or absolute theory, a

sovereign cannot, without its consent, be made a

respondent in the courts of another

private and proprietary acts (jure

AND WHEREAS the Contractor has offered to

gestionis). (Emphasis supplied.)

provide the Project on Turnkey basis, including

26

sovereign. According to the newer or restrictive

design, manufacturing, supply, construction,

theory, the immunity of the sovereign is

Since the Philippines adheres to the restrictive

commissioning, and training of the Employers

recognized only with regard to public acts or

theory, it is crucial to ascertain the legal nature of

personnel;

acts jure imperii of a state, but not with regard

the act involved whether the entity claiming

to private acts or acts jure gestionis. (Emphasis

immunity performs governmental, as opposed to

AND WHEREAS the Loan Agreement of the

supplied; citations omitted.)

proprietary, functions. As held in United States of

Preferential Buyers Credit between Export-Import

America v. Ruiz

Bank of China and Department of Finance of Republic

xxx

xxx

27

xxx

of the Philippines;
The restrictive application of State immunity is

The restrictive theory came about because of the

proper only when the proceedings arise out of

NOW, THEREFORE, the parties agree to sign this

entry of sovereign states into purely commercial

commercial transactions of the foreign sovereign, its

Contract for the Implementation of the Project.

activities remotely connected with the discharge of

commercial activities or economic affairs. Stated

governmental functions. This is particularly true with

differently, a State may be said to have descended

The above-cited portion of the Contract Agreement,

respect to the Communist states which took control

to the level of an individual and can thus be deemed

however, does not on its own reveal whether the

of nationalized business activities and international

to have tacitly given its consent to be sued only when

construction of the Luzon railways was meant to be a

trading.

it enters into business contracts. It does not apply

proprietary endeavor. In order to fully understand

where the contract relates to the exercise of its

the intention behind and the purpose of the entire

sovereign functions.

undertaking, the Contract Agreement must not be

In JUSMAG v. National Labor Relations

Commission,

25

28

this Court affirmed the Philippines

read in isolation. Instead, it must be construed in

adherence to the restrictive theory as follows:

A. CNMEG is engaged in a proprietary activity.

conjunction with three other documents executed in

The doctrine of state immunity from suit has

A threshold question that must be answered is

Memorandum of Understanding dated 14 September

undergone further metamorphosis. The view evolved

whether CNMEG performs governmental or

2002 between Northrail and CNMEG;30 (b) the letter

that the existence of a contract does not, per se,

proprietary functions. A thorough examination of the

of Amb. Wang dated 1 October 2003 addressed to

mean that sovereign states may, at all times, be sued

basic facts of the case would show that CNMEG is

Sec. Camacho;31 and (c) the Loan Agreement.32

in local courts. The complexity of relationships

engaged in a proprietary activity.

relation to the Northrail Project, namely: (a) the

between sovereign states, brought about by their

1. Memorandum of Understanding dated 14

increasing commercial activities, mothered a

The parties executed the Contract Agreement for

more restrictive application of the doctrine.

the purpose of constructing the Luzon Railways, viz:29

September 2002
The Memorandum of Understanding dated 14

xxx

xxx

xxx

WHEREAS the Employer (Northrail) desired to

September 2002 shows that CNMEG sought the

construct the railways form Caloocan to Malolos,

construction of the Luzon Railways as a proprietary

As it stands now, the application of the doctrine of

section I, Phase I of Philippine North Luzon Railways

venture. The relevant parts thereof read:

immunity from suit has been restricted to sovereign

Project (hereinafter referred to as THE PROJECT);

or governmental activities (jure imperii). The mantle

WHEREAS, CNMEG has the financial capability,

of state immunity cannot be extended to commercial,

professional competence and technical expertise to

assess the state of the [Main Line North (MLN)] and

"Contract") to be entered into between them on the

3. Among the various state corporations of

recommend implementation plans as well as undertake

implementation of the Project. The parties shall use

the Peoples Republic of China, only CNMEG

its rehabilitation and/or modernization;

their best endeavors to formulate and finalize a

has the advantage of being fully familiar with

Contract with a view to signing the Contract within

the current requirements of the Northrail

WHEREAS, CNMEG has expressed interest in the

one hundred twenty (120) days from CNMEGs

Project having already accomplished a

rehabilitation and/or modernization of the MLN from

presentation of the Study. 33 (Emphasis supplied)

Feasibility Study which was used as inputs by

Metro Manila to San Fernando, La Union passing

the North Luzon Railways Corporation in the

through the provinces of Bulacan, Pampanga, Tarlac,

Clearly, it was CNMEG that initiated the undertaking,

approvals (sic) process required by the

Pangasinan and La Union (the Project);

and not the Chinese government. The Feasibility

Republic of the Philippines.34 (Emphasis

Study was conducted not because of any diplomatic

supplied.)

WHEREAS, the NORTHRAIL CORP. welcomes

gratuity from or exercise of sovereign functions by

CNMEGs proposal to undertake a Feasibility Study

the Chinese government, but was plainly a business

Thus, the desire of CNMEG to secure the Northrail

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

strategy employed by CNMEG with a view to securing

Project was in the ordinary or regular course of its

this commercial enterprise.

business as a global construction company. The

WHEREAS, the NORTHRAIL CORP. also welcomes

CNMEGs interest in undertaking the Project with

implementation of the Northrail Project was

2. Letter dated 1 October 2003

Suppliers Credit and intends to employ CNMEG as

intended to generate profit for CNMEG, with the

Contract Agreement placing a contract price of USD

the Contractor for the Project subject to compliance

That CNMEG, and not the Chinese government,

421,050,000 for the venture.35 The use of the term

with Philippine and Chinese laws, rules and regulations

initiated the Northrail Project was confirmed by

"state corporation" to refer to CNMEG was only

for the selection of a contractor;

Amb. Wang in his letter dated 1 October 2003, thus:

descriptive of its nature as a government-owned

and/or -controlled corporation, and its assignment as

WHEREAS, the NORTHRAIL CORP. considers

1. CNMEG has the proven competence and

the Primary Contractor did not imply that it was

CNMEGs proposal advantageous to the Government

capability to undertake the Project as

acting on behalf of China in the performance of the

of the Republic of the Philippines and has therefore

evidenced by the ranking of 42 given by the

latters sovereign functions. To imply otherwise

agreed to assist CNMEG in the conduct of the

ENR among 225 global construction

would result in an absurd situation, in which all

aforesaid Study;

companies.

Chinese corporations owned by the state would be

xxx

xxx

xxx

2. CNMEG already signed an MOU with the

North Luzon Railways Corporation last

II. APPROVAL PROCESS

September 14, 2000 during the visit of

Chairman Li Peng. Such being the case, they

automatically considered as performing governmental

activities, even if they are clearly engaged in
commercial or proprietary pursuits.
3. The Loan Agreement

2.1 As soon as possible after completion and

have already established an initial working

presentation of the Study in accordance with

relationship with your North Luzon Railways

Paragraphs 1.3 and 1.4 above and in compliance with

CNMEG claims immunity on the ground that the Aug

Corporation. This would categorize CNMEG

necessary governmental laws, rules, regulations and

30 MOU on the financing of the Northrail Project

as the state corporation within the Peoples

procedures required from both parties, the parties

was signed by the Philippine and Chinese

Republic of China which initiated our

shall commence the preparation and negotiation of

governments, and its assignment as the Primary

Governments involvement in the Project.

Contractor meant that it was bound to perform a

the terms and conditions of the Contract (the

governmental function on behalf of China. However,

the Loan Agreement, which originated from the same

evidence for enforcement in any proceedings against

the Philippines,38 it is clear from the foregoing

Aug 30 MOU, belies this reasoning, viz:

the Borrower and its assets in the Republic of the

provisions that the Northrail Project was a purely

Philippines provided that (a) the court rendering

commercial transaction.

Article 11. xxx (j) Commercial Activity The execution

judgment had jurisdiction over the subject matter of

and delivery of this Agreement by the Borrower

the action in accordance with its jurisdictional rules,

Admittedly, the Loan Agreement was entered into

constitute, and the Borrowers performance of and

(b) the Republic had notice of the proceedings, (c)

between EXIM Bank and the Philippine government,

compliance with its obligations under this Agreement

the judgment of the court was not obtained through

while the Contract Agreement was between

will constitute,private and commercial acts done

collusion or fraud, and (d) such judgment was not

Northrail and CNMEG. Although the Contract

and performed for commercial purposes under the

based on a clear mistake of fact or law.

Agreement is silent on the classification of the legal

36

laws of the Republic of the Philippines and neither

nature of the transaction, the foregoing provisions

the Borrower nor any of its assets is entitled to

Further, the Loan Agreement likewise contains this

of the Loan Agreement, which is an inextricable part

any immunity or privilege (sovereign or otherwise)

express waiver of immunity:

of the entire undertaking, nonetheless reveal the

from suit, execution or any other legal process

intention of the parties to the Northrail Project to

with respect to its obligations under this

15.5 Waiver of Immunity The Borrower irrevocably

classify the whole venture as commercial or

Agreement, as the case may be, in any

and unconditionally waives, any immunity to which it

proprietary in character.

jurisdiction. Notwithstanding the foregoing, the

or its property may at any time be or become

Borrower does not waive any immunity with respect

entitled, whether characterized as sovereign

Thus, piecing together the content and tenor of the

of its assets which are (i) used by a diplomatic or

immunity or otherwise, from any suit, judgment,

Contract Agreement, the Memorandum of

consular mission of the Borrower and (ii) assets of a

service of process upon it or any agent, execution on

Understanding dated 14 September 2002, Amb.

military character and under control of a military

judgment, set-off, attachment prior to judgment,

Wangs letter dated 1 October 2003, and the Loan

authority or defense agency and (iii) located in the

attachment in aid of execution to which it or its

Agreement would reveal the desire of CNMEG to

Philippines and dedicated to public or governmental

assets may be entitled in any legal action or

construct the Luzon Railways in pursuit of a purely

use (as distinguished from patrimonial assets or

proceedings with respect to this Agreement or any

commercial activity performed in the ordinary course

assets dedicated to commercial use). (Emphasis

of the transactions contemplated hereby or

of its business.

supplied.)

hereunder. Notwithstanding the foregoing, the

Borrower does not waive any immunity in respect of

B. CNMEG failed to adduce evidence that it is

(k) Proceedings to Enforce Agreement In any

its assets which are (i) used by a diplomatic or

immune from suit under Chinese law.

proceeding in the Republic of the Philippines to

consular mission of the Borrower, (ii) assets of a

enforce this Agreement, the choice of the laws of

military character and under control of a military

Even assuming arguendo that CNMEG performs

the Peoples Republic of China as the governing law

authority or defense agency and (iii) located in the

governmental functions, such claim does not

hereof will be recognized and such law will be applied.

Philippines and dedicated to a public or governmental

automatically vest it with immunity. This view finds

The waiver of immunity by the Borrower, the

use (as distinguished from patrimonial assets or

support in Malong v. Philippine National Railways, in

irrevocable submissions of the Borrower to the non-

assets dedicated to commercial use).

which this Court held that "(i)mmunity from suit is

37

determined by the character of the objects for

exclusive jurisdiction of the courts of the Peoples

which the entity was organized."39

Republic of China and the appointment of the

Thus, despite petitioners claim that the EXIM Bank

Borrowers Chinese Process Agent is legal, valid,

extended financial assistance to Northrail because

binding and enforceable and any judgment obtained in

the bank was mandated by the Chinese government,

In this regard, this Courts ruling in Deutsche

the Peoples Republic of China will be if introduced,

and not because of any motivation to do business in

Gesellschaft Fr Technische Zusammenarbeit (GTZ)

v. CA40 must be examined. In Deutsche Gesellschaft,

its nature. If the act is in pursuit of a sovereign

invest GTZ with the ability to invoke State

Germany and the Philippines entered into a Technical

activity, or an incident thereof, then it is an act jure

immunity from suit. The distinction lies in whether

Cooperation Agreement, pursuant to which both

imperii, especially when it is not undertaken for gain

the agency is incorporated or unincorporated.

signed an arrangement promoting the Social Health

or profit.
xxx

InsuranceNetworking and Empowerment (SHINE)

xxx

xxx

project. The two governments named their

Beyond dispute is the tenability of the comment

respective implementing organizations: the

points (sic) raised by GTZ and the OSG that GTZ

State immunity from suit may be waived by general

Department of Health (DOH) and the Philippine

was not performing proprietary functions

or special law. The special law can take the form of

Health Insurance Corporation (PHIC) for the

notwithstanding its entry into the particular

the original charter of the incorporated government

Philippines, and GTZ for the implementation of

employment contracts. Yet there is an equally

agency. Jurisprudence is replete with examples of

Germanys contributions. In ruling that GTZ was not

fundamental premise which GTZ and the OSG fail to

incorporated government agencies which were ruled

immune from suit, this Court held:

address, namely: Is GTZ, by conception, able to enjoy

not entitled to invoke immunity from suit, owing to

the Federal Republics immunity from suit?

provisions in their charters manifesting their

consent to be sued.

The arguments raised by GTZ and the [Office of the

Solicitor General (OSG)] are rooted in several

The principle of state immunity from suit, whether a

indisputable facts. The SHINE project was

local state or a foreign state, is reflected in Section

implemented pursuant to the bilateral agreements

9, Article XVI of the Constitution, which states that

between the Philippine and German governments.

"the State may not be sued without its consent."

It is useful to note that on the part of the Philippine

GTZ was tasked, under the 1991 agreement, with the

Who or what consists of "the State"? For one, the

government, it had designated two entities, the

implementation of the contributions of the German

doctrine is available to foreign States insofar as

Department of Health and the Philippine Health

government. The activities performed by GTZ

they are sought to be sued in the courts of the local

Insurance Corporation (PHIC), as the implementing

pertaining to the SHINE project are governmental in

State, necessary as it is to avoid "unduly vexing the

agencies in behalf of the Philippines. The PHIC was

nature, related as they are to the promotion of

peace of nations."

established under Republic Act No. 7875, Section 16

xxx

xxx

xxx

(g) of which grants the corporation the power "to sue

health insurance in the Philippines. The fact that

GTZ entered into employment contracts with the

If the instant suit had been brought directly against

and be sued in court." Applying the previously cited

private respondents did not disqualify it from

the Federal Republic of Germany, there would be no

jurisprudence, PHIC would not enjoy immunity from

invoking immunity from suit, as held in cases such as

doubt that it is a suit brought against a State, and

suit even in the performance of its functions

Holy See v. Rosario, Jr., which set forth what

the only necessary inquiry is whether said State had

connected with SHINE, however, (sic) governmental

remains valid doctrine:

consented to be sued. However, the present suit was

in nature as (sic) they may be.

brought against GTZ. It is necessary for us to

Certainly, the mere entering into a contract by a

understand what precisely are the parameters of the

Is GTZ an incorporated agency of the German

foreign state with a private party cannot be the

legal personality of GTZ.

government? There is some mystery surrounding

that question. Neither GTZ nor the OSG go

ultimate test. Such an act can only be the start of

the inquiry. The logical question is whether the

Counsel for GTZ characterizes GTZ as "the

beyond the claim that petitioner is "the

foreign state is engaged in the activity in the regular

implementing agency of the Government of the

implementing agency of the Government of the

course of business. If the foreign state is not

Federal Republic of Germany," a depiction similarly

Federal Republic of Germany." On the other hand,

engaged regularly in a business or trade, the

adopted by the OSG. Assuming that the

private respondents asserted before the Labor

particular act or transaction must then be tested by

characterization is correct,it does not automatically

Arbiter that GTZ was "a private corporation engaged

in the implementation of development projects." The

private company owned by the Federal Republic of

immunity, just as the term "implementing agency" has

Labor Arbiter accepted that claim in his Order

Germany." Yet taking the description on face

no precise definition for purposes of ascertaining

denying the Motion to Dismiss, though he was silent

value, the apparent equivalent under Philippine law

whether GTZ was immune from suit. Although

on that point in his Decision. Nevertheless, private

is that of a corporation organized under the

CNMEG claims to be a government-owned

respondents argue in their Comment that the finding

Corporation Code but owned by the Philippine

corporation, it failed to adduce evidence that it has

that GTZ was a private corporation "was never

government, or a government-owned or controlled

not consented to be sued under Chinese law. Thus,

controverted, and is therefore deemed admitted." In

corporation without original charter. And it bears

following this Courts ruling in Deutsche Gesellschaft,

its Reply, GTZ controverts that finding, saying that

notice that Section 36 of the Corporate Code

in the absence of evidence to the contrary, CNMEG

it is a matter of public knowledge that the status of

states that "[e]very corporation incorporated

is to be presumed to be a government-owned and

petitioner GTZ is that of the "implementing agency,"

under this Code has the power and capacity x x x

-controlled corporation without an original charter.

and not that of a private corporation.

to sue and be sued in its corporate name."

As a result, it has the capacity to sue and be sued

In truth, private respondents were unable to adduce

It is entirely possible that under German law, an

any evidence to substantiate their claim that GTZ

entity such as GTZ or particularly GTZ itself has not

C. CNMEG failed to present a certification from the

was a "private corporation," and the Labor Arbiter

been vested or has been specifically deprived the

Department of Foreign Affairs.

acted rashly in accepting such claim without

power and capacity to sue and/or be sued. Yet in the

explanation. But neither has GTZ supplied any

proceedings below and before this Court, GTZ has

In Holy See,42 this Court reiterated the oft-cited

evidence defining its legal nature beyond that of

failed to establish that under German law, it has

doctrine that the determination by the Executive

the bare descriptive "implementing agency." There

not consented to be sued despite it being owned

that an entity is entitled to sovereign or diplomatic

is no doubt that the 1991 Agreement designated

by the Federal Republic of Germany. We adhere

immunity is a political question conclusive upon the

GTZ as the "implementing agency" in behalf of the

to the rule that in the absence of evidence to the

courts, to wit:

German government. Yet the catch is that such

contrary, foreign laws on a particular subject are

term has no precise definition that is responsive

presumed to be the same as those of the

In Public International Law, when a state or

to our concerns. Inherently, an agent acts in

Philippines, and following the most intelligent

international agency wishes to plead sovereign or

behalf of a principal, and the GTZ can be said to

assumption we can gather, GTZ is akin to a

diplomatic immunity in a foreign court, it requests

act in behalf of the German state. But that is as

governmental owned or controlled corporation

the Foreign Office of the state where it is sued to

far as "implementing agency" could take us. The

without original charter which, by virtue of the

convey to the court that said defendant is entitled

term by itself does not supply whether GTZ is

Corporation Code, has expressly consented to be

to immunity.

incorporated or unincorporated, whether it is

sued. At the very least, like the Labor Arbiter and

owned by the German state or by private

the Court of Appeals, this Court has no basis in fact

interests, whether it has juridical personality

to conclude or presume that GTZ enjoys immunity

independent of the German government or none at

from suit.41(Emphasis supplied.)

In the Philippines, the practice is for the foreign

Applying the foregoing ruling to the case at bar, it is

secure an executive endorsement of its claim of

readily apparent that CNMEG cannot claim immunity

sovereign or diplomatic immunity. But how the

from suit, even if it contends that it performs

Philippine Foreign Office conveys its endorsement to

under Section 36 of the Corporation Code.

all.
xxx

xxx

xxx

Again, we are uncertain of the corresponding legal

governmental functions. Its designation as the

implications under German law surrounding "a

Primary Contractor does not automatically grant it

xxx

xxx

xxx

government or the international organization to first

the courts varies. In International Catholic

Migration Commission v. Calleja, 190 SCRA 130

(1990), the Secretary of Foreign Affairs just sent a

conclusive upon the courts. This Court, in

claim of immunity that would, at the very least,

letter directly to the Secretary of Labor and

Department of Foreign Affairs (DFA) v. National

establish a disputable evidentiary presumption that

Employment, informing the latter that the

Labor Relations Commission (NLRC),44 emphasized the

the foreign party is indeed immune which the

respondent-employer could not be sued because it

DFAs competence and authority to provide such

opposing party will have to overcome with its own

enjoyed diplomatic immunity. In World Health

necessary determination, to wit:

factual evidence. We do not see why GTZ could not

Organization v. Aquino, 48 SCRA 242 (1972), the

Secretary of Foreign Affairs sent the trial court a
telegram to that effect. In Baer v. Tizon, 57 SCRA 1
(1974), the U.S. Embassy asked the Secretary of
Foreign Affairs to request the Solicitor General to
make, in behalf of the Commander of the United
States Naval Base at Olongapo City, Zambales, a
"suggestion" to respondent Judge. The Solicitor
General embodied the "suggestion" in a Manifestation
and Memorandum as amicus curiae.

have secured such certification or endorsement from

The DFAs function includes, among its other

the DFA for purposes of this case. Certainly, it would

mandates, the determination of persons and

have been highly prudential for GTZ to obtain the

institutions covered by diplomatic immunities, a

same after the Labor Arbiter had denied the motion

determination which, when challenge, (sic) entitles it

to dismiss. Still, even at this juncture, we do not see

to seek relief from the court so as not to seriously

any evidence that the DFA, the office of the

impair the conduct of the country's foreign

executive branch in charge of our diplomatic

relations. The DFA must be allowed to plead its case

relations, has indeed endorsed GTZs claim of

whenever necessary or advisable to enable it to help

immunity. It may be possible that GTZ tried, but

keep the credibility of the Philippine government

failed to secure such certification, due to the same

before the international community. When

concerns that we have discussed herein.

