[ Act No.

3083, March 16, 1923 ]

AN ACT DEFINING THE CONDITIONS UNDER WHICH THE

GOVERNMENT OF THE PHILIPPINE ISLANDS MAY BE SUED

Be it enacted by the  Senate  and  House of Representatives of the

Philippines in Legislature assembled and by the authority of the  same:

SECTION 1. Subject to the provisions  of this  Act,  the Government  of the

Philippine Islands  hereby consents  and submits  to  be sued  upon any
moneyed claim  involving liability  arising from contract, express or 
implied, which could serve as a basis  of civil action between private parties.

SEC. 2. A person desiring to avail himself of the privilege herein conferred
must show that he has presented  his claim to the Insular Auditor and  that
the latter did not decide the same within two months from the  date  of its
presentation.

SEC. 3. Original  actions brought pursuant to the authority  conferred in

this Act shall be instituted in the  Court of First  Instance of the City of
Manila or  of the province where the claimant  resides, at  the  option of the
latter, upon which court exclusive  original jurisdiction is hereby conferred
to hear  and determine such actions.

SEC. 4. Actions  instituted  as aforesaid shall be  governed by the same rules
of procedure, both original and appellate. as if the litigants were  private
parties.

SEC. 5. When the Government of  the Philippine Islands is plaintiff in an

action instituted in any court of original jurisdiction,  the defendant shall 
have the  right  to assert therein, by way of set-off or counterclaim in  a
similar action between  private parties.

SEC. 6. Process in actions brought  against  the Government of  the

Philippine  Islands pursuant to the authority granted  in  this Act  shall be 
served  upon the  Attorney- General whose duty it shall be to  appear and
make defense, either himself or through delegates.

SEC. 7. No  execution  shall issue  upon  any  judgment rendered by any
court against the Government of the Philippine Islands under the
provisions  of  this  Act; but  a copy thereof duly certified by the clerk of the
Court in which judgment is rendered shall  be transmitted by such clerk to
the Governor-General, within five  days  after the same becomes  final.

SEC. 8. The Governor-General,  at the commencement of each regular 

session  of  the  Legislature, shall transmit to that body for appropriate
action  all decisions so received by him, and if said body determine that
payment should be made, it shall appropriate the sum which the 
Government has  been sentenced to pay, including  the same in the 
appropriations for the  ensuing year.

SEC. 9. This Act shall take effect  on its approval.

Approved, March 16, 1923.

PRESIDENTIAL DECREE No. 1445

ORDAINING AND INSTITUTING A GOVERNMENT AUDITING CODE OF THE PHILIPPINES

WHEREAS, the creation and establishment of the Commission on Audit under the new Constitution
and its recent reorganization and restructuring by virtue of Presidential Decree No. 898 have
rendered more pressing the long-felt need to codify in revised and updated form, in keeping with
modern trends of government auditing and progressive legislation on the subject, various scattered
auditing laws, rules and regulations, and to incorporate therein presidential decrees, orders,
proclamations, and instructions germane and relevant thereto for integrated effect;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the

powers vested in me by the Constitution, do hereby order and decree:

PRELIMINARY TITLE

GENERAL PROVISIONS

Section 1. Title. This law shall be known and cited as the "Government Auditing Code of the
Philippines."

Section 49. Period for rendering decisions of the Commission. The Commission shall decide any
case brought before it within sixty days from the date of its submission for resolution. If the account
or claim involved in the case needs reference to other persons or offices, or to a party interested, the
period shall be counted from the time the last comment necessary to a proper decision is received
by it.

Section 50. Appeal from decisions of the Commission. The party aggrieved by any decision, order
or ruling of the Commission may within thirty days from his receipt of a copy thereof appeal on
certiorari to the Supreme Court in the manner provided by law and the Rules of Court. When the
decision, order, or ruling adversely affects the interest of any government agency, the appeal may
be taken by the proper head of that agency.

CIVIL CODE

ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damage done. Such fault or negligence, if there is so pre-existing
contractual relation between the parties, is called a quasi-delict and is governed by the provisions of
this Chapter.

ART. 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom — one is responsible.

RA 7160

SECTION 22. Corporate Powers. – (a) Every local government unit, as a corporation,
shall have the following powers:

(1) To have continuous succession in its corporate name;

(2) To sue and be sued;

(3) To have and use a corporate seal;

(4) To acquire and convey real or personal property;

(5) To enter into contracts; and

(6) To exercise such other powers as are granted to corporations, subject to the
limitations provided in this Code and other laws.

(b) Local government units may continue using, modify, or change their existing
corporate seals: Provided, That newly established local government units or those
without corporate seals may create their own corporate seals which shall be registered
with the Department of the Interior and Local Government: Provided, further, That any
change of corporate seal shall also be registered as provided hereon.

(c) Unless otherwise provided in this Code, no contract may be entered into by the local
chief executive in behalf of the local government unit without prior authorization by the
sanggunian concerned. A legible copy of such contract shall be posted at a
conspicuous place in the provincial capitol or the city, municipal or barangay hall.

(d) Local government units shall enjoy full autonomy in the exercise of their proprietary
functions and in the management of their economic enterprises, subject to the
limitations provided in this Code and other applicable laws.
SECTION 23. Authority to Negotiate and Secure Grants. – Local chief executives may,
upon authority of the sanggunian, negotiate and secure financial grants or donations in
kind, in support of the basic services or facilities enumerated under Section 17 hereof,
from local and foreign assistance agencies without necessity of securing clearance or
approval therefor from any department, agency, or office of the National Government or
from any higher local government unit: Provided, That projects financed by such grants
or assistance with national security implications shall be approved by the national
agency concerned: Provided, further, That when such national agency fails to act on the
request for approval within thirty (30) days from receipt thereof, the same shall be
deemed approved.

The local chief executive shall, within thirty (30) days upon signing of such grant
agreement or deed of donation, report the nature, amount, and terms of such
assistance to both Houses of Congress and the President.

SECTION 24. Liability for Damages. – Local government units and their officials are not
exempt from liability for death or injury to persons or damage to property.

G.R. No. L-36084 August 31, 1977

REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
HONORABLE AMANTE P. PURISIMA, the Presiding Judge of the court of first Instance of
Manila (Branch VII), and YELLOW BALL FREIGHT LINES, INC., respondents.

Solicitor General Estelito P. Mendoza, Assistant Solicitor General Santiago M. Kapunan, Solicitor
Oscar C. Fernandez and Special Attorney Renato P. Mabugat for petitioner.

Jose Q. Calingo for private respondent.

FERNANDO, Acting C.J.:

The jurisdictional issued raised by Solicitor General Estelito P. Mendoza on behalf of the Republic of
the Philippines in this certiorari and prohibition proceeding arose from the failure of respondent
Judge Amante P. Purisima of the Court of First Instance of Manila to apply the well-known and of-
reiterated doctrine of the non-suability of a State, including its offices and agencies, from suit without
its consent. it was so alleged in a motion to dismiss filed by defendant Rice and Corn Administration
in a pending civil suit in the sala of respondent Judge for the collection of a money claim arising from
an alleged breach of contract, the plaintiff being private respondent Yellow Ball Freight Lines,
Inc. 1 Such a motion to dismiss was filed on September 7, 1972. At that time, the leading case of Mobil
Philippines Exploration, Inc. v. Customs Arrastre Service, 2 were Justice Bengzon stressed the lack of
jurisdiction of a court to pass on the merits of a claim against any office or entity acting as part of the
machinery of the national government unless consent be shown, had been applied in 53 other
decisions. 3 There is thus more than sufficient basis for an allegation of jurisdiction infirmity against the
order of respondent Judge denying the motion to dismiss dated October 4, 1972. 4 What is more, the
position of the Republic has been fortified with the explicit affirmation found in this provision of the present
Constitution: "The State may not be sued without its consent." 5
The merit of the petition for certiorari and prohibition is thus obvious.

1. There is pertinence to this excerpt from Switzerland General Insurance Co., Ltd. v. Republic of the
Philippines: 6 "The doctrine of non-suability recognized in this jurisdiction even prior to the effectivity of
the [1935] Constitution is a logical corollary of the positivist concept of law which, to para-phrase Holmes,
negates the assertion of any legal right as against the state, in itself the source of the law on which such a
right may be predicated. Nor is this all. Even if such a principle does give rise to problems, considering
lwphl@itç  

the vastly expanded role of government enabling it to engage in business pursuits to promote the general
welfare, it is not obeisance to the analytical school of thought alone that calls for its continued
applicability. Why it must continue to be so, even if the matter be viewed sociologically, was set forth
in Providence Washington Insurance Co. v. Republic thus: "Nonetheless, a continued adherence to the
doctrine of non-suability is not to be deplored for as against the inconvenience that may be caused private
parties, the loss of governmental efficiency and the obstacle to the performance of its multifarious
functions are far greater if such a fundamental principle were abandoned and the availability of judicial
remedy were not thus restricted. With the well-known propensity on the part of our people to go the court,
at the least provocation, the loss of time and energy required to defend against law suits, in the absence
of such a basic principle that constitutes such an effective obstacle, could very well be imagined." 7 It only
remains to be added that under the present Constitution which, as noted, expressly reaffirmed such a
doctrine, the following decisions had been rendered: Del mar v. The Philippine veterans
Administration; 8 Republic v. Villasor; 9 Sayson v. Singson; 10 and Director of the Bureau of Printing v.
Francisco. 11

2. Equally so, the next paragraph in the above opinion from the Switzerland General Insurance Company
decision is likewise relevant: "Nor is injustice thereby cause private parties. They could still proceed to
seek collection of their money claims by pursuing the statutory remedy of having the Auditor General pass
upon them subject to appeal to judicial tribunals for final adjudication. We could thus correctly conclude as
we did in the cited Provindence Washington Insurance decision: "Thus the doctrine of non-suability of the
government without its consent, as it has operated in practice, hardly lends itself to the charge that it
could be the fruitful parent of injustice, considering the vast and ever-widening scope of state activities at
present being undertaken. Whatever difficulties for private claimants may still exist, is, from an objective
appraisal of all factors, minimal. In the balancing of interests, so unavoidable in the determination of what
principles must prevail if government is to satisfy the public weal, the verdict must be, as it has been
these so many years, for its continuing recognition as a fundamental postulate of constitutional law." 12

3. Apparently respondent Judge was misled by the terms of the contract between the private respondent,
plaintiff in his sala, and defendant Rice and Corn Administration which, according to him, anticipated the
case of a breach of contract within the parties and the suits that may thereafter arise. 13 The consent, to
be effective though, must come from the State acting through a duly enacted statute as pointed out by
Justice Bengzon in Mobil. Thus, whatever counsel for defendant Rice and Corn Administration agreed to
had no binding force on the government. That was clearly beyond the scope of his authority. At any
rate, Justice Sanchez, in Ramos v. Court of Industrial Relations, 14 was quite categorical as to its "not
[being] possessed of a separate and distinct corporate existence. On the contrary, by the law of its
creation, it is an office directly 'under the Office of the President of the Philippines." 15

WHEREFORE, the petitioner for certiorari is granted and the resolution of October 4, 1972 denying the
motion to dismiss filed by the Rice and Corn Administration nullified and set aside and the petitioner for
prohibition is likewise granted restraining respondent Judge from acting on civil Case No. 79082 pending
in his sala except for the purpose of ordering its dismissal for lack of jurisdiction. The temporary
restraining order issued on February 8, 1973 by this Court is made permanent terminating this case.
Costs against Yellow Ball Freight Lines, Inc.

Antonio, Aquino, Concepcion, Jr. and Santos, JJ., concur.

Barredo, J., took no part.

G.R. No. L-11154            March 21, 1916

E. MERRITT, plaintiff-appellant,
vs.
GOVERNMENT OF THE PHILIPPINE ISLANDS, defendant-appellant.

Crossfield and O'Brien for plaintiff.

Attorney-General Avanceña for defendant..

TRENT, J.:

This is an appeal by both parties from a judgment of the Court of First Instance of the city of Manila
in favor of the plaintiff for the sum of P14,741, together with the costs of the cause.

Counsel for the plaintiff insist that the trial court erred (1) "in limiting the general damages which the
plaintiff suffered to P5,000, instead of P25,000 as claimed in the complaint," and (2) "in limiting the
time when plaintiff was entirely disabled to two months and twenty-one days and fixing the damage
accordingly in the sum of P2,666, instead of P6,000 as claimed by plaintiff in his complaint."

The Attorney-General on behalf of the defendant urges that the trial court erred: (a) in finding that
the collision between the plaintiff's motorcycle and the ambulance of the General Hospital was due
to the negligence of the chauffeur; (b) in holding that the Government of the Philippine Islands is
liable for the damages sustained by the plaintiff as a result of the collision, even if it be true that the
collision was due to the negligence of the chauffeur; and (c) in rendering judgment against the
defendant for the sum of P14,741.

The trial court's findings of fact, which are fully supported by the record, are as follows:

It is a fact not disputed by counsel for the defendant that when the plaintiff, riding on a
motorcycle, was going toward the western part of Calle Padre Faura, passing along the west
side thereof at a speed of ten to twelve miles an hour, upon crossing Taft Avenue and when
he was ten feet from the southwestern intersection of said streets, the General Hospital
ambulance, upon reaching said avenue, instead of turning toward the south, after passing
the center thereof, so that it would be on the left side of said avenue, as is prescribed by the
ordinance and the Motor Vehicle Act, turned suddenly and unexpectedly and long before
reaching the center of the street, into the right side of Taft Avenue, without having sounded
any whistle or horn, by which movement it struck the plaintiff, who was already six feet from
the southwestern point or from the post place there.

By reason of the resulting collision, the plaintiff was so severely injured that, according to Dr.
Saleeby, who examined him on the very same day that he was taken to the General
Hospital, he was suffering from a depression in the left parietal region, a would in the same
place and in the back part of his head, while blood issued from his nose and he was entirely
unconscious.

The marks revealed that he had one or more fractures of the skull and that the grey matter
and brain was had suffered material injury. At ten o'clock of the night in question, which was
the time set for performing the operation, his pulse was so weak and so irregular that, in his
opinion, there was little hope that he would live. His right leg was broken in such a way that
the fracture extended to the outer skin in such manner that it might be regarded as double
and the would be exposed to infection, for which reason it was of the most serious nature.
 At another examination six days before the day of the trial, Dr. Saleeby noticed that the
plaintiff's leg showed a contraction of an inch and a half and a curvature that made his leg
very weak and painful at the point of the fracture. Examination of his head revealed a notable
readjustment of the functions of the brain and nerves. The patient apparently was slightly
deaf, had a light weakness in his eyes and in his mental condition. This latter weakness was
always noticed when the plaintiff had to do any difficult mental labor, especially when he
attempted to use his money for mathematical calculations.

According to the various merchants who testified as witnesses, the plaintiff's mental and
physical condition prior to the accident was excellent, and that after having received the
injuries that have been discussed, his physical condition had undergone a noticeable
depreciation, for he had lost the agility, energy, and ability that he had constantly displayed
before the accident as one of the best constructors of wooden buildings and he could not
now earn even a half of the income that he had secured for his work because he had lost 50
per cent of his efficiency. As a contractor, he could no longer, as he had before done, climb
up ladders and scaffoldings to reach the highest parts of the building.

As a consequence of the loss the plaintiff suffered in the efficiency of his work as a
contractor, he had to dissolved the partnership he had formed with the engineer. Wilson,
because he was incapacitated from making mathematical calculations on account of the
condition of his leg and of his mental faculties, and he had to give up a contract he had for
the construction of the Uy Chaco building."

We may say at the outset that we are in full accord with the trial court to the effect that the collision
between the plaintiff's motorcycle and the ambulance of the General Hospital was due solely to the
negligence of the chauffeur.

The two items which constitute a part of the P14,741 and which are drawn in question by the plaintiff
are (a) P5,000, the award awarded for permanent injuries, and (b) the P2,666, the amount allowed
for the loss of wages during the time the plaintiff was incapacitated from pursuing his occupation. We
find nothing in the record which would justify us in increasing the amount of the first. As to the
second, the record shows, and the trial court so found, that the plaintiff's services as a contractor
were worth P1,000 per month. The court, however, limited the time to two months and twenty-one
days, which the plaintiff was actually confined in the hospital. In this we think there was error,
because it was clearly established that the plaintiff was wholly incapacitated for a period of six
months. The mere fact that he remained in the hospital only two months and twenty-one days while
the remainder of the six months was spent in his home, would not prevent recovery for the whole
time. We, therefore, find that the amount of damages sustained by the plaintiff, without any fault on
his part, is P18,075.

As the negligence which caused the collision is a tort committed by an agent or employee of the
Government, the inquiry at once arises whether the Government is legally-liable for the damages
resulting therefrom.

Act No. 2457, effective February 3, 1915, reads:

An Act authorizing E. Merritt to bring suit against the Government of the Philippine Islands
and authorizing the Attorney-General of said Islands to appear in said suit.

Whereas a claim has been filed against the Government of the Philippine Islands by Mr. E.
Merritt, of Manila, for damages resulting from a collision between his motorcycle and the
ambulance of the General Hospital on March twenty-fifth, nineteen hundred and thirteen;
 Whereas it is not known who is responsible for the accident nor is it possible to determine
the amount of damages, if any, to which the claimant is entitled; and

Whereas the Director of Public Works and the Attorney-General recommended that an Act
be passed by the Legislature authorizing Mr. E. Merritt to bring suit in the courts against the
Government, in order that said questions may be decided: Now, therefore,

By authority of the United States, be it enacted by the Philippine Legislature, that:

SECTION 1. E. Merritt is hereby authorized to bring suit in the Court of First Instance of the
city of Manila against the Government of the Philippine Islands in order to fix the
responsibility for the collision between his motorcycle and the ambulance of the General
Hospital, and to determine the amount of the damages, if any, to which Mr. E. Merritt is
entitled on account of said collision, and the Attorney-General of the Philippine Islands is
hereby authorized and directed to appear at the trial on the behalf of the Government of said
Islands, to defendant said Government at the same.

SEC. 2. This Act shall take effect on its passage.

Enacted, February 3, 1915.

Did the defendant, in enacting the above quoted Act, simply waive its immunity from suit or did it
also concede its liability to the plaintiff? If only the former, then it cannot be held that the Act created
any new cause of action in favor of the plaintiff or extended the defendant's liability to any case not
previously recognized.

All admit that the Insular Government (the defendant) cannot be sued by an individual without its
consent. It is also admitted that the instant case is one against the Government. As the consent of
the Government to be sued by the plaintiff was entirely voluntary on its part, it is our duty to look
carefully into the terms of the consent, and render judgment accordingly.

The plaintiff was authorized to bring this action against the Government "in order to fix the
responsibility for the collision between his motorcycle and the ambulance of the General Hospital
and to determine the amount of the damages, if any, to which Mr. E. Merritt is entitled on account of
said collision, . . . ." These were the two questions submitted to the court for determination. The Act
was passed "in order that said questions may be decided." We have "decided" that the accident was
due solely to the negligence of the chauffeur, who was at the time an employee of the defendant,
and we have also fixed the amount of damages sustained by the plaintiff as a result of the collision.
Does the Act authorize us to hold that the Government is legally liable for that amount? If not, we
must look elsewhere for such authority, if it exists.

The Government of the Philippine Islands having been "modeled after the Federal and State
Governments in the United States," we may look to the decisions of the high courts of that country
for aid in determining the purpose and scope of Act No. 2457.

In the United States the rule that the state is not liable for the torts committed by its officers or agents
whom it employs, except when expressly made so by legislative enactment, is well settled. "The
Government," says Justice Story, "does not undertake to guarantee to any person the fidelity of the
officers or agents whom it employs, since that would involve it in all its operations in endless
embarrassments, difficulties and losses, which would be subversive of the public interest." (Claussen
vs. City of Luverne, 103 Minn., 491, citing U. S. vs. Kirkpatrick, 9 Wheat, 720; 6 L. Ed., 199; and
Beers vs. States, 20 How., 527; 15 L. Ed., 991.)

In the case of Melvin vs. State (121 Cal., 16), the plaintiff sought to recover damages from the state
for personal injuries received on account of the negligence of the state officers at the state fair, a
state institution created by the legislature for the purpose of improving agricultural and kindred
industries; to disseminate information calculated to educate and benefit the industrial classes; and to
advance by such means the material interests of the state, being objects similar to those sought by
the public school system. In passing upon the question of the state's liability for the negligent acts of
its officers or agents, the court said:

No claim arises against any government is favor of an individual, by reason of the

misfeasance, laches, or unauthorized exercise of powers by its officers or agents. (Citing
Gibbons vs. U. S., 8 Wall., 269; Clodfelter vs. State, 86 N. C., 51, 53; 41 Am. Rep., 440;
Chapman vs. State, 104 Cal., 690; 43 Am. St. Rep., 158; Green vs. State, 73 Cal., 29; Bourn
vs. Hart, 93 Cal., 321; 27 Am. St. Rep., 203; Story on Agency, sec. 319.)

As to the scope of legislative enactments permitting individuals to sue the state where the cause of
action arises out of either fort or contract, the rule is stated in 36 Cyc., 915, thus:

By consenting to be sued a state simply waives its immunity from suit. It does not thereby
concede its liability to plaintiff, or create any cause of action in his favor, or extend its liability
to any cause not previously recognized. It merely gives a remedy to enforce a preexisting
liability and submits itself to the jurisdiction of the court, subject to its right to interpose any
lawful defense.

In Apfelbacher vs. State (152 N. W., 144, advanced sheets), decided April 16, 1915, the Act of 1913,
which authorized the bringing of this suit, read:

SECTION 1. Authority is hereby given to George Apfelbacher, of the town of Summit,

Waukesha County, Wisconsin, to bring suit in such court or courts and in such form or forms
as he may be advised for the purpose of settling and determining all controversies which he
may now have with the State of Wisconsin, or its duly authorized officers and agents, relative
to the mill property of said George Apfelbacher, the fish hatchery of the State of Wisconsin
on the Bark River, and the mill property of Evan Humphrey at the lower end of Nagawicka
Lake, and relative to the use of the waters of said Bark River and Nagawicka Lake, all in the
county of Waukesha, Wisconsin.

In determining the scope of this act, the court said:

Plaintiff claims that by the enactment of this law the legislature admitted liability on the part of
the state for the acts of its officers, and that the suit now stands just as it would stand
between private parties. It is difficult to see how the act does, or was intended to do, more
than remove the state's immunity from suit. It simply gives authority to commence suit for the
purpose of settling plaintiff's controversies with the estate. Nowhere in the act is there a
whisper or suggestion that the court or courts in the disposition of the suit shall depart from
well established principles of law, or that the amount of damages is the only question to be
settled. The act opened the door of the court to the plaintiff. It did not pass upon the question
of liability, but left the suit just where it would be in the absence of the state's immunity from
suit. If the Legislature had intended to change the rule that obtained in this state so long and
to declare liability on the part of the state, it would not have left so important a matter to mere
 inference, but would have done so in express terms. (Murdock Grate Co. vs.
Commonwealth, 152 Mass., 28; 24 N.E., 854; 8 L. R. A., 399.)

In Denning vs. State (123 Cal., 316), the provisions of the Act of 1893, relied upon and considered,
are as follows:

All persons who have, or shall hereafter have, claims on contract or for negligence against
the state not allowed by the state board of examiners, are hereby authorized, on the terms
and conditions herein contained, to bring suit thereon against the state in any of the courts of
this state of competent jurisdiction, and prosecute the same to final judgment. The rules of
practice in civil cases shall apply to such suits, except as herein otherwise provided.

And the court said:

This statute has been considered by this court in at least two cases, arising under different
facts, and in both it was held that said statute did not create any liability or cause of action
against the state where none existed before, but merely gave an additional remedy to
enforce such liability as would have existed if the statute had not been enacted. (Chapman
vs. State, 104 Cal., 690; 43 Am. St. Rep., 158; Melvin vs. State, 121 Cal., 16.)

A statute of Massachusetts enacted in 1887 gave to the superior court "jurisdiction of all claims
against the commonwealth, whether at law or in equity," with an exception not necessary to be here
mentioned. In construing this statute the court, in Murdock Grate Co. vs. Commonwealth (152
Mass., 28), said:

The statute we are discussing disclose no intention to create against the state a new and
heretofore unrecognized class of liabilities, but only an intention to provide a judicial tribunal
where well recognized existing liabilities can be adjudicated.

In Sipple vs. State (99 N. Y., 284), where the board of the canal claims had, by the terms of the
statute of New York, jurisdiction of claims for damages for injuries in the management of the canals
such as the plaintiff had sustained, Chief Justice Ruger remarks: "It must be conceded that the state
can be made liable for injuries arising from the negligence of its agents or servants, only by force of
some positive statute assuming such liability."

It being quite clear that Act No. 2457 does not operate to extend the Government's liability to any
cause not previously recognized, we will now examine the substantive law touching the defendant's
liability for the negligent acts of its officers, agents, and employees. Paragraph 5 of article 1903 of
the Civil Code reads:

The state is liable in this sense when it acts through a special agent, but not when the
damage should have been caused by the official to whom properly it pertained to do the act
performed, in which case the provisions of the preceding article shall be applicable.

The supreme court of Spain in defining the scope of this paragraph said:

That the obligation to indemnify for damages which a third person causes to another by his
fault or negligence is based, as is evidenced by the same Law 3, Title 15, Partida 7, on that
the person obligated, by his own fault or negligence, takes part in the act or omission of the
third party who caused the damage. It follows therefrom that the state, by virtue of such
provisions of law, is not responsible for the damages suffered by private individuals in
consequence of acts performed by its employees in the discharge of the functions pertaining
to their office, because neither fault nor even negligence can be presumed on the part of the
state in the organization of branches of public service and in the appointment of its agents;
on the contrary, we must presuppose all foresight humanly possible on its part in order that
each branch of service serves the general weal an that of private persons interested in its
operation. Between these latter and the state, therefore, no relations of a private nature
governed by the civil law can arise except in a case where the state acts as a judicial person
capable of acquiring rights and contracting obligations. (Supreme Court of Spain, January 7,
1898; 83 Jur. Civ., 24.)

That the Civil Code in chapter 2, title 16, book 4, regulates the obligations which arise out of
fault or negligence; and whereas in the first article thereof. No. 1902, where the general
principle is laid down that where a person who by an act or omission causes damage to
another through fault or negligence, shall be obliged to repair the damage so done,
reference is made to acts or omissions of the persons who directly or indirectly cause the
damage, the following articles refers to this persons and imposes an identical obligation
upon those who maintain fixed relations of authority and superiority over the authors of the
damage, because the law presumes that in consequence of such relations the evil caused
by their own fault or negligence is imputable to them. This legal presumption gives way to
proof, however, because, as held in the last paragraph of article 1903, responsibility for acts
of third persons ceases when the persons mentioned in said article prove that they employed
all the diligence of a good father of a family to avoid the damage, and among these persons,
called upon to answer in a direct and not a subsidiary manner, are found, in addition to the
mother or the father in a proper case, guardians and owners or directors of an establishment
or enterprise, the state, but not always, except when it acts through the agency of a special
agent, doubtless because and only in this case, the fault or negligence, which is the original
basis of this kind of objections, must be presumed to lie with the state.

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

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

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

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

For the foregoing reasons, the judgment appealed from must be reversed, without costs in this
instance. Whether the Government intends to make itself legally liable for the amount of damages
above set forth, which the plaintiff has sustained by reason of the negligent acts of one of its
employees, by legislative enactment and by appropriating sufficient funds therefor, we are not called
upon to determine. This matter rests solely with the Legislature and not with the courts.

Arellano, C. J., Torres, Johnson, and Moreland, JJ., concur.

G.R. No. L-26400 February 29, 1972

VICTORIA AMIGABLE, plaintiff-appellant,
vs.
NICOLAS CUENCA, as Commissioner of Public Highways and REPUBLIC OF THE
PHILIPPINES, defendants-appellees.

MAKALINTAL, J.:p

This is an appeal from the decision of the Court of First Instance of Cebu in its Civil Case No. R-5977, dismissing the plaintiff's complaint.

Victoria Amigable, the appellant herein, is the registered owner of Lot No. 639 of the Banilad Estate
in Cebu City as shown by Transfer Certificate of Title No. T-18060, which superseded Transfer
Certificate of Title No. RT-3272 (T-3435) issued to her by the Register of Deeds of Cebu on
February 1, 1924. No annotation in favor of the government of any right or interest in the property
appears at the back of the certificate. Without prior expropriation or negotiated sale, the government
used a portion of said lot, with an area of 6,167 square meters, for the construction of the Mango
and Gorordo Avenues.

It appears that said avenues were already existing in 1921 although "they were in bad condition and
very narrow, unlike the wide and beautiful avenues that they are now," and "that the tracing of said
roads was begun in 1924, and the formal construction in
1925." *

On March 27, 1958 Amigable's counsel wrote the President of the Philippines, requesting payment of the portion of her lot which had been
appropriated by the government. The claim was indorsed to the Auditor General, who disallowed it in his 9th Indorsement dated December 9,
1958. A copy of said indorsement was transmitted to Amigable's counsel by the Office of the President on January 7, 1959.
On February 6, 1959 Amigable filed in the court a quo a complaint, which was later amended on
April 17, 1959 upon motion of the defendants, against the Republic of the Philippines and Nicolas
Cuenca, in his capacity as Commissioner of Public Highways for the recovery of ownership and
possession of the 6,167 square meters of land traversed by the Mango and Gorordo Avenues. She
also sought the payment of compensatory damages in the sum of P50,000.00 for the illegal
occupation of her land, moral damages in the sum of P25,000.00, attorney's fees in the sum of
P5,000.00 and the costs of the suit.

