CONSTI-Sept13-State Immunity

SECOND DIVISION
G.R. No. 152318 April 16, 2009
DEUTSCHE GESELLSCHAFT FÜR TECHNISCHE ZUSAMMENARBEIT, also known as GERMAN AGENCY FOR
TECHNICAL COOPERATION, (GTZ) HANS PETER PAULENZ and ANNE NICOLAY, Petitioners,
vs.
HON. COURT OF APPEALS, HON. ARIEL CADIENTE SANTOS, Labor Arbiter of the Arbitration Branch, National Labor
Relations Commission, and BERNADETTE CARMELLA MAGTAAS, CAROLINA DIONCO, CHRISTOPHER RAMOS,
MELVIN DELA PAZ, RANDY TAMAYO and EDGARDO RAMILLO, Respondents.
DECISION
TINGA, J.:
On 7 September 1971, the governments of the Federal Republic of Germany and the Republic of the Philippines ratified an
Agreement concerning Technical Co-operation (Agreement) in Bonn, capital of what was then West Germany. The Agreement
affirmed the countries’ "common interest in promoting the technical and economic development of their States, and recogni[zed]
the benefits to be derived by both States from closer technical co-operation," and allowed for the conclusion of "arrangements
concerning individual projects of technical co-operation."1 While the Agreement provided for a limited term of effectivity of five (5)
years, it nonetheless was stated that "[t]he Agreement shall be tacitly extended for successive periods of one year unless either
of the two Contracting Parties denounces it in writing three months prior to its expiry," and that even upon the Agreement’s
expiry, its provisions would "continue to apply to any projects agreed upon x x x until their completion." 2
On 10 December 1999, the Philippine government, through then Foreign Affairs Secretary Domingo Siazon, and the German
government, agreed to an Arrangement in furtherance of the 1971 Agreement. This Arrangement affirmed the common
commitment of both governments to promote jointly a project called, Social Health Insurance—Networking and Empowerment
(SHINE), which was designed to "enable Philippine families–especially poor ones–to maintain their health and secure health
care of sustainable quality."3 It appears that SHINE had already been in existence even prior to the effectivity of the
Arrangement, though the record does not indicate when exactly SHINE was constituted. Nonetheless, the Arrangement stated
the various obligations of the Filipino and German governments. The relevant provisions of the Arrangement are reproduced as
follows:
3. The Government of the Federal Republic of Germany shall make the following contributions to the project.
It shall
(a) second - one expert in health economy, insurance and health systems for up to 48 expert/months,
- one expert in system development for up to 10 expert/months
- short-term experts to deal with special tasks for a total of up to 18 expert/months,
- project assistants/guest students as required, who shall work on the project as part of their basic and further
training and assume specific project tasks under the separately financed junior staff promotion programme of
the Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ);
(b) provide in situ - short-term experts to deal with diverse special tasks for a total of up to 27 expert/months,
- five local experts in health economy, health insurance, community health systems, information technology,
information systems, training and community mobilization for a total of up to 240 expert/months,
- local and auxiliary personnel for a total of up to 120 months;
(c) supply inputs, in particular - two cross-country vehicles,
- ten computers with accessories,
- office furnishings and equipment

up to a total value of DM 310,000 (three hundred and ten thousand Deutsche Mark);
(c) meet
- the cost of accommodation for the seconded experts and their families in so far as this cost is not met by the
seconded experts themselves,
- the cost of official travel by the experts referred to in sub-paragraph (a) above within and outside the Republic
of the Philippines,
- the cost of seminars and courses,
- the cost of transport and insurance to the project site of inputs to be supplied pursuant to sub-paragraph (c)
above, excluding the charges and storage fees referred to in paragraph 4(d) below,
- a proportion of the operating and administrative costs;
xxx
4. The Government of the Republic of the Philippines shall make the following contributions to the project:
It shall
(a) – provide the necessary Philippine experts for the project, in particular one project coordinator in the Philippine
Health Insurance Corporation (Philhealth), at least three further experts and a sufficient number of administrative and
auxiliary personnel, as well as health personnel in the pilot provinces and in the other project partners, in particular one
responsible expert for each pilot province and for each association representing the various target groups,
- release suitably qualified experts from their duties for attendance at the envisaged basic and further training
activities; it shall only nominate such candidates as have given an undertaking to work on the project for at least
five years after completing their training and shall ensure that these Philippine experts receive appropriate
remuneration,
- ensure that the project field offices have sufficient expendables,
- make available the land and buildings required for the project;
(b) assume an increasing proportion of the running and operating costs of the project;
(c) afford the seconded experts any assistance they may require in carrying out the tasks assigned to them and place at
their disposal all necessary records and documents;
(d) guarantee that
- the project is provided with an itemized budget of its own in order to ensure smooth continuation of the project.
- the necessary legal and administrative framework is created for the project,
- the project is coordinated in close cooperation with other national and international agencies relevant to
implementation,
- the inputs supplied for the project on behalf of the Government of the Federal Republic of Germany are
exempted from the cost of licenses, harbour dues, import and export duties and other public charges and fees,
as well as storage fees, or that any costs thereof are met, and that they are cleared by customs without delay.
The aforementioned exemptions shall, at the request of the implementing agencies also apply to inputs
procured in the Republic of the Philippines,
- the tasks of the seconded experts are taken over as soon as possible by Philippine experts,
- examinations passed by Philippine nationals pursuant to this Arrangement are recognized in accordance with
their respective standards and that the persons concerned are afforded such opportunities with regard to
careers, appointments and advancement as are commensurate with their training. 4
In the arraignment, both governments likewise named their respective implementing organizations for SHINE. The Philippines
designated the Department of Health (DOH) and the Philippine Health Insurance Corporation (Philhealth) with the
implementation of SHINE. For their part, the German government "charge[d] the Deustche Gesellschaft für Technische
Zusammenarbeit[5 ] (GTZ[6 ]) GmbH, Eschborn, with the implementation of its contributions."7
Private respondents were engaged as contract employees hired by GTZ to work for SHINE on various dates between December
of 1998 to September of 1999. Bernadette Carmela Magtaas was hired as an "information systems manager and project officer
of SHINE;"8 Carolina Dionco as a "Project Assistant of SHINE;"9 Christopher Ramos as "a project assistant and liason personnel
of NHI related SHINE activities by GTZ;"10 Melvin Dela Paz and Randy Tamayo as programmers;11 and Edgardo Ramilo as
"driver, messenger and multipurpose service man."12 The employment contracts of all six private respondents all specified Dr.
Rainer Tollkotter, identified as an adviser of GTZ, as the "employer." At the same time, all the contracts commonly provided that
"[i]t is mutually agreed and understood that [Dr. Tollkotter, as employer] is a seconded GTZ expert who is hiring the Employee
on behalf of GTZ and for a Philippine-German bilateral project named ‘Social Health Insurance—Networking and Empowerment
(SHINE)’ which will end at a given time."13
In September of 1999, Anne Nicolay (Nicolay), a Belgian national, assumed the post of SHINE Project Manager. Disagreements
eventually arose between Nicolay and private respondents in matters such as proposed salary adjustments, and the course
Nicolay was taking in the implementation of SHINE different from her predecessors. The dispute culminated in a letter 14 dated 8
June 2000, signed by the private respondents, addressed to Nicolay, and copies furnished officials of the DOH, Philheath, and
the director of the Manila office of GTZ. The letter raised several issues which private respondents claim had been brought up
several times in the past, but have not been given appropriate response. It was claimed that SHINE under Nicolay had veered
away from its original purpose to facilitate the development of social health insurance by shoring up the national health
insurance program and strengthening local initiatives, as Nicolay had refused to support local partners and new initiatives on the
premise that community and local government unit schemes were not sustainable—a philosophy that supposedly betrayed
Nicolay’s lack of understanding of the purpose of the project. Private respondents further alleged that as a result of Nicolay’s
"new thrust, resources have been used inappropriately;" that the new management style was "not congruent with the original
goals of the project;" that Nicolay herself suffered from "cultural insensitivity" that consequently failed to sustain healthy relations
with SHINE’s partners and staff.
The letter ended with these ominous words:
The issues that we [the private respondents] have stated here are very crucial to us in working for the project. We could no
longer find any reason to stay with the project unless ALL of these issues be addressed immediately and appropriately. 15
In response, Nicolay wrote each of the private respondents a letter dated 21 June 2000, all similarly worded except for their
respective addressees. She informed private respondents that the "project’s orientations and evolution" were decided in
consensus with partner institutions, Philhealth and the DOH, and thus no longer subject to modifications. More pertinently, she
stated:
You have firmly and unequivocally stated in the last paragraph of your 8th June 2000 letter that you and the five other staff
"could no longer find any reason to stay with the project unless ALL of these issues be addressed immediately and
appropriately." Under the foregoing premises and circumstances, it is now imperative that I am to accept your resignation, which
I expect to receive as soon as possible.16
Taken aback, private respondents replied with a common letter, clarifying that their earlier letter was not intended as a
resignation letter, but one that merely intended to raise attention to what they perceived as vital issues.17 Negotiations ensued
between private respondents and Nicolay, but for naught. Each of the private respondents received a letter from Nicolay dated
11 July 2000, informing them of the pre-termination of their contracts of employment on the grounds of "serious and gross
insubordination, among others, resulting to loss of confidence and trust."18
On 21 August 2000, the private respondents filed a complaint for illegal dismissal with the NLRC. Named as respondents therein
where GTZ, the Director of its Manila office Hans Peter Paulenz, its Assistant Project Manager Christian Jahn, and Nicolay.
On 25 October 2005, GTZ, through counsel, filed a Motion to Dismiss, on the ground that the Labor Arbiter had no jurisdiction
over the case, as its acts were undertaken in the discharge of the governmental functions and sovereign acts of the Government
of the Federal Republic of Germany. This was opposed by private respondents with the arguments that GTZ had failed to secure
a certification that it was immune from suit from the Department of Foreign Affairs, and that it was GTZ and not the German
government which had implemented the SHINE Project and entered into the contracts of employment.
On 27 November 2000, the Labor Arbiter issued an Order19 denying the Motion to Dismiss. The Order cited, among others, that
GTZ was a private corporation which entered into an employment contract; and that GTZ had failed to secure from the DFA a
certification as to its diplomatic status.
On 7 February 2001, GTZ filed with the Labor Arbiter a "Reiterating Motion to Dismiss," again praying that the Motion to Dismiss
be granted on the jurisdictional ground, and reprising the arguments for dismissal it had earlier raised.20 No action was taken by
the Labor Arbiter on this new motion. Instead, on 15 October 2001, the Labor Arbiter rendered a Decision 21 granting the
complaint for illegal dismissal. The Decision concluded that respondents were dismissed without lawful cause, there being "a
total lack of due process both substantive and procedural [sic]."22 GTZ was faulted for failing to observe the notice requirements
in the labor law. The Decision likewise proceeded from the premise that GTZ had treated the letter dated 8 June 2000 as a
resignation letter, and devoted some focus in debunking this theory.
The Decision initially offered that it "need not discuss the jurisdictional aspect considering that the same had already been
lengthily discussed in the Order de[n]ying respondents’ Motion to Dismiss."23 Nonetheless, it proceeded to discuss the
jurisdictional aspect, in this wise:
Under pain of being repetitious, the undersigned Labor Arbiter has jurisdiction to entertain the complaint on the following
grounds:
Firstly, under the employment contract entered into between complainants and respondents, specifically Section 10
thereof, it provides that "contract partners agree that his contract shall be subject to the LAWS of the jurisdiction of the
locality in which the service is performed."
Secondly, respondent having entered into contract, they can no longer invoke the sovereignty of the Federal Republic of
Germany.
Lastly, it is imperative to be immune from suit, respondents should have secured from the Department of Foreign Affairs
a certification of respondents’ diplomatic status and entitlement to diplomatic privileges including immunity from suits.
Having failed in this regard, respondents cannot escape liability from the shelter of sovereign immunity.[sic]24
Notably, GTZ did not file a motion for reconsideration to the Labor Arbiter’s Decision or elevate said decision for appeal
to the NLRC. Instead, GTZ opted to assail the decision by way of a special civil action for certiorari filed with the Court of
Appeals.25 On 10 December 2001, the Court of Appeals promulgated a Resolution 26 dismissing GTZ’s petition, finding
that "judicial recourse at this stage of the case is uncalled for[,] [t]he appropriate remedy of the petitioners [being] an
appeal to the NLRC x x x."27 A motion for reconsideration to this Resolution proved fruitless for GTZ.28
Thus, the present petition for review under Rule 45, assailing the decision and resolutions of the Court of Appeals and of the
Labor Arbiter. GTZ’s arguments center on whether the Court of Appeals could have entertained its petition for certiorari despite
its not having undertaken an appeal before the NLRC; and whether the complaint for illegal dismissal should have been
dismissed for lack of jurisdiction on account of GTZ’s insistence that it enjoys immunity from suit. No special arguments are
directed with respect to petitioners Hans Peter Paulenz and Anne Nicolay, respectively the then Director and the then Project
Manager of GTZ in the Philippines; so we have to presume that the arguments raised in behalf of GTZ’s alleged immunity from
suit extend to them as well.
The Court required the Office of the Solicitor General (OSG) to file a Comment on the petition. In its Comment dated 7
November 2005, the OSG took the side of GTZ, with the prayer that the petition be granted on the ground that GTZ was immune
from suit, citing in particular its assigned functions in implementing the SHINE program—a joint undertaking of the Philippine and
German governments which was neither proprietary nor commercial in nature.
The Court of Appeals had premised the dismissal of GTZ’s petition on its procedural misstep in bypassing an appeal to NLRC
and challenging the Labor Arbiter’s Decision directly with the appellate court by way of a Rule 65 petition. In dismissing the
petition, the
Court of Appeals relied on our ruling in Air Service Cooperative v. Court of Appeals.29 The central issue in that case was whether
a decision of a Labor Arbiter rendered without jurisdiction over the subject matter may be annulled in a petition before a Regional
Trial Court. That case may be differentiated from the present case, since the Regional Trial Court does not have original or
appellate jurisdiction to review a decision rendered by a Labor Arbiter. In contrast, there is no doubt, as affirmed by
jurisprudence, that the Court of Appeals has jurisdiction to review, by way of its original certiorari jurisdiction, decisions ruling on
complaints for illegal dismissal.
Nonetheless, the Court of Appeals is correct in pronouncing the general rule that the proper recourse from the decision of the
Labor Arbiter is to first appeal the same to the NLRC. Air Services is in fact clearly detrimental to petitioner’s position in one
regard. The Court therein noted that on account of the failure to correctly appeal the decision of the Labor Arbiter to the NLRC,
such judgment consequently became final and executory.30 GTZ goes as far as to "request" that the Court re-examine Air
Services, a suggestion that is needlessly improvident under the circumstances. Air Services affirms doctrines grounded in sound
procedural rules that have allowed for the considered and orderly disposition of labor cases.
The OSG points out, citing Heirs of Mayor Nemencio Galvez v. Court of Appeals, 31 that even when appeal is available, the Court
has nonetheless allowed a writ of certiorari when the orders of the lower court were issued either in excess of or without
jurisdiction. Indeed, the Court has ruled before that the failure to employ available intermediate recourses, such as a motion for
reconsideration, is not a fatal infirmity if the ruling assailed is a patent nullity. This approach suggested by the OSG allows the
Court to inquire directly into what is the main issue–whether GTZ enjoys immunity from suit.
The arguments raised by GTZ and the OSG are rooted in several indisputable facts. The SHINE project was implemented
pursuant to the bilateral agreements between the Philippine and German governments. GTZ was tasked, under the 1991
agreement, with the implementation of the contributions of the German government. The activities performed by GTZ pertaining
to the SHINE project are governmental in nature, related as they are to the promotion of health insurance in the Philippines. The
fact that GTZ entered into employment contracts with the private respondents did not disqualify it from invoking immunity from
suit, as held in cases such as Holy See v. Rosario, Jr.,32 which set forth what remains valid doctrine:
Certainly, the mere entering into a contract by a foreign state with a private party cannot be the ultimate test. Such an act can
only be the start of the inquiry. The logical question is whether the foreign state is engaged in the activity in the regular course of
business. If the foreign state is not engaged regularly in a business or trade, the particular act or transaction must then be tested
by its nature. If the act is in pursuit of a sovereign activity, or an incident thereof, then it is an act jure imperii, especially when it is
not undertaken for gain or profit.33
Beyond dispute is the tenability of the comment points raised by GTZ and the OSG that GTZ was not performing proprietary
functions notwithstanding its entry into the particular employment contracts. Yet there is an equally fundamental premise which
GTZ and the OSG fail to address, namely: Is GTZ, by conception, able to enjoy the Federal Republic’s immunity from suit?
The principle of state immunity from suit, whether a local state or a foreign state, is reflected in Section 9, Article XVI of the
Constitution, which states that "the State may not be sued without its consent." Who or what consists of "the State"? For one, the
doctrine is available to foreign States insofar as they are sought to be sued in the courts of the local State,34 necessary as it is to
avoid "unduly vexing the peace of nations."
If the instant suit had been brought directly against the Federal Republic of Germany, there would be no doubt that it is a suit
brought against a State, and the only necessary inquiry is whether said State had consented to be sued. However, the present
suit was brought against GTZ. It is necessary for us to understand what precisely are the parameters of the legal personality of
GTZ.
Counsel for GTZ characterizes GTZ as "the implementing agency of the Government of the Federal Republic of Germany," a
depiction similarly adopted by the OSG. Assuming that characterization is correct, it does not automatically invest GTZ with the
ability to invoke State immunity from suit. The distinction lies in whether the agency is incorporated or unincorporated. The
following lucid discussion from Justice Isagani Cruz is pertinent:
Where suit is filed not against the government itself or its officials but against one of its entities, it must be ascertained whether
or not the State, as the principal that may ultimately be held liable, has given its consent to be sued. This ascertainment will
depend in the first instance on whether the government agency impleaded is incorporated or unincorporated.
An incorporated agency has a charter of its own that invests it with a separate juridical personality, like the Social Security
System, the University of the Philippines, and the City of Manila. By contrast, the unincorporated agency is so called because it
has no separate juridical personality but is merged in the general machinery of the government, like the Department of Justice,
the Bureau of Mines and the Government Printing Office.
If the agency is incorporated, the test of its suability is found in its charter. The simple rule is that it is suable if its charter says
so, and this is true regardless of the functions it is performing. Municipal corporations, for example, like provinces and cities, are
agencies of the State when they are engaged in governmental functions and therefore should enjoy the sovereign immunity from
suit. Nevertheless, they are subject to suit even in the performance of such functions because their charter provides that they
can sue and be sued.35
State immunity from suit may be waived by general or special law. 36 The special law can take the form of the original charter of
the incorporated government agency. Jurisprudence is replete with examples of incorporated government agencies which were
ruled not entitled to invoke immunity from suit, owing to provisions in their
charters manifesting their consent to be sued. These include the National Irrigation Administration, 37 the former Central
Bank,38 and the National Power Corporation.39 In SSS v. Court of Appeals,40 the Court through Justice Melencio-Herrera
explained that by virtue of an express provision in its charter allowing it to sue and be sued, the Social Security System did not
enjoy immunity from suit:
We come now to the amendability of the SSS to judicial action and legal responsibility for its acts. To our minds, there should be
no question on this score considering that the SSS is a juridical entity with a personality of its own. It has corporate powers
separate and distinct from the Government. SSS' own organic act specifically provides that it can sue and be sued in Court.
These words "sue and be sued" embrace all civil process incident to a legal action. So that, even assuming that the SSS, as it
claims, enjoys immunity from suit as an entity performing governmental functions, by virtue of the explicit provision of the
aforecited enabling law, the Government must be deemed to have waived immunity in respect of the SSS, although it does not
thereby concede its liability. That statutory law has given to the private citizen a remedy for the enforcement and protection of his
rights. The SSS thereby has been required to submit to the jurisdiction of the Courts, subject to its right to interpose any lawful
defense. Whether the SSS performs governmental or proprietary functions thus becomes unnecessary to belabor. For by that
waiver, a private citizen may bring a suit against it for varied objectives, such as, in this case, to obtain compensation in
damages arising from contract, and even for tort.
A recent case squarely in point anent the principle, involving the National Power Corporation, is that of Rayo v. Court of First
Instance of Bulacan, 110 SCRA 457 (1981), wherein this Court, speaking through Mr. Justice Vicente Abad Santos, ruled:
"It is not necessary to write an extended dissertation on whether or not the NPC performs a governmental function with respect
to the management and operation of the Angat Dam. It is sufficient to say that the government has organized a private
corporation, put money in it and has allowed it to sue and be sued in any court under its charter. (R.A. No. 6395, Sec. 3[d]). As a
government, owned and controlled corporation, it has a personality of its own, distinct and separate from that of the Government.
Moreover, the charter provision that the NPC can 'sue and be sued in any court' is without qualification on the cause of action
and accordingly it can include a tort claim such as the one instituted by the petitioners."41
It is useful to note that on the part of the Philippine government, it had designated two entities, the Department of Health and the
Philippine Health Insurance Corporation (PHIC), as the implementing agencies in behalf of the Philippines. The PHIC was
established under Republic Act No. 7875, Section 16(g) of which grants the corporation the power "to sue and be sued in court."
Applying the previously cited jurisprudence, PHIC would not enjoy immunity from suit even in the performance of its functions
connected with SHINE, however, governmental in nature as they may be.
Is GTZ an incorporated agency of the German government? There is some mystery surrounding that question. Neither GTZ nor
the OSG go beyond the claim that petitioner is "the implementing agency of the Government of the Federal Republic of
Germany." On the other hand, private respondents asserted before the Labor Arbiter that GTZ was "a private corporation
engaged in the implementation of development projects."42 The Labor Arbiter accepted that claim in his Order denying the
Motion to Dismiss,43 though he was silent on that point in his Decision. Nevertheless, private respondents argue in their
Comment that the finding that GTZ was a private corporation "was never controverted, and is therefore deemed admitted." 44 In
its Reply, GTZ controverts that finding, saying that it is a matter of public knowledge that the status of petitioner GTZ is that of
the "implementing agency," and not that of a private corporation. 45
In truth, private respondents were unable to adduce any evidence to substantiate their claim that GTZ was a "private
corporation," and the Labor Arbiter acted rashly in accepting such claim without explanation. But neither has GTZ supplied any
evidence defining its legal nature beyond that of the bare descriptive "implementing agency." There is no doubt that the 1991
Agreement designated GTZ as the "implementing agency" in behalf of the German government. Yet the catch is that such term
has no precise definition that is responsive to our concerns. Inherently, an agent acts in behalf of a principal, and the GTZ can
be said to act in behalf of the German state. But that is as far as "implementing agency" could take us. The term by itself does
not supply whether GTZ is incorporated or unincorporated, whether it is owned by the German state or by private interests,
whether it has juridical personality independent of the German government or none at all.
GTZ itself provides a more helpful clue, inadvertently, through its own official Internet website.46 In the "Corporate Profile"
section of the English language version of its site, GTZ describes itself as follows:
As an international cooperation enterprise for sustainable development with worldwide operations, the federally owned Deutsche
Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH supports the German Government in achieving its development-
policy objectives. It provides viable, forward-looking solutions for political, economic, ecological and social development in a
globalised world. Working under difficult conditions, GTZ promotes complex reforms and change processes. Its corporate
objective is to improve people’s living conditions on a sustainable basis.
GTZ is a federal enterprise based in Eschborn near Frankfurt am Main. It was founded in 1975 as a company under private law.
The German Federal Ministry for Economic Cooperation and Development (BMZ) is its major client. The company also operates
on behalf of other German ministries, the governments of other countries and international clients, such as the European
Commission, the United Nations and the World Bank, as well as on behalf of private enterprises. GTZ works on a public-benefit
basis. All surpluses generated are channeled [sic] back into its own international cooperation projects for sustainable
development.47
GTZ’s own website elicits that petitioner is "federally owned," a "federal enterprise," and "founded in 1975 as a company under
private law." GTZ clearly has a very meaningful relationship with the Federal Republic of Germany, which apparently owns it. At
the same time, it appears that GTZ was actually organized not through a legislative public charter, but under private law, in the
same way that Philippine corporations can be organized under the Corporation Code even if fully owned by the Philippine
government.
This self-description of GTZ in its own official website gives further cause for pause in adopting petitioners’ argument that GTZ is
entitled to immunity from suit because it is "an implementing agency." The above-quoted statement does not dispute the
characterization of GTZ as an "implementing agency of the Federal Republic of Germany," yet it bolsters the notion that as a
company organized under private law, it has a legal personality independent of that of the Federal Republic of Germany.
The Federal Republic of Germany, in its own official website,48 also makes reference to GTZ and describes it in this manner:
x x x Going by the principle of "sustainable development," the German Technical Cooperation (Deutsche Gesellschaft für
Technische Zusammenarbeit GmbH, GTZ) takes on non-profit projects in international "technical cooperation." The GTZ is a
private company owned by the Federal Republic of Germany.49
Again, we are uncertain of the corresponding legal implications under German law surrounding "a private company owned by
the Federal Republic of Germany." Yet taking the description on face value, the apparent equivalent under Philippine law is that
of a corporation organized under the Corporation Code but owned by the Philippine government, or a government-owned or
controlled corporation without original charter. And it bears notice that Section 36 of the Corporate Code states that "[e]very
corporation incorporated under this Code has the power and capacity x x x to sue and be sued in its corporate name." 50
It is entirely possible that under German law, an entity such as GTZ or particularly GTZ itself has not been vested or has been
specifically deprived the power and capacity to sue and/or be sued. Yet in the proceedings below and before this Court, GTZ
has failed to establish that under German law, it has not consented to be sued despite it being owned by the Federal Republic of
Germany. We adhere to the rule that in the absence of evidence to the contrary,
foreign laws on a particular subject are presumed to be the same as those of the Philippines, 51 and following the most intelligent
assumption we can gather, GTZ is akin to a governmental owned or controlled corporation without original charter which, by
virtue of the Corporation Code, has expressly consented to be sued. At the very least, like the Labor Arbiter and the Court of
Appeals, this Court has no basis in fact to conclude or presume that GTZ enjoys immunity from suit.
This absence of basis in fact leads to another important point, alluded to by the Labor Arbiter in his rulings. Our ruling in Holy
See v. Del Rosario52 provided a template on how a foreign entity desiring to invoke State immunity from suit could duly prove
such immunity before our local courts. The principles enunciated in that case were derived from public international law. We
stated then:
In Public International Law, when a state or international agency wishes to plead sovereign or diplomatic immunity in a foreign
court, it requests the Foreign Office of the state where it is sued to convey to the court that said defendant is entitled to immunity.
In the United States, the procedure followed is the process of "suggestion," where the foreign state or the international
organization sued in an American court requests the Secretary of State to make a determination as to whether it is entitled to
immunity. If the Secretary of State finds that the defendant is immune from suit, he, in turn, asks the Attorney General to submit
to the court a "suggestion" that the defendant is entitled to immunity. In England, a similar procedure is followed, only the
Foreign Office issues a certification to that effect instead of submitting a "suggestion" (O'Connell, I International Law 130 [1965];
Note: Immunity from Suit of Foreign Sovereign Instrumentalities and Obligations, 50 Yale Law Journal 1088 [1941]).
In the Philippines, the practice is for the foreign government or the international organization to first secure an executive
endorsement of its claim of sovereign or diplomatic immunity. But how the Philippine Foreign Office conveys its endorsement to
the courts varies. In International Catholic Migration Commission v. Calleja, 190 SCRA 130 (1990), the Secretary of Foreign
Affairs just sent a letter directly to the Secretary of Labor and Employment, informing the latter that the respondent-employer
could not be sued because it enjoyed diplomatic immunity. In World Health Organization v. Aquino, 48 SCRA 242 (1972), the
Secretary of Foreign Affairs sent the trial court a telegram to that effect. In Baer v. Tizon, 57 SCRA 1 (1974), the U.S. Embassy
asked the Secretary of Foreign Affairs to request the Solicitor General to make, in behalf of the Commander of the United States
Naval Base at Olongapo City, Zambales, a "suggestion" to respondent Judge. The Solicitor General embodied the "suggestion"
in a Manifestation and Memorandum as amicus curiae.53
It is to be recalled that the Labor Arbiter, in both of his rulings, noted that it was imperative for petitioners to secure from the
Department of Foreign Affairs "a certification of respondents’ diplomatic status and entitlement to diplomatic privileges including
immunity from suits."54 The requirement might not necessarily be imperative. However, had GTZ obtained such certification from
the DFA, it would have provided factual basis for its claim of immunity that would, at the very least, establish a disputable
evidentiary presumption that the foreign party is indeed immune which the opposing party will have to overcome with its own
factual evidence. We do not see why GTZ could not have secured such certification or endorsement from the DFA for purposes
of this case. Certainly, it would have been highly prudential for GTZ to obtain the same after the Labor Arbiter had denied the
motion to dismiss. Still, even at this juncture, we do not see any evidence that the DFA, the office of the executive branch in
charge of our diplomatic relations, has indeed endorsed GTZ’s claim of immunity. It may be possible that GTZ tried, but failed to
secure such certification, due to the same concerns that we have discussed herein.
Would the fact that the Solicitor General has endorsed GTZ’s claim of State’s immunity from suit before this Court sufficiently
substitute for the DFA certification? Note that the rule in public international law quoted in Holy See referred to endorsement by
the Foreign Office of the State where the suit is filed, such foreign office in the Philippines being the Department of Foreign
Affairs. Nowhere in the Comment of the OSG is it manifested that the DFA has endorsed GTZ’s claim, or that the OSG had
solicited the DFA’s views on the issue. The arguments raised by the OSG are virtually the same as the arguments raised by
GTZ without any indication of any special and distinct perspective maintained by the Philippine government on the issue. The
Comment filed by the OSG does not inspire the same degree of confidence as a certification from the DFA would have
elicited.1avvphi1
Holy See made reference to Baer v. Tizon,55 and that in the said case, the United States Embassy asked the Secretary of
Foreign Affairs to request the Solicitor General to make a "suggestion" to the trial court, accomplished by way of a Manifestation
and Memorandum, that the petitioner therein enjoyed immunity as the Commander of the Subic Bay Naval Base. Such
circumstance is actually not narrated in the text of Baer itself and was likely supplied in Holy See because its author, Justice
Camilio Quiason, had appeared as the Solicitor in behalf of the OSG in Baer. Nonetheless, as narrated in Holy See, it was the
Secretary of Foreign Affairs which directed the OSG to intervene in behalf of the United States government in the Baer case,
and such fact is manifest enough of the endorsement by the Foreign Office. We do not find a similar circumstance that bears
here.
The Court is thus holds and so rules that GTZ consistently has been unable to establish with satisfaction that it enjoys the
immunity from suit generally enjoyed by its parent country, the Federal Republic of Germany. Consequently, both the Labor
Arbiter and the Court of Appeals acted within proper bounds when they refused to acknowledge that GTZ is so immune by
dismissing the complaint against it. Our finding has additional ramifications on the failure of GTZ to properly appeal the Labor
Arbiter’s decision to the NLRC. As pointed out by the OSG, the direct recourse to the Court of Appeals while bypassing the
NLRC could have been sanctioned had the Labor Arbiter’s decision been a "patent nullity." Since the Labor Arbiter acted
properly in deciding the complaint, notwithstanding GTZ’s claim of immunity, we cannot see how the decision could have
translated into a "patent nullity."
As a result, there was no basis for petitioners in foregoing the appeal to the NLRC by filing directly with the Court of Appeals the
petition for certiorari. It then follows that the Court of Appeals acted correctly in dismissing the petition on that ground. As a
further consequence, since petitioners failed to perfect an appeal from the Labor Arbiter’s Decision, the same has long become
final and executory. All other questions related to this case, such as whether or not private respondents were illegally dismissed,
are no longer susceptible to review, respecting as we do the finality of the Labor Arbiter’s Decision.
A final note. This decision should not be seen as deviation from the more common methodology employed in ascertaining
whether a party enjoys State immunity from suit, one which focuses on the particular functions exercised by the party and
determines whether these are proprietary or sovereign in nature. The nature of the acts performed by the entity invoking
immunity remains the most important barometer for testing whether the privilege of State immunity from suit should apply. At the
same time, our Constitution stipulates that a State immunity from suit is conditional on its withholding of consent; hence, the laws
and circumstances pertaining to the creation and legal personality of an instrumentality or agency invoking immunity remain
relevant. Consent to be sued, as exhibited in this decision, is often conferred by the very same statute or general law creating
the instrumentality or agency.
WHEREFORE, the petition is DENIED. No pronouncement as to costs.
SO ORDERED.
EN BANC
G.R. No. 185572 February 7, 2012
CHINA NATIONAL MACHINERY & EQUIPMENT CORP. (GROUP), Petitioner,

