Republic of the Philippines

SUPREME COURT
Manila
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 CAG.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 Buyers 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 CNMEGs 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 Buyers 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 CNMEGs 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 2008.18Thus, 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.20Subsequently, 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 Peoples 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 Employers personnel;
AND WHEREAS the Loan Agreement of the Preferential Buyers 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 CNMEGs proposal to undertake a Feasibility Study (the
"Study") at no cost to NORTHRAIL CORP.;
WHEREAS, the NORTHRAIL CORP. also welcomes CNMEGs interest in undertaking the Project with
Suppliers 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 CNMEGs 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 CNMEGs 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 Peoples Republic of China which initiated our
Governments involvement in the Project.
3. Among the various state corporations of the Peoples 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 latters 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 Borrowers 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 Peoples 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 Peoples Republic of China
and the appointment of the Borrowers Chinese Process Agent is legal, valid, binding and enforceable and
any judgment obtained in the Peoples 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, setoff, 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 petitioners 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. Wangs 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 Courts ruling in Deutsche Gesellschaft Fr Technische Zusammenarbeit (GTZ) v.
CA40 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
InsuranceNetworking 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 Germanys contributions. In
ruling that GTZ was not immune from suit, this Court held:
The arguments raised by GTZ and the [Office of the Solicitor General (OSG)] are rooted in several
indisputable facts. The SHINE project was implemented pursuant to the bilateral agreements between the
Philippine and German governments. GTZ was tasked, under the 1991 agreement, with the
implementation of the contributions of the German government. The activities performed by GTZ
pertaining to the SHINE project are governmental in nature, related as they are to the promotion of health
insurance in the Philippines. The fact that GTZ entered into employment contracts with the private
respondents did not disqualify it from invoking immunity from suit, as held in cases such as Holy See v.
Rosario, Jr., which set forth what remains valid doctrine:
Certainly, the mere entering into a contract by a foreign state with a private party cannot be the ultimate
test. Such an act can only be the start of the inquiry. The logical question is whether the foreign state is
engaged in the activity in the regular course of business. If the foreign state is not engaged regularly in a
business or trade, the particular act or transaction must then be tested by its nature. If the act is in pursuit
of a sovereign activity, or an incident thereof, then it is an act jure imperii, especially when it is not
undertaken for gain or profit.
Beyond dispute is the tenability of the comment points (sic) raised by GTZ and the OSG that GTZ was not
performing proprietary functions notwithstanding its entry into the particular employment contracts. Yet
there is an equally fundamental premise which GTZ and the OSG fail to address, namely: Is GTZ, by
conception, able to enjoy the Federal Republics 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 Courts 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:
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.
xxx

xxx

xxx

In the Philippines, the practice is for the foreign government or the international organization to first secure
an executive endorsement of its claim of sovereign or diplomatic immunity. But how the Philippine Foreign
Office conveys its endorsement to the courts varies. In International Catholic Migration Commission v.
Calleja, 190 SCRA 130 (1990), the Secretary of Foreign Affairs just sent a letter directly to the Secretary of
Labor and Employment, informing the latter that the respondent-employer could not be sued because it
enjoyed diplomatic immunity. In World Health Organization v. Aquino, 48 SCRA 242 (1972), the Secretary of
Foreign Affairs sent the trial court a telegram to that effect. In Baer v. Tizon, 57 SCRA 1 (1974), the U.S.
Embassy asked the Secretary of Foreign Affairs to request the Solicitor General to make, in behalf of the
Commander of the United States Naval Base at Olongapo City, Zambales, a "suggestion" to respondent
Judge. The Solicitor General embodied the "suggestion" in a Manifestation and Memorandum as amicus
curiae.
In the case at bench, the Department of Foreign Affairs, through the Office of Legal Affairs moved with this
Court to be allowed to intervene on the side of petitioner. The Court allowed the said Department to file its
memorandum in support of petitioners 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
DFAs competence and authority to provide such necessary determination, to wit:
The DFAs 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 Courts 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 GTZs 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 GTZs claim of States 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 GTZs claim, or that the OSG had solicited the DFAs 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 Peoples Republic of China, stating that the Northrail Project is in pursuit of a sovereign
activity.47Surely, this is not the kind of certification that can establish CNMEGs 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 Peoples
Republic of China.52Thus, 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. CNMEGs 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.
MARIA LOURDES P. A. SERENO
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-46930 June 10, 1988
DALE SANDERS, AND A.S. MOREAU, JR, petitioners,
vs.
HON. REGINO T. VERIDIANO II, as Presiding Judge, Branch I, Court of First Instance of
Zambales, Olongapo City, ANTHONY M. ROSSI and RALPH L. WYERS, respondents.

CRUZ, J.:
The basic issue to be resolved in this case is whether or not the petitioners were performing their official
duties when they did the acts for which they have been sued for damages by the private respondents.
Once this question is decided, the other answers will fall into place and this petition need not detain us any
longer than it already has.
Petitioner Sanders was, at the time the incident in question occurred, the special services director of the
U.S. Naval Station (NAVSTA) in Olongapo City. 1 Petitioner Moreau was the commanding officer of the Subic
Naval Base, which includes the said station. 2 Private respondent Rossi is an American citizen with
permanent residence in the Philippines, 3 as so was private respondent Wyer, who died two years
ago. 4 They were both employed as gameroom attendants in the special services department of the
NAVSTA, the former having been hired in 1971 and the latter in 1969. 5
On October 3, 1975, the private respondents were advised that their employment had been converted
from permanent full-time to permanent part-time, effective October 18, 1975. 6 Their reaction was to
protest this conversion and to institute grievance proceedings conformably to the pertinent rules and
regulations of the U.S. Department of Defense. The result was a recommendation from the hearing officer
who conducted the proceedings for the reinstatement of the private respondents to permanent full-time
status plus backwages. The report on the hearing contained the observation that "Special Services
management practices an autocratic form of supervision." 7
In a letter addressed to petitioner Moreau on May 17, 1976 (Annex "A" of the complaint), Sanders
disagreed with the hearing officer's report and asked for the rejection of the abovestated recommendation.
The letter contained the statements that: a ) "Mr. Rossi tends to alienate most co-workers and
supervisors;" b) "Messrs. Rossi and Wyers have proven, according to their immediate supervisors, to be
difficult employees to supervise;" and c) "even though the grievants were under oath not to discuss the
case with anyone, (they) placed the records in public places where others not involved in the case could
hear."
On November 7, 1975, before the start of the grievance hearings, a-letter (Annex "B" of the complaint)
purportedly corning from petitioner Moreau as the commanding general of the U.S. Naval Station in Subic
Bay was sent to the Chief of Naval Personnel explaining the change of the private respondent's
employment status and requesting concurrence therewith. The letter did not carry his signature but was
signed by W.B. Moore, Jr. "by direction," presumably of Moreau.