Within the reglementary period the defendants filed a joint answer denying the material allegations of
the complaint and interposing the following affirmative defenses, to wit: (1) that the action was
premature, the claim not having been filed first with the Office of the Auditor General; (2) that the
right of action for the recovery of any amount which might be due the plaintiff, if any, had already
prescribed; (3) that the action being a suit against the Government, the claim for moral damages,
attorney's fees and costs had no valid basis since as to these items the Government had not given
its consent to be sued; and (4) that inasmuch as it was the province of Cebu that appropriated and
used the area involved in the construction of Mango Avenue, plaintiff had no cause of action against
the defendants.

During the scheduled hearings nobody appeared for the defendants notwithstanding due notice, so
the trial court proceeded to receive the plaintiff's evidence ex parte. On July 29, 1959 said court
rendered its decision holding that it had no jurisdiction over the plaintiff's cause of action for the
recovery of possession and ownership of the portion of her lot in question on the ground that the
government cannot be sued without its consent; that it had neither original nor appellate jurisdiction
to hear, try and decide plaintiff's claim for compensatory damages in the sum of P50,000.00, the
same being a money claim against the government; and that the claim for moral damages had long
prescribed, nor did it have jurisdiction over said claim because the government had not given its
consent to be sued. Accordingly, the complaint was dismissed. Unable to secure a reconsideration,
the plaintiff appealed to the Court of Appeals, which subsequently certified the case to Us, there
being no question of fact involved.

The issue here is whether or not the appellant may properly sue the government under the facts of
the case.

In the case of Ministerio vs. Court of First Instance of Cebu,  involving a claim for payment of the
1

value of a portion of land used for the widening of the Gorordo Avenue in Cebu City, this Court,
through Mr. Justice Enrique M. Fernando, held that where the government takes away property from
a private landowner for public use without going through the legal process of expropriation or
negotiated sale, the aggrieved party may properly maintain a suit against the government without
thereby violating the doctrine of governmental immunity from suit without its consent. We there
said: .

... . If the constitutional mandate that the owner be compensated for property taken
for public use were to be respected, as it should, then a suit of this character should
not be summarily dismissed. The doctrine of governmental immunity from suit cannot
serve as an instrument for perpetrating an injustice on a citizen. Had the government
followed the procedure indicated by the governing law at the time, a complaint would
have been filed by it, and only upon payment of the compensation fixed by the
judgment, or after tender to the party entitled to such payment of the amount fixed,
may it "have the right to enter in and upon the land so condemned, to appropriate the
same to the public use defined in the judgment." If there were an observance of
procedural regularity, petitioners would not be in the sad plaint they are now. It is
unthinkable then that precisely because there was a failure to abide by what the law
 requires, the government would stand to benefit. It is just as important, if not more
so, that there be fidelity to legal norms on the part of officialdom if the rule of law
were to be maintained. It is not too much to say that when the government takes any
property for public use, which is conditioned upon the payment of just compensation,
to be judicially ascertained, it makes manifest that it submits to the jurisdiction of a
court. There is no thought then that the doctrine of immunity from suit could still be
appropriately invoked.

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

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

be fixed by the trial court after hearing.

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

Concepcion, C.J., Reyes, J.B.L., Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and
Makasiar JJ., concur.

VICTORIA AMIGABLE, Plaintiff-Appellant, v. NICOLAS CUENCA, as

Commissioner of Public Highways and REPUBLIC OF THE
PHILIPPINES, Defendants-Appellees.

Quirico del Mar, Domingo Antigua, Antonio Paulin and N. Capangpangan for
plaintiff and Appellant.

Assistant Solicitor General Guillermo Torres and Solicitor Dominador L. Quiroz

for defendants and appellees.

SYLLABUS

1. POLITICAL LAW; EMINENT DOMAIN; PROJECT USED BY GOVERNMENT FOR ROAD

PURPOSES; RIGHTS OR REGISTERED OWNER TO DUE COMPENSATION ANYTIME. —
Considering that no annotation in favor of the government appears at the back of her
certificate of title and that she has not executed any deed of conveyance of any portion
of her lot to the government, the appellant remains the owner of the whole lot. As
registered owner, she could bring an action to recover possession of the portion of land
in question at anytime because possession is one of the attributes of ownership.
However, since restoration of possession of said portion by the government is neither
convenient nor feasible at this time because it has been and is now being used for road
purposes, the only relief available is for the government to make due compensation
which it could and should have done years ago.

2. ID.; ID.; ID.; ID.; RIGHT TO DAMAGES. — The owner of the land is entitled to
damages in the form of legal interest on the price of the land from the time it was
taken up to the time that payment is made by the government. In addition, the
government should pay for attorney’s fees, the amount of which should be fixed by the
trial court after hearing.

3. ID.; ID.; BASIS FOR DUE COMPENSATION. — To determine the due compensation
for the land appropriated by the Government, the basis should be the price or value
thereof at the time of the taking.

DECISION

MAKALINTAL, J.:

This is an appeal from the decision of the Court of First Instance of Cebu in its Civil
Case No. R-5977, dismissing the plaintiff’s complaint.

Victoria Amigable, the appellant herein, is the registered owner of Lot No. 639 of the
Banilad Estate in Cebu City as shown by Transfer Certificate of Title No. T-18060, which
superseded Transfer Certificate of Title No. RT-3272 (T-3435) issued to her by the
Register of Deeds of Cebu on February 1, 1924. No annotation in favor of the
government of any right or interest in the property appears at the back of the
certificate. Without prior expropriation or negotiated sale, the government used a
portion of said lot, with an area of 6,167 square meters, for the construction of the
Mango and Gorordo Avenues.

It appears that said avenues were already existing in 1921 although "they were in bad
condition and very narrow, unlike the wide and beautiful avenues that they are now,"
and "that the tracing of said roads was begun in 1924, and the formal construction in
1925." *

On March 27, 1958 Amigable’s counsel wrote the President of the Philippines,
requesting payment of the portion of her lot which had been appropriated by the
government. The claim was indorsed to the Auditor General, who disallowed it in his 9th
Indorsement dated December 9, 1958. A copy of said indorsement was transmitted to
Amigable’s counsel by the Office of the President on January 7, 1959.

On February 6, 1959 Amigable filed in the court a quo a complaint, which was later
amended on April 17, 1959 upon motion of the defendants, against the Republic of the
Philippines and Nicolas Cuenca, in his capacity as Commissioner of Public Highways for
the recovery of ownership and possession of the 6,167 square meters of land traversed
by the Mango and Gorordo Avenues. She also sought the payment of compensatory
damages in the sum of P50,000.00 for the illegal occupation of her land, moral
damages in the sum of P25,000.00, attorney’s fees in the sum of P5,000.00 and the
costs of the suit.

Within the reglementary period the defendants filed a joint answer denying the material
allegations of the complaint and interposing the following affirmative defenses, to wit:
(1) that the action was premature, the claim not having been filed first with the Office
of the Auditor General; (2) that the right of action for the recovery of any amount
which might be due the plaintiff, if any, had already prescribed; (3) that the action
being a suit against the Government, the claim for moral damages, attorney’s fees and
costs had no valid basis since as to these items the Government had not given its
consent to be sued; and (4) that inasmuch as it was the province of Cebu that
appropriated and used the area involved in the construction of Mango Avenue, plaintiff
had no cause of action against the defendants.

During the scheduled hearings nobody appeared for the defendants notwithstanding
due notice, so the trial court proceeded to receive the plaintiff’s evidence ex parte. On
July 29, 1959 said court rendered its decision holding that it had no jurisdiction over
the plaintiff’s cause of action for the recovery of possession and ownership of the
portion of her lot in question on the ground that the government cannot be sued
without its consent; that it had neither original nor appellate jurisdiction to hear, try
and decide plaintiff’s claim for compensatory damages in the sum of P50,000.00, the
same being a money claim against the government; and that the claim for moral
damages had long prescribed, nor did it have jurisdiction over said claim because the
government had not given its consent to be sued. Accordingly, the complaint was
dismissed. Unable to secure a reconsideration, the plaintiff appealed to the Court of
Appeals, which subsequently certified the case to Us, there being no question of fact
involved.

The issue here is whether or not the appellant may properly sue the government under
the facts of the case.

In the case of Ministerio v. Court of First Instance of Cebu, 1 involving a claim for
payment of the value of a portion of land used for the widening of the Gorordo Avenue
in Cebu City, this Court, through Mr. Justice Enrique M. Fernando, held that where the
government takes away property from a private landowner for public use without going
through the legal process of expropriation or negotiated sale, the aggrieved party may
properly maintain a suit against the government without thereby violating the doctrine
of governmental immunity from suit without its consent. We there said: jgc:chanrobles.com.ph

". . . If the constitutional mandate that the owner be compensated for property taken
for public use were to be respected, as it should, then a suit of this character should not
be summarily dismissed. The doctrine of governmental immunity from suit cannot serve
as an instrument for perpetrating an injustice on a citizen. Had the government
followed the procedure indicated by the governing law at the time, a complaint would
have been filed by it, and only upon payment of the compensation fixed by the
judgment, or after tender to the party entitled to such payment of the amount fixed,
may it have the right to enter in and upon the land so condemned, to appropriate the
same to the public use defined in the judgment.’ If there were an observance of
procedural regularity, petitioners would not be in the sad plaint they are now. It is
unthinkable then that precisely because there was a failure to abide by what the law
requires, the government would stand to benefit. It is just as important, if not more so,
that there be fidelity to legal norms on the part of officialdom if the rule of law were to
be maintained. It is not too much to say that when the government takes any property
for public use, which is conditioned upon the payment of just compensation, to be
judicially ascertained, it makes manifest that it submits to the jurisdiction of a court.
There is no thought then that the doctrine of immunity from suit could still be
appropriately invoked." cralaw virtua1aw library

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

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

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

G.R. No. 104269 November 11, 1993

DEPARTMENT OF AGRICULTURE, petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, et al., respondents.

Roy Lago Salcedo for private respondents.

VITUG, J.:

For consideration are the incidents that flow from the familiar doctrine of non-suability of the state.

In this petition for certiorari, the Department of Agriculture seeks to nullify the Resolution,   dated 27
1

November 1991, of the National Labor Relations Commission (NLRC), Fifth Division, Cagayan de
Oro City, denying the petition for injunction, prohibition and mandamus that prays to enjoin
permanently the NLRC's Regional Arbitration Branch X and Cagayan de Oro City Sheriff from
enforcing the decision   of 31 May 1991 of the Executive Labor Arbiter and from attaching and
2

executing on petitioner's property.

The Department of Agriculture (herein petitioner) and Sultan Security Agency entered into a
contract  on 01 April 1989 for security services to be provided by the latter to the said governmental
3

entity. Save for the increase in the monthly rate of the guards, the same terms and conditions were
also made to apply to another contract, dated 01 May 1990, between the same parties. Pursuant to
their arrangements, guards were deployed by Sultan Agency in the various premises of the
petitioner.

On 13 September 1990, several guards of the Sultan Security Agency filed a complaint for
underpayment of wages, non-payment of 13th month pay, uniform allowances, night shift differential
pay, holiday pay and overtime pay, as well as for damages,  before the Regional Arbitration Branch
4

X of Cagayan de Oro City, docketed as NLRC Case No. 10-09-00455-90 (or 10-10-00519-90, its
original docket number), against the Department of Agriculture and Sultan Security Agency.

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

On 18 July 1991, the Labor Arbiter issued a writ of execution.   commanding the City Sheriff to
5

enforce and execute the judgment against the property of the two respondents. Forthwith, or on 19
July 1991, the City Sheriff levied on execution the motor vehicles of the petitioner, i.e. one (1) unit
Toyota Hi-Ace, one (1) unit Toyota Mini Cruiser, and one (1) unit Toyota Crown.  These units were
6

put under the custody of Zacharias Roa, the property custodian of the petitioner, pending their sale
at public auction or the final settlement of the case, whichever would come first.

A petition for injunction, prohibition and mandamus, with prayer for preliminary writ of injunction was
filed by the petitioner with the National Labor Relations Commission (NLRC), Cagayan de Oro,
alleging, inter alia, that the writ issued was effected without the Labor Arbiter having duly acquired
jurisdiction over the petitioner, and that, therefore, the decision of the Labor Arbiter was null and void
and all actions pursuant thereto should be deemed equally invalid and of no legal, effect. The
petitioner also pointed out that the attachment or seizure of its property would hamper and
jeopardize petitioner's governmental functions to the prejudice of the public good.

On 27 November 1991, the NLRC promulgated its assailed resolution; viz:

WHEREFORE, premises considered, the following orders are issued:

1. The enforcement and execution of the judgments against petitioner in NLRC

RABX Cases Nos. 10-10-00455-90; 10-10-0481-90 and 10-10-00519-90 are
temporarily suspended for a period of two (2) months, more or less, but not
extending beyond the last quarter of calendar year 1991 to enable petitioner to
source and raise funds to satisfy the judgment awards against it;

2. Meantime, petitioner is ordered and directed to source for funds within the period
above-stated and to deposit the sums of money equivalent to the aggregate amount.
it has been adjudged to pay jointly and severally with respondent Sultan Security
Agency with the Regional Arbitration Branch X, Cagayan de Oro City within the same
period for proper dispositions;

3. In order to ensure compliance with this order, petitioner is likewise directed to put
up and post sufficient surety and supersedeas bond equivalent to at least to fifty
 (50%) percent of the total monetary award issued by a reputable bonding company
duly accredited by the Supreme Court or by the Regional Trial Court of Misamis
Oriental to answer for the satisfaction of the money claims in case of failure or default
on the part of petitioner to satisfy the money claims;

4. The City Sheriff is ordered to immediately release the properties of petitioner

levied on execution within ten (10) days from notice of the posting of sufficient surety
or supersedeas bond as specified above. In the meanwhile, petitioner is assessed to
pay the costs and/or expenses incurred by the City Sheriff, if any, in connection with
the execution of the judgments in the above-stated cases upon presentation of the
appropriate claims or vouchers and receipts by the city Sheriff, subject to the
conditions specified in the NLRC Sheriff, subject to the conditions specified in the
NLRC Manual of Instructions for Sheriffs;

5. The right of any of the judgment debtors to claim reimbursement against each
other for any payments made in connection with the satisfaction of the judgments
herein is hereby recognized pursuant to the ruling in the Eagle Security case,
(supra). In case of dispute between the judgment debtors, the Executive Labor
Arbiter of the Branch of origin may upon proper petition by any of the parties conduct
arbitration proceedings for the purpose and thereby render his decision after due
notice and hearings;

7. Finally, the petition for injunction is Dismissed for lack of basis. The writ of
preliminary injunction previously issued is Lifted and Set Aside and in lieu thereof,
a Temporary Stay of Execution is issued for a period of two (2) months but not
extending beyond the last quarter of calendar year 1991, conditioned upon the
posting of a surety or supersedeas bond by petitioner within ten (10) days from
notice pursuant to paragraph 3 of this disposition. The motion to admit the complaint
in intervention is Denied for lack of merit while the motion to dismiss the petition filed
by Duty Sheriff is Noted

SO ORDERED.

In this petition for certiorari, the petitioner charges the NLRC with grave abuse of discretion for
refusing to quash the writ of execution. The petitioner faults the NLRC for assuming jurisdiction over
a money claim against the Department, which, it claims, falls under the exclusive jurisdiction of the
Commission on Audit. More importantly, the petitioner asserts, the NLRC has disregarded the
cardinal rule on the non-suability of the State.

The private respondents, on the other hand, argue that the petitioner has impliedly waived its
immunity from suit by concluding a service contract with Sultan Security Agency.

The basic postulate enshrined in the constitution that "(t)he State may not be sued without its
consent,"   reflects nothing less than a recognition of the sovereign character of the State and an
7

express affirmation of the unwritten rule effectively insulating it from the jurisdiction of courts.   It is
8

based on the very essence of sovereignty. As has been aptly observed, by Justice Holmes, a
sovereign is exempt from suit, not because of any formal conception or obsolete theory, but on the
logical and practical ground that there can be no legal right as against the authority that makes the
law on which the right depends.   True, the doctrine, not too infrequently, is derisively called "the
9

royal prerogative of dishonesty" because it grants the state the prerogative to defeat any legitimate
claim against it by simply invoking its non-suability.   We have had occasion, to explain in its
10

defense, however, that a continued adherence to the doctrine of non-suability cannot be deplored,
for the loss of governmental efficiency and the obstacle to the performance of its multifarious
functions would be far greater in severity than the inconvenience that may be caused private parties,
if such fundamental principle is to be abandoned and the availability of judicial remedy is not to be
accordingly restricted. 11

The rule, in any case, is not really absolute for it does not say that the state may not be sued under
any circumstances. On the contrary, as correctly phrased, the doctrine only conveys, "the state may
not be sued without its consent;" its clear import then is that the State may at times be sued.   The
12

States' consent may be given expressly or impliedly. Express consent may be made through a
general law  or a special law.   In this jurisdiction, the general law waiving the immunity of the state
13 14

from suit is found in Act No. 3083, where the Philippine government "consents and submits to be
sued upon any money claims involving liability arising from contract, express or implied, which could
serve as a basis of civil action between private parties."   Implied consent, on the other hand, is
15

conceded when the State itself commences litigation, thus opening itself to a counterclaim  or when
16

it enters into a contract.   In this situation, the government is deemed to have descended to the level
17

of the other contracting party and to have divested itself of its sovereign immunity. This rule, relied
upon by the NLRC and the private respondents, is not, however, without qualification. Not all
contracts entered into by the government operate as a waiver of its non-suability; distinction must
still be made between one which is executed in the exercise of its sovereign function and another
which is done in its proprietary capacity. 
18

In the Unites States of America vs. Ruiz,   where the questioned transaction dealt with
19

improvements on the wharves in the naval installation at Subic Bay, we held:

The traditional rule of immunity exempts a State from being sued in the courts of
another State without its consent or waiver. This rule is a necessary consequence of
the principles of independence and equality of States. However, the rules of
International Law are not petrified; they are constantly developing and evolving. And
because the activities of states have multiplied, it has been necessary to distinguish
them — between sovereign and governmental acts ( jure imperii) and private,
commercial and proprietary act ( jure gestionisis). The result is that State immunity
now extends only to acts jure imperii. The restrictive application of State immunity is
now the rule in the United States, the United Kingdom and other states in Western
Europe.

xxx xxx xxx

The restrictive application of State immunity is proper only when the proceedings
arise out of commercial transactions of the foreign sovereign, its commercial
activities or economic affairs. Stated differently, a state may be said to have
descended to the level of an individual and can this be deemed to have actually
given its consent to be sued only when it enters into business contracts. It does not
apply where the contracts relates to the exercise of its sovereign functions. In this
case the projects are an integral part of the naval base which is devoted to the
defense of both the United States and the Philippines, indisputably a function of the
government of the highest order; they are not utilized for not dedicated to commercial
or business purposes.

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

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

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

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

Villasor   this Court, in nullifying the issuance of an alias writ of execution directed against the funds
22

of the Armed Forces of the Philippines to satisfy a final and executory judgment, has explained, thus
—

The universal rule that where the State gives its consent to be sued by private parties
either by general or special law, it may limit the claimant's action "only up to the
completion of proceedings anterior to the stage of execution" and that the power of
the Courts ends when the judgment is rendered, since government funds and
properties may not be seized under writs or execution or garnishment to satisfy such
judgments, is based on obvious considerations of public policy. Disbursements of
public funds must be covered by the correspondent appropriation as required by law.
The functions and public services rendered by the State cannot be allowed to be
paralyzed or disrupted by the diversion of public funds from their legitimate and
specific objects, as appropriated by law. 23

WHEREFORE, the petition is GRANTED. The resolution, dated 27 November 1991, is hereby
REVERSED and SET ASIDE. The writ of execution directed against the property of the Department
of Agriculture is nullified, and the public respondents are hereby enjoined permanently from doing,
issuing and implementing any and all writs of execution issued pursuant to the decision rendered by
the Labor Arbiter against said petitioner.

SO ORDERED.

Feliciano, Bidin, Romero and Melo, JJ., concur.

G.R. No. L-5156             March 11, 1954

CARMEN FESTEJO, demandante-apelante,
vs.
ISAIAS FERNANDO, Director de Obras Publicas, demandado-apelado.

D. Eloy B. Bello en representacion de la apelante.

El Procurador General Sr. Pompeyo Diaz y el Procurador Sr. Antonio A. Torres en representacion
del apelado.

DIOKNO, J.:

Carmen Festejo, dueña de unos terrenos azucareros, de un total de unas 9 hectareas y media de
superfice, demando a "Isaias Fernando Director, Bureau of public Works, que como tal Director de
Obras Publicas tiene a su cargo los sistemas y proyectos de irrigacion y es el funcionario
responsable de la construccion de los sistemas de irrigacion en el pais," alegando que —

The defendant, as Director of the Bureau of Public Works, without authority obtained first
from the Court of First Instance of Ilocos Sur, without obtaining first a right of way, and
without the consent and knowledge of the plaintiff, and against her express objection
unlawfully took possession of portions of the three parcels of land described above, and
caused an irrigation canal to be constructed on the portion of the three parcels of land on or
about the month of February 1951 the aggregate area being 24,179 square meters to the
damage and prejudice of the plaintiff. ----- R. on A., p. 3.

causando a ella variados daños y perjuicios. Pidio, en su consecuencia, sentencia condenando el

demandado:

. . . to return or cause to be returned the possession of the portions of land unlawfully

occupied and appropriated in the aggregate area of 24,179 square meters and to return the
land to its former condition under the expenses of the defendant. . . .

In the remote event that the portions of land unlawfully occupied and appropriated can not be
returned to the plaintiff, then to order the defendant to pay to the plaintiff the sum of
P19,343.20 as value of the portions totalling an area of 24,179 square meters; ---- R. on A.,
p. 5.

y ademas a pagar P9,756.19 de daños y P5,000 de honorarios de abogado, con las costas R. on A.,
pp. 5-6.

El demandado, por medio del Procurador General, presento mocion de sobreseimiento de la

demanda por el fundamento de que el Juzgado no tiene jurisdiccion para dictar sentencia valida
contra el, toda vez que judicialmente la reclamacion es contra la Republica de Filipinas, y esta no ha
presentado su consentimiento a la demanda. El Juzgado inferior estimo la mocion y sobreseyo la
demanda sin perjuicio y sin costas.

En apelacion, la demandante sostiene que fue un error considerar la demanda como una contra la
Republica y sobreseer en su virtud la demanda.

La mocion contra "Isaias Fernando, Director de Obras Publicas, encargado y responsable de la

construccion de los sistemas de irrigacion en Filipinas" es una dirigida personalmente contra el, por
actos que asumio ejecutar en su concepto oficial. La ley no le exime de responsabilidad por las
extralimitaciones que cometa o haga cometer en el desempeño de sus funciones oficiales. Un caso
semejante es el de Nelson vs. Bobcock (1933) 18 minn. 584, NW 49, 90 ALR 1472. Alli el
Comisionado de Carreteras, al mejorar un trozo de la carretera ocupo o se apropio de terrenos
contiguos al derecho de paso. El Tribunal Supremo del Estado declaro que
es personalmente responsable al dueño de los daños causados. Declaro ademas que la ratificacion
de lo que hicieron sus subordinados era equivalente a una orden a los mismos. He aqui lo dijo el
Tribunal.

We think the evidence and conceded facts permitted the jury in finding that in the trespass
on plaintiff's land defendant committed acts outside the scope of his authority. When he went
outside the boundaries of the right of way upon plaintiff's land and damaged it or destroyed
its former condition an dusefulness, he must be held to have designedly departed from the
duties imposed on him by law. There can be no claim that he thus invaded plaintiff's land
southeasterly of the right of way innocently. Surveys clearly marked the limits of the land
appropriated for the right of way of this trunk highway before construction began. . . .

"Ratification may be equivalent to command, and cooperation may be inferred from

acquiescence where there is power to restrain." It is unnecessary to consider other cases
cited, . . ., for as before suggested, the jury could find or infer that, in so far as there was
actual trespass by appropriation of plaintiff's land as a dumping place for the rock to be
removed from the additional appropriated right of way, defendant planned, approved, and
ratified what was done by his subordinates. — Nelson vs. Bobcock, 90 A.L.R., 1472, 1476,
1477.

La doctrina sobre la responsabilidad civil de los funcionarios en casos parecidos se resume como
sigue:

Ordinarily the officer or employee committing the tort is personally liable therefor, and may
be sued as any other citizen and held answerable for whatever injury or damage results from
his tortious act. — 49 Am. Jur. 289.

. . . If an officer, even while acting under color of his office, exceeds the power conferred on
him by law, he cannot shelter himself under the plea that he is a public agent. — 43 Am. Jur.
86.

It is a general rule that an officer-executive, administrative quasi-judicial, ministerial, or

otherwise who acts outside the scope of his jurisdiction and without authorization of law may
thereby render himself amenable to personal liability in a civil suit. If he exceed the power
conferred on him by law, he cannot shelter himself by the plea that he is a public agent
acting under the color of his office, and not personally. In the eye of the law, his acts then are
wholly without authority. — 43 Am. Jur. 89-90.

El articulo 32 del Codigo Civil dice a su vez:

ART. 32. Any public officer or emplyee, or any private individual, who directly or indirectly
obstructs, defeats, violates or in any manner impedes or impairs any of the following rights
and liberties of another person shall be liable to the latter for damages:

xxx     xxx     xxx

(6) The right against deprivation of property without due process of law;
 xxx     xxx     xxx

In any of the cases referred to this article, whether or not the defendant's acts or omission
constitutes a criminal offense, the aggrieved party has a right ot commence an entirely
separate and distinct civil action for damages, and for other relief. Such civil action shall
proceed independently of any criminal prosecution (if the latter be instituted), and may be
proved by a preponderance of evidence.

The inmdemnity shall include moral damages Exemplary damages may also be adjudicated.

Veanse tambien Lung vs. Aldanese, 45 Phil., 784; Syquia vs. Almeda, No. L-1648, Agosto
17, 1947; Marquez vs. Nelson, No. L-2412, Septiembre 1950.

Se revoca la orden apelada y se ordena la continuacion de la tramitacion de la demanda conforme

proveen los reglamentos. Sin especial pronunciamiento en cuanto a las costas. Asi se ordena.

Padilla, Reyes, Jugo, Bautista Angelo and Labrador, MM., estan conformes.

Separate Opinions

CONCEPCION, J., dissenting:

To my mind, the allegations of the complaint lead to no other conclusion than that appellee Isaias
Fernando is a party in this case, not in his personal capacity, but as an officer of the Government.
According to said pleading the defendant is "Isaias Fernando, Director, Bureau of Public Works."
Moreover, in paragraphs 4 and 5 of the complaint, it is alleged:

4. That the defendant as Director of the Bureau of Public Works, is in charge of irrigation
projects and systems, and the official responsible for the construction of irrigation system in
the Philippines;

5. That the defendant, as Director of the Bureau of Public Works, without authority obtained
first from the Court of First Instance of Ilocos Sur, without obtaining first a right of way, and
without the consent and knowledge of the plaintiff, and against her express objection,
unlawfully took possession of portions of the three parcels of land described above, and
caused an irrigation canal to be constructed on the portion of the three parcels of land on or
about the month of February 1951 the aggregate area being 24,179 square meters to the
damage and prejudice of the plaintiff. (Emphasis supplied.)

The emphasis thus placed upon the allegation that the acts complained of were performed by said
defendant "as Director of the Bureau of Public Works," clearly shows that the designation of his
office was included in the title of the case to indicate that he was being sued in his official capacity.
This conclusion is bolstered up by the fact that, among other things, plaintiff prays, in the complaint,
for a judgment

Ordering the defendant to return or caused to be returned the possession of the portions of
land unlawfully occupied and appropriated in the aggregate area of 24,179 square meters
 and to return the land to its former condition under the expense of the defendant. (Paragraph
a, of the complaint).

We take judicial notice of the fact that the irrigation projects and system reffered to in the complaint
— of which the defendant, Isaias Fernando, according to the same pleading, is "in charge" and for
which he is "responsible" as Director of the Bureau of Public Works — are established and operated
with public funds, which pursuant to the Constitution, must be appropriated by law. Irrespective of
the manner in which the construction may have been undertaken by the Bureau of Public Works, the
system or canal is, therefore, a property of the Government. Consequently, in praying that
possession of the portions of land occupied by the irrigation canal involved in the present case be
returned to plaintiff therein, and that said land be restored to its former condition, plaintiff seeks to
divest the Government of its possession of said irrigation canal, and, what is worse, to cause said
property of the Government to be removed or destroyed. As held in Syquia vs. Lopez (47 Off. Gaz.,
665), the Government is, accordingly, "the real party in interest as defendant" in the case at bar. In
other words, the same partakes of the nature of a suit against the state and may not be maintained
without its consent.