vs.
HON. CESAR D. SANTAMARIA, in his official capacity as Presiding Judge of Branch 145, Regional Trial Court of Makati
City, HERMINIO HARRY L. ROQUE, JR., JOEL R. BUTUYAN, ROGER R. RAYEL, ROMEL R. BAGARES, CHRISTOPHER
FRANCISCO C. BOLASTIG, LEAGUE OF URBAN POOR FOR ACTION (LUPA), KILUSAN NG MARALITA SA
MEYCAUAYAN (KMM-LUPA CHAPTER), DANILO M. CALDERON, VICENTE C. ALBAN, MERLYN M. VAAL, LOLITA S.
QUINONES, RICARDO D. LANOZO, JR., CONCHITA G. GOZO, MA. TERESA D. ZEPEDA, JOSEFINA A. LANOZO, and
SERGIO C. LEGASPI, JR., KALIPUNAN NG DAMAYANG MAHIHIRAP (KADAMAY), EDY CLERIGO, RAMMIL DINGAL,
NELSON B. TERRADO, CARMEN DEUNIDA, and EDUARDO LEGSON, Respondents.
DECISION
SERENO, J.:
This is a Petition for Review on Certiorari with Prayer for the Issuance of a Temporary Restraining Order (TRO) and/or
Preliminary Injunction assailing the 30 September 2008 Decision and 5 December 2008 Resolution of the Court of Appeals (CA)
in CA–G.R. SP No. 103351.1
On 14 September 2002, petitioner China National Machinery & Equipment Corp. (Group) (CNMEG), represented by its
chairperson, Ren Hongbin, entered into a Memorandum of Understanding with the North Luzon Railways Corporation (Northrail),
represented by its president, Jose L. Cortes, Jr. for the conduct of a feasibility study on a possible railway line from Manila to
San Fernando, La Union (the Northrail Project).2
On 30 August 2003, the Export Import Bank of China (EXIM Bank) and the Department of Finance of the Philippines (DOF)
entered into a Memorandum of Understanding (Aug 30 MOU), wherein China agreed to extend Preferential Buyer’s Credit to the
Philippine government to finance the Northrail Project. 3 The Chinese government designated EXIM Bank as the lender, while the
Philippine government named the DOF as the borrower.4 Under the Aug 30 MOU, EXIM Bank agreed to extend an amount not
exceeding USD 400,000,000 in favor of the DOF, payable in 20 years, with a 5-year grace period, and at the rate of 3% per
annum.5
On 1 October 2003, the Chinese Ambassador to the Philippines, Wang Chungui (Amb. Wang), wrote a letter to DOF Secretary
Jose Isidro Camacho (Sec. Camacho) informing him of CNMEG’s designation as the Prime Contractor for the Northrail Project. 6
On 30 December 2003, Northrail and CNMEG executed a Contract Agreement for the construction of Section I, Phase I of the
North Luzon Railway System from Caloocan to Malolos on a turnkey basis (the Contract Agreement).7 The contract price for the
Northrail Project was pegged at USD 421,050,000.8
On 26 February 2004, the Philippine government and EXIM Bank entered into a counterpart financial agreement – Buyer Credit
Loan Agreement No. BLA 04055 (the Loan Agreement).9 In the Loan Agreement, EXIM Bank agreed to extend Preferential
Buyer’s Credit in the amount of USD 400,000,000 in favor of the Philippine government in order to finance the construction of
Phase I of the Northrail Project.10
On 13 February 2006, respondents filed a Complaint for Annulment of Contract and Injunction with Urgent Motion for Summary
Hearing to Determine the Existence of Facts and Circumstances Justifying the Issuance of Writs of Preliminary Prohibitory and
Mandatory Injunction and/or TRO against CNMEG, the Office of the Executive Secretary, the DOF, the Department of Budget
and Management, the National Economic Development Authority and Northrail.11 The case was docketed as Civil Case No. 06-
203 before the Regional Trial Court, National Capital Judicial Region, Makati City, Branch 145 (RTC Br. 145). In the Complaint,
respondents alleged that the Contract Agreement and the Loan Agreement were void for being contrary to (a) the Constitution;
(b) Republic Act No. 9184 (R.A. No. 9184), otherwise known as the Government Procurement Reform Act; (c) Presidential
Decree No. 1445, otherwise known as the Government Auditing Code; and (d) Executive Order No. 292, otherwise known as the
Administrative Code.12
RTC Br. 145 issued an Order dated 17 March 2006 setting the case for hearing on the issuance of injunctive reliefs. 13 On 29
March 2006, CNMEG filed an Urgent Motion for Reconsideration of this Order. 14 Before RTC Br. 145 could rule thereon, CNMEG
filed a Motion to Dismiss dated 12 April 2006, arguing that the trial court did not have jurisdiction over (a) its person, as it was an
agent of the Chinese government, making it immune from suit, and (b) the subject matter, as the Northrail Project was a product
of an executive agreement.15
On 15 May 2007, RTC Br. 145 issued an Omnibus Order denying CNMEG’s Motion to Dismiss and setting the case for
summary hearing to determine whether the injunctive reliefs prayed for should be issued.16 CNMEG then filed a Motion for
Reconsideration,17 which was denied by the trial court in an Order dated 10 March 2008.18 Thus, CNMEG filed before the CA a
Petition for Certiorari with Prayer for the Issuance of TRO and/or Writ of Preliminary Injunction dated 4 April 2008. 19
In the assailed Decision dated 30 September 2008, the appellate court dismissed the Petition for Certiorari.20 Subsequently,
CNMEG filed a Motion for Reconsideration, 21 which was denied by the CA in a Resolution dated 5 December 2008. 22 Thus,
CNMEG filed the instant Petition for Review on Certiorari dated 21 January 2009, raising the following issues: 23
Whether or not petitioner CNMEG is an agent of the sovereign People’s Republic of China.
Whether or not the Northrail contracts are products of an executive agreement between two sovereign states.
Whether or not the certification from the Department of Foreign Affairs is necessary under the foregoing circumstances.
Whether or not the act being undertaken by petitioner CNMEG is an act jure imperii.
Whether or not the Court of Appeals failed to avoid a procedural limbo in the lower court.
Whether or not the Northrail Project is subject to competitive public bidding.
Whether or not the Court of Appeals ignored the ruling of this Honorable Court in the Neri case.
CNMEG prays for the dismissal of Civil Case No. 06-203 before RTC Br. 145 for lack of jurisdiction. It likewise requests this
Court for the issuance of a TRO and, later on, a writ of preliminary injunction to restrain public respondent from proceeding with
the disposition of Civil Case No. 06-203.
The crux of this case boils down to two main issues, namely:
1. Whether CNMEG is entitled to immunity, precluding it from being sued before a local court.
2. Whether the Contract Agreement is an executive agreement, such that it cannot be questioned by or before a local
court.
First issue: Whether CNMEG is entitled to immunity
This Court explained the doctrine of sovereign immunity in Holy See v. Rosario,24 to wit:
There are two conflicting concepts of sovereign immunity, each widely held and firmly established. According to the classical or
absolute theory, a sovereign cannot, without its consent, be made a respondent in the courts of another
sovereign. According to the newer or restrictive theory, the immunity of the sovereign is recognized only with regard to
public acts or acts jure imperii of a state, but not with regard to private acts or acts jure gestionis. (Emphasis supplied;
citations omitted.)
xxx xxx xxx
The restrictive theory came about because of the entry of sovereign states into purely commercial activities remotely connected
with the discharge of governmental functions. This is particularly true with respect to the Communist states which took control of
nationalized business activities and international trading.
In JUSMAG v. National Labor Relations Commission,25 this Court affirmed the Philippines’ adherence to the restrictive theory as
follows:
The doctrine of state immunity from suit has undergone further metamorphosis. The view evolved that the existence of a
contract does not, per se, mean that sovereign states may, at all times, be sued in local courts. The complexity of relationships
between sovereign states, brought about by their increasing commercial activities, mothered a more restrictive application of the
doctrine.
xxx xxx xxx