In the case at bench, the Department of Foreign

international agreements are concluded, the parties

Affairs, through the Office of Legal Affairs moved

thereto are deemed to have likewise accepted the

Would the fact that the Solicitor General has

with this Court to be allowed to intervene on the side

responsibility of seeing to it that their agreements

endorsed GTZs claim of States immunity from suit

of petitioner. The Court allowed the said Department

are duly regarded. In our country, this task falls

before this Court sufficiently substitute for the

to file its memorandum in support of petitioners

principally of (sic) the DFA as being the highest

DFA certification? Note that the rule in public

claim of sovereign immunity.

executive department with the competence and

international law quoted in Holy See referred to

authority to so act in this aspect of the international

endorsement by the Foreign Office of the State

arena.45 (Emphasis supplied.)

where the suit is filed, such foreign office in the

In some cases, the defense of sovereign immunity

was submitted directly to the local courts by the

Philippines being the Department of Foreign Affairs.

respondents through their private counsels (Raquiza

Further, the fact that this authority is exclusive to

Nowhere in the Comment of the OSG is it

v. Bradford, 75 Phil. 50 [1945]; Miquiabas v.

the DFA was also emphasized in this Courts ruling in

manifested that the DFA has endorsed GTZs claim,

Philippine-Ryukyus Command, 80 Phil. 262 [1948];

Deutsche Gesellschaft:

or that the OSG had solicited the DFAs views on the

United States of America v. Guinto, 182 SCRA 644

issue. The arguments raised by the OSG are virtually

[1990] and companion cases). In cases where the

It is to be recalled that the Labor Arbiter, in both

the same as the arguments raised by GTZ without

foreign states bypass the Foreign Office, the courts

of his rulings, noted that it was imperative for

any indication of any special and distinct perspective

can inquire into the facts and make their own

petitioners to secure from the Department of

maintained by the Philippine government on the issue.

determination as to the nature of the acts and

Foreign Affairs "a certification of respondents

The Comment filed by the OSG does not inspire the

transactions involved.43 (Emphasis supplied.)

diplomatic status and entitlement to diplomatic

same degree of confidence as a certification from

privileges including immunity from suits." The

the DFA would have elicited.46 (Emphasis supplied.)

The question now is whether any agency of the

requirement might not necessarily be imperative.

Executive Branch can make a determination of

However, had GTZ obtained such certification from

In the case at bar, CNMEG offers the Certification

immunity from suit, which may be considered as

the DFA, it would have provided factual basis for its

executed by the Economic and Commercial Office of

the Embassy of the Peoples Republic of China,

33. SETTLEMENT OF DISPUTES AND

of any of the parties; (d) if any of the parties is an

stating that the Northrail Project is in pursuit of a

ARBITRATION

individual, where any of those individuals resides; or

sovereign activity.47Surely, this is not the kind of

certification that can establish CNMEGs entitlement

(e) in the National Capital Judicial Region.

33.1. Amicable Settlement
From all the foregoing, it is clear that CNMEG has

to immunity from suit, as Holy See unequivocally

refers to the determination of the "Foreign Office

Both parties shall attempt to amicably settle all

agreed that it will not be afforded immunity from

of the state where it is sued."

disputes or controversies arising from this Contract

suit. Thus, the courts have the competence and

before the commencement of arbitration.

jurisdiction to ascertain the validity of the Contract

Further, CNMEG also claims that its immunity from

suit has the executive endorsement of both the OSG

Agreement.
33.2. Arbitration
Second issue: Whether the Contract Agreement is

and the Office of the Government Corporate Counsel

(OGCC), which must be respected by the courts.

All disputes or controversies arising from this

However, as expressly enunciated in Deutsche

Contract which cannot be settled between the

Gesellschaft, this determination by the OSG, or by

Employer and the Contractor shall be submitted to

Article 2(1) of the Vienna Convention on the Law of

the OGCC for that matter, does not inspire the same

arbitration in accordance with the UNCITRAL

Treaties (Vienna Convention) defines a treaty as

degree of confidence as a DFA certification. Even

Arbitration Rules at present in force and as may be

follows:

with a DFA certification, however, it must be

amended by the rest of this Clause. The appointing

remembered that this Court is not precluded from

authority shall be Hong Kong International

[A]n international agreement concluded between

making an inquiry into the intrinsic correctness of

Arbitration Center. The place of arbitration shall be

States in written form and governed by international

such certification.

in Hong Kong at Hong Kong International Arbitration

law, whether embodied in a single instrument or in

Center (HKIAC).

two or more related instruments and whatever its

an executive agreement

particular designation.

D. An agreement to submit any dispute to arbitration

may be construed as an implicit waiver of immunity

Under the above provisions, if any dispute arises

from suit.

between Northrail and CNMEG, both parties are

In Bayan Muna v. Romulo, this Court held that an

bound to submit the matter to the HKIAC for

executive agreement is similar to a treaty, except

In the United States, the Foreign Sovereign

arbitration. In case the HKIAC makes an arbitral

that the former (a) does not require legislative

Immunities Act of 1976 provides for a waiver by

award in favor of Northrail, its enforcement in the

concurrence; (b) is usually less formal; and (c) deals

implication of state immunity. In the said law, the

Philippines would be subject to the Special Rules on

with a narrower range of subject matters.50

agreement to submit disputes to arbitration in a

Alternative Dispute Resolution (Special Rules). Rule

foreign country is construed as an implicit waiver of

13 thereof provides for the Recognition and

Despite these differences, to be considered an

immunity from suit. Although there is no similar law

Enforcement of a Foreign Arbitral Award. Under

executive agreement, the following three requisites

in the Philippines, there is reason to apply the legal

Rules 13.2 and 13.3 of the Special Rules, the party to

provided under the Vienna Convention must

reasoning behind the waiver in this case.

arbitration wishing to have an arbitral award

nevertheless concur: (a) the agreement must be

recognized and enforced in the Philippines must

between states; (b) it must be written; and (c) it

petition the proper regional trial court (a) where the

must governed by international law. The first and the

assets to be attached or levied upon is located; (b)

third requisites do not obtain in the case at bar.

The Conditions of Contract,

48

which is an integral

part of the Contract Agreement,

49

states:

where the acts to be enjoined are being performed;

(c) in the principal place of business in the Philippines

A. CNMEG is neither a government nor a government

agency.

The contract shall be written in English language. All

correspondence and other documents pertaining to
the Contract which are exchanged by the parties

The Contract Agreement was not concluded between

shall be written in English language.

the Philippines and China, but between Northrail and

CNMEG.51 By the terms of the Contract Agreement,

Since the Contract Agreement explicitly provides

Northrail is a government-owned or -controlled

that Philippine law shall be applicable, the parties

corporation, while CNMEG is a corporation duly

have effectively conceded that their rights and

organized and created under the laws of the Peoples

obligations thereunder are not governed by

Republic of China.52Thus, both Northrail and CNMEG

international law.

entered into the Contract Agreement as entities

with personalities distinct and separate from the

It is therefore clear from the foregoing reasons

Philippine and Chinese governments, respectively.

that the Contract Agreement does not partake of

the nature of an executive agreement. It is merely

Neither can it be said that CNMEG acted as agent of

an ordinary commercial contract that can be

the Chinese government. As previously discussed, the

questioned before the local courts.

fact that Amb. Wang, in his letter dated 1 October

2003,53 described CNMEG as a "state corporation"

WHEREFORE, the instant Petition is DENIED.

and declared its designation as the Primary

Petitioner China National Machinery & Equipment

Contractor in the Northrail Project did not mean it

Corp. (Group) is not entitled to immunity from suit,

was to perform sovereign functions on behalf of

and the Contract Agreement is not an executive

China. That label was only descriptive of its nature as

agreement. CNMEGs prayer for the issuance of a

a state-owned corporation, and did not preclude it

TRO and/or Writ of Preliminary Injunction is

from engaging in purely commercial or proprietary

DENIED for being moot and academic. This case is

ventures.

REMANDED to the Regional Trial Court of Makati,

Branch 145, for further proceedings as regards the

B. The Contract Agreement is to be governed by

Philippine law.

validity of the contracts subject of Civil Case No.

Article 2 of the Conditions of Contract,54 which

No pronouncement on costs of suit.

06-203.

under Article 1.1 of the Contract Agreement is an

integral part of the latter, states:

SO ORDERED.

APPLICABLE LAW AND GOVERNING LANGUAGE

G.R. No. 176579

The contract shall in all respects be read and

HEIRS OF WILSON P. GAMBOA,* Petitioners,

vs.
FINANCE SECRETARYMARGARITO B. TEVES,
FINANCE UNDERSECRETARYJOHN P. SEVILLA,

construed in accordance with the laws of the

Philippines.

October 9, 2012

AND COMMISSIONER RICARDO ABCEDE OF

THE PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT(PCGG) IN THEIR CAPACITIES AS
CHAIR AND MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL, CHAIRMAN
ANTHONI SALIM OF FIRST PACIFIC CO., LTD.
IN HIS CAPACITY AS DIRECTOR OF METRO
PACIFIC ASSET HOLDINGS INC., CHAIRMAN
MANUEL V. PANGILINAN OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY (PLDT) IN
HIS CAPACITY AS MANAGING DIRECTOR OF
FIRST PACIFIC CO., LTD., PRESIDENT
NAPOLEON L. NAZARENO OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY, CHAIR FE
BARIN OF THE SECURITIES AND EXCHANGE
COMMISSION, and PRESIDENT FRANCIS LIM
OF THE PHILIPPINE STOCK
EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V.
SANIDAD, Petitioner-in-Intervention.
RESOLUTION
CARPIO, J.:
This resolves the motions for reconsideration of the
28 June 2011 Decision filed by (1) the Philippine
Stock Exchange's (PSE) President, 1 (2) Manuel V.
Pangilinan (Pangilinan),2 (3) Napoleon L. Nazareno
(Nazareno ),3and ( 4) the Securities and Exchange
Commission (SEC)4 (collectively, movants ).
The Office of the Solicitor General (OSG) initially
filed a motion for reconsideration on behalfofthe
SEC,5 assailing the 28 June 2011 Decision. However,
it subsequently filed a Consolidated Comment on
behalf of the State,6declaring expressly that it
agrees with the Court's definition of the term
"capital" in Section 11, Article XII of the
Constitution. During the Oral Arguments on 26 June

2012, the OSG reiterated its position consistent

with the Court's 28 June 2011 Decision.
We deny the motions for reconsideration.

I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as
one for mandamus.
As we emphatically stated in the 28 June 2011
Decision, the interpretation of the term "capital" in
Section 11, Article XII of the Constitution has farreaching implications to the national economy. In
fact, a resolution of this issue will determine
whether Filipinos are masters, or second-class
citizens, in their own country. What is at stake here
is whether Filipinos or foreigners will have effective
control of the Philippine national economy. Indeed, if
ever there is a legal issue that has far-reaching
implications to the entire nation, and to future
generations of Filipinos, it is the threshold legal
issue presented in this case.
Contrary to Pangilinans narrow view, the serious
economic consequences resulting in the
interpretation of the term "capital" in Section 11,
Article XII of the Constitution undoubtedly demand
an immediate adjudication of this issue. Simply put,
the far-reaching implications of this issue justify
the treatment of the petition as one for
mandamus.7
In Luzon Stevedoring Corp. v. Anti-Dummy
Board,8 the Court deemed it wise and expedient to
resolve the case although the petition for
declaratory relief could be outrightly dismissed for
being procedurally defective. There, appellant
admittedly had already committed a breach of the
Public Service Act in relation to the Anti-Dummy Law
since it had been employing non- American aliens long

before the decision in a prior similar case. However,

the main issue in Luzon Stevedoring was of
transcendental importance, involving the exercise or
enjoyment of rights, franchises, privileges,
properties and businesses which only Filipinos and
qualified corporations could exercise or enjoy under
the Constitution and the statutes. Moreover, the
same issue could be raised by appellant in an
appropriate action. Thus, in Luzon Stevedoring the
Court deemed it necessary to finally dispose of the
case for the guidance of all concerned, despite the
apparent procedural flaw in the petition.
The circumstances surrounding the present case,
such as the supposed procedural defect of the
petition and the pivotal legal issue involved, resemble
those in Luzon Stevedoring. Consequently, in the
interest of substantial justice and faithful
adherence to the Constitution, we opted to resolve
this case for the guidance of the public and all
concerned parties.

II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."
Movants contend that the term "capital" in Section
11, Article XII of the Constitution has long been
settled and defined to refer to the total outstanding
shares of stock, whether voting or non-voting. In
fact, movants claim that the SEC, which is the
administrative agency tasked to enforce the 60-40
ownership requirement in favor of Filipino citizens in
the Constitution and various statutes, has
consistently adopted this particular definition in its
numerous opinions. Movants point out that with the
28 June 2011 Decision, the Court in effect
introduced a "new" definition or "midstream
redefinition"9 of the term "capital" in Section 11,
Article XII of the Constitution.

This is egregious error.

For more than 75 years since the 1935 Constitution,
the Court has not interpreted or defined the term
"capital" found in various economic provisions of the
1935, 1973 and 1987 Constitutions. There has never
been a judicial precedent interpreting the term
"capital" in the 1935, 1973 and 1987 Constitutions,
until now. Hence, it is patently wrong and utterly
baseless to claim that the Court in defining the term
"capital" in its 28 June 2011 Decision modified,
reversed, or set aside the purported long-standing
definition of the term "capital," which supposedly
refers to the total outstanding shares of stock,
whether voting or non-voting. To repeat, until the
present case there has never been a Court ruling
categorically defining the term "capital" found in the
various economic provisions of the 1935, 1973 and
1987 Philippine Constitutions.
The opinions of the SEC, as well as of the
Department of Justice (DOJ), on the definition of
the term "capital" as referring to both voting and
non-voting shares (combined total of common and
preferred shares) are, in the first place, conflicting
and inconsistent. There is no basis whatsoever to the
claim that the SEC and the DOJ have consistently
and uniformly adopted a definition of the term
"capital" contrary to the definition that this Court
adopted in its 28 June 2011 Decision.
In DOJ Opinion No. 130, s. 1985,10 dated 7 October
1985, the scope of the term "capital" in Section 9,
Article XIV of the 1973 Constitution was raised,
that is, whether the term "capital" includes "both
preferred and common stocks." The issue was raised
in relation to a stock-swap transaction between a
Filipino and a Japanese corporation, both
stockholders of a domestic corporation that owned
lands in the Philippines. Then Minister of Justice
Estelito P. Mendoza ruled that the resulting

ownership structure of the corporation would

beunconstitutional because 60% of the voting stock
would be owned by Japanese while Filipinos would own
only 40% of the voting stock, although when the nonvoting stock is added, Filipinos would own 60% of the
combined voting and non-voting stock. This
ownership structure is remarkably similar to the
current ownership structure of PLDT. Minister
Mendoza ruled:
xxxx
Thus, the Filipino group still owns sixty (60%) of the
entire subscribed capital stock (common and
preferred) while the Japanese investors control
sixty percent (60%) of the common (voting) shares.
It is your position that x x x since Section 9,
Article XIV of the Constitution uses the word
"capital," which is construed "to include both
preferred and common shares" and "that where
the law does not distinguish, the courts shall not
distinguish."
xxxx
In light of the foregoing jurisprudence, it is my
opinion that the stock-swap transaction in question
may not be constitutionally upheld. While it may be
ordinary corporate practice to classify corporate
shares into common voting shares and preferred nonvoting shares, any arrangement which attempts to
defeat the constitutional purpose should be
eschewed. Thus, the resultant equity arrangement
which would place ownership of 60%11 of the
common (voting) shares in the Japanese group,
while retaining 60% of the total percentage of
common and preferred shares in Filipino hands
would amount to circumvention of the principle of
control by Philippine stockholders that is implicit in

the 60% Philippine nationality requirement in the

Constitution. (Emphasis supplied)
In short, Minister Mendoza categorically
rejected the theory that the term "capital" in
Section 9, Article XIV of the 1973 Constitution
includes "both preferred and common stocks"
treated as the same class of shares regardless of
differences in voting rights and privileges. Minister
Mendoza stressed that the 60-40 ownership
requirement in favor of Filipino citizens in the
Constitution is not complied with unless the
corporation "satisfies the criterion of beneficial
ownership" and that in applying the same "the
primordial consideration is situs of control."
On the other hand, in Opinion No. 23-10 dated 18
August 2010, addressed to Castillo Laman Tan
Pantaleon & San Jose, then SEC General Counsel
Vernette G. Umali-Paco applied the Voting Control
Test, that is, using only the voting stock to
determine whether a corporation is a Philippine
national. The Opinion states:
Applying the foregoing, particularly the Control
Test, MLRC is deemed as a Philippine national
because: (1) sixty percent (60%) of its outstanding
capital stock entitled to vote is owned by a
Philippine national, the Trustee; and (2) at least sixty
percent (60%) of the ERF will accrue to the benefit
of Philippine nationals. Still pursuant to the Control
Test, MLRCs investment in 60% of BFDCs
outstanding capital stock entitled to vote shall be
deemed as of Philippine nationality, thereby
qualifying BFDC to own private land.
Further, under, and for purposes of, the FIA, MLRC
and BFDC are both Philippine nationals, considering
that: (1) sixty percent (60%) of their
respective outstanding capital stock entitled to
vote is owned by a Philippine national (i.e., by the

Trustee, in the case of MLRC; and by MLRC, in the

case of BFDC); and (2) at least 60% of their
respective board of directors are Filipino citizens.
(Boldfacing and italicization supplied)
Clearly, these DOJ and SEC opinions are compatible
with the Courts interpretation of the 60-40
ownership requirement in favor of Filipino citizens
mandated by the Constitution for certain economic
activities. At the same time, these opinions highlight
the conflicting, contradictory, and inconsistent
positions taken by the DOJ and the SEC on the
definition of the term "capital" found in the
economic provisions of the Constitution.
The opinions issued by SEC legal officers do not have
the force and effect of SEC rules and regulations
because only the SEC en banc can adopt rules and
regulations. As expressly provided in Section 4.6 of
the Securities Regulation Code,12 the SEC cannot
delegate to any of its individual Commissioner or
staff the power to adopt any rule or regulation.
Further, under Section 5.1 of the same Code, it
is the SEC as a collegial body, and not any of its
legal officers, that is empowered to
issue opinions and approve rules and
regulations. Thus:
4.6. The Commission may, for purposes of efficiency,
delegate any of its functions to any department or
office of the Commission, an individual Commissioner
or staff member of the Commission exceptits review
or appellate authority and its power to adopt, alter
and supplement any rule or regulation.
The Commission may review upon its own initiative or
upon the petition of any interested party any action
of any department or office, individual Commissioner,
or staff member of the Commission.

SEC. 5. Powers and Functions of the Commission.- 5.1.

The Commission shall act with transparency and shall
have the powers and functions provided by this Code,
Presidential Decree No. 902-A, the Corporation
Code, the Investment Houses Law, the Financing
Company Act and other existing laws. Pursuant
thereto the Commission shall have, among others, the
following powers and functions:

SEC Opinion, correct?

COMMISSIONER GAITE:13
Thats correct, Your Honor.
JUSTICE CARPIO:
Can the Commission En Banc delegate
this function to an SEC officer?

xxxx
(g) Prepare, approve, amend or repeal rules,
regulations and orders, and issue opinions and
provide guidance on and supervise compliance with
such rules, regulations and orders;

COMMISSIONER GAITE:

x x x x (Emphasis supplied)

JUSTICE CARPIO:

Thus, the act of the individual Commissioners or legal

officers of the SEC in issuing opinions that have the
effect of SEC rules or regulations is ultra vires.
Under Sections 4.6 and 5.1(g) of the Code, only the
SEC en banc can "issue opinions" that have the force
and effect of rules or regulations. Section 4.6 of the
Code bars the SEC en banc from delegating to any
individual Commissioner or staff the power to adopt
rules or regulations. In short, any opinion of
individual Commissioners or SEC legal officers does
not constitute a rule or regulation of the SEC.
The SEC admits during the Oral Arguments that only
the SEC en banc, and not any of its individual
commissioners or legal staff, is empowered to issue
opinions which have the same binding effect as SEC
rules and regulations, thus:
JUSTICE CARPIO:
So, under the law, it is the
Commission En Banc that can issue an

Yes, Your Honor, we have delegated

it to the General Counsel.

It can be delegated. What cannot be

delegated by the Commission En Banc
to a commissioner or an individual
employee of the Commission?
COMMISSIONER GAITE:
Novel opinions that [have] to be
decided by the En Banc...
JUSTICE CARPIO:
What cannot be delegated, among
others, is the power to adopt or
amend rules and regulations,
correct?
COMMISSIONER GAITE:
Thats correct, Your Honor.
JUSTICE CARPIO:

So, you combine the two (2), the

SEC officer, if delegated that
power, can issue an opinion but
that opinion does not constitute a
rule or regulation, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, all of these opinions that you
mentioned they are not rules and
regulations, correct?
COMMISSIONER GAITE:
They are not rules and regulations.
JUSTICE CARPIO:
If they are not rules and regulations,
they apply only to that particular
situation and will not constitute a
precedent, correct?
COMMISSIONER GAITE:
Yes, Your Honor.14 (Emphasis
supplied)
Significantly, the SEC en banc, which is the collegial
body statutorily empowered to issue rules and
opinions on behalf of the SEC, has adopted even the
Grandfather Rule in determining compliance with the
60-40 ownership requirement in favor of Filipino
citizens mandated by the Constitution for certain
economic activities. This prevailing SEC ruling, which
the SEC correctly adopted to thwart any
circumvention of the required Filipino "ownership

and control," is laid down in the 25 March 2010

SEC en banc ruling in Redmont Consolidated Mines,
Corp. v. McArthur Mining, Inc., et al. ,15 to wit:

equity; namely, 60-40 in Section 3, 60-40 in Section

9, and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.

The avowed purpose of the Constitution is to place in

the hands of Filipinos the exploitation of our natural
resources. Necessarily, therefore, the Rule
interpreting the constitutional provision should not
diminish that right through the legal fiction of
corporate ownership and control. But the
constitutional provision, as interpreted and practiced
via the 1967 SEC Rules, has favored foreigners
contrary to the command of the Constitution. Hence,
the Grandfather Rule must be applied to
accurately determine the actual participation,
both direct and indirect, of foreigners in a
corporation engaged in a nationalized activity or
business.
Compliance with the constitutional limitation(s) on
engaging in nationalized activities must be
determined by ascertaining if 60% of the investing
corporations outstanding capital stock is owned by
"Filipino citizens", or as interpreted, by natural or
individual Filipino citizens. If such investing
corporation is in turn owned to some extent by
another investing corporation, the same process must
be observed. One must not stop until the citizenships
of the individual or natural stockholders of layer
after layer of investing corporations have been
established, the very essence of the Grandfather
Rule.
Lastly, it was the intent of the framers of the
1987 Constitution to adopt the Grandfather
Rule. In one of the discussions on what is now
Article XII of the present Constitution, the framers
made the following exchange:
MR. NOLLEDO. In Sections 3, 9 and 15, the
Committee stated local or Filipino equity and foreign

MR. NOLLEDO. In teaching law, we are always faced

with the question: Where do we base the equity
requirement, is it on the authorized capital stock, on
the subscribed capital stock, or on the paid-up
capital stock of a corporation? Will the Committee
please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion
with the members of the team from the UP Law
Center who provided us a draft. The phrase that is
contained here which we adopted from the UP draft
is 60 percent of voting stock.
MR. NOLLEDO. That must be based on the
subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to
vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you. With respect to an
investment by one corporation in another
corporation, say, a corporation with 60-40 percent
equity invests in another corporation which is
permitted by the Corporation Code, does the
Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the
Committee.
MR. NOLLEDO. Therefore, we need additional
Filipino capital?
MR. VILLEGAS. Yes. (Boldfacing and underscoring
supplied; italicization in the original)

This SEC en banc ruling conforms to our 28 June

2011 Decision that the 60-40 ownership requirement
in favor of Filipino citizens in the Constitution to
engage in certain economic activities applies not only
to voting control of the corporation, but also to the
beneficial ownership of the corporation. Thus, in
our 28 June 2011 Decision we stated:
Mere legal title is insufficient to meet the 60
percent Filipinoowned "capital" required in the
Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled
with 60 percent of the voting rights, is required.
The legal and beneficial ownership of 60 percent of
the outstanding capital stock must rest in the hands
of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is
"considered as non-Philippine national[s]." (Emphasis
supplied)
Both the Voting Control Test and the Beneficial
Ownership Test must be applied to determine
whether a corporation is a "Philippine national."
The interpretation by legal officers of the SEC of
the term "capital," embodied in various opinions
which respondents relied upon, is merely preliminary
and an opinion only of such officers. To repeat, any
such opinion does not constitute an SEC rule or
regulation. In fact, many of these opinions contain a
disclaimer which expressly states: "x x x the
foregoing opinion is based solely on facts disclosed
in your query and relevant only to the particular issue
raised therein and shall not be used in the nature
of a standing rule binding upon the Commission in
other cases whether of similar or dissimilar
circumstances."16 Thus, the opinions clearly make
a caveat that they do not constitute binding
precedents on any one, not even on the SEC itself.

