Republic of the Philippines Sultan Security Agency did not appeal the decision of the Labor Arbiter.
the decision of the Labor Arbiter. Thus, the decision
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 104269 November 11, 1993
DEPARTMENT OF AGRICULTURE, petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, et al., respondents.
Roy Lago Salcedo for private respondents.
VITUG, J.:
For consideration are the incidents that flow from the familiar doctrine of non-suability of
the state.
In this petition for certiorari, the Department of Agriculture seeks to nullify the
Resolution, 1 dated 27 November 1991, of the National Labor Relations Commission
(NLRC), Fifth Division, Cagayan de Oro City, denying the petition for injunction, prohibition
and mandamus that prays to enjoin permanently the NLRC's Regional Arbitration Branch X
and Cagayan de Oro City Sheriff from enforcing the decision 2 of 31 May 1991 of the
Executive Labor Arbiter and from attaching and executing on petitioner's property.
The Department of Agriculture (herein petitioner) and Sultan Security Agency entered into
a contract3 on 01 April 1989 for security services to be provided by the latter to the said
governmental entity. Save for the increase in the monthly rate of the guards, the same
terms and conditions were also made to apply to another contract, dated 01 May 1990,
between the same parties. Pursuant to their arrangements, guards were deployed by
Sultan Agency in the various premises of the petitioner.
On 13 September 1990, several guards of the Sultan Security Agency filed a complaint for
underpayment of wages, non-payment of 13th month pay, uniform allowances, night shift
differential pay, holiday pay and overtime pay, as well as for damages, 4 before the
Regional Arbitration Branch X of Cagayan de Oro City, docketed as NLRC Case No. 10-
09-00455-90 (or 10-10-00519-90, its original docket number), against the Department of
Agriculture and Sultan Security Agency.
The Executive Labor Arbiter rendered a decision on 31 May finding herein petitioner
and jointly and severally liable with Sultan Security Agency for the payment of money
claims, aggregating P266,483.91, of the complainant security guards. The petitioner and
became final and executory.
On 18 July 1991, the Labor Arbiter issued a writ of execution. 5 commanding the City
Sheriff to enforce and execute the judgment against the property of the two respondents.
Forthwith, or on 19 July 1991, the City Sheriff levied on execution the motor vehicles of the
petitioner, i.e. one (1) unit Toyota Hi-Ace, one (1) unit Toyota Mini Cruiser, and one (1) unit
Toyota Crown.6 These units were put under the custody of Zacharias Roa, the property
custodian of 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 jurisdiction over the petitioner, and that, therefore, the
decision of the Labor Arbiter was null and void and all actions pursuant thereto should be
deemed equally invalid and of no legal, effect. The petitioner also pointed out that the
attachment or seizure of its property would hamper and jeopardize petitioner's
governmental functions to the prejudice 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 NLRC RABX Cases Nos. 10-10-00455-90; 10-10-0481-90 and 10-
10-00519-90 are temporarily suspended for a period of two (2) months,
more or less, but not extending beyond the last quarter of calendar year
1991 to enable petitioner to source and raise funds to satisfy the
judgment awards against it;
2. Meantime, petitioner is ordered and directed to source for funds
within the period above-stated and to deposit the sums of money
equivalent to the aggregate amount. it has been adjudged to pay jointly
and severally with respondent Sultan Security Agency with the Regional
Arbitration Branch X, Cagayan de Oro City within the same period for
proper dispositions;
3. In order to ensure compliance with this order, petitioner is likewise
directed to put up and post sufficient surety and supersedeas
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;
4. The City Sheriff is ordered to immediately release the properties of
petitioner levied on execution within ten (10) days from notice of the
posting of sufficient surety or supersedeas bond as specified above. In
the meanwhile, petitioner is assessed to pay the costs and/or expenses
 incurred by the City Sheriff, if any, in connection with the execution of
the judgments in the above-stated cases upon presentation of the
appropriate claims or vouchers and receipts by the city Sheriff, subject
to the conditions specified in the NLRC Sheriff, subject to the conditions
specified in the NLRC Manual of Instructions for Sheriffs;
5. The right of any of the judgment debtors to claim reimbursement
against each other for any payments made in connection with the
satisfaction of the judgments herein is hereby recognized pursuant to
the ruling in the Eagle Security case, (supra). In case of dispute
between 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 is Dismissed for lack of basis. The
writ of preliminary injunction previously issued is Lifted and Set
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 is Denied for lack of merit while the motion to
dismiss the petition filed by Duty Sheriff is Noted
SO ORDERED.
In this petition for certiorari, the petitioner charges the NLRC with grave abuse of discretion
for refusing to quash the writ of execution. The petitioner faults the NLRC for assuming
jurisdiction over a money claim against the Department, which, it claims, falls under the
exclusive jurisdiction of the Commission on Audit. More importantly, the petitioner asserts,
the NLRC has disregarded the cardinal rule on the non-suability of the State.
The private respondents, on the other hand, argue that the petitioner has impliedly waived
its immunity from suit by concluding a service contract with Sultan Security Agency.
The basic postulate enshrined in the constitution that "(t)he State may not be sued without
its consent," 7 reflects nothing less than a recognition of the sovereign character of the
State and an express affirmation of the unwritten rule effectively insulating it from the
jurisdiction of courts. 8 It is based on the very essence of sovereignty. As has been aptly
observed, by Justice Holmes, a sovereign is exempt from suit, not because of any formal
conception or obsolete theory, but on the logical and practical ground that there can be no
legal right as against the authority that makes the law on which the right depends. 9 True,
the doctrine, not too infrequently, is derisively called "the royal prerogative of dishonesty"
because it grants the state the prerogative to defeat any legitimate claim against it by
simply invoking its non-suability. 10 We have had occasion, to explain in its defense,
however, that a continued adherence to the doctrine of non-suability cannot be deplored,
for the loss of governmental efficiency and the obstacle to the performance of its
multifarious functions would be far greater in severity than the inconvenience that may be
caused private parties, if such fundamental principle is to be abandoned and the
availability of judicial remedy is not to be accordingly restricted. 11
The rule, in any case, is not really absolute for it does not say that the state may not be
sued under any circumstances. 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. 12 The States' consent may be given expressly or impliedly.
Express consent may be made through a general law13 or a special law. 14 In this
jurisdiction, the general law waiving the immunity of the state from suit is found in Act No.
3083, where the Philippine government "consents and submits to be sued upon any
money claims involving liability arising from contract, express or implied, which could serve
as a basis of civil action between private parties." 15 Implied consent, on the other hand, is
conceded when the State itself commences litigation, thus opening itself to a
counterclaim16 or when it enters into a contract. 17 In this situation, the government is
deemed to have descended to the level of the other contracting party and to have divested
itself of its sovereign immunity. This rule, relied upon by the NLRC and the private
respondents, is not, however, without qualification. Not all contracts entered into by the
government operate as a waiver of its non-suability; distinction must still be made between
one which is executed in the exercise of its sovereign function and another which is done
in its proprietary capacity. 18
In the Unites States of America vs. Ruiz, 19 where the questioned transaction dealt with
improvements on the wharves in the naval installation at Subic Bay, we held:
The traditional rule of immunity exempts a State from being sued in the
courts of another State without its consent or waiver. This rule is a
necessary consequence of the principles of independence and equality
of States. However, the rules of International Law are not petrified; they
are constantly developing and evolving. And because the activities of
states have multiplied, it has been necessary to distinguish them —
between sovereign and governmental acts ( jure imperii) and private,
commercial and proprietary act ( jure gestionisis). The result is that
State immunity now extends only to acts jure imperii. The restrictive
application of State immunity is now the rule in the United States, the
United Kingdom and other states in Western Europe.
xxx xxx xxx
The restrictive application of State immunity is proper only when the
proceedings arise out of commercial transactions of the foreign
sovereign, its commercial activities or economic affairs. Stated
differently, a state may be said to have descended to the level of an
individual and can this be deemed to have actually given its consent to
be sued only when it enters into business contracts. It does not apply
where the contracts relates to the exercise of its sovereign functions. In
this case the projects are an integral part of the naval base which is
devoted to the defense of both the United States and the Philippines,
indisputably a function of the government of the highest order; they are
not utilized for not dedicated to commercial or business purposes.
In the instant case, the Department of Agriculture has not pretended to have assumed a
capacity apart from its being a governmental entity when it entered into the questioned
contract; nor that it could have, in fact, performed any act proprietary in character.
But, be that as it may, the claims of private respondents, i.e. for underpayment of wages,
holiday pay, overtime pay and similar other items, arising from the Contract for Service,
clearly constitute money claims. Act No. 3083, aforecited, gives the consent of the State to
be "sued upon any moneyed claim involving liability arising from contract, express or
implied, . . . Pursuant, however, to Commonwealth Act ("C.A.") No. 327, as amended by
Presidential Decree ("P.D.") No. 1145, the money claim first be brought to the Commission
on Audit. Thus, in Carabao, Inc., vs. Agricultural Productivity Commission, 20 we ruled:

(C)laimants have to prosecute their money claims against the

Government under Commonwealth Act 327, stating that Act 3083
stands now merely as the general law waiving the State's immunity
from suit, subject to the general limitation expressed in Section 7
thereof that "no execution shall issue upon any judgment rendered by
any Court against the Government of the (Philippines), and that the
conditions provided in Commonwealth Act 327 for filing money claims
against the Government must be strictly observed."

We fail to see any substantial conflict or inconsistency between the provisions of C.A. No.
327 and the Labor Code with respect to money claims against the State. The Labor code,
in relation to Act No. 3083, provides the legal basis for the State liability but the
prosecution, enforcement or satisfaction thereof must still be pursued in accordance with
the rules and procedures laid down in C.A. No. 327, as amended by P.D. 1445.

When the state gives its consent to be sued, it does thereby necessarily consent to
unrestrained execution against it. tersely put, when the State waives its immunity, all it
does, in effect, is to give the other party an opportunity to prove, if it can, that the State has
a liability. 21 In Republic vs. Villasor 22 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 —

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 the
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 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

WHEREFORE, the petition is GRANTED. The resolution, dated 27 November 1991, is

hereby REVERSED and SET ASIDE. The writ of execution directed against the property of
the Department of Agriculture is nullified, and the public respondents are hereby enjoined
permanently from doing, issuing and implementing any and all writs of execution issued
pursuant to the decision rendered by the Labor Arbiter against said petitioner.

SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-26400 February 29, 1972
VICTORIA AMIGABLE, plaintiff-appellant,
vs.
NICOLAS CUENCA, as Commissioner of Public Highways and REPUBLIC OF THE
PHILIPPINES, defendants-appellees.
MAKALINTAL, J.:p
This is an appeal from the decision of the Court of First Instance of Cebu in its Civil Case
No. R-5977, dismissing the plaintiff's complaint.
Victoria Amigable, the appellant herein, is the registered owner of Lot No. 639 of the
Banilad Estate in Cebu City as shown by Transfer Certificate of Title No. T-18060, which
superseded Transfer Certificate of Title No. RT-3272 (T-3435) issued to her by the Register
of Deeds of Cebu on February 1, 1924. No annotation in favor of the government of any
right or interest in the property appears at the back of the certificate. Without prior
expropriation or negotiated sale, the government used a portion of said lot, with an area of
6,167 square meters, for the construction of the Mango and Gorordo Avenues.
It appears that said avenues were already existing in 1921 although "they were in bad
condition and very narrow, unlike the wide and beautiful avenues that they are now," and
"that the tracing of said roads was begun in 1924, and the formal construction in
1925." *
On March 27, 1958 Amigable's counsel wrote the President of the Philippines, requesting
payment of the portion of her lot which had been appropriated by the government. The
claim was indorsed to the Auditor General, who disallowed it in his 9th Indorsement dated
December 9, 1958. A copy of said indorsement was transmitted to Amigable's counsel by
the Office of the President on January 7, 1959.
On February 6, 1959 Amigable filed in the court a quo a complaint, which was later
amended on April 17, 1959 upon motion of the defendants, against the Republic of the
Philippines and Nicolas Cuenca, in his capacity as Commissioner of Public Highways for
the recovery of ownership and possession of the 6,167 square meters of land traversed by
the Mango and Gorordo Avenues. She also sought the payment of compensatory
damages in the sum of P50,000.00 for the illegal occupation of her land, moral damages in
the sum of P25,000.00, attorney's fees in the sum of P5,000.00 and the costs of the suit.
Within the reglementary period the defendants filed a joint answer denying the material
allegations of the complaint and interposing the following affirmative defenses, to wit: (1)
that the action was premature, the claim not having been filed first with the Office of the
Auditor General; (2) that the right of action for the recovery of any amount which might be
due the plaintiff, if any, had already prescribed; (3) that the action being a suit against the
Government, the claim for moral damages, attorney's fees and costs had no valid basis
since as to these items the Government had not given its consent to be sued; and (4) that
inasmuch as it was the province of Cebu that appropriated and used the area involved in
the construction of Mango Avenue, plaintiff had no cause of action against the defendants.
During the scheduled hearings nobody appeared for the defendants notwithstanding due
notice, so the trial court proceeded to receive the plaintiff's evidence ex parte. On July 29,
1959 said court rendered its decision holding that it had no jurisdiction over the plaintiff's
cause of action for the recovery of possession and ownership of the portion of her lot in
question on the ground that the government cannot be sued without its consent; that it had
neither original nor appellate jurisdiction to hear, try and decide plaintiff's claim for
compensatory damages in the sum of P50,000.00, the same being a money claim against
the government; and that the claim for moral damages had long prescribed, nor did it have
jurisdiction over said claim because the government had not given its consent to be sued.
Accordingly, the complaint was dismissed. Unable to secure a reconsideration, the plaintiff
appealed to the Court of Appeals, which subsequently certified the case to Us, there being
no question of fact involved.
The issue here is whether or not the appellant may properly sue the government under the
facts of the case.
In the case of Ministerio vs. Court of First Instance of Cebu,1 involving a claim for payment
of the value of a portion of land used for the widening of the Gorordo Avenue in Cebu City,
this Court, through Mr. Justice Enrique M. Fernando, held that where the government takes
away property from a private landowner for public use without going through the legal
process of expropriation or negotiated sale, the aggrieved party may properly maintain a
suit against the government without thereby violating the doctrine of governmental
immunity from suit without its consent. We there said: .
... . If the constitutional mandate that the owner be compensated for property taken for
public use were to be respected, as it should, then a suit of this character should not be
summarily dismissed. The doctrine of governmental immunity from suit cannot serve as an
instrument for perpetrating an injustice on a citizen. Had the government followed the
procedure indicated by the governing law at the time, a complaint would have been filed by
it, and only upon payment of the compensation fixed by the judgment, or after tender to the
party entitled to such payment of the amount fixed, may it "have the right to enter in and
upon the land so condemned, to appropriate the same to the public use defined in the
judgment." If there were an observance of procedural regularity, petitioners would not be in
the sad plaint they are now. It is unthinkable then that precisely because there was a
failure to abide by what the law requires, the government would stand to benefit. It is just
as important, if not more so, that there be fidelity to legal norms on the part of officialdom if
the rule of law were to be maintained. It is not too much to say that when the government
takes any property for public use, which is conditioned upon the payment of just
compensation, to be judicially ascertained, it makes manifest that it submits to the
jurisdiction of a court. There is no thought then that the doctrine of immunity from suit could
still be appropriately invoked.

Considering that no annotation in favor of the government appears at the back of her
certificate of title and that she has not executed any deed of conveyance of any portion of
her lot to the government, the appellant remains the owner of the whole lot. As registered
owner, she could bring an action to recover possession of the portion of land in question at
anytime because possession is one of the attributes of ownership. However, since
restoration of possession of said portion by the government is neither convenient nor
feasible at this time because it is now and has been used for road purposes, the only relief
available is for the government to make due compensation which it could and should have
done years ago. To determine the due compensation for the land, the basis should be the
price or value thereof at the time of the taking.2

As regards the claim for damages, the plaintiff is entitled thereto in the form of legal
interest on the price of the land from the time it was taken up to the time that payment is
made by the government.3 In addition, the government should pay for attorney's fees, the
amount of which should be fixed by the trial court after hearing.

WHEREFORE, the decision appealed from is hereby set aside and the case remanded to
the court a quo for the determination of compensation, including attorney's fees, to which
the appellant is entitled as above indicated. No pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Zaldivar, Castro, Fernando, Teehankee, Barredo,

Villamor and Makasiar JJ., concur.

SECOND DIVISION
[G.R. No. 131544. March 16, 2001]
EPG CONSTRUCTION CO., CIPER ELECTRICAL & ENGINEERING, SEPTA
CONSTRUCTION CO., PHIL. PLUMBING CO., HOME CONSTRUCTION INC., WORLD
BUILDERS CO., GLASS WORLD INC., PERFORMANCE BUILDERS DEVT. CO., DE
LEON-ARANETA CONST. CO., J.D. MACAPAGAL CONST. CO., All represented by
their Atty. IN FACT, MARCELO D, FORONDA, petitioners, vs. HON. GREGORIO R.
VIGILAR, In His Capacity as Secretary of Public Works and Highways, respondent.
DECISION
BUENA, J.:
Sought to be reversed in the instant Petition for Certiorari is the Decision, dated 07
November 1997, of the Regional Trial Court of Quezon City, Branch 226, in Civil Case No.
Q-96-29243,[1] dismissing the Petition for Mandamus filed by herein petitioners against
herein respondent Hon. Gregorio Vigilar, in his capacity as Secretary of the Department of
Public Works and Highways (DPWH).
The tapestry of facts unfurls.
In 1983, the Ministry of Human Settlement, through the BLISS Development Corporation,
initiated a housing project on a government property along the east bank of the
Manggahan Floodway in Pasig City. For this purpose, the Ministry of Human Settlement
entered into a Memorandum of Agreement (MOA) with the Ministry of Public Works and
Highways,[2] where the latter undertook to develop the housing site and construct thereon
145 housing units.
By virtue of the MOA, the Ministry of Public Works and Highways forged individual
contracts with herein petitioners EPG Construction Co., Ciper Electrical and Engineering,
Septa Construction Co., Phil. Plumbing Co., Home Construction Inc., World Builders Inc.,
Glass World Inc., Performance Builders Development Co. and De Leon Araneta
Construction Co., for the construction of the housing units.Under the contracts, the scope
of construction and funding therefor covered only around 2/3 of each housing unit. [3] After
complying with the terms of said contracts, and by reason of the verbal request and
assurance of then DPWH Undersecretary Aber Canlas that additional funds would be
available and forthcoming, petitioners agreed to undertake and perform additional
constructions[4] for the completion of the housing units, despite the absence of
appropriations and written contracts to cover subsequent expenses for the additional
constructions.
Petitioners then received payment for the construction work duly covered by the individual
written contracts, thereby leaving an unpaid balance of P5,918,315.63, [5] which amount
represents the expenses for the additional constructions for the completion of the existing
housing units. On 14 November 1988, petitioners sent a demand letter to the DPWH
Secretary and submitted that their claim for payment was favorably recommended by
DPWH Assistant Secretary for Legal Services Dominador Madamba, who recognized the
existence of implied contracts covering the additional constructions. Notwithstanding,
DPWH Assistant Secretary Madamba opined that payment of petitioners money claims
should be based on quantum meruit and should be forwarded to the Commission on
Audit (COA) for its due consideration and approval. The money claims were then referred
to COA which returned the same to the DPWH Auditor for auditorial action. On the basis of
the Inspection Report of the Auditors Technical Staff, the DPWH Auditor interposed no
objection to the payment of the money claims subject to whatever action the COA may
adopt.
In a Second Indorsement dated 27 July 1992, the COA returned the documents to the
DPWH, stating that funds should first be made available before COA could pass upon and
act on the money claims.In a Memorandum dated 30 July 1992, then DPWH Secretary
Jose De Jesus requested the Secretary of Budget and Management to release public
funds for the payment of petitioners money claims, stating that the amount is urgently
needed in order to settle once and for all this (sic) outstanding obligations of the
government. In a Letter of the Undersecretary of Budget and Management dated 20
December 1994, the amount of P5,819,316.00 was then released for the payment of
petitioners money claims, under Advise of Allotment No. A4-1303-04-41-303.
In an Indorsement dated 27 December 1995, the COA referred anew the money claims to
the DPWH pursuant to COA Circular 95-006, thus:
Respectfully returned thru the Auditor to the Honorable Secretary, Department of Public
Works and Highways, Port Area, Manila, the above-captioned subject (Re: Claim of Ten
(10) contractors for payment of Work accomplishments on the construction of the COGEO
II Housing Project, Pasig, Metro Manila) and reiterating the policy of this office as
embodied in COA Circular No. 95-006 dated May 18, 1995 totally lifting its pre-audit
activities on all financial transactions of the agencies of the government involving
implementation/prosecution of projects and/or payment of claims without exception so as
to vest on agency heads the prerogative to exercise fiscal responsibility thereon.
The audit of the transaction shall be done after payment.
In a letter dated 26 August 1996, respondent DPWH Secretary Gregorio Vigilar denied the
subject money claims prompting herein petitioners to file before the Regional Trial Court of
Quezon City, Branch 226, a Petition for Mandamus praying that herein respondent be
ordered:
1) To pay petitioners the total of P5,819,316.00;
2) To pay petitioners moral and exemplary damages in the amount to be fixed by the Court
and sum of P500,000.00 as attorneys fees.
On 18 February 1997, the lower court conducted a pre-trial conference where the parties
appeared and filed their respective pre-trial briefs. Further, respondent submitted a
Memorandum to which petitioners filed a Rejoinder.
On 07 November 1997, the lower court denied the Petition for Mandamus, in a Decision
which disposed as follows:
WHEREFORE, in view of all the foregoing, the instant Petition for Mandamus is dismissed.
The order of September 24, 1997, submitting the Manifestation and Motion for Resolution,
is hereby withdrawn.
SO ORDERED.
Hence, this petition where the core issue for resolution focuses on the right of petitioners-
contractors to compensation for a public works housing project.
In the case before us, respondent, citing among others Sections 46[6] and 47,[7] Chapter 7,
Sub-Title B, Title I, Book V of the Administrative Code of 1987 (E.O 292), posits that the
existence of appropriations and availability of funds as certified to and verified by the
proper accounting officials are conditions sine qua non for the execution of government
contracts.[8] Respondent harps on the fact that the additional work was pursued through
the verbal request of then DPWH Undersecretary Aber P. Canlas, despite the absence of
the corresponding supplemental contracts and appropriate funding.[9]According to
respondent, sans showing of certificate of availability of funds, the implied contracts are
considered fatally defective and considered inexistent and void ab initio. Respondent
concludes that inasmuch as the additional work done was pursued in violation of the
mandatory provisions of the laws concerning contracts involving expenditure of public
funds and in excess of the public officials contracting authority, the same is not binding on
the government and impose no liability therefor.[10]
Although this Court agrees with respondents postulation that the implied contracts, which
covered the additional constructions, are void, in view of violation of applicable laws,
auditing rules and lack of legal requirements,[11] we nonetheless find the instant petition
laden with merit and uphold, in the interest of substantial justice, petitioners-contractors
right to be compensated for the "additional constructions" on the public works housing
project, applying the principle of quantum meruit.
[12]
Interestingly, this case is not of first impression. In Eslao vs. Commission on Audit, this
Court likewise allowed recovery by the contractor on the basis of quantum meruit, following
our pronouncement in Royal Trust Construction vs. Commission on Audit,[13] thus:
In Royal Trust Construction vs. COA, a case involving the widening and deepening of
the Betis River in Pampanga at the urgent request of the local officials and with the
knowledge and consent of the Ministry of Public Works, even without a written
contract and the covering appropriation, the project was undertaken to prevent the
overflowing of the neighboring areas and to irrigate the adjacent farmlands. The contractor
sought compensation for the completed portion in the sum of over P1 million. While
the payment was favorably recommended by the Ministry of Public Works, it was
denied by the respondent COA on the ground of violation of mandatory legal provisions as
the existence of corresponding appropriations covering the contract cost. Under COA Res.
No. 36-58 dated November 15, 1986, its existing policy is to allow recovery from covering
contracts on the basis of quantum meruit if there is delay in the accomplishment of the
required certificate of availability of funds to support a contract. (Emphasis ours)
In the Royal Construction case, this Court, applying the principle of quantum meruit in
allowing recovery by the contractor, elucidated:
The work done by it (the contractor) was impliedly authorized and later expressly
acknowledged by the Ministry of Public Works, which has twice recommended favorable
action on the petitioners request for payment. Despite the admitted absence of a
specific covering appropriation as required under COA Resolution No. 36-58, the
petitioner may nevertheless be compensated for the services rendered by
it, concededly for the public benefit, from the general fund allotted by law to the Betis
River project. Substantial compliance with the said resolution, in view of the circumstances
of this case, should suffice. The Court also feels that the remedy suggested by the
respondent, to wit, the filing of a complaint in court for recovery of the
compensation claimed, would entail additional expense, inconvenience and delay
which in fairness should be imposed on the petitioner.
Accordingly, in the interest of substantial justice and equity, the respondent Commission
on Audit is DIRECTED to determine on a quantum meruit basis the total compensation due
to the petitioner for the services rendered by it in the channel improvement of the Betis
River in Pampanga and to allow the payment thereof immediately upon completion of the
said determination. (Emphasis ours)
Similarly, this Court applied the doctrine of quantum meruit in Melchor vs. Commission
on Audit[14] and explained that where payment is based on quantum meruit, the amount of
recovery would only be the reasonable value of the thing or services rendered regardless
of any agreement as to value.[15]
Notably, the peculiar circumstances present in the instant case buttress petitioners claim
for compensation for the additional constructions, despite the illegality and void nature of
the implied contracts forged between the DPWH and petitioners-contractors. On this
matter, it bears stressing that the illegality of the subject contracts proceeds from an
express declaration or prohibition by law,[16] and not from any intrinsic illegality. Stated
differently, the subject contracts are not illegal per se.
Of equal significance are circumstances attendant and peculiar in this case which
necessitate allowance of petitioners money claimson the basis of quantum meruit for
work accomplished on the government housing project.
To begin with, petitioners-contractors assented and agreed to undertake additional
constructions for the completion of the housing units, believing in good faith and in the
interest of the government and, in effect, the public in general, that appropriations to cover
the additional constructions and completion of the public works housing project would be
available and forthcoming. On this particular score, the records reveal that the verbal
request and assurance of then DPWH Undersecretary Canlas led petitioners-contractors to
undertake the completion of the government housing project, despite the absence of
covering appropriations, written contracts, and certification of availability of funds, as
mandated by law and pertinent auditing rules and issuances. To put it differently, the
implied contracts, declared void in this case, covered only the completion and final
phase of construction of the housing units, which structures, concededly, were already
existing, albeit not yet finished in their entirety at the time the implied contracts were
entered into between the government and the contractors.
Further, petitioners-contractors sent to the DPWH Secretary a demand letter pressing for
their money claims, on the strength of a favorable recommendation from the DPWH
Assistant Secretary for Legal Affairs to the effect that implied contracts existed and that the
money claims had ample basis applying the principle of quantum meruit. Moreover, as
can be gleaned from the records, even the DPWH Auditor interposed no objection to the
payment of the money claims, subject to whatever action the COA may adopt.
Beyond this, the sum of P5,819,316.00 representing the amount of petitioners money
claims, had already been released by the Department of Budget and Management (DBM),
under Advise of Allotment No. A4-1303-04-41-303. Equally important is the glaring fact that
the construction of the housing units had already been completed by petitioners-
contractors and the subject housing units had been, since their completion, under the
control and disposition of the government pursuant to its public works housing project.
perpetration thereof. Justice and equity sternly demand that the States cloak of invincibility
against suit be shred in this particular instance, and that petitionerscontractors be duly
compensated on the basis of quantum meruit for construction done on the public works
housing project.
IN VIEW WHEREOF, the instant petition is GRANTED. The assailed decision of the
Regional Trial Court dated 07 November 1997 is REVERSED AND SET ASIDE.
ACCORDINGLY, the Commission on Audit is hereby directed to determine and ascertain
with dispatch, on a quantum meruit basis, the total compensation due to petitioners-
contractors for the additional constructions on the housing project and to allow payment
thereof upon the completion of said determination. No costs.
SO ORDERED.

To our mind, it would be the apex of injustice and highly inequitable for us to defeat
petitioners-contractors right to be duly compensated for actual work performed and
services rendered, where both the government and the public have, for years, received
and accepted benefits from said housing project and reaped the fruits of petitioners-
contractors honest toil and labor.

Incidentally, respondent likewise argues that the State may not be sued in the instant case,
invoking the constitutional doctrine of Non-suability of the State,[17] otherwise known as
the Royal Prerogative of Dishonesty.

Respondents argument is misplaced inasmuch as the Principle of State Immunity finds no

application in the case before us.

Under these circumstances, respondent may not validly invoke the Royal Prerogative of
Dishonesty and conveniently hide under the States cloak of invincibility against
suit, considering that this principle yields to certain settled exceptions. True enough, the
rule, in any case, is not absolute for it does not say that the state may not be sued under
any circumstance.[18]

Thus, in Amigable vs. Cuenca,[19] this Court, in effect, shred the protective shroud which
shields the State from suit, reiterating our decree in the landmark case of Ministerio vs.
CFI of Cebu[20] that the doctrine of governmental immunity from suit cannot serve as an
instrument for perpetrating an injustice on a 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.[21]

Although the Amigable and Ministerio cases generously tackled the issue of the States
immunity from suit vis a vis the payment of just compensation for expropriated property,
this Court nonetheless finds the doctrine enunciated in the aforementioned cases
applicable to the instant controversy, considering that the ends of justice would be
subverted if we were to uphold, in this particular instance, the States immunity from suit.

To be sure, this Court as the staunch guardian of the citizens rights and welfare cannot
sanction an injustice so patent on its face, and allow itself to be an instrument in the