As it stands now, the application of the doctrine of immunity from suit has been restricted to sovereign or governmental activities
(jure imperii). The mantle of state immunity cannot be extended to commercial, private and proprietary acts (jure
gestionis).26 (Emphasis supplied.)
Since the Philippines adheres to the restrictive theory, it is crucial to ascertain the legal nature of the act involved – whether the
entity claiming immunity performs governmental, as opposed to proprietary, functions. As held in United States of America v.
Ruiz –27
The restrictive application of State immunity is proper only when the proceedings arise out of commercial transactions of the
foreign sovereign, its commercial activities or economic affairs. Stated differently, a State may be said to have descended to the
level of an individual and can thus be deemed to have tacitly given its consent to be sued only when it enters into business
contracts. It does not apply where the contract relates to the exercise of its sovereign functions.28
A. CNMEG is engaged in a proprietary activity.
A threshold question that must be answered is whether CNMEG performs governmental or proprietary functions. A thorough
examination of the basic facts of the case would show that CNMEG is engaged in a proprietary activity.
The parties executed the Contract Agreement for the purpose of constructing the Luzon Railways, viz: 29
WHEREAS the Employer (Northrail) desired to construct the railways form Caloocan to Malolos, section I, Phase I of Philippine
North Luzon Railways Project (hereinafter referred to as THE PROJECT);
AND WHEREAS the Contractor has offered to provide the Project on Turnkey basis, including design, manufacturing, supply,
construction, commissioning, and training of the Employer’s personnel;
AND WHEREAS the Loan Agreement of the Preferential Buyer’s Credit between Export-Import Bank of China and Department
of Finance of Republic of the Philippines;
NOW, THEREFORE, the parties agree to sign this Contract for the Implementation of the Project.
The above-cited portion of the Contract Agreement, however, does not on its own reveal whether the construction of the Luzon
railways was meant to be a proprietary endeavor. In order to fully understand the intention behind and the purpose of the entire
undertaking, the Contract Agreement must not be read in isolation. Instead, it must be construed in conjunction with three other
documents executed in relation to the Northrail Project, namely: (a) the Memorandum of Understanding dated 14 September
2002 between Northrail and CNMEG;30 (b) the letter of Amb. Wang dated 1 October 2003 addressed to Sec. Camacho;31 and (c)
the Loan Agreement.32
1. Memorandum of Understanding dated 14 September 2002
The Memorandum of Understanding dated 14 September 2002 shows that CNMEG sought the construction of the Luzon
Railways as a proprietary venture. The relevant parts thereof read:
WHEREAS, CNMEG has the financial capability, professional competence and technical expertise to assess the state of the
[Main Line North (MLN)] and recommend implementation plans as well as undertake its rehabilitation and/or modernization;
WHEREAS, CNMEG has expressed interest in the rehabilitation and/or modernization of the MLN from Metro Manila to San
Fernando, La Union passing through the provinces of Bulacan, Pampanga, Tarlac, Pangasinan and La Union (the ‘Project’);
WHEREAS, the NORTHRAIL CORP. welcomes CNMEG’s proposal to undertake a Feasibility Study (the "Study") at no cost to
NORTHRAIL CORP.;
WHEREAS, the NORTHRAIL CORP. also welcomes CNMEG’s interest in undertaking the Project with Supplier’s Credit and
intends to employ CNMEG as the Contractor for the Project subject to compliance with Philippine and Chinese laws, rules and
regulations for the selection of a contractor;
WHEREAS, the NORTHRAIL CORP. considers CNMEG’s proposal advantageous to the Government of the Republic of the
Philippines and has therefore agreed to assist CNMEG in the conduct of the aforesaid Study;
xxx xxx xxx

II. APPROVAL PROCESS
2.1 As soon as possible after completion and presentation of the Study in accordance with Paragraphs 1.3 and 1.4 above and in
compliance with necessary governmental laws, rules, regulations and procedures required from both parties, the parties shall
commence the preparation and negotiation of the terms and conditions of the Contract (the "Contract") to be entered into
between them on the implementation of the Project. The parties shall use their best endeavors to formulate and finalize a
Contract with a view to signing the Contract within one hundred twenty (120) days from CNMEG’s presentation of the
Study.33 (Emphasis supplied)
Clearly, it was CNMEG that initiated the undertaking, and not the Chinese government. The Feasibility Study was conducted not
because of any diplomatic gratuity from or exercise of sovereign functions by the Chinese government, but was plainly a
business strategy employed by CNMEG with a view to securing this commercial enterprise.
2. Letter dated 1 October 2003
That CNMEG, and not the Chinese government, initiated the Northrail Project was confirmed by Amb. Wang in his letter dated 1
October 2003, thus:
1. CNMEG has the proven competence and capability to undertake the Project as evidenced by the ranking of 42 given
by the ENR among 225 global construction companies.
2. CNMEG already signed an MOU with the North Luzon Railways Corporation last September 14, 2000 during the visit
of Chairman Li Peng. Such being the case, they have already established an initial working relationship with your North
Luzon Railways Corporation. This would categorize CNMEG as the state corporation within the People’s Republic of
China which initiated our Government’s involvement in the Project.
3. Among the various state corporations of the People’s Republic of China, only CNMEG has the advantage of being
fully familiar with the current requirements of the Northrail Project having already accomplished a Feasibility Study which
was used as inputs by the North Luzon Railways Corporation in the approvals (sic) process required by the Republic of
the Philippines.34 (Emphasis supplied.)
Thus, the desire of CNMEG to secure the Northrail Project was in the ordinary or regular course of its business as a global
construction company. The implementation of the Northrail Project was intended to generate profit for CNMEG, with the Contract
Agreement placing a contract price of USD 421,050,000 for the venture. 35 The use of the term "state corporation" to refer to
CNMEG was only descriptive of its nature as a government-owned and/or -controlled corporation, and its assignment as the
Primary Contractor did not imply that it was acting on behalf of China in the performance of the latter’s sovereign functions. To
imply otherwise would result in an absurd situation, in which all Chinese corporations owned by the state would be automatically
considered as performing governmental activities, even if they are clearly engaged in commercial or proprietary pursuits.
3. The Loan Agreement
CNMEG claims immunity on the ground that the Aug 30 MOU on the financing of the Northrail Project was signed by the
Philippine and Chinese governments, and its assignment as the Primary Contractor meant that it was bound to perform a
governmental function on behalf of China. However, the Loan Agreement, which originated from the same Aug 30 MOU, belies
this reasoning, viz:
Article 11. xxx (j) Commercial Activity The execution and delivery of this Agreement by the Borrower constitute, and the
Borrower’s performance of and compliance with its obligations under this Agreement will constitute, private and commercial
acts done and performed for commercial purposes under the laws of the Republic of the Philippines and neither the
Borrower nor any of its assets is entitled to any immunity or privilege (sovereign or otherwise) from suit, execution or
any other legal process with respect to its obligations under this Agreement, as the case may be, in any
jurisdiction. Notwithstanding the foregoing, the Borrower does not waive any immunity with respect of its assets which are (i)
used by a diplomatic or consular mission of the Borrower and (ii) assets of a military character and under control of a military
authority or defense agency and (iii) located in the Philippines and dedicated to public or governmental use (as distinguished
from patrimonial assets or assets dedicated to commercial use). (Emphasis supplied.)
(k) Proceedings to Enforce Agreement In any proceeding in the Republic of the Philippines to enforce this Agreement, the choice
of the laws of the People’s Republic of China as the governing law hereof will be recognized and such law will be applied. The
waiver of immunity by the Borrower, the irrevocable submissions of the Borrower to the non-exclusive jurisdiction of the courts of
the People’s Republic of China and the appointment of the Borrower’s Chinese Process Agent is legal, valid, binding and
enforceable and any judgment obtained in the People’s Republic of China will be if introduced, evidence for enforcement in any
proceedings against the Borrower and its assets in the Republic of the Philippines provided that (a) the court rendering judgment
had jurisdiction over the subject matter of the action in accordance with its jurisdictional rules, (b) the Republic had notice of the
proceedings, (c) the judgment of the court was not obtained through collusion or fraud, and (d) such judgment was not based on
a clear mistake of fact or law.36
Further, the Loan Agreement likewise contains this express waiver of immunity:
15.5 Waiver of Immunity The Borrower irrevocably and unconditionally waives, any immunity to which it or its property may at
any time be or become entitled, whether characterized as sovereign immunity or otherwise, from any suit, judgment, service of
process upon it or any agent, execution on judgment, set-off, attachment prior to judgment, attachment in aid of execution to
which it or its assets may be entitled in any legal action or proceedings with respect to this Agreement or any of the transactions
contemplated hereby or hereunder. Notwithstanding the foregoing, the Borrower does not waive any immunity in respect of its
assets which are (i) used by a diplomatic or consular mission of the Borrower, (ii) assets of a military character and under control
of a military authority or defense agency and (iii) located in the Philippines and dedicated to a public or governmental use (as
distinguished from patrimonial assets or assets dedicated to commercial use).37
Thus, despite petitioner’s claim that the EXIM Bank extended financial assistance to Northrail because the bank was mandated
by the Chinese government, and not because of any motivation to do business in the Philippines, 38 it is clear from the foregoing
provisions that the Northrail Project was a purely commercial transaction.
Admittedly, the Loan Agreement was entered into between EXIM Bank and the Philippine government, while the Contract
Agreement was between Northrail and CNMEG. Although the Contract Agreement is silent on the classification of the legal
nature of the transaction, the foregoing provisions of the Loan Agreement, which is an inextricable part of the entire undertaking,
nonetheless reveal the intention of the parties to the Northrail Project to classify the whole venture as commercial or proprietary
in character.
Thus, piecing together the content and tenor of the Contract Agreement, the Memorandum of Understanding dated 14
September 2002, Amb. Wang’s letter dated 1 October 2003, and the Loan Agreement would reveal the desire of CNMEG to
construct the Luzon Railways in pursuit of a purely commercial activity performed in the ordinary course of its business.
B. CNMEG failed to adduce evidence that it is immune from suit under Chinese law.
Even assuming arguendo that CNMEG performs governmental functions, such claim does not automatically vest it with
immunity. This view finds support in Malong v. Philippine National Railways, in which this Court held that "(i)mmunity from suit is
determined by the character of the objects for which the entity was organized."39
In this regard, this Court’s ruling in Deutsche Gesellschaft Für Technische Zusammenarbeit (GTZ) v. CA 40 must be examined. In
Deutsche Gesellschaft, Germany and the Philippines entered into a Technical Cooperation Agreement, pursuant to which both
signed an arrangement promoting the Social Health Insurance–Networking and Empowerment (SHINE) project. The two
governments named their respective implementing organizations: the Department of Health (DOH) and the Philippine Health
Insurance Corporation (PHIC) for the Philippines, and GTZ for the implementation of Germany’s contributions. In ruling that GTZ
was not immune from suit, this Court held:
The arguments raised by GTZ and the [Office of the Solicitor General (OSG)] are rooted in several indisputable facts. The
SHINE project was implemented pursuant to the bilateral agreements between the Philippine and German governments. GTZ
was tasked, under the 1991 agreement, with the implementation of the contributions of the German government. The activities
performed by GTZ pertaining to the SHINE project are governmental in nature, related as they are to the promotion of health
insurance in the Philippines. The fact that GTZ entered into employment contracts with the private respondents did not disqualify
it from invoking immunity from suit, as held in cases such as Holy See v. Rosario, Jr., which set forth what remains valid
doctrine:
not undertaken for gain or profit.
Beyond dispute is the tenability of the comment points (sic) raised by GTZ and the OSG that GTZ was not performing proprietary
functions notwithstanding its entry into the particular employment contracts. Yet there is an equally fundamental premise which
GTZ and the OSG fail to address, namely: Is GTZ, by conception, able to enjoy the Federal Republic’s immunity from suit?
The principle of state immunity from suit, whether a local state or a foreign state, is reflected in Section 9, Article XVI of the
Constitution, which states that "the State may not be sued without its consent." Who or what consists of "the State"? For one, the
doctrine is available to foreign States insofar as they are sought to be sued in the courts of the local State, necessary as it is to
avoid "unduly vexing the peace of nations."
If the instant suit had been brought directly against the Federal Republic of Germany, there would be no doubt that it is a suit
brought against a State, and the only necessary inquiry is whether said State had consented to be sued. However, the present
suit was brought against GTZ. It is necessary for us to understand what precisely are the parameters of the legal personality of
GTZ.
Counsel for GTZ characterizes GTZ as "the implementing agency of the Government of the Federal Republic of
Germany," a depiction similarly adopted by the OSG. Assuming that the characterization is correct, it does not automatically
invest GTZ with the ability to invoke State immunity from suit. The distinction lies in whether the agency is incorporated or
unincorporated.
xxx xxx xxx
State immunity from suit may be waived by general or special law. The special law can take the form of the original charter of the
incorporated government agency. Jurisprudence is replete with examples of incorporated government agencies which were
ruled not entitled to invoke immunity from suit, owing to provisions in their charters manifesting their consent to be sued.
xxx xxx xxx
It is useful to note that on the part of the Philippine government, it had designated two entities, the Department of Health and the
Philippine Health Insurance Corporation (PHIC), as the implementing agencies in behalf of the Philippines. The PHIC was
established under Republic Act No. 7875, Section 16 (g) of which grants the corporation the power "to sue and be sued in court."
Applying the previously cited jurisprudence, PHIC would not enjoy immunity from suit even in the performance of its functions
connected with SHINE, however, (sic) governmental in nature as (sic) they may be.
Is GTZ an incorporated agency of the German government? There is some mystery surrounding that question. Neither
GTZ nor the OSG go beyond the claim that petitioner is "the implementing agency of the Government of the Federal
Republic of Germany." On the other hand, private respondents asserted before the Labor Arbiter that GTZ was "a private
corporation engaged in the implementation of development projects." The Labor Arbiter accepted that claim in his Order denying
the Motion to Dismiss, though he was silent on that point in his Decision. Nevertheless, private respondents argue in their
Comment that the finding that GTZ was a private corporation "was never controverted, and is therefore deemed admitted." In its
Reply, GTZ controverts that finding, saying that it is a matter of public knowledge that the status of petitioner GTZ is that of the
"implementing agency," and not that of a private corporation.
In truth, private respondents were unable to adduce any evidence to substantiate their claim that GTZ was a "private
corporation," and the Labor Arbiter acted rashly in accepting such claim without explanation. But neither has GTZ supplied any
evidence defining its legal nature beyond that of the bare descriptive "implementing agency." There is no doubt that
the 1991 Agreement designated GTZ as the "implementing agency" in behalf of the German government. Yet the catch
is that such term has no precise definition that is responsive to our concerns. Inherently, an agent acts in behalf of a
principal, and the GTZ can be said to act in behalf of the German state. But that is as far as "implementing agency"
could take us. The term by itself does not supply whether GTZ is incorporated or unincorporated, whether it is owned
by the German state or by private interests, whether it has juridical personality independent of the German government
or none at all.
xxx xxx xxx
Again, we are uncertain of the corresponding legal implications under German law surrounding "a private company
owned by the Federal Republic of Germany." Yet taking the description on face value, the apparent equivalent under
Philippine law is that of a corporation organized under the Corporation Code but owned by the Philippine government,
or a government-owned or controlled corporation without original charter. And it bears notice that Section 36 of the
Corporate Code states that "[e]very corporation incorporated under this Code has the power and capacity x x x to sue
and be sued in its corporate name."
It is entirely possible that under German law, an entity such as GTZ or particularly GTZ itself has not been vested or has been
specifically deprived the power and capacity to sue and/or be sued. Yet in the proceedings below and before this Court, GTZ
has failed to establish that under German law, it has not consented to be sued despite it being owned by the Federal
Republic of Germany. We adhere to the rule that in the absence of evidence to the contrary, foreign laws on a particular
subject are presumed to be the same as those of the Philippines, and following the most intelligent assumption we can
gather, GTZ is akin to a governmental owned or controlled corporation without original charter which, by virtue of the
Corporation Code, has expressly consented to be sued. At the very least, like the Labor Arbiter and the Court of Appeals,
this Court has no basis in fact to conclude or presume that GTZ enjoys immunity from suit. 41 (Emphasis supplied.)
Applying the foregoing ruling to the case at bar, it is readily apparent that CNMEG cannot claim immunity from suit, even if it
contends that it performs governmental functions. Its designation as the Primary Contractor does not automatically grant it
immunity, just as the term "implementing agency" has no precise definition for purposes of ascertaining whether GTZ was
immune from suit. Although CNMEG claims to be a government-owned corporation, it failed to adduce evidence that it has not
consented to be sued under Chinese law. Thus, following this Court’s ruling in Deutsche Gesellschaft, in the absence of
evidence to the contrary, CNMEG is to be presumed to be a government-owned and -controlled corporation without an original
charter. As a result, it has the capacity to sue and be sued under Section 36 of the Corporation Code.
C. CNMEG failed to present a certification from the Department of Foreign Affairs.
In Holy See,42 this Court reiterated the oft-cited doctrine that the determination by the Executive that an entity is entitled to
sovereign or diplomatic immunity is a political question conclusive upon the courts, to wit:
xxx xxx xxx
in a Manifestation and Memorandum as amicus curiae.
In the case at bench, the Department of Foreign Affairs, through the Office of Legal Affairs moved with this Court to be allowed
to intervene on the side of petitioner. The Court allowed the said Department to file its memorandum in support of petitioner’s
claim of sovereign immunity.
In some cases, the defense of sovereign immunity was submitted directly to the local courts by the respondents through their
private counsels (Raquiza v. Bradford, 75 Phil. 50 [1945]; Miquiabas v. Philippine-Ryukyus Command, 80 Phil. 262 [1948];
United States of America v. Guinto, 182 SCRA 644 [1990] and companion cases). In cases where the foreign states bypass the
Foreign Office, the courts can inquire into the facts and make their own determination as to the nature of the acts and
transactions involved.43 (Emphasis supplied.)
The question now is whether any agency of the Executive Branch can make a determination of immunity from suit, which may
be considered as conclusive upon the courts. This Court, in Department of Foreign Affairs (DFA) v. National Labor Relations
Commission (NLRC),44 emphasized the DFA’s competence and authority to provide such necessary determination, to wit:
The DFA’s function includes, among its other mandates, the determination of persons and institutions covered by diplomatic
immunities, a determination which, when challenge, (sic) entitles it to seek relief from the court so as not to seriously impair the
conduct of the country's foreign relations. The DFA must be allowed to plead its case whenever necessary or advisable to
enable it to help keep the credibility of the Philippine government before the international community. When international
agreements are concluded, the parties thereto are deemed to have likewise accepted the responsibility of seeing to it that their
agreements are duly regarded. In our country, this task falls principally of (sic) the DFA as being the highest executive
department with the competence and authority to so act in this aspect of the international arena. 45 (Emphasis supplied.)
Further, the fact that this authority is exclusive to the DFA was also emphasized in this Court’s ruling in Deutsche Gesellschaft:
It is to be recalled that the Labor Arbiter, in both of his rulings, noted that it was imperative for petitioners to secure from the
Department of Foreign Affairs "a certification of respondents’ diplomatic status and entitlement to diplomatic privileges including
immunity from suits." The requirement might not necessarily be imperative. However, had GTZ obtained such certification from
the DFA, it would have provided factual basis for its claim of immunity that would, at the very least, establish a disputable
evidentiary presumption that the foreign party is indeed immune which the opposing party will have to overcome with its own
factual evidence. We do not see why GTZ could not have secured such certification or endorsement from the DFA for purposes
of this case. Certainly, it would have been highly prudential for GTZ to obtain the same after the Labor Arbiter had denied the
motion to dismiss. Still, even at this juncture, we do not see any evidence that the DFA, the office of the executive branch in
charge of our diplomatic relations, has indeed endorsed GTZ’s claim of immunity. It may be possible that GTZ tried, but failed to
secure such certification, due to the same concerns that we have discussed herein.
Would the fact that the Solicitor General has endorsed GTZ’s claim of State’s immunity from suit before this Court sufficiently
substitute for the DFA certification? Note that the rule in public international law quoted in Holy See referred to endorsement by
the Foreign Office of the State where the suit is filed, such foreign office in the Philippines being the Department of Foreign
Affairs. Nowhere in the Comment of the OSG is it manifested that the DFA has endorsed GTZ’s claim, or that the OSG had
solicited the DFA’s views on the issue. The arguments raised by the OSG are virtually the same as the arguments raised by
GTZ without any indication of any special and distinct perspective maintained by the Philippine government on the issue. The
Comment filed by the OSG does not inspire the same degree of confidence as a certification from the DFA would have
elicited.46 (Emphasis supplied.)
In the case at bar, CNMEG offers the Certification executed by the Economic and Commercial Office of the Embassy of the
People’s Republic of China, stating that the Northrail Project is in pursuit of a sovereign activity. 47 Surely, this is not the kind of
certification that can establish CNMEG’s entitlement to immunity from suit, as Holy See unequivocally refers to the determination
of the "Foreign Office of the state where it is sued."
Further, CNMEG also claims that its immunity from suit has the executive endorsement of both the OSG and the Office of the
Government Corporate Counsel (OGCC), which must be respected by the courts. However, as expressly enunciated in
Deutsche Gesellschaft, this determination by the OSG, or by the OGCC for that matter, does not inspire the same degree of
confidence as a DFA certification. Even with a DFA certification, however, it must be remembered that this Court is not
precluded from making an inquiry into the intrinsic correctness of such certification.
D. An agreement to submit any dispute to arbitration may be construed as an implicit waiver of immunity from suit.
In the United States, the Foreign Sovereign Immunities Act of 1976 provides for a waiver by implication of state immunity. In the
said law, the agreement to submit disputes to arbitration in a foreign country is construed as an implicit waiver of immunity from
suit. Although there is no similar law in the Philippines, there is reason to apply the legal reasoning behind the waiver in this
case.
The Conditions of Contract,48 which is an integral part of the Contract Agreement,49 states:
33. SETTLEMENT OF DISPUTES AND ARBITRATION
33.1. Amicable Settlement
Both parties shall attempt to amicably settle all disputes or controversies arising from this Contract before the commencement of
arbitration.
33.2. Arbitration
All disputes or controversies arising from this Contract which cannot be settled between the Employer and the Contractor shall
be submitted to arbitration in accordance with the UNCITRAL Arbitration Rules at present in force and as may be amended by
the rest of this Clause. The appointing authority shall be Hong Kong International Arbitration Center. The place of arbitration
shall be in Hong Kong at Hong Kong International Arbitration Center (HKIAC).
Under the above provisions, if any dispute arises between Northrail and CNMEG, both parties are bound to submit the matter to
the HKIAC for arbitration. In case the HKIAC makes an arbitral award in favor of Northrail, its enforcement in the Philippines
would be subject to the Special Rules on Alternative Dispute Resolution (Special Rules). Rule 13 thereof provides for the
Recognition and Enforcement of a Foreign Arbitral Award. Under Rules 13.2 and 13.3 of the Special Rules, the party to
arbitration wishing to have an arbitral award recognized and enforced in the Philippines must petition the proper regional trial
court (a) where the assets to be attached or levied upon is located; (b) where the acts to be enjoined are being performed; (c) in
the principal place of business in the Philippines of any of the parties; (d) if any of the parties is an individual, where any of those
individuals resides; or (e) in the National Capital Judicial Region.
From all the foregoing, it is clear that CNMEG has agreed that it will not be afforded immunity from suit. Thus, the courts have
the competence and jurisdiction to ascertain the validity of the Contract Agreement.
Second issue: Whether the Contract Agreement is an executive agreement