Hence I am constrained to dissent.

Bengzon, J., concurs.

Incorporated
and
Unincorpora
ted Agency
G.R. No. L-55273-83 December 19, 1981

GAUDENCIO RAYO, BIENVINIDO PASCUAL, TOMAS MANUEL,

MARIANO CRUZ, PEDRO BARTOLOME, BERNARDINO CRUZ JOSE
PALAD , LUCIO FAJARDO, FRANCISCO RAYOS, ANGEL TORRES,
NORBERTO TORRES, RODELIO JOAQUIN, PEDRO AQUINO,
APOLINARIO BARTOLOME, MAMERTO BERNARDO, CIRIACO
CASTILLO, GREGORIO CRUZ, SIMEON ESTRELLA, EPIFANIO
MARCELO, HERMOGENES SAN PEDRO, JUAN SANTOS, ELIZABETH
ABAN, MARCELINA BERNABE, BUENAVENTURA CRUZ, ANTONIO
MENESES, ROMAN SAN PEDRO, LOPEZ ESPINOSA, GODOFREDO
PUNZAL, JULIANA GARCIA, LEBERATO SARMIENTO, INOCENCIO DE
LEON, CARLOS CORREA, REYNALDO CASIMIRO, ANTONIO GENER,
GAUDENCIO CASTILLO, MATIAS PEREZ, CRISPINIANO TORRES,
CRESENCIO CRUZ, PROTACIO BERNABE, MARIANO ANDRES,
CRISOSTOMO CRUZ, MARCOS EUSTAQUIO, PABLO LEGASPI, VICENTE
PASCUAL, ALEJANDRA SISON, EUFRACIO TORRES, ROGELIO
BARTOLOME, RODOLFO BERNARDO, APOLONIO CASTILLO,
MARCELINO DALMACIO, EUTIQUIO LEGASPI, LORENZO LUCIANO and
GREGORIO PALAD, Petitioners, vs. COURT OF FIRST INSTANCE OF
BULACAN, BRANCH V, STA. MARIA, and NATIONAL POWER
CORPORATION, Respondents.

ABAD SANTOS, J.:

The relevant antecedents of this case are narrated in the petition

and have not been controverted, namely:  chanrobles virtual law library

3. At about midnight on October 26, 1978, during the height of that

infamous typhoon "KADING" the respondent corporation, acting
through its plant superintendent, Benjamin Chavez, opened or
caused to be opened simultaneously all the three floodgates of the
Angat Dam. And as a direct and immediate result of the sudden,
precipitate and simultaneous opening of said floodgates several
towns in Bulacan were flooded. Hardest-hit was Norzagaray. About
a hundred of its residents died or were reported to have died and
properties worth million of pesos destroyed or washed away. This
flood was unprecedented in Norzagaray. chanroblesvirtualawlibrary chanrobles virtual law library

4. Petitioners, who were among the many unfortunate victims of

that man-caused flood, filed with the respondent Court eleven
complaints for damages against the respondent corporation and the
plant superintendent of Angat Dam, Benjamin Chavez, docketed as
Civil Cases Nos. SM-950 951, 953, 958, 959, 964, 965, 966, 981,
982 and 983. These complaints though separately filed have a
common/similar cause of action. ...chanroblesvirtualawlibrary chanrobles virtual law library

5. Respondent corporation filed separate answers to each of these

eleven complaints. Apart from traversing the material averments in
the complaints and setting forth counterclaims for damages
respondent corporation invoked in each answer a special and
affirmative defense that "in the operation of the Angat Dam," it is
"performing a purely governmental function", hence it "can not be
sued without the express consent of the State." ... chanroblesvirtualawlibrary chanrobles virtual law library
6. On motion of the respondent corporation a preliminary hearing
was held on its affirmative defense as though a motion to dismiss
were filed. Petitioners opposed the prayer for dismissal and
contended that respondent corporation is performing not
governmental but merely proprietary functions and that under its
own organic act, Section 3 (d) of Republic Act No. 6395, it can sue
and be sued in any court. ... chanroblesvirtualawlibrary chanrobles virtual law library

7. On July 29, 1980 petitioners received a copy of the questioned

order of the respondent Court dated December 21, 1979 dismissing
all their complaints as against the respondent corporation thereby
leaving the superintendent of the Angat Dam, Benjamin Chavez, as
the sole party-defendant. ... chanroblesvirtualawlibrary chanrobles virtual law library

8. On August 7, 1980 petitioners filed with the respondent Court a

motion for reconsideration of the questioned order of
dismissal. ... chanroblesvirtualawlibrary chanrobles virtual law library

9. The respondent Court denied petitioners' motion for

reconsideration in its order dated October 3, 1980. ... Hence, the
present petition for review on certiorari under Republic Act No.
5440. (Rollo, pp. 3-6.)

The Order of dismissal dated December 12, 1979, reads as

follows: 
chanrobles virtual law library

Under consideration is a motion to dismiss embodied as a special

affirmative defense in the answer filed by defendant NPC on the
grounds that said defendant performs a purely governmental
function in the operation of the Angat Dam and cannot therefore be
sued for damages in the instant cases in connection therewith. chanroblesvirtualawlibrary chanrobles virtual law library

Plaintiffs' opposition to said motion to discuss, relying on Sec. 3 (d)

of Republic Act 6396 which imposes on the NPC the power and
liability to sue and be sued in any court, is not tenable since the
same refer to such matters only as are within the scope of the other
corporate powers of said defendant and not matters of tort as in the
instant cases. It being an agency performing a purely governmental
function in the operation of the Angat Dam, said defendant was not
given any right to commit wrongs upon individuals. To sue said
defendant for tort may require the express consent of the State.
law library
chanroblesvirtualawlibrary  
chanrobles virtual

WHEREFORE, the cases against defendant NPC are hereby

dismissed. (Rollo, p. 60.)

The Order dated October 3, 1980, denying the motion for

reconsideration filed by the plaintiffs is pro forma;  the motion was
simply denied for lack of merit. (Rollo, p. 74.)  chanrobles virtual law library

The petition to review the two orders of the public respondent was
filed on October 16, 1980, and on October 27, 1980, We required
the respondents to comment. It was only on April 13, 1981, after a
number of extensions, that the Solicitor General filed the required
comment. (Rollo, pp. 107-114.) chanrobles virtual law library

On May 27, 1980, We required the parties to file simultaneous

memoranda within twenty (20) days from notice. (Rollo, p. 115.)
Petitioners filed their memorandum on July 22, 1981. (Rollo, pp.
118-125.) The Solicitor General filed a number of motions for
extension of time to file his memorandum. We granted the seventh
extension with a warning that there would be no further extension.
Despite the warning the Solicitor General moved for an eighth
extension which We denied on November 9, 1981. A motion for a
ninth extension was similarly denied on November 18, 1981. The
decision in this case is therefore, without the memorandum of the
Solicitor General.   chanroblesvirtualawlibrary chanrobles virtual law library

The parties are agreed that the Order dated December 21, 1979,
raises the following issues: chanrobles virtual law library

1. Whether respondent National Power Corporation performs a

governmental function with respect to the management and
operation of the Angat Dam; and  chanrobles virtual law library

2. Whether the power of respondent National Power Corporation to

sue and be sued under its organic charter includes the power to be
sued for tort.  
chanroblesvirtualawlibrary chanrobles virtual law library

The petition is highly impressed with merit. chanroblesvirtualawlibrary chanrobles virtual law library
It is not necessary to write an extended dissertation on whether or
not the NPC performs a governmental function with respect to the
management and operation of the Angat Dam. It is sufficient to say
that the government has organized a private corporation, put
money in it and has allowed it to sue and be sued in any court
under its charter. (R.A. No. 6395, Sec. 3 (d).) As a government
owned and controlled corporation, it has a personality of its own,
distinct and separate from that of the Government. (See National
Shipyards and Steel Corp. vs. CIR, et al., L-17874, August 31,
1963, 8 SCRA 781.) Moreover, the charter provision that the NPC
can "sue and be sued in any court" is without qualification on the
cause of action and accordingly it can include a tort claim such as
the one instituted by the petitioners. chanroblesvirtualawlibrary chanrobles virtual law library

WHEREFORE, the petition is hereby granted; the Orders of the

respondent court dated December 12, 1979 and October 3, 1980,
are set aside; and said court is ordered to reinstate the complaints
of the petitioners. Costs against the NPC.   chanroblesvirtualawlibrary chanrobles virtual law library

SO ORDERED.

[G.R. No. 91359. September 25, 1992.]

VETERANS MANPOWER AND PROTECTIVE SERVICES, INC., Petitioner, v. THE

COURT OF APPEALS, THE CHIEF OF PHILIPPINE CONSTABULARY and
PHILIPPINE CONSTABULARY SUPERVISORY UNIT FOR SECURITY AND
INVESTIGATION AGENCIES (PC-SUSIA), Respondents.

Franciso A. Lava, Jr. and Andresito X. Fornier for Petitioner.

SYLLABUS

1. POLITICAL LAW; IMMUNITY FROM SUIT; THE PHILIPPINE CONSTABULARY CHIEF

AND THE PC-SUSIA MAY NOT BE SUED WITHOUT THE CONSENT OF THE STATE. — The
State may not be sued without its consent (Article XVI, Section 3, of the 1987
Constitution). Invoking this rule, the PC Chief and PC-SUSIA contend that, being
instrumentalities of the national government exercising a primarily governmental
function of regulating the organization and operation of private detective, watchmen, or
security guard agencies, said official (the PC Chief) and agency (PC-SUSIA) may not be
sued without the Government’s consent, especially in this case because VMPSI’s
complaint seeks not only to compel the public respondents to act in a certain way, but
worse, because VMPSI seeks actual and compensatory damages in the sum of
P1,000,000.00, exemplary damages in the same amount, and P200,000.00 as
attorney’s fees from said public respondents. Even if its action prospers, the payment of
its monetary claims may not be enforced because the State did not consent to
appropriate the necessary funds for that purpose.

2. ID.; ID.; PUBLIC OFFICIAL MAY BE SUED IN HIS PERSONAL CAPACITY IF HE ACTS,
AMONG OTHERS BEYOND THE SCOPE OF HIS AUTHORITY; CASE AT BAR. — A public
official may sometimes be held liable in his personal or private capacity if he acts in bad
faith, or beyond the scope of his authority or jurisdiction (Shauf v. Court of Appeals,
supra), however, since the acts for which the PC Chief and PC-SUSIA are being called to
account in this case, were performed by them as part of their official duties, without
malice, gross negligence, or bad faith, no recovery may be had against them in their
private capacities.

3. ID.; ID.; CONSENT TO BE SUED MUST EMANATE FROM A LEGISLATIVE ACT. —

Waiver of the State’s immunity from suit, being a derogation of sovereignty, will not be
lightly inferred, but must be construed strictissimi juris (Republic v. Feliciano, 148 SCRA
424). The consent of the State to be sued must emanate from statutory authority,
hence, from a legislative act, not from a mere memorandum. Without such consent, the
trial court did not acquire jurisdiction over the public respondents.

4. ID.; ID.; REASONS BEHIND. — The state immunity doctrine rests upon reasons of
public policy and the inconvenience and danger which would flow from a different rule.
"It is obvious that public service would be hindered, and public safety endangered, if
the supreme authority could be subjected to suits at the instance of every citizen, and,
consequently, controlled in the use and disposition of the means required for the proper
administration of the government" (Siren v. U.S. Wall, 152, 19 L. ed. 129, as cited in
78 SCRA 477).

DECISION

GRIÑO-AQUINO, J.:

This is a petition for review on certiorari of the decision dated August 11, 1989, of the
Court of Appeals in CA-G.R. SP No. 15990, entitled "The Chief of Philippine
Constabulary (PC) and Philippine Constabulary Supervisor Unit for Security and
Investigation Agencies (PC-SUSIA) v. Hon. Omar U. Amin and Veterans Manpower and
Protective Services, Inc. (VMPSI)," lifting the writ of preliminary injunction which the
Regional Trial Court had issued to the PC-SUSIA enjoining them from committing acts
that would result in the cancellation or non-renewal of the license of VMPSI to operate
as a security agency.chanrobles virtual lawlibrary

On March 28, 1988, VMPSI filed a complaint in the Regional Trial Court at Makati, Metro
Manila, praying the court to: jgc:chanrobles.com.ph

"A. Forthwith issue a temporary restraining order to preserve the status quo, enjoining
the defendants, or any one acting in their place or stead, to refrain from committing
acts that would result in the cancellation or non-renewal of VMPSI’s license;

"B. In due time, issue a writ of preliminary injunction to the same effect;

"C. Render decision and judgment declaring null and void the amendment of Section 4
of R.A. No. 5487, by PD No. 11 exempting organizations like PADPAO from the
prohibition that no person shall organize or have an interest in more than one agency,
declaring PADPAO as an illegal organization existing in violation of said prohibition,
without the illegal exemption provided in PD No. 11; declaring null and void Section 17
of R.A. No. 5487 which provides for the issuance of rules and regulations in consultation
with PADPAO, declaring null and void the February 1, 1982 directive of Col. Sabas V.
Edadas, in the name of the then PC Chief, requiring all private security
agencies/security forces such as VMPSI to join PADPAO as a prerequisite to
secure/renew their licenses, declaring that VMPSI did not engage in ‘cut-throat
competition’ in its contract with MWSS, ordering defendants PC Chief and PC-SUSIA to
renew the license of VMPSI; ordering the defendants to refrain from further harassing
VMPSI and from threatening VMPSI with cancellations or non-renewal of license,
without legal and justifiable cause; ordering the defendants to pay to VMPSI the sum of
P1,000,000.00 as actual and compensatory damages, P1,000,000.00 as exemplary
damages, and P200,000.00 as attorney’s fees and expenses of litigation; and granting
such further or other reliefs to VMPSI as may be deemed lawful, equitable and just."
(pp. 55-56, Rollo.)

The constitutionality of the following provisions of R.A. 5487 (otherwise known as the
"Private Security Agency Law"), as amended, is questioned by VMPSI in its complaint:
virtual law library
chanrobles.com.ph :

"SECTION 4. Who may Organize a Security or Watchman Agency. — Any Filipino citizen
or a corporation, partnership, or association, with a minimum capital of five thousand
pesos, one hundred per cent of which is owned and controlled by Filipino citizens may
organize a security or watchman agency: Provided, That no person shall organize or
have an interest in, more than one such agency except those which are already existing
at the promulgation of this Decree: . . ." (As amended by P.D. Nos. 11 and 100.)

"SECTION 17. Rules and Regulations by Chief, Philippine Constabulary. — The Chief of
the Philippine Constabulary, in consultation with the Philippine Association of Detective
and Protective Agency Operators, Inc. and subject to the provision of existing laws, is
hereby authorized to issue the rules and regulations necessary to carry out the purpose
of this Act." cralaw virtua1aw library

VMPSI alleges that the above provisions of R.A. No. 5487 violate the provisions of the
1987 Constitution against monopolies, unfair competition and combinations in restraint
of trade, and tend to favor and institutionalize the Philippine Association of Detective
and Protective Agency Operators, Inc. (PADPAO) which is monopolistic because it has
an interest in more than one security agency.

Respondent VMPSI likewise questions the validity of paragraph 3, subparagraph (g) of

the Modifying Regulations on the Issuance of License to Operate and Private Security
Licenses and Specifying Regulations for the Operation of PADPAO issued by then PC
Chief Lt. Gen. Fidel V. Ramos, through Col. Sabas V. Edades, requiring that "all private
security agencies/company security forces must register as members of any PADPAO
Chapter organized within the Region where their main offices are located . . ." (pp. 5-6,
Complaint in Civil Case No. 88-471). As such membership requirement in PADPAO is
compulsory in nature, it allegedly violates legal and constitutional provisions against
monopolies, unfair competition and combinations in restraint of trade. chanrobles.com : virtual law library

On May 12, 1986, a Memorandum of Agreement was executed by PADPAO and the PC
Chief, which fixed the minimum monthly contract rate per guard for eight (8) hours of
security service per day at P2,255.00 within Metro Manila and P2,215.00 outside of
Metro Manila (Annex B, Petition).

On June 29, 1987, Odin Security Agency (Odin) filed a complaint with PADPAO accusing
VMPSI of cut-throat competition by undercutting its contract rate for security services
rendered to the Metropolitan Waterworks and Sewerage System (MWSS), charging said
customer lower than the standard minimum rates provided in the Memorandum of
Agreement dated May 12, 1986.

PADPAO found VMPSI guilty of cut-throat competition, hence, the PADPAO Committee
on Discipline recommended the expulsion of VMPSI from PADPAO and the cancellation
of its license to operate a security agency (Annex D, Petition).

The PC-SUSIA made similar findings and likewise recommended the cancellation of
VMPSI’s license (Annex E, Petition).

As a result, PADPAO refused to issue a clearance/certificate of membership to VMPSI

when it requested one.

VMPSI wrote the PC Chief on March 10, 1988, requesting him to set aside or disregard
the findings of PADPAO and consider VMPSI’s application for renewal of its license, even
without a certificate of membership from PADPAO (Annex F, Petition).

As the PC Chief did not reply, and VMPSI’s license was expiring on March 31, 1988,
VMPSI filed Civil Case No. 88-471 in the RTC-Makati, Branch 135, on March 28, 1988
against the PC Chief and PC-SUSIA. On the same date, the court issued a restraining
order enjoining the PC Chief and PC-SUSIA "from committing acts that would result in
the cancellation or non-renewal of VMPSI’s license" (Annex G, Petition).

The PC chief and PC-SUSIA filed a "Motion to Dismiss, Opposition to the Issuance of
Writ of Preliminary Injunction, and Motion to Quash the Temporary Restraining Order,"
on the grounds that the case is against the State which had not given consent thereto
and that VMPSI’s license already expired on March 31, 1988, hence, the restraining
order or preliminary injunction would not serve any purpose because there was no
more license to be cancelled (Annex H, Petition). Respondent VMPSI opposed the
motion.

On April 18, 1988, the lower court denied VMPSI’s application for a writ of preliminary
injunction for being premature because it "has up to May 31, 1988 within which to file
its application for renewal pursuant to Section 2 (e) of Presidential Decree No.
199, . . ." (p. 140, Rollo.).
chanrobles.com : virtual law library

On May 23, 1988, VMPSI reiterated its application for the issuance of a writ of
preliminary injunction because PC-SUSIA had rejected payment of the penalty for its
failure to submit its application for renewal of its license and the requirements therefor
within the prescribed period in Section 2(e) of the Revised Rules and Regulations
Implementing R.A. 5487, as amended by P.D. 1919 (Annex M, Petition).

On June 10, 1998, the RTC-Makati issued a writ of preliminary injunction upon a bond
of P100,000.00, restraining the defendants, or any one acting in their behalf, from
cancelling or denying renewal of VMPSI’s license, until further orders from the court.

The PC Chief and PC-SUSIA filed a Motion for Reconsideration of the above order, but it
was denied by the court in its Order of August 10, 1988 (Annex R, Petition).

On November 3, 1988, the PC Chief and PC-SUSIA sought relief by a petition

for certiorari in the Court of Appeals.

On August 11, 1989, the Court of Appeals granted the petition. The dispositive portion
of its decision reads:jgc:chanrobles.com.ph

"WHEREFORE, the petition for certiorari filed by petitioners PC Chief and PC-SUSIA is

hereby GRANTED, and the RTC-Makati, Branch 135, is ordered to dismiss the complaint
filed by respondent VMPSI in Civil Case No. 88-471, insofar as petitioners PC Chief and
PC-SUSIA are concerned, for lack of jurisdiction. The writ of preliminary injunction
issued on June 10, 1988, is dissolved." (pp. 295-296, Rollo.)

VMPSI came to us with this petition for review.

The primary issue in this case is whether or not VMPSI’s complaint against the PC Chief
and PC-SUSIA is a suit against the State without its consent.

The answer is yes.

The State may not be sued without its consent (Article XVI, Section 3, of the 1987
Constitution). Invoking this rule, the PC Chief and PC-SUSIA contend that, being
instrumentalities of the national government exercising a primarily governmental
function of regulating the organization and operation of private detective, watchmen, or
security guard agencies, said official (the PC Chief) and agency (PC-SUSIA) may not be
sued without the Government’s consent, especially in this case because VMPSI’s
complaint seeks not only to compel the public respondents to act in a certain way, but
worse, because VMPSI seeks actual and compensatory damages in the sum of
P1,000,000.00, exemplary damages in the same amount, and P200,000.00 as
attorney’s fees from said public respondents. Even if its action prospers, the payment of
its monetary claims may not be enforced because the State did not consent to
appropriate the necessary funds for that purpose. chanroblesvirtualawlibrary

Thus did we hold in Shauf v. Court of Appeals, 191 SCRA 713: jgc:chanrobles.com.ph

"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." (Emphasis supplied.)

A public official may sometimes be held liable in his personal or private capacity if he
acts in bad faith, or beyond the scope of his authority or jurisdiction (Shauf v. Court of
Appeals, supra), however, since the acts for which the PC Chief and PC-SUSIA are
being called to account in this case, were performed by them as part of their official
duties, without malice, gross negligence, or bad faith, no recovery may be had against
them in their private capacities.

We agree with the observation of the Court of Appeals that the Memorandum of
Agreement dated May 12, 1986 does not constitute an implied consent by the State to
be sued: jgc:chanrobles.com.ph

"The Memorandum of Agreement dated May 12, 1986 was entered into by the PC Chief
in relation to the exercise of a function sovereign in nature. The correct test for the
application of state immunity is not the conclusion of a contract by the State but the
legal nature of the act. This was clearly enunciated in the case of United States of
America v. Ruiz where the Hon. Supreme Court held: jgc:chanrobles.com.ph

"‘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 a business contract. It does not apply where the contract
relates to the exercise of its functions.’ (136 SCRA 487, 492.)

"In the instant case, the Memorandum of Agreement entered into by the PC Chief and
PADPAO was intended to professionalize the industry and to standardize the salaries of
security guards as well as the current rates of security services, clearly, a governmental
function. The execution of the said agreement is incidental to the purpose of R.A. 5487,
as amended, which is to regulate the organization and operation of private detective,
watchmen or security guard agencies. (Emphasis ours.)" (pp. 258-259, Rollo.)

Waiver of the State’s immunity from suit, being a derogation of sovereignty, will not be
lightly inferred, but must be construed strictissimi juris (Republic v. Feliciano, 148 SCRA
424). The consent of the State to be sued must emanate from statutory authority,
hence, from a legislative act, not from a mere memorandum. Without such consent, the
trial court did not acquire jurisdiction over the public respondents.

The state immunity doctrine rests upon reasons of public policy and the inconvenience
and danger which would flow from a different rule. "It is obvious that public service
would be hindered, and public safety endangered, if the supreme authority could be
subjected to suits at the instance of every citizen, and, consequently, controlled in the
use and disposition of the means required for the proper administration of the
government" (Siren v. U.S. Wall, 152, 19 L. ed. 129, as cited in 78 SCRA 477). In the
same vein, this Court in Republic v. Purisima (78 SCRA 470, 473) rationalized: jgc:chanrobles.com.ph

"Nonetheless, a continued adherence to the doctrine of nonsuability is not to be

deplored for as against the inconvenience that may be cause [by] private parties, the
loss of governmental efficiency and the obstacle to the performance of its multifarious
functions are far greater if such a fundamental principle were abandoned and the
availability of judicial remedy were not thus restricted. With the well known propensity
on the part of our people to go to court, at the least provocation, the loss of time and
energy required to defend against law suits, in the absence of such a basic principle
that constitutes such an effective obstacles, could very well be imagined." (citing
Providence Washington Insurance Co. v. Republic, 29 SCRA 598.) cralawnad

WHEREFORE, the petition for review is DENIED and the judgment appealed from is
AFFIRMED in toto. No costs.

SO ORDERED.

G.R. No. L-23139      December 17, 1966

MOBIL PHILIPPINES EXPLORATION, INC., plaintiff-appellant,

vs.
CUSTOMS ARRASTRE SERVICE and BUREAU of CUSTOMS, defendants-appellees.

Alejandro Basin, Jr. and Associates for plaintiff-appellant.

Felipe T. Cuison for defendants-appellees.

BENGZON, J.P., J.:

Four cases of rotary drill parts were shipped from abroad on S.S. "Leoville" sometime in November
of 1962, consigned to Mobil Philippines Exploration, Inc., Manila. The shipment arrived at the Port of
Manila on April 10, 1963, and was discharged to the custody of the Customs Arrastre Service, the
unit of the Bureau of Customs then handling arrastre operations therein. The Customs Arrastre
Service later delivered to the broker of the consignee three cases only of the shipment.

On April 4, 1964 Mobil Philippines Exploration, Inc., filed suit in the Court of First Instance of Manila
against the Customs Arrastre Service and the Bureau of Customs to recover the value of the
undelivered case in the amount of P18,493.37 plus other damages.

On April 20, 1964 the defendants filed a motion to dismiss the complaint on the ground that not
being persons under the law, defendants cannot be sued.

After plaintiff opposed the motion, the court, on April 25, 1964, dismissed the complaint on the
ground that neither the Customs Arrastre Service nor the Bureau of Customs is suable. Plaintiff
appealed to Us from the order of dismissal.

Raised, therefore, in this appeal is the purely legal question of the defendants' suability under the
facts stated.

Appellant contends that not all government entities are immune from suit; that defendant Bureau of
Customs as operator of the arrastre service at the Port of Manila, is discharging proprietary functions
and as such, can be sued by private individuals.

The Rules of Court, in Section 1, Rule 3, provide:

 SECTION 1. Who may be parties.—Only natural or juridical persons or entities authorized by
law may be parties in a civil action.

Accordingly, a defendant in a civil suit must be (1) a natural person; (2) a juridical person or (3) an
entity authorized by law to be sued. Neither the Bureau of Customs nor (a fortiori) its function unit,
the Customs Arrastre Service, is a person. They are merely parts of the machinery of Government.
The Bureau of Customs is a bureau under the Department of Finance (Sec. 81, Revised
Administrative Code); and as stated, the Customs Arrastre Service is a unit of the Bureau of
Custom, set up under Customs Administrative Order No. 8-62 of November 9, 1962 (Annex "A" to
Motion to Dismiss, pp. 13-15, Record an Appeal). It follows that the defendants herein cannot he
sued under the first two abovementioned categories of natural or juridical persons.

Nonetheless it is urged that by authorizing the Bureau of Customs to engage in arrastre service, the
law thereby impliedly authorizes it to be sued as arrastre operator, for the reason that the nature of
this function (arrastre service) is proprietary, not governmental. Thus, insofar as arrastre operation is
concerned, appellant would put defendants under the third category of "entities authorized by law" to
be sued. Stated differently, it is argued that while there is no law expressly authorizing the Bureau of
Customs to sue or be sued, still its capacity to be sued is implied from its very power to render
arrastre service at the Port of Manila, which it is alleged, amounts to the transaction of a private
business.

The statutory provision on arrastre service is found in Section 1213 of Republic Act 1937 (Tariff and
Customs Code, effective June 1, 1957), and it states:

SEC. 1213. Receiving, Handling, Custody and Delivery of Articles.—The Bureau of Customs

shall have exclusive supervision and control over the receiving, handling, custody and
delivery of articles on the wharves and piers at all ports of entry and in the exercise of its
functions it is hereby authorized to acquire, take over, operate and superintend such plants
and facilities as may be necessary for the receiving, handling, custody and delivery of
articles, and the convenience and comfort of passengers and the handling of baggage; as
well as to acquire fire protection equipment for use in the piers: Provided, That whenever in
his judgment the receiving, handling, custody and delivery of articles can be carried on by
private parties with greater efficiency, the Commissioner may, after public bidding and
subject to the approval of the department head, contract with any private party for the service
of receiving, handling, custody and delivery of articles, and in such event, the contract may
include the sale or lease of government-owned equipment and facilities used in such service.

In Associated Workers Union, et al. vs. Bureau of Customs, et al., L-21397, resolution of August 6,
1963, this Court indeed held "that the foregoing statutory provisions authorizing the grant by contract
to any private party of the right to render said arrastre services necessarily imply that the same is
deemed by Congress to be proprietary or non-governmental function." The issue in said case,
however, was whether laborers engaged in arrastre service fall under the concept of employees in
the Government employed in governmental functions for purposes of the prohibition in Section 11,
Republic Act 875 to the effect that "employees in the Government . . . shall not strike," but "may
belong to any labor organization which does not impose the obligation to strike or to join in strike,"
which prohibition "shall apply only to employees employed in governmental functions of the
Government . . . .

Thus, the ruling therein was that the Court of Industrial Relations had jurisdiction over the subject
matter of the case, but not that the Bureau of Customs can be sued. Said issue of suability was not
resolved, the resolution stating only that "the issue on the personality or lack of personality of the
Bureau of Customs to be sued does not affect the jurisdiction of the lower court over the subject
matter of the case, aside from the fact that amendment may be made in the pleadings by the
inclusion as respondents of the public officers deemed responsible, for the unfair labor practice acts
charged by petitioning Unions".