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-48214 December 19, 1978
ILDEFONSO SANTIAGO, represented by his Attorney-in-Fact, ALFREDO T.
SANTIAGO, petitioner,
vs.
THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, represented by the
Director, Bureau of Plant Industry, and the Regional Director, Region IX, Zamboanga
City, respondent,
Ahmad D. Sahak for petitioner.
Solicitor General Estelito P. Mendoza, Assistant Solicitor General Octavio R. Ramirez and
Solicitor Mariano M. Martinez for respondents.
FERNANDO, J.:
The first impression yielded by a perusal of this petition for certiorari is its inherent
weakness considering the explicit provision in the present Constitution prohibiting a suit
against the Republic without its consent. 1 Here petitioner Ildefonso Santiago 2 filed on
August 9, 1976 an action in the Court of First Instance of Zamboanga City naming as
defendant the government of the Republic of the Philippines represented by the Director of
the Bureau of Plant Industry. 3 His plea was for the revocation of a deed of donation
executed by him and his spouse in January of 1971, 4 with the Bureau of Plant Industry as
the donee. As alleged in such complaint, such Bureau, contrary to the terms of the
donation, failed to "install lighting facilities and water system on the property donated and
to build an office building and parking [lot] thereon which should have been constructed
and ready for occupancy on or before December 7, 1974. 5 That led him to conclude that
under the circumstances, he was exempt from compliance with such an explicit
constitutional command. The lower court, in the order challenged in this petition, was of a
different view. It sustained a motion to dismiss on the part of the defendant Republic of the
Philippines, now named as one of the respondents, the other respondent being the Court
of First Instance of Zamboanga City, Branch II. It premised such an order on the settled
"rule that the state cannot be sued without its consent. This is so, because the New
Constitution of the Philippines expressly provides that the state may not be sued without its
consent. 6 Solicitor General Estelito P. Mendoza, 7 in the com ment on the petition filed with
this Court, is for the affirmance of the order of dismissal of respondent Court precisely to
accord deference to the above categorical constitutional mandate.
On its face, such a submission carries persuasion. Upon further reflection, this Tribunal is
impressed with the unique aspect of this petition for certiorari, dealing as it does with a suit
for the revocation of a donation to the Republic, which allegedly fatted to conform with
what was agreed to by the donee. If an order of dismissal would suffice, then the element
of unfairness enters, the facts alleged being hypothetically admitted. It is the considered
opinion of this Court then that to conform to the high dictates of equity and justice, the
presumption of consent could be indulged in safely. That would serve to accord to
petitioner as plaintiff, at the very least, the right to be heard. certiorari lies.
1. This is not to deny the obstacle posed by the constitutional provision. It is expressed in
language plain and unmistakable: "The State may not be sued without its consent. 8 The
Republic cannot be proceeded against unless it allows itself to be sued. Neither can a
department, bureau, agency, office, or instrumentality of the government where the suit,
according to the then Justice, now Chief Justice, Castro in Del Mar v. Philippine Veterans
Administration, 9 may result "in adverse consequences to the public treasury, whether in
the disbursements of funds or loss of property. 10 Such a doctrine was reiterated in the
following cases: Republic v. Villasor, 11 Sayson v. Singson, 12 Director of the Bureau of
Printing v. Francisco, 13 and Republic v. Purisima. 14
2. It is contended by counsel for petitioner that the above constitutional provision would be
given a retroactive application in this case if the suit for the revocation of donation were
dismissed. That is not the case at all. In Republic v. Purisima, this Court made clear that
such a basic postulate is part and parcel of the system of government implanted in the
Philippines from the time of the acquisition of sovereignty by the United States, and
therefore, was implicit in the 1935 Constitution even in the absence of any explicit
language to that effect. This it did in a citation from Switzerland General Insurance Co.,
Ltd. v. Republic of the Philippines: 15 "The doctrine of non-suability recognized in this
jurisdiction even prior to the effectivity of the [1935] Constitution is a logical corollary of the
positivist concept of law which, to paraphrase Holmes, negates the assertion of any legal
right as against the state, in itself the source of the law on which such a right may be
predicated. Nor is this all. Even if such a principle does give rise to problems, considering
the vastly expanded role of government enabling it to engage in business pursuits to
promote the general welfare, it is not obeisance to the analytical school of thought alone
that calls for its continued applicability. 16 That is the teaching of the leading case of Mobil
Philippines Exploration, Inc. v. Customs Arrastre Service, 17 promulgated in December of
1966. As a matter of fact, the Switzerland General Insurance Co. decision was the thirty-
seventh of its kind after Mobil. Clearly, then, the contention that to dismiss the suit would
be to give the applicable constitutional provision a retroactive effect is, to put it at its
mildest, untenable.
3. Petitioner's counsel invoked Santos v. Santos, 18 a 1952 decision. A more thorough
analysis ought to have cautioned him against reliance on such a case. It was therein
clearly pointed out that the government entity involved was originally the National Airports
Corporation. Thereafter, it "was abolished by Executive Order No. 365, series of 1950, and
in its place and stead the Civil Aeronautics Administration was created and took over all the
assets and assumed all the liabilities of the abolished corporation. The Civil Aeronautics
Administration, even if it is not a juridical entity, cannot legally prevent a party or parties
from enforcing their proprietary rights under the cloak or shield of lack of juridical
personality, because to took over all the powers and assumed all the obligations of the
defunct corporation which had entered into the contract in question." 19 Then
came National Shipyard and Steel Corporation v. Court of Industrial Relations, 20 a 1963
decision, where the then Justice, later Chief Justice, Concepcion, as ponente, stated that a
government-owned and controlled corporation "has a personality of its own distinct and
separate from that of the government. ... Accordingly, it may sue and be sued and may be
subjected to court processes just like any other corporation. (Section 13, Act 1459, as
amended). 21 In three recent decisions, Philippine National Bank v. Court of Industrial
Relations, 22 Philippine National Bank v. Honorable Judge Pabalan, 23and Philippine
National Railways v. Union de Maquinistas, 24 this constitutional provision on non-suability
was unavailing in view of the suit being against a government-owned or controlled
corporation. That point apparently escaped the attention of counsel for petitioner.
Hence Santos v. Santos is hardly controlling.
4. It is to be noted further that the trend against the interpretation sought to be fastened in
the broad language of Santos v. Santos is quite discernible. Not long after, in Araneta v.
Hon. M. Gatmaitan, 25 decided in 1957, it was held that an action [against] Government
officials, is essentially one against the Government, ... . 26 In the same year, this Court,
in Angat River Irrigation System v. Angat River Workers 27 Union, after referring to the
"basic and fundamental principle of the law that the Government cannot be sued before
courts of justice without its consent," pointed out that "this privilege of non-suability of the
Government" covers with the mantle of its protection "an entity," in this case, the Angat
River Irrigation System. 28 Then, in 1960, came Lim v. Brownell, Jr., 29 where there was a
reaffirmation of the doctrine that a "claim [constituting] a charge against, or financial liability
to, the Government cannot be entertained by the courts except with the consent of said
government. 30 Bureau of Printing v. Bureau of Printing Employees Association 31 came a
year later; it reiterated such a doctrine. It was not surprising therefore that in 1966, Mobil
Philippines Exploration, Inc. was decided the way it was. The remedy, where the liability is
based on contract, according to this Court, speaking through Justice J. P. Bengzon, is for
plaintiff to file a claim with the general office in accordance with the controlling statute,
Commonwealth Act No. 327. 32 To repeat, that doctrine has been adhered to ever since.
The latest case in point is Travelers Indemnity Company v. Barber Steamship Lines,
Inc. 33 Justice Aquino's opinion concluded with this paragraph: "It is settled that the Bureau
of Customs, acting as part of the machinery of the national government in the operation of
the arrastre service, is immune from suit under the doctrine of non-suability of the State.
The claimant's remedy to recover the loss or damage to the goods under the custody of
the customs arrastre service is to file a claim with the Commission in Audit as
contemplated in Act No. 3083 and Commonwealth Act No. 327. 34 With the explicit
provision found in the present Constitution, the fundamental principle of non-suability
becomes even more exigent in its command.
5. The reliance on Santos v. Santos as a prop for this petition having failed, it would
ordinarily follow that this suit cannot prosper. Nonetheless, as set forth at the outset, there
is a novel aspect that suffices to call for a contrary conclusion. It would be manifestly unfair
for the Republic, as donee, alleged to have violated the conditions under which it received
gratuitously certain property, thereafter to put as a barrier the concept of non-suitability.
That would be a purely one-sided arrangement offensive to one's sense of justice. Such
conduct, whether proceeding from an individual or governmental agency, is to be
condemned. As a matter of fact, in case it is the latter that is culpable, the affront to
decency is even more manifest. The government, to paraphrase Justice Brandeis, should
set the example. If it is susceptible to the charge of having acted dishonorably, then it
forfeits public trust-and rightly so.
6. Fortunately, the constitutional provision itself snows a waiver. Where there is consent, a
suit may be filed. Consent need not be express. It can be implied. So it was more than
implied in Ministerio v. Court of First Instance of Cebu: 35 "The doctrine of governmental
immunity from suit cannot serve as an instrument for perpetrating an injustice on a
citizen. 36 The fact that this decision arose from a suit against the Public Highways
Commissioner and the Auditor General for failure of the government to pay for land
necessary to widen a national highway, the defense of immunity without the consent
proving unavailing, is not material. The analogy is quite obvious. Where the government
ordinarily benefited by the taking of the land, the failure to institute the necessary
condemnation proceedings should not be a bar to an ordinary action for the collection of
the just compensation due. Here, the alleged failure to abide by the conditions under which
a donation was given should not prove an insuperable obstacle to a civil action, the
consent likewise being presumed. This conclusion is strengthened by the fact that while a
donation partakes of a contract, there is no money claim, and therefore reliance on
Commonwealth Act No. 327 would be futile.
7. Our decision, it must be emphasized, goes no further than to rule that a donor, with the
Republic or any of its agency being the donee, is entitled to go to court in case of an
alleged breach of the conditions of such donation. He has the right to be heard. Under the
circumstances, the fundamental postulate of non-suability cannot stand in the way. It is
made to accommodate itself to the demands of procedural due process, which is the
negation of arbitrariness and inequity. The government, in the final analysis, is the
beneficiary. It thereby manifests its adherence to the highest ethical standards, which can
only be ignored at the risk of losing the confidence of the people, the repository of the
sovereign power. The judiciary under this circumstance has the grave responsibility of
living up to the ideal of objectivity and impartiality, the very essence of the rule of law. Only
by displaying the neutrality expected of an arbiter, even if it happens to be one of the
departments of a litigant, can the decision arrived at, whatever it may be, command
respect and be entitled to acceptance.
WHEREFORE, the writ of certiorari prayed for is granted and the order of dismissal of
October 20, 1977 is nullified, set aside and declared to be without force and effect. The
Court of First Instance of Zamboanga City, Branch II, is hereby directed to proceed with
this case, observing the procedure set forth in the Rules of Court. No costs.
Barredo, Antonio, Aquino, Concepcion, Jr. and Santos, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11154 March 21, 1916
E. MERRITT, plaintiff-appellant,
vs.
GOVERNMENT OF THE PHILIPPINE ISLANDS, defendant-appellant.
Crossfield and O'Brien for plaintiff.
Attorney-General Avanceña for defendant..
TRENT, J.:
This is an appeal by both parties from a judgment of the Court of First Instance of the city
of Manila in favor of the plaintiff for the sum of P14,741, together with the costs of the
cause.
Counsel for the plaintiff insist that the trial court erred (1) "in limiting the general damages
which the plaintiff suffered to P5,000, instead of P25,000 as claimed in the complaint," and
(2) "in limiting the time when plaintiff was entirely disabled to two months and twenty-one
days and fixing the damage accordingly in the sum of P2,666, instead of P6,000 as
claimed by plaintiff in his complaint."
The Attorney-General on behalf of the defendant urges that the trial court erred: (a) in
finding that the collision between the plaintiff's motorcycle and the ambulance of the
General Hospital was due to the negligence of the chauffeur; (b) in holding that the
Government of the Philippine Islands is liable for the damages sustained by the plaintiff as
a result of the collision, even if it be true that the collision was due to the negligence of the
chauffeur; and (c) in rendering judgment against the defendant for the sum of P14,741.
The trial court's findings of fact, which are fully supported by the record, are as follows:
It is a fact not disputed by counsel for the defendant that when the plaintiff, riding on a
motorcycle, was going toward the western part of Calle Padre Faura, passing along the
west side thereof at a speed of ten to twelve miles an hour, upon crossing Taft Avenue and
when he was ten feet from the southwestern intersection of said streets, the General
Hospital ambulance, upon reaching said avenue, instead of turning toward the south, after
passing the center thereof, so that it would be on the left side of said avenue, as is
prescribed by the ordinance and the Motor Vehicle Act, turned suddenly and unexpectedly
and long before reaching the center of the street, into the right side of Taft Avenue, without
having sounded any whistle or horn, by which movement it struck the plaintiff, who was
already six feet from the southwestern point or from the post place there.
By reason of the resulting collision, the plaintiff was so severely injured that, according to
Dr. Saleeby, who examined him on the very same day that he was taken to the General
Hospital, he was suffering from a depression in the left parietal region, a would in the same
place and in the back part of his head, while blood issued from his nose and he was
entirely unconscious.
The marks revealed that he had one or more fractures of the skull and that the grey matter
and brain was had suffered material injury. At ten o'clock of the night in question, which
was the time set for performing the operation, his pulse was so weak and so irregular that,
in his opinion, there was little hope that he would live. His right leg was broken in such a
way that the fracture extended to the outer skin in such manner that it might be regarded
as double and the would be exposed to infection, for which reason it was of the most
serious nature.
At another examination six days before the day of the trial, Dr. Saleeby noticed that the
plaintiff's leg showed a contraction of an inch and a half and a curvature that made his leg
very weak and painful at the point of the fracture. Examination of his head revealed a
notable readjustment of the functions of the brain and nerves. The patient apparently was
slightly deaf, had a light weakness in his eyes and in his mental condition. This latter
weakness was always noticed when the plaintiff had to do any difficult mental labor,
especially when he attempted to use his money for mathematical calculations.
According to the various merchants who testified as witnesses, the plaintiff's mental and
physical condition prior to the accident was excellent, and that after having received the
injuries that have been discussed, his physical condition had undergone a noticeable
depreciation, for he had lost the agility, energy, and ability that he had constantly displayed
before the accident as one of the best constructors of wooden buildings and he could not
now earn even a half of the income that he had secured for his work because he had lost
50 per cent of his efficiency. As a contractor, he could no longer, as he had before done,
climb up ladders and scaffoldings to reach the highest parts of the building.
As a consequence of the loss the plaintiff suffered in the efficiency of his work as a
contractor, he had to dissolved the partnership he had formed with the engineer. Wilson,
because he was incapacitated from making mathematical calculations on account of the
condition of his leg and of his mental faculties, and he had to give up a contract he had for
the construction of the Uy Chaco building."
We may say at the outset that we are in full accord with the trial court to the effect that the
collision between the plaintiff's motorcycle and the ambulance of the General Hospital was
due solely to the negligence of the chauffeur.
The two items which constitute a part of the P14,741 and which are drawn in question by
the plaintiff are (a) P5,000, the award awarded for permanent injuries, and (b) the P2,666,
the amount allowed for the loss of wages during the time the plaintiff was incapacitated
from pursuing his occupation. We find nothing in the record which would justify us in
increasing the amount of the first. As to the second, the record shows, and the trial court so
found, that the plaintiff's services as a contractor were worth P1,000 per month. The court,
however, limited the time to two months and twenty-one days, which the plaintiff was
actually confined in the hospital. In this we think there was error, because it was clearly
established that the plaintiff was wholly incapacitated for a period of six months. The mere
fact that he remained in the hospital only two months and twenty-one days while the
remainder of the six months was spent in his home, would not prevent recovery for the
whole time. We, therefore, find that the amount of damages sustained by the plaintiff,
without any fault on his part, is P18,075.
As the negligence which caused the collision is a tort committed by an agent or employee
of the Government, the inquiry at once arises whether the Government is legally-liable for
the damages resulting therefrom.
Act No. 2457, effective February 3, 1915, reads:
An Act authorizing E. Merritt to bring suit against the Government of the Philippine Islands
and authorizing the Attorney-General of said Islands to appear in said suit.
Whereas a claim has been filed against the Government of the Philippine Islands by Mr. E.
Merritt, of Manila, for damages resulting from a collision between his motorcycle and the
ambulance of the General Hospital on March twenty-fifth, nineteen hundred and thirteen;
Whereas it is not known who is responsible for the accident nor is it possible to determine
the amount of damages, if any, to which the claimant is entitled; and
Whereas the Director of Public Works and the Attorney-General recommended that an Act
be passed by the Legislature authorizing Mr. E. Merritt to bring suit in the courts against
the Government, in order that said questions may be decided: Now, therefore,
By authority of the United States, be it enacted by the Philippine Legislature, that:
SECTION 1. E. Merritt is hereby authorized to bring suit in the Court of First Instance of the
city of Manila against the Government of the Philippine Islands in order to fix the
responsibility for the collision between his motorcycle and the ambulance of the General
Hospital, and to determine the amount of the damages, if any, to which Mr. E. Merritt is
entitled on account of said collision, and the Attorney-General of the Philippine Islands is
hereby authorized and directed to appear at the trial on the behalf of the Government of
said Islands, to defendant said Government at the same.
SEC. 2. This Act shall take effect on its passage.
Enacted, February 3, 1915.
Did the defendant, in enacting the above quoted Act, simply waive its immunity from suit or
did it also concede its liability to the plaintiff? If only the former, then it cannot be held that
the Act created any new cause of action in favor of the plaintiff or extended the defendant's
liability to any case not previously recognized.
All admit that the Insular Government (the defendant) cannot be sued by an individual
without its consent. It is also admitted that the instant case is one against the Government.
As the consent of the Government to be sued by the plaintiff was entirely voluntary on its
part, it is our duty to look carefully into the terms of the consent, and render judgment
accordingly.
The plaintiff was authorized to bring this action against the Government "in order to fix the
responsibility for the collision between his motorcycle and the ambulance of the General
Hospital and to determine the amount of the damages, if any, to which Mr. E. Merritt is
entitled on account of said collision, . . . ." These were the two questions submitted to the
court for determination. The Act was passed "in order that said questions may be decided."
We have "decided" that the accident was due solely to the negligence of the chauffeur,
who was at the time an employee of the defendant, and we have also fixed the amount of
damages sustained by the plaintiff as a result of the collision. Does the Act authorize us to
hold that the Government is legally liable for that amount? If not, we must look elsewhere
for such authority, if it exists.
The Government of the Philippine Islands having been "modeled after the Federal and
State Governments in the United States," we may look to the decisions of the high courts
of that country for aid in determining the purpose and scope of Act No. 2457.
In the United States the rule that the state is not liable for the torts committed by its officers
or agents whom it employs, except when expressly made so by legislative enactment, is
well settled. "The Government," says Justice Story, "does not undertake to guarantee to
any person the fidelity of the officers or agents whom it employs, since that would involve it
in all its operations in endless embarrassments, difficulties and losses, which would be
subversive of the public interest." (Claussen vs. City of Luverne, 103 Minn., 491, citing U.
S. vs. Kirkpatrick, 9 Wheat, 720; 6 L. Ed., 199; and Beers vs. States, 20 How., 527; 15 L.
Ed., 991.)
In the case of Melvin vs. State (121 Cal., 16), the plaintiff sought to recover damages from
the state for personal injuries received on account of the negligence of the state officers at
the state fair, a state institution created by the legislature for the purpose of improving
agricultural and kindred industries; to disseminate information calculated to educate and
benefit the industrial classes; and to advance by such means the material interests of the
state, being objects similar to those sought by the public school system. In passing upon
the question of the state's liability for the negligent acts of its officers or agents, the court
said:
No claim arises against any government is favor of an individual, by reason of the
misfeasance, laches, or unauthorized exercise of powers by its officers or agents. (Citing
Gibbons vs. U. S., 8 Wall., 269; Clodfelter vs. State, 86 N. C., 51, 53; 41 Am. Rep., 440;
Chapman vs. State, 104 Cal., 690; 43 Am. St. Rep., 158; Green vs. State, 73 Cal., 29;
Bourn vs. Hart, 93 Cal., 321; 27 Am. St. Rep., 203; Story on Agency, sec. 319.)
As to the scope of legislative enactments permitting individuals to sue the state where the
cause of action arises out of either fort or contract, the rule is stated in 36 Cyc., 915, thus:
By consenting to be sued a state simply waives its immunity from suit. It does not thereby
concede its liability to plaintiff, or create any cause of action in his favor, or extend its
liability to any cause not previously recognized. It merely gives a remedy to enforce a
preexisting liability and submits itself to the jurisdiction of the court, subject to its right to
interpose any lawful defense.
In Apfelbacher vs. State (152 N. W., 144, advanced sheets), decided April 16, 1915, the
Act of 1913, which authorized the bringing of this suit, read:
SECTION 1. Authority is hereby given to George Apfelbacher, of the town of Summit,
Waukesha County, Wisconsin, to bring suit in such court or courts and in such form or
forms as he may be advised for the purpose of settling and determining all controversies
which he may now have with the State of Wisconsin, or its duly authorized officers and
agents, relative to the mill property of said George Apfelbacher, the fish hatchery of the
State of Wisconsin on the Bark River, and the mill property of Evan Humphrey at the lower
end of Nagawicka Lake, and relative to the use of the waters of said Bark River and
Nagawicka Lake, all in the county of Waukesha, Wisconsin.
In determining the scope of this act, the court said:
Plaintiff claims that by the enactment of this law the legislature admitted liability on the part
of the state for the acts of its officers, and that the suit now stands just as it would stand
between private parties. It is difficult to see how the act does, or was intended to do, more
than remove the state's immunity from suit. It simply gives authority to commence suit for
the purpose of settling plaintiff's controversies with the estate. Nowhere in the act is there a
whisper or suggestion that the court or courts in the disposition of the suit shall depart from
well established principles of law, or that the amount of damages is the only question to be
settled. The act opened the door of the court to the plaintiff. It did not pass upon the
question of liability, but left the suit just where it would be in the absence of the state's
immunity from suit. If the Legislature had intended to change the rule that obtained in this
state so long and to declare liability on the part of the state, it would not have left so
important a matter to mere inference, but would have done so in express terms. (Murdock
Grate Co. vs. Commonwealth, 152 Mass., 28; 24 N.E., 854; 8 L. R. A., 399.)
In Denning vs. State (123 Cal., 316), the provisions of the Act of 1893, relied upon and
considered, are as follows:
All persons who have, or shall hereafter have, claims on contract or for negligence against
the state not allowed by the state board of examiners, are hereby authorized, on the terms
and conditions herein contained, to bring suit thereon against the state in any of the courts
of this state of competent jurisdiction, and prosecute the same to final judgment. The rules
of practice in civil cases shall apply to such suits, except as herein otherwise provided.
And the court said:
This statute has been considered by this court in at least two cases, arising under different
facts, and in both it was held that said statute did not create any liability or cause of action
against the state where none existed before, but merely gave an additional remedy to
enforce such liability as would have existed if the statute had not been enacted. (Chapman
vs. State, 104 Cal., 690; 43 Am. St. Rep., 158; Melvin vs. State, 121 Cal., 16.)
A statute of Massachusetts enacted in 1887 gave to the superior court "jurisdiction of all
claims against the commonwealth, whether at law or in equity," with an exception not
necessary to be here mentioned. In construing this statute the court, in Murdock Grate Co.
vs. Commonwealth (152 Mass., 28), said:
The statute we are discussing disclose no intention to create against the state a new and
heretofore unrecognized class of liabilities, but only an intention to provide a judicial
tribunal where well recognized existing liabilities can be adjudicated.
In Sipple vs. State (99 N. Y., 284), where the board of the canal claims had, by the terms of
the statute of New York, jurisdiction of claims for damages for injuries in the management
of the canals such as the plaintiff had sustained, Chief Justice Ruger remarks: "It must be
conceded that the state can be made liable for injuries arising from the negligence of its
agents or servants, only by force of some positive statute assuming such liability."
It being quite clear that Act No. 2457 does not operate to extend the Government's liability
to any cause not previously recognized, we will now examine the substantive law touching
the defendant's liability for the negligent acts of its officers, agents, and employees.
Paragraph 5 of article 1903 of the Civil Code reads:
The state is liable in this sense when it acts through a special agent, but not when the
damage should have been caused by the official to whom properly it pertained to do the
act performed, in which case the provisions of the preceding article shall be applicable.
The supreme court of Spain in defining the scope of this paragraph said:
That the obligation to indemnify for damages which a third person causes to another by his
fault or negligence is based, as is evidenced by the same Law 3, Title 15, Partida 7, on that
the person obligated, by his own fault or negligence, takes part in the act or omission of the
third party who caused the damage. It follows therefrom that the state, by virtue of such
provisions of law, is not responsible for the damages suffered by private individuals in
consequence of acts performed by its employees in the discharge of the functions
pertaining to their office, because neither fault nor even negligence can be presumed on
the part of the state in the organization of branches of public service and in the
appointment of its agents; on the contrary, we must presuppose all foresight humanly
possible on its part in order that each branch of service serves the general weal an that of
private persons interested in its operation. Between these latter and the state, therefore, no
relations of a private nature governed by the civil law can arise except in a case where the
state acts as a judicial person capable of acquiring rights and contracting obligations.
(Supreme Court of Spain, January 7, 1898; 83 Jur. Civ., 24.)
That the Civil Code in chapter 2, title 16, book 4, regulates the obligations which arise out
of fault or negligence; and whereas in the first article thereof. No. 1902, where the general
principle is laid down that where a person who by an act or omission causes damage to
another through fault or negligence, shall be obliged to repair the damage so done,
reference is made to acts or omissions of the persons who directly or indirectly cause the
damage, the following articles refers to this persons and imposes an identical obligation
upon those who maintain fixed relations of authority and superiority over the authors of the
damage, because the law presumes that in consequence of such relations the evil caused
by their own fault or negligence is imputable to them. This legal presumption gives way to
proof, however, because, as held in the last paragraph of article 1903, responsibility for
acts of third persons ceases when the persons mentioned in said article prove that they
employed all the diligence of a good father of a family to avoid the damage, and among
these persons, called upon to answer in a direct and not a subsidiary manner, are found, in
addition to the mother or the father in a proper case, guardians and owners or directors of
an establishment or enterprise, the state, but not always, except when it acts through the
agency of a special agent, doubtless because and only in this case, the fault or negligence,
which is the original basis of this kind of objections, must be presumed to lie with the state.

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

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

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

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

For the foregoing reasons, the judgment appealed from must be reversed, without costs in
this instance. Whether the Government intends to make itself legally liable for the amount
of damages above set forth, which the plaintiff has sustained by reason of the negligent
acts of one of its employees, by legislative enactment and by appropriating sufficient funds
therefor, we are not called upon to determine. This matter rests solely with the Legislature
and not with the courts.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-36084 August 31, 1977
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
HONORABLE AMANTE P. PURISIMA, the Presiding Judge of the court of first
Instance of Manila (Branch VII), and YELLOW BALL FREIGHT LINES,
INC., respondents.
Solicitor General Estelito P. Mendoza, Assistant Solicitor General Santiago M. Kapunan,
Solicitor Oscar C. Fernandez and Special Attorney Renato P. Mabugat for petitioner.
Jose Q. Calingo for private respondent.
FERNANDO, Acting C.J.:
The jurisdictional issued raised by Solicitor General Estelito P. Mendoza on behalf of the
Republic of the Philippines in this certiorari and prohibition proceeding arose from the
failure of respondent Judge Amante P. Purisima of the Court of First Instance of Manila to
apply the well-known and of-reiterated doctrine of the non-suability of a State, including its
offices and agencies, from suit without its consent. it was so alleged in a motion to dismiss
filed by defendant Rice and Corn Administration in a pending civil suit in the sala of
respondent Judge for the collection of a money claim arising from an alleged breach of
contract, the plaintiff being private respondent Yellow Ball Freight Lines, Inc. 1 Such a
motion to dismiss was filed on September 7, 1972. At that time, the leading case of Mobil
Philippines Exploration, Inc. v. Customs Arrastre Service, 2 were Justice Bengzon stressed
the lack of jurisdiction of a court to pass on the merits of a claim against any office or entity
acting as part of the machinery of the national government unless consent be shown, had
been applied in 53 other decisions. 3 There is thus more than sufficient basis for an
allegation of jurisdiction infirmity against the order of respondent Judge denying the motion
to dismiss dated October 4, 1972. 4 What is more, the position of the Republic has been
fortified with the explicit affirmation found in this provision of the present Constitution: "The
State may not be sued without its consent." 5
The merit of the petition for certiorari and prohibition is thus obvious.
1. There is pertinence to this excerpt from Switzerland General Insurance Co., Ltd. v.
Republic of the Philippines: 6"The doctrine of non-suability recognized in this jurisdiction
even prior to the effectivity of the [1935] Constitution is a logical corollary of the positivist
concept of law which, to para-phrase Holmes, negates the assertion of any legal right as
against the state, in itself the source of the law on which such a right may be predicated.
Nor is this all.lwphl@itç Even if such a principle does give rise to problems, considering the
vastly expanded role of government enabling it to engage in business pursuits to promote
the general welfare, it is not obeisance to the analytical school of thought alone that calls
for its continued applicability. Why it must continue to be so, even if the matter be viewed
sociologically, was set forth in Providence Washington Insurance Co. v. Republic thus:
"Nonetheless, a continued adherence to the doctrine of non-suability 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 the 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 It only remains to be added that under
the present Constitution which, as noted, expressly reaffirmed such a doctrine, the
following decisions had been rendered: Del mar v. The Philippine veterans
Administration; 8 Republic v. Villasor; 9 Sayson v. Singson; 10 and Director of the Bureau of
Printing v. Francisco. 11
2. Equally so, the next paragraph in the above opinion from the Switzerland General
Insurance Company decision is likewise relevant: "Nor is injustice thereby cause private
parties. They could still proceed to seek collection of their money claims by pursuing the
statutory remedy of having the Auditor General pass upon them subject to appeal to
judicial tribunals for final adjudication. We could thus correctly conclude as we did in the
cited Provindence Washington Insurance decision: "Thus the doctrine of non-suability of
the government without its consent, as it has operated in practice, hardly lends itself to the
charge that it could be the fruitful parent of injustice, considering the vast and ever-
widening scope of state activities at present being undertaken. Whatever difficulties for
private claimants may still exist, is, from an objective appraisal of all factors, minimal. In the
balancing of interests, so unavoidable in the determination of what principles must prevail if
government is to satisfy the public weal, the verdict must be, as it has been these so many
years, for its continuing recognition as a fundamental postulate of constitutional law." 12
3. Apparently respondent Judge was misled by the terms of the contract between the
private respondent, plaintiff in his sala, and defendant Rice and Corn Administration which,
according to him, anticipated the case of a breach of contract within the parties and the
suits that may thereafter arise. 13 The consent, to be effective though, must come from the
State acting through a duly enacted statute as pointed out by Justice Bengzon in Mobil.
Thus, whatever counsel for defendant Rice and Corn Administration agreed to had no
binding force on the government. That was clearly beyond the scope of his authority. At
any rate, Justice Sanchez, in Ramos v. Court of Industrial Relations, 14 was quite
categorical as to its "not [being] possessed of a separate and distinct corporate existence.
On the contrary, by the law of its creation, it is an office directly 'under the Office of the
President of the Philippines." 15
WHEREFORE, the petitioner for certiorari is granted and the resolution of October 4, 1972
denying the motion to dismiss filed by the Rice and Corn Administration nullified and set
aside and the petitioner for prohibition is likewise granted restraining respondent Judge
from acting on civil Case No. 79082 pending in his sala except for the purpose of ordering
its dismissal for lack of jurisdiction. The temporary restraining order issued on February 8,
1973 by this Court is made permanent terminating this case. Costs against Yellow Ball
Freight Lines, Inc.
Antonio, Aquino, Concepcion, Jr. and Santos, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-6060 September 30, 1954
FERNANDO A. FROILAN, plaintiff-appellee,
vs.
PAN ORIENTAL SHIPPING CO., defendant-appellant,
REPUBLIC OF THE PHILIPPINES, intervenor-appellee.
Quisumbing, Sycip, Quisumbing and Salazar, for appellant.
Ernesto Zaragoza for appellee.
Hilarion U. Jarencio for the intervenor.
PARAS, C.J.:
The factual antecedents of this case are sufficiently recited in the brief filed by the
intervenor-appellee as follows:
1. On February 3, 1951, plaintiff-appellee, Fernando A. Froilan, filed a complaint
against the defendant-appellant, Pan Oriental Shipping Co., alleging that he
purchased from the Shipping Commission the vessel FS-197 for P200,000,
paying P50,000 down and agreeing to pay the balance in installments; that to
secure the payment of the balance of the purchase price, he executed a chattel
mortgage of said vessel in favor of the Shipping Commission; that for various
reason, among them the non-payment of the installments, the Shipping
Commission took possession of said vessel and considered the contract of sale
cancelled; that the Shipping Commission chartered and delivered said vessel to
the defendant-appellant Pan Oriental Shipping Co. subject to the approval of the
President of the Philippines; that he appealed the action of the Shipping
Commission to the President of the Philippines and, in its meeting on August 25,
1950, the Cabinet restored him to all his rights under his original contract with the
Shipping Commission; that he had repeatedly demanded from the Pan Oriental
Shipping Co. the possession of the vessel in question but the latter refused to do
so. He, therefore, prayed that, upon the approval of the bond accompanying his
complaint, a writ of replevin be issued for the seizure of said vessel with all its
equipment and appurtenances, and that after hearing, he be adjudged to have
the rightful possession thereof (Rec. on App. pp. 2-8).
2. On February 3, 1951, the lower court issued the writ of replevin prayed for by
Froilan and by virtue thereof the Pan Oriental Shipping Co. was divested of its
possession of said vessel (Rec. on App. p. 47).
3. On March 1, 1951, Pan Oriental Shipping Co. filed its answer denying the right
of Froilan to the possession of the said vessel; it alleged that the action of the
Cabinet on August 25, 1950, restoring Froilan to his rights under his original
contract with the Shipping Commission was null and void; that, in any event,
Froilan had not complied with the conditions precedent imposed by the Cabinet
for the restoration of his rights to the vessel under the original contract; that it
suffered damages in the amount of P22,764.59 for wrongful replevin in the month
of February, 1951, and the sum of P17,651.84 a month as damages suffered for
wrongful replevin from March 1, 1951; it alleged that it had incurred necessary
and useful expenses on the vessel amounting to P127,057.31 and claimed the
right to retain said vessel until its useful and necessary expenses had been
reimbursed (Rec. on App. pp. 8-53).
4. On November 10, 1951, after the leave of the lower court had been obtained,
the intervenor-appellee, Government of the Republic of the Philippines, filed a
complaint in intervention alleging that Froilan had failed to pay to the Shipping
Commission (which name was later changed to Shipping Administration) the
balance due on the purchase price of the vessel in question, the interest thereon,
and its advances on insurance premium totalling P162,142.95, excluding the dry-
docking expenses incurred on said vessel by the Pan Oriental Shipping Co.; that
intervenor was entitled to the possession of the said vessel either under the
terms of the original contract as supplemented by Froilan's letter dated January
28, 1949, or in order that it may cause the extrajudicial sale thereof under the
Chattel Mortgage Law. It, therefore, prayed that Froilan be ordered to deliver the
vessel in question to its authorized representative, the Board of Liquidators; that
Froilan be declared to be without any rights on said vessel and the amounts he
paid thereon forfeited or alternately, that the said vessel be delivered to the Board
of Liquidators in order that the intervenor may have its chattel mortgage
extrajudicially foreclosed in accordance with the provisions of the Chattel
Mortgage Law; and that pending the hearing on the merits, the said vessel be
delivered to it (Rec. on App. pp. 54-66).
5. On November 29, 1951, the Pan Oriental Shipping Co. filed an answer to the
complaint in intervention alleging that the Government of the Republic of the
Philippines was obligated to deliver the vessel in question to it by virtue of a
contract of bare-boat charter with option to purchase executed on June 16, 1949,
by the latter in favor of the former; it also alleged that it had made necessary and
useful expenses on the vessel and claimed the right of retention of the vessel. It,
therefore, prayed that, if the Republic of the Philippines succeeded in obtaining
possession of the said vessel, to comply with its obligations of delivering to it
(Pan Oriental Shipping co.) or causing its delivery by recovering it from Froilan
(Rec. on App. pp. 69-81).
6. On November 29, 1951, Froilan tendered to the Board of Liquidators, which
was liquidating the affairs of the Shipping Administration, a check in the amount
of P162,576.96 in payment of his obligation to the Shipping Administration for the
said vessel as claimed in the complaint in intervention of the Government of the
Republic of the Philippines. The Board of Liquidators issued an official report
 therefor stating that it was a 'deposit pending the issuance of an order of the
Court of First Instance of Manila' (Rec. on App. pp. 92-93).
7. On December 7, 1951, the Government of the Republic of the Philippines
brought the matter of said payment and the circumstance surrounding it to the
attention of the lower court "in order that they may be taken into account by this
Honorable Court in connection with the questions that are not pending before it
for determination" (Rec. on App. pp. 82-86).
8. On February 3, 1952, the lower court held that the payment by Froilan of the
amount of P162,576.96 on November 29, 1951, to the Board of Liquidators
constituted a payment and a discharge of Froilan's obligation to the Government
of the Republic of the Philippines and ordered the dismissal of the latter's
complaint in intervention. In the same order, the lower court made it very clear
that said order did not pre-judge the question involved between Froilan and the
Oriental Shipping Co. which was also pending determination in said court (Rec.
on App. pp. 92-93). This order dismissing the complaint in intervention, but
reserving for future adjudication the controversy between Froilan and the Pan
Oriental Shipping Co. has already become final since neither the Government of
the Republic of the Philippines nor the Pan Oriental Shipping Co. had appealed
therefrom.
9. On May 10, 1952, the Government of the Republic of the Philippines filed a
motion to dismiss the counterclaim of the Pan Oriental Shipping Co. against it on
the ground that the purpose of said counterclaim was to compel the Government
of the Republic of the Philippines to deliver the vessel to it (Pan Oriental Shipping
Co.) in the event that the Government of the Republic of the Philippines recovers
the vessel in question from Froilan. In view, however, of the order of the lower
court dated February 3, holding that the payment made by Froilan to the Board of
Liquidators constituted full payment of Froilan's obligation to the Shipping
Administration, which order had already become final, the claim of the Pan
Oriental Shipping Co. against the Republic of the Philippines was no longer
feasible, said counterclaim was barred by prior judgment and stated no cause of
action. It was also alleged that movant was not subject to the jurisdiction of the
court in connection with the counterclaim. (Rec. on App. pp. 94-97). This motion
was opposed by the Pan Oriental Shipping Co. in its written opposition dated
June 4, 1952 (Rec. on app. pp. 19-104).
10. In an order dated July 1, 1952, the lower court dismissed the counterclaim of
the Pan Oriental Shipping Co. as prayed for by the Republic of the Philippines
(Rec. on App. pp. 104-106).
11. It if from this order of the lower court dismissing its counterclaim against the
Government of the Republic of the Philippines that Pan Oriental Shipping Co.
has perfected the present appeal (Rec. on App. p. 107).
The order of the Court of First Instance of Manila, dismissing the counterclaim of the
defendant Pan Oriental Shipping Co., from which the latter has appealed, reads as follows:
This is a motion to dismiss the counterclaim interposed by the defendant in its
answer to the complaint in intervention.
"The counterclaim states as follows:
"COUNTERCLAIM
"As counterclaim against the intervenor Republic of the Philippines, the
defendant alleges:
"1. That the defendant reproduces herein all the pertinent allegations of the
foregoing answer to the complaint in intervention
"2. That, as shown by the allegations of the foregoing answer to the complaint in
intervention, the defendant Pan Oriental Shipping Company is entitled to the
possession of the vessel and the intervenor Republic of the Philippines is bound
under the contract of charter with option to purchase it entered into with the
defendant to deliver that possession to the defendant — whether it actually has
the said possession or it does not have that possession from the plaintiff
Fernando A. Froilan and deliver the same to the defendant;
"3. That, notwithstanding demand, the intervenor Republic of the Philippines has
not to date complied with its obligation of delivering or causing the delivery of the
vessel to the defendant Pan Oriental Shipping Company.1âwphïl.nêt
"RELIEF
"WHEREFORE, the defendant respectfully prays that judgment be rendered
ordering the intervenor Republic of the Philippines alternatively to deliver to the
defendants the possession of the said vessel, or to comply with its obligation to
the defendant or causing the delivery to the latter of the said vessel by recovering
the same from plaintiff, with costs.
"The defendant prays for such other remedy as the Court may
deem just and equitable in the premises."
The ground of the motion to dismiss are (a) That the cause of action is barred by
prior judgment; (b) That the counterclaim states no cause of action; and (c) That
this Honorable Court has no jurisdiction over the intervenor government of the
Republic of the Philippines in connection with the counterclaim of the defendant
Pan Oriental Shipping Co.
The intervenor contends that the complaint in intervention having been dismissed
and no appeal having been taken, the dismissal of said complaint is tantamount
to a judgment.
The complaint in intervention did not contain any claim whatsoever against the
defendant Pan Oriental Shipping Co.; hence, the counterclaim has no foundation.
The question as to whether the Court has jurisdiction over the intervenor with
regard to the counterclaim, the Court is of the opinion that it has no jurisdiction
over said intervenor.
 It appearing, therefore, that the grounds of the motion to dismiss are well taken,
the counterclaim of the defendant is dismissed, without pronouncement as to
costs.
The defendant's appeal is predicated upon the following assignments of error:
I. The lower court erred in dismissing the counterclaim on the ground of prior
judgment.
II. The lower court erred in dismissing the counterclaim on the ground that the
counterclaim had no foundation because made to a complaint in intervention that
contained no claim against the defendant.
III. The lower court erred in dismissing the counterclaim on the ground of alleged
lack of jurisdiction over the intervenor Republic of the Philippines.
We agree with appellant's contention that its counterclaim is not barred by prior judgment
(order of February 8, 1952, dismissing the complaint in intervention), first, because said
counterclaim was filed on November 29, 1951, before the issuance of the order invoked;
and, secondly, because in said order of February 8, the court dismissed the complaint in
intervention, "without, of course, precluding the determination of the right of the defendant
in the instant case," and subject to the condition that the "release and cancellation of the
chattel mortgage does not, however, prejudge the question involved between the plaintiff
and the defendant which is still the subject of determination in this case." It is to be noted
that the first condition referred to the right of the defendant, as distinguished from the
second condition that expressly specified the controversy between the plaintiff and the
defendant. That the first condition reserved the right of the defendant as against the
intervenor, is clearly to be deduced from the fact that the order of February 8 mentioned
the circumstance that "the question of the expenses of drydocking incurred by the
defendant has been included in its counterclaim against the plaintiff," apparently as one of
the grounds for granting the motion to dismiss the complaint in intervention.
The defendant's failure to appeal from the order of February 8 cannot, therefore, be held
as barring the defendant from proceeding with its counterclaim, since, as already stated,
said order preserved its right as against the intervenor. Indeed, the maintenance of said
right is in consonance with Rule 30, section 2, of the Rules of Court providing that "if a
counterclaim has been pleaded by a defendant prior to the service upon him of the
plaintiff's motion to dismiss, the action shall not be dismissed against the defendant's
objection unless the counterclaim can remain pending for independent adjudication by the
court."
performance on the part of the intervenor. As to whether this counterclaim is meritorious is
another question which is not now before us.
The other ground for dismissing the defendant's counterclaim is that the State is immune
from suit. This is untenable, because by filing its complaint in intervention the Government
in effect waived its right of nonsuability.
The immunity of the state from suits does not deprive it of the right to sue private
parties in its own courts. The state as plaintiff may avail itself of the different
forms of actions open to private litigants. In short, by taking the initiative in an
action against a private party, the state surrenders its privileged position and
comes down to the level of the defendant. The latter automatically acquires,
within certain limits, the right to set up whatever claims and other defenses he
might have against the state. The United States Supreme Court thus explains:
"No direct suit can be maintained against the United States. But when
an action is brought by the United States to recover money in the hands
of a party who has a legal claim against them, it would be a very rigid
principle to deny to him the right of setting up such claim in a court of
justice, and turn him around to an application to Congress." (Sinco,
Philippine Political Law, Tenth Ed., pp. 36-37, citing U. S. vs. Ringgold,
8 Pet. 150, 8 L. ed. 899.)
It is however, contended for the intervenor that, if there was at all any waiver, it was in
favor of the plaintiff against whom the complaint in intervention was directed. This
contention is untenable. As already stated, the complaint in intervention was in a sense in
derogation of the defendant's claim over the possession of the vessel in question.
Wherefore, the appealed order is hereby reversed and set aside and the case remanded to
the lower court for further proceedings. So ordered, without costs.
Pablo, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo, Concepcion, and Reyes,
J.B.L., JJ., concur.