Article 2(1) of the Vienna Convention on the Law of Treaties (Vienna Convention) defines a treaty as follows:
[A]n international agreement concluded between States in written form and governed by international law, whether embodied in
a single instrument or in two or more related instruments and whatever its particular designation.
In Bayan Muna v. Romulo, this Court held that an executive agreement is similar to a treaty, except that the former (a) does not
require legislative concurrence; (b) is usually less formal; and (c) deals with a narrower range of subject matters. 50
Despite these differences, to be considered an executive agreement, the following three requisites provided under the Vienna
Convention must nevertheless concur: (a) the agreement must be between states; (b) it must be written; and (c) it must
governed by international law. The first and the third requisites do not obtain in the case at bar.
A. CNMEG is neither a government nor a government agency.
The Contract Agreement was not concluded between the Philippines and China, but between Northrail and CNMEG.51 By the
terms of the Contract Agreement, Northrail is a government-owned or -controlled corporation, while CNMEG is a corporation
duly organized and created under the laws of the People’s Republic of China. 52 Thus, both Northrail and CNMEG entered into
the Contract Agreement as entities with personalities distinct and separate from the Philippine and Chinese governments,
respectively.
Neither can it be said that CNMEG acted as agent of the Chinese government. As previously discussed, the fact that Amb.
Wang, in his letter dated 1 October 2003,53 described CNMEG as a "state corporation" and declared its designation as the
Primary Contractor in the Northrail Project did not mean it was to perform sovereign functions on behalf of China. That label was
only descriptive of its nature as a state-owned corporation, and did not preclude it from engaging in purely commercial or
proprietary ventures.
B. The Contract Agreement is to be governed by Philippine law.
Article 2 of the Conditions of Contract,54 which under Article 1.1 of the Contract Agreement is an integral part of the latter, states:
APPLICABLE LAW AND GOVERNING LANGUAGE
The contract shall in all respects be read and construed in accordance with the laws of the Philippines.
The contract shall be written in English language. All correspondence and other documents pertaining to the Contract which are
exchanged by the parties shall be written in English language.
Since the Contract Agreement explicitly provides that Philippine law shall be applicable, the parties have effectively conceded
that their rights and obligations thereunder are not governed by international law.
It is therefore clear from the foregoing reasons that the Contract Agreement does not partake of the nature of an executive
agreement. It is merely an ordinary commercial contract that can be questioned before the local courts.
WHEREFORE, the instant Petition is DENIED. Petitioner China National Machinery & Equipment Corp. (Group) is not entitled to
immunity from suit, and the Contract Agreement is not an executive agreement. CNMEG’s prayer for the issuance of a TRO
and/or Writ of Preliminary Injunction is DENIED for being moot and academic. This case is REMANDED to the Regional Trial
Court of Makati, Branch 145, for further proceedings as regards the validity of the contracts subject of Civil Case No. 06-203.
No pronouncement on costs of suit.
SO ORDERED.
EN BANC
G.R. No. 101949 December 1, 1994
THE HOLY SEE, petitioner, vs.