Likewise, the opinions of the SEC en banc, as well as

of the DOJ, interpreting the law are neither
conclusive nor controlling and thus, do not bind the
Court. It is hornbook doctrine that any
interpretation of the law that administrative or
quasi-judicial agencies make is only preliminary, never
conclusive on the Court. The power to make a final
interpretation of the law, in this case the term
"capital" in Section 11, Article XII of the 1987
Constitution, lies with this Court, not with any other
government entity.
In his motion for reconsideration, the PSE President
cites the cases of National Telecommunications
Commission v. Court of Appeals17 and Philippine Long
Distance Telephone Company v. National
Telecommunications Commission18 in arguing that the
Court has already defined the term "capital" in
Section 11, Article XII of the 1987 Constitution. 19
The PSE President is grossly mistaken. In both cases
of National Telecommunications v. Court of
Appeals20 andPhilippine Long Distance Telephone
Company v. National Telecommunications
Commission,21 the Court did not define the term
"capital" as found in Section 11, Article XII of the
1987 Constitution. In fact, these two cases never
mentioned, discussed or cited Section 11, Article
XII of the Constitution or any of its economic
provisions, and thus cannot serve as precedent in
the interpretation of Section 11, Article XII of
the Constitution. These two cases dealt solely with
the determination of the correct regulatory fees
under Section 40(e) and (f) of the Public Service
Act, to wit:
(e) For annual reimbursement of the expenses
incurred by the Commission in the supervision of
other public services and/or in the regulation or
fixing of their rates, twenty centavos for each one
hundred pesos or fraction thereof, of the capital

stock subscribed or paid, or if no shares have been

issued, of the capital invested, or of the property
and equipment whichever is higher.
(f) For the issue or increase of capital stock, twenty
centavos for each one hundred pesos or fraction
thereof, of the increased capital. (Emphasis supplied)
The Courts interpretation in these two cases of the
terms "capital stock subscribed or paid," "capital
stock" and "capital" does not pertain to, and cannot
control, the definition of the term "capital" as used
in Section 11, Article XII of the Constitution, or any
of the economic provisions of the Constitution where
the term "capital" is found. The definition of the
term "capital" found in the Constitution must not be
taken out of context. A careful reading of these two
cases reveals that the terms "capital stock
subscribed or paid," "capital stock" and "capital"
were defined solely to determine the basis for
computing the supervision and regulation fees under
Section 40(e) and (f) of the Public Service Act.

III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as the
prologue of the supreme law of the land, embodies
the ideals that the Constitution intends to
achieve.22 The Preamble reads:
We, the sovereign Filipino people, imploring the aid
of Almighty God, in order to build a just and humane
society, and establish a Government that shall
embody our ideals and aspirations, promote the
common good, conserve and develop our patrimony,
and secure to ourselves and our posterity, the
blessings of independence and democracy under the
rule of law and a regime of truth, justice, freedom,
love, equality, and peace, do ordain and promulgate
this Constitution. (Emphasis supplied)

Consistent with these ideals, Section 19, Article II

of the 1987 Constitution declares as State policy the
development of a national economy "effectively
controlled" by Filipinos:
Section 19. The State shall develop a self-reliant and
independent national economy effectively controlled
by Filipinos.
Fortifying the State policy of a Filipino-controlled
economy, the Constitution decrees:
Section 10. The Congress shall, upon recommendation
of the economic and planning agency, when the
national interest dictates, reserve to citizens of the
Philippines or to corporations or associations at least
sixty per centum of whose capital is owned by such
citizens, or such higher percentage as Congress may
prescribe, certain areas of investments. The
Congress shall enact measures that will encourage
the formation and operation of enterprises whose
capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions
covering the national economy and patrimony, the
State shall give preference to qualified Filipinos.
The State shall regulate and exercise authority over
foreign investments within its national jurisdiction
and in accordance with its national goals and
priorities.23
Under Section 10, Article XII of the 1987
Constitution, Congress may "reserve to citizens of
the Philippines or to corporations or associations at
least sixty per centum of whose capital is owned by
such citizens, or such higher percentage as Congress
may prescribe, certain areas of investments." Thus,
in numerous laws Congress has reserved certain
areas of investments to Filipino citizens or to
corporations at least sixty percent of the "capital"

of which is owned by Filipino citizens. Some of these

laws are: (1) Regulation of Award of Government
Contracts or R.A. No. 5183; (2) Philippine Inventors
Incentives Act or R.A. No. 3850; (3) Magna Carta for
Micro, Small and Medium Enterprises or R.A. No.
6977; (4) Philippine Overseas Shipping Development
Act or R.A. No. 7471; (5) Domestic Shipping
Development Act of 2004 or R.A. No. 9295; (6)
Philippine Technology Transfer Act of 2009 or R.A.
No. 10055; and (7) Ship Mortgage Decree or P.D. No.
1521.
With respect to public utilities, the 1987
Constitution specifically ordains:
Section 11. No franchise, certificate, or any other
form of authorization for the operation of a public
utility shall be granted except to citizens of the
Philippines or to corporations or associations
organized under the laws of the Philippines, at
least sixty per centum of whose capital is owned
by such citizens; nor shall such franchise,
certificate, or authorization be exclusive in
character or for a longer period than fifty years.
Neither shall any such franchise or right be granted
except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress
when the common good so requires. The State shall
encourage equity participation in public utilities by
the general public. The participation of foreign
investors in the governing body of any public utility
enterprise shall be limited to their proportionate
share in its capital, and all the executive and
managing officers of such corporation or association
must be citizens of the Philippines. (Emphasis
supplied)
This provision, which mandates the Filipinization of
public utilities, requires that any form of
authorization for the operation of public utilities
shall be granted only to "citizens of the Philippines or

to corporations or associations organized under the

laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens." "The
provision is [an express] recognition of the
sensitive and vital position of public utilities both
in the national economy and for national
security."24
The 1987 Constitution reserves the ownership and
operation of public utilities exclusively to (1) Filipino
citizens, or (2) corporations or associations at least
60 percent of whose "capital" is owned by Filipino
citizens. Hence, in the case of individuals, only
Filipino citizens can validly own and operate a public
utility. In the case of corporations or associations, at
least 60 percent of their "capital" must be owned by
Filipino citizens. In other words, under Section 11,
Article XII of the 1987 Constitution, to own and
operate a public utility a corporations capital must
at least be 60 percent owned by Philippine
nationals.

IV.
Definition of "Philippine National"
Pursuant to the express mandate of Section 11,
Article XII of the 1987 Constitution, Congress
enacted Republic Act No. 7042 or the Foreign
Investments Act of 1991 (FIA), as amended, which
defined a "Philippine national" as follows:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen
of the Philippines; or a domestic partnership or
association wholly owned by citizens of the
Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty
percent (60%) of the capital stock
outstanding and entitled to vote is owned and held
by citizens of the Philippines; or a corporation

organized abroad and registered as doing business in

the Philippines under the Corporation Code of which
one hundred percent (100%) of the capital stock
outstanding and entitled to vote is wholly owned by
Filipinos or a trustee of funds for pension or other
employee retirement or separation benefits, where
the trustee is a Philippine national and at least sixty
percent (60%) of the fund will accrue to the benefit
of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own
stocks in a Securities and Exchange Commission
(SEC) registered enterprise, at least sixty percent
(60%) of the capital stock outstanding and entitled
to vote of each of both corporations must be owned
and held by citizens of the Philippines and at least
sixty percent (60%) of the members of the Board of
Directors of each of both corporations must be
citizens of the Philippines, in order that the
corporation, shall be considered a "Philippine
national." (Boldfacing, italicization and underscoring
supplied)
Thus, the FIA clearly and unequivocally defines a
"Philippine national" as a Philippine citizen, or a
domestic corporation at least "60% of the capital
stock outstanding and entitled to vote" is owned by
Philippine citizens.
The definition of a "Philippine national" in the FIA
reiterated the meaning of such term as provided in
its predecessor statute, Executive Order No. 226 or
the Omnibus Investments Code of 1987,25 which was
issued by then President Corazon C. Aquino. Article
15 of this Code states:
Article 15. "Philippine national" shall mean a citizen
of the Philippines or a diplomatic partnership or
association wholly-owned by citizens of the
Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty per
cent (60%) of the capital stock outstanding and

entitled to vote is owned and held by citizens of

the Philippines; or a trustee of funds for pension or
other employee retirement or separation benefits,
where the trustee is a Philippine national and at least
sixty per cent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That where
a corporation and its non-Filipino stockholders own
stock in a registered enterprise, at least sixty per
cent (60%) of the capital stock outstanding and
entitled to vote of both corporations must be owned
and held by the citizens of the Philippines and at
least sixty per cent (60%) of the members of the
Board of Directors of both corporations must be
citizens of the Philippines in order that the
corporation shall be considered a Philippine national.
(Boldfacing, italicization and underscoring supplied)
Under Article 48(3)26 of the Omnibus Investments
Code of 1987, "no corporation x x x which is not a
Philippine national x x x shall do business
x x x in the Philippines x x x without first securing
from the Board of Investments a written certificate
to the effect that such business or economic activity
x x x would not conflict with the Constitution or laws
of the Philippines."27Thus, a "non-Philippine national"
cannot own and operate a reserved economic activity
like a public utility. This means, of course, that only a
"Philippine national" can own and operate a public
utility.
In turn, the definition of a "Philippine national" under
Article 15 of the Omnibus Investments Code of 1987
was a reiteration of the meaning of such term as
provided in Article 14 of the Omnibus Investments
Code of 1981,28 to wit:
Article 14. "Philippine national" shall mean a citizen
of the Philippines; or a domestic partnership or
association wholly owned by citizens of the
Philippines; or a corporation organized under the

laws of the Philippines of which at least sixty per

cent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of
the Philippines; or a trustee of funds for pension or
other employee retirement or separation benefits,
where the trustee is a Philippine national and at least
sixty per cent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That where
a corporation and its non-Filipino stockholders own
stock in a registered enterprise, at least sixty per
cent (60%) of the capital stock outstanding and
entitled to vote of both corporations must be owned
and held by the citizens of the Philippines and at
least sixty per cent (60%) of the members of the
Board of Directors of both corporations must be
citizens of the Philippines in order that the
corporation shall be considered a Philippine national.
(Boldfacing, italicization and underscoring supplied)
Under Article 69(3) of the Omnibus Investments
Code of 1981, "no corporation x x x which is not a
Philippine national x x x shall do business x x x in
the Philippines x x x without first securing a written
certificate from the Board of Investments to the
effect that such business or economic activity x x x
would not conflict with the Constitution or laws of
the Philippines."29 Thus, a "non-Philippine national"
cannot own and operate a reserved economic activity
like a public utility. Again, this means that only a
"Philippine national" can own and operate a public
utility.
Prior to the Omnibus Investments Code of 1981,
Republic Act No. 518630 or the Investment
Incentives Act, which took effect on 16 September
1967, contained a similar definition of a "Philippine
national," to wit:
(f) "Philippine National" shall mean a citizen of the
Philippines; or a partnership or association wholly
owned by citizens of the Philippines; or a corporation

organized under the laws of the Philippines of

which at least sixty per cent of the capital stock
outstanding and entitled to vote is owned and held
by citizens of the Philippines; or a trustee of funds
for pension or other employee retirement or
separation benefits, where the trustee is a Philippine
National and at least sixty per cent of the fund will
accrue to the benefit of Philippine Nationals:
Provided, That where a corporation and its nonFilipino stockholders own stock in a registered
enterprise, at least sixty per cent of the capital
stock outstanding and entitled to vote of both
corporations must be owned and held by the citizens
of the Philippines and at least sixty per cent of the
members of the Board of Directors of both
corporations must be citizens of the Philippines in
order that the corporation shall be considered a
Philippine National. (Boldfacing, italicization and
underscoring supplied)
Under Section 3 of Republic Act No. 5455 or
the Foreign Business Regulations Act, which took
effect on 30 September 1968, if the investment in a
domestic enterprise by non-Philippine nationals
exceeds 30% of its outstanding capital stock, such
enterprise must obtain prior approval from the Board
of Investments before accepting such investment.
Such approval shall not be granted if the investment
"would conflict with existing constitutional provisions
and laws regulating the degree of required ownership
by Philippine nationals in the enterprise."31 A "nonPhilippine national" cannot own and operate a
reserved economic activity like a public utility. Again,
this means that only a "Philippine national" can own
and operate a public utility.
The FIA, like all its predecessor statutes, clearly
defines a "Philippine national" as a Filipino citizen, or
adomestic corporation "at least sixty percent
(60%) of the capital stock outstanding and
entitled to vote"is owned by Filipino citizens. A

domestic corporation is a "Philippine national" only if

at least 60% of its voting stock is owned by Filipino
citizens. This definition of a "Philippine national" is
crucial in the present case because the FIA
reiterates and clarifies Section 11, Article XII of
the 1987 Constitution, which limits the ownership and
operation of public utilities to Filipino citizens or to
corporations or associations at least 60% Filipinoowned.

non-Philippine national by the Secretary of National

Defense; or

The FIA is the basic law governing foreign

investments in the Philippines, irrespective of the
nature of business and area of investment. The FIA
spells out the procedures by which non-Philippine
nationals can invest in the Philippines. Among the key
features of this law is the concept of a negative list
or the Foreign Investments Negative List. 32 Section
8 of the law states:

Section 8 of the FIA enumerates the investment

areas "reserved to Philippine nationals." Foreign
Investment Negative List A consists of "areas of
activities reserved to Philippine nationals by
mandate of the Constitution and specific laws,"
where foreign equity participation in any
enterprise shall be limited to the maximum
percentage expressly prescribed by the
Constitution and other specific laws. In short, to
own and operate a public utility in the Philippines
one must be a "Philippine national" as defined in
the FIA. The FIA is abundant notice to foreign
investors to what extent they can invest in public
utilities in the Philippines.

SEC. 8. List of Investment Areas Reserved to

Philippine Nationals [Foreign Investment Negative
List]. - The Foreign Investment Negative List shall
have two 2 component lists: A and B:
a. List A shall enumerate the areas of activities
reserved to Philippine nationals by mandate of the
Constitution and specific laws.
b. List B shall contain the areas of activities and
enterprises regulated pursuant to law:
1. which are defense-related activities, requiring
prior clearance and authorization from the
Department of National Defense [DND] to engage in
such activity, such as the manufacture, repair,
storage and/or distribution of firearms, ammunition,
lethal weapons, military ordinance, explosives,
pyrotechnics and similar materials; unless such
manufacturing or repair activity is specifically
authorized, with a substantial export component, to a

2. which have implications on public health and

morals, such as the manufacture and distribution of
dangerous drugs; all forms of gambling; nightclubs,
bars, beer houses, dance halls, sauna and steam
bathhouses and massage clinics. (Boldfacing,
underscoring and italicization supplied)

To repeat, among the areas of investment covered by

the Foreign Investment Negative List A is the
ownership and operation of public utilities, which the
Constitution expressly reserves to Filipino citizens
and to corporations at least 60% owned by Filipino
citizens. In other words, Negative List A of the
FIA reserves the ownership and operation of
public utilities only to "Philippine nationals,"
defined in Section 3(a) of the FIA as "(1) a citizen
of the Philippines; x x x or (3) a corporation
organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital
stock outstanding and entitled to vote is owned
and held by citizens of the Philippines; or (4) a
corporation organized abroad and registered as doing
business in the Philippines under the Corporation

Code of which one hundred percent (100%) of the

capital stock outstanding and entitled to vote is
wholly owned by Filipinos or a trustee of funds for
pension or other employee retirement or separation
benefits, where the trustee is a Philippine national
and at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals."
Clearly, from the effectivity of the Investment
Incentives Act of 1967 to the adoption of the
Omnibus Investments Code of 1981, to the
enactment of the Omnibus Investments Code of
1987, and to the passage of the present Foreign
Investments Act of 1991, or for more than four
decades, the statutory definition of the term
"Philippine national" has been uniform and
consistent: it means a Filipino citizen, or a
domestic corporation at least 60% of the voting
stock is owned by Filipinos. Likewise, these same
statutes have uniformly and consistently required
that only "Philippine nationals" could own and
operate public utilities in the Philippines. The
following exchange during the Oral Arguments is
revealing:
JUSTICE CARPIO:
Counsel, I have some questions. You
are aware of the Foreign
Investments Act of 1991, x x x? And
the FIA of 1991 took effect in 1991,
correct? Thats over twenty (20)
years ago, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:

And Section 8 of the Foreign

Investments Act of 1991 states that
[]only Philippine nationals can own
and operate public utilities[],
correct?
COMMISSIONER GAITE:
Yes, Your Honor.
JUSTICE CARPIO:
And the same Foreign Investments
Act of 1991 defines a "Philippine
national" either as a citizen of the
Philippines, or if it is a corporation at
least sixty percent (60%) of the
voting stock is owned by citizens of
the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And, you are also aware that under
the predecessor law of the Foreign
Investments Act of 1991, the
Omnibus Investments Act of 1987,
the same provisions apply: x x x only
Philippine nationals can own and
operate a public utility and the
Philippine national, if it is a
corporation, x x x sixty percent
(60%) of the capital stock of that
corporation must be owned by
citizens of the Philippines, correct?
COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:
And even prior to the Omnibus
Investments Act of 1987, under the
Omnibus Investments Act of 1981,
the same rules apply: x x x only a
Philippine national can own and
operate a public utility and a
Philippine national, if it is a
corporation, sixty percent (60%) of
its x x x voting stock, must be owned
by citizens of the Philippines,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to that, under
[the]1967 Investments Incentives
Act and the Foreign Company Act of
1968, the same rules applied,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, for the last four (4) decades,
x x x, the law has been very
consistent only a Philippine
national can own and operate a
public utility, and a Philippine
national, if it is a corporation, x x
x at least sixty percent (60%) of

the voting stock must be owned by

citizens of the Philippines,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.33 (Emphasis
supplied)
Government agencies like the SEC cannot simply
ignore Sections 3(a) and 8 of the FIA which
categorically prescribe that certain economic
activities, like the ownership and operation of public
utilities, are reserved to corporations "at least sixty
percent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the
Philippines." Foreign Investment Negative List A
refers to "activities reserved to Philippine nationals
by mandate of the Constitution and specific
laws." The FIA is the basic statute regulating
foreign investments in the Philippines. Government
agencies tasked with regulating or monitoring foreign
investments, as well as counsels of foreign investors,
should start with the FIA in determining to what
extent a particular foreign investment is allowed in
the Philippines. Foreign investors and their counsels
who ignore the FIA do so at their own peril. Foreign
investors and their counsels who rely on opinions of
SEC legal officers that obviously contradict the FIA
do so also at their own peril.
Occasional opinions of SEC legal officers that
obviously contradict the FIA should immediately
raise a red flag. There are already numerous opinions
of SEC legal officers that cite the definition of a
"Philippine national" in Section 3(a) of the FIA in
determining whether a particular corporation is
qualified to own and operate a nationalized or
partially nationalized business in the Philippines. This
shows that SEC legal officers are not only aware of,
but also rely on and invoke, the provisions of the FIA

in ascertaining the eligibility of a corporation to

engage in partially nationalized industries. The
following are some of such opinions:
1. Opinion of 23 March 1993, addressed to
Mr. Francis F. How;
2. Opinion of 14 April 1993, addressed to
Director Angeles T. Wong of the Philippine
Overseas Employment Administration;
3. Opinion of 23 November 1993, addressed
to Messrs. Dominador Almeda and Renato S.
Calma;
4. Opinion of 7 December 1993, addressed to
Roco Bunag Kapunan Migallos & Jardeleza;
5. SEC Opinion No. 49-04, addressed to
Romulo Mabanta Buenaventura Sayoc & De
Los Angeles;
6. SEC-OGC Opinion No. 17-07, addressed to
Mr. Reynaldo G. David; and
7. SEC-OGC Opinion No. 03-08, addressed to
Attys. Ruby Rose J. Yusi and Rudyard S.
Arbolado.
The SEC legal officers occasional but blatant
disregard of the definition of the term "Philippine
national" in the FIA signifies their lack of integrity
and competence in resolving issues on the 60-40
ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the Constitution.
The PSE President argues that the term "Philippine
national" defined in the FIA should be limited and
interpreted to refer to corporations seeking to avail
of tax and fiscal incentives under investment
incentives laws and cannot be equated with the term