The lower court also erred in holding that, as the intervenor had not made any claim
against the defendant, the latter's counterclaim had no foundation. The complaint in
intervention sought to recover possession of the vessel in question from the plaintiff, and
this claim is logically adverse to the position assumed by the defendant that it has a better
right to said possession than the plaintiff who alleges in his complaint that he is entitled to
recover the vessel from the defendant. At any rate a counterclaim should be judged by its
own allegations, and not by the averments of the adverse party. It should be recalled that
the defendant's theory is that the plaintiff had already lost his rights under the contract with
the Shipping Administration and that, on the other hand, the defendant is relying on the
charter contract executed in its favor by the intervenor which is bound to protect the
defendant in its possession of the vessel. In other words, the counterclaim calls for specific

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-8587 March 24, 1960
BENITO E. LIM, as administrator of the Intestate Estate of Arsenia Enriquez, plaintiff-
appellant,
vs.
HERBERT BROWNELL, JR., Attorney General of the United States, and ASAICHI
KAGAWA, defendants-appellee, REPUBLIC OF THE PHILIPPINES, intervenor-
appellee.
Angel S. Gamboa for appellant.
Townsend, Gilbert, Santos and Patajo for appellee.
Alfredo Catolico for intervenor.
GUTIERREZ DAVID, J.:
This is an appeal from an order of the Court of First Instance of Manila, dismissing
plaintiff's action for the recovery of real property for lack of jurisdiction over the subject
matter.
The property in dispute consists of four parcels of land situated in Tondo, City of Manila,
with a total area of 29,151 square meters. The lands were, after the last world war, found
by the Alien Property Custodian of the United States to be registered in the name of
Asaichi Kagawa, national of an enemy country, Japan, as evidenced by Transfer
Certificates of Title Nos. 64904 to 65140, inclusive, for which reason the said Alien
Property Custodian, on March 14, 1946, issued a vesting order on the authority of the
Trading with the Enemy Act of the United States, as amended, vesting in himself the
ownership over two of the said lots, Lots Nos. 1 and 2. On July, 6, 1948, the Philippine
Alien Property Administrator (successor of the Alien Property Custodian) under the
authority of the same statute, issued a supplemental vesting order, vesting in himself title
to the remaining Lots Nos. 3 and 4. On August 3, 1948, the Philippine Alien Property
Administrator (acting on behalf of the President of the United States) and the President of
the Philippines, executed two formal agreements, one referring to Lots 1 and 2 and the
other to Lots 3 and 4, whereby the said Administrator transferred all the said four lots to the
Republic of the Philippines upon the latter's undertaking fully to indemnify the United
States for all claims in relation to the property transferred, which claims are payable by the
United States of America or the Philippine Alien Property Administrator of the United States
under the Trading with the Enemy Act, as amended, and for all such costs and expenses of
administration as may by law be charged against the property or proceeds thereof hereby
transferred." The transfer agreements were executed pursuant to section 3 of the
Philippine Property Act of 1946 and Executive Order No. 9921, dated January 10, 1948, of
the President of the United States.
On the theory that the lots in question still belonged to Arsenia Enriquez, the latter's son
Benito E. Lim filed on November 15, 1948 a formal notice of claim to the property with the
Philippine Alien Property Administrator. The notice was subsequently amended to permit
Lim to prosecute the claim as administrator of the intestate estate of the deceased Arsenia
Enriquez, thus, in effect, substituting the intestate estate as the claimant, it being alleged
that the lots were once the property of Arsenia Enriquez; that they were mortgaged by her
to the Mercantile Bank of China; that the mortgage having been foreclosed, the property
was sold at public auction during the war to the Japanese Asaichi Kagawa, who, by means
of threat and intimidation succeeded in preventing Arsenia Enriquez from exercising her
right of redemption; and that Kagawa never acquired any valid title to the property because
he was ineligible under the Constitution to acquire residential land in the Philippines by
reason of alien age.
On March 7, 1950, the claim was disallowed by the Vested Property Claims Committee of
the Philippine Alien Property Administrator, and copy of the decision disallowing the claim
was received by claimant's counsel on the 15th of that month. The claimant, however, took
no appeal to the Philippine Alien Property Administrator, so that pursuant to the rules of
procedure governing claims before the Philippine Alien Property Administrator, the decision
of the committee became final on April 15, 1950, that is, twenty days after receipt of the
decision by claimant's counsel.
On November 13, 1950, the claimant Benito E. Lim, as administrator of the intestate estate
of Arsenia Enriquez, filed a complaint in the Court of First Instance of Manila against the
Philippine Alien Property Administrator (later substituted by the Attorney General of the
United States) for the recovery of the property in question with back rents. The complaint
was later amended to include Asaichi Kagawa as defendant. As amended, it alleged that
the lands in question formerly belonged to Arsenia Enriquez and were mortgaged by her to
the Mercantile Bank of China; that the mortgage having been foreclosed, she was
sentenced to pay the mortgage debt within 3 months; that within those 3 months the bank
commissioner, who had been appointed liquidator of said bank, assured her that she could
pay her mortgage debt little by little in monthly installments, and pursuant to that
arrangement the income derived from the mortgaged property were thereafter applied to
her indebtedness, that such payment of the mortgage debt continued until a few months
after the occupation of the City of Manila by the Japanese forces, when the Bank of
Taiwan, having taken over the administration and control of all banks in the Philippines,
including the Mercantile Bank of China, had the properties sold at public auction on
October 26, 1942 by the sheriff of the city; that the properties were awarded to Asaichi
Kagawa and the sale was subsequently confirmed by the court; that if Arsenia Enriquez
failed to redeem the properties before the confirmation of the sale, it was because of the
financial depression and also because she was prevented from doing so by Kagawa
through threats and intimidation; that the auction sale was irregular and illegal because it
was made without publication or notice and because though the land was subdivided into
lots, the same was sold as a whole; that because of the irregularities mentioned,
competitive bidding was prevented or stifled with the result that the lands, which could
have been easily sold for P300,000 at then prevailing prices, were awarded to Kagawa
whose bid was only P54,460.40, a price that was "grossly inadequate and shocking to the
conscience;" that the titles to the lands having been subsequently transferred to Kagawa,
the latter in June, 1943 illegally dispossessed Arsenia Enriquez and kept possession of the
properties until the liberation of the City of Manila; that as Arsenia Enriquez was still the
owner of the properties, the seizure thereof by the United States Attorney General's
predecessors on the assumption that they belong to Kagawa, as well as their decision
disallowing her claim, was contrary to law. Plaintiff, therefore, prayed that the sheriff's sale
to Kagawa and the vesting of the properties in the Philippine Alien Property Administrator
and the transfer thereof by the United States to the Republic of the Philippines be declared
null and void; that Arsenia Enriquez be adjudged owner of the said properties and the
Register of Deeds of Manila be ordered to issue the corresponding transfer certificates of
title to her; and that the defendant Attorney General of the United States be required to pay
rental from March 14, 1946, and the Government of the Philippines from August 3, 1948, at
the rate of P30,000 per annum with legal interest.The defendant Attorney General of the
United States and the defendant-intervenor Republic of the Philippines each filed an
answer, alleging by way of affirmative defenses (1) that the action with respect to Lots 1
and 2 had already prescribed, the same not having been brought within the period
prescribed in section 33 of the Trading with the Enemy Act, as amended, and (2) that the
lower court had no jurisdiction over the claim for rentals since the action in that regard
constituted a suit against the United States to which it had not given its consent.
The defendant Asaichi Kagawa was summoned by publication, but having failed to file an
answer to the complaint, he was declared in default. Thereafter, a preliminary hearing on
the affirmative defenses was held at the instance of the United States Attorney General
pursuant to Section 5, Rule 8 of the Rules of Court. After said hearing, the court ordered
the complaint dismissed on the ground — as stated in the dispositive part of the order —
that the "court has no jurisdiction over the subject matter of this action, taking into
consideration the provisions of Sec. 34 (must be 33) of the Trading with the Enemy Act, as
the requirements needed by the above-mentioned Act have not been fulfilled by the herein
plaintiff." From that order, plaintiff has taken the present appeal.
Judging from the context of the order complained of, it would appear that the dismissal of
plaintiff's action was actually based upon the principle that a foreign state or its
government cannot be sued without its consent. Considering, however, the law applicable,
we do not think the order of dismissal can be sustained in its entirety. There is no denying
that an action against the Alien Property Custodian, or the Attorney General of the United
States as his successor, involving vested property under the Trading with the Enemy Act
located in the Philippines, is in substance an action against the United States. The
immunity of the state from suit, however, cannot be invoked where the action, as in the
present case, is instituted by a person who is neither an enemy or ally of an enemy for the
purpose of establishing his right, title or interest in vested property, and of recovering his
ownership and possession. Congressional consent to such suit has expressly been given
by the United States. (Sec. 3, Philippine Property Act of 1946; Philippine Alien Property
Administration vs. Castelo, et al., 89 Phil., 568.)
The order of dismissal, however, with respect to plaintiff's claim for damages against the
defendant Attorney General of the United States must be upheld. The relief available to a
person claiming enemy property which has been vested by the Philippines Alien Property
Custodian is limited to those expressly provided for in the Trading with the Enemy Act,
which does not include a suit for damages for the use of such vested property. That action,
as held by this Court in the Castelo case just cited, is not one of those authorized under
the Act which may be instituted in the appropriate courts of the Philippines under the
provisions of section 3 of the Philippine Property Act of 1946. Congressional consent to
such suit has not been granted.
The claim for damages for the use of the property against the intervenor defendant
Republic of the Philippines to which is was transferred, likewise, cannot be maintained
because of the immunity of the state from suit. The claim obviously constitutes a charge
against, or financial liability to, the Government and consequently cannot be entertained by
the courts except with the consent of said government. (Syquia vs. Almeda Lopez, 84 Phil.,
312; 47 Off. Gaz., 665; Compañia General de Tabacos vs. Gov't of PI, 45 Phil., 663.)
Plaintiff argues that by its intervention, the Republic of the Philippines, in effect, waived its
right of non-suability, but it will be remembered that the Republic intervened in the case
merely to unite with the defendant Attorney General of the United States in resisting
plaintiff's claims, and for that reason asked no affirmative relief against any party in the
answer in intervention it filed. On the other hand, plaintiff in his original complaint made no
claim against the Republic and only asked for damages against it for the use of the
property when the complaint was amended. In its answer to the amended complaint, the
Republic "reproduced and incorporated by reference" all the affirmative defenses
contained in the answer of the defendant Attorney General, one of which, as already
stated, is that the lower court had no jurisdiction over the claim for rentals because of lack
of consent to be sued. Clearly, this is not a case where the state takes the initiative in an
action against a private party by filing a complaint in intervention, thereby surrendering its
privileged position and coming down to the level of the defendant — as what happened in
the case of Froilan vs. Pan Oriental Shipping Co., et al. 95 Phil., 905 cited by plaintiff —
but one where the state, as one of the defendants merely resisted a claim against it
precisely on the ground, among others, of its privileged position which exempts it from
suit..
With respect to the recovery or return of the properties vested, section 33 of the Trading
with the Enemy Act, as amended, provides:
SEC. 33. Return of property; notice; institution of suits, computation of time. —
No return may be made pursuant to section 9 or 32 unless notice of claim has
been filed: (a) in the case of any property or interest acquired by the United
States prior to December 18, 1941, by August 9, 1948; or (b) in the case of any
property or interest acquired by the United States on or after December 18, 1941,
by April 30, 1949, or two years from the vesting of the property or interest in
respect of which the claim is made, whichever is later. No suit pursuant to section
9 may be instituted after April 30, 1949, or after the expiration of two years from
the date of the seizure by or vesting in the Alien Property Custodian, as the case
may be, of the property or interest in respect of which relief is sought, whichever
is later, but in computing such two years there shall be excluded any period
during which there was pending a suit or claim for return pursuant to section 9 or
32(a) hereof. (USCA, Tit. 50, App., p. 216.)
From the above provisions, it is evident that a condition precedent to a suit for the return of
property vested under the Trading with the Enemy Act is that it should be filed not later
than April 30, 1949, or within two years from the date of vesting, whichever is later, but in
computing such two years, the period during which there was pending a suit or claim for
the return of the said property pursuant to secs. 9 or 32(a) of the Act shall be excluded.
That limitation, as held in a case, is jurisdictional. (See Cisatlantic Corporation, et
al. vs. Brownell, Jr., Civil Code No. 8-221, U.S. District Court, Southern District, New York,
affirmed by the United States Court of Appeals, 2nd Circuit, May 11, 1955 (Docket No.
23499), annexed as appendices "D" and "E" in appellees' brief.) Such being the case, it is
evident that the court below erred in dismissing the complaint, at least insofar as lots 3 and
4 of the land in dispute are concerned. These lots were vested only on July 6, 1948 and
consequently the two-year period within which to file the action for their recovery expired
on July 7, 1950. But in computing that the two-year period, the time during which plaintiff's dismisses the complaint with respect to Lots 3 and 4, as to which the case is hereby
claim with the Philippine Alien Property Administration was pending — from November 16, remanded to the court below for further proceedings. Without costs.
1948 when the claim was filed to March 7, 1950 when it was dissallowed — should be
excluded. The complaint thereof filed on November 13, 1950 is well within the prescribed Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,
period. As a matter of fact, the Attorney General of the United States concedes that the Endencia and Barrera, JJ., concur.
dismissal of the complaint with respect to these lots was erroneous. Indeed, he states that
he had never asked for the dismissal of the complaint with respect to them because the
complaint insofar as those properties were concerned was filed within the period provided
for in the law.

On the other hand, lots 1 and 2 were vested by the Alien Property Custodian on March 14,
1946. The two-year period, therefore, within which to file a suit for their return expired on
March 14, 1948. As no suit or claim for the return of said properties pursuant to sections 9
or 32(a) of the Trading with the Enemy Act was filed by plaintiff within two years from the
date of vesting, the "later" date and the last on which suit could be brought was April 30,
1949. The claim filed by plaintiff with the Philippine Alien Property Administration on
November 15, 1948 obviously could not toll the two-year period that had already expired
on March 14, 1948. And the complaint in the present case having been filed only on
November 13, 1950, the same is already barred. (Pass vs. McGrath, 192 F. 2d 415;
Kroll vs. McGrath, 91 F. Supp. 173.) The lower court, therefore, had no jurisdiction to
entertain the action insofar as these lots are concerned.

Plaintiff contends that section 33 of the Trading with the Enemy Act cannot prevail over
section 40 of the Code of Civil Procedure, which provides that an action to recover real
property prescribes after 10 years, on the theory that under international law questions
relating to real property are governed by the law of the place where the property is located
and that prescription, being remedial, is likewise governed by the laws of the forum. But
the trading with the Enemy Act, by consent of the Philippine Government, continued to be
in force in the Philippines even after July 4, 1946 (Brownell, Jr., vs. Sun Life Assurance Co.
of Canada,* 50 Off. Gaz., 4814; Brownell, Jr. vs. Bautista, 95 Phil., 853) and consequently,
is as much part of the law of the land as section 40 of the Code of Civil Procedure.
Contrary to plaintiff's claim, therefore, there is here no conflict of laws involved. It should be
stated that in an action under the Trading with the Enemy Act for the recovery of property
vested thereunder, the rights of the parties must necessarily be governed by the terms of
that Act. Indeed, section 7 (c) thereof explicitly provides that the relief available to a
claimant of vested property is limited to those expressly provided for by its terms.

Needless to say, the defense of limitation as contained in section 33 of Trading with the
Enemy Act, as amended, may be invoked not only by the defendant Attorney General of
the United States but also by the intervenor Republic of the Philippines to which the lands
in question were transferred. To sustain plaintiff's claim and preclude the Republic from
putting up that defense would render nugatory the provisions of the Act. For in such case,
a claimant who has failed to file his claim or suit within the period provided for in section 33
of the Act and consequently has forfeited whatever right she may have therein, could easily
circumvent the law. It would also mean that the transfer of vested property to the Republic
would have the effect of permitting re-examination of the title to such vested property which
has already become absolute in the name of the United States, the transferor, for failure of
the claimant to assert his claim within the prescribed time. This absurdity, to say the least,
cannot be countenanced.

In view of the foregoing, the order appealed from insofar as it dismisses the complaint with
respect to Lots 1 and 2 and the claim for damages against the Attorney General of the
United States and the Republic of the Philippines, is affirmed, but revoked insofar as it
 Eligio de Guzman & Co., Inc. responded to the invitation and submitted bids. Subsequent
thereto, the company received from the United States two telegrams requesting it to
confirm its price proposals and for the name of its bonding company. The company
complied with the requests. [In its complaint, the company alleges that the United States
had accepted its bids because "A request to confirm a price proposal confirms the
acceptance of a bid pursuant to defendant United States' bidding practices." (Rollo, p. 30.)
The truth of this allegation has not been tested because the case has not reached the trial
stage.]

Republic of the Philippines In June, 1972, the company received a letter which was signed by Wilham I. Collins,
SUPREME COURT Director, Contracts Division, Naval Facilities Engineering Command, Southwest Pacific,
Manila Department of the Navy of the United States, who is one of the petitioners herein. The
letter said that the company did not qualify to receive an award for the projects because of
EN BANC its previous unsatisfactory performance rating on a repair contract for the sea wall at the
boat landings of the U.S. Naval Station in Subic Bay. The letter further said that the
projects had been awarded to third parties. In the abovementioned Civil Case No. 779-M,
G.R. No. L-35645 May 22, 1985 the company sued the United States of America and Messrs. James E. Galloway, William I.
Collins and Robert Gohier all members of the Engineering Command of the U.S. Navy.
UNITED STATES OF AMERICA, CAPT. JAMES E. GALLOWAY, WILLIAM I. COLLINS The complaint is to order the defendants to allow the plaintiff to perform the work on the
and ROBERT GOHIER, petitioners, projects and, in the event that specific performance was no longer possible, to order the
vs. defendants to pay damages. The company also asked for the issuance of a writ of
HON. V. M. RUIZ, Presiding Judge of Branch XV, Court of First Instance of Rizal and preliminary injunction to restrain the defendants from entering into contracts with third
ELIGIO DE GUZMAN & CO., INC., respondents. parties for work on the projects.

Sycip, Salazar, Luna & Manalo & Feliciano Law for petitioners.
Albert, Vergara, Benares, Perias & Dominguez Law Office for respondents.
The defendants entered their special appearance for the purpose only of questioning the
jurisdiction of this court over the subject matter of the complaint and the persons of
defendants, the subject matter of the complaint being acts and omissions of the individual
defendants as agents of defendant United States of America, a foreign sovereign which
has not given her consent to this suit or any other suit for the causes of action asserted in
the complaint." (Rollo, p. 50.)

ABAD SANTOS, J.:
This is a petition to review, set aside certain orders and restrain the respondent judge from
trying Civil Case No. 779M of the defunct Court of First Instance of Rizal.
Subsequently the defendants filed a motion to dismiss the complaint which included an
opposition to the issuance of the writ of preliminary injunction. The company opposed the
motion. The trial court denied the motion and issued the writ. The defendants moved twice
to reconsider but to no avail. Hence the instant petition which seeks to restrain perpetually
the proceedings in Civil Case No. 779-M for lack of jurisdiction on the part of the trial court.

The factual background is as follows:

The petition is highly impressed with merit.