Now, the fact that a non-corporate government entity performs a function proprietary in nature does
not necessarily result in its being suable. If said non-governmental function is undertaken as an
incident to its governmental function, there is no waiver thereby of the sovereign immunity from suit
extended to such government entity. This is the doctrine recognized in Bureau of Printing, et al. vs.
Bureau of Printing Employees Association, et al., L-15751, January 28, 1961:

The Bureau of Printing is an office of the Government created by the Administrative Code of
1916 (Act No. 2657). As such instrumentality of the Government, it operates under the direct
supervision of the Executive Secretary, Office of the President, and is "charged with the
execution of all printing and binding, including work incidental to those processes, required
by the National Government and such other work of the same character as said Bureau may,
by law or by order of the (Secretary of Finance) Executive Secretary, be authorized to
undertake . . . ." (Sec. 1644, Rev. Adm. Code.) It has no corporate existence, and its
appropriations are provided for in the General Appropriations Act. Designed to meet the
printing needs of the Government, it is primarily a service bureau and, obviously, not
engaged in business or occupation for pecuniary profit.

xxx      xxx      xxx

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

xxx      xxx      xxx

Indeed, as an office of the Government, without any corporate or juridical personality, the
Bureau of Printing cannot be sued (Sec. 1, Rule 3, Rules of Court.) Any suit, action or
proceeding against it, if it were to produce any effect, would actually be a suit, action or
proceeding against the Government itself, and the rule is settled that the Government cannot
be sued without its consent, much less over its objection. (See Metran vs. Paredes, 45 Off.
Gaz. 2835; Angat River Irrigation System, et al. vs. Angat River Workers Union, et al., G.R.
Nos. L-10943-44, December 28, 1957.)

The situation here is not materially different. The Bureau of Customs, to repeat, is part of the
Department of Finance (Sec. 81, Rev. Adm. Code), with no personality of its own apart from that of
the national government. Its primary function is governmental, that of assessing and collecting lawful
revenues from imported articles and all other tariff and customs duties, fees, charges, fines and
penalties (Sec. 602, R.A. 1937). To this function, arrastre service is a necessary incident. For
practical reasons said revenues and customs duties can not be assessed and collected by simply
receiving the importer's or ship agent's or consignee's declaration of merchandise being imported
and imposing the duty provided in the Tariff law. Customs authorities and officers must see to it that
the declaration tallies with the merchandise actually landed. And this checking up requires that the
landed merchandise be hauled from the ship's side to a suitable place in the customs premises to
enable said customs officers to make it, that is, it requires arrastre operations. 1
Clearly, therefore, although said arrastre function may be deemed proprietary, it is a necessary
incident of the primary and governmental function of the Bureau of Customs, so that engaging in the
same does not necessarily render said Bureau liable to suit. For otherwise, it could not perform its
governmental function without necessarily exposing itself to suit. Sovereign immunity, granted as to
the end, should not be denied as to the necessary means to that end.

And herein lies the distinction between the present case and that of National Airports Corporation
vs. Teodoro, 91 Phil. 203, on which appellant would rely. For there, the Civil Aeronautics
Administration was found have for its prime reason for existence not a governmental but a
proprietary function, so that to it the latter was not a mere incidental function:

Among the general powers of the Civil Aeronautics Administration are, under Section 3, to
execute contracts of any kind, to purchase property, and to grant concessions rights, and
under Section 4, to charge landing fees, royalties on sales to aircraft of aviation gasoline,
accessories and supplies, and rentals for the use of any property under its management.

These provisions confer upon the Civil Aeronautics Administration, in our opinion, the power
to sue and be sued. The power to sue and be sued is implied from the power to transact
private business. . . .

xxx      xxx      xxx

The Civil Aeronautics Administration comes under the category of a private entity. Although
not a body corporate it was created, like the National Airports Corporation, not to maintain a
necessary function of government, but to run what is essentially a business, even if revenues
be not its prime objective but rather the promotion of travel and the convenience of the
travelling public. . . .

Regardless of the merits of the claim against it, the State, for obvious reasons of public policy,
cannot be sued without its consent. Plaintiff should have filed its present claim to the General
Auditing Office, it being for money under the provisions of Commonwealth Act 327, which state the
conditions under which money claims against the Government may be filed.

It must be remembered that statutory provisions waiving State immunity from suit are strictly
construed and that waiver of immunity, being in derogation of sovereignty, will not be lightly inferred.
(49 Am. Jur., States, Territories and Dependencies, Sec. 96, p. 314; Petty vs. Tennessee-Missouri
Bridge Com., 359 U.S. 275, 3 L. Ed. 804, 79 S. Ct. 785). From the provision authorizing the Bureau
of Customs to lease arrastre operations to private parties, We see no authority to sue the said
Bureau in the instances where it undertakes to conduct said operation itself. The Bureau of
Customs, acting as part of the machinery of the national government in the operation of the arrastre
service, pursuant to express legislative mandate and as a necessary incident of its prime
governmental function, is immune from suit, there being no statute to the contrary.

WHEREFORE, the order of dismissal appealed from is hereby affirmed, with costs against appellant.
So ordered.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Zaldivar and Sanchez, JJ., concur.

Makalintal, J., concurs in the result.

Castro, J., reserves his vote.

G.R. No. 159402               February 23, 2011

AIR TRANSPORTATION OFFICE, Petitioner,

vs.
SPOUSES DAVID* ELISEA RAMOS, Respondents.

RESOLUTION

BERSAMIN, J.:

The State’s immunity from suit does not extend to the petitioner because it is an agency of the State
engaged in an enterprise that is far from being the State’s exclusive prerogative.

Under challenge is the decision promulgated on May 14, 2003, 1 by which the Court of Appeals (CA)
affirmed with modification the decision rendered on February 21, 2001 by the Regional Trial Court,
Branch 61 (RTC), in Baguio City in favor of the respondents. 2

Antecedents

Spouses David and Elisea Ramos (respondents) discovered that a portion of their land registered
under Transfer Certificate of Title No. T-58894 of the Baguio City land records with an area of 985
square meters, more or less, was being used as part of the runway and running shoulder of the
Loakan Airport being operated by petitioner Air Transportation Office (ATO). On August 11, 1995,
the respondents agreed after negotiations to convey the affected portion by deed of sale to the ATO
in consideration of the amount of ₱778,150.00. However, the ATO failed to pay despite repeated
verbal and written demands.

Thus, on April 29, 1998, the respondents filed an action for collection against the ATO and some of
its officials in the RTC (docketed as Civil Case No. 4017-R and entitled Spouses David and Elisea
Ramos v. Air Transportation Office, Capt. Panfilo Villaruel, Gen. Carlos Tanega, and Mr. Cesar de
Jesus).

In their answer, the ATO and its co-defendants invoked as an affirmative defense the issuance of
Proclamation No. 1358, whereby President Marcos had reserved certain parcels of land that
included the respondents’ affected portion for use of the Loakan Airport. They asserted that the RTC
had no jurisdiction to entertain the action without the State’s consent considering that the deed of
sale had been entered into in the performance of governmental functions.

On November 10, 1998, the RTC denied the ATO’s motion for a preliminary hearing of the
affirmative defense.

After the RTC likewise denied the ATO’s motion for reconsideration on December 10, 1998, the ATO
commenced a special civil action for certiorari in the CA to assail the RTC’s orders. The CA
dismissed the petition for certiorari, however, upon its finding that the assailed orders were not
tainted with grave abuse of discretion.3

Subsequently, February 21, 2001, the RTC rendered its decision on the merits, 4 disposing:

WHEREFORE, the judgment is rendered ORDERING the defendant Air Transportation Office to pay
the plaintiffs DAVID and ELISEA RAMOS the following: (1) The amount of ₱778,150.00 being the
value of the parcel of land appropriated by the defendant ATO as embodied in the Deed of Sale,
plus an annual interest of 12% from August 11, 1995, the date of the Deed of Sale until fully paid; (2)
The amount of ₱150,000.00 by way of moral damages and ₱150,000.00 as exemplary damages; (3)
the amount of ₱50,000.00 by way of attorney’s fees plus ₱15,000.00 representing the 10, more or
less, court appearances of plaintiff’s counsel; (4) The costs of this suit.

SO ORDERED.

In due course, the ATO appealed to the CA, which affirmed the RTC’s decision on May 14,
2003,5 viz:

IN VIEW OF ALL THE FOREGOING, the appealed decision is hereby AFFIRMED,

with MODIFICATION that the awarded cost therein is deleted, while that of moral and exemplary
damages is reduced to ₱30,000.00 each, and attorney’s fees is lowered to ₱10,000.00.

No cost.

SO ORDERED.

Hence, this appeal by petition for review on certiorari.

Issue

The only issue presented for resolution is whether the ATO could be sued without the State’s
consent.

Ruling

The petition for review has no merit.

The immunity of the State from suit, known also as the doctrine of sovereign immunity or non-
suability of the State, is expressly provided in Article XVI of the 1987 Constitution, viz:

Section 3. The State may not be sued without its consent.

The immunity from suit is based on the political truism that the State, as a sovereign, can do no
wrong. Moreover, as the eminent Justice Holmes said in Kawananakoa v. Polyblank: 6

The territory [of Hawaii], of course, could waive its exemption (Smith v. Reeves, 178 US 436, 44 L
ed 1140, 20 Sup. Ct. Rep. 919), and it took no objection to the proceedings in the cases cited if it
could have done so. xxx But in the case at bar it did object, and the question raised is whether the
plaintiffs were bound to yield. Some doubts have been expressed as to the source of the immunity of
a sovereign power from suit without its own permission, but the answer has been public property
since before the days of Hobbes. Leviathan, chap. 26, 2. A sovereign is exempt from suit, not
because of any formal conception or obsolete theory, but on the logical and practical ground that
there can be no legal right as against the authority that makes the law on which the right depends.
"Car on peut bien recevoir loy d'autruy, mais il est impossible par nature de se donner loy." Bodin,
Republique, 1, chap. 8, ed. 1629, p. 132; Sir John Eliot, De Jure Maiestatis, chap. 3. Nemo suo
statuto ligatur necessitative. Baldus, De Leg. et Const. Digna Vox, 2. ed. 1496, fol. 51b, ed. 1539,
fol. 61.7
Practical considerations dictate the establishment of an immunity from suit in favor of the State.
Otherwise, and the State is suable at the instance of every other individual, government service may
be severely obstructed and public safety endangered because of the number of suits that the State
has to defend against.8 Several justifications have been offered to support the adoption of the
doctrine in the Philippines, but that offered in Providence Washington Insurance Co. v. Republic of
the Philippines9 is "the most acceptable explanation," according to Father Bernas, a recognized
commentator on Constitutional Law,10 to wit:

[A] continued adherence to the doctrine of non-suability is not to be deplored for as against the
inconvenience that may be caused private parties, the loss of governmental efficiency and the
obstacle to the performance of its multifarious functions are far greater if such a fundamental
principle were abandoned and the availability of judicial remedy were not thus restricted. With the
well-known propensity on the part of our people to go to court, at the least provocation, the loss of
time and energy required to defend against law suits, in the absence of such a basic principle that
constitutes such an effective obstacle, could very well be imagined.

An unincorporated government agency without any separate juridical personality of its own enjoys
immunity from suit because it is invested with an inherent power of sovereignty. Accordingly, a claim
for damages against the agency cannot prosper; otherwise, the doctrine of sovereign immunity is
violated.11 However, the need to distinguish between an unincorporated government agency
performing governmental function and one performing proprietary functions has arisen. The
immunity has been upheld in favor of the former because its function is governmental or incidental to
such function;12 it has not been upheld in favor of the latter whose function was not in pursuit of a
necessary function of government but was essentially a business. 13

Should the doctrine of sovereignty immunity or non-suability of the State be extended to the ATO?

In its challenged decision,14 the CA answered in the negative, holding:

On the first assignment of error, appellants seek to impress upon Us that the subject contract of sale
partook of a governmental character. Apropos, the lower court erred in applying the High Court’s
ruling in National Airports Corporation vs. Teodoro (91 Phil. 203 [1952]), arguing that in Teodoro, the
matter involved the collection of landing and parking fees which is a proprietary function, while the
case at bar involves the maintenance and operation of aircraft and air navigational facilities and
services which are governmental functions.

We are not persuaded.

Contrary to appellants’ conclusions, it was not merely the collection of landing and parking fees
which was declared as proprietary in nature by the High Court in Teodoro, but management and
maintenance of airport operations as a whole, as well. Thus, in the much later case of Civil
Aeronautics Administration vs. Court of Appeals (167 SCRA 28 [1988]), the Supreme Court,
reiterating the pronouncements laid down in Teodoro, declared that the CAA (predecessor of ATO)
is an agency not immune from suit, it being engaged in functions pertaining to a private entity. It
went on to explain in this wise:

xxx

The Civil Aeronautics Administration comes under the category of a private entity. Although not a
body corporate it was created, like the National Airports Corporation, not to maintain a necessary
function of government, but to run what is essentially a business, even if revenues be not its prime
objective but rather the promotion of travel and the convenience of the travelling public. It is engaged
in an enterprise which, far from being the exclusive prerogative of state, may, more than the
construction of public roads, be undertaken by private concerns. [National Airports Corp. v.
Teodoro, supra, p. 207.]

xxx

True, the law prevailing in 1952 when the Teodoro case was promulgated was Exec. Order 365
(Reorganizing the Civil Aeronautics Administration and Abolishing the National Airports Corporation).
Republic Act No. 776 (Civil Aeronautics Act of the Philippines), subsequently enacted on June 20,
1952, did not alter the character of the CAA’s objectives under Exec. Order 365. The pertinent
provisions cited in the Teodoro case, particularly Secs. 3 and 4 of Exec. Order 365, which led the
Court to consider the CAA in the category of a private entity were retained substantially in Republic
Act 776, Sec. 32(24) and (25). Said Act provides:

Sec. 32. Powers and Duties of the Administrator. – Subject to the general control and supervision of
the Department Head, the Administrator shall have among others, the following powers and duties:

xxx

(24) To administer, operate, manage, control, maintain and develop the Manila International Airport
and all government-owned aerodromes except those controlled or operated by the Armed Forces of
the Philippines including such powers and duties as: (a) to plan, design, construct, equip, expand,
improve, repair or alter aerodromes or such structures, improvement or air navigation facilities; (b) to
enter into, make and execute contracts of any kind with any person, firm, or public or private
corporation or entity; …

(25) To determine, fix, impose, collect and receive landing fees, parking space fees, royalties on
sales or deliveries, direct or indirect, to any aircraft for its use of aviation gasoline, oil and lubricants,
spare parts, accessories and supplies, tools, other royalties, fees or rentals for the use of any of the
property under its management and control.

xxx

From the foregoing, it can be seen that the CAA is tasked with private or non-governmental functions
which operate to remove it from the purview of the rule on State immunity from suit. For the correct
rule as set forth in the Teodoro case states:

xxx

Not all government entities, whether corporate or non-corporate, are immune from suits. Immunity
from suits is determined by the character of the objects for which the entity was organized. The rule
is thus stated in Corpus Juris:

Suits against State agencies with relation to matters in which they have assumed to act in private or
non-governmental capacity, and various suits against certain corporations created by the state for
public purposes, but to engage in matters partaking more of the nature of ordinary business rather
than functions of a governmental or political character, are not regarded as suits against the state.
The latter is true, although the state may own stock or property of such a corporation for by engaging
in business operations through a corporation, the state divests itself so far of its sovereign character,
and by implication consents to suits against the corporation. (59 C.J., 313) [National Airports
Corporation v. Teodoro, supra, pp. 206-207; Italics supplied.]
This doctrine has been reaffirmed in the recent case of Malong v. Philippine National Railways [G.R.
No. L-49930, August 7, 1985, 138 SCRA 63], where it was held that the Philippine National
Railways, although owned and operated by the government, was not immune from suit as it does not
exercise sovereign but purely proprietary and business functions. Accordingly, as the CAA was
created to undertake the management of airport operations which primarily involve proprietary
functions, it cannot avail of the immunity from suit accorded to government agencies performing
strictly governmental functions.15

In our view, the CA thereby correctly appreciated the juridical character of the ATO as an agency of
the Government not performing a purely governmental or sovereign function, but was instead
involved in the management and maintenance of the Loakan Airport, an activity that was not the
exclusive prerogative of the State in its sovereign capacity. Hence, the ATO had no claim to the
State’s immunity from suit. We uphold the CA’s aforequoted holding.

We further observe the doctrine of sovereign immunity cannot be successfully invoked to defeat a
valid claim for compensation arising from the taking without just compensation and without the
proper expropriation proceedings being first resorted to of the plaintiffs’ property. 16 Thus, in De los
Santos v. Intermediate Appellate Court,17 the trial court’s dismissal based on the doctrine of non-
suability of the State of two cases (one of which was for damages) filed by owners of property where
a road 9 meters wide and 128.70 meters long occupying a total area of 1,165 square meters and an
artificial creek 23.20 meters wide and 128.69 meters long occupying an area of 2,906 square meters
had been constructed by the provincial engineer of Rizal and a private contractor without the owners’
knowledge and consent was reversed and the cases remanded for trial on the merits. The Supreme
Court ruled that the doctrine of sovereign immunity was not an instrument for perpetrating any
injustice on a citizen. In exercising the right of eminent domain, the Court explained, the State
exercised its jus imperii, as distinguished from its proprietary rights, or jus gestionis; yet, even in that
area, where private property had been taken in expropriation without just compensation being paid,
the defense of immunity from suit could not be set up by the State against an action for payment by
the owners.

Lastly, the issue of whether or not the ATO could be sued without the State’s consent has been
rendered moot by the passage of Republic Act No. 9497, otherwise known as the Civil Aviation
Authority Act of 2008.

R.A. No. 9497 abolished the ATO, to wit:

Section 4. Creation of the Authority. – There is hereby created an independent regulatory body with
quasi-judicial and quasi-legislative powers and possessing corporate attributes to be known as the
Civil Aviation Authority of the Philippines (CAAP), herein after referred to as the "Authority" attached
to the Department of Transportation and Communications (DOTC) for the purpose of policy
coordination. For this purpose, the existing Air transportation Office created under the
provisions of Republic Act No. 776, as amended is hereby abolished.

xxx

Under its Transitory Provisions, R.A. No. 9497 established in place of the ATO the Civil Aviation
Authority of the Philippines (CAAP), which thereby assumed all of the ATO’s powers, duties and
rights, assets, real and personal properties, funds, and revenues, viz:

CHAPTER XII
TRANSITORTY PROVISIONS
Section 85. Abolition of the Air Transportation Office. – The Air Transportation Office (ATO) created
under Republic Act No. 776, a sectoral office of the Department of Transportation and
Communications (DOTC), is hereby abolished. 1avvphi1

All powers, duties and rights vested by law and exercised by the ATO is hereby transferred to
the Authority.

All assets, real and personal properties, funds and revenues owned by or vested in the different
offices of the ATO are transferred to the Authority. All contracts, records and documents
relating to the operations of the abolished agency and its offices and branches are
likewise transferred to the Authority. Any real property owned by the national government or
government-owned corporation or authority which is being used and utilized as office or
facility by the ATO shall be transferred and titled in favor of the Authority.

Section 23 of R.A. No. 9497 enumerates the corporate powers vested in the CAAP, including the
power to sue and be sued, to enter into contracts of every class, kind and description, to construct,
acquire, own, hold, operate, maintain, administer and lease personal and real properties, and to
settle, under such terms and conditions most advantageous to it, any claim by or against it. 18

With the CAAP having legally succeeded the ATO pursuant to R.A. No. 9497, the obligations that
the ATO had incurred by virtue of the deed of sale with the Ramos spouses might now be enforced
against the CAAP.

WHEREFORE, the Court denies the petition for review on certiorari, and affirms the decision
promulgated by the Court of Appeals.

No pronouncement on costs of suit.

SO ORDERED.

G.R. No. L-15751             January 28, 1961

BUREAU OF PRINTING, SERAFIN SALVADOR and MARIANO LEDESMA, petitioners,

vs.
THE BUREAU OF PRINTING EMPLOYEES ASSOCIATION (NLU), PACIFICO ADVINCULA,
ROBERTO MENDOZA, PONCIANO ARGANDA and TEODULO TOLERAN, respondents.

Office of the Solicitor General for petitioners.

Eulogio R. Lerum for respondents.

GUTIERREZ DAVID, J.:

This is a petition for certiorari and prohibition with preliminary injunction to annul Certain orders of
the respondent Court of Industrial Relations and to restrain it from further proceeding in the action for
unfair labor practice pending before it on the ground of lack of jurisdiction. Giving due course to the
petition, this Court ordered the issuance of the writ of preliminary injunction prayed for without bond.

The action in question was — upon complaint of the respondents Bureau of Printing Employees
Association (NLU) Pacifico Advincula, Roberto Mendoza, Ponciano Arganda and Teodulo Toleran —
filed by an acting prosecutor of the Industrial Court against herein petitioner Bureau of Printing,
Serafin Salvador, the Acting Secretary of the Department of General Services, and Mariano
Ledesma the Director of the Bureau of Printing. The complaint alleged that Serafin Salvador and
Mariano Ledesma have been engaging in unfair labor practices by interfering with, or coercing the
employees of the Bureau of Printing particularly the members of the complaining association
petition, in the exercise of their right to self-organization an discriminating in regard to hire and
tenure of their employment in order to discourage them from pursuing the union activities.

Answering the complaint, the petitioners Bureau of Printing, Serafin Salvador and Mariano Ledesma
denied the charges of unfair labor practices attributed to the and, by way of affirmative defenses,
alleged, among other things, that respondents Pacifico Advincula, Roberto Mendoza Ponciano
Arganda and Teodulo Toleran were suspended pending result of an administrative investigation
against them for breach of Civil Service rules and regulations petitions; that the Bureau of Printing
has no juridical personality to sue and be sued; that said Bureau of Printing is not an industrial
concern engaged for the purpose of gain but is an agency of the Republic performing government
functions. For relief, they prayed that the case be dismissed for lack of jurisdiction. Thereafter,
before the case could be heard, petitioners filed an "Omnibus Motion" asking for a preliminary
hearing on the question of jurisdiction raised by them in their answer and for suspension of the trial
of the case on the merits pending the determination of such jurisdictional question. The motion was
granted, but after hearing, the trial judge of the Industrial Court in an order dated January 27, 1959
sustained the jurisdiction of the court on the theory that the functions of the Bureau of Printing are
"exclusively proprietary in nature," and, consequently, denied the prayer for dismissal.
Reconsideration of this order having been also denied by the court in banc, the petitioners brought
the case to this Court through the present petition for certiorari and prohibition.

We find the petition to be meritorious.

The Bureau of Printing is an office of the Government created by the Administrative Code of 1916
(Act No. 2657). As such instrumentality of the Government, it operates under the direct supervision
of the Executive Secretary, Office of the President, and is "charged with the execution of all printing
and binding, including work incidental to those processes, required by the National Government and
such other work of the same character as said Bureau may, by law or by order of the (Secretary of
Finance) Executive Secretary, be authorized to undertake . . .." (See. 1644, Rev. Adm. Code). It has
no corporate existence, and its appropriations are provided for in the General Appropriations Act.
Designed to meet the printing needs of the Government, it is primarily a service bureau and
obviously, not engaged in business or occupation for pecuniary profit.

It is true, as stated in the order complained of, that the Bureau of Printing receives outside jobs and
that many of its employees are paid for overtime work on regular working days and on holidays, but
these facts do not justify the conclusion that its functions are "exclusively proprietary in nature."
Overtime work in the Bureau of Printing is done only when the interest of the service so requires
(sec. 566, Rev. Adm. Code). As a matter of administrative policy, the overtime compensation may be
paid, but such payment is discretionary with the head of the Bureau depending upon its current
appropriations, so that it cannot be the basis for holding that the functions of said Bureau are wholly
proprietary in character. Anent the additional work it executes for private persons, we find that such
work is done upon request, as distinguished from those solicited, and only "as the requirements of
Government work will permit" (sec. 1654, Rev. Adm. Code), and "upon terms fixed by the Director of
Printing, with the approval of the Department Head" (sec. 1655, id.). As shown by the uncontradicted
evidence of the petitioners, most of these works consist of orders for greeting cards during
Christmas from government officials, and for printing of checks of private banking institutions. On
those greeting cards, the Government seal, of which only the Bureau of Printing is authorized to use,
is embossed, and on the bank cheeks, only the Bureau of Printing can print the reproduction of the
official documentary stamps appearing thereon. The volume of private jobs done, in comparison with
government jobs, is only one-half of 1 per cent, and in computing the costs for work done for private
parties, the Bureau does not include profit because it is not allowed to make any. Clearly, while the
Bureau of Printing is allowed to undertake private printing jobs, it cannot be pretended that it is
thereby an industrial or business concern. The additional work it executes for private parties is
merely incidental to its function, and although such work may be deemed proprietary in character,
there is no showing that the employees performing said proprietary function are separate and
distinct from those employed in its general governmental functions.

From what has been stated, it is obvious that the Court of Industrial Relations did not acquire
jurisdiction over the respondent Bureau of Printing, and is thus devoid of any authority to take
cognizance of the case. This Court has already held in a long line of decisions that the Industrial
Court has no jurisdiction to hear and determine the complaint for unfair labor practice filed against
institutions or corporations not organized for profit and, consequently, not an industrial or business
organization. This is so because the Industrial Peace Act was intended to apply only to industrial
employment, and to govern the relations between employers engaged in industry and occupations
for purposes of gain, and their industrial employees. (University of the Philippines, et al. vs. CIR, et
al., G.R. No. L-15416, April 28, 1960; University of Sto. Tomas vs. Villanueva, et al., G.R. No. L-
13748, October 30, 1959; La Consolacion College vs. CIR, G.R. No. L-13282, April 22, 1960; See
also the cases cited therein.) .

Indeed, as an office of the Government, without any corporate or juridical personality, the Bureau of
Printing cannot be sued. (Sec. 1, Rule 3, Rules of Court). Any suit, action or proceeding against it, if
it were to produce any effect, would actually be a suit, action or proceeding against the Government
itself, and the rule is settled that the Government cannot be sued without its consent, much less over
its objection. (See Metran vs. Paredes, 45 Off. Gaz. 2835; Angat River Irrigation System, et al. vs.
Angat River Workers' Union, et. al., G.R. Nos. L-10943-44, December 28, 1957).

The record also discloses that the instant case arose from the filing of administrative charges against
some officers of the respondent Bureau of Printing Employees' Association by the Acting Secretary
of General Services. Said administrative charges are for insubordination, grave misconduct and acts
prejudicial to public service committed by inciting the employees, of the Bureau of Printing to walk
out of their jobs against the order of the duly constituted officials. Under the law, the Heads of
Departments and Bureaus are authorized to institute and investigate administrative charges against
erring subordinates. For the Industrial Court now to take cognizance of the case filed before it, which
is in effect a review of the acts of executive officials having to do with the discipline of government
employees under them, would be to interfere with the discharge of such functions by said officials.
WHEREFORE, the petition for a writ of prohibition is granted. The orders complained of are set
aside and the complaint for unfair labor practice against the petitioners is dismissed, with costs
against respondents other than the respondent court.

Bengzon, Bautista Angelo, Labrador, Paredes and Dizon, JJ., concur.

Reyes, J.B.L., J., concurs in the result.

G.R. No. L-41299 February 21, 1983

SOCIAL SECURITY SYSTEM, petitioner,

vs.
COURT OF APPEALS, DAVID B. CRUZ, SOCORRO CONCIO CRUZ, and LORNA C.
CRUZ, respondents.

The Solicitor General for petitioner.

Eribert D. Ignacio for respondents David Cruz, Socorro Concio Cruz and Lorna Cruz.
MELENCIO-HERRERA, J.:

This Petition for Review on certiorari of the Decision of the Court of Appeals   stems from the
1

following facts, as narrated by the Trial Court, adopted by the Court of Appeals, and quoted by both
petitioner   and private respondents   :
2 3

Sometime in March, 1963 the spouses David B. Cruz and Socorro Concio Cruz
applied for and were granted a real estate loan by the SSS with their residential lot
located at Lozada Street, Sto. Rosario, Pateros, Rizal covered by Transfer Certificate
of Title No. 2000 of the Register of Deeds of Rizal as collateral. Pursuant to this real
estate ban said spouses executed on March 26, 1963 the corresponding real estate
mortgage originally in the amount of P39,500.00 which was later increased to
P48,000.00 covering the aforementioned property as shown in their mortgage
contract, Exhibit A and 1. From the proceeds of the real estate loan the mortgagors
constructed their residential house on the mortgaged property and were furnished by
the SSS with a passbook to record the monthly payments of their amortizations
(Exhibits B and B-1). The mortgagors, plaintiffs herein, complied with their monthly
payments although there were times when delays were incurred in their monthly
payments which were due every first five (5) days of the month (Exhibits 3-A to 3-N).
On July 9, 1968, defendant SSS filed an application with the Provincial Sheriff of
Rizal for the foreclosure of the real estate mortgage executed by the plaintiffs on the
ground, among others:

That the conditions of the mortgage have been broken since October,
1967 with the default on the part of the mortgagor to pay in full the
installments then due and payable on the principal debt and the
interest thereon, and, all of the monthly installments due and payable
thereafter up to the present date; ...