THE HON. ERIBERTO U. ROSARIO, JR., as Presiding Judge of the Regional Trial Court of Makati, Branch 61 and
STARBRIGHT SALES ENTERPRISES, INC., respondents.
Padilla Law Office for petitioner. Siguion Reyna, Montecillo & Ongsiako for private respondent.
QUIASON, J.: This is a petition for certiorari under Rule 65 of the Revised Rules of Court to reverse and set aside the Orders
dated June 20, 1991 and September 19, 1991 of the Regional Trial Court, Branch 61, Makati, Metro Manila in Civil Case No. 90-
183.
The Order dated June 20, 1991 denied the motion of petitioner to dismiss the complaint in Civil Case No. 90-183, while the
Order dated September 19, 1991 denied the motion for reconsideration of the June 20,1991 Order.
Petitioner is the Holy See who exercises sovereignty over the Vatican City in Rome, Italy, and is represented in the Philippines
by the Papal Nuncio.
Private respondent, Starbright Sales Enterprises, Inc., is a domestic corporation engaged in the real estate business.
This petition arose from a controversy over a parcel of land consisting of 6,000 square meters (Lot 5-A, Transfer Certificate of
Title No. 390440) located in the Municipality of Parañaque, Metro Manila and registered in the name of petitioner.
Said Lot 5-A is contiguous to Lots 5-B and 5-D which are covered by Transfer Certificates of Title Nos. 271108 and 265388
respectively and registered in the name of the Philippine Realty Corporation (PRC).
The three lots were sold to Ramon Licup, through Msgr. Domingo A. Cirilos, Jr., acting as agent to the sellers. Later, Licup
assigned his rights to the sale to private respondent.
In view of the refusal of the squatters to vacate the lots sold to private respondent, a dispute arose as to who of the parties has
the responsibility of evicting and clearing the land of squatters. Complicating the relations of the parties was the sale by
petitioner of Lot 5-A to Tropicana Properties and Development Corporation (Tropicana).
On January 23, 1990, private respondent filed a complaint with the Regional Trial Court, Branch 61, Makati, Metro Manila for
annulment of the sale of the three parcels of land, and specific performance and damages against petitioner, represented by the
Papal Nuncio, and three other defendants: namely, Msgr. Domingo A. Cirilos, Jr., the PRC and Tropicana (Civil Case No.
90-183).
The complaint alleged that: (1) on April 17, 1988, Msgr. Cirilos, Jr., on behalf of petitioner and the PRC, agreed to sell to Ramon
Licup Lots 5-A, 5-B and 5-D at the price of P1,240.00 per square meters; (2) the agreement to sell was made on the condition
that earnest money of P100,000.00 be paid by Licup to the sellers, and that the sellers clear the said lots of squatters who were
then occupying the same; (3) Licup paid the earnest money to Msgr. Cirilos; (4) in the same month, Licup assigned his rights
over the property to private respondent and informed the sellers of the said assignment; (5) thereafter, private respondent
demanded from Msgr. Cirilos that the sellers fulfill their undertaking and clear the property of squatters; however, Msgr. Cirilos
informed private respondent of the squatters' refusal to vacate the lots, proposing instead either that private respondent
undertake the eviction or that the earnest money be returned to the latter; (6) private respondent counterproposed that if it would
undertake the eviction of the squatters, the purchase price of the lots should be reduced from P1,240.00 to P1,150.00 per
square meter; (7) Msgr. Cirilos returned the earnest money of P100,000.00 and wrote private respondent giving it seven days
from receipt of the letter to pay the original purchase price in cash; (8) private respondent sent the earnest money back to the
sellers, but later discovered that on March 30, 1989, petitioner and the PRC, without notice to private respondent, sold the lots to
Tropicana, as evidenced by two separate Deeds of Sale, one over Lot 5-A, and another over Lots 5-B and 5-D; and that the
sellers' transfer certificate of title over the lots were cancelled, transferred and registered in the name of Tropicana; (9) Tropicana
induced petitioner and the PRC to sell the lots to it and thus enriched itself at the expense of private respondent; (10) private
respondent demanded the rescission of the sale to Tropicana and the reconveyance of the lots, to no avail; and (11) private
respondent is willing and able to comply with the terms of the contract to sell and has actually made plans to develop the lots
into a townhouse project, but in view of the sellers' breach, it lost profits of not less than P30,000.000.00.
Private respondent thus prayed for: (1) the annulment of the Deeds of Sale between petitioner and the PRC on the one hand,
and Tropicana on the other; (2) the reconveyance of the lots in question; (3) specific performance of the agreement to sell
between it and the owners of the lots; and (4) damages.
On June 8, 1990, petitioner and Msgr. Cirilos separately moved to dismiss the complaint — petitioner for lack of jurisdiction
based on sovereign immunity from suit, and Msgr. Cirilos for being an improper party. An opposition to the motion was filed by
private respondent.
On June 20, 1991, the trial court issued an order denying, among others, petitioner's motion to dismiss after finding that
petitioner "shed off [its] sovereign immunity by entering into the business contract in question" (Rollo, pp. 20-21).
On July 12, 1991, petitioner moved for reconsideration of the order. On August 30, 1991, petitioner filed a "Motion for a Hearing
for the Sole Purpose of Establishing Factual Allegation for claim of Immunity as a Jurisdictional Defense." So as to facilitate the
determination of its defense of sovereign immunity, petitioner prayed that a hearing be conducted to allow it to establish certain
facts upon which the said defense is based. Private respondent opposed this motion as well as the motion for reconsideration.
On October 1, 1991, the trial court issued an order deferring the resolution on the motion for reconsideration until after trial on
the merits and directing petitioner to file its answer (Rollo, p. 22).
Petitioner forthwith elevated the matter to us. In its petition, petitioner invokes the privilege of sovereign immunity only on its own
behalf and on behalf of its official representative, the Papal Nuncio.
On December 9, 1991, a Motion for Intervention was filed before us by the Department of Foreign Affairs, claiming that it has a
legal interest in the outcome of the case as regards the diplomatic immunity of petitioner, and that it "adopts by reference, the
allegations contained in the petition of the Holy See insofar as they refer to arguments relative to its claim of sovereign immunity
from suit" (Rollo, p. 87).
Private respondent opposed the intervention of the Department of Foreign Affairs. In compliance with the resolution of this Court,
both parties and the Department of Foreign Affairs submitted their respective memoranda.
II
A preliminary matter to be threshed out is the procedural issue of whether the petition for certiorari under Rule 65 of the Revised
Rules of Court can be availed of to question the order denying petitioner's motion to dismiss. The general rule is that an order
denying a motion to dismiss is not reviewable by the appellate courts, the remedy of the movant being to file his answer and to
proceed with the hearing before the trial court. But the general rule admits of exceptions, and one of these is when it is very clear
in the records that the trial court has no alternative but to dismiss the complaint (Philippine National Bank v. Florendo, 206 SCRA
582 [1992]; Zagada v. Civil Service Commission, 216 SCRA 114 [1992]. In such a case, it would be a sheer waste of time and
energy to require the parties to undergo the rigors of a trial.
The other procedural question raised by private respondent is the personality or legal interest of the Department of Foreign
Affairs to intervene in the case in behalf of the Holy See (Rollo, pp. 186-190).
In the United States, the procedure followed is the process of "suggestion," where the foreign state or the international
organization sued in an American court requests the Secretary of State to make a determination as to whether it is entitled to
immunity. If the Secretary of State finds that the defendant is immune from suit, he, in turn, asks the Attorney General to submit
to the court a "suggestion" that the defendant is entitled to immunity. In England, a similar procedure is followed, only the
Foreign Office issues a certification to that effect instead of submitting a "suggestion" (O'Connell, I International Law 130 [1965];
Note: Immunity from Suit of Foreign Sovereign Instrumentalities and Obligations, 50 Yale Law Journal 1088 [1941]).
in a Manifestation and Memorandum as amicus curiae.
In the case at bench, the Department of Foreign Affairs, through the Office of Legal Affairs moved with this Court to be allowed
to intervene on the side of petitioner. The Court allowed the said Department to file its memorandum in support of petitioner's
claim of sovereign immunity.
In some cases, the defense of sovereign immunity was submitted directly to the local courts by the respondents through their
private counsels (Raquiza v. Bradford, 75 Phil. 50 [1945]; Miquiabas v. Philippine-Ryukyus Command, 80 Phil. 262 [1948];
United States of America v. Guinto, 182 SCRA 644 [1990] and companion cases). In cases where the foreign states bypass the
Foreign Office, the courts can inquire into the facts and make their own determination as to the nature of the acts and
transactions involved.
III
The burden of the petition is that respondent trial court has no jurisdiction over petitioner, being a foreign state enjoying
sovereign immunity. On the other hand, private respondent insists that the doctrine of non-suability is not anymore absolute and
that petitioner has divested itself of such a cloak when, of its own free will, it entered into a commercial transaction for the sale of
a parcel of land located in the Philippines.
A. The Holy See
Before we determine the issue of petitioner's non-suability, a brief look into its status as a sovereign state is in order.
Before the annexation of the Papal States by Italy in 1870, the Pope was the monarch and he, as the Holy See, was considered
a subject of International Law. With the loss of the Papal States and the limitation of the territory under the Holy See to an area
of 108.7 acres, the position of the Holy See in International Law became controversial (Salonga and Yap, Public International
Law 36-37 [1992]).
In 1929, Italy and the Holy See entered into the Lateran Treaty, where Italy recognized the exclusive dominion and sovereign
jurisdiction of the Holy See over the Vatican City. It also recognized the right of the Holy See to receive foreign diplomats, to
send its own diplomats to foreign countries, and to enter into treaties according to International Law (Garcia, Questions and
Problems In International Law, Public and Private 81 [1948]).
The Lateran Treaty established the statehood of the Vatican City "for the purpose of assuring to the Holy See absolute and
visible independence and of guaranteeing to it indisputable sovereignty also in the field of international relations" (O'Connell, I
International Law 311 [1965]).
In view of the wordings of the Lateran Treaty, it is difficult to determine whether the statehood is vested in the Holy See or in the
Vatican City. Some writers even suggested that the treaty created two international persons — the Holy See and Vatican City
(Salonga and Yap, supra, 37).
The Vatican City fits into none of the established categories of states, and the attribution to it of "sovereignty" must be made in a
sense different from that in which it is applied to other states (Fenwick, International Law 124-125 [1948]; Cruz, International Law
37 [1991]). In a community of national states, the Vatican City represents an entity organized not for political but for
ecclesiastical purposes and international objects. Despite its size and object, the Vatican City has an independent government of
its own, with the Pope, who is also head of the Roman Catholic Church, as the Holy See or Head of State, in conformity with its
traditions, and the demands of its mission in the world. Indeed, the world-wide interests and activities of the Vatican City are
such as to make it in a sense an "international state" (Fenwick, supra., 125; Kelsen, Principles of International Law 160 [1956]).
One authority wrote that the recognition of the Vatican City as a state has significant implication — that it is possible for any
entity pursuing objects essentially different from those pursued by states to be invested with international personality (Kunz, The
Status of the Holy See in International Law, 46 The American Journal of International Law 308 [1952]).
Inasmuch as the Pope prefers to conduct foreign relations and enter into transactions as the Holy See and not in the name of
the Vatican City, one can conclude that in the Pope's own view, it is the Holy See that is the international person.
The Republic of the Philippines has accorded the Holy See the status of a foreign sovereign. The Holy See, through its
Ambassador, the Papal Nuncio, has had diplomatic representations with the Philippine government since 1957 (Rollo, p. 87).
This appears to be the universal practice in international relations.
B. Sovereign Immunity
As expressed in Section 2 of Article II of the 1987 Constitution, we have adopted the generally accepted principles of
International Law. Even without this affirmation, such principles of International Law are deemed incorporated as part of the law
of the land as a condition and consequence of our admission in the society of nations (United States of America v. Guinto, 182
SCRA 644 [1990]).
There are two conflicting concepts of sovereign immunity, each widely held and firmly established. According to the classical or
absolute theory, a sovereign cannot, without its consent, be made a respondent in the courts of another sovereign. According to
the newer or restrictive theory, the immunity of the sovereign is recognized only with regard to public acts or acts jure imperii of a
state, but not with regard to private acts or acts jure gestionis
(United States of America v. Ruiz, 136 SCRA 487 [1987]; Coquia and Defensor-Santiago, Public International Law 194 [1984]).
Some states passed legislation to serve as guidelines for the executive or judicial determination when an act may be considered
as jure gestionis. The United States passed the Foreign Sovereign Immunities Act of 1976, which defines a commercial activity
as "either a regular course of commercial conduct or a particular commercial transaction or act." Furthermore, the law declared
that the "commercial character of the activity shall be determined by reference to the nature of the course of conduct or
particular transaction or act, rather than by reference to its purpose." The Canadian Parliament enacted in 1982 an Act to
Provide For State Immunity in Canadian Courts. The Act defines a "commercial activity" as any particular transaction, act or
conduct or any regular course of conduct that by reason of its nature, is of a "commercial character."
The restrictive theory, which is intended to be a solution to the host of problems involving the issue of sovereign immunity, has
created problems of its own. Legal treatises and the decisions in countries which follow the restrictive theory have difficulty in
characterizing whether a contract of a sovereign state with a private party is an act jure gestionis or an act jure imperii.
The restrictive theory came about because of the entry of sovereign states into purely commercial activities remotely connected
with the discharge of governmental functions. This is particularly true with respect to the Communist states which took control of
nationalized business activities and international trading.
This Court has considered the following transactions by a foreign state with private parties as acts jure imperii: (1) the lease by a
foreign government of apartment buildings for use of its military officers (Syquia v. Lopez, 84 Phil. 312 [1949]; (2) the conduct of
public bidding for the repair of a wharf at a United States Naval Station (United States of America v. Ruiz, supra.); and (3) the
change of employment status of base employees (Sanders v. Veridiano, 162 SCRA 88 [1988]).
On the other hand, this Court has considered the following transactions by a foreign state with private parties as acts jure
gestionis: (1) the hiring of a cook in the recreation center, consisting of three restaurants, a cafeteria, a bakery, a store, and a
coffee and pastry shop at the John Hay Air Station in Baguio City, to cater to American servicemen and the general public
(United States of America v. Rodrigo, 182 SCRA 644 [1990]); and (2) the bidding for the operation of barber shops in Clark Air
Base in Angeles City (United States of America v. Guinto, 182 SCRA 644 [1990]). The operation of the restaurants and other
facilities open to the general public is undoubtedly for profit as a commercial and not a governmental activity. By entering into the
employment contract with the cook in the discharge of its proprietary function, the United States government impliedly divested
itself of its sovereign immunity from suit.
In the absence of legislation defining what activities and transactions shall be considered "commercial" and as constituting
acts jure gestionis, we have to come out with our own guidelines, tentative they may be.
not undertaken for gain or profit.
As held in United States of America v. Guinto, (supra):
There is no question that the United States of America, like any other state, will be deemed to have impliedly
waived its non-suability if it has entered into a contract in its proprietary or private capacity. It is only when the
contract involves its sovereign or governmental capacity that no such waiver may be implied.
In the case at bench, if petitioner has bought and sold lands in the ordinary course of a real estate business, surely the said
transaction can be categorized as an act jure gestionis. However, petitioner has denied that the acquisition and subsequent
disposal of Lot 5-A were made for profit but claimed that it acquired said property for the site of its mission or the Apostolic
Nunciature in the Philippines. Private respondent failed to dispute said claim.
Lot 5-A was acquired by petitioner as a donation from the Archdiocese of Manila. The donation was made not for commercial
purpose, but for the use of petitioner to construct thereon the official place of residence of the Papal Nuncio. The right of a
foreign sovereign to acquire property, real or personal, in a receiving state, necessary for the creation and maintenance of its
diplomatic mission, is recognized in the 1961 Vienna Convention on Diplomatic Relations (Arts. 20-22). This treaty was
concurred in by the Philippine Senate and entered into force in the Philippines on November 15, 1965.
In Article 31(a) of the Convention, a diplomatic envoy is granted immunity from the civil and administrative jurisdiction of the
receiving state over any real action relating to private immovable property situated in the territory of the receiving state which the
envoy holds on behalf of the sending state for the purposes of the mission. If this immunity is provided for a diplomatic envoy,
with all the more reason should immunity be recognized as regards the sovereign itself, which in this case is the Holy See.
The decision to transfer the property and the subsequent disposal thereof are likewise clothed with a governmental character.
Petitioner did not sell Lot
5-A for profit or gain. It merely wanted to dispose off the same because the squatters living thereon made it almost impossible
for petitioner to use it for the purpose of the donation. The fact that squatters have occupied and are still occupying the lot, and
that they stubbornly refuse to leave the premises, has been admitted by private respondent in its complaint (Rollo, pp. 26, 27).
The issue of petitioner's non-suability can be determined by the trial court without going to trial in the light of the pleadings,
particularly the admission of private respondent. Besides, the privilege of sovereign immunity in this case was sufficiently
established by the Memorandum and Certification of the Department of Foreign Affairs. As the department tasked with the
conduct of the Philippines' foreign relations (Administrative Code of 1987, Book IV, Title I, Sec. 3), the Department of Foreign
Affairs has formally intervened in this case and officially certified that the Embassy of the Holy See is a duly accredited
diplomatic mission to the Republic of the Philippines exempt from local jurisdiction and entitled to all the rights, privileges and
immunities of a diplomatic mission or embassy in this country (Rollo, pp. 156-157). The determination of the executive arm of
government that a state or instrumentality is entitled to sovereign or diplomatic immunity is a political question that is conclusive
upon the courts (International Catholic Migration Commission v. Calleja, 190 SCRA 130 [1990]). Where the plea of immunity is
recognized and affirmed by the executive branch, it is the duty of the courts to accept this claim so as not to embarrass the
executive arm of the government in conducting the country's foreign relations (World Health Organization v. Aquino, 48 SCRA
242 [1972]). As in International Catholic Migration Commission and in World Health Organization, we abide by the certification of
the Department of Foreign Affairs.
Ordinarily, the procedure would be to remand the case and order the trial court to conduct a hearing to establish the facts
alleged by petitioner in its motion. In view of said certification, such procedure would however be pointless and unduly circuitous
(Ortigas & Co. Ltd. Partnership v. Judge Tirso Velasco, G.R. No. 109645, July 25, 1994).
IV
Private respondent is not left without any legal remedy for the redress of its grievances. Under both Public International Law and
Transnational Law, a person who feels aggrieved by the acts of a foreign sovereign can ask his own government to espouse his
cause through diplomatic channels.
Private respondent can ask the Philippine government, through the Foreign Office, to espouse its claims against the Holy See.
Its first task is to persuade the Philippine government to take up with the Holy See the validity of its claims. Of course, the
Foreign Office shall first make a determination of the impact of its espousal on the relations between the Philippine government
and the Holy See (Young, Remedies of Private Claimants Against Foreign States, Selected Readings on Protection by Law of
Private Foreign Investments 905, 919 [1964]). Once the Philippine government decides to espouse the claim, the latter ceases
to be a private cause.
According to the Permanent Court of International Justice, the forerunner of the International Court of Justice:
By taking up the case of one of its subjects and by reporting to diplomatic action or international judicial
proceedings on his behalf, a State is in reality asserting its own rights — its right to ensure, in the person of its
subjects, respect for the rules of international law (The Mavrommatis Palestine Concessions, 1 Hudson, World
Court Reports 293, 302 [1924]).
WHEREFORE, the petition for certiorari is GRANTED and the complaint in Civil Case No. 90-183 against petitioner is
DISMISSED.
SO ORDERED.
Narvasa, C.J., Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan and Mendoza, JJ., concur. Padilla,
J., took no part. Feliciano, J., is on leave.
FIRST DIVISION
G.R. No. 171182 August 23, 2012
UNIVERSITY OF THE PHILIPPINES, JOSE V. ABUEVA, RAUL P. DE GUZMAN, RUBEN P. ASPIRAS, EMMANUEL P.
BELLO, WILFREDO P. DAVID, CASIANO S. ABRIGO, and JOSEFINA R. LICUANAN, Petitioners,
vs.
HON. AGUSTIN S. DIZON, his capacity as Presiding Judge of the Regional Trial Court of Quezon City, Branch 80,
STERN BUILDERS, INC., and SERVILLANO DELA CRUZ, Respondents.
DECISION
BERSAMIN, J.:
Trial judges should not immediately issue writs of execution or garnishment against the Government or any of its subdivisions,
agencies and instrumentalities to enforce money judgments.1 They should bear in mind that the primary jurisdiction to examine,
audit and settle all claims of any sort due from the Government or any of its subdivisions, agencies and instrumentalities pertains
to the Commission on Audit (COA) pursuant to Presidential Decree No. 1445 (Government Auditing Code of the Philippines).
The Case
On appeal by the University of the Philippines and its then incumbent officials (collectively, the UP) is the decision promulgated
on September 16, 2005,2 whereby the Court of Appeals (CA) upheld the order of the Regional Trial Court (RTC), Branch 80, in
Quezon City that directed the garnishment of public funds amounting to ₱ 16,370,191.74 belonging to the UP to satisfy the writ
of execution issued to enforce the already final and executory judgment against the UP.
Antecedents
On August 30, 1990, the UP, through its then President Jose V. Abueva, entered into a General Construction Agreement with
respondent Stern Builders Corporation (Stern Builders), represented by its President and General Manager Servillano dela Cruz,
for the construction of the extension building and the renovation of the College of Arts and Sciences Building in the campus of
the University of the Philippines in Los Baños (UPLB).3
In the course of the implementation of the contract, Stern Builders submitted three progress billings corresponding to the work
accomplished, but the UP paid only two of the billings. The third billing worth ₱ 273,729.47 was not paid due to its disallowance
by the Commission on Audit (COA). Despite the lifting of the disallowance, the UP failed to pay the billing, prompting Stern
Builders and dela Cruz to sue the UP and its co-respondent officials to collect the unpaid billing and to recover various damages.
The suit, entitled Stern Builders Corporation and Servillano R. Dela Cruz v. University of the Philippines Systems, Jose V.
Abueva, Raul P. de Guzman, Ruben P. Aspiras, Emmanuel P. Bello, Wilfredo P. David, Casiano S. Abrigo, and Josefina R.
Licuanan, was docketed as Civil Case No. Q-93-14971 of the Regional Trial Court in Quezon City (RTC).4
After trial, on November 28, 2001, the RTC rendered its decision in favor of the plaintiffs, 5 viz:
Wherefore, in the light of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendants ordering
the latter to pay plaintiff, jointly and severally, the following, to wit:
1. ₱ 503,462.74 amount of the third billing, additional accomplished work and retention money
2. ₱ 5,716,729.00 in actual damages
3. ₱ 10,000,000.00 in moral damages
4. ₱ 150,000.00 and ₱ 1,500.00 per appearance as attorney’s fees; and
5. Costs of suit.
SO ORDERED.
Following the RTC’s denial of its motion for reconsideration on May 7, 2002, 6 the UP filed a notice of appeal on June 3,
2002.7 Stern Builders and dela Cruz opposed the notice of appeal on the ground of its filing being belated, and moved for the
execution of the decision. The UP countered that the notice of appeal was filed within the reglementary period because the UP’s
Office of Legal Affairs (OLS) in Diliman, Quezon City received the order of denial only on May 31, 2002. On September 26,
2002, the RTC denied due course to the notice of appeal for having been filed out of time and granted the private respondents’
motion for execution.8
The RTC issued the writ of execution on October 4, 2002,9 and the sheriff of the RTC served the writ of execution and notice of
demand upon the UP, through its counsel, on October 9, 2002.10 The UP filed an urgent motion to reconsider the order dated
September 26, 2002, to quash the writ of execution dated October 4, 2002, and to restrain the proceedings. 11 However, the RTC
denied the urgent motion on April 1, 2003.12
On June 24, 2003, the UP assailed the denial of due course to its appeal through a petition for certiorari in the Court of Appeals
(CA), docketed as CA-G.R. No. 77395.13
On February 24, 2004, the CA dismissed the petition for certiorari upon finding that the UP’s notice of appeal had been filed
late,14 stating:
Records clearly show that petitioners received a copy of the Decision dated November 28, 2001 and January 7, 2002, thus, they
had until January 22, 2002 within which to file their appeal. On January 16, 2002 or after the lapse of nine (9) days, petitioners
through their counsel Atty. Nolasco filed a Motion for Reconsideration of the aforesaid decision, hence, pursuant to the rules,
petitioners still had six (6) remaining days to file their appeal. As admitted by the petitioners in their petition (Rollo, p. 25), Atty.
Nolasco received a copy of the Order denying their motion for reconsideration on May 17, 2002, thus, petitioners still has until
May 23, 2002 (the remaining six (6) days) within which to file their appeal. Obviously, petitioners were not able to file their Notice
of Appeal on May 23, 2002 as it was only filed on June 3, 2002.
In view of the said circumstances, We are of the belief and so holds that the Notice of Appeal filed by the petitioners was really
filed out of time, the same having been filed seventeen (17) days late of the reglementary period. By reason of which, the
decision dated November 28, 2001 had already become final and executory. "Settled is the rule that the perfection of an appeal
in the manner and within the period permitted by law is not only mandatory but jurisdictional, and failure to perfect that appeal
renders the challenged judgment final and executory. This is not an empty procedural rule but is grounded on fundamental
considerations of public policy and sound practice." (Ram’s Studio and Photographic Equipment, Inc. vs. Court of Appeals, 346
SCRA 691, 696). Indeed, Atty. Nolasco received the order of denial of the Motion for Reconsideration on May 17, 2002 but filed
a Notice of Appeal only on June 3, 3003. As such, the decision of the lower court ipso facto became final when no appeal was
perfected after the lapse of the reglementary period. This procedural caveat cannot be trifled with, not even by the High Court. 15
The UP sought a reconsideration, but the CA denied the UP’s motion for reconsideration on April 19, 2004.16
On May 11, 2004, the UP appealed to the Court by petition for review on certiorari (G.R. No. 163501).
On June 23, 2004, the Court denied the petition for review.17 The UP moved for the reconsideration of the denial of its petition for
review on August 29, 2004,18 but the Court denied the motion on October 6, 2004. 19 The denial became final and executory on
November 12, 2004.20
In the meanwhile that the UP was exhausting the available remedies to overturn the denial of due course to the appeal and the
issuance of the writ of execution, Stern Builders and dela Cruz filed in the RTC their motions for execution despite their previous
motion having already been granted and despite the writ of execution having already issued. On June 11, 2003, the RTC
granted another motion for execution filed on May 9, 2003 (although the RTC had already issued the writ of execution on
October 4, 2002).21
On June 23, 2003 and July 25, 2003, respectively, the sheriff served notices of garnishment on the UP’s depository banks,
namely: Land Bank of the Philippines (Buendia Branch) and the Development Bank of the Philippines (DBP), Commonwealth
Branch.22 The UP assailed the garnishment through an urgent motion to quash the notices of garnishment; 23 and a motion to
quash the writ of execution dated May 9, 2003.24
On their part, Stern Builders and dela Cruz filed their ex parte motion for issuance of a release order.25
On October 14, 2003, the RTC denied the UP’s urgent motion to quash, and granted Stern Builders and dela Cruz’s ex parte
motion for issuance of a release order.26
The UP moved for the reconsideration of the order of October 14, 2003, but the RTC denied the motion on November 7, 2003. 27
On January 12, 2004, Stern Builders and dela Cruz again sought the release of the garnished funds. 28 Despite the UP’s
opposition,29 the RTC granted the motion to release the garnished funds on March 16, 2004.30 On April 20, 2004, however, the
RTC held in abeyance the enforcement of the writs of execution issued on October 4, 2002 and June 3, 2003 and all the ensuing
notices of garnishment, citing Section 4, Rule 52, Rules of Court, which provided that the pendency of a timely motion for
reconsideration stayed the execution of the judgment.31
On December 21, 2004, the RTC, through respondent Judge Agustin S. Dizon, authorized the release of the garnished funds of
the UP,32 to wit:
WHEREFORE, premises considered, there being no more legal impediment for the release of the garnished amount in
satisfaction of the judgment award in the instant case, let the amount garnished be immediately released by the Development
Bank of the Philippines, Commonwealth Branch, Quezon City in favor of the plaintiff.
SO ORDERED.
The UP was served on January 3, 2005 with the order of December 21, 2004 directing DBP to release the garnished funds. 33
On January 6, 2005, Stern Builders and dela Cruz moved to cite DBP in direct contempt of court for its non-compliance with the
order of release.34
Thereupon, on January 10, 2005, the UP brought a petition for certiorari in the CA to challenge the jurisdiction of the RTC in
issuing the order of December 21, 2004 (CA-G.R. CV No. 88125).35 Aside from raising the denial of due process, the UP averred
that the RTC committed grave abuse of discretion amounting to lack or excess of jurisdiction in ruling that there was no longer
any legal impediment to the release of the garnished funds. The UP argued that government funds and properties could not be
seized by virtue of writs of execution or garnishment, as held in Department of Agriculture v. National Labor Relations
Commission,36 and citing Section 84 of Presidential Decree No. 1445 to the effect that "revenue funds shall not be paid out of
any public treasury or depository except in pursuance of an appropriation law or other specific statutory authority;" and that the
order of garnishment clashed with the ruling in University of the Philippines Board of Regents v. Ligot-Telan37 to the effect that
the funds belonging to the UP were public funds.
On January 19, 2005, the CA issued a temporary restraining order (TRO) upon application by the UP. 38
On March 22, 2005, Stern Builders and dela Cruz filed in the RTC their amended motion for sheriff’s assistance to implement the
release order dated December 21, 2004, stating that the 60-day period of the TRO of the CA had already lapsed.39 The UP
opposed the amended motion and countered that the implementation of the release order be suspended.40
On May 3, 2005, the RTC granted the amended motion for sheriff’s assistance and directed the sheriff to proceed to the DBP to
receive the check in satisfaction of the judgment.41
The UP sought the reconsideration of the order of May 3, 2005. 42
On May 16, 2005, DBP filed a motion to consign the check representing the judgment award and to dismiss the motion to cite its
officials in contempt of court.43
On May 23, 2005, the UP presented a motion to withhold the release of the payment of the judgment award. 44
On July 8, 2005, the RTC resolved all the pending matters,45 noting that the DBP had already delivered to the sheriff Manager’s
Check No. 811941 for ₱ 16,370,191.74 representing the garnished funds payable to the order of Stern Builders and dela Cruz
as its compliance with the RTC’s order dated December 21, 2004.46 However, the RTC directed in the same order that Stern
Builders and dela Cruz should not encash the check or withdraw its amount pending the final resolution of the UP’s petition for
certiorari, to wit:47
To enable the money represented in the check in question (No. 00008119411) to earn interest during the pendency of the
defendant University of the Philippines application for a writ of injunction with the Court of Appeals the same may now be
deposited by the plaintiff at the garnishee Bank (Development Bank of the Philippines), the disposition of the amount
represented therein being subject to the final outcome of the case of the University of the Philippines et al., vs. Hon. Agustin S.
Dizon et al., (CA G.R. 88125) before the Court of Appeals.
Let it be stated herein that the plaintiff is not authorized to encash and withdraw the amount represented in the check in question
and enjoy the same in the fashion of an owner during the pendency of the case between the parties before the Court of Appeals
which may or may not be resolved in plaintiff’s favor.
With the end in view of seeing to it that the check in question is deposited by the plaintiff at the Development Bank of the
Philippines (garnishee bank), Branch Sheriff Herlan Velasco is directed to accompany and/or escort the plaintiff in making the
deposit of the check in question.
SO ORDERED.
On September 16, 2005, the CA promulgated its assailed decision dismissing the UP’s petition for certiorari, ruling that the UP
had been given ample opportunity to contest the motion to direct the DBP to deposit the check in the name of Stern Builders and
dela Cruz; and that the garnished funds could be the proper subject of garnishment because they had been already earmarked
for the project, with the UP holding the funds only in a fiduciary capacity, 48 viz:
Petitioners next argue that the UP funds may not be seized for execution or garnishment to satisfy the judgment award. Citing
Department of Agriculture vs. NLRC, University of the Philippines Board of Regents vs. Hon. Ligot-Telan, petitioners contend
that UP deposits at Land Bank and the Development Bank of the Philippines, being government funds, may not be released
absent an appropriations bill from Congress.
The argument is specious. UP entered into a contract with private respondents for the expansion and renovation of the Arts and
Sciences Building of its campus in Los Baños, Laguna. Decidedly, there was already an appropriations earmarked for the said
project. The said funds are retained by UP, in a fiduciary capacity, pending completion of the construction project.
We agree with the trial Court [sic] observation on this score:
"4. Executive Order No. 109 (Directing all National Government Agencies to Revert Certain Accounts Payable to the
Cumulative Result of Operations of the National Government and for Other Purposes) Section 9. Reversion of Accounts
Payable, provides that, all 1995 and prior years documented accounts payable and all undocumented accounts
regardless of the year they were incurred shall be reverted to the Cumulative Result of Operations of the National
Government (CROU). This shall apply to accounts payable of all funds, except fiduciary funds, as long as the purpose
for which the funds were created have not been accomplished and accounts payable under foreign assisted projects for
the duration of the said project. In this regard, the Department of Budget and Management issued Joint-Circular No. 99-
6 4.0 (4.3) Procedural Guidelines which provides that all accounts payable that reverted to the CROU may be
considered for payment upon determination thru administrative process, of the existence, validity and legality of the
claim. Thus, the allegation of the defendants that considering no appropriation for the payment of any amount awarded
to plaintiffs appellee the funds of defendant-appellants may not be seized pursuant to a writ of execution issued by the
regular court is misplaced. Surely when the defendants and the plaintiff entered into the General Construction of
Agreement there is an amount already allocated by the latter for the said project which is no longer subject of future
appropriation."49
After the CA denied their motion for reconsideration on December 23, 2005, the petitioners appealed by petition for review.
Matters Arising During the Pendency of the Petition
On January 30, 2006, Judge Dizon of the RTC (Branch 80) denied Stern Builders and dela Cruz’s motion to withdraw the
deposit, in consideration of the UP’s intention to appeal to the CA,50 stating:
Since it appears that the defendants are intending to file a petition for review of the Court of Appeals resolution in CA-G.R. No.
88125 within the reglementary period of fifteen (15) days from receipt of resolution, the Court agrees with the defendants stand
that the granting of plaintiffs’ subject motion is premature.
Let it be stated that what the Court meant by its Order dated July 8, 2005 which states in part that the "disposition of the amount
represented therein being subject to the final outcome of the case of the University of the Philippines, et. al., vs. Hon. Agustin S.
Dizon et al., (CA G.R. No. 88125 before the Court of Appeals) is that the judgment or resolution of said court has to be final and
executory, for if the same will still be elevated to the Supreme Court, it will not attain finality yet until the highest court has
rendered its own final judgment or resolution.51
However, on January 22, 2007, the UP filed an Urgent Application for A Temporary Restraining Order and/or A Writ of
Preliminary Injunction,52 averring that on January 3, 2007, Judge Maria Theresa dela Torre-Yadao (who had meanwhile replaced
Judge Dizon upon the latter’s appointment to the CA) had issued another order allowing Stern Builders and dela Cruz to
withdraw the deposit,53 to wit:
It bears stressing that defendants’ liability for the payment of the judgment obligation has become indubitable due to the final and
executory nature of the Decision dated November 28, 2001. Insofar as the payment of the [sic] judgment obligation is
concerned, the Court believes that there is nothing more the defendant can do to escape liability. It is observed that there is
nothing more the defendant can do to escape liability. It is observed that defendant U.P. System had already exhausted all its
legal remedies to overturn, set aside or modify the decision (dated November 28, 2001( rendered against it. The way the Court
sees it, defendant U.P. System’s petition before the Supreme Court concerns only with the manner by which said judgment
award should be satisfied. It has nothing to do with the legality or propriety thereof, although it prays for the deletion of [sic]
reduction of the award of moral damages.
It must be emphasized that this Court’s finding, i.e., that there was sufficient appropriation earmarked for the project, was upheld
by the Court of Appeals in its decision dated September 16, 2005. Being a finding of fact, the Supreme Court will, ordinarily, not
disturb the same was said Court is not a trier of fact. Such being the case, defendants’ arguments that there was no sufficient
appropriation for the payment of the judgment obligation must fail.
While it is true that the former Presiding Judge of this Court in its Order dated January 30, 2006 had stated that:
Let it be stated that what the Court meant by its Order dated July 8, 2005 which states in part that the "disposition of the amount
represented therein being subject to the final outcome of the case of the University of the Philippines, et. al., vs. Hon. Agustin S.
Dizon et al., (CA G.R. No. 88125 before the Court of Appeals) is that the judgment or resolution of said court has to be final and
executory, for if the same will still be elevated to the Supreme Court, it will not attain finality yet until the highest court has
rendered its own final judgment or resolution.
it should be noted that neither the Court of Appeals nor the Supreme Court issued a preliminary injunction enjoining the release
or withdrawal of the garnished amount. In fact, in its present petition for review before the Supreme Court, U.P. System has not
prayed for the issuance of a writ of preliminary injunction. Thus, the Court doubts whether such writ is forthcoming.