At times material to this case, the United States of America had a naval base in Subic,
Zambales. The base was one of those provided in the Military Bases Agreement between
the Philippines and the United States.
Sometime in May, 1972, the United States invited the submission of bids for the following
projects
1. Repair offender system, Alava Wharf at the U.S. Naval Station Subic Bay, Philippines.
2. Repair typhoon damage to NAS Cubi shoreline; repair typhoon damage to shoreline
revetment, NAVBASE Subic; and repair to Leyte Wharf approach, NAVBASE Subic Bay,
Philippines.
The traditional rule of State immunity exempts a State from being sued in the courts of
another State without its consent or waiver. This rule is a necessary consequence of the
principles of independence and equality of States. However, the rules of International Law
are not petrified; they are constantly developing and evolving. And because the activities of
states have multiplied, it has been necessary to distinguish them-between sovereign and
governmental acts (jure imperii) and private, commercial and proprietary acts
(jure gestionis). The result is that State immunity now extends only to acts jure imperil The
restrictive application of State immunity is now the rule in the United States, the United
Kingdom and other states in western Europe. (See Coquia and Defensor Santiago, Public
International Law, pp. 207-209 [1984].)
The respondent judge recognized the restrictive doctrine of State immunity when he said in
his Order denying the defendants' (now petitioners) motion: " A distinction should be made
between a strictly governmental function of the sovereign state from its private, proprietary
or non- governmental acts (Rollo, p. 20.) However, the respondent judge also said: "It is
the Court's considered opinion that entering into a contract for the repair of wharves or
shoreline is certainly not a governmental function altho it may partake of a public nature or
character. As aptly pointed out by plaintiff's counsel in his reply citing the ruling in the case
of Lyons, Inc., [104 Phil. 594 (1958)], and which this Court quotes with approval, viz.:
It is however contended that when a sovereign state enters into a
contract with a private person, the state can be sued upon the theory
that it has descended to the level of an individual from which it can be
implied that it has given its consent to be sued under the contract. ...
xxx xxx xxx
We agree to the above contention, and considering that the United
States government, through its agency at Subic Bay, entered into a
contract with appellant for stevedoring and miscellaneous labor
services within the Subic Bay Area, a U.S. Naval Reservation, it is
evident that it can bring an action before our courts for any contractual
liability that that political entity may assume under the contract. The trial
court, therefore, has jurisdiction to entertain this case ... (Rollo, pp. 20-
21.)
The reliance placed on Lyons by the respondent judge is misplaced for the following
reasons:
In Harry Lyons, Inc. vs. The United States of America, supra, plaintiff brought suit in the
Court of First Instance of Manila to collect several sums of money on account of a contract
between plaintiff and defendant. The defendant filed a motion to dismiss on the ground that
the court had no jurisdiction over defendant and over the subject matter of the action. The
court granted the motion on the grounds that: (a) it had no jurisdiction over the defendant
who did not give its consent to the suit; and (b) plaintiff failed to exhaust the administrative
remedies provided in the contract. The order of dismissal was elevated to this Court for
review.
In sustaining the action of the lower court, this Court said:
It appearing in the complaint that appellant has not complied with the
procedure laid down in Article XXI of the contract regarding the
prosecution of its claim against the United States Government, or,
stated differently, it has failed to first exhaust its administrative remedies
against said Government, the lower court acted properly in dismissing
this case.(At p. 598.)
It can thus be seen that the statement in respect of the waiver of State immunity from suit
was purely gratuitous and, therefore, obiter so that it has no value as an imperative
authority.
The restrictive application of State immunity is proper only when the proceedings arise out
of commercial transactions of the foreign sovereign, its commercial activities or economic
affairs. Stated differently, a State may be said to have descended to the level of an
individual and can thus be deemed to have tacitly given its consent to be sued only when it
enters into business contracts. It does not apply where the contract relates to the exercise
of its sovereign functions. In this case the projects are an integral part of the naval base
which is devoted to the defense of both the United States and the Philippines, indisputably
a function of the government of the highest order; they are not utilized for nor dedicated to
commercial or business purposes.
That the correct test for the application of State immunity is not the conclusion of a contract
by a State but the legal nature of the act is shown in Syquia vs. Lopez, 84 Phil. 312 (1949).
In that case the plaintiffs leased three apartment buildings to the United States of America
for the use of its military officials. The plaintiffs sued to recover possession of the premises
on the ground that the term of the leases had expired. They also asked for increased
rentals until the apartments shall have been vacated.
The defendants who were armed forces officers of the United States moved to dismiss the
suit for lack of jurisdiction in the part of the court. The Municipal Court of Manila granted
the motion to dismiss; sustained by the Court of First Instance, the plaintiffs went to this
Court for review on certiorari. In denying the petition, this Court said:
On the basis of the foregoing considerations we are of the belief and
we hold that the real party defendant in interest is the Government of
the United States of America; that any judgment for back or Increased
rentals or damages will have to be paid not by defendants Moore and
Tillman and their 64 co-defendants but by the said U.S. Government.
On the basis of the ruling in the case of Land vs. Dollar already cited,
and on what we have already stated, the present action must be
considered as one against the U.S. Government. It is clear hat the
courts of the Philippines including the Municipal Court of Manila have
no jurisdiction over the present case for unlawful detainer. The question
of lack of jurisdiction was raised and interposed at the very beginning of
the action. The U.S. Government has not , given its consent to the filing
of this suit which is essentially against her, though not in name.
Moreover, this is not only a case of a citizen filing a suit against his own
Government without the latter's consent but it is of a citizen filing an
action against a foreign government without said government's consent,
which renders more obvious the lack of jurisdiction of the courts of his
country. The principles of law behind this rule are so elementary and of
such general acceptance that we deem it unnecessary to cite
authorities in support thereof. (At p. 323.)
In Syquia,the United States concluded contracts with private individuals but the contracts
notwithstanding the States was not deemed to have given or waived its consent to be sued
for the reason that the contracts were for jure imperii and not for jure gestionis.
WHEREFORE, the petition is granted; the questioned orders of the respondent judge are
set aside and Civil Case No. is dismissed. Costs against the private respondent.
Teehankee, Aquino, Concepcion, Jr., Melencio-Herrera, Plana, * Escolin, Relova,
Gutierrez, Jr., De la Fuente, Cuevas and Alampay, JJ., concur.
Fernando, C.J., took no part.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 76607 February 26, 1990
UNITED STATES OF AMERICA, FREDERICK M. SMOUSE AND YVONNE
REEVES, petitioners,
vs.
HON. ELIODORO B. GUINTO, Presiding Judge, Branch LVII, Regional Trial Court,
Angeles City, ROBERTO T. VALENCIA, EMERENCIANA C. TANGLAO, AND PABLO C.
DEL PILAR, respondents.
G.R. No. 79470 February 26, 1990
UNITED STATES OF AMERICA, ANTHONY LAMACHIA, T/SGT. USAF, WILFREDO
BELSA, PETER ORASCION AND ROSE CARTALLA, petitioners,
vs.
HON. RODOLFO D. RODRIGO, as Presiding Judge of Branch 7, Regional Trial Court
(BAGUIO CITY), La Trinidad, Benguet and FABIAN GENOVE, respondents.
G.R. No. 80018 February 26, 1990
UNITED STATES OF AMERICA, TOMI J. KINGI, DARREL D. DYE and STEVEN F.
BOSTICK, petitioners,
vs.
HON. JOSEFINA D. CEBALLOS, As Presiding Judge, Regional Trial Court, Branch
66, Capas, Tarlac, and LUIS BAUTISTA, respondents.
G.R. No. 80258 February 26, 1990
UNITED STATES OF AMERICA, MAJOR GENERAL MICHAEL P. C. CARNS, AIC
ERNEST E. RIVENBURGH, AIC ROBIN BLEVINS, SGT. NOEL A. GONZALES, SGT.
THOMAS MITCHELL, SGT. WAYNE L. BENJAMIN, ET AL., petitioners,
vs.
HON. CONCEPCION S. ALARCON VERGARA, as Presiding Judge, Branch 62
REGIONAL TRIAL COURT, Angeles City, and RICKY SANCHEZ, FREDDIE SANCHEZ
AKA FREDDIE RIVERA, EDWIN MARIANO, AKA JESSIE DOLORES SANGALANG, ET
AL., respondents.
Luna, Sison & Manas Law Office for petitioners.
CRUZ, J.:
These cases have been consolidated because they all involve the doctrine of state
immunity. The United States of America was not impleaded in the complaints below
but has moved to dismiss on the ground that they are in effect suits against it to
which it has not consented. It is now contesting the denial of its motions by the
respondent judges.
In G.R. No. 76607, the private respondents are suing several officers of the U.S. Air
Force stationed in Clark Air Base in connection with the bidding conducted by them
for contracts for barber services in the said base.
On February 24, 1986, the Western Pacific Contracting Office, Okinawa Area
Exchange, U.S. Air Force, solicited bids for such contracts through its contracting
officer, James F. Shaw. Among those who submitted their bids were private
respondents Roberto T. Valencia, Emerenciana C. Tanglao, and Pablo C. del Pilar.
Valencia had been a concessionaire inside Clark for 34 years; del Pilar for 12 years;
and Tanglao for 50 years.
The bidding was won by Ramon Dizon, over the objection of the private
respondents, who claimed that he had made a bid for four facilities, including the
Civil Engineering Area, which was not included in the invitation to bid.
The private respondents complained to the Philippine Area Exchange (PHAX). The
latter, through its representatives, petitioners Yvonne Reeves and Frederic M.
Smouse explained that the Civil Engineering concession had not been awarded to
Dizon as a result of the February 24, 1986 solicitation. Dizon was already operating
this concession, then known as the NCO club concession, and the expiration of the
contract had been extended from June 30, 1986 to August 31, 1986. They further
explained that the solicitation of the CE barbershop would be available only by the
end of June and the private respondents would be notified.
On June 30, 1986, the private respondents filed a complaint in the court below to
compel PHAX and the individual petitioners to cancel the award to defendant Dizon,
to conduct a rebidding for the barbershop concessions and to allow the private
respondents by a writ of preliminary injunction to continue operating the
concessions pending litigation. 1
Upon the filing of the complaint, the respondent court issued an ex parte order
directing the individual petitioners to maintain the status quo.
On July 22, 1986, the petitioners filed a motion to dismiss and opposition to the
petition for preliminary injunction on the ground that the action was in effect a suit
against the United States of America, which had not waived its non-suability. The
individual defendants, as official employees of the U.S. Air Force, were also immune
from suit.
On the same date, July 22, 1986, the trial court denied the application for a writ of
preliminary injunction.
On October 10, 1988, the trial court denied the petitioners' motion to dismiss,
holding in part as follows:
From the pleadings thus far presented to this Court by the parties,
the Court's attention is called by the relationship between the
plaintiffs as well as the defendants, including the US Government,
in that prior to the bidding or solicitation in question, there was a
binding contract between the plaintiffs as well as the defendants,
including the US Government. By virtue of said contract of
concession it is the Court's understanding that neither the US
Government nor the herein principal defendants would become
the employer/s of the plaintiffs but that the latter are the
employers themselves of the barbers, etc. with the employer, the
plaintiffs herein, remitting the stipulated percentage of
commissions to the Philippine Area Exchange. The same
circumstance would become in effect when the Philippine Area
Exchange opened for bidding or solicitation the questioned barber
shop concessions. To this extent, therefore, indeed a commercial
transaction has been entered, and for purposes of the said
solicitation, would necessarily be entered between the plaintiffs as
well as the defendants.
The Court, further, is of the view that Article XVIII of the RP-US
Bases Agreement does not cover such kind of services falling
under the concessionaireship, such as a barber shop
concession. 2
On December 11, 1986, following the filing of the herein petition for certiorari and
prohibition with preliminary injunction, we issued a temporary restraining order against
further proceedings in the court below. 3
In G.R. No. 79470, Fabian Genove filed a complaint for damages against petitioners
Anthony Lamachia, Wilfredo Belsa, Rose Cartalla and Peter Orascion for his dismissal as
cook in the U.S. Air Force Recreation Center at the John Hay Air Station in Baguio City. It
had been ascertained after investigation, from the testimony of Belsa Cartalla and
Orascion, that Genove had poured urine into the soup stock used in cooking the
vegetables served to the club customers. Lamachia, as club manager, suspended him and
thereafter referred the case to a board of arbitrators conformably to the collective
bargaining agreement between the Center and its employees. The board unanimously
found him guilty and recommended his dismissal. This was effected on March 5, 1986, by
Col. David C. Kimball, Commander of the 3rd Combat Support Group, PACAF Clark Air
Force Base. Genove's reaction was to file Ms complaint in the Regional Trial Court of
Baguio City against the individual petitioners. 4
On March 13, 1987, the defendants, joined by the United States of America, moved to
dismiss the complaint, alleging that Lamachia, as an officer of the U.S. Air Force stationed
at John Hay Air Station, was immune from suit for the acts done by him in his official
capacity. They argued that the suit was in effect against the United States, which had not
given its consent to be sued.
This motion was denied by the respondent judge on June 4, 1987, in an order which read
in part:
It is the understanding of the Court, based on the allegations of the
complaint — which have been hypothetically admitted by defendants
upon the filing of their motion to dismiss — that although defendants
acted initially in their official capacities, their going beyond what their
functions called for brought them out of the protective mantle of
whatever immunities they may have had in the beginning. Thus, the
allegation that the acts complained of were illegal, done. with extreme
bad faith and with pre-conceived sinister plan to harass and finally
dismiss the plaintiff, gains significance. 5
The petitioners then came to this Court seeking certiorari and prohibition with preliminary
injunction.
In G.R. No. 80018, Luis Bautista, who was employed as a barracks boy in Camp O'
Donnell, an extension of Clark Air Base, was arrested following a buy-bust operation
conducted by the individual petitioners herein, namely, Tomi J. King, Darrel D. Dye and
Stephen F. Bostick, officers of the U.S. Air Force and special agents of the Air Force Office
of Special Investigators (AFOSI). On the basis of the sworn statements made by them, an
information for violation of R.A. 6425, otherwise known as the Dangerous Drugs Act, was
filed against Bautista in the Regional Trial Court of Tarlac. The above-named officers
testified against him at his trial. As a result of the filing of the charge, Bautista was
dismissed from his employment. He then filed a complaint for damages against the
individual petitioners herein claiming that it was because of their acts that he was
removed. 6
During the period for filing of the answer, Mariano Y. Navarro a special counsel assigned to
the International Law Division, Office of the Staff Judge Advocate of Clark Air Base,
entered a special appearance for the defendants and moved for an extension within which
to file an "answer and/or other pleadings." His reason was that the Attorney General of the
United States had not yet designated counsel to represent the defendants, who were being
sued for their official acts. Within the extended period, the defendants, without the
assistance of counsel or authority from the U.S. Department of Justice, filed their answer.
They alleged therein as affirmative defenses that they had only done their duty in the
enforcement of the laws of the Philippines inside the American bases pursuant to the RP-
US Military Bases Agreement.
On May 7, 1987, the law firm of Luna, Sison and Manas, having been retained to represent
the defendants, filed with leave of court a motion to withdraw the answer and dismiss the
complaint. The ground invoked was that the defendants were acting in their official
capacity when they did the acts complained of and that the complaint against them was in
effect a suit against the United States without its consent.
The motion was denied by the respondent judge in his order dated September 11, 1987,
which held that the claimed immunity under the Military Bases Agreement covered only
criminal and not civil cases. Moreover, the defendants had come under the jurisdiction of
the court when they submitted their answer.7
Following the filing of the herein petition for certiorari and prohibition with preliminary
injunction, we issued on October 14, 1987, a temporary restraining order. 8
In G.R. No. 80258, a complaint for damages was filed by the private respondents against
the herein petitioners (except the United States of America), for injuries allegedly sustained
by the plaintiffs as a result of the acts of the defendants. 9 There is a conflict of factual
allegations here. According to the plaintiffs, the defendants beat them up, handcuffed them
and unleashed dogs on them which bit them in several parts of their bodies and caused
extensive injuries to them. The defendants deny this and claim the plaintiffs were arrested
for theft and were bitten by the dogs because they were struggling and resisting arrest,
The defendants stress that the dogs were called off and the plaintiffs were immediately
taken to the medical center for treatment of their wounds.
In a motion to dismiss the complaint, the United States of America and the individually
named defendants argued that the suit was in effect a suit against the United States, which
had not given its consent to be sued. The defendants were also immune from suit under
the RP-US Bases Treaty for acts done by them in the performance of their official
functions.
The motion to dismiss was denied by the trial court in its order dated August 10, 1987,
reading in part as follows:
The defendants certainly cannot correctly argue that they are immune
from suit. The allegations, of the complaint which is sought to be
dismissed, had to be hypothetically admitted and whatever ground the
defendants may have, had to be ventilated during the trial of the case
on the merits. The complaint alleged criminal acts against the
individually-named defendants and from the nature of said acts it could
not be said that they are Acts of State, for which immunity should be
invoked. If the Filipinos themselves are duty bound to respect, obey
and submit themselves to the laws of the country, with more reason, the
members of the United States Armed Forces who are being treated as
guests of this country should respect, obey and submit themselves to
its laws. 10
and so was the motion for reconsideration. The defendants submitted their answer as
required but subsequently filed their petition for certiorari and prohibition with preliminary
injunction with this Court. We issued a temporary restraining order on October 27, 1987. 11
II
The rule that a state may not be sued without its consent, now expressed in Article XVI,
Section 3, of the 1987 Constitution, is one of the generally accepted principles of
international law that we have adopted as part of the law of our land under Article II,
Section 2. This latter provision merely reiterates a policy earlier embodied in the 1935 and
1973 Constitutions and also intended to manifest our resolve to abide by the rules of the
international community.
Even without such affirmation, we would still be bound by the generally accepted principles
of international law under the doctrine of incorporation. Under this doctrine, as accepted by
the majority of states, such principles are deemed incorporated in the law of every civilized
state as a condition and consequence of its membership in the society of nations. Upon its
admission to such society, the state is automatically obligated to comply with these
principles in its relations with other states.
As applied to the local state, the doctrine of state immunity is based on the justification
given by Justice Holmes that "there can be no legal right against the authority which
makes the law on which the right depends." 12 There are other practical reasons for the
enforcement of the doctrine. In the case of the foreign state sought to be impleaded in the
local jurisdiction, the added inhibition is expressed in the maxim par in parem, non habet
imperium. All states are sovereign equals and cannot assert jurisdiction over one another.
A contrary disposition would, in the language of a celebrated case, "unduly vex the peace
of nations." 13
While the doctrine appears to prohibit only suits against the state without its consent, it is
also applicable to complaints filed against officials of the state for acts allegedly performed
by them in the discharge of their duties. The rule is that if the judgment against such
officials will require the state itself to perform an affirmative act to satisfy the same, such as
the appropriation of the amount needed to pay the damages awarded against them, the
suit must be regarded as against the state itself although it has not been formally
impleaded. 14 In such a situation, the state may move to dismiss the complaint on the
ground that it has been filed without its consent.
The doctrine is sometimes derisively called "the royal prerogative of dishonesty" because
of the privilege it grants the state to defeat any legitimate claim against it by simply
invoking its non-suability. That is hardly fair, at least in democratic societies, for the state is
not an unfeeling tyrant unmoved by the valid claims of its citizens. In fact, the doctrine is
not absolute and does not say the state may not be sued under any circumstance. On the
contrary, the rule says that the state may not be sued without its consent, which clearly
imports that it may be sued if it consents.
The consent of the state to be sued may be manifested expressly or impliedly. Express
consent may be embodied in a general law or a special law. Consent is implied when the
state enters into a contract or it itself commences litigation.
The general law waiving the immunity of the state from suit is found in Act No. 3083, under
which the Philippine government "consents and submits to be sued upon any moneyed
claim involving liability arising from contract, express or implied, which could serve as a
basis of civil action between private parties." In Merritt v. Government of the Philippine
Islands, 15 a special law was passed to enable a person to sue the government for an
alleged tort. When the government enters into a contract, it is deemed to have descended
to the level of the other contracting party and divested of its sovereign immunity from suit
with its implied consent. 16 Waiver is also implied when the government files a complaint,
thus opening itself to a counterclaim. 17
The above rules are subject to qualification. Express consent is effected only by the will of
the legislature through the medium of a duly enacted statute. 18 We have held that not all
contracts entered into by the government will operate as a waiver of its non-suability;
distinction must be made between its sovereign and proprietary acts. 19 As for the filing of a
complaint by the government, suability will result only where the government is claiming
affirmative relief from the defendant. 20
In the case of the United States of America, the customary rule of international law on state
immunity is expressed with more specificity in the RP-US Bases Treaty. Article III thereof
provides as follows:
 It is mutually agreed that the United States shall have the rights, power
and authority within the bases which are necessary for the
establishment, use, operation and defense thereof or appropriate for
the control thereof and all the rights, power and authority within the
limits of the territorial waters and air space adjacent to, or in the vicinity
of, the bases which are necessary to provide access to them or
appropriate for their control.
The petitioners also rely heavily on Baer v. Tizon, 21 along with several other decisions, to
support their position that they are not suable in the cases below, the United States not
having waived its sovereign immunity from suit. It is emphasized that in Baer, the Court
held:
The invocation of the doctrine of immunity from suit of a foreign state
without its consent is appropriate. More specifically, insofar as alien
armed forces is concerned, the starting point is Raquiza v. Bradford, a
1945 decision. In dismissing a habeas corpus petition for the release of
petitioners confined by American army authorities, Justice Hilado
speaking for the Court, cited Coleman v. Tennessee, where it was
explicitly declared: 'It is well settled that a foreign army, permitted to
march through a friendly country or to be stationed in it, by permission
of its government or sovereign, is exempt from the civil and criminal
jurisdiction of the place.' Two years later, in Tubb and Tedrow v. Griess,
this Court relied on the ruling in Raquiza v. Bradford and cited in
support thereof excerpts from the works of the following authoritative
writers: Vattel, Wheaton, Hall, Lawrence, Oppenheim, Westlake, Hyde,
and McNair and Lauterpacht. Accuracy demands the clarification that
after the conclusion of the Philippine-American Military Bases
Agreement, the treaty provisions should control on such matter, the
assumption being that there was a manifestation of the submission to
jurisdiction on the part of the foreign power whenever appropriate. More
to the point is Syquia v. Almeda Lopez, where plaintiffs as lessors sued
the Commanding General of the United States Army in the Philippines,
seeking the restoration to them of the apartment buildings they owned
leased to the United States armed forces stationed in the Manila area.
A motion to dismiss on the ground of non-suability was filed and upheld
by respondent Judge. The matter was taken to this Court in a
mandamus proceeding. It failed. It was the ruling that respondent Judge
acted correctly considering that the 4 action must be considered as one
against the U.S. Government. The opinion of Justice Montemayor
continued: 'It is clear that the courts of the Philippines including the
Municipal Court of Manila have no jurisdiction over the present case for
unlawful detainer. The question of lack of jurisdiction was raised and
interposed at the very beginning of the action. The U.S. Government
has not given its consent to the filing of this suit which is essentially
against her, though not in name. Moreover, this is not only a case of a
citizen filing a suit against his own Government without the latter's
consent but it is of a citizen firing an action against a foreign
government without said government's consent, which renders more
obvious the lack of jurisdiction of the courts of his country. The
principles of law behind this rule are so elementary and of such general
acceptance that we deem it unnecessary to cite authorities in support
thereof then came Marvel Building Corporation v. Philippine War
Damage Commission, where respondent, a United States Agency
established to compensate damages suffered by the Philippines during
World War II was held as falling within the above doctrine as the suit
against it would eventually be a charge against or financial liability of
the United States Government because ... , the Commission has no
funds of its own for the purpose of paying money judgments.' The
Syquia ruling was again explicitly relied upon in Marquez Lim v. Nelson,
involving a complaint for the recovery of a motor launch, plus damages,
the special defense interposed being 'that the vessel belonged to the
United States Government, that the defendants merely acted as agents
of said Government, and that the United States Government is
therefore the real party in interest.' So it was in Philippine Alien
Property Administration v. Castelo, where it was held that a suit against
Alien Property Custodian and the Attorney General of the United States
involving vested property under the Trading with the Enemy Act is in
substance a suit against the United States. To the same effect
is Parreno v. McGranery, as the following excerpt from the opinion of
justice Tuazon clearly shows: 'It is a widely accepted principle of
international law, which is made a part of the law of the land (Article II,
Section 3 of the Constitution), that a foreign state may not be brought to
suit before the courts of another state or its own courts without its
consent.' Finally, there is Johnson v. Turner, an appeal by the
defendant, then Commanding General, Philippine Command (Air Force,
with office at Clark Field) from a decision ordering the return to plaintiff
of the confiscated military payment certificates known as scrip money.
In reversing the lower court decision, this Tribunal, through Justice
Montemayor, relied on Syquia v. Almeda Lopez, explaining why it could
not be sustained.
It bears stressing at this point that the above observations do not confer on the United
States of America a blanket immunity for all acts done by it or its agents in the Philippines.
Neither may the other petitioners claim that they are also insulated from suit in this country
merely because they have acted as agents of the United States in the discharge of their
official functions.
There is no question that the United States of America, like any other state, will be deemed
to have impliedly waived its non-suability if it has entered into a contract in its proprietary or
private capacity. It is only when the contract involves its sovereign or governmental
capacity that no such waiver may be implied. This was our ruling in UnitedStates of
America v. Ruiz, 22 where the transaction in question dealt with the improvement of the
wharves in the naval installation at Subic Bay. As this was a clearly governmental function,
we held that the contract did not operate to divest the United States of its sovereign
immunity from suit. In the words of Justice Vicente Abad Santos:
The traditional rule of immunity exempts a State from being sued in the
courts of another State without its consent or waiver. This rule is a
necessary consequence of the principles of independence and equality
of States. However, the rules of International Law are not petrified; they
are constantly developing and evolving. And because the activities of
states have multiplied, it has been necessary to distinguish them —
between sovereign and governmental acts (jure imperii) and private,
commercial and proprietary acts (jure gestionis). The result is that State
immunity now extends only to acts jure imperii The restrictive
 application of State immunity is now the rule in the United States, the
United kingdom and other states in Western Europe.
xxx xxx xxx
The restrictive application of State immunity is proper only when the
proceedings arise out of commercial transactions of the foreign
sovereign, its commercial activities or economic affairs. Stated
differently, a State may be said to have descended to the level of an
individual and can thus be deemed to have tacitly given its consent to
be sued only when it enters into business contracts. It does not apply
where the contract relates to the exercise of its sovereign functions. In
this case the projects are an integral part of the naval base which is
devoted to the defense of both the United States and the Philippines,
indisputably a function of the government of the highest order; they are
not utilized for nor dedicated to commercial or business purposes.
The other petitioners in the cases before us all aver they have acted in the discharge of
their official functions as officers or agents of the United States. However, this is a matter
of evidence. The charges against them may not be summarily dismissed on their mere
assertion that their acts are imputable to the United States of America, which has not given
its consent to be sued. In fact, the defendants are sought to be held answerable for
personal torts in which the United States itself is not involved. If found liable, they and they
alone must satisfy the judgment.
In Festejo v. Fernando, 23 a bureau director, acting without any authority whatsoever,
appropriated private land and converted it into public irrigation ditches. Sued for the value
of the lots invalidly taken by him, he moved to dismiss the complaint on the ground that the
suit was in effect against the Philippine government, which had not given its consent to be
sued. This Court sustained the denial of the motion and held that the doctrine of state
immunity was not applicable. The director was being sued in his private capacity for a
personal tort.
With these considerations in mind, we now proceed to resolve the cases at hand.
III
It is clear from a study of the records of G.R. No. 80018 that the individually-named
petitioners therein were acting in the exercise of their official functions when they
conducted the buy-bust operation against the complainant and thereafter testified against
him at his trial. The said petitioners were in fact connected with the Air Force Office of
Special Investigators and were charged precisely with the function of preventing the
distribution, possession and use of prohibited drugs and prosecuting those guilty of such
acts. It cannot for a moment be imagined that they were acting in their private or unofficial
capacity when they apprehended and later testified against the complainant. It follows that
for discharging their duties as agents of the United States, they cannot be directly
impleaded for acts imputable to their principal, which has not given its consent to be sued.
As we observed in Sanders v. Veridiano: 24
Given the official character of the above-described letters, we have to
conclude that the petitioners were, legally speaking, being sued as
officers of the United States government. As they have acted on behalf
of that government, and within the scope of their authority, it is that
government, and not the petitioners personally, that is responsible for
their acts.
The private respondent invokes Article 2180 of the Civil Code which holds the government
liable if it acts through a special agent. The argument, it would seem, is premised on the
ground that since the officers are designated "special agents," the United States
government should be liable for their torts.
There seems to be a failure to distinguish between suability and liability and a
misconception that the two terms are synonymous. Suability depends on the consent of
the state to be sued, liability on the applicable law and the established facts. The
circumstance that a state is suable does not necessarily mean that it is liable; on the other
hand, it can never be held liable if it does not first consent to be sued. Liability is not
conceded by the mere fact that the state has allowed itself to be sued. When the state
does waive its sovereign immunity, it is only giving the plaintiff the chance to prove, if it
can, that the defendant is liable.
The said article establishes a rule of liability, not suability. The government may be held
liable under this rule only if it first allows itself to be sued through any of the accepted
forms of consent.
Moreover, the agent performing his regular functions is not a special agent even if he is so
denominated, as in the case at bar. No less important, the said provision appears to
regulate only the relations of the local state with its inhabitants and, hence, applies only to
the Philippine government and not to foreign governments impleaded in our courts.
We reject the conclusion of the trial court that the answer filed by the special counsel of the
Office of the Sheriff Judge Advocate of Clark Air Base was a submission by the United
States government to its jurisdiction. As we noted in Republic v. Purisima, 25 express
waiver of immunity cannot be made by a mere counsel of the government but must be
effected through a duly-enacted statute. Neither does such answer come under the implied
forms of consent as earlier discussed.
But even as we are certain that the individual petitioners in G.R. No. 80018 were acting in
the discharge of their official functions, we hesitate to make the same conclusion in G.R.
No. 80258. The contradictory factual allegations in this case deserve in our view a closer
study of what actually happened to the plaintiffs. The record is too meager to indicate if the
defendants were really discharging their official duties or had actually exceeded their
authority when the incident in question occurred. Lacking this information, this Court
cannot directly decide this case. The needed inquiry must first be made by the lower court
so it may assess and resolve the conflicting claims of the parties on the basis of the
evidence that has yet to be presented at the trial. Only after it shall have determined in
what capacity the petitioners were acting at the time of the incident in question will this
Court determine, if still necessary, if the doctrine of state immunity is applicable.
In G.R. No. 79470, private respondent Genove was employed as a cook in the Main Club
located at the U.S. Air Force Recreation Center, also known as the Open Mess Complex,
at John Hay Air Station. As manager of this complex, petitioner Lamachia is responsible for
eleven diversified activities generating an annual income of $2 million. Under his executive
management are three service restaurants, a cafeteria, a bakery, a Class VI store, a coffee
and pantry shop, a main cashier cage, an administrative office, and a decentralized
warehouse which maintains a stock level of $200,000.00 per month in resale items. He
supervises 167 employees, one of whom was Genove, with whom the United States
government has concluded a collective bargaining agreement.
From these circumstances, the Court can assume that the restaurant services offered at
the John Hay Air Station partake of the nature of a business enterprise undertaken by the
United States government in its proprietary capacity. Such services are not extended to the
American servicemen for free as a perquisite of membership in the Armed Forces of the
United States. Neither does it appear that they are exclusively offered to these servicemen;
on the contrary, it is well known that they are available to the general public as well,
including the tourists in Baguio City, many of whom make it a point to visit John Hay for this
reason. All persons availing themselves of this facility pay for the privilege like all other
customers as in ordinary restaurants. Although the prices are concededly reasonable and
relatively low, such services are undoubtedly operated for profit, as a commercial and not a
governmental activity.
The consequence of this finding is that the petitioners cannot invoke the doctrine of state
immunity to justify the dismissal of the damage suit against them by Genove. Such
defense will not prosper even if it be established that they were acting as agents of the
United States when they investigated and later dismissed Genove. For that matter, not
even the United States government itself can claim such immunity. The reason is that by
entering into the employment contract with Genove in the discharge of its proprietary
functions, it impliedly divested itself of its sovereign immunity from suit.
But these considerations notwithstanding, we hold that the complaint against the
petitioners in the court below must still be dismissed. While suable, the petitioners are
nevertheless not liable. It is obvious that the claim for damages cannot be allowed on the
strength of the evidence before us, which we have carefully examined.
The dismissal of the private respondent was decided upon only after a thorough
investigation where it was established beyond doubt that he had polluted the soup stock
with urine. The investigation, in fact, did not stop there. Despite the definitive finding of
Genove's guilt, the case was still referred to the board of arbitrators provided for in the
collective bargaining agreement. This board unanimously affirmed the findings of the
investigators and recommended Genove's dismissal. There was nothing arbitrary about
the proceedings. The petitioners acted quite properly in terminating the private
respondent's employment for his unbelievably nauseating act. It is surprising that he
should still have the temerity to file his complaint for damages after committing his utterly
disgusting offense.
Concerning G.R. No. 76607, we also find that the barbershops subject of the concessions
granted by the United States government are commercial enterprises operated by private
person's. They are not agencies of the United States Armed Forces nor are their facilities
demandable as a matter of right by the American servicemen. These establishments
provide for the grooming needs of their customers and offer not only the basic haircut and
shave (as required in most military organizations) but such other amenities as shampoo,
massage, manicure and other similar indulgences. And all for a fee. Interestingly, one of
the concessionaires, private respondent Valencia, was even sent abroad to improve his
tonsorial business, presumably for the benefit of his customers. No less significantly, if not
more so, all the barbershop concessionaires are under the terms of their contracts,
required to remit to the United States government fixed commissions in consideration of
the exclusive concessions granted to them in their respective areas.
This being the case, the petitioners cannot plead any immunity from the complaint filed by
the private respondents in the court below. The contracts in question being decidedly
commercial, the conclusion reached in the United States of America v. Ruiz case cannot
be applied here.
The Court would have directly resolved the claims against the defendants as we have
done in G.R. No. 79470, except for the paucity of the record in the case at hand. The
evidence of the alleged irregularity in the grant of the barbershop concessions is not before
us. This means that, as in G.R. No. 80258, the respondent court will have to receive that
evidence first, so it can later determine on the basis thereof if the plaintiffs are entitled to
the relief they seek. Accordingly, this case must also be remanded to the court below for
further proceedings.
IV
There are a number of other cases now pending before us which also involve the question
of the immunity of the United States from the jurisdiction of the Philippines. This is cause
for regret, indeed, as they mar the traditional friendship between two countries long allied
in the cause of democracy. It is hoped that the so-called "irritants" in their relations will be
resolved in a spirit of mutual accommodation and respect, without the inconvenience and
asperity of litigation and always with justice to both parties.
WHEREFORE, after considering all the above premises, the Court hereby renders
judgment as follows:
1. In G.R. No. 76607, the petition is DISMISSED and the respondent
judge is directed to proceed with the hearing and decision of Civil Case
No. 4772. The temporary restraining order dated December 11, 1986, is
LIFTED.
2. In G.R. No. 79470, the petition is GRANTED and Civil Case No. 829-
R(298) is DISMISSED.
3. In G.R. No. 80018, the petition is GRANTED and Civil Case No. 115-
C-87 is DISMISSED. The temporary restraining order dated October
14, 1987, is made permanent.
4. In G.R. No. 80258, the petition is DISMISSED and the respondent
court is directed to proceed with the hearing and decision of Civil Case
No. 4996. The temporary restraining order dated October 27, 1987, is
LIFTED.
All without any pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano, Gancayco, registered with the Department of Labor and Employment. His services were terminated
Padilla, Bidin, Sarmiento, Cortes, Griño-Aquino, Medialdea and Regalado, JJ., concur. allegedly due to the abolition of his position.2He was also advised that he was under
administrative leave until April 27, 1992, although the same was not charged against his
leave.

On March 31, 1992, private respondent filed a complaint with the Department of Labor and
Employment on the ground that he was illegally suspended and dismissed from service by
JUSMAG. 3 He asked for his reinstatement.

JUSMAG then filed a Motion to Dismiss invoking its immunity from suit as an agency of the
Republic of the Philippines United States. It further alleged lack of employer-employee relationship and that it has no
SUPREME COURT juridical personality to sue and be sued.4
Manila
In an Order dated July 30, 1991, Labor Arbiter Daniel C. Cueto dismissed the subject
SECOND DIVISION complaint " for want of jurisdiction."5 Private respondent appealed6 to the National Labor
Relations Commission (public respondent), assailing the ruling that petitioner is immune
from suit for alleged violation of our labor laws. JUSMAG filed its Opposition, 7 reiterating
its immunity from suit for its non-contractual, governmental and/or public acts.
G.R. No. 108813 December 15, 1994
In a Resolution, dated January 29, 1993, the NLRC8 reversed the ruling of the Labor
Arbiter as it held that petitioner had lost its right not to be sued. The resolution was
JUSMAG PHILIPPINES, petitioner,
predicated on two grounds: (1) the principle of estoppel — that JUSMAG failed to refute
vs.
the existence of employer-employee relationship under the "control test"; and (2) JUSMAG
THE NATIONAL LABOR RELATIONS COMMISSION (Second Division) and
has waived its right to immunity from suit when it hired the services of private respondent
FLORENCIO SACRAMENTO, Union President, JPFCEA, respondents.
on December 18, 1969.

Juan, Luces, Luna and Associates for petitioner.

The NLRC relied on the case of Harry Lyons vs. United States of America,9 where the
"United States Government (was considered to have) waived its immunity from suit by
Galutera & Aguilar Law Offices for private respondent. entering into (a) contract of stevedoring services, and thus, it submitted itself to the
jurisdiction of the local courts."

Accordingly, the case was remanded to the labor arbiter for reception of evidence as to the
issue on illegal dismissal.
PUNO, J.:

Hence, this petition, JUSMAG contends:

The immunity from suit of the Joint United States Military Assistance Group to the Republic
of the Philippines (JUSMAG-Philippines) is the pivotal issue in the case at bench.
I
JUSMAG assails the January 29, 1993 Resolution of the NATIONAL LABOR RELATIONS
COMMISSION (public respondent), in NLRC NCR CASE NO. 00-03-02092-92, reversing THE PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF
the July 30, 1991 Order of the Labor Arbiter, and ordering the latter to assume jurisdiction DISCRETION AMOUNTING TO LACK AND/OR EXCESS OF
over the complaint for illegal dismissal filed by FLORENCIO SACRAMENTO (private JURISDICTION —
respondent) against petitioner.
A. IN REVERSING THE DECISION OF THE
First, the undisputed facts. LABOR ARBITER AND IN NOT AFFIRMING THE
DISMISSAL OF THE COMPLAINT IT BEING A SUIT
AGAINST THE UNITED STATES OF AMERICA
Private respondent was one of the seventy-four (74) security assistance support
WHICH HAD NOT GIVEN ITS CONSENT TO BE
personnel (SASP) working at JUSMAG-Philippines. 1 He had been with JUSMAG from
SUED; AND
December 18, 1969, until his dismissal on April 27, 1992. When dismissed, he held the
position of Illustrator 2 and was the incumbent President of JUSMAG PHILIPPINES-
FILIPINO CIVILIAN EMPLOYEES ASSOCIATION (JPFCEA), a labor organization duly
 B. IN FINDING WAIVER BY JUSMAG OF
IMMUNITY FROM SUIT;
II
THE PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK AND/OR EXCESS OF
JURISDICTION —
A. WHEN IT FOUND AN EMPLOYER-EMPLOYEE
RELATIONSHIP BETWEEN JUSMAG AND
PRIVATE RESPONDENT; AND
B. WHEN IT CONSIDERED JUSMAG ESTOPPED
FROM DENYING THAT PRIVATE RESPONDENT
IS ITS EMPLOYEE FOR FAILURE TO PRESENT
PROOF TO THE CONTRARY.
We find the petition impressed with merit.
It is meet to discuss the historical background of the JUSMAG to determine its immunity
from suit.
JUSMAG was created pursuant to the Military Assistance Agreement 10 dated March 21,
1947, between the Government of the Republic of the Philippines and the Government of
the United States of America. As agreed upon, JUSMAG shall consist of Air, Naval and
Army group, and its primary task was to advise and assist the Philippines, on air force,
army and naval matters. 11
Article 14 of the 1947 Agreement provides, inter alia, that "the cost of all services required
by the Group, including compensation of locally employed interpreters, clerks, laborers,
and other personnel, except personal servants, shall be borne by the Republic of the
Philippines."
This set-up was to change in 1991. In Note No 22, addressed to the Department of Foreign
Affairs (DFA) of the Philippines, dated January 23, 1991, the United States Government,
thru its Embassy, manifested its preparedness "to provide funds to cover the salaries of
security assistance support personnel" and security guards, the rent of JUSMAG occupied
buildings and housing, and the cost of utilities. 12 This offer was accepted by our
Government, thru the DFA, in Note No. 911725, dated April 18, 1991.13
Consequently, a Memorandum of Agreement 14 was forged between the Armed Forces of
the Philippines and JUSMAG-Philippines, thru General Lisandro C. Abadia and U.S.
Brigadier General Robert G. Sausser. The Agreement delineated the terms of the
assistance-in-kind of JUSMAG for 1991, the relevant parts of which read:
a. The term salaries as used in this agreement include those for the
security guards currently contracted between JUSMAG and A' Prime
Security Services Inc., and the Security Assistance Support
Personnel (SASP). . . . .
b. The term Security Assistance Support Personnel (SASP)
does not include active duty uniformed members of the Armed Forces
of the Philippines performing duty at JUSMAG.
c. It is understood that SASP are employees of the Armed Forces of the
Philippines (AFP). Therefore, the AFP agrees to appoint, for service
with JUSMAG, no more than 74 personnel to designated positions with
JUSMAG.
d. SASP are under the total operational control of the Chief, JUSMAG-
Philippines. The term "Operational Control" includes, but is not limited
to, all personnel administrative actions, such as: hiring
recommendations; firing recommendations; position classification;
discipline; nomination and approval of incentive awards; and payroll
computation. Personnel administration will be guided by Annex E of
JUSMAG-Philippines Memo 10-2. For the period of time that there is an
exceptional funding agreement between the government of the
Philippines and the United States Government (USG), JUSMAG will
pay the total payroll costs for the SASP employees. Payroll costs
include only regular salary; approved overtime, costs of living
allowance; medical insurance; regular contributions to the Philippine
Social Security System, PAG-IBIG Fund and Personnel Economic
Relief Allowance (PERA); and the thirteenth-month bonus. Payroll costs
do not include gifts or other bonus payments in addition to those
previously defined above. Entitlements not considered payroll costs
under this agreement will be funded and paid by the AFP.
e. All SASP employed as of July 1, 1990 will continue their service with
JUSMAG at their current rate of pay and benefits up to 30 June 1991,
with an annual renewal of employment thereafter subject to renewal of
their appointment with the AFP (employees and rates of pay are
indicated at Enclosure 3). No promotion or transfer internal to JUSMAG
of the listed personnel will result in the reduction of their pay and
benefits.
f. All SASP will, after proper classification, be paid salaries and benefits
at established AFP civilian rates. Rules for computation of pay and
allowances will be made available to the Comptroller, JUSMAG, by the
Comptroller, GHQ, AFP. Additionally, any legally mandated changes in
salary levels or methods of computation shall be transmitted within 48
hours of receipt by Comptroller, GHQ to Comptroller, JUSMAG.
g. The AFP agrees not to terminate SASP without 60 days prior written
notice to Chief, JUSMAG-Philippines. Any termination of these
personnel thought to be necessary because of budgetary restrictions or
manpower ceiling will be subject to consultations between AFP and
JUSMAG to ensure that JUSMAG's mission of dedicated support to the
AFP will not be degraded or harmed in any way.
h. The AFP agrees to assume the severance pay/retirement pay liability
for all appointed SASP. (Enclosure 3 lists the severance pay liability
date for current SASP). Any termination of services, other than
 voluntary resignations or termination for cause, will result in immediate
payments of AFP of all termination pay to the entitled employee.
Vouchers for severance/retirement pay and accrued bonuses and
annual leave will be presented to the Comptroller, GHQ, AFP, not later
than 14 calendar days prior to required date of payment.
i. All SASP listed in Enclosure 3 will continue to participate in the
Philippine Social Security System.
A year later, or in 1992, the United States Embassy sent another note of similar import to
the Department of Foreign Affairs (No. 227, dated April 8, 1992), extending the funding
agreement for the salaries of SASP and security guards until December 31, 1992.
From the foregoing, it is apparent that when JUSMAG took the services of private
respondent, it was performing a governmental function on behalf of the United States
pursuant to the Military Assistance Agreement dated March 21, 1947. Hence, we agree
with petitioner that the suit is, in effect, one against the United States Government, albeit it
was not impleaded in the complaint. Considering that the United States has not waived or
consented to the suit, the complaint against JUSMAG cannot not prosper.
In this jurisdiction, we recognize and adopt the generally accepted principles of
international law as part of the law of the land. 15 Immunity of State from suit is one of these
universally recognized principles. In international law, "immunity" is commonly understood
as an exemption of the state and its organs from the judicial jurisdiction of another
state. 16 This is anchored on the principle of the sovereign equality of states under which
one state cannot assert jurisdiction over another in violation of the maxim par in parem non
habet imperium (an equal has no power over an equal).17
Under the traditional rule of State immunity, a state cannot be sued in the courts of another
State, without its consent or waiver. However, in Santos, et al., vs. Santos, et al., 18 we
recognized an exception to the doctrine of immunity from suit by a state, thus:
. . . . Nevertheless, if, where and when the state or its government
enters into a contract, through its officers or agents, in furtherance of a
legitimate aim and purpose and pursuant to constitutional legislative
authority, whereby mutual or reciprocal benefits accrue and rights and
obligations arise therefrom, and if the law granting the authority to enter
into such contract does not provide for or name the officer against
whom action may be brought in the event of a breach thereof, the state
itself may be sued, even without its consent, because by entering into a
contract, the sovereign state has descended to the level of the citizen
and its consent to be sued is implied from the very act of entering into
such contract. . . . . (emphasis ours)
It was in this light that the state immunity issue in Harry Lyons, Inc., vs. United States of
America 19 was decided.
In the case of Harry Lyons, Inc., the petitioner entered into a contract with the United
States Government for stevedoring services at the U.S. Naval Base, Subic Bay,
Philippines. It then sought to collect from the US government sums of money arising from
the contract. One of the issues posed in the case was whether or not the defunct Court of
First Instance had jurisdiction over the defendant United States, a sovereign state which
cannot be sued without its consent. This Court upheld the contention of Harry Lyons, Inc.,
that "when a sovereign state enters into a contract with a private person, the state can be
sued upon the theory that it has descended to the level of an individual from which it can
be implied that it has given its consent to be sued under the contract."
The doctrine of state immunity from suit has undergone further metamorphosis. The view
evolved that the existence of a contract does not, per se, mean that sovereign states may,
at all times, be sued in local courts. The complexity of relationships between sovereign
states, brought about by their increasing commercial activities, mothered a
more restrictive application of the doctrine. 20 Thus, in United States of America vs.
Ruiz, 21 we clarified that our pronouncement in Harry Lyons, supra, with respect to the
waiver of State immunity, was obiter and "has no value as an imperative authority."
As it stands now, the application of the doctrine of immunity from suit has
been restricted to sovereign or governmental activities ( jure imperii). 22 The mantle of state
immunity cannot be extended to commercial, private and proprietary acts ( jure gestionis).
As aptly stated by this Court (En banc) in US vs. Ruiz, supra:
The restrictive application of State immunity is proper 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 thus can be deemed to have tacitly given its consent to
be used only when it enters into business contracts. It does not apply
where the contract relates to the exercise of its sovereign functions.
(emphasis ours)
We held further, that the application of the doctrine of state immunity depends on the legal
nature of the act. Ergo, since a governmental function was involved — the transaction
dealt with the improvement of the wharves in the naval installation at Subic Bay — it was
held that the United States was not deemed to have waived its immunity from suit.
Then came the case of United States vs. Hon. Rodrigo, et al. 23 In said case, Genove was
employed as a cook in the Main Club located at U.S. Air Force Recreation Center, John
Hay Air Station. He was dismissed from service after he was found to have polluted the
stock of soup with urine. Genove countered with a complaint for damages. Apparently, the
restaurant services offered at the John Hay Air Station partake of the nature of a business
enterprise undertaken by the United States government in its proprietary capacity. The
Court then noted that the restaurant is well known and available to the general public, thus,
the services are operated for profit, as a commercial and not a governmental activity.
Speaking through Associate Justice Isagani Cruz, the Court (En Banc) said:
The consequence of this finding is that the petitioners cannot invoke the
doctrine of state immunity to justify the dismissal of the damage suit
against them by Genove. Such defense will not prosper even if it be
established that they were acting as agents of the United States when
they investigated and later dismissed Genove. For the matter, not even
the United States government itself can claim such immunity. The
reason is that by entering into the employment contract with Genove in
the discharge of its proprietary functions, it impliedly divested itself of its
sovereign immunity from suit. (emphasis ours)
Conversely, if the contract was entered into in the discharge of its governmental functions,
the sovereign state cannot be deemed to have waived its immunity from suit. 24 Such is the
case at bench. Prescinding from this premise, we need not determine whether JUSMAG
controls the employment conditions of the private respondent.

We also hold that there appears to be no basis for public respondent to rule that JUSMAG
is stopped from denying the existence of employer-employee relationship with private
respondent. On the contrary, in its Opposition before the public respondent, JUSMAG
consistently contended that the (74) SASP, including private respondent, working in
JUSMAG, are employees of the Armed Forces of the Philippines. This can be gleaned
from: (1) the Military Assistance Agreement, supra, (2) the exchange of notes between our
Government, thru Department of Foreign Affairs, and the United States, thru the US
Embassy to the Philippines, and (3) the Agreement on May 21, 1991, supra between the
Armed Forces of the Philippines and JUSMAG.

We symphatize with the plight of private respondent who had served JUSMAG for more
than twenty (20) years. Considering his length of service with JUSMAG, he deserves a
more compassionate treatment. Unfortunately, JUSMAG is beyond the jurisdiction of this
Court. Nonetheless, the Executive branch, through the Department of Foreign Affairs and
the Armed Forces of the Philippines, can take the cudgel for private respondent and the
other SASP working for JUSMAG, pursuant to the aforestated Military Assistance
Agreement.

IN VIEW OF THE FOREGOING, the petition for certiorari is GRANTED. Accordingly, the
impugned Resolution dated January 29, 1993 of the National Labor Relations Commission
is REVERSED and SET ASIDE. No costs.

SO ORDERED.

Narvasa, C.J., Regalado and Mendoza, JJ., concur.