That by the terms of the contract herein above referred to, the
indebtedness to the mortgagee as of June, 1968 amounts to Ten
Thousand Seven Hundred Two Pesos & 58/100 (P10,702.58),
Philippine Currency, excluding interests thereon, plus 20% of the total
amount of the indebtedness as attorney's fees, also secured by the
said mortgage. (Exhibit "C ")

Pursuant to this application for foreclosure, the notice of the Sheriff's Sale of the
mortgaged property was initially published in the Sunday Chronicle in its issue of July
14, 1968 announcing the sale at public auction of the said mortgaged property. After
this first publication of the notice, and before the second publication of the notice,
plaintiff herein thru counsel formally wrote defendant SSS, a letter dated July 19,
1968 and received on the same date by said entity demanding, among others, for
said defendant SSS to withdraw the foreclosure and discontinue the publication of
the notice of sale of their property claiming that plaintiffs were up-to-date in the
payment of their monthly amortizations (Exhibits "E" and "E-1"). In answer to this
letter defendant SSS sent a telegram to Atty. Eriberto Ignacio requesting him to
come to their office for a conference. This telegram was received by said counsel on
July 23, 1968 (Exhibit "G " and "G-1 "). To this telegraphic answer, Atty. Ignacio sent
a telegraphic reply suggesting instead that a representative of the SSS be sent to
him because his clients were the aggrieved parties (Exhibit-. "G-2"). Nothing came
 out of the telegraphic communications between the parties and the second and third
publications of the notice of foreclosure were published successively in the Sunday
Chronicle in its issues of July 21 and 28, 1968 (Exhibits "N-1 " and "O-1"). 4

On July 24, 1968, the Cruz spouses, together with their daughter Lorna C. Cruz, instituted before the
Court of First Instance of Rizal an action for damages and attorney's fees against the Social Security
System (SSS) and the Provincial Sheriff of Rizal alleging, among other things, that they had fully and
religiously paid their monthly amortizations and had not defaulted in any payment.

In its Answer, with counterclaim, the SSS stressed its right to foreclose the mortgage executed in its
favor by private respondents by virtue of the automatic acceleration clause provided in the mortgage
contract, even after private respondents had paid their amortization installments. In its counterclaim,
the SSS prayed for actual and other damages, as well as attorney's fees, for malicious and baseless
statements made by private respondents and published in the Manila Chronicle.

On September 23, 1968, the Trial Court enjoined the SSS from holding the sale at public auction of
private respondent's property upon their posting of a P2,000.00 bond executed in favor of the SSS.

The Trial Court rendered judgment on March 5, 1971, the dispositive portion of which reads:

WHEREFORE, judgment is rendered against defendant SSS, directing it to pay

plaintiffs the following amounts:

(a) P2,500.00 as actual damage;

(b) P35,000.00 as moral damage;
(c) P10,000.00 as exemplary or corrective damages;
and
(d) P5,000.00 as attorney's fees.

Defendant SSS shall further pay the costs.  5

In respect of the moral and temperate damages awarded, the Trial Court stated:

With respect to moral and temperate damages, the Court holds that the first
publication of the notice was made in good faith but committed by defendant SSS in
gross negligence considering the personnel at its command and the ease with which
verifications of the actual defaulting mortgagors may be made. On this initial
publication of the notice of foreclosure (Exhibits "M" and "M-1"), the Court believes
plaintiffs are entitled to the amount of P5,000.00. The second publication of the
notice of foreclosure is another matter. There was already notice by plaintiffs to
defendant SSS that there was no reason for the foreclosure of their mortgaged
property as they were never in default. Instead of taking any corrective measure to
rectify its error, defendant SSS adopted a position of righteousness and followed the
same course of action contending that no error has open committed. This act of
defendant indeed was deliberate, calculated to cow plaintiffs into submission, and
made obviously with malice. On this score, the Court believes defendant SSS should
pay and indemnify plaintiffs jointly in the sum of P10,000.00. Lastly, on the third
publication of the notice of foreclosure, the Court finds this continued publication an
outright disregard for the reputation and standing of plaintiffs. The publication having
reached a bigger segment of society and also done with malice and callous disregard
for the rights of its clients, defendant SSS should compensate plaintiffs jointly in the
 sum of P20,000.00. All in all, plaintiffs are entitled to P35,000.00 by way of moral
damages.  6

On appeal, the Court of Appeals affirmed the lower Court judgment in a Decision promulgated on
March 14, 1975, but upon SSS's Motion for Reconsideration, modified the judgment by the
elimination of the P5,000.00 moral damages awarded on account of the initial publication of the
foreclosure notice. To quote:

xxx xxx xxx

After a re-examination of the evidence, we find that the negligence of the appellant is
not so gross as to warrant moral and temperate damages. The amount of P5,000.00
should be deducted from the total damages awarded to the plaintiffs.

WHEREFORE, the decision promulgated on March 14, 1975 is hereby maintained

with the sole modification that the amount of P5,000.00 awarded on account of the
initial publication is eliminated so that the said amount should be deducted from the
total damages awarded to the plaintiffs.

SO ORDERED.  7

In so far as exemplary and corrective damages are concerned, the Court of Appeals had this to say.

The Court finds no extenuating circumstances to mitigate the irresponsible action of

defendant SSS and for this reason, said defendant should pay exemplary and
corrective damages in the sum of P10,000.00 ...

Upon denial of its Motion for Reconsideration by respondent Court, the SSS filed this Petition
alleging —.

I. Respondent Court of Appeals erred in not finding that under Condition No. 10 of
the Mortgage contract, which is a self-executing, automatic acceleration clause, all
amortizations and obligations of the mortgagors become ipso jure due and
demandable if they at any time fail to pay any of the amortizations or interest when
due;

II. Respondent Court of Appeals erred in holding that a previous notice to the
mortgagor was necessary before the mortgage could be foreclosed;

III. Respondent Court of Appeals erred in not holding that, assuming that there was
negligence committed by subordinate employees of the SSS in staking 'Socorro C.
Cruz' for 'Socorro J. Cruz' as the defaulting borrower, the fault cannot be attributed to
the SSS, much less should the SSS be made liable for their acts done without its
knowledge and authority;

IV. Respondent Court of Appeals erred in holding that there is no extenuating

circumstance to mitigate the liability of petitioner;

V. Respondent Court of Appeals erred in not holding that petitioner is not liable for
damages not being a profit-oriented governmental institution but one performing
governmental functions petitions.  8
For failure of the First Division to obtain concurrence of the five remaining members (Justices Plana
and Gutierrez, Jr. could take no part), the case was referred to the Court en banc.

The pivotal issues raised are: (1) whether the Cruz spouses had, in fact, violated their real estate
mortgage contract with the SSS as would have warranted the publications of the notices of
foreclosure; and (2) whether or not the SSS can be held liable for damages.

The first issue revolves around the question of appreciation of the evidence by the lower Court as
concurred in by the Court of Appeals. The appraisal should be left undisturbed following the general
rule that factual findings of the Court of Appeals are not subject to review by this Court, the present
case not being one of the recognized exceptions to that rule.   Accordingly, we are upholding the
9

finding of the Court of Appeals that the SSS application for foreclosure was not justified, particularly
considering that the real estate loan of P48,000.00 obtained by the Cruzes in March, 1963, was
payable in 15 years with a monthly amortization of P425.18, and that as of July 14, 1968, the date of
the first notice of foreclosure and sale, the outstanding obligation was still P38,875.06 and not
P10,701.58, as published.

The appellant was not justified in applying for the extrajudicial foreclosure of the
mortgage contract executed in its favor by the spouses, David B. Cruz and Socorro
Concio-Cruz, Exh. 'A'. While it is true that the payments of the monthly installments
were previously not regular, it is a fact that as of June 30, 1968 the appellee, David
B. Cruz and Socorro Concio-Cruz were up-to-date and current in the payment of their
monthly installments. Having accepted the prior late payments of the monthly
installments, the appellant could no longer suddenly and without prior notice to the
mortgagors apply for the extra-judicial foreclosure of the mortgage in July 1968. 10

A similar conclusion was reached by the trial Court.

Defendant's contention that there was clerical error in the amount of the mortgage
loan due as of June, 1968 as per their application for foreclosure of real estate
mortgage is a naive attempt to justify an untenable position. As a matter of fact
plaintiffs were able to establish that the mortgagor who actually committed the
violation of her mortgage loan was a certain 'Socorro J. Cruz' who was in arrears in
the amount of P10,702.58 at the time the application for foreclosure of real estate
mortgage was filed Exhibits "BB" and "EE"). Defendant mortgagee must have
committed an error in picking the record of plaintiff 'Socorro C. Cruz' instead of the
record of 'Socorro J. Cruz'. Defendant SSS, however, denied having committed any
error and insists that their motion for foreclosure covers the real estate mortgage of
spouses David E. Cruz and Socorro C. Cruz. This Court is nonetheless convinced
that the foreclosure proceedings should have been on the real estate mortgage of
'Socorro J. Cruz' who was in arrears as of June, 1968 in the amount of P10,701.58,
the exact amount mentioned in the application for foreclosure of real estate mortgage
by defendant SSS.  11

We come now to the amendability of the SSS to judicial action and legal responsibility for its acts. To
our minds, there should be no question on this score considering that the SSS is a juridical entity
with a personality of its own.   It has corporate powers separate and distinct from the
12

Government.   SSS' own organic act specifically provides that it can sue and be sued in
13

Court.   These words "sue and be sued" embrace all civil process incident to a legal action.   So
14 15

that, even assuming that the SSS, as it claims, enjoys immunity from suit as an entity performing
governmental functions, by virtue of the explicit provision of the aforecited enabling law, the
Government must be deemed to have waived immunity in respect of the SSS, although it does not
thereby concede its liability. That statutoy law has given to the private-citizen a remedy for the
enforcement and protection of his rights. The SSS thereby has been required to submit to the
jurisdiction of the Courts, subject to its right to interpose any lawful defense. Whether the SSS
performs governmental or proprietary functions thus becomes unnecessary to belabor. For by that
waiver, a private citizen may bring a suit against it for varied objectives, such as, in this case, to
obtain compensation in damages arising from contract   and even for tort.
16

A recent case squarely in point anent the principle, involving the National Power Corporation, is that
of Rayo vs. Court of First Instance of Bulacan, 110 SCRA 457 (1981), wherein this Court, speaking
through Mr. Justice Vicente Abad Santos, ruled:

It is not necessary to write an extended dissertation on whether or not the NPC

performs a governmental function with respect to the management and operation of
the Angat Dam. It is sufficient to say that the government has organized a private
corporation, put money in it and has snowed it to sue and be sued in any court under
its charter. (R.A. No. 6395, Sec. 3[d]). As a government owned and controlled
corporation, it has a personality of its own, distinct and separate from that of the
Government. (See National Shipyards and Steel Corp. vs. CIR, et al., L-17874,
August 31, 1963, 8 SCRA 78 1). Moreover, the charter provision that the NPC can
'sue and be sued in any court' is without qualification on the cause of action and
accordingly it can include a tort claim such as the one instituted by the petitioners.

The proposition that the SSS is not profit-oriented was rejected in the case of SSS Employees'
Association vs. Hon. Soriano.   But even conceding that the SSS is not, in the main, operated for
17

profit, it cannot be denied that, in so far as contractual loan agreements with private parties are
concerned, the SSS enters into them for profit considering that the borrowers pay interest, which is
money paid for the use of money, plus other charges.

In so far as it is argued that to hold the SSS liable for damages would be to deplete the benefit funds
available for its covered members, suffice it to say, that expenditures of the System are not confined
to the payment of social security benefits. For example, the System also has to pay the salaries of its
personnel. Moreover, drawing a parallel with the NASSCO and the Virginia Tobacco Administration,
whose funds are in the nature of public funds, it has been held that those funds may even be made
the object of a notice of garnishment.  18

What is of paramount importance in this controversy is that an injustice is not perpetrated and that
when damage is caused a citizen, the latter should have a right of redress particularly when it arises
from a purely private and contractual relationship between said individual and the System.

We find, however, that under the circumstances of the case, the SSS cannot be held liable for the
damages as awarded by the Trial Court and the Appellate Tribunal.

As basis for the award of actual damages, the Trial Court relied on the alleged expenses incurred by
private respondents for the wardrobe they were supposed to use during their trip abroad, which was
allegedly aborted because of the filing of the foreclosure application by the SSS. We find the
foregoing too speculative. There could have been other reasons why the trip did not materialize.
Moreover, it appears that private respondents' passports had already expired but that they made no
effort to secure new passports.   Nor did they secure the necessary visas from the local consulates
19

of foreign countries they intended to visit for their trip abroad. 

20

Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court of
Appeals "the negligence of the appellant is not so gross as to warrant moral and temperate
damages",   except that, said Court reduced those damages by only P5,000.00 instead of
21

eliminating them. Neither can we agree with the findings of both the Trial Court and respondent
Court that the SSS had acted maliciously or in bad faith. The SSS was of the belief that it was acting
in the legitimate exercise of its right under the mortgage contract in the face of irregular payments
made by private respondents, and placed reliance on the automatic acceleration clause in the
contract. The filing alone of the foreclosure application should not be a ground for an award of moral
damages in the same way that a clearly unfounded civil action is not among the grounds for moral
damages.  22

With the ruling out of compensatory, moral and temperate damages, the grant of exemplary or
corrective damages should also be set aside.   Moreover, no proof has been submitted that the SSS
23

had acted in a wanton, reckless and oppressive manner.  24

However, as found by both the Trial and Appellate Courts, there was clear negligence on the part of
SSS when they mistook the loan account of Socorro J. Cruz for that of private respondent Socorro
C. Cruz. Its attention was called to the error, but it adamantly refused to acknowledge its mistake.
The SSS can be held liable for nominal damages. This type of damages is not for the purpose of
indemnifying private respondents for any loss suffered by them but to vindicate or recognize their
rights which have been violated or invaded by petitioner SSS.  25

The circumstances of the case also justify the award of attorney's fees, as granted by the Trial and
Appellate Courts, particularly considering that private respondents were compelled to litigate for the
prosecution of their interests. 
26

WHEREFORE, the judgment sought to be reviewed is hereby modified in that petitioner SSS shall
pay private respondents: P3,000.00 as nominal damages; and P5,000.00 as attorney's fees.

Costs against petitioner Social Security System.

SO ORDERED.

Teehankee, Concepcion, Jr., Guerrero, Abad Santos, De Castro, Vasquez and Relova, JJ., concur.

Fernando, C.J., concurs in the result.

Plana, Escolin ** and Gutierrez, Jr., *** JJ., took no part.

Separate Opinions

AQUINO, J., concurring:
I concur. The award of moral damages is not justified under arts. 2219 and 2220 of the Civil Code. I
vote to award the private respondents the additional sum of P2,000 as litigation expenses.

MAKASIAR, J., dissenting:

I dissent.

To begin with, the negligent acts committed by the officers and employees of the petitioner, Social
Security System, amounted to not simply a contractual breach but tort. For the record is clear that
petitioner's officers and employees were grossly negligent bordering on malice or bad faith in
applying for the extrajudicial foreclosure of the mortgage contract executed in its favor by the
spouses David B. Cruz and Socorro Concio-Cruz, and that even after private respondents had
brought to the attention of the petitioner's officers and employees their mistake, they insisted on their
course of action, instead of making the necessary rectifications, which grossly negligent and
oppressive acts caused damage to private respondents. As found by the Court of Appeals:

The appellant was not justified in applying for the extrajudicial foreclosure of the
mortgage contract executed in its favor by the spouses David B. Cruz and Socorro
Concio-Cruz, Exh. 'A'. While it is true that the payments of the monthly installments
were previously not regular, it is a fact that as of June 30, 1968 the appellees, David
B. Cruz and Socorro Concio-Cruz were up-to-date and current in the payment of their
monthly installments. Having accepted the prior late payments of the monthly
installments, the appellant could no longer suddenly and without prior notice to the
mortgagors apply for the extra-judicial foreclosure of the mortgage in July, 1968.

It is obvious that the appellant applied for the extra-judicial foreclosure of the
mortgage in question because of the gross negligence of its employees. This
negligence was aggravated when the appellant, after being informed of the error,
insisted on proceeding with the extra-judicial foreclosure by invoking alleged
violations of the mortgage contract. But these violations are either too minor to
warrant the drastic step of foreclosure or were deemed condoned when the appellant
accepted late payments prior to June 30, 1968. Hence the trial court did not err in
concluding that 'the act of defendant indeed was deliberate, calculated to cow
plaintiffs into submission and made obviously with malice (p. 54, rec.; emphasis
supplied).

The circumstance that there was a pre-existing contractual relationship between the herein
contending parties, does not bar the tort liability of the officers and employees of petitioner; because
tort liability may still exist despite presence of contractual relations as the act that breaks the contract
may also be a tort, as in this case (Air France vs. Carrascoso, L-21438, Sept. 28, 1966, 18 SCRA
155, 168-169; Singson & Castillo vs. Bank of the Philippine Islands, L-24837, June 27, 1968, 23
SCRA 1117, 1119-20).

Consequently, a tortious act being involved, the applicable provision of law is Article 2180 in relation
to Article 2176 of the New Civil Code. Under Article 2180, ... The State is responsible in like manner
when it acts through a special agent; but not when the damage has been caused by the official to
whom the task done properly pertains, in which case what is provided in Article 2176 shall be
applicable.
In the case at bar, the petitioner Social Security System as the instrumentality of the State to
implement the social justice guarantee enunciated in the Constitution, did not act through a special
agent. Hence, the Social Security System cannot be liable for the damages caused by the tortious
acts of its officers and employees while in the performance of their regular functions. The remedy
therefore of private respondents is to proceed against the guilty officers and employees of petitioner
Social Security System as mandated by Article 2176 of the New Civil Code.

For as held in the leading case of Merritt vs. Government of the Philippine Islands (34 Phil. 311).

The responsibility of the State is limited by Article 1903 to the case wherein it acts
through a special agent, ... so that in representation of the state and being bound to
act as an agent thereof, he executes the trust confided to him. This concept does not
apply to any executive agent who is an employee of the active administration and
who on his own responsibility performs the functions which are inherent in and
naturally pertain to his office and which are regulated by law and the regulations.

While Article 2180 of the New Civil Code was not invoked by the petitioner as a defense, this does
not prevent this Tribunal from taking cognizance of the same. For as stressed in Ortigas, Jr. vs.
Lufthansa German Airlines (June 30, 1975, 64 SCRA 610, 633), failure to assign a defense as an
error on appeal is a pure technicality that should not prevail over the substantial issues in a
controversy as the same would not serve the interest of justice, and "this Court is clothed with ample
authority to review matters even if they are not assigned as errors in the appeal, if it finds that our
consideration is necessary in arriving at a just decision of the case" (citing Saura & Export Co., Inc.,
May 31, 1963, 8 SCRA 143). Further, We have, time and again, re-stated the rule that the Supreme
Court can suspend its own rules to serve the ends of justice (Jose vs. C.A., et al., L-38581, March
31, 1976; Phil. Blooming Mills Employees Organization, et al. vs. PBM Co., et al., L-31195, 51 SCRA
189, 215; Ronquillo vs. Marasigan, May 31, 1962, 5 SCRA 304, 312-313; Ordoveza vs. Raymundo,
63 Phil. 275).

The principle that a defense not expressly pleaded is deemed waived unless such failure is
satisfactorily explained, is merely a general rule which is subject to exceptions, among which is
when the Court can take judicial notice of such defense. In this case, We can take judicial notice of
the law, like Article 2180 of the New Civil Code. It must be emphasized that the courts have as much
duty as the Commission on August to protect the public treasury from being mulcted or raided
illegally. And this becomes more imperative considering that a substantial portion of the funds of the
petitioner comes from the contributions of- employees and workers in private firms and is therefore
in the nature of a trust fund to be expended only for their welfare and benefit, with the government
merely giving some subsidy. Any amount of damages illegally assessed against the Social Security
System will deplete the benefit funds available to its covered members for the contingencies of
sickness, disability, retirement or death.

It cannot likewise be seriously questioned that the Social Security System is comprehended in the
definition in Section 2 of the Revised Administrative Code of the term "Government of the Republic
of the Philippines ... which refers to the corporate governmental entity through which the functions of
government are exercised throughout the Philippine Islands, including, save as the contrary appears
from the context, the various arms through which political authority is made effective in the
Philippines, whether pertaining to the central Government or to the provincial or municipal branches
or other forms of local government." And the second paragraph of said Section 2 provides that the
term "national government" refers to the central government as distinguished from the different
forms of local government. There is nothing therein nor in the Social Security Act, as amended,
intimating that the national government does not include the Social Security System.
It is true that the Social Security System has a corporate or juridical personality of its own. But this
does not remove it as an integral part of the national or central government. For such corporate or
juridical personality invested in it is more for facility and convenience in the attainment of the
objectives for which it was created by the legislative. Such vesting of corporate or juridical
personality in the Social Security System was never intended to destroy the shield from liability
afforded it as an integral part of the State or Government by Article 2180 of the New Civil Code.
Relatedly, such corporate or juridical personality of the Social Security System and the express
provision of the law creating the same that it can sue and be sued, have the effect of merely waiving
its immunity from suit as an entity performing governmental functions. Such waiver of its immunity
from suit is not an admission of its liability. Such waiver merely allows a private citizen a remedy for
the enforcement and protection of his rights, but always subject to the lawful defenses of the Social
Security System one of which is Article 2180 of the New Civil Code as aforestated. In other words,
such waiver of immunity from suit is not equivalent to instant liability. The Social Security System
can only be held liable for damages arising from the tortious acts of its officers and employees only if
it acts through a special agent, which is not true in the case at bar.

II

It must be finally stressed that the Social Security System cannot be liable for damages because it is
an entity of government performing governmental functions; hence, not profit-oriented. The 1963
doctrine in SSSEA vs. Soriano (7 SCRA 1016 [1963]) that the system is exercising proprietary
functions, is no longer controlling.

For in 1969, the distinction between constituent and ministrant functions of the Government as laid
down in the case of Bacani vs. Nacoco (100 Phil. 468 [1956]) has been obliterated. In the case of
Agricultural Credit and Cooperative Financing Administration (ACCFA) vs. Confederation of Unions
in Government Corporations and Offices (CUGCO) [30 SCRA 649 (1969)], this Court in re-
examining the aforesaid Bacani ruling observed that the trend has been to abandon and reject the
traditional "Constituent- Ministrant" criterion in governmental functions in favor of the more
responsive postulate that the growing complexities of modern society have rendered the traditional
classification of government functions unrealistic and obsolete.

WE held in the ACCFA case, thus:

The growing complexities of modern society, however, have rendered this traditional
classification of the functions of government quite unrealistic, not to say obsolete.
The areas which used to be left to private enterprise and initiative and which the
government was called upon to enter optionally, and only 'because it was better
equipped to administer for the public welfare than is any private individual or groups
of individuals,' continue to lose their well-defined boundaries and to be absorbed
within activities that the government must have undertaken in its sovereign capacity if
it is to meet the increasing social challenges of the times. Here as almost
everywhere, else, the tendency is undoubtedly towards a greater socialization of
economic forces. Here of course, this development was envisioned indeed adopted
as a national policy, by the Constitution itself in its declaration of principle concerning
the promotion of social justice.

Chief Justice Fernando, then Associate Justice, in his concurring opinion stressed that:

The decision reached by this Court so ably given expression in the opinion of Justice
Makalintal, characterized with vigor, clarity and precision, represents what for me is
a clear tendency not to be necessarily bound by our previous pronouncements on
 what activities partake of a nature that is governmental. Of even greater significance,
there is a definite rejection of the 'constituent-ministrant' criterion of governmental
functions, followed in Bacani vs. National Coconut Corporation. That indeed is cause
for gratification. For me at least, there is again full adherence to the basic philosophy
of the Constitution as to the extensive and vast power lodged in our government to
cope with the social and economic problems that even now sorely beset us. There is
therefore full concurrence on my part to the opinion of the court, distinguished by its
high quality of juristic craftsmanship (pp. 666-667).

xxx xxx xxx

4. With the decision reached by us today, the government is freed from the
compulsion exerted by the Bacani doctrine of the 'constituent-ministrant' test as a
criterion for the type of activity in which it may engage. It constricting effect is
consigned to oblivion. No doubts or misgivings need assail us that government
efforts to promote the public wealth whether through regulatory legislation of vast
scope and emplitude or through the undertaking of business activities, would have to
face a searching and rigorous scrutiny. It is clear that their legitimacy cannot be
challenged on the ground alone of their being offensive to the implications of the
laissez- faire concept. Unless there be a repugnancy then to the limitations expressly
set forth in the Constitution to protect individual rights, the government enjoys a
much wider latitude of action as to the means it chooses to cope with grave social
and economic problems that urgently press for solution. For me, at least, that is to
manifest deference to the philosophy of our fundamental law. Hence my full
concurrence, as announced at the outset. (pp- 682-683, emphasis supplied).

The 1935 Constitution declared:

Sec. 5. The promotion of social justice to insure the well being and economic security
of all the people should be the concern of the State. (Art. II, Declaration of
Principles).

The present 1973 Constitution provides under its Declaration of Principles and State Policies (Article
11), that

The State shall promote social justice to ensure the dignity, welfare, and security of
all the people. Towards this end, the State shall regulate the acquisition, ownership,
use, enjoyment, and disposition of private property, and equitably diffuse property
ownership and profits. (Section 6);

and

The State shall establish, maintain, and ensure adequate social services in the field
of education, health, housing, employment, welfare, and social security to guarantee
the enjoyment by the people of a decent standard of living. (Section 7).

The strictly governmental function of the SSS is spelled out unmistakably in Section 2 of R.A. No.
1161 entitled "The Social Security Act of 1954," thus:

It is hereby declared to be the policy of the Republic of the Philippines to develop,

establish gradually and perfect a social security system which shall be suitable to the
 needs of the people throughout the Philippines, and shall provide protection against
the hazards of disability, sickness, old age and death.

As stated in the Explanatory Note to the Bill that became R. A. No. 1161, the Social Security Act of
1954:

It is a recognized principle in free societies that the State must help its citizens to
make provision for emergencies beyond their control, such as unemployment,
sickness requiring expensive medical treatment, and similar emergencies to a
greater or lesser degree by means of social security legislation in a variety of forms.

And this Court, in Roman Catholic Archbishop of Manila vs. SSS (L-15045, 1 SCRA 10 [1961]),
declared that "the Social Security Law was enacted pursuant to the 'policy of the Republic to
develop, establish gradually and perfect a social security system which shall be suitable to the needs
of the people throughout the Philippines and provide protection to employees against the hazards of
disability, sickness, old age and death' (Sec. 2, Republic Act No. 1161, as amended). Such
enactment is a legitimate exercise of the police power. It affords protection to labor, especially to
working women and minors, and is in full accord with the constitutional provisions on the 'promotion
of social justice to insure the well being and economic security of all the people.

It is interesting to note that aforesaid pronouncement of this Court was incorporated in the Social
Security Act (R.A. 1161) by Presidential Decree No. 24 issued on October 19, 1972. Thus, as
amended by said Decree, its section 2 now reads: "It is the policy of the Republic of the Philippines
to establish, develop, promote and perfect a sound viable 'tax exempt social security service suitable
to the needs of the people throughout the Philippines, which shall provide to covered employees and
their families protection against the hazards of disability, sickness, old age, and death, with a view to
promoting their well-being in the spirit of social justice" (emphasis supplied). And one of its
whereases expressly states that "the measure is necessary to effect reforms in SSS operations
and to revitalize its structure as an important agency in the promotion of the social and economic
development programs of the Government; ... (emphasis supplied).

Considering therefore that the establishment and maintenance of an adequate social security and
social services, which the Social Security System seeks to perform and achieve are functions
pursuant to the basic constitutional mandate directing the State to promote "social justice to insure
the well-being and economic security of all the people" (1935 Constitution) or "to insure the dignity,
welfare and security of all the people" as well as the police power of the State, the inescapable
conclusion is that the function of the SSS is and has always been governmental.

It thus becomes clear that petitioner Social Security System, under the obtaining facts and
applicable laws in the case, is not liable for the damages caused to private respondents by the
tortious acts of its officers and employees to whom the task done properly pertained.

A contrary rule as that enunciated in the majority opinion invites conspiracy between officials and
employees of the Social Security System and private parties to create financial liabilities against the
System. Its funds are public funds and more importantly trust funds, which must be protected.

Separate Opinions
AQUINO, J., concurring:

I concur. The award of moral damages is not justified under arts. 2219 and 2220 of the Civil Code. I
vote to award the private respondents the additional sum of P2,000 as litigation expenses.

MAKASIAR, J., dissenting:

I dissent.

To begin with, the negligent acts committed by the officers and employees of the petitioner, Social
Security System, amounted to not simply a contractual breach but tort. For the record is clear that
petitioner's officers and employees were grossly negligent bordering on malice or bad faith in
applying for the extrajudicial foreclosure of the mortgage contract executed in its favor by the
spouses David B. Cruz and Socorro Concio-Cruz, and that even after private respondents had
brought to the attention of the petitioner's officers and employees their mistake, they insisted on their
course of action, instead of making the necessary rectifications, which grossly negligent and
oppressive acts caused damage to private respondents. As found by the Court of Appeals:

The appellant was not justified in applying for the extrajudicial foreclosure of the
mortgage contract executed in its favor by the spouses David B. Cruz and Socorro
Concio-Cruz, Exh. 'A'. While it is true that the payments of the monthly installments
were previously not regular, it is a fact that as of June 30, 1968 the appellees, David
B. Cruz and Socorro Concio-Cruz were up-to-date and current in the payment of their
monthly installments. Having accepted the prior late payments of the monthly
installments, the appellant could no longer suddenly and without prior notice to the
mortgagors apply for the extra-judicial foreclosure of the mortgage in July, 1968.