On the basis of these antecedent facts, the private respondent filed in the Court of First Instance of
Olongapo City a for damages against the herein petitioners on November 8, 1976. 8 The plaintiffs claimed
that the letters contained libelous imputations that had exposed them to ridicule and caused them mental
anguish and that the prejudgment of the grievance proceedings was an invasion of their personal and
proprietary rights.
The private respondents made it clear that the petitioners were being sued in their private or personal
capacity. However, in a motion to dismiss filed under a special appearance, the petitioners argued that the
acts complained of were performed by them in the discharge of their official duties and that, consequently,
the court had no jurisdiction over them under the doctrine of state immunity.
After extensive written arguments between the parties, the motion was denied in an order dated March 8,
1977, 9on the main ground that the petitioners had not presented any evidence that their acts were official
in nature and not personal torts, moreover, the allegation in the complaint was that the defendants had
acted maliciously and in bad faith. The same order issued a writ of preliminary attachment, conditioned
upon the filing of a P10,000.00 bond by the plaintiffs, against the properties of petitioner Moreau, who
allegedly was then about to leave the Philippines. Subsequently, to make matters worse for the
defendants, petitioner Moreau was declared in a default by the trial court in its order dated August 9, 1977.
The motion to lift the default order on the ground that Moreau's failure to appear at the pre-trial
conference was the result of some misunderstanding, and the motion for reconsideration of the denial of
the motion to dismiss, which was filed by the petitioner's new lawyers, were denied by the respondent
court on September 7, 1977.
This petition for certiorari, prohibition and preliminary injunction was thereafter filed before this Court, on
the contention that the above-narrated acts of the respondent court are tainted with grave abuse of
discretion amounting to lack of jurisdiction.
We return now to the basic question of whether the petitioners were acting officially or only in
their private capacities when they did the acts for which the private respondents have sued
them for damages.
It is stressed at the outset that the mere allegation that a government functionary is being sued in his
personal capacity will not automatically remove him from the protection of the law of public officers and, if
appropriate, the doctrine of state immunity. By the same token, the mere invocation of official character
will not suffice to insulate him from suability and liability for an act imputed to him as a personal tort
committed without or in excess of his authority. These well-settled principles are applicable not only to the
officers of the local state but also where the person sued in its courts pertains to the government of a
foreign state, as in the present case.
The respondent judge, apparently finding that the complained acts were prima facie personal and tortious,
decided to proceed to trial to determine inter alia their precise character on the strength of the evidence to
be submitted by the parties. The petitioners have objected, arguing that no such evidence was needed to
substantiate their claim of jurisdictional immunity. Pending resolution of this question, we issued a
temporary restraining order on September 26, 1977, that has since then suspended the proceedings in this
case in the courta quo.
In past cases, this Court has held that where the character of the act complained of can be determined
from the pleadings exchanged between the parties before the trial, it is not necessary for the court to
require them to belabor the point at a trial still to be conducted. Such a proceeding would be superfluous,
not to say unfair to the defendant who is subjected to unnecessary and avoidable inconvenience.
Thus, in Baer v. Tizon, 10 we held that a motion to dismiss a complaint against the commanding general of
the Olongapo Naval Base should not have been denied because it had been sufficiently shown that the act

for which he was being sued was done in his official capacity on behalf of the American government. The
United States had not given its consent to be sued. It was the reverse situation in Syquia v. Almeda Lopez,"
where we sustained the order of the lower court granting a where we motion to dismiss a complaint
against certain officers of the U.S. armed forces also shown to be acting officially in the name of the
American government. The United States had also not waived its immunity from suit. Only three years ago,
in United States of America v. Ruiz, 12 we set aside the denial by the lower court of a motion to dismiss a
complaint for damages filed against the United States and several of its officials, it appearing that the act
complained of was governmental rather than proprietary, and certainly not personal. In these and several
other cases 13 the Court found it redundant to prolong the other case proceedings after it had become
clear that the suit could not prosper because the acts complained of were covered by the doctrine of state
immunity.
It is abundantly clear in the present case that the acts for which the petitioners are being called to account
were performed by them in the discharge of their official duties. Sanders, as director of the special services
department of NAVSTA, undoubtedly had supervision over its personnel, including the private respondents,
and had a hand in their employment, work assignments, discipline, dismissal and other related matters. It
is not disputed that the letter he had written was in fact a reply to a request from his superior, the other
petitioner, for more information regarding the case of the private respondents. 14 Moreover, even in the
absence of such request, he still was within his rights in reacting to the hearing officer's criticismin effect
a direct attack against him-that Special Services was practicing "an autocratic form of supervision."
As for Moreau,what he is claimed to have done was write the Chief of Naval Personnel for concurrence with
the conversion of the private respondents' type of employment even before the grievance proceedings had
even commenced. Disregarding for the nonce the question of its timeliness, this act is clearly official in
nature, performed by Moreau as the immediate superior of Sanders and directly answerable to Naval
Personnel in matters involving the special services department of NAVSTA In fact, the letter dealt with the
financial and budgetary problems of the department and contained recommendations for their solution,
including the re-designation of the private respondents. There was nothing personal or private about it.
Given the official character of the above-described letters, we have to conclude that the petitioners were,
legally speaking, being sued as officers of the United States government. As they have acted on behalf of
that government, and within the scope of their authority, it is that government, and not the petitioners
personally, that is responsible for their acts. Assuming that the trial can proceed and it is proved that the
claimants have a right to the payment of damages, such award will have to be satisfied not by the
petitioners in their personal capacities but by the United States government as their principal. This will
require that government to perform an affirmative act to satisfy the judgment, viz, the appropriation of the
necessary amount to cover the damages awarded, thus making the action a suit against that government
without its consent.
There should be no question by now that such complaint cannot prosper unless the government sought to
be held ultimately liable has given its consent to' be sued. So we have ruled not only in Baer but in many
other decisions where we upheld the doctrine of state immunity as applicable not only to our own
government but also to foreign states sought to be subjected to the jurisdiction of our courts. 15
The practical justification for the doctrine, as Holmes put it, is that "there can be no legal right against
the authority which makes the law on which the right depends. 16 In the case of foreign states,
the rule is derived from the principle of the sovereign equality of states which wisely
admonishes that par in parem non habet imperium and that a contrary attitude would "unduly
vex the peace of nations." 17 Our adherence to this precept is formally expressed in Article II,
Section 2, of our Constitution, where we reiterate from our previous charters that the
Philippines "adopts the generally accepted principles of international law as part of the law of
the land.