EN BANC
[G.R. No. 154705. June 26, 2003]
THE REPUBLIC OF INDONESIA, HIS EXCELLENCY AMBASSADOR SOERATMIN, and
MINISTER COUNSELLOR AZHARI KASIM, petitioners, vs. JAMES VINZON,
doing business under the name and style of VINZON TRADE AND
SERVICES, respondent.
DECISION
AZCUNA, J:
This is a petition for review on certiorari to set aside the Decision of the Court of
Appeals dated May 30, 2002 and its Resolution dated August 16, 2002, in CA-G.R. SP No.
66894 entitled The Republic of Indonesia, His Excellency Ambassador Soeratmin and
Minister Counselor Azhari Kasim v. Hon. Cesar Santamaria, Presiding Judge, RTC Branch
145, Makati City, and James Vinzon, doing business under the name and style of Vinzon
Trade and Services.
Petitioner, Republic of Indonesia, represented by its Counsellor, Siti Partinah,
entered into a Maintenance Agreement in August 1995 with respondent James Vinzon,
sole proprietor of Vinzon Trade and Services. The Maintenance Agreement stated that
respondent shall, for a consideration, maintain specified equipment at the Embassy Main
Building, Embassy Annex Building and the Wisma Duta, the official residence of petitioner
Ambassador Soeratmin. The equipment covered by the Maintenance Agreement are air
conditioning units, generator sets, electrical facilities, water heaters, and water motor
pumps. It is likewise stated therein that the agreement shall be effective for a period of four
years and will renew itself automatically unless cancelled by either party by giving thirty
days prior written notice from the date of expiry.[1]
Petitioners claim that sometime prior to the date of expiration of the said agreement,
or before August 1999, they informed respondent that the renewal of the agreement shall
be at the discretion of the incoming Chief of Administration, Minister Counsellor Azhari
Kasim, who was expected to arrive in February 2000. When Minister Counsellor Kasim
assumed the position of Chief of Administration in March 2000, he allegedly found
respondents work and services unsatisfactory and not in compliance with the standards set
in the Maintenance Agreement.Hence, the Indonesian Embassy terminated the agreement
in a letter dated August 31, 2000. [2] Petitioners claim, moreover, that they had earlier
verbally informed respondent of their decision to terminate the agreement.
On the other hand, respondent claims that the aforesaid termination was arbitrary
and unlawful. Respondent cites various circumstances which purportedly negated
petitioners alleged dissatisfaction over respondents services: (a) in July 2000, Minister
Counsellor Kasim still requested respondent to assign to the embassy an additional full-
time worker to assist one of his other workers; (b) in August 2000, Minister Counsellor
Kasim asked respondent to donate a prize, which the latter did, on the occasion of the
Indonesian Independence Day golf tournament; and (c) in a letter dated August 22, 2000,
petitioner Ambassador Soeratmin thanked respondent for sponsoring a prize and
expressed his hope that the cordial relations happily existing between them will continue to
prosper and be strengthened in the coming years.
Hence, on December 15, 2000, respondent filed a complaint [3] against petitioners
docketed as Civil Case No. 18203 in the Regional Trial Court (RTC) of Makati, Branch 145.
On February 20, 2001, petitioners filed a Motion to Dismiss, alleging that the Republic of
Indonesia, as a foreign sovereign State, has sovereign immunity from suit and cannot be
sued as a party-defendant in the Philippines. The said motion further alleged that
Ambassador Soeratmin and Minister Counsellor Kasim are diplomatic agents as defined
under the Vienna Convention on Diplomatic Relations and therefore enjoy diplomatic
immunity.[4] In turn, respondent filed on March 20, 2001, an Opposition to the said motion
alleging that the Republic of Indonesia has expressly waived its immunity from suit. He
based this claim upon the following provision in the Maintenance Agreement:
Any legal action arising out of this Maintenance Agreement shall be settled according to
the laws of the Philippines and by the proper court of Makati City, Philippines.
Respondents Opposition likewise alleged that Ambassador Soeratmin and Minister
Counsellor Kasim can be sued and held liable in their private capacities for tortious acts
done with malice and bad faith.[5]
On May 17, 2001, the trial court denied herein petitioners Motion to Dismiss. It
likewise denied the Motion for Reconsideration subsequently filed.
The trial courts denial of the Motion to Dismiss was brought up to the Court of
Appeals by herein petitioners in a petition for certiorari and prohibition. Said petition,
docketed as CA-G.R. SP No. 66894, alleged that the trial court gravely abused its
discretion in ruling that the Republic of Indonesia gave its consent to be sued and
voluntarily submitted itself to the laws and jurisdiction of Philippine courts and that
petitioners Ambassador Soeratmin and Minister Counsellor Kasim waived their immunity
from suit.
On May 30, 2002, the Court of Appeals rendered its assailed decision denying the
petition for lack of merit. [6] On August 16, 2002, it denied herein petitioners motion for
reconsideration.[7]
Hence, this petition.
In the case at bar, petitioners raise the sole issue of whether or not the Court of
Appeals erred in sustaining the trial courts decision that petitioners have waived their
immunity from suit by using as its basis the abovementioned provision in the Maintenance
Agreement.
The petition is impressed with merit.
International law is founded largely upon the principles of reciprocity, comity,
independence, and equality of States which were adopted as part of the law of our land
under Article II, Section 2 of the 1987 Constitution. [8] The rule that a State may not be sued
without its consent is a necessary consequence of the principles of independence and
equality of States.[9] As enunciated in Sanders v. Veridiano II, [10] the practical justification for
the doctrine of sovereign immunity is that there can be no legal right against the authority
that makes the law on which the right depends. In the case of foreign States, the rule is
derived from the principle of the sovereign equality of States, as expressed in the
maxim par in parem non habet imperium. All states are sovereign equals and cannot
assert jurisdiction over one another.[11] A contrary attitude would unduly vex the peace of
nations.[12]
The rules of International Law, however, are neither unyielding nor impervious to
change. The increasing need of sovereign States to enter into purely commercial activities
remotely connected with the discharge of their governmental functions brought about a
new concept of sovereign immunity. This concept, the restrictive theory, holds that the
immunity of the sovereign is recognized only with regard to public acts or acts jure imperii,
but not with regard to private acts or acts jure gestionis.[13]
In United States v. Ruiz,[14] for instance, we held that the conduct of public bidding for
the repair of a wharf at a United States Naval Station is an act jure imperii. On the other
hand, we considered as an act jure gestionis the hiring of a cook in the recreation center
catering to American servicemen and the general public at the John Hay Air Station in
Baguio City,[15] as well as the bidding for the operation of barber shops in Clark Air Base in
Angeles City.[16]
Apropos the present case, the mere entering into a contract by a foreign State with a
private party cannot be construed as the ultimate test of whether or not it is an act jure
imperii or jure gestionis. Such act is only the start of the inquiry. Is the foreign State
engaged in the regular conduct of a business? If the foreign State is not engaged regularly
in a business or commercial activity, and in this case it has not been shown to be so
engaged, the particular act or transaction must then be tested by its nature. If the act is in
pursuit of a sovereign activity, or an incident thereof, then it is an act jure imperii.[17]
Hence, the existence alone of a paragraph in a contract stating that any legal action
arising out of the agreement shall be settled according to the laws of the Philippines and by
a specified court of the Philippines is not necessarily a waiver of sovereign immunity from
suit. The aforesaid provision contains language not necessarily inconsistent with sovereign
immunity. On the other hand, such provision may also be meant to apply where the
sovereign party elects to sue in the local courts, or otherwise waives its immunity by any
subsequent act.The applicability of Philippine laws must be deemed to include Philippine
laws in its totality, including the principle recognizing sovereign immunity. Hence, the
proper court may have no proper action, by way of settling the case, except to dismiss it.
Submission by a foreign state to local jurisdiction must be clear and unequivocal. It
must be given explicitly or by necessary implication. We find no such waiver in this case.
Respondent concedes that the establishment of a diplomatic mission is a sovereign
function. On the other hand, he argues that the actual physical maintenance of the
premises of the diplomatic mission, such as the upkeep of its furnishings and equipment, is
no longer a sovereign function of the State.[18]
We disagree. There is no dispute that the establishment of a diplomatic mission is an
act jure imperii. A sovereign State does not merely establish a diplomatic mission and
leave it at that; the establishment of a diplomatic mission encompasses its maintenance
and upkeep. Hence, the State may enter into contracts with private entities to maintain the
premises, furnishings and equipment of the embassy and the living quarters of its agents
and officials. It is therefore clear that petitioner Republic of Indonesia was acting in pursuit
of a sovereign activity when it entered into a contract with respondent for the upkeep or
maintenance of the air conditioning units, generator sets, electrical facilities, water heaters,
and water motor pumps of the Indonesian Embassy and the official residence of the
Indonesian ambassador.
The Solicitor General, in his Comment, submits the view that, the Maintenance
Agreement was entered into by the Republic of Indonesia in the discharge of its
governmental functions.In such a case, it cannot be deemed to have waived its immunity
from suit. As to the paragraph in the agreement relied upon by respondent, the Solicitor
General states that it was not a waiver of their immunity from suit but a mere stipulation
that in the event they do waive their immunity, Philippine laws shall govern the resolution of
any legal action arising out of the agreement and the proper court in Makati City shall be
the agreed venue thereof.[19]
On the matter of whether or not petitioners Ambassador Soeratmin and Minister
Counsellor Kasim may be sued herein in their private capacities, Article 31 of the Vienna
Convention on Diplomatic Relations provides:
xxx
1. A diplomatic agent shall enjoy immunity from the criminal jurisidiction of the receiving
State. He shall also enjoy immunity from its civil and administrative jurisdiction, except in
the case of:
(a) a real action relating to private immovable property situated in the territory of the
receiving State, unless he holds it on behalf of the sending State for the purposes of the
mission;
(b) an action relating to succession in which the diplomatic agent is involved as executor,
administrator, heir or legatee as a private person and not on behalf of the sending State;
(c) an action relating to any professional or commercial activity exercised by the diplomatic
agent in the receiving State outside his official functions.
xxx
The act of petitioners Ambassador Soeratmin and Minister Counsellor Kasim in
terminating the Maintenance Agreement is not covered by the exceptions provided in the
abovementioned provision.
The Solicitor General believes that said act may fall under subparagraph (c) thereof,
[20]
but said provision clearly applies only to a situation where the diplomatic agent engages
in any professional or commercial activity outside official functions, which is not the case
herein.
WHEREFORE, the petition is hereby GRANTED. The decision and resolution of the
Court of Appeals in CA G.R. SP No. 66894 are REVERSED and SET ASIDE and the
complaint in Civil Case No. 18203 against petitioners is DISMISSED.
No costs.
SO ORDERED.
 2. The lease over the aircraft lapsed in 1987, at which time the aircraft should
have been returned by Unichem to Faysound Ltd., its owner-lessor;

3. In Civil Case No. 0033, Cojuangco or any of the defendants has not claimed
ownership or interest in the Falcon jet;

4. Unichem has not been sequestered. Only the shares of Cojuangco in Unichem
were sequestered; and
THIRD DIVISION
5. But no one, not even the owner, Faysound Ltd., came forward or questioned
before the Sandiganbayan the legality of PCGG's sequestration of the aircraft.
G.R. No. 142476 March 20, 2001

REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
THE HONORABLE SANDIGANBAYAN (FIRST DIVISION), respondent.
SANDOVAL-GUTIERREZ, J.:
The issue in the petition is whether or not the Republic of the Philippines may withdraw
funds derived from the sale of an erroneously sequestered aircraft and ordered by this
Court to be deposited in escrow for the benefit of the person who may be legally entitled to
the funds.
Before us is the petition for certiorari and mandamus under Section 65 of the 1997 Rules
of Procedure, as amended, filed by the Republic of the Philippines (Republic) assailing the
Resolution of the Sandiganbayan dated September 3, 1999 in Civil Case No. 0033,
"Republic of the Philippines vs. Eduardo M. Cojuangco, Jr., et al." and its Resolution dated
February 17, 2000.1âwphi1.nêt
On July 31, 1987, petitioner Republic and the Presidential Commission on Good
Government (PCGG) filed with respondent Sandiganbayan the said Civil Case No. 0033
for reconveyance, reversion, accounting, restitution and damages against Eduardo
Cojuangco, Jr. and 60 other defendants. On the strength of this complaint, the PCGG
issued several sequestration orders, one of which covers an aircraft, more particularly
described as follows:
Avions Dassault - Breguet Falcon 50
Jet Model - 1982
Manufacturer's Serial No. 082
Cert. of Reg. No. RP-C754
The records show that:
1. The Falcon jet was leased by the United Coconut Chemicals Inc. (Unichem)
from Faysound Ltd., a company in the United States;
On March 20, 1989, or two (2) years after the lease of the Falcon Falcon jet expired, the
PCGG filed with the Sandiganbayan a "Motion For Authority To Sell Sequestered Aircraft
Pending Litigation" on the ground that it is fast deteriorating. The Sandiganbayan, in its
Resolution dated May 18, 1989, denied PCGG's motion, holding that it found "no
justification prima facie or otherwise xxx for the seizure from the lessee." Forthwith, the
PCGG filed with this Court a petition for certiorari (G.R. No. 88336) alleging in the main
that the Sandiganbayan acted with grave abuse of discretion in denying its motion to sell
the aircraft and praying that the Resolution of May 18, 1989 be nullified. On June 6, 1989,
this Court issued a temporary restraining order directing the Sandiganbayan to cease and
desist from enforcing its assailed May 18, 1989 Resolution. This TRO aimed to "prevent
the Sandiganbayan from taking further actions proceeding upon or pursuant to its
assumption that the airplane has been unlawfully sequestered and should not be in, the
custody of the PCGG, since that was the bone of contention to be resolved at that posture
of the case."
Relying on the temporary restraining order issued by this Court, the PCGG, on September
28, 1989, sold the aircraft to Walter Fuller Aircraft, Inc., (Fuller Aircraft), a US corporation,
for US $7,138,168.65 which was deposited in escrow with the PNB.1 The sale was without
authority from the Sandiganbayan.
On December 26, 1990, the Supreme Court en banc dismissed PCGG's petition in G.R.
No. 88336, now in 192 SCRA 743, holding that "the decision to sell the aircraft is not within
the limited administrative powers of the PCGG but requires the sanction of the
Sandiganbayan which can grant or withhold the same in the exercise of sound discretion
and on the basis of the evidence before it." The dispositive portion of this Court's Decision
reads:
'WHEREFORE, the petition at bar is hereby DISMISSED. The PCGG is hereby
ordered to deposit the proceeds of the sale of the subject aircraft under a special
time deposit with the Philippine National Bank for the account of the
Sandiganbayan in escrow for the person or persons, natural or juridical, who may
be adjudged lawfully entitled thereto. The Solicitor General is also ordered to
submit to this Court, within ten (10) days from notice hereof, certified true copies
of the bill of the sale and all other pertinent documents regarding the sale of said
aircraft to Walter Fuller Aircraft, Inc."2
According to petitioner Republic, the Certificate of Time Deposit No. 463109 dated July 28,
1999 shows that as of that date, the amount of US$8,568,905.55 was deposited with the
PNB for the account of the Sandiganbayan in trust for the beneficial owner. 3
Meanwhile, Faysound Ltd., filed with the District Court of Arkansas in the United States an
action (No. LR-C-89-834) to recover the Falcon jet from Fuller Aircraft, the buyer in the
1989 PCGG sale. $10,725,000.00

In a judgment dated October 29, 1990, the District Court ordered that title to the Falcon jet
be returned by Fuller Aircraft to Faysound, Ltd., thus:
1,072,500.00 interest through April 1992
"Pursuant to the Memorandum Opinion filed contemporaneously herewith,
summary judgment is hereby granted in favor of plaintiff Faysound Limited. On
the motion for summary judgment filed by defendant Walter Fuller Aircraft Sales,
Inc., the same is hereby denied and judgment on said motion is rendered in favor
of plaintiff Faysound Limited. $11,795,000.00

In conformity with this ruling, title to the Falcon 50, which is the subject of this
litigation, is vested in the plaintiff Faysound Limited free and clear of any and all
encumbrances save for the costs of any repairs made on said plane by the
1,179,750.00 interest through April 1993
Falcon Jet Corporation. The claim for storage charged on behalf of Falcon Jet is
denied since Faysound bears no responsibility for the presence of the plane at
the Falcon Jet facility in Little Rock Arkansas. At any rate, Falcon Jet interpled
the plane into the custody of the Court and under these circumstances cannot
claim storage for the plane. Storage charges may be claimed by Falcon jet $12,977,250.00
against Faysound Limited beginning with the date of this judgment."4

Considering that it was deprived of the aircraft sold to it, Fuller Aircraft sued the Republic
and PCGG for breach of warranty with damages (No. CA3-90-2785-R) in the District Court
of Texas, Dallas Division. On December 2, 1993, this court rendered against the Republic 718,193.01 interest through October 27, 1992 at $3,555.41 per day ($1,297.275
and PCGG a decisions5 which partly reads: divided by 365 days x 202 days)

"BE IT REMEMBERED, in accordance with the Court's findings of Fact and

Conclusions of Law, made on the 21st day of October, 1993, as follows:
$13,945,443.01
"IT IS ORDERED, ADJUDGED, AND DECREED, that judgment be and the same
is hereby entered in favor of the Plaintiff Walter Fuller Aircraft Sales, Inc. and
against the Defendants The Republic of the Philippines and the Presidential
Commission on Good Government, jointly and severally, in the amount of
Fourteen Million Nine-Hundred Twenty-Eight Thousand Four Hundred Fifty-seven
Dollars and Twenty-Nine Cents ($14,928,457.29). The principal amount of this
judgment includes pre-judgment interest at the rate of 10% compounded on the IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that the Defendants,
attorney's fees award, for the period from April 9, 1990, through October 27, jointly and severally, shall pay post judgment interest at the legal rate of 3.385%
1993, as follows: per annum pursuant to 18 U.S.C. & 1961 from and after October 28, 1993, until
such time as this Judgment is satisfied in full.11

On October 14, 1996, the PCGG, in order to settle the money judgment against it, entered
$9,750,000.00 into an "Agreement"6with Fuller Aircraft providing, among others, that the Republic of the
Philippines agreed to pay Fuller $11 million on October 15, 1996 and $3 million, in equal
monthly installments, beginning November 15, 1996 and ending October 15, 1997 in
settlement of Fuller Aircraft's claim which, per decision of the Texas Court, amounts to
$14,928,457.29.
975,000.00 interest through April 1991
On April 13, 1998, the PCGG filed with the Sandiganbayan an "Ex-Parte Motion to
Withdraw" dated April 7, 1998 wherein it sought that:
 "… the plaintiff's Urgent Motion to Withdraw Funds Deposited in Escrow dated
October 9, 1996, be deemed withdrawn and the PNB be immediately directed to
release the funds on deposit to the Bureau of Treasury for transmission to Walter
Fuller Sales, Inc., with the above Agreement and decisions of the US Federal
Courts,"
On September 3, 1999, the Sandiganbayan issued the first questioned Resolution denying
petitioner's motion to release the "Falcon Jet escrow account" because: (a) it does not
appear from the records that the person lawfully entitled to the escrow deposit has been
determined; (b) the motion contravenes the ruling of the Supreme Court in Republic v.
Sandiganbayan7 requiring the PCGG to deposit the proceeds of the sale of the
sequestered aircraft with the PNB; and (c) although the records disclose two authenticated
copies of foreign judgments,8 there is no indication that copies of the deed of sale of the
aircraft and the compromise agreement have been duly authenticated.
The PCGG then filed a motion for reconsideration but the same was denied by the
Sandiganbayan in its Resolution dated February 17, 2000.
Hence, the instant petition. Petitioner Republic contends that respondent Sandiganbayan
gravely abused its discretion when it denied PCGG'S motion to release the funds
deposited in escrow with the PNB to the Bureau of Treasury for transmission to Fuller
Aircraft.1âwphi1.nêt
The Sandiganbayan failed to file a comment on the instant petition. Thus, this Court has no
way of determining why it failed to resolve in more than one decade who is lawfully entitled
to the escrow deposit.
As shown by the records, Faysound Ltd. is the owner of the Falcon jet. In fact, this is
admitted by petitioner Republic itself. As mentioned earlier, Cojuangco or any of the
defendants in Civil Case No. 0033 has no interest in it. Clearly, this aircraft was
erroneously sequestered. It is thus patently illegal for the PCGG to sell it to Fuller Aircraft.
Petitioner does not disclaim its financial obligation to Fuller Aircraft under the "Agreement."
Because of its failure to fulfill the same, petitioner, as previously stated, filed with the
Sandiganbayan a motion for the release of the escrow deposit to the Bureau of Treasury
for transmittal to Fuller Aircraft. Petitioner alleged that for the delay in the final settlement of
its financial liability, the Government of the Philippines must pay an interest surcharge in
favor of Fuller Aircraft in the sum of US$2,000.00 a day Moreover, petitioner is under heavy
diplomatic pressure.
Considering the circumstances obtaining in this case, we rule that petitioner Republic
cannot be held liable under the "Agreement." It must be stressed that petitioner did not
authorize the PCGG to enter into such contract with Fuller Aircraft. Granting that the PCGG
was so authorized, however, it exceeded its authority. Worse, the sale of the aircraft was
without the approval of the Sandiganbayan. This Court, in G.R. No. 88336, held:
"x x x From the preceding discussion of the cases hereinbefore cited and the
contending submissions of the parties in the present recourse, we cannot but
make the observation that the decision to sell the aircraft is not within the limited
administrative powers of the PCGG but requires the sanction of the
Sandiganbayan which can grant or withhold the same in the exercise of sound
discretion and on the basis of the evidence before it. Without such approval by
the judicial authority concerned, and no abuse of discretion on its part having
been established, it irresistibly follows that any sale of said aircraft under the
circumstances obtaining in this case would constitute a prohibited and invalid
disposition by the PCGG." (Underscoring supplied.)
Moreover, inasmuch as the sale of the aircraft by the PCGG to Fuller Aircraft is void, it
follows that the "Agreement" between the PCGG and Fuller Aircraft is likewise a nullity.
Correspondingly, petitioner Republic cannot be bound by the terms of the said
"Agreement" and thus, there can be no cause of action against it.
In Chavez vs. Sandiganbayan,9 this Court ruled that the PCGG or any of its member may
be held civilly liable if they did not act in good faith and within the scope of their authority in
the performance of their official duties. Likewise, in Director of Bureau of Communications
vs. Aligaen,10 this Court held that unauthorized acts by its government officials or officers
are not acts of the State.
Petitioner must, therefore, take immediate appropriate action against the PCGG personnel
involved in the unauthorized sale of the aircraft.
Meanwhile, it is the legal duty of petitioner Republic to return to Fuller Aircraft, through the
PCGG, the escrow deposit in the sum of US $8,568,905.55 as of July 1999. Otherwise,
petitioner may enrich itself unjustly and may be held liable for keeping the said amount
indefinitely to the prejudice of Fuller Aircraft whose right to the escrow deposit has not
been questioned by any party in Civil Case No. 0033.
WHEREFORE, the petition is GRANTED. The challenged Resolutions dated September 3,
1999 and February 17, 2000 are REVERSED and SET ASIDE. Respondent
Sandiganbayan is directed to order the release of the subject escrow account to the PCGG
for transmission to Walter Fuller Aircraft Sales, Inc. Within ten (10) days from its
compliance, the PCGG is ordered to submit to the Sandiganbayan the corresponding
report. No costs.
SO ORDERED.
Melo, Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.
 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 prayed for.
Respondent Judge ought not to have acted thus. The order thus impugned and the alias
writ of execution must be nullified.

In the petition filed by the Republic of the Philippines on July 7, 1969, a summary of facts
was set forth thus: "7. On July 3, 1961, a decision was rendered in Special Proceedings
No. 2156-R in favor of respondents P. J. Kiener Co., Ltd., Gavino Unchuan, and
International Construction Corporation, and against the petitioner herein, confirming the
arbitration award in the amount of P1,712,396.40, subject of Special Proceedings. 8. On
June 24, 1969, respondent Honorable Guillermo P. Villasor, issued an Order declaring the
aforestated decision of July 3, 1961 final and executory, directing the Sheriffs of Rizal
Province, Quezon City [as well as] Manila to execute the said decision. 9. Pursuant to the
said Order dated June 24, 1969, the corresponding Alias Writ of Execution [was issued]
dated June 26, 1969, .... 10. On the strength of the afore-mentioned Alias Writ of Execution
dated June 26, 1969, the Provincial Sheriff of Rizal (respondent herein) served notices of
garnishment dated June 28, 1969 with several Banks, specially on the "monies due the
Armed Forces of the Philippines in the form of deposits sufficient to cover the amount
Republic of the Philippines mentioned in the said Writ of Execution"; the Philippine Veterans Bank received the same
SUPREME COURT notice of garnishment on June 30, 1969 .... 11. The funds of the Armed Forces of the
Manila Philippines on deposit with the Banks, particularly, with the Philippine Veterans Bank and
the Philippine National Bank [or] their branches are public funds duly appropriated and
allocated for the payment of pensions of retirees, pay and allowances of military and
SECOND DIVISION
civilian personnel and for maintenance and operations of the Armed Forces of the
Philippines, as per Certification dated July 3, 1969 by the AFP Controller,..." 2. The
paragraph immediately succeeding in such petition then alleged: "12. Respondent Judge,
Honorable Guillermo P. Villasor, acted in excess of jurisdiction [or] with grave abuse of
G.R. No. L-30671 November 28, 1973 discretion amounting to lack of jurisdiction in granting the issuance of an alias writ of
execution against the properties of the Armed Forces of the Philippines, hence, the Alias
Writ of Execution and notices of garnishment issued pursuant thereto are null and void." 3 In
REPUBLIC OF THE PHILIPPINES, petitioner, the answer filed by respondents, through counsel Andres T. Velarde and Marcelo B.
vs. Fernan, the facts set forth were admitted with the only qualification being that the total
HON. GUILLERMO P. VILLASOR, as Judge of the Court of First Instance of Cebu, award was in the amount of P2,372,331.40.4
Branch I, THE PROVINCIAL SHERIFF OF RIZAL, THE SHERIFF OF QUEZON CITY,
and THE SHERIFF OF THE CITY OF MANILA, THE CLERK OF COURT, Court of First
Instance of Cebu, P. J. KIENER CO., LTD., GAVINO UNCHUAN, AND INTERNATIONAL The Republic of the Philippines, as mentioned at the outset, did right in filing
CONSTRUCTION CORPORATION, respondents. this certiorari and prohibition proceeding. What was done by respondent Judge is not in
conformity with the dictates of the Constitution. .

Office of the Solicitor General Felix V. Makasiar and Solicitor Bernardo P. Pardo for
petitioner.
Andres T. Velarde and Marcelo B. Fernan for respondents.
It is a fundamental postulate of constitutionalism flowing from the juristic concept of
sovereignty that the state as well as its government is immune from suit unless it gives its
consent. It is readily understandable why it must be so. In the classic formulation of
Holmes: "A sovereign is exempt from suit, not because of any formal conception or
obsolete theory, but on the logical and practical ground that there can be no legal right as Barredo, J, took no part.
against the authority that makes the law on which the right depends."5 Sociological
jurisprudence supplies an answer not dissimilar. So it was indicated in a recent
decision, Providence Washington Insurance Co. v. Republic of the Philippines,6 with its
affirmation that "a continued adherence to the doctrine of non-suability 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."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."8 A corollary, 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 law." 10 Such a principle applies even to an
attempted garnishment of a salary that had accrued in favor of an employee. Director of
Commerce and Industry v. 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

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.

Zaldivar (Chairman), Antonio, Fernandez and Aquino, JJ., concur.

 In this petition for certiorari, the Department of Agriculture seeks to nullify the
Resolution, 1 dated 27 November 1991, of the National Labor Relations Commission
(NLRC), Fifth Division, Cagayan de Oro City, denying the petition for injunction, prohibition
and mandamus that prays to enjoin permanently the NLRC's Regional Arbitration Branch X
and Cagayan de Oro City Sheriff from enforcing the decision 2 of 31 May 1991 of the
Executive Labor Arbiter and from attaching and executing on petitioner's property.

The Department of Agriculture (herein petitioner) and Sultan Security Agency entered into
a contract3 on 01 April 1989 for security services to be provided by the latter to the said
governmental entity. Save for the increase in the monthly rate of the guards, the same
terms and conditions were also made to apply to another contract, dated 01 May 1990,
between the same parties. Pursuant to their arrangements, guards were deployed by
Sultan Agency in the various premises of the petitioner.

On 13 September 1990, several guards of the Sultan Security Agency filed a complaint for
underpayment of wages, non-payment of 13th month pay, uniform allowances, night shift
differential pay, holiday pay and overtime pay, as well as for damages, 4 before the
Regional Arbitration Branch X of Cagayan de Oro City, docketed as NLRC Case No. 10-
09-00455-90 (or 10-10-00519-90, its original docket number), against the Department of
Agriculture and Sultan Security Agency.

The Executive Labor Arbiter rendered a decision on 31 May finding herein petitioner
and jointly and severally liable with Sultan Security Agency for the payment of money
claims, aggregating P266,483.91, of the complainant security guards. The petitioner and
Sultan Security Agency did not appeal the decision of the Labor Arbiter. Thus, the decision
became final and executory.

On 18 July 1991, the Labor Arbiter issued a writ of execution. 5 commanding the City
Republic of the Philippines Sheriff to enforce and execute the judgment against the property of the two respondents.
SUPREME COURT Forthwith, or on 19 July 1991, the City Sheriff levied on execution the motor vehicles of the
Manila petitioner, i.e. one (1) unit Toyota Hi-Ace, one (1) unit Toyota Mini Cruiser, and one (1) unit
Toyota Crown.6 These units were put under the custody of Zacharias Roa, the property
THIRD DIVISION custodian of 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
G.R. No. 104269 November 11, 1993 (NLRC), Cagayan de Oro, alleging, inter alia, that the writ issued was effected without the
Labor Arbiter having duly acquired jurisdiction over the petitioner, and that, therefore, the
DEPARTMENT OF AGRICULTURE, petitioner, decision of the Labor Arbiter was null and void and all actions pursuant thereto should be
vs. deemed equally invalid and of no legal, effect. The petitioner also pointed out that the
THE NATIONAL LABOR RELATIONS COMMISSION, et al., respondents. attachment or seizure of its property would hamper and jeopardize petitioner's
governmental functions to the prejudice of the public good.
Roy Lago Salcedo for private respondents.
On 27 November 1991, the NLRC promulgated its assailed resolution; viz:

WHEREFORE, premises considered, the following orders are issued:

VITUG, J.:
1. The enforcement and execution of the judgments against petitioner
in NLRC RABX Cases Nos. 10-10-00455-90; 10-10-0481-90 and 10-
For consideration are the incidents that flow from the familiar doctrine of non-suability of 10-00519-90 are temporarily suspended for a period of two (2) months,
the state.
 more or less, but not extending beyond the last quarter of calendar year
1991 to enable petitioner to source and raise funds to satisfy the
judgment awards against it;
2. Meantime, petitioner is ordered and directed to source for funds
within the period above-stated and to deposit the sums of money
equivalent to the aggregate amount. it has been adjudged to pay jointly
and severally with respondent Sultan Security Agency with the Regional
Arbitration Branch X, Cagayan de Oro City within the same period for
proper dispositions;
3. In order to ensure compliance with this order, petitioner is likewise
directed to put up and post sufficient surety and supersedeas
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;
4. The City Sheriff is ordered to immediately release the properties of
petitioner levied on execution within ten (10) days from notice of the
posting of sufficient surety or supersedeas bond as specified above. In
the meanwhile, petitioner is assessed to pay the costs and/or expenses
incurred by the City Sheriff, if any, in connection with the execution of
the judgments in the above-stated cases upon presentation of the
appropriate claims or vouchers and receipts by the city Sheriff, subject
to the conditions specified in the NLRC Sheriff, subject to the conditions
specified in the NLRC Manual of Instructions for Sheriffs;
5. The right of any of the judgment debtors to claim reimbursement
against each other for any payments made in connection with the
satisfaction of the judgments herein is hereby recognized pursuant to
the ruling in the Eagle Security case, (supra). In case of dispute
between 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 is Dismissed for lack of basis. The
writ of preliminary injunction previously issued is Lifted and Set
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 is Denied for lack of merit while the motion to
dismiss the petition filed by Duty Sheriff is Noted
SO ORDERED.
In this petition for certiorari, the petitioner charges the NLRC with grave abuse of discretion
for refusing to quash the writ of execution. The petitioner faults the NLRC for assuming
jurisdiction over a money claim against the Department, which, it claims, falls under the
exclusive jurisdiction of the Commission on Audit. More importantly, the petitioner asserts,
the NLRC has disregarded the cardinal rule on the non-suability of the State.
The private respondents, on the other hand, argue that the petitioner has impliedly waived
its immunity from suit by concluding a service contract with Sultan Security Agency.
The basic postulate enshrined in the constitution that "(t)he State may not be sued without
its consent," 7 reflects nothing less than a recognition of the sovereign character of the
State and an express affirmation of the unwritten rule effectively insulating it from the
jurisdiction of courts. 8 It is based on the very essence of sovereignty. As has been aptly
observed, by Justice Holmes, a sovereign is exempt from suit, not because of any formal
conception or obsolete theory, but on the logical and practical ground that there can be no
legal right as against the authority that makes the law on which the right depends. 9 True,
the doctrine, not too infrequently, is derisively called "the royal prerogative of dishonesty"
because it grants the state the prerogative to defeat any legitimate claim against it by
simply invoking its non-suability. 10 We have had occasion, to explain in its defense,
however, that a continued adherence to the doctrine of non-suability cannot be deplored,
for the loss of governmental efficiency and the obstacle to the performance of its
multifarious functions would be far greater in severity than the inconvenience that may be
caused private parties, if such fundamental principle is to be abandoned and the
availability of judicial remedy is not to be accordingly restricted. 11
The rule, in any case, is not really absolute for it does not say that the state may not be
sued under any circumstances. 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. 12 The States' consent may be given expressly or impliedly.
Express consent may be made through a general law13 or a special law. 14 In this
jurisdiction, the general law waiving the immunity of the state from suit is found in Act No.
3083, where the Philippine government "consents and submits to be sued upon any
money claims involving liability arising from contract, express or implied, which could serve
as a basis of civil action between private parties." 15 Implied consent, on the other hand, is
conceded when the State itself commences litigation, thus opening itself to a
counterclaim16 or when it enters into a contract. 17 In this situation, the government is
deemed to have descended to the level of the other contracting party and to have divested
itself of its sovereign immunity. This rule, relied upon by the NLRC and the private
respondents, is not, however, without qualification. Not all contracts entered into by the
government operate as a waiver of its non-suability; distinction must still be made between
one which is executed in the exercise of its sovereign function and another which is done
in its proprietary capacity. 18
In the Unites States of America vs. Ruiz, 19 where the questioned transaction dealt with
improvements on the wharves in the naval installation at Subic Bay, we held:
The traditional rule of immunity exempts a State from being sued in the
courts of another State without its consent or waiver. This rule is a
necessary consequence of the principles of independence and equality
of States. However, the rules of International Law are not petrified; they
are constantly developing and evolving. And because the activities of
states have multiplied, it has been necessary to distinguish them —
between sovereign and governmental acts ( jure imperii) and private,
commercial and proprietary act ( jure gestionisis). The result is that
 State immunity now extends only to acts jure imperii. The restrictive
application of State immunity is now the rule in the United States, the
United Kingdom and other states in Western Europe.
xxx xxx xxx
The restrictive application of State immunity is proper only when the
proceedings arise out of commercial transactions of the foreign
sovereign, its commercial activities or economic affairs. Stated
differently, a state may be said to have descended to the level of an
individual and can this be deemed to have actually given its consent to
be sued only when it enters into business contracts. It does not apply
where the contracts relates to the exercise of its sovereign functions. In
this case the projects are an integral part of the naval base which is
devoted to the defense of both the United States and the Philippines,
indisputably a function of the government of the highest order; they are
not utilized for not dedicated to commercial or business purposes.
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 the
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 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
WHEREFORE, the petition is GRANTED. The resolution, dated 27 November 1991, is
hereby REVERSED and SET ASIDE. The writ of execution directed against the property of
the Department of Agriculture is nullified, and the public respondents are hereby enjoined
permanently from doing, issuing and implementing any and all writs of execution issued
pursuant to the decision rendered by the Labor Arbiter against said petitioner.

In the instant case, the Department of Agriculture has not pretended to have assumed a
capacity apart from its being a governmental entity when it entered into the questioned SO ORDERED.
contract; nor that it could have, in fact, performed any act proprietary in character.
Feliciano, Bidin, Romero and Melo, JJ., concur.
But, be that as it may, the claims of private respondents, i.e. for underpayment of wages,
holiday pay, overtime pay and similar other items, arising from the Contract for Service,
clearly constitute money claims. Act No. 3083, aforecited, gives the consent of the State to
be "sued upon any moneyed claim involving liability arising from contract, express or
implied, . . . Pursuant, however, to Commonwealth Act ("C.A.") No. 327, as amended by
Presidential Decree ("P.D.") No. 1145, the money claim first be brought to the Commission
on Audit. Thus, in Carabao, Inc., vs. Agricultural Productivity Commission, 20 we ruled:

(C)laimants have to prosecute their money claims against the

Government under Commonwealth Act 327, stating that Act 3083
stands now merely as the general law waiving the State's immunity
from suit, subject to the general limitation expressed in Section 7
thereof that "no execution shall issue upon any judgment rendered by
any Court against the Government of the (Philippines), and that the
conditions provided in Commonwealth Act 327 for filing money claims
against the Government must be strictly observed."

We fail to see any substantial conflict or inconsistency between the provisions of C.A. No.
327 and the Labor Code with respect to money claims against the State. The Labor code,
in relation to Act No. 3083, provides the legal basis for the State liability but the
prosecution, enforcement or satisfaction thereof must still be pursued in accordance with
the rules and procedures laid down in C.A. No. 327, as amended by P.D. 1445.

When the state gives its consent to be sued, it does thereby necessarily consent to
unrestrained execution against it. tersely put, when the State waives its immunity, all it
does, in effect, is to give the other party an opportunity to prove, if it can, that the State has
a liability. 21 In Republic vs. Villasor 22 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 —
 FERNANDO, Acting C.J.:

The reliance of petitioner Philippine National Bank in this certiorari and prohibition
proceeding against respondent Judge Javier Pabalan who issued a writ of
execution, 1 followed thereafter by a notice of garnishment of the funds of respondent
Philippine Virginia Tobacco Administration, 2 deposited with it, is on the fundamental
constitutional law doctrine of non-suability of a state, it being alleged that such funds are
public in character. This is not the first time petitioner raised that issue. It did so before in
Philippine National Bank v. Court of industrial Relations, 3 decided only last January. It did
not meet with success, this Court ruling in accordance with the two previous cases of
National Shipyard and Steel Corporation 4 and Manila Hotel Employees Association v.
Manila Hotel Company,5 that funds of public corporations which can sue and be sued were
not exempt from garnishment. As respondent Philippine Virginia Tobacco Administration is
likewise a public corporation possessed of the same attributes, 6 a similar outcome is
indicated. This petition must be dismissed.