The Court honestly believes that if defendants’ petition assailing the Order of this Court dated December 31, 2004 granting the
motion for the release of the garnished amount was meritorious, the Court of Appeals would have issued a writ of injunction
enjoining the same. Instead, said appellate court not only refused to issue a wit of preliminary injunction prayed for by U.P.
System but denied the petition, as well. 54
The UP contended that Judge Yadao thereby effectively reversed the January 30, 2006 order of Judge Dizon disallowing the
withdrawal of the garnished amount until after the decision in the case would have become final and executory.
Although the Court issued a TRO on January 24, 2007 to enjoin Judge Yadao and all persons acting pursuant to her authority
from enforcing her order of January 3, 2007,55 it appears that on January 16, 2007, or prior to the issuance of the TRO, she had
already directed the DBP to forthwith release the garnished amount to Stern Builders and dela Cruz; 56 and that DBP had
forthwith complied with the order on January 17, 2007 upon the sheriff’s service of the order of Judge Yadao. 57
These intervening developments impelled the UP to file in this Court a supplemental petition on January 26, 2007, 58 alleging that
the RTC (Judge Yadao) gravely erred in ordering the immediate release of the garnished amount despite the pendency of the
petition for review in this Court.
The UP filed a second supplemental petition59 after the RTC (Judge Yadao) denied the UP’s motion for the redeposit of the
withdrawn amount on April 10, 2007,60 to wit:
This resolves defendant U.P. System’s Urgent Motion to Redeposit Judgment Award praying that plaintiffs be directed to
redeposit the judgment award to DBP pursuant to the Temporary Restraining Order issued by the Supreme Court. Plaintiffs
opposed the motion and countered that the Temporary Restraining Order issued by the Supreme Court has become moot and
academic considering that the act sought to be restrained by it has already been performed. They also alleged that the redeposit
of the judgment award was no longer feasible as they have already spent the same.
It bears stressing, if only to set the record straight, that this Court did not – in its Order dated January 3, 2007 (the
implementation of which was restrained by the Supreme Court in its Resolution dated January 24, 2002) – direct that that
garnished amount "be deposited with the garnishee bank (Development Bank of the Philippines)". In the first place, there was no
need to order DBP to make such deposit, as the garnished amount was already deposited in the account of plaintiffs with the
DBP as early as May 13, 2005. What the Court granted in its Order dated January 3, 2007 was plaintiff’s motion to allow the
release of said deposit. It must be recalled that the Court found plaintiff’s motion meritorious and, at that time, there was no
restraining order or preliminary injunction from either the Court of Appeals or the Supreme Court which could have enjoined the
release of plaintiffs’ deposit. The Court also took into account the following factors:
a) the Decision in this case had long been final and executory after it was rendered on November 28, 2001;
b) the propriety of the dismissal of U.P. System’s appeal was upheld by the Supreme Court;
c) a writ of execution had been issued;
d) defendant U.P. System’s deposit with DBP was garnished pursuant to a lawful writ of execution issued by the Court;
and
e) the garnished amount had already been turned over to the plaintiffs and deposited in their account with DBP.
The garnished amount, as discussed in the Order dated January 16, 2007, was already owned by the plaintiffs, having been
delivered to them by the Deputy Sheriff of this Court pursuant to par. (c), Section 9, Rule 39 of the 1997 Rules of Civil
Procedure. Moreover, the judgment obligation has already been fully satisfied as per Report of the Deputy Sheriff.
Anent the Temporary Restraining Order issued by the Supreme Court, the same has become functus oficio, having been issued
after the garnished amount had been released to the plaintiffs. The judgment debt was released to the plaintiffs on January 17,
2007, while the Temporary Restraining Order issued by the Supreme Court was received by this Court on February 2, 2007. At
the time of the issuance of the Restraining Order, the act sought to be restrained had already been done, thereby rendering the
said Order ineffectual.
After a careful and thorough study of the arguments advanced by the parties, the Court is of the considered opinion that there is
no legal basis to grant defendant U.P. System’s motion to redeposit the judgment amount. Granting said motion is not only
contrary to law, but it will also render this Court’s final executory judgment nugatory. Litigation must end and terminate sometime
and somewhere, and it is essential to an effective administration of justice that once a judgment has become final the issue or
cause involved therein should be laid to rest. This doctrine of finality of judgment is grounded on fundamental considerations of
public policy and sound practice. In fact, nothing is more settled in law than that once a judgment attains finality it thereby
becomes immutable and unalterable. It may no longer be modified in any respect, even if the modification is meant to correct
what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be
made by the court rendering it or by the highest court of the land.
WHEREFORE, premises considered, finding defendant U.P. System’s Urgent Motion to Redeposit Judgment Award devoid of
merit, the same is hereby DENIED.
SO ORDERED.
Issues
The UP now submits that:
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN DISMISSING THE PETITION, ALLOWING IN EFFECT THE
GARNISHMENT OF UP FUNDS, WHEN IT RULED THAT FUNDS HAVE ALREADY BEEN EARMARKED FOR THE
CONSTRUCTION PROJECT; AND THUS, THERE IS NO NEED FOR FURTHER APPROPRIATIONS.
II
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN ALLOWING GARNISHMENT OF A STATE UNIVERSITY’S
FUNDS IN VIOLATION OF ARTICLE XIV, SECTION 5(5) OF THE CONSTITUTION.
III
IN THE ALTERNATIVE, THE UNIVERSITY INVOKES EQUITY AND THE REVIEW POWERS OF THIS HONORABLE COURT
TO MODIFY, IF NOT TOTALLY DELETE THE AWARD OF ₱ 10 MILLION AS MORAL DAMAGES TO RESPONDENTS.
IV
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE IMMEDIATE RELEASE OF THE JUDGMENT
AWARD IN ITS ORDER DATED 3 JANUARY 2007 ON THE GROUND OF EQUITY AND JUDICIAL COURTESY.
V
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE IMMEDIATE RELEASE OF THE JUDGMENT
AWARD IN ITS ORDER DATED 16 JANUARY 2007 ON THE GROUND THAT PETITIONER UNIVERSITY STILL HAS A
PENDING MOTION FOR RECONSIDERATION OF THE ORDER DATED 3 JANUARY 2007.
VI
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN NOT ORDERING THE REDEPOSIT OF THE GARNISHED AMOUNT
TO THE DBP IN VIOLATION OF THE CLEAR LANGUAGE OF THE SUPREME COURT RESOLUTION DATED 24 JANUARY
2007.
The UP argues that the amount earmarked for the construction project had been purposely set aside only for the aborted project
and did not include incidental matters like the awards of actual damages, moral damages and attorney’s fees. In support of its
argument, the UP cited Article 12.2 of the General Construction Agreement, which stipulated that no deductions would be
allowed for the payment of claims, damages, losses and expenses, including attorney’s fees, in case of any litigation arising out
of the performance of the work. The UP insists that the CA decision was inconsistent with the rulings in Commissioner of Public
Highways v. San Diego61 and Department of Agriculture v. NLRC62 to the effect that government funds and properties could not
be seized under writs of execution or garnishment to satisfy judgment awards.
Furthermore, the UP contends that the CA contravened Section 5, Article XIV of the Constitution by allowing the garnishment of
UP funds, because the garnishment resulted in a substantial reduction of the UP’s limited budget allocated for the remuneration,
job satisfaction and fulfillment of the best available teachers; that Judge Yadao should have exhibited judicial courtesy towards
the Court due to the pendency of the UP’s petition for review; and that she should have also desisted from declaring that the
TRO issued by this Court had become functus officio.
Lastly, the UP states that the awards of actual damages of ₱ 5,716,729.00 and moral damages of ₱ 10 million should be
reduced, if not entirely deleted, due to its being unconscionable, inequitable and detrimental to public service.
In contrast, Stern Builders and dela Cruz aver that the petition for review was fatally defective for its failure to mention the other
cases upon the same issues pending between the parties (i.e., CA-G.R. No. 77395 and G.R No. 163501); that the UP was
evidently resorting to forum shopping, and to delaying the satisfaction of the final judgment by the filing of its petition for review;
that the ruling in Commissioner of Public Works v. San Diego had no application because there was an appropriation for the
project; that the UP retained the funds allotted for the project only in a fiduciary capacity; that the contract price had been
meanwhile adjusted to ₱ 22,338,553.25, an amount already more than sufficient to cover the judgment award; that the UP’s
prayer to reduce or delete the award of damages had no factual basis, because they had been gravely wronged, had been
deprived of their source of income, and had suffered untold miseries, discomfort, humiliation and sleepless years; that dela Cruz
had even been constrained to sell his house, his equipment and the implements of his trade, and together with his family had
been forced to live miserably because of the wrongful actuations of the UP; and that the RTC correctly declared the Court’s TRO
to be already functus officio by reason of the withdrawal of the garnished amount from the DBP.
The decisive issues to be considered and passed upon are, therefore:
(a) whether the funds of the UP were the proper subject of garnishment in order to satisfy the judgment award; and (b) whether
the UP’s prayer for the deletion of the awards of actual damages of ₱ 5,716,729.00, moral damages of ₱ 10,000,000.00 and
attorney’s fees of ₱ 150,000.00 plus ₱ 1,500.00 per appearance could be granted despite the finality of the judgment of the
RTC.
Ruling
The petition for review is meritorious.
I.
UP’s funds, being government funds,
are not subject to garnishment
The UP was founded on June 18, 1908 through Act 1870 to provide advanced instruction in literature, philosophy, the sciences,
and arts, and to give professional and technical training to deserving students. 63 Despite its establishment as a body
corporate,64 the UP remains to be a "chartered institution"65 performing a legitimate government function. It is an institution of
higher learning, not a corporation established for profit and declaring any dividends. 66 In enacting Republic Act No. 9500 (The
University of the Philippines Charter of 2008), Congress has declared the UP as the national university67 "dedicated to the
search for truth and knowledge as well as the development of future leaders." 68
Irrefragably, the UP is a government instrumentality,69 performing the State’s constitutional mandate of promoting quality and
accessible education.70 As a government instrumentality, the UP administers special funds sourced from the fees and income
enumerated under Act No. 1870 and Section 1 of Executive Order No. 714, 71 and from the yearly appropriations, to achieve the
purposes laid down by Section 2 of Act 1870, as expanded in Republic Act No. 9500. 72 All the funds going into the possession of
the UP, including any interest accruing from the deposit of such funds in any banking institution, constitute a "special trust fund,"
the disbursement of which should always be aligned with the UP’s mission and purpose,73 and should always be subject to
auditing by the COA.74
Presidential Decree No. 1445 defines a "trust fund" as a fund that officially comes in the possession of an agency of the
government or of a public officer as trustee, agent or administrator, or that is received for the fulfillment of some obligation.75 A
trust fund may be utilized only for the "specific purpose for which the trust was created or the funds received." 76
The funds of the UP are government funds that are public in character. They include the income accruing from the use of real
property ceded to the UP that may be spent only for the attainment of its institutional objectives.77 Hence, the funds subject of
this action could not be validly made the subject of the RTC’s writ of execution or garnishment. The adverse judgment rendered
against the UP in a suit to which it had impliedly consented was not immediately enforceable by execution against the
UP,78 because suability of the State did not necessarily mean its liability. 79
A marked distinction exists between suability of the State and its liability. As the Court succinctly stated in Municipality of San
Fernando, La Union v. Firme:80
A distinction should first be made between suability and liability. "Suability depends on the consent of the state to be sued,
liability on the applicable law and the established facts. The circumstance that a state is suable does not necessarily mean that it
is liable; on the other hand, it can never be held liable if it does not first consent to be sued. Liability is not conceded by the mere
fact that the state has allowed itself to be sued. When the state does waive its sovereign immunity, it is only giving the plaintiff
the chance to prove, if it can, that the defendant is liable.
Also, in Republic v. Villasor,81 where the issuance of an alias writ of execution directed against the funds of the Armed Forces of
the Philippines to satisfy a final and executory judgment was nullified, the Court said:
xxx The universal rule that where the State gives its consent to be sued by private parties either by general or special law, it may
limit claimant’s action "only up to the completion of proceedings anterior to the stage of execution" and that the power of the
Courts ends when the judgment is rendered, since government funds and properties may not be seized under writs of execution
or garnishment to satisfy such judgments, is based on obvious considerations of public policy. Disbursements of public funds
must be covered by the corresponding appropriation as required by law. The functions and public services rendered by the State
cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects, as
appropriated by law.
The UP correctly submits here that the garnishment of its funds to satisfy the judgment awards of actual and moral damages
(including attorney’s fees) was not validly made if there was no special appropriation by Congress to cover the liability. It was,
therefore, legally unwarranted for the CA to agree with the RTC’s holding in the order issued on April 1, 2003 that no
appropriation by Congress to allocate and set aside the payment of the judgment awards was necessary because "there (were)
already an appropriations (sic) earmarked for the said project."82 The CA and the RTC thereby unjustifiably ignored the legal
restriction imposed on the trust funds of the Government and its agencies and instrumentalities to be used exclusively to fulfill
the purposes for which the trusts were created or for which the funds were received except upon express authorization by
Congress or by the head of a government agency in control of the funds, and subject to pertinent budgetary laws, rules and
regulations.83
Indeed, an appropriation by Congress was required before the judgment that rendered the UP liable for moral and actual
damages (including attorney’s fees) would be satisfied considering that such monetary liabilities were not covered by the
"appropriations earmarked for the said project." The Constitution strictly mandated that "(n)o money shall be paid out of the
Treasury except in pursuance of an appropriation made by law." 84
II
COA must adjudicate private respondents’ claim
before execution should proceed
The execution of the monetary judgment against the UP was within the primary jurisdiction of the COA. This was expressly
provided in Section 26 of Presidential Decree No. 1445, to wit:
Section 26. General jurisdiction. - The authority and powers of the Commission shall extend to and comprehend all matters
relating to auditing procedures, systems and controls, the keeping of the general accounts of the Government, the preservation
of vouchers pertaining thereto for a period of ten years, the examination and inspection of the books, records, and papers
relating to those accounts; and the audit and settlement of the accounts of all persons respecting funds or property received or
held by them in an accountable capacity, as well as the examination, audit, and settlement of all debts and claims of any sort
due from or owing to the Government or any of its subdivisions, agencies and instrumentalities. The said jurisdiction extends to
all government-owned or controlled corporations, including their subsidiaries, and other self-governing boards, commissions, or
agencies of the Government, and as herein prescribed, including non governmental entities subsidized by the government,
those funded by donations through the government, those required to pay levies or government share, and those for which the
government has put up a counterpart fund or those partly funded by the government.
It was of no moment that a final and executory decision already validated the claim against the UP. The settlement of the
monetary claim was still subject to the primary jurisdiction of the COA despite the final decision of the RTC having already
validated the claim.85 As such, Stern Builders and dela Cruz as the claimants had no alternative except to first seek the approval
of the COA of their monetary claim.
On its part, the RTC should have exercised utmost caution, prudence and judiciousness in dealing with the motions for
execution against the UP and the garnishment of the UP’s funds. The RTC had no authority to direct the immediate withdrawal
of any portion of the garnished funds from the depository banks of the UP. By eschewing utmost caution, prudence and
judiciousness in dealing with the execution and garnishment, and by authorizing the withdrawal of the garnished funds of the UP,
the RTC acted beyond its jurisdiction, and all its orders and issuances thereon were void and of no legal effect, specifically: (a)
the order Judge Yadao issued on January 3, 2007 allowing Stern Builders and dela Cruz to withdraw the deposited garnished
amount; (b) the order Judge Yadao issued on January 16, 2007 directing DBP to forthwith release the garnish amount to Stern
Builders and dela Cruz; (c) the sheriff’s report of January 17, 2007 manifesting the full satisfaction of the writ of execution; and
(d) the order of April 10, 2007 deying the UP’s motion for the redeposit of the withdrawn amount. Hence, such orders and
issuances should be struck down without exception.
Nothing extenuated Judge Yadao’s successive violations of Presidential Decree No. 1445. She was aware of Presidential
Decree No. 1445, considering that the Court circulated to all judges its Administrative Circular No. 10-2000,86 issued on October
25, 2000, enjoining them "to observe utmost caution, prudence and judiciousness in the issuance of writs of execution to satisfy
money judgments against government agencies and local government units" precisely in order to prevent the circumvention of
Presidential Decree No. 1445, as well as of the rules and procedures of the COA, to wit:
In order to prevent possible circumvention of the rules and procedures of the Commission on Audit, judges are hereby
enjoined to observe utmost caution, prudence and judiciousness in the issuance of writs of execution to satisfy money
judgments against government agencies and local government units.
Judges should bear in mind that in Commissioner of Public Highways v. San Diego (31 SCRA 617, 625 1970), this Court
explicitly stated:
"The universal rule that where the State gives its consent to be sued by private parties either by general or special law, it may
limit claimant’s action ‘only up to the completion of proceedings anterior to the stage of execution’ and that the power of the
Court ends when the judgment is rendered, since government funds and properties may not be seized under writs of execution
or garnishment to satisfy such judgments, is based on obvious considerations of public policy. Disbursements of public funds
must be covered by the corresponding appropriation as required by law. The functions and public services rendered by the State
cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects, as
appropriated by law.
Moreover, it is settled jurisprudence that upon determination of State liability, the prosecution, enforcement or
satisfaction thereof must still be pursued in accordance with the rules and procedures laid down in P.D. No. 1445,
otherwise known as the Government Auditing Code of the Philippines (Department of Agriculture v. NLRC, 227 SCRA
693, 701-02 1993 citing Republic vs. Villasor, 54 SCRA 84 1973). All money claims against the Government must first be
filed with the Commission on Audit which must act upon it within sixty days. Rejection of the claim will authorize the
claimant to elevate the matter to the Supreme Court on certiorari and in effect, sue the State thereby (P.D. 1445,
Sections 49-50).
However, notwithstanding the rule that government properties are not subject to levy and execution unless otherwise provided
for by statute (Republic v. Palacio, 23 SCRA 899 1968; Commissioner of Public Highways v. San Diego, supra) or municipal
ordinance (Municipality of Makati v. Court of Appeals, 190 SCRA 206 1990), the Court has, in various instances, distinguished
between government funds and properties for public use and those not held for public use. Thus, in Viuda de Tan Toco v.
Municipal Council of Iloilo (49 Phil 52 1926, the Court ruled that "where property of a municipal or other public corporation is
sought to be subjected to execution to satisfy judgments recovered against such corporation, the question as to whether such
property is leviable or not is to be determined by the usage and purposes for which it is held." The following can be culled from
Viuda de Tan Toco v. Municipal Council of Iloilo:
1. Properties held for public uses – and generally everything held for governmental purposes – are not subject to levy
and sale under execution against such corporation. The same rule applies to funds in the hands of a public officer and
taxes due to a municipal corporation.
2. Where a municipal corporation owns in its proprietary capacity, as distinguished from its public or government capacity,
property not used or used for a public purpose but for quasi-private purposes, it is the general rule that such property may be
seized and sold under execution against the corporation.
3. Property held for public purposes is not subject to execution merely because it is temporarily used for private purposes. If the
public use is wholly abandoned, such property becomes subject to execution.
This Administrative Circular shall take effect immediately and the Court Administrator shall see to it that it is faithfully
implemented.
Although Judge Yadao pointed out that neither the CA nor the Court had issued as of then any writ of preliminary injunction to
enjoin the release or withdrawal of the garnished amount, she did not need any writ of injunction from a superior court to compel
her obedience to the law. The Court is disturbed that an experienced judge like her should look at public laws like Presidential
Decree No. 1445 dismissively instead of loyally following and unquestioningly implementing them. That she did so turned her
court into an oppressive bastion of mindless tyranny instead of having it as a true haven for the seekers of justice like the UP.
III
Period of appeal did not start without effective
service of decision upon counsel of record;
Fresh-period rule announced in
Neypes v. Court of Appeals
can be given retroactive application
The UP next pleads that the Court gives due course to its petition for review in the name of equity in order to reverse or modify
the adverse judgment against it despite its finality. At stake in the UP’s plea for equity was the return of the amount of ₱
16,370,191.74 illegally garnished from its trust funds. Obstructing the plea is the finality of the judgment based on the supposed
tardiness of UP’s appeal, which the RTC declared on September 26, 2002. The CA upheld the declaration of finality on February
24, 2004, and the Court itself denied the UP’s petition for review on that issue on May 11, 2004 (G.R. No. 163501). The denial
became final on November 12, 2004.
It is true that a decision that has attained finality becomes immutable and unalterable, and cannot be modified in any
respect,87 even if the modification is meant to correct erroneous conclusions of fact and law, and whether the modification is
made by the court that rendered it or by this Court as the highest court of the land. 88 Public policy dictates that once a judgment
becomes final, executory and unappealable, the prevailing party should not be deprived of the fruits of victory by some
subterfuge devised by the losing party. Unjustified delay in the enforcement of such judgment sets at naught the role and
purpose of the courts to resolve justiciable controversies with finality. 89 Indeed, all litigations must at some time end, even at the
risk of occasional errors.
But the doctrine of immutability of a final judgment has not been absolute, and has admitted several exceptions, among them:
(a) the correction of clerical errors; (b) the so-called nunc pro tunc entries that cause no prejudice to any party; (c) void
judgments; and (d) whenever circumstances transpire after the finality of the decision that render its execution unjust and
inequitable.90 Moreover, in Heirs of Maura So v. Obliosca,91 we stated that despite the absence of the preceding circumstances,
the Court is not precluded from brushing aside procedural norms if only to serve the higher interests of justice and equity. Also,
in Gumaru v. Quirino State College,92 the Court nullified the proceedings and the writ of execution issued by the RTC for the
reason that respondent state college had not been represented in the litigation by the Office of the Solicitor General.
We rule that the UP’s plea for equity warrants the Court’s exercise of the exceptional power to disregard the declaration of
finality of the judgment of the RTC for being in clear violation of the UP’s right to due process.
Both the CA and the RTC found the filing on June 3, 2002 by the UP of the notice of appeal to be tardy. They based their finding
on the fact that only six days remained of the UP’s reglementary 15-day period within which to file the notice of appeal because
the UP had filed a motion for reconsideration on January 16, 2002 vis-à-vis the RTC’s decision the UP received on January 7,
2002; and that because the denial of the motion for reconsideration had been served upon Atty. Felimon D. Nolasco of the UPLB
Legal Office on May 17, 2002, the UP had only until May 23, 2002 within which to file the notice of appeal.
The UP counters that the service of the denial of the motion for reconsideration upon Atty. Nolasco was defective considering
that its counsel of record was not Atty. Nolasco of the UPLB Legal Office but the OLS in Diliman, Quezon City; and that the
period of appeal should be reckoned from May 31, 2002, the date when the OLS received the order. The UP submits that the
filing of the notice of appeal on June 3, 2002 was well within the reglementary period to appeal.
We agree with the submission of the UP.
Firstly, the service of the denial of the motion for reconsideration upon Atty. Nolasco of the UPLB Legal Office was invalid and
ineffectual because he was admittedly not the counsel of record of the UP. The rule is that it is on the counsel and not the client
that the service should be made.93
That counsel was the OLS in Diliman, Quezon City, which was served with the denial only on May 31, 2002. As such, the
running of the remaining period of six days resumed only on June 1, 2002,94 rendering the filing of the UP’s notice of appeal on
June 3, 2002 timely and well within the remaining days of the UP’s period to appeal.
Verily, the service of the denial of the motion for reconsideration could only be validly made upon the OLS in Diliman, and no
other. The fact that Atty. Nolasco was in the employ of the UP at the UPLB Legal Office did not render the service upon him
effective. It is settled that where a party has appeared by counsel, service must be made upon such counsel. 95 Service on the
party or the party’s employee is not effective because such notice is not notice in law. 96 This is clear enough from Section 2,
second paragraph, of Rule 13, Rules of Court, which explicitly states that: "If any party has appeared by counsel, service upon
him shall be made upon his counsel or one of them, unless service upon the party himself is ordered by the court. Where one
counsel appears for several parties, he shall only be entitled to one copy of any paper served upon him by the opposite side." As
such, the period to appeal resumed only on June 1, 2002, the date following the service on May 31, 2002 upon the OLS in
Diliman of the copy of the decision of the RTC, not from the date when the UP was notified.97
Accordingly, the declaration of finality of the judgment of the RTC, being devoid of factual and legal bases, is set aside.
Secondly, even assuming that the service upon Atty. Nolasco was valid and effective, such that the remaining period for the UP
to take a timely appeal would end by May 23, 2002, it would still not be correct to find that the judgment of the RTC became final
and immutable thereafter due to the notice of appeal being filed too late on June 3, 2002.
In so declaring the judgment of the RTC as final against the UP, the CA and the RTC applied the rule contained in the second
paragraph of Section 3, Rule 41 of the Rules of Court to the effect that the filing of a motion for reconsideration interrupted the
running of the period for filing the appeal; and that the period resumed upon notice of the denial of the motion for
reconsideration. For that reason, the CA and the RTC might not be taken to task for strictly adhering to the rule then prevailing.
However, equity calls for the retroactive application in the UP’s favor of the fresh-period rule that the Court first announced in
mid-September of 2005 through its ruling in Neypes v. Court of Appeals,98 viz:
To standardize the appeal periods provided in the Rules and to afford litigants fair opportunity to appeal their cases, the Court
deems it practical to allow a fresh period of 15 days within which to file the notice of appeal in the Regional Trial Court, counted
from receipt of the order dismissing a motion for a new trial or motion for reconsideration.
The retroactive application of the fresh-period rule, a procedural law that aims "to regiment or make the appeal period uniform, to
be counted from receipt of the order denying the motion for new trial, motion for reconsideration (whether full or partial) or any
final order or resolution,"99 is impervious to any serious challenge. This is because there are no vested rights in rules of
procedure.100 A law or regulation is procedural when it prescribes rules and forms of procedure in order that courts may be able
to administer justice.101 It does not come within the legal conception of a retroactive law, or is not subject of the general rule
prohibiting the retroactive operation of statues, but is given retroactive effect in actions pending and undetermined at the time of
its passage without violating any right of a person who may feel that he is adversely affected.
We have further said that a procedural rule that is amended for the benefit of litigants in furtherance of the administration of
justice shall be retroactively applied to likewise favor actions then pending, as equity delights in equality. 102 We may even relax
stringent procedural rules in order to serve substantial justice and in the exercise of this Court’s equity jurisdiction. 103 Equity
jurisdiction aims to do complete justice in cases where a court of law is unable to adapt its judgments to the special
circumstances of a case because of the inflexibility of its statutory or legal jurisdiction. 104
It is cogent to add in this regard that to deny the benefit of the fresh-period rule to the UP would amount to injustice and
absurdity – injustice, because the judgment in question was issued on November 28, 2001 as compared to the judgment in
Neypes that was rendered in 1998; absurdity, because parties receiving notices of judgment and final orders issued in the year
1998 would enjoy the benefit of the fresh-period rule but the later rulings of the lower courts like that herein would not.105
Consequently, even if the reckoning started from May 17, 2002, when Atty. Nolasco received the denial, the UP’s filing on June
3, 2002 of the notice of appeal was not tardy within the context of the fresh-period rule. For the UP, the fresh period of 15-days
counted from service of the denial of the motion for reconsideration would end on June 1, 2002, which was a Saturday. Hence,
the UP had until the next working day, or June 3, 2002, a Monday, within which to appeal, conformably with Section 1 of Rule
22, Rules of Court, which holds that: "If the last day of the period, as thus computed, falls on a Saturday, a Sunday, or a legal
holiday in the place where the court sits, the time shall not run until the next working day."
IV
Awards of monetary damages,
being devoid of factual and legal bases,
did not attain finality and should be deleted
Section 14 of Article VIII of the Constitution prescribes that express findings of fact and of law should be made in the decision
rendered by any court, to wit:
Section 14. No decision shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on
which it is based.
No petition for review or motion for reconsideration of a decision of the court shall be refused due course or denied without
stating the legal basis therefor.
Implementing the constitutional provision in civil actions is Section 1 of Rule 36, Rules of Court, viz:
Section 1. Rendition of judgments and final orders. — A judgment or final order determining the merits of the case shall be in
writing personally and directly prepared by the judge, stating clearly and distinctly the facts and the law on which it is based,
signed by him, and filed with the clerk of the court. (1a)
The Constitution and the Rules of Court apparently delineate two main essential parts of a judgment, namely: the body and the
decretal portion. Although the latter is the controlling part,106 the importance of the former is not to be lightly regarded because it
is there where the court clearly and distinctly states its findings of fact and of law on which the decision is based. To state it
differently, one without the other is ineffectual and useless. The omission of either inevitably results in a judgment that violates
the letter and the spirit of the Constitution and the Rules of Court.
The term findings of fact that must be found in the body of the decision refers to statements of fact, not to conclusions of
law.107 Unlike in pleadings where ultimate facts alone need to be stated, the Constitution and the Rules of Court require not only
that a decision should state the ultimate facts but also that it should specify the supporting evidentiary facts, for they are what
are called the findings of fact.
The importance of the findings of fact and of law cannot be overstated. The reason and purpose of the Constitution and the
Rules of Court in that regard are obviously to inform the parties why they win or lose, and what their rights and obligations are.
Only thereby is the demand of due process met as to the parties. As Justice Isagani A. Cruz explained in Nicos Industrial
Corporation v. Court of Appeals:108
It is a requirement of due process that the parties to a litigation be informed of how it was decided, with an explanation of the
factual and legal reasons that led to the conclusions of the court. The court cannot simply say that judgment is rendered in favor
of X and against Y and just leave it at that without any justification whatsoever for its action. The losing party is entitled to know
why he lost, so he may appeal to a higher court, if permitted, should he believe that the decision should be reversed. A decision
that does not clearly and distinctly state the facts and the law on which it is based leaves the parties in the dark as to how it was
reached and is especially prejudicial to the losing party, who is unable to pinpoint the possible errors of the court for review by a
higher tribunal.
Here, the decision of the RTC justified the grant of actual and moral damages, and attorney’s fees in the following terse manner,
viz:
xxx The Court is not unmindful that due to defendants’ unjustified refusal to pay their outstanding obligation to plaintiff, the same
suffered losses and incurred expenses as he was forced to re-mortgage his house and lot located in Quezon City to Metrobank
(Exh. "CC") and BPI Bank just to pay its monetary obligations in the form of interest and penalties incurred in the course of the
construction of the subject project.109
The statement that "due to defendants’ unjustified refusal to pay their outstanding obligation to plaintiff, the same suffered losses
and incurred expenses as he was forced to re-mortgage his house and lot located in Quezon City to Metrobank (Exh. "CC") and
BPI Bank just to pay its monetary obligations in the form of interest and penalties incurred in the course of the construction of the
subject project" was only a conclusion of fact and law that did not comply with the constitutional and statutory prescription. The
statement specified no detailed expenses or losses constituting the ₱ 5,716,729.00 actual damages sustained by Stern Builders
in relation to the construction project or to other pecuniary hardships. The omission of such expenses or losses directly indicated
that Stern Builders did not prove them at all, which then contravened Article 2199, Civil Code, the statutory basis for the award of
actual damages, which entitled a person to an adequate compensation only for such pecuniary loss suffered by him as he has
duly proved. As such, the actual damages allowed by the RTC, being bereft of factual support, were speculative and whimsical.
Without the clear and distinct findings of fact and law, the award amounted only to an ipse dixit on the part of the RTC, 110 and did
not attain finality.
There was also no clear and distinct statement of the factual and legal support for the award of moral damages in the substantial
amount of ₱ 10,000,000.00. The award was thus also speculative and whimsical. Like the actual damages, the moral damages
constituted another judicial ipse dixit, the inevitable consequence of which was to render the award of moral damages incapable
of attaining finality. In addition, the grant of moral damages in that manner contravened the law that permitted the recovery of
moral damages as the means to assuage "physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury."111 The contravention of the law was manifest considering
that Stern Builders, as an artificial person, was incapable of experiencing pain and moral sufferings. 112 Assuming that in granting
the substantial amount of ₱ 10,000,000.00 as moral damages, the RTC might have had in mind that dela Cruz had himself
suffered mental anguish and anxiety. If that was the case, then the RTC obviously disregarded his separate and distinct
personality from that of Stern Builders.113 Moreover, his moral and emotional sufferings as the President of Stern Builders were
not the sufferings of Stern Builders. Lastly, the RTC violated the basic principle that moral damages were not intended to enrich
the plaintiff at the expense of the defendant, but to restore the plaintiff to his status quo ante as much as possible. Taken
together, therefore, all these considerations exposed the substantial amount of ₱ 10,000,000.00 allowed as moral damages not
only to be factually baseless and legally indefensible, but also to be unconscionable, inequitable and unreasonable.
Like the actual and moral damages, the ₱ 150,000.00, plus ₱ 1,500.00 per appearance, granted as attorney’s fees were
factually unwarranted and devoid of legal basis. The general rule is that a successful litigant cannot recover attorney’s fees as
part of the damages to be assessed against the losing party because of the policy that no premium should be placed on the right
to litigate.114 Prior to the effectivity of the present Civil Code, indeed, such fees could be recovered only when there was a
stipulation to that effect. It was only under the present Civil Code that the right to collect attorney’s fees in the cases mentioned
in Article 2208115 of the Civil Code came to be recognized.116 Nonetheless, with attorney’s fees being allowed in the concept of
actual damages,117 their amounts must be factually and legally justified in the body of the decision and not stated for the first time
in the decretal portion.118 Stating the amounts only in the dispositive portion of the judgment is not enough; 119 a rendition of the
factual and legal justifications for them must also be laid out in the body of the decision. 120
That the attorney’s fees granted to the private respondents did not satisfy the foregoing requirement suffices for the Court to
undo them.121 The grant was ineffectual for being contrary to law and public policy, it being clear that the express findings of fact
and law were intended to bring the case within the exception and thereby justify the award of the attorney’s fees. Devoid of such
express findings, the award was a conclusion without a premise, its basis being improperly left to speculation and conjecture. 122
Nonetheless, the absence of findings of fact and of any statement of the law and jurisprudence on which the awards of actual
and moral damages, as well as of attorney’s fees, were based was a fatal flaw that invalidated the decision of the RTC only as to
such awards. As the Court declared in Velarde v. Social Justice Society,123 the failure to comply with the constitutional
requirement for a clear and distinct statement of the supporting facts and law "is a grave abuse of discretion amounting to lack or
excess of jurisdiction" and that "(d)ecisions or orders issued in careless disregard of the constitutional mandate are a patent
nullity and must be struck down as void."124 The other item granted by the RTC (i.e., ₱ 503,462.74) shall stand, subject to the
action of the COA as stated herein.
WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS ASIDE the decision of the Court
of Appeals under review; ANNULS the orders for the garnishment of the funds of the University of the Philippines and for the
release of the garnished amount to Stern Builders Corporation and Servillano dela Cruz; and DELETES from the decision of the
Regional Trial Court dated November 28, 2001 for being void only the awards of actual damages of ₱ 5,716,729.00, moral
damages of ₱ 10,000,000.00, and attorney's fees of ₱ 150,000.00, plus ₱ 1,500.00 per appearance, in favor of Stern Builders
Corporation and Servillano dela Cruz.
The Court ORDERS Stem Builders Corporation and Servillano dela Cruz to redeposit the amount of ₱ 16,370,191.74 within 10
days from receipt of this decision.
Costs of suit to be paid by the private respondents.
SO ORDERED.
FIRST DIVISION
G.R. No. 185918 April 18, 2012
LOCKHEED DETECTIVE AND WATCHMAN AGENCY, INC., Petitioner,