All this is not to say that in no case may a public officer be sued as such without the previous consent of
the state. To be sure, there are a number of well-recognized exceptions. It is clear that a public officer may
be sued as such to compel him to do an act required by law, as where, say, a register of deeds refuses to
record a deed of sale; 18or to restrain a Cabinet member, for example, from enforcing a law claimed to be
unconstitutional; 19 or to compel the national treasurer to pay damages from an already appropriated
assurance fund; 20 or the commissioner of internal revenue to refund tax over-payments from a fund
already available for the purpose; 21 or, in general, to secure a judgment that the officer impleaded may
satisfy by himself without the government itself having to do a positive act to assist him. We have also
held that where the government itself has violated its own laws, the aggrieved party may directly implead
the government even without first filing his claim with the Commission on Audit as normally required, as
the doctrine of state immunity "cannot be used as an instrument for perpetrating an injustice." 22
This case must also be distinguished from such decisions as Festejo v. Fernando, 23 where the Court held
that a bureau director could be sued for damages on a personal tort committed by him when he acted
without or in excess of authority in forcibly taking private property without paying just compensation
therefor although he did convert it into a public irrigation canal. It was not necessary to secure the
previous consent of the state, nor could it be validly impleaded as a party defendant, as it was not
responsible for the defendant's unauthorized act.
The case at bar, to repeat, comes under the rule and not under any of the recognized
exceptions. The government of the United States has not given its consent to be sued for the
official acts of the petitioners, who cannot satisfy any judgment that may be rendered against
them. As it is the American government itself that will have to perform the affirmative act of
appropriating the amount that may be adjudged for the private respondents, the complaint
must be dismissed for lack of jurisdiction.
The Court finds that, even under the law of public officers, the acts of the petitioners are protected by the
presumption of good faith, which has not been overturned by the private respondents. Even mistakes
concededly committed by such public officers are not actionable as long as it is not shown that they were
motivated by malice or gross negligence amounting to bad faith. 24 This, to, is well settled . 25 Furthermore,
applying now our own penal laws, the letters come under the concept of privileged communications and
are not punishable, 26 let alone the fact that the resented remarks are not defamatory by our standards. It
seems the private respondents have overstated their case.
A final consideration is that since the questioned acts were done in the Olongapo Naval Base
by the petitioners in the performance of their official duties and the private respondents are
themselves American citizens, it would seem only proper for the courts of this country to
refrain from taking cognizance of this matter and to treat it as coming under the internal
administration of the said base.
The petitioners' counsel have submitted a memorandum replete with citations of American cases, as if
they were arguing before a court of the United States. The Court is bemused by such attitude. While these
decisions do have persuasive effect upon us, they can at best be invoked only to support our own
jurisprudence, which we have developed and enriched on the basis of our own persuasions as a people,
particularly since we became independent in 1946.
We appreciate the assistance foreign decisions offer us, and not only from the United States but also from
Spain and other countries from which we have derived some if not most of our own laws. But we should
not place undue and fawning reliance upon them and regard them as indispensable mental crutches
without which we cannot come to our own decisions through the employment of our own endowments We
live in a different ambience and must decide our own problems in the light of our own interests and needs,
and of our qualities and even idiosyncrasies as a people, and always with our own concept of law and
justice.

The private respondents must, if they are still sominded, pursue their claim against the petitioners in
accordance with the laws of the United States, of which they are all citizens and under whose jurisdiction
the alleged offenses were committed. Even assuming that our own laws are applicable, the United States
government has not decided to give its consent to be sued in our courts, which therefore has not acquired
the competence to act on the said claim,.
WHEREFORE, the petition is GRANTED. The challenged orders dated March 8,1977, August 9,1977, and
September 7, 1977, are SET ASIDE. The respondent court is directed to DISMISS Civil Case No. 2077-O. Our
Temporary restraining order of September 26,1977, is made PERMANENT. No costs.
SO ORDERED.
Narvasa, Gancayco, Grino-Aquio and Medialdea, JJ., Concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 154705

June 26, 2003

THE REPUBLIC OF INDONESIA, HIS EXCELLENCY AMBASSADOR SOERATMIN, and MINISTER

COUNSELLOR AZHARI KASIM, Petitioners,
vs.
JAMES VINZON, doing business under the name and style of VINZON TRADE AND
SERVICES,Respondent.
DECISION
AZCUNA, J:
This is a petition for review on certiorari to set aside the Decision of the Court of Appeals dated May 30,
2002 and its Resolution dated August 16, 2002, in CA-G.R. SP No. 66894 entitled "The Republic of
Indonesia, His Excellency Ambassador Soeratmin and Minister Counselor Azhari Kasim v. Hon. Cesar
Santamaria, Presiding Judge, RTC Branch 145, Makati City, and James Vinzon, doing business under the
name and style of Vinzon Trade and Services."
Petitioner, Republic of Indonesia, represented by its Counsellor, Siti Partinah, entered into a Maintenance
Agreement in August 1995 with respondent James Vinzon, sole proprietor of Vinzon Trade and Services.
The Maintenance Agreement stated that respondent shall, for a consideration, maintain specified
equipment at the Embassy Main Building, Embassy Annex Building and the Wisma Duta, the official
residence of petitioner Ambassador Soeratmin. The equipment covered by the Maintenance Agreement are
air conditioning units, generator sets, electrical facilities, water heaters, and water motor pumps. It is
likewise stated therein that the agreement shall be effective for a period of four years and will renew itself
automatically unless cancelled by either party by giving thirty days prior written notice from the date of
expiry.1
Petitioners claim that sometime prior to the date of expiration of the said agreement, or before August
1999, they informed respondent that the renewal of the agreement shall be at the discretion of the
incoming Chief of Administration, Minister Counsellor Azhari Kasim, who was expected to arrive in February
2000. When Minister Counsellor Kasim assumed the position of Chief of Administration in March 2000, he
allegedly found respondents work and services unsatisfactory and not in compliance with the standards
set in the Maintenance Agreement. Hence, the Indonesian Embassy terminated the agreement in a letter
dated August 31, 2000.2 Petitioners claim, moreover, that they had earlier verbally informed respondent of
their decision to terminate the agreement.
On the other hand, respondent claims that the aforesaid termination was arbitrary and unlawful.
Respondent cites various circumstances which purportedly negated petitioners alleged dissatisfaction
over respondents services: (a) in July 2000, Minister Counsellor Kasim still requested respondent to assign
to the embassy an additional full-time worker to assist one of his other workers; (b) in August 2000,
Minister Counsellor Kasim asked respondent to donate a prize, which the latter did, on the occasion of the
Indonesian Independence Day golf tournament; and (c) in a letter dated August 22, 2000, petitioner
Ambassador Soeratmin thanked respondent for sponsoring a prize and expressed his hope that the cordial
relations happily existing between them will continue to prosper and be strengthened in the coming years.