It is obvious that the appellant applied for the extra-judicial foreclosure of the
mortgage in question because of the gross negligence of its employees. This
negligence was aggravated when the appellant, after being informed of the error,
insisted on proceeding with the extra-judicial foreclosure by invoking alleged
violations of the mortgage contract. But these violations are either too minor to
warrant the drastic step of foreclosure or were deemed condoned when the appellant
accepted late payments prior to June 30, 1968. Hence the trial court did not err in
concluding that 'the act of defendant indeed was deliberate, calculated to cow
plaintiffs into submission and made obviously with malice (p. 54, rec.; emphasis
supplied).

The circumstance that there was a pre-existing contractual relationship between the herein
contending parties, does not bar the tort liability of the officers and employees of petitioner; because
tort liability may still exist despite presence of contractual relations as the act that breaks the contract
may also be a tort, as in this case (Air France vs. Carrascoso, L-21438, Sept. 28, 1966, 18 SCRA
155, 168-169; Singson & Castillo vs. Bank of the Philippine Islands, L-24837, June 27, 1968, 23
SCRA 1117, 1119-20).
Consequently, a tortious act being involved, the applicable provision of law is Article 2180 in relation
to Article 2176 of the New Civil Code. Under Article 2180, ... The State is responsible in like manner
when it acts through a special agent; but not when the damage has been caused by the official to
whom the task done properly pertains, in which case what is provided in Article 2176 shall be
applicable.

In the case at bar, the petitioner Social Security System as the instrumentality of the State to
implement the social justice guarantee enunciated in the Constitution, did not act through a special
agent. Hence, the Social Security System cannot be liable for the damages caused by the tortious
acts of its officers and employees while in the performance of their regular functions. The remedy
therefore of private respondents is to proceed against the guilty officers and employees of petitioner
Social Security System as mandated by Article 2176 of the New Civil Code.

For as held in the leading case of Merritt vs. Government of the Philippine Islands (34 Phil. 311).

The responsibility of the State is limited by Article 1903 to the case wherein it acts
through a special agent, ... so that in representation of the state and being bound to
act as an agent thereof, he executes the trust confided to him. This concept does not
apply to any executive agent who is an employee of the active administration and
who on his own responsibility performs the functions which are inherent in and
naturally pertain to his office and which are regulated by law and the regulations.

While Article 2180 of the New Civil Code was not invoked by the petitioner as a defense, this does
not prevent this Tribunal from taking cognizance of the same. For as stressed in Ortigas, Jr. vs.
Lufthansa German Airlines (June 30, 1975, 64 SCRA 610, 633), failure to assign a defense as an
error on appeal is a pure technicality that should not prevail over the substantial issues in a
controversy as the same would not serve the interest of justice, and "this Court is clothed with ample
authority to review matters even if they are not assigned as errors in the appeal, if it finds that our
consideration is necessary in arriving at a just decision of the case" (citing Saura & Export Co., Inc.,
May 31, 1963, 8 SCRA 143). Further, We have, time and again, re-stated the rule that the Supreme
Court can suspend its own rules to serve the ends of justice (Jose vs. C.A., et al., L-38581, March
31, 1976; Phil. Blooming Mills Employees Organization, et al. vs. PBM Co., et al., L-31195, 51 SCRA
189, 215; Ronquillo vs. Marasigan, May 31, 1962, 5 SCRA 304, 312-313; Ordoveza vs. Raymundo,
63 Phil. 275).

The principle that a defense not expressly pleaded is deemed waived unless such failure is
satisfactorily explained, is merely a general rule which is subject to exceptions, among which is
when the Court can take judicial notice of such defense. In this case, We can take judicial notice of
the law, like Article 2180 of the New Civil Code. It must be emphasized that the courts have as much
duty as the Commission on August to protect the public treasury from being mulcted or raided
illegally. And this becomes more imperative considering that a substantial portion of the funds of the
petitioner comes from the contributions of- employees and workers in private firms and is therefore
in the nature of a trust fund to be expended only for their welfare and benefit, with the government
merely giving some subsidy. Any amount of damages illegally assessed against the Social Security
System will deplete the benefit funds available to its covered members for the contingencies of
sickness, disability, retirement or death.

It cannot likewise be seriously questioned that the Social Security System is comprehended in the
definition in Section 2 of the Revised Administrative Code of the term "Government of the Republic
of the Philippines ... which refers to the corporate governmental entity through which the functions of
government are exercised throughout the Philippine Islands, including, save as the contrary appears
from the context, the various arms through which political authority is made effective in the
Philippines, whether pertaining to the central Government or to the provincial or municipal branches
or other forms of local government." And the second paragraph of said Section 2 provides that the
term "national government" refers to the central government as distinguished from the different
forms of local government. There is nothing therein nor in the Social Security Act, as amended,
intimating that the national government does not include the Social Security System.

It is true that the Social Security System has a corporate or juridical personality of its own. But this
does not remove it as an integral part of the national or central government. For such corporate or
juridical personality invested in it is more for facility and convenience in the attainment of the
objectives for which it was created by the legislative. Such vesting of corporate or juridical
personality in the Social Security System was never intended to destroy the shield from liability
afforded it as an integral part of the State or Government by Article 2180 of the New Civil Code.
Relatedly, such corporate or juridical personality of the Social Security System and the express
provision of the law creating the same that it can sue and be sued, have the effect of merely waiving
its immunity from suit as an entity performing governmental functions. Such waiver of its immunity
from suit is not an admission of its liability. Such waiver merely allows a private citizen a remedy for
the enforcement and protection of his rights, but always subject to the lawful defenses of the Social
Security System one of which is Article 2180 of the New Civil Code as aforestated. In other words,
such waiver of immunity from suit is not equivalent to instant liability. The Social Security System
can only be held liable for damages arising from the tortious acts of its officers and employees only if
it acts through a special agent, which is not true in the case at bar.

II

It must be finally stressed that the Social Security System cannot be liable for damages because it is
an entity of government performing governmental functions; hence, not profit-oriented. The 1963
doctrine in SSSEA vs. Soriano (7 SCRA 1016 [1963]) that the system is exercising proprietary
functions, is no longer controlling.

For in 1969, the distinction between constituent and ministrant functions of the Government as laid
down in the case of Bacani vs. Nacoco (100 Phil. 468 [1956]) has been obliterated. In the case of
Agricultural Credit and Cooperative Financing Administration (ACCFA) vs. Confederation of Unions
in Government Corporations and Offices (CUGCO) [30 SCRA 649 (1969)], this Court in re-
examining the aforesaid Bacani ruling observed that the trend has been to abandon and reject the
traditional "Constituent- Ministrant" criterion in governmental functions in favor of the more
responsive postulate that the growing complexities of modern society have rendered the traditional
classification of government functions unrealistic and obsolete.

WE held in the ACCFA case, thus:

The growing complexities of modern society, however, have rendered this traditional
classification of the functions of government quite unrealistic, not to say obsolete.
The areas which used to be left to private enterprise and initiative and which the
government was called upon to enter optionally, and only 'because it was better
equipped to administer for the public welfare than is any private individual or groups
of individuals,' continue to lose their well-defined boundaries and to be absorbed
within activities that the government must have undertaken in its sovereign capacity if
it is to meet the increasing social challenges of the times. Here as almost
everywhere, else, the tendency is undoubtedly towards a greater socialization of
economic forces. Here of course, this development was envisioned indeed adopted
as a national policy, by the Constitution itself in its declaration of principle concerning
the promotion of social justice.
Chief Justice Fernando, then Associate Justice, in his concurring opinion stressed that:

The decision reached by this Court so ably given expression in the opinion of Justice
Makalintal, characterized with vigor, clarity and precision, represents what for me is
a clear tendency not to be necessarily bound by our previous pronouncements on
what activities partake of a nature that is governmental. Of even greater significance,
there is a definite rejection of the 'constituent-ministrant' criterion of governmental
functions, followed in Bacani vs. National Coconut Corporation. That indeed is cause
for gratification. For me at least, there is again full adherence to the basic philosophy
of the Constitution as to the extensive and vast power lodged in our government to
cope with the social and economic problems that even now sorely beset us. There is
therefore full concurrence on my part to the opinion of the court, distinguished by its
high quality of juristic craftsmanship (pp. 666-667).

xxx xxx xxx

4. With the decision reached by us today, the government is freed from the
compulsion exerted by the Bacani doctrine of the 'constituent-ministrant' test as a
criterion for the type of activity in which it may engage. It constricting effect is
consigned to oblivion. No doubts or misgivings need assail us that government
efforts to promote the public wealth whether through regulatory legislation of vast
scope and emplitude or through the undertaking of business activities, would have to
face a searching and rigorous scrutiny. It is clear that their legitimacy cannot be
challenged on the ground alone of their being offensive to the implications of the
laissez- faire concept. Unless there be a repugnancy then to the limitations expressly
set forth in the Constitution to protect individual rights, the government enjoys a
much wider latitude of action as to the means it chooses to cope with grave social
and economic problems that urgently press for solution. For me, at least, that is to
manifest deference to the philosophy of our fundamental law. Hence my full
concurrence, as announced at the outset. (pp- 682-683, emphasis supplied).

The 1935 Constitution declared:

Sec. 5. The promotion of social justice to insure the well being and economic security
of all the people should be the concern of the State. (Art. II, Declaration of
Principles).

The present 1973 Constitution provides under its Declaration of Principles and State Policies (Article
11), that

The State shall promote social justice to ensure the dignity, welfare, and security of
all the people. Towards this end, the State shall regulate the acquisition, ownership,
use, enjoyment, and disposition of private property, and equitably diffuse property
ownership and profits. (Section 6);

and

The State shall establish, maintain, and ensure adequate social services in the field
of education, health, housing, employment, welfare, and social security to guarantee
the enjoyment by the people of a decent standard of living. (Section 7).
The strictly governmental function of the SSS is spelled out unmistakably in Section 2 of R.A. No.
1161 entitled "The Social Security Act of 1954," thus:

It is hereby declared to be the policy of the Republic of the Philippines to develop,

establish gradually and perfect a social security system which shall be suitable to the
needs of the people throughout the Philippines, and shall provide protection against
the hazards of disability, sickness, old age and death.

As stated in the Explanatory Note to the Bill that became R. A. No. 1161, the Social Security Act of
1954:

It is a recognized principle in free societies that the State must help its citizens to
make provision for emergencies beyond their control, such as unemployment,
sickness requiring expensive medical treatment, and similar emergencies to a
greater or lesser degree by means of social security legislation in a variety of forms.

And this Court, in Roman Catholic Archbishop of Manila vs. SSS (L-15045, 1 SCRA 10 [1961]),
declared that "the Social Security Law was enacted pursuant to the 'policy of the Republic to
develop, establish gradually and perfect a social security system which shall be suitable to the needs
of the people throughout the Philippines and provide protection to employees against the hazards of
disability, sickness, old age and death' (Sec. 2, Republic Act No. 1161, as amended). Such
enactment is a legitimate exercise of the police power. It affords protection to labor, especially to
working women and minors, and is in full accord with the constitutional provisions on the 'promotion
of social justice to insure the well being and economic security of all the people.

It is interesting to note that aforesaid pronouncement of this Court was incorporated in the Social
Security Act (R.A. 1161) by Presidential Decree No. 24 issued on October 19, 1972. Thus, as
amended by said Decree, its section 2 now reads: "It is the policy of the Republic of the Philippines
to establish, develop, promote and perfect a sound viable 'tax exempt social security service suitable
to the needs of the people throughout the Philippines, which shall provide to covered employees and
their families protection against the hazards of disability, sickness, old age, and death, with a view to
promoting their well-being in the spirit of social justice" (emphasis supplied). And one of its
whereases expressly states that "the measure is necessary to effect reforms in SSS operations
and to revitalize its structure as an important agency in the promotion of the social and economic
development programs of the Government; ... (emphasis supplied).

Considering therefore that the establishment and maintenance of an adequate social security and
social services, which the Social Security System seeks to perform and achieve are functions
pursuant to the basic constitutional mandate directing the State to promote "social justice to insure
the well-being and economic security of all the people" (1935 Constitution) or "to insure the dignity,
welfare and security of all the people" as well as the police power of the State, the inescapable
conclusion is that the function of the SSS is and has always been governmental.

It thus becomes clear that petitioner Social Security System, under the obtaining facts and
applicable laws in the case, is not liable for the damages caused to private respondents by the
tortious acts of its officers and employees to whom the task done properly pertained.

A contrary rule as that enunciated in the majority opinion invites conspiracy between officials and
employees of the Social Security System and private parties to create financial liabilities against the
System. Its funds are public funds and more importantly trust funds, which must be protected.
G.R. No. 129169 November 17, 1999

NATIONAL IRRIGATION ADMINISTRATION (NIA), petitioner,

vs.
HONORABLE COURT OF APPEALS (4th Division), CONSTRUCTION INDUSTRY
ARBITRATION COMMISSION, and HYDRO RESOURCES CONTRACTORS
CORPORATION, respondents.

DAVIDE, JR., C.J.:

In this special civil action for certiorari under Rule 65 of the Rules of Court, the National Irrigation
Administration (hereafter NIA), seeks to annul and set aside the Resolutions   of the Court of
1

Appeals in CA-GR. SP No. 37180 dated 28 June 1996 and 24 February 1997, which dismissed
respectively NIA's petition for certiorari and prohibition against the Construction Industry Arbitration
Commission (hereafter CIAC), and the motion for reconsideration thereafter filed.

Records show that in a competitive bidding held by NIA in August 1978, Hydro Resources
Contractors Corporation (hereafter HYDRO) was awarded Contract MPI-C-2 for the construction of
the main civil works of the Magat River Multi-Purpose Project. The contract provided that HYDRO
would be paid partly in Philippine pesos and partly in U.S. dollars. HYDRO substantially completed
the works under the contract in 1982 and final acceptance by NIA was made in 1984. HYDRO
thereafter determined that it still had an account receivable from NIA representing the dollar rate
differential of the price escalation for the contract.  2

After unsuccessfully pursuing its case with NIA, HYDRO, on 7 December 1994, filed with the CIAC a
Request for Adjudication of the aforesaid claim. HYDRO nominated six arbitrators for the arbitration
panel, from among whom CIAC appointed Engr. Lauro M. Cruz. On 6 January 1995, NIA filed its
Answer wherein it questioned the jurisdiction of the CIAC alleging lack of cause of action, laches and
estoppel in view of HYDRO's alleged failure to avail of its right to submit the dispute to arbitration
within the prescribed period as provided in the contract. On the same date, NIA filed a Compliance
wherein it nominated six arbitrators, from among whom CIAC appointed Atty. Custodio O. Parlade,
and made a counterclaim for P1,000,000 as moral damages; at least P100,000 as exemplary
damages; P100,000 as attorney's fees; and the costs of the arbitration.  3

The two designated arbitrators appointed Certified Public Accountant Joven B. Joaquin as Chairman
of the Arbitration Panel. The parties were required to submit copies of the evidence they intended to
present during the proceedings and were provided the draft Terms of Reference.  4

At the preliminary conference, NIA through its counsel Atty. Joy C. Legaspi of the Office of the
Government Corporate Counsel, manifested that it could not admit the genuineness of HYDRO's
evidence since NIA's records had already been destroyed. NIA requested an opportunity to examine
the originals of the documents which HYDRO agreed to provide.  5

After reaching an accord on the issues to be considered by the arbitration panel, the parties
scheduled the dates of hearings and of submission of simultaneous memoranda.  6

On 13 March 1995, NIA filed a Motion to Dismiss   alleging lack of jurisdiction over the disputes. NIA
7

contended that there was no agreement with HYDRO to submit the dispute to CIAC for arbitration
considering that the construction contract was executed in 1978 and the project completed in 1982,
whereas the Construction Industry Arbitration Law creating CIAC was signed only in 1985; and that
while they have agreed to arbitration as a mode of settlement of disputes, they could not have
contemplated submission of their disputes to CIAC. NIA further argued that records show that it had
not voluntarily submitted itself to arbitration by CIAC citing TESCO Services, Inc. v. Hon. Abraham
Vera, et al.,   wherein it was ruled:
8

CIAC did not acquire jurisdiction over the dispute arising from the sub-contract
agreement between petitioner TESCO and private respondent LAROSA. The records
do not show that the parties agreed to submit the disputes to arbitration by the
CIAC . . . . While both parties in the sub-contract had agreed to submit the matter to
arbitration, this was only between themselves, no request having been made by both
with the CIAC. Hence, as already stated, the CIAC, has no jurisdiction over the
dispute. . . . . Nowhere in the said article (sub-contract) does it mention the CIAC,
much less, vest jurisdiction with the CIAC.

On 11 April 1995, the arbitral body issued an order   which deferred the determination of the motion
9

to dismiss and resolved to proceed with the hearing of the case on the merits as the grounds cited
by NIA did not seem to be "indubitable." NIA filed a motion for reconsideration of the aforesaid
Order. CIAC in denying the motion for reconsideration ruled that it has jurisdiction over the HYDRO's
claim over NIA pursuant to E.O 1008 and that the hearing should proceed as scheduled.  10

On 26 May 1996, NIA filed with the Court of Appeals an original action of certiorari and prohibition
with prayer for restraining order and/or injunction, seeking to annul the Orders of the CIAC for having
been issued without or in excess of jurisdiction. In support of its petition NIA alleged that:

RESPONDENT CIAC HAS NO AUTHORITY OR JURIDICTION TO HEAR AND TRY

THIS DISPUTE BETWEEN THE HEREIN PARTIES AS E.O. NO. 1008 HAD NO
RETROACTIVE EFFECT.

THE DISPUTE BETWEEN THE PARTIES SHOULD BE SETTLED IN

ACCORDANCE WITH GC NO. 25, ART. 2046 OF THE CIVIL CODE AND R.A. NO.
876 THE GOVERNING LAWS AT THE TIME CONTRACT WAS EXECUTED AND
TERMINATED.

E.O. NO. 1008 IS A SUBSTANTIVE LAW, NOT MERELY PROCEDURAL AS

RULED BY THE CIAC.

AN INDORSEMENT OF THE AUDITOR GENERAL DECIDING A CONTROVERSY

IS A DECISION BECAUSE ALL THE ELEMENTS FOR JUDGMENT ARE THERE;
THE CONTROVERSY, THE AUTHORITY TO DECIDE AND THE DECISION. IF IT
IS NOT APPEALED SEASONABLY, THE SAME BECOMES FINAL.

E
 NIA HAS TIMELY RAISED THE ISSUE OF JURISDICTION. IT DID NOT WAIVE
NOR IS IT ESTOPPED FROM ASSAILING THE SAME.

THE LEGAL DOCTRINE THAT JURISDICTION IS DETERMINED BY THE

STATUTE IN FORCE AT THE TIME OF THE COMMENCEMENT OF THE ACTION
DOES NOT ONLY APPLY TO THE INSTANT CASE.  11

The Court of Appeals, after finding that there was no grave abuse of discretion on the part of the
CIAC in issuing the aforesaid Orders, dismissed the petition in its Resolution dated 28 June 1996.
NIA's motion for reconsideration of the said decision was likewise denied by the Court of Appeals on
26 February 1997.

On 2 June 1997, NIA filed before us an original action for certiorari and prohibition with urgent prayer
for temporary restraining order and writ of preliminary injunction, praying for the annulment of the
Resolutions of the Court of Appeals dated 28 June 1996 and 24 February 1997. In the said special
civil action, NIA merely reiterates the issues it raised before the Court of Appeals.  12

We take judicial notice that on 10 June 1997, CIAC rendered a decision in the main case in favor of
HYDRO.   NIA assailed the said decision with the Court of Appeals. In view of the pendency of the
13

present petitions before us the appellate court issued a resolution dated 26 March 1998 holding in
abeyance the resolution of the same until after the instant petitions have been finally decided.  14

At the outset, we note that the petition suffers from a procedural defect that warrants its outright
dismissal. The questioned resolutions of the Court of Appeals have already become final and
executory by reason of the failure of NIA to appeal therefrom. Instead of filing this petition
for certiorari under Rule 65 of the Rules of Court, NIA should have filed a timely petition for review
under Rule 45.

There is no doubt that the Court of Appeals has jurisdiction over the special civil action
for certiorari under Rule 65 filed before it by NIA. The original jurisdiction of the Court of Appeals
over special civil actions for certiorari is vested upon it under Section 9(1) of B.P. 129. This
jurisdiction is concurrent with the Supreme Court   and with the Regional Trial Court. 
15 16

Thus, since the Court of Appeals had jurisdiction over the petition under Rule 65, any alleged errors
committed by it in the exercise of its jurisdiction would be errors of judgment which are reviewable by
timely appeal and not by a special civil action of certiorari.   If the aggrieved party fails to do so
17

within the reglementary period, and the decision accordingly becomes final and executory, he cannot
avail himself of the writ of certiorari, his predicament being the effect of his deliberate inaction. 
18

The appeal from a final disposition of the Court of Appeals is a petition for review under Rule 45 and
not a special civil action under Rule 65 of the Rules of Court, now Rule 45 and Rule 65, respectively,
of the 1997 Rules of Civil Procedure.   Rule 45 is clear that decisions, final orders or resolutions of
19

the Court of Appeals in any case, i.e., regardless of the nature of the action or proceedings involved,
may be appealed to this Court by filing a petition for review, which would be but a continuation of the
appellate process over the original case.   Under Rule 45 the reglementary period to appeal is
20

fifteen (15) days from notice of judgment or denial of motion for reconsideration.  21

In the instant case the Resolution of the Court of Appeals dated 24 February 1997 denying the
motion for reconsideration of its Resolution dated 28 June 1997 was received by NIA on 4 March
1997. Thus, it had until 19 March 1997 within which to perfect its appeal. NIA did not appeal. What it
did was to file an original action for certiorari before this Court, reiterating the issues and arguments
it raised before the Court of Appeals.

For the writ of certiorari under Rule 65 of the Rules of Court to issue, a petitioner must show that he
has no plain, speedy and adequate remedy in the ordinary course of law against its perceived
grievance.   A remedy is considered "plain, speedy and adequate" if it will promptly relieve the
22

petitioner from the injurious effects of the judgment and the acts of the lower court or agency.   In
23

this case, appeal was not only available but also a speedy and adequate remedy.

Obviously, NIA interposed the present special civil action of certiorari not because it is the speedy
and adequate remedy but to make up for the loss, through omission or oversight, of the right of
ordinary appeal. It is elementary that the special civil action of certiorari is not and cannot be a
substitute for an appeal, where the latter remedy is available, as it was in this case. A special civil
action under Rule 65 of the Rules of Court will not be a cure for failure to timely file a petition for
review on certiorari under Rule 45 of the Rules of Court.   Rule 65 is an independent action that
24

cannot be availed of as a substitute for the lost remedy of an ordinary appeal, including that under
Rule 45,   especially if such loss or lapse was occasioned by one's own neglect or error in the
25

choice of remedies.  26

For obvious reasons the rules forbid recourse to a special civil action for certiorari if appeal is
available, as the remedies of appeal and certiorari are mutually exclusive and not alternative or
successive.   Although there are exceptions to the rules, none is present in the case at bar. NIA
27

failed to show circumstances that will justify a deviation from the general rule as to make available a
petition for certiorari in lieu of taking an appropriate appeal.

Based on the foregoing, the instant petition should be dismissed.

In any case, even if the issue of technicality is disregarded and recourse under Rule 65 is allowed,
the same result would be reached since a review of the questioned resolutions of the CIAC shows
that it committed no grave abuse of discretion.

Contrary to the claim of NIA, the CIAC has jurisdiction over the controversy. Executive Order No.
1008, otherwise known as the "Construction Industry Arbitration Law" which was promulgated on 4
February 1985, vests upon CIAC original and exclusive jurisdiction over disputes arising from, or
connected with contracts entered into by parties involved in construction in the Philippines, whether
the dispute arises before or after the completion of the contract, or after the abandonment or breach
thereof. The disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration. 28

The complaint of HYDRO against NIA on the basis of the contract executed between them was filed
on 7 December 1994, during the effectivity of E.O. No. 1008. Hence, it is well within the jurisdiction
of CIAC. The jurisdiction of a court is determined by the law in force at the time of the
commencement of the action.  29

NIA's argument that CIAC had no jurisdiction to arbitrate on contract which preceded its existence is
untenable. E.O. 1008 is clear that the CIAC has jurisdiction over all disputes arising from or
connected with construction contract whether the dispute arises before or after the completion of the
contract. Thus, the date the parties entered into a contract and the date of completion of the same,
even if these occurred before the constitution of the CIAC, did not automatically divest the CIAC of
jurisdiction as long as the dispute submitted for arbitration arose after the constitution of the CIAC.
Stated differently, the jurisdiction of CIAC is over the dispute, not the contract; and the instant
dispute having arisen when CIAC was already constituted, the arbitral board was actually exercising
current, not retroactive, jurisdiction. As such, there is no need to pass upon the issue of whether
E.O. No. 1008 is a substantive or procedural statute.

NIA also contended that the CIAC did not acquire jurisdiction over the dispute since it was only
HYDRO that requested for arbitration. It asserts that to acquire jurisdiction over a case, as provided
under E.O. 1008, the request for arbitration filed with CIAC should be made by both parties, and
hence the request by one party is not enough.

It is undisputed that the contracts between HYDRO and NIA contained an arbitration clause wherein
they agreed to submit to arbitration any dispute between them that may arise before or after the
termination of the agreement. Consequently, the claim of HYDRO having arisen from the contract is
arbitrable. NIA's reliance with the ruling on the case of Tesco Services Incorporated v. Vera,   is
30

misplaced.

The 1988 CIAC Rules of Procedure which were applied by this Court in Tesco case had been duly
amended by CIAC Resolutions No. 2-91 and 3-93, Section 1 of Article III of which read as follows:

Submission to CIAC Jurisdiction — An arbitration clause in a construction contract or

a submission to arbitration of a construction contract or a submission to arbitration of
a construction dispute shall be deemed an agreement to submit an existing or future
controversy to CIAC jurisdiction, notwithstanding the reference to a different
arbitration institution or arbitral body in such contract or submission. When a contract
contains a clause for the submission of a future controversy to arbitration, it is not
necessary for the parties to enter into a submission agreement before the claimant
may invoke the jurisdiction of CIAC.

Under the present Rules of Procedure, for a particular construction contract to fall within the
jurisdiction of CIAC, it is merely required that the parties agree to submit the same to voluntary
arbitration. Unlike in the original version of Section 1, as applied in the Tesco case, the law as it now
stands does not provide that the parties should agree to submit disputes arising from their
agreement specifically to the CIAC for the latter to acquire jurisdiction over the same. Rather, it is
plain and clear that as long as the parties agree to submit to voluntary arbitration, regardless of what
forum they may choose, their agreement will fall within the jurisdiction of the CIAC, such that, even if
they specifically choose another forum, the parties will not be precluded from electing to submit their
dispute before the CIAC because this right has been vested upon each party by law, i.e., E.O. No.
1008. 31

Moreover, it is undeniable that NIA agreed to submit the dispute for arbitration to the CIAC. NIA
through its counsel actively participated in the arbitration proceedings by filing an answer with
counterclaim, as well as its compliance wherein it nominated arbitrators to the proposed panel,
participating in the deliberations on, and the formulation of, the Terms of Reference of the arbitration
proceeding, and examining the documents submitted by HYDRO after NIA asked for the originals of
the said documents.  32

As to the defenses of laches and prescription, they are evidentiary in nature which could not be
established by mere allegations in the pleadings and must not be resolved in a motion to dismiss.
Those issues must be resolved at the trial of the case on the merits wherein both parties will be
given ample opportunity to prove their respective claims and defenses.   Under the rule   the
33 34

deferment of the resolution of the said issues was, thus, in order. An allegation of prescription can
effectively be used in a motion to dismiss only when the complaint on its face shows that indeed the
action has already prescribed.   In the instant case, the issue of prescription and laches cannot be
35
resolved on the basis solely of the complaint. It must, however, be pointed that under the new
rules,   deferment of the resolution is no longer permitted. The court may either grant the motion to
36

dismiss, deny it, or order the amendment of the pleading.

WHEREFORE, the instant petition is DISMISSED for lack of merit. The Court of Appeals is hereby
DIRECTED to proceed with reasonable dispatch in the disposition of C.A. G.R. No. 44527 and
include in the resolution thereof the issue of laches and prescription.

SO ORDERED.

THIRD DIVISION

[G.R. No. L-51806. November 8, 1988.]

CIVIL AERONAUTICS ADMINISTRATION, Petitioner, v. COURT OF APPEALS and

ERNEST E. SIMKE, Respondents.

The Solicitor General for Petitioner.