"capital" in Section 11, Article XII of the 1987

Constitution. Pangilinan similarly contends that the
FIA and its predecessor statutes do not apply to
"companies which have not registered and obtained
special incentives under the schemes established by
those laws."
Both are desperately grasping at straws. The FIA
does not grant tax or fiscal incentives to any
enterprise. Tax and fiscal incentives to investments
are granted separately under the Omnibus
Investments Code of 1987, not under the FIA. In
fact, the FIA expressly repealed Articles 44 to 56
of Book II of the Omnibus Investments Code of
1987, which articles previously regulated foreign
investments in nationalized or partially nationalized
industries.
The FIA is the applicable law regulating foreign
investments in nationalized or partially nationalized
industries. There is nothing in the FIA, or even in
the Omnibus Investments Code of 1987 or its
predecessor statutes, that states, expressly or
impliedly, that the FIA or its predecessor statutes
do not apply to enterprises not availing of tax and
fiscal incentives under the Code. The FIA and its
predecessor statutes apply to investments in all
domestic enterprises, whether or not such
enterprises enjoy tax and fiscal incentives under the
Omnibus Investments Code of 1987 or its
predecessor statutes. The reason is quite obvious
mere non-availment of tax and fiscal incentives by
a non-Philippine national cannot exempt it from
Section 11, Article XII of the Constitution
regulating foreign investments in public utilities. In
fact, the Board of Investments Primer on
Investment Policies in the Philippines,34 which is
given out to foreign investors, provides:
PART III. FOREIGN INVESTMENTS WITHOUT
INCENTIVES

Investors who do not seek incentives and/or whose

chosen activities do not qualify for incentives, (i.e.,
the activity is not listed in the IPP, and they are not
exporting at least 70% of their production) may go
ahead and make the investments without seeking
incentives. They only have to be guided by the
Foreign Investments Negative List (FINL).
The FINL clearly defines investment areas requiring
at least 60% Filipino ownership. All other areas
outside of this list are fully open to foreign
investors. (Emphasis supplied)

V.
Right to elect directors, coupled with beneficial
ownership,
translates to effective control.
The 28 June 2011 Decision declares that the 60
percent Filipino ownership required by the
Constitution to engage in certain economic activities
applies not only to voting control of the corporation,
but also to the beneficial ownership of the
corporation. To repeat, we held:
Mere legal title is insufficient to meet the 60
percent Filipino-owned "capital" required in the
Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock, coupled
with 60 percent of the voting rights, is required.
The legal and beneficial ownership of 60 percent of
the outstanding capital stock must rest in the hands
of Filipino nationals in accordance with the
constitutional mandate. Otherwise, the corporation is
"considered as non-Philippine national[s]." (Emphasis
supplied)
This is consistent with Section 3 of the FIA which
provides that where 100% of the capital stock is held
by "a trustee of funds for pension or other employee
retirement or separation benefits," the trustee is a

Philippine national if "at least sixty percent (60%) of

the fund will accrue to the benefit of Philippine
nationals." Likewise, Section 1(b) of the
Implementing Rules of the FIA provides that "for
stocks to be deemed owned and held by Philippine
citizens or Philippine nationals, mere legal title is not
enough to meet the required Filipino equity. Full
beneficial ownership of the stocks, coupled with
appropriate voting rights, is essential."
Since the constitutional requirement of at least 60
percent Filipino ownership applies not only to voting
control of the corporation but also to the beneficial
ownership of the corporation, it is therefore
imperative that such requirement apply uniformly and
across the board to all classes of shares, regardless
of nomenclature and category, comprising the capital
of a corporation. Under the Corporation Code, capital
stock35 consists of all classes of shares issued to
stockholders, that is, common shares as well as
preferred shares, which may have different rights,
privileges or restrictions as stated in the articles of
incorporation.36
The Corporation Code allows denial of the right to
vote to preferred and redeemable shares, but
disallows denial of the right to vote in specific
corporate matters. Thus, common shares have the
right to vote in the election of directors, while
preferred shares may be denied such right.
Nonetheless, preferred shares, even if denied the
right to vote in the election of directors, are
entitled to vote on the following corporate matters:
(1) amendment of articles of incorporation; (2)
increase and decrease of capital stock; (3) incurring,
creating or increasing bonded indebtedness; (4) sale,
lease, mortgage or other disposition of substantially
all corporate assets; (5) investment of funds in
another business or corporation or for a purpose
other than the primary purpose for which the
corporation was organized; (6) adoption, amendment

and repeal of by-laws; (7) merger and consolidation;

and (8) dissolution of corporation. 37
Since a specific class of shares may have rights and
privileges or restrictions different from the rest of
the shares in a corporation, the 60-40 ownership
requirement in favor of Filipino citizens in Section 11,
Article XII of the Constitution must apply not only
to shares with voting rights but also to shares
without voting rights. Preferred shares, denied the
right to vote in the election of directors, are anyway
still entitled to vote on the eight specific corporate
matters mentioned above. Thus, if a corporation,
engaged in a partially nationalized industry, issues
a mixture of common and preferred non-voting
shares, at least 60 percent of the common shares
and at least 60 percent of the preferred nonvoting shares must be owned by Filipinos. Of
course, if a corporation issues only a single class of
shares, at least 60 percent of such shares must
necessarily be owned by Filipinos. In short, the 6040 ownership requirement in favor of Filipino
citizens must apply separately to each class of
shares, whether common, preferred non-voting,
preferred voting or any other class of
shares. This uniform application of the 60-40
ownership requirement in favor of Filipino citizens
clearly breathes life to the constitutional command
that the ownership and operation of public utilities
shall be reserved exclusively to corporations at least
60 percent of whose capital is Filipino-owned.
Applying uniformly the 60-40 ownership requirement
in favor of Filipino citizens to each class of shares,
regardless of differences in voting rights, privileges
and restrictions, guarantees effective Filipino
control of public utilities, as mandated by the
Constitution.
Moreover, such uniform application to each class of
shares insures that the "controlling interest" in
public utilities always lies in the hands of Filipino

citizens. This addresses and extinguishes Pangilinans

worry that foreigners, owning most of the non-voting
shares, will exercise greater control over
fundamental corporate matters requiring two-thirds
or majority vote of all shareholders.

VI.
Intent of the framers of the Constitution
While Justice Velasco quoted in his Dissenting
Opinion38 a portion of the deliberations of the
Constitutional Commission to support his claim that
the term "capital" refers to the total outstanding
shares of stock, whether voting or non-voting, the
following excerpts of the deliberations reveal
otherwise. It is clear from the following exchange
that the term "capital" refers to controlling
interest of a corporation, thus:
MR. NOLLEDO. In Sections 3, 9 and 15, the
Committee stated local or Filipino equity and foreign
equity; namely, 60-40 in Section 3, 60-40 in Section
9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced
with this question: "Where do we base the equity
requirement, is it on the authorized capital stock, on
the subscribed capital stock, or on the paid-up
capital stock of a corporation"? Will the Committee
please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion
with the members of the team from the UP Law
Center who provided us a draft. The phrase that is
contained here which we adopted from the UP
draft is "60 percent of voting stock."
MR. NOLLEDO. That must be based on the
subscribed capital stock, because unless declared

delinquent, unpaid capital stock shall be entitled to

vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in
another corporation, say, a corporation with 60-40
percent equity invests in another corporation which
is permitted by the Corporation Code, does the
Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the
Committee.
MR. NOLLEDO. Therefore, we need additional
Filipino capital?
MR. VILLEGAS. Yes.39
xxxx
MR. AZCUNA. May I be clarified as to that portion
that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the
Committee is the deletion of the phrase "voting
stock or controlling interest."
MR. AZCUNA. Hence, without the Davide
amendment, the committee report would read:
"corporations or associations at least sixty percent
of whose CAPITAL is owned by such citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost,
we are stuck with 60 percent of the capital to be
owned by citizens.

MR. VILLEGAS. That is right.

MR. AZCUNA. But the control can be with the
foreigners even if they are the minority. Let us
say 40 percent of the capital is owned by them,
but it is the voting capital, whereas, the Filipinos
own the nonvoting shares. So we can have a
situation where the corporation is controlled by
foreigners despite being the minority because they
have the voting capital. That is the anomaly that
would result here.
MR. BENGZON. No, the reason we eliminated the
word "stock" as stated in the 1973 and 1935
Constitutions is that according to Commissioner
Rodrigo, there are associations that do not have
stocks. That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase
"controlling interest."
MR. BENGZON. In the case of stock
corporations, it is assumed.40 (Boldfacing and
underscoring supplied)
Thus, 60 percent of the "capital" assumes, or should
result in, a "controlling interest" in the corporation.
The use of the term "capital" was intended to
replace the word "stock" because associations
without stocks can operate public utilities as long as
they meet the 60-40 ownership requirement in favor
of Filipino citizens prescribed in Section 11, Article
XII of the Constitution. However, this did not
change the intent of the framers of the Constitution
to reserve exclusively to Philippine nationals the
"controlling interest" in public utilities.
During the drafting of the 1935 Constitution,
economic protectionism was "the battle-cry of the
nationalists in the Convention."41 The same battle-cry

resulted in the nationalization of the public

utilities.42 This is also the same intent of the
framers of the 1987 Constitution who adopted the
exact formulation embodied in the 1935 and 1973
Constitutions on foreign equity limitations in partially
nationalized industries.
The OSG, in its own behalf and as counsel for the
State,43 agrees fully with the Courts interpretation
of the term "capital." In its Consolidated Comment,
the OSG explains that the deletion of the phrase
"controlling interest" and replacement of the word
"stock" with the term "capital" were intended
specifically to extend the scope of the entities
qualified to operate public utilities to include
associations without stocks. The framers omission of
the phrase "controlling interest" did not mean the
inclusion of all shares of stock, whether voting or
non-voting. The OSG reiterated essentially the
Courts declaration that the Constitution reserved
exclusively to Philippine nationals the ownership and
operation of public utilities consistent with the
States policy to "develop a self-reliant and
independent national economy effectively controlled
by Filipinos."
As we held in our 28 June 2011 Decision, to construe
broadly the term "capital" as the total outstanding
capital stock, treated as a single class regardless of
the actual classification of shares, grossly
contravenes the intent and letter of the Constitution
that the "State shall develop a self-reliant and
independent national economyeffectively
controlled by Filipinos." We illustrated the glaring
anomaly which would result in defining the term
"capital" as the total outstanding capital stock of a
corporation, treated as a single class of shares
regardless of the actual classification of shares, to
wit:

Let us assume that a corporation has 100 common

shares owned by foreigners and 1,000,000 non-voting
preferred shares owned by Filipinos, with both
classes of share having a par value of one peso
(P 1.00) per share. Under the broad definition of the
term "capital," such corporation would be considered
compliant with the 40 percent constitutional limit on
foreign equity of public utilities since the
overwhelming majority, or more than 99.999 percent,
of the total outstanding capital stock is Filipino
owned. This is obviously absurd.
In the example given, only the foreigners holding the
common shares have voting rights in the election of
directors, even if they hold only 100 shares. The
foreigners, with a minuscule equity of less than 0.001
percent, exercise control over the public utility. On
the other hand, the Filipinos, holding more than
99.999 percent of the equity, cannot vote in the
election of directors and hence, have no control over
the public utility. This starkly circumvents the intent
of the framers of the Constitution, as well as the
clear language of the Constitution, to place the
control of public utilities in the hands of Filipinos. x
xx
Further, even if foreigners who own more than forty
percent of the voting shares elect an all-Filipino
board of directors, this situation does not guarantee
Filipino control and does not in any way cure the
violation of the Constitution. The independence of
the Filipino board members so elected by such
foreign shareholders is highly doubtful. As the OSG
pointed out, quoting Justice George Sutherlands
words in Humphreys Executor v. US,44 "x x x it is
quite evident that one who holds his office only
during the pleasure of another cannot be depended
upon to maintain an attitude of independence against
the latters will." Allowing foreign shareholders to
elect a controlling majority of the board, even if all
the directors are Filipinos, grossly circumvents the

letter and intent of the Constitution and defeats the

very purpose of our nationalization laws.

VII.
Last sentence of Section 11, Article XII of the
Constitution
The last sentence of Section 11, Article XII of the
1987 Constitution reads:
The participation of foreign investors in the
governing body of any public utility enterprise shall
be limited to their proportionate share in its capital,
and all the executive and managing officers of such
corporation or association must be citizens of the
Philippines.
During the Oral Arguments, the OSG emphasized
that there was never a question on the intent of the
framers of the Constitution to limit foreign
ownership, and assure majority Filipino ownership and
control of public utilities. The OSG argued, "while
the delegates disagreed as to the percentage
threshold to adopt, x x x the records show they
clearly understood that Filipino control of the public
utility corporation can only be and is obtained only
through the election of a majority of the members
of the board."
Indeed, the only point of contention during the
deliberations of the Constitutional Commission on 23
August 1986 was the extent of majority Filipino
control of public utilities. This is evident from the
following exchange:

PERCENT OF WHOSE CAPITAL" so that the

sentence will read: "No franchise, certificate, or any
other form of authorization for the operation of a
public utility shall be granted except to citizens of
the Philippines or to corporations or associations
organized under the laws of the Philippines at least
SIXTY PERCENT OF WHOSE CAPITAL is owned by
such citizens."
xxxx
THE PRESIDENT: Will Commissioner Jamir first
explain?
MR. JAMIR. Yes, in this Article on National Economy
and Patrimony, there were two previous sections in
which we fixed the Filipino equity to 60 percent as
against 40 percent for foreigners. It is only in this
Section 15 with respect to public utilities that the
committee proposal was increased to two-thirds. I
think it would be better to harmonize this provision
by providing that even in the case of public utilities,
the minimum equity for Filipino citizens should be 60
percent.
MR. ROMULO. Madam President.
THE PRESIDENT. Commissioner Romulo is
recognized.
MR. ROMULO. My reason for supporting the
amendment is based on the discussions I have had
with representatives of the Filipino majority owners
of the international record carriers, and the
subsequent memoranda they submitted to me. x x x

THE PRESIDENT. Commissioner Jamir is recognized.

MR. JAMIR. Madam President, my proposed
amendment on lines 20 and 21 is to delete the phrase
"two thirds of whose voting stock or controlling
interest," and instead substitute the words "SIXTY

Their second point is that under the Corporation

Code, the management and control of a corporation is
vested in the board of directors, not in the officers
but in the board of directors. The officers are only
agents of the board. And they believe that with 60

percent of the equity, the Filipino majority

stockholders undeniably control the board. Only on
important corporate acts can the 40-percent foreign
equity exercise a veto, x x x.

THE PRESIDENT. Commissioner Rosario Braid is

recognized.

enterprise shall be limited to their proportionate

share in its capital, and all the executive and
managing officers of such corporation or association
must be citizens of the Philippines." In other words,
the last sentence of Section 11, Article XII of the
Constitution mandates that (1) the participation of
foreign investors in the governing body of the
corporation or association shall be limited to their
proportionate share in the capital of such entity; and
(2) all officers of the corporation or association
must be Filipino citizens.

MS. ROSARIO BRAID. Yes, in the interest of equal

time, may I also read from a memorandum by the
spokesman of the Philippine Chamber of
Communications on why they would like to maintain
the present equity, I am referring to the 66 2/3.
They would prefer to have a 75-25 ratio but would
settle for 66 2/3. x x x

Commissioner Rosario Braid proposed the inclusion of

the phrase requiring the managing officers of the
corporation or association to be Filipino citizens
specifically to prevent management contracts, which
were designed primarily to circumvent the
Filipinization of public utilities, and to assure Filipino
control of public utilities, thus:

xxxx

MS. ROSARIO BRAID. x x x They also like to

suggest that we amend this provision by adding a
phrase which states: "THE MANAGEMENT BODY OF
EVERY CORPORATION OR ASSOCIATION SHALL
IN ALL CASES BE CONTROLLED BY CITIZENS OF
THE PHILIPPINES." I have with me their position
paper.

x x x x45
MS. ROSARIO BRAID. Madam President.

THE PRESIDENT. Just to clarify, would

Commissioner Rosario Braid support the proposal of
two-thirds rather than the 60 percent?
MS. ROSARIO BRAID. I have added a clause that
will put management in the hands of Filipino citizens.
x x x x46
While they had differing views on the percentage of
Filipino ownership of capital, it is clear that the
framers of the Constitution intended public utilities
to be majority Filipino-owned and controlled. To
ensure that Filipinos control public utilities, the
framers of the Constitution approved, as additional
safeguard, the inclusion of the last sentence of
Section 11, Article XII of the Constitution
commanding that "[t]he participation of foreign
investors in the governing body of any public utility

THE PRESIDENT. The Commissioner may proceed.

MS. ROSARIO BRAID. The three major international
record carriers in the Philippines, which
Commissioner Romulo mentioned Philippine Global
Communications, Eastern Telecommunications, Globe
Mackay Cable are 40-percent owned by foreign
multinational companies and 60-percent owned by
their respective Filipino partners. All three, however,
also have management contracts with these foreign
companies Philcom with RCA, ETPI with Cable and
Wireless PLC, and GMCR with ITT. Up to the present
time, the general managers of these carriers are

foreigners. While the foreigners in these common

carriers are only minority owners, the foreign
multinationals are the ones managing and controlling
their operations by virtue of their management
contracts and by virtue of their strength in the
governing bodies of these carriers.47
xxxx
MR. OPLE. I think a number of us have agreed to ask
Commissioner Rosario Braid to propose an amendment
with respect to the operating management of public
utilities, and in this amendment, we are associated
with Fr. Bernas, Commissioners Nieva and Rodrigo.
Commissioner Rosario Braid will state this
amendment now.
Thank you.
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. This is still on Section 15.
MS. ROSARIO BRAID. Yes.
MR. VILLEGAS. Yes, Madam President.
xxxx
MS. ROSARIO BRAID. Madam President, I propose a
new section to read: THE MANAGEMENT BODY OF
EVERY CORPORATION OR ASSOCIATION SHALL
IN ALL CASES BE CONTROLLED BY CITIZENS OF
THE PHILIPPINES."
This will prevent management contracts and assure
control by Filipino citizens. Will the committee
assure us that this amendment will insure that past
activities such as management contracts will no
longer be possible under this amendment?

xxxx
FR. BERNAS. Madam President.
THE PRESIDENT. Commissioner Bernas is
recognized.
FR. BERNAS. Will the committee accept a
reformulation of the first part?
MR. BENGZON. Let us hear it.
FR. BERNAS. The reformulation will be essentially
the formula of the 1973 Constitution which reads:
"THE PARTICIPATION OF FOREIGN INVESTORS
IN THE GOVERNING BODY OF ANY PUBLIC
UTILITY ENTERPRISE SHALL BE LIMITED TO
THEIR PROPORTIONATE SHARE IN THE CAPITAL
THEREOF AND..."
MR. VILLEGAS. "ALL THE EXECUTIVE AND
MANAGING OFFICERS OF SUCH CORPORATIONS
AND ASSOCIATIONS MUST BE CITIZENS OF
THE PHILIPPINES."
MR. BENGZON. Will Commissioner Bernas read the
whole thing again?
FR. BERNAS. "THE PARTICIPATION OF FOREIGN
INVESTORS IN THE GOVERNING BODY OF ANY
PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED
TO THEIR PROPORTIONATE SHARE IN THE
CAPITAL THEREOF..." I do not have the rest of the
copy.
MR. BENGZON. "AND ALL THE EXECUTIVE AND
MANAGING OFFICERS OF SUCH CORPORATIONS
OR ASSOCIATIONS MUST BE CITIZENS OF THE
PHILIPPINES." Is that correct?
MR. VILLEGAS. Yes.

MR. BENGZON. Madam President, I think that was

said in a more elegant language. We accept the
amendment. Is that all right with Commissioner
Rosario Braid?
MS. ROSARIO BRAID. Yes.
xxxx
MR. DE LOS REYES. The governing body refers to
the board of directors and trustees.
MR. VILLEGAS. That is right.
MR. BENGZON. Yes, the governing body refers to
the board of directors.
MR. REGALADO. It is accepted.
MR. RAMA. The body is now ready to vote, Madam
President.
VOTING
xxxx
The results show 29 votes in favor and none against;
so the proposed amendment is approved.
xxxx
THE PRESIDENT. All right. Can we proceed now to
vote on Section 15?
MR. RAMA. Yes, Madam President.
THE PRESIDENT. Will the chairman of the
committee please read Section 15?

MR. VILLEGAS. The entire Section 15, as amended,

reads: "No franchise, certificate, or any other form
of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines
or to corporations or associations organized under
the laws of the Philippines at least 60 PERCENT OF
WHOSE CAPITAL is owned by such citizens." May I
request Commissioner Bengzon to please continue
reading.
MR. BENGZON. "THE PARTICIPATION OF
FOREIGN INVESTORS IN THE GOVERNING BODY
OF ANY PUBLIC UTILITY ENTERPRISE SHALL BE
LIMITED TO THEIR PROPORTIONATE SHARE IN
THE CAPITAL THEREOF AND ALL THE EXECUTIVE
AND MANAGING OFFICERS OF SUCH
CORPORATIONS OR ASSOCIATIONS MUST BE
CITIZENS OF THE PHILIPPINES."
MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE,
CERTIFICATE OR AUTHORIZATION BE
EXCLUSIVE IN CHARACTER OR FOR A PERIOD
LONGER THAN TWENTY-FIVE YEARS
RENEWABLE FOR NOT MORE THAN TWENTYFIVE YEARS. Neither shall any such franchise or
right be granted except under the condition that it
shall be subject to amendment, alteration, or repeal
by Congress when the common good so requires. The
State shall encourage equity participation in public
utilities by the general public."
VOTING
xxxx
The results show 29 votes in favor and 4 against;
Section 15, as amended, is approved.48 (Emphasis
supplied)
The last sentence of Section 11, Article XII of the
1987 Constitution, particularly the provision on the

limited participation of foreign investors in the

governing body of public utilities, is a reiteration of
the last sentence of Section 5, Article XIV of the
1973 Constitution,49 signifying its importance in
reserving ownership and control of public utilities to
Filipino citizens.

VIII.
The undisputed facts
There is no dispute, and respondents do not claim the
contrary, that (1) foreigners own 64.27% of the
common shares of PLDT, which class of shares
exercises the sole right to vote in the election of
directors, and thus foreigners control PLDT; (2)
Filipinos own only 35.73% of PLDTs common shares,
constituting a minority of the voting stock, and thus
Filipinos do not control PLDT; (3) preferred shares,
99.44% owned by Filipinos, have no voting rights; (4)
preferred shares earn only 1/70 of the dividends
that common shares earn;50 (5) preferred shares
have twice the par value of common shares; and (6)
preferred shares constitute 77.85% of the
authorized capital stock of PLDT and common shares
only 22.15%.
Despite the foregoing facts, the Court did not
decide, and in fact refrained from ruling on the
question of whether PLDT violated the 60-40
ownership requirement in favor of Filipino citizens in
Section 11, Article XII of the 1987 Constitution.
Such question indisputably calls for a presentation
and determination of evidence through a hearing,
which is generally outside the province of the Courts
jurisdiction, but well within the SECs statutory
powers. Thus, for obvious reasons, the Court limited
its decision on the purely legal and threshold issue on
the definition of the term "capital" in Section 11,
Article XII of the Constitution and directed the SEC
to apply such definition in determining the exact
percentage of foreign ownership in PLDT.

IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:
xxxx
5. For the Honorable Court to issue a declaratory
relief that ownership of common or voting shares is
the sole basis in determining foreign equity in a
public utility and that any other government rulings,
opinions, and regulations inconsistent with this
declaratory relief be declared unconstitutional and a
violation of the intent and spirit of the 1987
Constitution;
6. For the Honorable Court to declare null and void
all sales of common stocks to foreigners in excess of
40 percent of the total subscribed common
shareholdings; and
7. For the Honorable Court to direct the Securities
and Exchange Commission and Philippine Stock
Exchange to require PLDT to make a public
disclosure of all of its foreign shareholdings and
their actual and real beneficial owners.
Other relief(s) just and equitable are likewise prayed
for. (Emphasis supplied)
As can be gleaned from his prayer, Gamboa clearly
asks this Court to compel the SEC to perform its
statutory duty to investigate whether "the required
percentage of ownership of the capital stock to be
owned by citizens of the Philippines has been
complied with [by PLDT] as required by x x x the
Constitution."51 Such plea clearly negates SECs
argument that it was not impleaded.

Granting that only the SEC Chairman was impleaded

in this case, the Court has ample powers to order the
SECs compliance with its directive contained in the
28 June 2011 Decision in view of the far-reaching
implications of this case. In Domingo v. Scheer,52 the
Court dispensed with the amendment of the
pleadings to implead the Bureau of Customs
considering (1) the unique backdrop of the case; (2)
the utmost need to avoid further delays; and (3) the
issue of public interest involved. The Court held:
The Court may be curing the defect in this case by
adding the BOC as party-petitioner. The petition
should not be dismissed because the second action
would only be a repetition of the first. In Salvador,
et al., v. Court of Appeals, et al., we held that this
Court has full powers, apart from that power and
authority which is inherent, to amend the processes,
pleadings, proceedings and decisions by substituting
as party-plaintiff the real party-in-interest. The
Court has the power to avoid delay in the
disposition of this case, to order its amendment
as to implead the BOC as party-respondent.
Indeed, it may no longer be necessary to do so
taking into account the unique backdrop in this
case, involving as it does an issue of public
interest. After all, the Office of the Solicitor
General has represented the petitioner in the instant
proceedings, as well as in the appellate court, and
maintained the validity of the deportation order and
of the BOCs Omnibus Resolution. It cannot, thus, be
claimed by the State that the BOC was not afforded
its day in court, simply because only the petitioner,
the Chairperson of the BOC, was the respondent in
the CA, and the petitioner in the instant recourse.
In Alonso v. Villamor, we had the occasion to state:
There is nothing sacred about processes or
pleadings, their forms or contents. Their sole
purpose is to facilitate the application of justice
to the rival claims of contending parties. They

were created, not to hinder and delay, but to

facilitate and promote, the administration of justice.
They do not constitute the thing itself, which courts
are always striving to secure to litigants. They are
designed as the means best adapted to obtain that
thing. In other words, they are a means to an end.
When they lose the character of the one and become
the other, the administration of justice is at fault
and courts are correspondingly remiss in the
performance of their obvious duty. 53(Emphasis
supplied)

proceedings before the SEC where the factual issues

will be thoroughly threshed out and resolved.

In any event, the SEC has expressly

manifested54 that it will abide by the Courts
decision and defer to the Courts definition of the
term "capital" in Section 11, Article XII of the
Constitution. Further, the SEC entered its special
appearance in this case and argued during the
Oral Arguments, indicating its submission to the
Courts jurisdiction. It is clear, therefore, that
there exists no legal impediment against the
proper and immediate implementation of the
Courts directive to the SEC.

Needless to state, the Court can validly, properly,

and fully dispose of the fundamental legal issue in
this case even without the participation of PLDT
since defining the term "capital" in Section 11,
Article XII of the Constitution does not, in any way,
depend on whether PLDT was impleaded. Simply put,
PLDT is not indispensable for a complete resolution
of the purely legal question in this case.55 In fact,
the Court, by treating the petition as one for
mandamus,56 merely directed the SEC to apply the
Courts definition of the term "capital" in Section 11,
Article XII of the Constitution in determining
whether PLDT committed any violation of the said
constitutional provision. The dispositive portion of
the Courts ruling is addressed not to PLDT but
solely to the SEC, which is the administrative
agency tasked to enforce the 60-40 ownership
requirement in favor of Filipino citizens in Section
11, Article XII of the Constitution.

PLDT is an indispensable party only insofar as the

other issues, particularly the factual questions, are
concerned. In other words, PLDT must be impleaded
in order to fully resolve the issues on (1) whether the
sale of 111,415 PTIC shares to First Pacific violates
the constitutional limit on foreign ownership of
PLDT; (2) whether the sale of common shares to
foreigners exceeded the 40 percent limit on foreign
equity in PLDT; and (3) whether the total percentage
of the PLDT common shares with voting rights
complies with the 60-40 ownership requirement in
favor of Filipino citizens under the Constitution for
the ownership and operation of PLDT. These issues
indisputably call for an examination of the parties
respective evidence, and thus are clearly within the
jurisdiction of the SEC. In short, PLDT must be
impleaded, and must necessarily be heard, in the

Notably, the foregoing issues were left untouched

by the Court. The Court did not rule on the factual
issues raised by Gamboa, except the single and
purely legal issue on the definition of the term
"capital" in Section 11, Article XII of the
Constitution. The Court confined the resolution of
the instant case to this threshold legal issue in
deference to the fact-finding power of the SEC.

Since the Court limited its resolution on the purely

legal issue on the definition of the term "capital" in
Section 11, Article XII of the 1987 Constitution, and
directed the SEC to investigate any violation by
PLDT of the 60-40 ownership requirement in favor
of Filipino citizens under the Constitution,57 there is
no deprivation of PLDTs property or denial of PLDTs
right to due process, contrary to Pangilinan and
Nazarenos misimpression. Due process will be

afforded to PLDT when it presents proof to the SEC

that it complies, as it claims here, with Section 11,
Article XII of the Constitution.

X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision would
spell disaster to our economy, as it may result in a
sudden flight of existing foreign investors to
"friendlier" countries and simultaneously deterring
new foreign investors to our country. In particular,
the PSE claims that the 28 June 2011 Decision may
result in the following: (1) loss of more than P 630
billion in foreign investments in PSE-listed shares;
(2) massive decrease in foreign trading transactions;
(3) lower PSE Composite Index; and (4) local
investors not investing in PSE-listed shares. 58
Dr. Bernardo M. Villegas, one of the amici curiae in
the Oral Arguments, shared movants apprehension.
Without providing specific details, he pointed out
the depressing state of the Philippine economy
compared to our neighboring countries which boast
of growing economies. Further, Dr. Villegas explained
that the solution to our economic woes is for the
government to "take-over" strategic industries, such
as the public utilities sector, thus:
JUSTICE CARPIO:
I would like also to get from you Dr. Villegas if you
have additional information on whether this high
FDI59 countries in East Asia have allowed foreigners
x x x control [of] their public utilities, so that we can
compare apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment. When
these neighbors of ours find an industry strategic,

their solution is not to "Filipinize" or "Vietnamize" or

"Singaporize." Their solution is to make sure that
those industries are in the hands of state
enterprises. So, in these countries, nationalization
means the government takes over. And because
their governments are competent and honest
enough to the public, that is the solution. x x
x 60 (Emphasis supplied)

belongs to Filipinos. Following Dr. Villegass claim, the

Philippines appears to be more liberal in allowing
foreign investors to own 40 percent of public
utilities, unlike in other Asian countries whose
governments own and operate such industries.

If government ownership of public utilities is the

solution, then foreign investments in our public
utilities serve no purpose. Obviously, there can never
be foreign investments in public utilities if, as Dr.
Villegas claims, the "solution is to make sure that
those industries are in the hands of state
enterprises." Dr. Villegass argument that foreign
investments in telecommunication companies like
PLDT are badly needed to save our ailing economy
contradicts his own theory that the solution is for
government to take over these companies. Dr.
Villegas is barking up the wrong tree since State
ownership of public utilities and foreign investments
in such industries are diametrically opposed
concepts, which cannot possibly be reconciled.

In its Motion for Partial Reconsideration, the SEC

sought to clarify the reckoning period of the
application and imposition of appropriate sanctions
against PLDT if found violating Section 11, Article
XII of the Constitution.1avvphi1

In any event, the experience of our neighboring

countries cannot be used as argument to decide the
present case differently for two reasons. First, the
governments of our neighboring countries have, as
claimed by Dr. Villegas, taken over ownership and
control of their strategic public utilities like the
telecommunications industry. Second, our
Constitution has specific provisions limiting foreign
ownership in public utilities which the Court is sworn
to uphold regardless of the experience of our
neighboring countries.
In our jurisdiction, the Constitution expressly
reserves the ownership and operation of public
utilities to Filipino citizens, or corporations or
associations at least 60 percent of whose capital

XI.
Prospective Application of Sanctions

As discussed, the Court has directed the SEC to

investigate and determine whether PLDT violated
Section 11, Article XII of the Constitution. Thus,
there is no dispute that it is only after the SEC has
determined PLDTs violation, if any exists at the time
of the commencement of the administrative case or
investigation, that the SEC may impose the statutory
sanctions against PLDT. In other words, once the 28
June 2011 Decision becomes final, the SEC shall
impose the appropriate sanctions only if it finds
after due hearing that, at the start of the
administrative case or investigation, there is an
existing violation of Section 11, Article XII of the
Constitution. Under prevailing jurisprudence, public
utilities that fail to comply with the nationality
requirement under Section 11, Article XII and the
FIA can cure their deficiencies prior to the start of
the administrative case or investigation. 61

XII.
Final Word
The Constitution expressly declares as State policy
the development of an economy "effectively
controlled" by Filipinos. Consistent with such State
policy, the Constitution explicitly reserves the

ownership and operation of public utilities to

Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or
corporations or associations at least 60 percent of
whose capital with voting rights belongs to Filipinos.
The FIAs implementing rules explain that "[f]or
stocks to be deemed owned and held by Philippine
citizens or Philippine nationals, mere legal title is not
enough to meet the required Filipino equity. Full
beneficial ownership of the stocks, coupled with
appropriate voting rights is essential." In effect,
the FIA clarifies, reiterates and confirms the
interpretation that the term "capital" in Section 11,
Article XII of the 1987 Constitution refers
toshares with voting rights, as well as with full
beneficial ownership. This is precisely because the
right to vote in the election of directors, coupled
with full beneficial ownership of stocks, translates to
effective control of a corporation.
Any other construction of the term "capital" in
Section 11, Article XII of the Constitution
contravenes the letter and intent of the
Constitution. Any other meaning of the term "capital"
openly invites alien domination of economic activities
reserved exclusively to Philippine nationals.
Therefore, respondents interpretation will
ultimately result in handing over effective control of
our national economy to foreigners in patent violation
of the Constitution, making Filipinos second-class
citizens in their own country.
Filipinos have only to remind themselves of how this
country was exploited under the Parity Amendment,
which gave Americans the same rights as Filipinos in
the exploitation of natural resources, and in the
ownership and control of public utilities, in the
Philippines. To do this the 1935 Constitution, which
contained the same 60 percent Filipino ownership and
control requirement as the present 1987
Constitution, had to be amended to give Americans

parity rights with Filipinos. There was bitter

opposition to the Parity Amendment62 and many
Filipinos eagerly awaited its expiration. In late 1968,
PLDT was one of the American-controlled public
utilities that became Filipino-controlled when the
controlling American stockholders divested in
anticipation of the expiration of the Parity
Amendment on 3 July 1974.63 No economic suicide
happened when control of public utilities and mining
corporations passed to Filipinos hands upon
expiration of the Parity Amendment.

Parity Amendment. This Court has no power to amend

the Constitution for its power and duty is only to
faithfully apply and interpret the Constitution.

Movants interpretation of the term "capital" would

bring us back to the same evils spawned by the Parity
Amendment, effectively giving foreigners parity
rights with Filipinos, but this time even without
any amendment to the present Constitution. Worse,
movants interpretation opens up our national
economy toeffective control not only by Americans
but also by all foreigners, be they Indonesians,
Malaysians or Chinese, even in the absence of
reciprocal treaty arrangements. At least the Parity
Amendment, as implemented by the Laurel-Langley
Agreement, gave the capital-starved Filipinos
theoretical parity the same rights as Americans to
exploit natural resources, and to own and control
public utilities, in the United States of America.
Here, movants interpretation would effectively mean
a unilateral opening up of our national economy to all
foreigners, without any reciprocal arrangements.
That would mean that Indonesians, Malaysians and
Chinese nationals could effectively control our mining
companies and public utilities while Filipinos, even if
they have the capital, could not control similar
corporations in these countries.

DEPARTMENT OF HEALTH, THE SECRETARY OF

The 1935, 1973 and 1987 Constitutions have the

same 60 percent Filipino ownership and control
requirement for public utilities like PLOT. Any
deviation from this requirement necessitates an
amendment to the Constitution as exemplified by the

WHEREFORE, we DENY the motions for

reconsideration WITH FINALITY. No further
pleadings shall be entertained.

procedure for accreditation of government suppliers

of pharmaceutical products for sale or distribution
to the public, such accreditation to be valid for
three years but subject to annual review.
On January 25, 2000, Secretary Romualdez issued
AO 10 series of 20006 which amended AO 27. Under
Section VII7 of AO 10, the accreditation period for

SO ORDERED.

government suppliers of pharmaceutical products was

G.R. No. 182358

February 20, 2013

HEALTH, and MA. MARGARITA M.

GALON, Petitioners,

reduced to two years. Moreover, such accreditation

may be recalled, suspended or revoked after due
deliberation and proper notice by the DOH
Accreditation Committee, through its Chairman.
Section VII of AO 10 was later amended by AO 66

vs.
PHIL PHARMA WEALTH, INC., Respondent.
DECISION

series of 2000,8 which provided that the two-year

accreditation period may be recalled, suspended or
revoked only after due deliberation, hearing and
notice by the DOH Accreditation Committee,
through its Chairman.

DEL CASTILLO, J.:

The state may not be sued without its consent.
Likewise, public officials may not be sued for acts
done in the perfom1ance of their official functions
or within the scope of their authority.
This Petition for Review on Certiorari1 assails the
October 25, 2007 Decision2 of the Court of Appeals
(CA) in CA-G.R. CV No. 85670, and its March 31,
2008 Reso1ution3 denying petitioners' Motion for
Reconsideration.4

On August 28, 2000, the DOH issued Memorandum

No. 171-C9 which provided for a list and category of
sanctions to be imposed on accredited government
suppliers of pharmaceutical products in case of
adverse findings regarding their products
(e.g. substandard, fake, or misbranded) or violations
committed by them during their accreditation.
In line with Memorandum No. 171-C, the DOH,
through former Undersecretary Ma. Margarita M.
Galon (Galon), issued Memorandum No. 209 series of

Factual Antecedents
On December 22, 1998, Administrative Order (AO)
No. 27 series of 1998 was issued by then
5

Department of Health (DOH) Secretary Alfredo G.

Romualdez (Romualdez). AO 27 set the guidelines and

2000,10 inviting representatives of 24 accredited

drug companies, including herein respondent Phil
Pharmawealth, Inc. (PPI) to a meeting on October 27,
2000. During the meeting, Undersecretary Galon
handed them copies of a document entitled "Report
on Violative Products"11 issued by the Bureau of Food

and Drugs12 (BFAD), which detailed violations or

behalf the appropriate reply to the Report furnished

Complaint19 seeking to declare null and void certain

adverse findings relative to these accredited drug

to us. Our lawyers in time shall revert to you and

DOH administrative issuances, with prayer for

companies products. Specifically, the BFAD found

furnish you the said reply.

damages and injunction against the DOH, former

that PPIs products which were being sold to the

public were unfit for human consumption.

Secretary Romualdez and DOH Undersecretary

Please be guided accordingly.

Galon. Docketed as Civil Case No. 68200, the case

was raffled to Branch 160. On February 8, 2002, PPI

During the October 27, 2000 meeting, the 24 drug

Very truly yours,

companies were directed to submit within 10 days, or

filed an Amended and Supplemental Complaint, 20 this

time impleading DOH Secretary Manuel Dayrit

until November 6, 2000, their respective

(signed)

(Dayrit). PPI claimed that AO 10, Memorandum No.

explanations on the adverse findings covering their

ATTY. ALAN A.B. ALAMBRA

171-C, Undersecretary Galons suspension order

respective products contained in the Report on

contained in her November 23, 2000 letter, and AO

Violative Products.

Vice-President for Legal and Administrative Affairs 14

Instead of submitting its written explanation within

In a letter-reply15 dated November 23, 2000

the 10-day period as required, PPI belatedly sent a

Undersecretary Galon found "untenable" PPIs

letter13dated November 13, 2000 addressed to

November 13, 2000 letter and therein informed PPI

Undersecretary Galon, informing her that PPI has

that, effective immediately, its accreditation has

referred the Report on Violative Products to its

been suspended for two years pursuant to AO 10 and

(d) When it appears to the Director [of the BFAD]

lawyers with instructions to prepare the

Memorandum No. 171-C.

that the report of the Bureau that any article of

corresponding reply. However, PPI did not indicate

when its reply would be submitted; nor did it seek an
extension of the 10-day period, which had previously
expired on November 6, 2000, much less offer any
explanation for its failure to timely submit its reply.

In another December 14, 2000 letter16 addressed to

Undersecretary Galon, PPI through counsel
questioned the suspension of its accreditation, saying
that the same was made pursuant to Section VII of

PPIs November 13, 2000 letter states:

AO 10 which it claimed was patently illegal and null

Madam,

Accreditation Committee powers and functions which

and void because it arrogated unto the DOH

were granted to the BFAD under Republic Act (RA)

14 series of 200121are null and void for being in

contravention of Section 26(d) of RA 3720 as
amended by EO 175, which states as follows:
SEC. 26. x x x

food or any drug, device, or cosmetic secured

pursuant to Section twenty-eight of this Act is
adulterated, misbranded, or not registered, he shall
cause notice thereof to be given to the person or
persons concerned and such person or persons shall
be given an opportunity to be heard before the
Bureau and to submit evidence impeaching the
correctness of the finding or charge in question.

This refers to your directive on 27 October 2000, on

No. 372017 and Executive Order (EO) No. 175.18 PPI

For what it claims was an undue suspension of its

the occasion of the meeting with selected accredited

added that its accreditation was suspended without

accreditation, PPI prayed that AO 10, Memorandum

suppliers, during which you made known to the

the benefit of notice and hearing, in violation of its

No. 171-C, Undersecretary Galons suspension order

attendees of your requirement for them to submit

right to substantive and administrative due process.

contained in her November 23, 2000 letter, and AO

their individual comments on the Report on Violative

It thus demanded that the DOH desist from

14 be declared null and void, and that it be awarded

Products (the "Report") compiled by your office and

implementing the suspension of its accreditation,

moral damages of P5 million, exemplary damages

disseminated on that date.

under pain of legal redress.

of P1 million, attorneys fees of P1 million, and costs

In this connection, we inform you that we have

On December 28, 2000, PPI filed before the

already instructed our lawyers to prepare on our

Regional Trial Court of Pasig City a

of suit. PPI likewise prayed for the issuance of

temporary and permanent injunctive relief.

In their Amended Answer,22 the DOH, former

which were not included in the list of violative

sufficiently alleged that due to defendants

Secretary Romualdez, then Secretary Dayrit, and

products or drugs as found by the BFAD.

(petitioners) acts which were beyond the scope of

Undersecretary Galon sought the dismissal of the

their authority, PPIs accreditation as a government

Complaint, stressing that PPIs accreditation was

In a Manifestation and Motion

dated July 8, 2003,

supplier of pharmaceutical products was suspended

suspended because most of the drugs it was

petitioners moved for the dismissal of Civil Case No.

without the required notice and hearing as required

importing and distributing/selling to the public were

68200, claiming that the case was one against the

by Section 26(d) of RA 3720 as amended by EO 175.

found by the BFAD to be substandard for human

State; that the Complaint was improperly verified;

Moreover, the CA held that by filing a motion to

consumption. They added that the DOH is primarily

and lack of authority of the corporate officer to

dismiss, petitioners were deemed to have

responsible for the formulation, planning,

commence the suit, as the requisite resolution of

hypothetically admitted the allegations in the

implementation, and coordination of policies and

PPIs board of directors granting to the commencing

Complaint which state that petitioners were being

programs in the field of health; it is vested with the

officer PPIs Vice President for Legal and

sued in their individual and personal capacities thus

comprehensive power to make essential health

Administrative Affairs, Alan Alambra, the

negating their claim that Civil Case No. 68200 is an

services and goods available to the people, including

authority to file Civil Case No. 68200 was lacking. To

unauthorized suit against the State.

accreditation of drug suppliers and regulation of

this, PPI filed its Comment/Opposition.

24

25

The CA further held that instead of dismissing the

importation and distribution of basic medicines for

the public.

Ruling of the Regional Trial Court

case, the trial court should have deferred the

hearing and resolution of the motion to dismiss and

Petitioners added that, contrary to PPIs claim, it was

In a June 14, 2004 Order,

given the opportunity to present its side within the

Civil Case No. 68200, declaring the case to be one

from the Complaint that petitioners were being sued

10-day period or until November 6, 2000, but it

instituted against the State, in which case the

in their private and personal capacities for acts done

failed to submit the required comment/reply.

principle of state immunity from suit is applicable.

beyond the scope of their official functions. Thus,

26

the trial court dismissed

Instead, it belatedly submitted a November 13, 2000

the issue of whether the suit is against the State

letter which did not even constitute a reply, as it

PPI moved for reconsideration,

merely informed petitioners that the matter had

remained steadfast.28

been referred by PPI to its lawyer. Petitioners

argued that due process was afforded PPI, but
because it did not timely avail of the opportunity to
explain its side, the DOH had to act immediately by
suspending PPIs accreditation to stop the
distribution and sale of substandard drug products
which posed a serious health risk to the public. By
exercising DOHs mandate to promote health, it
cannot be said that petitioners committed grave

27

but the trial court

PPI appealed to the CA.