Hence, on December 15, 2000, respondent filed a complaint3 against petitioners docketed as Civil Case No.
18203 in the Regional Trial Court (RTC) of Makati, Branch 145. On February 20, 2001, petitioners filed a
Motion to Dismiss, alleging that the Republic of Indonesia, as a foreign sovereign State, has sovereign
immunity from suit and cannot be sued as a party-defendant in the Philippines. The said motion further
alleged that Ambassador Soeratmin and Minister Counsellor Kasim are diplomatic agents as defined under
the Vienna Convention on Diplomatic Relations and therefore enjoy diplomatic immunity.4 In turn,
respondent filed on March 20, 2001, an Opposition to the said motion alleging that the Republic of
Indonesia has expressly waived its immunity from suit. He based this claim upon the following provision in
the Maintenance Agreement:
"Any legal action arising out of this Maintenance Agreement shall be settled according to the laws of the
Philippines and by the proper court of Makati City, Philippines."
Respondents Opposition likewise alleged that Ambassador Soeratmin and Minister Counsellor Kasim can
be sued and held liable in their private capacities for tortious acts done with malice and bad faith. 5
On May 17, 2001, the trial court denied herein petitioners Motion to Dismiss. It likewise denied the Motion
for Reconsideration subsequently filed.
The trial courts denial of the Motion to Dismiss was brought up to the Court of Appeals by herein
petitioners in a petition for certiorari and prohibition. Said petition, docketed as CA-G.R. SP No. 66894,
alleged that the trial court gravely abused its discretion in ruling that the Republic of Indonesia gave its
consent to be sued and voluntarily submitted itself to the laws and jurisdiction of Philippine courts and that
petitioners Ambassador Soeratmin and Minister Counsellor Kasim waived their immunity from suit.
On May 30, 2002, the Court of Appeals rendered its assailed decision denying the petition for lack of
merit.6 On August 16, 2002, it denied herein petitioners motion for reconsideration. 7
Hence, this petition.
In the case at bar, petitioners raise the sole issue of whether or not the Court of Appeals erred in
sustaining the trial courts decision that petitioners have waived their immunity from suit by using as its
basis the abovementioned provision in the Maintenance Agreement.
The petition is impressed with merit.
International law is founded largely upon the principles of reciprocity, comity, independence,
and equality of States which were adopted as part of the law of our land under Article II,
Section 2 of the 1987 Constitution.8 The rule that a State may not be sued without its consent
is a necessary consequence of the principles of independence and equality of States. 9 As
enunciated in Sanders v. Veridiano II,10 the practical justification for the doctrine of sovereign
immunity is that there can be no legal right against the authority that makes the law on which
the right depends. In the case of foreign States, the rule is derived from the principle of the
sovereign equality of States, as expressed in the maxim par in parem non habet imperium. All
states are sovereign equals and cannot assert jurisdiction over one another. 11 A contrary
attitude would "unduly vex the peace of nations."12
The rules of International Law, however, are neither unyielding nor impervious to change. The increasing
need of sovereign States to enter into purely commercial activities remotely connected with the discharge
of their governmental functions brought about a new concept of sovereign immunity. This concept, the
restrictive theory, holds that the immunity of the sovereign is recognized only with regard to public acts or
acts jure imperii, but not with regard to private acts or acts jure gestionis.13

In United States v. Ruiz,14 for instance, we held that the conduct of public bidding for the repair of a wharf
at a United States Naval Station is an act jure imperii. On the other hand, we considered as an act jure
gestionis the hiring of a cook in the recreation center catering to American servicemen and the general
public at the John Hay Air Station in Baguio City,15 as well as the bidding for the operation of barber shops
in Clark Air Base in Angeles City.16
Apropos the present case, the mere entering into a contract by a foreign State with a private party cannot
be construed as the ultimate test of whether or not it is an act jure imperii or jure gestionis. Such act is
only the start of the inquiry. Is the foreign State engaged in the regular conduct of a business? If the
foreign State is not engaged regularly in a business or commercial activity, and in this case it has not been
shown to be so engaged, the particular act or transaction must then be tested by its nature. If the act is in
pursuit of a sovereign activity, or an incident thereof, then it is an act jure imperii.17
Hence, the existence alone of a paragraph in a contract stating that any legal action arising out of the
agreement shall be settled according to the laws of the Philippines and by a specified court of the
Philippines is not necessarily a waiver of sovereign immunity from suit. The aforesaid provision
contains language not necessarily inconsistent with sovereign immunity. On the other hand, such provision
may also be meant to apply where the sovereign party elects to sue in the local courts, or otherwise
waives its immunity by any subsequent act. The applicability of Philippine laws must be deemed to include
Philippine laws in its totality, including the principle recognizing sovereign immunity. Hence, the proper
court may have no proper action, by way of settling the case, except to dismiss it.
Submission by a foreign state to local jurisdiction must be clear and unequivocal. It must be
given explicitly or by necessary implication. We find no such waiver in this case.
Respondent concedes that the establishment of a diplomatic mission is a sovereign function.1wphi1 On
the other hand, he argues that the actual physical maintenance of the premises of the diplomatic mission,
such as the upkeep of its furnishings and equipment, is no longer a sovereign function of the State. 18
We disagree. There is no dispute that the establishment of a diplomatic mission is an act jure imperii. A
sovereign State does not merely establish a diplomatic mission and leave it at that; the establishment of a
diplomatic mission encompasses its maintenance and upkeep. Hence, the State may enter into
contracts with private entities to maintain the premises, furnishings and equipment of the
embassy and the living quarters of its agents and officials. It is therefore clear that petitioner
Republic of Indonesia was acting in pursuit of a sovereign activity when it entered into a contract with
respondent for the upkeep or maintenance of the air conditioning units, generator sets, electrical facilities,
water heaters, and water motor pumps of the Indonesian Embassy and the official residence of the
Indonesian ambassador.
The Solicitor General, in his Comment, submits the view that, "the Maintenance Agreement was entered
into by the Republic of Indonesia in the discharge of its governmental functions. In such a case, it cannot
be deemed to have waived its immunity from suit." As to the paragraph in the agreement relied upon by
respondent, the Solicitor General states that it "was not a waiver of their immunity from suit but a mere
stipulation that in the event they do waive their immunity, Philippine laws shall govern the resolution of
any legal action arising out of the agreement and the proper court in Makati City shall be the agreed venue
thereof.19
On the matter of whether or not petitioners Ambassador Soeratmin and Minister Counsellor Kasim may be
sued herein in their private capacities, Article 31 of the Vienna Convention on Diplomatic Relations
provides:
xxx