vs.
UNIVERSITY OF THE PHILIPPINES, Respondent.
DECISION
VILLARAMA, JR., J.:
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 Decision1 and December 23, 2008 Resolution2 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 attorney’s fees.
On February 16, 2000, the Labor Arbiter rendered a decision as follows:
WHEREFORE, premises considered, respondents Lockheed Detective and Watchman Agency, Inc. and UP as job contractor
and principal, respectively, are hereby declared to be solidarily liable to complainants for the following claims of the latter which
are found meritorious.
Underpaid wages/salaries, premium pay for work on rest day and special holiday, holiday pay, 5 days service incentive leave
pay, 13th month pay for 1998, refund of cash bond (deducted at P50.00 per month from January to May 1996, P100.00 per
month from June 1996 and P200.00 from November 1997), refund of deduction for Mutual Benefits Aids System at the rate of
P50.00 a month, and attorney’s fees; in the total amount of P1,184,763.12 broken down as follows per attached computation of
the Computation and [E]xamination Unit of this Commission, which computation forms part of this Decision:
1. JOSE SABALAS P77,983.62

2. TIRSO DOMASIAN 76,262.70
3. JUAN TAPEL 80,546.03
4. DINDO MURING 80,546.03
5. ALEXANDER ALLORDE 80,471.78
6. WILFREDO ESCOBAR 80,160.63
7. FERDINAND VELASQUEZ 78,595.53
8. ANTHONY GONZALES 76,869.97
9. SAMUEL ESCARIO 80,509.78
10. PEDRO FAILORINA 80,350.87
11. MATEO TANELA 70,590.58
12. JOB SABALAS 59,362.40
13. ANDRES DACANAYAN 77,403.73
14. EDDIE OLIVAR 77,403.73
P1,077,057.38
plus 10% attorney’s fees 107,705.74
GRAND TOTAL AWARD P1,184,763.12
Third party respondent University of the Philippines is hereby declared to be liable to Third Party Complainant and cross
claimant Lockheed Detective and Watchman Agency for the unpaid legislated salary increases of the latter’s security guards for
the years 1996 to 1998, in the total amount of P13,066,794.14, out of which amount the amounts due complainants here shall be
paid.
The other claims are hereby DISMISSED for lack of merit (night shift differential and 13th month pay) or for having been paid in
the course of this proceedings (salaries for December 15-31, 1997 in the amount of P40,140.44).
The claims of Erlindo Collado, Rogelio Banjao and Amor Banjao are hereby DISMISSED as amicably settled for and in
consideration of the amounts of P12,315.72, P12,271.77 and P12,819.33, respectively.
SO ORDERED.3
Both Lockheed and UP appealed the Labor Arbiter’s decision. By Decision 4 dated April 12, 2002, the NLRC modified the Labor
Arbiter’s 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 Resolution7 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 Garnishment10 was issued to Philippine National Bank (PNB) UP Diliman Branch for the
satisfaction of the award of ₱12,142,522.69 (inclusive of execution fee).
In a letter11 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 ₱12,142,522.69. PNB likewise reminded UP that the bank only has 10 working days from
receipt of the order to deliver the garnished funds and unless it receives a notice from UP or the NLRC before the expiry of the
10-day period regarding the issuance of a court order or writ of injunction discharging or enjoining the implementation and
execution of the Notice of Garnishment and Writ of Execution, the bank shall be constrained to cause the release of the
garnished funds in favor of the NLRC.
On August 16, 2005, UP filed an Urgent Motion to Quash Garnishment.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 ₱12,062,398.71 was withdrawn by the sheriff from UP’s PNB account. 14
On September 12, 2005, UP filed a petition for certiorari before the CA based on the following grounds:
I.
The concept of "solidary liability" by an indirect employer notwithstanding, respondent NLRC gravely abused its
discretion in a manner amounting to lack or excess of jurisdiction by misusing such concept to justify the garnishment by
the executing Sheriff of public/government funds belonging to UP.
II.
Respondents NLRC and Arbiter LORA acted without jurisdiction or gravely abused their discretion in a manner
amounting to lack or excess of jurisdiction when, by means of an Alias Writ of Execution against petitioner UP, they
authorized respondent Sheriff to garnish UP’s public funds. Similarly, respondent LORA gravely abused her discretion
when she resolved petitioner’s Motion to Quash Notice of Garnishment addressed to, and intended for, the NLRC, and
when she unilaterally and arbitrarily disregarded an official Certification that the funds garnished are public/government
funds, and thereby allowed respondent Sheriff to withdraw the same from PNB.
III.
Respondents gravely abused their discretion in a manner amounting to lack or excess of jurisdiction when they, despite
prior knowledge, effected the execution that caused paralyzation and dislocation to petitioner’s governmental
functions.15
On March 12, 2008, the CA rendered a decision16 dismissing UP’s 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, UP reiterates that it consented to be sued and
even participated in the proceedings below. Lockheed cannot now claim that invocation of state immunity, which UP did not
invoke in the first place, can result in injustice.
On the fait accompli argument, UP argues that Lockheed cannot wash its hands from liability for the consummated garnishment
and execution of UP’s trust fund in the amount of ₱12,062,398.71. UP cites that damage was done to UP and the beneficiaries
of the fund when said funds, which were earmarked for specific educational purposes, were misapplied, for instance, to answer
for the execution fee of ₱120,123.98 unilaterally stipulated by the sheriff. Lockheed, being the party which procured the illegal
garnishment, should be held primarily liable. The mere fact that the CA set aside the writ of garnishment confirms the liability of
Lockheed to reimburse and indemnify in accordance with law.
The petition has no merit.
We agree with UP that there was no point for Lockheed in discussing the doctrine of state immunity from suit as this was never
an issue in this case. Clearly, UP consented to be sued when it participated in the proceedings below. What UP questions is the
hasty garnishment of its funds in its PNB account.
This Court finds that the CA correctly applied the NEA case. Like NEA, UP is a juridical personality separate and distinct from
the government and has the capacity to sue and be sued. Thus, also like NEA, it cannot evade execution, and its funds may be
subject to garnishment or levy. However, before execution may be had, a claim for payment of the judgment award must first be
filed with the COA. Under Commonwealth Act No. 327,22 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 1âwphi1
We cannot subscribe to Lockheed’s argument that NEA is not similarly situated with UP because the COA’s jurisdiction over the
latter is only on post-audit basis. A reading of the pertinent Commonwealth Act provision clearly shows that it does not make any
distinction as to which of the government subdivisions, agencies and instrumentalities, including government-owned or
controlled corporations and their subsidiaries whose debts should be filed before the COA.
As to the fait accompli argument of Lockheed, contrary to its claim that there is nothing that can be done since the funds of UP
had already been garnished, since the garnishment was erroneously carried out and did not go through the proper procedure
(the filing of a claim with the COA), UP is entitled to reimbursement of the garnished funds plus interest of 6% per annum, to be
computed from the time of judicial demand to be reckoned from the time UP filed a petition for certiorari before the CA which
occurred right after the withdrawal of the garnished funds from PNB.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. Petitioner Lockheed Detective and Watchman
Agency, Inc. is ordered to REIMBURSE respondent University of the Philippines the amount of ₱12,062,398.71 plus interest of
6% per annum, to be computed from September 12, 2005 up to the finality of this Decision, and 12% interest on the entire
amount from date of finality of this Decision until fully paid.
No pronouncement as to costs.
SO ORDERED.
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.