It is undisputed that the judgment against respondent Philippine Virginia Tobacco

Administration had reached the stage of finality. A writ of execution was, therefore, in order.
It was accordingly issued on December 17, 1970. 7There was a notice of garnishment for
the full amount mentioned in such writ of execution in the sum of P12,724,66. 8 In view of
the objection, however, by petitioner Philippine National Bank on the above ground,
coupled with an inquiry as to whether or not respondent Philippine Virginia Tobacco
Administration had funds deposited with petitioner's La Union branch, it was not until
January 25, 1971 that the order sought to be set aside in this certiorari proceeding was
issued by respondent Judge.9 Its dispositive portion reads as follows: Conformably with the
foregoing, it is now ordered, in accordance with law, that sufficient funds of the Philippine
Virginia Tobacco Administration now deposited with the Philippine National Bank, La Union
Branch, shall be garnished and delivered to the plaintiff immediately to satisfy the Writ of
Republic of the Philippines Execution for one-half of the amount awarded in the decision of November 16,
SUPREME COURT 1970." 10 Hence this certiorari and prohibition proceeding.
Manila
As noted at the outset, petitioner Philippine National Bank would invoke the doctrine of
SECOND DIVISION non-suability. It is to be admitted that under the present Constitution, what was formerly
implicit as a fundamental doctrine in constitutional law has been set forth in express terms:
"The State may not be sued without its consent." 11 If the funds appertained to one of the
G.R. No. L-33112 June 15, 1978
regular departments or offices in the government, then, certainly, such a provision would
be a bar to garnishment. Such is not the case here. Garnishment would lie. Only last
PHILIPPINE NATIONAL BANK, petitioner, January, as noted in the opening paragraph of this decision, this Court, in a case brought
vs. by the same petitioner precisely invoking such a doctrine, left no doubt that the funds of
HON. JUDGE JAVIER PABALAN, Judge of the Court of First Instance, Branch III, La public corporations could properly be made the object of a notice of garnishment.
Union, AGOO TOBACCO PLANTERS ASSOCIATION, INC., PHILIPPINE VIRGINIA Accordingly, this petition must fail.
TOBACCO ADMINISTRATION, and PANFILO P. JIMENEZ, Deputy Sheriff, La
Union, respondents.
1. The alleged grave abuse of discretion, the basis of this certiorari proceeding, was
sought to be justified on the failure of respondent Judge to set aside the notice of
Conrado E. Medina, Edgardo M. Magtalas & Walfrido Climaco for petitioner. garnishment of funds belonging to respondent Philippine Virginia Tobacco Administration.
This excerpt from the aforecited decision of Philippine National Bank v. Court of Industrial
Felimon A. Aspirin fit respondent Agoo 'Tobacco Planters Association, Inc. Relations makes manifest why such an argument is far from persuasive. "The premise that
the funds could be spoken as public character may be accepted in the sense that the
People Homesite and Housing Corporation was a government-owned entity. It does not
Virgilio C. Abejo for respondent Phil. Virginia Tobacco Administration. follow though that they were exempt. from garnishment. National Shipyard and Steel
Corporation v. Court of Industrial Relations is squarely in point. As was explicitly stated in
the opinion of the then Justice, later Chief Justice, Concepcion: "The allegation to the
effect that the funds of the NASSCO are public funds of the government, and that, as such,
the same may not be garnished, attached or levied upon, is untenable for, as a
government owned and controlled corporation, the NASSCO has a personality of its own.
distinct and separate from that of the Government. It has — pursuant to Section 2 of
Executive Order No. 356, dated October 23, 1950 ... , pursuant to which The NASSCO has
been established — all the powers of a corporation under the Corporation Law ... ."
Accordingly, it may be sue and be sued and may be subjected to court processes just like
any other corporation (Section 13, Act No. 1459, as amended.)" ... To repeat, the ruling
was the appropriate remedy for the prevailing party which could proceed against the funds
of a corporate entity even if owned or controlled by the government." 12
2. The National Shipyard and Steel Corporation decision was not the first of its kind. The
ruling therein could be inferred from the judgment announced in Manila Hotel Employees
Association v. Manila Hotel Company, decided as far back as 1941. 13 In the language of
its ponente Justice Ozaeta "On the other hand, it is well-settled that when the government
enters into commercial business, it abandons its sovereign capacity and is to be treated
like any other corporation. (Bank of the United States v. Planters' Bank, 9 Wheat. 904, 6
L.ed. 244). By engaging in a particular business thru the instrumentality of a corporation,
the government divests itself pro hac vice of its sovereign character, so as to render the
corporation subject to the rules of law governing private corporations." 14 It is worth
mentioning that Justice Ozaeta could find support for such a pronouncement from the
leading American Supreme Court case of united States v. Planters' Bank, 15 with the
opinion coming from the illustrious Chief Justice Marshall. It was handed down more than
one hundred fifty years ago, 1824 to be exact. It is apparent, therefore, that petitioner Bank
could it legally set forth as a bar or impediment to a notice of garnishment the doctrine of
non-suability.
WHEREFORE, this petition for certiorari and prohibition is dismissed. No costs.
FIRST DIVISION
[G.R. No. 154411. June 19, 2003]
NATIONAL HOUSING AUTHORITY, petitioner, vs. HEIRS OF ISIDRO GUIVELONDO,
COURT OF APPEALS, HON. ISAIAS DICDICAN, Presiding Judge, Regional
Trial Court, Branch 11, Cebu City, and PASCUAL Y. ABORDO, Sheriff,
Regional Trial Court, Branch 11, Cebu City, respondents.
DECISION
YNARES-SANTIAGO, J.:
On February 23, 1999, petitioner National Housing Authority filed with the Regional
Trial Court of Cebu City, Branch 11, an Amended Complaint for eminent domain against
Associacion Benevola de Cebu, Engracia Urot and the Heirs of Isidro Guivelondo,
docketed as Civil Case No. CEB-23386. Petitioner alleged that defendant Associacion
Benevola de Cebu was the claimant/owner of Lot 108-C located in the Banilad Estate,
Cebu City; that defendant Engracia Urot was the claimant/owner of Lots Nos. 108-F, 108-I,
108-G, 6019-A and 6013-A, all of the Banilad Estate; that defendant Heirs of Isidro
Guivelondo were the claimants/owners of Cadastral Lot No. 1613-D located at Carreta,
Mabolo, Cebu City; and that the lands are within a blighted urban center which petitioner
intends to develop as a socialized housing project.[1]
On November 12, 1999, the Heirs of Isidro Guivelondo, respondents herein, filed a
Manifestation stating that they were waiving their objections to petitioners power to
expropriate their properties. Hence, the trial court issued an Order as follows:
WHEREFORE, the Court hereby declares that the plaintiff has a lawful right to expropriate
the properties of the defendants who are heirs of Isidro Guivelondo.
The appointment of commissioners who would ascertain and report to the Court the just
compensation for said properties will be done as soon as the parties shall have submitted
to the Court the names of persons desired by them to be appointed as such
commissioners.
SO ORDERED.[2]
Thereafter, the trial court appointed three Commissioners to ascertain the correct and
just compensation of the properties of respondents. On April 17, 2000, the Commissioners
submitted their report wherein they recommended that the just compensation of the subject
properties be fixed at P11,200.00 per square meter. [3] On August 7, 2000, the trial court
rendered Partial Judgment adopting the recommendation of the Commissioners and fixing
the just compensation of the lands of respondent Heirs of Isidro Guivelondo at P11,200.00
per square meter, to wit:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by the
Court in this case fixing the just compensation for the lands of the defendants who are the
heirs of Isidro Guivelondo, more particularly Lots Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,
13, 15, 16, 19, 20, 6016-F, 6016-H, 6016-E and 6016-D of Csd-10219, which were sought
to be expropriated by the plaintiff at P11,200.00 per square meter and ordering the plaintiff
to pay to the said defendants the just compensation for the said lands computed at
P11,200.00 per square meter.
IT IS SO ORDERED.[4]
Petitioner NHA filed two motions for reconsideration dated August 30, 2000 and
August 31, 2000, assailing the inclusion of Lots 12, 13 and 19 as well as the amount of just
compensation, respectively. Respondent Heirs also filed a motion for reconsideration of the
Partial Judgment. On October 11, 2000, the trial court issued an Omnibus Order denying
the motion for reconsideration of respondent Heirs and the August 31, 2000 motion of
petitioner, on the ground that the fixing of the just compensation had adequate basis and
support. On the other hand, the trial court granted petitioners August 30, 2000 motion for
reconsideration on the ground that the Commissioners Report did not include Lots 12, 13
and 19 within its coverage. Thus:
WHEREFORE, in view of the foregoing premises, the Court hereby denies the motion of
the heirs of Isidro Guivelondo (with the exception of Carlota Mercado and Juanita Suemith)
for reconsideration of the partial judgment rendered in this case on August 7, 2000 and
plaintiffs motion for reconsideration of said judgment, dated August 31, 2000.
However, the Court hereby grants the plaintiffs motion for reconsideration of said
judgment, dated August 30, 2000. Accordingly, the judgment rendered in this case on
August 7, 2000 is hereby set aside insofar as it has fixed just compensations for Lots Nos.
12, 13 and 19 of Csd-10219 because the fixing of said just compensations appears to lack
adequate basis.
SO ORDERED.[5]
Petitioner filed with the Court of Appeals a petition for certiorari, which was docketed
as CA-G.R. SP No. 61746.[6] Meanwhile, on October 31, 2000, the trial court issued an
Entry of Judgment over the Partial Judgment dated August 7, 2000 as modified by the
Omnibus Order dated October 11, 2000. [7] Subsequently, respondent Heirs filed a Motion
for Execution, which was granted on November 22, 2000.
On January 31, 2001, the Court of Appeals dismissed the petition for certiorari on the
ground that the Partial Judgment and Omnibus Order became final and executory when
petitioner failed to appeal the same.[8]
Petitioners Motion for Reconsideration and Urgent Ex-Parte Motion for a Clarificatory
Ruling were denied in a Resolution dated March 18, 2001. [9] A petition for review was filed
by petitioner with this Court, which was docketed as G.R. No. 147527. However, the same
was denied in a Minute Resolution dated May 9, 2001 for failure to show that the Court of
Appeals committed a reversible error.[10]
Petitioner filed a Motion for Reconsideration which was however denied with finality
on August 20, 2001.[11]
Prior to the aforesaid denial of the Motion for Reconsideration, petitioner, on July 16,
2001, filed with the trial court a Motion to Dismiss Civil Case No. CEB-23386, complaint for
eminent domain, alleging that the implementation of its socialized housing project was
rendered impossible by the unconscionable value of the land sought to be expropriated,
which the intended beneficiaries can not afford.[12] The Motion was denied on September
17, 2001, on the ground that the Partial Judgment had already become final and executory
and there was no just and equitable reason to warrant the dismissal of the case.
[13]
Petitioner filed a Motion for Reconsideration, which was denied in an Order dated
November 20, 2001.[14]
Petitioner thus filed a petition for certiorari with the Court of Appeals, which was
docketed as CA-G.R. SP No. 68670, praying for the annulment of the Order of the trial
court denying its Motion to Dismiss and its Motion for Reconsideration. [15]
On February 5, 2002, the Court of Appeals summarily dismissed the
petition. Immediately thereafter, respondent Sheriff Pascual Y. Abordo of the Regional Trial
Court of Cebu City, Branch 11, served on petitioner a Notice of Levy pursuant to the Writ of
Execution issued by the trial court to enforce the Partial Judgment of August 7, 2000 and
the Omnibus Order of October 11, 2000.[16]
On February 18, 2002, the Court of Appeals set aside the dismissal of the petition
and reinstated the same. [17] Thereafter, a temporary restraining order was issued enjoining
respondent sheriff to preserve the status quo.[18]
On May 27, 2002, respondent sheriff served on the Landbank of the Philippines a
Notice of Third Garnishment against the deposits, moneys and interests of petitioner
therein.[19]Subsequently, respondent sheriff levied on funds and personal properties of
petitioner.[20]
On July 16, 2002, the Court of Appeals rendered the assailed decision dismissing the
petition for certiorari.[21]
Hence, petitioner filed this petition for review, raising the following issues:
1) WHETHER OR NOT THE STATE CAN BE COMPELLED AND COERCED
BY THE COURTS TO EXERCISE OR CONTINUE WITH THE
EXERCISE OF ITS INHERENT POWER OF EMINENT DOMAIN;
2) WHETHER OR NOT JUDGMENT HAS BECOME FINAL AND EXECUTORY
AND IF ESTOPPEL OR LACHES APPLIES TO GOVERNMENT;
3) WHETHER OR NOT WRITS OF EXECUTION AND GARNISHMENT MAY
BE ISSUED AGAINST THE STATE IN AN EXPROPRIATION
WHEREIN THE EXERCISE OF THE POWER OF EMINENT DOMAIN
WILL NOT SERVE PUBLIC USE OR PURPOSE {APPLICATION OF
SUPREME COURT ADMINISTRATIVE CIRCULAR NO. 10-2000}.[22]
Respondent Heirs of Isidro Guivelondo filed their Comment, arguing as follows:
I
AS EARLIER UPHELD BY THE HONORABLE COURT, THE JUDGMENT OF THE
TRIAL COURT IS ALREADY FINAL AND EXECUTORY, HENCE, COULD NO LONGER
BE DISTURBED NOR SET ASIDE
II
THE FUNDS AND ASSETS OF THE PETITIONER ARE NOT EXEMPT FROM LEVY
AND GARNISHMENT
III
THE ISSUES RAISED IN THIS SECOND PETITION FOR REVIEW WERE ALREADY
RESOLVED BY THE HONORABLE COURT[23]
In the early case of City of Manila v. Ruymann, [24] the Court was confronted with the
question: May the petitioner, in an action for expropriation, after he has been placed in
possession of the property and before the termination of the action, dismiss the petition? It
resolved the issue in the affirmative and held:
The right of the plaintiff to dismiss an action with the consent of the court is universally
recognized with certain well-defined exceptions. If the plaintiff discovers that the action
which he commenced was brought for the purpose of enforcing a right or a benefit, the
advisability or necessity of which he later discovers no longer exists, or that the result of
the action would be different from what he had intended, then he should be permitted to
withdraw his action, subject to the approval of the court. The plaintiff should not be
required to continue the action, subject to some well-defined exceptions, when it is not to
his advantage to do so. Litigation should be discouraged and not encouraged. Courts
should not require parties to litigate when they no longer desire to do so. Courts, in
granting permission to dismiss an action, of course, should always take into consideration
the effect which said dismissal would have upon the rights of the defendant. [25]
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 expropriation of lands,
under the power of eminent domain, is public use. That being true, the very moment that it
appears at any stage of the proceedings that the expropriation is not for a public use, the
action must necessarily fail and should be dismissed, for the reason that the action cannot
be maintained at all except when the expropriation is for some public use. That must be
true even during the pendency of the appeal of at any other stage of the proceedings.If, for
example, during the trial in the lower court, it should be made to appear to the satisfaction
of the court that the expropriation is not for some public use, it would be the duty and the
obligation of the trial court to dismiss the action. And even during the pendency of the
appeal, if it should be made to appear to the satisfaction of the appellate court that the
expropriation is not for public use, then it would become the duty and the obligation of the
appellate court to dismiss it.[27]
Notably, the foregoing cases refer to the dismissal of an action for eminent domain at
the instance of the plaintiff during the pendency of the case. The rule is different where the
case had been decided and the judgment had already become final and executory.
Expropriation proceedings consists of two stages: first, condemnation of the property
after it is determined that its acquisition will be for a public purpose or public use and,
second, the determination of just compensation to be paid for the taking of private property
to be made by the court with the assistance of not more than three commissioners.
[28]
Thus:
There are two (2) stages in every action for expropriation. The first is concerned with the
determination of the authority of the plaintiff to exercise the power of eminent domain and
the propriety of its exercise in the context of the facts involved in the suit. It ends with an
order, if not of dismissal of the action, of condemnation declaring that the plaintiff has a
lawful right to take the property sought to be condemned, for the public use or purpose
described in the complaint, upon the payment of just compensation to be determined as of
the date of the filing of the complaint. An order of dismissal, if this be ordained, would be a
final one, of course, since it finally disposes of the action and leaves nothing more to be
done by the Court on the merits. So, too, would an order of condemnation be a final one,
for thereafter, as the Rules expressly state, in the proceedings before the Trial Court, no
objection to the exercise of the right of condemnation (or the propriety thereof) shall be
filed or heard.
The second phase of the eminent domain action is concerned with the determination by
the Court of the just compensation for the property sought to be taken. This is done by the
Court with the assistance of not more than three (3) commissioners. The order fixing the
just compensation on the basis of the evidence before, and findings of, the commissioners
would be final, too. It would finally dispose of the second stage of the suit, and leave
nothing more to be done by the Court regarding the issue. Obviously, one or another of the
parties may believe the order to be erroneous in its appreciation of the evidence or findings
of fact or otherwise. Obviously, too, such a dissatisfied party may seek a reversal of the
order by taking an appeal therefrom.[29]
The outcome of the first phase of expropriation proceedings, which is either an order
of expropriation or an order of dismissal, is final since it finally disposes of the case. On the
other hand, the second phase ends with an order fixing the amount of just
compensation. Both orders, being final, are appealable. [30] An order of condemnation or
dismissal is final, resolving the question of whether or not the plaintiff has properly and
legally exercised its power of eminent domain. [31] Once the first order becomes final and no
appeal thereto is taken, the authority to expropriate and its public use can no longer be
questioned.[32]
The above rule is based on Rule 67, Section 4 of the 1997 Rules of Civil Procedure,
which provides:
Order of expropriation. If the objections to and the defenses against the right of the plaintiff
to expropriate the property are overruled, or when no party appears to defend as required
by this Rule, the court may issue an order of expropriation declaring that the plaintiff has a
lawful right to take the property sought to be expropriated, for the public use or purpose
described in the complaint, upon the payment of just compensation to be determined as of
the date of the taking of the property or the filing of the complaint, whichever came first.
A final order sustaining the right to expropriate the property may be appealed by any party
aggrieved thereby. Such appeal, however, shall not prevent the court from determining the
just compensation to be paid.
After the rendition of such an order, the plaintiff shall not be permitted to dismiss or
discontinue the proceeding except on such terms as the court deems just and equitable.
(underscoring ours)
In the case at bar, petitioner did not appeal the Order of the trial court dated
December 10, 1999, which declared that it has a lawful right to expropriate the properties
of respondent Heirs of Isidro Guivelondo. Hence, the Order became final and may no
longer be subject to review or reversal in any court. [33] A final and executory decision or
order can no longer be disturbed or reopened no matter how erroneous it may
be. Although judicial determinations are not infallible, judicial error should be corrected
through appeals, not through repeated suits on the same claim.[34]
Petitioner anchors its arguments on the last paragraph of the above-quoted Rule 67,
Section 4. In essence, it contends that there are just and equitable grounds to allow
dismissal or discontinuance of the expropriation proceedings. More specifically, petitioner
alleges that the intended public use was rendered nugatory by the unreasonable just
compensation fixed by the court, which is beyond the means of the intended beneficiaries
of the socialized housing project. The argument is tenuous.
Socialized housing has been recognized as public use for purposes of exercising the
power of eminent domain.
Housing is a basic human need. Shortage in housing is a matter of state concern since it
directly and significantly affects public health, safety, the environment and in sum, the
general welfare. The public character of housing measures does not change because units
in housing projects cannot be occupied by all but only by those who satisfy prescribed
qualifications. A beginning has to be made, for it is not possible to provide housing for all
who need it, all at once.
xxx xxx xxx.
In the light of the foregoing, this Court is satisfied that socialized housing falls with the
confines of public use. xxx xxx xxx. Provisions on economic opportunities inextricably
linked with low-cost housing, or slum clearance, relocation and resettlement, or slum
improvement emphasize the public purpose of the project.[35]
The public purpose of the socialized housing project is not in any way diminished by
the amount of just compensation that the court has fixed. The need to provide decent
housing to the urban poor dwellers in the locality was not lost by the mere fact that the land
cost more than petitioner had expected. It is worthy to note that petitioner pursued its
petition for certiorari with the Court of Appeals assailing the amount of just compensation
and its petition for review with this Court which eloquently indicates that there still exists a
public use for the housing project.It was only after its appeal and petitions for review were
dismissed that petitioner made a complete turn-around and decided it did not want the
property anymore.
Respondent landowners had already been prejudiced by the expropriation
case. Petitioner cannot be permitted to institute condemnation proceedings against
respondents only to abandon it later when it finds the amount of just compensation
unacceptable. Indeed, our reprobation in the case of Cosculluela v. Court of Appeals [36] is
apropos:
It is arbitrary and capricious for a government agency to initiate expropriation proceedings,
seize a persons property, allow the judgment of the court to become final and executory
and then refuse to pay on the ground that there are no appropriations for the property
earlier taken and profitably used. We condemn in the strongest possible terms the cavalier
attitude of government officials who adopt such a despotic and irresponsible stance.
In order to resolve the issue of the propriety of the garnishment against petitioners
funds and personal properties, there is a need to first determine its true character as a
government entity. Generally, funds and properties of the government cannot be the object
of garnishment proceedings even if the consent to be sued had been previously granted
and the state liability adjudged.[37]
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 claimants 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. [38]
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, separate and distinct
from that of the government, then its funds are not exempt from garnishment. [39] This is so
because when the government enters into commercial business, it abandons its sovereign
capacity and is to be treated like any other corporation.[40]
In the case of petitioner NHA, the matter of whether its funds and properties are
exempt from garnishment has already been resolved squarely against its predecessor, the
Peoples Homesite and Housing Corporation (PHHC), to wit:
The plea for setting aside the notice of garnishment was premised on the funds of the
Peoples Homesite and Housing Corporation deposited with petitioner being public in
character. There was not even a categorical assertion to that effect. It is only the possibility
of its being public in character. The tone was thus irresolute, the approach diffident. The
premise that the funds cold be spoken of as public in character may be accepted in the
sense that the Peoples Homesite and Housing Corporation was a government-owned
entity. It does not follow though that they were exempt from garnishment.[41]
This was reiterated in the subsequent case of Philippine Rock Industries, Inc. v.
Board of Liquidators:[42]
Having a juridical personality separate and distinct from the government, the funds of such
government-owned and controlled corporations and non-corporate agency, although
considered public in character, are not exempt from garnishment. This doctrine was
applied to suits filed against the Philippine Virginia Tobacco Administration (PNB vs.
Pabalan, et al., 83 SCRA 695); the National Shipyard & Steel Corporation (NASSCO vs.
CIR, 118 Phil. 782); the Manila Hotel Company (Manila Hotel Employees Asso. vs. Manila
Hotel Co., 73 Phil. 374); and the People's Homesite and Housing Corporation (PNB vs.
CIR, 81 SCRA 314). [emphasis ours]
Hence, it is clear that the funds of petitioner NHA are not exempt from garnishment
or execution. Petitioners prayer for injunctive relief to restrain respondent Sheriff Pascual
Abordo from enforcing the Notice of Levy and Garnishment against its funds and
properties must, therefore, be denied.
WHEREFORE, in view of the foregoing, the instant petition for review
is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 68670, affirming the
trial courts Order denying petitioners Motion to Dismiss the expropriation proceedings in
Civil Case No. CEB-23386, is AFFIRMED. Petitioners prayer for injunctive relief against
the levy and garnishment of its funds and personal properties is DENIED. The Temporary
Restraining Order dated January 22, 2003 is LIFTED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.
 We grant the petition.

Petitioner was a member of the United States Air Force (USAF) assigned to oversee the
dormitories of the Third Aircraft Generation Squadron (3 AGS) at Clark Air Base,
Pampanga.

On August 10, 1988, 3 AGS terminated the contract for the maintenance and upkeep of the
dormitories with the De Guzman Custodial Services. The employees thereof, including
private respondents, were allowed to continue working for 3 AGS. It was left to the new
contractor, the JAC Maintenance Services owned by Joselito Cunanan, to decide whether
it would retain their services.

Joselito Cunanan, however, chose to bring in his own workers. As a result, the workers of
the De Guzman Custodial Services were requested to surrender their base passes to Lt.
Col. Frankhauser or to petitioner.

On August 12, 1988, private respondents filed a complaint with the Regional Arbitration
Branch No. III of the NLRC, San Fernando, Pampanga, against petitioner, Lt. Col.
Frankhauser, and Cunanan for illegal dismissal and underpayment of wages (NLRC Case
No. RAB-III-08-0572-88). On September 9, 1988, private respondents amended their
complaint and added therein claims for emergency cost of living allowance, thirteenth-
month pay, service incentive leave pay and holiday premiums.

Republic of the Philippines The Labor Arbiter, with the conformity of private respondents, ordered Cunanan dropped
SUPREME COURT as party respondent.
Manila
Petitioner and Lt. Col. Frankhauser failed to answer the complaint and to appear at the
FIRST DIVISION hearings. They, likewise, failed to submit their position paper, which the Labor Arbiter
deemed a waiver on their part to do so. The case was therefore submitted for decision on
the basis of private respondents' position paper and supporting documents.

G.R. No. 92432 February 23, 1995
T/SGT ALDORA LARKINS, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, HON. IRINEO BERNARDO, DANIEL
HERRERA, MARIETTA DE GUZMAN, JOSELITO CATACUTAN, JOSEPH GALANG,
ROBERTO HERRERA, DELPIN PECSON, CARLOS CORTEZ, JAIME CORTEZ,
ARSENIO DIAZ, ROBERTO SAGAD and MARCELO LOZANO, respondents.
On November 21, 1988, the Labor Arbiter rendered a decision granting all the claims of
private respondents. He found both Lt. Col. Frankhauser and petitioner "guilty of illegal
dismissal" and ordered them to reinstate private respondents with full back wages, or if
that is no longer possible, to pay private respondents' separation pay (Rollo, p. 78).
Petitioner appealed to the NLRC claiming that the Labor Arbiter never acquired jurisdiction
over her person because no summons or copies of the complaints, both original and
amended, were ever served on her. In her "Supplemental Memorandum to Memorandum
of Appeal," petitioner argued that the attempts to serve her with notices of hearing were not
in accordance with the provisions of the R.P. — U.S. Military Bases Agreement of 1947
(Rollo, pp. 35-37).

QUIASON, J.:
This is a petition for certiorari under Rule 65 of the Revised Rules of Court to set aside the
Resolutions dated August 31, 1989 and February 5, 1990 of the National Labor Relations
Commission (NLRC) in NLRC Case No. RAB- III-08-0572-88.
On August 31, 1989, NLRC issued a Resolution affirming the decision of the Labor Arbiter,
but declared that:
In the event this decision is executed and/or enforced, and considering
our finding that the real party respondent is the United States
 Government through its Armed Forces stationed at Clark Air Base, let
such execution be made subject to existing international agreements
diplomatic protocol (Rollo, p. 95).
Petitioner moved for reconsideration, which NLRC denied on February 5, 1990 (Rollo, p.
101).
Petitioner then elevated the matter to us.
On July 11, 1990, the Office of the solicitor General filed a Manifestation stating that it
"cannot legally support the decision of the Labor Arbiter" and therefore prayed that it be
relieved from the responsibility of filing the required Comment for the public respondents
(Rollo, pp. 117-118). In view of this Manifestation, on July 18, 1990, we resolved to require
NLRC to file its own comment to the petition, which NLRC did on November 29, 1990
(Rollo, pp. 120, 133-139).
II
It is petitioner's contention that the questioned resolutions are null and void because
respondent Labor Arbiter did not acquire jurisdiction to entertain and decide the case.
Petitioner alleges that she never received nor was served, any summons or copies of the
original and amended complaints, and therefore the Labor Arbiter had no jurisdiction over
her person under Article XIV of the R.P. — U.S. Military Bases Agreement.
We agree.
The "Agreement Between the Republic of the Philippines and the United States of America
Concerning Military Bases," otherwise known as the R.P. — U.S. Military Bases
Agreement, governed the rights, duties, authority, and the exercise thereof by Philippine
and American nationals inside the U.S. military bases in the country.
Article XIV thereof, governing the procedure for service of summons on persons inside
U.S. military bases, provides that:
. . . [N]o process, civil or criminal, shall be served within any base
except with the permission of the commanding officer of such base; but
should the commanding officer refuse to grant such permission he shall
forthwith take the necessary steps . . . . to serve such process, as the
case may be, and to provide the attendance of the server of such
process before the appropriate court in the Philippines or procure such
server to make the necessary affidavit or declaration to prove such
service as the case may require.
Summonses and other processes issued by Philippine courts and administrative agencies
for United States Armed Forces personnel within any U.S. base in the Philippines could be
served therein only with the permission of the Base Commander. If he withholds giving his
permission, he should instead designate another person to serve the process, and obtain
the server's affidavit for filing with the appropriate court.
Respondent Labor Arbiter did not follow said procedure. He instead, addressed the
summons to Lt. Col. Frankhauser and not the Base Commander (Rollo, p. 11).
Respondents do not dispute petitioner's claim that no summons was ever issued and
served on her. They contend, however, that they sent notices of the hearings to her (Rollo,
pp. 12-13).
Notices of hearing are not summonses. The provisions and prevailing jurisprudence in
Civil0020Procedure may be applied by analogy to NLRC proceedings (Revised Rules of
the NLRC, Rule I, Sec. 3). It is basic that the Labor Arbiter cannot acquire jurisdiction over
the person of the respondent without the latter being served with summons (cf. Vda. de
Macoy v. Court of Appeals, 206 SCRA 244 [1992]; Filmerco Commercial Co., Inc. v.
Intermediate Appellate Court, 149 SCRA 193 [1987]). In the absence of service of
summons or a valid waiver thereof, the hearings and judgment rendered by the Labor
Arbiter are null and void (cf. Vda. de Macoy v. Court of Appeals, supra.)
Petitioner, in the case at bench, appealed to the NLRC and participated in the oral
argument before the said body. This, however, does not constitute a waiver of the lack of
summons and a voluntary submission of her person to the jurisdiction of the Labor Arbiter.
She may have raised in her pleadings grounds other than lack of jurisdiction, but these
grounds were discussed in relation to and as a result of the issue of the lack of jurisdiction.
In effect, petitioner set forth only one issue and that is the absence of jurisdiction over her
person. If an appearance before the NLRC is precisely to question the jurisdiction of the
said agency over the person of the defendant, then this appearance is not equivalent to
service of summons (De los Santos v. Montera, 221 SCRA 15 [1993]).
Be that as it may, on the assumption that petitioner validly waived service of summons on
her, still the case could not prosper. There is no allegation from the pleadings filed that Lt.
Col. Frankhauser and petitioner were being sued in their personal capacities for tortious
acts (United States of America v. Guinto, 182 SCRA 644 [1990]). However, private
respondents named 3 AGS as one of the respondents in their complaint (Rollo, p. 10).
It is worth noting that NLRC admitted that:
At the outset, let it be made clear that We are aware as to who is the
real party respondent in this case; it is the Government of the United
States of America which is maintaining military facilities in the
Philippines, one of which is located inside Clark Air Base. The 3 AGS
where the appellees previously worked as dormitory attendants is just
one of the various units of the United States Armed Forces (USAF)
inside the said military base. While individual respondents, particularly
Lt. Col. William Frankhauser and T/Sgt. Aldora Larkins, are mere
elements of the USAF assigned to the 3 AGS. Thus, whatever awards,
monetary or otherwise, the appellees are entitled to by virtue of this
case are the primary liabilities of their real employer, the United States
Government (Rollo, pp. 91-92).
Private respondents were dismissed from their employment by Lt. Col. Frankhauser acting
for and in behalf of the U.S. Government. The employer of private respondents was not Lt.
Col. Frankhauser nor petitioner. The employer of private respondents, as found by NLRC,
was the U.S. Government which, by right of sovereign power, operated and maintained the
dormitories at Clark Air Base for members of the USAF (United States of America v.
Guinto, 182 SCRA 644 [1990]; United States of America v. Ruiz, 136 SCRA 487 [1985]).
Indeed, assuming that jurisdiction was acquired over the United States Government and
the monetary claims of private respondents proved, such awards will have to be satisfied
not by Lt. Col. Frankhauser and petitioner in their personal capacities, but by the United
States government (Sanders v. Veridiano II, 162 SCRA 88 [1988]).
Under the "Agreement Between the Government of the Republic of the Philippines and the
Government of the United States of America Relating to the Employment of Philippine
Nationals in the United States Military Bases in the Philippines" otherwise known as the
Base Labor Agreement of May 27, 1968, any dispute or disagreement between the United
States Armed Forces and Filipino employees should be settled under grievance or labor
relations procedures established therein (Art. II) or by the arbitration process provided in
the Romualdez-Bosworth Memorandum of Agreement dated September 5, 1985. If no
agreement was reached or if the grievance procedure failed, the dispute was appealable
by either party to a Joint Labor Committee established in Article III of the Base Labor
Agreement.
Unquestionably therefore, no jurisdiction was ever acquired by the Labor Arbiter over the
case and the person of petitioner and the judgment rendered is null and void (Filmerco
Commercial Co. v. Intermediate Appellate Court, supra.; Sy v. Navarro, 81 SCRA 458
[1978]).
WHEREFORE, the petition for certiorari is GRANTED.
SO ORDERED.
FIRST DIVISION
LOCKHEED DETECTIVE AND WATCHMAN G.R. No. 185918
AGENCY, INC.,
Petitioner, Present:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the August 20, 2008 Amended Decision [1] and
December 23, 2008 Resolution[2] of the Court of Appeals (CA) in CA-G.R. SP No. 91281.
The antecedent facts of the case are as follows:
Petitioner Lockheed Detective and Watchman Agency, Inc. (Lockheed) entered into a
contract for security services with respondent University of the Philippines (UP).
In 1998, several security guards assigned to UP filed separate complaints against
Lockheed and UP for payment of underpaid wages, 25% overtime pay, premium pay for
rest days and special holidays, holiday pay, service incentive leave pay, night shift
differentials, 13th month pay, refund of cash bond, refund of deductions for the Mutual
Benefits Aids System (MBAS), unpaid wages from December 16-31, 1998, and attorneys
fees.
On February 16, 2000, the Labor Arbiter rendered a decision as follows:
WHEREFORE, premises considered, respondents Lockheed Detective
and Watchman Agency, Inc. and UP as job contractor and principal,
respectively, are hereby declared to be solidarily liable to complainants
for the following claims of the latter which are found meritorious.
Underpaid wages/salaries, premium pay for work on rest day and
special holiday, holiday pay, 5 days service incentive leave pay,
13th month pay for 1998, refund of cash bond (deducted at P50.00 per
month from January to May 1996, P100.00 per month from June 1996
and P200.00 from November 1997), refund of deduction for Mutual
Benefits Aids System at the rate of P50.00 a month, and attorneys fees;
in the total amount of P1,184,763.12 broken down as follows per
attached computation of the Computation and [E]xamination Unit of this
Commission, which computation forms part of this Decision:

LEONARDO-DE CASTRO,
1. JOSE SABALAS P77,983.62
Acting Chairperson,
- versus - PERALTA, * 2. TIRSO DOMASIAN 76,262.70
BERSAMIN,
VILLARAMA, JR., and 3. JUAN TAPEL 80,546.03
REYES,** JJ 4. DINDO MURING 80,546.03
UNIVERSITY OF THE PHILIPPINES, Promulgated:
Respondent. April 18, 2012 5. ALEXANDER ALLORDE 80,471.78
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
6. WILFREDO ESCOBAR 80,160.63
7. FERDINAND VELASQUEZ 78,595.53
DECISION
8. ANTHONY GONZALES 76,869.97