1. A diplomatic agent shall enjoy immunity from the criminal jurisidiction of the receiving State. He shall
also enjoy immunity from its civil and administrative jurisdiction, except in the case of:
(a) a real action relating to private immovable property situated in the territory of the receiving
State, unless he holds it on behalf of the sending State for the purposes of the mission;
(b) an action relating to succession in which the diplomatic agent is involved as executor,
administrator, heir or legatee as a private person and not on behalf of the sending State;
(c) an action relating to any professional or commercial activity exercised by the diplomatic agent in
the receiving State outside his official functions.
xxx
The act of petitioners Ambassador Soeratmin and Minister Counsellor Kasim in terminating the
Maintenance Agreement is not covered by the exceptions provided in the abovementioned provision.
The Solicitor General believes that said act may fall under subparagraph (c) thereof, 20 but said provision
clearly applies only to a situation where the diplomatic agent engages in any professional or commercial
activity outside official functions, which is not the case herein.
WHEREFORE, the petition is hereby GRANTED. The decision and resolution of the Court of Appeals in CA
G.R. SP No. 66894 are REVERSED and SET ASIDE and the complaint in Civil Case No. 18203 against
petitioners is DISMISSED.
No costs.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez,
Carpio, Corona, Carpio-Morales, and Callejo, Sr., JJ., concur.
Austria-Martinez, J., on leave.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-23139

December 17, 1966

MOBIL PHILIPPINES EXPLORATION, INC., plaintiff-appellant,

vs.
CUSTOMS ARRASTRE SERVICE and BUREAU of CUSTOMS, defendants-appellees.
Alejandro Basin, Jr. and Associates for plaintiff-appellant.
Felipe T. Cuison for defendants-appellees.
BENGZON, J.P., J.:
Four cases of rotary drill parts were shipped from abroad on S.S. "Leoville" sometime in November of 1962,
consigned to Mobil Philippines Exploration, Inc., Manila. The shipment arrived at the Port of Manila on April
10, 1963, and was discharged to the custody of the Customs Arrastre Service, the unit of the Bureau of

Customs then handling arrastre operations therein. The Customs Arrastre Service later delivered to the
broker of the consignee three cases only of the shipment.
On April 4, 1964 Mobil Philippines Exploration, Inc., filed suit in the Court of First Instance of Manila against
the Customs Arrastre Service and the Bureau of Customs to recover the value of the undelivered case in
the amount of P18,493.37 plus other damages.
On April 20, 1964 the defendants filed a motion to dismiss the complaint on the ground that not being
persons under the law, defendants cannot be sued.
After plaintiff opposed the motion, the court, on April 25, 1964, dismissed the complaint on the ground that
neither the Customs Arrastre Service nor the Bureau of Customs is suable. Plaintiff appealed to Us from the
order of dismissal.
Raised, therefore, in this appeal is the purely legal question of the defendants' suability under the facts
stated.
Appellant contends that not all government entities are immune from suit; that defendant Bureau of
Customs as operator of the arrastre service at the Port of Manila, is discharging proprietary functions and
as such, can be sued by private individuals.
The Rules of Court, in Section 1, Rule 3, provide:
SECTION 1. Who may be parties.Only natural or juridical persons or entities authorized by law
may be parties in a civil action.
Accordingly, a defendant in a civil suit must be (1) a natural person; (2) a juridical person or (3) an entity
authorized by law to be sued. Neither the Bureau of Customs nor (a fortiori) its function unit, the Customs
Arrastre Service, is a person. They are merely parts of the machinery of Government. The Bureau of
Customs is a bureau under the Department of Finance (Sec. 81, Revised Administrative Code); and as
stated, the Customs Arrastre Service is a unit of the Bureau of Custom, set up under Customs
Administrative Order No. 8-62 of November 9, 1962 (Annex "A" to Motion to Dismiss, pp. 13-15, Record an
Appeal). It follows that the defendants herein cannot he sued under the first two abovementioned
categories of natural or juridical persons.
Nonetheless it is urged that by authorizing the Bureau of Customs to engage in arrastre service, the law
therebyimpliedly authorizes it to be sued as arrastre operator, for the reason that the nature of this
function (arrastre service) is proprietary, not governmental. Thus, insofar as arrastre operation is
concerned, appellant would put defendants under the third category of "entities authorized by law" to be
sued. Stated differently, it is argued that while there is no law expressly authorizing the Bureau of Customs
to sue or be sued, still its capacity to be sued is implied from its very power to render arrastre service at
the Port of Manila, which it is alleged, amounts to the transaction of a private business.
The statutory provision on arrastre service is found in Section 1213 of Republic Act 1937 (Tariff and
Customs Code, effective June 1, 1957), and it states:
SEC. 1213. Receiving, Handling, Custody and Delivery of Articles.The Bureau of Customs shall
have exclusive supervision and control over the receiving, handling, custody and delivery of articles
on the wharves and piers at all ports of entry and in the exercise of its functions it is hereby
authorized to acquire, take over, operate and superintend such plants and facilities as may be
necessary for the receiving, handling, custody and delivery of articles, and the convenience and
comfort of passengers and the handling of baggage; as well as to acquire fire protection equipment
for use in the piers: Provided, That whenever in his judgment the receiving, handling, custody and

delivery of articles can be carried on by private parties with greater efficiency, the Commissioner
may, after public bidding and subject to the approval of the department head, contract with any
private party for the service of receiving, handling, custody and delivery of articles, and in such
event, the contract may include the sale or lease of government-owned equipment and facilities
used in such service.
In Associated Workers Union, et al. vs. Bureau of Customs, et al., L-21397, resolution of August 6, 1963,
this Court indeed held "that the foregoing statutory provisions authorizing the grant by contract to any
private party of the right to render said arrastre services necessarily imply that the same is deemed by
Congress to be proprietary or non-governmental function." The issue in said case, however, was whether
laborers engaged in arrastre service fall under the concept of employees in the Government employed in
governmental functions for purposes of the prohibition in Section 11, Republic Act 875 to the effect that
"employees in the Government . . . shall not strike," but "may belong to any labor organization which does
not impose the obligation to strike or to join in strike," which prohibition "shall apply only to employees
employed in governmental functions of the Government . . . .
Thus, the ruling therein was that the Court of Industrial Relations had jurisdiction over the subject matter
of the case, but not that the Bureau of Customs can be sued. Said issue of suability was not resolved, the
resolution stating only that "the issue on the personality or lack of personality of the Bureau of Customs to
be sued does not affect the jurisdiction of the lower court over the subject matter of the case, aside from
the fact that amendment may be made in the pleadings by the inclusion as respondents of the public
officers deemed responsible, for the unfair labor practice acts charged by petitioning Unions".
Now, the fact that a non-corporate government entity performs a function proprietary in nature does not
necessarily result in its being suable. If said non-governmental function is undertaken as an incident to its
governmental function, there is no waiver thereby of the sovereign immunity from suit extended to such
government entity. This is the doctrine recognized in Bureau of Printing, et al. vs. Bureau of Printing
Employees Association, et al., L-15751, January 28, 1961:
The Bureau of Printing is an office of the Government created by the Administrative Code of 1916
(Act No. 2657). As such instrumentality of the Government, it operates under the direct supervision
of the Executive Secretary, Office of the President, and is "charged with the execution of all printing
and binding, including work incidental to those processes, required by the National Government and
such other work of the same character as said Bureau may, by law or by order of the (Secretary of
Finance) Executive Secretary, be authorized to undertake . . . ." (Sec. 1644, Rev. Adm. Code.) It has
no corporate existence, and its appropriations are provided for in the General Appropriations Act.
Designed to meet the printing needs of the Government, it is primarily a service bureau and,
obviously, not engaged in business or occupation for pecuniary profit.
xxx

