Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 70853 March 12, 1987
REPUBLIC OF THE PHILIPPINES, petitioner-appellee,
vs.
PABLO FELICIANO and INTERMEDIATE APPELLATE COURT, respondentsappellants.

YAP, J.:
Petitioner seeks the review of the decision of the Intermediate Appellate Court dated
April 30, 1985 reversing the order of the Court of First Instance of Camarines Sur,
Branch VI, dated August 21, 1980, which dismissed the complaint of respondent Pablo
Feliciano for recovery of ownership and possession of a parcel of land on the ground of
non-suability of the State.
The background of the present controversy may be briefly summarized as follows:
On January 22, 1970, respondent Feliciano filed a complaint with the then Court of First
Instance of Camarines Sur against the Republic of the Philippines, represented by the
Land Authority, for the recovery of ownership and possession of a parcel of land,
consisting of four (4) lots with an aggregate area of 1,364.4177 hectares, situated in the
Barrio of Salvacion, Municipality of Tinambac, Camarines Sur. Plaintiff alleged that he
bought the property in question from Victor Gardiola by virtue of a Contract of Sale
dated May 31, 1952, followed by a Deed of Absolute Sale on October 30, 1954; that
Gardiola had acquired the property by purchase from the heirs of Francisco Abrazado
whose title to the said property was evidenced by an informacion posesoria that upon
plaintiff's purchase of the property, he took actual possession of the same, introduced
various improvements therein and caused it to be surveyed in July 1952, which survey
was approved by the Director of Lands on October 24, 1954; that on November 1, 1954,
President Ramon Magsaysay issued Proclamation No. 90 reserving for settlement
purposes, under the administration of the National Resettlement and Rehabilitation
Administration (NARRA), a tract of land situated in the Municipalities of Tinambac and
Siruma, Camarines Sur, after which the NARRA and its successor agency, the Land

Authority, started sub-dividing and distributing the land to the settlers; that the property
in question, while located within the reservation established under Proclamation No. 90,
was the private property of plaintiff and should therefore be excluded therefrom. Plaintiff
prayed that he be declared the rightful and true owner of the property in question
consisting of 1,364.4177 hectares; that his title of ownership based on informacion
posesoria of his predecessor-in-interest be declared legal valid and subsisting and that
defendant be ordered to cancel and nullify all awards to the settlers.
The defendant, represented by the Land Authority, filed an answer, raising by way of
affirmative defenses lack of sufficient cause of action and prescription.
On August 29, 1970, the trial court, through Judge Rafael S. Sison, rendered a decision
declaring Lot No. 1, with an area of 701.9064 hectares, to be the private property of the
plaintiff, "being covered by a possessory information title in the name of his
predecessor-in-interest" and declaring said lot excluded from the NARRA settlement
reservation. The court declared the rest of the property claimed by plaintiff, i.e. Lots 2, 3
and 4, reverted to the public domain.
A motion to intervene and to set aside the decision of August 29, 1970 was filed by
eighty-six (86) settlers, together with the barrio council of Pag-asay, alleging among
other things that intervenors had been in possession of the land in question for more
than twenty (20) years under claim of ownership.
On January 25, 1971, the court a quo reconsidered its decision, reopened the case and
directed the intervenors to file their corresponding pleadings and present their evidence;
all evidence already presented were to remain but plaintiff, as well as the Republic of
the Philippines, could present additional evidence if they so desire. The plaintiff
presented additional evidence on July 30, 1971, and the case was set for hearing for
the reception of intervenors' evidence on August 30 and August 31, 1971.
On August 30, 1971, the date set for the presentation of the evidence for intervenors,
the latter did not appear but submitted a motion for postponement and resetting of the
hearing on the next day, August 31, 1971. The trial court denied the motion for
postponement and allowed plaintiff to offer his evidence "en ausencia," after which the
case would be deemed submitted for decision. On the following day, August 31, 1971,
Judge Sison rendered a decision reiterating his decision of August 29, 1970.
A motion for reconsideration was immediately filed by the intervenors. But before this
motion was acted upon, plaintiff filed a motion for execution, dated November 18, 1971.
On December 10, 1971, the lower court, this time through Judge Miguel Navarro, issued
an order denying the motion for execution and setting aside the order denying

intervenors' motion for postponement. The case was reopened to allow intervenors to
present their evidence. Unable to secure a reconsideration of Judge Navarro's order,
the plaintiff went to the Intermediate Appellate Court on a petition for certiorari. Said
petition was, however, denied by the Intermediate Appellate Court, and petitioners
brought the matter to this Court in G.R. No. 36163, which was denied on May 3, 1973
Consequently, the case was remanded to the court a quo for further proceedings.
On August 31, 1970, intervenors filed a motion to dismiss, principally on the ground that
the Republic of the Philippines cannot be sued without its consent and hence the action
cannot prosper. The motion was opposed by the plaintiff.
On August 21, 1980, the trial court, through Judge Esteban Lising, issued the
questioned order dismissing the case for lack of jurisdiction. Respondent moved for
reconsideration, while the Solicitor General, on behalf of the Republic of the Philippines
filed its opposition thereto, maintaining that the dismissal was proper on the ground of
non-suability of the State and also on the ground that the existence and/or authenticity
of the purported possessory information title of the respondents' predecessor-in-interest
had not been demonstrated and that at any rate, the same is not evidence of title, or if it
is, its efficacy has been lost by prescription and laches.
Upon denial of the motion for reconsideration, plaintiff again went to the Intermediate
Appellate Court on petition for certiorari. On April 30, 1985, the respondent appellate
court rendered its decision reversing the order of Judge Lising and remanding the case
to the court a quo for further proceedings. Hence this petition.
We find the petition meritorious. The doctrine of non-suability of the State has proper
application in this case. The plaintiff has impleaded the Republic of the Philippines as
defendant in an action for recovery of ownership and possession of a parcel of land,
bringing the State to court just like any private person who is claimed to be usurping a
piece of property. A suit for the recovery of property is not an action in rem, but an action
in personam. 1 It is an action directed against a specific party or parties, and any judgment therein binds only such party or parties.
The complaint filed by plaintiff, the private respondent herein, is directed against the Republic of the Philippines, represented by the Land
Authority, a governmental agency created by Republic Act No. 3844.
By its caption and its allegation and prayer, the complaint is clearly a suit against the State, which under settled jurisprudence is not
permitted, except upon a showing that the State has consented to be sued, either expressly or by implication through the use of statutory
2

There is no such showing in the instant case. Worse, the complaint itself
fails to allege the existence of such consent. This is a fatal defect, 3 and on this basis alone, the complaint
should have been dismissed.
language too plain to be misinterpreted.

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

Private respondent contends that the consent of petitioner may be read from the Proclamation itself, when
it established the reservation " subject to private rights, if any there be. " We do not agree. No such
consent can be drawn from the language of the Proclamation. The exclusion of existing private rights from
the reservation established by Proclamation No. 90 can not be construed as a waiver of the immunity of
the State from suit. Waiver of immunity, being a derogation of sovereignty, will not be inferred lightly. but
must be construed in strictissimi juris. 5 Moreover, the Proclamation is not a legislative act. The consent of
the State to be sued must emanate from statutory authority. Waiver of State immunity can only be made
by an act of the legislative body.
Neither is there merit in respondent's submission, which the respondent appellate court sustained, on the
basis of our decision in the Begosa case, 6 that the present action is not a suit against the State within the
rule of State immunity from suit, because plaintiff does not seek to divest the Government of any of its
lands or its funds. It is contended that the complaint involves land not owned by the State, but private land
belonging to the plaintiff, hence the Government is not being divested of any of its properties. There is
some sophistry involved in this argument, since the character of the land sought to be recovered still
remains to be established, and the plaintiff's action is directed against the State precisely to compel the
latter to litigate the ownership and possession of the property. In other words, the plaintiff is out to
establish that he is the owner of the land in question based, incidentally, on an informacion posesoria of
dubious value, and he seeks to establish his claim of ownership by suing the Republic of the Philippines
in an action in personam.
The inscription in the property registry of an informacion posesoria under the Spanish Mortgage Law was
a means provided by the law then in force in the Philippines prior to the transfer of sovereignty from Spain
to the United States of America, to record a claimant's actual possession of a piece of land, established
through an ex parte proceeding conducted in accordance with prescribed rules. 7 Such inscription merely
furnishes, at best, prima facie evidence of the fact that at the time the proceeding was held, the claimant
was in possession of the land under a claim of right as set forth in his application. 8 The possessory
information could ripen into a record of ownership after the lapse of 20 years (later reduced to 10 years),
upon the fulfillment of the requisites prescribed in Article 393 of the Spanish Mortgage Law.
There is no showing in the case at bar that the informacion posesoria held by the respondent had been
converted into a record of ownership. Such possessory information, therefore, remained at best mere
prima facie evidence of possession. Using this possessory information, the respondent could have
applied for judicial confirmation of imperfect title under the Public Land Act, which is an action in rem.
However, having failed to do so, it is rather late for him to pursue this avenue at this time. Respondent
must also contend, as the records disclose, with the fact admitted by him and stated in the decision of the
Court a quo that settlers have been occupying and cultivating the land in question since even before the
outbreak of the war, which puts in grave doubt his own claim of possession.
Worthy of note is the fact, as pointed out by the Solicitor General, that the informacion posesoria
registered in the Office of the Register of Deed of Camarines Sur on September 23, 1952 was a
"reconstituted" possessory information; it was "reconstituted from the duplicate presented to this office
(Register of Deeds) by Dr. Pablo Feliciano," without the submission of proof that the alleged duplicate
was authentic or that the original thereof was lost. Reconstitution can be validly made only in case of loss
of the original. 10 These circumstances raise grave doubts as to the authenticity and validity of the "informacion posesoria" relied upon
by respondent Feliciano. Adding to the dubiousness of said document is the fact that "possessory information calls for an area of only 100
hectares," 11 whereas the land claimed by respondent Feliciano comprises 1,364.4177 hectares, later reduced to 701-9064 hectares. Courts
should be wary in accepting "possessory information documents, as well as other purportedly old Spanish titles, as proof of alleged
ownership of lands.

WHEREFORE, judgment is hereby rendered reversing and setting aside the appealed decision of the Intermediate Appellate Court, dated
April 30, 1985, and affirming the order of the court a quo, dated August 21, 1980, dismissing the complaint filed by respondent Pablo
Feliciano against the Republic of the Philippines. No costs.
SO ORDERED.
Narvasa, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.
Melencio-Herrera, J., is on leave.

Footnotes
1 Ang Lam v. Rosenosa 86 Phil. 447.
2 Providence Washington Insurance Co. v. Republic of the Philippines, 29 SCRA 598, 601.
3 Insurance Company of North America v. Republic of the Philippines, 20 SCRA 627.
4 Insurance Company of North America v. Osaka Shosen Kaisha 27 SCRA 780.
5 Mobil Philippines Exploration, nn. v. Customs Arrastre Service, 18 SCRA 1120; Insurance Company of North America
v. Warner, 21 SCRA 766.
6 Begosa v. Philippine Veterans Administration 32 SCRA 466.
7 Alfonso v. Commanding General 7 Phil. 600, 615.
8 Bishop of Segovia v. Mun. of Bantay, 28 Phil. 347, 351.
9 Querol and Flores v. Querol, 48 Phil. 90, 98-99.
10 Republic of the Philippines vs. Court of Appeals, 94 SCRA 865.
11 Government of the Philippines v. Heirs of Abella, 49 Phil. 374, 379.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 84607 March 19, 1993

REPUBLIC OF THE PHILIPPINES, GEN. RAMON MONTANO, GEN. ALFREDO LIM, GEN. ALEXANDER AGUIRRE, COL. EDGAR DULA
TORRES, COL. CEZAR NAZARENO, MAJ. FILEMON GASMEN, PAT. NICANOR ABANDO, PFC SERAFIN CEBU, JR., GEN. BRIGIDO
PAREDES, COL. ROGELIO MONFORTE, PFC ANTONIO LUCERO, PAT. JOSE MENDIOLA, PAT. NELSON TUASON, POLICE
CORPORAL PANFILO ROGOS, POLICE LT. JUAN B. BELTRAN, PAT. NOEL MANAGBAO, MARINE THIRD CLASS TRAINEE (3CT)
NOLITO NOGATO, 3CT ALEJANDRO B. NAGUIO, JR., EFREN ARCILLAS, 3CT AGERICO LUNA, 3CT BASILIO BORJA, 3CT
MANOLITO LUSPO, 3CT CRISTITUTO GERVACIO, 3CT MANUEL DELA CRUZ, JR., MARINE (CDC) BN., (CIVIL DISTURBANCE
CONTROL), MOBILE DISPERSAL TEAM (MDT), LT. ROMEO PAQUINTO, LT. LAONGLAANG GOCE, MAJ. DEMETRIO DE LA CRUZ,
POLICE CAPTAIN RODOLFO NAVAL, JOHN DOE, RICHARD DOE, ROBERTO DOE AND OTHER DOES, petitioners,
vs.
HON. EDILBERTO G. SANDOVAL, Regional Trial Court of Manila, Branch IX, ERLINDA C. CAYLAO, ANATALIA ANGELES PEREZ,
MYRNA BAUTISTA, CIPRIANA EVANGELIO, ELMA GRAMPA, AMELIA GUTIERREZ, NEMESIO LAKINDANUM, PURITA YUMUL,
MIGUEL ARABE, TERESITA ARJONA, RONALDO CAMPOMANES AND CARMENCITA ARDONI VDA. DE CAMPOMANES, ROGELIO
DOMUNICO, in their capacity as heirs of the deceased (ROBERTO C. CAYLAO, SONNY "BOY" PEREZ, DIONESIO BAUTISTA,
DANTE EVANGELIO, ADELFA ARIBE, DANILO ARJONA, VICENTE CAMPOMANES, RONILO DOMUNICO) respectively; and (names
of sixty-two injured victims) EDDIE AGUINALDO, FELICISIMO ALBASIA, NAPOLEON BAUTISTA, DANILO CRUZ, EDDIE MENSOLA,
ALBERT PITALBO, VICENTE ROSEL, RUBEN CARRIEDO, JOY CRUZ, HONORIO LABAMBA, JR., EFREN MACARAIG, SOLOMON
MANALOTO, ROMEO DURAN, NILO TAGUBAT, JUN CARSELLAR, JOEY CLEMENTE, GERARDO COYOCA, LUISITO DACO,
BENJAMIN DELA CRUZ, ARTHUR FONTANILLA, WILSON GARCIA, CARLOS SIRAY, JOSE PERRAS, TOMAS VALLOS, ARNOLD
ENAJE, MARIANITA DIMAPILIS, FRANCISCO ANGELES, MARCELO ESGUERRA, JOSE FERRER, RODEL DE GUIA, ELVIS
MENDOZA, VICTORIANO QUIJANO, JOEY ADIME, RESIENO ADUL, ALBERTO TARSONA, CARLOS ALCANTARA, MAMERTO ALIAS,
EMELITO ALMONTE, BENILDA ALONUEVO, EMMA ABADILLO, REYNALDO CABALLES, JR., JAIME CALDETO, FABIAN
CANTELEJO, RODRIGO CARABARA, ENRIQUE DELGADO, JUN DELOS SANTOS, MARIO DEMASACA, FRANCISCO GONZALES,
ERNESTO GONZALES, RAMIRO JAMIL, JUAN LUCENA, PERLITO SALAYSAY, JOHNNY SANTOS, MARCELO SANTOS, EMIL

SAYAO, BAYANI UMALI, REMIGIO MAHALIN, BONG MANLULO, ARMANDO MATIENZO, CARLO MEDINA, LITO NOVENARIO, and
ROSELLA ROBALE, respondents.
G.R. No. 84645 March 19, 1993
ERLINDA C. CAYLAO, ANATALIA ANGELES PEREZ, MYRNA BAUTISTA, CIPRIANA EVANGELIO, ELMA GRAMPA, AMELIA
GUTIERREZ, NEMESIO LAKINDANUM, PURITA YUMUL, MIGUEL ARABE, TERESITA ARJONA, RONALDO CAMPOMANES AND
CARMENCITA ARDONI VDA. DE CAMPOMANES, ROGELIO DOMUNICO, in their capacity as heirs of the deceased (ROBERTO C.
CAYLAO, SONNY "BOY" PEREZ, DIONESIO GRAMPA, ANGELITO GUTIERREZ, BERNABE LAKINDANUM, ROBERTO YUMUL,
LEOPOLDO ALONZO, ADELFA ARIBE, DANILO ARJONA, VICENTE CAMPOMANES, RONILO DOMUNICO) respectively; and (names
of sixty-two injured victims) EDDIE AGUINALDO, FELICISIMO ALBASIA, NAPOLEON BAUTISTA, DANILO CRUZ, EDDIE MENSOLA,
ALBERT PITALBO, VICENTE ROSEL, RUBEN CARRIEDO, JOY CRUZ, HONORIO LABAMBA, JR. EFREN MACARAIG, SOLOMON
MANALOTO, ROMEO DURAN, NILO TAGUBAT, JUN CARSELLAR, JOEY CLEMENTE, GERARDO COYOCA, LUISITO DACO,
BENJAMIN DELA CRUZ, ARTHUR FONTANILLA, WILSON GARCIA, CARLOS SIRAY, JOSE PERRAS TOMAS VALLOS, ARNOLD
ENAJE, MARIANITA DIMAPILIS, FRANCISCO ANGELES, MARCELO ESGUERRA, JOSE FERRER, RODEL DE GUIA, ELVIS
MENDOZA, VICTORINO QUIJANO, JOEY ADIME, RESIENO ADUL, ALBERTO TARSONA, CARLOS ALCANTARA, MAMERTO ALIAS,
EMELITO ALMONTE, BENILDA ALONUEVO, EMMA ABADILLO, REYNALDO CABALLES, JR., JAIME CALDETO, FABIAN
CANTELEJO, RODRIGO CARABARA, ENRIQUE DELGADO, JUN DELOS SANTOS, MARIO DEMASACA, FRANCISCO GONZALES,
ERNESTO GONZALES, RAMIRO JAMIL, JUAN LUCENA, PERLITO SALAYSAY, JOHNNY SANTOS, MARCELO SANTOS, EMIL
SAYAO, BAYANI UMALI, REMIGIO MAHALIN, BONG MANLULO, ARMANDO MATIENZO, CARLO MEDINA, LITO NOVENARIO,
ROSELLA ROBALE, petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, and HONORABLE EDILBERTO G. SANDOVAL, Regional Trial Court of Manila, Branch 9,
respondents.
The Solicitor General for the Republic of the Philippines.
Structural Alternative Legal Assistance for Grassroots for petitioners in 84645 & private respondents in 84607.

CAMPOS, JR., J.:

People may have already forgotten the tragedy that transpired on January 22, 1987. It is quite ironic that then, some journalists
called it a Black Thursday, as a grim reminder to the nation of the misfortune that befell twelve (12) rallyists. But for most Filipinos
now, the Mendiola massacre may now just as well be a chapter in our history books. For those however, who have become widows
and orphans, certainly they would not settle for just that. They seek retribution for the lives taken that will never be brought back to
life again.
Hence, the heirs of the deceased, together with those injured (Caylao group), instituted this petition, docketed as G.R. No. 84645,
under Section 1 of Rule 65 of the Rules of Court, seeking the reversal and setting aside of the Orders of respondent Judge
1

dated May 31 and August 8, 1988, dismissing the complaint for damages of herein
petitioners against the Republic of the Philippines in Civil Case No. 88-43351.
Sandoval,

Petitioner, the Republic of the Philippines, through a similar remedy, docketed as G.R. No. 84607,
seeks to set aside the Order of respondent Judge dated May 31, 1988, in Civil Case No. 88-43351
entitled "Erlinda Caylao, et al. vs. Republic of the Philippines, et al."
The pertinent portion of the questioned Order 2 dated May 31, 1988, reads as follows:
With respect however to the other defendants, the impleaded Military Officers,
since they are being charged in their personal and official capacity, and holding
them liable, if at all, would not result in financial responsibility of the government,
the principle of immunity from suit can not conveniently and correspondingly be
applied to them.

WHEREFORE, the case as against the defendant Republic of the Philippines is

hereby dismissed. As against the rest of the defendants the motion to dismiss is
denied. They are given a period of ten (10) days from receipt of this order within
which to file their respective pleadings.
On the other hand, the Order 3, dated August 8, 1988, denied the motions filed by both parties, for
a reconsideration of the abovecited Order, respondent Judge finding no cogent reason to disturb
the said order.
The massacre was the culmination of eight days and seven nights of encampment by members of
the militant Kilusang Magbubukid sa Pilipinas (KMP) at the then Ministry (now Department) of
Agrarian Reform (MAR) at the Philippine Tobacco Administration Building along Elliptical Road in
Diliman, Quezon City.
The farmers and their sympathizers presented their demands for what they called "genuine
agrarian reform". The KMP, led by its national president, Jaime Tadeo, presented their problems
and demands, among which were: (a) giving lands for free to farmers; (b) zero retention of lands
by landlords; and (c) stop amortizations of land payments.
The dialogue between the farmers and the MAR officials began on January 15, 1987. The two days
that followed saw a marked increase in people at the encampment. It was only on January 19,
1987 that Jaime Tadeo arrived to meet with then Minister Heherson Alvarez, only to be informed
that the Minister can only meet with him the following day. On January 20, 1987, the meeting was
held at the MAR conference room. Tadeo demanded that the minimum comprehensive land reform
program be granted immediately. Minister Alvarez, for his part, can only promise to do his best to
bring the matter to the attention of then President Aquino, during the cabinet meeting on January
21, 1987.
Tension mounted the following day. The farmers, now on their seventh day of encampment,
barricaded the MAR premises and prevented the employees from going inside their offices. They
hoisted the KMP flag together with the Philippine flag.
At around 6:30 p.m. of the same day, Minister Alvarez, in a meeting with Tadeo and his leaders,
advised the latter to instead wait for the ratification of the 1987 Constitution and just allow the
government to implement its comprehensive land reform program. Tadeo, however, countered by
saying that he did not believe in the Constitution and that a genuine land reform cannot be
realized under a landlord-controlled Congress. A heated discussion ensued between Tadeo and
Minister Alvarez. This notwithstanding, Minister Alvarez suggested a negotiating panel from each
side to meet again the following day.
On January 22, 1987, Tadeo's group instead decided to march to Malacaang to air their demands.
Before the march started, Tadeo talked to the press and TV media. He uttered fiery words, the
most telling of which were:
". . . inalis namin ang barikada bilang kahilingan ng ating Presidente, pero kinakailangan alisin din
niya ang barikada sa Mendiola sapagkat bubutasin din namin iyon at dadanak ang dugo . . . ." 4
The farmers then proceeded to march to Malacaang, from Quezon Memorial Circle, at 10:00 a.m.
They were later joined by members of other sectoral organizations such as the Kilusang Mayo

Uno (KMU), Bagong Alyansang Makabayan (BAYAN), League of Filipino Students (LFS) and
Kongreso ng Pagkakaisa ng Maralitang Lungsod (KPML).
At around 1:00 p.m., the marchers reached Liwasang Bonifacio where they held a brief program. It
was at this point that some of the marchers entered the eastern side of the Post Office Building,
and removed the steel bars surrounding the garden. Thereafter, they joined the march to
Malacaang. At about 4:30 p.m., they reached C.M. Recto Avenue.
In anticipation of a civil disturbance, and acting upon reports received by the Capital Regional
Command (CAPCOM) that the rallyists would proceed to Mendiola to break through the police
lines and rush towards Malacaang, CAPCOM Commander General Ramon E. Montao inspected
the preparations and adequacy of the government forces to quell impending attacks.
OPLAN YELLOW (Revised) was put into effect. Task Force Nazareno under the command of Col.
Cesar Nazareno was deployed at the vicinity of Malacaang. The civil disturbance control units of
the Western Police District under Police Brigadier General Alfredo S. Lim were also activated.
Intelligence reports were also received that the KMP was heavily infiltrated by CPP/NPA elements
and that an insurrection was impending. The threat seemed grave as there were also reports that
San Beda College and Centro Escolar University would be forcibly occupied.
In its report, the Citizens' Mendiola Commission (a body specifically tasked to investigate the
facts surrounding the incident, Commission for short) stated that the government anti-riot forces
were assembled at Mendiola in a formation of three phalanges, in the following manner:
(1) The first line was composed of policemen from police stations Nos. 3, 4, 6, 7, 8,
9 and 10 and the Chinatown detachment of the Western Police District. Police
Colonel Edgar Dula Torres, Deputy Superintendent of the Western Police District,
was designated as ground commander of the CDC first line of defense. The WPD
CDC elements were positioned at the intersection of Mendiola and Legarda Streets
after they were ordered to move forward from the top of Mendiola bridge. The WPD
forces were in khaki uniform and carried the standard CDC equipment aluminum
shields, truncheons and gas masks.
(2) At the second line of defense about ten (10) yards behind the WPD policemen
were the elements of the Integrated National Police (INP) Field Force stationed at
Fort Bonifacio from the 61st and 62nd INP Field Force, who carried also the
standard CDC equipment truncheons, shields and gas masks. The INP Field
Force was under the command of Police Major Demetrio dela Cruz.
(3) Forming the third line was the Marine Civil Disturbance Control Battalion
composed of the first and second companies of the Philippine Marines stationed at
Fort Bonifacio. The marines were all equipped with shields, truncheons and M-16
rifles (armalites) slung at their backs, under the command of Major Felimon B.
Gasmin. The Marine CDC Battalion was positioned in line formation ten (10) yards
farther behind the INP Field Force.

At the back of the marines were four (4) 6 x 6 army trucks, occupying the entire
width of Mendiola street, followed immediately by two water cannons, one on each
side of the street and eight fire trucks, four trucks on each side of the street. The
eight fire trucks from Fire District I of Manila under Fire Superintendent Mario C.
Tanchanco, were to supply water to the two water cannons.
Stationed farther behind the CDC forces were the two Mobile Dispersal Teams
(MDT) each composed of two tear gas grenadiers, two spotters, an assistant
grenadier, a driver and the team leader.
In front of the College of the Holy Spirit near Gate 4 of Malacaang stood the
VOLVO Mobile Communications Van of the Commanding General of CAPCOM/INP,
General Ramon E. Montao. At this command post, after General Montao had
conferred with TF Nazareno Commander, Colonel Cezar Nazareno, about the
adequacy and readiness of his forces, it was agreed that Police General Alfredo S.
Lim would designate Police Colonel Edgar Dula Torres and Police Major Conrado
Francisco as negotiators with the marchers. Police General Lim then proceeded to
the WPD CDC elements already positioned at the foot of Mendiola bridge to relay
to Police Colonel Torres and Police Major Francisco the instructions that the latter
would negotiate with the marchers. 5 (Emphasis supplied)
The marchers, at around 4:30 p.m., numbered about 10,000 to 15,000. From C.M. Recto Avenue,
they proceeded toward the police lines. No dialogue took place between the marchers and the
anti-riot squad. It was at this moment that a clash occurred and, borrowing the words of the
Commission "pandemonium broke loose". The Commission stated in its findings, to wit:
. . . There was an explosion followed by throwing of pillboxes, stones and bottles.
Steel bars, wooden clubs and lead pipes were used against the police. The police
fought back with their shields and truncheons. The police line was breached.
Suddenly shots were heard. The demonstrators disengaged from the government
forces and retreated towards C.M. Recto Avenue. But sporadic firing continued
from the government forces.
After the firing ceased, two MDTs headed by Lt. Romeo Paquinto and Lt.
Laonglaan Goce sped towards Legarda Street and lobbed tear gas at the remaining
rallyist still grouped in the vicinity of Mendiola. After dispersing the crowd, the two
MDTs, together with the two WPD MDTs, proceeded to Liwasang Bonifacio upon
order of General Montao to disperse the rallyists assembled thereat. Assisting the
MDTs were a number of policemen from the WPD, attired in civilian clothes with
white head bands, who were armed with long firearms. 6 (Emphasis ours)
After the clash, twelve (12) marchers were officially confirmed dead, although according to Tadeo,
there were thirteen (13) dead, but he was not able to give the name and address of said victim.
Thirty-nine (39) were wounded by gunshots and twelve (12) sustained minor injuries, all belonging
to the group of the marchers.
Of the police and military personnel, three (3) sustained gunshot wounds and twenty (20) suffered
minor physical injuries such as abrasions, contusions and the like.