VILLARAMA, JR., J.: 9. SAMUEL ESCARIO 80,509.78

10. PEDRO FAILORINA 80,350.87
11. MATEO TANELA 70,590.58
 12. JOB SABALAS 59,362.40
13. ANDRES DACANAYAN 77,403.73
14. EDDIE OLIVAR 77,403.73
P1,077,057.38
plus 10% attorneys fees 107,705.74
GRAND TOTAL AWARD P1,184,763.12
Third party respondent University of the Philippines is hereby declared
to be liable to Third Party Complainant and cross claimant Lockheed
Detective and Watchman Agency for the unpaid legislated salary
increases of the latters security guards for the years 1996 to 1998,
in the total amount of P13,066,794.14, out of which amount the
amounts due complainants here shall be paid.
The other claims are hereby DISMISSED for lack of merit (night shift
differential and 13th month pay) or for having been paid in the course of
this proceedings (salaries for December 15-31, 1997 in the amount of
P40,140.44).
The claims of Erlindo Collado, Rogelio Banjao and Amor Banjao are
hereby DISMISSED as amicably settled for and in consideration of the
amounts of P12,315.72, P12,271.77 and P12,819.33, respectively.
SO ORDERED.[3]
Both Lockheed and UP appealed the Labor Arbiters decision. By Decision[4] dated April 12,
2002, the NLRC modified the Labor Arbiters decision. The NLRC held:
WHEREFORE, the decision appealed from is hereby modified as
follows:
1. Complainants claims for premium pay for work on rest
day and special holiday, and 5 days service incentive
leave pay, are hereby dismissed for lack of basis.
2. The respondent University of the Philippines is still
solidarily liable with Lockheed in the payment of the rest
of the claims covering the period of their service contract.
The Financial Analyst is hereby ordered to recompute the
awards of the complainants in accordance with the foregoing
modifications.
SO ORDERED.[5]
The complaining security guards and UP filed their respective motions for
reconsideration. On August 14, 2002, however, the NLRC denied said motions.
As the parties did not appeal the NLRC decision, the same became final and executory
on October 26, 2002.[6] A writ of execution was then issued but later quashed by the Labor
Arbiter on November 23, 2003 on motion of UP due to disputes regarding the amount of
the award. Later, however, said order quashing the writ was reversed by the NLRC by
Resolution[7] dated June 8, 2004, disposing as follows:
WHEREFORE, premises considered, we grant this instant appeal. The
Order dated 23 November 2003 is hereby reversed and set aside. The
Labor Arbiter is directed to issue a Writ of Execution for the satisfaction
of the judgment award in favor of Third-Party complainants.
SO ORDERED.[8]
UP moved to reconsider the NLRC resolution. On December 28, 2004, the NLRC upheld
its resolution but with modification that the satisfaction of the judgment award in favor of
Lockheed will be only against the funds of UP which are not identified as public funds.
The NLRC order and resolution having become final, Lockheed filed a motion for the
issuance of an alias writ of execution. The same was granted on May 23, 2005.[9]
On July 25, 2005, a Notice of Garnishment [10] was issued to Philippine National Bank
(PNB) UP Diliman Branch for the satisfaction of the award of P12,142,522.69 (inclusive of
execution fee).
In a letter[11] dated August 9, 2005, PNB informed UP that it has received an order of
release dated August 8, 2005 issued by the Labor Arbiter directing PNB UP Diliman
Branch to release to the NLRC Cashier, through the assigned NLRC Sheriff Max L. Lago,
the judgment award/amount of P12,142,522.69. PNB likewise reminded UP that the bank
only has 10 working days from receipt of the order to deliver the garnished funds and
unless it receives a notice from UP or the NLRC before the expiry of the 10-day period
regarding the issuance of a court order or writ of injunction discharging or enjoining the
implementation and execution of the Notice of Garnishment and Writ of Execution, the
bank shall be constrained to cause the release of the garnished funds in favor of the
NLRC.
On August 16, 2005, UP filed an Urgent Motion to Quash Garnishment. [12] UP contended
that the funds being subjected to garnishment at PNB are government/public funds. As
certified by the University Accountant, the subject funds are covered by Savings Account
No. 275-529999-8, under the name of UP System Trust Receipts, earmarked for Student
Guaranty Deposit, Scholarship Fund, Student Fund, Publications, Research Grants, and
Miscellaneous Trust Account. UP argued that as public funds, the subject PNB account
cannot be disbursed except pursuant to an appropriation required by law. The Labor
Arbiter, however, dismissed the urgent motion for lack of merit on August 30, 2005.[13]
On September 2, 2005, the amount of P12,062,398.71 was withdrawn by the sheriff from
UPs PNB account.[14]
On September 12, 2005, UP filed a petition for certiorari before the CA based on the
following grounds:
 I.
The concept of solidary liability by an indirect employer notwithstanding,
respondent NLRC gravely abused its discretion in a manner amounting
to lack or excess of jurisdiction by misusing such concept to justify the
garnishment by the executing Sheriff of public/government funds
belonging to UP.
II.
Respondents NLRC and Arbiter LORA acted without
jurisdiction or gravely abused their discretion in a manner amounting to
lack or excess of jurisdiction when, by means of an Alias Writ of
Execution against petitioner UP, they authorized respondent Sheriff to
garnish UPs public funds. Similarly, respondent LORA gravely abused
her discretion when she resolved petitioners Motion to Quash Notice of
Garnishment addressed to, and intended for, the NLRC, and when she
unilaterally and arbitrarily disregarded an official Certification that the
funds garnished are public/government funds, and thereby allowed
respondent Sheriff to withdraw the same from PNB.
III.
Respondents gravely abused their discretion in a manner amounting to
lack or excess of jurisdiction when they, despite prior knowledge,
effected the execution that caused paralyzation and dislocation to
petitioners governmental functions.[15]
On March 12, 2008, the CA rendered a decision [16] dismissing UPs petition for
certiorari. Citing Republic v. COCOFED,[17] which defines public funds as moneys
belonging to the State or to any political subdivisions of the State, more specifically taxes,
customs, duties and moneys raised by operation of law for the support of the government
or the discharge of its obligations, the appellate court ruled that the funds sought to be
garnished do not seem to fall within the stated definition.
On reconsideration, however, the CA issued the assailed Amended Decision. It held that
without departing from its findings that the funds covered in the savings account sought to
be garnished do not fall within the classification of public funds, it reconsiders the dismissal
of the petition in light of the ruling in the case of National Electrification Administration v.
Morales[18] which mandates that all money claims against the government must first be
filed with the Commission on Audit (COA).
Lockheed moved to reconsider the amended decision but the same was denied in the
assailed CA Resolution dated December 23, 2008. The CA cited Manila International
Airport Authority v. Court of Appeals [19] which held that UP ranks with MIAA, a government
instrumentality exercising corporate powers but not organized as a stock or non-stock
corporation. While said corporations are government instrumentalities, they are loosely
called government corporate entities but not government-owned and controlled
corporations in the strict sense.
Hence this petition by Lockheed raising the following arguments:
1. RESPONDENT UP IS A GOVERNMENT ENTITY WITH A
SEPARATE AND DISTINCT PERSONALITY FROM THE
NATIONAL GOVERNMENT AND HAS ITS OWN CHARTER
GRANTING IT THE RIGHT TO SUE AND BE SUED. IT
THEREFORE CANNOT AVAIL OF THE IMMUNITY FROM SUIT
OF THE GOVERNMENT. NOT HAVING IMMUNITY FROM SUIT,
RESPONDENT UP CAN BE HELD LIABLE AND EXECUTION
CAN THUS ENSUE.
2. MOREOVER, IF THE COURT LENDS IT ASSENT TO THE
INVOCATION OF THE DOCTRINE OF STATE IMMUNITY, THIS
WILL RESULT [IN] GRAVE INJUSTICE.
3. FURTHERMORE, THE PROTESTATIONS OF THE
RESPONDENT ARE TOO LATE IN THE DAY, AS THE
EXECUTION PROCEEDINGS HAVE ALREADY BEEN
TERMINATED.[20]
Lockheed contends that UP has its own separate and distinct juridical entity from
the national government and has its own charter. Thus, it can be sued and be held liable.
Moreover, Executive Order No. 714 entitled Fiscal Control and Management of the Funds
of UP recognizes that as an institution of higher learning, UP has always granted full
management and control of its affairs including its financial affairs. [21] Therefore, it cannot
shield itself from its private contractual liabilities by simply invoking the public character of
its funds. Lockheed also cites several cases wherein it was ruled that funds of public
corporations which can sue and be sued were not exempt from garnishment.
Lockheed likewise argues that the rulings in the NEA and MIAA cases are
inapplicable. It contends that UP is not similarly situated with NEA because the jurisdiction
of COA over the accounts of UP is only on a post-audit basis. As to the MIAA case, the
liability of MIAA pertains to the real estate taxes imposed by the City of Paranaque while
the obligation of UP in this case involves a private contractual obligation. Lockheed also
argues that the declaration in MIAA specifically citing UP was mere obiter dictum.
Lockheed moreover submits that UP cannot invoke state immunity to justify and
perpetrate an injustice. UP itself admitted its liability and thus it should not be allowed to
renege on its contractual obligations. Lockheed contends that this might create a ruinous
precedent that would likely affect the relationship between the public and private sectors.
Lastly, Lockheed contends that UP cannot anymore seek the quashal of the writ
of execution and notice of garnishment as they are already fait accompli.
For its part, UP contends that it did not invoke the doctrine of state immunity from suit
in the proceedings a quo and in fact, it did not object to being sued before the labor
department. It maintains, however, that suability does not necessarily mean liability. UP argues
that the CA correctly applied the NEA ruling when it held that all money claims must be filed
with the COA.
 As to alleged injustice that may result for invocation of state immunity from suit, WHEREFORE, the petition for review on certiorari is DENIED for lack of
UP reiterates that it consented to be sued and even participated in the proceedings merit. Petitioner Lockheed Detective and Watchman Agency, Inc. is ordered
below. Lockheed cannot now claim that invocation of state immunity, which UP did not to REIMBURSE respondent University of the Philippines the amount of P12,062,398.71
invoke in the first place, can result in injustice. plus interest of 6% per annum, to be computed from September 12, 2005 up to the finality
of this Decision, and 12% interest on the entire amount from date of finality of this Decision
until fully paid.
On the fait accompli argument, UP argues that Lockheed cannot wash its hands
from liability for the consummated garnishment and execution of UPs trust fund in the
amount of P12,062,398.71. UP cites that damage was done to UP and the beneficiaries of No pronouncement as to costs.
the fund when said funds, which were earmarked for specific educational purposes, were
misapplied, for instance, to answer for the execution fee of P120,123.98 unilaterally
stipulated by the sheriff. Lockheed, being the party which procured the illegal garnishment, SO ORDERED.
should be held primarily liable. The mere fact that the CA set aside the writ of garnishment
confirms the liability of Lockheed to reimburse and indemnify in accordance with law.

The petition has no merit.

We agree with UP that there was no point for Lockheed in discussing the doctrine
of state immunity from suit as this was never an issue in this case. Clearly, UP consented
to be sued when it participated in the proceedings below. What UP questions is the hasty
garnishment of its funds in its PNB account.

This Court finds that the CA correctly applied the NEA case. Like NEA, UP is a
juridical personality separate and distinct from the government and has the capacity to sue
and be sued. Thus, also like NEA, it cannot evade execution, and its funds may be subject
to garnishment or levy. However, before execution may be had, a claim for payment of the
judgment award must first be filed with the COA. Under Commonwealth Act No. 327, [22] as
amended by Section 26 of P.D. No. 1445,[23] it is the COA which has primary jurisdiction
to examine, audit and settle all debts and claims of any sort due from or owing the
Government or any of its subdivisions, agencies and instrumentalities, including
government-owned or controlled corporations and their subsidiaries. With respect to
money claims arising from the implementation of Republic Act No. 6758, [24] their allowance
or disallowance is for COA to decide, subject only to the remedy of appeal by petition
for certiorari to this Court.[25]

We cannot subscribe to Lockheeds argument that NEA is not similarly situated

with UP because the COAs jurisdiction over the latter is only on post-audit basis. A reading
of the pertinent Commonwealth Act provision clearly shows that it does not make any
distinction as to which of the government subdivisions, agencies and instrumentalities,
including government-owned or controlled corporations and their subsidiaries whose debts
should be filed before the COA.

As to the fait accompli argument of Lockheed, contrary to its claim that there is
nothing that can be done since the funds of UP had already been garnished, since the
garnishment was erroneously carried out and did not go through the proper procedure (the
filing of a claim with the COA), UP is entitled to reimbursement of the garnished funds plus
interest of 6% per annum, to be computed from the time of judicial demand to be reckoned
from the time UP filed a petition for certiorari before the CA which occurred right after the
withdrawal of the garnished funds from PNB.
 RELOVA, J.:

In Civil Case No. 604-B, entitled "Margarita D. Vda. de Imperio, et al. vs. Municipal
Government of San Miguel, Bulacan, et al.", the then Court of First Instance of Bulacan, on
April 28, 1978, rendered judgment holding herein petitioner municipality liable to private
respondents, as follows:

WHEREFORE, premises considered, judgment is hereby rendered in

favor of the plaintiffs and against the defendant Municipal Government
of San Miguel Bulacan, represented by Mayor Mar Marcelo G. Aure and
its Municipal Treasurer:

1. ordering the partial revocation of the Deed of Donation signed by the

deceased Carlos Imperio in favor of the Municipality of San Miguel
Bulacan, dated October 27, 1947 insofar as Lots Nos. 1, 2, 3, 4 and 5,
Block 11 of Subdivision Plan Psd-20831 are concerned, with an
aggregate total area of 4,646 square meters, which lots are among
those covered and described under TCT No. T-1831 of the Register of
Deeds of Bulacan in the name of the Municipal Government of San
Miguel Bulacan,

2. ordering the defendant to execute the corresponding Deed of

Reconveyance over the aforementioned five lots in favor of the plaintiffs
in the proportion of the undivided one-half (½) share in the name of
plaintiffs Margarita D. Vda. de Imperio, Adoracion, Rodolfo, Conrado,
Ernesto, Alfredo, Carlos, Jr. and Juan, all surnamed Imperio, and the
remaining undivided one-half (½) share in favor of plaintiffs uses
Marcelo E. Pineda and Lucila Pongco;
Republic of the Philippines
SUPREME COURT
Manila 3. ordering the defendant municipality to pay to the plaintiffs in the
proportion mentioned in the immediately preceding paragraph the sum
of P64,440.00 corresponding to the rentals it has collected from the
FIRST DIVISION occupants for their use and occupation of the premises from 1970 up to
and including 1975, plus interest thereon at the legal rate from January
G.R. No. L-61744 June 25, 1984 1970 until fully paid;

MUNICIPALITY OF SAN MIGUEL, BULACAN, petitioner,
vs.
HONORABLE OSCAR C. FERNANDEZ, in his capacity as the Presiding Judge,
Branch IV, Baliuag, Bulacan, The PROVINCIAL SHERIFF of Bulacan, MARGARITA D.
VDA. DE IMPERIO, ADORACION IMPERIO, RODOLFO IMPERIO, CONRADO
IMPERIO, ERNESTO IMPERIO, ALFREDO IMPERIO, CARLOS IMPERIO, JR., JUAN
IMPERIO and SPOUSES MARCELO PINEDA and LUCILA PONGCO, respondents.
4. ordering the restoration of ownership and possession over the five
lots in question in favor of the plaintiffs in the same proportion
aforementioned;
5. ordering the defendant to pay the plaintiffs the sum of P3,000.00 for
attomey's fees; and to pay the cost of suit.

The counterclaim of the defendant is hereby ordered dismissed for lack

Pascual C. Liatchko for petitioner. of evidence presented to substantiate the same.

The Solicitor General and Marcelo Pineda for respondents. SO ORDERED. (pp. 11-12, Rollo)
The foregoing judgment became final when herein petitioner's appeal was dismissed due
to its failure to file the record on appeal on time. The dismissal was affirmed by the then
Court of Appeals in CA-G.R. No. SP-12118 and by this Court in G.R. No. 59938.
Thereafter, herein private respondents moved for issuance of a writ of execution for the
satisfaction of the judgment. Respondent judge, on July 27, 1982, issued an order, to wit:
Considering that an entry of judgment had already been made on June
14, 1982 in G. R. No. L-59938 and;
Considering further that there is no opposition to plaintiffs' motion for
execution dated July 23, 1983;
Let a writ of execution be so issued, as prayed for in the aforestated
motion. (p. 10, Rollo)
Petitioner, on July 30, 1982, filed a Motion to Quash the writ of execution on the ground
that the municipality's property or funds are all public funds exempt from execution. The
said motion to quash was, however, denied by the respondent judge in an order dated
August 23, 1982 and the alias writ of execution stands in full force and effect.
On September 13, 1982, respondent judge issued an order which in part, states:
It is clear and evident from the foregoing that defendant has more than
enough funds to meet its judgment obligation. Municipal Treasurer
Miguel C, Roura of San Miguel, Bulacan and Provincial Treasurer of
Bulacan Agustin O. Talavera are therefor hereby ordered to comply with
the money judgment rendered by Judge Agustin C. Bagasao against
said municipality. In like manner, the municipal authorities of San
Miguel, Bulacan are likewise ordered to desist from plaintiffs' legal
possession of the property already returned to plaintiffs by virtue of the
alias writ of execution.
Finally, defendants are hereby given an inextendible period of ten (10)
days from receipt of a copy of this order by the Office of the Provincial
Fiscal of Bulacan within which to submit their written compliance, (p.
24, Rollo)
When the treasurers (provincial and municipal) failed to comply with the order of
September 13, 1982, respondent judge issued an order for their arrest and that they will be
release only upon compliance thereof.
Hence, the present petition on the issue whether the funds of the Municipality of San
Miguel, Bulacan, in the hands of the provincial and municipal treasurers of Bulacan and
San Miguel, respectively, are public funds which are exempt from execution for the
satisfaction of the money judgment in Civil Case No. 604-B.
Well settled is the rule that public funds are not subject to levy and execution. The reason
for this was explained in the case of Municipality of Paoay vs. Manaois, 86 Phil. 629 "that
they are held in trust for the people, intended and used for the accomplishment of the
purposes for which municipal corporations are created, and that to subject said properties
and public funds to execution would materially impede, even defeat and in some instances
destroy said purpose." And, in Tantoco vs. Municipal Council of Iloilo, 49 Phil. 52, it was
held that "it is the settled doctrine of the law that not only the public property but also the
taxes and public revenues of such corporations Cannot be seized under execution against
them, either in the treasury or when in transit to it. Judgments rendered for taxes, and the
proceeds of such judgments in the hands of officers of the law, are not subject to execution
unless so declared by statute." Thus, it is clear that all the funds of petitioner municipality in
the possession of the Municipal Treasurer of San Miguel, as well as those in the
possession of the Provincial Treasurer of Bulacan, are also public funds and as such they
are exempt from execution.
Besides, Presidential Decree No. 477, known as "The Decree on Local Fiscal
Administration", Section 2 (a), provides:
SEC. 2. Fundamental Principles. — Local government financial affairs,
transactions, and operations shall be governed by the fundamental
principles set forth hereunder:
(a) No money shall be paid out of the treasury except in pursuance of a
lawful appropriation or other specific statutory authority.
xxx xxx xxx
Otherwise stated, there must be a corresponding appropriation in the form of an ordinance
duly passed by the Sangguniang Bayan before any money of the municipality may be paid
out. In the case at bar, it has not been shown that the Sangguniang Bayan has passed an
ordinance to this effect.
Furthermore, Section 15, Rule 39 of the New Rules of Court, outlines the procedure for the
enforcement of money judgment:
(a) By levying on all the property of the debtor, whether real or
personal, not otherwise exempt from execution, or only on such part of
the property as is sufficient to satisfy the judgment and accruing cost, if
he has more than sufficient property for the purpose;
(b) By selling the property levied upon;
(c) By paying the judgment-creditor so much of the proceeds as will
satisfy the judgment and accruing costs; and
(d) By delivering to the judgment-debtor the excess, if any, unless
otherwise, directed by judgment or order of the court.
The foregoing has not been followed in the case at bar.
ACCORDINGLY, the petition is granted and the order of respondent judge, dated July 27,
1982, granting issuance of a writ of execution; the alias writ of execution, dated July 27,
1982; and the order of respondent judge, dated September 13, 1982, directing the
Provincial Treasurer of Bulacan and the Municipal Treasurer of San Miguel, Bulacan to The Solicitor General and Marcelo Pineda for respondents.
comply with the money judgments, are SET ASIDE; and respondents are hereby enjoined
from implementing the writ of execution.

SO ORDERED. RELOVA, J.:

In Civil Case No. 604-B, entitled "Margarita D. Vda. de Imperio, et al. vs. Municipal
Government of San Miguel, Bulacan, et al.", the then Court of First Instance of Bulacan, on
April 28, 1978, rendered judgment holding herein petitioner municipality liable to private
respondents, as follows:

WHEREFORE, premises considered, judgment is hereby rendered in

favor of the plaintiffs and against the defendant Municipal Government
of San Miguel Bulacan, represented by Mayor Mar Marcelo G. Aure and
its Municipal Treasurer:

1. ordering the partial revocation of the Deed of Donation signed by the

deceased Carlos Imperio in favor of the Municipality of San Miguel
Bulacan, dated October 27, 1947 insofar as Lots Nos. 1, 2, 3, 4 and 5,
Block 11 of Subdivision Plan Psd-20831 are concerned, with an
aggregate total area of 4,646 square meters, which lots are among
those covered and described under TCT No. T-1831 of the Register of
Deeds of Bulacan in the name of the Municipal Government of San
Miguel Bulacan,

2. ordering the defendant to execute the corresponding Deed of

Reconveyance over the aforementioned five lots in favor of the plaintiffs
in the proportion of the undivided one-half (½) share in the name of
plaintiffs Margarita D. Vda. de Imperio, Adoracion, Rodolfo, Conrado,
Ernesto, Alfredo, Carlos, Jr. and Juan, all surnamed Imperio, and the
remaining undivided one-half (½) share in favor of plaintiffs uses
Marcelo E. Pineda and Lucila Pongco;

Republic of the Philippines 3. ordering the defendant municipality to pay to the plaintiffs in the
SUPREME COURT proportion mentioned in the immediately preceding paragraph the sum
Manila of P64,440.00 corresponding to the rentals it has collected from the
occupants for their use and occupation of the premises from 1970 up to
and including 1975, plus interest thereon at the legal rate from January
FIRST DIVISION 1970 until fully paid;

G.R. No. L-61744 June 25, 1984
MUNICIPALITY OF SAN MIGUEL, BULACAN, petitioner,
vs.
HONORABLE OSCAR C. FERNANDEZ, in his capacity as the Presiding Judge,
Branch IV, Baliuag, Bulacan, The PROVINCIAL SHERIFF of Bulacan, MARGARITA D.
VDA. DE IMPERIO, ADORACION IMPERIO, RODOLFO IMPERIO, CONRADO
IMPERIO, ERNESTO IMPERIO, ALFREDO IMPERIO, CARLOS IMPERIO, JR., JUAN
IMPERIO and SPOUSES MARCELO PINEDA and LUCILA PONGCO, respondents.
4. ordering the restoration of ownership and possession over the five
lots in question in favor of the plaintiffs in the same proportion
aforementioned;
5. ordering the defendant to pay the plaintiffs the sum of P3,000.00 for
attomey's fees; and to pay the cost of suit.
The counterclaim of the defendant is hereby ordered dismissed for lack
of evidence presented to substantiate the same.

Pascual C. Liatchko for petitioner.

 SO ORDERED. (pp. 11-12, Rollo)
The foregoing judgment became final when herein petitioner's appeal was dismissed due
to its failure to file the record on appeal on time. The dismissal was affirmed by the then
Court of Appeals in CA-G.R. No. SP-12118 and by this Court in G.R. No. 59938.
Thereafter, herein private respondents moved for issuance of a writ of execution for the
satisfaction of the judgment. Respondent judge, on July 27, 1982, issued an order, to wit:
Considering that an entry of judgment had already been made on June
14, 1982 in G. R. No. L-59938 and;
Considering further that there is no opposition to plaintiffs' motion for
execution dated July 23, 1983;
Let a writ of execution be so issued, as prayed for in the aforestated
motion. (p. 10, Rollo)
Petitioner, on July 30, 1982, filed a Motion to Quash the writ of execution on the ground
that the municipality's property or funds are all public funds exempt from execution. The
said motion to quash was, however, denied by the respondent judge in an order dated
August 23, 1982 and the alias writ of execution stands in full force and effect.
On September 13, 1982, respondent judge issued an order which in part, states:
It is clear and evident from the foregoing that defendant has more than
enough funds to meet its judgment obligation. Municipal Treasurer
Miguel C, Roura of San Miguel, Bulacan and Provincial Treasurer of
Bulacan Agustin O. Talavera are therefor hereby ordered to comply with
the money judgment rendered by Judge Agustin C. Bagasao against
said municipality. In like manner, the municipal authorities of San
Miguel, Bulacan are likewise ordered to desist from plaintiffs' legal
possession of the property already returned to plaintiffs by virtue of the
alias writ of execution.
Finally, defendants are hereby given an inextendible period of ten (10)
days from receipt of a copy of this order by the Office of the Provincial
Fiscal of Bulacan within which to submit their written compliance, (p.
24, Rollo)
When the treasurers (provincial and municipal) failed to comply with the order of
September 13, 1982, respondent judge issued an order for their arrest and that they will be
release only upon compliance thereof.
Hence, the present petition on the issue whether the funds of the Municipality of San
Miguel, Bulacan, in the hands of the provincial and municipal treasurers of Bulacan and
San Miguel, respectively, are public funds which are exempt from execution for the
satisfaction of the money judgment in Civil Case No. 604-B.
Well settled is the rule that public funds are not subject to levy and execution. The reason
for this was explained in the case of Municipality of Paoay vs. Manaois, 86 Phil. 629 "that
they are held in trust for the people, intended and used for the accomplishment of the
purposes for which municipal corporations are created, and that to subject said properties
and public funds to execution would materially impede, even defeat and in some instances
destroy said purpose." And, in Tantoco vs. Municipal Council of Iloilo, 49 Phil. 52, it was
held that "it is the settled doctrine of the law that not only the public property but also the
taxes and public revenues of such corporations Cannot be seized under execution against
them, either in the treasury or when in transit to it. Judgments rendered for taxes, and the
proceeds of such judgments in the hands of officers of the law, are not subject to execution
unless so declared by statute." Thus, it is clear that all the funds of petitioner municipality in
the possession of the Municipal Treasurer of San Miguel, as well as those in the
possession of the Provincial Treasurer of Bulacan, are also public funds and as such they
are exempt from execution.
Besides, Presidential Decree No. 477, known as "The Decree on Local Fiscal
Administration", Section 2 (a), provides:
SEC. 2. Fundamental Principles. — Local government financial affairs,
transactions, and operations shall be governed by the fundamental
principles set forth hereunder:
(a) No money shall be paid out of the treasury except in pursuance of a
lawful appropriation or other specific statutory authority.
xxx xxx xxx
Otherwise stated, there must be a corresponding appropriation in the form of an ordinance
duly passed by the Sangguniang Bayan before any money of the municipality may be paid
out. In the case at bar, it has not been shown that the Sangguniang Bayan has passed an
ordinance to this effect.
Furthermore, Section 15, Rule 39 of the New Rules of Court, outlines the procedure for the
enforcement of money judgment:
(a) By levying on all the property of the debtor, whether real or
personal, not otherwise exempt from execution, or only on such part of
the property as is sufficient to satisfy the judgment and accruing cost, if
he has more than sufficient property for the purpose;
(b) By selling the property levied upon;
(c) By paying the judgment-creditor so much of the proceeds as will
satisfy the judgment and accruing costs; and
(d) By delivering to the judgment-debtor the excess, if any, unless
otherwise, directed by judgment or order of the court.
The foregoing has not been followed in the case at bar.
ACCORDINGLY, the petition is granted and the order of respondent judge, dated July 27,
1982, granting issuance of a writ of execution; the alias writ of execution, dated July 27,
1982; and the order of respondent judge, dated September 13, 1982, directing the
Provincial Treasurer of Bulacan and the Municipal Treasurer of San Miguel, Bulacan to
comply with the money judgments, are SET ASIDE; and respondents are hereby enjoined MEDIALDEA, J.:
from implementing the writ of execution.
This is an appeal by certiorari from the decision of the Court of Appeals (p. 45, Rollo) in
SO ORDERED. CA-G.R. No. 34038-R entitled "Vicente S. Ong, Plaintiff-Appellant, versus Macario Ofilada,
in his capacity as Sheriff of Manila, The Pacific Products, Inc. and the First Quezon City
Insurance Co., Inc., Defendants-Appellees," which reversed the decision (pp. 32-37,
Record on Appeal, p. 26 Rollo) of the Court of First Instance of Manila in Civil Case No.
53124.

The antecedent facts are as follows:

On February 15, 1963, Vicente Ong filed an action for damages against Macario Ofilada in
his capacity as Sheriff of Manila, the Pacific Products, Inc., and the First Quezon City
Insurance, with the Court of First Instance of Manila (Branch XIX) and docketed as Civil
Case No. 53124. The complaint prayed for damages as a result of defendants' refusal to
favorably consider his third party claim filed with the Sheriff of Manila in connection with
Civil Case No. 50120, also of the Regional Trial Court of Manila (Branch XVI). On July
2,1963, the parties submitted a partial stipulation of facts, quoted herein as follows:

PARTIAL STIPULATION OF FACTS

COME NOW parties plaintiff and defendants, by their respective counsel, and to this
Honorable Court respectfully submit the following stipulation of facts:

1. That on April l2,1962, defendant Pacific Products, Inc. filed Civil Case
No. 50120 entitled 'Pacific Products, Inc. vs H.D. Labrador', doing
business under the name and style of 'BML Trading and Supply,' with
the Court of First Instance of Manila (Branch XIV) for recovery of
P9,111.70, plus interest, costs and attorney's fees;

2. That upon motion, the said Branch XIV of this Honorable Court
issued an order directing the Sheriff of Manila or any of his deputies to
attach, 'the estate, real or personal, of the said defendant H. D.
Republic of the Philippines Labrador, etc.;'
SUPREME COURT
Manila
3. That pursuant to the said order the Sheriff of Manila, through Deputy
Sheriff Santiago Geronilla in a notice of garnishment dated October 17,
FIRST DIVISION 1962 garnished P 9,111.70 of the amount of P 10,500.00 payable to the
BML Trading and Supply, the name and style under which the
G.R. No. L-33777 January 30, 1990 defendant H.D. Labrador in said Civil Case No. 50120 is doing
business, by the Bureau of Telecommunications, thereby stopping the
payment of the said P10,500.00;
PACIFIC PRODUCTS, INC., petitioner,
vs.
VICENTE S. ONG, respondent. 4. That on December 21, 1962, this Honorable Court (Branch XVI)
rendered its decision in Civil Case No. 50120, the dispositive portion of
which reads as follows:
Bito, Misa & Lozada for petitioner.
Vicente S. Ong for respondent.
WHEREFORE, defendant H.D. Labrador is sentenced to pay plaintiff
the sum of P 9,111.70 with interest thereon at 6% per annum from April
12, 1962 when the complaint was filed and until the decision in this
case is fully complied with plus attorney's fees which the Court fixes in
the sum of P500.00 plus costs.'
5. That after the above decision became final, a writ of execution was
issued, and the sheriff of Manila, through Deputy Sheriff Santiago
Geronilla, further garnished P l,181.65 of the P10,500.00 mentioned in
Par. 3 hereof;
6. That plaintiff in this case, as stated in paragraph 2 of the complaint
entered into and executed an AGREEMENT with the BML Trading and
Supply on October 6, 1962 (Annex 'A' of the Complaint), but defendant
Pacific Products, Inc. first came to know of the same thru counsel on
November 8, 1962 and defendant Sheriff of Manila on November 9,
1962, when plaintiff filed a petition to Lift Attachment in Civil Case No.
50120 of the Court of First Instance of Manila, Branch XVI; the Bureau
of Telecommunications was notified of the Agreement Annex 'A,' on or
about November 15, 1962;
7. That Official Receipt No. 2174 and Official Invoice No. 6491,
photostatic copies of which are attached to the complaint as Annexes
'B' and 'C,' respectively, were issued on October 8, 1962 when plaintiff
paid the sum of P9,300.00 to the L & S Chemical Supply of Malabon,
Rizal as purchase price of 15,000 pounds of Bluestone copper sulfate
pursuant to the AGREEMENT (Annex 'A' of the complaint);
8. That, as stated in paragraph 4 of the complaint the 15,000 pounds of
Bluestone copper sulfate mentioned in the Agreement were duly
received on October 8, 1962 by the Bureau of Telecommunications as
evidenced by Invoice No. 125, photostatic copy of which was attached
to the complaint as Annex 'D;'
9. That pursuant to the AGREEMENT (Annex 'A' of the complaint), the
BML Trading and Supply executed on October 19, 1962 a Waiver and
Assignment of Rights over its share of 40% in the net profit in favor of
the plaintiff, photostatic copy of which was attached to the complaint as
Annex 'E', but defendant Pacific Products, Inc. first came to know of the
same on November 16,1962 when it was served a copy of the plaintiff's
Third Party Claim to which a copy of said Waiver and Assignment of
Rights was attached, and defendant Sheriff of Manila first came to know
of the same when plaintiff filed his said Third Party Claim with the Office
of the Sheriff of Manila on November 19, 1962; the Bureau of
Telecommunications was notified of the Waiver and Assignment of
Rights on or about November 15, 1962;
10. That plaintiff filed his Third Party Claim on November l9, 1962 with
the Office of the Sheriff of Manila and the defendant Pacific Products,
Inc. filed on November 29, 1962 in Civil Case No. 50120 a Motion to
Strike Out Third Party Claim which was denied for lack of merit in an
order of this Court, Branch XVI, dated December 21, 1962;
11. That plaintiff received from the Office of the, Sheriff of Manila a
notice dated January 22, 1963, simple copy of which is attached hereto
as Annex 'A,' that defendant Pacific Products, Inc. filed Indemnity Bond
No. 3879 of the defendant First Quezon City Insurance Co., and
another notice dated April 30, 1963, a simple copy of which is attached
hereto as Annex 'B', that defendant Pacific Products, Inc. posted an
additional bond of P1,181.55, both to answer for the Third Party Claim;
12. That thereafter, on February 15, 1963 plaintiff filed the instant
action;
13. That after being advised by the Sheriff of Manila in a letter dated
April 30, 1963, Annex "B," hereof. to secure an injunction inhibiting him
from releasing the money in question in the amount of Pl0,293.35,
plaintiff is convinced that defendant Sheriff of Manila is not unjustified
and persistent in refusing to satisfy the Third Party Claim of plaintiff;
14. That the letter of the Bureau of Telecommunications addressed to
the Chief Deputy Sheriff of Manila, dated November 5, 1962 and signed
by its Acting Director A. Soriano, was in reply to the notice of
garnishment dated October 17, 1962, simple copy of which is attached
hereto as Annex "C;"
15. That the parties herein admit their respective capacity to sue and be
sued.
WHEREFORE, the parties hereto respectfully submit the foregoing stipulation of facts as
part of the evidence in this case without prejudice to the presentation of evidence as to
matters not covered by this Stipulations of facts.
Manila, June 26, 1963.
MANUEL P. CALANOS & ASSOCIATES
By:
(Sgd.) JERRY P. REBUTOC
(T) JERRY P. REBUTOC
Counsel for the Plaintiff
404 Regina Building
Escolta, Manila
ROSS, SELPH & CARRASCOSO
By:
(Sgd.) FELINO S. MEGINO
(T) FELINO S. MEGINO
Attorneys for the Defendant