xxx

xxx

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

xxx

xxx

Indeed, as an office of the Government, without any corporate or juridical personality, the Bureau of
Printing cannot be sued (Sec. 1, Rule 3, Rules of Court.) Any suit, action or proceeding against it, if it
were to produce any effect, would actually be a suit, action or proceeding against the Government
itself, and the rule is settled that the Government cannot be sued without its consent, much less

over its objection. (See Metran vs. Paredes, 45 Off. Gaz. 2835; Angat River Irrigation System, et al.
vs. Angat River Workers Union, et al., G.R. Nos. L-10943-44, December 28, 1957.)
The situation here is not materially different. The Bureau of Customs, to repeat, is part of the
Department of Finance (Sec. 81, Rev. Adm. Code), with no personality of its own apart from
that of the national government. Its primary function is governmental, that of assessing and
collecting lawful revenues from imported articles and all other tariff and customs duties, fees,
charges, fines and penalties (Sec. 602, R.A. 1937). To this function, arrastre service is a
necessary incident. For practical reasons said revenues and customs duties can not be
assessed and collected by simply receiving the importer's or ship agent's or consignee's
declaration of merchandise being imported and imposing the duty provided in the Tariff law.
Customs authorities and officers must see to it that the declaration tallies with the
merchandise actually landed. And this checking up requires that the landed merchandise be
hauled from the ship's side to a suitable place in the customs premises to enable said customs
officers to make it, that is, it requires arrastre operations. 1
Clearly, therefore, although said arrastre function may be deemed proprietary, it is a necessary
incident of the primary and governmental function of the Bureau of Customs, so that engaging
in the same does not necessarily render said Bureau liable to suit. For otherwise, it could not
perform its governmental function without necessarily exposing itself to suit. Sovereign
immunity, granted as to the end, should not be denied as to the necessary means to that end.
And herein lies the distinction between the present case and that of National Airports Corporation vs.
Teodoro, 91 Phil. 203, on which appellant would rely. For there, the Civil Aeronautics Administration was
found have for its prime reason for existence not a governmental but a proprietary function, so that to it
the latter was not a mere incidental function:
Among the general powers of the Civil Aeronautics Administration are, under Section 3, to execute
contracts of any kind, to purchase property, and to grant concessions rights, and under Section 4,
to charge landing fees, royalties on sales to aircraft of aviation gasoline, accessories and supplies,
and rentals for the use of any property under its management.
These provisions confer upon the Civil Aeronautics Administration, in our opinion, the power to sue
and be sued. The power to sue and be sued is implied from the power to transact private business. .
..
xxx

xxx

xxx

The Civil Aeronautics Administration comes under the category of a private entity. Although not a
body corporate it was created, like the National Airports Corporation, not to maintain a necessary
function of government, but to run what is essentially a business, even if revenues be not its prime
objective but rather the promotion of travel and the convenience of the travelling public. . . .
Regardless of the merits of the claim against it, the State, for obvious reasons of public policy, cannot be
sued without its consent. Plaintiff should have filed its present claim to the General Auditing Office, it being
for money under the provisions of Commonwealth Act 327, which state the conditions under which money
claims against the Government may be filed.
It must be remembered that statutory provisions waiving State immunity from suit are strictly construed
and that waiver of immunity, being in derogation of sovereignty, will not be lightly inferred. (49 Am. Jur.,
States, Territories and Dependencies, Sec. 96, p. 314; Petty vs. Tennessee-Missouri Bridge Com., 359 U.S.
275, 3 L. Ed. 804, 79 S. Ct. 785). From the provision authorizing the Bureau of Customs to lease arrastre
operations to private parties, We see no authority to sue the said Bureau in the instances where it

undertakes to conduct said operation itself. The Bureau of Customs, acting as part of the
machinery of the national government in the operation of the arrastre service, pursuant to
express legislative mandate and as a necessary incident of its prime governmental function, is
immune from suit, there being no statute to the contrary.
WHEREFORE, the order of dismissal appealed from is hereby affirmed, with costs against appellant. So
ordered.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-52179

April 8, 1991

MUNICIPALITY OF SAN FERNANDO, LA UNION, petitioner

vs.
HON. JUDGE ROMEO N. FIRME, JUANA RIMANDO-BANIA, IAUREANO BANIA, JR., SOR MARIETA
BANIA, MONTANO BANIA, ORJA BANIA, AND LYDIA R. BANIA, respondents.
Mauro C. Cabading, Jr. for petitioner.
Simeon G. Hipol for private respondent.

MEDIALDEA, J.:
This is a petition for certiorari with prayer for the issuance of a writ of preliminary mandatory injunction
seeking the nullification or modification of the proceedings and the orders issued by the respondent Judge
Romeo N. Firme, in his capacity as the presiding judge of the Court of First Instance of La Union, Second
Judicial District, Branch IV, Bauang, La Union in Civil Case No. 107-BG, entitled "Juana Rimando Bania, et
al. vs. Macario Nieveras, et al." dated November 4, 1975; July 13, 1976; August 23,1976; February 23,
1977; March 16, 1977; July 26, 1979; September 7, 1979; November 7, 1979 and December 3, 1979 and
the decision dated October 10, 1979 ordering defendants Municipality of San Fernando, La Union and
Alfredo Bislig to pay, jointly and severally, the plaintiffs for funeral expenses, actual damages consisting of
the loss of earning capacity of the deceased, attorney's fees and costs of suit and dismissing the complaint
against the Estate of Macario Nieveras and Bernardo Balagot.
The antecedent facts are as follows:
Petitioner Municipality of San Fernando, La Union is a municipal corporation existing under and in
accordance with the laws of the Republic of the Philippines. Respondent Honorable Judge Romeo N. Firme
is impleaded in his official capacity as the presiding judge of the Court of First Instance of La Union, Branch
IV, Bauang, La Union. While private respondents Juana Rimando-Bania, Laureano Bania, Jr., Sor Marietta
Bania, Montano Bania, Orja Bania and Lydia R. Bania are heirs of the deceased Laureano Bania Sr.
and plaintiffs in Civil Case No. 107-Bg before the aforesaid court.