In the aftermath of the confrontation, then President Corazon C. Aquino issued Administrative
Order No. 11, 7 (A.O. 11, for brevity) dated January 22, 1987, which created the Citizens' Mendiola
Commission. The body was composed of retired Supreme Court Justice Vicente Abad Santos as
Chairman, retired Supreme Court Justice Jose Y. Feria and Mr. Antonio U. Miranda, both as
members. A.O. 11 stated that the Commission was created precisely for the "purpose of
conducting an investigation of the disorder, deaths, and casualties that took place in the vicinity
of Mendiola Bridge and Mendiola Street and Claro M. Recto Avenue, Manila, in the afternoon of
January 22, 1987". The Commission was expected to have submitted its findings not later than
February 6, 1987. But it failed to do so. Consequently, the deadline was moved to February 16,
1987 by Administrative Order No. 13. Again, the Commission was unable to meet this deadline.
Finally, on February 27, 1987, it submitted its report, in accordance with Administrative Order No.
17, issued on February 11, 1987.
In its report, the Commission recapitulated its findings, to wit:
(1) The march to Mendiola of the KMP led by Jaime Tadeo, together with the other
sectoral groups, was not covered by any permit as required under Batas
Pambansa Blg. 880, the Public Assembly Act of 1985, in violation of paragraph (a)
Section 13, punishable under paragraph (a), Section 14 of said law.
(2) The crowd dispersal control units of the police and the military were armed with
.38 and .45 caliber handguns, and M-16 armalites, which is a prohibited act under
paragraph 4(g), Section 13, and punishable under paragraph (b), Section 14 of
Batas Pambansa Blg. 880.
(3) The security men assigned to protect the WPD, INP Field Force, the Marines and
supporting military units, as well as the security officers of the police and military
commanders were in civilian attire in violation of paragraph (a), Section 10, Batas
Pambansa 880.
(4) There was unnecessary firing by the police and military crowd dispersal control
units in dispersing the marchers, a prohibited act under paragraph (e), Section 13,
and punishable under paragraph (b), Section 14, Batas Pambansa Blg. 880.
(5) The carrying and use of steel bars, pillboxes, darts, lead pipe, wooden clubs
with spikes, and guns by the marchers as offensive weapons are prohibited acts
punishable under paragraph (g), Section 13, and punishable under paragraph (e),
Section 14 of Batas Pambansa Blg. 880.
(6) The KMP farmers broke off further negotiations with the MAR officials and were
determined to march to Malacaang, emboldened as they are, by the inflammatory
and incendiary utterances of their leader, Jaime Tadeo "bubutasin namin ang
barikada . . Dadanak and dugo . . . Ang nagugutom na magsasaka ay gagawa ng
sariling butas. . .
(7) There was no dialogue between the rallyists and the government forces. Upon
approaching the intersections of Legarda and Mendiola, the marchers began

pushing the police lines and penetrated and broke through the first line of the CDC
contingent.
(8) The police fought back with their truncheons and shields. They stood their
ground but the CDC line was breached. There ensued gunfire from both sides. It is
not clear who started the firing.
(9) At the onset of the disturbance and violence, the water cannons and tear gas
were not put into effective use to disperse the rioting crowd.
(10) The water cannons and fire trucks were not put into operation because (a)
there was no order to use them; (b) they were incorrectly prepositioned; and (c)
they were out of range of the marchers.
(11) Tear gas was not used at the start of the disturbance to disperse the rioters.
After the crowd had dispersed and the wounded and dead were being carried away,
the MDTs of the police and the military with their tear gas equipment and
components conducted dispersal operations in the Mendiola area and proceeded
to Liwasang Bonifacio to disperse the remnants of the marchers.
(12) No barbed wire barricade was used in Mendiola but no official reason was
given for its absence. 8
From the results of the probe, the Commission recommended 9 the criminal prosecution of four
unidentified, uniformed individuals, shown either on tape or in pictures, firing at the direction of
the marchers. In connection with this, it was the Commission's recommendation that the National
Bureau of Investigation (NBI) be tasked to undertake investigations regarding the identities of
those who actually fired their guns that resulted in the death of or injury to the victims of the
incident. The Commission also suggested that all the commissioned officers of both the Western
Police District and the INP Field Force, who were armed during the incident, be prosecuted for
violation of paragraph 4(g) of Section 13, Batas Pambansa Blg. 880, the Public Assembly Act of
1985. The Commission's recommendation also included the prosecution of the marchers, for
carrying deadly or offensive weapons, but whose identities have yet to be established. As for
Jaime Tadeo, the Commission said that he should be prosecuted both for violation of paragraph
(a), Section 13, Batas Pambansa Blg. 880 for holding the rally without a permit and for violation of
Article 142, as amended, of the Revised Penal Code for inciting to sedition. As for the following
officers, namely: (1) Gen. Ramon E. Montao; (2) Police Gen. Alfredo S. Lim; (3) Police Gen. Edgar
Dula Torres; (4) Police Maj. Demetrio dela Cruz; (5) Col. Cezar Nazareno; and (5) Maj. Felimon
Gasmin, for their failure to make effective use of their skill and experience in directing the
dispersal operations in Mendiola, administrative sanctions were recommended to be imposed.
The last and the most significant recommendation of the Commission was for the deceased and
wounded victims of the Mendiola incident to be compensated by the government. It was this
portion that petitioners (Caylao group) invoke in their claim for damages from the government.
Notwithstanding such recommendation, no concrete form of compensation was received by the
victims. Thus, on July 27, 1987, herein petitioners, (Caylao group) filed a formal letter of demand
for compensation from the Government. 10 This formal demand was indorsed by the office of the

Executive Secretary to the Department of Budget and Management (DBM) on August 13, 1987. The
House Committee on Human Rights, on February 10, 1988, recommended the expeditious
payment of compensation to the Mendiola victims. 11
After almost a year, on January 20, 1988, petitioners (Caylao group) were constrained to institute
an action for damages against the Republic of the Philippines, together with the military officers,
and personnel involved in the Mendiola incident, before the trial court. The complaint was
docketed as Civil Case No. 88-43351.
On February 23, 1988, the Solicitor General filed a Motion to Dismiss on the ground that the State
cannot be sued without its consent. Petitioners opposed said motion on March 16, 1988,
maintaining that the State has waived its immunity from suit and that the dismissal of the instant
action is contrary to both the Constitution and the International Law on Human Rights.
Respondent Judge Sandoval, in his first questioned Order, dismissed the complaint as against the
Republic of the Philippines on the ground that there was no waiver by the State. Petitioners
(Caylao group) filed a Motion for Reconsideration therefrom, but the same was denied by
respondent judge in his Order dated August 8, 1988. Consequently, Caylao and her co-petitioners
filed the instant petition.
On the other hand, the Republic of the Philippines, together with the military officers and
personnel impleaded as defendants in the court below, filed its petition for certiorari.
Having arisen from the same factual beginnings and raising practically identical issues, the two
(2) petitions were consolidated and will therefore be jointly dealt with and resolved in this
Decision.
The resolution of both petitions revolves around the main issue of whether or not the State has
waived its immunity from suit.
Petitioners (Caylao group) advance the argument that the State has impliedly waived its sovereign
immunity from suit. It is their considered view that by the recommendation made by the
Commission for the government to indemnify the heirs and victims of the Mendiola incident and
by the public addresses made by then President Aquino in the aftermath of the killings, the State
has consented to be sued.
Under our Constitution the principle of immunity of the government from suit is expressly
provided in Article XVI, Section 3. The principle is based on the very essence of sovereignty, and
on the practical ground that there can be no legal right as against the authority that makes the law
on which the right depends. 12 It also rests on reasons of public policy that public service would
be hindered, and the public endangered, if the sovereign authority could be subjected to law suits
at the instance of every citizen and consequently controlled in the uses and dispositions of the
means required for the proper administration of the government. 13
This is not a suit against the State with its consent.
Firstly, the recommendation made by the Commission regarding indemnification of the heirs of
the deceased and the victims of the incident by the government does not in any way mean that

liability automatically attaches to the State. It is important to note that A.O. 11 expressly states
that the purpose of creating the Commission was to have a body that will conduct an
"investigation of the disorder, deaths and casualties that took place." 14 In the exercise of its
functions, A.O. 11 provides guidelines, and what is relevant to Our discussion reads:
1 Its conclusions regarding the existence of probable cause for the commission of
any offense and of the persons probably guilty of the same shall be sufficient
compliance with the rules on preliminary investigation and the charges arising
therefrom may be filed directly with the proper court. 15
In effect, whatever may be the findings of the Commission, the same shall only serve as the cause
of action in the event that any party decides to litigate his/her claim. Therefore, the Commission is
merely a preliminary venue. The Commission is not the end in itself. Whatever recommendation it
makes cannot in any way bind the State immediately, such recommendation not having become
final and, executory. This is precisely the essence of it being a fact-finding body.
Secondly, whatever acts or utterances that then President Aquino may have done or said, the
same are not tantamount to the State having waived its immunity from suit. The President's act of
joining the marchers, days after the incident, does not mean that there was an admission by the
State of any liability. In fact to borrow the words of petitioners (Caylao group), "it was an act of
solidarity by the government with the people". Moreover, petitioners rely on President Aquino's
speech promising that the government would address the grievances of the rallyists. By this
alone, it cannot be inferred that the State has admitted any liability, much less can it be inferred
that it has consented to the suit.
Although consent to be sued may be given impliedly, still it cannot be maintained that such
consent was given considering the circumstances obtaining in the instant case.
Thirdly, the case does not qualify as a suit against the State.
Some instances when a suit against the State is proper are:

16

(1) When the Republic is sued by name;

(2) When the suit is against an unincorporated government agency;
(3) When the, suit is on its face against a government officer but the case is such that ultimate
liability will belong not to the officer but to the government.
While the Republic in this case is sued by name, the ultimate liability does not pertain to the
government. Although the military officers and personnel, then party defendants, were
discharging their official functions when the incident occurred, their functions ceased to be
official the moment they exceeded their authority. Based on the Commission findings, there was
lack of justification by the government forces in the use of firearms. 17 Moreover, the members of
the police and military crowd dispersal units committed a prohibited act under B.P. Blg. 880 18 as
there was unnecessary firing by them in dispersing the marchers. 19

As early as 1954, this Court has pronounced that an officer cannot shelter himself by the plea that
he is a public agent acting under the color of his office when his acts are wholly without authority.
20
Until recently in 1991, 21 this doctrine still found application, this Court saying that immunity
from suit cannot institutionalize irresponsibility and non-accountability nor grant a privileged
status not claimed by any other official of the Republic. The military and police forces were
deployed to ensure that the rally would be peaceful and orderly as well as to guarantee the safety
of the very people that they are duty-bound to protect. However, the facts as found by the trial
court showed that they fired at the unruly crowd to disperse the latter.
While it is true that nothing is better settled than the general rule that a sovereign state and its
political subdivisions cannot be sued in the courts except when it has given its consent, it cannot
be invoked by both the military officers to release them from any liability, and by the heirs and
victims to demand indemnification from the government. The principle of state immunity from suit
does not apply, as in this case, when the relief demanded by the suit requires no affirmative
official action on the part of the State nor the affirmative discharge of any obligation which
belongs to the State in its political capacity, even though the officers or agents who are made
defendants claim to hold or act only by virtue of a title of the state and as its agents and servants.
22
This Court has made it quite clear that even a "high position in the government does not confer
a license to persecute or recklessly injure another." 23
The inescapable conclusion is that the State cannot be held civilly liable for the deaths that
followed the incident. Instead, the liability should fall on the named defendants in the lower court.
In line with the ruling of this court in Shauf vs. Court of Appeals, 24 herein public officials, having
been found to have acted beyond the scope of their authority, may be held liable for damages.
WHEREFORE, finding no reversible error and no grave abuse of discretion committed by
respondent Judge in issuing the questioned orders, the instant petitions are hereby DISMISSED.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon,
Bellosillo, Melo and Quiason, JJ., concur.
Gutierrez, Jr., J., is on leave.

# Footnotes
1 Judge Edilberto G. Sandoval was the presiding judge of Branch 9 of Regional Trial Court, Manila.
2 Rollo of G.R. No. 84607, p. 65.
3 Ibid., pp. 73-76.
4 Ibid., p. 80.
5 Ibid., pp. 82-84.
6 Ibid., pp. 84-85.

7 Ibid., p. 158.
8 Ibid., pp. 102-103.
9 Ibid., pp. 107-109.
10 Rollo, G.R. No. 84645, pp. 36-38.
11 Ibid., pp. 125-126.
12 Kawananakoa vs. Polyblank, 205 U.S. 349-353, 51 L. Ed. 834 (1907).
13 The Siren vs. United States, 7 Wall. 152, 19 L. Ed. 129 (1869).
14 Supra, note 7.
15 Ibid.
16 J.G. BERNAS, CONSTITUTIONAL STRUCTURE AND POWERS OF GOVERNMENT, NOTES AND CASES 414
(1st ed., 1991).
17 Rollo of G.R. No. 84607, pp. 196-197.
18 Sec. 13. Prohibited Acts. The following shall constitute violations of this Act:
xxx xxx xxx
(e) The unnecessary firing of firearms by a member of any law enforcement agency or any person to disperse
the public assembly;
xxx xxx xxx
19 Supra, note 17 at p. 102.
20 Festejo vs. Fernando, 94 Phil. 504 (1954) citing 43 Am. Jur. 86-90.
21 Chavez vs. Sandiganbayan, 193 SCRA 282 (1991).
22 Ruiz vs. Cabahug, 102 Phil. 110 (1957).
23 Supra, note 19.
24 191 SCRA 713 (1990).

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 142362

May 3, 2006

PHILIPPINE AGILA SATELLITE INC. and MICHAELC. U. DE GUZMAN,

Complainants,
vs.
JOSEFINA TRINIDAD-LICHAUCO Undersecretary for Communications, Department of
Transportation and Communication (DOTC), Respondents.
DECISION
TINGA, J.:
This Petition for Review on Certiorari seeks the reversal of the Decision1 dated 21 February 2000
of the Court of Appeals in C.A. G.R. No. SP 49422. The assailed Decision authorized the
dismissal of a civil complaint against respondent Josefina Trinidad-Lichauco (Lichauco), former
Undersecretary for Communications of the Department of Transportation and Communication
(DOTC), on the premise that the complaint constituted a suit against the State.
A brief rundown of the relevant facts is in order.
Petitioner Philippine Agila Satellite Inc. (PASI) is a duly organized corporation, whose President
and Chief Executive Officer is co-petitioner Michael C.U. De Guzman. PASI was established by

a consortium of private telecommunications carriers2 which in 1994 had entered into a

Memorandum of Understanding (MOU) with the DOTC, through its then Secretary Jesus Garcia,
concerning the planned launch of a Philippine-owned satellite into outer space. Under the MOU,
the launch of the satellite was to be an endeavor of the private sector, and the satellite itself to be
owned by the Filipino-owned consortium (subsequently organized as PASI).3 The consortium
was to grant the Philippine government one (1) transponder free of charge for the government's
exclusive use for non-commercial purpose, as well as the right of first refusal to another one (1)
transponder in the Philippine satellite, if available.4 The Philippine government, through the
DOTC, was tasked under the MOU to secure from the International Telecommunication Union
the required orbital slot(s) and frequency assignment(s) for the Philippine satellite.
PASI itself was organized by the consortium in 1996. The government, together with PASI,
coordinated through the International Telecommunication Union two (2) orbital slots, designated
as 161 East Longitude and 153 East Longitude, for Philippine satellites. On 28 June 1996, PASI
wrote then DOTC Secretary Amado S. Lagdameo, Jr., seeking for official Philippine government
confirmation on the assignment of the two aforementioned Philippine orbital slots to PASI for its
satellites, which PASI had designated as the Agila satellites.5 Secretary Lagdameo, Jr. replied in a
letter dated 3 July 1996, confirming "the Philippine Government's assignment of Philippine
orbital slots 161E and 153E to [PASI] for its [Agila] satellites."6
PASI avers that after having secured the confirmation from the Philippine government, it
proceeded with preparations for the launching, operation and management of its satellites,
including the availment of loans, the increase in its capital, negotiation with business partners,
and an initial payment of US$3.5 Million to the French satellite manufacturer. However,
respondent Lichauco, then DOTC Undersecretary for Communications, allegedly "embarked on
a crusade to malign the name of [Michael de Guzman] and sabotage the business of PASI."
Lichauco's purported efforts against PASI culminated allegedly in her offering orbital slot 153
East Longitude
for bidding to other parties sometime in December 1997, despite the prior assignment to PASI of
the said slot.7 It was later claimed by PASI that Lichauco subsequently awarded the orbital slot to
an entity whose indentity was unknown to PASI.8
Aggrieved by Lichauco's actions, PASI and De Guzman instituted on 23 January 1998 a civil
complaint against Lichauco, by then the Acting Secretary of the DOTC, and the "Unknown
Awardee" who was to be the recipient of orbital slot 153 East Longitude. The complaint,
alleging three (3) causes of action, was for injunction, declaration of nullity of award, and
damages. The first cause of action, for injunction, sought to establish that the award of orbital
slot 153 East Longitude should be enjoined since the DOTC had previously assigned the same
orbital slot to PASI. The second cause of action, for declaration of nullity of award, averred that
the award to the unknown bidder is null and void, as it was rendered by Lichauco beyond her
authority.9
The third cause of action, for damages, imputed several acts to Lichauco as part of her alleged
"crusade" to malign the name of plaintiff [D]e Guzman and sabotage the business of [PASI]:

12. xxx
(a) On 4 December 1996, in a meeting with the members of the Board of Directors of
plaintiff corporation, defendant Lichauco then uttered disparaging and defamatory
comments against plaintiff de Guzman. These defamatory remarks triggered efforts from
within the plaintiff corporation aimed at ousting plaintiff de Guzman from his position.
(b) Defendant Lichauco, then an undersecretary of DOTC, wrote Mr. Jesli Lapuz on 5
December 1996 (barely two days after plaintiff de Guzman wrote him) to deny that the
DOTC has assigned the two (2) Philippine orbital slots to plaintiff corporation. Defendant
Lichauco falsely asserted that only orbital slot 161 E was assigned to plaintiff, orbital slot
153 E was not.
In the same letter, defendant Lichauco branded as FALSE plaintiff de Guzman's claim
that "Agila" is a registered corporate name of plaintiff corporation.
A copy of the letter is attached as Annex E.
(c) Not contented, defendant Lichauco, again for reasons known only to her, and with
malice aforethought, made defamatory remarks against plaintiffs during a
telecommunications forum held in Makati City sometime in October 1997 in the presence
of public officials and business executives.
(d) Defendant Lichauco did not spare plaintiff corporation from her unprovoked
defamation. Defendant Lichauco arrogantly said that she had asked President Fidel V.
Ramos to sue plaintiff Michael de Guzman. With the same degree of arrogance she
threatened plaintiff corporation not to use the name "Agila", otherwise she would fight
plaintiff corporation and would make sure that the name of Agila would never be given
back to plaintiff corporation.
(e) To top it all, defendant Lichauco without basis and with evident bad faith, said that
plaintiff corporation will never pay its contractors.
(f) In December 1997, defendant Lichauco delivered the coup de' grace. Again, acting
unilaterally, without prior notice to plaintiff corporation and in gross violation of DOTC's
earlier assignment to plaintiff corporation of orbital slot 153 E, defendant Lichauco
offered said slot to interested applicants. A copy of the notice of offer is attached as
Annex F.
13. Plaintiffs learned of defendant Lichauco's acts after orbital slot 153 E was offered for
bidding. To plaintiff coproration's knowledge, the orbital slot was eventually awarded to
defendant Unknown Awardee.
x x x x10

The complaint alleged that since Lichauco's act of offering and awarding orbital slot 153 East
Longitude was patently illegal and violative of DOTC's prior commitment to PASI, Lichauco
should be enjoined from performing any acts and entering into or executing any agreement or
arrangement of whatever nature in connection with the said orbital slot. The complaint also
averred that the purported award of the orbital slot to the "Unknown Awardee was illegal, and
thus should be declared null and void. Finally, the complaint alleged a cause of action for
damages against Lichauco, cast in the following manner:
xxxx
21. Defendant Lichauco attacked the good name and reputation of plaintiffs.
22. She willfully caused damage to plaintiffs by orchestrating the above-described acts which are
contrary to law; morals and basic norms of good faith.
23. She interefered with and violated plaintiff corporation's contract with DOTC by offering and
awarding orbital slot 153 E to defendant Unknown Awardee.
24. Because of defendant Lichauco's reprehensible acts, plaintiffs suffered actual damages of at
least P10 million each, for all of which defendant Lichauco should be held liable to pay.
25. By reason of defendant Lichauco's illegal and malicious acts, plaintiff corporation's business
name and goodwill was tarnished, for which plaintiff corporation should be indemnified by way
of moral damages in the amount of at least P10 million.
26. For the same reasons, plaintiff de Guzman suffered and continue to suffer extreme
mental anguish, serious anxiety, wounded feelings, moral shock and besmirched
reputation, for all of which plaintiff de Guzman should be indemnified in the amount of
at least P10 million.
27. Defendant Lichauco should also be sanctioned, as a deterrent for public good, to pay each
plaintiff exemplary damages in the amount of at least P5 million.
28. In order to protect and enforce their rights, plaintiffs were compelled to institute this suit,
engage the services of counsel and incur litigation expenses, for all of which plaintiffs should be
indemnified in the amount of at least P500 Thousand each.11
xxxx
In sum, petitioners sought the following reliefs for the three (3) causes of action:
xxxx
3. After trial of the issues, render judgment as follows:
[a] On the first cause of action, making permanent the writ of preliminary injunction;

[b] On the second cause of action, declaring the offer and award of orbital slot 153 E to
defendant Unknown Awardee null and void.
[c] On the third cause of action, directing defendant Lichauco to pay the following sums:
i. P10 million each to plaintiffs as actual damages;
ii. P10 million to plaintiff corporation as moral damages;
iii. P10 million to plaintiff de Guzman as moral damages;
iv. P5 million each to plaintiffs as exemplary damages;
v. P500 Thousand each to plaintiffs as attorney's fees and litigation expenses.
x x x x12
The complaint was filed before the Regional Trial Court (RTC) of Mandaluyong City, and
subsequently raffled to Branch 214. On 2 February 1998, the RTC issued a temporary restraining
order against Lichauco, who received the summons together with the complaint on 28 January
1998. Lichauco failed to file an answer within the reglementary period, but eight (8) days after
the lapse thereof, she filed a Manifestation and Motion asking for a new five (5)-day period, or
until 25 February 1998, to file a responsive pleading to the complaint. However, she filed instead
a Motion to Admit with attached Motion to Dismiss on 27 February 1998. She rooted her prayer
for the dismissal of the complaint primarily on the grounds that the suit is a suit against the State
which may not be sued without its consent; that the complaint stated no cause of action; and that
the petitioners had failed to exhaust administrative remedies by failing to seek recourse with the
Office of the President.
In an order13 dated 14 August 1998, the RTC denied the motion to dismiss. It characterized the
defense of state immunity as "at very least a contentious issue which can not be resolved by mere
allegations in the pleadings but which can be best threshed out in a litig[i]ous forum where
parties are accorded enormous (sic) opportunity to argue for the ascertainment of whether the act
complained of are indeed within the parameters and prerogatives of the authority exercising the
same."14 The RTC also noted that the allegations in the complaint regarding the ultimate facts
sufficiently presented an ultra vires act of Lichauco, and that she was being sued in her personal
capacity. As to the argument pertaining to the non-exhaustion of administrative remedies, the
RTC noted that the principle is not an inflexible rule, and may be dispensed with when its
application would cause great and irreparable damage or when it would not constitute a plain,
speedy and adequate remedy.15
Lichauco assailed the RTC order through a Petition for Certiorari under Rule 65 before the Court
of Appeals, which subsequently nullified the RTC order in the Decision now assailed before us.
The Court of Appeals sustained the contention that the complaint is a suit against the State with
the following ratiocination:

The suit is to the mind of this court a suit against the state.1avvphil.net
The notice of offer signed by herein petitioner allegedly tainted with bad faith was done in the
exercise of and in pursuance of an official duty. Her duties are as follows:
SEC. 10. Powers and Duties of the Undersecretary. The Undersecretary shall:
(1) Advise and assist the Secretary in the formulation and implementation of department
objectives and policies;
(2) Oversee all the operational activities of the department for which he shall be
responsible to the Secretary;
(3) Coordinate the programs and projects of the department and be responsible for its
economical, efficient and effective administration:
xxxxxxxxx
It is apparent from the above enumeration that the petitioner is directly under and answerable to
the DOTC Secretary. We can therefore conclude that her official acts such as the said "notice of
offer" was with the blessing and prior approval of the DOTC Secretary himself.
Being an official act, it is also protected by the presumption that the same was performed in good
faith and in the regular performance of official duty.
"Acts in Line of Duty or under Color of Authority. - As a rule, a public officer, whether judicial,
quasi-judicial, or executive, is not personally liable to one injured in consequence of an act
performed within the scope of his official authority, and in the line of his official duty. In order
that acts may be done within the scope of official authority, it is not necessary that they be
prescribed by statute, or even that they be specifically directed or requested by a superior officer,
but it is sufficient if they are done by an officer in relation to matters committed by law to his
control or supervision, or that they have more or less connection with such matters, or that they
are governed by a lawful requirement of the department under whose authority the officer is
acting. Under this principle, state building commissioners who, in obedience to a stature,
discharge one who has been employed to construct a state building, take possession of the work,
and place it in the hands of another contractor, are not liable to the former contractor in damages,
since in so doing they are merely acting in the line of their duty. An officer is not personally
responsible for the necessary and unavoidable destruction of goods stored in buildings, when
such buildings were destroyed by him in the lawful performance of a public duty imposed on
him by a valid and constitutional statute."
xxxxxxxxx
Error or Mistake in Exercise of Authority. - Where an officer is invested with discretion and is
empowered to exercise his judgment in matters brought before him he is sometimes called a
quasi-judicial officer, and when so acting he is usually given immunity from liability to persons

who may be injured as the result of an erroneous or mistaken decision, however, erroneous
judgment may be, provided the acts complained of are done within the scope of the officer's
authority, and without willfulness, malice, or corruption." (43 Am. Jur., pp. 85-86).
In Sanders vs. Veridiano[16], the Supreme Court held:
"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, 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.
xxxxxxxxx
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. This too is well-settled."17
Preliminarily, we discuss the procedural grounds cited by petitioners which they assert are
sufficient to have caused the dismissal of Lichauco's petition before the Court of Appeals.
Petitioners claim that contrary to Section 1, Rule 65 of the 1997 Rules of Civil Procedure,
Lichauco failed to attach all pleadings and documents relevant to her petition, and that those that
were attached were merely "duplicate original copies." Lichauco counters that for the viability of
her petition for certiorari, all that she needed to attach were her motion to dismiss, the RTC
orders acting on such motion, her motion for reconsideration of the denial of her motion to
dismiss, and petitioners' opposition to said motion for reconsideration. She claims that only these
motions and submission were relevant to the resolution of her petition.18
In her comment, Lichaucho claims that she did not have to attach the complaint to the copy of
the petition she sent to the petitioners herein, since the latter obviously retained the original copy
of the complaint they filed.19 However, her petition before the appellate court does not indicate
that the same complaint was included as an attachment, and indeed, there is a curious absence of
any averment on Lichuaco's part that she indeed attached the said complaint to her petition.20
Certainly, in a petition for certiorari assailing the denial of a motion to dismiss a complaint, the

very complaint itself is a document relevant and pertinent to the special civil action. It should be
remembered that unlike in an ordinary appeal that is given due course,21 the case record is not
automatically elevated to the court exercising jurisdiction over a special civil action for
certiorari; hence there is an even more impelling need to attach all pleadings and documents to
the special civil action, as mandated under Section 1, Rule 65 of the 1997 Rules of Civil
Procedure. After all, how could the court a quo properly ascertain whether or not the motion to
dismiss itself should have been granted if it did not have a copy of the complaint sought to be
dismissed itself.
Nonetheless, the requirement to attach such relevant pleadings under Section 1, Rule 65 is read
in relation to Section 3, Rule 46, which states that the failure of the petitioner to comply with any
of the documentary requirements, such as the attachment of such relevant pleadings, "shall be
sufficient ground for the dismissal of the petition." The procedural rule accords sufficient
discretion to the court hearing the special civil action whether or not to dismiss the petition
outright for failure to comply with said requirement. If the court does dismiss the petition on that
ground, the dismissal would be justifiable under Section 3, Rule 46, and generally such action of
the court cannot be assailed as constituting either grave abuse of discretion or reversible error of
law. If the court, on the other hand, takes cognizance of the petition despite such lapses, the
phrasing of Section 3, Rule 46 sufficiently justifies such adjudicative recourse. Indeed, the
ultimate logic behind rules of procedure being the promotion of the objective of securing a just,
speedy and inexpensive disposition of every action and proceeding,22 the higher interests of
justice may at times sufficiently warrant the allowance of the petition for certiorari despite such
lapses, especially if they are nonetheless correctible through subsequent submissions.
In any event, the Court is willing to overlook Lichauco's failure to attach the complaint in her
petition for certiorari before the Court of Appeals, an oversight sadly ignored by the appellate
court. There are weighty issues at hand relating to the doctrine of state immunity from suit and
the requisites of a motion to dismiss.
There is a connective issue between these two aspects in that if the State is sued without its
consent, the corresponding suit must be dismissed. At times, it would be teasingly obvious, even
from the moment of the filing of the complaint, that the suit is one against the State. A cursory
examination of the caption of the complaint can sometimes betray such proscribed intent, as
when the suit is directly initiated against the Republic of the Philippines, any foreign
government, or an unincorporated government agency as the named respondents. In such cases,
obviously there is need for immediate caution, although if it is somehow established that those
respondents had given their consent to be sued, the suit may nonetheless prosper.
The present action was denominated against Lichauco and the unknown awardee, Lichauco was
identified in the complaint as "acting Secretary of the [DOTC]."23 The hornbook rule is that a suit
for acts done in the performance of official functions against an officer of the government by a
private citizen which would result in a charge against or financial liability to the government
must be regarded as a suit against the State itself, although it has not been formally impleaded.24
However, government immunity from suit will not shield the public official being sued if the
government no longer has an interest to protect in the outcome of a suit; or if the liability of the
officer is personal because it arises from a tortious act in the performance of his/her duties.

Petitioner insists that Lichauco is being sued for her acts committed in excess of her authority,
ultra vires in nature, and tortious in character. The Court of Appeals responded that such acts fell
within Lichauco's official duties as DOTC Undersecretary, thus enjoying the presumption that
they were performed in good faith and in the regular performance of official duty. This rationale
is pure sophistry and must be rejected outright.
We do not doubt the existence of the presumptions of "good faith" or "regular performance of
official duty", yet these presumptions are disputable25 and may be contradicted and overcome by
other evidence.26 Many civil actions are oriented towards overcoming any number of these
presumptions, and a cause of action can certainly be geared towards such effect. The very
purpose of trial is to allow a party to present evidence overcome the disputable presumptions
involved. Otherwise, if trial is deemed irrelevant or unnecessary, owing to the perceived
indisputability of the presumptions, the judicial exercise would be relegated to a mere
ascertainment of what presumptions apply in a given case, nothing more. Consequently, the
entire Rules of Court is rendered as excess verbiage, save perhaps for the provisions laying down
the legal presumptions.
If this reasoning of the Court of Appeals were ever adopted as a jurisprudential rule, no public
officer could ever be sued for acts executed beyond their official functions or authority, or for
tortious conduct or behavior, since such acts would "enjoy the presumption of good faith and in
the regular performance of official duty". Indeed, few civil actions of any nature would ever
reach the trial stage, if a case can be adjudicated by a mere determination from the complaint or
answer as to which legal presumptions are applicable. For example, the presumption that a
person is innocent of a wrong is a disputable presumption on the same level as that of the regular
performance of official duty.27 A civil complaint for damages necessarily alleges that the
defendant committed a wrongful act or omission that would serve as basis for the award of
damages. With the rationale of the Court of Appeals, such complaint can be dismissed upon a
motion to dismiss solely on the ground that the presumption is that a person is innocent of a
wrong.
So obviously, the Decision of the Court of Appeals cannot receive the imprimatur of this Court.
Still, the question of whether Lichauco may validly invoke state immunity from suit to secure the
outright dismissal of petitioners' complaint warrants closer examination.
As earlier noted, the complaint alleges three (3) causes of action against Lichauco: one for
injunction against her performing any act in relation to orbital slot 153 East Longitude; one for
declaration of nullity of award, seeking to nullify the alleged award of orbital slot 153 East
Longitude; and one for damages against Lichauco herself. Evidently, the first two causes of
action stem from Lichauco's act of offering orbital slot 153 East Longitude for bidding, through
the Notice of Offer which was attached to the complaint.
In her Motion to Dismiss, Lichauco asserts that she is being sued for issuing the aforementioned
Notice of Offer, which fell within her official functions as DOTC Undersecretary for
Communications. She claims that it was Secretary Lagdameo who authorized her to offer orbital
slot 153 East Longitude for bidding, and she thus acted well within the scope of her authority to

advise and assist the DOTC Secretary in the formulation and implementation of department
objectives and policies.
The Notice of Offer cites Department Circular 97-01, signed by then DOTC Secretary Arturo
Enrile, as authority for it. The Court has examined the aforementioned Department Circular,
issued on 17 October 1997, which establishes the "Guidelines on the Procurement of Orbital
Slots and Frequency Registration of Philippine Satellites". Therein, the DOTC is mandated "to
conduct a bidding process in case there are competing applications for any one of the assigned or
applied-for-orbital slots"28. Further, the Department Circular states that "the DOTC shall publish
in three newspapers of general circulation a notice of offer for the government assigned, initiated
and applied for orbital slots."29
Thus, insofar as the first two causes of action are concerned, Lichauco may have a point when
she asserts that they were based on acts which she performed in her capacity as DOTC
Undersecretary. But does this necessarily mean that these two causes of action may thus be
dismissed on the basis of state immunity of suit?
As stated earlier, it is when the acts done in the performance of official functions by an officer of
the government will result in a charge against or financial liability to the government that the
complaint must be regarded as a suit against the State itself. However, the distinction must also
be raised between where the government official concerned performs an act in his/her official
and jurisdictional capacity and where he performs an act that constitutes grave abuse of
discretion tantamount to lack of jurisdiction. In the latter case, the Constitution itself assures the
availability of judicial review, and it is the official concerned who should be impleaded as the
proper party- defendant or respondent.
On this point, our ruling in J.M. Tuazon & Co. v. Land Tenure Administration30 is material.
Petitioners therein had filed a special civil action for prohibition to nullify Republic Act No.
2616, or law that directed the expropriation of the Tatalon Estate in Quezon City. Impleaded as
respondents were the officials and government agency tasked to undertake such expropriation.
The respondents alleged that the petition for prohibition was actually a suit against the State
without its consent. The Court, through then Associate Justice (later Chief Justice) Enrique
Fernando, debunked the argument, ruling instead that the petition was within the ambit of
judicial review:
[T]he power of judicial review is granted, if not expressly, at least by clear implication from the
relevant provisions of the Constitution. This power may be exercised when the party adversely
affected by either a legislative or executive act, or a municipal ordinance for that matter, files the
appropriate suit to test its validity. The special civil action of prohibition has been relied upon
precisely to restrain the enforcement of what is alleged to be an unconstitutional statute. As it is a
fundamental postulate that the Constitution as the supreme law is binding on all governmental
agencies, failure to observe the limitations found therein furnishes a sufficient ground for a
declaration of nullity of the government measure challenged. The argument then that the
government is the adverse party and that, therefore, must consent to its being sued certainly is far
from persuasive. x x x x31

The Court further noted that it was well-settled for the purpose of obtaining a judicial declaration
of nullity, "it is enough if the respondents or defendants named be the government officials who
would give operation and effect to official action allegedly tainted with unconstitutionality."32
Unlike in J.M. Tuason, the case at bar does not seek to nullify an unconstitutional law or
measure. However, the first two causes of action do sufficiently impute grave abuse of discretion
against Lichauco in her official capacity. Since judicial review of acts alleged to have been
tainted with grave abuse of discretion is guaranteed by the Constitution, it necessarily follows in
such instances that it is the official concerned who should be impleaded as defendant or
respondent in the appropriate suit.
Moreover, if the suit had been directed against Lichauco alone, and in her personal capacity, yet
it sought, as it now does, the nullification of the Notice of Offer or the awards thereon, such
remedy could not avail even if granted. Lichauco, in her personal capacity, cannot be directed to
set aside the Notice of Offer, the award of the bid, or to issue a new award herself. It is only
because Lichauco was sued in her official capacity as the DOTC Undersecretary that she, or her
successors in office, could be judicially compelled to act in such fashion.
As to the first two (2) causes of action, the Court rules that the defense of state immunity from
suit do not apply since said causes of action cannot be properly considered as suits against the
State in constitutional contemplation. These causes of action do not seek to impose a charge or
financial liability against the State, but merely the nullification of state action. The prayers
attached to these two causes of action are for the revocation of the Notice of Bid and the
nullification of the purported award, nothing more. Had it been so that petitioner additionally
sought damages in relation to said causes of action, the suit would have been considered as one
against the State. Had the petitioner impleaded the DOTC itself, an unincorporated government
agency, and not Lichauco herself, the suit would have been considered as one against the State.
But neither circumstance obtains in this case.
Parenthetically, it may be noted that at the time of the filing of the complaint, Lichauco herself
was already the acting head of the DOTC, owing to the sudden death of then Secretary Enrile a
few days before. At that stage, any suit seeking to nullify the Notice of Bid and the alleged award
to the "Unknown Bidder" should have properly denominated Lichauco as the respondent, and not
the DOTC.
Nonetheless, as to the first two causes of action, there was a viable ground to dismiss the
complaint: the non-exhaustion of administrative remedies. Indeed, such ground was alleged by
Lichauco in her Motion to Dismiss. Yet the principle of non-exhaustion of administrative
remedies admits to several exceptions. In its Order denying the motion to dismiss the complaint,
the RTC adequately dispensed with the objection, applying the established exceptions to the rule
of non-exhaustion of administrative remedies. To wit:
Turning to the matter pertaining to non-exhaustion of administrative remedies, it is fundamental
that this principle is not an inflexible rule. It yields to many accepted exceptions. (Rocamora vs.
RTC - Cebu, G.R. No. 65307). As in this case, this principle can be dispensed with when its

application would cause great and irreparable damage and when it does not provide a plain,
speedy and adequate remedy.
When the subject orbital slot 153 E was bidded out to other applicants, the damage and injury
plaintiffs stand to suffer was clear, present, and substantiated that this Court was impelled to
provide urgent needed measure such as the issuance of writ of injunction against the public
defendant. Indeed, under the circumstances then obtaining it was impractical for the plaintiffs to
first proceed to the administrative official concerned before taking court action.33
A different set of principles applies to the third cause of action, anchored as it is on alleged acts
that are tortious in character or otherwise beyond the scope of Lichauco's official duties. The
complaint alleges that Lichauco uttered several disparaging and defamatory remarks against
petitioners and made false assertions against them in her letter to the Land Bank President.
The veracity of those allegations is of course presented at the trial to be determined on the basis
of the evidence. However, if proven, they would establish liability on the part of Lichauco that is
not shielded by the doctrine of state immunity from suit. The doctrine, as summarized in Shauf v.
Court of Appeals :34
While the doctrine appears to prohibit only suits against the state without its consent, it is also
applicable to complaints filed against officials of the state for acts allegedly performed by them
in the discharge of their duties. The rule is that if the judgment against such officials will require
the state itself to perform an affirmative act to satisfy the same, such as the appropriation of the
amount needed to pay the damages awarded against them, the suit must be regarded as against
the state itself although it has not been formally impleaded. It must be noted, however, that the
rule is not so all-encompassing as to be applicable under all circumstances.
It is a different matter where the public official is made to account in his capacity as such
for acts contrary to law and injurious to the rights of plaintiff. As was clearly set forth by
Justice Zaldivar in Director of the Bureau of Telecommunications, et al. vs. Aligaen, etc., et
al. 'Inasmuch as the State authorizes only legal acts by its officers, unauthorized acts of
government officials or officers are not acts of the State, and an action against the officials
or officers by one whose rights have been invaded or violated by such acts, for the
protection of his rights, is not a suit against the State within the rule of immunity of the
State from suit. In the same tenor, it has been said that an action at law or suit in equity against a
State officer or the director of a State department on the ground that, while claiming to act for the
State, he violates or invades the personal and property rights or the plaintiff, under an
unconstitutional act or under an assumption of authority which he does not have, is not a suit
against the State within the constitutional provision that the State may not be sued without its
consent.' The rationale for this ruling is that the doctrine of state immunity cannot be used as an
instrument for perpetrating an injustice.35
The doctrine poses no controversy if after trial on the merits, it is established that the public
official concerned had committed illegal or tortious acts against the plaintiff. How does it apply
in relation to a motion to dismiss on the ground of state immunity from suit, necessarily lodged
before trial on the merits?

Our ruling in United States of America v. Reyes36 warrants due consideration. The Court therein,
through then Associate Justice (later Chief Justice) Hilario G. Davide, Jr., ruled that a motion to
dismiss averring immunity from suit of a State and its functionaries was actually grounded on the
specific ground for dismissal of the lack of cause of action, for even assuming that the
defendants had committed the injurious acts complained of, "no action may be maintained
thereon, because of the principle of state immunity."37 Pertinently, the Court noted that "a motion
to dismiss on the ground of failure to state a cause of action hypothetically admits the truth of the
allegations in the complaint."
Thus, Lichauco, in alleging in her Motion to Dismiss that she is shielded by the State's immunity
from suit, to hypothetically admitted the truth of the allegations in the complaint. Such
hypothetical admission has to be deemed a concession on her part that she had performed the
tortious or damaging acts against the petitioners, which if true, would hold her liable for
damages.
Of course, Lichauco could very well raise the defense of state immunity from suit in regard to
the third cause of action with the assertion that the acts complained of constituting said cause of
action fell within her official functions and were not tortuous in character. Still, to establish such
assertions of fact, a full-blown trial on the merits would be necessary, as would the case be if
Lichauco raised the defense that she did not commit these acts complained of. Certainly, these
defenses cannot be accorded merit before trial, factual as they are in character.
All told, contrary to the ruling of the Court of Appeals, we find no grave abuse of discretion on
the part of the RTC in denying Lichauco's Motion to Dismiss.
WHEREFORE, the PETITION is GRANTED. The Decision of the Court of Appeals dated 21
February 2000 is SET ASIDE and the Order dated 14 August 1998 of the Regional Trial Court of
Mandaluyong City is REINSTATED. The Regional Trial Court is ordered to try and decide the
case on the merits with deliberate dispatch. No costs.
SO ORDERED.
DANTE O. TINGA
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairman
ANTONIO T. CARPIO
Associate Justice

CONCHITA CARPIO MORALES

Asscociate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

AT T E S T AT I O N
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court's Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairman, Third Division
C E R T I F I C AT I O N
Pursuant to Section 13, Article VII of the Constitution, and the Division Chairman's Attestation,
it is hereby certified that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division,
ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes
1

Penned by Associate Justice Eugenio Labotoria, concurred in by Associate Justices

Jesus Elbinias and Marina Buzon.
2

Particularly consisting of Capitol Wireless, Inc.; Clavecilla Electronics and Telecom

Corporation; Digital Telecommunications Philippines; Domestic Satellite Phils.; Eastern
Telecommunications Philippines, Inc.; Express Telecommunications Company; GMCR,
Inc; International Communications Corporation; Isla Communications Company, Inc.;
Liberty Broadcasting Network, Inc; Philippine Communications Satellite Corporation;
Philippine Global Communications, Inc.; Philippine Long Distance Telephone Company;
Pilipino Telephone Corporation; Radio Communications of the Philippines, Inc.; and
Smart Communications, Inc. See rollo, pp. 57-59.
3

Id. at 60.

Id. at 61.

Id. at 64.

Id. at 65.

The assignment of the other orbital slot, 161 East Longitude, was previously affirmed
by the DOTC to PASI and formally effected through an Agreement on Transponder
Agreement dated 16 June 1997. See rollo, p. 89.

See id. at 50.

Id. at 50-51.

10

Rollo, pp. 49-50.

11

Id. at 51-52.

12

Id. at 53.

13

Penned by Judge Edwin D. Sorongon.

14

Rollo, p. 112.

15

Id. at 113.

16

Cited as 162 SCRA 88.

17

Rollo, pp. 39-42.

18

Id. at 214.

19

See id. at 215.

20

In her Comment, the Office of the Solicitor General, in behalf of Lichauco, states:
"Respondent [Lichauco] attached the following to her petition filed before the Court of
Appeals, to wit: (a) Original copies of the assailed orders as Annexes "A" and "B"; (b)
[respondent]'s motion to dismiss as Annex "C"; (c) Copy of [respondent]'s motion for
reconsideration as Annex "D"; and (d) [petitioner]'s opposition to the motion for
reconsideration as Annex "E." See id. at 214.
21

See Section 8, Rule 45, 1997 Rules of Civil Procedure.

22

See Section 6, Rule 1, 1997 Rules of Civil Procedure.

23

Rollo, p. 46.

24

See e.g., Isberto v. Raquiza, G.R. No. L-35001, 25 September 1975, 67 SCRA 116, 119
(1975).
25

See e.g., Section 3(m), Rule 131, Rules of Court.

26

See Section 3, Rule 131, Rules of Court.

27

See Section 3(a), Rule 131, Rules of Court.

28

Article III, sec. 6, DOTC Department Circular No. 97-01 (17 October 1997).

29

Article III, sec. 7, id.

30

G.R. No. L-21064, 18 February 1970, 31 SCRA 413.

31

Id. at 421-422.

32

Id. at 422.

33

Rollo, p. 113.

34

G.R. No. 90314, 27 November 1990, 191 SCRA 713.

35

Id. at 726-727. Citations omitted.

36

Id. at 206.

37

G.R. No. 79253, 1 March 1993, 219 SCRA 192.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 182358

February 20, 2013

DEPARTMENT OF HEALTH, THE SECRETARY OF HEALTH, and MA. MARGARITA

M. GALON, Petitioners,
vs.
PHIL PHARMA WEALTH, INC., Respondent.
DECISION
DEL CASTILLO, J.:
The state may not be sued without its consent. Likewise, public officials may not be sued for acts
done in the perfom1ance of their official functions or within the scope of their authority.
This Petition for Review on Certiorari1 assails the October 25, 2007 Decision2 of the Court of
Appeals (CA) in CA-G.R. CV No. 85670, and its March 31, 2008 Reso1ution3 denying
petitioners' Motion for Reconsideration.4
Factual Antecedents
On December 22, 1998, Administrative Order (AO) No. 27 series of 19985 was issued by then
Department of Health (DOH) Secretary Alfredo G. Romualdez (Romualdez). AO 27 set the

guidelines and procedure for accreditation of government suppliers of pharmaceutical products

for sale or distribution to the public, such accreditation to be valid for three years but subject to
annual review.
On January 25, 2000, Secretary Romualdez issued AO 10 series of 20006 which amended AO 27.
Under Section VII7 of AO 10, the accreditation period for government suppliers of
pharmaceutical products was reduced to two years. Moreover, such accreditation may be
recalled, suspended or revoked after due deliberation and proper notice by the DOH
Accreditation Committee, through its Chairman.
Section VII of AO 10 was later amended by AO 66 series of 2000,8 which provided that the twoyear accreditation period may be recalled, suspended or revoked only after due deliberation,
hearing and notice by the DOH Accreditation Committee, through its Chairman.
On August 28, 2000, the DOH issued Memorandum No. 171-C9 which provided for a list and
category of sanctions to be imposed on accredited government suppliers of pharmaceutical
products in case of adverse findings regarding their products (e.g. substandard, fake, or
misbranded) or violations committed by them during their accreditation.
In line with Memorandum No. 171-C, the DOH, through former Undersecretary Ma. Margarita
M. Galon (Galon), issued Memorandum No. 209 series of 2000,10 inviting representatives of 24
accredited drug companies, including herein respondent Phil Pharmawealth, Inc. (PPI) to a
meeting on October 27, 2000. During the meeting, Undersecretary Galon handed them copies of
a document entitled "Report on Violative Products"11 issued by the Bureau of Food and Drugs12
(BFAD), which detailed violations or adverse findings relative to these accredited drug
companies products. Specifically, the BFAD found that PPIs products which were being sold to
the public were unfit for human consumption.
During the October 27, 2000 meeting, the 24 drug companies were directed to submit within 10
days, or until November 6, 2000, their respective explanations on the adverse findings covering
their respective products contained in the Report on Violative Products.
Instead of submitting its written explanation within the 10-day period as required, PPI belatedly
sent a letter13 dated November 13, 2000 addressed to Undersecretary Galon, informing her that
PPI has referred the Report on Violative Products to its lawyers with instructions to prepare the
corresponding reply. However, PPI did not indicate when its reply would be submitted; nor did it
seek an extension of the 10-day period, which had previously expired on November 6, 2000,
much less offer any explanation for its failure to timely submit its reply. PPIs November 13,
2000 letter states:
Madam,
This refers to your directive on 27 October 2000, on the occasion of the meeting with selected
accredited suppliers, during which you made known to the attendees of your requirement for
them to submit their individual comments on the Report on Violative Products (the "Report")
compiled by your office and disseminated on that date.

In this connection, we inform you that we have already instructed our lawyers to prepare on our
behalf the appropriate reply to the Report furnished to us. Our lawyers in time shall revert to you
and furnish you the said reply.
Please be guided accordingly.
Very truly yours,
(signed)
ATTY. ALAN A.B. ALAMBRA
Vice-President for Legal and Administrative Affairs14
In a letter-reply15 dated November 23, 2000 Undersecretary Galon found "untenable" PPIs
November 13, 2000 letter and therein informed PPI that, effective immediately, its accreditation
has been suspended for two years pursuant to AO 10 and Memorandum No. 171-C.
In another December 14, 2000 letter16 addressed to Undersecretary Galon, PPI through counsel
questioned the suspension of its accreditation, saying that the same was made pursuant to Section
VII of AO 10 which it claimed was patently illegal and null and void because it arrogated unto
the DOH Accreditation Committee powers and functions which were granted to the BFAD under
Republic Act (RA) No. 372017 and Executive Order (EO) No. 175.18 PPI added that its
accreditation was suspended without the benefit of notice and hearing, in violation of its right to
substantive and administrative due process. It thus demanded that the DOH desist from
implementing the suspension of its accreditation, under pain of legal redress.
On December 28, 2000, PPI filed before the Regional Trial Court of Pasig City a Complaint19
seeking to declare null and void certain DOH administrative issuances, with prayer for damages
and injunction against the DOH, former Secretary Romualdez and DOH Undersecretary Galon.
Docketed as Civil Case No. 68200, the case was raffled to Branch 160. On February 8, 2002, PPI
filed an Amended and Supplemental Complaint,20 this time impleading DOH Secretary Manuel
Dayrit (Dayrit). PPI claimed that AO 10, Memorandum No. 171-C, Undersecretary Galons
suspension order contained in her November 23, 2000 letter, and AO 14 series of 200121 are null
and void for being in contravention of Section 26(d) of RA 3720 as amended by EO 175, which
states as follows:
SEC. 26. x x x
(d) When it appears to the Director [of the BFAD] that the report of the Bureau that any article of
food or any drug, device, or cosmetic secured pursuant to Section twenty-eight of this Act is
adulterated, misbranded, or not registered, he shall cause notice thereof to be given to the person
or persons concerned and such person or persons shall be given an opportunity to be heard before
the Bureau and to submit evidence impeaching the correctness of the finding or charge in
question.

For what it claims was an undue suspension of its accreditation, PPI prayed that AO 10,
Memorandum No. 171-C, Undersecretary Galons suspension order contained in her November
23, 2000 letter, and AO 14 be declared null and void, and that it be awarded moral damages of
P5 million, exemplary damages of P1 million, attorneys fees of P1 million, and costs of suit. PPI
likewise prayed for the issuance of temporary and permanent injunctive relief.
In their Amended Answer,22 the DOH, former Secretary Romualdez, then Secretary Dayrit, and
Undersecretary Galon sought the dismissal of the Complaint, stressing that PPIs accreditation
was suspended because most of the drugs it was importing and distributing/selling to the public
were found by the BFAD to be substandard for human consumption. They added that the DOH is
primarily responsible for the formulation, planning, implementation, and coordination of policies
and programs in the field of health; it is vested with the comprehensive power to make essential
health services and goods available to the people, including accreditation of drug suppliers and
regulation of importation and distribution of basic medicines for the public.
Petitioners added that, contrary to PPIs claim, it was given the opportunity to present its side
within the 10-day period or until November 6, 2000, but it failed to submit the required
comment/reply. Instead, it belatedly submitted a November 13, 2000 letter which did not even
constitute a reply, as it merely informed petitioners that the matter had been referred by PPI to its
lawyer. Petitioners argued that due process was afforded PPI, but because it did not timely avail
of the opportunity to explain its side, the DOH had to act immediately by suspending PPIs
accreditation to stop the distribution and sale of substandard drug products which posed a
serious health risk to the public. By exercising DOHs mandate to promote health, it cannot be
said that petitioners committed grave abuse of discretion.
In a January 8, 2001 Order,23 the trial court partially granted PPIs prayer for a temporary
restraining order, but only covering PPIs products which were not included in the list of
violative products or drugs as found by the BFAD.
In a Manifestation and Motion24 dated July 8, 2003, petitioners moved for the dismissal of Civil
Case No. 68200, claiming that the case was one against the State; that the Complaint was
improperly verified; and lack of authority of the corporate officer to commence the suit, as the
requisite resolution of PPIs board of directors granting to the commencing officer PPIs Vice
President for Legal and Administrative Affairs, Alan Alambra, the authority to file Civil Case
No. 68200 was lacking. To this, PPI filed its Comment/Opposition.25
Ruling of the Regional Trial Court
In a June 14, 2004 Order,26 the trial court dismissed Civil Case No. 68200, declaring the case to
be one instituted against the State, in which case the principle of state immunity from suit is
applicable.
PPI moved for reconsideration,27 but the trial court remained steadfast.28
PPI appealed to the CA.

Ruling of the Court of Appeals

Docketed as CA-G.R. CV No. 85670, PPIs appeal centered on the issue of whether it was proper
for the trial court to dismiss Civil Case No. 68200.
The CA, in the herein assailed Decision,29 reversed the trial court ruling and ordered the remand
of the case for the conduct of further proceedings. The CA concluded that it was premature for
the trial court to have dismissed the Complaint. Examining the Complaint, the CA found that a
cause of action was sufficiently alleged that due to defendants (petitioners) acts which were
beyond the scope of their authority, PPIs accreditation as a government supplier of
pharmaceutical products was suspended without the required notice and hearing as required by
Section 26(d) of RA 3720 as amended by EO 175. Moreover, the CA held that by filing a motion
to dismiss, petitioners were deemed to have hypothetically admitted the allegations in the
Complaint which state that petitioners were being sued in their individual and personal
capacities thus negating their claim that Civil Case No. 68200 is an unauthorized suit against
the State.
The CA further held that instead of dismissing the case, the trial court should have deferred the
hearing and resolution of the motion to dismiss and proceeded to trial. It added that it was
apparent from the Complaint that petitioners were being sued in their private and personal
capacities for acts done beyond the scope of their official functions. Thus, the issue of whether
the suit is against the State could best be threshed out during trial on the merits, rather than in
proceedings covering a motion to dismiss.
The dispositive portion of the CA Decision reads:
WHEREFORE, the appeal is hereby GRANTED. The Order dated June 14, 2004 of the
Regional Trial Court of Pasig City, Branch 160, is hereby REVERSED and SET-ASIDE.
ACCORDINGLY, this case is REMANDED to the trial court for further proceedings.
SO ORDERED.30
Petitioners sought, but failed, to obtain a reconsideration of the Decision. Hence, they filed the
present Petition.
Issue
Petitioners now raise the following lone issue for the Courts resolution:
Should Civil Case No. 68200 be dismissed for being a suit against the State?31
Petitioners Arguments
Petitioners submit that because PPIs Complaint prays for the award of damages against the
DOH, Civil Case No. 68200 should be considered a suit against the State, for it would require the
appropriation of the needed amount to satisfy PPIs claim, should it win the case. Since the State

did not give its consent to be sued, Civil Case No. 68200 must be dismissed. They add that in
issuing and implementing the questioned issuances, individual petitioners acted officially and
within their authority, for which reason they should not be held to account individually.
Respondents Arguments
Apart from echoing the pronouncement of the CA, respondent insists that Civil Case No. 68200
is a suit against the petitioners in their personal capacity for acts committed outside the scope of
their authority.
Our Ruling
The Petition is granted.
The doctrine of non-suability.
The discussion of this Court in Department of Agriculture v. National Labor Relations
Commission32 on the doctrine of non-suability is enlightening.
The basic postulate enshrined in the constitution that (t)he State may not be sued without its
consent, reflects nothing less than a recognition of the sovereign character of the State and an
express affirmation of the unwritten rule effectively insulating it from the jurisdiction of courts.
It is based on the very essence of sovereignty. x x x [A] sovereign is exempt from suit, not
because of any formal conception or obsolete theory, but on the logical and practical ground that
there can be no legal right as against the authority that makes the law on which the right depends.
True, the doctrine, not too infrequently, is derisively called the royal prerogative of dishonesty
because it grants the state the prerogative to defeat any legitimate claim against it by simply
invoking its nonsuability. We have had occasion to explain in its defense, however, that a
continued adherence to the doctrine of non-suability cannot be deplored, for the loss of
governmental efficiency and the obstacle to the performance of its multifarious functions would
be far greater in severity than the inconvenience that may be caused private parties, if such
fundamental principle is to be abandoned and the availability of judicial remedy is not to be
accordingly restricted.
The rule, in any case, is not really absolute for it does not say that the state may not be sued
under any circumstance. On the contrary, as correctly phrased, the doctrine only conveys, the
state may not be sued without its consent; its clear import then is that the State may at times be
sued. The States consent may be given either expressly or impliedly. Express consent may be
made through a general law or a special law. x x x Implied consent, on the other hand, is
conceded when the State itself commences litigation, thus opening itself to a counterclaim or
when it enters into a contract. In this situation, the government is deemed to have descended to
the level of the other contracting party and to have divested itself of its sovereign immunity. This
rule, x x x is not, however, without qualification. Not all contracts entered into by the
government operate as a waiver of its non-suability; distinction must still be made between one
which is executed in the exercise of its sovereign function and another which is done in its
proprietary capacity.33

As a general rule, a state may not be sued. However, if it consents, either expressly or impliedly,
then it may be the subject of a suit.34 There is express consent when a law, either special or
general, so provides. On the other hand, there is implied consent when the state "enters into a
contract or it itself commences litigation."35 However, it must be clarified that when a state enters
into a contract, it does not automatically mean that it has waived its non-suability. 36 The State
"will be deemed to have impliedly waived its non-suability [only] if it has entered into a contract
in its proprietary or private capacity. [However,] when the contract involves its sovereign or
governmental capacity[,] x x x no such waiver may be implied."37 "Statutory provisions waiving
[s]tate immunity are construed in strictissimi juris. For, waiver of immunity is in derogation of
sovereignty."38
The DOH can validly invoke state immunity.
a) DOH is an unincorporated agency which performs sovereign or governmental functions.
In this case, the DOH, being an "unincorporated agency of the government"39 can validly invoke
the defense of immunity from suit because it has not consented, either expressly or impliedly, to
be sued. Significantly, the DOH is an unincorporated agency which performs functions of
governmental character.
The ruling in Air Transportation Office v. Ramos40 is relevant, viz:
An unincorporated government agency without any separate juridical personality of its own
enjoys immunity from suit because it is invested with an inherent power of sovereignty.
Accordingly, a claim for damages against the agency cannot prosper; otherwise, the doctrine of
sovereign immunity is violated. However, the need to distinguish between an unincorporated
government agency performing governmental function and one performing proprietary functions
has arisen. The immunity has been upheld in favor of the former because its function is
governmental or incidental to such function; it has not been upheld in favor of the latter whose
function was not in pursuit of a necessary function of government but was essentially a
business.41
b) The Complaint seeks to hold the DOH solidarily and jointly liable with the other defendants
for damages which constitutes a charge or financial liability against the state.
Moreover, it is settled that if a Complaint seeks to "impose a charge or financial liability against
the state,"42 the defense of non-suability may be properly invoked. In this case, PPI specifically
prayed, in its Complaint and Amended and Supplemental Complaint, for the DOH, together with
Secretaries Romualdez and Dayrit as well as Undersecretary Galon, to be held jointly and
severally liable for moral damages, exemplary damages, attorneys fees and costs of suit.43
Undoubtedly, in the event that PPI succeeds in its suit, the government or the state through the
DOH would become vulnerable to an imposition or financial charge in the form of damages.
This would require an appropriation from the national treasury which is precisely the situation
which the doctrine of state immunity aims to protect the state from.

The mantle of non-suability extends to complaints filed against public officials for acts done
in the performance of their official functions.
As regards the other petitioners, to wit, Secretaries Romualdez and Dayrit, and Undersecretary
Galon, it must be stressed that the doctrine of state immunity extends its protective mantle also to
complaints filed against state officials for acts done in the discharge and performance of their
duties.44 "The suability of a government official depends on whether the official concerned was
acting within his official or jurisdictional capacity, and whether the acts done in the performance
of official functions will result in a charge or financial liability against the government."45
Otherwise stated, "public officials can be held personally accountable for acts claimed to have
been performed in connection with official duties where they have acted ultra vires or where
there is showing of bad faith."46 Moreover, "[t]he rule is that if the judgment against such
officials will require the state itself to perform an affirmative act to satisfy the same, such as the
appropriation of the amount needed to pay the damages awarded against them, the suit must be
regarded as against the state x x x. In such a situation, the state may move to dismiss the
[C]omplaint on the ground that it has been filed without its consent." 47
It is beyond doubt that the acts imputed against Secretaries Romualdez and Dayrit, as well as
Undersecretary Galon, were done while in the performance and discharge of their official
functions or in their official capacities, and not in their personal or individual capacities.
Secretaries Romualdez and Dayrit were being charged with the issuance of the assailed orders.
On the other hand, Undersecretary Galon was being charged with implementing the assailed
issuances. By no stretch of imagination could the same be categorized as ultra vires simply
because the said acts are well within the scope of their authority. Section 4 of RA 3720
specifically provides that the BFAD is an office under the Office of the Health Secretary. Also,
the Health Secretary is authorized to issue rules and regulations as may be necessary to
effectively enforce the provisions of RA 3720.48 As regards Undersecretary Galon, she is
authorized by law to supervise the offices under the DOHs authority,49 such as the BFAD.
Moreover, there was also no showing of bad faith on their part. The assailed issuances were not
directed only against PPI. The suspension of PPIs accreditation only came about after it failed to
submit its comment as directed by Undersecretary Galon. It is also beyond dispute that if found
wanting, a financial charge will be imposed upon them which will require an appropriation from
the state of the needed amount. Thus, based on the foregoing considerations, the Complaint
against them should likewise be dismissed for being a suit against the state which absolutely did
not give its consent to be sued. Based on the foregoing considerations, and regardless of the
merits of PPIs case, this case deserves a dismissal. Evidently, the very foundation of Civil Case
No. 68200 has crumbled at this initial juncture.
PPI was not denied due process.
However, we cannot end without a discussion of PPIs contention that it was denied due process
when its accreditation was suspended "without due notice and hearing." It is undisputed that
during the October 27, 2000 meeting, Undersecretary Galon directed representatives of
pharmaceutical companies, PPI included, to submit their comment and/or reactions to the Report
on Violative Products furnished them within a period of 10 days. PPI, instead of submitting its
comment or explanation, wrote a letter addressed to Undersecretary Galon informing her that the

matter had already been referred to its lawyer for the drafting of an appropriate reply. Aside from
the fact that the said letter was belatedly submitted, it also failed to specifically mention when
such reply would be forthcoming. Finding the foregoing explanation to be unmeritorious,
Undersecretary Galon ordered the suspension of PPIs accreditation for two years. Clearly these
facts show that PPI was not denied due process. It was given the opportunity to explain its side.
Prior to the suspension of its accreditation, PPI had the chance to rebut, explain, or comment on
the findings contained in the Report on Violative Products that several of PPIs products are not
fit for human consumption. However, PPI squandered its opportunity to explain. Instead of
complying with the directive of the DOH Undersecretary within the time allotted, it instead
haughtily informed Undersecretary Galon that the matter had been referred to its lawyers. Worse,
it impliedly told Undersecretary Galon to just wait until its lawyers shall have prepared the
appropriate reply. PPI however failed to mention when it will submit its "appropriate reply" or
how long Undersecretary Galon should wait. In the meantime, PPIs drugs which are included in
the Report on Violative Products are out and being sold in the market. Based on the foregoing,
we find PPIs contention of denial of due process totally unfair and absolutely lacking in basis.
At this juncture, it would be trite to mention that "[t]he essence of due process in administrative
proceedings is the opportunity to explain ones side or seek a reconsideration of the action or
ruling complained of. As long as the parties are given the opportunity to be heard before
judgment is rendered, the demands of due process are sufficiently met. What is offensive to due
process is the denial of the opportunity to be heard. The Court has repeatedly stressed that parties
who chose not to avail themselves of the opportunity to answer charges against them cannot
complain of a denial of due process."50
Incidentally, we find it inieresting that in the earlier case of Department q( Health v. Phil
Pharmawealth, Inc. 51 respondent filed a Complaint against DOH anchored on the same
issuances which it assails in the present case. In the earlier case of Department of Health v. Phil
Pharmawealth, Jnc., 52 PPI submitted to the DOH a request for the inclusion of its products in
the list of accredited drugs as required by AO 27 series of 1998 which was later amended by AO
10 series of 2000. In the instant case, however, PPI interestingly claims that these issuances are
null and void.
WHEREFORE, premises considered, the Petition is GRANTED. Civil Case No. 68200 is
ordered DISMISSED.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ARTURO D. BRION

DIOSDADO M. PERALTA*

Associate Justice

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice
AT T E S T AT I O N
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson
C E R T I F I C AT I O N
Pursuant to Section 13, Article VII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice

Footnotes
*

Per Raffle dated February 4, 2013.

Rollo, pp. 27-44.

Id. at 7-21; penned by Associate Justice Monina Arevalo-Zenarosa and concurred in by

Presiding Justice Conrado M. Vasquez, Jr. and Associate Justice Edgardo F. Sundiam.
3

Id. at 22-23.

CA rolla, pp. 156-164.

Records, pp. 16-17.

Id. at 19-25.

Id. at 24.

Id. at 26.

Id. at 111.

10

Id. at 27.

11

Id. at 28-40.

12

Per Republic Act No. 9711 or the Food and Drug Administration (FDA) Act of 2009
which was signed by the President on August 18, 2009, the Bureau of Food and Drugs
(BFAD) was renamed and is now called the Food and Drug Administration (FDA).
13

Records, p. 41.

14

Id.

15

Id. at 42.

16

Id. at 43-44.

17

FOOD, DRUG, AND COSMETIC ACT. June 22, 1963.

18

FURTHER AMENDING REPUBLIC ACT NO 3720, ENTITLED "AN ACT TO

ENSURE THE SAFETY AND PURITY OF FOODS, DRUGS, AND COSMETICS
BEING MADE AVAILABLE TO THE PUBLIC BY CREATING THE FOOD AND
DRUG ADMINISTRATION WHICH SHALL ADMINISTER AND ENFORCE THE
LAWS PERTAINING THERETO", AS AMENDED, AND FOR OTHER PURPOSES.
May 22, 1987.
19

Records, pp. 2-15.

20

Id. at 400-424.

21

Id. at 454-457. Administrative Order No. 14 was a later issuance by DOH Secretary
Dayrit which was subsequently included in PPIs amended and supplemental complaint
as one of the issuances sought to be nullified. It provided for new accreditation guidelines
and granted the Accreditation Committee the power to suspend or revoke a suppliers
accreditation after deliberation and notice, and without need of a hearing.
22

Id. at 489-505.

23

Id. at 124.

24

Id. at 500-513.

25

Id. at 532-541.

26

Id. at 555-561; penned by Judge Amelia A. Fabros.

27

Id. at 562-569.

28

See Order dated April 19, 2005, id. at 593.

29

Rollo, pp. 7-21.

30

Id. at 21. Emphases in the original.

31

Id. at 730.

32

G.R. No. 104269, November 11, 1993, 227 SCRA 693.

33

Id. at 698-699. Citations omitted.

34

United States of America v. Judge Guinto, 261 Phil. 777, 790 (1990).

35

Id. at 792.

36

Id. at 793.

37

Id. at 795.

38

Equitable Insurance and Casualty Co., Inc. v. Smith, Bell & Co. (Phils.), Inc., 127 Phil.
547, 549 (1967).
39

Department of Health v. Phil Pharmawealth, Inc., 547 Phil. 148, 154 (2007).

40

G.R. No. 159402, February 23, 2011, 644 SCRA 36.

41

Id. at 42-43. Citations omitted.

42

Department of Health v. Phil Pharmawealth, Inc., supra at 154.

43

See Complaint, pp. 12-13, records, pp. 13-14; Amended and Supplemental Complaint,
p. 13, records, p. 422.
44

United States of America v. Judge Guinto, supra note 34 at 791.

45

Department of Health v. Phil Pharmawealth, Inc., supra note 39 at 153.

46

M. H. Wylie v. Rarang, G.R. No. 74135, May 28, 1992, 209 SCRA 357, 368. Citation
omitted. See also United States of America v. Reyes, G.R. No. 79253, March 1, 1993, 219
SCRA 192, 209 where the Court held:
x x x The doctrine of immunity from suit will not apply and may not be invoked
where the public official is being sued in his private and personal capacity as an

ordinary citizen. The cloak of protection afforded the officers and agents of the
government is removed the moment they are sued in their individual capacity.
This situation usually arises where the public official acts without authority or in
excess of the powers vested in him. It is a well-settled principle of law that a
public official may be liable in his personal private capacity for whatever damage
he may have caused by his act done with malice and in bad faith, or beyond the
scope of his authority or jurisdiction. (Citations omitted)
47

United States of America v. Judge Guinto, supra note 34 at 791-792. See also
Department of Health v. Phil Pharmawealth, Inc., supra note 39 at 155.
48

See Section 26, Republic Act No. 3720.

49

See Section 12, Chapter 3, Title IX, Book IV, Administrative Code of 1987.

50

Flores v. Montemavor, Ci.R. No. 170146. llll''~ 1' .. 20 i i, 651 SCEA 396, 406-407.
Citations omitted
51

Supranote39.

52

ld

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 203834

July 9, 2014

HEIRS OF DIOSDADO M. MENDOZA, namely: LICINIA V. MENDOZA, PETER VAL

V. MENDOZA, CONSTANCIA V. MENDOZA YOUNG, CRISTINA V. MENDOZA
FIGUEROA, DIOSDADO V. MENDOZA, JR., JOSEPHINE V. MENDOZA JASA, and
RIZALINA V. MENDOZA PUSO, Petitioners,
vs.
DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS and the DPWH SECRETARY,
Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review on certiorari1 assailing the 20 June 2012 Decision2 and
the 15 October 2012 Resolution3 of the Court of Appeals in CA-G.R. CV No. 86433. The Court
of Appeals set aside the 29 October 2001 Decision4 of the Regional.Trial Court of Manila,
Branch 36, in Civil Case No. 90-53649.
The Antecedent Facts
The case stemmed from an action for specific performance and damages, with prayer for
preliminary injunction, filed by Diosdado M. Mendoza (Mendoza), doing businessunder the
name and style of D Superior Builders (Superior Builders) against the defendants Department of

Public Works and Highways (DPWH), then DPWH Secretary Fiorello R. Estuar (Estuar),
Undersecretary Edmundo V. Mir (Mir), Nestor Abarca (Abarca), United Technologies, Inc.
(UTI), UTIs President Pedro Templo (Templo) and UTIs Project Manager Rodante Samonte
(Samonte). The case was docketed as Civil Case No. 90-53649.
Mendoza was the winning bidder for the construction of the 15-kilometer Madaymen Masala
Amsuling Road in Benguet and the engineers quarters and laboratory, designatedas Package VI,
of the Highland Agriculture Development Project (HADP). His total bid for materials and labor
was P16,176,878.58. He was also the winning bidder for the construction of the 15-kilometer
barangay roads (Sinipsip-Akiki, SinipsipMaalad, and Madaymen) in Benguet, designated as
Package IX of the HADP, with a bid of P10,527,192.14. The DPWH hired UTI as consultant for
Packages VI and IX, under the direct charge of Templo and Samonte.
On 2 March 1989, Mendoza received the Notice to Proceed for Package VI of the HADP. During
the pre-construction survey, Mendoza alleged that he discovered that the whole stretch of the 15kilometer project had no right-of-way, in violation of Ministry Order No. 65. He brought the
matter to the attention of the DPWH and UTI but according to him, it was only resolved on 29
November 1989 when the affected landowners and farmers allowed passage at Mendozas risk.
Mendoza alleged that the defendants, except for Estuar, conspired to make it appear that Superior
Builders incurred negative slippage of29% and recommended the forfeiture of the contract.
Mendoza further alleged that as regards Package IX, the DPWH did not execute any contract
despite the Superior Builders compliance with all the post-evaluation requirements. The DPWH
also recommended the rebidding of Package IX. Package IX was, in effect, canceled together
with the forfeiture of the contract for Package VI. The DPWH blacklisted the Superior Builders
from participating inany bidding or entering into any contract with it for a period of one year.
On 2 August 1990, the Regional Trial Court of Manila, Branch 36 (trial court) issued a
Temporary Restraining Order enjoining the defendants from rebidding Package VI and
fromawarding Package IX to another contractor, and to cease and desistfrom withholding the
equipment of Superior Builders.
On 20 August 1990, the DPWH, Estuar, Mir and Abarca filed an opposition to the prayer for the
issuance of a preliminary injunction, citing Section 1 of Presidential Decree No. 1818 that the
trial court has no jurisdiction to issue a writ of preliminary injunction. They likewise alleged that
Superior Builders failed to exhaust its administrative remedies. They further alleged that the
owner of the road, GregorioAbalos (Abalos) issued a certification that he never disallowed
passage to Superior Builders vehicles and equipment and road right-of-way was never a
problem. They also alleged that Superior Builders started mobilization from 12 to 15 July 1989
and resumed its operationsfor one week in December 1989. They also alleged that on 20
November 1989, the Office of the Sangguniang Panlalawiganof Benguet passed Resolution No.
1176 recommending the termination of the contract between the DPWH and Superior Builders.
They reiterated the allegations in their Opposition in their Answer.
For their part, UTI, Templo and Samonte alleged that Superior Builders had 10 calendar days to
commence with the project from the time it received the Notice to Proceed on 2 March 1989 or

until 12 March 1989 but it failed to do so. They alleged that Superior Builders only mobilized
one bulldozer and one loader out of the 47 units required in the contract. They alleged that at the
time of the filing of the case, Superior Builders had only mobilized eight units, a majority of
which were not working. They alleged that Superior Builders failed to mobilize sufficient
number of materials, equipment and personnel and that by 25 October 1989, it already incurred
negative slippage of 27.97% that they were compelled to recommend the termination of the
contract for Package VI and rebidding of Package IX.
The Decision of the Trial Court
In its 29 October 2001 Decision, the trial court ruled that the termination of the contract over
Package VI and the non-award of Package IX to Superior Builders were arbitrary and unjustified.
The trial court ruled that under the original plan, Package VI was inaccessible from the starting
point which is a privately-owned road. The trial court ruled that there was no showing of any
attempt by the government to secure right-of-way by expropriation or other legal means. The
trial court held that Superior Builders could not be faulted for its failure to perform the obligation
within the stipulated period because the DPWH made it impossible by its failure to acquire the
necessary right-of-way and as such, nonegative slippage could be attributed to Superior Builders.
The trial court further ruled that inentering into a contract, the DPWH divested itself of immunity
from suit and assumed the character of an ordinary litigant.
The dispositive portion of the trial courts decision reads:
WHEREFORE, judgment is hereby rendered ordering defendants Department of Public Works
and Highway thru its Secretary, United Technologies, Inc. and Rodante Samonte to pay plaintiff
Diosdado M. Mendoza, jointly and severally, P1,565,317.70 as reimbursement for materials and
labor on the accomplishment and P1,617,187.86 performance bond forfeited, P8,817,926.00 as
rental value for eight (8) units of equipment for twenty-six (26) months from December 21, 1989
to January 24, 1992 at P339,151.00 per month, with interest at the legal rate until fully paid;
P300,000.00 for moral damages, P150,000.00 for attorneys fees, and costs.
The writ of preliminary injunction earlier issued is declared moot and academic but defendant
Department of Public Works and Highways thru its Secretary is ordered to turn over to plaintiff,
and the latter is authorized to take delivery of the construction equipment still under the control
of the DPWH.
The counterclaim of the private defendants not being substantiated is dismissed.
SO ORDERED.5
The DPWH and the DPWH Secretary (respondents before us) appealed from the trial courts
decision.
The Decision of the Court of Appeals

In its 20 June 2012 Decision, the Court of Appeals set aside the trial courts decision and
dismissed Mendozas complaint for specific performance and damages for lack of merit.
The Court of Appeals ruled that the DPWHs forfeiture order of Package VI of the HADP as well
asthe non-award of Package IX to Superior Builders was justified. The Court of Appeals found
that Superior Builders incurred a negative slippage of31.852%, which is double the limit set by
the government under DPWH Circular No. 102, series of 1988. Tracing the slippages incurred by
Superior Builders,the Court of Appeals declared:
As early as May 25, 1989, or about two (2) months after the notice to proceed was issued,
defendant UTI,the consultant for the governments HADP, issued a "first warning"to plaintiffappellee D Superior Builders for having already incurred a slippage of 7.648% due to late
implementation, with time elapseof 13.80%. Defendant UTI instructed plaintiff-appellee D
Superior Builders to submit a "catch-up" program to address the slippage.
Subsequently, on June 25, 1989, plaintiff-appellee D Superior Builders incurred a slippage of
11.743% with corresponding time elapse of 19.63% (106 days from effectivityof contract) and
was given a "second warning."
On July 25, 1989, the negative slippage reached 16.32%, with corresponding time elapse of
25.18% (136 days from effectivity of the contract). As a consequence, plaintiff-appellee D
Superior Builders was issued a "final warning."
In its August 11, 1989 letter, defendant UTI reminded plaintiffappellee D Superior Builders of
itsprevious instructions to bring the construction materials for the engineers quarters, office, and
laboratory. Defendant UTI noted:
"We could not find reasons why you cannot immediately bring your construction materials at
site, 50 kms. from Baguio City, whenin fact, there [were] [continuous] deliveries of some
construction materials under Contract Package XI, whose site is located 102 kms. from Baguio
City." Thereafter, on September 25, 1989, the negative slippage of plaintiff-appellee D Superior
Builders reached 21.109% with elapsed time of 36.66% (equivalent to 198 calendar days), or
already at "terminal stage" pursuant to DPWH Circular No. 102. Defendant UTI, thus, urged
plaintiff-appellee D Superior Builders to show positive actions and speed up its operations,
otherwise the former would be compelled to recommend the termination of its contract.
The following month, on October 25, 1989, plaintiff-appellee D Superior Builders negative
slippage reached 27.970%, still at "terminal stage."The consultant mentioned several reasons for
the slippage, such as: (1) late implementation of construction of the engineers building, (2) nonimplementation of work itemsdue to lack or non-operational equipment as site, and (3) continued
absence of plaintiff-appellees Project Manager.
In November 1989, the negative slippage of plaintiff-appellee D Superior Builders was already
31.852%, or more than double the limit of what is considered as being at "terminal stage", which
is 15%.6

Superior Builders performance prompted the Sangguniang Panlalawigan of the Province of

Benguet to pass a Resolution on 20 November 1989 recommending the termination of the
contract for Package VI that also eventually led to the forfeiture of the contract for Package VI.
The Court of Appeals noted that there were letters and monthly conferences where UTI, through
Samonte and UTIs Resident Engineer Federico Vinson, Jr. (Vinson), consistently reminded
Superior Builders of its obligations and deficiencies. The Court of Appeals concluded that the
delay in the execution of Package VI was due to Superior Builders delay, particularly its failure
to mobilize itspersonnel and equipment to the project site.
The Court of Appeals ruled that the area where there was a right-ofway problem was only the
first 3.2 kilometers of the 15.5-kilometer project. Hence, Superior Builders could have worked
on the other areas and the right-of-way issue could not justify the 31.852% negative slippage it
incurred. The Court of Appeals faulted the trial court for skirting the issue on state immunity
from suit. The Court of Appeals ruled that there should be a distinction whether the DPWH
entered the contracts for Package VI and Package XI in its governmental or proprietary capacity.
In this case, the Court of Appeals ruled that the DPWHs contractual obligation was made in the
exercise of its governmental functions and was imbued with public interest.
The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, premises considered, the appeal is GRANTED. The assailed Decision dated
October 29, 2001 of the Regional Trial Court (RTC), National Capital Judicial Region, Branch
36, Manila in Civil Case No. 90-53649 is hereby REVERSED and SET ASIDE. Plaintiffappellees complaint for specific performanceand damages with prayer for preliminary injunction
is hereby DISMISSED for lack of merit. No costs.
SO ORDERED.7
The heirs of Mendoza, namely, Licinia V. Mendoza, Peter Val V. Mendoza, Constancia V.
Mendoza Young, Cristina V. Mendoza Figueroa, Diosdado V. Mendoza, Jr., Josephine V.
Mendoza Jasa, and Rizalina V. Mendoza Puso (petitioners in this case)filed a motion for
reconsideration, at the same time seeking to substitute Mendoza as the plaintiff-appellee in view
of Mendozas death on 25 April 2005 during the pendency of the case before the Court of
Appeals.
In its 15 October 2012 Resolution, the Court of Appeals granted the motion for substitution. In
the same resolution, the Court of Appeals denied the motion for reconsideration for lack of merit.
The Court of Appeals ruled that first, petitioners were not denied due process when they were not
informed that the case was re-raffled when the original ponenteinhibited himself from the case.
The Court of Appeals ruled that there was no requirement of notification under Section 2(b),
Rule III of the Internal Rules of the Court of Appeals (IRCA). Further, the action on the
inhibition was attached to the rolloand duly paged in compliance with Section 4, Rule V of the
IRCA. Second, the Court of Appeals ruled that contrary to petitioners claim, the issue on the
absence of road right-of-way was considered in its 20 June 2012 decision. The Court of Appeals
emphasized that under DPWH CircularNo. 102, series of 1988, the allowable rate of slippage is

only 15%. In this case, Superior Builders reached 31.852% negative slippage and thus, the
termination of the contract was justified. The Court of Appeals noted that Abalos issued a
certification that he never disallowed the passage of Superior Builders vehicles and equipment.
The Court of Appeals alsonoted that as early as May 1989, Superior Builders was instructed to
carry out road works where there were no right-of-way problems. Third, the Court of Appeals
ruled that mere entering into a contract by the government does not automatically amount to a
waiver of immunity from suit. The Court of Appeals ruled that in this case, the road construction
was in the exercise of the DPWHs governmental functions. The Court of Appeals also ruled that
it was established that Superior Builders was at fault and thatit exceeded the allowable limit of
slippage set by law. Petitioners came to thisCourt assailing the 20 June 2012 Decision and 15
October 2012 Resolution ofthe Court of Appeals.
The Issues
Petitioners raise two issues before us:
(1) Whether the Court of Appeals committed a reversible error in ruling that the forfeiture
of the contract in Package VI of HADP and the non-payment of the cost of materials,
labor on the accomplishment and the rental value of the heavy equipment were justified;
and
(2) Whether the Court of Appeals committed a reversible error in ruling that the DPWH
has no juridical personality of its own and that Mendozas action was a suit against the
State.
The Ruling of this Court
We deny the petition.
On Negative Slippages
The first issue raised by petitionersrequires a review of the negative slippages incurred by
Superior Builders and the reasons for the slippages.
The records of the case showed thatSuperior Builders incurred the following negative slippages:
1. As of 25 May 1989 7.648%
2. As of 25 June 1989 - 11.743%
3. As of 25 July 1989 16.32%
4. As of 25 September 1989 - 21.109%
5. As of 25 October 1989 27.970%

6. As of November 1989 - 31.852%

Presidential Decree No. 1870,series of 1983 (PD 1870),8 states:
1. Whenever a contractor is behind schedule in its contract work and incur 15% or more negative
slippage based on its approved PERT/CPM, the implementing agency, at the discretion of the
Minister concerned, may undertake by administration the whole ora portion of the unfinished
work, or have the whole or a portion of such unfinished work done by another qualified
contractor through negotiated contract at the current valuation price.
Undeniably, the negative slippage incurred by Superior Builders, which reached 31.852%, far
exceeded the allowable slippage under PD 1870.
Under Department Order No. 102,series of 1988 (DO 102),9 the following calibrated actions are
required to be done for infrastructure projects that reached certain levels of negative slippage:
1. Negative slippage of 5% ("Early Warning" Stage): The contractor shall be given a
warning and required to submit a "catch-up" program to eliminate the slippage. The
PM/RD/DE10 shall provide thorough supervision and monitoring of the work.
2. Negative slippage of 10% ("ICU" Stage): The contractor shall be given a second
warning and required to submit a detailed action program on a fortnightly (two weeks)
basis which commits him to accelerate the work and accomplish specific physical targets
which will reduce the slippage over a defined time period. Furthermore, the contractor
shall be instructed to specify the additional input resources money, manpower,
materials, machines, and management which he should mobilize for this action
program. The PM/RD/DE shall exercise closer supervision and meet the contractor every
other week toevaluate the progress of work and resolve any problems and bottlenecks.
3. Negative slippage of 15% ("Make-or-Break" Stage): The contractor shall be issued a
final warning and required to come up with a more detailed program of activities with
weekly physical targets, together with the required additional input resources. On-site
supervision shall be done at least once a week. At the sametime, the PM/RD/DE shall
prepare contingency plans for the termination/rescission of the contract and/or take-over
of the work by administration or contract.
4. Negative slippage beyond 15% ("Terminal" Stage): The PM/RD/DE shall initiate
termination/rescission of the contract and/or take-over of the remaining work
byadministration orassignment to another contractor/appropriate agency. Proper
transitory measures shall be taken to minimize work disruptions, e.g., take-over by
administration while rebidding is going on. The discretion of the DPWH to terminate or
rescind the contract comes into play when the contractor shall have incurreda negative
slippage of 15% or more.11
In this case, Superior Builders was warned of its considerable delay in the implementation of the
project as early as 29 April 198912 when the progress slippage reached 4.534% due to the late

implementation of the project. Thereafter, Superior Builders received the first,13 second14 and
final15 warnings when the negative slippages reached 7.648%, 11.743% and 16.32%,
respectively. By the time the contract was terminated, the negative slippage already reached
31.852% or more than twice the terminal stage under DO 102.
Petitioners claimed that the negative slippages were attributable to the government. Petitioners
cited the right-of-way problem because the construction site was privately owned.The
construction of the building for the field office laboratory and engineers quarters was also
delayed because it took months for the DPWH to approve the revision of the building layout.
We note that Superior Builders received the Notice to Proceed dated 22 February 1989 on 2
March 1989.16 The Notice to Proceed stated that "the number of days allowable under [the]
contract will be counted from the date [the contractor] commence[s] work or not later than the
8th of March 1989."17 On 17 April 1989, more thana month after the project was supposed to
start, Mendoza wrote Templo that Superior Builders would start the construction of Package VI
and that their "Survey Team [would] immediately start the preconstruction survey of the project
x x x."18 In two separate letters dated 27April 1989, both addressed to Samonte, Mendoza
informed UTI that: (1) there was an existing building on the site where the bunkhouse was
supposed to be constructed, which had to be cleared and demolished first; and (2) the first
fivekilometers of Package VI allegedly belonged to private residents who were asking for
compensation before they could proceed with the road construction.19
The right-of-way problem was confirmed in a letter dated 2 May 1989 sent by Vinson to DPWH
Director Heraldo B. Daway of the Cordillera Administrative Region.20 In a letter dated 9 May
1989 addressed to "The Project Manager," Mendoza requested for the temporary suspension of
work effective 22 April 1989 due to the right-of-way problem regarding the first five kilometers
of the project.21 Samonte denied the request in a letter dated 24 May 1989 on the ground that
Superior Builders can carry out work in sections without right-of-way conflict. Samonte likewise
reminded Superior Builders to mobilize all the required construction resources in order not to
prejudice its performance on the project.22
Apparently, despite the denial of its request for temporary suspension of work, Superior Builders
did not mobilize all the required resources as directed by Samonte. In a letter dated 15 June 1989
to Mir, Mendoza stated that Superior Builders had started the "mobilization of equipment and
personnel since last week,"23 meaning, the mobilization of the construction resources started on
the first week ofJune. However, in a letter dated 24 June 1989, Vinson called the Superior
Builders attention that as of 21 June 1989, it only mobilized one dozer and one loader at the
jobsite.24
The Minutes of the Meeting dated 7 July 198925 showed that Gloria Areniego (Areniego), the
Superior Builders representative, assured the delivery of additional equipment on site"next
week" or the second week of July. The minutes also showed that Superior Builders was again
advised to start working on the sections not affected by the right-of-way problem.26 In addition,
Samonte asked Areniego for the time when Superior Builders would start the demolition of the
building where the engineers office and quarters would be built. Areniego promised that it
would start on July 14.27 However, Superior Builders still failed to comply, prompting Vinson to

send another letter dated 22 July 1989 to Superior Builders, noting that "since the arrival of your
One (1) unit Dozer and One (1) unit Loader last 21 June 1989, no other construction equipment
had been mobilized on site to date."28
The right-of-way problem turned out to affect only the first 3.2 kilometers of the project.
However, as the Court of Appeals pointed out, Superior Builders was not able to go beyond the
3.2 kilometers because of the limited equipment it mobilized on the project site. Further, the
Court of Appeals noted that Superior Builders bulldozer broke down after three days of work,
proving that Superior Builders had been remiss in its responsibilities as a contractor. In addition,
Abalos denied in a certification that he disallowed the passage of Superior Builders vehicles and
equipment on the road within his property from the time of the commencement of the contract in
March 1989.29
In short, Superior Builders could have proceeded with the project, as it was constantly reminded
to do so, but it capitalized on the right-of-way problem to justify its delays.
In a letter30 dated 2 October 1989 by Bial A. Palaez (Palaez), Provincial Planning and
Development Coordinator, addressed to Benguet Provincial Governor Andres R. Bugnosen
(Bugnosen), Palaez informed Bugnosen that when he visited the project with Kibungan Mayor
Albert Mayamnes on 14 July 1989, they observed the following: (1) Superior Builders only
constructed 100linear meters of road at Masala; (2) there was no sign of work activity; and (3)
there were only one bulldozer, one payloader and a fiera on the project site, which were all under
repair and not functional. When they visited the project on 31 August 1989, there were no
activities and they were not able to meet the project engineer or the workers on the project site.
In addition, the construction of the building for engineering purposes had not started as of 27
September 1989. Thus, the Provincial Government of Benguet passed Resolution No. 117631 on
20 November 1989 recommending to the DPWH the "Termination of Contract or
Disqualification of Contractor Pertinent to HADP Project."
Given the foregoing, the DPWH was justified in forfeiting Package VI for Superior Builders
failure to comply with its contractual obligations. We also note that Package IX of the HADP
was tied to the completion of Package VI because the Asian Development Bank could not
approve the award of Package IX to Superior Builders unless its work on Package VI was
satisfactory to the DPWH.32 This explains why Package IX had to be rebid despite the initial
award of the project to Superior Builders.
The Court of Appeals likewise correctly ruled that the DPWH should not be made to pay for the
rental of the unserviceable equipment of Superior Builders. The Court of Appeals noted that (1)
Superior Builders failed to mobilize its equipment despite having the first 7.5% advance payment
under the contract, and (2) even when the trial court issueda temporary restraining order on 2
August 1990 in favor of Superior Builders, it failed to remove the equipment from the project
site. As regards the delivery and value of the materials, the Court of Appeals found that the
supposed delivery was only signed by Areniego without verification from UTIs Quantity
Engineer and Resident Engineer. Thus, we agree with the Court of Appeals that Superior
Builders should be made tobear its own losses.

On Governmental v. Proprietary Functions

Petitioners assail the Court of Appeals ruling that the contract entered into by the DPWH was
made in the exercise of its governmental, not proprietary, function and was imbued with public
interest. Petitioners likewise assail the Court of Appeals ruling that the DPWH has no juridical
personality of its own and thus, the suit was against the agencys principal, the State. Petitioners
further argue that the DPWH entered into a contract with Mendoza and by its act of entering into
a contract, it already waived its immunity from suit.
The doctrine of immunity from suit is anchored on Section 3, Article XVI of the 1987
Constitution which provides:
Section 3. The State may not besued without its consent.
The general rule is that a state may not be sued, but it may be the subject of a suit if it consents to
be sued, either expressly or impliedly.33 There is express consent when a law so provides, while
there is implied consent when the State enters into a contract or it itself commences litigation.34
This Court explained that in order to determine implied waiver when the State or its agency
entered into a contract, there is a need to distinguish whether the contract was entered into in its
governmental or proprietary capacity, thus:
x x x. However, it must be clarified that when a state enters into a contract, it does not
automatically mean that it has waived its nonsuability. The State "will be deemedto have
impliedly waived its nonsuability [only] if it has entered into a contract in its proprietary or
private capacity. [However,] when the contract involves its sovereign or governmental capacity[,]
x x x no suchwaiver may be implied." Statutory provisions waiving [s]tate immunity are
construed in strictissimi juris. For, waiver of immunity is in derogation of sovereignty.35
In Air Transportation Office v. Ramos,36 the Court expounded:
An unincorporated agency without any separate juridical personality of its own enjoys
immunityfrom suit because it is invested with an inherent power of sovereignty. x x x. However,
the need to distinguish between an unincorporated government agency performing governmental
function and one performing proprietary functions has arisen. The immunity has been upheld in
favor of the former because its function is governmental or incidentalto such function; it has not
been upheld in favor of the latter whose function was not in pursuit of a necessary function of
government but was essentially a business.37
Having made this distinction, wereiterate that the DPWH is an unincorporated government
agency without any separate juridical personality of its own and it enjoys immunity from suit.38
The then Ministry of Public Works and Highways, now DPWH, was created under Executive
Order No. 710, series of 1981 (EO 710). EO 710 abolished the old Ministry of PublicWorks and
the Ministry of Public Highways and transferred their functions to the newly-created Ministry of
Public Works of Highways. Section 4 of EO 710 provides:

SECTION 4. The Ministry shall exercise supervision and control over the following staff
bureaus which are created in the Ministry:
(1) Bureau of Construction, which shall provide technical services on the construction,
rehabilitation, betterment, and improvement of infrastructure facilities;
(2) Bureau of Design, which shall undertake project development, engineering surveys,
and designs of infrastructure facilities;
(3) Bureau of Equipment, which shall provide technical services on the management of
construction and maintenance equipment and ancillary facilities;
(4) Bureau of Maintenance, which shall provide technical services on the maintenance
and repair of infrastructure facilities; and
(5) Bureau of Materials and Quality Control, which shall provide research and technical
services on quality control and on the management of materials plants and ancillary
facilities for the production and processing of construction materials.
The Ministry of Public Works and Highways was later reorganized under Executive Order No.
124, series of 1987 (EO 124). Under Section 5 of EO 124, the Ministry shall have the following
powersand functions:
Sec. 5. Powers and Functions. The Ministry, in order to carry out its mandate, shall have the
following powers and functions:
(a) Provide technical services for the planning, design, construction, maintenance, and/or
operation of infrastructure facilities;
(b) Develop and implement effective codes, standards, and reasonable guidelines to
ensure the safety of all public and private structures in the country and assure efficiency
and proper quality in the construction of public works;
(c) Ascertain that all public works plans and project implementation designs are
consistent with current standards and guidelines;
(d) Identify, plan, secure funding for, program, design, construct or undertake
prequalification, bidding, and award of contracts of public works projects with the
exception only of specialized projects undertaken by Government corporate entities
withestablished technical capability and as directed by the President of the Philippines or
as provided by law;
(e) Provide the works supervision function for all public works construction and ensure
that actual construction is done in accordance with approved government plans and
specifications;

(f) Assist other agencies, including the local governments, in determining the most
suitable entity to undertake the actual construction of public works and projects;
(g) Maintain or cause to be maintained all highways, flood control, and other public
works throughout the country except those that are the responsibility of other agencies as
directed by the President of the Philippines as provided by law;
(h) Provide an integrated planning for highways, flood control and water resource
development systems, and other public works;
(i) Classify roads and highways intonational, regional, provincial, city, municipal, and
barangay roads and highways, based on objective criteria it shall adopt; provide or
authorize the conversion of roads and highways from one category to another;
(j) Delegate, to any agency it determines to have the adequate technical capability, any of
the foregoing powers and functions.
It is clear from the enumeration of its functions that the DPWH performs governmental
functions. Section 5(d) states that it has the power to "[i]dentify, plan, secure funding for,
program, design, construct or undertake prequalification, bidding, and award of contracts of
public works projects x x x" while Section 5(e) states that itshall "[p]rovide the works
supervision function for all public works constructionand ensure that actual construction is done
in accordance with approved government plans and specifications."
The contracts that the DPWH entered into with Mendoza for the construction of Packages VI and
IX of the HADP were done in the exercise of its governmental functions. Hence, petitioners
cannot claim that there was an implied waiver by the DPWH simply by entering into a
contract.1wphi1 Thus, the Court of Appeals correctly ruled that the DPWH enjoys immunity
from suit and may not be sued without its consent.
WHEREFORE, we DENY the petition. We AFFIRM the 20 June 2012 Decision and the 15
October 2012 Resolution of the Court of Appeals in CA-G.R. CV. No. 86433.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
ARTURO D. BRION
Associate Justice
MARIANO C. DEL CASTILLO
Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice
AT T E S T AT I O N
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice

Footnotes
1 Under Rule 45 of the 1997 Rules of Civil Procedure.
2 Rollo, pp. 26-54. Penned by Associate Justice Remedios A. Salazar-Fernando with
Associate Justices Ramon M. Bato, Jr. and Fiorito S. Macalino, concurring.
3 Id. at 56-62.
4 CA rollo, pp. 148-162. Penned by Judge Wilfredo D. Reyes.
5 Id. at 161-162.
6 Rollo, pp. 39-41. Footnotes omitted.
7 Id. at 54.
8 Authorizing the Governments Take Over by Administration of Delayed Infrastructure
Projects or Awarding of the Contract to Other Qualified Contractors, dated 12 July 1983.
9 Calibrated Actions on Contracts with Negative Slippages, dated 8 November 1988.
10 Project Managers/Regional Directors/District Engineers.

11 Genaro R. Reyes Construction, Inc. v. Court of Appeals, G.R. No. 108718, 14 July
1994, 234 SCRA 116.
12 Records, Vol. 1, p. 745.
13 Id. at 748.
14 Id. at 86-87.
15 Id. at 91-92.
16 Plaintiffs Folder of Exhibits, Vol. 3, no pagination.
17 Id.
18 Id.
19 Id.
20 Id.
21 Id.
22 Id.
23 Id.
24 Records, Vol. 1, p. 84.
25 Plaintiffs Folder of Exhibits, Vol. 3, no pagination.
26 Id.
27 Id.
28 Records, Vol. 1, p. 85.
29 Id. at 35.
30 Plaintiffs Folder of Exhibits, Vol. 3, no pagination.
31 Id.
32 Records, Vol. 1, pp. 639-640.

33 Department of Health v. Phil. Pharmawealth, Inc., G.R. No. 182358, 20 February

2013, 691 SCRA 421.
34 Id.
35 Id. at 434.
36 G.R. No. 159402, 23 February 2011, 644 SCRA 36.
37 Id. at 42-43.
38 See Republic of the Phils. v. Nolasco, 496 Phil. 853 (2005); Farolan, Jr. v. Court of
Tax Appeals, G.R.No. 42204, 21 January 1993, 217 SCRA 298; Pacific Products, Inc. v.
Ong, G.R. No. 33777, 30 January 1990, 181 SCRA 536.
Republic of the Philippines
SUPREME COURT
Baguio
FIRST DIVISION
G.R. No. 185918

April 18, 2012

LOCKHEED DETECTIVE AND WATCHMAN AGENCY, INC., Petitioner,

vs.
UNIVERSITY OF THE PHILIPPINES, Respondent.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the August 20, 2008 Amended Decision1 and December 23,
2008 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 91281.
The antecedent facts of the case are as follows:
Petitioner Lockheed Detective and Watchman Agency, Inc. (Lockheed) entered into a contract
for security services with respondent University of the Philippines (UP).
In 1998, several security guards assigned to UP filed separate complaints against Lockheed and
UP for payment of underpaid wages, 25% overtime pay, premium pay for rest days and special
holidays, holiday pay, service incentive leave pay, night shift differentials, 13th month pay,
refund of cash bond, refund of deductions for the Mutual Benefits Aids System (MBAS), unpaid
wages from December 16-31, 1998, and attorneys fees.

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

WHEREFORE, premises considered, respondents Lockheed Detective and Watchman Agency,
Inc. and UP as job contractor and principal, respectively, are hereby declared to be solidarily
liable to complainants for the following claims of the latter which are found meritorious.
Underpaid wages/salaries, premium pay for work on rest day and special holiday, holiday pay, 5
days service incentive leave pay, 13th month pay for 1998, refund of cash bond (deducted at
P50.00 per month from January to May 1996, P100.00 per month from June 1996 and P200.00
from November 1997), refund of deduction for Mutual Benefits Aids System at the rate of
P50.00 a month, and attorneys fees; in the total amount of P1,184,763.12 broken down as
follows per attached computation of the Computation and [E]xamination Unit of this
Commission, which computation forms part of this Decision:
1. JOSE SABALAS

P77,983.62

2. TIRSO DOMASIAN

76,262.70

3. JUAN TAPEL

80,546.03

4. DINDO MURING

80,546.03

5. ALEXANDER ALLORDE

80,471.78

6. WILFREDO ESCOBAR

80,160.63

7. FERDINAND VELASQUEZ

78,595.53

8. ANTHONY GONZALES

76,869.97

9. SAMUEL ESCARIO

80,509.78

10. PEDRO FAILORINA

80,350.87

11. MATEO TANELA

70,590.58

12. JOB SABALAS

59,362.40

13. ANDRES DACANAYAN

77,403.73

14. EDDIE OLIVAR

77,403.73
P1,077,057.38

plus 10% attorneys fees

107,705.74

GRAND TOTAL AWARD

P1,184,763.12

Third party respondent University of the Philippines is hereby declared to be liable to Third Party
Complainant and cross claimant Lockheed Detective and Watchman Agency for the unpaid

legislated salary increases of the latters security guards for the years 1996 to 1998, in the total
amount of P13,066,794.14, out of which amount the amounts due complainants here shall be
paid.
The other claims are hereby DISMISSED for lack of merit (night shift differential and 13th
month pay) or for having been paid in the course of this proceedings (salaries for December 1531, 1997 in the amount of P40,140.44).
The claims of Erlindo Collado, Rogelio Banjao and Amor Banjao are hereby DISMISSED as
amicably settled for and in consideration of the amounts of P12,315.72, P12,271.77 and
P12,819.33, respectively.
SO ORDERED.3
Both Lockheed and UP appealed the Labor Arbiters decision. By Decision4 dated April 12,
2002, the NLRC modified the Labor Arbiters decision. The NLRC held:
WHEREFORE, the decision appealed from is hereby modified as follows:
1. Complainants claims for premium pay for work on rest day and special holiday, and 5
days service incentive leave pay, are hereby dismissed for lack of basis.
2. The respondent University of the Philippines is still solidarily liable with Lockheed in
the payment of the rest of the claims covering the period of their service contract.
The Financial Analyst is hereby ordered to recompute the awards of the complainants in
accordance with the foregoing modifications.
SO ORDERED.5
The complaining security guards and UP filed their respective motions for reconsideration. On
August 14, 2002, however, the NLRC denied said motions.
As the parties did not appeal the NLRC decision, the same became final and executory on
October 26, 2002.6 A writ of execution was then issued but later quashed by the Labor Arbiter on
November 23, 2003 on motion of UP due to disputes regarding the amount of the award. Later,
however, said order quashing the writ was reversed by the NLRC by Resolution7 dated June 8,
2004, disposing as follows:
WHEREFORE, premises considered, we grant this instant appeal. The Order dated 23 November
2003 is hereby reversed and set aside. The Labor Arbiter is directed to issue a Writ of Execution
for the satisfaction of the judgment award in favor of Third-Party complainants.
SO ORDERED.8

UP moved to reconsider the NLRC resolution. On December 28, 2004, the NLRC upheld its
resolution but with modification that the satisfaction of the judgment award in favor of Lockheed
will be only against the funds of UP which are not identified as public funds.
The NLRC order and resolution having become final, Lockheed filed a motion for the issuance
of an alias writ of execution. The same was granted on May 23, 2005.9
On July 25, 2005, a Notice of Garnishment10 was issued to Philippine National Bank (PNB) UP
Diliman Branch for the satisfaction of the award of P12,142,522.69 (inclusive of execution fee).
In a letter11 dated August 9, 2005, PNB informed UP that it has received an order of release dated
August 8, 2005 issued by the Labor Arbiter directing PNB UP Diliman Branch to release to the
NLRC Cashier, through the assigned NLRC Sheriff Max L. Lago, the judgment award/amount of
P12,142,522.69. PNB likewise reminded UP that the bank only has 10 working days from receipt
of the order to deliver the garnished funds and unless it receives a notice from UP or the NLRC
before the expiry of the 10-day period regarding the issuance of a court order or writ of
injunction discharging or enjoining the implementation and execution of the Notice of
Garnishment and Writ of Execution, the bank shall be constrained to cause the release of the
garnished funds in favor of the NLRC.
On August 16, 2005, UP filed an Urgent Motion to Quash Garnishment.12 UP contended that the
funds being subjected to garnishment at PNB are government/public funds. As certified by the
University Accountant, the subject funds are covered by Savings Account No. 275-529999-8,
under the name of UP System Trust Receipts, earmarked for Student Guaranty Deposit,
Scholarship Fund, Student Fund, Publications, Research Grants, and Miscellaneous Trust
Account. UP argued that as public funds, the subject PNB account cannot be disbursed except
pursuant to an appropriation required by law. The Labor Arbiter, however, dismissed the urgent
motion for lack of merit on August 30, 2005.13
On September 2, 2005, the amount of P12,062,398.71 was withdrawn by the sheriff from UPs
PNB account.14
On September 12, 2005, UP filed a petition for certiorari before the CA based on the following
grounds:
I.
The concept of "solidary liability" by an indirect employer notwithstanding, respondent
NLRC gravely abused its discretion in a manner amounting to lack or excess of
jurisdiction by misusing such concept to justify the garnishment by the executing Sheriff
of public/government funds belonging to UP.
II.
Respondents NLRC and Arbiter LORA acted without jurisdiction or gravely abused their
discretion in a manner amounting to lack or excess of jurisdiction when, by means of an

Alias Writ of Execution against petitioner UP, they authorized respondent Sheriff to
garnish UPs public funds. Similarly, respondent LORA gravely abused her discretion
when she resolved petitioners Motion to Quash Notice of Garnishment addressed to, and
intended for, the NLRC, and when she unilaterally and arbitrarily disregarded an official
Certification that the funds garnished are public/government funds, and thereby allowed
respondent Sheriff to withdraw the same from PNB.
III.
Respondents gravely abused their discretion in a manner amounting to lack or excess of
jurisdiction when they, despite prior knowledge, effected the execution that caused
paralyzation and dislocation to petitioners governmental functions.15
On March 12, 2008, the CA rendered a decision16 dismissing UPs petition for certiorari. Citing
Republic v. COCOFED,17 which defines public funds as moneys belonging to the State or to any
political subdivisions of the State, more specifically taxes, customs, duties and moneys raised by
operation of law for the support of the government or the discharge of its obligations, the
appellate court ruled that the funds sought to be garnished do not seem to fall within the stated
definition.
On reconsideration, however, the CA issued the assailed Amended Decision. It held that without
departing from its findings that the funds covered in the savings account sought to be garnished
do not fall within the classification of public funds, it reconsiders the dismissal of the petition in
light of the ruling in the case of National Electrification Administration v. Morales18 which
mandates that all money claims against the government must first be filed with the Commission
on Audit (COA).
Lockheed moved to reconsider the amended decision but the same was denied in the assailed CA
Resolution dated December 23, 2008. The CA cited Manila International Airport Authority v.
Court of Appeals19 which held that UP ranks with MIAA, a government instrumentality
exercising corporate powers but not organized as a stock or non-stock corporation. While said
corporations are government instrumentalities, they are loosely called government corporate
entities but not government-owned and controlled corporations in the strict sense.
Hence this petition by Lockheed raising the following arguments:
1. RESPONDENT UP IS A GOVERNMENT ENTITY WITH A SEPARATE AND
DISTINCT PERSONALITY FROM THE NATIONAL GOVERNMENT AND HAS ITS
OWN CHARTER GRANTING IT THE RIGHT TO SUE AND BE SUED. IT
THEREFORE CANNOT AVAIL OF THE IMMUNITY FROM SUIT OF THE
GOVERNMENT. NOT HAVING IMMUNITY FROM SUIT, RESPONDENT UP CAN
BE HELD LIABLE AND EXECUTION CAN THUS ENSUE.
2. MOREOVER, IF THE COURT LENDS IT ASSENT TO THE INVOCATION OF
THE DOCTRINE OF STATE IMMUNITY, THIS WILL RESULT [IN] GRAVE
INJUSTICE.

3. FURTHERMORE, THE PROTESTATIONS OF THE RESPONDENT ARE TOO

LATE IN THE DAY, AS THE EXECUTION PROCEEDINGS HAVE ALREADY BEEN
TERMINATED.20
Lockheed contends that UP has its own separate and distinct juridical entity from the national
government and has its own charter. Thus, it can be sued and be held liable. Moreover, Executive
Order No. 714 entitled "Fiscal Control and Management of the Funds of UP" recognizes that "as
an institution of higher learning, UP has always granted full management and control of its
affairs including its financial affairs."21 Therefore, it cannot shield itself from its private
contractual liabilities by simply invoking the public character of its funds. Lockheed also cites
several cases wherein it was ruled that funds of public corporations which can sue and be sued
were not exempt from garnishment.
Lockheed likewise argues that the rulings in the NEA and MIAA cases are inapplicable. It
contends that UP is not similarly situated with NEA because the jurisdiction of COA over the
accounts of UP is only on a post-audit basis. As to the MIAA case, the liability of MIAA pertains
to the real estate taxes imposed by the City of Paranaque while the obligation of UP in this case
involves a private contractual obligation. Lockheed also argues that the declaration in MIAA
specifically citing UP was mere obiter dictum.
Lockheed moreover submits that UP cannot invoke state immunity to justify and perpetrate an
injustice. UP itself admitted its liability and thus it should not be allowed to renege on its
contractual obligations. Lockheed contends that this might create a ruinous precedent that would
likely affect the relationship between the public and private sectors.
Lastly, Lockheed contends that UP cannot anymore seek the quashal of the writ of execution and
notice of garnishment as they are already fait accompli.
For its part, UP contends that it did not invoke the doctrine of state immunity from suit in the
proceedings a quo and in fact, it did not object to being sued before the labor department. It
maintains, however, that suability does not necessarily mean liability. UP argues that the CA
correctly applied the NEA ruling when it held that all money claims must be filed with the COA.
As to alleged injustice that may result for invocation of state immunity from suit, UP reiterates
that it consented to be sued and even participated in the proceedings below. Lockheed cannot
now claim that invocation of state immunity, which UP did not invoke in the first place, can
result in injustice.
On the fait accompli argument, UP argues that Lockheed cannot wash its hands from liability for
the consummated garnishment and execution of UPs trust fund in the amount of
P12,062,398.71. UP cites that damage was done to UP and the beneficiaries of the fund when
said funds, which were earmarked for specific educational purposes, were misapplied, for
instance, to answer for the execution fee of P120,123.98 unilaterally stipulated by the sheriff.
Lockheed, being the party which procured the illegal garnishment, should be held primarily
liable. The mere fact that the CA set aside the writ of garnishment confirms the liability of
Lockheed to reimburse and indemnify in accordance with law.

The petition has no merit.

We agree with UP that there was no point for Lockheed in discussing the doctrine of state
immunity from suit as this was never an issue in this case. Clearly, UP consented to be sued
when it participated in the proceedings below. What UP questions is the hasty garnishment of its
funds in its PNB account.
This Court finds that the CA correctly applied the NEA case. Like NEA, UP is a juridical
personality separate and distinct from the government and has the capacity to sue and be sued.
Thus, also like NEA, it cannot evade execution, and its funds may be subject to garnishment or
levy. However, before execution may be had, a claim for payment of the judgment award must
first be filed with the COA. Under Commonwealth Act No. 327,22 as amended by Section 26 of
P.D. No. 1445,23 it is the COA which has primary jurisdiction to examine, audit and settle "all
debts and claims of any sort" due from or owing the Government or any of its subdivisions,
agencies and instrumentalities, including government-owned or controlled corporations and their
subsidiaries. With respect to money claims arising from the implementation of Republic Act No.
6758,24 their allowance or disallowance is for COA to decide, subject only to the remedy of
appeal by petition for certiorari to this Court.251wphi1
We cannot subscribe to Lockheeds argument that NEA is not similarly situated with UP because
the COAs jurisdiction over the latter is only on post-audit basis. A reading of the pertinent
Commonwealth Act provision clearly shows that it does not make any distinction as to which of
the government subdivisions, agencies and instrumentalities, including government-owned or
controlled corporations and their subsidiaries whose debts should be filed before the COA.
As to the fait accompli argument of Lockheed, contrary to its claim that there is nothing that can
be done since the funds of UP had already been garnished, since the garnishment was
erroneously carried out and did not go through the proper procedure (the filing of a claim with
the COA), UP is entitled to reimbursement of the garnished funds plus interest of 6% per annum,
to be computed from the time of judicial demand to be reckoned from the time UP filed a
petition for certiorari before the CA which occurred right after the withdrawal of the garnished
funds from PNB.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. Petitioner
Lockheed Detective and Watchman Agency, Inc. is ordered to REIMBURSE respondent
University of the Philippines the amount of P12,062,398.71 plus interest of 6% per annum, to be
computed from September 12, 2005 up to the finality of this Decision, and 12% interest on the
entire amount from date of finality of this Decision until fully paid.
No pronouncement as to costs.
SO ORDERED.
MARTIN S. VILLARAMA, JR.
Associate Justice

WE CONCUR:
TERESITA J. LEONARDO-DE CASTRO
Acting Chairperson
DIOSDADO M. PERALTA*
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

BIENVENIDO L. REYES**
Associate Justice
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
RENATO C. CORONA
Chief Justice

Footnotes
*

Designated additional member per Raffle dated April 2, 2012.

**

Designated additional member per Raffle dated April 16, 2012.

Rollo, pp. 47-50. Penned by Associate Justice Arcangelita M. Romilla-Lontok with

Associate Justices Mariano C. Del Castillo (now a member of this Court) and Romeo F.
Barza concurring.
2

Id. at 52-53.

CA rollo, pp. 23-24.

Id. at 22-38.

Id. at 37.

Id. at 44, citing NLRC records, p. 868.

Id. at 39-56.

Id. at 55.

Id. at 57-64.

10

Id. at 65.

11

Id. at 74.

12

Id. at 66-73.

13

Id. at 79-81.

14

Id. at 10.

15

Id.

16

Id. at 122-134.

17

G.R. Nos. 147062-64, December 14, 2001, 372 SCRA 462, 481.

18

G.R. No. 154200, June 24, 2007, 528 SCRA 79, 90-91.

19

G.R. No. 155650, July 20, 2006, 495 SCRA 591, 618-619.

20

Rollo, p. 17.

21

Id. at 24-25.

22

An Act Fixing the Time Within Which the Auditor General Shall Render His Decisions
and Prescribing the Manner of Appeal Therefrom.
23

Ordaining And Instituting A Government Auditing Code Of The Philippines. Section 26

thereof provides:
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.
24

Compensation and Position Classification Act of 1989.

25

National Electrification Administration v. Morales, supra note 18, at 89-91.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 104269 November 11, 1993

DEPARTMENT OF AGRICULTURE, petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, et al., respondents.
Roy Lago Salcedo for private respondents.

VITUG, J.:
For consideration are the incidents that flow from the familiar doctrine of non-suability of the state.
1

dated 27 November 1991, of the

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

The Department of Agriculture (herein petitioner) and Sultan Security Agency entered into a contract 3 on
01 April 1989 for security services to be provided by the latter to the said governmental entity. Save for
the increase in the monthly rate of the guards, the same terms and conditions were also made to apply to
another contract, dated 01 May 1990, between the same parties. Pursuant to their arrangements, guards
were deployed by Sultan Agency in the various premises of the petitioner.

On 13 September 1990, several guards of the Sultan Security Agency filed a complaint for underpayment
of wages, non-payment of 13th month pay, uniform allowances, night shift differential pay, holiday pay and
overtime pay, as well as for damages, 4 before the Regional Arbitration Branch X of Cagayan de Oro City,
docketed as NLRC Case No. 10-09-00455-90 (or 10-10-00519-90, its original docket number), against
the Department of Agriculture and Sultan Security Agency.
The Executive Labor Arbiter rendered a decision on 31 May finding herein petitioner and jointly and
severally liable with Sultan Security Agency for the payment of money claims, aggregating P266,483.91,
of the complainant security guards. The petitioner and Sultan Security Agency did not appeal the decision
of the Labor Arbiter. Thus, the decision became final and executory.
On 18 July 1991, the Labor Arbiter issued a writ of execution. 5 commanding the City Sheriff to enforce
and execute the judgment against the property of the two respondents. Forthwith, or on 19 July 1991, the
City Sheriff levied on execution the motor vehicles of the petitioner, i.e. one (1) unit Toyota Hi-Ace, one (1)
unit Toyota Mini Cruiser, and one (1) unit Toyota Crown. 6 These units were put under the custody of
Zacharias Roa, the property custodian of the petitioner, pending their sale at public auction or the final
settlement of the case, whichever would come first.
A petition for injunction, prohibition and mandamus, with prayer for preliminary writ of injunction was filed
by the petitioner with the National Labor Relations Commission (NLRC), Cagayan de Oro, alleging, inter
alia, that the writ issued was effected without the Labor Arbiter having duly acquired jurisdiction over the
petitioner, and that, therefore, the decision of the Labor Arbiter was null and void and all actions pursuant
thereto should be deemed equally invalid and of no legal, effect. The petitioner also pointed out that the
attachment or seizure of its property would hamper and jeopardize petitioner's governmental functions to
the prejudice of the public good.
On 27 November 1991, the NLRC promulgated its assailed resolution; viz:
WHEREFORE, premises considered, the following orders are issued:
1. The enforcement and execution of the judgments against petitioner in NLRC RABX
Cases Nos. 10-10-00455-90; 10-10-0481-90 and 10-10-00519-90 are temporarily
suspended for a period of two (2) months, more or less, but not extending beyond the last
quarter of calendar year 1991 to enable petitioner to source and raise funds to satisfy the
judgment awards against it;
2. Meantime, petitioner is ordered and directed to source for funds within the period
above-stated and to deposit the sums of money equivalent to the aggregate amount. it
has been adjudged to pay jointly and severally with respondent Sultan Security Agency
with the Regional Arbitration Branch X, Cagayan de Oro City within the same period for
proper dispositions;
3. In order to ensure compliance with this order, petitioner is likewise directed to put up
and post sufficient surety and supersedeas bond equivalent to at least to fifty (50%)
percent of the total monetary award issued by a reputable bonding company duly
accredited by the Supreme Court or by the Regional Trial Court of Misamis Oriental to
answer for the satisfaction of the money claims in case of failure or default on the part of
petitioner to satisfy the money claims;

4. The City Sheriff is ordered to immediately release the properties of petitioner levied on
execution within ten (10) days from notice of the posting of sufficient surety or
supersedeas bond as specified above. In the meanwhile, petitioner is assessed to pay
the costs and/or expenses incurred by the City Sheriff, if any, in connection with the
execution of the judgments in the above-stated cases upon presentation of the
appropriate claims or vouchers and receipts by the city Sheriff, subject to the conditions
specified in the NLRC Sheriff, subject to the conditions specified in the NLRC Manual of
Instructions for Sheriffs;
5. The right of any of the judgment debtors to claim reimbursement against each other for
any payments made in connection with the satisfaction of the judgments herein is hereby
recognized pursuant to the ruling in the Eagle Security case, (supra). In case of dispute
between the judgment debtors, the Executive Labor Arbiter of the Branch of origin may
upon proper petition by any of the parties conduct arbitration proceedings for the purpose
and thereby render his decision after due notice and hearings;
7. Finally, the petition for injunction is Dismissed for lack of basis. The writ of preliminary
injunction previously issued is Lifted and Set Aside and in lieu thereof, a Temporary Stay
of Execution is issued for a period of two (2) months but not extending beyond the last
quarter of calendar year 1991, conditioned upon the posting of a surety or supersedeas
bond by petitioner within ten (10) days from notice pursuant to paragraph 3 of this
disposition. The motion to admit the complaint in intervention is Denied for lack of merit
while the motion to dismiss the petition filed by Duty Sheriff is Noted
SO ORDERED.
In this petition for certiorari, the petitioner charges the NLRC with grave abuse of discretion for refusing to
quash the writ of execution. The petitioner faults the NLRC for assuming jurisdiction over a money claim
against the Department, which, it claims, falls under the exclusive jurisdiction of the Commission on Audit.
More importantly, the petitioner asserts, the NLRC has disregarded the cardinal rule on the non-suability
of the State.
The private respondents, on the other hand, argue that the petitioner has impliedly waived its immunity
from suit by concluding a service contract with Sultan Security Agency.
The basic postulate enshrined in the constitution that "(t)he State may not be sued without its consent," 7
reflects nothing less than a recognition of the sovereign character of the State and an express affirmation
of the unwritten rule effectively insulating it from the jurisdiction of courts. 8 It is based on the very essence
of sovereignty. As has been aptly observed, by Justice Holmes, a sovereign is exempt from suit, not
because of any formal conception or obsolete theory, but on the logical and practical ground that there
can be no legal right as against the authority that makes the law on which the right depends. 9 True, the
doctrine, not too infrequently, is derisively called "the royal prerogative of dishonesty" because it grants
the state the prerogative to defeat any legitimate claim against it by simply invoking its non-suability. 10 We
have had occasion, to explain in its defense, however, that a continued adherence to the doctrine of nonsuability cannot be deplored, for the loss of governmental efficiency and the obstacle to the performance
of its multifarious functions would be far greater in severity than the inconvenience that may be caused
private parties, if such fundamental principle is to be abandoned and the availability of judicial remedy is
not to be accordingly restricted. 11

The rule, in any case, is not really absolute for it does not say that the state may not be sued under any
circumstances. On the contrary, as correctly phrased, the doctrine only conveys, "the state may not be
sued without its consent;" its clear import then is that the State may at times be sued. 12 The States'
consent may be given expressly or impliedly. Express consent may be made through a general law 13 or a
special law. 14 In this jurisdiction, the general law waiving the immunity of the state from suit is found in Act
No. 3083, where the Philippine government "consents and submits to be sued upon any money claims
involving liability arising from contract, express or implied, which could serve as a basis of civil action
between private parties." 15 Implied consent, on the other hand, is conceded when the State itself
commences litigation, thus opening itself to a counterclaim 16 or when it enters into a contract. 17 In this
situation, the government is deemed to have descended to the level of the other contracting party and to
have divested itself of its sovereign immunity. This rule, relied upon by the NLRC and the private
respondents, is not, however, without qualification. Not all contracts entered into by the government
operate as a waiver of its non-suability; distinction must still be made between one which is executed in
the exercise of its sovereign function and another which is done in its proprietary capacity. 18
In the Unites States of America vs. Ruiz, 19 where the questioned transaction dealt with improvements on
the wharves in the naval installation at Subic Bay, we held:
The traditional rule of immunity exempts a State from being sued in the courts of another
State without its consent or waiver. This rule is a necessary consequence of the
principles of independence and equality of States. However, the rules of International
Law are not petrified; they are constantly developing and evolving. And because the
activities of states have multiplied, it has been necessary to distinguish them between
sovereign and governmental acts ( jure imperii) and private, commercial and proprietary
act ( jure gestionisis). The result is that State immunity now extends only to acts jure
imperii. The restrictive application of State immunity is now the rule in the United States,
the United Kingdom and other states in Western Europe.
xxx xxx xxx
The restrictive application of State immunity is proper only when the proceedings arise
out of commercial transactions of the foreign sovereign, its commercial activities or
economic affairs. Stated differently, a state may be said to have descended to the level of
an individual and can this be deemed to have actually given its consent to be sued only
when it enters into business contracts. It does not apply where the contracts relates to
the exercise of its sovereign functions. In this case the projects are an integral part of the
naval base which is devoted to the defense of both the United States and the Philippines,
indisputably a function of the government of the highest order; they are not utilized for not
dedicated to commercial or business purposes.
In the instant case, the Department of Agriculture has not pretended to have assumed a capacity apart
from its being a governmental entity when it entered into the questioned contract; nor that it could have, in
fact, performed any act proprietary in character.
But, be that as it may, the claims of private respondents, i.e. for underpayment of wages, holiday pay,
overtime pay and similar other items, arising from the Contract for Service, clearly constitute money
claims. Act No. 3083, aforecited, gives the consent of the State to be "sued upon any moneyed claim
involving liability arising from contract, express or implied, . . . Pursuant, however, to Commonwealth Act

("C.A.") No. 327, as amended by Presidential Decree ("P.D.") No. 1145, the money claim first be brought
to the Commission on Audit. Thus, in Carabao, Inc., vs. Agricultural Productivity Commission, 20 we ruled:
(C)laimants have to prosecute their money claims against the Government under
Commonwealth Act 327, stating that Act 3083 stands now merely as the general law
waiving the State's immunity from suit, subject to the general limitation expressed in
Section 7 thereof that "no execution shall issue upon any judgment rendered by any
Court against the Government of the (Philippines), and that the conditions provided in
Commonwealth Act 327 for filing money claims against the Government must be strictly
observed."
We fail to see any substantial conflict or inconsistency between the provisions of C.A. No. 327 and the
Labor Code with respect to money claims against the State. The Labor code, in relation to Act No. 3083,
provides the legal basis for the State liability but the prosecution, enforcement or satisfaction thereof must
still be pursued in accordance with the rules and procedures laid down in C.A. No. 327, as amended by
P.D. 1445.
When the state gives its consent to be sued, it does thereby necessarily consent to unrestrained
execution against it. tersely put, when the State waives its immunity, all it does, in effect, is to give the
other party an opportunity to prove, if it can, that the State has a liability. 21 In Republic vs. Villasor 22 this
Court, in nullifying the issuance of an alias writ of execution directed against the funds of the Armed
Forces of the Philippines to satisfy a final and executory judgment, has explained, thus
The universal rule that where the State gives its consent to be sued by private parties
either by general or special law, it may limit the claimant's action "only up to the
completion of proceedings anterior to the stage of execution" and that the power of the
Courts ends when the judgment is rendered, since government funds and properties may
not be seized under writs or execution or garnishment to satisfy such judgments, is based
on obvious considerations of public policy. Disbursements of public funds must be
covered by the correspondent appropriation as required by law. The functions and public
services rendered by the State cannot be allowed to be paralyzed or disrupted by the
diversion of public funds from their legitimate and specific objects, as appropriated by
law. 23
WHEREFORE, the petition is GRANTED. The resolution, dated 27 November 1991, is hereby
REVERSED and SET ASIDE. The writ of execution directed against the property of the Department of
Agriculture is nullified, and the public respondents are hereby enjoined permanently from doing, issuing
and implementing any and all writs of execution issued pursuant to the decision rendered by the Labor
Arbiter against said petitioner.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ., concur.

# Footnotes
1 Annex "A", Rollo, 23-52.

2 Annex "C", Ibid., 57-68.

3 Rollo, 59.
4 Ibid., 57.
5 Annex "D", Petition, Rollo, 69.
6 Annex "E", Ibid., ibid., p. 70.
7 Article XVI, Section 3 of the Constitution.
8 Isagani Cruz, Philippine Political Law, 1991, p. 29.
9 Kawananakoa vs. Polyblank, 205 U.S. 353, 51 L. ed. 834.
10 U.S.A. vs. Guinto, 182 SCRA 644,654 (1990).
11 Providence Washington Ins. Co. vs. Republic, 29 SCRA 598
12 Ibid.
13 i.e. Commonwealth Act No. 327, as amended by Presidential Decree No. 1445 (Sections 49-50), which requires that
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.
14 Merritt vs. Government of the Philippines, 34 Phil. 311.
15 See United States vs. Guinto, 182 SCRA 644, 654, supra.
16 Froilan vs. Pan Oriental Shipping, G.R. No. 6060, 30 September 1950.
17 Santos vs. Santos, 92 Phil. 281; Lyons vs. United States of America, 104 SCRA 593.
18 United States of America vs. Guinto, 182 SCRA 644; United States of America vs. Ruiz, 136 SCRA 487 (195).
19 136 SCRA 487.
20 35 SCRA 224, 229 (1970).
21 Cruz, supra., 44-45.
22 54 SCRA 84 (1973).
23 See also Commissioner of Public Highways vs. San Diego, 31 SCRA 616 (1970) citing others the following
decisions: Merritt vs. Government, 34 Phil. 311 (1916); Visayan Refining Co. vs. Camus, 40 Phil. 550 (1919); Director
of Commerce vs. Concepcion, 43 Phil. 384 (1922); Belleng vs. Republic, 9 SCRA 6 (1963); Republic vs. Palacio, 23
SCRA 899 (1968).

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 129406

March 6, 2006

REPUBLIC OF THE PHILIPPINES represented by the PRESIDENTIAL COMMISSION

ON GOOD GOVERNMENT (PCGG), Petitioner,

vs.
SANDIGANBAYAN (SECOND DIVISION) and ROBERTO S. BENEDICTO, Respondents.
DECISION
GARCIA, J.:
Before the Court is this petition for certiorari under Rule 65 of the Rules of Court to nullify and
set aside the March 28, 19951 and March 13, 19972 Resolutions of the Sandiganbayan, Second
Division, in Civil Case No. 0034, insofar as said resolutions ordered the Presidential
Commission on Good Government (PCGG) to pay private respondent Roberto S. Benedicto or
his corporations the value of 227 shares of stock of the Negros Occidental Golf and Country
Club, Inc. (NOGCCI) at P150,000.00 per share, registered in the name of said private respondent
or his corporations.
The facts:
Civil Case No. 0034 entitled Republic of the Philippines, plaintiff, v. Roberto S. Benedicto, et al.,
defendants, is a complaint for reconveyance, reversion, accounting, reconstitution and damages.
The case is one of several suits involving ill-gotten or unexplained wealth that petitioner
Republic, through the PCGG, filed with the Sandiganbayan against private respondent Roberto
S. Benedicto and others pursuant to Executive Order (EO) No. 14,3 series of 1986.
Pursuant to its mandate under EO No. 1,4 series of 1986, the PCGG issued writs placing under
sequestration all business enterprises, entities and other properties, real and personal, owned or
registered in the name of private respondent Benedicto, or of corporations in which he appeared
to have controlling or majority interest. Among the properties thus sequestered and taken over by
PCGG fiscal agents were the 227 shares in NOGCCI owned by private respondent Benedicto and
registered in his name or under the names of corporations he owned or controlled.
Following the sequestration process, PCGG representatives sat as members of the Board of
Directors of NOGCCI, which passed, sometime in October 1986, a resolution effecting a
corporate policy change. The change consisted of assessing a monthly membership due of
P150.00 for each NOGCCI share. Prior to this resolution, an investor purchasing more than one
NOGCCI share was exempt from paying monthly membership due for the second and
subsequent shares that he/she owned.
Subsequently, on March 29, 1987, the NOGCCI Board passed another resolution, this time
increasing the monthly membership due from P150.00 to P250.00 for each share.
As sequestrator of the 227 shares of stock in question, PCGG did not pay the corresponding
monthly membership due thereon totaling P2,959,471.00. On account thereof, the 227
sequestered shares were declared delinquent to be disposed of in an auction sale.
Apprised of the above development and evidently to prevent the projected auction sale of the
same shares, PCGG filed a complaint for injunction with the Regional Trial Court (RTC) of

Bacolod City, thereat docketed as Civil Case No. 5348. The complaint, however, was dismissed,
paving the way for the auction sale for the delinquent 227 shares of stock. On August 5, 1989, an
auction sale was conducted.
On November 3, 1990, petitioner Republic and private respondent Benedicto entered into a
Compromise Agreement in Civil Case No. 0034. The agreement contained a general release
clause5 whereunder petitioner Republic agreed and bound itself to lift the sequestration on the
227 NOGCCI shares, among other Benedictos properties, petitioner Republic acknowledging
that it was within private respondent Benedictos capacity to acquire the same shares out of his
income from business and the exercise of his profession.6 Implied in this undertaking is the
recognition by petitioner Republic that the subject shares of stock could not have been ill-gotten.
In a decision dated October 2, 1992, the Sandiganbayan approved the Compromise Agreement
and accordingly rendered judgment in accordance with its terms.
In the process of implementing the Compromise Agreement, either of the parties would, from
time to time, move for a ruling by the Sandiganbayan on the proper manner of implementing or
interpreting a specific provision therein.
On February 22, 1994, Benedicto filed in Civil Case No. 0034 a "Motion for Release from
Sequestration and Return of Sequestered Shares/Dividends" praying, inter alia, that his NOGCCI
shares of stock be specifically released from sequestration and returned, delivered or paid to him
as part of the parties Compromise Agreement in that case. In a Resolution7 promulgated on
December 6, 1994, the Sandiganbayan granted Benedictos aforementioned motion but placed
the subject shares under the custody of its Clerk of Court, thus:
WHEREFORE, in the light of the foregoing, the said "Motion for Release From Sequestration
and Return of Sequestered Shares/Dividends" is hereby GRANTED and it is directed that said
shares/dividends be delivered/placed under the custody of the Clerk of Court, Sandiganbayan,
Manila subject to this Courts disposition.
On March 28, 1995, the Sandiganbayan came out with the herein first assailed Resolution,8
which clarified its aforementioned December 6, 1994 Resolution and directed the immediate
implementation thereof by requiring PCGG, among other things:
(b) To deliver to the Clerk of Court the 227 sequestered shares of [NOGCCI] registered in the
name of nominees of ROBERTO S. BENEDICTO free from all liens and encumbrances, or in
default thereof, to pay their value at P150,000.00 per share which can be deducted from [the
Republics] cash share in the Compromise Agreement. [Words in bracket added] (Emphasis
Supplied).
Owing to PCGGs failure to comply with the above directive, Benedicto filed in Civil Case No.
0034 a Motion for Compliance dated July 25, 1995, followed by an Ex-Parte Motion for Early
Resolution dated February 12, 1996. Acting thereon, the Sandiganbayan promulgated yet another
Resolution9 on February 23, 1996, dispositively reading:

WHEREFORE, finding merit in the instant motion for early resolution and considering that,
indeed, the PCGG has not shown any justifiable ground as to why it has not complied with its
obligation as set forth in the Order of December 6, 1994 up to this date and which Order was
issued pursuant to the Compromise Agreement and has already become final and executory,
accordingly, the Presidential Commission on Good Government is hereby given a final extension
of fifteen (15) days from receipt hereof within which to comply with the Order of December 6,
1994 as stated hereinabove.
On April 1, 1996, PCGG filed a Manifestation with Motion for Reconsideration,10 praying for the
setting aside of the Resolution of February 23, 1996. On April 11, 1996, private respondent
Benedicto filed a Motion to Enforce Judgment Levy. Resolving these two motions, the
Sandiganbayan, in its second assailed Resolution11 dated March 13, 1997, denied that portion of
the PCGGs Manifestation with Motion for Reconsideration concerning the subject 227
NOGCCI shares and granted Benedictos Motion to Enforce Judgment Levy.
Hence, the Republics present recourse on the sole issue of whether or not the public respondent
Sandiganbayan, Second Division, gravely abused its discretion in holding that the PCGG is at
fault for not paying the membership dues on the 227 sequestered NOGCCI shares of stock, a
failing which eventually led to the foreclosure sale thereof.
The petition lacks merit.
To begin with, PCGG itself does not dispute its being considered as a receiver insofar as the
sequestered 227 NOGCCI shares of stock are concerned.12 PCGG also acknowledges that as such
receiver, one of its functions is to pay outstanding debts pertaining to the sequestered entity or
property,13 in this case the 227 NOGCCI shares in question. It contends, however, that
membership dues owing to a golf club cannot be considered as an outstanding debt for which
PCGG, as receiver, must pay. It also claims to have exercised due diligence to prevent the loss
through delinquency sale of the subject NOGCCI shares, specifically inviting attention to the
injunctive suit, i.e., Civil Case No. 5348, it filed before the RTC of Bacolod City to enjoin the
foreclosure sale of the shares.
The filing of the injunction complaint adverted to, without more, cannot plausibly tilt the balance
in favor of PCGG. To the mind of the Court, such filing is a case of acting too little and too late.
It cannot be over-emphasized that it behooved the PCGGs fiscal agents to preserve, like a
responsible father of the family, the value of the shares of stock under their administration. But
far from acting as such father, what the fiscal agents did under the premises was to allow the
element of delinquency to set in before acting by embarking on a tedious process of going to
court after the auction sale had been announced and scheduled.
The PCGGs posture that to the owner of the sequestered shares rests the burden of paying the
membership dues is untenable. For one, it lost sight of the reality that such dues are basically
obligations attached to the shares, which, in the final analysis, shall be made liable, thru
delinquency sale in case of default in payment of the dues. For another, the PCGG as
sequestrator-receiver of such shares is, as stressed earlier, duty bound to preserve the value of

such shares. Needless to state, adopting timely measures to obviate the loss of those shares forms
part of such duty and due diligence.
The Sandiganbayan, to be sure, cannot plausibly be faulted for finding the PCGG liable for the
loss of the 227 NOGCCI shares. There can be no quibbling, as indeed the graft court so declared
in its assailed and related resolutions respecting the NOGCCI shares of stock, that PCGGs fiscal
agents, while sitting in the NOGCCI Board of Directors agreed to the amendment of the rule
pertaining to membership dues. Hence, it is not amiss to state, as did the Sandiganbayan, that the
PCGG-designated fiscal agents, no less, had a direct hand in the loss of the sequestered shares
through delinquency and their eventual sale through public auction. While perhaps anti-climactic
to so mention it at this stage, the unfortunate loss of the shares ought not to have come to pass
had those fiscal agents prudently not agreed to the passage of the NOGCCI board resolutions
charging membership dues on shares without playing representatives.
Given the circumstances leading to the auction sale of the subject NOGCCI shares, PCGGs
lament about public respondent Sandiganbayan having erred or, worse still, having gravely
abused its discretion in its determination as to who is at fault for the loss of the shares in question
can hardly be given cogency.
For sure, even if the Sandiganbayan were wrong in its findings, which does not seem to be in this
case, it is a well-settled rule of jurisprudence that certiorari will issue only to correct errors of
jurisdiction, not errors of judgment. Corollarily, errors of procedure or mistakes in the courts
findings and conclusions are beyond the corrective hand of certiorari.14 The extraordinary writ of
certiorari may be availed only upon a showing, in the minimum, that the respondent tribunal or
officer exercising judicial or quasi-judicial functions has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion.15
The term "grave abuse of discretion" connotes capricious and whimsical exercise of judgment as
is equivalent to excess, or a lack of jurisdiction.16 The abuse must be so patent and gross as to
amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or
to act at all in contemplation of law as where the power is exercised in an arbitrary and despotic
manner by reason of passion or hostility.17 Sadly, this is completely absent in the present case.
For, at bottom, the assailed resolutions of the Sandiganbayan did no more than to direct PCGG to
comply with its part of the bargain under the compromise agreement it freely entered into with
private respondent Benedicto. Simply put, the assailed resolutions of the Sandiganbayan have
firm basis in fact and in law.
Lest it be overlooked, the issue of liability for the shares in question had, as both public and
private respondents asserted, long become final and executory. Petitioners narration of facts in
its present petition is even misleading as it conveniently fails to make reference to two (2)
resolutions issued by the Sandiganbayan. We refer to that courts resolutions of December 6,
199418 and February 23, 199619 as well as several intervening pleadings which served as basis for
the decisions reached therein. As it were, the present petition questions only and focuses on the
March 28, 199520 and March 13, 199721 resolutions, which merely reiterated and clarified the
graft courts underlying resolution of December 6, 1994. And to place matters in the proper

perspective, PCGGs failure to comply with the December 6, 1994 resolution prompted the
issuance of the clarificatory and/or reiteratory resolutions aforementioned.
In a last-ditch attempt to escape liability, petitioner Republic, through the PCGG, invokes state
immunity from suit.22 As argued, the order for it to pay the value of the delinquent shares would
fix monetary liability on a government agency, thus necessitating the appropriation of public
funds to satisfy the judgment claim.23 But, as private respondent Benedicto correctly countered,
the PCGG fails to take stock of one of the exceptions to the state immunity principle, i.e., when
the government itself is the suitor, as in Civil Case No. 0034. Where, as here, the State itself is no
less the plaintiff in the main case, immunity from suit cannot be effectively invoked.24 For, as
jurisprudence teaches, when the State, through its duly authorized officers, takes the initiative in
a suit against a private party, it thereby descends to the level of a private individual and thus
opens itself to whatever counterclaims or defenses the latter may have against it.25 Petitioner
Republics act of filing its complaint in Civil Case No. 0034 constitutes a waiver of its immunity
from suit. Being itself the plaintiff in that case, petitioner Republic cannot set up its immunity
against private respondent Benedictos prayers in the same case.
In fact, by entering into a Compromise Agreement with private respondent Benedicto, petitioner
Republic thereby stripped itself of its immunity from suit and placed itself in the same level of its
adversary. When the State enters into contract, through its officers or agents, in furtherance of a
legitimate aim and purpose and pursuant to constitutional legislative authority, whereby mutual
or reciprocal benefits accrue and rights and obligations arise therefrom, the State may be sued
even without its express consent, precisely because by entering into a contract the sovereign
descends to the level of the citizen. Its consent to be sued is implied from the very act of entering
into such contract,26 breach of which on its part gives the corresponding right to the other party to
the agreement.
Finally, it is apropos to stress that the Compromise Agreement in Civil Case No. 0034 envisaged
the immediate recovery of alleged ill-gotten wealth without further litigation by the government,
and buying peace on the part of the aging Benedicto.27 Sadly, that stated objective has come to
naught as not only had the litigation continued to ensue, but, worse, private respondent
Benedicto passed away on May 15, 2000,28 with the trial of Civil Case No. 0034 still in swing, so
much so that the late Benedicto had to be substituted by the administratrix of his estate.29
WHEREFORE, the instant petition is hereby DISMISSED.
SO ORDERED.
CANCIO C. GARCIA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Associate Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

RENATO C. CORONA
Asscociate Justice

ADOLFO S. AZCUNA
Associate Justice
AT T E S T AT I O N
I attest that the conclusions in the above decision were reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
REYNATO S .PUNO
Associate Justice
Chairperson, Second Division
C E R T I F I C AT I O N
Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman's Attestation,
it is hereby certified that the conclusions in the above decision were reached in consultation
before the case was assigned to the writer of the opinion of the Court.
ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes
1

Penned by Associate Justice Romeo M. Escareal, with Associate Justices Minita ChicoNazario (now a member of this Court) and Roberto M. Lagman, concurring; Rollo, pp.
14-27.
2

Rollo, pp. 28-43.

Issued by then Pres. Corazon C. Aquino investing the Sandiganbayan exclusive and
original jurisdiction over cases involving the ill-gotten wealth of former President
Ferdinand E. Marcos, members of his immediate family, close relatives, subordinates,
close and/or business associates, dummies, agents and nominees.
4

Creating the PCGG to assist the President in the recovery of vast government resources
allegedly amassed by then former President Marcos, his immediate family, relatives and
close associates and defining its powers.
5

Par. II (a).

Petition, Rollo, p. 6.

Rollo, pp. 127-132, Annex 6 of Comment.

Rollo, pp. 14-27, Annex "A" of the Petition.

Rollo, pp. 138-139, Annex 9 of Comment.

10

Rollo, pp. 44-46, Annex "C" of the Petition.

11

Rollo, pp. 28-43, Annex "B" of the Petition.

12

Petition, Rollo, p. 7.

13

Id. at pp. 7-8, Petition, citing Bataan Shipyard & Engineering Co. v. PCGG, 150 SCRA
181 (1987).
14

Lee v. People, 393 SCRA 397 (2002).

15

Camacho v. Coresis, Jr., 387 SCRA 628 (2002).

16

Litton Mills, Inc. v. Galleon Trader, Inc., 163 SCRA 489 (1988).

17

Duero v. Court of Appeals, 373 SCRA 11 (2002).

18

See Note #7, supra.

19

See Note #9, supra.

20

See Note # 1, supra.

21

See Note #2, supra.

22

Reply, Rollo, p. 160; and Memorandum, Rollo, pp. 260-261.

23

Id., citing Garcia v. Chief of Staff, 16 SCRA 120 (1966).

24

Rejoinder, Rollo, pp. 169-170.

25

Froilan v. Pan Oriental Shipping Co., 95 Phil. 905, 912 (1954).

26

Santos v. Santos, 92 Phil. 281, 284 (1952).

27

March 28, 1995 Resolution of the Sandiganbayan; Rollo, p. 20.

28

Notice of death, Rollo, pp. 210-212.

29

Rollo, p. 228.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-6060

September 30, 1954

FERNANDO A. FROILAN, plaintiff-appellee,

vs.

PAN ORIENTAL SHIPPING CO., defendant-appellant,

REPUBLIC OF THE PHILIPPINES, intervenor-appellee.
Quisumbing, Sycip, Quisumbing and Salazar, for appellant.
Ernesto Zaragoza for appellee.
Hilarion U. Jarencio for the intervenor.
PARAS, C.J.:
The factual antecedents of this case are sufficiently recited in the brief filed by the intervenorappellee as follows:
1. On February 3, 1951, plaintiff-appellee, Fernando A. Froilan, filed a complaint against
the defendant-appellant, Pan Oriental Shipping Co., alleging that he purchased from the
Shipping Commission the vessel FS-197 for P200,000, paying P50,000 down and
agreeing to pay the balance in installments; that to secure the payment of the balance of
the purchase price, he executed a chattel mortgage of said vessel in favor of the Shipping
Commission; that for various reason, among them the non-payment of the installments,
the Shipping Commission took possession of said vessel and considered the contract of
sale cancelled; that the Shipping Commission chartered and delivered said vessel to the
defendant-appellant Pan Oriental Shipping Co. subject to the approval of the President of
the Philippines; that he appealed the action of the Shipping Commission to the President
of the Philippines and, in its meeting on August 25, 1950, the Cabinet restored him to all
his rights under his original contract with the Shipping Commission; that he had
repeatedly demanded from the Pan Oriental Shipping Co. the possession of the vessel in
question but the latter refused to do so. He, therefore, prayed that, upon the approval of
the bond accompanying his complaint, a writ of replevin be issued for the seizure of said
vessel with all its equipment and appurtenances, and that after hearing, he be adjudged to
have the rightful possession thereof (Rec. on App. pp. 2-8).
2. On February 3, 1951, the lower court issued the writ of replevin prayed for by Froilan
and by virtue thereof the Pan Oriental Shipping Co. was divested of its possession of said
vessel (Rec. on App. p. 47).
3. On March 1, 1951, Pan Oriental Shipping Co. filed its answer denying the right of
Froilan to the possession of the said vessel; it alleged that the action of the Cabinet on
August 25, 1950, restoring Froilan to his rights under his original contract with the
Shipping Commission was null and void; that, in any event, Froilan had not complied
with the conditions precedent imposed by the Cabinet for the restoration of his rights to
the vessel under the original contract; that it suffered damages in the amount of
P22,764.59 for wrongful replevin in the month of February, 1951, and the sum of

P17,651.84 a month as damages suffered for wrongful replevin from March 1, 1951; it
alleged that it had incurred necessary and useful expenses on the vessel amounting to
P127,057.31 and claimed the right to retain said vessel until its useful and necessary
expenses had been reimbursed (Rec. on App. pp. 8-53).
4. On November 10, 1951, after the leave of the lower court had been obtained, the
intervenor-appellee, Government of the Republic of the Philippines, filed a complaint in
intervention alleging that Froilan had failed to pay to the Shipping Commission (which
name was later changed to Shipping Administration) the balance due on the purchase
price of the vessel in question, the interest thereon, and its advances on insurance
premium totalling P162,142.95, excluding the dry-docking expenses incurred on said
vessel by the Pan Oriental Shipping Co.; that intervenor was entitled to the possession of
the said vessel either under the terms of the original contract as supplemented by
Froilan's letter dated January 28, 1949, or in order that it may cause the extrajudicial sale
thereof under the Chattel Mortgage Law. It, therefore, prayed that Froilan be ordered to
deliver the vessel in question to its authorized representative, the Board of Liquidators;
that Froilan be declared to be without any rights on said vessel and the amounts he paid
thereon forfeited or alternately, that the said vessel be delivered to the Board of
Liquidators in order that the intervenor may have its chattel mortgage extrajudicially
foreclosed in accordance with the provisions of the Chattel Mortgage Law; and that
pending the hearing on the merits, the said vessel be delivered to it (Rec. on App. pp. 5466).
5. On November 29, 1951, the Pan Oriental Shipping Co. filed an answer to the
complaint in intervention alleging that the Government of the Republic of the Philippines
was obligated to deliver the vessel in question to it by virtue of a contract of bare-boat
charter with option to purchase executed on June 16, 1949, by the latter in favor of the
former; it also alleged that it had made necessary and useful expenses on the vessel and
claimed the right of retention of the vessel. It, therefore, prayed that, if the Republic of
the Philippines succeeded in obtaining possession of the said vessel, to comply with its
obligations of delivering to it (Pan Oriental Shipping co.) or causing its delivery by
recovering it from Froilan (Rec. on App. pp. 69-81).
6. On November 29, 1951, Froilan tendered to the Board of Liquidators, which was
liquidating the affairs of the Shipping Administration, a check in the amount of
P162,576.96 in payment of his obligation to the Shipping Administration for the said
vessel as claimed in the complaint in intervention of the Government of the Republic of
the Philippines. The Board of Liquidators issued an official report therefor stating that it
was a 'deposit pending the issuance of an order of the Court of First Instance of Manila'
(Rec. on App. pp. 92-93).

7. On December 7, 1951, the Government of the Republic of the Philippines brought the
matter of said payment and the circumstance surrounding it to the attention of the lower
court "in order that they may be taken into account by this Honorable Court in connection
with the questions that are not pending before it for determination" (Rec. on App. pp. 8286).
8. On February 3, 1952, the lower court held that the payment by Froilan of the amount
of P162,576.96 on November 29, 1951, to the Board of Liquidators constituted a
payment and a discharge of Froilan's obligation to the Government of the Republic of the
Philippines and ordered the dismissal of the latter's complaint in intervention. In the same
order, the lower court made it very clear that said order did not pre-judge the question
involved between Froilan and the Oriental Shipping Co. which was also pending
determination in said court (Rec. on App. pp. 92-93). This order dismissing the complaint
in intervention, but reserving for future adjudication the controversy between Froilan and
the Pan Oriental Shipping Co. has already become final since neither the Government of
the Republic of the Philippines nor the Pan Oriental Shipping Co. had appealed
therefrom.
9. On May 10, 1952, the Government of the Republic of the Philippines filed a motion to
dismiss the counterclaim of the Pan Oriental Shipping Co. against it on the ground that
the purpose of said counterclaim was to compel the Government of the Republic of the
Philippines to deliver the vessel to it (Pan Oriental Shipping Co.) in the event that the
Government of the Republic of the Philippines recovers the vessel in question from
Froilan. In view, however, of the order of the lower court dated February 3, holding that
the payment made by Froilan to the Board of Liquidators constituted full payment of
Froilan's obligation to the Shipping Administration, which order had already become
final, the claim of the Pan Oriental Shipping Co. against the Republic of the Philippines
was no longer feasible, said counterclaim was barred by prior judgment and stated no
cause of action. It was also alleged that movant was not subject to the jurisdiction of the
court in connection with the counterclaim. (Rec. on App. pp. 94-97). This motion was
opposed by the Pan Oriental Shipping Co. in its written opposition dated June 4, 1952
(Rec. on app. pp. 19-104).
10. In an order dated July 1, 1952, the lower court dismissed the counterclaim of the Pan
Oriental Shipping Co. as prayed for by the Republic of the Philippines (Rec. on App. pp.
104-106).
11. It if from this order of the lower court dismissing its counterclaim against the
Government of the Republic of the Philippines that Pan Oriental Shipping Co. has
perfected the present appeal (Rec. on App. p. 107).

The order of the Court of First Instance of Manila, dismissing the counterclaim of the defendant
Pan Oriental Shipping Co., from which the latter has appealed, reads as follows:
This is a motion to dismiss the counterclaim interposed by the defendant in its answer to
the complaint in intervention.
"The counterclaim states as follows:
"COUNTERCLAIM
"As counterclaim against the intervenor Republic of the Philippines, the defendant
alleges:
"1. That the defendant reproduces herein all the pertinent allegations of the foregoing
answer to the complaint in intervention
"2. That, as shown by the allegations of the foregoing answer to the complaint in
intervention, the defendant Pan Oriental Shipping Company is entitled to the possession
of the vessel and the intervenor Republic of the Philippines is bound under the contract of
charter with option to purchase it entered into with the defendant to deliver that
possession to the defendant whether it actually has the said possession or it does not
have that possession from the plaintiff Fernando A. Froilan and deliver the same to the
defendant;
"3. That, notwithstanding demand, the intervenor Republic of the Philippines has not to
date complied with its obligation of delivering or causing the delivery of the vessel to the
defendant Pan Oriental Shipping Company.1wphl.nt
"RELIEF
"WHEREFORE, the defendant respectfully prays that judgment be rendered ordering the
intervenor Republic of the Philippines alternatively to deliver to the defendants the
possession of the said vessel, or to comply with its obligation to the defendant or causing
the delivery to the latter of the said vessel by recovering the same from plaintiff, with
costs.
"The defendant prays for such other remedy as the Court may deem just
and equitable in the premises."
The ground of the motion to dismiss are (a) That the cause of action is barred by prior
judgment; (b) That the counterclaim states no cause of action; and (c) That this
Honorable Court has no jurisdiction over the intervenor government of the Republic of

the Philippines in connection with the counterclaim of the defendant Pan Oriental
Shipping Co.
The intervenor contends that the complaint in intervention having been dismissed and no
appeal having been taken, the dismissal of said complaint is tantamount to a judgment.
The complaint in intervention did not contain any claim whatsoever against the defendant
Pan Oriental Shipping Co.; hence, the counterclaim has no foundation.
The question as to whether the Court has jurisdiction over the intervenor with regard to
the counterclaim, the Court is of the opinion that it has no jurisdiction over said
intervenor.
It appearing, therefore, that the grounds of the motion to dismiss are well taken, the
counterclaim of the defendant is dismissed, without pronouncement as to costs.
The defendant's appeal is predicated upon the following assignments of error:
I. The lower court erred in dismissing the counterclaim on the ground of prior judgment.
II. The lower court erred in dismissing the counterclaim on the ground that the
counterclaim had no foundation because made to a complaint in intervention that
contained no claim against the defendant.
III. The lower court erred in dismissing the counterclaim on the ground of alleged lack of
jurisdiction over the intervenor Republic of the Philippines.
We agree with appellant's contention that its counterclaim is not barred by prior judgment (order
of February 8, 1952, dismissing the complaint in intervention), first, because said counterclaim
was filed on November 29, 1951, before the issuance of the order invoked; and, secondly,
because in said order of February 8, the court dismissed the complaint in intervention, "without,
of course, precluding the determination of the right of the defendant in the instant case," and
subject to the condition that the "release and cancellation of the chattel mortgage does not,
however, prejudge the question involved between the plaintiff and the defendant which is still the
subject of determination in this case." It is to be noted that the first condition referred to the right
of the defendant, as distinguished from the second condition that expressly specified the
controversy between the plaintiff and the defendant. That the first condition reserved the right of
the defendant as against the intervenor, is clearly to be deduced from the fact that the order of
February 8 mentioned the circumstance that "the question of the expenses of drydocking incurred
by the defendant has been included in its counterclaim against the plaintiff," apparently as one of
the grounds for granting the motion to dismiss the complaint in intervention.

The defendant's failure to appeal from the order of February 8 cannot, therefore, be held as
barring the defendant from proceeding with its counterclaim, since, as already stated, said order
preserved its right as against the intervenor. Indeed, the maintenance of said right is in
consonance with Rule 30, section 2, of the Rules of Court providing that "if a counterclaim has
been pleaded by a defendant prior to the service upon him of the plaintiff's motion to dismiss, the
action shall not be dismissed against the defendant's objection unless the counterclaim can
remain pending for independent adjudication by the court."
The lower court also erred in holding that, as the intervenor had not made any claim against the
defendant, the latter's counterclaim had no foundation. The complaint in intervention sought to
recover possession of the vessel in question from the plaintiff, and this claim is logically adverse
to the position assumed by the defendant that it has a better right to said possession than the
plaintiff who alleges in his complaint that he is entitled to recover the vessel from the defendant.
At any rate a counterclaim should be judged by its own allegations, and not by the averments of
the adverse party. It should be recalled that the defendant's theory is that the plaintiff had already
lost his rights under the contract with the Shipping Administration and that, on the other hand,
the defendant is relying on the charter contract executed in its favor by the intervenor which is
bound to protect the defendant in its possession of the vessel. In other words, the counterclaim
calls for specific performance on the part of the intervenor. As to whether this counterclaim is
meritorious is another question which is not now before us.
The other ground for dismissing the defendant's counterclaim is that the State is immune from
suit. This is untenable, because by filing its complaint in intervention the Government in effect
waived its right of nonsuability.
The immunity of the state from suits does not deprive it of the right to sue private parties
in its own courts. The state as plaintiff may avail itself of the different forms of actions
open to private litigants. In short, by taking the initiative in an action against a private
party, the state surrenders its privileged position and comes down to the level of the
defendant. The latter automatically acquires, within certain limits, the right to set up
whatever claims and other defenses he might have against the state. The United States
Supreme Court thus explains:
"No direct suit can be maintained against the United States. But when an action is
brought by the United States to recover money in the hands of a party who has a
legal claim against them, it would be a very rigid principle to deny to him the
right of setting up such claim in a court of justice, and turn him around to an
application to Congress." (Sinco, Philippine Political Law, Tenth Ed., pp. 36-37,
citing U. S. vs. Ringgold, 8 Pet. 150, 8 L. ed. 899.)

It is however, contended for the intervenor that, if there was at all any waiver, it was in favor of
the plaintiff against whom the complaint in intervention was directed. This contention is
untenable. As already stated, the complaint in intervention was in a sense in derogation of the
defendant's claim over the possession of the vessel in question.
Wherefore, the appealed order is hereby reversed and set aside and the case remanded to the
lower court for further proceedings. So ordered, without costs.
Pablo, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo, Concepcion, and Reyes, J.B.L.,
JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 159402

February 23, 2011

AIR TRANSPORTATION OFFICE, Petitioner,

vs.
SPOUSES DAVID* ELISEA RAMOS, Respondents.
RESOLUTION
BERSAMIN, J.:
The States immunity from suit does not extend to the petitioner because it is an agency of the
State engaged in an enterprise that is far from being the States exclusive prerogative.
Under challenge is the decision promulgated on May 14, 2003,1 by which the Court of Appeals
(CA) affirmed with modification the decision rendered on February 21, 2001 by the Regional
Trial Court, Branch 61 (RTC), in Baguio City in favor of the respondents.2
Antecedents

Spouses David and Elisea Ramos (respondents) discovered that a portion of their land registered
under Transfer Certificate of Title No. T-58894 of the Baguio City land records with an area of
985 square meters, more or less, was being used as part of the runway and running shoulder of
the Loakan Airport being operated by petitioner Air Transportation Office (ATO). On August 11,
1995, the respondents agreed after negotiations to convey the affected portion by deed of sale to
the ATO in consideration of the amount of P778,150.00. However, the ATO failed to pay despite
repeated verbal and written demands.
Thus, on April 29, 1998, the respondents filed an action for collection against the ATO and some
of its officials in the RTC (docketed as Civil Case No. 4017-R and entitled Spouses David and
Elisea Ramos v. Air Transportation Office, Capt. Panfilo Villaruel, Gen. Carlos Tanega, and Mr.
Cesar de Jesus).
In their answer, the ATO and its co-defendants invoked as an affirmative defense the issuance of
Proclamation No. 1358, whereby President Marcos had reserved certain parcels of land that
included the respondents affected portion for use of the Loakan Airport. They asserted that the
RTC had no jurisdiction to entertain the action without the States consent considering that the
deed of sale had been entered into in the performance of governmental functions.
On November 10, 1998, the RTC denied the ATOs motion for a preliminary hearing of the
affirmative defense.
After the RTC likewise denied the ATOs motion for reconsideration on December 10, 1998, the
ATO commenced a special civil action for certiorari in the CA to assail the RTCs orders. The
CA dismissed the petition for certiorari, however, upon its finding that the assailed orders were
not tainted with grave abuse of discretion.3
Subsequently, February 21, 2001, the RTC rendered its decision on the merits,4 disposing:
WHEREFORE, the judgment is rendered ORDERING the defendant Air Transportation Office
to pay the plaintiffs DAVID and ELISEA RAMOS the following: (1) The amount of P778,150.00
being the value of the parcel of land appropriated by the defendant ATO as embodied in the Deed
of Sale, plus an annual interest of 12% from August 11, 1995, the date of the Deed of Sale until
fully paid; (2) The amount of P150,000.00 by way of moral damages and P150,000.00 as
exemplary damages; (3) the amount of P50,000.00 by way of attorneys fees plus P15,000.00
representing the 10, more or less, court appearances of plaintiffs counsel; (4) The costs of this
suit.
SO ORDERED.
In due course, the ATO appealed to the CA, which affirmed the RTCs decision on May 14,
2003,5 viz:
IN VIEW OF ALL THE FOREGOING, the appealed decision is hereby AFFIRMED, with
MODIFICATION that the awarded cost therein is deleted, while that of moral and exemplary
damages is reduced to P30,000.00 each, and attorneys fees is lowered to P10,000.00.

No cost.
SO ORDERED.
Hence, this appeal by petition for review on certiorari.
Issue
The only issue presented for resolution is whether the ATO could be sued without the States
consent.
Ruling
The petition for review has no merit.
The immunity of the State from suit, known also as the doctrine of sovereign immunity or nonsuability of the State, is expressly provided in Article XVI of the 1987 Constitution, viz:
Section 3. The State may not be sued without its consent.
The immunity from suit is based on the political truism that the State, as a sovereign, can do no
wrong. Moreover, as the eminent Justice Holmes said in Kawananakoa v. Polyblank:6
The territory [of Hawaii], of course, could waive its exemption (Smith v. Reeves, 178 US 436,
44 L ed 1140, 20 Sup. Ct. Rep. 919), and it took no objection to the proceedings in the cases
cited if it could have done so. xxx But in the case at bar it did object, and the question raised is
whether the plaintiffs were bound to yield. Some doubts have been expressed as to the source of
the immunity of a sovereign power from suit without its own permission, but the answer has
been public property since before the days of Hobbes. Leviathan, chap. 26, 2. A sovereign is
exempt from suit, not because of any formal conception or obsolete theory, but on the logical and
practical ground that there can be no legal right as against the authority that makes the law on
which the right depends. "Car on peut bien recevoir loy d'autruy, mais il est impossible par
nature de se donner loy." Bodin, Republique, 1, chap. 8, ed. 1629, p. 132; Sir John Eliot, De Jure
Maiestatis, chap. 3. Nemo suo statuto ligatur necessitative. Baldus, De Leg. et Const. Digna Vox,
2. ed. 1496, fol. 51b, ed. 1539, fol. 61.7
Practical considerations dictate the establishment of an immunity from suit in favor of the State.
Otherwise, and the State is suable at the instance of every other individual, government service
may be severely obstructed and public safety endangered because of the number of suits that the
State has to defend against.8 Several justifications have been offered to support the adoption of
the doctrine in the Philippines, but that offered in Providence Washington Insurance Co. v.
Republic of the Philippines9 is "the most acceptable explanation," according to Father Bernas, a
recognized commentator on Constitutional Law,10 to wit:
[A] continued adherence to the doctrine of non-suability is not to be deplored for as against the
inconvenience that may be caused private parties, the loss of governmental efficiency and the

obstacle to the performance of its multifarious functions are far greater if such a fundamental
principle were abandoned and the availability of judicial remedy were not thus restricted. With
the well-known propensity on the part of our people to go to court, at the least provocation, the
loss of time and energy required to defend against law suits, in the absence of such a basic
principle that constitutes such an effective obstacle, could very well be imagined.
An unincorporated government agency without any separate juridical personality of its own
enjoys immunity from suit because it is invested with an inherent power of sovereignty.
Accordingly, a claim for damages against the agency cannot prosper; otherwise, the doctrine of
sovereign immunity is violated.11 However, the need to distinguish between an unincorporated
government agency performing governmental function and one performing proprietary functions
has arisen. The immunity has been upheld in favor of the former because its function is
governmental or incidental to such function;12 it has not been upheld in favor of the latter whose
function was not in pursuit of a necessary function of government but was essentially a
business.13
Should the doctrine of sovereignty immunity or non-suability of the State be extended to the
ATO?
In its challenged decision,14 the CA answered in the negative, holding:
On the first assignment of error, appellants seek to impress upon Us that the subject contract of
sale partook of a governmental character. Apropos, the lower court erred in applying the High
Courts ruling in National Airports Corporation vs. Teodoro (91 Phil. 203 [1952]), arguing that
in Teodoro, the matter involved the collection of landing and parking fees which is a proprietary
function, while the case at bar involves the maintenance and operation of aircraft and air
navigational facilities and services which are governmental functions.
We are not persuaded.
Contrary to appellants conclusions, it was not merely the collection of landing and parking fees
which was declared as proprietary in nature by the High Court in Teodoro, but management and
maintenance of airport operations as a whole, as well. Thus, in the much later case of Civil
Aeronautics Administration vs. Court of Appeals (167 SCRA 28 [1988]), the Supreme Court,
reiterating the pronouncements laid down in Teodoro, declared that the CAA (predecessor of
ATO) is an agency not immune from suit, it being engaged in functions pertaining to a private
entity. It went on to explain in this wise:
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. It is engaged in an enterprise which, far from being the exclusive prerogative of state,

may, more than the construction of public roads, be undertaken by private concerns. [National
Airports Corp. v. Teodoro, supra, p. 207.]
xxx
True, the law prevailing in 1952 when the Teodoro case was promulgated was Exec. Order 365
(Reorganizing the Civil Aeronautics Administration and Abolishing the National Airports
Corporation). Republic Act No. 776 (Civil Aeronautics Act of the Philippines), subsequently
enacted on June 20, 1952, did not alter the character of the CAAs objectives under Exec. Order
365. The pertinent provisions cited in the Teodoro case, particularly Secs. 3 and 4 of Exec. Order
365, which led the Court to consider the CAA in the category of a private entity were retained
substantially in Republic Act 776, Sec. 32(24) and (25). Said Act provides:
Sec. 32. Powers and Duties of the Administrator. Subject to the general control and supervision
of the Department Head, the Administrator shall have among others, the following powers and
duties:
xxx
(24) To administer, operate, manage, control, maintain and develop the Manila International
Airport and all government-owned aerodromes except those controlled or operated by the Armed
Forces of the Philippines including such powers and duties as: (a) to plan, design, construct,
equip, expand, improve, repair or alter aerodromes or such structures, improvement or air
navigation facilities; (b) to enter into, make and execute contracts of any kind with any person,
firm, or public or private corporation or entity;
(25) To determine, fix, impose, collect and receive landing fees, parking space fees, royalties on
sales or deliveries, direct or indirect, to any aircraft for its use of aviation gasoline, oil and
lubricants, spare parts, accessories and supplies, tools, other royalties, fees or rentals for the use
of any of the property under its management and control.
xxx
From the foregoing, it can be seen that the CAA is tasked with private or non-governmental
functions which operate to remove it from the purview of the rule on State immunity from suit.
For the correct rule as set forth in the Teodoro case states:
xxx
Not all government entities, whether corporate or non-corporate, are immune from suits.
Immunity from suits is determined by the character of the objects for which the entity was
organized. The rule is thus stated in Corpus Juris:
Suits against State agencies with relation to matters in which they have assumed to act in private
or non-governmental capacity, and various suits against certain corporations created by the state
for public purposes, but to engage in matters partaking more of the nature of ordinary business

rather than functions of a governmental or political character, are not regarded as suits against the
state. The latter is true, although the state may own stock or property of such a corporation for by
engaging in business operations through a corporation, the state divests itself so far of its
sovereign character, and by implication consents to suits against the corporation. (59 C.J., 313)
[National Airports Corporation v. Teodoro, supra, pp. 206-207; Italics supplied.]
This doctrine has been reaffirmed in the recent case of Malong v. Philippine National Railways
[G.R. No. L-49930, August 7, 1985, 138 SCRA 63], where it was held that the Philippine
National Railways, although owned and operated by the government, was not immune from suit
as it does not exercise sovereign but purely proprietary and business functions. Accordingly, as
the CAA was created to undertake the management of airport operations which primarily involve
proprietary functions, it cannot avail of the immunity from suit accorded to government agencies
performing strictly governmental functions.15
In our view, the CA thereby correctly appreciated the juridical character of the ATO as an agency
of the Government not performing a purely governmental or sovereign function, but was instead
involved in the management and maintenance of the Loakan Airport, an activity that was not the
exclusive prerogative of the State in its sovereign capacity. Hence, the ATO had no claim to the
States immunity from suit. We uphold the CAs aforequoted holding.
We further observe the doctrine of sovereign immunity cannot be successfully invoked to defeat
a valid claim for compensation arising from the taking without just compensation and without
the proper expropriation proceedings being first resorted to of the plaintiffs property.16 Thus, in
De los Santos v. Intermediate Appellate Court,17 the trial courts dismissal based on the doctrine
of non-suability of the State of two cases (one of which was for damages) filed by owners of
property where a road 9 meters wide and 128.70 meters long occupying a total area of 1,165
square meters and an artificial creek 23.20 meters wide and 128.69 meters long occupying an
area of 2,906 square meters had been constructed by the provincial engineer of Rizal and a
private contractor without the owners knowledge and consent was reversed and the cases
remanded for trial on the merits. The Supreme Court ruled that the doctrine of sovereign
immunity was not an instrument for perpetrating any injustice on a citizen. In exercising the right
of eminent domain, the Court explained, the State exercised its jus imperii, as distinguished from
its proprietary rights, or jus gestionis; yet, even in that area, where private property had been
taken in expropriation without just compensation being paid, the defense of immunity from suit
could not be set up by the State against an action for payment by the owners.
Lastly, the issue of whether or not the ATO could be sued without the States consent has been
rendered moot by the passage of Republic Act No. 9497, otherwise known as the Civil Aviation
Authority Act of 2008.
R.A. No. 9497 abolished the ATO, to wit:
Section 4. Creation of the Authority. There is hereby created an independent regulatory body
with quasi-judicial and quasi-legislative powers and possessing corporate attributes to be known
as the Civil Aviation Authority of the Philippines (CAAP), herein after referred to as the
"Authority" attached to the Department of Transportation and Communications (DOTC) for the

purpose of policy coordination. For this purpose, the existing Air transportation Office
created under the provisions of Republic Act No. 776, as amended is hereby abolished.
xxx
Under its Transitory Provisions, R.A. No. 9497 established in place of the ATO the Civil Aviation
Authority of the Philippines (CAAP), which thereby assumed all of the ATOs powers, duties and
rights, assets, real and personal properties, funds, and revenues, viz:
CHAPTER XII
TRANSITORTY PROVISIONS
Section 85. Abolition of the Air Transportation Office. The Air Transportation Office (ATO)
created under Republic Act No. 776, a sectoral office of the Department of Transportation and
Communications (DOTC), is hereby abolished.1avvphi1
All powers, duties and rights vested by law and exercised by the ATO is hereby transferred to
the Authority.
All assets, real and personal properties, funds and revenues owned by or vested in the
different offices of the ATO are transferred to the Authority. All contracts, records and
documents relating to the operations of the abolished agency and its offices and branches are
likewise transferred to the Authority. Any real property owned by the national government
or government-owned corporation or authority which is being used and utilized as office or
facility by the ATO shall be transferred and titled in favor of the Authority.
Section 23 of R.A. No. 9497 enumerates the corporate powers vested in the CAAP, including the
power to sue and be sued, to enter into contracts of every class, kind and description, to
construct, acquire, own, hold, operate, maintain, administer and lease personal and real
properties, and to settle, under such terms and conditions most advantageous to it, any claim by
or against it.18
With the CAAP having legally succeeded the ATO pursuant to R.A. No. 9497, the obligations
that the ATO had incurred by virtue of the deed of sale with the Ramos spouses might now be
enforced against the CAAP.
WHEREFORE, the Court denies the petition for review on certiorari, and affirms the decision
promulgated by the Court of Appeals.
No pronouncement on costs of suit.
SO ORDERED.
LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:
ARTURO D. BRION**
Associate Justice
Acting Chairperson
ROBERTO A. ABAD***
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice
AT T E S T AT I O N
I attest that the conclusions in the above Resolution had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
ARTURO D. BRION
Associate Justice
Acting Chairperson
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
Attestation, I certify that the conclusions in the above Resolution had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice

Footnotes
*

David Ramos died on October 14, 2001, before the assailed decision was promulgated.
He was substituted by his children Cherry Ramos, Joseph David Ramos and Elsie Grace
R. Dizon pursuant to a resolution of the CA promulgated on April 23, 2003 (see rollo, p.
136).
**

Acting Chairperson in lieu of Justice Conchita Carpio Morales who is on leave per
Special Order No. 925 dated January 24, 2011.
***

Additional member per Special Order No. 926 dated January 24, 2011.

Rollo, pp. 25-35; penned by Associate Justice Conrado M. Vasquez (later Presiding
Justice, now retired), and concurred in by Associate Justice Mercedes Gozo-Dadole
(retired) and Associate Justice Rosmari D. Carandang,
2

Id., pp. 80-87; penned by Judge Antonio C. Reyes.

Id.

Id.

Id., pp. 25-35.

205 US 349, 353 (1907).

Bold emphasis supplied.

Veterans Manpower and Protective Services, Inc. v. Court of Appeals, G.R. No. 91359,
Sept. 25, 1992, 214 SCRA 286, 294; Republic v. Purisima, No. L-36084, Aug. 31, 1977,
78 SCRA 470, 473.
9

L-26386, Sept. 30, 1969, 29 SCRA 598, 601-602.

10

Bernas, The 1987 Constitution of the Republic of the Philippines: A Commentary, 2003
Edition, p. 1269.
11

Metropolitan Transportation Service v. Paredes, 79 Phil. 819 (1948).

12

E.g., Angat River Irrigation System, et. al. v. Angat River Workers Union, et. al., 102
Phil. 789 (1957).
13

E.g., National Airports Corporation v. Teodoro, Sr. and Phil. Airlines Inc., 91 Phil. 203
(1952).
14

Rollo, pp. 25-35.

15

Id., pp. 29-32.

16

Republic v. Sandiganbayan, G.R. No. 90478, Nov. 2, 1991, 204 SCRA 212, 231;
Ministerio v. Court of First Instance of Cebu, No. L-31635, Aug. 31, 1971, 40 SCRA 464;
Santiago v. Republic, No. L-48214, Dec. 19, 1978, 87 SCRA 294.
17

18

G.R. Nos. 71998-99, June 2, 1993, 223 SCRA 11.

Section 23. Corporate Powers. The Authority, acting through the Board, shall
have the following corporate powers:

(a) To succeed in its corporate name, to sue and be sued in such corporate name
xxx.
xxx
(c) To enter into, make, perform and carry out contracts of every class, kind
and description, which are necessary or incidental to the realization of its
purposes, with any person, domestic or foreign private firm, or corporation, local
or national government office, agency and with international institutions or
foreign government;
xxx
(e) To construct, acquire, own, hold, operate, maintain, administer and lease
personal and real properties, including buildings, machinery, equipment, other
infrastructure, agricultural land, and its improvements, property rights, and
interest therein x x x
xxx
(i) To settle, under such terms and conditions most advantageous to it, any
claim by or against it;
xxx
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 180388

January 18, 2011

GREGORIO R. VIGILAR, SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS

AND HIGHWAYS (DPWH), DPWH UNDERSECRETARIES TEODORO E.
ENCARNACION AND EDMUNDO E. ENCARNACION AND EDMUNDO V. MIR,
DPWH ASSISTANT SECRETARY JOEL L. ALTEA, DPWH REGIONAL DIRECTOR
VICENTE B. LOPEZ, DPWH DISTRICT ENGINEER ANGELITO M. TWAO, FELIX
A. DESIERTO OF THE TECHNICAL WORKING GROUP VALIDATION AND
AUDITING TEAM, AND LEONARDO ALVARO, ROMEO N. SUPAN, VICTORINO C.
SANTOS OF THE DPWH PAMPANGA 2ND ENGINEERING DISTRICT, Petitioners,
vs.
ARNULFO D. AQUINO, Respondent.
DECISION

SERENO, J.:
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court,
assailing the Decision2 of the Court of Appeals in C.A.-G.R. CV No. 82268, dated 25 September
2006.
The antecedent facts are as follows:
On 19 June 1992, petitioner Angelito M. Twao, then Officer-in-Charge (OIC)-District Engineer
of the Department of Public Works and Highways (DPWH) 2nd Engineering District of
Pampanga sent an Invitation to Bid to respondent Arnulfo D. Aquino, the owner of A.D. Aquino
Construction and Supplies. The bidding was for the construction of a dike by bulldozing a part of
the Porac River at Barangay Ascomo-Pulungmasle, Guagua, Pampanga.
Subsequently, on 7 July 1992, the project was awarded to respondent, and a "Contract of
Agreement" was thereafter executed between him and concerned petitioners for the amount of
PhP1,873,790.69, to cover the project cost.
By 9 July 1992, the project was duly completed by respondent, who was then issued a Certificate
of Project Completion dated 16 July 1992. The certificate was signed by Romeo M. Yumul, the
Project Engineer; as well as petitioner Romeo N. Supan, Chief of the Construction Section, and
by petitioner Twao.
Respondent Aquino, however, claimed that PhP1,262,696.20 was still due him, but petitioners
refused to pay the amount. He thus filed a Complaint3 for the collection of sum of money with
damages before the Regional Trial Court of Guagua, Pampanga. The complaint was docketed as
Civil Case No. 3137.
Petitioners, for their part, set up the defense4 that the Complaint was a suit against the state; that
respondent failed to exhaust administrative remedies; and that the "Contract of Agreement"
covering the project was void for violating Presidential Decree No. 1445, absent the proper
appropriation and the Certificate of Availability of Funds.5
On 28 November 2003, the lower court ruled in favor of respondent, to wit:
WHEREFORE, premises considered, defendant Department of Public Works and Highways is
hereby ordered to pay the plaintiff Arnulfo D. Aquino the following:
1. PhP1,873,790.69, Philippine Currency, representing actual amount for the completion
of the project done by the plaintiff;
2. PhP50,000.00 as attorneys fee and
3. Cost of this suit.
SO ORDERED. 6

It is to be noted that respondent was only asking for PhP1,262,696.20; the award in paragraph 1
above, however, conforms to the entire contract amount.
On appeal, the Court of Appeals reversed and set aside the Decision of the lower court and
disposed as follows:
WHEREFORE, premises considered, the appeal is GRANTED. The "CONTRACT
AGREEMENT" entered into between the plaintiff-appellees construction company, which he
represented, and the government, through the Department of Public Works and Highway
(DPWH) Pampanga 2nd Engineering District, is declared null and void ab initio.
The assailed decision of the court a quo is hereby REVERSED AND SET ASIDE.
In line with the pronouncement in Department of Health vs. C.V. Canchela & Associates,
Architects,7 the Commission on Audit (COA) is hereby ordered to determine and ascertain with
dispatch, on a quantum meruit basis, the total obligation due to the plaintiff-appellee for his
undertaking in implementing the subject contract of public works, and to allow payment thereof,
subject to COA Rules and Regulations, upon the completion of the said determination.
No pronouncement as to costs.
SO ORDERED.8
Dissatisfied with the Decision of the Court of Appeals, petitioners are now before this Court,
seeking a reversal of the appellate courts Decision and a dismissal of the Complaint in Civil
Case No. G-3137. The Petition raises the following issues:
1. WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT THE
DOCTRINE OF NON-SUABILITY OF THE STATE HAS NO APPLICATION IN THIS CASE.
2. WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT DISMISSING THE
COMPLAINT FOR FAILURE OF RESPONDENT TO EXHAUST ALL ADMINISTRATIVE
REMEDIES.
3. WHETHER OR NOT THE COURT OF APPEALS ERRED IN ORDERING THE COA TO
ALLOW PAYMENT TO RESPONDENT ON A QUANTUM MERUIT BASIS DESPITE THE
LATTERS FAILURE TO COMPLY WITH THE REQUIREMENTS OF PRESIDENTIAL
DECREE NO. 1445.
After a judicious review of the case, the Court finds the Petition to be without merit.
Firstly, petitioners claim that the Complaint filed by respondent before the Regional Trial Court
was done without exhausting administrative remedies. Petitioners aver that respondent should
have first filed a claim before the Commission on Audit (COA) before going to the courts.
However, it has been established that the doctrine of exhaustion of administrative remedies and
the doctrine of primary jurisdiction are not ironclad rules. In Republic of the Philippines v.

Lacap,9 this Court enumerated the numerous exceptions to these rules, namely: (a) where there is
estoppel on the part of the party invoking the doctrine; (b) where the challenged administrative
act is patently illegal, amounting to lack of jurisdiction; (c) where there is unreasonable delay or
official inaction that will irretrievably prejudice the complainant; (d) where the amount involved
is relatively so small as to make the rule impractical and oppressive; (e) where the question
involved is purely legal and will ultimately have to be decided by the courts of justice; (f) where
judicial intervention is urgent; (g) where the application of the doctrine may cause great and
irreparable damage; (h) where the controverted acts violate due process; (i) where the issue of
non-exhaustion of administrative remedies has been rendered moot; (j) where there is no other
plain, speedy and adequate remedy; (k) where strong public interest is involved; and (l) in quo
warranto proceedings. In the present case, conditions (c) and (e) are present.
The government project contracted out to respondent was completed almost two decades ago. To
delay the proceedings by remanding the case to the relevant government office or agency will
definitely prejudice respondent. More importantly, the issues in the present case involve the
validity and the enforceability of the "Contract of Agreement" entered into by the parties. These
are questions purely of law and clearly beyond the expertise of the Commission on Audit or the
DPWH. In Lacap, this Court said:
... It does not involve an examination of the probative value of the evidence presented by the
parties. There is a question of law when the doubt or difference arises as to what the law is on a
certain state of facts, and not as to the truth or the falsehood of alleged facts. Said question at
best could be resolved only tentatively by the administrative authorities. The final decision on the
matter rests not with them but with the courts of justice. Exhaustion of administrative remedies
does not apply, because nothing of an administrative nature is to be or can be done. The issue
does not require technical knowledge and experience but one that would involve the
interpretation and application of law. (Emphasis supplied.)
Secondly, in ordering the payment of the obligation due respondent on a quantum meruit basis,
the Court of Appeals correctly relied on Royal Trust Corporation v. COA,10 Eslao v. COA,11
Melchor v. COA,12 EPG Construction Company v. Vigilar,13 and Department of Health v. C.V.
Canchela & Associates, Architects.14 All these cases involved government projects undertaken in
violation of the relevant laws, rules and regulations covering public bidding, budget
appropriations, and release of funds for the projects. Consistently in these cases, this Court has
held that the contracts were void for failing to meet the requirements mandated by law; public
interest and equity, however, dictate that the contractor should be compensated for services
rendered and work done.
Specifically, C.V. Canchela & Associates is similar to the case at bar, in that the contracts
involved in both cases failed to comply with the relevant provisions of Presidential Decree No.
1445 and the Revised Administrative Code of 1987. Nevertheless, "(t)he illegality of the subject
Agreements proceeds, it bears emphasis, from an express declaration or prohibition by law, not
from any intrinsic illegality. As such, the Agreements are not illegal per se, and the party
claiming thereunder may recover what had been paid or delivered."15

The government project involved in this case, the construction of a dike, was completed way
back on 9 July 1992. For almost two decades, the public and the government benefitted from the
work done by respondent. Thus, the Court of Appeals was correct in applying Eslao to the
present case. In Eslao, this Court stated:
...the Court finds that the contractor should be duly compensated for services rendered, which
were for the benefit of the general public. To deny the payment to the contractor of the two
buildings which are almost fully completed and presently occupied by the university would be to
allow the government to unjustly enrich itself at the expense of another. Justice and equity
demand compensation on the basis of quantum meruit. (Emphasis supplied.)
Neither can petitioners escape the obligation to compensate respondent for services rendered and
work done by invoking the states immunity from suit. This Court has long established in
Ministerio v. CFI of Cebu,16 and recently reiterated in Heirs of Pidacan v. ATO,17 that the doctrine
of governmental immunity from suit cannot serve as an instrument for perpetrating an injustice
to a citizen. As this Court enunciated in EPG Construction:181avvphi1
To our mind, it would be the apex of injustice and highly inequitable to defeat respondents
right to be duly compensated for actual work performed and services rendered, where both
the government and the public have for years received and accepted benefits from the
project and reaped the fruits of respondents honest toil and labor.
xxx

xxx

xxx

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

xxx

xxx

Although the Amigable and Ministerio cases generously tackled the issue of the State's immunity
from suit vis a vis the payment of just compensation for expropriated property, this Court
nonetheless finds the doctrine enunciated in the aforementioned cases applicable to the instant
controversy, considering that the ends of justice would be subverted if we were to uphold, in
this particular instance, the State's immunity from suit.
To be sure, this Court as the staunch guardian of the citizens' rights and welfare
cannot sanction an injustice so patent on its face, and allow itself to be an instrument in the
perpetration thereof. Justice and equity sternly demand that the State's cloak of
invincibility against suit be shred in this particular instance, and that petitionerscontractors be duly compensated on the basis of quantum meruit for construction
done on the public works housing project. (Emphasis supplied.)

WHEREFORE, in view of the foregoing, the Petition is DENIED for lack of merit. The
assailed Decision of the Court of Appeals in CA-G.R. No. 82268 dated 25 September 2006 is
AFFIRMED.
SO ORDERED.
MARIA LOURDES P. A. SERENO
Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
ANTONIO T. CARPIO
Associate Justice

CONCHITA CARPIO MORALES

Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ANTONIO EDUARDO B.
NACHURA
Associate Justice

TERESITA J. LEONARDO-DE
CASTRO
Associate Justice

ARTURO D. BRION
Associate Justice

DIOSDADO M. PERALTA
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

ROBERTO A. ABAD
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

JOSE CATRAL MENDOZA

Associate Justice
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court.
RENATO C. CORONA
Chief Justice

Footnotes
1

Rollo at 10-32.

Penned by Associate Justice Amelita G. Tolentino, with Associate Justices Portia AlioHormachuelos and Arcangelita Romilla-Lontok concurring, rollo at 33-48.
3

Rollo at 51-55.

Petitioners Answer, rollo at 56-59.

Sections 85-87, Ordaining and Instituting a Government Auditing Code of the

Philippines (1978).
6

Rollo at 60-64.

G.R. Nos. 151373-74, November 17, 2005, 475 SCRA 218.

Rollo at 47.

G.R. No. 158253, March 2, 2007, 517 SCRA 255.

10

Supreme Court Resolution En Banc, G.R. No. 84202, November 22, 1988, cited in
Eslao v. COA, 195 SCRA 730.
11

G.R. No. 89745, April 8, 1991, 195 SCRA 730.

12

G.R. No. 95938, August 16, 1991, 200 SCRA 705.

13

G.R. 131544, March 16, 2001, 354 SCRA 566.

14

Supra at note 7.

15

DOH v. C.V. Canchela Associates, Architects, G.R. Nos. 151373-74, November 17,
2005, 475 SCRA 218.
16

G.R. No. L-31635, August 31, 1971, 40 SCRA 464.

17

G.R. No. 186192, August 25, 2010.

18

G.R. No. 131544, March 16, 2001, 354 SCRA 566.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 154200

July 24, 2007

NATIONAL ELECTRIFICATION ADMINISTRATION and its BOARD OF

ADMINISTRATORS, Petitioners,
vs.
DANILO MORALES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J>:
The sole issue for resolution in the Petition for Review on Certiorari1 before us is whether the
Court of Appeals (CA) committed an error of law in its July 4, 2002 Decision2 in CA-G.R. SP
No. 62919 in ordering the implementation of a writ of execution against the funds of the
National Electrification Administration (NEA).

There being no dispute as to the facts,3 the following findings of the CA are adopted:4
Danilo Morales and 105 other employees5 (Morales, et al.) of the NEA filed with the Regional
Trial Court (RTC), Branch 88, Quezon City, a class suit6 against their employer for payment of
rice allowance, meal allowance, medical/dental/optical allowance, childrens allowance and
longevity pay purportedly authorized under Republic Act (R.A.) No. 6758.7 In its December 16,
1999 Decision,8 the RTC ordered NEA, thus:
WHEREFORE, foregoing considered, the petition is hereby GRANTED directing the respondent
NEA, its Board of Administrators to forthwith settle the claims of the petitioners and other
employees similarly situated and extend to them the benefits and allowances to which they are
entitled but which until now they have been deprived of as enumerated under Section 5 of DBM
CCC No. 10 and their inclusion in the Provident Funds Membership, retroactive from the date of
their appointments up to the present or until their separation from the service.
No costs.
SO ORDERED.9
Upon motion of Morales, et al., the RTC issued a Writ of Execution dated February 22, 2000,10
which reads:
NOW, THEREFORE, you are hereby directed to cause respondents National Electrification
Administration (NEA) and its Board of Administrators with principal office address at 1050
CDC Bldg., Quezon Avenue, Quezon City to forthwith settle the claims of the petitioners and
other employees similarly situated and extend to them the benefits and allowances to which they
are entitled but which until now they have been deprived of as enumerated under Sec. 5 of DBM
CCC No. 10 and you are further directed to cause their inclusion in the Provident Fund
Membership, retroactive from the date of their appointments up to the present or until their
separation from the service.11
Thereafter, a Notice of Garnishment12 was issued against the funds of NEA with Development
Bank of the Philippines (DBP) to the extent of P16,581,429.00.
NEA filed a Motion to Quash Writs of Execution/Garnishment,13 claiming that the garnished
public funds are exempt from execution under Section 414 of Presidential Decree (P.D.) No.
1445,15 but manifesting that it is willing to pay the claims of Morales, et al.,16 only that it has no
funds to cover the same, although it already requested the Department of Budget and
Management (DBM) for a supplemental budget.17
In its Order of May 17, 2000, the RTC denied the Motion to Quash but, at the same time, held in
abeyance the implementation of the Writ of Execution, thus:
WHEREFORE, the motion to quash writs of execution/ garnishment is DENIED but the
implementation of the judgment is placed on hold for ninety (90) days reckoned from this day.
The respondents are directed to formally inform this Court and the petitioners of the prospect

of obtaining funds from Department of Budget and Management within 30 days from receipt
and every 30 days thereafter, until the 90 day period has lapsed.
The motion to direct DBP to release to the petitioners the NEA funds garnished earlier
amounting to P16,591.429 is also DENIED.
SO ORDERED.18 (Emphasis ours)
Morales, et al. filed a Partial Motion for Reconsideration19 but the RTC denied it.20
Meanwhile, in a letter dated June 28, 2000, former DBM Secretary Benjamin E. Diokno
informed NEA Administrator Conrado M. Estrella III of the denial of the NEA request for a
supplemental budget on the ground that the claims under R.A. No. 6758 which the RTC had
ordered to be settled cannot be paid because Morales, et al. are not "incumbents of positions as
of July 1, 1989 who are actually receiving and enjoying such benefits."21
Moreover, in an Indorsement dated March 23, 2000, the Commission on Audit (COA) advised
NEA against making further payments in settlement of the claims of Morales, et al.. Apparently,
COA had already passed upon claims similar to those of Morales, et al. in its earlier "Decision
No. 95-074" dated January 25, 1995. Portions of the Indorsement read as follows:
This Office concurs with the above view. The court may have exceeded its jurisdiction when it
entertained the petition for the entitlement of the after-hired employees which had already
been passed upon by this Commission in COA Decision No. 95-074 dated January 25, 1995.
There, it was held that: "the adverse action of this Commission sustaining the disallowance made
by the Auditor, NEA, on the payment of fringe benefits granted to NEA employees hired from
July 1, 1989 to October 31, 1989 is hereby reconsidered. Accordingly, subject disallowance is
lifted."
Thus, employees hired after the extended date of October 31, 1989, pursuant to the above
COA decision cannot defy that decision by filing a petition for mandamus in the lower court.
Presidential Decree No. 1445 and the 1987 Constitution prescribe that the only mode for
appeal from decisions of this Commission is on certiorari to the Supreme Court in the manner
provided by law and the Rules of Court. Clearly, the lower court had no jurisdiction when it
entertained the subject case of mandamus. And void decisions of the lower court can never
attain finality, much less be executed. Moreover, COA was not made a party thereto, hence, it
cannot be compelled to allow the payment of claims on the basis of the questioned decision.
PREMISES CONSIDERED, the auditor of NEA should post-audit the disbursement vouchers on
the bases of this Commission's decision particularly the above-cited COA Decision No. 94-074
[sic] and existing rules and regulations, as if there is no decision of the court in the subject
special civil action for mandamus. At the same time, management should be informed of the
intention of this Office to question the validity of the court decision before the Supreme Court
through the Office of the Solicitor General.22 (Emphasis ours)

Parenthetically, the records at hand do not indicate when Morales, et al. were appointed. Even
the December 16, 1999 RTC Decision is vague for it merely states that they were appointed after
June 30, 1989, which could mean that they were appointed either before the cut-off date of
October 31, 1989 or after.23 Thus, there is not enough basis for this Court to determine that the
foregoing COA Decision No. 95-074 adversely affects Morales, et al.. Moreover, the records do
not show whether COA actually questioned the December 16, 1999 RTC Decision before this
Court.
On July 18, 2000, Morales, et al. filed a Motion for an Order to Implement Writ of Execution,
pointing out that the reason cited in the May 17, 2000 RTC Order for suspension of the
implementation of the writ of execution no longer exists given that DBM already denied NEAs
request for funding.24 They also filed a Petition to Cite NEA Board of Administrators Mario
Tiaoqui, Victoria Batungbacal, Federico Puno and Remedios Macalingcag in Contempt of
Court25 for allegedly withholding appropriations to cover their claims.
Acting first on the petition for contempt, the RTC issued a Resolution dated December 11, 2000,
to wit:
The court is aware of its order dated May 17, 2000, particularly the directive upon respondents to
inform this court and the petitioners of the prospect of obtaining funds from the Department of
Budget and Management within the period specified. From the comments of the respondents, it
appears they did or are doing their best to secure the needed funds to satisfy the judgment
sought to be enforced. In this regard, Administrative Circular No. 10-2000 of the Supreme
Court provides:
"In order to prevent possible circumvention of the rules and procedures of the Commission on
Audit, judges are hereby enjoined to observe utmost caution, prudence and judiciousness in the
issuance of writs of execution to satisfy money judgments against government agencies and local
government units.
Judges should bear in mind that in Commissioner of Public Highways v. San Diego (31 SCRA
617, 625 [1970], this Court explicitly stated:
"The universal rule that where the State gives its consent to be sued by private parties either by
general or special law, it may limit claimant's action only up to the completion of proceedings
anterior to the stage of execution and 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 judgment, 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 v. 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)."
WHEREFORE, foregoing considered, petition to cite respondents in contempt of court is
premature, hence the same is hereby DENIED.
SO ORDERED.26 (Emphasis ours)
Subsequently, the RTC issued an Order dated January 8, 2001, denying the Motion for an Order
to Implement Writ of Execution, citing the same SC Administrative Circular No. 10-2000.
Upon a Petition for Certiorari27 filed by Morales, et al., the CA rendered the July 4, 2002
Decision assailed herein, the decretal portion of which reads:
WHEREFORE, the petition is hereby GRANTED. The Order dated January 8, 2001 and the
Resolution of December 11, 2000 of the public respondent Judge are declared NULL and VOID.
Accordingly, the respondent judge is directed to implement the Writ of Execution relative
thereto.
SO ORDERED..28
The CA held that NEA can no longer take shelter under the provisions of P.D. No. 1445 and SC
Administrative Circular No. 10-2000 because it is a government-owned or controlled corporation
(GOCC) created under P.D. No. 269, effective August 6, 1973.29 Citing Philippine National Bank
v. Court of Industrial Relations,30 the CA held that, as such GOCC, petitioner NEA may be
subjected to court processes just like any other corporation; specifically, its properties may be
proceeded against by way of garnishment or levy.31
NEA and its Board of Directors (petitioners) immediately filed herein petition for review. It is
their contention that the CA erred in directing implementation of the writ of execution on two
grounds: first, execution is premature as Morales, et al. (respondents) have yet to file their
judgment claim with the COA in accordance with P.D. No. 1445 and SC Administrative Circular
No. 10-2000;32 and second, execution is not feasible without DBM as an indispensable party to
the petition for certiorari for it is said department which can certify that funds are available to
cover the judgment claim.33
The petition is meritorious.
Indeed, respondents cannot proceed against the funds of petitioners because the December 16,
1999 RTC Decision sought to be satisfied is not a judgment for a specific sum of money
susceptible of execution by garnishment; it is a special judgment requiring petitioners to settle
the claims of respondents in accordance with existing regulations of the COA.

In its plain text, the December 16, 1999 RTC Decision merely directs petitioners to "settle the
claims of [respondents] and other employees similarly situated."34 It does not require petitioners
to pay a certain sum of money to respondents. The judgment is only for the performance of an
act other than the payment of money, implementation of which is governed by Section 11, Rule
39 of the Rules of Court, which provides:
Section 11. Execution of special judgments. - When a judgment requires the performance of any
act other than those mentioned in the two preceding sections, a certified copy of the judgment
shall be attached to the writ of execution and shall be served by the officer upon the party against
whom the same is rendered, or upon any other person required thereby, or by law, to obey the
same, and such party or person may be punished for contempt if he disobeys such judgment.
Garnishment cannot be employed to implement such form of judgment. Under Section 9 of Rule
39, to wit:
Section 9. Execution of judgments for money, how enforced. xxxx
(c) Garnishment of debts and credits. - The officer may levy on debts due the judgment obligor
and other credits, including bank deposits, financial interests, royalties, commissions and other
personal property not capable of manual delivery in the possession or control of third parties.
Levy shall be made by serving notice upon the person owing such debts or having in his
possession or control such credits to which the judgment obligor is entitled. The garnishment
shall cover only such amount as will satisfy the judgment and all lawful fees.
Garnishment is proper only when the judgment to be enforced is one for payment of a sum of
money.
The RTC exceeded the scope of its judgment when, in its February 22, 2000 Writ of Execution, it
directed petitioners to "extend to [respondents] the benefits and allowances to which they are
entitled but which until now they have been deprived of as enumerated under Sec. 5 of DBM
CCC No. 10 and x x x to cause their inclusion in the Provident Fund Membership."35 Worse, it
countenanced the issuance of a notice of garnishment against the funds of petitioners with DBP
to the extent of P16,581,429.00 even when no such amount was awarded in its December 16,
1999 Decision.
However, in its subsequent Orders dated May 17, 2000 and January 8, 2001, the RTC attempted
to set matters right by directing the parties to now await the outcome of the legal processes for
the settlement of respondents claims.
That is only right.
Without question, petitioner NEA is a GOCC36 -- a juridical personality separate and distinct
from the government, with capacity to sue and be sued.37 As such GOCC, petitioner NEA cannot
evade execution; its funds may be garnished or levied upon in satisfaction of a judgment

rendered against it.38 However, before execution may proceed against it, a claim for payment of
the judgment award must first be filed with the COA.39
Under Commonwealth Act No. 327,40 as amended by Section 26 of P.D. No. 1445, it is the COA
which has primary jurisdiction to examine, audit and settle "all debts and claims of any sort" due
from or owing the Government or any of its subdivisions, agencies and instrumentalities,
including government-owned or controlled corporations and their subsidiaries.41 With respect to
money claims arising from the implementation of R.A. No. 6758, their allowance or
disallowance is for COA to decide, subject only to the remedy of appeal by petition for certiorari
to this Court.42
All told, the RTC acted prudently in halting implementation of the writ of execution to allow the
parties recourse to the processes of the COA. It may be that the tenor of the March 23, 2000
Indorsement issued by COA already spells doom for respondents claims; but it is not for this
Court to preempt the action of the COA on the post-audit to be conducted by it per its
Indorsement dated March 23, 2000.1avvphi1
In fine, it was grave error for the CA to reverse the RTC and direct immediate implementation of
the writ of execution through garnishment of the funds of petitioners,
WHEREFORE, the petition is GRANTED. The July 4, 2002 Decision of the Court of Appeals
is REVERSED and SET ASIDE. The Resolution dated December 11, 2000 and Order dated
January 8, 2001 of the Regional Trial Court, Branch 88, Quezon City in Special Civil Action No.
Q-99-38275 are REINSTATED.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MINITA V. CHICO-NAZARIO
Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

AT T E S T AT I O N
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1

Under Rule 45 of the Rules of Court; rollo, p. 7.

Penned by Associate Justice Eliezer R. De Los Santos with the concurrence of Associate
Justices Hilarion L. Aquino and Danilo B. Pine, id. at 18-23.
3

Petition, id. at 9.

CA Decision, id. at 18-21.

The records merely state that they were appointed after June 30, 1989; RTC Decision,
CA rollo, p. 24.
6

Docketed as Special Civil Action No. Q-99-38275.

Compensation and Classification Act of 1989, effective July 1, 1989.

CA rollo, p. 23.

Id. at 26.

10

Id. at 27.

11

Id. at 28.

12

There is no copy of this notice in the records.

13

CA rollo, p. 29.

14

Section 4. Fundamental principles. Financial transactions and operations of any

government agency shall be governed by the fundamental principles set forth hereunder,
to wit:1. No money shall be paid out of any public treasury of depository except in
pursuance of an appropriation law or other specific statutory authority; 2. Government
funds or property shall be spent or used solely for public purposes; 3. Trust funds shall be
available and may be spent only for the specific purpose for which the trust was created
or the funds received; 4. Fiscal responsibility shall, to the greatest extent, be shared by all
those exercising authority over the financial affairs, transactions, and operations of the
government agency; 5. Disbursements or disposition of government funds or property
shall invariably bear the approval of the proper officials; 6. Claims against government
funds shall be supported with complete documentation; 7. All laws and regulations
applicable to financial transactions shall be faithfully adhered to; 8. Generally accepted
principles and practices of accounting as well as of sound management and fiscal
administration shall be observed, provided that they do not contravene existing laws and
regulations.
15

Ordaining and Instituting a Government Auditing Code of the Philippines, approved

June 11, 1978.
16

Motion to Quash, CA rollo, p. 29.

17

Id. at 30.

18

Id. at 43.

19

Id. at 44.

20

Id. at 51

21

Id. at 69.

22

Id. at 71-72.

23

Supra note 5.

24

Id. at 52.

25

Id. at 55.

26

Id. at 20-21.

27

Id. at 2.

28

Rollo, p. 23.

29

Id. at 21.

30

G.R. No. L-32667, January 31, 1978, 81 SCRA 314.

31

Rollo, pp. 22-23.

32

Id. at 12-14.

33

Id. at 14-15.

34

CA rollo, p. 26.

35

Id. at 28.

36

National Irrigation Administration v. Enciso, G.R. No. 142571, May 5, 2006, 489
SCRA 570, 575; National Electrification Administration v. Commission On Audit, 427
Phil. 464, 476 (2002).
37

Section 4, P.D. No. 269 partly reads:

Section 4. NEA Authorities, Powers and Directives. The NEA is hereby
authorized, empowered and directed to promote, encourage and assist public
service entities, particularly cooperatives, to the end of achieving the objective of
making service available throughout the nation on an area coverage basis as
rapidly as possible; and for such purpose it is hereby, without limiting the
generality of the foregoing and in addition to other authorizations, powers and
directives established by this Decree, specifically authorized, empowered and
directed: (a) To have a continuous succession under its corporate name until
otherwise provided by law; (b) To prescribe and thereafter to amend and repeal its
by-laws not inconsistent with this Decree; (c) To adopt and use a seal and alter it
at its pleasure; (d) To sue and to be sued in any court: Provided, That NEA
shall, unless it consents otherwise, be immune to suits for acts ex delicti; (e) To
make contract of every name and nature and to execute all instruments necessary
or convenient for the carrying on of its business.

38

Sison v. Florendo, A.M. OCA IPI No. 04-1901-P, February 28, 2005; National Housing
Authority v. Heirs of Guivelondo, 452 Phil. 481, 495 (2003); Rizal Commercial Banking
Corporation v. De Castro, G.R. No. L-34548, November 29, 1988, 168 SCRA 49, 59;
Philippine Rock Industries, Inc. v. Board of Liquidators, G.R. No. 84992, December 15,
1989, 180 SCRA 171, 174-175; Philippine National Bank v. Pabalan, G.R. No. L-33112,
June 15, 1978, 83 SCRA 595, 601-602; Philippine National Railways v. Court of
Appeals, G.R. No. L-55347, October 4, 1985, 139 SCRA 87, 91; Philippine National
Bank v. Court of Industrial Relations, supra note 30, at 318.
39

Parreo v. Commission on Audit, G.R. No. 162224, June 07, 2007, citing Department
of Agriculture v. National Labor Relations Commission, G.R. No. 104269, November
11, 1993, 227 SCRA 693, 701.

40

An Act Fixing the Time Within Which the Auditor General Shall Render his Decisions
and Prescribing the Manner of Appeal Therefrom.
41

As implemented under Section 1, Rule II of the 1997 COA Rules of Proceduire, thus:
Section 1. General jurisdiction. - The Commission on Audit shall have the power,
authority, and duty to examine, audit and settle all accounts pertaining to the
revenue and receipts of, and expenditures or uses of funds and property, owned or
held in trust by, or pertaining to the Government, or any of its subdivisions,
agencies, or instrumentalities, including government-owned and controlled
corporations with original charters, and on a post-audit basis: (a) constitutional
bodies, commissions and offices that have been granted fiscal autonomy under the
Constitution; (b) autonomous state colleges and universities; (c) other
government-owned or controlled corporations and their subsidiaries; and (d) such
non-governmental entities receiving subsidy or equity directly or indirectly, from
or through the government, which are required by law or the granting institution
to submit to such audit as a condition of subsidy or equity. However, where the
internal control system of the audited agencies is inadequate, the Commission
may adopt such measures, including temporary or special pre-audit, as are
necessary and appropriate to correct the deficiencies. It shall keep the general
accounts of the Government, and for such period as may be provided by law,
preserve the vouchers and other supporting papers pertaining thereto.
xxxx
Specifically, such jurisdiction shall extend over but not limited to the following
cases and matters involving: x x x Money claims due from or owing to any
government agency x x x.

42

National Electrification Administration v. Commission on Audit, supra note 36;

Philippine National Bank v. Palma, G.R. No. 157279, August 9, 2005, 466 SCRA 307;
Public Estates Authority v. Commission on Audit, G.R. No. 156537, January 24, 2007;
Philippine Ports Authority v. Commission on Audit, G.R. No. 100773, October 16, 1992,
214 SCRA 653; Manila International Airport Authority v. Commission on Audit, G.R.
No. 104217, December 5, 1994, 238 SCRA 714.
The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 164196

June 22, 2007

CONSTANTINO T. GUMARU, petitioner,

vs.
QUIRINO STATE COLLEGE, respondent.
DECISION
PUNO, C.J.:
Assailed in this petition for review is the Decision1 dated November 25, 2003 of the Court of
Appeals in CA-G.R. SP No. 72603, which reversed and set aside the Order dated June 26, 2002
of the Regional Trial Court (RTC) of Quezon City, Branch 88, denying the motion to quash the
writ of execution issued in Civil Case No. Q-97-32470, as well as its Resolution dated June 17,
2004, which denied petitioners motion for reconsideration.

The facts are as follows:

On June 25, 1985, C.T. Gumaru Construction and Quirino State College, an educational
institution organized and existing under Batas
Pambansa (B.P.) Blg. 440,2 through its president, Julian A. Alvarez, entered into an Agreement3
for the construction of the state colleges building in Diffun, Quirino Province. Construction was
done in stages and was covered by supplemental agreements, because funding depended on the
state colleges annual budget allocation and fund releases from the government.
On October 17, 1997, Constantino T. Gumaru, owner and proprietor of C.T. Gumaru
Construction, filed a complaint for damages4 before the RTC of Quezon City against the state
college and Julian A. Alvarez, asking for (1) P368,493.35, the expected profits which he would
have realized from the construction of an unfinished portion of the project which was allegedly
awarded by the defendants to another contractor in violation of his preferential right to finish the
project; (2) P592,136.51, the escalation costs of construction materials and supplies; (3)
P50,000.00, the value of plaintiffs bodega allegedly demolished by the defendants; and (4),
P200,000.00 for moral and exemplary damages, attorneys fees and costs of litigation.5
On May 8, 1998, Atty. Carlos T. Aggabao, purportedly acting as counsel for the defendants,
moved to dismiss the complaint on the ground of improper venue. The motion was denied.
Defendants were directed to file an answer. When they failed to answer within the prescribed
period, they were declared in default and plaintiff was allowed to present evidence ex parte.
On February 22, 2001, the trial court decided the case in favor of the plaintiff, viz:
WHEREFORE, x x x judgment is rendered in favor of the plaintiff Gumaru and against the
defendants College and Alvarez directing the latter to JOINTLY and SEVERALLY pay the
former as follows:
1. The sum P368,493.35 for the First Cause of action;
2. The amount of P592,136.51 for the Second Cause of action;
3. The amount of P50,000.00 for the Third Cause of action;
4. P100,000.00 for moral damages and P100,000 for attorneys fees, plus costs.
5. The first three awards are with legal interests reckoned
from the filing of this case until the amounts are paid in
full.6
Defendants failed to appeal from the decision, a copy of which was duly served on Atty.
Aggabao on March 6, 2001.7 The decision became final and executory, and plaintiff moved for
the issuance of a writ of execution. On December 5, 2001, a Writ of Execution8 was issued,

directing the Ex-Officio Provincial Sheriff of Quirino Province to seize the personal properties
or, if insufficient, the real properties of the defendants to satisfy the judgment awards. The
awards amounted to P1,739,725.30, inclusive of interests and sheriffs fees.
On January 11, 2002, the Office of the Solicitor General (OSG) entered its appearance for the
first time as counsel for the defendants. At the same time, it filed a "Motion to Quash Writ of
Execution" on the following grounds: (a) defendants were not duly represented in court, since the
OSG was not notified of the proceedings; and (b) writs of execution may not be issued against
government funds and properties to satisfy court judgments.
Meanwhile, a Sheriffs Notice of Levy and Auction Sale9 was issued against two (2) parcels of
land in the name of Quirino State College,10 viz:
WHEREAS, by virtue of a Writ of Execution issued by the Hon. Abednego O. Adre, Presiding
Judge of the Regional Trial Court, x x x Branch 38, Quezon City x x x the undersigned
provincial Sheriff of Quirino in order to satisfy the amount of ONE MILLION SEVEN
HUNDRED THIRTY NINE THOUSAND SEVEN HUNDRED TWENTY FIVE AND 30/100
PESOS (P1,739,725.30) with interest thereon from the date of execution until fully paid aside
from other incidental expenses incurred in connection with enforcement of this Writ of
Execution is HEREBY LEVIED upon all rights, interest and participation of the defendant over
the property described below, to wit:
LAND
A parcel of land under ARP. No. 00411-15003 in the name of Quirino State College, Diffun,
Quirino of which land is situated at Bonifacio, Diffun, Quirino, Philippines, containing an area of
THIRTY THOUSAND (30,000) SQM. more or less.
LAND
A portion of land under ARP. No. 00415-16002 in the name of Quirino State College, Diffun,
Quirino of which land situated at Bonifacio, Diffun, Quirino, Philippines, containing an area of
11.13110161 HA. more or less.
In an "Urgent Motion" dated March 13, 2002,11 the OSG reiterated its plea for the quashal of the
writ of execution and asked the court to take judicial notice of Supreme Court Administrative
Circular No. 10-2000,12 as well as Commission on Audit (COA) Resolution No. 2000-36613 dated
December 19, 2000, which finally adjudged plaintiff liable to the state college for P4,681,670.00
in overpayments, and liquidated damages for delay in the construction of the college building.
The trial court denied the motion to quash the writ of execution.14 Without ruling on the issue of
the defendants alleged lack of legal representation, the court ruled that the properties of the state
college may be seized under the writ of execution, since it is an incorporated agency of the
government given specific powers to sue and be sued. A separate appropriation to satisfy the
judgment awards was not considered necessary, because the state colleges charter provides that

funds for the construction and repair of its buildings, machinery, equipment, and facilities shall
be taken from its annual appropriation.
The OSG filed a petition for certiorari before the Court of Appeals. On November 25, 2003, the
Court of Appeals granted the petition.15 In quashing the writ of execution, the Court of Appeals
ruled that although the funds and properties of government agencies with personalities separate
and distinct from the government are not exempt from execution or garnishment, the rule does
not apply where the incorporated government agency concerned is performing a vital
governmental function, like herein state college. In such cases, the money claim should be filed
first with the COA as provided in Presidential Decree No. 1445, otherwise known as the
Government Auditing Code of the Philippines.
Gumarus motion for reconsideration was denied. Hence, this petition raising the following
issues:
I. Whether or not, upon the facts and circumstances obtaining herein, the consent given by the
State to respondent to sue and be sued is plenary and not limited only to proceedings anterior to
the stage of execution;
II. Whether or not the money claim subject of the case below is required to be filed first with the
Commission on Audit (COA);
III. Whether or not the enforcement of the money judgment here involved is subject to rules and
procedures under Sections 49-50 of Presidential Decree No. 1445;
IV. Whether or not, being an incorporated agency of the Government, respondents liability is
controlled by the rulings on incorporated or chartered government agencies;
V. Whether or not further appropriation is required for the enforcement of the money judgment
against respondent herein; and
VI. Whether or not respondents representation below by counsel of its own choice instead of by
the OSG was proper.
Stated differently, the proper issues to be resolved are: (a) whether respondent state college was
properly represented before the trial court; (b) if in the negative, whether the lack of proper legal
representation was enough to nullify the proceedings; and (c) whether the properties of
respondent state college may be seized under the writ of execution issued by the trial court.
On the issue of legal representation, Section 35, Chapter 12, Title III, Book IV of Executive
Order No. 292, otherwise known as the Administrative Code of 1987, provides:
The Office of the Solicitor General shall represent the Government of the Philippines, its
agencies and instrumentalities and its officials and agents in any litigation, proceeding,
investigation or matter requiring the services of lawyers. When authorized by the President or
head of the office concerned, it shall also represent government owned or controlled

corporations. The Office of the Solicitor General shall constitute the law office of the
Government and, as such, shall discharge duties requiring the services of lawyers. x x x x
Under the foregoing, the OSG is mandated to act as the law office of the government, its
agencies, instrumentalities, officials and agents in any litigation or proceeding requiring the
services of a lawyer.16 With respect to government-owned or controlled corporations (GOCCs),
the OSG shall act as counsel only when authorized by the President or by the head of the office
concerned. The principal law office of GOCCs, as provided in Section 10, Chapter 3, Title III,
Book IV, of the Administrative Code of 1987,17 is the Office of the Government Corporate
Counsel (OGCC).
In the case at bar, respondent state college is classified under the Code as a chartered
institution,18 viz:
(12) Chartered institution refers to any agency organized or operating under a special charter, and
vested by law with functions relating to specific constitutional policies or objectives. This term
includes the state universities and colleges and the monetary authority of the State. (emphasis
ours)
as opposed to a GOCC defined in the following segment,19 viz:
(13) A government-owned or controlled corporation refers to any agency organized as a stock or
non-stock corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock: Provided, That government-owned or controlled
corporations may be further categorized by the Department of the Budget, the Civil Service
Commission, and the Commission on Audit for purposes of the exercise and discharge of their
respective powers, functions and responsibilities with respect to such corporations.
Therefore, the proper statutory counsel of respondent state college is the OSG. Legal
representation by Atty. Carlos T. Aggabao, a private lawyer, was clearly improper. In Gonzales v.
Chavez,20 we traced the statutory origins of the OSG and ruled that its mandate to act as the
principal law office of the government is compulsory, viz:
In x x x tracing the origins of the Office of the Solicitor General to gain a clear understanding of
the nature of the functions and extent of [its] powers x x x, it is evident that a policy decision was
made in the early beginnings to consolidate in one official the discharge of legal functions and
services of the government. x x x
xxx

xxx

xxx

x x x [T]he intent of the lawmaker was to give the designated official, the Solicitor General, x x x
the unequivocal mandate to appear for the government in legal proceedings. Spread out in the
laws creating the office is the discernible intent which may be gathered from the term "shall,"

which is invariably employed, from Act No. 136 (1901) to the more recent Executive Order No.
292 (1987).
Under the principles of statutory construction, so familiar even to law students, the term "shall"
is nothing if not mandatory.21 (emphases ours)
Thus, the Solicitor General cannot refuse to represent the government, its agencies,
instrumentalities, officials and agents without a just and valid reason. He should not desist from
appearing before the Court even in those cases where his opinions may be inconsistent with the
government or any of its agents he is expected to represent.22 As in the case of fiscals or
prosecutors, bias or prejudice and animosity or hostility do not constitute legal and valid excuses
for inhibition.23 Unlike a practicing lawyer who has the right to decline employment, a fiscal or
prosecutor, or the Solicitor General in the case at bar, cannot refuse to perform his functions
without violating his oath of office.24 Refusal to perform the duty is compellable by a writ of
mandamus.25 On the other hand, government agencies were admonished not to reject the services
of the Solicitor General, or otherwise fail or refuse to forward the papers of a case to the OSG for
appropriate action.26 Actions filed in the name of the Republic that are not initiated by the OSG
will be summarily dismissed.27 Moreover, the fee of the lawyer who rendered legal service to the
government in lieu of the OSG or the OGCC is the personal liability of the government official
who hired his services without the prior written conformity of the OSG or the OGCC, as the case
may be.28 We explained the rationale for the compulsory nature of the OSGs mandate, in this
wise:
The rationale x x x is not difficult to comprehend. Sound government operations require
consistency in legal policies and practices among the instrumentalities of the State. x x x [A]n
official learned in the law and skilled in advocacy could best plan and coordinate the strategies
and moves of the legal battles of the different arms of the government. Surely, the economy
factor, too, must have weighed heavily in arriving at such a decision.
xxx

xxx

xxx

Sound management policies require that the governments approach to legal problems and
policies formulated on legal issues be harmonized and coordinated by a specific agency. The
government owes it to its officials and their respective offices, the political units at different
levels, the public and the various sectors, local and international, that have dealings with it, to
assure them of a degree of certitude and predictability in matters of legal import.
From the historical and statutory perspectives x x x it is beyond cavil that it is the Solicitor
General who has been conferred the singular honor and privilege of being the "principal law
officer and legal defender of the Government." One would be hard put to name a single legal
group or law firm that can match the expertise, experience, resources, staff and prestige of the
OSG which were painstakingly built up for almost a century.
x x x [E]ndowed with a broad perspective that spans the legal interests of virtually the entire
government officialdom, the OSG may be expected to transcend the parochial concerns of a
particular client agency and instead, promote and protect the public weal. Given such objectivity,

it can discern, metaphorically speaking, the panoply that is the forest and not just the individual
trees. Not merely will it strive for a legal victory circumscribed by the narrow interests of the
client office or official, but as well, the vast concerns of the sovereign which it is committed to
serve.29
The Solicitor General is thus expected to be the official who would best uphold and protect the
legal interests of the government.30 His non-representation of the government is dangerous and
should not be allowed.
The magnitude of the non-representation by the OSG is nowhere more apparent than in the case
at bar. Instead of having been represented by an "official learned in the law" who will "promote
and protect the public weal" taking into consideration the "vast concerns of the sovereign which
it is committed to serve," respondent state college was instead represented by a private lawyer
who made no move to protect its interests except to file a motion to dismiss the complaint filed
against the state college, which was eventually denied by the trial court. No answer to the
complaint was filed notwithstanding due receipt of the order directing its filing, as a consequence
of which the state college was declared in default. The order of default itself was not
reconsidered, no move whatsoever having been made in that direction. The plaintiff was allowed
to present its evidence ex-parte. When the decision was rendered adjudging the state college and
its co-defendant, Julian A. Alvarez, liable to the plaintiff, no effort was made to appeal the
decision notwithstanding due receipt of a copy thereof by Atty. Aggabao on March 6, 2001.
Thus, a writ of execution was issued against the properties of the state college, which by this
time remained as the sole defendant, Julian A. Alvarez having died during the pendency of the
case and no proper substitution of parties having been made at the instance of Atty. Aggabao.
Clear, therefore, was the utter failure of justice insofar as respondent state college is concerned. It
was as if it was not represented by counsel at all. While it may be argued that the officials of
respondent state college should have informed the OSG of the suit filed against the state college,
and that it was their fault or negligence that the OSG was not informed in the first place, it is
settled, however, that the principle of estoppel does not operate against the government for the
act of its agents or their inaction.31 The State has to protect its interests and cannot be bound by,
or estopped by the mistakes or negligent acts of its officials or agents, much more, non-suited as
a result thereof.32 The legality of legal representation can be raised and questioned at any stage of
the proceedings.33
The circumstances of this case, therefore, justify the nullification of the proceedings before the
trial court, and the writ of execution issued as a consequence thereof. The state college should be
given the opportunity to present its defenses with the benefit of its statutory counsel, the OSG. A
new trial would best serve the interests of justice. With this disquisition, discussion of the other
issues is not necessary.
IN VIEW WHEREOF, the petition is DENIED. This case is REMANDED to the trial court for
trial anew, with the Office of the Solicitor General appearing as counsel for respondent Quirino
State College. The Decision dated February 22, 2001 of the Regional Trial Court of Quezon City,
Branch 88, in Civil Case No. Q-97-32470, and the assailed Decision dated November 25, 2003
and Resolution dated June 17, 2004 of the Court of Appeals in CA-G.R. SP No. 72603 are, for
this reason, VACATED and SET ASIDE.

SO ORDERED.
REYNATO S. PUNO
Chief Justice
WE CONCUR:
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
RENATO C. CORONA
Associate Justice

ADOLFO S. AZCUNA
Associate Justice

CANCIO C. GARCIA
Associate Justice
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1

Rollo, pp. 27-39.

Entitled "An Act Converting the Quirino National Agricultural School in the
Municipality of
Diffun, Province of Quirino, into a State College to be Known as the Quirino State
College, and Appropriating Funds Therefor."
3

Original Records, pp. 12-22.

Id. at 2-39.

Docketed as Civil Case No. Q-97-32470.

Decision dated February 22, 2001; original records, pp. 168-169.

See registry return receipt attached at the back of p. 169, id.

Id. at 187-188.

Id. at 221-222.

10

By this time, only Quirino State College remained as the sole defendant, Julian A.
Alvarez having
died during the pendency of the case and no substitution of parties having been made; see
Sheriffs Return dated January 30, 1992, id. at 210.
11

Id. at 215-226.

12

Re: Exercise of Utmost Caution, Prudence and Judiciousness in the Issuance of Writs

of
Execution to Satisfy Money Judgments Against Government Agencies and Local
Government Units.
13

CA rollo, pp. 47-50.

14

Original Records, pp. 240-241.

15

Supra note 1.

16

However, the OSG shall not represent government officials or agents in cases where
they are
charged criminally or are sued civilly for damages arising from a felony. See Orbos v.
Civil Service Commission, G.R. No. 92561, September 12, 1990, 189 SCRA 459 and
Urbano v. Chavez, G.R. No. 87977, March 19, 1990, 183 SCRA 347.
17

The Office of the Government Corporate Counsel (OGCC) shall act as the principal
law office of
all government-owned or controlled corporations, their subsidiaries, other corporate
offsprings and government acquired asset corporations and shall exercise control and
supervision over all legal departments or divisions maintained separately and such
powers and functions as are now or may hereafter be provided by law. In the exercise of
such control and supervision, the Government Corporate Counsel shall promulgate rules
and regulations to effectively implement the objectives of the Office. x x x x
18

Sec. 2 (12), Introductory Provisions.

19

Sec. 2 (13), Id.

20

G.R. No. 97351, February 4, 1992, 205 SCRA 816.

21

Id. at 836.

22

Orbos v. Civil Service Commission, supra at 467.

23

See Enriquez, Sr. v. Hon. Gimenez, 107 Phil. 932 (1960).

24

Id. at 937.

25

Gonzales v. Chavez, supra at 836.

26

Orbos v. Civil Service Commission, supra at 466-467. Also Gonzales v. Chavez, supra.

27

Cooperative Development Authority v. Dolefil Agrarian Reform Beneficiaries

Cooperative, Inc.,
432 Phil. 290 (2002) citing People v. Nano, G.R. No. 94639, January 13, 1992, 205
SCRA 155 and Republic of the Philippines v. Partisala, 203 Phil. 750 (1982). See also
Civil Service Commission v. Asensi, G.R. No. 160657, December 17, 2004, 447 SCRA
356 and Phividec Industrial Authority v. Capitol Steel Corporation, G.R. No. 155692,
October 23, 2003, 414 SCRA 327.
28

See Polloso v. Gangan, 390 Phil. 1101 (2000).

29

Gonzales v. Chavez, supra at 836, 846-847.

30

See Orbos v. Civil Service Commission, supra at 466.

31

National Housing Authority v. Grace Baptist Church, G.R. No. 156437, March 1, 2004,
424
SCRA 147; see also La Bugal-BLaan Tribal Association, Inc. v. Ramos, G.R. No.
127882, December 1, 2004, 445 SCRA 1; Argana v. Republic, G.R. No. 147227,
November 19, 2004, 443 SCRA 184; Philippine Ports Authority v. Sargasso Construction
and Development Corporation, G.R. No. 146478, July 30, 2004, 435 SCRA 512.
32

Republic v. Court of Appeals, G.R. No. 126316, June 25, 2004, 432 SCRA 593.

33

See Municipality of Pililla, Rizal v. Court of Appeals, G.R. No. 105909, June 28, 1994,
233 SCRA
484.