Pacific Products, Inc.
405 FNCB Building Manila
(Sgd.) FERNANDO P. AGDAMAG
FERNANDO P. AGDAMAG
Assistant Fiscal
Counsel for the Defendant
Sheriff of Manila
(Record on Appeal, pp. 26-32)
As aforequoted, Pacific Products, Inc. (Pacific, for brevity) filed an action for sum of money
against Hilarion D. Labrador (hereinafter referred to as H.D. Labrador), "doing business
under the name and style of BML Trading and Supply," with the Court of First Instance of
Manila (Br. XVI) and docketed as Civil Case No. 50102. Upon Motion of Pacific, an order
was issued directing the Sheriff of Manila to attach the properties of the defendant.
Meanwhile, BML Trading and Supply (BML Trading, for brevity) won in a bid to supply the
Bureau of Telecommunications (Bureau, for brevity) with 15,000 pounds of bluestone
copper sulfate worth P10,500.00. H.D. Labrador, as agent of BML Trading delivered the
compound. Before the Bureau could release the payment to BML Trading, the Sheriff of
Manila garnished P9,111.70 of P10,500.00 on October 17,1962.
Unknown to Pacific, BML Trading, through its attorney in-fact, H.D. Labrador assigned its
tights over the P10,500.00 to herein respondent, Vicente S. Ong on October 19,1962 (pp.
14-17, Record on Appeal; p. 26, Rollo). It appears that it was Vicente Ong who advanced
the necessary funds to purchase the copper sulfate and the parties agreed that the profits
will be shared by BML Trading and Vicente Ong on a 40-60 percent basis. It was also their
agreement that BML Trading will waive its share in the net profits which may be realized
from the transaction should it fail to secure the release of the payment from the Bureau of
Telecommunications within seven (7) days from the delivery of the compound (pp. 9-13,
Record on Appeal). Pacific learned about the assignment only when a copy of the third
party claim filed by Vicente Ong with the Office of the Sheriff of Manila was served on them
on November 19,1962.
On November 29,1962, Pacific filed a motion to strike out the third party claim of Vicente
Ong, but the same was denied for lack of merit.
H.D. Labrador was declared in default and was ordered to pay Pacific the sum of P
9,111.70 in a decision which was rendered by the trial court on December 21, 1962, the
dispositive portion of which reads:
WHEREFORE, defendant H.D. Labrador is sentenced to pay plaintiff the sum of
P9,111.70 with interest thereon at 6% per annum from April 12, 1962 when the
complaint was filed and until the decision in this case is fully complied with plus
attorney's fees which the Court fixes in the sum of P500,000 plus cost. (P.
13, Rollo)
The corresponding writ of execution was issued and the Sheriff of Manila further garnished
Pl,181.65 of the P10,500.00 in the possession of the Bureau.
Ong's third party claim was frustrated when Pacific filed an Indemnity Bond with the Office
of the Sheriff. Thus, the action for damages against the Sheriff, Pacific Products and First
Quezon City Insurance filed by Ong on February 14, 1963 to vindicate his claim on the
amount garnished.
On February 21, 1964, judgment was rendered by the trial court, as follows:
WHEREFORE, judgment is hereby rendered, dismissing the complaint, without
special pronouncement as to costs. (p. 37, Record on Appeal)
Ong filed a notice of appeal on March 20, 1964 (p. 38, Record on Appeal; p. 26, Rollo)
which was approved on April 25, 1964 (p. 41, Record on Appeal; supra).
On May 7, 1971, the Court of Appeals reversed the decision of the trial court.1âwphi1 The
dispositive portion of the decision reads:
WHEREFORE, the decision appealed from is reversed and judgment is hereby
rendered ordering the defendants, the Pacific Products, Inc., and the First
Quezon City Insurance Co., Inc., to pay jointly and severally, the plaintiff-
appellant the sum of ten thousand two hundred ninety three pesos and thirty-five
centavos (P10,293.35), with legal interest from November 19, 1962, the date of
the filing of the third party claim and the costs.
SO ORDERED. (p. 24, Rollo)
Pacific filed a Motion for Reconsideration which was denied on July 2, 1971 (p. 25, Rollo).
Hence, the instant appeal by certiorari filed by Pacific on July 17, 1971.
Petitioner assails the decision of the Court of Appeals when it held that the garnishment of
the amount of P10,500.00 payable to BML Trading and Supply while it was still in the
possession of the Bureau of Telecommunications was illegal and therefore, null and void. It
is also petitioner's contention that the cases of Director of Commerce and Industry v.
Concepcion, 43 Phil. 384 and Avendano et al. vs. Alikpala, et al., G.R. No. L-21189,
November 28, 1964, wherein this Court declared null and void the garnishment of the
salaries of government employees, relied upon by the appellate court are not applicable
because no garnishment of salaries of government official or employee is involved in this
case.
There is no merit in this petition.
It is noted that the notice of garnishment served upon the Bureau of Telecommunications
was made pursuant to an order of attachment issued by the trial court in the case for sum
of money against H.D. Labrador. At the time of such service, the amount against which the
notice was issued was still in the possession and control of the Bureau. The same situation
obtains in the two cases relied upon by the appellate court. While it is true that in the case
at bar no salaries of public officials or employees are involved, the reasons for the ruling in
the two cited cases are clear. It was held, thus:
 ... By the process of garnishment, the plaintiff virtually sues the garnishee for a
debt due to the defendant. The debtor stranger becomes a forced intervenor. The
Director of the Bureau of Commerce and Industry, an officer of the Government
of the Philippine Islands, when served with the writ of attachment, thus became a
party to the action. (Tayabas Land Co. vs. Sharruf (1921), 41 Phil. 382).
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 it remains in the hands
of the disbursing officer of the Government, belong 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. (Director of Commerce and Industry v. Concepcion. 43 Phil. 386;
Italics ours)
Against the first reason above-cited, petitioner contends that immunity from suit was
waived when the Bureau of Telecommunications entered into a business transaction with
BML Trading since in this jurisdiction, it is now "a well established doctrine that when the
Government engages in business, it abdicates part of its sovereign prerogatives and
ascends to the level of a citizen" (Price Stabilization Corporation v. Court of Industrial
Relations, G.R. L-9797 and L-9834. November 29. 1957).
This contention is not correct. Suability would follow only if the contract entered into by the
government is in the exercise of a proprietary as distinguished from a governmental
function (see U.S.A vs. Ruiz, L-35645, May 22, 1985). The Bureau of Telecommunications
is a service bureau and is not engaged in business. There is also nothing in the records of
this case from which it could be concluded that in the purchase of the 15,000 pounds of
bluestone copper sulfate, the Bureau was engaging in business.
view of the assignment and waiver by BML Trading of the said amount in favor of Vicente
Ong, the latter became the rightful owner thereof.
Finally, petitioner claims that the Court of Appeals erred in ruling that the money due to
BML Trading and Supply in the hands of the Bureau cannot be made to answer for a
personal judgment against H.D. Labrador in Civil Case No. 50120. According to petitioner,
Vicente Ong admitted in the stipulation of facts that H.D. Labrador was "doing business
under the name and style of BML Trading and Supply" and that H.D. Labrador and BML
Trading are one. A judgment rendered against H.D. Labrador can therefore be satisfied
from the funds the Bureau holds in favor of BML Trading.
We do not agree. There is nothing in the records from which it may be concluded that in
the transactions involved in Civil Case 50120, H.D. Labrador acted as an agent of BML
Trading. On the contrary, the judgment therein was rendered only against H.D. Labrador.
Presumably, it was a personal judgment against him. On the other hand, the P10,500.00 in
the hands of the Bureau was payable to BML Trading and Supply owned by Benedicta
Labrador and represented in the transaction by H.D. Labrador, There is also no evidence
on record to support a conclusion that H.D. Labrador held himself out as the owner of BML
Trading in his transactions with the Bureau. In the stipulation of facts, Vicente Ong never
admitted that H.D. Labrador was doing business under the name and style of BML Trading.
What was admitted by Ong was the fact that Civil Case No. 50120 was entitled "Pacific
Products, Inc. vs. H.D. Labrador, doing business under the name and style of BML Trading
and Supply."
ACCORDINGLY, the petition is DISMISSED. The decision of the Court of Appeals
appealed from is AFFIRMED.
No costs.
SO ORDERED.

Likewise, petitioner contends that in this case, where the Bureau is authorized to enter into
a contract, the government "may sue and be sued and may be subjected to court
processes just like any other person," as was held in the case of National Shipyards and
Steel Corporation (NASSCO) vs. CIR, et al., G.R. L-17874, August 31, 1963, 8 SCRA 781.

There is no merit in this contention. NASSCO is a government owned and controlled

corporation, with a personality of its own, separate and distinct from that of the
government. It has, pursuant to Section 2 of Executive Order No. 356 dated October 23,
1950 (46 Official Gazette, 4677), which established the NASSCO all the powers of a
corporation under the Corporation Code. Accordingly, it may sue and be sued and may be
subjected to court processes just like any other corporation ..." (supra). On the other hand,
the Bureau of Telecommunications is a government agency created under Section 78 of
Executive Order No. 94, Series of 1947. It has no charter and no distinct personality of its
own. Being a government agency, the doctrine of State immunity from suit applies.

For the foregoing reasons, We affirm the ruling of the appellate court that the writ of
garnishment issued against the P10,500.00 payable to BML Trading while still in the
possession of the Bureau of Telecommunications is illegal and therefore, null and void. In
 petitioner Khosrow Minucher and one Abbas Torabian with the Regional Trial Court,
Branch 151, of Pasig City. The criminal charge followed a buy-bust operation conducted by
the Philippine police narcotic agents in the house of Minucher, an Iranian national, where a
quantity of heroin, a prohibited drug, was said to have been seized. The narcotic agents
were accompanied by private respondent Arthur Scalzo who would, in due time, become
one of the principal witnesses for the prosecution. On 08 January 1988, Presiding Judge
Eutropio Migrino rendered a decision acquitting the two accused.

On 03 August 1988, Minucher filed Civil Case No. 88-45691 before the Regional Trial
Court (RTC), Branch 19, of Manila for damages on account of what he claimed to have
been trumped-up charges of drug trafficking made by Arthur Scalzo. The Manila RTC
detailed what it had found to be the facts and circumstances surrounding the case.

"The testimony of the plaintiff disclosed that he is an Iranian national. He came to the
Philippines to study in the University of the Philippines in 1974. In 1976, under the regime
of the Shah of Iran, he was appointed Labor Attach for the Iranian Embassies in Tokyo,
Japan and Manila, Philippines. When the Shah of Iran was deposed by Ayatollah
Khomeini, plaintiff became a refugee of the United Nations and continued to stay in the
Philippines. He headed the Iranian National Resistance Movement in the Philippines.

He came to know the defendant on May 13, 1986, when the latter was brought to his
house and introduced to him by a certain Jose Iigo, an informer of the Intelligence Unit of
the military. Jose Iigo, on the other hand, was met by plaintiff at the office of Atty. Crisanto
Saruca, a lawyer for several Iranians whom plaintiff assisted as head of the anti-Khomeini
movement in the Philippines.

During his first meeting with the defendant on May 13, 1986, upon the introduction of Jose
Iigo, the defendant expressed his interest in buying caviar. As a matter of fact, he bought
two kilos of caviar from plaintiff and paid P10,000.00 for it. Selling caviar, aside from that of
Persian carpets, pistachio nuts and other Iranian products was his business after the
Khomeini government cut his pension of over $3,000.00 per month. During their
introduction in that meeting, the defendant gave the plaintiff his calling card, which showed
that he is working at the US Embassy in the Philippines, as a special agent of the Drug
Enforcement Administration, Department of Justice, of the United States, and gave his
address as US Embassy, Manila. At the back of the card appears a telephone number in
FIRST DIVISION defendants own handwriting, the number of which he can also be contacted.

[G.R. No. 142396. February 11, 2003]
It was also during this first meeting that plaintiff expressed his desire to obtain a US Visa
for his wife and the wife of a countryman named Abbas Torabian. The defendant told him
that he [could] help plaintiff for a fee of $2,000.00 per visa. Their conversation, however,
was more concentrated on politics, carpets and caviar. Thereafter, the defendant promised
to see plaintiff again.

KHOSROW MINUCHER, petitioner, vs. HON. COURT OF APPEALS and ARTHUR On May 19, 1986, the defendant called the plaintiff and invited the latter for dinner at
SCALZO, respondents. Mario's Restaurant at Makati. He wanted to buy 200 grams of caviar. Plaintiff brought the
merchandize but for the reason that the defendant was not yet there, he requested the
restaurant people to x x x place the same in the refrigerator. Defendant, however, came
DECISION and plaintiff gave him the caviar for which he was paid. Then their conversation was again
focused on politics and business.
VITUG, J.:

On May 26, 1986, defendant visited plaintiff again at the latter's residence for 18 years at
Sometime in May 1986, an Information for violation of Section 4 of Republic Act No.
Kapitolyo, Pasig. The defendant wanted to buy a pair of carpets which plaintiff valued at
6425, otherwise also known as the Dangerous Drugs Act of 1972, was filed against
$27,900.00. After some haggling, they agreed at $24,000.00. For the reason that
defendant did not yet have the money, they agreed that defendant would come back the
next day. The following day, at 1:00 p.m., he came back with his $24,000.00, which he
gave to the plaintiff, and the latter, in turn, gave him the pair of carpets.
At about 3:00 in the afternoon of May 27, 1986, the defendant came back again to
plaintiff's house and directly proceeded to the latter's bedroom, where the latter and his
countryman, Abbas Torabian, were playing chess. Plaintiff opened his safe in the bedroom
and obtained $2,000.00 from it, gave it to the defendant for the latter's fee in obtaining a
visa for plaintiff's wife. The defendant told him that he would be leaving the Philippines very
soon and requested him to come out of the house for a while so that he can introduce him
to his cousin waiting in a cab. Without much ado, and without putting on his shirt as he was
only in his pajama pants, he followed the defendant where he saw a parked cab opposite
the street. To his complete surprise, an American jumped out of the cab with a drawn high-
powered gun. He was in the company of about 30 to 40 Filipino soldiers with 6 Americans,
all armed. He was handcuffed and after about 20 minutes in the street, he was brought
inside the house by the defendant. He was made to sit down while in handcuffs while the
defendant was inside his bedroom. The defendant came out of the bedroom and out from
defendant's attach case, he took something and placed it on the table in front of the
plaintiff. They also took plaintiff's wife who was at that time at the boutique near his house
and likewise arrested Torabian, who was playing chess with him in the bedroom and both
were handcuffed together. Plaintiff was not told why he was being handcuffed and why the
privacy of his house, especially his bedroom was invaded by defendant. He was not
allowed to use the telephone. In fact, his telephone was unplugged. He asked for any
warrant, but the defendant told him to `shut up. He was nevertheless told that he would be
able to call for his lawyer who can defend him.
The plaintiff took note of the fact that when the defendant invited him to come out to meet
his cousin, his safe was opened where he kept the $24,000.00 the defendant paid for the
carpets and another $8,000.00 which he also placed in the safe together with a bracelet
worth $15,000.00 and a pair of earrings worth $10,000.00. He also discovered missing
upon his release his 8 pieces hand-made Persian carpets, valued at $65,000.00, a painting
he bought for P30,000.00 together with his TV and betamax sets. He claimed that when he
was handcuffed, the defendant took his keys from his wallet. There was, therefore, nothing
left in his house.
That his arrest as a heroin trafficker x x x had been well publicized throughout the world, in
various newspapers, particularly in Australia, America, Central Asia and in the
Philippines. He was identified in the papers as an international drug trafficker. x x x
In fact, the arrest of defendant and Torabian was likewise on television, not only in the
Philippines, but also in America and in Germany. His friends in said places informed him
that they saw him on TV with said news.
After the arrest made on plaintiff and Torabian, they were brought to Camp Crame
handcuffed together, where they were detained for three days without food and water." [1]
During the trial, the law firm of Luna, Sison and Manas, filed a special appearance for
Scalzo and moved for extension of time to file an answer pending a supposed advice from
the United States Department of State and Department of Justice on the defenses to be
raised. The trial court granted the motion. On 27 October 1988, Scalzo filed another
special appearance to quash the summons on the ground that he, not being a resident of
the Philippines and the action being one in personam, was beyond the processes of the
court. The motion was denied by the court, in its order of 13 December 1988, holding that
the filing by Scalzo of a motion for extension of time to file an answer to the complaint was
a voluntary appearance equivalent to service of summons which could likewise be
construed a waiver of the requirement of formal notice. Scalzo filed a motion for
reconsideration of the court order, contending that a motion for an extension of time to file
an answer was not a voluntary appearance equivalent to service of summons since it did
not seek an affirmative relief. Scalzo argued that in cases involving the United States
government, as well as its agencies and officials, a motion for extension was peculiarly
unavoidable due to the need (1) for both the Department of State and the Department of
Justice to agree on the defenses to be raised and (2) to refer the case to a Philippine
lawyer who would be expected to first review the case. The court a quo denied the motion
for reconsideration in its order of 15 October 1989.
Scalzo filed a petition for review with the Court of Appeals, there docketed CA-G.R.
No. 17023, assailing the denial. In a decision, dated 06 October 1989, the appellate court
denied the petition and affirmed the ruling of the trial court. Scalzo then elevated the
incident in a petition for review on certiorari, docketed G.R. No. 91173, to this Court. The
petition, however, was denied for its failure to comply with SC Circular No. 1-88; in any
event, the Court added, Scalzo had failed to show that the appellate court was in error in
its questioned judgment.
Meanwhile, at the court a quo, an order, dated 09 February 1990, was issued (a)
declaring Scalzo in default for his failure to file a responsive pleading (answer) and (b)
setting the case for the reception of evidence. On 12 March 1990, Scalzo filed a motion to
set aside the order of default and to admit his answer to the complaint. Granting the
motion, the trial court set the case for pre-trial. In his answer, Scalzo denied the material
allegations of the complaint and raised the affirmative defenses (a) of Minuchers failure to
state a cause of action in his complaint and (b) that Scalzo had acted in the discharge of
his official duties as being merely an agent of the Drug Enforcement Administration of the
United States Department of Justice. Scalzo interposed a counterclaim of P100,000.00 to
answer for attorneys' fees and expenses of litigation.
Then, on 14 June 1990, after almost two years since the institution of the civil case,
Scalzo filed a motion to dismiss the complaint on the ground that, being a special agent of
the United States Drug Enforcement Administration, he was entitled to diplomatic
immunity. He attached to his motion Diplomatic Note No. 414 of the United States
Embassy, dated 29 May 1990, addressed to the Department of Foreign Affairs of the
Philippines and a Certification, dated 11 June 1990, of Vice Consul Donna Woodward,
certifying that the note is a true and faithful copy of its original. In an order of 25 June 1990,
the trial court denied the motion to dismiss.
On 27 July 1990, Scalzo filed a petition for certiorari with injunction with this Court,
docketed G.R. No. 94257 and entitled "Arthur W. Scalzo, Jr., vs. Hon. Wenceslao Polo, et
al.," asking that the complaint in Civil Case No. 88-45691 be ordered dismissed. The case
was referred to the Court of Appeals, there docketed CA-G.R. SP No. 22505, per this
Courts resolution of 07 August 1990. On 31 October 1990, the Court of Appeals
promulgated its decision sustaining the diplomatic immunity of Scalzo and ordering the
dismissal of the complaint against him.Minucher filed a petition for review with this Court,
docketed G.R. No. 97765 and entitled "Khosrow Minucher vs. the Honorable Court of
Appeals, et. al. (cited in 214 SCRA 242), appealing the judgment of the Court of
Appeals. In a decision, dated 24 September 1992, penned by Justice (now Chief Justice)
Hilario Davide, Jr., this Court reversed the decision of the appellate court and remanded
the case to the lower court for trial. The remand was ordered on the theses (a) that the
Court of Appeals erred in granting the motion to dismiss of Scalzo for lack of jurisdiction
over his person without even considering the issue of the authenticity of Diplomatic Note
No. 414 and (b) that the complaint contained sufficient allegations to the effect that Scalzo
committed the imputed acts in his personal capacity and outside the scope of his official
duties and, absent any evidence to the contrary, the issue on Scalzos diplomatic immunity
could not be taken up.
The Manila RTC thus continued with its hearings on the case. On 17 November
1995, the trial court reached a decision; it adjudged:
WHEREFORE, and in view of all the foregoing considerations, judgment is hereby
rendered for the plaintiff, who successfully established his claim by sufficient evidence,
against the defendant in the manner following:
"`Adjudging defendant liable to plaintiff in actual and compensatory damages of
P520,000.00; moral damages in the sum of P10 million; exemplary damages in the sum of
P100,000.00; attorney's fees in the sum of P200,000.00 plus costs.
`The Clerk of the Regional Trial Court, Manila, is ordered to take note of the lien of the
Court on this judgment to answer for the unpaid docket fees considering that the plaintiff in
this case instituted this action as a pauper litigant."[2]
While the trial court gave credence to the claim of Scalzo and the evidence
presented by him that he was a diplomatic agent entitled to immunity as such, it ruled that
he, nevertheless, should be held accountable for the acts complained of committed outside
his official duties. On appeal, the Court of Appeals reversed the decision of the trial court
and sustained the defense of Scalzo that he was sufficiently clothed with diplomatic
immunity during his term of duty and thereby immune from the criminal and civil jurisdiction
of the Receiving State pursuant to the terms of the Vienna Convention.
Hence, this recourse by Minucher. The instant petition for review raises a two-fold
issue: (1) whether or not the doctrine of conclusiveness of judgment, following the decision
rendered by this Court in G.R. No. 97765, should have precluded the Court of Appeals
from resolving the appeal to it in an entirely different manner, and (2) whether or not Arthur
Scalzo is indeed entitled to diplomatic immunity.
The doctrine of conclusiveness of judgment, or its kindred rule of res judicata, would
require 1) the finality of the prior judgment, 2) a valid jurisdiction over the subject matter
and the parties on the part of the court that renders it, 3) a judgment on the merits, and 4)
an identity of the parties, subject matter and causes of action. [3] Even while one of the
issues submitted in G.R. No. 97765 - "whether or not public respondent Court of Appeals
erred in ruling that private respondent Scalzo is a diplomat immune from civil suit
conformably with the Vienna Convention on Diplomatic Relations" - is also a pivotal
question raised in the instant petition, the ruling in G.R. No. 97765, however, has not
resolved that point with finality. Indeed, the Court there has made this observation -
"It may be mentioned in this regard that private respondent himself, in his Pre-trial Brief
filed on 13 June 1990, unequivocally states that he would present documentary evidence
consisting of DEA records on his investigation and surveillance of plaintiff and on his
position and duties as DEA special agent in Manila. Having thus reserved his right to
present evidence in support of his position, which is the basis for the alleged diplomatic
immunity, the barren self-serving claim in the belated motion to dismiss cannot be relied
upon for a reasonable, intelligent and fair resolution of the issue of diplomatic immunity." [4]
Scalzo contends that the Vienna Convention on Diplomatic Relations, to which the
Philippines is a signatory, grants him absolute immunity from suit, describing his functions
as an agent of the United States Drugs Enforcement Agency as conducting surveillance
operations on suspected drug dealers in the Philippines believed to be the source of
prohibited drugs being shipped to the U.S., (and) having ascertained the target, (he then)
would inform the Philippine narcotic agents (to) make the actual arrest." Scalzo has
submitted to the trial court a number of documents -
1. Exh. '2' - Diplomatic Note No. 414 dated 29 May 1990;
2. Exh. '1' - Certification of Vice Consul Donna K. Woodward dated 11 June 1990;
3. Exh. '5' - Diplomatic Note No. 757 dated 25 October 1991;
4. Exh. '6' - Diplomatic Note No. 791 dated 17 November 1992; and
5. Exh. '7' - Diplomatic Note No. 833 dated 21 October 1988.
6. Exh. '3' - 1st Indorsement of the Hon. Jorge R. Coquia, Legal Adviser, Department of
Foreign Affairs, dated 27 June 1990 forwarding Embassy Note No. 414 to the Clerk of
Court of RTC Manila, Branch 19 (the trial court);
7. Exh. '4' - Diplomatic Note No. 414, appended to the 1st Indorsement (Exh. '3'); and
8. Exh. '8' - Letter dated 18 November 1992 from the Office of the Protocol, Department of
Foreign Affairs, through Asst. Sec. Emmanuel Fernandez, addressed to the Chief Justice
of this Court.[5]
The documents, according to Scalzo, would show that: (1) the United States
Embassy accordingly advised the Executive Department of the Philippine Government that
Scalzo was a member of the diplomatic staff of the United States diplomatic mission from
his arrival in the Philippines on 14 October 1985 until his departure on 10 August 1988; (2)
that the United States Government was firm from the very beginning in asserting the
diplomatic immunity of Scalzo with respect to the case pursuant to the provisions of the
Vienna Convention on Diplomatic Relations; and (3) that the United States Embassy
repeatedly urged the Department of Foreign Affairs to take appropriate action to inform the
trial court of Scalzos diplomatic immunity. The other documentary exhibits were presented
to indicate that: (1) the Philippine government itself, through its Executive Department,
recognizing and respecting the diplomatic status of Scalzo, formally advised the Judicial
Department of his diplomatic status and his entitlement to all diplomatic privileges and
immunities under the Vienna Convention; and (2) the Department of Foreign Affairs itself
authenticated Diplomatic Note No. 414. Scalzo additionally presented Exhibits "9" to "13"
consisting of his reports of investigation on the surveillance and subsequent arrest of
Minucher, the certification of the Drug Enforcement Administration of the United States
Department of Justice that Scalzo was a special agent assigned to the Philippines at all
times relevant to the complaint, and the special power of attorney executed by him in favor
of his previous counsel[6] to show (a) that the United States Embassy, affirmed by its Vice
Consul, acknowledged Scalzo to be a member of the diplomatic staff of the United States
diplomatic mission from his arrival in the Philippines on 14 October 1985 until his departure
on 10 August 1988, (b) that, on May 1986, with the cooperation of the Philippine law
enforcement officials and in the exercise of his functions as member of the mission, he
investigated Minucher for alleged trafficking in a prohibited drug, and (c) that the Philippine
Department of Foreign Affairs itself recognized that Scalzo during his tour of duty in the
Philippines (14 October 1985 up to 10 August 1988) was listed as being an Assistant
Attach of the United States diplomatic mission and accredited with diplomatic status by the
Government of the Philippines. In his Exhibit 12, Scalzo described the functions of the
overseas office of the United States Drugs Enforcement Agency, i.e., (1) to provide criminal
investigative expertise and assistance to foreign law enforcement agencies on narcotic and
drug control programs upon the request of the host country, 2) to establish and maintain
liaison with the host country and counterpart foreign law enforcement officials, and 3) to
conduct complex criminal investigations involving international criminal conspiracies which
affect the interests of the United States.
The Vienna Convention on Diplomatic Relations was a codification of centuries-old
customary law and, by the time of its ratification on 18 April 1961, its rules of law had long
become stable. Among the city states of ancient Greece, among the peoples of the
Mediterranean before the establishment of the Roman Empire, and among the states of
India, the person of the herald in time of war and the person of the diplomatic envoy in time
of peace were universally held sacrosanct.[7] By the end of the 16th century, when the
earliest treatises on diplomatic law were published, the inviolability of ambassadors was
firmly established as a rule of customary international law. [8] Traditionally, the exercise of
diplomatic intercourse among states was undertaken by the head of state himself, as being
the preeminent embodiment of the state he represented, and the foreign secretary, the
official usually entrusted with the external affairs of the state. Where a state would wish to
have a more prominent diplomatic presence in the receiving state, it would then send to
the latter a diplomatic mission. Conformably with the Vienna Convention, the functions of
the diplomatic mission involve, by and large, the representation of the interests of the
sending state and promoting friendly relations with the receiving state. [9]
The Convention lists the classes of heads of diplomatic missions to include (a)
ambassadors or nuncios accredited to the heads of state,[10] (b) envoys,[11] ministers
or internuncios accredited to the heads of states; and (c) charges d' affairs[12] accredited to
the ministers of foreign affairs. [13] Comprising the "staff of the (diplomatic) mission" are the
diplomatic staff, the administrative staff and the technical and service staff. Only the heads
of missions, as well as members of the diplomatic staff, excluding the members of the
administrative, technical and service staff of the mission, are accorded diplomatic
rank. Even while the Vienna Convention on Diplomatic Relations provides for immunity to
the members of diplomatic missions, it does so, nevertheless, with an understanding that
the same be restrictively applied. Only "diplomatic agents," under the terms of the
Convention, are vested with blanket diplomatic immunity from civil and criminal suits. The
Convention defines "diplomatic agents" as the heads of missions or members of the
diplomatic staff, thus impliedly withholding the same privileges from all others. It might bear
stressing that even consuls, who represent their respective states in concerns of
commerce and navigation and perform certain administrative and notarial duties, such as
the issuance of passports and visas, authentication of documents, and administration of
oaths, do not ordinarily enjoy the traditional diplomatic immunities and privileges accorded
diplomats, mainly for the reason that they are not charged with the duty of representing
their states in political matters. Indeed, the main yardstick in ascertaining whether a
person is a diplomat entitled to immunity is the determination of whether or not he
performs duties of diplomatic nature.
Scalzo asserted, particularly in his Exhibits 9 to 13, that he was an Assistant Attach
of the United States diplomatic mission and was accredited as such by the Philippine
Government.An attach belongs to a category of officers in the diplomatic establishment
who may be in charge of its cultural, press, administrative or financial affairs. There could
also be a class of attaches belonging to certain ministries or departments of the
government, other than the foreign ministry or department, who are detailed by their
respective ministries or departments with the embassies such as the military, naval, air,
commercial, agricultural, labor, science, and customs attaches, or the like. Attaches assist
a chief of mission in his duties and are administratively under him, but their main function is
to observe, analyze and interpret trends and developments in their respective fields in the
host country and submit reports to their own ministries or departments in the home
government.[14] These officials are not generally regarded as members of the diplomatic
mission, nor are they normally designated as having diplomatic rank.
In an attempt to prove his diplomatic status, Scalzo presented Diplomatic Notes Nos.
414, 757 and 791, all issued post litem motam, respectively, on 29 May 1990, 25 October
1991 and 17 November 1992. The presentation did nothing much to alleviate the Court's
initial reservations in G.R. No. 97765, viz:
"While the trial court denied the motion to dismiss, the public respondent gravely abused
its discretion in dismissing Civil Case No. 88-45691 on the basis of an erroneous
assumption that simply because of the diplomatic note, the private respondent is clothed
with diplomatic immunity, thereby divesting the trial court of jurisdiction over his person.
xxxxxxxxx
And now, to the core issue - the alleged diplomatic immunity of the private
respondent. Setting aside for the moment the issue of authenticity raised by the petitioner
and the doubts that surround such claim, in view of the fact that it took private respondent
one (1) year, eight (8) months and seventeen (17) days from the time his counsel filed on
12 September 1988 a Special Appearance and Motion asking for a first extension of time
to file the Answer because the Departments of State and Justice of the United States of
America were studying the case for the purpose of determining his defenses, before he
could secure the Diplomatic Note from the US Embassy in Manila, and even granting for
the sake of argument that such note is authentic, the complaint for damages filed by
petitioner cannot be peremptorily dismissed.
xxxxxxxxx
"There is of course the claim of private respondent that the acts imputed to him were done
in his official capacity. Nothing supports this self-serving claim other than the so-called
Diplomatic Note. x x x. The public respondent then should have sustained the trial court's
denial of the motion to dismiss. Verily, it should have been the most proper and appropriate
recourse. It should not have been overwhelmed by the self-serving Diplomatic Note whose
belated issuance is even suspect and whose authenticity has not yet been proved. The
undue haste with which respondent Court yielded to the private respondent's claim is
arbitrary."
A significant document would appear to be Exhibit No. 08, dated 08 November 1992,
issued by the Office of Protocol of the Department of Foreign Affairs and signed by
Emmanuel C. Fernandez, Assistant Secretary, certifying that "the records of the
Department (would) show that Mr. Arthur W. Scalzo, Jr., during his term of office in the
Philippines (from 14 October 1985 up to 10 August 1988) was listed as an Assistant Attach
of the United States diplomatic mission and was, therefore, accredited diplomatic status by
the Government of the Philippines." No certified true copy of such "records," the supposed
bases for the belated issuance, was presented in evidence.
 Concededly, vesting a person with diplomatic immunity is a prerogative of the
executive branch of the government. In World Health Organization vs. Aquino,[15] the Court
has recognized that, in such matters, the hands of the courts are virtually tied. Amidst
apprehensions of indiscriminate and incautious grant of immunity, designed to gain
exemption from the jurisdiction of courts, it should behoove the Philippine government,
specifically its Department of Foreign Affairs, to be most circumspect, that should
particularly be no less than compelling, in its post litem motam issuances. It might be
recalled that the privilege is not an immunity from the observance of the law of the
territorial sovereign or from ensuing legal liability; it is, rather, an immunity from the
exercise of territorial jurisdiction.[16] The government of the United States itself, which
Scalzo claims to be acting for, has formulated its standards for recognition of a diplomatic
agent. The State Department policy is to only concede diplomatic status to a person
who possesses an acknowledged diplomatic title and performs duties of diplomatic
nature.[17] Supplementary criteria for accreditation are the possession of a valid diplomatic
passport or, from States which do not issue such passports, a diplomatic note formally
representing the intention to assign the person to diplomatic duties, the holding of a non-
immigrant visa, being over twenty-one years of age, and performing diplomatic functions
on an essentially full-time basis. [18] Diplomatic missions are requested to provide the most
accurate and descriptive job title to that which currently applies to the duties
performed. The Office of the Protocol would then assign each individual to the appropriate
functional category.[19]
But while the diplomatic immunity of Scalzo might thus remain contentious, it was
sufficiently established that, indeed, he worked for the United States Drug Enforcement
Agency and was tasked to conduct surveillance of suspected drug activities within the
country on the dates pertinent to this case. If it should be ascertained that Arthur Scalzo
was acting well within his assigned functions when he committed the acts alleged in the
complaint, the present controversy could then be resolved under the related doctrine
of State Immunity from Suit.
The precept that a State cannot be sued in the courts of a foreign state is a
long-standing rule of customary international law then closely identified with the personal
immunity of a foreign sovereign from suit [20] and, with the emergence of democratic states,
made to attach not just to the person of the head of state, or his representative, but also
distinctly to the state itself in its sovereign capacity. [21] If the acts giving rise to a suit are
those of a foreign government done by its foreign agent, although not necessarily a
diplomatic personage, but acting in his official capacity, the complaint could be barred by
the immunity of the foreign sovereign from suit without its consent. Suing a representative
of a state is believed to be, in effect, suing the state itself. The proscription is not accorded
for the benefit of an individual but for the State, in whose service he is, under the maxim
- par in parem, non habet imperium - that all states are sovereign equals and cannot assert
jurisdiction over one another. [22] The implication, in broad terms, is that if the judgment
against an official would require the state itself to perform an affirmative act to satisfy the
award, such as the appropriation of the amount needed to pay the damages decreed
against him, the suit must be regarded as being against the state itself, although it has not
been formally impleaded.[23]
In United States of America vs. Guinto,[24] involving officers of the United States Air
Force and special officers of the Air Force Office of Special Investigators charged with the
duty of preventing the distribution, possession and use of prohibited drugs, this Court has
ruled -
"While the doctrine (of state immunity) 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. x x x. It cannot for a
moment be imagined that they were acting in their private or unofficial capacity when they
apprehended and later testified against the complainant. It follows that for discharging their
duties as agents of the United States, they cannot be directly impleaded for acts imputable
to their principal, which has not given its consent to be sued. x x x As they have acted on
behalf of the government, and within the scope of their authority, it is that government, and
not the petitioners personally, [who were] responsible for their acts." [25]
This immunity principle, however, has its limitations. Thus, Shauf vs. Court of
Appeals[26] elaborates:
It is a different matter where the public official is made to account in his capacity as such
for acts contrary to law and injurious to the rights of the plaintiff. As was clearly set forth by
Justice Zaldivar in Director of the Bureau of Telecommunications, et al., vs. Aligaen, et al.
(33 SCRA 368): `Inasmuch as the State authorizes only legal acts by its officers,
unauthorized acts of government officials or officers are not acts of the State, and an
action against the officials or officers by one whose rights have been invaded or violated by
such acts, for the protection of his rights, is not a suit against the State within the rule of
immunity of the State from suit. In the same tenor, it has been said that an action at law or
suit in equity against a State officer or the director of a State department on the ground
that, while claiming to act for the State, he violates or invades the personal and property
rights of the plaintiff, under an unconstitutional act or under an assumption of authority
which he does not have, is not a suit against the State within the constitutional provision
that the State may not be sued without its consent. The rationale for this ruling is that the
doctrine of state immunity cannot be used as an instrument for perpetrating an injustice.
xxxxxxxxx
(T)he doctrine of immunity from suit will not apply and may not be invoked where the public
official is being sued in his private and personal capacity as an ordinary citizen. The cloak
of protection afforded the officers and agents of the government is removed the moment
they are sued in their individual capacity. This situation usually arises where the public
official acts without authority or in excess of the powers vested in him. It is a well-settled
principle of law that a public official may be liable in his personal private capacity for
whatever damage he may have caused by his act done with malice and in bad faith or
beyond the scope of his authority and jurisdiction.[27]
A foreign agent, operating within a territory, can be cloaked with immunity from suit
but only as long as it can be established that he is acting within the directives of the
sending state.The consent of the host state is an indispensable requirement of basic
courtesy between the two sovereigns. Guinto and Shauf both involve officers and
personnel of the United States, stationed within Philippine territory, under the RP-US
Military Bases Agreement. While evidence is wanting to show any similar agreement
between the governments of the Philippines and of the United States (for the latter to send
its agents and to conduct surveillance and related activities of suspected drug dealers in
the Philippines), the consent or imprimatur of the Philippine government to the activities of
the United States Drug Enforcement Agency, however, can be gleaned from the facts
heretofore elsewhere mentioned. The official exchanges of communication between
agencies of the government of the two countries, certifications from officials of both the
Philippine Department of Foreign Affairs and the United States Embassy, as well as the
participation of members of the Philippine Narcotics Command in the buy-bust operation
conducted at the residence of Minucher at the behest of Scalzo, may be inadequate to
support the "diplomatic status" of the latter but they give enough indication that the
Philippine government has given its imprimatur, if not consent, to the activities within
Philippine territory of agent Scalzo of the United States Drug Enforcement Agency. The job
description of Scalzo has tasked him to conduct surveillance on suspected drug suppliers
and, after having ascertained the target, to inform local law enforcers who would then be
expected to make the arrest. In conducting surveillance activities on Minucher, later acting
as the poseur-buyer during the buy-bust operation, and then becoming a principal witness
in the criminal case against Minucher, Scalzo hardly can be said to have acted beyond the
scope of his official function or duties.

All told, this Court is constrained to rule that respondent Arthur Scalzo, an agent of
the United States Drug Enforcement Agency allowed by the Philippine government to
conduct activities in the country to help contain the problem on the drug traffic, is entitled to
the defense of state immunity from suit.

WHEREFORE, on the foregoing premises, the petition is DENIED. No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio and Azcuna, JJ., concur