At about 7 o'clock in the morning of December 16, 1965, a collision occurred involving a passenger
jeepney driven by Bernardo Balagot and owned by the Estate of Macario Nieveras, a gravel and sand truck
driven by Jose Manandeg and owned by Tanquilino Velasquez and a dump truck of the Municipality of San
Fernando, La Union and driven by Alfredo Bislig. Due to the impact, several passengers of the jeepney
including Laureano Bania Sr. died as a result of the injuries they sustained and four (4) others suffered
varying degrees of physical injuries.
On December 11, 1966, the private respondents instituted a compliant for damages against the Estate of
Macario Nieveras and Bernardo Balagot, owner and driver, respectively, of the passenger jeepney, which
was docketed Civil Case No. 2183 in the Court of First Instance of La Union, Branch I, San Fernando, La
Union. However, the aforesaid defendants filed a Third Party Complaint against the petitioner and the
driver of a dump truck of petitioner.
Thereafter, the case was subsequently transferred to Branch IV, presided over by respondent judge and
was subsequently docketed as Civil Case No. 107-Bg. By virtue of a court order dated May 7, 1975, the
private respondents amended the complaint wherein the petitioner and its regular employee, Alfredo Bislig
were impleaded for the first time as defendants. Petitioner filed its answer and raised affirmative defenses
such as lack of cause of action, non-suability of the State, prescription of cause of action and the
negligence of the owner and driver of the passenger jeepney as the proximate cause of the collision.
In the course of the proceedings, the respondent judge issued the following questioned orders, to wit:
(1) Order dated November 4, 1975 dismissing the cross-claim against Bernardo Balagot;
(2) Order dated July 13, 1976 admitting the Amended Answer of the Municipality of San Fernando,
La Union and Bislig and setting the hearing on the affirmative defenses only with respect to the
supposed lack of jurisdiction;
(3) Order dated August 23, 1976 deferring there resolution of the grounds for the Motion to Dismiss
until the trial;
(4) Order dated February 23, 1977 denying the motion for reconsideration of the order of July 13,
1976 filed by the Municipality and Bislig for having been filed out of time;
(5) Order dated March 16, 1977 reiterating the denial of the motion for reconsideration of the order
of July 13, 1976;
(6) Order dated July 26, 1979 declaring the case deemed submitted for decision it appearing that
parties have not yet submitted their respective memoranda despite the court's direction; and
(7) Order dated September 7, 1979 denying the petitioner's motion for reconsideration and/or order
to recall prosecution witnesses for cross examination.
On October 10, 1979 the trial court rendered a decision, the dispositive portion is hereunder quoted as
follows:
IN VIEW OF ALL OF (sic) THE FOREGOING, judgment is hereby rendered for the plaintiffs, and
defendants Municipality of San Fernando, La Union and Alfredo Bislig are ordered to pay jointly and
severally, plaintiffs Juana Rimando-Bania, Mrs. Priscilla B. Surell, Laureano Bania Jr., Sor Marietta
Bania, Mrs. Fe B. Soriano, Montano Bania, Orja Bania and Lydia B. Bania the sums of P1,500.00
as funeral expenses and P24,744.24 as the lost expected earnings of the late Laureano Bania Sr.,
P30,000.00 as moral damages, and P2,500.00 as attorney's fees. Costs against said defendants.
The Complaint is dismissed as to defendants Estate of Macario Nieveras and Bernardo Balagot.
SO ORDERED. (Rollo, p. 30)

Petitioner filed a motion for reconsideration and for a new trial without prejudice to another motion which
was then pending. However, respondent judge issued another order dated November 7, 1979 denying the
motion for reconsideration of the order of September 7, 1979 for having been filed out of time.
Finally, the respondent judge issued an order dated December 3, 1979 providing that if defendants
municipality and Bislig further wish to pursue the matter disposed of in the order of July 26, 1979, such
should be elevated to a higher court in accordance with the Rules of Court. Hence, this petition.
Petitioner maintains that the respondent judge committed grave abuse of discretion amounting to excess
of jurisdiction in issuing the aforesaid orders and in rendering a decision. Furthermore, petitioner asserts
that while appeal of the decision maybe available, the same is not the speedy and adequate remedy in the
ordinary course of law.
On the other hand, private respondents controvert the position of the petitioner and allege that the
petition is devoid of merit, utterly lacking the good faith which is indispensable in a petition
for certiorari and prohibition. (Rollo, p. 42.) In addition, the private respondents stress that petitioner has
not considered that every court, including respondent court, has the inherent power to amend and control
its process and orders so as to make them conformable to law and justice. (Rollo, p. 43.)
The controversy boils down to the main issue of whether or not the respondent court committed
grave abuse of discretion when it deferred and failed to resolve the defense of non-suability of
the State amounting to lack of jurisdiction in a motion to dismiss.
In the case at bar, the respondent judge deferred the resolution of the defense of non-suability of the State
amounting to lack of jurisdiction until trial. However, said respondent judge failed to resolve such defense,
proceeded with the trial and thereafter rendered a decision against the municipality and its driver.
The respondent judge did not commit grave abuse of discretion when in the exercise of its judgment it
arbitrarily failed to resolve the vital issue of non-suability of the State in the guise of the municipality.
However, said judge acted in excess of his jurisdiction when in his decision dated October 10, 1979 he held
the municipality liable for the quasi-delict committed by its regular employee.
The doctrine of non-suability of the State is expressly provided for in Article XVI, Section 3 of
the Constitution, to wit: "the State may not be sued without its consent."
Stated in simple parlance, the general rule is that the State may not be sued except when it gives consent
to be sued. Consent takes the form of express or implied consent.
Express consent may be embodied in a general law or a special law. The standing consent of the State to
be sued in case of money claims involving liability arising from contracts is found in Act No. 3083. A special
law may be passed to enable a person to sue the government for an alleged quasi-delict, as in Merritt v.
Government of the Philippine Islands (34 Phil 311). (see United States of America v. Guinto, G.R. No.
76607, February 26, 1990, 182 SCRA 644, 654.)
Consent is implied when the government enters into business contracts, thereby descending to the level of
the other contracting party, and also when the State files a complaint, thus opening itself to a
counterclaim. (Ibid)
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
provided that they can sue and be sued. (Cruz, Philippine Political Law, 1987 Edition, p. 39)
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." (United States of America vs. Guinto, supra, p. 659-660)