Ledesma, Guytingco, Velasco & Associates for respondent Ernest E. Simke.

SYLLABUS

1. ADMINISTRATIVE LAW; ADMINISTRATIVE AGENCY; CIVIL AERONAUTICS

ADMINISTRATION. — If the power to sue and be sued has been granted without qualification,
it can include a claim based on tort or quasi-delict.

2. ID.; ID.; IMMUNITY FROM SUIT DETERMINED BY THE OBJECTION FOR ITS
CREATION. — Not all government entities, whether corporate or non-corporate, are immune
from suits. Immunity from suits is determined by the character of the objects for which the entity
was organized.

3. REMEDIAL LAE; EVIDENCE; FINDINGS OF FACT BY THE TRIAL COURT, BINDING

UPON THE SUPREME COURT. — The trial court’s findings during its ocular inspection of the
MIA terrace that the elevation where plaintiff slipped was a dangerous sliding step and the
proximate cause of plaintiff’s injury are factual findings binding upon the Supreme Court.

4. CIVIL LAW; TORTS AND DAMAGES; QUASI-DELICT; BASIS OF LIABILITY. —

Article 2176 of the Civil Code which provides the basis for liability for quasi-delict. CAA knew
of the existence of the dangerous elevation. Its failure to have it repaired or altered in order to
eliminate the existing hazard constitutes such negligence as to warrant a finding of liability based
on quasi-delict upon CAA.

5. ID.; ID.; ID.; NEGLIGENCE; TEST TO DETERMINE EXISTENCE THEREOF. — As

formulated in the case of Picart v. Smith, 37 Phil. 809 (1918) the test by which to determine the
existence of negligence may be stated as follows: Did the defendant in doing the alleged
negligent act use that reasonable care and caution which an ordinarily prudent man would have
used in the same situation? If not, then he is guilty of negligence.

6. ID.; ID.; ID.; LACK OF CONTRIBUTORY NEGLIGENCE. — No contributory negligence

can be imputed to the private respondent, considering the following test formulated in the early
case of Picart v. Smith, 37 Phil. 809 (1918). The private respondent could not have reasonably
foreseen the harm that would befall him, considering the attendant factual circumstances. Even if
the private respondent had been looking where he was going, the step in question could not
easily be noticed because of its construction.

7. ID.; ID.; ID.; LIABILITY FOR DAMAGES IMPLIED FROM THE GRANT OF POWER TO
SUE AND BE SUED. — The liability of CAA to answer for damages, whether actual, moral or
exemplary, cannot be seriously doubted in view of the conferment of the power to sue and be
sued upon it.

8. ID.; ID.; ID.; ACTUAL OR COMPENSATORY DAMAGE. — Article 2199 of the Civil
Code, with respect to actual or compensatory damages, mandates that the same be proven.
Private respondent claims P15,589.55 representing medical and hospitalization bills P20,000.00
spent as transportation expenses of two layers who represented private respondent abroad and the
publication of the postponement notices of the wedding, were found by the court to have been
duly proven.

9. ID.; ID.; ID.; MORAL DAMAGES. — The court holds private respondent entitled to the
award of P30,000.00 as moral damages because of the physical suffering and physical injuries
caused by the negligence of the CAA (Arts. 2217 and 2R 19 (2), New Civil Code.)

10. ID.; ID.; ID.; EXEMPLARY DAMAGES; AWARD DUE TO DEFENDANT’S GROSS
NEGLIGENCE. — Gross negligence is equivalent to the term "notorious negligence" and
consists in the failure to exercise even slight care (Caunan v. Compania General de Tabacos, 56
Phil. 542 (1932)) can be attributed to the CAA for its failure to remedy the dangerous condition
of the questioned elevation. The award of P40,000.00 by the trial court as exemplary damages
appropriately underscores the point that as an entity charged with providing service to the public,
the CAA, like all other entities serving the public, has the obligation to provide the public with
reasonably safe service.

11. ID.; ID.; ID.; ATTORNEY’S FEES. — The award of attorney’s fees is also upheld
considering that under Art. 2208 (1) of the Civil Code, the same may be awarded whenever
exemplary damages are awarded, as in this case, and, at any rate, under Art. 2208 (11), the Court
has the discretion to grant the same when it is just and equitable.

DECISION

CORTES, J.:
Assailed in this petition for review on certiorari is the decision of the Court of Appeals
affirming the trial court decision which reads as follows: chanrob1es virtual 1aw library

WHEREFORE, judgment is hereby rendered ordering defendant to pay plaintiff the

amount of P15,589.55 as full reimbursement of his actual medical and hospital
expenses, with interest at the legal rate from the commencement of the suit; the
amount of P20,200.00 as consequential damages; the amount of P30,000.00 as moral
damages; the amount of P40,000.00 as exemplary damages; the further amount of
P20,000.00 as attorney’s fees and the costs [Rollo, p. 24].

The facts of the case are as follows: chanrob1es virtual 1aw library

Private respondent is a naturalized Filipino citizen and at the time of the incident was
the Honorary Consul General of Israel in the Philippines.

In the afternoon of December 13, 1968, private respondent with several other persons
went to the Manila International Airport to meet his future son-in-law. In order to get a
better view of the incoming passengers, he and his group proceeded to the viewing
deck or terrace of the airport.

While walking on the terrace, then filled with other people, private respondent slipped
over an elevation about four (4) inches high at the far end of the terrace. As a result,
private respondent fell on his back and broke his thigh bone.

The next day, December 14, 1963, private respondent was operated on for about three
hours.

Private respondent then filed an action for damages based on quasi-delict with the
Court of First Instance of Rizal, Branch VII against petitioner Civil Aeronautics
Administration or CAA as the entity empowered "to administer, operate, manage,
control, maintain and develop the Manila International Airport . . ." [Sec. 32 (24), R.A.
776].

Said claim for damages included, aside from the medical and hospital bills,
consequential damages for the expenses of two lawyers who had to go abroad in
private respondent’s stead to finalize certain business transactions and for the
publication of notices announcing the postponement of private respondent’s daughter’s
wedding which had to be cancelled because of his accident [Record on Appeal, p. 5].

Judgment was rendered in private respondent’s favor prompting petitioner to appeal to

the Court of Appeals. The latter affirmed the trial court’s decision. Petitioner then filed
with the same court a Motion for Reconsideration but this was denied.

Petitioner now comes before this Court raising the following assignment of errors: chanrob1es virtual 1aw library

1. The Court of Appeals gravely erred in not holding that the present suit against the
CAA is really a suit against the Republic of the Philippines which cannot be sued without
its consent, which was not given in this case.
2. The Court of Appeals gravely erred in finding that the injuries of respondent Ernest
E. Simke were due to petitioner’s negligence — although there was no substantial
evidence to support such finding; and that the inference that the hump or elevation in
the surface of the floor area of the terrace of the (old) MIA building is dangerous just
because said respondent tripped over it is manifestly mistaken — circumstances that
justify a review by this Honorable Court of the said finding of fact of respondent
appellate court (Garcia v. Court of Appeals, 33 SCRA 622; Ramos v. CA, 63 SCRA 331.)

3. The Court of Appeals gravely erred in ordering petitioner to pay actual,

consequential, moral and exemplary damages, as well as attorney’s fees to respondent
Simke — although there was no substantial and competent proof to support said
awards [Rollo, pp. 93-94].

Invoking the rule that the State cannot be sued without its consent, petitioner contends
that being an agency of the government, it cannot be made a party-defendant in this
case.

This Court has already held otherwise in the case of National Airports Corporation v.
Teodoro, Sr. [91 Phil. 203 (1952)].

Petitioner contends that the said ruling does not apply in this case because: First, in the
Teodoro case, the CAA was sued only in a substituted capacity, the National Airports
Corporation being the original party. Second, in the Teodoro case, the cause of action
was contractual in nature while here, the cause of action is based on a quasi-delict.
Third, there is no specific provision in Republic Act No. 776, the law governing the CAA,
which would justify the conclusion that petitioner was organized for business and not
for governmental purposes. [Rollo, pp. 94-97].

Such arguments are untenable.

First, the Teodoro case, far from stressing the point that the CAA was only substituted
for the National Airports Corporation, in fact treated the CAA as the real party in
interest when it stated that:chanrob1es virtual 1aw library

x          x           x

. . . To all legal intents and practical purposes the National Airports Corporation is dead
and the Civil Aeronautics Administration is its heir or legal representative, acting by the
law of its creation upon its own lights and in its own name. The better practice then
should have been to make the Civil Aeronautics Administration the third party
defendant instead of the National Airports Corporation.[National Airports Corp. v.
Teodoro, supra, p. 208.]

x          x           x
Second, the Teodoro case did not make any qualification or limitation as to whether or
not the CAA’s power to sue and be sued applies only to contractual obligations. The
Court in the Teodoro case ruled that Sections 3 and 4 of Executive Order 365 confer
upon the CAA, without any qualification, the power to sue and be sued, albeit only by
implication. Accordingly, this Court’s pronouncement that where such power to sue and
be sued has been granted without any qualification, it can include a claim based on tort
or quasi-delict [Rayo v. Court of First Instance of Bulacan, G.R. Nos. 55273-83,
December 19, 1981, 110 SCRA 456] finds relevance and applicability to the present
case.

Third, it has already been settled in the Teodoro case that the CAA as an agency is not
immune from suit, it being engaged in functions pertaining to a private entity.

x          x           x

The Civil Aeronautics Administration comes under the category of a private entity.
Although not a body corporate it was created, like the National Airports Corporation,
not to maintain a necessary function of government, but to run what is essentially a
business, even if revenues be not its prime objective but rather the promotion of travel
and the convenience of the travelling public. It is engaged in an enterprise which, far
from being the exclusive prerogative of state, may, more than the construction of public
roads, be undertaken by private concerns. [National Airports Corp. v. Teodoro, supra,
p. 207.]

x          x           x

True, the law prevailing in 1952 when the Teodoro case was promulgated was Exec.
Order 365 (Reorganizing the Civil Aeronautics Administration and Abolishing the
National Airports Corporation). Republic Act No. 776 (Civil Aeronautics Act of the
Philippines), subsequently enacted on June 20, 1952, did not alter the character of the
CAA’s objectives under Exec. Order 365. The pertinent provisions cited in the Teodoro
case, particularly Secs. 3 and 4 of Exec. Order 365, which led the Court to consider the
CAA in the category of a private entity were retained substantially in Republic Act 776,
Sec. 32 (24) and (25). Said Act provides: chanrob1es virtual 1aw library

Sec. 32. Powers and Duties of the Administrator. — Subject to the general control and
supervision of the Department Head, the Administrator shall have among others, the
following powers and duties:chanrob1es virtual 1aw library

x          x           x

(24) To administer, operate, manage, control, maintain and develop the Manila
International Airport and all government-owned aerodromes except those controlled or
operated by the Armed Forces of the Philippines including such powers and duties as:
(a) to plan, design, construct, equip, expand, improve, repair or alter aerodromes or
such structures, improvement or air navigation facilities; (b) to enter into, make and
execute contracts of any kind with any person, firm, or public or private corporation or
entity;. . . .

(25) To determine, fix, impose, collect and receive landing fees, parking space fees,
royalties on sales or deliveries, direct or indirect, to any aircraft for its use of aviation
gasoline, oil and lubricants, spare parts, accessories and supplies, tools, other royalties,
fees or rentals for the use of any of the property under its management and control.

x          x           x

From the foregoing, It can be seen that the CAA is tasked with private or non-
governmental functions which operate to remove it from the purview of the rule on
State immunity from suit. For the correct rule as set forth in the Teodoro case states:
library
chanrob1es virtual 1aw

x          x           x

Not all government entities, whether corporate or non-corporate, are immune from
suits. Immunity from suits is determined by the character of the objects for which the
entity was organized. The rule is thus stated in Corpus Juris: chanrob1es virtual 1aw library

Suits against State agencies with relation to matters in which they have assumed to act
in private or non-governmental capacity, and various suits against certain corporations
created by the state for public purposes, but to engage in matters partaking more of
the nature of ordinary business rather than functions of a governmental or political
character, are not regarded as suits against the state. The latter is true, although the
state may own stock or property of such a corporation for by engaging in business
operations through a corporation, the state divests itself so fan of its sovereign
character, and by implication consents to suits against the corporation. (59 C.J., 313)
[National Airports Corporation v. Teodoro, supra, pp. 206-207; Emphasis supplied.]

This doctrine has been reaffirmed in the recent case of Malong v. Philippine National
Railways [G.R. No. L-49930, August 7, 1985, 138 SCRA 63], where it was held that the
Philippine National Railways, although owned and operated by the government, was not
immune from suit as it does not exercise sovereign but purely proprietary and business
functions. Accordingly, as the CAA was created to undertake the management of airport
operations which primarily involve proprietary functions, it cannot avail of the immunity
from suit accorded to government agencies performing strictly governmental functions.

II

Petitioner tries to escape liability on the ground that there was no basis for a finding of
negligence. There can be no negligence on its part, it alleged, because the elevation in
question "had a legitimate purpose for being on the terrace and was never intended to
trip down people and injure them. It was there for no other purpose but to drain water
on the floor area of the terrace" [Rollo, p. 99].
To determine whether or not the construction of the elevation was done in a negligent
manner, the trial court conducted an ocular inspection of the premises.

x          x           x

. . . This Court after its ocular inspection found the elevation shown in Exhs. A or 6-A
where plaintiff slipped to be a step, a dangerous sliding step, and the proximate cause
of plaintiffs injury . . .

x          x           x

This Court during its ocular inspection also observed the dangerous and defective
condition of the open terrace which has remained unrepaired through the years. It has
observed the lack of maintenance and upkeep of the MIA terrace, typical of many
government buildings and offices. Aside from the litter allowed to accumulate in the
terrace, pot holes cause by missing tiles remained unrepaired and unattented. The
several elevations shown in the exhibits presented were verified by this Court during
the ocular inspection it undertook. Among these elevations is the one (Exh. A) where
plaintiff slipped. This Court also observed the other hazard, the slanting or sliding step
(Exh. B) as one passes the entrance door leading to the terrace [Record on Appeal,
U.S., pp. 56 and 59; Italics supplied.]

The Court of Appeals further noted that: chanrob1es virtual 1aw library

The inclination itself is an architectural anomaly for as stated by the said witness, it is
neither a ramp because a ramp is an inclined surface in such a way that it will prevent
people or pedestrians from sliding. But if, it is a step then it will not serve its purpose,
for pedestrian purposes. (tsn, p. 35, id.) [Rollo. p. 29.]

These factual findings are binding and conclusive upon this Court. Hence, the CAA
cannot disclaim its liability for the negligent construction of the elevation since under
Republic Act No. 776, it was charged with the duty of planning, designing, constructing,
equipping, expanding, improving, repairing or altering aerodromes or such structures,
improvements or air navigation facilities [Section 32, supra, R.A. 776]. In the discharge
of this obligation, the CAA is duty-bound to exercise due diligence in overseeing the
construction and maintenance of the viewing deck or terrace of the airport.

It must be borne in mind that pursuant to Article 1173 of the Civil Code," (t)he fault or
negligence of the obligor consists in the omission of that diligence which is required by
the nature of the obligation and corresponds with the circumstances of the person, of
the time and of the place." Here, the obligation of the CAA in maintaining the viewing
deck, a facility open to the public, requires that CAA insure the safety of the viewers
using it. As these people come to the viewing deck to watch the planes and passengers,
their tendency would be to look to where the planes and the incoming passengers are
and not to look down on the floor or pavement of the viewing deck. The CAA should
have thus made sure that no dangerous obstructions or elevations exist on the floor of
the deck to prevent any undue harm to the public.
The legal foundation of CAA’s liability for quasi-delict can be found in Article 2176 of the
Civil Code which provides that" (w)hoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the damage done. . . ." As
the CAA knew of the existence of the dangerous elevation which it claims though, was
made precisely in accordance with the plans and specifications of the building for proper
drainage of the open terrace [See Record on Appeal, pp. 13 and 57; Rollo, p. 39], its
failure to have it repaired or altered in order to eliminate the existing hazard constitutes
such negligence as to warrant a finding of liability based on quasi-delict upon CAA.

The Court finds the contention that private respondent was, at the very least, guilty of
contributory negligence, thus reducing the damages that plaintiff may recover,
unmeritorious. Contributory negligence under Article 2179 of the Civil Code
contemplates a negligent act or omission on the part of the plaintiff, which although not
the proximate cause of his injury, contributed to his own damage, the proximate cause
of the plaintiffs own injury being the defendant’s lack of due care. In the instant case,
no contributory negligence can be imputed to the private respondent, considering the
following test formulated in the early case of Picart v. Smith, 37 Phil. 809 (1918): chanrob1es virtual 1aw library

The test by which to determine the existence of negligence in a particular case may be
stated as follows: Did the defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent man would have used in the
same situation? If not, then he is guilty of negligence. The law here in effect adopts the
standard supposed to be supplied by the imaginary conduct of the discreet
paterfamilias of the Roman law. The existence of the negligence in a given case is not
determined by reference to the personal judgment of the actor in the situation before
him. The law considers what would be reckless, blameworthy, or negligent in the man
of ordinary intelligence and prudence and determines liability by that.

The question as to what would constitute the conduct of a prudent man in a given
situation must of course be always determined in the light of human experience and in
view of the facts involved in the particular case. Abstract speculations cannot be here of
much value but this much can be profitably said: Reasonable men govern their conduct
by the circumstances which are before them or known to them. They are not, and are
not supposed to be omniscient of the future. Hence they can be expected to take care
only when there is something before them to suggest or warn of danger. Could a
prudent man, in the case under consideration, foresee harm as a result of the course
actually pursued? If so, it was the duty of the actor to take precautions to guard against
that harm. Reasonable foresight of harm, followed by the ignoring of the suggestion
born of this prevision, is always necessary before negligence can be held to exist . . .
[Picart v. Smith, supra, p. 813; Italics supplied.]

The private respondent, who was the plaintiff in the case before the lower court, could
not have reasonably foreseen the harm that would befall him, considering the attendant
factual circumstances. Even if the private respondent had been looking where he was
going, the step in question could not easily be noticed because of its construction. As
the trial court found:
chanrob1es virtual 1aw library

In connection with the incident testified to, a sketch, Exhibit O, shows a section of the
floorings on which plaintiff had tripped. This sketch reveals two pavements adjoining
each other, one being elevated by four and one-fourth inches than the other. From the
architectural standpoint the higher pavement is a step. However, unlike a step
commonly seen around, the edge of the elevated pavement slanted outward as one
walks to the interior of the terrace. The length of the inclination between the edges of
the two pavements is three inches. Obviously, plaintiff had stepped on the inclination
because had his foot landed on the lower pavement he would not have lost his balance.
The same sketch shows that both pavements including the inclined portion are tiled in
red cement, and as shown by the photograph Exhibit A, the lines of the tilings are
continuous. It would therefore be difficult for a pedestrian to see the inclination
especially where there are plenty of persons in the terrace as was the situation when
plaintiff fell down. There was no warning sign to direct one’s attention to the change in
the elevation of the floorings. [Rollo, pp. 28-29.]

III

Finally, petitioner appeals to this Court the award of damages to private Respondent.

The liability of CAA to answer for damages, whether actual, moral or exemplary, cannot
be seriously doubted in view of the conferment of the power to sue and be sued upon
it, which, as held in the case of Rayo v. Court of First Instance, supra, includes liability
on a claim for quasi-delict. In the aforestated case, the liability of the National Power
Corporation to answer for damages resulting from its act of sudden, precipitate and
simultaneous opening of the Angat Dam, which caused the death of several residents of
the area and the destruction of properties, was upheld since the grant of the power to
sue and be sued upon it necessarily implies that it can be held answerable for its
tortious acts or any wrongful act for that matter.

With respect to actual or compensatory damages, the law mandates that the same be
proven.

Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate

compensation only for such pecuniary loss suffered by him as he has duly proved. Such
compensation is referred to as actual or compensatory damages [New Civil Code].

Private respondent claims P15,589.55 representing medical and hospitalization bills.

This Court finds the same to have been duly proven through the testimony of Dr.
Ambrosio Tangco, the physician who attended to private respondent (Rollo, p. 26) and
who identified Exh. "H" which was his bill for professional services [Rollo, p. 31].

Concerning the P20,200.00 alleged to have been spent for other expenses such as the
transportation of the two lawyers who had to represent private respondent abroad and
the publication of the postponement notices of the wedding, the Court holds that the
same had also been duly proven. Private respondent had adequately shown the
existence of such losses and the amount thereof in the testimonies before the trial court
[CA decision, p. 8]. At any rate, the findings of the Court of Appeals with respect to this
are findings of facts [One Heart Sporting Club, Inc. v. Court of Appeals, G.R. Nos.
53790-53972, Oct. 23, 1981 , 108 SCRA 416] which, as had been held time and again,
are, as a general rule, conclusive before this Court [Sese v. Intermediate Appellate
Court, G.R. No. 66186, July 31, 1987, 152 SCRA 585].

With respect to the P30,000.00 awarded as moral damages, the Court holds private
respondent entitled thereto because of the physical suffering and physical injuries
caused by the negligence of the CAA [Arts. 2217 and 2219 (2), New Civil Code].

With respect to the award of exemplary damages, the Civil Code explicitly states: chanrob1es virtual 1aw library

Art. 2229. Exemplary or corrective damages are imposed, by way of example or

correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.

Art. 2231. In quasi-delicts, exemplary damages may be granted if the defendant acted
with gross negligence.

Gross negligence which, according to the Court, is equivalent to the term "notorious
negligence" and consists in the failure to exercise even slight care [Caunan v. Compania
General de Tabacos, 56 Phil. 542 (1932)] can be attributed to the CAA for its failure to
remedy the dangerous condition of the questioned elevation or to even post a warning
sign directing the attention of the viewers to the change in the elevation of the floorings
notwithstanding its knowledge of the hazard posed by such elevation [Rollo, pp. 28-29;
Record on Appeal, p. 57]. The wanton disregard by the CAA of the safety of the people
using the viewing deck, who are charged an admission fee, including the petitioner who
paid the entrance fees to get inside the vantage place [CA decision, p. 2; Rollo, p. 25]
and are, therefore, entitled to expect a facility that is properly and safely maintained —
justifies the award of exemplary damages against the CAA as a deterrent and by way of
example or correction for the public good. The award of P40,000.00 by the trial court as
exemplary damages appropriately underscores the point that as an entity charged with
providing service to the public, the CAA, like all other entities serving the public, has
the obligation to provide the public with reasonably safe service.

Finally, the award of attorney’s fees is also upheld considering that under Art. 2208 (1)
of the Civil Code, the same may be awarded whenever exemplary damages are
awarded, as in this case, and, at any rate, under Art. 2208 (11), the Court has the
discretion to grant the same when it is just and equitable.

However, since the Manila International Airport Authority (MIAA) has taken over the
management and operations of the Manila International Airport [renamed Ninoy Aquino
International Airport under Republic Act No. 6639] pursuant to Executive Order No. 778
as amended by executive Orders Nos. 903 (1983), 909 (1983) and 298 (1987) and
under Section 24 of the said Exec. Order 778, the MIAA has assumed all the debts,
liabilities and obligations of the now defunct Civil Aeronautics Administration (CAA), the
liabilities of the CAA have now been transferred to the MIAA.

WHEREFORE, finding no reversible error, the Petition for review on Certiorari is DENIED
and the decision of the Court of Appeals in CA-G.R. No. 51172-R is AFFIRMED.
SO ORDERED.

Fernan, C.J., Gutierrez Jr., Feliciano and Bidin, JJ., concur.

G.R. No. 203834               July 9, 2014

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

MENDOZA, CONSTANCIA V. MENDOZA YOUNG, CRISTINA V. MENDOZA FIGUEROA,
DIOSDADO V. MENDOZA, JR., JOSEPHINE V. MENDOZA JASA, and RIZALINA V. MENDOZA
PUSO, Petitioners,
vs.
DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS and the DPWH
SECRETARY, Respondents.

DECISION

CARPIO, J.:

The Case

Before the Court is a petition for review on certiorari  assailing the 20 June 2012 Decision  and the 15
1 2

October 2012 Resolution  of the Court of Appeals in CA-G.R. CV No. 86433. The Court of Appeals
3

set aside the 29 October 2001 Decision  of the Regional.Trial Court of Manila, Branch 36, in Civil
4

Case No. 90-53649.

The Antecedent Facts

The case stemmed from an action for specific performance and damages, with prayer for preliminary
injunction, filed by Diosdado M. Mendoza (Mendoza), doing businessunder the name and style of D’
Superior Builders (Superior Builders) against the defendants Department of Public Works and
Highways (DPWH), then DPWH Secretary Fiorello R. Estuar (Estuar), Undersecretary Edmundo V.
Mir (Mir), Nestor Abarca (Abarca), United Technologies, Inc. (UTI), UTI’s President Pedro Templo
(Templo) and UTI’s Project Manager Rodante Samonte (Samonte). The case was docketed as Civil
Case No. 90-53649.

Mendoza was the winning bidder for the construction of the 15-kilometer Madaymen Masala
Amsuling Road in Benguet and the engineers’ quarters and laboratory, designatedas Package VI, of
the Highland Agriculture Development Project (HADP). His total bid for materials and labor was
₱16,176,878.58. He was also the winning bidder for the construction of the 15-kilometer barangay
roads (Sinipsip-Akiki, SinipsipMaalad, and Madaymen) in Benguet, designated as Package IX of the
HADP, with a bid of ₱10,527,192.14. The DPWH hired UTI as consultant for Packages VI and IX,
under the direct charge of Templo and Samonte.

On 2 March 1989, Mendoza received the Notice to Proceed for Package VI of the HADP. During the
pre-construction survey, Mendoza alleged that he discovered that the whole stretch of the 15-
kilometer project had no right-of-way, in violation of Ministry Order No. 65. He brought the matter to
the attention of the DPWH and UTI but according to him, it was only resolved on 29 November 1989
when the affected landowners and farmers allowed passage at Mendoza’s risk. Mendoza alleged
that the defendants, except for Estuar, conspired to make it appear that Superior Builders incurred
negative slippage of29% and recommended the forfeiture of the contract.
Mendoza further alleged that as regards Package IX, the DPWH did not execute any contract
despite the Superior Builders’ compliance with all the post-evaluation requirements. The DPWH also
recommended the rebidding of Package IX. Package IX was, in effect, canceled together with the
forfeiture of the contract for Package VI. The DPWH blacklisted the Superior Builders from
participating inany bidding or entering into any contract with it for a period of one year.

On 2 August 1990, the Regional Trial Court of Manila, Branch 36 (trial co..urt) issued a Temporary
Restraining Order enjoining the defendants from rebidding Package VI and fromawarding Package
IX to another contractor, and to cease and desistfrom withholding the equipment of Superior
Builders.

On 20 August 1990, the DPWH, Estuar, Mir and Abarca filed an opposition to the prayer for the
issuance of a preliminary injunction, citing Section 1 of Presidential Decree No. 1818 that the trial
court has no jurisdiction to issue a writ of preliminary injunction. They likewise alleged that Superior
Builders failed to exhaust its administrative remedies. They further alleged that the owner of the
road, GregorioAbalos (Abalos) issued a certification that he never disallowed passage to Superior
Builders’ vehicles and equipment and road right-of-way was never a problem. They also alleged that
Superior Builders started mobilization from 12 to 15 July 1989 and resumed its operationsfor one
week in December 1989. They also alleged that on 20 November 1989, the Office of the
Sangguniang Panlalawiganof Benguet passed Resolution No. 1176 recommending the termination
of the contract between the DPWH and Superior Builders. They reiterated the allegations in their
Opposition in their Answer.

For their part, UTI, Templo and Samonte alleged that Superior Builders had 10 calendar days to
commence with the project from the time it received the Notice to Proceed on 2 March 1989 or until
12 March 1989 but it failed to do so. They alleged that Superior Builders only mobilized one
bulldozer and one loader out of the 47 units required in the contract. They alleged that at the time of
the filing of the case, Superior Builders had only mobilized eight units, a majority of which were not
working. They alleged that Superior Builders failed to mobilize sufficient number of materials,
equipment and personnel and that by 25 October 1989, it already incurred negative slippage of
27.97% that they were compelled to recommend the termination of the contract for Package VI and
rebidding of Package IX.

The Decision of the Trial Court

In its 29 October 2001 Decision, the trial court ruled that the termination of the contract over
Package VI and the non-award of Package IX to Superior Builders were arbitrary and unjustified.
The trial court ruled that under the original plan, Package VI was inaccessible from the starting point
which is a privately-owned road. The trial court ruled that there was no showing of any attempt by
the government to secure right-of-way by expropriation or other legal means. The trial court held that
Superior Builders could not be faulted for its failure to perform the obligation within the stipulated
period because the DPWH made it impossible by its failure to acquire the necessary right-of-way
and as such, nonegative slippage could be attributed to Superior Builders. The trial court further
ruled that inentering into a contract, the DPWH divested itself of immunity from suit and assumed the
character of an ordinary litigant.