Ruling of the Court of Appeals

Docketed as CA-G.R. CV No. 85670, PPIs appeal
centered on the issue of whether it was proper for
the trial court to dismiss Civil Case No. 68200.

abuse of discretion.

The CA, in the herein assailed Decision,29 reversed

In a January 8, 2001 Order,23 the trial court

case for the conduct of further proceedings. The CA

partially granted PPIs prayer for a temporary

restraining order, but only covering PPIs products

proceeded to trial. It added that it was apparent

the trial court ruling and ordered the remand of the

concluded that it was premature for the trial court
to have dismissed the Complaint. Examining the
Complaint, the CA found that a cause of action was

could best be threshed out during trial on the

merits, rather than in proceedings covering a motion
to dismiss.
The dispositive portion of the CA Decision reads:
WHEREFORE, the appeal is hereby GRANTED. The
Order dated June 14, 2004 of the Regional Trial
Court of Pasig City, Branch 160, is
hereby REVERSED and SET-ASIDE. ACCORDINGL
Y, this case is REMANDED to the trial court for
further proceedings.
SO ORDERED.30

Petitioners sought, but failed, to obtain a

The discussion of this Court in Department of

impliedly. Express consent may be made through a

reconsideration of the Decision. Hence, they filed

Agriculture v. National Labor Relations

Commission32 on the doctrine of non-suability is
enlightening.

general law or a special law. x x x Implied consent, on

the present Petition.

Issue

the other hand, is conceded when the State itself

commences litigation, thus opening itself to a
counterclaim or when it enters into a contract. In

The basic postulate enshrined in the constitution

this situation, the government is deemed to have

Petitioners now raise the following lone issue for the

that (t)he State may not be sued without its

descended to the level of the other contracting

Courts resolution:

consent, reflects nothing less than a recognition of

party and to have divested itself of its sovereign

the sovereign character of the State and an express

immunity. This rule, x x x is not, however, without

Should Civil Case No. 68200 be dismissed for being a

affirmation of the unwritten rule effectively

qualification. Not all contracts entered into by the

suit against the State?31

insulating it from the jurisdiction of courts. It is

government operate as a waiver of its non-suability;

based on the very essence of sovereignty. x x x [A]

distinction must still be made between one which is

sovereign is exempt from suit, not because of any

executed in the exercise of its sovereign function

formal conception or obsolete theory, but on the

and another which is done in its proprietary

logical and practical ground that there can be no

capacity.33

Petitioners Arguments
Petitioners submit that because PPIs Complaint
prays for the award of damages against the DOH,
Civil Case No. 68200 should be considered a suit
against the State, for it would require the
appropriation of the needed amount to satisfy PPIs
claim, should it win the case. Since the State did not
give its consent to be sued, Civil Case No. 68200
must be dismissed. They add that in issuing and
implementing the questioned issuances, individual
petitioners acted officially and within their
authority, for which reason they should not be held
to account individually.

Respondents Arguments
Apart from echoing the pronouncement of the CA,
respondent insists that Civil Case No. 68200 is a suit
against the petitioners in their personal capacity for
acts committed outside the scope of their authority.
Our Ruling
The Petition is granted.

The doctrine of non-suability.

legal right as against the authority that makes the

law on which the right depends. True, the doctrine,

As a general rule, a state may not be sued. However,

not too infrequently, is derisively called the royal

if it consents, either expressly or impliedly, then it

prerogative of dishonesty because it grants the

may be the subject of a suit.34 There is express

state the prerogative to defeat any legitimate claim

consent when a law, either special or general, so

against it by simply invoking its nonsuability. We have

provides. On the other hand, there is implied consent

had occasion to explain in its defense, however, that

when the state "enters into a contract or it itself

a continued adherence to the doctrine of non-

commences litigation."35 However, it must be clarified

suability cannot be deplored, for the loss of

that when a state enters into a contract, it does not

governmental efficiency and the obstacle to the

automatically mean that it has waived its non-

performance of its multifarious functions would be

suability.

far greater in severity than the inconvenience that

impliedly waived its non-suability [only] if it has

may be caused private parties, if such fundamental

entered into a contract in its proprietary or private

principle is to be abandoned and the availability of

capacity. [However,] when the contract involves its

judicial remedy is not to be accordingly restricted.

sovereign or governmental capacity[,] x x x no such

36

The State "will be deemed to have

waiver may be implied."37 "Statutory provisions

The rule, in any case, is not really absolute for it

waiving [s]tate immunity are construed in strictissimi

does not say that the state may not be sued under

juris. For, waiver of immunity is in derogation of

sovereignty."38

any circumstance. On the contrary, as correctly

phrased, the doctrine only conveys, the state may
not be sued without its consent; its clear import
then is that the State may at times be sued. The
States consent may be given either expressly or

The DOH can validly invoke state immunity.

a) DOH is an unincorporated agency which

properly invoked. In this case, PPI specifically

same, such as the appropriation of the amount

performs sovereign or governmental functions.

prayed, in its Complaint and Amended and

needed to pay the damages awarded against them,

Supplemental Complaint, for the DOH, together with

the suit must be regarded as against the state x x x.

In this case, the DOH, being an "unincorporated

Secretaries Romualdez and Dayrit as well as

In such a situation, the state may move to dismiss

agency of the government"

39

can validly invoke the

Undersecretary Galon, to be held jointly and

the [C]omplaint on the ground that it has been filed

defense of immunity from suit because it has not

severally liable for moral damages, exemplary

without its consent."

consented, either expressly or impliedly, to be sued.

damages, attorneys fees and costs of

Significantly, the DOH is an unincorporated agency

suit.43 Undoubtedly, in the event that PPI succeeds in

It is beyond doubt that the acts imputed against

which performs functions of governmental character.

its suit, the government or the state through the

Secretaries Romualdez and Dayrit, as well as

DOH would become vulnerable to an imposition or

Undersecretary Galon, were done while in the

financial charge in the form of damages. This would

performance and discharge of their official

require an appropriation from the national treasury

functions or in their official capacities, and not in

which is precisely the situation which the doctrine of

their personal or individual capacities. Secretaries

state immunity aims to protect the state from.

Romualdez and Dayrit were being charged with the

The ruling in Air Transportation Office v. Ramos

40

is

relevant, viz:
An unincorporated government agency without any
separate juridical personality of its own enjoys
immunity from suit because it is invested with an
inherent power of sovereignty. Accordingly, a claim
for damages against the agency cannot prosper;

47

issuance of the assailed orders. On the other hand,

The mantle of non-suability extends to complaints

filed against public officials for acts done in the
performance of their official functions.

otherwise, the doctrine of sovereign immunity is

violated. However, the need to distinguish between

As regards the other petitioners, to wit, Secretaries

an unincorporated government agency performing

Romualdez and Dayrit, and Undersecretary Galon, it

governmental function and one performing

must be stressed that the doctrine of state

proprietary functions has arisen. The immunity has

immunity extends its protective mantle also to

been upheld in favor of the former because its

complaints filed against state officials for acts done

function is governmental or incidental to such

in the discharge and performance of their

function; it has not been upheld in favor of the latter

duties.44 "The suability of a government official

whose function was not in pursuit of a necessary

depends on whether the official concerned was

function of government but was essentially a

acting within his official or jurisdictional capacity,

business.41

and whether the acts done in the performance of

official functions will result in a charge or financial

b) The Complaint seeks to hold the DOH solidarily

liability against the government."45 Otherwise stated,

and jointly liable with the other defendants for

damages which constitutes a charge or financial
liability against the state.

"public officials can be held personally accountable

for acts claimed to have been performed in
connection with official duties where they have
acted ultra vires or where there is showing of bad

Moreover, it is settled that if a Complaint seeks to

faith."46 Moreover, "[t]he rule is that if the

"impose a charge or financial liability against the

judgment against such officials will require the state

state,"42 the defense of non-suability may be

itself to perform an affirmative act to satisfy the

Undersecretary Galon was being charged with

implementing the assailed issuances. By no stretch of
imagination could the same be categorized as ultra

vires simply because the said acts are well within the
scope of their authority. Section 4 of RA 3720
specifically provides that the BFAD is an office
under the Office of the Health Secretary. Also, the
Health Secretary is authorized to issue rules and
regulations as may be necessary to effectively
enforce the provisions of RA 3720.48 As regards
Undersecretary Galon, she is authorized by law to
supervise the offices under the DOHs
authority,49 such as the BFAD. Moreover, there was
also no showing of bad faith on their part. The
assailed issuances were not directed only against PPI.
The suspension of PPIs accreditation only came
about after it failed to submit its comment as
directed by Undersecretary Galon. It is also beyond
dispute that if found wanting, a financial charge will
be imposed upon them which will require an
appropriation from the state of the needed amount.
Thus, based on the foregoing considerations, the
Complaint against them should likewise be dismissed

for being a suit against the state which absolutely

matter had been referred to its lawyers. Worse, it

WHEREFORE, premises considered, the Petition is

did not give its consent to be sued. Based on the

impliedly told Undersecretary Galon to just wait until

GRANTED. Civil Case No. 68200 is ordered

foregoing considerations, and regardless of the

its lawyers shall have prepared the appropriate reply.

DISMISSED.

merits of PPIs case, this case deserves a dismissal.

PPI however failed to mention when it will submit its

Evidently, the very foundation of Civil Case No.

"appropriate reply" or how long Undersecretary

68200 has crumbled at this initial juncture.

Galon should wait. In the meantime, PPIs drugs which

are included in the Report on Violative Products are

PPI was not denied due process.

out and being sold in the market. Based on the

foregoing, we find PPIs contention of denial of due

However, we cannot end without a discussion of PPIs

process totally unfair and absolutely lacking in basis.

contention that it was denied due process when its

At this juncture, it would be trite to mention that

accreditation was suspended "without due notice and

"[t]he essence of due process in administrative

hearing." It is undisputed that during the October

proceedings is the opportunity to explain ones side

27, 2000 meeting, Undersecretary Galon directed

or seek a reconsideration of the action or ruling

representatives of pharmaceutical companies, PPI

complained of. As long as the parties are given the

included, to submit their comment and/or reactions

opportunity to be heard before judgment is

to the Report on Violative Products furnished them

rendered, the demands of due process are

within a period of 10 days. PPI, instead of submitting

sufficiently met. What is offensive to due process is

its comment or explanation, wrote a letter addressed

the denial of the opportunity to be heard. The Court

to Undersecretary Galon informing her that the

has repeatedly stressed that parties who chose not

matter had already been referred to its lawyer for

to avail themselves of the opportunity to answer

the drafting of an appropriate reply. Aside from the

charges against them cannot complain of a denial of

fact that the said letter was belatedly submitted, it

due process."50

also failed to specifically mention when such reply

would be forthcoming. Finding the foregoing

Incidentally, we find it inieresting that in the earlier

explanation to be unmeritorious, Undersecretary

case of Department q( Health v. Phil Pharmawealth,

Galon ordered the suspension of PPIs accreditation

Inc. 51respondent filed a Complaint against DOH

anchored on the same issuances which it assails in
the present case. In the earlier case of Department
of Health v. Phil Pharmawealth, Jnc., 52 PPI submitted
to the DOH a request for the inclusion of its
products in the list of accredited drugs as required
by AO 27 series of 1998 which was later amended by
AO 10 series of 2000. In the instant case, however,
PPI interestingly claims that these issuances are null
and void.

for two years. Clearly these facts show that PPI was
not denied due process. It was given the opportunity
to explain its side. Prior to the suspension of its
accreditation, PPI had the chance to rebut, explain,
or comment on the findings contained in the Report
on Violative Products that several of PPIs products
are not fit for human consumption. However, PPI
squandered its opportunity to explain. Instead of
complying with the directive of the DOH
Undersecretary within the time allotted, it instead
haughtily informed Undersecretary Galon that the

SO ORDERED.
[G.R. No. 91359. September 25, 1992.]
VETERANS MANPOWER AND PROTECTIVE
SERVICES, INC., Petitioner, v. THE COURT OF
APPEALS, THE CHIEF OF PHILIPPINE
CONSTABULARY and PHILIPPINE
CONSTABULARY SUPERVISORY UNIT FOR
SECURITY AND INVESTIGATION AGENCIES
(PC-SUSIA),Respondents.
Franciso A. Lava, Jr. and Andresito X. Fornier
for Petitioner.

SYLLABUS

1. POLITICAL LAW; IMMUNITY FROM SUIT; THE

PHILIPPINE CONSTABULARY CHIEF AND THE PCSUSIA MAY NOT BE SUED WITHOUT THE
CONSENT OF THE STATE. The State may not be
sued without its consent (Article XVI, Section 3, of
the 1987 Constitution). Invoking this rule, the PC
Chief and PC-SUSIA contend that, being
instrumentalities of the national government
exercising a primarily governmental function of
regulating the organization and operation of private
detective, watchmen, or security guard agencies, said
official (the PC Chief) and agency (PC-SUSIA) may
not be sued without the Governments consent,
especially in this case because VMPSIs complaint
seeks not only to compel the public respondents to
act in a certain way, but worse, because VMPSI
seeks actual and compensatory damages in the sum
of P1,000,000.00, exemplary damages in the same

amount, and P200,000.00 as attorneys fees from

said public respondents. Even if its action prospers,
the payment of its monetary claims may not be
enforced because the State did not consent to
appropriate the necessary funds for that purpose.
2. ID.; ID.; PUBLIC OFFICIAL MAY BE SUED IN
HIS PERSONAL CAPACITY IF HE ACTS, AMONG
OTHERS BEYOND THE SCOPE OF HIS
AUTHORITY; CASE AT BAR. A public official may
sometimes be held liable in his personal or private
capacity if he acts in bad faith, or beyond the scope
of his authority or jurisdiction (Shauf v. Court of
Appeals, supra), however, since the acts for which
the PC Chief and PC-SUSIA are being called to
account in this case, were performed by them as part
of their official duties, without malice, gross
negligence, or bad faith, no recovery may be had
against them in their private capacities.
3. ID.; ID.; CONSENT TO BE SUED MUST
EMANATE FROM A LEGISLATIVE ACT. Waiver
of the States immunity from suit, being a derogation
of sovereignty, will not be lightly inferred, but must
be construed strictissimi juris (Republic v. Feliciano,
148 SCRA 424). The consent of the State to be sued
must emanate from statutory authority, hence, from
a legislative act, not from a mere memorandum.
Without such consent, the trial court did not acquire
jurisdiction over the public respondents.
4. ID.; ID.; REASONS BEHIND. The state
immunity doctrine rests upon reasons of public policy
and the inconvenience and danger which would flow
from a different rule. "It is obvious that public
service would be hindered, and public safety
endangered, if the supreme authority could be
subjected to suits at the instance of every citizen,
and, consequently, controlled in the use and
disposition of the means required for the proper

administration of the government" (Siren v. U.S.

Wall, 152, 19 L. ed. 129, as cited in 78 SCRA 477).

D E C I S I O N

GRIO-AQUINO, J.:

This is a petition for review on certiorari of the

decision dated August 11, 1989, of the Court of
Appeals in CA-G.R. SP No. 15990, entitled "The Chief
of Philippine Constabulary (PC) and Philippine
Constabulary Supervisor Unit for Security and
Investigation Agencies (PC-SUSIA) v. Hon. Omar U.
Amin and Veterans Manpower and Protective
Services, Inc. (VMPSI)," lifting the writ of
preliminary injunction which the Regional Trial Court
had issued to the PC-SUSIA enjoining them from
committing acts that would result in the cancellation
or non-renewal of the license of VMPSI to operate as
a security agency.chanrobles virtual lawlibrary
On March 28, 1988, VMPSI filed a complaint in the
Regional Trial Court at Makati, Metro Manila, praying
the court to:jgc:chanrobles.com.ph
"A. Forthwith issue a temporary restraining order to
preserve the status quo, enjoining the defendants, or
any one acting in their place or stead, to refrain
from committing acts that would result in the
cancellation or non-renewal of VMPSIs license;
"B. In due time, issue a writ of preliminary injunction
to the same effect;
"C. Render decision and judgment declaring null and
void the amendment of Section 4 of R.A. No. 5487,
by PD No. 11 exempting organizations like PADPAO
from the prohibition that no person shall organize or

have an interest in more than one agency, declaring

PADPAO as an illegal organization existing in violation
of said prohibition, without the illegal exemption
provided in PD No. 11; declaring null and void Section
17 of R.A. No. 5487 which provides for the issuance
of rules and regulations in consultation with PADPAO,
declaring null and void the February 1, 1982 directive
of Col. Sabas V. Edadas, in the name of the then PC
Chief, requiring all private security agencies/security
forces such as VMPSI to join PADPAO as a
prerequisite to secure/renew their licenses,
declaring that VMPSI did not engage in cut-throat
competition in its contract with MWSS, ordering
defendants PC Chief and PC-SUSIA to renew the
license of VMPSI; ordering the defendants to
refrain from further harassing VMPSI and from
threatening VMPSI with cancellations or non-renewal
of license, without legal and justifiable cause;
ordering the defendants to pay to VMPSI the sum of
P1,000,000.00 as actual and compensatory damages,
P1,000,000.00 as exemplary damages, and
P200,000.00 as attorneys fees and expenses of
litigation; and granting such further or other reliefs
to VMPSI as may be deemed lawful, equitable and
just." (pp. 55-56, Rollo.)
The constitutionality of the following provisions of
R.A. 5487 (otherwise known as the "Private Security
Agency Law"), as amended, is questioned by VMPSI in
its complaint:chanrobles.com.ph : virtual law library
"SECTION 4. Who may Organize a Security or
Watchman Agency. Any Filipino citizen or a
corporation, partnership, or association, with a
minimum capital of five thousand pesos, one hundred
per cent of which is owned and controlled by Filipino
citizens may organize a security or watchman agency:
Provided, That no person shall organize or have an
interest in, more than one such agency except those
which are already existing at the promulgation of
this Decree: . . ." (As amended by P.D. Nos. 11 and

100.)
"SECTION 17. Rules and Regulations by Chief,
Philippine Constabulary. The Chief of the Philippine
Constabulary, in consultation with the Philippine
Association of Detective and Protective Agency
Operators, Inc. and subject to the provision of
existing laws, is hereby authorized to issue the rules
and regulations necessary to carry out the purpose
of this Act."cralaw virtua1aw library
VMPSI alleges that the above provisions of R.A. No.
5487 violate the provisions of the 1987 Constitution
against monopolies, unfair competition and
combinations in restraint of trade, and tend to favor
and institutionalize the Philippine Association of
Detective and Protective Agency Operators, Inc.
(PADPAO) which is monopolistic because it has an
interest in more than one security agency.
Respondent VMPSI likewise questions the validity of
paragraph 3, subparagraph (g) of the Modifying
Regulations on the Issuance of License to Operate
and Private Security Licenses and Specifying
Regulations for the Operation of PADPAO issued by
then PC Chief Lt. Gen. Fidel V. Ramos, through Col.
Sabas V. Edades, requiring that "all private security
agencies/company security forces must register as
members of any PADPAO Chapter organized within
the Region where their main offices are located . . ."
(pp. 5-6, Complaint in Civil Case No. 88-471). As such
membership requirement in PADPAO is compulsory in
nature, it allegedly violates legal and constitutional
provisions against monopolies, unfair competition and
combinations in restraint of trade.chanrobles.com :
virtual law library
On May 12, 1986, a Memorandum of Agreement was
executed by PADPAO and the PC Chief, which fixed
the minimum monthly contract rate per guard for
eight (8) hours of security service per day at

P2,255.00 within Metro Manila and P2,215.00 outside

of Metro Manila (Annex B, Petition).
On June 29, 1987, Odin Security Agency (Odin) filed
a complaint with PADPAO accusing VMPSI of cutthroat competition by undercutting its contract rate
for security services rendered to the Metropolitan
Waterworks and Sewerage System (MWSS),
charging said customer lower than the standard
minimum rates provided in the Memorandum of
Agreement dated May 12, 1986.
PADPAO found VMPSI guilty of cut-throat
competition, hence, the PADPAO Committee on
Discipline recommended the expulsion of VMPSI
from PADPAO and the cancellation of its license to
operate a security agency (Annex D, Petition).
The PC-SUSIA made similar findings and likewise
recommended the cancellation of VMPSIs license
(Annex E, Petition).
As a result, PADPAO refused to issue a
clearance/certificate of membership to VMPSI when
it requested one.
VMPSI wrote the PC Chief on March 10, 1988,
requesting him to set aside or disregard the findings
of PADPAO and consider VMPSIs application for
renewal of its license, even without a certificate of
membership from PADPAO (Annex F, Petition).
As the PC Chief did not reply, and VMPSIs license
was expiring on March 31, 1988, VMPSI filed Civil
Case No. 88-471 in the RTC-Makati, Branch 135, on
March 28, 1988 against the PC Chief and PC-SUSIA.
On the same date, the court issued a restraining
order enjoining the PC Chief and PC-SUSIA "from
committing acts that would result in the cancellation
or non-renewal of VMPSIs license" (Annex G,
Petition).

The PC chief and PC-SUSIA filed a "Motion to

Dismiss, Opposition to the Issuance of Writ of
Preliminary Injunction, and Motion to Quash the
Temporary Restraining Order," on the grounds that
the case is against the State which had not given
consent thereto and that VMPSIs license already
expired on March 31, 1988, hence, the restraining
order or preliminary injunction would not serve any
purpose because there was no more license to be
cancelled (Annex H, Petition). Respondent VMPSI
opposed the motion.
On April 18, 1988, the lower court denied VMPSIs
application for a writ of preliminary injunction for
being premature because it "has up to May 31, 1988
within which to file its application for renewal
pursuant to Section 2 (e) of Presidential Decree No.
199, . . ." (p. 140, Rollo.).chanrobles.com : virtual law
library
On May 23, 1988, VMPSI reiterated its application
for the issuance of a writ of preliminary injunction
because PC-SUSIA had rejected payment of the
penalty for its failure to submit its application for
renewal of its license and the requirements therefor
within the prescribed period in Section 2(e) of the
Revised Rules and Regulations Implementing R.A.
5487, as amended by P.D. 1919 (Annex M, Petition).
On June 10, 1998, the RTC-Makati issued a writ of
preliminary injunction upon a bond of P100,000.00,
restraining the defendants, or any one acting in their
behalf, from cancelling or denying renewal of
VMPSIs license, until further orders from the court.
The PC Chief and PC-SUSIA filed a Motion for
Reconsideration of the above order, but it was
denied by the court in its Order of August 10, 1988
(Annex R, Petition).

On November 3, 1988, the PC Chief and PC-SUSIA

sought relief by a petition for certiorari in the Court
of Appeals.
On August 11, 1989, the Court of Appeals granted
the petition. The dispositive portion of its decision
reads:jgc:chanrobles.com.ph
"WHEREFORE, the petition for certiorari filed by
petitioners PC Chief and PC-SUSIA is hereby
GRANTED, and the RTC-Makati, Branch 135, is
ordered to dismiss the complaint filed by respondent
VMPSI in Civil Case No. 88-471, insofar as
petitioners PC Chief and PC-SUSIA are concerned,
for lack of jurisdiction. The writ of preliminary
injunction issued on June 10, 1988, is dissolved." (pp.
295-296, Rollo.)
VMPSI came to us with this petition for review.
The primary issue in this case is whether or not
VMPSIs complaint against the PC Chief and PCSUSIA is a suit against the State without its
consent.
The answer is yes.
The State may not be sued without its consent
(Article XVI, Section 3, of the 1987 Constitution).
Invoking this rule, the PC Chief and PC-SUSIA
contend that, being instrumentalities of the national
government exercising a primarily governmental
function of regulating the organization and operation
of private detective, watchmen, or security guard
agencies, said official (the PC Chief) and agency (PCSUSIA) may not be sued without the Governments
consent, especially in this case because VMPSIs
complaint seeks not only to compel the public
respondents to act in a certain way, but worse,
because VMPSI seeks actual and compensatory
damages in the sum of P1,000,000.00, exemplary

damages in the same amount, and P200,000.00 as

attorneys fees from said public respondents. Even if
its action prospers, the payment of its monetary
claims may not be enforced because the State did
not consent to appropriate the necessary funds for
that purpose.chanroblesvirtualawlibrary
Thus did we hold in Shauf v. Court of Appeals, 191
SCRA 713:jgc:chanrobles.com.ph
"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."
(Emphasis supplied.)
A public official may sometimes be held liable in his
personal or private capacity if he acts in bad faith,
or beyond the scope of his authority or jurisdiction
(Shauf v. Court of Appeals, supra), however, since
the acts for which the PC Chief and PC-SUSIA are
being called to account in this case, were performed
by them as part of their official duties, without
malice, gross negligence, or bad faith, no recovery
may be had against them in their private capacities.
We agree with the observation of the Court of
Appeals that the Memorandum of Agreement dated
May 12, 1986 does not constitute an implied consent
by the State to be sued:jgc:chanrobles.com.ph
"The Memorandum of Agreement dated May 12, 1986
was entered into by the PC Chief in relation to the
exercise of a function sovereign in nature. The

correct test for the application of state immunity is

not the conclusion of a contract by the State but the
legal nature of the act. This was clearly enunciated in
the case of United States of America v. Ruiz where
the Hon. Supreme Court held:jgc:chanrobles.com.ph
"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 a business contract. It does not apply
where the contract relates to the exercise of its
functions. (136 SCRA 487, 492.)
"In the instant case, the Memorandum of Agreement
entered into by the PC Chief and PADPAO was
intended to professionalize the industry and to
standardize the salaries of security guards as well as
the current rates of security services, clearly, a
governmental function. The execution of the said
agreement is incidental to the purpose of R.A. 5487,
as amended, which is to regulate the organization and
operation of private detective, watchmen or security
guard agencies. (Emphasis ours.)" (pp. 258-259,
Rollo.)
Waiver of the States immunity from suit, being a
derogation of sovereignty, will not be lightly
inferred, but must be construed strictissimi juris
(Republic v. Feliciano, 148 SCRA 424). The consent of
the State to be sued must emanate from statutory
authority, hence, from a legislative act, not from a
mere memorandum. Without such consent, the trial
court did not acquire jurisdiction over the public
respondents.
The state immunity doctrine rests upon reasons of
public policy and the inconvenience and danger which

would flow from a different rule. "It is obvious that

public service would be hindered, and public safety
endangered, if the supreme authority could be
subjected to suits at the instance of every citizen,
and, consequently, controlled in the use and
disposition of the means required for the proper
administration of the government" (Siren v. U.S.
Wall, 152, 19 L. ed. 129, as cited in 78 SCRA 477). In
the same vein, this Court in Republic v. Purisima (78
SCRA 470, 473) rationalized:jgc:chanrobles.com.ph

On 13 September 1990, several guards of the Sultan

Security Agency filed a complaint for underpayment
VITUG, J.:

of wages, non-payment of 13th month pay, uniform

allowances, night shift differential pay, holiday pay

For consideration are the incidents that flow from

and overtime pay, as well as for damages, 4 before

the familiar doctrine of non-suability of the state.

the Regional Arbitration Branch X of Cagayan de Oro

Agriculture seeks to nullify the Resolution,

dated

"Nonetheless, a continued adherence to the doctrine

of nonsuability is not to be deplored for as against
the inconvenience that may be cause [by] private
parties, the loss of governmental efficiency and the
obstacle to the performance of its multifarious
functions are far greater if such a fundamental
principle were abandoned and the availability of
judicial remedy were not thus restricted. With the
well known propensity on the part of our people to go
to court, at the least provocation, the loss of time
and energy required to defend against law suits, in
the absence of such a basic principle that
constitutes such an effective obstacles, could very
well be imagined." (citing Providence Washington
Insurance Co. v. Republic, 29 SCRA 598.)cralawnad
WHEREFORE, the petition for review is DENIED and
the judgment appealed from is AFFIRMED in toto.
No costs.

DEPARTMENT OF AGRICULTURE, petitioner,

vs.
THE NATIONAL LABOR RELATIONS
COMMISSION, et al., respondents.

Roy Lago Salcedo for private respondents.

(or 10-10-00519-90, its original docket number),

27 November 1991, of the National Labor Relations

Commission (NLRC), Fifth Division, Cagayan de Oro

SO ORDERED.
G.R. No. 104269 November 11, 1993

City, docketed as NLRC Case No. 10-09-00455-90

In this petition for certiorari, the Department of

against the Department of Agriculture and Sultan

Security Agency.

City, denying the petition for injunction, prohibition

The Executive Labor Arbiter rendered a decision on

and mandamus that prays to enjoin permanently the

31 May finding herein petitioner

NLRC's Regional Arbitration Branch X and Cagayan

and jointly and severallyliable with Sultan Security

de Oro City Sheriff from enforcing the decision

Agency for the payment of money claims, aggregating

of

31 May 1991 of the Executive Labor Arbiter and

P266,483.91, of the complainant security guards. The

from attaching and executing on petitioner's

petitioner and Sultan Security Agency did not appeal

property.

the decision of the Labor Arbiter. Thus, the decision

became final and executory.

The Department of Agriculture (herein petitioner)

and Sultan Security Agency entered into a

On 18 July 1991, the Labor Arbiter issued a writ of

contract 3 on 01 April 1989 for security services to

execution.

be provided by the latter to the said governmental

and execute the judgment against the property of

entity. Save for the increase in the monthly rate of

the two respondents. Forthwith, or on 19 July 1991,

the guards, the same terms and conditions were also

the City Sheriff levied on execution the motor

made to apply to another contract, dated 01 May

vehicles of the petitioner, i.e. one (1) unit Toyota Hi-

1990, between the same parties. Pursuant to their

Ace, one (1) unit Toyota Mini Cruiser, and one (1) unit

arrangements, guards were deployed by Sultan

Toyota Crown. 6 These units were put under the

Agency in the various premises of the petitioner.

custody of Zacharias Roa, the property custodian of

commanding the City Sheriff to enforce

the petitioner, pending their sale at public auction or

the final settlement of the case, whichever would
come first.
A petition for injunction, prohibition and mandamus,
with prayer for preliminary writ of injunction was
filed by the petitioner with the National Labor
Relations Commission (NLRC), Cagayan de Oro,
alleging, inter alia, that the writ issued was effected

without the Labor Arbiter having duly acquired

Oro City within the same period for

5. The right of any of the judgment

jurisdiction over the petitioner, and that, therefore,

proper dispositions;

debtors to claim reimbursement

the decision of the Labor Arbiter was null and void

against each other for any payments

and all actions pursuant thereto should be deemed

3. In order to ensure compliance

made in connection with the

equally invalid and of no legal, effect. The petitioner

with this order, petitioner is likewise

satisfaction of the judgments herein

also pointed out that the attachment or seizure of

directed to put up and post

is hereby recognized pursuant to the

its property would hamper and jeopardize

sufficient surety and supersedeas

ruling in the Eagle Security case,

petitioner's governmental functions to the prejudice

bond equivalent to at least to fifty

(50%) percent of the total monetary
award issued by a reputable bonding
company duly accredited by the
Supreme Court or by the Regional
Trial Court of Misamis Oriental to
answer for the satisfaction of the
money claims in case of failure or
default on the part of petitioner to
satisfy the money claims;

(supra). In case of dispute between

of the public good.

On 27 November 1991, the NLRC promulgated its
assailed resolution; viz:
WHEREFORE, premises considered,
the following orders are issued:
1. The enforcement and execution of
the judgments against petitioner in

the judgment debtors, the Executive

Labor Arbiter of the Branch of
origin may upon proper petition by
any of the parties conduct
arbitration proceedings for the
purpose and thereby render his
decision after due notice and
hearings;
7. Finally, the petition for injunction

NLRC RABX Cases Nos. 10-10-

4. The City Sheriff is ordered to

is Dismissed for lack of basis. The

00455-90; 10-10-0481-90 and 10-10-

immediately release the properties

writ of preliminary injunction

00519-90 are temporarily suspended

of petitioner levied on execution

previously issued is Lifted and Set

for a period of two (2) months, more

within ten (10) days from notice of

or less, but not extending beyond

the posting of sufficient surety or

the last quarter of calendar year

supersedeas bond as specified above.

1991 to enable petitioner to source

In the meanwhile, petitioner is

and raise funds to satisfy the

assessed to pay the costs and/or

judgment awards against it;

expenses incurred by the City

Aside and in lieu thereof,

a Temporary Stay of Execution is
issued for a period of two (2) months
but not extending beyond the last
quarter of calendar year 1991,
conditioned upon the posting of a
surety or supersedeas bond by
petitioner within ten (10) days from
notice pursuant to paragraph 3 of
this disposition. The motion to admit
the complaint in intervention
isDenied for lack of merit while the
motion to dismiss the petition filed
by Duty Sheriff is Noted

Sheriff, if any, in connection with

2. Meantime, petitioner is ordered

the execution of the judgments in

and directed to source for funds

the above-stated cases upon

within the period above-stated and

presentation of the appropriate

to deposit the sums of money

claims or vouchers and receipts by

equivalent to the aggregate amount.

the city Sheriff, subject to the

it has been adjudged to pay jointly

conditions specified in the NLRC

and severally with respondent Sultan

Sheriff, subject to the conditions

Security Agency with the Regional

specified in the NLRC Manual of

Arbitration Branch X, Cagayan de

Instructions for Sheriffs;

SO ORDERED.

In this petition for certiorari, the petitioner charges

may be caused private parties, if such fundamental

the NLRC with grave abuse of discretion for refusing

principle is to be abandoned and the availability of

to quash the writ of execution. The petitioner faults

judicial remedy is not to be accordingly restricted.

The traditional rule of immunity

exempts a State from being sued in
11

the NLRC for assuming jurisdiction over a money

the courts of another State without

its consent or waiver. This rule is a

claim against the Department, which, it claims, falls

The rule, in any case, is not really absolute for it

necessary consequence of the

under the exclusive jurisdiction of the Commission on

does not say that the state may not be sued under

principles of independence and

Audit. More importantly, the petitioner asserts, the

any circumstances. On the contrary, as correctly

equality of States. However, the

NLRC has disregarded the cardinal rule on the non-

phrased, the doctrine only conveys, "the state may

rules of International Law are not

suability of the State.

not be sued without its consent;" its clear import

petrified; they are constantly

then is that the State may at times be sued.

developing and evolving. And because

12

The

The private respondents, on the other hand, argue

States' consent may be given expressly or impliedly.

the activities of states have

that the petitioner has impliedly waived its immunity

Express consent may be made through a general

multiplied, it has been necessary to

from suit by concluding a service contract with

law 13 or a special law.

distinguish them between

Sultan Security Agency.

general law waiving the immunity of the state from

sovereign and governmental acts

suit is found in Act No. 3083, where the Philippine

( jure imperii) and private,

The basic postulate enshrined in the constitution

government "consents and submits to be sued upon

commercial and proprietary act

that "(t)he State may not be sued without its

any money claims involving liability arising from

( jure gestionisis). The result is that

consent,"

contract, express or implied, which could serve as a

State immunity now extends only to

of the sovereign character of the State and an

basis of civil action between private

acts jure imperii. The restrictive

express affirmation of the unwritten rule

parties."

application of State immunity is now

effectively insulating it from the jurisdiction of

conceded when the State itself commences litigation,

the rule in the United States, the

courts.

thus opening itself to a counterclaim 16 or when it

United Kingdom and other states in

sovereignty. As has been aptly observed, by Justice

enters into a contract.

Western Europe.

Holmes, a sovereign is exempt from suit, not because

government is deemed to have descended to the level

of any formal conception or obsolete theory, but on

of the other contracting party and to have divested

the logical and practical ground that there can be no

itself of its sovereign immunity. This rule, relied upon

legal right as against the authority that makes the

by the NLRC and the private respondents, is not,

The restrictive application of State

law on which the right depends.

reflects nothing less than a recognition

It is based on the very essence of

In this jurisdiction, the

Implied consent, on the other hand, is

17

In this situation, the

xxx xxx xxx

however, without qualification. Not all contracts

immunity is proper only when the

not too infrequently, is derisively called "the royal

entered into by the government operate as a waiver

proceedings arise out of commercial

prerogative of dishonesty" because it grants the

of its non-suability; distinction must still be made

transactions of the foreign

state the prerogative to defeat any legitimate claim

between one which is executed in the exercise of its

sovereign, its commercial activities

against it by simply invoking its non-suability.

sovereign function and another which is done in its

or economic affairs. Stated

proprietary capacity.

differently, a state may be said to

True, the doctrine,

15

14

10

We

have had occasion, to explain in its defense, however,

18

that a continued adherence to the doctrine of non-

have descended to the level of an

suability cannot be deplored, for the loss of

In the Unites States of America vs. Ruiz,

governmental efficiency and the obstacle to the

the questioned transaction dealt with improvements

have actually given its consent to be

performance of its multifarious functions would be

on the wharves in the naval installation at Subic Bay,

sued only when it enters into

far greater in severity than the inconvenience that

we held:

business contracts. It does not apply

19

where

individual and can this be deemed to

where the contracts relates to the

to the general limitation expressed

to the stage of execution" and that

exercise of its sovereign functions.

in Section 7 thereof that "no

In this case the projects are an

execution shall issue upon any

integral part of the naval base which

judgment rendered by any Court

is devoted to the defense of both

against the Government of the

the United States and the

(Philippines), and that the conditions

Philippines, indisputably a function of

provided in Commonwealth Act 327

the government of the highest

for filing money claims against the

order; they are not utilized for not

Government must be strictly

dedicated to commercial or business

observed."

the power of the Courts ends when

the judgment is rendered, since
government funds and properties
may not be seized under writs or
execution or garnishment to satisfy
such judgments, is based on obvious
considerations of public policy.
Disbursements of public funds must
be covered by the correspondent
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. 23

purposes.
We fail to see any substantial conflict or
In the instant case, the Department of Agriculture

inconsistency between the provisions of C.A. No. 327

has not pretended to have assumed a capacity apart

and the Labor Code with respect to money claims

from its being a governmental entity when it entered

against the State. The Labor code, in relation to Act

into the questioned contract; nor that it could have,

No. 3083, provides the legal basis for the State

in fact, performed any act proprietary in character.

liability but the prosecution, enforcement or

satisfaction thereof must still be pursued in

But, be that as it may, the claims of private

accordance with the rules and procedures laid down

WHEREFORE, the petition is GRANTED. The

respondents, i.e. for underpayment of wages, holiday

in C.A. No. 327, as amended by P.D. 1445.

resolution, dated 27 November 1991, is hereby

pay, overtime pay and similar other items, arising

REVERSED and SET ASIDE. The writ of execution

from the Contract for Service, clearly constitute

When the state gives its consent to be sued, it does

directed against the property of the Department of

money claims. Act No. 3083, aforecited, gives the

thereby necessarily consent to unrestrained

Agriculture is nullified, and the public respondents

consent of the State to be "sued upon any moneyed

execution against it. tersely put, when the State

are hereby enjoined permanently from doing, issuing

claim involving liability arising from contract, express

waives its immunity, all it does, in effect, is to give

and implementing any and all writs of execution

or implied, . . . Pursuant, however, to Commonwealth

the other party an opportunity to prove, if it can,

issued pursuant to the decision rendered by the

Act ("C.A.") No. 327, as amended by Presidential

that the State has a liability.

Decree ("P.D.") No. 1145, the money claim first be

Villasor this Court, in nullifying 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, has explained, thus

brought to the Commission on Audit. Thus,

inCarabao, Inc., vs. Agricultural Productivity

Commission, 20 we ruled:

21

In Republic vs.

Labor Arbiter against said petitioner.

22

SO ORDERED.
G.R. No. L-30044 December 19, 1973

(C)laimants have to prosecute their

The universal rule that where the

LORENZO SAYSON, as Highway Auditor, Bureau

money claims against the Government

State gives its consent to be sued by

of Public Highways, Cebu First Engineering

under Commonwealth Act 327,

private parties either by general or

District; CORNELIO FORNIER, as Regional

stating that Act 3083 stands now

special law, it may limit the

Supervising Auditor, Eastern Visayas Region;

merely as the general law waiving the

claimant's action "only up to the

ASTERIO, BUQUERON, ADVENTOR

State's immunity from suit, subject

completion of proceedings anterior

FERNANDEZ, MANUEL S. LEPATAN, RAMON

QUIRANTE, and TEODULFO REGIS, petitioners,

District Engineer, Adventor Fernandez, and the

the amount of P34,824.00 to the petitioner

vs.

Requisitioning Officer (civil engineer), Manuel S.

[respondent Singson]. On June 10,1967, Highway

FELIPE SINGSON, as sole owner and proprietor

Lepatan. ... It was approved by the Secretary of

Auditor Sayson received a telegram from Supervising

of Singkier Motor Service, respondent.

Public Works and Communications, Antonio V.

Auditor Fornier quoting a telegraphic message of the

Raquiza. It is noted in the approval of the said

General Auditing Office which states: "In view of

requisition that "This is an exception to the telegram

excessive prices charge for purchase of spare parts

dated Feb. 21, 1967 of the Secretary of Public

and equipment shown by vouchers already submitted

Works and Communications." ... So, a canvass or

this Office direct all highway auditors refer General

public bidding was conducted on May 5, 1967 ... . The

Office payment similar nature for appropriate

committee on award accepted the bid of the Singkier

action." ... In the interim it would appear that when

Motor Service [owned by respondent Felipe Singson]

the voucher and the supporting papers reached the

for the sum of P43,530.00. ... Subsequently, it was

GAO, a canvass was made of the spare parts among

approved by the Secretary of Public Works and

the suppliers in Manila, particularly, the USI (Phil.),

Communications; and on May 16, 1967 the Secretary

which is the exclusive dealer of the spare parts of

sent a letter-order to the Singkier Motor Service,

the caterpillar tractors in the Philippines. Said firm

Mandaue, Cebu requesting it to immediately deliver

thus submitted its quotations at P2,529.64 only

the items listed therein for the lot price of

which is P40,000.00 less than the price of the

P43,530.00. ... It would appear that a purchase order

Singkier. ... In view of the overpricing the GAO took

signed by the District Engineer, the Requisitioning

up the matter with the Secretary of Public Works in

Officer and the Procurement Officer, was addressed

a third indorsement of July 18, 1967. ... The

to the Singkier Motor Service. ... In due course the

Secretary then circularized a telegram holding the

Voucher No. 07806 reached the hands of Highway

district engineer responsible for overpricing." 4 What

Auditor Sayson for pre-audit. He then made inquiries

is more, charges for malversation were filed against

about the reasonableness of the price. ... Thus, after

the district engineer and the civil engineer involved.

finding from the indorsements of the Division

It was the failure of the Highways Auditor, one of

Engineer and the Commissioner of Public Highways

the petitioners before us, that led to the filing of

that the prices of the various spare parts are just

the mandamus suit below, with now respondent

and reasonable and that the requisition was also

Singson as sole proprietor of Singkier Motor Service,

approved by no less than the Secretary of Public

being adjudged as entitled to collect the balance of

Works and Communications with the verification of

P8,706.00, the contract in question having been

V.M. Secarro a representative of the Bureau of

upheld. Hence this appeal by certiorari.

Office of the Solicitor General Felix V. Makasiar and

Solicitor Bernardo P. Pardo for petitioners.
Teodoro Almase and Casiano U. Laput for
respondent.

FERNANDO, J.:
The real party in interest before this Court in
this certiorari proceeding to review a decision of the
Court of First Instance of Cebu is the Republic of
the Philippines, although the petitioners are the
public officials who were named as respondents 1 in
a mandamus suit below. Such is the contention of the
then Solicitor General, now Associate Justice, Felix
V. Makasiar, 2 for as he did point out, what is involved
is a money claim against the government, predicated
on a contract. The basic doctrine of non-suability of
the government without its consent is thus decisive
of the controversy. There is a governing statute that
is controlling. 3 Respondent Felipe Singson, the
claimant, for reasons known to him, did not choose to
abide by its terms. That was a fatal misstep. The
lower court, however, did not see it that way. We
cannot affirm its decision.
As found by the lower court, the facts are the
following: "In January, 1967, the Office of the
District Engineer requisitioned various items of
spare parts for the repair of a D-8 bulldozer, ... . The
requisition (RIV No. 67/0331) was signed by the

Supply Coordination, Manila, he approved it for

payment in the sum of P34,824.00, with the

1. To state the facts is to make clear the solidity of

retention of 20% equivalent to P8,706.00. ... His

the stand taken by the Republic. The lower court was

reason for withholding the 20% equivalent to

unmindful of the fundamental doctrine of non-

P8,706.00 was to submit the voucher with the

suability. So it was stressed in the petition of the

supporting papers to the Supervising Auditor, which

then Solicitor General Makasiar. Thus: "It is

he did. ... The voucher ... was paid on June 9, 1967 in

apparent that respondent Singson's cause of action

is a money claim against the government, for the

or (c) To the Supreme Court of the Philippines if the

payment of the alleged balance of the cost of spare

appellant is a private person or entity."

YNARES-SANTIAGO, J.:

On February 23, 1999, petitioner National Housing

parts supplied by him to the Bureau of Public

Highways. Assuming momentarily the validity of such

2. With the facts undisputed and the statute far

Authority filed with the Regional Trial Court of Cebu

claim, although as will be shown hereunder, the claim

from indefinite or ambiguous, the appealed decision

City, Branch 11, an Amended Complaint for eminent

is void for the cause or consideration is contrary to

defies explanation. It would be to disregard a basic

domain against Associacion Benevola de Cebu,

law, morals or public policy, mandamus is not the

corollary of the cardinal postulate of non-suability.

Engracia Urot and the Heirs of Isidro Guivelondo,

remedy to enforce the collection of such claim

It is true that once consent is secured, an action may

docketed as Civil Case No. CEB-23386. Petitioner

against the State but a ordinary action for specific

be filed. There is nothing to prevent the State,

alleged that defendant Associacion Benevola de Cebu

performance ... . Actually, the suit disguised as one

however, in such statutory grant, to require that

was the claimant/owner of Lot 108-C located in the

for mandamus to compel the Auditors to approve the

certain administrative proceedings be had and be

Banilad Estate, Cebu City; that defendant Engracia

vouchers for payment, is a suit against the State,

exhausted. Also, the proper forum in the judicial

Urot was the claimant/owner of Lots Nos. 108-F,

which cannot prosper or be entertained by the Court

hierarchy can be specified if thereafter an appeal

108-I, 108-G, 6019-A and 6013-A, all of the Banilad

except with the consent of the State ... . In other

would be taken by the party aggrieved. Here, there

Estate; that defendant Heirs of Isidro Guivelondo

words, the respondent should have filed his claim

was no ruling of the Auditor General. Even had there

were the claimants/owners of Cadastral Lot No.

with the General Auditing Office, under the

been such, the court to which the matter should have

1613-D located at Carreta, Mabolo, Cebu City; and

provisions of Com. Act 327 ... which prescribe the

been elevated is this Tribunal; the lower court could

that the lands are within a blighted urban center

conditions under which money claim against the

not legally act on the matter. What transpired was

which petitioner intends to develop as a socialized

government may be

anything but that. It is quite obvious then that it

housing project.1

filed ...." Commonwealth Act No. 327 is quite

does not have the imprint of validity.

On November 12, 1999, the Heirs of Isidro

explicit. It is therein provided: "In all cases involving

the settlement of accounts or claims, other than

WHEREFORE, the decision of the Court of First

Guivelondo, respondents herein, filed a Manifestation

those of accountable officers, the Auditor General

Instance of Cebu of September 4, 1968 is reversed

stating that they were waiving their objections to

shall act and decide the same within sixty days,

and set aside, and the suit for mandamus filed

petitioners power to expropriate their properties.

exclusive of Sundays and holidays, after their

against petitioners, respondents below, is dismissed.

Hence, the trial court issued an Order as follows:

presentation. If said accounts or claims need

With costs against respondent Felipe Singson.

WHEREFORE, the Court hereby declares that the

reference to other persons, office or offices, or to a

party interested, the period aforesaid shall be
counted from the time the last comment necessary
to a proper decision is received by
him." Thereafter, the procedure for appeal is
6

indicated: "The party aggrieved by the final decision

of the Auditor General in the settlement of an
account or claim may, within thirty days from receipt
of the decision, take an appeal in writing: (a) To the
President of the United States, pending the final and
complete withdrawal of her sovereignty over the
Philippines, or (b) To the President of the Philippines,

G.R. No. 154411

June 19, 2003

plaintiff has a lawful right to expropriate the

properties of the defendants who are heirs of Isidro

NATIONAL HOUSING AUTHORITY, Petitioner,

Guivelondo.

vs.
HEIRS OF ISIDRO GUIVELONDO, court of

The appointment of commissioners who would

appeals, HON. ISAIAS DICDICAN, Presiding

ascertain and report to the Court the just

Judge, Regional Trial Court, Branch 11, Cebu

compensation for said properties will be done as soon

City, and PASCUAL Y. ABORDO, Sheriff, Regional

as the parties shall have submitted to the Court the

Trial Court, Branch 11, Cebu City, Respondents.

names of persons desired by them to be appointed as

such commissioners.

DECISION

SO ORDERED.2

respondent Heirs and the August 31, 2000 motion of

On January 31, 2001, the Court of Appeals dismissed

petitioner, on the ground that the fixing of the just

the petition for certiorari on the ground that the

Thereafter, the trial court appointed three

compensation had adequate basis and support. On the

Partial Judgment and Omnibus Order became final

Commissioners to ascertain the correct and just

other hand, the trial court granted petitioners

and executory when petitioner failed to appeal the

compensation of the properties of respondents. On

August 30, 2000 motion for reconsideration on the

same.8

April 17, 2000, the Commissioners submitted their

ground that the Commissioners Report did not

report wherein they recommended that the just

include Lots 12, 13 and 19 within its coverage. Thus:

compensation of the subject properties be fixed at

Petitioners Motion for Reconsideration and Urgent

Ex-Parte Motion for a Clarificatory Ruling were

P11,200.00 per square meter. On August 7, 2000,

WHEREFORE, in view of the foregoing premises, the

denied in a Resolution dated March 18, 2001. 9 A

the trial court rendered Partial Judgment adopting

Court hereby denies the motion of the heirs of

petition for review was filed by petitioner with this

the recommendation of the Commissioners and fixing

Isidro Guivelondo (with the exception of Carlota

Court, which was docketed as G.R. No. 147527.

the just compensation of the lands of respondent

Mercado and Juanita Suemith) for reconsideration

However, the same was denied in a Minute Resolution

Heirs of Isidro Guivelondo at P11,200.00 per square

of the partial judgment rendered in this case on

dated May 9, 2001 for failure to show that the Court

meter, to wit:

August 7, 2000 and plaintiffs motion for

of Appeals committed a reversible error. 10

reconsideration of said judgment, dated August 31,

WHEREFORE, in view of the foregoing premises,

Petitioner filed a Motion for Reconsideration which

2000.

judgment is hereby rendered by the Court in this

was however denied with finality on August 20,

case fixing the just compensation for the lands of

However, the Court hereby grants the plaintiffs

the defendants who are the heirs of Isidro

motion for reconsideration of said judgment, dated

Guivelondo, more particularly Lots Nos. 1, 2, 3, 4, 5,

August 30, 2000. Accordingly, the judgment

Prior to the aforesaid denial of the Motion for

6, 7, 8, 9, 10, 11, 12, 13, 15, 16, 19, 20, 6016-F, 6016-

rendered in this case on August 7, 2000 is hereby

Reconsideration, petitioner, on July 16, 2001, filed

H, 6016-E and 6016-D of Csd-10219, which were

set aside insofar as it has fixed just compensations

with the trial court a Motion to Dismiss Civil Case

sought to be expropriated by the plaintiff at

for Lots Nos. 12, 13 and 19 of Csd-10219 because the

No. CEB-23386, complaint for eminent domain,

P11,200.00 per square meter and ordering the

fixing of said just compensations appears to lack

alleging that the implementation of its socialized

plaintiff to pay to the said defendants the just

adequate basis.

housing project was rendered impossible by the

unconscionable value of the land sought to be

compensation for the said lands computed at

P11,200.00 per square meter.

2001.11

SO ORDERED.

expropriated, which the intended beneficiaries can

not afford.12 The Motion was denied on September

IT IS SO ORDERED.

Petitioner filed with the Court of Appeals a petition

17, 2001, on the ground that the Partial Judgment

for certiorari, which was docketed as CA-G.R. SP No.

had already become final and executory and there

Petitioner NHA filed two motions for

61746.6Meanwhile, on October 31, 2000, the trial

was no just and equitable reason to warrant the

reconsideration dated August 30, 2000 and August

court issued an Entry of Judgment over the Partial

dismissal of the case.13 Petitioner filed a Motion for

31, 2000, assailing the inclusion of Lots 12, 13 and 19

Judgment dated August 7, 2000 as modified by the

Reconsideration, which was denied in an Order dated

as well as the amount of just compensation,

Omnibus Order dated October 11,

November 20, 2001.14

respectively. Respondent Heirs also filed a motion

2000. Subsequently, respondent Heirs filed a

for reconsideration of the Partial Judgment. On

Motion for Execution, which was granted on

Petitioner thus filed a petition for certiorari with

October 11, 2000, the trial court issued an Omnibus

November 22, 2000.

the Court of Appeals, which was docketed as CA-G.R.

Order denying the motion for reconsideration of

SP No. 68670, praying for the annulment of the

Order of the trial court denying its Motion to

2) WHETHER OR NOT JUDGMENT HAS

In the early case of City of Manila v. Ruymann, 24 the

Dismiss and its Motion for Reconsideration. 15

BECOME FINAL AND EXECUTORY AND IF

Court was confronted with the question: May the

ESTOPPEL OR LACHES APPLIES TO

petitioner, in an action for expropriation, after he

GOVERNMENT;

has been placed in possession of the property and

On February 5, 2002, the Court of Appeals

summarily dismissed the petition. Immediately

before the termination of the action, dismiss the

thereafter, respondent Sheriff Pascual Y. Abordo of

3) WHETHER OR NOT WRITS OF

petition? It resolved the issue in the affirmative and

the Regional Trial Court of Cebu City, Branch 11,

EXECUTION AND GARNISHMENT MAY BE

held:

served on petitioner a Notice of Levy pursuant to the

ISSUED AGAINST THE STATE IN AN

Writ of Execution issued by the trial court to

EXPROPRIATION WHEREIN THE

The right of the plaintiff to dismiss an action with

enforce the Partial Judgment of August 7, 2000 and

EXERCISE OF THE POWER OF EMINENT

the consent of the court is universally recognized

the Omnibus Order of October 11, 2000.

DOMAIN WILL NOT SERVE PUBLIC USE

with certain well-defined exceptions. If the plaintiff

16

OR PURPOSE {APPLICATION OF SUPREME

discovers that the action which he commenced was

On February 18, 2002, the Court of Appeals set

COURT ADMINISTRATIVE CIRCULAR NO.

brought for the purpose of enforcing a right or a

aside the dismissal of the petition and reinstated the

10-2000}.

benefit, the advisability or necessity of which he

22

same.17Thereafter, a temporary restraining order

later discovers no longer exists, or that the result of

was issued enjoining respondent sheriff to preserve

Respondent Heirs of Isidro Guivelondo filed their

the action would be different from what he had

the status quo.18

Comment, arguing as follows:

intended, then he should be permitted to withdraw

his action, subject to the approval of the court. The

On May 27, 2002, respondent sheriff served on the

Landbank of the Philippines a Notice of Third

plaintiff should not be required to continue the

action, subject to some well-defined exceptions,

Garnishment against the deposits, moneys and

AS EARLIER UPHELD BY THE HONORABLE

when it is not to his advantage to do so. Litigation

interests of petitioner therein. 19 Subsequently,

COURT, THE JUDGMENT OF THE TRIAL

should be discouraged and not encouraged. Courts

respondent sheriff levied on funds and personal

COURT IS ALREADY FINAL AND

should not require parties to litigate when they no

properties of petitioner.20

EXECUTORY, HENCE, COULD NO LONGER

longer desire to do so. Courts, in granting permission

BE DISTURBED NOR SET ASIDE

to dismiss an action, of course, should always take

On July 16, 2002, the Court of Appeals rendered the

assailed decision dismissing the petition for
certiorari.

II

into consideration the effect which said dismissal

would have upon the rights of the defendant. 25

21

THE FUNDS AND ASSETS OF THE

Hence, petitioner filed this petition for review,

PETITIONER ARE NOT EXEMPT FROM

raising the following issues:

LEVY AND GARNISHMENT

1) WHETHER OR NOT THE STATE CAN BE

III

COMPELLED AND COERCED BY THE

COURTS TO EXERCISE OR CONTINUE

THE ISSUES RAISED IN THIS SECOND

WITH THE EXERCISE OF ITS INHERENT

PETITION FOR REVIEW WERE ALREADY

POWER OF EMINENT DOMAIN;

RESOLVED BY THE HONORABLE COURT23

Subsequently, in Metropolitan Water District v. De

Los Angeles,26 the Court had occasion to apply the
above-quoted ruling when the petitioner, during the
pendency of the expropriation case, resolved that
the land sought to be condemned was no longer
necessary in the maintenance and operation of its
system of waterworks. It was held:
It is not denied that the purpose of the plaintiff was
to acquire the land in question for a public use. The

fundamental basis then of all actions brought for the

There are two (2) stages in every action for

The outcome of the first phase of expropriation

expropriation of lands, under the power of eminent

expropriation. The first is concerned with the

proceedings, which is either an order of

domain, is public use. That being true, the very

determination of the authority of the plaintiff to

expropriation or an order of dismissal, is final since

moment that it appears at any stage of the

exercise the power of eminent domain and the

it finally disposes of the case. On the other hand,

proceedings that the expropriation is not for a public

propriety of its exercise in the context of the facts

the second phase ends with an order fixing the

use, the action must necessarily fail and should be

involved in the suit. It ends with an order, if not of

amount of just compensation. Both orders, being

dismissed, for the reason that the action cannot be

dismissal of the action, "of condemnation declaring

final, are appealable.30 An order of condemnation or

maintained at all except when the expropriation is

that the plaintiff has a lawful right to take the

dismissal is final, resolving the question of whether

for some public use. That must be true even during

property sought to be condemned, for the public use

or not the plaintiff has properly and legally

the pendency of the appeal of at any other stage of

or purpose described in the complaint, upon the

exercised its power of eminent domain. 31 Once the

the proceedings. If, for example, during the trial in

payment of just compensation to be determined as of

first order becomes final and no appeal thereto is

the lower court, it should be made to appear to the

the date of the filing of the complaint." An order of

taken, the authority to expropriate and its public use

satisfaction of the court that the expropriation is

dismissal, if this be ordained, would be a final one, of

can no longer be questioned.32

not for some public use, it would be the duty and the

course, since it finally disposes of the action and

obligation of the trial court to dismiss the action.

leaves nothing more to be done by the Court on the

The above rule is based on Rule 67, Section 4 of the

And even during the pendency of the appeal, if it

merits. So, too, would an order of condemnation be a

1997 Rules of Civil Procedure, which provides:

should be made to appear to the satisfaction of the

final one, for thereafter, as the Rules expressly

appellate court that the expropriation is not for

state, in the proceedings before the Trial Court, "no

Order of expropriation. If the objections to and

public use, then it would become the duty and the

objection to the exercise of the right of

the defenses against the right of the plaintiff to

obligation of the appellate court to dismiss it. 27

condemnation (or the propriety thereof) shall be

expropriate the property are overruled, or when no

filed or heard."

party appears to defend as required by this Rule, the

court may issue an order of expropriation declaring

Notably, the foregoing cases refer to the dismissal

of an action for eminent domain at the instance of

The second phase of the eminent domain action is

that the plaintiff has a lawful right to take the

the plaintiff during the pendency of the case. The

concerned with the determination by the Court of

property sought to be expropriated, for the public

rule is different where the case had been decided

"the just compensation for the property sought to be

use or purpose described in the complaint, upon the

and the judgment had already become final and

taken." This is done by the Court with the assistance

payment of just compensation to be determined as of

executory.

of not more than three (3) commissioners. The order

the date of the taking of the property or the filing

fixing the just compensation on the basis of the

of the complaint, whichever came first.

Expropriation proceedings consists of two stages:

evidence before, and findings of, the commissioners

first, condemnation of the property after it is

would be final, too. It would finally dispose of the

A final order sustaining the right to expropriate the

determined that its acquisition will be for a public

second stage of the suit, and leave nothing more to

property may be appealed by any party aggrieved

purpose or public use and, second, the determination

be done by the Court regarding the issue. Obviously,

thereby.Such appeal, however, shall not prevent the

of just compensation to be paid for the taking of

one or another of the parties may believe the order

court from determining the just compensation to be

private property to be made by the court with the

to be erroneous in its appreciation of the evidence or

paid.

assistance of not more than three

findings of fact or otherwise. Obviously, too, such a

commissioners.28 Thus:

dissatisfied party may seek a reversal of the order

After the rendition of such an order, the plaintiff

by taking an appeal therefrom.

shall not be permitted to dismiss or discontinue the

29

proceeding except on such terms as the court deems

prescribed qualifications. A beginning has to be

It is arbitrary and capricious for a government

just and equitable. (underscoring ours)

made, for it is not possible to provide housing for all

agency to initiate expropriation proceedings, seize a

who need it, all at once.

persons property, allow the judgment of the court to

In the case at bar, petitioner did not appeal the

Order of the trial court dated December 10, 1999,

become final and executory and then refuse to pay

xxx

xxx

xxx

which declared that it has a lawful right to

on the ground that there are no appropriations for

the property earlier taken and profitably used. We

expropriate the properties of respondent Heirs of

In the light of the foregoing, this Court is satisfied

condemn in the strongest possible terms the cavalier

Isidro Guivelondo. Hence, the Order became final

that "socialized housing" falls with the confines of

attitude of government officials who adopt such a

and may no longer be subject to review or reversal in

"public use". xxx xxx xxx. Provisions on economic

despotic and irresponsible stance.

any court.33 A final and executory decision or order

opportunities inextricably linked with low-cost

can no longer be disturbed or reopened no matter

housing, or slum clearance, relocation and

In order to resolve the issue of the propriety of the

how erroneous it may be. Although judicial

resettlement, or slum improvement emphasize the

garnishment against petitioners funds and personal

determinations are not infallible, judicial error

public purpose of the project.35

properties, there is a need to first determine its

should be corrected through appeals, not through

repeated suits on the same claim.34

true character as a government entity. Generally,

The public purpose of the socialized housing project

funds and properties of the government cannot be

is not in any way diminished by the amount of just

the object of garnishment proceedings even if the

Petitioner anchors its arguments on the last

compensation that the court has fixed. The need to

consent to be sued had been previously granted and

paragraph of the above-quoted Rule 67, Section 4. In

provide decent housing to the urban poor dwellers in

the state liability adjudged.37

essence, it contends that there are just and

the locality was not lost by the mere fact that the

equitable grounds to allow dismissal or discontinuance

land cost more than petitioner had expected. It is

The universal rule that where the State gives its

of the expropriation proceedings. More specifically,

worthy to note that petitioner pursued its petition

consent to be sued by private parties either by

petitioner alleges that the intended public use was

for certiorari with the Court of Appeals assailing the

general or special law, it may limit claimants action

rendered nugatory by the unreasonable just

amount of just compensation and its petition for

"only up to the completion of proceedings anterior to

compensation fixed by the court, which is beyond the

review with this Court which eloquently indicates

the stage of execution" and that the power of the

means of the intended beneficiaries of the socialized

that there still exists a public use for the housing

Courts ends when the judgment is rendered, since

housing project. The argument is tenuous.

project. It was only after its appeal and petitions for

government funds and properties may not be seized

review were dismissed that petitioner made a

under writs of execution or garnishment to satisfy

Socialized housing has been recognized as public use

complete turn-around and decided it did not want the

such judgments, is based on obvious considerations

for purposes of exercising the power of eminent

property anymore.

of public policy. Disbursements of public funds must

domain.

be covered by the corresponding appropriation as

Respondent landowners had already been prejudiced

required by law. The functions and public services

Housing is a basic human need. Shortage in housing is

by the expropriation case. Petitioner cannot be

rendered by the State cannot be allowed to be

a matter of state concern since it directly and

permitted to institute condemnation proceedings

paralyzed or disrupted by the diversion of public

significantly affects public health, safety, the

against respondents only to abandon it later when it

funds from their legitimate and specific objects, as

environment and in sum, the general welfare. The

finds the amount of just compensation unacceptable.

appropriated by law.38

public character of housing measures does not

Indeed, our reprobation in the case of Cosculluela v.

change because units in housing projects cannot be

Court of Appeals36 is apropos:

occupied by all but only by those who satisfy

However, if the funds belong to a public corporation

or a government-owned or controlled corporation

which is clothed with a personality of its own,

character may be accepted in the sense that the

Hence, it is clear that the funds of petitioner NHA

separate and distinct from that of the government,

Peoples Homesite and Housing Corporation was a

are not exempt from garnishment or execution.

then its funds are not exempt from

government-owned entity. It does not follow though

Petitioners prayer for injunctive relief to restrain

garnishment.

that they were exempt from garnishment.

respondent Sheriff Pascual Abordo from enforcing

39

This is so because when the

41

government enters into commercial business, it

the Notice of Levy and Garnishment against its funds

abandons its sovereign capacity and is to be treated

This was reiterated in the subsequent case of

like any other corporation.

Philippine Rock Industries, Inc. v. Board of

40

Liquidators:42
In the case of petitioner NHA, the matter of

and properties must, therefore, be denied.

WHEREFORE, in view of the foregoing, the instant
petition for review is DENIED. The decision of the

whether its funds and properties are exempt from

Having a juridical personality separate and distinct

Court of Appeals in CA-G.R. SP No. 68670, affirming

garnishment has already been resolved squarely

from the government, the funds of such government-

the trial courts Order denying petitioners Motion to

against its predecessor, the Peoples Homesite and

owned and controlled corporations and non-corporate

Dismiss the expropriation proceedings in Civil Case

Housing Corporation (PHHC), to wit:

agency, although considered public in character, are

No. CEB-23386, is AFFIRMED. Petitioners prayer

not exempt from garnishment. This doctrine was

for injunctive relief against the levy and garnishment

The plea for setting aside the notice of garnishment

applied to suits filed against the Philippine Virginia

of its funds and personal properties is DENIED. The

was premised on the funds of the Peoples Homesite

Tobacco Administration (PNB vs. Pabalan, et al., 83

Temporary Restraining Order dated January 22,

and Housing Corporation deposited with petitioner

SCRA 695); the National Shipyard & Steel

2003 is LIFTED. SO ORDERED.

being "public in character." There was not even a

Corporation (NASSCO vs. CIR, 118 Phil. 782); the

categorical assertion to that effect. It is only the

Manila Hotel Company (Manila Hotel Employees Asso.

possibility of its being "public in character." The tone

vs. Manila Hotel Co., 73 Phil. 374); and thePeople's

was thus irresolute, the approach diffident. The

Homesite and Housing Corporation (PNB vs. CIR, 81

premise that the funds cold be spoken of as public in

SCRA 314). [emphasis ours]