Anent the issue of whether or not the municipality is liable for the torts committed by its employee, the
test of liability of the municipality depends on whether or not the driver, acting in behalf of the
municipality, is performing governmental or proprietary functions. As emphasized in the case of Torio vs.
Fontanilla (G. R. No. L-29993, October 23, 1978. 85 SCRA 599, 606), the distinction of powers
becomes important for purposes of determining the liability of the municipality for the acts of
its agents which result in an injury to third persons.
Another statement of the test is given in City of Kokomo vs. Loy, decided by the Supreme Court of Indiana
in 1916, thus:
Municipal corporations exist in a dual capacity, and their functions are twofold. In one they exercise
the right springing from sovereignty, and while in the performance of the duties pertaining thereto,
their acts are political and governmental. Their officers and agents in such capacity, though elected
or appointed by them, are nevertheless public functionaries performing a public service, and as
such they are officers, agents, and servants of the state. In the other capacity the municipalities
exercise a private, proprietary or corporate right, arising from their existence as legal persons and
not as public agencies. Their officers and agents in the performance of such functions act in behalf
of the municipalities in their corporate or individual capacity, and not for the state or sovereign
power." (112 N.E., 994-995) (Ibid, pp. 605-606.)
It has already been remarked that municipal corporations are suable because their charters grant them
the competence to sue and be sued. Nevertheless, they are generally not liable for torts committed
by them in the discharge of governmental functions and can be held answerable only if it can
be shown that they were acting in a proprietary capacity. In permitting such entities to be sued, the
State merely gives the claimant the right to show that the defendant was not acting in its governmental
capacity when the injury was committed or that the case comes under the exceptions recognized by law.
Failing this, the claimant cannot recover. (Cruz, supra, p. 44.)
In the case at bar, the driver of the dump truck of the municipality insists that "he was on his way to the
Naguilian river to get a load of sand and gravel for the repair of San Fernando's municipal streets." (Rollo,
p. 29.)
In the absence of any evidence to the contrary, the regularity of the performance of official duty is
presumed pursuant to Section 3(m) of Rule 131 of the Revised Rules of Court. Hence, We rule that the
driver of the dump truck was performing duties or tasks pertaining to his office.
We already stressed in the case of Palafox, et. al. vs. Province of Ilocos Norte, the District Engineer, and
the Provincial Treasurer (102 Phil 1186) that "the construction or maintenance of roads in which the truck
and the driver worked at the time of the accident are admittedly governmental activities."
After a careful examination of existing laws and jurisprudence, We arrive at the conclusion that the
municipality cannot be held liable for the torts committed by its regular employee, who was then engaged
in the discharge of governmental functions. Hence, the death of the passenger tragic and deplorable
though it may be imposed on the municipality no duty to pay monetary compensation.
All premises considered, the Court is convinced that the respondent judge's dereliction in failing to resolve
the issue of non-suability did not amount to grave abuse of discretion. But said judge exceeded his
jurisdiction when it ruled on the issue of liability.
ACCORDINGLY, the petition is GRANTED and the decision of the respondent court is hereby modified,
absolving the petitioner municipality of any liability in favor of private respondents.
SO ORDERED.
Narvasa, Cruz, Gancayco and Grio-Aquino, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
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 P16,370,191.74 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 Baos
(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 P273,729.47 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. P 503,462.74 amount of the third billing, additional accomplished work and retention
money

2. P 5,716,729.00 in actual damages

3. P 10,000,000.00 in moral damages
4. P 150,000.00 and P 1,500.00 per appearance as attorneys fees; and
5. Costs of suit.
SO ORDERED.
Following the RTCs 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 UPs 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 UPs 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." (Rams 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 UPs 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 UPs
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 UPs urgent motion to quash, and granted Stern Builders and
dela Cruzs 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 UPs 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 noncompliance 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-Telan 37 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 sheriffs
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 sheriffs 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 Managers Check No. 811941 for P 16,370,191.74 representing the garnished funds payable to
the order of Stern Builders and dela Cruz as its compliance with the RTCs 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 UPs 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 plaintiffs 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 UPs 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 Baos, 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 Cruzs motion to
withdraw the deposit, in consideration of the UPs 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 latters 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. Systems 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 Courts 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 sheriffs 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 UPs motion for the
redeposit of the withdrawn amount on April 10, 2007,60 to wit:
This resolves defendant U.P. Systems 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 plaintiffs motion to allow the release
of said deposit. It must be recalled that the Court found plaintiffs 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. Systems appeal was upheld by the Supreme Court;

c) a writ of execution had been issued;

d) defendant U.P. Systems 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. Systems motion to redeposit the
judgment amount. Granting said motion is not only contrary to law, but it will also render this Courts 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. Systems Urgent Motion to Redeposit Judgment
Award devoid of merit, the same is hereby DENIED.
SO ORDERED.
Issues
The UP now submits that:
I
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
UNIVERSITYS 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 P 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 attorneys 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 attorneys 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
UPs 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 UPs 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 P 5,716,729.00 and moral damages of P 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 P 22,338,553.25, an amount already more than sufficient to cover the judgment award; that
the UPs 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 Courts 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 UPs prayer for the deletion of the awards of actual damages
of P 5,716,729.00, moral damages of P 10,000,000.00 and attorneys fees of P 150,000.00 plus P 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.
UPs 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 States 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 UPs 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.77Hence, the funds subject of this action could not be validly made the subject of the RTCs 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 claimants action "only up to the completion of proceedings anterior to
the stage of execution" and that the power of the Courts ends when the judgment is rendered, since
government funds and properties may not be seized under writs of execution or garnishment to satisfy
such judgments, is based on obvious considerations of public policy. Disbursements of public funds must
be covered by the corresponding appropriation as required by law. The functions and public services
rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public funds from
their legitimate and specific objects, as appropriated by law.

The UP correctly submits here that the garnishment of its funds to satisfy the judgment awards of actual
and moral damages (including attorneys 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 RTCs
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."82The 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 attorneys 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 UPs 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 sheriffs report of January 17, 2007 manifesting
the full satisfaction of the writ of execution; and (d) the order of April 10, 2007 deying the UPs motion for
the redeposit of the withdrawn amount. Hence, such orders and issuances should be struck down without
exception.
Nothing extenuated Judge Yadaos 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 claimants 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 UPs plea for equity
was the return of the amount of P 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 UPs 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 UPs 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 UPs plea for equity warrants the Courts exercise of the exceptional power to disregard
the declaration of finality of the judgment of the RTC for being in clear violation of the UPs 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 UPs 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--vis the RTCs 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 UPs notice of appeal on June 3, 2002 timely and well within the remaining days of the UPs
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 partys 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 UPs 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 Courts 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 UPs 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 attorneys 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 P 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 P 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 P 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 P 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 P 150,000.00, plus P 1,500.00 per appearance, granted as
attorneys fees were factually unwarranted and devoid of legal basis. The general rule is that a successful
litigant cannot recover attorneys 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 attorneys fees in the cases
mentioned in Article 2208115 of the Civil Code came to be recognized.116 Nonetheless, with attorneys 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 attorneys 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 attorneys 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 attorneys 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., P 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 P 5,716,729.00, moral damages of P 10,000,000.00,
and attorney's fees of P150,000.00, plus P 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 P16,370,191.74 within 10 days from receipt of this decision.
Costs of suit to be paid by the private respondents.
SO ORDERED.
LUCAS P. BERSAMIN
Associate Justice