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SECOND DIVISION

G.R. No. 152318 April 16, 2009

- one expert in system development for up to 10 expert/months

- short-term experts to deal with special tasks for a total of up to 18 expert/months,

- local and auxiliary personnel for a total of up to 120 months;

(c) supply inputs, in particular - two cross-country vehicles,

- ten computers with accessories,

- office furnishings and equipment

- the cost of seminars and courses,

- a proportion of the operating and administrative costs;

- ensure that the project field offices have sufficient expendables,

(d) guarantee that

The letter ended with these ominous words:

WHEREFORE, the petition is DENIED. No pronouncement as to costs.

G.R. No. 185572 February 7, 2012

CHINA NATIONAL MACHINERY & EQUIPMENT CORP. (GROUP), Petitioner,

Whether or not the Northrail Project is subject to competitive public bidding.

First issue: Whether CNMEG is entitled to immunity

xxx xxx xxx

xxx xxx xxx

A. CNMEG is engaged in a proprietary activity.

1. Memorandum of Understanding dated 14 September 2002

xxx xxx xxx

2. Letter dated 1 October 2003

3. The Loan Agreement

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

C. CNMEG failed to present a certification from the Department of Foreign Affairs.

xxx xxx xxx

33. SETTLEMENT OF DISPUTES AND ARBITRATION

33.1. Amicable Settlement

Second issue: Whether the Contract Agreement is an executive agreement

A. CNMEG is neither a government nor a government agency.

B. The Contract Agreement is to be governed by Philippine law.

APPLICABLE LAW AND GOVERNING LANGUAGE

No pronouncement on costs of suit.

G.R. No. 101949 December 1, 1994

THE HOLY SEE, petitioner, vs.

A. The Holy See

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

G.R. No. 171182 August 23, 2012

2. ₱ 5,716,729.00 in actual damages

3. ₱ 10,000,000.00 in moral damages

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

The UP sought the reconsideration of the order of May 3, 2005. 42

We agree with the trial Court [sic] observation on this score:

Matters Arising During the Pendency of the Petition

The UP now submits that:

The decisive issues to be considered and passed upon are, therefore:

The petition for review is meritorious.

We agree with the submission of the UP.

Costs of suit to be paid by the private respondents.

G.R. No. 185918 April 18, 2012

LOCKHEED DETECTIVE AND WATCHMAN AGENCY, INC., Petitioner,

VILLARAMA, JR., J.:

The antecedent facts of the case are as follows:

On February 16, 2000, the Labor Arbiter rendered a decision as follows:

1. JOSE SABALAS P77,983.62

plus 10% attorney’s fees 107,705.74

GRAND TOTAL AWARD P1,184,763.12

WHEREFORE, the decision appealed from is hereby modified as follows:

Hence this petition by Lockheed raising the following arguments: