State o Immunity

POLITICAL LAW REVIEW CASES STATE OF IMMUNITY
G.R. No. 106483 May 22, 1995
ERNESTO L. CALLADO, petitioner,

vs.
INTERNATIONAL RICE RESEARCH INSTITUTE, respondent.
ROMERO, J.:
Did the International Rice Research Institute (IRRI) waive its immunity from suit in this dispute which arose from an
employer-employee relationship?
We rule in the negative and vote to dismiss the petition.
Ernesto Callado, petitioner, was employed as a driver at the IRRI from April 11, 1983 to December 14, 1990. On
February 11, 1990, while driving an IRRI vehicle on an official trip to the Ninoy Aquino International Airport and
back to the IRRI, petitioner figured in an accident.
Petitioner was informed of the findings of a preliminary investigation conducted by the IRRI's Human Resource
Development Department Manager in a Memorandum dated March 5, 1990. 1 In view of the aforesaid findings, he
was charged with:
(1) Driving an institute vehicle while on official duty under the influence of liquor;
(2) Serious misconduct consisting of your failure to report to your supervisors the failure of your
vehicle to start because of a problem with the car battery which, you alleged, required you to
overstay in Manila for more than six (6) hours, whereas, had you reported the matter to IRRI, Los
Baos by telephone, your problem could have been solved within one or two hours;
2
(3) Gross and habitual neglect of your duties.
In a Memorandum dated March 9, 1990, petitioner submitted his answer and defenses to the charges against
him. 3After evaluating petitioner's answer, explanations and other evidence, IRRI issued a Notice of Termination to
petitioner on December 7, 1990. 4
Thereafter, petitioner filed a complaint on December 19, 1990 before the Labor Arbiter for illegal dismissal, illegal
suspension and indemnity pay with moral and exemplary damages and attorney's fees.
On January 2, 1991, private respondent IRRI, through counsel, wrote the Labor Arbiter to inform him that the
Institute enjoys immunity from legal process by virtue of Article 3 of Presidential Decree No. 1620, 5 and that it
invokes such diplomatic immunity and privileges as an international organization in the instant case filed by
petitioner, not having waived the same. 6
7
IRRI likewise wrote in the same tenor to the Regional Director of the Department of Labor and Employment.
While admitting IRRI's defense of immunity, the Labor Arbiter, nonetheless, cited an Order issued by the Institute
on August 13, 1991 to the effect that "in all cases of termination, respondent IRRI waives its immunity," 8 and,
accordingly, considered the defense of immunity no longer a legal obstacle in resolving the case. The dispositive
portion of the Labor arbiter's decision dated October 31, 1991, reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering respondent to

reinstate complainant to his former position without loss or (sic) seniority rights and privileges
within five (5) days from receipt hereof and to pay his full backwages from March 7, 1990 to
October 31, 1991, in the total amount of P83,048.75 computed on the basis of his last monthly
salary. 9
The NLRC found merit in private respondent' s appeal and, finding that IRRI did not waive its immunity, ordered
the aforesaid decision of the Labor Arbiter set aside and the complaint dismissed. 10
Hence, this petition where it is contended that the immunity of the IRRI as an international organization granted by
Article 3 of Presidential Decree No. 1620 may not be invoked in the case at bench inasmuch as it waived the same
by virtue of its Memorandum on "Guidelines on the handling of dismissed employees in relation to P.D. 1620." 11
It is also petitioner's position that a dismissal of his complaint before the Labor Arbiter leaves him no other remedy
through which he can seek redress. He further states that since the investigation of his case was not referred to the
Council of IRRI Employees and Management (CIEM), he was denied his constitutional right to due process.
We find no merit in petitioner's arguments.
IRRI's immunity from suit is undisputed.
Presidential Decree No. 1620, Article 3 provides:

Page 1 of 65
Art. 3. Immunity from Legal Process. The Institute shall enjoy immunity from any penal, civil and
administrative proceedings, except insofar as that immunity has been expressly waived by the
Director-General of the Institute or his authorized representatives.
In the case of International Catholic Migration Commission v. Hon. Calleja, et al. and Kapisanan ng Manggagawa
at TAC sa IRRI v. Secretary of Labor and Employment and IRRI, 12 the Court upheld the constitutionality of the
aforequoted law. After the Court noted the letter of the Acting Secretary of Foreign Affairs to the Secretary of Labor
dated June 17, 1987, where the immunity of IRRI from the jurisdiction of the Department of Labor and Employment
was sustained, the Court stated that this opinion constituted "a categorical recognition by the Executive Branch of
the Government that . . . IRRI enjoy(s) immunities accorded to international organizations, which determination has
been held to be a political question conclusive upon the Courts in order not to embarass a political department of
Government. 13 We cited the Court's earlier pronouncement in WHO v. Hon. Benjamin Aquino, et al., 14 to wit:
It is a recognized principle of international law and under our system of separation of powers that
diplomatic immunity is essentially a political question and courts should refuse to look beyond a
determination by the executive branch of the government, and where the plea of diplomatic
immunity is recognized and affirmed by the executive branch of the government as in the case at
bar, it is then the duty of the courts to accept the claim of immunity upon appropriate suggestion by
the principal law officer of the government . . . or other officer acting under his direction. Hence, in
adherence to the settled principle that courts may not so exercise their jurisdiction . . . as to
embarass the executive arm of the government in conducting foreign relations, it is accepted
doctrine that in such cases the judicial department of (this) government follows the action of the
political branch and will not embarrass the latter by assuming an antagonistic jurisdiction. 15
Further, we held that "(t)he raison d'etre for these immunities is the assurance of unimpeded performance of their
functions by the agencies concerned.
The grant of immunity from local jurisdiction to . . . and IRRI is clearly necessitated by their
international character and respective purposes. The objective is to avoid the danger of partiality
and interference by the host country in their internal workings. The exercise of jurisdiction by the
Department of Labor in these instances would defeat the very purpose of immunity, which is to
shield the affairs of international organizations, in accordance with international practice, from
political pressure or control by the host country to the prejudice of member States of the
organization, and to ensure the unhampered the performance of their functions. 16
The grant of immunity to IRRI is clear and unequivocal and an express waiver by its Director-General is the only
way by which it may relinquish or abandon this immunity.
On the matter of waiving its immunity from suit, IRRI had, early on, made its position clear. Through counsel, the
Institute wrote the Labor Arbiter categorically informing him that the Institute will not waive its diplomatic immunity.
In the second place, petitioner's reliance on the Memorandum with "Guidelines in handling cases of dismissal of
employees in relation to P.D. 1620" dated July 26, 1983, is misplaced. The Memorandum reads, in part:
Time and again the Institute has reiterated that it will not use its immunity under P.D. 1620 for the
purpose of terminating the services of any of its employees. Despite continuing efforts on the part
of IRRI to live up to this undertaking, there appears to be apprehension in the minds of some IRRI
employees. To help allay these fears the following guidelines will be followed hereafter by the
Personnel/Legal Office while handling cases of dismissed employees.
xxx xxx xxx
2. Notification/manifestation to MOLE or labor arbiter
If and when a dismissed employee files a complaint against the Institute contesting the legality of dismissal, IRRI's
answer to the complaint will:
1. Indicate in the identification of IRRI that it is an international organization operating under the laws
of the Philippines including P.D. 1620. and
2. Base the defense on the merits and facts of the case as well as the legality of the cause or causes
for termination.
3) Waiving immunity under P.D. 1620
If the plaintiff's attorney or the arbiter, asks if IRRI will waive its immunity we may reply that the
Institute will be happy to do so, as it has in the past in the formal manner required thereby
reaffirming our commitment to abide by the laws of the Philippines and our full faith in the integrity
and impartially of the legal system. 17 (Emphasis in this paragraphs ours)
From the last paragraph of the foregoing quotation, it is clear that in cases involving dismissed employees, the
Institute may waive its immunity, signifying that such waiver is discretionary on its part.
Page 2 of 65
We agree with private respondent IRRI that this memorandum cannot, by any stretch of the imagination, be
considered the express waiver by the Director-General. Respondent Commission has quoted IRRI's reply thus:
The 1983 . . . is an internal memo addressed to Personnel and Legal Office and was issued for its
guidance in handling those cases where IRRI opts to waive its immunity. It is not a declaration of
waiver for all cases. This is apparent from the use of the permissive term "may" rather than the
mandatory term "shall" in the last paragraph of the memo. Certainly the memo cannot be
considered as the express waiver by the Director General as contemplated by P.D. 1620,
especially since the memo was issued by a former Director-General. At the very least, the express
declaration of the incumbent Director-general supersedes the 1983 memo and should be accorded
greater respect. It would be equally important to point out that the Personnel and Legal Office has
been non-existent since 1988 as a result of major reorganization of the IRRI. Cases of IRRI before
DOLE are handled by an external Legal Counsel as in this particular
case. 18 (Emphasis supplied)
The memorandum, issued by the former Director-General to a now-defunct division of the IRRI, was meant for
internal circulation and not as a pledge of waiver in all cases arising from dismissal of employees. Moreover, the
IRRI's letter to the Labor Arbiter in the case at bench made in 1991 declaring that it has no intention of waiving its
immunity, at the very least, supplants any pronouncement of alleged waiver issued in previous cases.
Petitioner's allegation that he was denied due process is unfounded and has no basis.
It is not denied that he was informed of the findings and charges resulting from an investigation conducted of his
case in accordance with IRRI policies and procedures. He had a chance to comment thereon in a Memorandum he
submitted to the Manager of the Human Resource and Development Department. Therefore, he was given proper
notice and adequate opportunity to refute the charges and findings, hereby fulfilling the basic requirements of due
process.
Finally, on the issue of referral to the Council of IRRI Employees and Management (CIEM), petitioner similarly fails
to persuade the Court.
The Court, in the Kapisanan ng mga Manggagawa at TAC sa IRRI case, 19 held:
Neither are the employees of IRRI without remedy in case of dispute with management as, in fact,
there had been organized a forum for better management-employee relationship as evidenced by
the formation of the Council of IRRI Employees and Management (CIEM) wherein "both
management and employees were and still are represented for purposes of maintaining mutual
and beneficial cooperation between IRRI and its employees." The existence of this Union factually
and tellingly belies the argument that Pres. Decree No. Decree No. 1620, which grants to IRRI the
status, privileges and immunities of an international organization, deprives its employees of the
right to self-organization.
We have earlier concluded that petitioner was not denied due process, and this, notwithstanding the non-referral to
the Council of IRRI Employees and Management. Private respondent correctly pointed out that petitioner, having
opted not to seek the help of the CIEM Grievance Committee, prepared his answer by his own self. 20 He cannot
now fault the Institute for not referring his case to the CIEM.
IN VIEW OF THE FOREGOING, the petition for certiorari is DISMISSED. No costs.
SO ORDERED.
G.R. No. 101949 December 1, 1994
THE HOLY SEE, petitioner,

vs.
THE HON. ERIBERTO U. ROSARIO, JR., as Presiding Judge of the Regional Trial Court of Makati, Branch
61 and STARBRIGHT SALES ENTERPRISES, INC., respondents.
Padilla Law Office for petitioner.
Siguion Reyna, Montecillo & Ongsiako for private respondent.
QUIASON, J.:
This is a petition for certiorari under Rule 65 of the Revised Rules of Court to reverse and set aside the Orders
dated June 20, 1991 and September 19, 1991 of the Regional Trial Court, Branch 61, Makati, Metro Manila in Civil
Case No. 90-183.
Page 3 of 65
The Order dated June 20, 1991 denied the motion of petitioner to dismiss the complaint in Civil Case No. 90-183,
while the Order dated September 19, 1991 denied the motion for reconsideration of the June 20,1991 Order.
Petitioner is the Holy See who exercises sovereignty over the Vatican City in Rome, Italy, and is represented in the
Philippines by the Papal Nuncio.
Private respondent, Starbright Sales Enterprises, Inc., is a domestic corporation engaged in the real estate
business.
This petition arose from a controversy over a parcel of land consisting of 6,000 square meters (Lot 5-A, Transfer
Certificate of Title No. 390440) located in the Municipality of Paraaque, Metro Manila and registered in the name
of petitioner.
Said Lot 5-A is contiguous to Lots 5-B and 5-D which are covered by Transfer Certificates of Title Nos. 271108 and
265388 respectively and registered in the name of the Philippine Realty Corporation (PRC).
The three lots were sold to Ramon Licup, through Msgr. Domingo A. Cirilos, Jr., acting as agent to the sellers.
Later, Licup assigned his rights to the sale to private respondent.
In view of the refusal of the squatters to vacate the lots sold to private respondent, a dispute arose as to who of the
parties has the responsibility of evicting and clearing the land of squatters. Complicating the relations of the parties
was the sale by petitioner of Lot 5-A to Tropicana Properties and Development Corporation (Tropicana).
On January 23, 1990, private respondent filed a complaint with the Regional Trial Court, Branch 61, Makati, Metro
Manila for annulment of the sale of the three parcels of land, and specific performance and damages against
petitioner, represented by the Papal Nuncio, and three other defendants: namely, Msgr. Domingo A. Cirilos, Jr., the
PRC and Tropicana (Civil Case No.
90-183).
The complaint alleged that: (1) on April 17, 1988, Msgr. Cirilos, Jr., on behalf of petitioner and the PRC, agreed to
sell to Ramon Licup Lots 5-A, 5-B and 5-D at the price of P1,240.00 per square meters; (2) the agreement to sell
was made on the condition that earnest money of P100,000.00 be paid by Licup to the sellers, and that the sellers
clear the said lots of squatters who were then occupying the same; (3) Licup paid the earnest money to Msgr.
Cirilos; (4) in the same month, Licup assigned his rights over the property to private respondent and informed the
sellers of the said assignment; (5) thereafter, private respondent demanded from Msgr. Cirilos that the sellers fulfill
their undertaking and clear the property of squatters; however, Msgr. Cirilos informed private respondent of the
squatters' refusal to vacate the lots, proposing instead either that private respondent undertake the eviction or that
the earnest money be returned to the latter; (6) private respondent counterproposed that if it would undertake the
eviction of the squatters, the purchase price of the lots should be reduced from P1,240.00 to P1,150.00 per square
meter; (7) Msgr. Cirilos returned the earnest money of P100,000.00 and wrote private respondent giving it seven
days from receipt of the letter to pay the original purchase price in cash; (8) private respondent sent the earnest
money back to the sellers, but later discovered that on March 30, 1989, petitioner and the PRC, without notice to
private respondent, sold the lots to Tropicana, as evidenced by two separate Deeds of Sale, one over Lot 5-A, and
another over Lots 5-B and 5-D; and that the sellers' transfer certificate of title over the lots were cancelled,
transferred and registered in the name of Tropicana; (9) Tropicana induced petitioner and the PRC to sell the lots
to it and thus enriched itself at the expense of private respondent; (10) private respondent demanded the
rescission of the sale to Tropicana and the reconveyance of the lots, to no avail; and (11) private respondent is
willing and able to comply with the terms of the contract to sell and has actually made plans to develop the lots into
a townhouse project, but in view of the sellers' breach, it lost profits of not less than P30,000.000.00.
Private respondent thus prayed for: (1) the annulment of the Deeds of Sale between petitioner and the PRC on the
one hand, and Tropicana on the other; (2) the reconveyance of the lots in question; (3) specific performance of the
agreement to sell between it and the owners of the lots; and (4) damages.
On June 8, 1990, petitioner and Msgr. Cirilos separately moved to dismiss the complaint petitioner for lack of
jurisdiction based on sovereign immunity from suit, and Msgr. Cirilos for being an improper party. An opposition to
the motion was filed by private respondent.
On June 20, 1991, the trial court issued an order denying, among others, petitioner's motion to dismiss after finding
that petitioner "shed off [its] sovereign immunity by entering into the business contract in question" (Rollo, pp. 20-
21).
On July 12, 1991, petitioner moved for reconsideration of the order. On August 30, 1991, petitioner filed a "Motion
for a Hearing for the Sole Purpose of Establishing Factual Allegation for claim of Immunity as a Jurisdictional
Defense." So as to facilitate the determination of its defense of sovereign immunity, petitioner prayed that a
hearing be conducted to allow it to establish certain facts upon which the said defense is based. Private
respondent opposed this motion as well as the motion for reconsideration.
On October 1, 1991, the trial court issued an order deferring the resolution on the motion for reconsideration until
after trial on the merits and directing petitioner to file its answer (Rollo, p. 22).
Page 4 of 65
Petitioner forthwith elevated the matter to us. In its petition, petitioner invokes the privilege of sovereign immunity
only on its own behalf and on behalf of its official representative, the Papal Nuncio.
On December 9, 1991, a Motion for Intervention was filed before us by the Department of Foreign Affairs, claiming
that it has a legal interest in the outcome of the case as regards the diplomatic immunity of petitioner, and that it
"adopts by reference, the allegations contained in the petition of the Holy See insofar as they refer to arguments
relative to its claim of sovereign immunity from suit" (Rollo, p. 87).
Private respondent opposed the intervention of the Department of Foreign Affairs. In compliance with the resolution
of this Court, both parties and the Department of Foreign Affairs submitted their respective memoranda.
II
A preliminary matter to be threshed out is the procedural issue of whether the petition for certiorari under Rule 65
of the Revised Rules of Court can be availed of to question the order denying petitioner's motion to dismiss. The
general rule is that an order denying a motion to dismiss is not reviewable by the appellate courts, the remedy of
the movant being to file his answer and to proceed with the hearing before the trial court. But the general rule
admits of exceptions, and one of these is when it is very clear in the records that the trial court has no alternative
but to dismiss the complaint (Philippine National Bank v. Florendo, 206 SCRA 582 [1992]; Zagada v. Civil Service
Commission, 216 SCRA 114 [1992]. In such a case, it would be a sheer waste of time and energy to require the
parties to undergo the rigors of a trial.
The other procedural question raised by private respondent is the personality or legal interest of the Department of
Foreign Affairs to intervene in the case in behalf of the Holy See (Rollo, pp. 186-190).
In Public International Law, when a state or international agency wishes to plead sovereign or diplomatic immunity
in a foreign court, it requests the Foreign Office of the state where it is sued to convey to the court that said
defendant is entitled to immunity.
In the United States, the procedure followed is the process of "suggestion," where the foreign state or the
international organization sued in an American court requests the Secretary of State to make a determination as to
whether it is entitled to immunity. If the Secretary of State finds that the defendant is immune from suit, he, in turn,
asks the Attorney General to submit to the court a "suggestion" that the defendant is entitled to immunity. In
England, a similar procedure is followed, only the Foreign Office issues a certification to that effect instead of
submitting a "suggestion" (O'Connell, I International Law 130 [1965]; Note: Immunity from Suit of Foreign
Sovereign Instrumentalities and Obligations, 50 Yale Law Journal 1088 [1941]).
In the Philippines, the practice is for the foreign government or the international organization to first secure an
executive endorsement of its claim of sovereign or diplomatic immunity. But how the Philippine Foreign Office
conveys its endorsement to the courts varies. In International Catholic Migration Commission v. Calleja, 190 SCRA
130 (1990), the Secretary of Foreign Affairs just sent a letter directly to the Secretary of Labor and Employment,
informing the latter that the respondent-employer could not be sued because it enjoyed diplomatic immunity.
In World Health Organization v. Aquino, 48 SCRA 242 (1972), the Secretary of Foreign Affairs sent the trial court a
telegram to that effect. In Baer v. Tizon, 57 SCRA 1 (1974), the U.S. Embassy asked the Secretary of Foreign
Affairs to request the Solicitor General to make, in behalf of the Commander of the United States Naval Base at
Olongapo City, Zambales, a "suggestion" to respondent Judge. The Solicitor General embodied the "suggestion" in
a Manifestation and Memorandum as amicus curiae.
In the case at bench, the Department of Foreign Affairs, through the Office of Legal Affairs moved with this Court to
be allowed to intervene on the side of petitioner. The Court allowed the said Department to file its memorandum in
support of petitioner's claim of sovereign immunity.
In some cases, the defense of sovereign immunity was submitted directly to the local courts by the respondents
through their private counsels (Raquiza v. Bradford, 75 Phil. 50 [1945]; Miquiabas v. Philippine-Ryukyus
Command, 80 Phil. 262 [1948]; United States of America v. Guinto, 182 SCRA 644 [1990] and companion cases).
In cases where the foreign states bypass the Foreign Office, the courts can inquire into the facts and make their
own determination as to the nature of the acts and transactions involved.
III
The burden of the petition is that respondent trial court has no jurisdiction over petitioner, being a foreign state
enjoying sovereign immunity. On the other hand, private respondent insists that the doctrine of non-suability is not
anymore absolute and that petitioner has divested itself of such a cloak when, of its own free will, it entered into a
commercial transaction for the sale of a parcel of land located in the Philippines.
A. The Holy See
Before we determine the issue of petitioner's non-suability, a brief look into its status as a sovereign state is in
order.
Before the annexation of the Papal States by Italy in 1870, the Pope was the monarch and he, as the Holy See,
was considered a subject of International Law. With the loss of the Papal States and the limitation of the territory
Page 5 of 65
under the Holy See to an area of 108.7 acres, the position of the Holy See in International Law became
controversial (Salonga and Yap, Public International Law 36-37 [1992]).
In 1929, Italy and the Holy See entered into the Lateran Treaty, where Italy recognized the exclusive dominion and
sovereign jurisdiction of the Holy See over the Vatican City. It also recognized the right of the Holy See to receive
foreign diplomats, to send its own diplomats to foreign countries, and to enter into treaties according to
International Law (Garcia, Questions and Problems In International Law, Public and Private 81 [1948]).
The Lateran Treaty established the statehood of the Vatican City "for the purpose of assuring to the Holy See
absolute and visible independence and of guaranteeing to it indisputable sovereignty also in the field of
international relations" (O'Connell, I International Law 311 [1965]).
In view of the wordings of the Lateran Treaty, it is difficult to determine whether the statehood is vested in the Holy
See or in the Vatican City. Some writers even suggested that the treaty created two international persons the
Holy See and Vatican City (Salonga and Yap, supra, 37).
The Vatican City fits into none of the established categories of states, and the attribution to it of "sovereignty" must
be made in a sense different from that in which it is applied to other states (Fenwick, International Law 124-125
[1948]; Cruz, International Law 37 [1991]). In a community of national states, the Vatican City represents an entity
organized not for political but for ecclesiastical purposes and international objects. Despite its size and object, the
Vatican City has an independent government of its own, with the Pope, who is also head of the Roman Catholic
Church, as the Holy See or Head of State, in conformity with its traditions, and the demands of its mission in the
world. Indeed, the world-wide interests and activities of the Vatican City are such as to make it in a sense an
"international state" (Fenwick, supra., 125; Kelsen, Principles of International Law 160 [1956]).
One authority wrote that the recognition of the Vatican City as a state has significant implication that it is
possible for any entity pursuing objects essentially different from those pursued by states to be invested with
international personality (Kunz, The Status of the Holy See in International Law, 46 The American Journal of
International Law 308 [1952]).
Inasmuch as the Pope prefers to conduct foreign relations and enter into transactions as the Holy See and not in
the name of the Vatican City, one can conclude that in the Pope's own view, it is the Holy See that is the
international person.
The Republic of the Philippines has accorded the Holy See the status of a foreign sovereign. The Holy See,
through its Ambassador, the Papal Nuncio, has had diplomatic representations with the Philippine government
since 1957 (Rollo, p. 87). This appears to be the universal practice in international relations.
B. Sovereign Immunity
As expressed in Section 2 of Article II of the 1987 Constitution, we have adopted the generally accepted principles
of International Law. Even without this affirmation, such principles of International Law are deemed incorporated as
part of the law of the land as a condition and consequence of our admission in the society of nations (United States
of America v. Guinto, 182 SCRA 644 [1990]).
There are two conflicting concepts of sovereign immunity, each widely held and firmly established. According to the
classical or absolute theory, a sovereign cannot, without its consent, be made a respondent in the courts of
another sovereign. According to the newer or restrictive theory, the immunity of the sovereign is recognized only
with regard to public acts or acts jure imperii of a state, but not with regard to private acts or acts jure gestionis
(United States of America v. Ruiz, 136 SCRA 487 [1987]; Coquia and Defensor-Santiago, Public International Law
194 [1984]).
Some states passed legislation to serve as guidelines for the executive or judicial determination when an act may
be considered as jure gestionis. The United States passed the Foreign Sovereign Immunities Act of 1976, which
defines a commercial activity as "either a regular course of commercial conduct or a particular commercial
transaction or act." Furthermore, the law declared that the "commercial character of the activity shall be determined
by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its
purpose." The Canadian Parliament enacted in 1982 an Act to Provide For State Immunity in Canadian Courts.
The Act defines a "commercial activity" as any particular transaction, act or conduct or any regular course of
conduct that by reason of its nature, is of a "commercial character."
The restrictive theory, which is intended to be a solution to the host of problems involving the issue of sovereign
immunity, has created problems of its own. Legal treatises and the decisions in countries which follow the
restrictive theory have difficulty in characterizing whether a contract of a sovereign state with a private party is an
act jure gestionis or an act jure imperii.
The restrictive theory came about because of the entry of sovereign states into purely commercial activities
remotely connected with the discharge of governmental functions. This is particularly true with respect to the
Communist states which took control of nationalized business activities and international trading.
This Court has considered the following transactions by a foreign state with private parties as acts jure imperii: (1)
the lease by a foreign government of apartment buildings for use of its military officers (Syquia v. Lopez, 84 Phil.
312 [1949]; (2) the conduct of public bidding for the repair of a wharf at a United States Naval Station (United
Page 6 of 65
States of America v. Ruiz, supra.); and (3) the change of employment status of base employees (Sanders v.
Veridiano, 162 SCRA 88 [1988]).
On the other hand, this Court has considered the following transactions by a foreign state with private parties as
acts jure gestionis: (1) the hiring of a cook in the recreation center, consisting of three restaurants, a cafeteria, a
bakery, a store, and a coffee and pastry shop at the John Hay Air Station in Baguio City, to cater to American
servicemen and the general public (United States of America v. Rodrigo, 182 SCRA 644 [1990]); and (2) the
bidding for the operation of barber shops in Clark Air Base in Angeles City (United States of America v. Guinto, 182
SCRA 644 [1990]). The operation of the restaurants and other facilities open to the general public is undoubtedly
for profit as a commercial and not a governmental activity. By entering into the employment contract with the cook
in the discharge of its proprietary function, the United States government impliedly divested itself of its sovereign
immunity from suit.
In the absence of legislation defining what activities and transactions shall be considered "commercial" and as
constituting acts jure gestionis, we have to come out with our own guidelines, tentative they may be.
Certainly, the mere entering into a contract by a foreign state with a private party cannot be the ultimate test. Such
an act can only be the start of the inquiry. The logical question is whether the foreign state is engaged in the
activity in the regular course of business. If the foreign state is not engaged regularly in a business or trade, the
particular act or transaction must then be tested by its nature. If the act is in pursuit of a sovereign activity, or an
incident thereof, then it is an act jure imperii, especially when it is not undertaken for gain or profit.
As held in United States of America v. Guinto, (supra):
There is no question that the United States of America, like any other state, will be deemed to
have impliedly waived its non-suability if it has entered into a contract in its proprietary or private
capacity. It is only when the contract involves its sovereign or governmental capacity that no such
waiver may be implied.
In the case at bench, if petitioner has bought and sold lands in the ordinary course of a real estate business, surely
the said transaction can be categorized as an act jure gestionis. However, petitioner has denied that the acquisition
and subsequent disposal of Lot 5-A were made for profit but claimed that it acquired said property for the site of its
mission or the Apostolic Nunciature in the Philippines. Private respondent failed to dispute said claim.
Lot 5-A was acquired by petitioner as a donation from the Archdiocese of Manila. The donation was made not for
commercial purpose, but for the use of petitioner to construct thereon the official place of residence of the Papal
Nuncio. The right of a foreign sovereign to acquire property, real or personal, in a receiving state, necessary for the
creation and maintenance of its diplomatic mission, is recognized in the 1961 Vienna Convention on Diplomatic
Relations (Arts. 20-22). This treaty was concurred in by the Philippine Senate and entered into force in the
Philippines on November 15, 1965.
In Article 31(a) of the Convention, a diplomatic envoy is granted immunity from the civil and administrative
jurisdiction of the receiving state over any real action relating to private immovable property situated in the territory
of the receiving state which the envoy holds on behalf of the sending state for the purposes of the mission. If this
immunity is provided for a diplomatic envoy, with all the more reason should immunity be recognized as regards
the sovereign itself, which in this case is the Holy See.
The decision to transfer the property and the subsequent disposal thereof are likewise clothed with a governmental
character. Petitioner did not sell Lot
5-A for profit or gain. It merely wanted to dispose off the same because the squatters living thereon made it almost
impossible for petitioner to use it for the purpose of the donation. The fact that squatters have occupied and are still
occupying the lot, and that they stubbornly refuse to leave the premises, has been admitted by private respondent
in its complaint (Rollo, pp. 26, 27).
The issue of petitioner's non-suability can be determined by the trial court without going to trial in the light of the
pleadings, particularly the admission of private respondent. Besides, the privilege of sovereign immunity in this
case was sufficiently established by the Memorandum and Certification of the Department of Foreign Affairs. As
the department tasked with the conduct of the Philippines' foreign relations (Administrative Code of 1987, Book IV,
Title I, Sec. 3), the Department of Foreign Affairs has formally intervened in this case and officially certified that the
Embassy of the Holy See is a duly accredited diplomatic mission to the Republic of the Philippines exempt from
local jurisdiction and entitled to all the rights, privileges and immunities of a diplomatic mission or embassy in this
country (Rollo, pp. 156-157). The determination of the executive arm of government that a state or instrumentality
is entitled to sovereign or diplomatic immunity is a political question that is conclusive upon the courts (International
Catholic Migration Commission v. Calleja, 190 SCRA 130 [1990]). Where the plea of immunity is recognized and
affirmed by the executive branch, it is the duty of the courts to accept this claim so as not to embarrass the
executive arm of the government in conducting the country's foreign relations (World Health Organization v.
Aquino, 48 SCRA 242 [1972]). As in International Catholic Migration Commission and in World Health
Organization, we abide by the certification of the Department of Foreign Affairs.
Ordinarily, the procedure would be to remand the case and order the trial court to conduct a hearing to establish
the facts alleged by petitioner in its motion. In view of said certification, such procedure would however be pointless
and unduly circuitous (Ortigas & Co. Ltd. Partnership v. Judge Tirso Velasco, G.R. No. 109645, July 25, 1994).
Page 7 of 65
IV
Private respondent is not left without any legal remedy for the redress of its grievances. Under both Public
International Law and Transnational Law, a person who feels aggrieved by the acts of a foreign sovereign can ask
his own government to espouse his cause through diplomatic channels.
Private respondent can ask the Philippine government, through the Foreign Office, to espouse its claims against
the Holy See. Its first task is to persuade the Philippine government to take up with the Holy See the validity of its
claims. Of course, the Foreign Office shall first make a determination of the impact of its espousal on the relations
between the Philippine government and the Holy See (Young, Remedies of Private Claimants Against Foreign
States, Selected Readings on Protection by Law of Private Foreign Investments 905, 919 [1964]). Once the
Philippine government decides to espouse the claim, the latter ceases to be a private cause.
According to the Permanent Court of International Justice, the forerunner of the International Court of Justice:
By taking up the case of one of its subjects and by reporting to diplomatic action or international
judicial proceedings on his behalf, a State is in reality asserting its own rights its right to ensure,
in the person of its subjects, respect for the rules of international law (The Mavrommatis Palestine
Concessions, 1 Hudson, World Court Reports 293, 302 [1924]).
WHEREFORE, the petition for certiorari is GRANTED and the complaint in Civil Case No. 90-183 against petitioner
is DISMISSED.
SO ORDERED.
[G.R. No. 154705. June 26, 2003]
THE REPUBLIC OF INDONESIA, HIS EXCELLENCY AMBASSADOR SOERATMIN, and MINISTER

COUNSELLOR AZHARI KASIM, petitioners, vs. JAMES VINZON, doing business under the name
and style of VINZON TRADE AND SERVICES, respondent.
DECISION
AZCUNA, J:
This is a petition for review on certiorari to set aside the Decision of the Court of Appeals dated May 30, 2002
and its Resolution dated August 16, 2002, in CA-G.R. SP No. 66894 entitled The Republic of Indonesia, His
Excellency Ambassador Soeratmin and Minister Counselor Azhari Kasim v. Hon. Cesar Santamaria, Presiding
Judge, RTC Branch 145, Makati City, and James Vinzon, doing business under the name and style of Vinzon
Trade and Services.
Petitioner, Republic of Indonesia, represented by its Counsellor, Siti Partinah, entered into a Maintenance
Agreement in August 1995 with respondent James Vinzon, sole proprietor of Vinzon Trade and Services. The
Maintenance Agreement stated that respondent shall, for a consideration, maintain specified equipment at the
Embassy Main Building, Embassy Annex Building and the Wisma Duta, the official residence of petitioner
Ambassador Soeratmin. The equipment covered by the Maintenance Agreement are air conditioning units,
generator sets, electrical facilities, water heaters, and water motor pumps. It is likewise stated therein that the
agreement shall be effective for a period of four years and will renew itself automatically unless cancelled by either
party by giving thirty days prior written notice from the date of expiry. [1]
Petitioners claim that sometime prior to the date of expiration of the said agreement, or before August 1999,
they informed respondent that the renewal of the agreement shall be at the discretion of the incoming Chief of
Administration, Minister Counsellor Azhari Kasim, who was expected to arrive in February 2000. When Minister
Counsellor Kasim assumed the position of Chief of Administration in March 2000, he allegedly found respondents
work and services unsatisfactory and not in compliance with the standards set in the Maintenance
Agreement.Hence, the Indonesian Embassy terminated the agreement in a letter dated August 31,
2000.[2] Petitioners claim, moreover, that they had earlier verbally informed respondent of their decision to
terminate the agreement.
On the other hand, respondent claims that the aforesaid termination was arbitrary and unlawful. Respondent
cites various circumstances which purportedly negated petitioners alleged dissatisfaction over respondents
services: (a) in July 2000, Minister Counsellor Kasim still requested respondent to assign to the embassy an
additional full-time worker to assist one of his other workers; (b) in August 2000, Minister Counsellor Kasim asked
respondent to donate a prize, which the latter did, on the occasion of the Indonesian Independence Day golf
tournament; and (c) in a letter dated August 22, 2000, petitioner Ambassador Soeratmin thanked respondent for
sponsoring a prize and expressed his hope that the cordial relations happily existing between them will continue to
prosper and be strengthened in the coming years.
Hence, on December 15, 2000, respondent filed a complaint [3] against petitioners docketed as Civil Case No.
18203 in the Regional Trial Court (RTC) of Makati, Branch 145. On February 20, 2001, petitioners filed a Motion to
Dismiss, alleging that the Republic of Indonesia, as a foreign sovereign State, has sovereign immunity from suit
Page 8 of 65
and cannot be sued as a party-defendant in the Philippines. The said motion further alleged that Ambassador
Soeratmin and Minister Counsellor Kasim are diplomatic agents as defined under the Vienna Convention on
Diplomatic Relations and therefore enjoy diplomatic immunity. [4] In turn, respondent filed on March 20, 2001, an
Opposition to the said motion alleging that the Republic of Indonesia has expressly waived its immunity from
suit. He based this claim upon the following provision in the Maintenance Agreement:
Any legal action arising out of this Maintenance Agreement shall be settled according to the laws of the Philippines
and by the proper court of Makati City, Philippines.
Respondents Opposition likewise alleged that Ambassador Soeratmin and Minister Counsellor Kasim can be sued
and held liable in their private capacities for tortious acts done with malice and bad faith.[5]
On May 17, 2001, the trial court denied herein petitioners Motion to Dismiss. It likewise denied the Motion for
Reconsideration subsequently filed.
The trial courts denial of the Motion to Dismiss was brought up to the Court of Appeals by herein petitioners in
a petition for certiorari and prohibition. Said petition, docketed as CA-G.R. SP No. 66894, alleged that the trial court
gravely abused its discretion in ruling that the Republic of Indonesia gave its consent to be sued and voluntarily
submitted itself to the laws and jurisdiction of Philippine courts and that petitioners Ambassador Soeratmin and
Minister Counsellor Kasim waived their immunity from suit.
On May 30, 2002, the Court of Appeals rendered its assailed decision denying the petition for lack of
merit.[6] On August 16, 2002, it denied herein petitioners motion for reconsideration. [7]
Hence, this petition.
In the case at bar, petitioners raise the sole issue of whether or not the Court of Appeals erred in sustaining
the trial courts decision that petitioners have waived their immunity from suit by using as its basis the
abovementioned provision in the Maintenance Agreement.
The petition is impressed with merit.
International law is founded largely upon the principles of reciprocity, comity, independence, and equality of
States which were adopted as part of the law of our land under Article II, Section 2 of the 1987 Constitution. [8] The
rule that a State may not be sued without its consent is a necessary consequence of the principles of
independence and equality of States.[9] As enunciated in Sanders v. Veridiano II,[10] the practical justification for the
doctrine of sovereign immunity is that there can be no legal right against the authority that makes the law on which
the right depends. In the case of foreign States, the rule is derived from the principle of the sovereign equality of
States, as expressed in the maxim par in parem non habet imperium. All states are sovereign equals and cannot
assert jurisdiction over one another.[11] A contrary attitude would unduly vex the peace of nations.[12]
The rules of International Law, however, are neither unyielding nor impervious to change. The increasing
need of sovereign States to enter into purely commercial activities remotely connected with the discharge of their
governmental functions brought about a new concept of sovereign immunity. This concept, the restrictive theory,
holds that the immunity of the sovereign is recognized only with regard to public acts or acts jure imperii, but not
with regard to private acts or acts jure gestionis.[13]
In United States v. Ruiz,[14] for instance, we held that the conduct of public bidding for the repair of a wharf at
a United States Naval Station is an act jure imperii. On the other hand, we considered as an act jure gestionis the
hiring of a cook in the recreation center catering to American servicemen and the general public at the John Hay
Air Station in Baguio City,[15] as well as the bidding for the operation of barber shops in Clark Air Base in Angeles
City.[16]
Apropos the present case, the mere entering into a contract by a foreign State with a private party cannot be
construed as the ultimate test of whether or not it is an act jure imperii or jure gestionis. Such act is only the start of
the inquiry. Is the foreign State engaged in the regular conduct of a business? If the foreign State is not engaged
regularly in a business or commercial activity, and in this case it has not been shown to be so engaged, the
particular act or transaction must then be tested by its nature. If the act is in pursuit of a sovereign activity, or an
incident thereof, then it is an act jure imperii.[17]
Hence, the existence alone of a paragraph in a contract stating that any legal action arising out of the
agreement shall be settled according to the laws of the Philippines and by a specified court of the Philippines is not
necessarily a waiver of sovereign immunity from suit. The aforesaid provision contains language not necessarily
inconsistent with sovereign immunity. On the other hand, such provision may also be meant to apply where the
sovereign party elects to sue in the local courts, or otherwise waives its immunity by any subsequent act.The
applicability of Philippine laws must be deemed to include Philippine laws in its totality, including the principle
recognizing sovereign immunity. Hence, the proper court may have no proper action, by way of settling the case,
except to dismiss it.
Submission by a foreign state to local jurisdiction must be clear and unequivocal. It must be given explicitly or
by necessary implication. We find no such waiver in this case.
Respondent concedes that the establishment of a diplomatic mission is a sovereign function. On the other
hand, he argues that the actual physical maintenance of the premises of the diplomatic mission, such as the
upkeep of its furnishings and equipment, is no longer a sovereign function of the State. [18]
We disagree. There is no dispute that the establishment of a diplomatic mission is an act jure imperii. A
sovereign State does not merely establish a diplomatic mission and leave it at that; the establishment of a
diplomatic mission encompasses its maintenance and upkeep. Hence, the State may enter into contracts with
private entities to maintain the premises, furnishings and equipment of the embassy and the living quarters of its
Page 9 of 65
agents and officials. It is therefore clear that petitioner Republic of Indonesia was acting in pursuit of a sovereign
activity when it entered into a contract with respondent for the upkeep or maintenance of the air conditioning units,
generator sets, electrical facilities, water heaters, and water motor pumps of the Indonesian Embassy and the
official residence of the Indonesian ambassador.
The Solicitor General, in his Comment, submits the view that, the Maintenance Agreement was entered into
by the Republic of Indonesia in the discharge of its governmental functions.In such a case, it cannot be deemed to
have waived its immunity from suit. As to the paragraph in the agreement relied upon by respondent, the Solicitor
General states that it was not a waiver of their immunity from suit but a mere stipulation that in the event they do
waive their immunity, Philippine laws shall govern the resolution of any legal action arising out of the agreement
and the proper court in Makati City shall be the agreed venue thereof. [19]
On the matter of whether or not petitioners Ambassador Soeratmin and Minister Counsellor Kasim may be
sued herein in their private capacities, Article 31 of the Vienna Convention on Diplomatic Relations provides:
xxx
1. A diplomatic agent shall enjoy immunity from the criminal jurisidiction of the receiving State. He shall also enjoy
immunity from its civil and administrative jurisdiction, except in the case of:
(a) a real action relating to private immovable property situated in the territory of the receiving State, unless he
holds it on behalf of the sending State for the purposes of the mission;
(b) an action relating to succession in which the diplomatic agent is involved as executor, administrator, heir or
legatee as a private person and not on behalf of the sending State;
(c) an action relating to any professional or commercial activity exercised by the diplomatic agent in the receiving
State outside his official functions.
xxx
The act of petitioners Ambassador Soeratmin and Minister Counsellor Kasim in terminating the Maintenance
Agreement is not covered by the exceptions provided in the abovementioned provision.
The Solicitor General believes that said act may fall under subparagraph (c) thereof, [20] but said provision
clearly applies only to a situation where the diplomatic agent engages in any professional or commercial
activity outside official functions, which is not the case herein.
WHEREFORE, the petition is hereby GRANTED. The decision and resolution of the Court of Appeals in CA
G.R. SP No. 66894 are REVERSED and SET ASIDE and the complaint in Civil Case No. 18203 against petitioners
is DISMISSED.
No costs.
SO ORDERED.
G.R. No. 79253 March 1, 1993
UNITED STATES OF AMERICA and MAXINE BRADFORD, petitioners,

vs.
HON. LUIS R. REYES, as Presiding Judge of Branch 22, Regional Trial Court of Cavite, and NELIA T.
MONTOYA, respondents.
Luna, Sison & Manas for petitioners.
Evelyn R. Dominguez for private respondent.
DAVIDE, JR., J.:
This is a petition for certiorari and prohibition under Rule 65 of the Rules of Court. Petitioners would have Us annul
and set aside, for having been issued with grave abuse of discretion amounting to lack of jurisdiction, the
Resolution of 17 July 1987 of Branch 22 of the Regional Trial Court (RTC) of Cavite in Civil Case No. 224-87. The
said resolution denied, for lack of merit, petitioners' motion to dismiss the said case and granted the private
respondent's motion for the issuance of a writ of preliminary attachment. Likewise sought to be set aside is the writ
of attachment subsequently issued by the RTC on 28 July 1987.
The doctrine of state immunity is at the core of this controversy.
The readings disclose the following material operative facts:
Page 10 of 65
Private respondent, hereinafter referred to as Montoya, is an American citizen who, at the time material to this
case, was employed as an identification (I.D.) checker at the U.S. Navy Exchange (NEX) at the Joint United States
Military Assistance Group (JUSMAG) headquarters in Quezon City. She is married to one Edgardo H. Montoya, a
Filipino-American serviceman employed by the U.S. Navy and stationed in San Francisco, California. Petitioner
Maxine Bradford, hereinafter referred to as Bradford, is likewise an American citizen who was the activity exchange
manager at the said JUSMAG Headquarters.
As a consequence of an incident which occurred on 22 January 1987 whereby her body and belongings were
searched after she had bought some items from the retail store of the NEX JUSMAG, where she had purchasing
privileges, and while she was already at the parking area, Montoya filed on
7 May 1987 a complaint 1 with the Regional Trial Court of her place of residence Cavite against Bradford for
damages due to the oppressive and discriminatory acts committed by the latter in excess of her authority as store
manager of the NEX JUSMAG. The complaint, docketed as Civil Case No. 224-87 and subsequently raffled off to
Branch 22 at Imus, Cavite, alleges the following, material operative facts:
xxx xxx xxx
3. That on January 22, 1987, after working as the duty ID checker from 7:45 to 11:45 a.m., plaintiff
went shopping and left the store at l2:00 noon of that day;
4. That on the way to her car while already outside the store, Mrs. Yong Kennedy, also an ID
checker, upon the instruction of the store manager, Ms. Maxine Bradford, approached plaintiff and
informed her that she needed to search her bags;
5. That plaintiff went to defendant, who was then outside the store talking to some men, to protest
the search but she was informed by the defendant that the search is to be made on all Jusmag
employees that day;
6. That the search was thereafter made on the person, car and bags of the plaintiff by Mrs. Yong
Kennedy in the presence of the defendant and numerous curious onlookers;
7. That having found nothing irregular on her person and belongings, plaintiff was allowed to leave
the premises;
8. That feeling aggrieved, plaintiff checked the records and discovered that she was the only one
whose person and belonging was (sic) searched that day contrary to defendant's allegation as set
forth in par. 5 hereof and as evidenced by the memorandum dated January 30, 1987 made by
other Filipino Jusmag employees, a photocopy of which is hereto attached as ANNEX "A" and
made integral (sic) part hereof:
9. That moreover, a check with Navy Exchange Security Manager, R.L. Roynon on January 27,
1987 was made and she was informed by Mr. Roynon that it is a matter of policy that customers
and employees of NEX Jusmag are not searched outside the store unless there is a very strong
evidence of a wrongdoing;
10. That plaintiff knows of no circumstances sufficient to trigger suspicion of a wrongdoing on her
part but on the other hand, is aware of the propensity of defendant to lay suspicion on Filipinos for
theft and/or shoplifting;
11. That plaintiff formally protested the illegal search on February 14, 1987 in a letter addressed to
Mr. R.L. Roynon, a photocopy of which is hereto attached as ANNEX "B" and made integral (sic)
part hereof; but no action was undertaken by the said officer;
12. That the illegal search on the person and belongings of the plaintiff in front of many people has
subjected the plaintiff to speculations of theft, shoplifting and such other wrongdoings and has
exposed her to contempt and ridicule which was caused her undue embarrassment and indignity;
13. That since the act could not have been motivated by other (sic) reason than racial
discrimination in our own land, the act constitute (sic) a blow to our national pride and dignity
which has caused the plaintiff a feeling of anger for which she suffers sleepless nights and
wounded feelings;
14. That considering the above, plaintiff is entitled to be compensated by way of moral damages in
the amount of P500,000.00;
15. That to serve as a deterrent to those inclined to follow the oppressive act of the defendant,
exemplary damages in the amount of P100,000.00 should also be awarded. 2
She then prayed for judgment ordering Bradford to pay her P500,000.00 as moral damages, P100,000.00 as
exemplary damages and reasonable attorney's fees plus the costs of the suit. 3
Page 11 of 65
Summons and a copy of the complaint were served on Bradford on 13 May 1987. In response thereto, she filed
two (2) motions for extension of time to file her Answer which were both granted by the trial court. The first was
filed through Atty. Miguel Famularcano, Jr., who asked for a 20-day extension from 28 May 1987. The second, filed
through the law firm of Luna, Sison and Manas, sought a 15-day extension from 17 June 1987. 4 Thus, Bradford
had up to 1 July 1987 to file her Answer. Instead of doing so, however, she, together with the government of the
United States of America (hereinafter referred to as the public petitioner), filed on 25 June 1987, also through the
law firm of Luna, Sison and Manas, a Motion to Dismiss 5 based on the following grounds:
1) (This) action is in effect a suit against the United States of America, a foreign sovereign immune
from suit without its consent for the cause of action pleaded in the complaint; and
2) Defendant, Maxine Bradford, as manager of the US Navy Exchange Branch at JUSMAG,

Quezon City, is immune from suit for act(s) done by her in the performance of her official functions
under the Philippines-United States Military Assistance Agreement of 1947 and Military Bases
Agreement of 1947, as amended. 6
In support of the motion, the petitioners claimed that JUSMAG, composed of an Army, Navy and Air Group, had
been established under the Philippine-United States Military Assistance Agreement entered into on 21 March 1947
to implement the United States' program of rendering military assistance to the Philippines. Its headquarters in
Quezon City is considered a temporary installation under the provisions of Article XXI of the Military Bases
Agreement of 1947. Thereunder, "it is mutually agreed that the United States shall have the rights, power and
authority within the bases which are necessary for the establishment, use and operation and defense thereof or
appropriate for the control thereof." The 1979 amendment of the Military Bases Agreement made it clear that the
United States shall have "the use of certain facilities and areas within the bases and shall have effective command
and control over such facilities and over United States personnel, employees, equipment and material." JUSMAG
maintains, at its Quezon City headquarters, a Navy Exchange referred to as the NEX-JUSMAG. Checking of
purchases at the NEX is a routine procedure observed at base retail outlets to protect and safeguard merchandise,
cash and equipment pursuant to paragraphs 2 and 4(b) of NAVRESALEACT SUBIC INST. 5500.1. 7 Thus,
Bradford's order to have purchases of all employees checked on 22 January 1987 was made in the exercise of her
duties as Manager of the NEX-JUSMAG.
They further claimed that the Navy Exchange (NAVEX), an instrumentality of the U.S. Government, is considered
essential for the performance of governmental functions. Its mission is to provide a convenient and reliable source,
at the lowest practicable cost, of articles and services required for the well-being of Navy personnel, and of funds
to be used for the latter's welfare and recreation. Montoya's complaint, relating as it does to the mission, functions
and responsibilities of a unit of the United States Navy, cannot then be allowed. To do so would constitute a
violation of the military bases agreement. Moreover, the rights, powers and authority granted by the Philippine
government to the United States within the U.S. installations would be illusory and academic unless the latter has
effective command and control over such facilities and over American personnel, employees, equipment and
material. Such rights, power and authority within the bases can only be exercised by the United States through the
officers and officials of its armed forces, such as Bradford. Baer vs. Tizon 8 and United States of America vs.
Ruiz 9 were invoked to support these claims.
On 6 July 1987, Montoya filed a motion for preliminary attachment 10 on the ground that Bradford was about to
depart from the country and was in the process of removing and/or disposing of her properties with intent to
defraud her creditors. On 14 July 1987, Montoya filed her opposition to the motion to dismiss 11 alleging therein
that the grounds proffered in the latter are bereft of merit because (a) Bradford, in ordering the search upon her
person and belongings outside the NEX JUSMAG store in the presence of onlookers, had committed an improper,
unlawful and highly discriminatory act against a Filipino employee and had exceeded the scope of her authority; (b)
having exceeded her authority, Bradford cannot rely on the sovereign immunity of the public petitioner because her
liability is personal; (c) Philippine courts are vested with jurisdiction over the case because Bradford is a civilian
employee who had committed the challenged act outside the U.S. Military Bases; such act is not one of those
exempted from the jurisdiction of Philippine courts; and (d) Philippine courts can inquire into the factual
circumstances of the case to determine whether or not Bradford had acted within or outside the scope of her
authority.
On 16 July 1987, public petitioner and Bradford filed a reply to Montoya's opposition and an opposition to the
motion for preliminary attachment. 12
On 17 July 1987, 13 the trial court 14 resolved both the motion to dismiss and the motion for preliminary attachment
in this wise:
On the motion to dismiss, the grounds and arguments interposed for the dismissal of this case are
determined to be not indubitable. Hence, the motion is denied for lack of merit.
The motion for preliminary attachment is granted in the interest of justice, upon the plaintiff's filing
of a bond in the sum of P50,000.00.
Upon Montoya's filing of the required bond, the trial court issued on 28 July 1987 an Order 15 decreeing the
issuance of a writ of attachment and directing the sheriff to serve the writ immediately at the expense of the private
respondent. The writ of attachment was issued on that same date. 16
Page 12 of 65
Instead of filing a motion to reconsider the last two (2) orders, or an answer insofar as Bradford is concerned
both the latter and the public petitioner filed on 6 August 1987 the instant petition to annul and set aside the above
Resolution of 17 July 1987 and the writ of attachment issued pursuant thereto. As grounds therefor, they allege
that:
10. The respondent judge committed a grave abuse of discretion amounting to lack of jurisdiction
in denying the motion to dismiss the complaint in Civil Case No. 224-87 "for lack of merit." For the
action was in effect a suit against the United States of America, a foreign sovereign immune from
suit without its consent for the cause of action pleaded in the complaint, while its co-petitioner was
immune from suit for act(s) done by her in the performance of her official functions as manager of
the US Navy Exchange Branch at the Headquarters of JUSMAG, under the Philippines-United
States Military Assistance Agreement of 1947 and Military Bases Agreement of 1947, as
amended. 17
On 5 August 1987, the trial court set Civil Case No. 224-87 for pre-trial and trial on 27 August 1987 at 9:30 a.m. 18
19
On 12 August 1987, this Court resolved to require the respondents to comment on the petition.
On 19 August 1987, petitioners filed with the trial court a Motion

to Suspend Proceedings 20 which the latter denied in its Order of 21 August 1987. 21
In the meantime, however, for failure to file an answer, Bradford was declared in default in Civil Case No. 224-87
and Montoya was allowed to present her evidence ex-parte. 22 She thus took the witness stand and presented Mrs.
Nam Thi Moore and Mrs. Miss Yu as her witnesses.
On 10 September 1987, the trial court rendered its decision 23 in Civil Case No. 224-87, the dispositive portion of
which reads:
Prescinding from the foregoing, it is hereby determined that the unreasonable search on the
plaintiff's person and bag caused (sic) done recklessly and oppressively by the defendant,
violated, impaired and undermined the plaintiff's liberty guaranteed by the Constitution, entitling
her to moral and exemplary damages against the defendant. The search has unduly subjected the
plaintiff to intense humiliation and indignities and had consequently ridiculed and embarrassed
publicly said plaintiff so gravely and immeasurably.
WHEREFORE, judgment is hereby rendered for the plaintiff and against the defendant Maxine
Bradford assessing the latter to pay unto the former the sums of P300,000.00 for moral damages,
P100,000.00 for exemplary damages and P50,000.00 for actual expenses and attorney's fees.
No costs.
SO ORDERED. 24
Bradford received a copy of the decision on 21 September 1987. On that same date, she and the public petitioner
filed with this Court a Petition for Restraining Order 25 which sought to have the trial court's decision vacated and to
prevent the execution of the same; it was also prayed that the trial court be enjoined from continuing with Civil
Case No. 224-87. We noted this pleading in the Resolution of 23 September 1987. 26
In the meantime, since no motion for reconsideration or appeal had been interposed by Bradford challenging the
10 September 1987 Decision which she had received on 21 September 1987, respondent Judge issued on 14
October 1987 an order directing that an entry of final judgment be made. A copy thereof was received by Bradford
on 21 October, 1987. 27
Also on 14 October 1987, Montoya filed her Comment with Opposition to the Petition for Restraining
Order. 28Respondent Judge had earlier filed his own Comment to the petition on 14 September 1987. 29
On 27 October 1987, Montoya filed before the trial court a motion for the execution of the Decision of 10
September 1987 which petitioners opposed on the ground that although this Court had not yet issued in this case a
temporary restraining order, it had nevertheless resolved to require the respondents to comment on the petition. It
was further averred that execution thereof would cause Bradford grave injury; moreover, enforcement of a writ of
execution may lead to regrettable incidents and unnecessarily complicate the situation in view of the public
petitioner's position on the issue of the immunity of its employees. In its Resolution of 11 November 1987, the trial
court directed the issuance of a writ of execution. 30
Consequently, the petitioners filed on 4 December 1987, a Manifestation and Motion reciting the foregoing
incidents obtaining before the trial court and praying that their petition for a restraining order be resolved. 31
On 7 December 1987, this Court issued a Temporary Restraining Order "ENJOINING the respondents and the
Provincial Sheriff of Pasig, Metro Manila, from enforcing the Decision dated September 10, 1987, and the Writs of
Attachment and Execution issued in Civil Case No. 224-87." 32
Page 13 of 65
On 28 November 1988, after the private respondent filed a Rejoinder to the Consolidated Reply to the Comments
filed by the petitioners, this Court gave due course to the petition and required the parties to submit their respective
memoranda-Petitioners filed their Memorandum on 8 February
1989 33 while private respondent filed her Memorandum on 14 November
1990. 34
The kernel issue presented in this case is whether or not the trial court committed grave abuse of discretion in
denying the motion to dismiss based on the following grounds: (a) the complaint in Civil Case No. 224-87 is in
effect a suit against the public petitioner, a foreign sovereign immune from suit which has not given consent to
such suit and (b) Bradford is immune from suit for acts done by her in the performance of her official functions as
manager of the U.S. Navy Exchange of JUSMAG pursuant to the Philippines-United States Military Assistance
Agreement of 1947 and the Military Bases Agreement of 1947, as amended.
Aside from maintaining the affirmative view, the public petitioner and Bradford even go further by asserting that
even if the latter's act were ultra vires she would still be immune from suit for the rule that public officers or
employees may be sued in their personal capacity for ultra vires and tortious acts is "domestic law" and not
applicable in International Law. It is claimed that the application of the immunity doctrine does not turn upon the
lawlessness of the act or omission attributable to the foreign national for if this were the case, the concept of
immunity would be meaningless as inquiry into the lawlessness or illegality of the act or omission would first have
to be made before considering the question of immunity; in other words, immunity will lie only if such act or
omission is found to be lawful.
On the other hand, Montoya submits that Bradford is not covered by the protective mantle of the doctrine of
sovereign immunity from suit as the latter is a mere civilian employee of JUSMAG performing non-governmental
and proprietary functions. And even assuming arguendo that Bradford is performing governmental functions, she
would still remain outside the coverage of the doctrine of state immunity since the act complained of is ultra vires or
outside the scope of her authority. What is being questioned is not the fact of search alone, but also the manner in
which the same was conducted as well as the fact of discrimination against Filipino employees. Bradford's
authority to order a search, it is asserted, should have been exercised with restraint and should have been in
accordance with the guidelines and procedures laid down by the cited "NAVRESALEACT, Subic Inst." Moreover,
ultra vires acts of a public officer or employee, especially tortious and criminal acts, are his private acts and may
not be considered as acts of the State. Such officer or employee alone is answerable for any liability arising
therefrom and may thus be proceeded against in his personal capacity.
Montoya further argues that both the acts and person of Bradford are not exempt from the Philippine courts'
jurisdiction because (a) the search was conducted in a parking lot at Scout Borromeo, Quezon City, outside the
JUSMAG store and, therefore, outside the territorial control of the U.S. Military Bases in the Philippines; (b)
Bradford does not possess diplomatic immunity under Article 16(b) of the 1953 Military Assistance Agreement
creating the JUSMAG which provides that only the Chief of the Military Advisory Group and not more than six (6)
other senior members thereof designated by him will be accorded diplomatic immunity; 35 and (c) the acts
complained of do not fall under those offenses where the U.S. has been given the right to exercise its jurisdiction
(per Article 13 of the 1947 Military Bases Agreement, as amended by the, Mendez-Blair Notes of 10 August
1965). 36
Finally, Montoya maintains that at the very least, Philippine courts may inquire into the factual circumstances of the
case to determine whether petitioner Bradford is immune from suit or exempt from Philippine jurisdiction. To rule
otherwise would render the Philippine courts powerless as they may be easily divested of their jurisdiction upon the
mere invocation of this principle of immunity from suit.
A careful review of the records of this case and a judicious scrutiny of the arguments of both parties yield nothing
but the weakness of the petitioners' stand. While this can be easily demonstrated, We shall first consider some
procedural matters.
Despite the fact that public petitioner was not impleaded as a defendant in Civil Case No. 224-87, it nevertheless
joined Bradford in the motion to dismiss on the theory that the suit was in effect against it without, however,
first having obtained leave of court to intervene therein. This was a procedural lapse, if not a downright improper
legal tack. Since it was not impleaded as an original party, the public petitioner could, on its own volition, join in the
case only by intervening therein; such intervention, the grant of which is discretionary upon the court, 37 may be
allowed only upon a prior motion for leave with notice to all the parties in the action. Of course, Montoya could
have also impleaded the public petitioner as an additional defendant by amending the complaint if she so believed
that the latter is an indispensible or necessary party.
Since the trial court entertained the motion to dismiss and the subsequent pleadings filed by the public petitioner
and Bradford, it may be deemed to have allowed the public petitioner to intervene. Corollarily, because of its
voluntary appearance, the public petitioner must be deemed to have submitted itself to the jurisdiction of the trial
court.
Moreover, the said motion does not specify any of the grounds for a motion to dismiss enumerated in Section 1,
Rule 16 of the Rules of Court. It merely recites state immunity on the part of the public petitioner and immunity on
the part of Bradford for the reason that the act imputed to her was done in the performance of her official functions.
The upshot of this contention is actually lack of cause of action a specific ground for dismissal under the
aforesaid Rule because assuming arguendo that Montoya's rights had been violated by the public petitioner and
Bradford, resulting in damage or injury to the former, both would not be liable therefor, and no action may be
maintained thereon, because of the principle of state immunity.
Page 14 of 65
The test of the sufficiency of the facts to constitute a cause of action is whether or not, admitting the facts alleged
in the complaint, the court could render a valid judgment upon the same, in accordance with the prayer in the
complaint. 38
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.
In deciding a motion to dismiss, a court may grant, deny, allow amendments to the pleadings or defer the hearing
and determination of the same if the ground alleged does not appear to be indubitable. 39 In the instant case, while
the trial court concluded that "the grounds and arguments interposed for the dismissal" are not "indubitable," it
denied the motion for lack of merit. What the trial court should have done was to defer there solution on the motion
instead of denying it for lack of merit.
In any event, whatever may or should have been done, the public petitioner and Bradford were not expected to
accept the verdict, making their recourse to this Court via the instant petition inevitable. Thus, whether the trial
court should have deferred resolution on or denied outright the motion to dismiss for lack of merit is no longer
pertinent or relevant.
The complaint in Civil Case No. 224-87 is for damages arising from what Montoya describes as an "illegal search"
on her "person and belongings" conducted outside the JUSMAG premises in front of many people and upon the
orders of Bradford, who has the propensity for laying suspicion on Filipinos for theft or shoplifting. It is averred that
the said search was directed only against Montoya.
Howsoever viewed, it is beyond doubt that Montoya's cause of action is premised on the theory that the acts
complained of were committed by Bradford not only outside the scope of her authority or more specifically, in
her private capacity but also outside the territory where she exercises such authority, that is, outside the NEX-
JUSMAG particularly, at the parking area which has not been shown to form part of the facility of which she was
the manager. By their motion to dismiss, public petitioner and Bradford are deemed to have hypothetically admitted
the truth of the allegation in the complaint which support this theory.
The doctrine of state immunity and the exceptions thereto are summarized in Shauf vs. Court of Appeals, 40 thus:
I. The rule that a state may not be sued without its consent, now expressed in Article XVI Section
3, of the 1987 Constitution, is one of the generally accepted principles of international law that we
have adopted as part of the law of our land under Article II, Section 2. This latter provision merely
reiterates a policy earlier embodied in the 1935 and 1973 Constitutions and also intended to
manifest our resolve to abide by the rules of the international community. 41
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. 42 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. 43 "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 or the State, he violates or invades the personal and property rights of
the plaintiff, under an unconstitutional act or under an assumption of authority which he does not
have, is not a suit against the State within
the constitutional provision that the State may not be sued without its consent." 44 The rationale for
this ruling is that the doctrinaire of state immunity cannot be used as an instrument for perpetrating
an injustice. 45
In the case of Baer, etc. vs. Tizon, etc., et al., 46 it was ruled that:
There should be no misinterpretation of the scope of the decision reached by this

Court. Petitioner, as the Commander of the United States Naval Base in
Olongapo, does not possess diplomatic immunity. He may therefore be proceeded
against in his personal capacity, or when the action taken by him cannot be
imputed to the government which he represents.
47
Also, in Animos, et al. vs. Philippine Veterans Affairs Office, et al., we held that:
. . . it is equally well-settled that where a litigation may have adverse

consequences on the public treasury, whether in the disbursements of funds or
Page 15 of 65
loss of property, the public official proceeded against not being liable in his
personal capacity, then the doctrine of non-suability may appropriately be invoked.
It has no application, however, where the suit against such a functionary had to be
instituted because of his failure to comply with the duty imposed by statute
appropriating public funds for the benefit of plaintiff or petitioner. . . . .
The aforecited authorities are clear on the matter. They state that 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. 48
The agents and officials of the United States armed forces stationed in Clark Air Base are no
exception to this rule. In the case of United States of America, et al. vs. Guinto, etc., et al.,
ante, 49 we declared:
It bears stressing at this point that the above observations do not confer on the
United States of America Blanket immunity for all acts done by it or its agents in
the Philippines. Neither may the other petitioners claim that they are also insulated
from suit in this country merely because they have acted as agents of the United
States in the discharge of their official functions.
Since it is apparent from the complaint that Bradford was sued in her private or personal capacity for acts allegedly
done beyond the scope and even beyond her place of official functions, said complaint is not then vulnerable to a
motion to dismiss based on the grounds relied upon by the petitioners because as a consequence of the
hypothetical admission of the truth of the allegations therein, the case falls within the exception to the doctrine of
state immunity.
In the recent cases of Williams vs. Rarang 50 and Minucher vs. Court of Appeals, 51 this Court reiterated this
exception. In the former, this Court observed:
There is no question, therefore, that the two (2) petitioners actively participated in screening the
features and articles in the POD as part of their official functions. Under the rule that U.S. officials
in the performance of their official functions are immune from suit, then it should follow that
petitioners may not be held liable for the questioned publication.
It is to be noted, however, that the petitioners were sued in their personal capacities for their
alleged tortious acts in publishing a libelous article.
The question, therefore, arises are American naval officers who commit a crime or tortious act
while discharging official functions still covered by the principle of state immunity from suit?
Pursuing the question further, does the grant of rights, power, and authority to the United States
under the RP-US Bases Treaty cover immunity of its officers from crimes and torts? Our answer is
No.
In the latter, even on the claim of diplomatic immunity which Bradford does not in fact pretend to have in the
instant case as she is not among those granted diplomatic immunity under Article 16(b) of the 1953 Military
Assistance Agreement creating the JUSMAG 52 this Court ruled:
Even Article 31 of the Vienna Convention on Diplomatic Relations admits of exceptions. It reads:
1. A diplomatic agent shall enjoy immunity from the criminal jurisdiction of the
receiving State. He shall also enjoy immunity from its civil and administrative
jurisdiction except in the case of:
xxx xxx xxx
(c) an action relating to any professional or commercial activity

exercised by the diplomatic agent in the receiving State outside
his official functions (Emphasis supplied).
There can be no doubt that on the basis of the allegations in the complaint, Montoya has a sufficient and viable
cause of action. Bradford's purported non-suability on the ground of state immunity is then a defense which may be
pleaded in the answer and proven at the trial.
Since Bradford did not file her Answer within the reglementary period, the trial court correctly declared her in
default upon motion of the private respondent. The judgment then rendered against her on 10 September 1987
after the ex parte reception of the evidence for the private respondent and before this Court issued the Temporary
Restraining Order on 7 December 1987 cannot be impugned. The filing of the instant petition and the knowledge
Page 16 of 65
thereof by the trial court did not prevent the latter from proceeding with Civil Case No.
224-87. "It is elementary that the mere pendency of a special civil action for certiorari, commenced in relation to a
case pending before a lower Court, does not interrupt the course of the latter when there is no writ of injunction
restraining it." 53
WHEREFORE, the instant petition is DENIED for lack of merit. The Temporary Restraining Order of 7 December
1987 is hereby LIFTED.
Costs against petitioner Bradford.
SO ORDERED.
[G.R. No. 131544. March 16, 2001]
EPG CONSTRUCTION CO., CIPER ELECTRICAL & ENGINEERING, SEPTA CONSTRUCTION CO., PHIL.
PLUMBING CO., HOME CONSTRUCTION INC., WORLD BUILDERS CO., GLASS WORLD INC.,
PERFORMANCE BUILDERS DEVT. CO., DE LEON-ARANETA CONST. CO., J.D. MACAPAGAL
CONST. CO., All represented by their Atty. IN FACT, MARCELO D, FORONDA, petitioners, vs. HON.
GREGORIO R. VIGILAR, In His Capacity as Secretary of Public Works and Highways, respondent.
DECISION
BUENA, J.:
Sought to be reversed in the instant Petition for Certiorari is the Decision, dated 07 November 1997, of the
Regional Trial Court of Quezon City, Branch 226, in Civil Case No. Q-96-29243,[1] dismissing the Petition for
Mandamus filed by herein petitioners against herein respondent Hon. Gregorio Vigilar, in his capacity as Secretary
of the Department of Public Works and Highways (DPWH).
The tapestry of facts unfurls.
In 1983, the Ministry of Human Settlement, through the BLISS Development Corporation, initiated a housing
project on a government property along the east bank of the Manggahan Floodway in Pasig City. For this purpose,
the Ministry of Human Settlement entered into a Memorandum of Agreement (MOA) with the Ministry of Public
Works and Highways,[2] where the latter undertook to develop the housing site and construct thereon 145 housing
units.
By virtue of the MOA, the Ministry of Public Works and Highways forged individual contracts with herein
petitioners EPG Construction Co., Ciper Electrical and Engineering, Septa Construction Co., Phil. Plumbing Co.,
Home Construction Inc., World Builders Inc., Glass World Inc., Performance Builders Development Co. and De
Leon Araneta Construction Co., for the construction of the housing units.Under the contracts, the scope of
construction and funding therefor covered only around 2/3 of each housing unit.[3] After complying with the terms of
said contracts, and by reason of the verbal request and assurance of then DPWH Undersecretary Aber Canlas that
additional funds would be available and forthcoming, petitioners agreed to undertake and perform additional
constructions[4] for the completion of the housing units, despite the absence of appropriations and written contracts
to cover subsequent expenses for the additional constructions.
Petitioners then received payment for the construction work duly covered by the individual written contracts,
thereby leaving an unpaid balance of P5,918,315.63,[5] which amount represents the expenses for the additional
constructions for the completion of the existing housing units. On 14 November 1988, petitioners sent a demand
letter to the DPWH Secretary and submitted that their claim for payment was favorably recommended by DPWH
Assistant Secretary for Legal Services Dominador Madamba, who recognized the existence of implied
contracts covering the additional constructions. Notwithstanding, DPWH Assistant Secretary Madamba opined
that payment of petitioners money claims should be based on quantum meruit and should be forwarded to the
Commission on Audit (COA) for its due consideration and approval. The money claims were then referred to COA
which returned the same to the DPWH Auditor for auditorial action. On the basis of the Inspection Report of the
Auditors Technical Staff, the DPWH Auditor interposed no objection to the payment of the money claims subject to
whatever action the COA may adopt.
In a Second Indorsement dated 27 July 1992, the COA returned the documents to the DPWH, stating that
funds should first be made available before COA could pass upon and act on the money claims.In a Memorandum
dated 30 July 1992, then DPWH Secretary Jose De Jesus requested the Secretary of Budget and Management to
release public funds for the payment of petitioners money claims, stating that the amount is urgently needed in
order to settle once and for all this (sic) outstanding obligations of the government. In a Letter of the
Undersecretary of Budget and Management dated 20 December 1994, the amount of P5,819,316.00 was then
released for the payment of petitioners money claims, under Advise of Allotment No. A4-1303-04-41-303.
In an Indorsement dated 27 December 1995, the COA referred anew the money claims to the DPWH
pursuant to COA Circular 95-006, thus:
Page 17 of 65
Respectfully returned thru the Auditor to the Honorable Secretary, Department of Public Works and Highways, Port
Area, Manila, the above-captioned subject (Re: Claim of Ten (10) contractors for payment of Work
accomplishments on the construction of the COGEO II Housing Project, Pasig, Metro Manila) and reiterating the
policy of this office as embodied in COA Circular No. 95-006 dated May 18, 1995 totally lifting its pre-audit activities
on all financial transactions of the agencies of the government involving implementation/prosecution of projects
and/or payment of claims without exception so as to vest on agency heads the prerogative to exercise fiscal
responsibility thereon.
The audit of the transaction shall be done after payment.
In a letter dated 26 August 1996, respondent DPWH Secretary Gregorio Vigilar denied the subject money
claims prompting herein petitioners to file before the Regional Trial Court of Quezon City, Branch 226, a Petition for
Mandamus praying that herein respondent be ordered:
1) To pay petitioners the total of P5,819,316.00;
2) To pay petitioners moral and exemplary damages in the amount to be fixed by the Court and sum of
P500,000.00 as attorneys fees.
On 18 February 1997, the lower court conducted a pre-trial conference where the parties appeared and filed
their respective pre-trial briefs. Further, respondent submitted a Memorandum to which petitioners filed a
Rejoinder.
On 07 November 1997, the lower court denied the Petition for Mandamus, in a Decision which disposed as
follows:
WHEREFORE, in view of all the foregoing, the instant Petition for Mandamus is dismissed. The order of
September 24, 1997, submitting the Manifestation and Motion for Resolution, is hereby withdrawn.
SO ORDERED.
Hence, this petition where the core issue for resolution focuses on the right of petitioners-contractors to
compensation for a public works housing project.
In the case before us, respondent, citing among others Sections 46 [6] and 47,[7] Chapter 7, Sub-Title B, Title I,
Book V of the Administrative Code of 1987 (E.O 292), posits that the existence of appropriations and availability of
funds as certified to and verified by the proper accounting officials are conditions sine qua non for the execution of
government contracts.[8] Respondent harps on the fact that the additional work was pursued through the verbal
request of then DPWH Undersecretary Aber P. Canlas, despite the absence of the corresponding supplemental
contracts and appropriate funding.[9]According to respondent, sans showing of certificate of availability of funds, the
implied contracts are considered fatally defective and considered inexistent and void ab initio. Respondent
concludes that inasmuch as the additional work done was pursued in violation of the mandatory provisions of the
laws concerning contracts involving expenditure of public funds and in excess of the public officials contracting
authority, the same is not binding on the government and impose no liability therefor. [10]
Although this Court agrees with respondents postulation that the implied contracts, which covered the
additional constructions, are void, in view of violation of applicable laws, auditing rules and lack of legal
requirements,[11] we nonetheless find the instant petition laden with merit and uphold, in the interest of substantial
justice, petitioners-contractors right to be compensated for the "additional constructions" on the public works
housing project, applying the principle of quantum meruit.
Interestingly, this case is not of first impression. In Eslao vs. Commission on Audit,[12] this Court likewise
allowed recovery by the contractor on the basis of quantum meruit, following our pronouncement in Royal Trust
Construction vs. Commission on Audit,[13] thus:
In Royal Trust Construction vs. COA, a case involving the widening and deepening of the Betis River in
Pampanga at the urgent request of the local officials and with the knowledge and consent of the Ministry of
Public Works, even without a written contract and the covering appropriation, the project was undertaken to
prevent the overflowing of the neighboring areas and to irrigate the adjacent farmlands. The contractor sought
compensation for the completed portion in the sum of over P1 million. While the payment was favorably
recommended by the Ministry of Public Works, it was denied by the respondent COA on the ground of violation
of mandatory legal provisions as the existence of corresponding appropriations covering the contract cost. Under
COA Res. No. 36-58 dated November 15, 1986, its existing policy is to allow recovery from covering contracts on
the basis of quantum meruit if there is delay in the accomplishment of the required certificate of availability of funds
to support a contract. (Emphasis ours)
In the Royal Construction case, this Court, applying the principle of quantum meruit in allowing recovery by
the contractor, elucidated:
The work done by it (the contractor) was impliedly authorized and later expressly acknowledged by the Ministry of
Public Works, which has twice recommended favorable action on the petitioners request for payment. Despite the
admitted absence of a specific covering appropriation as required under COA Resolution No. 36-58, the
petitioner may nevertheless be compensated for the services rendered by it, concededly for the public
benefit, from the general fund allotted by law to the Betis River project. Substantial compliance with the said
resolution, in view of the circumstances of this case, should suffice. The Court also feels that the remedy
suggested by the respondent, to wit, the filing of a complaint in court for recovery of the compensation
Page 18 of 65
claimed, would entail additional expense, inconvenience and delay which in fairness should be imposed
on the petitioner.
Accordingly, in the interest of substantial justice and equity, the respondent Commission on Audit is DIRECTED
to determine on a quantum meruit basis the total compensation due to the petitioner for the services rendered by it
in the channel improvement of the Betis River in Pampanga and to allow the payment thereof immediately upon
completion of the said determination. (Emphasis ours)
Similarly, this Court applied the doctrine of quantum meruit in Melchor vs. Commission on Audit[14] and
explained that where payment is based on quantum meruit, the amount of recovery would only be the reasonable
value of the thing or services rendered regardless of any agreement as to value. [15]
Notably, the peculiar circumstances present in the instant case buttress petitioners claim for compensation for
the additional constructions, despite the illegality and void nature of the implied contracts forged between the
DPWH and petitioners-contractors. On this matter, it bears stressing that the illegality of the subject contracts
proceeds from an express declaration or prohibition by law,[16] and not from any intrinsic illegality. Stated
differently, the subject contracts are not illegal per se.
Of equal significance are circumstances attendant and peculiar in this case which necessitate allowance of
petitioners money claimson the basis of quantum meruit for work accomplished on the government housing
project.
To begin with, petitioners-contractors assented and agreed to undertake additional constructions for the
completion of the housing units, believing in good faith and in the interest of the government and, in effect, the
public in general, that appropriations to cover the additional constructions and completion of the public works
housing project would be available and forthcoming. On this particular score, the records reveal that the verbal
request and assurance of then DPWH Undersecretary Canlas led petitioners-contractors to undertake
the completion of the government housing project, despite the absence of covering appropriations, written
contracts, and certification of availability of funds, as mandated by law and pertinent auditing rules and
issuances. To put it differently, the implied contracts, declared void in this case, covered only the completion and
final phase of construction of the housing units, which structures, concededly, were already existing, albeit not
yet finished in their entirety at the time the implied contracts were entered into between the government and the
contractors.
Further, petitioners-contractors sent to the DPWH Secretary a demand letter pressing for their money claims,
on the strength of a favorable recommendation from the DPWH Assistant Secretary for Legal Affairs to the effect
that implied contracts existed and that the money claims had ample basis applying the principle of quantum
meruit. Moreover, as can be gleaned from the records, even the DPWH Auditor interposed no objection to the
payment of the money claims, subject to whatever action the COA may adopt.
Beyond this, the sum of P5,819,316.00 representing the amount of petitioners money claims, had already
been released by the Department of Budget and Management (DBM), under Advise of Allotment No. A4-1303-04-
41-303. Equally important is the glaring fact that the construction of the housing units had already been completed
by petitioners-contractors and the subject housing units had been, since their completion, under the control and
disposition of the government pursuant to its public works housing project.
To our mind, it would be the apex of injustice and highly inequitable for us to defeat petitioners-contractors
right to be duly compensated for actual work performed and services rendered, where both the government and
the public have, for years, received and accepted benefits from said housing project and reaped the fruits of
petitioners-contractors honest toil and labor.
Incidentally, respondent likewise argues that the State may not be sued in the instant case, invoking the
constitutional doctrine of Non-suability of the State,[17] otherwise known as the Royal Prerogative of
Dishonesty.
Respondents argument is misplaced inasmuch as the Principle of State Immunity finds no application in the
case before us.
Under these circumstances, respondent may not validly invoke the Royal Prerogative of Dishonesty and
conveniently hide under the States cloak of invincibility against suit, considering that this principle yields to certain
settled exceptions. True enough, the rule, in any case, is not absolute for it does not say that the state may not be
sued under any circumstance.[18]
Thus, in Amigable vs. Cuenca,[19] this Court, in effect, shred the protective shroud which shields the State
from suit, reiterating our decree in the landmark case of Ministerio vs. CFI of Cebu[20] that the doctrine of
governmental immunity from suit cannot serve as an instrument for perpetrating an injustice on a citizen. It is just
as important, if not more so, that there be fidelity to legal norms on the part of officialdom if the rule of law were to
be maintained.[21]
Although the Amigable and Ministerio cases generously tackled the issue of the States immunity from
suit vis a vis the payment of just compensation for expropriated property, this Court nonetheless finds the doctrine
enunciated in the aforementioned cases applicable to the instant controversy, considering that the ends of justice
would be subverted if we were to uphold, in this particular instance, the States immunity from suit.
To be sure, this Court as the staunch guardian of the citizens rights and welfare cannot sanction an injustice
so patent on its face, and allow itself to be an instrument in the perpetration thereof. Justice and equity sternly
demand that the States cloak of invincibility against suit be shred in this particular instance, and that
petitionerscontractors be duly compensated on the basis of quantum meruit for construction done on the public
works housing project.
Page 19 of 65
IN VIEW WHEREOF, the instant petition is GRANTED. The assailed decision of the Regional Trial Court
dated 07 November 1997 is REVERSED AND SET ASIDE.
ACCORDINGLY, the Commission on Audit is hereby directed to determine and ascertain with dispatch, on
a quantum meruit basis, the total compensation due to petitioners-contractors for the additional constructions on
the housing project and to allow payment thereof upon the completion of said determination. No costs.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and De Leon, Jr., JJ., concur.
DEPARTMENT OF EDUCATION, G.R. No. 161758

DIVISION OF ALBAY represented by its SCHOOLS Present:
DIVISION SUPERINTENDENT, Petitioner, QUISUMBING, J., Chairperson,CARPIO, CARPIO MORALES,
- versus - TINGA, and
VELASCO, JR., JJ.
Promulgated:
CELSO OATE,
Respondent. June 8, 2007
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:
A little neglect may lead to great prejudice.
The Case
This is a Petition for Review on Certiorari[1] under Rule 45 seeking to reverse and set aside the January 14,
2004 Decision[2] of the Court of Appeals (CA) in CA-G.R. CV No. 60659, which affirmed the November 3, 1997
Decision[3] of the Legaspi City Regional Trial Court (RTC), Branch I, declaring as null and void the December 21,
1998 Deed of Donation[4] executed by the Municipality of Daraga, Albay in favor of petitioner, and directing the
latter to return to respondent Celso Oate the possession of the portion of land occupied by the school site of the
Daraga North Central Elementary School.
The Facts
Spouses Claro Oate and Gregoria Los Baos owned Lot No. 6849 (disputed lot) with an area of around
27,907 square meters registered under the Torrens System of land registration under Original Certificate of Title
(OCT) No. 2563. Claro Oate had three children, namely: Antonio, Rafael, and Francisco, all surnamed
Oate. Respondent Celso Oate is the grandson of Claro Oate, being the son of Francisco Oate.
In 1940, Bagumbayan Elementary School of Daraga was constructed on a portion of the disputed lot. The
school was eventually renamed Daraga North Central Elementary School. The Municipality of Daraga leveled the
area while petitioner Department of Education Culture and Sports (DECS; now Department of Education [DepEd])
developed and built various school buildings and facilities on the disputed lot.
Sometime in 1991, respondent filed a reconstitution proceeding of OCT No. 2563 which was granted by
the Legaspi City RTC, Branch V after due notice, publication, and hearing. Consequently, OCT No. RO-
18971[5] was issued in the name of spouses Claro Oate and Gregoria Los Baos.
On August 26, 1991, a Deed of Extrajudicial Settlement of Estate and Cession was executed by
respondent and his three (3) sisters, namely: Melba O. Napil, Cielo O. Lardizabal, and Maria Visia O. Maldo, who
waived their successional rights in favor of respondent Celso Oate. Asserting that the disputed lot was inherited by
his father, Francisco Oate, from the latters father, Claro Oate, by virtue of a prior partition among the three (3) sons
Page 20 of 65
of Claro Oate and Gregoria Los Baos, respondent in turn claimed ownership of said lot through the deed of
extrajudicial settlement.
Meanwhile, the issue of whether respondents father, Francisco Oate, truly acquired the disputed lot
through a prior partition among Claro Oates three (3) children had been passed upon in another case, Civil Case
No. 8724 for Partition, Reconveyance and Damages filed by the heirs of Rafael Oate before the Legaspi City RTC,
Branch IX.[6] In said case, respondent Celso Oate, the defendant, prevailed and the case was dismissed by the trial
court.
Thereafter, respondent caused Lot No. 6849 to be subdivided into five (5) lots, all under his name, except
Lot No. 6849-B which is under the name of Mariano M. Lim. On October 26, 1992, the subdivided lots were
issued Transfer Certificate of Titles (TCTs): (1) Lot No. 6849-A (13,072 square meters) under TCT No. T-
83946;[7] (2) Lot No. 6849-B (3,100 square meters) under TCT No. T-84049;[8] (3) Lot No. 6849-C (10,000 square
meters) under TCT No. T-83948;[9] (4) Lot No. 6849-D (1,127 square meters) under TCT No. T-83949;[10] and (5)
Lot No. 6849-E (608 square meters) under TCT No. T-83950.[11]
On December 15, 1992, through his counsel, respondent sent a letter to petitioner apprising it about the
facts and circumstances affecting the elementary school and its occupancy of Lot No. 6849-A with an area of
13,072 square meters. Respondent proposed to petitioner DECS that it purchase Lot No. 6849-A at the Fair
Market Value (FMV) of PhP 400 per square meter and also requested for reasonable rentals from 1960. [12] The
records show that then DECS Director IV Jovencio Revil subsequently referred the matter to the DECS Division
Superintendent Rizalina D. Saquido for investigation.[13]
On February 24, 1993, through his counsel, respondent likewise wrote to Engr. Orlando Roces, District
Engineer, Albay Engineering District about the on-going construction projects in the school.[14] Engr. Roces then
informed respondents counsel that petitioner DECS is the owner of the school site having acquired the disputed lot
by virtue of a Deed of Donation executed by the Municipality of Daraga, Albay in favor of petitioner.[15]
Consequently, on March 18, 1993, respondent instituted a Complaint [16] for Annulment of Donation and/or
Quieting of Title with Recovery of Possession of Lot No. 6849 located at Barrio Bagumbayan, Daraga, Albay
before the Legaspi City RTC, docketed as Civil Case No. 8715, against petitioner DECS, Division of Albay,
represented by the Division Superintendent of Schools, Mrs. Rizalina D. Saquido; and the Municipality of Daraga,
Albay, represented by the Municipal Mayor, Honorable Cicero Triunfante.
In its April 28, 1993 Answer,[17] the Municipality of Daraga, Albay, through Mayor Cicero Triunfante, denied
respondents ownership of the disputed lot as it alleged that sometime in 1940, the Municipality bought said lot from
Claro Oate, respondents grandfather, and since then it had continually occupied said lot openly and publicly in the
concept of an owner until 1988 when the Municipality donated the school site to petitioner DECS; thus asserting
that it could also claim ownership also through adverse possession. Moreover, it claimed that the disputed lot had
been declared in the name of defendant municipality in the Municipal Assessors Office under Tax Declaration No.
31954 from 1940 until 1988 for purposes of exemption from real estate
taxes. Further, defendant Municipality contended that respondent was guilty of laches and was estopped from
assailing ownership over the disputed lot.
Similarly, petitioners April 29, 1993 Answer[18] reiterated in essence the defenses raised by the Municipality
of Daraga, Albay and further contended that respondent had no cause of action because it acquired ownership
over the disputed lot by virtue of a Deed of Donation executed on December 21, 1988 in its favor; and that
respondents claim was vague as it was derived from a void Deed of Extrajudicial Settlement of Estate and Cession
Page 21 of 65
disposing of the disputed lot which was already sold to the Municipality of Daraga, Albay in 1940. Petitioner
likewise assailed the issuance of a reconstituted OCT over Lot 6849 when the lower court granted respondents
petition for reconstitution without notifying petitioner.
During the ensuing trial where both parties presented documentary and testimonial evidence, respondent
testified that he came to know of the disputed lot in 1973 when he was 23 years old; that he took possession of the
said lot in the same year; that he came to know that the elementary school occupied a portion of the said lot only in
1991; and that it was only in 1992 that he came to know of the Deed of Donation executed by the Municipality of
Daraga, Albay.[19] Also, Felicito Armenta, a tenant cultivating a portion of disputed Lot 6849, testified that
respondent indeed owned said lot and the share of the crops cultivated were paid to respondent.[20]
However, after respondent testified, defendants in said case filed a Joint Motion to Dismiss [21] on the
ground that respondents suit was against the State which was prohibited without the latters consent. Respondent
countered with his Opposition to Joint Motion to Dismiss. [22] Subsequently, the trial court denied the Joint Motion to
Dismiss, ruling that the State had given implied consent by entering into a contract. [23]
Aside from the reconstituted OCT No. RO-18971, respondent presented the TCTs covering the five (5)
portions of the partitioned Lot 6849, Tax Declaration No. 04-006-00681[24] issued for said lot, and the April 20, 1992
Certification[25] from the Office of the Treasurer of the Municipality of Daraga, Albay attesting to respondents
payment of realty taxes for Lot 6849 from 1980 to 1990.
After respondent rested his case, the defense presented and marked their documentary exhibits of Tax
Declaration No. 30235 issued in the name of the late Claro Oate, which was cancelled in 1938; Tax Declaration
31954,[26] which cancelled Tax Declaration No. 30235, in the name of Municipality of Daraga with the annotation of
Ex-Officio Deputy Assessor Natalio Grageda attesting to the purchase by the Municipality under Municipal Voucher
No. 69, August 1940 accounts and the issuance of TCT No. 4812 in favor of the Municipality; Tax Declaration No.
8926[27] in the name of the Municipality which cancelled Tax Declaration No. 31954; and the subsequent Tax
Declaration Nos. 22184,[28] 332,[29] and 04-006-00068.[30]
The defense presented the testimony of Mr. Jose Adra,[31] the Principal of Daraga North Central
Elementary School, who testified on the Municipalitys donation of disputed Lot 6849 to petitioner and the
improvements on said lot amounting to more than PhP 11 million; and Mrs. Toribia Milleza, [32] a retired government
employee and resident of Bagumbayan, Daraga, Albay since 1955, who testified on the Municipalitys continuous
and adverse possession of the disputed lot since 1940.
As mentioned earlier, Civil Case No. 8724 for Partition, Reconveyance and Damages was instituted by the
heirs of Rafael Oate in Legaspi City RTC, Branch IX against Spouses Celso Oate and Allem Vellez, involving the
same disputed lot. Petitioner and co-defendant Municipality of Daraga, Albay were about to file a complaint for
intervention in said case, but it was overtaken by the resolution of the case on August 14, 1995 with the trial court
dismissing the complaint.
The Ruling of the RTC
On November 3, 1997, the trial court rendered a Decision in favor of respondent Celso Oate. The
dispositive portion declared, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff

and against the defendants:
Page 22 of 65
1. Declaring the Deed of Donation executed by the Municipality of Daraga, Albay in

favor of the defendant Department of Education Culture and Sports through the Albay
Schools Division as null and void;
2. Declaring the plaintiff as the owner in fee simple of Lots Nos. 6849-A, 6849-C, 6849-
D and 6849-E which are registered in his name;
3. Commanding the defendants to return the possession of the portion of the land
occupied by the school site to the herein plaintiff Celso Oate;
4. Ordering the plaintiff for reason of equity, to pay the defendant Municipality of
Daraga, Albay the amount of Fifty Thousand (50,000.00) Pesos pursuant to Article
479 of the New Civil Code of the Philippines;
5. The defendant Department of Education Culture and Sports being a builder in good
faith, the provisions of Article 448 of the New Civil Code of the Philippines shall be
observed by the parties; and
6. Ordering the defendants to pay the costs of the suit. No attorneys fees is hereby
adjudged in favor of plaintiffs counsel.
SO ORDERED.[33]
The trial court ratiocinated that it was clear that subject Lot 6849 was originally registered under the
Torrens System in the name of Spouses Claro Oate and Gregoria Los Baos as evidenced by OCT No. RO-
18971. The right of respondent Celso Oate over the disputed lot had not been proven otherwise or overturned in
Civil Case No. 8724, and this was bolstered by the Deed of Extrajudicial Settlement of Estate and Cession, where
respondents sister waived their successional rights in his favor. Thus, the trial court ruled in favor of respondents
title. Besides, it further ruled that defendants could not assail the registered title of respondent in a collateral
proceeding.
While the Municipality of Daraga, Albay anchored its prior ownership over the disputed lot by virtue of a
sale in 1940 and mentioned TCT No. 4812 supposedly issued in its name, it however failed to submit any deed of
conveyance in its favor, as well as a copy of the alleged TCT No. 4812. Hence, the trial court held that its claim
over disputed Lot 6849 was based solely on adverse prescription which could not prevail over respondents
registered title.
The trial court concluded that given these factual and evidentiary proofs, petitioner had no right to
occupy Lot 6849-A, and the Deed of Donation executed by the Municipality of Daraga, Albay in favor of
petitioner must be nullified. Finally, the trial court awarded PhP 50,000 to the Municipality of Daraga, Albay for the
cost of landfill and ordered that Article 448[34] of the New Civil Code be followed by the parties as petitioner was a
builder in good faith.
The Ruling of the Court of Appeals
Aggrieved, petitioner DECS and Municipality of Daraga, Albay filed their respective Notices of
Appeal[35] assailing the trial courts Decision before the CA. However, on June 17, 1998, the appellate court
declared the appeals of both petitioners abandoned and dismissed for their failure to pay the required docket fees
within the reglementary period.[36] Petitioner then filed a Motion for Reconsideration[37] of the said June 17,
1998 Resolution and its appeal was subsequently reinstated. [38] The Municipality of Daraga, Albay, however, totally
lost its appeal due to inaction, and the appellate court correspondingly issued a Partial Entry of Judgment on July 9,
1998.[39]
Moreover, the appellate court held that there was no jurisdictional defect in the reconstitution proceeding
being one in rem, and in the issuance of OCT No. RO-18971 based on the destroyed or lost OCT No. 2563, even if
Page 23 of 65
no notice was sent to petitioner. Thus, the CA ruled that respondents claim of ownership over Lot 6849-A occupied
by the school is conclusive for being soundly predicated on TCT No. T-83946 which cancelled the reconstituted
OCT No. RO-18971. Furthermore, it reiterated the trial courts holding that petitioner is precluded from attacking
collaterally respondents title over the disputed lot in this proceeding.
The CA emphasized that petitioners failure to present TCT No. 4812allegedly issued in the name of the
Municipality of Daraga, Albay in 1940 in lieu of OCT No. 2563 and the Deed of Conveyance executed by the
original owner, Claro Oate, in favor of the Municipalitywas fatal to the defense. It reasoned that all the more had
their claim of ownership become doubtful when defendants-appellants [sic] failed to explain from their pleadings
and the evidence submitted before Us their failure to present the two documents. [40] The appellate court concluded
that given these facts, no title in the name of the Municipality ever existed and thus it could not have validly
donated the subject property to petitioner.
Anent the issue of the applicability of Amigable v. Cuenca,[41] the CA affirmed the doctrine enunciated in
said case that to uphold the States immunity from suit would subvert the ends of justice. In fine, the appellate court
pointed out the inconvenience and impossibility of restoring possession of Lot 6849-A to respondent considering
the substantial improvements built on said lot by the government which amounted to almost PhP 12 million; and
that the only relief available was for the government to pay just compensation in favor of respondent computed on
the basis of the value of the property at the time of the governments taking of the land.
Through its assailed Decision,[42] the CA dismissed petitioners appeal for lack of merit and affirmed the trial
courts decision in toto. It reasoned that laches does not apply, its application rests on the sound discretion of the
court, and where the court believes that its application would result in manifest wrong or injustice, it is constrained
not to be guided strictly by said doctrine. Besides, it opined that laches could not defeat the rights of a registered
owner.
The Issues
Hence, we have the instant petition where petitioner raises the following assignment of errors:
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURTS FINDING
THAT RESPONDENTS CAUSE OF ACTION TO RECOVER POSSESSION OF THE
SUBJECT PROPERTY IS NOT YET BARRED BY LACHES.
II
THE COURT OF APPEALS ERRED IN ACCORDING GREAT WEIGHT ON
RESPONDENTS RECONSTITUTED ORIGINAL CERTIFICATE OF TITLE (OCT) NO.
2563 COVERING SUBJECT PROPERTY.
III
THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER MAY BE SUED IN

VIOLATION OF THE STATES IMMUNITY FROM SUIT.
IV
THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER MAY BE SUED
INDEPENDENTLY OF THE REPUBLIC OF THE PHILIPPINES.[43]
Petitioner basically raises two issuesthe application of laches and the non-suability of the State.
The threshold issue is whether petitioner DECS can be sued in Civil Case No. 8715 without its consent. A
supplementary issue is whether petitioner DECS can be sued independently of the Republic of the Philippines.
Page 24 of 65
We rule that petitioner DECS can be sued without its permission as a result of its being privy to the Deed
of Donation executed by the Municipality of Daraga, Albay over the disputed property. When it voluntarily gave its
consent to the donation, any dispute that may arise from it would necessarily bring petitioner DECS down to the
level of an ordinary citizen of the State vulnerable to a suit by an interested or affected party. It has shed off its
mantle of immunity and relinquished and forfeited its armor of non-suability of the State.[44]
The auxiliary issue of non-joinder of the Republic of the Philippines is likewise resolved in the negative.
While it is true that petitioner is an unincorporated government agency, and as such technically requires the
Republic of the Philippines to be impleaded in any suit against the former, nonetheless, considering our resolution
of the main issue below, this issue is deemed mooted. Besides, at this point, we deem it best to lift such procedural
technicality in order to finally resolve the long litigation this case has undergone.Moreover, even if we give due
course to said issue, we will arrive at the same ruling.
The Republic of the Philippines need not be impleaded as a party-defendant in Civil Case No. 8715
considering that it impliedly gave its approval to the involvement of petitioner DECS in the Deed of Donation. In a
situation involving a contract between a government department and a third party, the Republic of the Philippines
need not be impleaded as a party to a suit resulting from said contract as it is assumed that the authority granted to
such department to enter into such contract carries with it the full responsibility and authority to sue and be sued in
its name.
Main Issue: Equitable Remedy of Laches
Petitioner strongly asserts that the Municipality of Daraga, Albay had continuous, open, and adverse
possession in the concept of an owner over the disputed lot since 1940 until December 21, 1988 or for about 48
years. Significantly, it maintains that Tax Declaration No. 31954 covering the disputed lot in the name of
the Municipality of Daraga, Albay contains an annotation certifying that said lot was under voucher No. 69, August,
1940 accounts. The corresponding Transfer Title No. 4812 has been issued by the Register of Deeds Office of
Albay on August 3, 1940.[45]
When petitioner received the lot as donation from the Municipality on December 21, 1988, it possessed the
subject lot also in the concept of an owner and continued to introduce improvements on the lot. Consequently,
when respondent instituted the instant case in 1993, petitioner and its predecessor-in-
interest Municipality of Daraga, Albay had possessed the subject lot for a combined period of about fifty two (52)
years.
Petitioner strongly avers that Claro Oate, the original owner of subject lot, sold it to the Municipality. At the
very least it asserts that said Claro Oate allowed the Municipality to enter, possess, and enjoy the lot without
protest. In fact, Claro Oate neither protested nor questioned the cancellation of his Tax Declaration No. 30235
covering the disputed lot and its substitution by Tax Declaration No. 31954 in the name of the Municipality on
account of his sale of the lot to the latter. In the same vein, when Claro Oate and his spouse died, their children
Antonio, Rafael, and Francisco who succeeded them also did not take any steps to question the ownership and
possession by the Municipality of the disputed lot until they died on June 8, 1990, June 12, 1991, and October 22,
1957, respectively.
Petitioner maintains that significantly, respondent and his siblings succeeding their father Francisco as the
alleged owners, from his death on October 22, 1957also did not take any action to recover the questioned lot from
1957 until 1993 when the instant suit was commenced. Petitioner avers that if they were really the owners of said
lot, they would not have waited 52 long years to institute the suit assuming they have a cause of action against the
Page 25 of 65
Municipality or petitioner. Thus, petitioner submits that the equitable principle of laches has indubitably set in to bar
respondents action to recover possession of, and title to, the disputed lot.
Laches and its elements
Indeed, it is settled that rights and actions can be lost by delay and by the effect of delay as the equitable
defense of laches does not concern itself with the character of the defendants title, but only with plaintiffs long
inaction or inexcusable neglect to bar the latters action as it would be inequitable and unjust to the defendant.
Laches is defined as the failure or neglect, for an unreasonable and unexplained length of time, to do that
whichby the exercise of due diligencecould or should have been done earlier. [46] Verily, laches serves to deprive a
party guilty of it to any judicial remedies. Its elements are: (1) conduct on the part of the defendant, or of one under
whom the defendant claims, giving rise to the situation which the complaint seeks a remedy; (2) delay in asserting
the complainant's rights, the complainant having had knowledge or notice of the defendant's conduct as having
been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant that the
complainant would assert the right in which the defendant bases the suit; and (4) injury or prejudice to the
defendant in the event relief is accorded to the complainant, or the suit is not held barred. [47]
In Felix Gochan and Sons Realty Corporation, we held that [t]hough laches applies even to
imprescriptible actions, its elements must be proved positively. Laches is evidentiary in nature which could
not be established by mere allegations in the pleadings and can not be resolved in a motion to dismiss (emphases
supplied).[48] In the same vein, we explained in Santiago v. Court of Appeals that there is no absolute rule as to
what constitutes laches or staleness of demand; each case is to be determined according to its particular
circumstances.[49]
Issue of laches not barred by adverse judgment

against Daraga, Albay
It is unfortunate that defendant Municipality of Daraga, Albay lost its appeal in CA-G.R. CV No. 60659 before the
CA for its failure to pay the required docket fees within the reglementary period. As a result, a Partial Entry of
Judgment was made on July 9, 1998 and consequently, the dispositions in the November 3, 1997 Decision,
rendered by the Legaspi City RTC, Branch I in favor of respondent Celso Oate, became final and executory as
against defendant Municipality of Daraga, Albay.
As an off-shoot, with respect to the Municipality of Daraga, the Deed of Donation in favor of petitioner
DECS was annulledrespondent Oate was declared owner in fee simple of the disputed lots and entitled to
possession but was required to pay PhP 50,000 to the Daraga Municipal Government and the costs of suit. By
reason of the finality of the Decision against the Municipality of Daraga, Tax Declaration Nos. 04-006-00068, 332,
22184, 31954, and 8926 are all cancelled and annulled (if not yet cancelled).
What are the effects of the final judgment against Municipality of Daraga on its co-defendant, petitioner DECS?
Generally, it has no impact on the appeal of DECS unless the decision affects its defenses. In this petition, DECS
no longer questions the declaration of nullity of the Deed of Donation over the disputed lot and hence can be
considered as a final resolution of the issue. Likewise, it does not challenge the ownership of Oate of the disputed
lots, but merely relied on the defense of laches. The final directive for Municipality of Daraga to return possession
of the land has no significance on DECS appeal since precisely, it is DECS position that it should retain possession
Page 26 of 65
of the land. From these considerations, the final RTC November 3, 1997 Decision against
the Municipality of Daraga has no substantial and material effect upon the DECS appeal.
The only remaining issue left is whether laches can inure to the benefit of petitioner DECS considering the
fact that Lot No. 6849-A was devoted to public education when the elementary school was built in 1940 under the
supervision and control of DECS up to 1993 when Civil Case No. 8715 was filed by respondent Oate.
We rule in the affirmative.
Laches has set in
A brief scrutiny of the records does show tell-tale signs of laches. The first element is undisputed: the then
Bagumbayan Elementary School of Daraga was constructed in 1940 on a portion of disputed Lot 6849, specifically
Lot No. 6849-A containing 13,072 square meters under TCT No. T-83946. Moreover, Mrs. Toribia Milleza,[50] a
retired government employee and resident of Bagumbayan, Daraga since 1955 pertinently testified, thus:
Q: How long have you been residing in this place, Bagumbayan, Daraga, Albay?
A: Maybe I stayed there in 1955 until the present.[51]
xxxx
Q: Now, can you further recall the kind of building that was constructed in this property?
A: Seva type, building.
Q: At present how many buildings were constructed in this property?

A: Plenty of school buildings.
Q: Now, how many buildings were first constructed in [sic] this property?
A: In 1955 only one, the Seva type, then there was constructed five (5) Marcos Type
buildings during the Marcos time.[52]
The devotion of Lot No. 6849-A to education started in 1940 and continued up to December 21, 1988
when said lot was donated to the DECS. From then on, DECS built various buildings and introduced improvements
on said lot. Lot No. 6849-A was continuously used for public education until March 18, 1993 when respondent Oate
filed Civil Case No. 8715 and thereafter up to the present.
Thus, for a total period of more than fifty-two (52) years, Lot No. 6849-A was exclusively and completely
utilized by DECS for public education. This fact was not successfully challenged nor refuted by respondent.
The second element of laches was likewise proven. No evidence was presented to show that respondent
or his predecessors-in-interest ever took any action, administrative or judicial, nor either party questioned or
protested the Municipalitys adverse occupation of a portion of Lot 6849. As petitioner had demonstrated laches by
persuasive and credible evidence, it is incumbent upon respondent to show that his predecessors-in-interest
indeed protected their rights of ownership over the lot. Thus, as early as 1940, when the first Seva type school
building was constructed over a portion of the disputed lot, now Lot 6849-A, respondent must prove that his
predecessors-in-interest indeed undertook activities to contest the occupation of the portion of the lot by the
Municipality and subsequently by petitioner DECS. Unfortunately, respondent failed to substantiate such defense
of ownership and possession of the lot and even skirted this issue.
Respondent testified that he came to know of Lot 6849 only in 1973 when he was 23 years old.[53] He
asserted that he took possession of said lot in the same year when his two (2) uncles, the brothers of his late father,
passed on to him the disputed lot as his fathers share of the inheritance from the late Claro Oate and Gregoria Los
Baos (his grandparents). However, it is interesting to note that he testified that he only came to know in 1991 that
the elementary school was built on a portion of Lot 6849, now Lot 6849-A. These assertions are
irreconcilable. Common experience tells us that one who owns a property and takes possession of it cannot fail to
Page 27 of 65
discover and know that an existing elementary school was built and standing on the lot from the time that the
owner starts possessing a property.
Nonetheless, even granting that respondent indeed only came to know of such encroachment or
occupation in 1991, his rights cannot be better than that of his predecessors-in-interest, that is, Claro Oate and his
uncles, Antonio and Rafael, who died in 1990 and 1991, respectively. Since respondents right over the lot
originated from his predecessors-in-interest, then he cannot have better rights over Lot No. 6849-A than the
latter. The spring cannot rise higher than its source. Besides, respondent has not proffered any explanation why
his predecessors-in-interest did not protest and challenge the Municipalitys occupancy over a portion of their
lot. Verily, with the span of around 52 years afforded respondent and his predecessors-in-interest, their inaction
and delay in protecting their rights were certainly excessive and unjustified.
In the third element, the records clearly bear out the fact that petitioner DECS did not know nor anticipate
that their possession and occupancy of a portion of Lot 6849 would later be questioned. In fact, petitioner built
additional school buildings and facilities on the school site amounting to more than PhP 11 million. Mr. Jose Adra,
School Principal of the Daraga North Central Elementary School, testified on the donation of the disputed lot to
petitioner and the cost of the improvements on it.[54] After more than forty-eight (48) years of unquestioned,
peaceful, and uninterrupted possession by petitioner DECS, it had no knowledge nor reason to believe that
respondent would assert any right over the lot after the lapse of such long occupation coupled with a tax
declaration in the name of the Daraga Municipality.
Finally, the last element is likewise proven by the antecedent facts that clearly show grave prejudice to the
government, in general, and to petitioner, in particular, if the instant action is not barred without even considering
the cost of the construction of the school buildings and facilities and the deleterious effect on the school children
and affected school teachers and personnel if Lot No. 6849-A would be returned to respondent.
Verily, the application of laches is addressed to the sound discretion of the court as its application is
controlled by equitable considerations. In the instant case, with the foregoing considerations, we are constrained
from giving approbation to the trial and appellate courts ruling that the application of the principle of laches would
subvert the ends of justice. Indeed, it is unjust for the State and the affected citizenry to suffer after respondent and
his predecessors-in-interest had slept on their rights for 52 years.
Also, the inaction of respondent Oate and his predecessors-in-interest for over 50 years has reduced their
right to regain possession of Lot 6849-A to a stale demand.
Laches holds over the actual area possessed and occupied by petitioner
We, however, make the clear distinction that laches applies in favor of petitioner only as regards Lot 6849-
A which is actually possessed and occupied by it. Laches does not apply to Lot Nos. 6849-B, 6849-C, 6849-D, and
6849-E. These portions were never occupied by the Municipality and petitioner. Agricultural tenant Felicito Armenta
testified that his father, Antonio Armenta, started cultivating portions of Lot 6849 way back in the 1940s and that he
took over the tenancy in 1960 when his father stopped tilling the land.Besides, if the Municipality indeed owned Lot
6849 by virtue of a purchase, it is likewise guilty of laches in not protecting or contesting the cultivation by Oates
agricultural tenants of said portions of Lot 6849.
Transfer Certificates of Title on portions of Lot 6849 valid
Petitioner contends that the reconstitution of OCT No. 2563covering subject lot in 1991 or 52 years after
the Municipality owned said lotdoes not in any way affect the latters preferential and superior right over the
Page 28 of 65
disputed lot. In the same vein, it maintains that it is inconsequential that petitioner and the Municipality failed to
present as evidence the deed of conveyance in favor of the Municipality, as well as TCT No. 4812 as a registered
land owner may lose the right to recover possession of a registered property by reason of laches. Petitioner
concludes that the long delayed reconstitution of OCT No. 2563 by respondent was a mere afterthought and
intended to camouflage his and his predecessors unreasonably long inaction which indicates an awareness that
they have no valid claim whatsoever over disputed Lot 6849.
We disagree.
It must be noted that a reconstitution proceeding is one in rem and is thus binding to the whole
world. While it is true that laches has set in so far as it pertains to the portion of Lot 6849, specifically Lot 6849-A
where the Municipality and petitioner DECS had constructed the existing school, such does not hold true for the
totality of Lot 6849 as explained above. Indeed, the reconstitution proceeding being one in rem, the consequent
issuance of OCT No. RO-18971 in lieu of the lost or destroyed OCT No. 2563 is valid.
Anent the issue of non-notification, we agree with the observation of the courts a quo that even
granting arguendo that petitioner was not notified about the reconstitution proceeding, such deficiency is not
jurisdictional as to nullify and prevail over the final disposition of the trial court in a proceeding in rem.
More so, while petitioner strongly asserts that the certification in Tax Declaration No. 31954 attesting to the
payment of the disputed lot under Municipal Voucher No. 69 and the issuance of TCT No. 4812, which was never
disputed nor controverted by respondent, should have been given evidentiary weight by the trial and appellate
courts as the presumptions of regularity and validity of such official act have not been overcome, such documents
cannot defeat the registered title of respondent.
Between a clear showing of ownership evidenced by a registered title and a certification in a tax
declaration, albeit done in an official capacity, the former holds as the latter is only persuasive evidence. Indeed,
tax declarations in land cases per se do not constitute ownership without other substantial pieces of evidence.
The records do not show and petitioner has not given any cogent explanation why the Deed of
Conveyance in favor of the Municipality of Daraga, Albay and TCT No. 4812 were not presented. With clear and
affirmative defenses set up by petitioner and Municipality of Daraga, Albay, it is incumbent for them to present
these documents. Therefore, the unmistakable inference is that there was indeed no sale and conveyance by
Claro Oate of Lot 6849 in favor of the Municipality. Consequently, the TCTs cancelling OCT No. RO-18971
covering Lot Nos. 6849-A, 6849-B, 6849-C, 6849-D, and 6849-E were likewise validly issued.
Thus, notwithstanding valid titles over the portions of Lot 6849, respondent Oate cannot now take
possession over Lot No. 6849-A for reason of laches. In the recent case of De Vera-Cruz v. Miguel, we reiterated
the principle we have consistently applied in laches:
The law[55] provides that no title to registered land in derogation of that of the registered
owner can be acquired by prescription or adverse possession. Nonetheless, while it is true that a
Torrens Title is indefeasible and imprescriptible, the registered landowner may lose his right to
recover the possession of his registered property by reason of laches.[56]
Thus, with our resolution of the principal issue of applicability of the equitable remedy of laches, the issue
of suability of the State has been mooted.
A final word. Considering our foregoing disquisition and upon grounds of equity, a modification of the final
decision prevailing between respondent Oate and the Municipality of Daraga, Albay is in order. It would be grossly
Page 29 of 65
iniquitous for respondent Oate to pay PhP 50,000 to the Municipality of Daraga, Albay considering that he is not
entitled to recover the possession and usufruct of Lot No. 6849-A.
WHEREFORE, the instant petition is GRANTED and the January 14, 2004 Decision of the CA in CA-G.R.
CV No. 60659 affirming the November 3, 1997 Decision of the Legaspi City RTC is AFFIRMED with the
following MODIFICATIONS:
1) Declaring the DepEd (formerly DECS), Division of Albay to have the rights of possession and usufruct
over Lot 6849-A with an area of 13,072 square meters under TCT No. T-83946 of the Registry of Deeds of Albay,
as a result of laches on the part of respondent Celso Oate and his predecessors-in-interest. Respondent Celso
Oate, his heirs, assigns, and successors-in-interest are prohibited from selling, mortgaging, or
encumbering Lot 6849-A while the said lot is still being used and occupied by petitioner DECS.However, the rights
of possession and usufruct will be restored to respondent the moment petitioner DECS no longer needs the said lot.
The Registry of Deeds of Albay is ordered to annotate the aforementioned restrictions and conditions at the back of
TCT No. T-83946-A in the name of respondent Celso Oate. Item No. 2 of the November 3, 1997Decision of the
Legaspi City RTC is modified accordingly;
2) Declaring Celso Oate as the true and legal owner in fee simple of the following lots:
a. Lot 6849-C with an area of 10,000 square meters under TCT No. T-83948 of the
Registry of Deeds of Albay;
b. Lot 6849-D with an area of 1,127 square meters under TCT No. T-83949 of the Registry
of Deeds of Albay; and
c. Lot 6849-E with an area of 608 square meters under TCT No. T-83950 of the Registry
of Deeds of Albay.
3) Declaring Mariano M. Lim as true and legal owner of Lot 6849-B with an area of 3,100 square meters
under TCT No. T-84049 of the Registry of Deeds of Albay;
4) Ordering petitioner DECS and all other persons claiming under said department to return the
possession of Lots 6849-C, 6849-D, and 6849-E to respondent Celso Oate and Lot 6849-B to Mariano M. Lim; and
5) Deleting Item No. 4 of the November 3, 1997 Decision of the Legaspi City RTC, which ordered
respondent Celso Oate to pay Fifty Thousand Pesos (PhP 50,000) to defendant Municipality of Daraga, Albay.
The November 3, 1997 Decision of the Legaspi City RTC is AFFIRMED in all other respects.
No costs. SO ORDERED.
Page 30 of 65
REPUBLIC OF THE PHILIPPINES represented G.R. No. 129406

by the PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG), Present:
Petitioner,
PUNO, J., Chairperson,
- versus - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
SANDIGANBAYAN (SECOND DIVISION) and
ROBERTO S. BENEDICTO,
Respondents.
Promulgated:
March 6, 2006
x----------------------------------------x
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, 1995[1] and March 13, 1997[2]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.
Page 31 of 65
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
clause[5] 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 Resolution[7] 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.
Page 32 of 65
Acting thereon, the Sandiganbayan promulgated yet another Resolution[9] 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
Resolution[11] 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
Page 33 of 65
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, 1994[18] and February 23, 1996[19] 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, 1995[20] and March 13, 1997[21]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.
Page 34 of 65
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.
REPUBLIC OF THE PHILIPPINES, G.R. No. 161657

Petitioner,
Present:
PUNO, C.J.,Chairperson,
- versus -
SANDOVAL-GUTIERREZ,
CORONA,
HON. VICENTE A. HIDALGO, in his capacity as AZCUNA, and
Presiding Judge of the Regional Trial Court of Manila, GARCIA, JJ.
Branch 37, CARMELO V. CACHERO, in his capacity as
Sheriff IV, Regional Trial Court of Manila, and TARCILA
LAPERAL MENDOZA,
Respondents. Promulgated:
October 4, 2007
x----------------------------------------------------------------------------------------x
DECISION
GARCIA, J.:
Via this verified petition for certiorari and prohibition under Rule 65 of the Rules of Court, the Republic of the
Philippines (Republic, for short), thru the Office of the Solicitor General (OSG), comes to this Court to nullify and
set aside the decision dated August 27, 2003 and other related issuances of the Regional Trial Court (RTC) of
Manila, Branch 37, in its Civil Case No. 99-94075. In directly invoking the Courts original jurisdiction to issue the
extraordinary writs of certiorari and prohibition, without challenge from any of the respondents, the Republic gave
as justification therefor the fact that the case involves an over TWO BILLION PESO judgment against the State,
allegedly rendered in blatant violation of the Constitution, law and jurisprudence.
By any standard, the case indeed involves a colossal sum of money which, on the face of the assailed decision,
shall be the liability of the national government or, in fine, the taxpayers. This consideration, juxtaposed with the
constitutional and legal questions surrounding the controversy, presents special and compelling reasons of public
interests why direct recourse to the Court should be allowed, as an exception to the policy on hierarchy of courts.
Page 35 of 65
At the core of the litigation is a 4,924.60-square meter lot once covered by Transfer Certificate of Title (TCT) No.
118527 of the Registry of Deeds of Manila in the name of the herein private respondent Tarcila Laperal Mendoza
(Mendoza), married to Perfecto Mendoza. The lot is situated at No. 1440 Arlegui St., San Miguel, Manila, near the
Malacaang Palace complex. On this lot, hereinafter referred to as the Arlegui property, now stands the
Presidential Guest House which was home to two (2) former Presidents of the Republic and now appears to be
used as office building of the Office of the President.[1]
The facts:
Sometime in June 1999, Mendoza filed a suit with the RTC of Manila for reconveyance and the corresponding
declaration of nullity of a deed of sale and title against the Republic, the Register of Deeds of Manila and one Atty.
Fidel Vivar. In her complaint, as later amended, docketed as Civil Case No. 99-94075 and eventually raffled to
Branch 35 of the court, Mendoza essentially alleged being the owner of the disputed Arlegui property which the
Republic forcibly dispossessed her of and over which the Register of Deeds of Manila issued TCT No. 118911 in
the name of the Republic.
Answering, the Republic set up, among other affirmative defenses, the States immunity from suit.
The intervening legal tussles are not essential to this narration. What is material is that in an Order of March 17,
2000, the RTC of Manila, Branch 35, dismissed Mendozas complaint. The court would also deny, in another order
dated May 12, 2000, Mendozas omnibus motion for reconsideration. On a petition for certiorari, however, the Court
of Appeals (CA), in CA-G.R. SP No. 60749, reversed the trial courts assailed orders and remanded the case to the
court a quo for further proceedings.[2] On appeal, this Court, in G.R. No. 155231, sustained the CAs reversal
action.[3]
From Branch 35 of the trial court whose then presiding judge inhibited himself from hearing the remanded Civil
Case No. 99-94075, the case was re-raffled to Branch 37 thereof, presided by the respondent judge.
On May 5, 2003, Mendoza filed a Motion for Leave of Court to file a Third Amended Complaint with a copy of the
intended third amended complaint thereto attached. In the May 16, 2003 setting to hear the motion, the RTC, in
open court and in the presence of the Republics counsel, admitted the third amended complaint, ordered the
Republic to file its answer thereto within five (5) days from May 16, 2003 and set a date for pre-trial.
In her adverted third amended complaint for recovery and reconveyance of the Arlegui property, Mendoza sought
the declaration of nullity of a supposed deed of sale dated July 15, 1975 which provided the instrumentation toward
the issuance of TCT No. 118911 in the name of the Republic. And aside from the cancellation of TCT No. 118911,
Mendoza also asked for the reinstatement of her TCT No. 118527. [4] In the same third amended complaint,
Mendoza averred that, since time immemorial, she and her predecessors-in-interest had been in peaceful and
adverse possession of the property as well as of the owners duplicate copy of TCT No. 118527. Such possession,
she added, continued until the first week of July 1975 when a group of armed men representing themselves to be
members of the Presidential Security Group [PSG] of the then President Ferdinand E. Marcos, had forcibly entered
[her] residence and ordered [her] to turn over to them her Copy of TCT No. 118525 and compelled her and the
members of her household to vacate the same ; thus, out of fear for their lives, [she] handed her Owners Duplicate
Certificate Copy of TCT No. 118527 and had left and/or vacated the subject property. Mendoza further alleged the
following:
1. Per verification, TCT No. 118527 had already been cancelled by virtue of a deed of sale in favor of the Republic
allegedly executed by her and her deceased husband on July 15, 1975 and acknowledged before Fidel Vivar which
deed was annotated at the back of TCT No. 118527 under PE: 2035/T-118911 dated July 28, 1975; and
2. That the aforementioned deed of sale is fictitious as she (Mendoza) and her husband have not executed any
deed of conveyance covering the disputed property in favor of the Republic, let alone appearing before Fidel Vivar.
Page 36 of 65
Inter alia, she prayed for the following:
4. Ordering the Republic to pay plaintiff [Mendoza] a reasonable compensation or rental for the use or
occupancy of the subject property in the sum of FIVE HUNDRED THOUSAND (P500,000.00)
PESOS a month with a five (5%) per cent yearly increase, plus interest thereon at the legal rate,
beginning July 1975 until it finally vacates the same;
5. Ordering the Republic to pay plaintiffs counsel a sum equivalent to TWENTY FIVE (25%) PER CENT of
the current value of the subject property and/or whatever amount is recovered under the premises;
Further, plaintiff prays for such other relief, just and equitable under the premises.
On May 21, 2003, the Republic, represented by the OSG, filed a Motion for Extension (With Motion for Cancellation
of scheduled pre-trial). In it, the Republic manifested its inability to simply adopt its previous answer and,
accordingly, asked that it be given a period of thirty (30) days from May 21, 2003 or until June 20, 2003 within
which to submit an Answer.[5] June 20, 2003 came and went, but no answer was filed. On July 18, 2003 and again
on August 19, 2003, the OSG moved for a 30-day extension at each instance. The filing of the last two motions for
extension proved to be an idle gesture, however, since the trial court had meanwhile issued an order[6] dated July 7,
2003 declaring the petitioner Republic as in default and allowing the private respondent to present her evidence ex-
parte.
The evidence for the private respondent, as plaintiff a quo, consisted of her testimony denying having executed the
alleged deed of sale dated July 15, 1975 which paved the way for the issuance of TCT No. 118911. According to
her, said deed is fictitious or inexistent, as evidenced by separate certifications, the first (Exh. E), issued by the
Register of Deeds for Manila and the second (Exh. F), by the Office of Clerk of Court, RTC
Manila. Exhibit E[7] states that a copy of the supposed conveying deed cannot, despite diligent efforts of records
personnel, be located, while Exhibit F[8] states that Fidel Vivar was not a commissioned notary public for and in the
City of Manila for the year 1975. Three other witnesses[9] testified, albeit their testimonies revolved around the
appraisal and rental values of the Arlegui property.
Eventually, the trial court rendered a judgment by default [10] for Mendoza and against the Republic. To the trial
court, the Republic had veritably confiscated Mendozas property, and deprived her not only of the use thereof but
also denied her of the income she could have had otherwise realized during all the years she was illegally
dispossessed of the same.
Dated August 27, 2003, the trial courts decision dispositively reads as follows:
WHEREFORE, judgment is hereby rendered:
1. Declaring the deed of sale dated July 15, 1975, annotated at the back of
[TCT] No. 118527 as PE:2035/T-118911, as non-existent and/or fictitious, and,
therefore, null and void from the beginning;
2. Declaring that [TCT] No. 118911 of the defendant Republic of the Philippines
has no basis, thereby making it null and void from the beginning;
3. Ordering the defendant Register of Deeds for the City of Manila to reinstate
plaintiff [Mendozas TCT] No. 118527;
4. Ordering the defendant Republic to pay just compensation in the sum of

ONE HUNDRED FORTY THREE MILLION SIX HUNDRED THOUSAND
(P143,600,000.00)PESOS, plus interest at the legal rate, until the whole amount
is paid in full for the acquisition of the subject property;
5. Ordering the plaintiff, upon payment of the just compensation for the
acquisition of her property, to execute the necessary deed of conveyance in favor
of the defendant Republic ; and, on the other hand, directing the defendant
Register of Deeds, upon presentation of the said deed of conveyance, to cancel
plaintiffs TCT No. 118527 and to issue, in lieu thereof, a new Transfer Certificate
of Title in favor of the defendant Republic;
Page 37 of 65
6. Ordering the defendant Republic to pay the plaintiff the sum of ONE
BILLION FOUR HUNDRED EIGHTY MILLION SIX HUNDRED TWENTY SEVEN
THOUSAND SIX HUNDRED EIGHTY EIGHT (P1,480,627,688.00) PESOS,
representing the reasonable rental for the use of the subject property, the interest
thereon at the legal rate, and the opportunity cost at the rate of three (3%) per
cent per annum, commencing July 1975 continuously up to July 30, 2003, plus an
additional interest at the legal rate, commencing from this date until the whole
amount is paid in full;
7. Ordering the defendant Republic to pay the plaintiff attorneys fee, in an

amount equivalent to FIFTEEN (15%) PER CENT of the amount due to the
plaintiff.
With pronouncement as to the costs of suit.
SO ORDERED. (Words in bracket and emphasis added.)
Subsequently, the Republic moved for, but was denied, a new trial per order of the trial court of October 7,
2003.[11] Denied also was its subsequent plea for reconsideration. [12]These twin denial orders were followed by
several orders and processes issued by the trial court on separate dates as hereunder indicated:
1. November 27, 2003 - - Certificate of Finality declaring the August 27, 2003 decision final and
executory.[13]
2. December 17, 2003 - - Order denying the Notice of Appeal filed on November 27, 2003, the same
having been filed beyond the reglementary period.[14]
3. December 19, 2003 - - Order[15] granting the private respondents motion for execution.
4. December 22, 2003 - - Writ of Execution.[16]
Hence, this petition for certiorari.
By Resolution[17] of November 20, 2006, the case was set for oral arguments. On January 22, 2007, when this
case was called for the purpose, both parties manifested their willingness to settle the case amicably, for which
reason the Court gave them up to February 28, 2007 to submit the compromise agreement for approval. Following
several approved extensions of the February 28, 2007 deadline, the OSG, on August 6, 2007, manifested that it is
submitting the case for resolution on the merits owing to the inability of the parties to agree on an acceptable
compromise.
In this recourse, the petitioner urges the Court to strike down as a nullity the trial courts order declaring it in default
and the judgment by default that followed. Sought to be nullified, too, also on the ground that they were issued in
grave abuse of discretion amounting to lack or in excess of jurisdiction, are the orders and processes enumerated
immediately above issued after the rendition of the default judgment.
Petitioner lists five (5) overlapping grounds for allowing its petition. It starts off by impugning the order of default
and the judgment by default. To the petitioner, the respondent judge committed serious jurisdictional error when he
proceeded to hear the case and eventually awarded the private respondent a staggering amount without so much
as giving the petitioner the opportunity to present its defense.
Petitioners posture is simply without merit.
Deprivation of procedural due process is obviously the petitioners threshold theme. Due process, in its procedural
aspect, guarantees in the minimum the opportunity to be heard. [18] Grave abuse of discretion, however, cannot
plausibly be laid at the doorstep of the respondent judge on account of his having issued the default order against
the petitioner, then proceeding with the hearing and eventually rendering a default judgment. For, what the
respondent judge did hew with what Section 3, Rule 9 of the Rules of Court prescribes and allows in the event the
defending party fails to seasonably file a responsive pleading. The provision reads:
Page 38 of 65
SEC. 3. Default; declaration of.- If the defending party fails to answer within the time allowed therefor, the
court shall, upon motion of the claiming party with notice to the defending party, and proof of such
failure, declare the defending party in default. Thereupon, the court shall proceed to render
judgment granting the claimant such relief as his pleading may warrant, unless the court in its
discretion requires the claimant to submit evidence .[19]
While the ideal lies in avoiding orders of default,[20] the policy of the law being to have every litigated case tried on
its full merits,[21] the act of the respondent judge in rendering the default judgment after an order of default was
properly issued cannot be struck down as a case of grave abuse of discretion.
The term grave abuse of discretion, in its juridical sense, connotes capricious, despotic, oppressive or whimsical
exercise of judgment as is equivalent to lack of jurisdiction. [22]The abuse must be of such degree as to amount to
an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, as where the power is exercised
in a capricious manner. The word capricious, usually used in tandem with arbitrary, conveys the notion of willful
and unreasoning action.[23]
Under the premises, the mere issuance by the trial court of the order of default followed by a judgment by default
can easily be sustained as correct and doubtless within its jurisdiction. Surely, a disposition directing the Republic
to pay an enormous sum without the trial court hearing its side does not, without more, vitiate, on due procedural
ground, the validity of the default judgment. The petitioner may have indeed been deprived of such hearing, but
this does not mean that its right to due process had been violated. For, consequent to being declared in default,
the defaulting defendant is deemed to have waived his right to be heard or to take part in the trial. The handling
solicitors simply squandered the Republics opportunity to be heard. But more importantly, the law itself imposes
such deprivation of the right to participate as a form of penalty against one unwilling without justification to join
issue upon the allegations tendered by the plaintiff.
And going to another point, the petitioner would ascribe jurisdictional error on the respondent judge for denying its
motion for new trial based on any or a mix of the following factors, viz., (1) the failure to file an answer is
attributable to the negligence of the former handling solicitor; (2) the meritorious nature of the petitioners defense;
and (3) the value of the property involved.
The Court is not convinced. Even as the Court particularly notes what the trial court had said on the matter of
negligence: that all of the petitioners pleadings below bear at least three signatures, that of the handling solicitor,
the assistant solicitor and the Solicitor General himself, and hence accountability should go up all the way to the
top of the totem pole of authority, the cited reasons advanced by the petitioner for a new trial are not recognized
under Section 1, Rule 37 of the Rules of Court for such recourse. [24] Withal, there is no cogent reason to disturb the
denial by the trial court of the motion for new trial and the denial of the reiterative motion for reconsideration.
Then, too, the issuance by the trial court of the Order dated December 17, 2003 [25] denying the petitioners notice of
appeal after the court caused the issuance on November 27, 2003 of a certificate of finality of its August 27, 2003
decision can hardly be described as arbitrary, as the petitioner would have this Court believe. In this regard, the
Court takes stock of the following key events and material dates set forth in the assailed December 17, 2003
order, supra: (a) The petitioner, thru the OSG, received on August 29, 2003 a copy of the RTC decision in this
case, hence had up to September 13, 2003, a Saturday, within which to perfect an appeal; (b) On September 15,
2003, a Monday, the OSG filed its motion for new trial, which the RTC denied, the OSG receiving a copy of the
order of denial on October 9, 2003; and (c) On October 24, 2003, the OSG sought reconsideration of the order
denying the motion for new trial. The motion for reconsideration was denied per Order dated November 25, 2003, a
copy of which the OSG received on the same date.
Given the foregoing time perspective, what the trial court wrote in its aforementioned impugned order of December
17, 2003 merits approval:
Page 39 of 65
In the case at bar, it is clear that the motion for new trial filed on the fifteenth (15 th) day after the decision
was received on August 29, 2003 was denied and the moving party has only the remaining period
from notice of notice of denial within which to file a notice of appeal. xxx
Accordingly, when defendants [Republic et al.] filed their motion for new trial on the last day of the fifteen
day (15) prescribed for taking an appeal, which motion was subsequently denied, they had one (1)
day from receipt of a copy of the order denying new trial within which to perfect [an] appeal . Since
defendants had received a copy of the order denying their motion for new trial on 09 October
2003, reckoned from that date, they only have one (1) day left within which to file the notice of
appeal. But instead of doing so, the defendants filed a motion for reconsideration which was later
declared by the Court as pro forma motion in the Order dated 25 November 2003. The running
of the prescriptive period, therefore, can not be interrupted by a pro formamotion. Hence the filing
of the notice of appeal on 27 November 2007 came much too late for by then the judgment had
already become final and executory.[26] (Words in bracket added; Emphasis in the original.)
It cannot be over-emphasized at this stage that the special civil action of certiorari is limited to resolving only errors
of jurisdiction; it is not a remedy to correct errors of judgment. Hence, the petitioners lament, partly covered by and
discussed under the first ground for allowing its petition, about the trial court taking cognizance of the case
notwithstanding private respondents claim or action being barred by prescription and/or laches cannot be
considered favorably. For, let alone the fact that an action for the declaration of the inexistence of a contract, as
here, does not prescribe;[27] that a void transfer of property can be recovered by accion reivindicatoria;[28] and that
the legal fiction of indefeasibility of a Torrens title cannot be used as a shield to perpetuate fraud, [29] the trial courts
disinclination not to appreciate in favor of the Republic the general principles of prescription or laches constitutes,
at best, errors of judgment not correctable by certiorari.
The evidence adduced below indeed adequately supports a conclusion that the Office of the President, during the
administration of then President Marcos, wrested possession of the property in question and somehow secured a
certificate of title over it without a conveying deed having been executed to legally justify the cancellation of the old
title (TCT No. 118527) in the name of the private respondent and the issuance of a new one (TCT No. 118911) in
the name of petitioner Republic. Accordingly, granting private respondents basic plea for recovery of the Arlegui
property, which was legally hers all along, and the reinstatement of her cancelled certificate of title are legally
correct as they are morally right. While not exactly convenient because the Office of the President presently uses it
for mix residence and office purposes, restoring private respondent to her possession of the Arlegui property is
still legally and physically feasible. For what is before us, after all, is a registered owner of a piece of land who,
during the early days of the martial law regime, lost possession thereof to the Government which appropriated the
same for some public use, but without going through the legal process of expropriation, let alone paying such
owner just compensation.
The Court cannot, however, stop with just restoring the private respondent to her possession and ownership of her
property. The restoration ought to be complemented by some form of monetary compensation for having been
unjustly deprived of the beneficial use thereof, but not, however, in the varying amounts and level fixed in the
assailed decision of the trial court and set to be executed by the equally assailed writ of execution. The Court finds
the monetary award set forth therein to be erroneous. And the error relates to basic fundamentals of law as to
constitute grave abuse of discretion.
As may be noted, private respondent fixed the assessed value of her Arlegui property at P2,388,990.00. And in
the prayer portion of her third amended complaint for recovery, she asked to be restored to the possession of her
property and that the petitioner be ordered to pay her, as reasonable compensation or rental use or occupancy
thereof, the sum of P500,000.00 a month, or P6 Million a year, with a five percent (5%) yearly increase plus
interest at the legal rate beginning July 1975. From July 1975 when the PSG allegedly took over the subject
property to July 2003, a month before the trial court rendered judgment, or a period of 28 years, private
respondents total rental claim would, per the OSGs computation, only amount to P371,440,426.00. In its assailed
decision, however, the trial court ordered the petitioner to pay private respondent the total amount of over P1.48
Billion or the mind-boggling amount of P1,480,627,688.00, to be exact, representing the reasonable rental for the
property, the interest rate thereon at the legal rate and the opportunity cost. This figure is on top of
the P143,600,000.00 which represents the acquisition cost of the disputed property. All told, the trial court would
Page 40 of 65
have the Republic pay the total amount of about P1.624 Billion, exclusive of interest, for the taking of a property
with a declared assessed value of P2,388,900.00. This is not to mention the award of attorneys fees in an amount
equivalent to 15% of the amount due the private respondent.
In doing so, the respondent judge brazenly went around the explicit command of Rule 9, Section 3(d) of the Rules
of Court[30] which defines the extent of the relief that may be awarded in a judgment by default, i.e., only so much
as has been alleged and proved. The court acts in excess of jurisdiction if it awards an amount beyond the claim
made in the complaint or beyond that proved by the evidence. [31] While a defaulted defendant may be said to be at
the mercy of the trial court, the Rules of Court and certainly the imperatives of fair play see to it that any decision
against him must be in accordance with law. [32] In the abstract, this means that the judgment must not be
characterized by outrageous one-sidedness, but by what is fair, just and equitable that always underlie the
enactment of a law.
Given the above perspective, the obvious question that comes to mind is the level of compensation which for the
use and occupancy of the Arlegui property - would be fair to both the petitioner and the private respondent and,
at the same time, be within acceptable legal bounds. The process of balancing the interests of both parties is not
an easy one. But surely, the Arlegui property cannot possibly be assigned, even perhaps at the present real
estate business standards, a monthly rental value of at least P500,000.00 or P6,000,000.00 a year, the amount
private respondent particularly sought and attempted to prove. This asking figure is clearly unconscionable, if not
downright ridiculous, attendant circumstances considered. To the Court, an award of P20,000.00 a month for the
use and occupancy of the Arlegui property, while perhaps a little bit arbitrary, is reasonable and may be
granted pro hac vice considering the following hard realities which the Court takes stock of:
1. The property is relatively small in terms of actual area and had an assessed value of only
P2,388,900.00;
2. What the martial law regime took over was not exactly an area with a new and imposing structure, if
there was any; and
3. The Arlegui property had minimal rental value during the relatively long martial law years, given the
very restrictive entry and egress conditions prevailing at the vicinity at that time and even after.
To be sure, the grant of monetary award is not without parallel. In Alfonso v. Pasay City,[33] a case where a
registered owner also lost possession of a piece of lot to a municipality which took it for a public purposes without
instituting expropriation proceedings or paying any compensation for the lot, the Court, citing Herrera v. Auditor
General,[34] ordered payment of just compensation but in the form of interest when a return of the property was no
longer feasible.
The award of attorneys fees equivalent to 15% of the amount due the private respondent, as reduced herein, is
affirmed.
The assessment of costs of suit against the petitioner is, however, nullified, costs not being allowed against the
Republic, unless otherwise provided by law.[35]
The assailed trial courts issuance of the writ of execution [36] against government funds to satisfy its money
judgment is also nullified. It is basic that government funds and properties may not be seized under writs of
execution or garnishment to satisfy such judgments.[37] Republic v. Palacio[38] teaches that a judgment against the
State generally operates merely to liquidate and establish the plaintiffs claim in the absence of express provision;
otherwise, they can not be enforced by processes of law.
Albeit title to the Arlegui property remains in the name of the petitioner Republic, it is actually the Office of the
President which has beneficial possession of and use over it since the 1975 takeover. Accordingly, and in accord
with the elementary sense of justice, it behooves that office to make the appropriate budgetary arrangements
towards paying private respondent what is due her under the premises. This, to us, is the right thing to do. The
Page 41 of 65
imperatives of fair dealing demand no less. And the Court would be remiss in the discharge of its duties as
dispenser of justice if it does not exhort the Office of the President to comply with what, in law and equity, is its
obligation. If the same office will undertake to pay its obligation with reasonable dispatch or in a manner acceptable
to the private respondent, then simple justice, while perhaps delayed, will have its day. Private respondent is in the
twilight of her life, being now over 90 years of age.[39] Any delay in the implementation of this disposition would be a
bitter cut.
WHEREFORE, the decision of the Regional Trial Court of Manila dated August 27, 2003 insofar as it nullified TCT
No. 118911 of petitioner Republic of the Philippines and ordered the Register of Deeds of Manila to reinstate
private respondent Tarcila L. Mendozas TCT No. 118527, or to issue her a new certificate of title is AFFIRMED.
Should it be necessary, the Register of Deeds of Manila shall execute the necessary conveying deed to effect the
reinstatement of title or the issuance of a new title to her.
It is MODIFIED in the sense that for the use and occupancy of the Arlegui property, petitioner Republic is ordered
to pay private respondent the reasonable amount of P20,000.00 a month beginning July 1975 until it vacates the
same and the possession thereof restored to the private respondent, plus an additional interest of 6% per annum
on the total amount due upon the finality of this Decision until the same is fully paid. Petitioner is further ordered to
pay private respondent attorney's fees equivalent to 15% of the amount due her under the premises.
Accordingly, a writ of certiorari is hereby ISSUED in the sense that:
1. The respondent courts assailed decision of August 27, 2003 insofar as it ordered the petitioner Republic of the
Philippines to pay private respondent Tarcila L. Mendoza the sum of One Billion Four Hundred Eighty Million Six
Hundred Twenty Seven Thousand Six Hundred Eighty Eight Pesos (P1,480,627,688.00) representing the
purported rental use of the property in question, the interest thereon and the opportunity cost at the rate of 3% per
annum plus the interest at the legal rate added thereon is nullified. The portion assessing the petitioner Republic
for costs of suit is also declared null and void.
2. The Order of the respondent court dated December 19, 2003 for the issuance of a writ of execution and the Writ
of Execution dated December 22, 2003 against government funds are hereby declared null and void. Accordingly,
the presiding judge of the respondent court, the private respondent, their agents and persons acting for and in their
behalves are permanently enjoined from enforcing said writ of execution.
However, consistent with the basic tenets of justice, fairness and equity, petitioner Republic, thru the Office of the
President, is hereby strongly enjoined to take the necessary steps, and, with reasonable dispatch, make the
appropriate budgetary arrangements to pay private respondent Tarcila L. Mendoza or her assigns the amount
adjudged due her under this disposition.
SO ORDERED.
[G.R. No. 154411. June 19, 2003]
NATIONAL HOUSING AUTHORITY, petitioner, vs. HEIRS OF ISIDRO GUIVELONDO, COURT OF APPEALS,
HON. ISAIAS DICDICAN, Presiding Judge, Regional Trial Court, Branch 11, Cebu City, and
PASCUAL Y. ABORDO, Sheriff, Regional Trial Court, Branch 11, Cebu City, respondents.
DECISION
YNARES-SANTIAGO, J.:
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On February 23, 1999, petitioner National Housing Authority filed with the Regional Trial Court of Cebu City,
Branch 11, an Amended Complaint for eminent domain against Associacion Benevola de Cebu, Engracia Urot and
the Heirs of Isidro Guivelondo, docketed as Civil Case No. CEB-23386. Petitioner alleged that defendant
Associacion Benevola de Cebu was the claimant/owner of Lot 108-C located in the Banilad Estate, Cebu City; that
defendant Engracia Urot was the claimant/owner of Lots Nos. 108-F, 108-I, 108-G, 6019-A and 6013-A, all of the
Banilad Estate; that defendant Heirs of Isidro Guivelondo were the claimants/owners of Cadastral Lot No. 1613-D
located at Carreta, Mabolo, Cebu City; and that the lands are within a blighted urban center which petitioner
intends to develop as a socialized housing project.[1]
On November 12, 1999, the Heirs of Isidro Guivelondo, respondents herein, filed a Manifestation stating that
they were waiving their objections to petitioners power to expropriate their properties. Hence, the trial court issued
an Order as follows:
WHEREFORE, the Court hereby declares that the plaintiff has a lawful right to expropriate the properties of the
defendants who are heirs of Isidro Guivelondo.
The appointment of commissioners who would ascertain and report to the Court the just compensation for said
properties will be done as soon as the parties shall have submitted to the Court the names of persons desired by
them to be appointed as such commissioners.
SO ORDERED.[2]
Thereafter, the trial court appointed three Commissioners to ascertain the correct and just compensation of
the properties of respondents. On April 17, 2000, the Commissioners submitted their report wherein they
recommended that the just compensation of the subject properties be fixed at P11,200.00 per square meter. [3] On
August 7, 2000, the trial court rendered Partial Judgment adopting the recommendation of the Commissioners and
fixing the just compensation of the lands of respondent Heirs of Isidro Guivelondo at P11,200.00 per square meter,
to wit:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by the Court in this case fixing the
just compensation for the lands of the defendants who are the heirs of Isidro Guivelondo, more particularly Lots
Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 15, 16, 19, 20, 6016-F, 6016-H, 6016-E and 6016-D of Csd-10219,
which were sought to be expropriated by the plaintiff at P11,200.00 per square meter and ordering the plaintiff to
pay to the said defendants the just compensation for the said lands computed at P11,200.00 per square meter.
IT IS SO ORDERED.[4]
Petitioner NHA filed two motions for reconsideration dated August 30, 2000 and August 31, 2000, assailing
the inclusion of Lots 12, 13 and 19 as well as the amount of just compensation, respectively. Respondent Heirs
also filed a motion for reconsideration of the Partial Judgment. On October 11, 2000, the trial court issued an
Omnibus Order denying the motion for reconsideration of respondent Heirs and the August 31, 2000 motion of
petitioner, on the ground that the fixing of the just compensation had adequate basis and support. On the other
hand, the trial court granted petitioners August 30, 2000 motion for reconsideration on the ground that the
Commissioners Report did not include Lots 12, 13 and 19 within its coverage. Thus:
WHEREFORE, in view of the foregoing premises, the Court hereby denies the motion of the heirs of Isidro
Guivelondo (with the exception of Carlota Mercado and Juanita Suemith) for reconsideration of the partial
judgment rendered in this case on August 7, 2000 and plaintiffs motion for reconsideration of said judgment, dated
August 31, 2000.
However, the Court hereby grants the plaintiffs motion for reconsideration of said judgment, dated August 30,
2000. Accordingly, the judgment rendered in this case on August 7, 2000 is hereby set aside insofar as it has fixed
just compensations for Lots Nos. 12, 13 and 19 of Csd-10219 because the fixing of said just compensations
appears to lack adequate basis.
SO ORDERED.[5]
Petitioner filed with the Court of Appeals a petition for certiorari, which was docketed as CA-G.R. SP No.
61746.[6] Meanwhile, on October 31, 2000, the trial court issued an Entry of Judgment over the Partial Judgment
dated August 7, 2000 as modified by the Omnibus Order dated October 11, 2000. [7] Subsequently, respondent
Heirs filed a Motion for Execution, which was granted on November 22, 2000.
On January 31, 2001, the Court of Appeals dismissed the petition for certiorari on the ground that the Partial
Judgment and Omnibus Order became final and executory when petitioner failed to appeal the same. [8]
Petitioners Motion for Reconsideration and Urgent Ex-Parte Motion for a Clarificatory Ruling were denied in a
Resolution dated March 18, 2001.[9] A petition for review was filed by petitioner with this Court, which was docketed
as G.R. No. 147527. However, the same was denied in a Minute Resolution dated May 9, 2001 for failure to show
that the Court of Appeals committed a reversible error. [10]
Petitioner filed a Motion for Reconsideration which was however denied with finality on August 20, 2001. [11]
Prior to the aforesaid denial of the Motion for Reconsideration, petitioner, on July 16, 2001, filed with the trial
court a Motion to Dismiss Civil Case No. CEB-23386, complaint for eminent domain, alleging that the
implementation of its socialized housing project was rendered impossible by the unconscionable value of the land
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sought to be expropriated, which the intended beneficiaries can not afford. [12] The Motion was denied on
September 17, 2001, on the ground that the Partial Judgment had already become final and executory and there
was no just and equitable reason to warrant the dismissal of the case. [13] Petitioner filed a Motion for
Reconsideration, which was denied in an Order dated November 20, 2001. [14]
Petitioner thus filed a petition for certiorari with the Court of Appeals, which was docketed as CA-G.R. SP No.
68670, praying for the annulment of the Order of the trial court denying its Motion to Dismiss and its Motion for
Reconsideration.[15]
On February 5, 2002, the Court of Appeals summarily dismissed the petition. Immediately thereafter,
respondent Sheriff Pascual Y. Abordo of the Regional Trial Court of Cebu City, Branch 11, served on petitioner a
Notice of Levy pursuant to the Writ of Execution issued by the trial court to enforce the Partial Judgment of August
7, 2000 and the Omnibus Order of October 11, 2000.[16]
On February 18, 2002, the Court of Appeals set aside the dismissal of the petition and reinstated the
same.[17] Thereafter, a temporary restraining order was issued enjoining respondent sheriff to preserve the status
quo.[18]
On May 27, 2002, respondent sheriff served on the Landbank of the Philippines a Notice of Third
Garnishment against the deposits, moneys and interests of petitioner therein. [19]Subsequently, respondent sheriff
levied on funds and personal properties of petitioner.[20]
On July 16, 2002, the Court of Appeals rendered the assailed decision dismissing the petition for certiorari. [21]
Hence, petitioner filed this petition for review, raising the following issues:
1) WHETHER OR NOT THE STATE CAN BE COMPELLED AND COERCED BY THE COURTS TO
EXERCISE OR CONTINUE WITH THE EXERCISE OF ITS INHERENT POWER OF EMINENT
DOMAIN;
2) WHETHER OR NOT JUDGMENT HAS BECOME FINAL AND EXECUTORY AND IF ESTOPPEL OR
LACHES APPLIES TO GOVERNMENT;
3) WHETHER OR NOT WRITS OF EXECUTION AND GARNISHMENT MAY BE ISSUED AGAINST

THE STATE IN AN EXPROPRIATION WHEREIN THE EXERCISE OF THE POWER OF
EMINENT DOMAIN WILL NOT SERVE PUBLIC USE OR PURPOSE {APPLICATION OF
SUPREME COURT ADMINISTRATIVE CIRCULAR NO. 10-2000}.[22]
Respondent Heirs of Isidro Guivelondo filed their Comment, arguing as follows:

I
AS EARLIER UPHELD BY THE HONORABLE COURT, THE JUDGMENT OF THE TRIAL COURT IS ALREADY
FINAL AND EXECUTORY, HENCE, COULD NO LONGER BE DISTURBED NOR SET ASIDE
II
THE FUNDS AND ASSETS OF THE PETITIONER ARE NOT EXEMPT FROM LEVY AND GARNISHMENT
III
THE ISSUES RAISED IN THIS SECOND PETITION FOR REVIEW WERE ALREADY RESOLVED BY THE
HONORABLE COURT[23]
In the early case of City of Manila v. Ruymann,[24] the Court was confronted with the question: May the
petitioner, in an action for expropriation, after he has been placed in possession of the property and before the
termination of the action, dismiss the petition? It resolved the issue in the affirmative and held:
The right of the plaintiff to dismiss an action with the consent of the court is universally recognized with certain well-
defined exceptions. If the plaintiff discovers that the action which he commenced was brought for the purpose of
enforcing a right or a benefit, the advisability or necessity of which he later discovers no longer exists, or that the
result of the action would be different from what he had intended, then he should be permitted to withdraw his
action, subject to the approval of the court. The plaintiff should not be required to continue the action, subject to
some well-defined exceptions, when it is not to his advantage to do so. Litigation should be discouraged and not
encouraged. Courts should not require parties to litigate when they no longer desire to do so. Courts, in granting
permission to dismiss an action, of course, should always take into consideration the effect which said dismissal
would have upon the rights of the defendant.[25]
Subsequently, in Metropolitan Water District v. De Los Angeles,[26] the Court had occasion to apply the above-
quoted ruling when the petitioner, during the pendency of the expropriation case, resolved that the land sought to
be condemned was no longer necessary in the maintenance and operation of its system of waterworks. It was
held:
It is not denied that the purpose of the plaintiff was to acquire the land in question for a public use. The
fundamental basis then of all actions brought for the expropriation of lands, under the power of eminent domain, is
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public use. That being true, the very moment that it appears at any stage of the proceedings that the expropriation
is not for a public use, the action must necessarily fail and should be dismissed, for the reason that the action
cannot be maintained at all except when the expropriation is for some public use. That must be true even during
the pendency of the appeal of at any other stage of the proceedings.If, for example, during the trial in the lower
court, it should be made to appear to the satisfaction of the court that the expropriation is not for some public use, it
would be the duty and the obligation of the trial court to dismiss the action. And even during the pendency of the
appeal, if it should be made to appear to the satisfaction of the appellate court that the expropriation is not for
public use, then it would become the duty and the obligation of the appellate court to dismiss it. [27]
Notably, the foregoing cases refer to the dismissal of an action for eminent domain at the instance of the
plaintiff during the pendency of the case. The rule is different where the case had been decided and the judgment
had already become final and executory.
Expropriation proceedings consists of two stages: first, condemnation of the property after it is determined that
its acquisition will be for a public purpose or public use and, second, the determination of just compensation to be
paid for the taking of private property to be made by the court with the assistance of not more than three
commissioners.[28] Thus:
There are two (2) stages in every action for expropriation. The first is concerned with the determination of the
authority of the plaintiff to exercise the power of eminent domain and the propriety of its exercise in the context of
the facts involved in the suit. It ends with an order, if not of dismissal of the action, of condemnation declaring that
the plaintiff has a lawful right to take the property sought to be condemned, for the public use or purpose described
in the complaint, upon the payment of just compensation to be determined as of the date of the filing of the
complaint. An order of dismissal, if this be ordained, would be a final one, of course, since it finally disposes of the
action and leaves nothing more to be done by the Court on the merits. So, too, would an order of condemnation be
a final one, for thereafter, as the Rules expressly state, in the proceedings before the Trial Court, no objection to
the exercise of the right of condemnation (or the propriety thereof) shall be filed or heard.
The second phase of the eminent domain action is concerned with the determination by the Court of the just
compensation for the property sought to be taken. This is done by the Court with the assistance of not more than
three (3) commissioners. The order fixing the just compensation on the basis of the evidence before, and findings
of, the commissioners would be final, too. It would finally dispose of the second stage of the suit, and leave nothing
more to be done by the Court regarding the issue. Obviously, one or another of the parties may believe the order to
be erroneous in its appreciation of the evidence or findings of fact or otherwise. Obviously, too, such a dissatisfied
party may seek a reversal of the order by taking an appeal therefrom.[29]
The outcome of the first phase of expropriation proceedings, which is either an order of expropriation or an
order of dismissal, is final since it finally disposes of the case. On the other hand, the second phase ends with an
order fixing the amount of just compensation. Both orders, being final, are appealable.[30] An order of condemnation
or dismissal is final, resolving the question of whether or not the plaintiff has properly and legally exercised its
power of eminent domain.[31] Once the first order becomes final and no appeal thereto is taken, the authority to
expropriate and its public use can no longer be questioned.[32]
The above rule is based on Rule 67, Section 4 of the 1997 Rules of Civil Procedure, which provides:
Order of expropriation. If the objections to and the defenses against the right of the plaintiff to expropriate the
property are overruled, or when no party appears to defend as required by this Rule, the court may issue an order
of expropriation declaring that the plaintiff has a lawful right to take the property sought to be expropriated, for the
public use or purpose described in the complaint, upon the payment of just compensation to be determined as of
the date of the taking of the property or the filing of the complaint, whichever came first.
A final order sustaining the right to expropriate the property may be appealed by any party aggrieved thereby. Such
appeal, however, shall not prevent the court from determining the just compensation to be paid.
After the rendition of such an order, the plaintiff shall not be permitted to dismiss or discontinue the proceeding
except on such terms as the court deems just and equitable. (underscoring ours)
In the case at bar, petitioner did not appeal the Order of the trial court dated December 10, 1999, which
declared that it has a lawful right to expropriate the properties of respondent Heirs of Isidro Guivelondo. Hence, the
Order became final and may no longer be subject to review or reversal in any court. [33] A final and executory
decision or order can no longer be disturbed or reopened no matter how erroneous it may be. Although judicial
determinations are not infallible, judicial error should be corrected through appeals, not through repeated suits on
the same claim.[34]
Petitioner anchors its arguments on the last paragraph of the above-quoted Rule 67, Section 4. In essence, it
contends that there are just and equitable grounds to allow dismissal or discontinuance of the expropriation
proceedings. More specifically, petitioner alleges that the intended public use was rendered nugatory by the
unreasonable just compensation fixed by the court, which is beyond the means of the intended beneficiaries of the
socialized housing project. The argument is tenuous.
Socialized housing has been recognized as public use for purposes of exercising the power of eminent
domain.
Housing is a basic human need. Shortage in housing is a matter of state concern since it directly and significantly
affects public health, safety, the environment and in sum, the general welfare. The public character of housing
Page 45 of 65
measures does not change because units in housing projects cannot be occupied by all but only by those who
satisfy prescribed qualifications. A beginning has to be made, for it is not possible to provide housing for all who
need it, all at once.
xxx xxx xxx.
In the light of the foregoing, this Court is satisfied that socialized housing falls with the confines of public
use. xxx xxx xxx. Provisions on economic opportunities inextricably linked with low-cost housing, or slum
clearance, relocation and resettlement, or slum improvement emphasize the public purpose of the project.[35]
The public purpose of the socialized housing project is not in any way diminished by the amount of just
compensation that the court has fixed. The need to provide decent housing to the urban poor dwellers in the
locality was not lost by the mere fact that the land cost more than petitioner had expected. It is worthy to note that
petitioner pursued its petition for certiorari with the Court of Appeals assailing the amount of just compensation and
its petition for review with this Court which eloquently indicates that there still exists a public use for the housing
project.It was only after its appeal and petitions for review were dismissed that petitioner made a complete turn-
around and decided it did not want the property anymore.
Respondent landowners had already been prejudiced by the expropriation case. Petitioner cannot be
permitted to institute condemnation proceedings against respondents only to abandon it later when it finds the
amount of just compensation unacceptable. Indeed, our reprobation in the case of Cosculluela v. Court of
Appeals[36] is apropos:
It is arbitrary and capricious for a government agency to initiate expropriation proceedings, seize a persons
property, allow the judgment of the court to become final and executory and then refuse to pay on the ground that
there are no appropriations for the property earlier taken and profitably used. We condemn in the strongest
possible terms the cavalier attitude of government officials who adopt such a despotic and irresponsible stance.
In order to resolve the issue of the propriety of the garnishment against petitioners funds and personal
properties, there is a need to first determine its true character as a government entity. Generally, funds and
properties of the government cannot be the object of garnishment proceedings even if the consent to be sued had
been previously granted and the state liability adjudged.[37]
The universal rule that where the State gives its consent to be sued by private parties either by general or special
law, it may limit claimants action only up to the completion of proceedings anterior to the stage of execution and
that the power of the Courts ends when the judgment is rendered, since government funds and properties may not
be seized under writs of execution or garnishment to satisfy such judgments, is based on obvious considerations of
public policy. Disbursements of public funds must be covered by the corresponding appropriation as required by
law. The functions and public services rendered by the State cannot be allowed to be paralyzed or disrupted by the
diversion of public funds from their legitimate and specific objects, as appropriated by law. [38]
However, if the funds belong to a public corporation or a government-owned or controlled corporation which is
clothed with a personality of its own, separate and distinct from that of the government, then its funds are not
exempt from garnishment.[39] This is so because when the government enters into commercial business, it
abandons its sovereign capacity and is to be treated like any other corporation.[40]
In the case of petitioner NHA, the matter of whether its funds and properties are exempt from garnishment has
already been resolved squarely against its predecessor, the Peoples Homesite and Housing Corporation (PHHC),
to wit:
The plea for setting aside the notice of garnishment was premised on the funds of the Peoples Homesite and
Housing Corporation deposited with petitioner being public in character. There was not even a categorical
assertion to that effect. It is only the possibility of its being public in character. The tone was thus irresolute, the
approach diffident. The premise that the funds cold be spoken of as public in character may be accepted in the
sense that the Peoples Homesite and Housing Corporation was a government-owned entity. It does not follow
though that they were exempt from garnishment.[41]
This was reiterated in the subsequent case of Philippine Rock Industries, Inc. v. Board of Liquidators: [42]
Having a juridical personality separate and distinct from the government, the funds of such government-owned and
controlled corporations and non-corporate agency, although considered public in character, are not exempt from
garnishment. This doctrine was applied to suits filed against the Philippine Virginia Tobacco Administration (PNB
vs. Pabalan, et al., 83 SCRA 695); the National Shipyard & Steel Corporation (NASSCO vs. CIR, 118 Phil. 782);
the Manila Hotel Company (Manila Hotel Employees Asso. vs. Manila Hotel Co., 73 Phil. 374); and the People's
Homesite and Housing Corporation (PNB vs. CIR, 81 SCRA 314). [emphasis ours]
Hence, it is clear that the funds of petitioner NHA are not exempt from garnishment or execution. Petitioners
prayer for injunctive relief to restrain respondent Sheriff Pascual Abordo from enforcing the Notice of Levy and
Garnishment against its funds and properties must, therefore, be denied.
WHEREFORE, in view of the foregoing, the instant petition for review is DENIED. The decision of the Court of
Appeals in CA-G.R. SP No. 68670, affirming the trial courts Order denying petitioners Motion to Dismiss the
expropriation proceedings in Civil Case No. CEB-23386, is AFFIRMED. Petitioners prayer for injunctive relief
Page 46 of 65
against the levy and garnishment of its funds and personal properties is DENIED. The Temporary Restraining
Order dated January 22, 2003 is LIFTED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.
G.R. Nos. 166309-10 March 9, 2007
REPUBLIC OF THE PHILIPPINES, represented by the COMMISSIONER OF CUSTOMS, Petitioner,

vs.
UNIMEX MICRO-ELECTRONICS GmBH, Respondent.
DECISION
CORONA, J.:
This is an appeal by certiorari under Rule 45 of the Rules of Court seeking to nullify and set aside the decision of
the Court of Appeals (CA) dated August 30, 20041 and its amended decision of November 30, 20042 in CA-G.R.
SP No. 75359 and CA-G.R. SP No. 75366.
The antecedent facts follow.
Sometime in April 1985, respondent Unimex Micro-Electronics GmBH (Unimex) shipped a 40-foot container and
171 cartons of Atari game computer cartridges, duplicators, expanders, remote controllers, parts and accessories
to Handyware Phils., Inc. (Handyware). Don Tim Shipping Corporation transported the goods with Evergreen
Marine Corporation as shipping agent.
After the shipment arrived in the Port of Manila on July 9, 1985, the Bureau of Customs (BOC) agents discovered
that it did not tally with the description appearing on the cargo manifest. As a result, BOC instituted seizure
proceedings against Handyware and later issued a warrant of seizure and detention against the shipment.
On June 5, 1987, the Collector of Customs issued a default order against Handyware for failing to appear in the
seizure proceedings. After an ex parte hearing, the Collector of Customs forfeited the goods in favor of the
government.
Subsequently, on June 15, 1987, respondent Unimex (as shipper and owner of the goods) filed a motion to
intervene in the seizure proceedings. The Collector of Customs granted the motion but later on declared the June
5, 1987 default order against Handyware as final and executory, thus affirming the goods forfeiture in favor of the
government.
Respondent filed a petition for review against petitioner Commissioner of Customs (BOC Commissioner) in the
Court of Tax Appeals (CTA). This case was docketed as CTA Case No. 4317.3
In a decision4 dated June 15, 1992, the CTA reversed the forfeiture decree and ordered the release of the subject
shipment to respondent subject to the payment of customs duties. The CTA decision became final and executory
on July 20, 1992. The decision read:
WHEREFORE, the decree of forfeiture of [petitioner] Commissioner of Customs is hereby reversed and the subject
shipment is hereby ordered released to [respondent] subject to the condition that the correct duties, taxes, fees
and other charges thereon be paid to the Bureau of Customs based on the actual quality and condition of the
shipments at the time of the filing of the corresponding import entry in compliance with this decision and further
subject to the presentation of Central Bank Release Certificate.5
Unfortunately, however, respondents counsel failed to secure a writ of execution to enforce the CTA decision.
Instead, it filed separate claims for damages against Don Tim Shipping Corporation and Evergreen Marine
Corporation6 but both cases were dismissed.
On September 5, 2001, respondent filed in the CTA a petition for the revival of its June 15, 1992 decision. It prayed
for the immediate release by BOC of its shipment or, in the alternative, payment of the shipments value plus
damages. The BOC Commissioner failed to file his answer, hence, he was declared in default.
During the ex parte presentation of respondents evidence, BOC informed the court that the subject shipment could
no longer be found at its warehouses.
In its decision of September 19, 2002,7 the CTA declared that its June 15, 1992 decision could no longer be
executed due to the loss of respondents shipment so it ordered the BOC Commissioner to pay respondent the
commercial value of the goods based on the prevailing exchange rate at the time of their importation. The
dispositive portion of the decision read:
WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. Accordingly, [petitioner] is
ORDERED to PAY [respondent] the amount of P8,675,200.22 representing the commercial value of the shipment
at the time of importation subject, however, to the payment of the proper taxes, duties, fees and other charges
Page 47 of 65
thereon. The payment shall be taken from the sale or sales of the goods or properties seized or forfeited by the
Bureau of Customs.8
The BOC Commissioner and respondent filed their respective motions for reconsideration (MRs) of the above
decision.
In his MR, the BOC Commissioner argued that the CTA altered its June 15, 1992 decision by converting it from an
action for specific performance into a money judgment.9 On the other hand, respondent contended that the
exchange rate prevailing at the time of actual payment should apply. It also argued that the CTA erred in not
imposing legal interest on BOCs obligation.
The CTA denied both MRs. The BOC Commissioner and the respondent then filed separate petitions in the CA.
The BOC Commissioners appeal was docketed as CA-G.R. SP No. 75359 and respondents as CA-G.R. SP No.
75366. The CA consolidated the two cases.
On August 30, 2004, the CA dismissed the BOC Commissioners appeal and granted respondents.
In CA-G.R. SP No. 75359, the CA held that the BOC Commissioner was liable for the value of the subject
shipment as the same was lost while in its custody. On the other hand, in CA-G.R. SP No. 75366, it ruled that the
CTA erred in using as basis the prevailing peso-dollar exchange rate at the time of the importation instead of the
prevailing rate at the time of actual payment pursuant to RA 4100.10 It added that respondent was also entitled to
legal interest. According to the CA:
Considering that the BOC was grossly negligent in handling the subject shipment, this Court finds Unimex
entitled to legal interests. Accordingly, the actual damages thus awarded shall be subject to 6% interest per
annum.
Be that as it may, such interest shall accrue only from the date of the CTA Decision on 19 September 2002 since it
is from that the quantification of Unimexs damages have been reasonably ascertained
xxx xxx xxx
Finally, Unimex is likewise entitled to 12% interest per annum in lieu of 6% per annum from the time this Decision
becomes final and executory until fully paid, in as much as the interim period is equivalent to a forbearance of
credit.
xxx xxx xxx
WHEREFORE, the appealed Decision, dated 19 September 2002, is hereby AFFIRMED WITH MODIFICATION in
that the Bureau of Customs is adjudged liable to Unimex for the value of the subject shipment in the amount of
$466,885.54. The Bureau of Customs liability may be paid in Philippine currency, computed at the exchange rate
prevailing at the time of actual payment with legal interest thereon at the rate of 6% per annum from 19 September
2002 up to its finality. Upon finality of this Decision, the rate of legal interest shall be 12% per annum until the value
of the subject shipment is fully paid.11
The BOC Commissioner and respondent again filed their respective MRs of the above decision. The
Commissioner insisted that the BOC was not liable to respondent. On the other hand, respondents MR sought
payment of the goods value in euros, not in US dollars.12 It also demanded that the 6% legal interest be reckoned
from the date of its judicial demand on June 15, 1987.
On November 30, 2004, the CA denied the BOC Commissioners MR and granted respondents. Accordingly, the
decretal portion of its amended decision read:
WHEREFORE, the appealed Decision, dated 19 September 2002, is hereby AFFIRMED WITH MODIFICATION in
that the Bureau of Customs is adjudged liable to Unimex for the value of the subject shipment in the amount of
Euro 669,982.565. The Bureau of Customs liability [may be] paid in the Philippine currency, computed at the
exchange rate prevailing at the time of actual payment with legal interests thereon at the rate of 6% per annum
from 15 June 1987 up to the finality of this Decision. In lieu of the 6% interest, the rate of legal interest shall be
12% per annum upon finality of this Decision until the value of the subject shipment is fully paid. 13
The Republic of the Philippines, represented by the BOC Commissioner, now comes to us via this petition
assailing the CTA decision on the following grounds: (1) the June 15, 1992 CTA judgment could not be altered
after it became final and executory; (2) laches has already set in, hence, respondents case (reviving the June 15,
1992 CTA judgment) should have been dismissed outright; (3) the legal interest imposed was erroneous and (4)
the government funds cannot be charged with respondents claim without a corresponding appropriation.
Modification of a Final And Executory Judgment
In support of its first argument, petitioner contends that once a judgment becomes final and executory, it becomes
immutable and unalterable, thus the CTA erred in changing the tenor of its June 15, 1992 decision by ordering it to
instead pay the value of the goods.14
Page 48 of 65
We disagree.
Indeed, the general rule is that once a decision becomes final and executory, it cannot be altered or modified.
However, this rule is not absolute. In some cases,15 we held that where facts or events transpire after a decision
has become executory, which facts constitute a supervening cause rendering the final judgment unenforceable,
said judgment may be modified. Also, a final judgment may be altered when its execution becomes impossible or
unjust.
In the case at bar, parties do not dispute the fact that after the June 15, 1992 CTA decision became final and
executory, respondents goods were inexplicably lost while under the BOCs custody. Certainly, this fact presented
a supervening event warranting the modification of the CTA decision. Even if the CTA had maintained its original
decision, still petitioner would have been unable to comply with it for the obvious reason that there was nothing
more to deliver to respondent.
Laches Did Not Set in to Frustrate Respondents Petition to Revive The June 15, 1992 CTA Decision
Regarding petitioners second argument, we hold that it cannot impugn respondents claim on the basis of laches.
Laches is the failure or negligence to assert a right within a reasonable time, giving rise to a presumption that a
party has abandoned it or declined to assert it.16 It is not a mere question of lapse or passage of time but is
principally a question of the inequity or unfairness of permitting a right or claim to be asserted. 17
It is clear from the records that respondent was not guilty of negligence or omission. Neither did it abandon its
claim against petitioner. We agree with the CTA (as later affirmed by the CA) that:
There was never negligence or omission to assert its right within a reasonable period of time on the part of
[respondent]. In fact, from the moment it intervened in the proceedings before the Bureau of Customs up to the
present time, [respondent] is diligently trying to fight for what it believes is right. [Respondent] may have failed to
secure a writ of execution with this court when the [CTA decision] became final and executory due to wrong legal
advice, yet it does not mean that it was sleeping on its right for it filed a case against the shipping agent and/or the
sub-agent. Therefore, there [was never] an occasion wherein petitioner had abandoned or declined to assert its
right. 18
The rule is that the findings of fact by the lower court,19 if affirmed by the CA, are conclusive on us.20 Absent any
reason that compels us to deviate from the rule, as in this case, we shall not disturb such findings.
Moreover, the doctrine of laches is based upon grounds of public policy and equity. It is invoked to discourage
stale claims but is entirely addressed to the sound discretion of the court. 21 Since it is an equitable doctrine, its
application is likewise controlled by reasonable considerations. Thus, the better rule is that courts, under the
principle of equity, should not be bound by the doctrine of laches if wrong or injustice will result. 22
Given the attendant circumstances, laches cannot stall respondents right to recover what is due to it especially
where BOCs negligence in the safekeeping of the goods appears indubitable. There is no denying that BOC
exhibited gross carelessness and ineptitude in the performance of its duty as it could not even explain why or how
the goods vanished while in its custody. With this, it is difficult to exonerate petitioner from liability; otherwise, we
would countenance a wrong and exacerbate respondents loss which to this day has remained unrecompensed.
More importantly, laches never set in because respondent filed its petition for revival of judgment within the period
set by the Rules. In particular, Rule 39, Section 6 states:
SEC. 6. Execution by motion or by independent action. A final and executory judgment or order may be executed
on motion within five (5) years from the date of its entry. After the lapse of such time, and before it is barred by the
statute of limitations, a judgment may be enforced by action. The revived judgment may also be enforced by
motion within five (5) years from the date of its entry and thereafter by action before it is barred by the statute of
limitations.
Furthermore, Article 1144 of the Civil Code, an action "upon a judgment" may be brought within ten (10) years from
the time the right of action accrues.
The CTA judgment sought to be revived became final and executory on July 20, 1992 23 and was accordingly
entered into the book of judgments on the same date. On the other hand, the petition to revive said judgment was
filed on September 5, 2001. Clearly, the filing of the petition for the revival of judgment was well within the
reglementary period provided by law.
Legal Interest May Be Imposed for Use of Money or as Compensatory Damages
Petitioner likewise argues that the CA erred in imposing the 6% p.a. legal interest. According to petitioner, the
obligation to pay legal interest only arises by virtue of a contract or on account of damages due to delay or failure
to pay the principal on which the interest is exacted. It added that since the June 15, 1992 CTA decision did not
involve a monetary award but merely the release of the goods to respondent, there was no basis for the
computation and/or imposition of the 6% p.a. legal interest.
We agree with petitioner.
Page 49 of 65
Interest may be paid only either as compensation for the use of money (monetary interest) 24 or as damages
(compensatory interest).25 We quote in agreement the CTAs disquisition in its decision dated September 19, 2002:
Interest may be paid either as compensation for the use of money (monetary interest) referred to in Article 1956 of
the New Civil Code or as damages (compensatory interest) under Article 2209 above cited. As clearly provided in
[Article 2209], interest is demandable if: a) there is monetary obligation and b) debtor incurs delay.
This case does not involve a monetary obligation to be covered by Article 2209. There is no dispute that this case
was originally filed questioning the seizure of the shipment by the Bureau of Customs. Our decision subject of this
action for revival [of judgment] did not refer to any monetary obligation by [petitioner] towards the [respondent]. In
fact, if there was any monetary obligation mentioned, it referred to the obligation of [respondent] to pay the correct
taxes, duties, fees and other charges before the release of the goods can be had. In one case, the Supreme Court
held:
"In a comprehensive sense, the term "debt" embraces not merely money due by contract, but whatever one is
bound to render to another, either for contract or the requirement of the law, such as tax where the law imposes
personal liability therefor."
Therefore, the government was never a debtor to the petitioner in order that [Article] 2209 could apply. Nor was it
in default for there was no monetary obligation to pay in the first place. There is default when after demand is made
either judicially or extrajudicially. In other words, for interest to be demandable under Article 2209, there should be
a monetary obligation and the debtor was in default
In the instant case, [petitioner] was never under monetary obligation to [respondent], no demand can be made
either judicially or extrajudicially. Parallel thereto, there could be no default 26
No doubt, the present case does not fall within the first situation. Neither can it be considered as one involving
interest based on damages under the second situation.
More importantly, interest is not chargeable against petitioner except when it has expressly stipulated to pay it or
when interest is allowed by the legislature or in eminent domain cases where damages sustained by the owner
take the form of interest at the legal rate.27 Consequently, the CAs imposition of the 12% p.a. legal interest upon
the finality of the decision of this case until the value of the goods is fully paid (as forbearance of credit) is likewise
bereft of any legal anchor.
Government Liability For Actual Damages
Finally, petitioner argues that a money judgment or any charge against the government requires a corresponding
appropriation and cannot be decreed by mere judicial order.
Although it may be gainsaid that the satisfaction of respondents demand will ultimately fall on the government, and
that, under the political doctrine of "state immunity," it cannot be held liable for governmental acts (jus imperii),28 we
still hold that petitioner cannot escape its liability. The circumstances of this case warrant its exclusion from the
purview of the state immunity doctrine.
As previously discussed, the Court cannot turn a blind eye to BOCs ineptitude and gross negligence in the
safekeeping of respondents goods. We are not likewise unaware of its lackadaisical attitude in failing to provide a
cogent explanation on the goods disappearance, considering that they were in its custody and that they were in
fact the subject of litigation. The situation does not allow us to reject respondents claim on the mere invocation of
the doctrine of state immunity. Succinctly, the doctrine must be fairly observed and the State should not avail itself
of this prerogative to take undue advantage of parties that may have legitimate claims against it. 29
In Department of Health v. C.V. Canchela & Associates,30 we enunciated that this Court, as the staunch guardian
of the peoples rights and welfare, cannot sanction an injustice so patent in its face, and allow itself to be an
instrument in the perpetration thereof. Over time, courts have recognized with almost pedantic adherence that what
is inconvenient and contrary to reason is not allowed in law. 31 Justice and equity now demand that the States
cloak of invincibility against suit and liability be shredded.
Accordingly, we agree with the lower courts directive that, upon payment of the necessary customs duties by
respondent, petitioners "payment shall be taken from the sale or sales of goods or properties seized or forfeited by
the Bureau of Customs."32
WHEREFORE, the assailed decisions of the Court of Appeals in CA-G.R. SP Nos. 75359 and 75366 are
hereby AFFIRMED with MODIFICATION. Petitioner Republic of the Philippines, represented by the Commissioner
of the Bureau of Customs, upon payment of the necessary customs duties by respondent Unimex Micro-
Electronics GmBH, is hereby ordered to pay respondent the value of the subject shipment in the amount of Euro
669,982.565. Petitioners liability may be paid in Philippine currency, computed at the exchange rate prevailing at
the time of actual payment.
SO ORDERED.
Page 50 of 65
PHILIPPINE TOURISM G.R. No. 176628

AUTHORITY,
Petitioner,
Present:
CARPIO, J., Chairperson,

BRION,
- versus - PEREZ,
SERENO, and
REYES, JJ.
Promulgated:
PHILIPPINE GOLF DEVELOPMENT

& EQUIPMENT, INC., March 19, 2012
Respondent.
x------------------------------------------------------------------------------------x
RESOLUTION
BRION, J.:
Before this Court is a petition for certiorari, under Rule 65 of the 1997 Rules of Civil Procedure, to annul
the decision[1] dated December 13, 2006 of the Court of Appeals (CA) in CA G.R. SP No. 90402. This CA decision
dismissed the petition for annulment of judgment which sought to set aside the decision[2] of the Regional Trial
Court (RTC)of Muntinlupa City, Branch 203, in Civil Case No. 03-212. The RTC held the Philippine Tourism
Authority (PTA) liable for its unpaid obligation to Philippine Golf Development & Equipment, Inc. (PHILGOLF).
FACTUAL BACKGROUND
On April 3, 1996, PTA, an agency of the Department of Tourism, whose main function is to bolster and promote
tourism, entered into a contract with Atlantic Erectors, Inc. (AEI) for the construction of the Intramuros Golf Course
Expansion Projects (PAR 60-66) for a contract price of Fifty-Seven Million Nine Hundred Fifty-Four Thousand Six
Hundred Forty-Seven and 94/100 Pesos (P57,954,647.94).
The civil works of the project commenced. Since AEI was incapable of constructing the golf course aspect
of the project, it entered into a sub-contract agreement with PHILGOLF, a duly organized domestic corporation, to
build the golf course amounting to Twenty-Seven Million Pesos (P27,000,000.00). The sub-contract agreement
also provides that PHILGOLF shall submit its progress billings directly to PTA and, in turn, PTA shall directly pay
PHILGOLF.[3]
On October 2, 2003, PHILGOLF filed a collection suit against PTA amounting to Eleven Million Eight
Hundred Twenty Thousand Five Hundred Fifty and 53/100 Pesos (P11,820,550.53), plus interest, for the
construction of the golf course. Within the period to file a responsive pleading, PTA filed a motion for extension of
time to file an answer.
On October 30, 2003, the RTC granted the motion for extension of time. PTA filed another motion for
extension of time to file an answer. The RTC again granted the motion.
Despite the RTCs liberality of granting two successive motions for extension of time, PTA failed to answer
the complaint. Hence, on April 6, 2004, the RTC rendered a judgment of default, ruling as follows:
Page 51 of 65
WHEREFORE, judgment is hereby rendered, ordering the defendant to pay plaintiff:
1. The amount of Eleven Million, Eight Hundred Twenty Thousand, Five

Hundred Fifty Pesos and Fifty Three Centavos (P11,820,550.53),
representing defendants outstanding obligation, plus interest thereon of
twelve percent (12%) per annum from the time the unpaid billings of
plaintiff were due for payment by the defendant, until they are fully paid.
2. The amount of Two Hundred Thousand Pesos (P200,000.00), as

attorneys fees.
3. The amount of One Hundred Twenty Eight Thousand, Five Hundred

Twenty Nine Pesos and Fourteen Centavos (P128,529.14), as filing fees
and other costs of litigation.
4. The amount of Three Hundred Thousand Pesos (P300,000.00), as

moral damages.
5. The amount of One Hundred Fifty Thousand (Pesos (P150,000.00),

as nominal damages, and
6. The amount of Two Hundred Fifty Thousand Pesos (P250,000.00),

as exemplary damages.
SO ORDERED.[4]
On July 11, 2005, PTA seasonably appealed the case to the CA. But before the appeal of PTA could be
perfected, PHILGOLF already filed a motion for execution pending appeal with the RTC. The RTC, in an Order
dated June 2, 2004, granted the motion and a writ of execution pending appeal was issued against PTA. On June
3, 2004, a notice of garnishment was issued against PTAs bank account at the Land Bank of the Philippines,
NAIA-BOC Branch to fully satisfy the judgment.
PTA filed a petition for certiorari with the CA, imputing grave abuse of discretion on the part of the RTC for
granting the motion for execution pending appeal. The CA ruled in favor of PTA and set aside the order granting
the motion for execution pending appeal.
On July 11, 2005, PTA withdrew its appeal of the RTC decision and, instead, filed a petition [5] for
annulment of judgment under Rule 47 of the Rules of Court. The petition for annulment of judgment was premised
on the argument that the gross negligence of PTAs counsel prevented the presentation of evidence before the
RTC.
On December 13, 2006, the CA dismissed the petition for annulment of judgment for lack of merit. PTA
questions this CA action in the present petition for certiorari.
THE PETITION
The petition cites three arguments: first, that the negligence of PTAs counsel amounted to an extrinsic
fraud warranting an annulment of judgment; second, that since PTA is a government entity, it should not be bound
by the inactions or negligence of its counsel; and third, that there were no other available remedies left for PTA but
a petition for annulment of judgment.
OUR RULING
Page 52 of 65
We find the petition unmeritorious.
The Rules of Court specifically provides for deadlines in actions before the court to ensure an orderly
disposition of cases. PTA cannot escape these legal technicalities by simply invoking the negligence of its counsel.
This practice, if allowed, would defeat the purpose of the Rules on periods since every party would merely lay the
blame on its counsel to avoid any liability. The rule is that a client is bound by the acts, even mistakes, of his
counsel in the realm of procedural technique[,]and unless such acts involve gross negligence that the claiming
party can prove, the acts of a counsel bind the client as if it had been the latters acts.[6]
In LBC Express - Metro Manila, Inc. v. Mateo,[7] the Court held that [g]ross negligence is characterized by
want of even slight care, acting or omitting to act in a situation where there is a duty to act, not inadvertently but
willfully and intentionally with a conscious indifference to consequences insofar as other persons may be affected.
This cannot be invoked in cases where the counsel is merely negligent in submitting his required pleadings within
the period that the rules mandate.
It is not disputed that the summons together with a copy of the complaint was personally served upon, and
received by PTA through its Corporate Legal Services Department, on October 10, 2003.[8] Thus, in failing to
submit a responsive pleading within the required time despite sufficient notice, the RTC was correct in declaring
PTA in default.
There was no extrinsic fraud
Extrinsic fraud refers to any fraudulent act of the prevailing party in the litigation which is committed outside of the
trial of the case, whereby the unsuccessful party has been prevented from exhibiting fully his case, by fraud or
deception practiced on him by his opponent.[9] Under the doctrine of this cited case, we do not see the acts of
PTAs counsel to be constitutive of extrinsic fraud.
The records reveal that the judgment of default[10] was sent via registered mail to PTAs counsel. However, PTA
never availed of the remedy of a motion to lift the order of default. [11] Since the failure of PTA to present its
evidence was not a product of any fraudulent acts committed outside trial, the RTC did not err in declaring PTA in
default.
Annulment of judgment is not

the proper remedy
PTAs appropriate remedy was only to appeal the RTC decision. Annulment of Judgment under Rule 47 of the
Rules of Court is a recourse equitable in character and allowed only in exceptional cases where the ordinary
remedies of new trial, appeal, petition for relief or other appropriate remedies are no longer available through no
fault of petitioner.[12]
In this case, appeal was an available remedy. There was also no extraordinary reason for a petition for
annulment of judgment, nor was there any adequate explanation on why the remedy for new trial or petition for
relief could not be used. The Court is actually at a loss why PTA had withdrawn a properly filed appeal and
substituted it with another petition, when PTA could have merely raised the same issues through an ordinary
appeal.
PTA was acting in a proprietary

character
PTA also erred in invoking state immunity simply because it is a government entity. The application of
state immunity is proper only when the proceedings arise out of sovereign transactions and not in cases of
Page 53 of 65
commercial activities or economic affairs. The State, in entering into a business contract, descends to the level of
an individual and is deemed to have tacitly given its consent to be sued. [13]
Since the Intramuros Golf Course Expansion Projects partakes of a proprietary character entered into
between PTA and PHILGOLF, PTA cannot avoid its financial liability by merely invoking immunity from suit.
A special civil action for certiorari
under Rule 65 is proper only when
there is no other plain, speedy, and
adequate remedy
Lastly, a special civil action under Rule 65 of the Rules of Court is only available in cases when a tribunal, board 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 amounting to lack or excess of jurisdiction, and there is no appeal, or any plain, speedy,
and adequate remedy in the ordinary course of law. It is not a mode of appeal, and cannot also be made as a
substitute for appeal. It will not lie in cases where other remedies are available under the law.
In Land Bank of the Philippines v. Court of Appeals,[14] the Court had the occasion to state:
The general rule is that a [certiorari] will not issue where the remedy of appeal is available
to the aggrieved party. The remedies of appeal in the ordinary course of law and that
of certiorari under Rule 65 of the Revised Rules of Court are mutually exclusive and not alternative
or cumulative. Hence, the special civil action for certiorari under Rule 65 is not and cannot be a
substitute for an appeal, where the latter remedy is available. xxx
xxxx
The proper recourse of the aggrieved party from a decision of the CA is a petition for
review on certiorari under Rule 45 of the Revised Rules of Court. On the other hand, if the error
subject of the recourse is one of jurisdiction, or the act complained of was perpetrated by a quasi-
judicial officer or agency with grave abuse of discretion amounting to lack or excess of jurisdiction,
the proper remedy available to the aggrieved party is a petition for certiorari under Rule 65 of the
said Rules. [emphases supplied; citations omitted]
In sum, PTA had the remedy of appealing the RTC decision to the CA and, thereafter, to us. Under the
circumstances, we find no adequate reason to justify the elevation of this case to the CA and then to us, under
Rule 65 of the Rules of Court.
WHEREFORE, premises considered, we hereby DISMISS the petition for certiorari. No costs.
SO ORDERED.
CHINA NATIONAL MACHINERY & EQUIPMENT CORP. G.R. No. 185572

(GROUP),
Petitioner,
Present:
versus CORONA, C.J.,

CARPIO,
VELASCO, JR.,
HON. CESAR D. SANTAMARIA, in his official LEONARDO-DE CASTRO,
capacity as Presiding Judge of Branch 145, BRION,
Regional Trial Court of Makati City, HERMINIO PERALTA,
HARRY L. ROQUE, JR., JOEL R. BUTUYAN, ROGER BERSAMIN,
R. RAYEL, ROMEL R. BAGARES, CHRISTOPHER DEL CASTILLO,
FRANCISCO C. BOLASTIG, LEAGUE OF URBAN ABAD,
POOR FOR ACTION (LUPA), KILUSAN NG VILLARAMA, JR.,
MARALITA SA MEYCAUAYAN (KMM-LUPA PEREZ,
CHAPTER), DANILO M. CALDERON, VICENTE C. MENDOZA,
ALBAN, MERLYN M. VAAL, LOLITA S. QUINONES, SERENO,
RICARDO D. LANOZO, JR., CONCHITA G. GOZO, REYES, and
Page 54 of 65
MA. TERESA D. ZEPEDA, JOSEFINA A. LANOZO, PERLAS-BERNABE, JJ.

and SERGIO C. LEGASPI, JR., KALIPUNAN NG
DAMAYANG MAHIHIRAP (KADAMAY), EDY
CLERIGO, RAMMIL DINGAL, NELSON B. TERRADO,
CARMEN DEUNIDA, and EDUARDO LEGSON,
Respondents.
Promulgated:
February 7, 2012
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
SERENO, J.:
This is a Petition for Review on Certiorari with Prayer for the Issuance of a Temporary Restraining Order
(TRO) and/or Preliminary Injunction assailing the 30 September 2008 Decision and 5 December 2008
Resolution of the Court of Appeals (CA) in CAG.R. SP No. 103351. [1]
On 14 September 2002, petitioner China National Machinery & Equipment Corp. (Group) (CNMEG), represented
by its chairperson, Ren Hongbin, entered into a Memorandum of Understanding with the North Luzon Railways
Corporation (Northrail), represented by its president, Jose L. Cortes, Jr. for the conduct of a feasibility study on a
possible railway line from Manila to San Fernando, La Union (the Northrail Project). [2]
On 30 August 2003, the Export Import Bank of China (EXIM Bank) and the Department of Finance of the
Philippines (DOF) entered into a Memorandum of Understanding (Aug 30 MOU), wherein China agreed to extend
Preferential Buyers Credit to the Philippine government to finance the Northrail Project.[3] The Chinese government
designated EXIM Bank as the lender, while the Philippine government named the DOF as the borrower.[4] Under
the Aug 30 MOU, EXIM Bank agreed to extend an amount not exceeding USD 400,000,000 in favor of the DOF,
payable in 20 years, with a 5-year grace period, and at the rate of 3% per annum.[5]
On 1 October 2003, the Chinese Ambassador to the Philippines, Wang Chungui (Amb. Wang), wrote a letter to
DOF Secretary Jose Isidro Camacho (Sec. Camacho) informing him of CNMEGs designation as the Prime
Contractor for the Northrail Project.[6]
On 30 December 2003, Northrail and CNMEG executed a Contract Agreement for the construction of Section I,
Phase I of the North Luzon Railway System from Caloocan to Malolos on a turnkey basis (the Contract
Agreement).[7] The contract price for the Northrail Project was pegged at USD 421,050,000. [8]
On 26 February 2004, the Philippine government and EXIM Bank entered into a counterpart financial
agreement Buyer Credit Loan Agreement No. BLA 04055 (the Loan Agreement). [9] In the Loan Agreement, EXIM
Bank agreed to extend Preferential Buyers Credit in the amount of USD 400,000,000 in favor of the Philippine
government in order to finance the construction of Phase I of the Northrail Project. [10]
On 13 February 2006, respondents filed a Complaint for Annulment of Contract and Injunction with Urgent
Motion for Summary Hearing to Determine the Existence of Facts and Circumstances Justifying the Issuance of
Writs of Preliminary Prohibitory and Mandatory Injunction and/or TRO against CNMEG, the Office of the Executive
Secretary, the DOF, the Department of Budget and Management, the National Economic Development Authority
and Northrail.[11] The case was docketed as Civil Case No. 06-203 before the Regional Trial Court, National Capital
Judicial Region, Makati City, Branch 145 (RTC Br. 145). In the Complaint, respondents alleged that the Contract
Agreement and the Loan Agreement were void for being contrary to (a) the Constitution; (b) Republic Act No. 9184
(R.A. No. 9184), otherwise known as the Government Procurement Reform Act; (c) Presidential Decree No. 1445,
Page 55 of 65
otherwise known as the Government Auditing Code; and (d) Executive Order No. 292, otherwise known as the
Administrative Code.[12]
RTC Br. 145 issued an Order dated 17 March 2006 setting the case for hearing on the issuance of
injunctive reliefs.[13] On 29 March 2006, CNMEG filed an Urgent Motion for Reconsideration of this Order. [14] Before
RTC Br. 145 could rule thereon, CNMEG filed a Motion to Dismiss dated 12 April 2006, arguing that the trial court
did not have jurisdiction over (a) its person, as it was an agent of the Chinese government, making it immune from
suit, and (b) the subject matter, as the Northrail Project was a product of an executive agreement. [15]
On 15 May 2007, RTC Br. 145 issued an Omnibus Order denying CNMEGs Motion to Dismiss and setting
the case for summary hearing to determine whether the injunctive reliefs prayed for should be issued. [16] CNMEG
then filed a Motion for Reconsideration,[17] which was denied by the trial court in an Order dated 10 March
2008.[18] Thus, CNMEG filed before the CA a Petition for Certiorari with Prayer for the Issuance of TRO and/or Writ
of Preliminary Injunction dated 4 April 2008.[19]
In the assailed Decision dated 30 September 2008, the appellate court dismissed the Petition for
Certiorari.[20] Subsequently, CNMEG filed a Motion for Reconsideration,[21] which was denied by the CA in a
Resolution dated 5 December 2008.[22] Thus, CNMEG filed the instant Petition for Review on Certiorari dated 21
January 2009, raising the following issues: [23]
Whether or not petitioner CNMEG is an agent of the sovereign Peoples Republic

of China.
Whether or not the Northrail contracts are products of an executive agreement between
two sovereign states.
Whether or not the certification from the Department of Foreign Affairs is necessary
under the foregoing circumstances.
Whether or not the act being undertaken by petitioner CNMEG is an act jure imperii.
Whether or not the Court of Appeals failed to avoid a procedural limbo in the lower
court.
Whether or not the Northrail Project is subject to competitive public bidding.
Whether or not the Court of Appeals ignored the ruling of this Honorable Court in
the Neri case.
CNMEG prays for the dismissal of Civil Case No. 06-203 before RTC Br. 145 for lack of jurisdiction. It
likewise requests this Court for the issuance of a TRO and, later on, a writ of preliminary injunction to restrain public
respondent from proceeding with the disposition of Civil Case No. 06-203.
The crux of this case boils down to two main issues, namely:
1. Whether CNMEG is entitled to immunity, precluding it from being sued before a local court.
2. Whether the Contract Agreement is an executive agreement, such that it cannot be
questioned by or before a local court.
First issue: Whether CNMEG is entitled to immunity
This Court explained the doctrine of sovereign immunity in Holy See v. Rosario,[24] to wit:
There are two conflicting concepts of sovereign immunity, each widely held and firmly
established. According to the classical or absolute theory, a sovereign cannot, without its
consent, be made a respondent in the courts of another sovereign. According to the newer or
restrictive theory, the immunity of the sovereign is recognized only with regard to public acts
Page 56 of 65
or acts jure imperii of a state, but not with regard to private acts or acts jure
gestionis. (Emphasis supplied; citations omitted.)
xxx xxx xxx
The restrictive theory came about because of the entry of sovereign states into purely
commercial activities remotely connected with the discharge of governmental functions. This is
particularly true with respect to the Communist states which took control of nationalized business
activities and international trading.
In JUSMAG v. National Labor Relations Commission,[25] this Court affirmed the Philippines adherence to the
restrictive theory as follows:
The doctrine of state immunity from suit has undergone further metamorphosis. The view
evolved that the existence of a contract does not, per se, mean that sovereign states may, at all
times, be sued in local courts. The complexity of relationships between sovereign states, brought
about by their increasing commercial activities, mothered a more restrictive application of the
doctrine.
xxx xxx xxx
As it stands now, the application of the doctrine of immunity from suit has
been restricted to sovereign or governmental activities (jure imperii). The mantle of state
immunity cannot be extended to commercial, private and proprietary acts (jure gestionis).[26] (Emphasis
supplied.)
Since the Philippines adheres to the restrictive theory, it is crucial to ascertain the legal nature of the act
involved whether the entity claiming immunity performs governmental, as opposed to proprietary, functions. As held
in United States of America v. Ruiz [27]
The restrictive application of State immunity is proper only when the proceedings arise out
of commercial transactions of the foreign sovereign, its commercial activities or economic affairs.
Stated differently, a State may be said to have descended to the level of an individual and can
thus be deemed to have tacitly given its consent to be sued only when it enters into business
contracts. It does not apply where the contract relates to the exercise of its sovereign functions.[28]
A. CNMEG is engaged in a proprietary activity.
A threshold question that must be answered is whether CNMEG performs governmental or proprietary
functions. A thorough examination of the basic facts of the case would show that CNMEG is engaged in a proprietary
activity.
The parties executed the Contract Agreement for the purpose of constructing the Luzon Railways, viz:[29]
WHEREAS the Employer (Northrail) desired to construct the railways form Caloocan to
Malolos, section I, Phase I of Philippine North Luzon Railways Project (hereinafter referred to as
THE PROJECT);
AND WHEREAS the Contractor has offered to provide the Project on Turnkey basis,
including design, manufacturing, supply, construction, commissioning, and training of the Employers
personnel;
AND WHEREAS the Loan Agreement of the Preferential Buyers Credit between Export-
Import Bank of China and Department of Finance of Republic of the Philippines;
NOW, THEREFORE, the parties agree to sign this Contract for the Implementation of the
Project.
The above-cited portion of the Contract Agreement, however, does not on its own reveal whether the
construction of the Luzon railways was meant to be a proprietary endeavor. In order to fully understand the
intention behind and the purpose of the entire undertaking, the Contract Agreement must not be read in isolation.
Page 57 of 65
Instead, it must be construed in conjunction with three other documents executed in relation to the Northrail
Project, namely: (a) the Memorandum of Understanding dated 14 September 2002 between Northrail and
CNMEG;[30] (b) the letter of Amb. Wang dated 1 October 2003 addressed to Sec. Camacho; [31] and (c) the Loan
Agreement.[32]
1. Memorandum of Understanding dated 14 September 2002
The Memorandum of Understanding dated 14 September 2002 shows that CNMEG sought the
construction of the Luzon Railways as a proprietary venture. The relevant parts thereof read:
WHEREAS, CNMEG has the financial capability, professional competence and technical
expertise to assess the state of the [Main Line North (MLN)] and recommend implementation
plans as well as undertake its rehabilitation and/or modernization;
WHEREAS, CNMEG has expressed interest in the rehabilitation and/or

modernization of the MLN from Metro Manila to San Fernando, La Union passing through the
provinces of Bulacan, Pampanga, Tarlac, Pangasinan and La Union (the Project);
WHEREAS, the NORTHRAIL CORP. welcomes CNMEGs proposal to undertake a

Feasibility Study (the Study) at no cost to NORTHRAIL CORP.;
WHEREAS, the NORTHRAIL CORP. also welcomes CNMEGs interest in

undertaking the Project with Suppliers Credit and intends to employ CNMEG as the
Contractor for the Project subject to compliance with Philippine and Chinese laws, rules
and regulations for the selection of a contractor;
WHEREAS, the NORTHRAIL CORP. considers CNMEGs proposal advantageous to

the Government of the Republic of the Philippines and has therefore agreed to assist CNMEG
in the conduct of the aforesaid Study;
xxx xxx xxx
II. APPROVAL PROCESS
2.1 As soon as possible after completion and presentation of the Study in accordance
with Paragraphs 1.3 and 1.4 above and in compliance with necessary governmental
laws, rules, regulations and procedures required from both parties, the parties shall
commence the preparation and negotiation of the terms and conditions of the Contract
(the Contract) to be entered into between them on the implementation of the
Project. The parties shall use their best endeavors to formulate and finalize a
Contract with a view to signing the Contract within one hundred twenty (120)
days from CNMEGs presentation of the Study.[33] (Emphasis supplied)
Clearly, it was CNMEG that initiated the undertaking, and not the Chinese government. The Feasibility
Study was conducted not because of any diplomatic gratuity from or exercise of sovereign functions by the
Chinese government, but was plainly a business strategy employed by CNMEG with a view to securing this
commercial enterprise.
2. Letter dated 1 October 2003
That CNMEG, and not the Chinese government, initiated the Northrail Project was confirmed by Amb. Wang
in his letter dated 1 October 2003, thus:
1. CNMEG has the proven competence and capability to undertake the

Project as evidenced by the ranking of 42 given by the ENR among 225 global construction
companies.
2. CNMEG already signed an MOU with the North Luzon Railways

Corporation last September 14, 2000 during the visit of Chairman Li Peng. Such being the
case, they have already established an initial working relationship with your North Luzon
Railways Corporation. This would categorize CNMEG as the state corporation within the
Peoples Republic of China which initiated our Governments involvement in the Project.
Page 58 of 65
3. Among the various state corporations of the Peoples Republic of China,

only CNMEG has the advantage of being fully familiar with the current requirements of the
Northrail Project having already accomplished a Feasibility Study which was used as inputs by
the North Luzon Railways Corporation in the approvals (sic) process required by the Republic
of the Philippines.[34] (Emphasis supplied.)
Thus, the desire of CNMEG to secure the Northrail Project was in the ordinary or regular course of its
business as a global construction company. The implementation of the Northrail Project was intended to generate
profit for CNMEG, with the Contract Agreement placing a contract price of USD 421,050,000 for the venture.[35] The
use of the term state corporation to refer to CNMEG was only descriptive of its nature as a government-owned
and/or -controlled corporation, and its assignment as the Primary Contractor did not imply that it was acting on
behalf of China in the performance of the latters sovereign functions. To imply otherwise would result in an absurd
situation, in which all Chinese corporations owned by the state would be automatically considered as performing
governmental activities, even if they are clearly engaged in commercial or proprietary pursuits.
3. The Loan Agreement
CNMEG claims immunity on the ground that the Aug 30 MOU on the financing of the Northrail Project was
signed by the Philippine and Chinese governments, and its assignment as the Primary Contractor meant that it was
bound to perform a governmental function on behalf of China. However, the Loan Agreement, which originated from
the same Aug 30 MOU, belies this reasoning, viz:
Article 11. xxx (j) Commercial Activity The execution and delivery of this Agreement by the
Borrower constitute, and the Borrowers performance of and compliance with its obligations under
this Agreement will constitute, private and commercial acts done and performed for commercial
purposes under the laws of the Republic of the Philippines and neither the Borrower nor any
of its assets is entitled to any immunity or privilege (sovereign or otherwise) from suit,
execution or any other legal process with respect to its obligations under this Agreement, as
the case may be, in any jurisdiction. Notwithstanding the foregoing, the Borrower does not waive
any immunity with respect of its assets which are (i) used by a diplomatic or consular mission of the
Borrower and (ii) assets of a military character and under control of a military authority or defense
agency and (iii) located in the Philippines and dedicated to public or governmental use (as
distinguished from patrimonial assets or assets dedicated to commercial use). (Emphasis supplied.)
(k) Proceedings to Enforce Agreement In any proceeding in the Republic of

the Philippines to enforce this Agreement, the choice of the laws of the Peoples Republic of China as
the governing law hereof will be recognized and such law will be applied. The waiver of immunity by
the Borrower, the irrevocable submissions of the Borrower to the non-exclusive jurisdiction of the
courts of the Peoples Republic of China and the appointment of the Borrowers Chinese Process
Agent is legal, valid, binding and enforceable and any judgment obtained in the Peoples Republic of
China will be if introduced, evidence for enforcement in any proceedings against the Borrower and its
assets in the Republic of the Philippines provided that (a) the court rendering judgment had
jurisdiction over the subject matter of the action in accordance with its jurisdictional rules, (b) the
Republic had notice of the proceedings, (c) the judgment of the court was not obtained through
collusion or fraud, and (d) such judgment was not based on a clear mistake of fact or law.[36]
Further, the Loan Agreement likewise contains this express waiver of immunity:
15.5 Waiver of Immunity The Borrower irrevocably and unconditionally waives, any immunity
to which it or its property may at any time be or become entitled, whether characterized as sovereign
immunity or otherwise, from any suit, judgment, service of process upon it or any agent, execution on
judgment, set-off, attachment prior to judgment, attachment in aid of execution to which it or its
assets may be entitled in any legal action or proceedings with respect to this Agreement or any of the
transactions contemplated hereby or hereunder. Notwithstanding the foregoing, the Borrower does
not waive any immunity in respect of its assets which are (i) used by a diplomatic or consular mission
of the Borrower, (ii) assets of a military character and under control of a military authority or defense
agency and (iii) located in the Philippines and dedicated to a public or governmental use (as
distinguished from patrimonial assets or assets dedicated to commercial use).[37]
Page 59 of 65
Thus, despite petitioners claim that the EXIM Bank extended financial assistance to Northrail because the
bank was mandated by the Chinese government, and not because of any motivation to do business in the
Philippines,[38] it is clear from the foregoing provisions that the Northrail Project was a purely commercial transaction.
Admittedly, the Loan Agreement was entered into between EXIM Bank and the Philippine government, while
the Contract Agreement was between Northrail and CNMEG. Although the Contract Agreement is silent on the
classification of the legal nature of the transaction, the foregoing provisions of the Loan Agreement, which is an
inextricable part of the entire undertaking, nonetheless reveal the intention of the parties to the Northrail Project to
classify the whole venture as commercial or proprietary in character.
Thus, piecing together the content and tenor of the Contract Agreement, the Memorandum of
Understanding dated 14 September 2002, Amb. Wangs letter dated 1 October 2003, and the Loan Agreement
would reveal the desire of CNMEG to construct the Luzon Railways in pursuit of a purely commercial activity
performed in the ordinary course of its business.
B. CNMEG failed to adduce evidence that it is

immune from suit under Chinese law.
Even assuming arguendo that CNMEG performs governmental functions, such claim does not automatically
vest it with immunity. This view finds support in Malong v. Philippine National Railways, in which this Court held that
(i)mmunity from suit is determined by the character of the objects for which the entity was organized.[39]
In this regard, this Courts ruling in Deutsche Gesellschaft Fr Technische Zusammenarbeit (GTZ) v.
CA[40] must be examined. In Deutsche Gesellschaft, Germany and the Philippines entered into a Technical
Cooperation Agreement, pursuant to which both signed an arrangement promoting the Social Health
InsuranceNetworking and Empowerment (SHINE) project. The two governments named their respective
implementing organizations: the Department of Health (DOH) and the Philippine Health Insurance Corporation (PHIC)
for the Philippines, and GTZ for the implementation of Germanys contributions. In ruling that GTZ was not immune
from suit, this Court held:
The arguments raised by GTZ and the [Office of the Solicitor General (OSG)] are rooted in
several indisputable facts. The SHINE project was implemented pursuant to the bilateral
agreements between the Philippine and German governments. GTZ was tasked, under the
1991 agreement, with the implementation of the contributions of the German government.
The activities performed by GTZ pertaining to the SHINE project are governmental in
nature, related as they are to the promotion of health insurance in the Philippines. The fact that
GTZ entered into employment contracts with the private respondents did not disqualify it from
invoking immunity from suit, as held in cases such as Holy See v. Rosario, Jr., which set forth
what remains valid doctrine:
Certainly, the mere entering into a contract by a foreign state with a

private party cannot be the ultimate test. Such an act can only be the start of the
inquiry. The logical question is whether the foreign state is engaged in the activity
in the regular course of business. If the foreign state is not engaged regularly in a
business or trade, the particular act or transaction must then be tested by its
nature. If the act is in pursuit of a sovereign activity, or an incident thereof, then it
is an act jure imperii, especially when it is not undertaken for gain or profit.
Beyond dispute is the tenability of the comment points (sic) raised by GTZ and the OSG
that GTZ was not performing proprietary functions notwithstanding its entry into the particular
employment contracts. Yet there is an equally fundamental premise which GTZ and the OSG fail to
address, namely: Is GTZ, by conception, able to enjoy the Federal Republics immunity from suit?
The principle of state immunity from suit, whether a local state or a foreign state, is
reflected in Section 9, Article XVI of the Constitution, which states that the State may not be sued
without its consent. Who or what consists of the State? For one, the doctrine is available to foreign
States insofar as they are sought to be sued in the courts of the local State, necessary as it is to
avoid unduly vexing the peace of nations.
If the instant suit had been brought directly against the Federal Republic of Germany,
there would be no doubt that it is a suit brought against a State, and the only necessary inquiry is
whether said State had consented to be sued. However, the present suit was brought against
Page 60 of 65
GTZ. It is necessary for us to understand what precisely are the parameters of the legal
personality of GTZ.
Counsel for GTZ characterizes GTZ as the implementing agency of the Government
of the Federal Republic of Germany, a depiction similarly adopted by the OSG. Assuming that
the characterization is correct, it does not automatically invest GTZ with the ability to invoke
State immunity from suit. The distinction lies in whether the agency is incorporated or
unincorporated.
xxx xxx xxx
State immunity from suit may be waived by general or special law. The special law can
take the form of the original charter of the incorporated government agency. Jurisprudence is
replete with examples of incorporated government agencies which were ruled not entitled to
invoke immunity from suit, owing to provisions in their charters manifesting their consent to be
sued.
xxx xxx xxx
It is useful to note that on the part of the Philippine government, it had designated two entities,
the Department of Health and the Philippine Health Insurance Corporation (PHIC), as the implementing
agencies in behalf of the Philippines. The PHIC was established under Republic Act No. 7875, Section
16 (g) of which grants the corporation the power to sue and be sued in court. Applying the previously
cited jurisprudence, PHIC would not enjoy immunity from suit even in the performance of its functions
connected with SHINE, however, (sic) governmental in nature as (sic) they may be.
Is GTZ an incorporated agency of the German government? There is some mystery

surrounding that question. Neither GTZ nor the OSG go beyond the claim that petitioner is
the implementing agency of the Government of the Federal Republic of Germany. On the
other hand, private respondents asserted before the Labor Arbiter that GTZ was a private
corporation engaged in the implementation of development projects. The Labor Arbiter accepted
that claim in his Order denying the Motion to Dismiss, though he was silent on that point in his
Decision. Nevertheless, private respondents argue in their Comment that the finding that GTZ
was a private corporation was never controverted, and is therefore deemed admitted. In its Reply,
GTZ controverts that finding, saying that it is a matter of public knowledge that the status of
petitioner GTZ is that of the implementing agency, and not that of a private corporation.
In truth, private respondents were unable to adduce any evidence to substantiate their
claim that GTZ was a private corporation, and the Labor Arbiter acted rashly in accepting such
claim without explanation. But neither has GTZ supplied any evidence defining its legal nature
beyond that of the bare descriptive implementing agency. There is no doubt that the 1991
Agreement designated GTZ as the implementing agency in behalf of the German
government. Yet the catch is that such term has no precise definition that is responsive to
our concerns. Inherently, an agent acts in behalf of a principal, and the GTZ can be said to
act in behalf of the German state. But that is as far as implementing agency could take us.
The term by itself does not supply whether GTZ is incorporated or unincorporated, whether
it is owned by the German state or by private interests, whether it has juridical personality
independent of the German government or none at all.
xxx xxx xxx
Again, we are uncertain of the corresponding legal implications under German law
surrounding a private company owned by the Federal Republic of Germany. Yet taking the
description on face value, the apparent equivalent under Philippine law is that of a
corporation organized under the Corporation Code but owned by the Philippine government,
or a government-owned or controlled corporation without original charter. And it bears
notice that Section 36 of the Corporate Code states that [e]very corporation incorporated
under this Code has the power and capacity x x x to sue and be sued in its corporate name.
It is entirely possible that under German law, an entity such as GTZ or particularly GTZ
itself has not been vested or has been specifically deprived the power and capacity to sue and/or be
sued. Yet in the proceedings below and before this Court, GTZ has failed to establish that under
German law, it has not consented to be sued despite it being owned by the Federal Republic
of Germany. We adhere to the rule that in the absence of evidence to the contrary, foreign
laws on a particular subject are presumed to be the same as those of the Philippines, and
following the most intelligent assumption we can gather, GTZ is akin to a governmental
owned or controlled corporation without original charter which, by virtue of the Corporation
Code, has expressly consented to be sued. At the very least, like the Labor Arbiter and the Court
of Appeals, this Court has no basis in fact to conclude or presume that GTZ enjoys immunity from
suit.[41] (Emphasis supplied.)
Applying the foregoing ruling to the case at bar, it is readily apparent that CNMEG cannot claim immunity
from suit, even if it contends that it performs governmental functions. Its designation as the Primary Contractor does
Page 61 of 65
not automatically grant it immunity, just as the term implementing agency has no precise definition for purposes of
ascertaining whether GTZ was immune from suit. Although CNMEG claims to be a government-owned corporation, it
failed to adduce evidence that it has not consented to be sued under Chinese law. Thus, following this Courts ruling
in Deutsche Gesellschaft, in the absence of evidence to the contrary, CNMEG is to be presumed to be a government-
owned and -controlled corporation without an original charter. As a result, it has the capacity to sue and be sued
under Section 36 of the Corporation Code.
C. CNMEG failed to present a certification from the

Department of Foreign Affairs.
In Holy See,[42] this Court reiterated the oft-cited doctrine that the determination by the Executive that an entity is
entitled to sovereign or diplomatic immunity is a political question conclusive upon the courts, to wit:
In Public International Law, when a state or international agency wishes to plead sovereign
or diplomatic immunity in a foreign court, it requests the Foreign Office of the state where it is
sued to convey to the court that said defendant is entitled to immunity.
xxx xxx xxx
In the Philippines, the practice is for the foreign government or the international
organization to first secure an executive endorsement of its claim of sovereign or
diplomatic immunity. But how the Philippine Foreign Office conveys its endorsement to the
courts varies. In International Catholic Migration Commission v. Calleja, 190 SCRA 130 (1990), the
Secretary of Foreign Affairs just sent a letter directly to the Secretary of Labor and Employment,
informing the latter that the respondent-employer could not be sued because it enjoyed diplomatic
immunity. In World Health Organization v. Aquino, 48 SCRA 242 (1972), the Secretary of Foreign
Affairs sent the trial court a telegram to that effect. In Baer v. Tizon, 57 SCRA 1 (1974), the U.S.
Embassy asked the Secretary of Foreign Affairs to request the Solicitor General to make, in behalf
of the Commander of the United States Naval Base at Olongapo City, Zambales, a suggestion to
respondent Judge. The Solicitor General embodied the suggestion in a Manifestation and
Memorandum as amicus curiae.
In the case at bench, the Department of Foreign Affairs, through the Office of Legal Affairs
moved with this Court to be allowed to intervene on the side of petitioner. The Court allowed the
said Department to file its memorandum in support of petitioners claim of sovereign immunity.
In some cases, the defense of sovereign immunity was submitted directly to the local
courts by the respondents through their private counsels (Raquiza v. Bradford, 75 Phil. 50 [1945];
Miquiabas v. Philippine-Ryukyus Command, 80 Phil. 262 [1948]; United States of America v.
Guinto, 182 SCRA 644 [1990] and companion cases). In cases where the foreign states bypass
the Foreign Office, the courts can inquire into the facts and make their own determination as to the
nature of the acts and transactions involved.[43] (Emphasis supplied.)
The question now is whether any agency of the Executive Branch can make a determination of immunity from suit,
which may be considered as conclusive upon the courts. This Court, in Department of Foreign Affairs (DFA) v. National
Labor Relations Commission (NLRC),[44] emphasized the DFAs competence and authority to provide such necessary
determination, to wit:
The DFAs function includes, among its other mandates, the determination of
persons and institutions covered by diplomatic immunities, a determination which, when
challenge, (sic) entitles it to seek relief from the court so as not to seriously impair the
conduct of the country's foreign relations. The DFA must be allowed to plead its case
whenever necessary or advisable to enable it to help keep the credibility of the Philippine
government before the international community. When international agreements are
concluded, the parties thereto are deemed to have likewise accepted the responsibility of
seeing to it that their agreements are duly regarded. In our country, this task falls
principally of (sic) the DFA as being the highest executive department with the competence
and authority to so act in this aspect of the international arena. [45] (Emphasis supplied.)
Further, the fact that this authority is exclusive to the DFA was also emphasized in this Courts ruling
in Deutsche Gesellschaft:
Page 62 of 65
It is to be recalled that the Labor Arbiter, in both of his rulings, noted that it was imperative
for petitioners to secure from the Department of Foreign Affairs a certification of respondents
diplomatic status and entitlement to diplomatic privileges including immunity from suits. The
requirement might not necessarily be imperative. However, had GTZ obtained such certification
from the DFA, it would have provided factual basis for its claim of immunity that would, at
the very least, establish a disputable evidentiary presumption that the foreign party is indeed
immune which the opposing party will have to overcome with its own factual evidence. We
do not see why GTZ could not have secured such certification or endorsement from the DFA
for purposes of this case. Certainly, it would have been highly prudential for GTZ to obtain the
same after the Labor Arbiter had denied the motion to dismiss. Still, even at this juncture, we do not
see any evidence that the DFA, the office of the executive branch in charge of our diplomatic
relations, has indeed endorsed GTZs claim of immunity. It may be possible that GTZ tried, but
failed to secure such certification, due to the same concerns that we have discussed herein.
Would the fact that the Solicitor General has endorsed GTZs claim of States
immunity from suit before this Court sufficiently substitute for the DFA certification? Note
that the rule in public international law quoted in Holy See referred to endorsement by the
Foreign Office of the State where the suit is filed, such foreign office in the Philippines
being the Department of Foreign Affairs. Nowhere in the Comment of the OSG is it
manifested that the DFA has endorsed GTZs claim, or that the OSG had solicited the DFAs
views on the issue. The arguments raised by the OSG are virtually the same as the arguments
raised by GTZ without any indication of any special and distinct perspective maintained by the
Philippine government on the issue. The Comment filed by the OSG does not inspire the
same degree of confidence as a certification from the DFA would have
elicited.[46] (Emphasis supplied.)
In the case at bar, CNMEG offers the Certification executed by the Economic and Commercial Office of the
Embassy of the Peoples Republic of China, stating that the Northrail Project is in pursuit of a sovereign
activity.[47] Surely, this is not the kind of certification that can establish CNMEGs entitlement to immunity from suit,
as Holy Seeunequivocally refers to the determination of the Foreign Office of the state where it is sued.
Further, CNMEG also claims that its immunity from suit has the executive endorsement of both the OSG and
the Office of the Government Corporate Counsel (OGCC), which must be respected by the courts. However, as
expressly enunciated in Deutsche Gesellschaft, this determination by the OSG, or by the OGCC for that matter, does
not inspire the same degree of confidence as a DFA certification. Even with a DFA certification, however, it must be
remembered that this Court is not precluded from making an inquiry into the intrinsic correctness of such certification.
D. An agreement to submit any dispute to arbitration

may be construed as an implicit waiver of immunity from suit.
In the United States, the Foreign Sovereign Immunities Act of 1976 provides for a waiver by implication of
state immunity. In the said law, the agreement to submit disputes to arbitration in a foreign country is construed as an
implicit waiver of immunity from suit. Although there is no similar law in the Philippines, there is reason to apply the
legal reasoning behind the waiver in this case.
The Conditions of Contract,[48] which is an integral part of the Contract Agreement,[49] states:
33. SETTLEMENT OF DISPUTES AND ARBITRATION
33.1. Amicable Settlement
Both parties shall attempt to amicably settle all disputes or controversies arising from this
Contract before the commencement of arbitration.
33.2. Arbitration
All disputes or controversies arising from this Contract which cannot be settled between the
Employer and the Contractor shall be submitted to arbitration in accordance with the UNCITRAL
Arbitration Rules at present in force and as may be amended by the rest of this Clause. The
appointing authority shall be Hong Kong International Arbitration Center. The place of arbitration shall
be in Hong Kong at Hong Kong International Arbitration Center (HKIAC).
Page 63 of 65
Under the above provisions, if any dispute arises between Northrail and CNMEG, both parties are bound to
submit the matter to the HKIAC for arbitration. In case the HKIAC makes an arbitral award in favor of Northrail, its
enforcement in the Philippines would be subject to the Special Rules on Alternative Dispute Resolution (Special
Rules). Rule 13 thereof provides for the Recognition and Enforcement of a Foreign Arbitral Award. Under Rules 13.2
and 13.3 of the Special Rules, the party to arbitration wishing to have an arbitral award recognized and enforced in
the Philippines must petition the proper regional trial court (a) where the assets to be attached or levied upon is
located; (b) where the acts to be enjoined are being performed; (c) in the principal place of business in the Philippines
of any of the parties; (d) if any of the parties is an individual, where any of those individuals resides; or (e) in the
National Capital Judicial Region.
From all the foregoing, it is clear that CNMEG has agreed that it will not be afforded immunity from suit. Thus,
the courts have the competence and jurisdiction to ascertain the validity of the Contract Agreement.
Second issue: Whether the Contract Agreement is an

executive agreement
Article 2(1) of the Vienna Convention on the Law of Treaties (Vienna Convention) defines a treaty as follows:
[A]n international agreement concluded between States in written form and governed by
international law, whether embodied in a single instrument or in two or more related instruments and
whatever its particular designation.
In Bayan Muna v. Romulo, this Court held that an executive agreement is similar to a treaty, except that the
former (a) does not require legislative concurrence; (b) is usually less formal; and (c) deals with a narrower range of
subject matters.[50]
Despite these differences, to be considered an executive agreement, the following three requisites provided
under the Vienna Convention must nevertheless concur: (a) the agreement must be between states; (b) it must be
written; and (c) it must governed by international law. The first and the third requisites do not obtain in the case at bar.
A. CNMEG is neither a government nor a government

agency.
The Contract Agreement was not concluded between the Philippines and China, but between Northrail and
CNMEG.[51] By the terms of the Contract Agreement, Northrail is a government-owned or -controlled corporation,
while CNMEG is a corporation duly organized and created under the laws of the Peoples Republic of China.[52] Thus,
both Northrail and CNMEG entered into the Contract Agreement as entities with personalities distinct and separate
from the Philippine and Chinese governments, respectively.
Neither can it be said that CNMEG acted as agent of the Chinese government. As previously discussed, the
fact that Amb. Wang, in his letter dated 1 October 2003,[53]described CNMEG as a state corporation and declared its
designation as the Primary Contractor in the Northrail Project did not mean it was to perform sovereign functions on
behalf of China. That label was only descriptive of its nature as a state-owned corporation, and did not preclude it
from engaging in purely commercial or proprietary ventures.
B. The Contract Agreement is to be governed by

Philippine law.
Article 2 of the Conditions of Contract,[54] which under Article 1.1 of the Contract Agreement is an integral part
of the latter, states:
APPLICABLE LAW AND GOVERNING LANGUAGE

Page 64 of 65
The contract shall in all respects be read and construed in accordance with the laws of
the Philippines.
The contract shall be written in English language. All correspondence and other documents
pertaining to the Contract which are exchanged by the parties shall be written in English language.
Since the Contract Agreement explicitly provides that Philippine law shall be applicable, the parties have
effectively conceded that their rights and obligations thereunder are not governed by international law.
It is therefore clear from the foregoing reasons that the Contract Agreement does not partake of the nature of
an executive agreement. It is merely an ordinary commercial contract that can be questioned before the local courts.
WHEREFORE, the instant Petition is DENIED. Petitioner China National Machinery & Equipment Corp.
(Group) is not entitled to immunity from suit, and the Contract Agreement is not an executive agreement. CNMEGs
prayer for the issuance of a TRO and/or Writ of Preliminary Injunction is DENIED for being moot and academic. This
case is REMANDED to the Regional Trial Court of Makati, Branch 145, for further proceedings as regards the
validity of the contracts subject of Civil Case No. 06-203.
No pronouncement on costs of suit.
SO ORDERED.
Page 65 of 65

State o Immunity

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POLITICAL LAW REVIEW CASES STATE OF IMMUNITY

G.R. No. 106483 May 22, 1995

ERNESTO L. CALLADO, petitioner,

We rule in the negative and vote to dismiss the petition.

WHEREFORE, premises considered, judgment is hereby rendered ordering respondent to

We find no merit in petitioner's arguments.

IRRI's immunity from suit is undisputed.

Presidential Decree No. 1620, Article 3 provides:

xxx xxx xxx

2. Notification/manifestation to MOLE or labor arbiter

3) Waiving immunity under P.D. 1620

IN VIEW OF THE FOREGOING, the petition for certiorari is DISMISSED. No costs.

G.R. No. 101949 December 1, 1994

THE HOLY SEE, petitioner,

Padilla Law Office for petitioner.

Siguion Reyna, Montecillo & Ongsiako for private respondent.

A. The Holy See

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

[G.R. No. 154705. June 26, 2003]

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

G.R. No. 79253 March 1, 1993

UNITED STATES OF AMERICA and MAXINE BRADFORD, petitioners,

Luna, Sison & Manas for petitioners.

Evelyn R. Dominguez for private respondent.

DAVIDE, JR., J.:

The doctrine of state immunity is at the core of this controversy.

The readings disclose the following material operative facts:

xxx xxx xxx

2) Defendant, Maxine Bradford, as manager of the US Navy Exchange Branch at JUSMAG,

On 19 August 1987, petitioners filed with the trial court a Motion

There should be no misinterpretation of the scope of the decision reached by this

. . . it is equally well-settled that where a litigation may have adverse

xxx xxx xxx

(c) an action relating to any professional or commercial activity

Costs against petitioner Bradford.

[G.R. No. 131544. March 16, 2001]

The audit of the transaction shall be done after payment.

DEPARTMENT OF EDUCATION, G.R. No. 161758

A little neglect may lead to great prejudice.

The Ruling of the RTC

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff

1. Declaring the Deed of Donation executed by the Municipality of Daraga, Albay in

The Ruling of the Court of Appeals

THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER MAY BE SUED IN

Main Issue: Equitable Remedy of Laches

Laches and its elements

Issue of laches not barred by adverse judgment

Laches has set in

Q: At present how many buildings were constructed in this property?

Transfer Certificates of Title on portions of Lot 6849 valid

REPUBLIC OF THE PHILIPPINES represented G.R. No. 129406

The petition lacks merit.

In fact, by entering into a Compromise Agreement with private

WHEREFORE, the instant petition is hereby DISMISSED.

REPUBLIC OF THE PHILIPPINES, G.R. No. 161657

Inter alia, she prayed for the following:

WHEREFORE, judgment is hereby rendered:

4. Ordering the defendant Republic to pay just compensation in the sum of

7. Ordering the defendant Republic to pay the plaintiff attorneys fee, in an

SO ORDERED. (Words in bracket and emphasis added.)

4. December 22, 2003 - - Writ of Execution.[16]

Hence, this petition for certiorari.

Petitioners posture is simply without merit.