The dispositive portion of the trial court’s decision reads:

WHEREFORE, judgment is hereby rendered ordering defendants Department of Public Works and
Highway thru its Secretary, United Technologies, Inc. and Rodante Samonte to pay plaintiff
Diosdado M. Mendoza, jointly and severally, ₱1,565,317.70 as reimbursement for materials and
labor on the accomplishment and ₱1,617,187.86 performance bond forfeited, ₱8,817,926.00 as
rental value for eight (8) units of equipment for twenty-six (26) months from December 21, 1989 to
January 24, 1992 at ₱339,151.00 per month, with interest at the legal rate until fully paid;
₱300,000.00 for moral damages, ₱150,000.00 for attorney’s fees, and costs.

The writ of preliminary injunction earlier issued is declared moot and academic but defendant
Department of Public Works and Highways thru its Secretary is ordered to turn over to plaintiff, and
the latter is authorized to take delivery of the construction equipment still under the control of the
DPWH.

The counterclaim of the private defendants not being substantiated is dismissed.

SO ORDERED. 5

The DPWH and the DPWH Secretary (respondents before us) appealed from the trial court’s
decision.

The Decision of the Court of Appeals

In its 20 June 2012 Decision, the Court of Appeals set aside the trial court’s decision and dismissed
Mendoza’s complaint for specific performance and damages for lack of merit.

The Court of Appeals ruled that the DPWH’s forfeiture order of Package VI of the HADP as well
asthe non-award of Package IX to Superior Builders was justified. The Court of Appeals found that
Superior Builders incurred a negative slippage of31.852%, which is double the limit set by the
government under DPWH Circular No. 102, series of 1988. Tracing the slippages incurred by
Superior Builders,the Court of Appeals declared:

As early as May 25, 1989, or about two (2) months after the notice to proceed was issued, defendant
UTI,the consultant for the government’s HADP, issued a "first warning"to plaintiff-appellee D’
Superior Builders for having already incurred a slippage of 7.648% due to late implementation, with
time elapseof 13.80%. Defendant UTI instructed plaintiff-appellee D’ Superior Builders to submit a
"catch-up" program to address the slippage.

Subsequently, on June 25, 1989, plaintiff-appellee D’ Superior Builders incurred a slippage of

11.743% with corresponding time elapse of 19.63% (106 days from effectivityof contract) and was
given a "second warning."

On July 25, 1989, the negative slippage reached 16.32%, with corresponding time elapse of 25.18%
(136 days from effectivity of the contract). As a consequence, plaintiff-appellee D’ Superior Builders
was issued a "final warning."

In its August 11, 1989 letter, defendant UTI reminded plaintiffappellee D’ Superior Builders of
itsprevious instructions to bring the construction materials for the engineers’ quarters, office, and
laboratory. Defendant UTI noted:

"We could not find reasons why you cannot immediately bring your construction materials at site, 50
kms. from Baguio City, whenin fact, there [were] [continuous] deliveries of some construction
materials under Contract Package XI, whose site is located 102 kms. from Baguio City." Thereafter,
on September 25, 1989, the negative slippage of plaintiff-appellee D’ Superior Builders reached
21.109% with elapsed time of 36.66% (equivalent to 198 calendar days), or already at "terminal
stage" pursuant to DPWH Circular No. 102. Defendant UTI, thus, urged plaintiff-appellee D’ Superior
Builders to show positive actions and speed up its operations, otherwise the former would be
compelled to recommend the termination of its contract.

The following month, on October 25, 1989, plaintiff-appellee D’ Superior Builders’ negative slippage
reached 27.970%, still at "terminal stage."The consultant mentioned several reasons for the
slippage, such as: (1) late implementation of construction of the engineers’ building, (2) non-
implementation of work itemsdue to lack or non-operational equipment as site, and (3) continued
absence of plaintiff-appellee’s Project Manager.

In November 1989, the negative slippage of plaintiff-appellee D’ Superior Builders was already
31.852%, or more than double the limit of what is considered as being at "terminal stage", which is
15%. 6

Superior Builders’ performance prompted the Sangguniang Panlalawigan of the Province of Benguet
to pass a Resolution on 20 November 1989 recommending the termination of the contract for
Package VI that also eventually led to the forfeiture of the contract for Package VI. The Court of
Appeals noted that there were letters and monthly conferences where UTI, through Samonte and
UTI’s Resident Engineer Federico Vinson, Jr. (Vinson), consistently reminded Superior Builders of
its obligations and deficiencies. The Court of Appeals concluded that the delay in the execution of
Package VI was due to Superior Builders’ delay, particularly its failure to mobilize itspersonnel and
equipment to the project site.

The Court of Appeals ruled that the area where there was a right-ofway problem was only the first
3.2 kilometers of the 15.5-kilometer project. Hence, Superior Builders could have worked on the
other areas and the right-of-way issue could not justify the 31.852% negative slippage it incurred.
The Court of Appeals faulted the trial court for skirting the issue on state immunity from suit. The
Court of Appeals ruled that there should be a distinction whether the DPWH entered the contracts
for Package VI and Package XI in its governmental or proprietary capacity. In this case, the Court of
Appeals ruled that the DPWH’s contractual obligation was made in the exercise of its governmental
functions and was imbued with public interest.

The dispositive portion of the Court of Appeals’ decision reads:

WHEREFORE, premises considered, the appeal is GRANTED. The assailed Decision dated
October 29, 2001 of the Regional Trial Court (RTC), National Capital Judicial Region, Branch 36,
Manila in Civil Case No. 90-53649 is hereby REVERSED and SET ASIDE. Plaintiff-appellee’s
complaint for specific performanceand damages with prayer for preliminary injunction is hereby
DISMISSED for lack of merit. No costs.

SO ORDERED. 7

The heirs of Mendoza, namely, Licinia V. Mendoza, Peter Val V. Mendoza, Constancia V. Mendoza
Young, Cristina V. Mendoza Figueroa, Diosdado V. Mendoza, Jr., Josephine V. Mendoza Jasa, and
Rizalina V. Mendoza Puso (petitioners in this case)filed a motion for reconsideration, at the same
time seeking to substitute Mendoza as the plaintiff-appellee in view of Mendoza’s death on 25 April
2005 during the pendency of the case before the Court of Appeals.

In its 15 October 2012 Resolution, the Court of Appeals granted the motion for substitution. In the
same resolution, the Court of Appeals denied the motion for reconsideration for lack of merit.
The Court of Appeals ruled that first, petitioners were not denied due process when they were not
informed that the case was re-raffled when the original ponenteinhibited himself from the case. The
Court of Appeals ruled that there was no requirement of notification under Section 2(b), Rule III of
the Internal Rules of the Court of Appeals (IRCA). Further, the action on the inhibition was attached
to the rolloand duly paged in compliance with Section 4, Rule V of the IRCA. Second, the Court of
Appeals ruled that contrary to petitioners’ claim, the issue on the absence of road right-of-way was
considered in its 20 June 2012 decision. The Court of Appeals emphasized that under DPWH
CircularNo. 102, series of 1988, the allowable rate of slippage is only 15%. In this case, Superior
Builders reached 31.852% negative slippage and thus, the termination of the contract was justified.
The Court of Appeals noted that Abalos issued a certification that he never disallowed the passage
of Superior Builders’ vehicles and equipment. The Court of Appeals alsonoted that as early as May
1989, Superior Builders was instructed to carry out road works where there were no right-of-way
problems. Third, the Court of Appeals ruled that mere entering into a contract by the government
does not automatically amount to a waiver of immunity from suit. The Court of Appeals ruled that in
this case, the road construction was in the exercise of the DPWH’s governmental functions. The
Court of Appeals also ruled that it was established that Superior Builders was at fault and thatit
exceeded the allowable limit of slippage set by law. Petitioners came to thisCourt assailing the 20
June 2012 Decision and 15 October 2012 Resolution ofthe Court of Appeals.

The Issues

Petitioners raise two issues before us:

(1) Whether the Court of Appeals committed a reversible error in ruling that the forfeiture of
the contract in Package VI of HADP and the non-payment of the cost of materials, labor on
the accomplishment and the rental value of the heavy equipment were justified; and

(2) Whether the Court of Appeals committed a reversible error in ruling that the DPWH has
no juridical personality of its own and that Mendoza’s action was a suit against the State.

The Ruling of this Court

We deny the petition.

On Negative Slippages

The first issue raised by petitionersrequires a review of the negative slippages incurred by Superior
Builders and the reasons for the slippages.

The records of the case showed thatSuperior Builders incurred the following negative slippages:

1. As of 25 May 1989 – 7.648%

2. As of 25 June 1989 - 11.743%

3. As of 25 July 1989 – 16.32%

4. As of 25 September 1989 - 21.109%

5. As of 25 October 1989 – 27.970%

 6. As of November 1989 - 31.852%

Presidential Decree No. 1870,series of 1983 (PD 1870),  states:

8

1. Whenever a contractor is behind schedule in its contract work and incur 15% or more negative
slippage based on its approved PERT/CPM, the implementing agency, at the discretion of the
Minister concerned, may undertake by administration the whole ora portion of the unfinished work, or
have the whole or a portion of such unfinished work done by another qualified contractor through
negotiated contract at the current valuation price.

Undeniably, the negative slippage incurred by Superior Builders, which reached 31.852%, far
exceeded the allowable slippage under PD 1870.

Under Department Order No. 102,series of 1988 (DO 102),  the following calibrated actions are
9

required to be done for infrastructure projects that reached certain levels of negative slippage:

1. Negative slippage of 5% ("Early Warning" Stage): The contractor shall be given a warning
and required to submit a "catch-up" program to eliminate the slippage. The PM/RD/DE  shall 10

provide thorough supervision and monitoring of the work.

2. Negative slippage of 10% ("ICU" Stage): The contractor shall be given a second warning
and required to submit a detailed action program on a fortnightly (two weeks) basis which
commits him to accelerate the work and accomplish specific physical targets which will
reduce the slippage over a defined time period. Furthermore, the contractor shall be
instructed to specify the additional input resources – money, manpower, materials,
machines, and management – which he should mobilize for this action program. The
PM/RD/DE shall exercise closer supervision and meet the contractor every other week
toevaluate the progress of work and resolve any problems and bottlenecks.

3. Negative slippage of 15% ("Make-or-Break" Stage): The contractor shall be issued a final
warning and required to come up with a more detailed program of activities with weekly
physical targets, together with the required additional input resources. On-site supervision
shall be done at least once a week. At the sametime, the PM/RD/DE shall prepare
contingency plans for the termination/rescission of the contract and/or take-over of the work
by administration or contract.

4. Negative slippage beyond 15% ("Terminal" Stage): The PM/RD/DE shall initiate
termination/rescission of the contract and/or take-over of the remaining work
byadministration orassignment to another contractor/appropriate agency. Proper transitory
measures shall be taken to minimize work disruptions, e.g., take-over by administration while
rebidding is going on. The discretion of the DPWH to terminate or rescind the contract comes
into play when the contractor shall have incurreda negative slippage of 15% or more. 11

In this case, Superior Builders was warned of its considerable delay in the implementation of the
project as early as 29 April 1989  when the progress slippage reached 4.534% due to the late
12

implementation of the project. Thereafter, Superior Builders received the first,  second  and
13 14

final  warnings when the negative slippages reached 7.648%, 11.743% and 16.32%, respectively.
15

By the time the contract was terminated, the negative slippage already reached 31.852% or more
than twice the terminal stage under DO 102.
Petitioners claimed that the negative slippages were attributable to the government. Petitioners cited
the right-of-way problem because the construction site was privately owned.The construction of the
building for the field office laboratory and engineers’ quarters was also delayed because it took
months for the DPWH to approve the revision of the building layout.

We note that Superior Builders received the Notice to Proceed dated 22 February 1989 on 2 March
1989.  The Notice to Proceed stated that "the number of days allowable under [the] contract will be
16

counted from the date [the contractor] commence[s] work or not later than the 8th of March
1989."  On 17 April 1989, more thana month after the project was supposed to start, Mendoza wrote
17

Templo that Superior Builders would start the construction of Package VI and that their "Survey
Team [would] immediately start the preconstruction survey of the project x x x."  In two separate
18

letters dated 27April 1989, both addressed to Samonte, Mendoza informed UTI that: (1) there was
an existing building on the site where the bunkhouse was supposed to be constructed, which had to
be cleared and demolished first; and (2) the first fivekilometers of Package VI allegedly belonged to
private residents who were asking for compensation before they could proceed with the road
construction. 19

The right-of-way problem was confirmed in a letter dated 2 May 1989 sent by Vinson to DPWH
Director Heraldo B. Daway of the Cordillera Administrative Region.  In a letter dated 9 May 1989
20

addressed to "The Project Manager," Mendoza requested for the temporary suspension of work
effective 22 April 1989 due to the right-of-way problem regarding the first five kilometers of the
project.  Samonte denied the request in a letter dated 24 May 1989 on the ground that Superior
21

Builders can carry out work in sections without right-of-way conflict. Samonte likewise reminded
Superior Builders to mobilize all the required construction resources in order not to prejudice its
performance on the project. 22

Apparently, despite the denial of its request for temporary suspension of work, Superior Builders did
not mobilize all the required resources as directed by Samonte. In a letter dated 15 June 1989 to
Mir, Mendoza stated that Superior Builders had started the "mobilization of equipment and personnel
since last week,"  meaning, the mobilization of the construction resources started on the first week
23

ofJune. However, in a letter dated 24 June 1989, Vinson called the Superior Builders’ attention that
as of 21 June 1989, it only mobilized one dozer and one loader at the jobsite. 24

The Minutes of the Meeting dated 7 July 1989  showed that Gloria Areniego (Areniego), the
25

Superior Builders’ representative, assured the delivery of additional equipment on site"next week" or
the second week of July. The minutes also showed that Superior Builders was again advised to start
working on the sections not affected by the right-of-way problem.  In addition, Samonte asked
26

Areniego for the time when Superior Builders would start the demolition of the building where the
engineers’ office and quarters would be built. Areniego promised that it would start on July
14.  However, Superior Builders still failed to comply, prompting Vinson to send another letter dated
27

22 July 1989 to Superior Builders, noting that "since the arrival of your One (1) unit Dozer and One
(1) unit Loader last 21 June 1989, no other construction equipment had been mobilized on site to
date." 28

The right-of-way problem turned out to affect only the first 3.2 kilometers of the project. However, as
the Court of Appeals pointed out, Superior Builders was not able to go beyond the 3.2 kilometers
because of the limited equipment it mobilized on the project site. Further, the Court of Appeals noted
that Superior Builders’ bulldozer broke down after three days of work, proving that Superior Builders
had been remiss in its responsibilities as a contractor. In addition, Abalos denied in a certification
that he disallowed the passage of Superior Builders’ vehicles and equipment on the road within his
property from the time of the commencement of the contract in March 1989. 29
In short, Superior Builders could have proceeded with the project, as it was constantly reminded to
do so, but it capitalized on the right-of-way problem to justify its delays.

In a letter  dated 2 October 1989 by Bial A. Palaez (Palaez), Provincial Planning and Development
30

Coordinator, addressed to Benguet Provincial Governor Andres R. Bugnosen (Bugnosen), Palaez

informed Bugnosen that when he visited the project with Kibungan Mayor Albert Mayamnes on 14
July 1989, they observed the following: (1) Superior Builders only constructed 100linear meters of
road at Masala; (2) there was no sign of work activity; and (3) there were only one bulldozer, one
payloader and a fiera on the project site, which were all under repair and not functional. When they
visited the project on 31 August 1989, there were no activities and they were not able to meet the
project engineer or the workers on the project site. In addition, the construction of the building for
engineering purposes had not started as of 27 September 1989. Thus, the Provincial Government of
Benguet passed Resolution No. 1176  on 20 November 1989 recommending to the DPWH the
31

"Termination of Contract or Disqualification of Contractor Pertinent to HADP Project."

Given the foregoing, the DPWH was justified in forfeiting Package VI for Superior Builders’ failure to
comply with its contractual obligations. We also note that Package IX of the HADP was tied to the
completion of Package VI because the Asian Development Bank could not approve the award of
Package IX to Superior Builders unless its work on Package VI was satisfactory to the DPWH.  This 32

explains why Package IX had to be rebid despite the initial award of the project to Superior Builders.

The Court of Appeals likewise correctly ruled that the DPWH should not be made to pay for the
rental of the unserviceable equipment of Superior Builders. The Court of Appeals noted that (1)
Superior Builders failed to mobilize its equipment despite having the first 7.5% advance payment
under the contract, and (2) even when the trial court issueda temporary restraining order on 2
August 1990 in favor of Superior Builders, it failed to remove the equipment from the project site. As
regards the delivery and value of the materials, the Court of Appeals found that the supposed
delivery was only signed by Areniego without verification from UTI’s Quantity Engineer and Resident
Engineer. Thus, we agree with the Court of Appeals that Superior Builders should be made tobear
its own losses.

On Governmental v. Proprietary Functions

Petitioners assail the Court of Appeals’ ruling that the contract entered into by the DPWH was made
in the exercise of its governmental, not proprietary, function and was imbued with public interest.
Petitioners likewise assail the Court of Appeals’ ruling that the DPWH has no juridical personality of
its own and thus, the suit was against the agency’s principal, the State. Petitioners further argue that
the DPWH entered into a contract with Mendoza and by its act of entering into a contract, it already
waived its immunity from suit.

The doctrine of immunity from suit is anchored on Section 3, Article XVI of the 1987 Constitution
which provides:

Section 3. The State may not besued without its consent.

The general rule is that a state may not be sued, but it may be the subject of a suit if it consents to
be sued, either expressly or impliedly.  There is express consent when a law so provides, while
33

there is implied consent when the State enters into a contract or it itself commences litigation.  This
34

Court explained that in order to determine implied waiver when the State or its agency entered into a
contract, there is a need to distinguish whether the contract was entered into in its governmental or
proprietary capacity, thus:
x x x. However, it must be clarified that when a state enters into a contract, it does not automatically
mean that it has waived its nonsuability. The State "will be deemedto have impliedly waived its
nonsuability [only] if it has entered into a contract in its proprietary or private capacity. [However,]
when the contract involves its sovereign or governmental capacity[,] x x x no suchwaiver may be
implied." Statutory provisions waiving [s]tate immunity are construed in strictissimi juris. For, waiver
of immunity is in derogation of sovereignty.35

In Air Transportation Office v. Ramos,  the Court expounded:

36

An unincorporated agency without any separate juridical personality of its own enjoys immunityfrom
suit because it is invested with an inherent power of sovereignty. x x x. However, the need to
distinguish between an unincorporated government agency performing governmental function and
one performing proprietary functions has arisen. The immunity has been upheld in favor of the
former because its function is governmental or incidentalto such function; it has not been upheld in
favor of the latter whose function was not in pursuit of a necessary function of government but was
essentially a business.37

Having made this distinction, wereiterate that the DPWH is an unincorporated government agency
without any separate juridical personality of its own and it enjoys immunity from suit.  The then
38

Ministry of Public Works and Highways, now DPWH, was created under Executive Order No. 710,
series of 1981 (EO 710). EO 710 abolished the old Ministry of PublicWorks and the Ministry of Public
Highways and transferred their functions to the newly-created Ministry of Public Works of Highways.
Section 4 of EO 710 provides:

SECTION 4. The Ministry shall exercise supervision and control over the following staff bureaus
which are created in the Ministry:

(1) Bureau of Construction, which shall provide technical services on the construction,
rehabilitation, betterment, and improvement of infrastructure facilities;

(2) Bureau of Design, which shall undertake project development, engineering surveys, and
designs of infrastructure facilities;

(3) Bureau of Equipment, which shall provide technical services on the management of
construction and maintenance equipment and ancillary facilities;

(4) Bureau of Maintenance, which shall provide technical services on the maintenance and
repair of infrastructure facilities; and

(5) Bureau of Materials and Quality Control, which shall provide research and technical
services on quality control and on the management of materials plants and ancillary facilities
for the production and processing of construction materials.

The Ministry of Public Works and Highways was later reorganized under Executive Order No. 124,
series of 1987 (EO 124). Under Section 5 of EO 124, the Ministry shall have the following
powersand functions:

Sec. 5. Powers and Functions. — The Ministry, in order to carry out its mandate, shall have the
following powers and functions:
 (a) Provide technical services for the planning, design, construction, maintenance, and/or
operation of infrastructure facilities;

(b) Develop and implement effective codes, standards, and reasonable guidelines to ensure
the safety of all public and private structures in the country and assure efficiency and proper
quality in the construction of public works;

(c) Ascertain that all public works plans and project implementation designs are consistent
with current standards and guidelines;

(d) Identify, plan, secure funding for, program, design, construct or undertake
prequalification, bidding, and award of contracts of public works projects with the exception
only of specialized projects undertaken by Government corporate entities withestablished
technical capability and as directed by the President of the Philippines or as provided by law;

(e) Provide the works supervision function for all public works construction and ensure that
actual construction is done in accordance with approved government plans and
specifications;

(f) Assist other agencies, including the local governments, in determining the most suitable
entity to undertake the actual construction of public works and projects;

(g) Maintain or cause to be maintained all highways, flood control, and other public works
throughout the country except those that are the responsibility of other agencies as directed
by the President of the Philippines as provided by law;

(h) Provide an integrated planning for highways, flood control and water resource
development systems, and other public works;

(i) Classify roads and highways intonational, regional, provincial, city, municipal, and
barangay roads and highways, based on objective criteria it shall adopt; provide or authorize
the conversion of roads and highways from one category to another;

(j) Delegate, to any agency it determines to have the adequate technical capability, any of
the foregoing powers and functions.

It is clear from the enumeration of its functions that the DPWH performs governmental functions.
Section 5(d) states that it has the power to "[i]dentify, plan, secure funding for, program, design,
construct or undertake prequalification, bidding, and award of contracts of public works projects x x
x" while Section 5(e) states that itshall "[p]rovide the works supervision function for all public works
constructionand ensure that actual construction is done in accordance with approved government
plans and specifications."

The contracts that the DPWH entered into with Mendoza for the construction of Packages VI and IX
of the HADP were done in the exercise of its governmental functions. Hence, petitioners cannot
claim that there was an implied waiver by the DPWH simply by entering into a contract.  Thus, the
1âwphi1

Court of Appeals correctly ruled that the DPWH enjoys immunity from suit and may not be sued
without its consent.

WHEREFORE, we DENY the petition. We AFFIRM the 20 June 2012 Decision and the 15 October
2012 Resolution of the Court of Appeals in CA-G.R. CV. No. 86433.
SO ORDERED.

IMPLIED CONSENT
A.When a State Commences a Litigation
B. SECOND DIVISION
C. G.R. No. 206484, June 29, 2016
D. DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS
(DOTC), Petitioner, v. SPOUSES VICENTE ABECINA AND MARIA CLEOFE
ABECINA, Respondents.
E. D E C I S I O N
F. BRION, J.:
G. This petition for review on certiorari seeks to reverse and set aside the March
20, 2013 decision of the Court of Appeals (CA) in CA-G.R. CV No.
937951 affirming the decision of the Regional Trial Court (RTC) of Daet,
Camarines Norte, Branch 39, in Civil Case No. 7355.2 The RTC ordered the
Department of Transportation and Communications (DOTC) to vacate the
respondents' properties and to pay them actual and moral damages.
H. ANTECEDENTS
I.
Respondent spouses Vicente and Maria Cleofe Abecina (respondents/spouses
Abecina) are the registered owners of five parcels of land in Sitio Paltik, Barrio
Sta. Rosa, Jose Panganiban, Camarines Norte. The properties are covered by
Transfer Certificates of Title (TCT) Nos. T-25094, T-25095, T-25096, T-25097,
and T-25098.3 chanrobleslaw

In February 1993, the DOTC awarded Digitel Telecommunications Philippines,

Inc. (Digitel) a contract for the management, operation, maintenance, and
development of a Regional Telecommunications Development Project (RTDP)
under the National Telephone Program, Phase I, Tranche 1 (NTPI-1)4 chanrobleslaw

J.

The DOTC and Digitel subsequently entered into several Facilities Management
Agreements (FMA) for Digitel to manage, operate, maintain, and develop the
RTDP and NTPI-1 facilities comprising local telephone exchange lines in various
municipalities in Luzon. The FMAs were later converted into Financial Lease
Agreements (FLA) in 1995.

Later on, the municipality of Jose Panganiban, Camarines Norte, donated a one
thousand two hundred (1,200) square-meter parcel of land to the DOTC for the
implementation of the RDTP in the municipality. However, the municipality
erroneously included portions of the respondents' property in the donation.
Pursuant to the FLAs, Digitel constructed a telephone exchange on the property
which encroached on the properties of the respondent spouses. 5 chanrobleslaw

Sometime in the mid-1990s, the spouses Abecina discovered Digitel's occupation

over portions of their properties. They required Digitel to vacate their properties
and pay damages, but the latter refused, insisting that it was occupying the
property of the DOTC pursuant to their FLA.

On April 29, 2003, the respondent spouses sent a final demand letter to both the
DOTC and Digitel to vacate the premises and to pay unpaid rent/damages in the
amount of one million two hundred thousand pesos (P1,200,000.00). Neither the
DOTC nor Digitel complied with the demand.

On September 3, 2003, the respondent spouses filed an accion

publiciana complaint6 against the DOTC and Digitel for recovery of possession
and damages. The complaint was docketed as Civil Case No. 7355.

In its answer, the DOTC claimed immunity from suit and ownership over the
subject properties.7 Nevertheless, during the pre-trial conference, the DOTC
admitted that the Abecinas were the rightful owners of the properties and opted
to rely instead on state immunity from suit.8 chanrobleslaw

On March 12, 2007, the respondent spouses and Digitel executed a Compromise
Agreement and entered into a Contract of Lease. The RTC rendered a partial
decision and approved the Compromise Agreement on March 22, 2007. 9 chanrobleslaw

On May 20, 2009, the RTC rendered its decision against the DOTC. 10 It brushed
aside the defense of state immunity. Citing Ministerio v. Court of First
Instance11 and Amigable v. Cuenca,12 it held that government immunity from suit
could not be used as an instrument to perpetuate an injustice on a citizen. 13 chanrobleslaw

The RTC held that as the lawful owners of the properties, the respondent
spouses enjoyed the right to use and to possess them - rights that were violated
by the DOTC's unauthorized entry, construction, and refusal to vacate. The RTC
(1) ordered the Department - as a builder in bad faith -to forfeit the
improvements and vacate the properties; and (2) awarded the spouses with
P1,200,000.00 as actual damages, P200,000.00 as moral damages, and
P200,000.00 as exemplary damages plus attorney's fees and costs of suit.

The DOTC elevated the case to the CA arguing: (1) that the RTC never acquired
jurisdiction over it due to state immunity from suit; (2) that the suit against it
should have been dismissed after the spouses Abecina and Digitel executed a
compromise agreement; and (3) that the RTC erred in awarding actual, moral,
and exemplary damages against it.14 The appeal was docketed as CA-G.R. CV
No. 93795.

On March 20, 2013, the CA affirmed the RTC's decision but deleted the award of
exemplary damages. The CA upheld the RTC's jurisdiction over cases for accion
publiciana where the assessed value exceeds P20,000.00.15 It likewise denied the
DOTC's claim of state immunity from suit, reasoning that the DOTC removed its
cloak of immunity after entering into a proprietary contract - the Financial Lease
Agreement with Digitel.16 It also adopted the RTC's position that state immunity
cannot be used to defeat a valid claim for compensation arising from an unlawful
taking without the proper expropriation proceedings. 17 The CA affirmed the
award of actual and moral damages due to the DOTC's neglect to verify the
perimeter of the telephone exchange construction but found no valid justification
 for the award of exemplary damages.18 chanrobleslaw

On April 16, 2013, the DOTC filed the present petition for review on certiorari.
K. THE PARTIES' ARGUMENTS
L.
The DOTC asserts that its Financial Lease Agreement with Digitel was entered
into in pursuit of its governmental functions to promote and develop networks of
communication systems.19 Therefore, it cannot be interpreted as a waiver of
state immunity.

The DOTC also maintains that while it was regrettable that the construction of
the telephone exchange erroneously encroached on portions of the respondent's
properties, the RTC erred in ordering the return of the property. 20 It argues that
while the DOTC, in good faith and in the performance of its mandate, took
private property without formal expropriation proceedings, the taking was
nevertheless an exercise of eminent domain. 21 chanrobleslaw

Citing the 2007 case of Heirs of Mateo Pidacan v. Air Transportation Office
(ATO),22 the Department prays that instead of allowing recovery of the property,
the case should be remanded to the RTC for determination of just compensation.

On the other hand, the respondents counter that the state immunity cannot be
invoked to perpetrate an injustice against its citizens. 23 They also maintain that
because the subject properties are titled, the DOTC is a builder in bad faith who
is deemed to have lost the improvements it introduced. 24 Finally, they
differentiate their case from Heirs of Mateo Pidacan v.
ATO because Pidacan originated from a complaint for payment of the value of
the property and rentals while their case originated from a complaint for
recovery of possession and damages.25 cralawredchanrobleslaw

M. OUR RULING
N.
We find no merit in the petition.

The State may not be sued without its consent. 26 This fundamental doctrine
stems from the principle that there can be no legal right against the authority
which makes the law on which the right depends. 27 This generally accepted
principle of law has been explicitly expressed in both the 1973 28 and the present
Constitutions.

But as the principle itself implies, the doctrine of state immunity is not absolute.
The State may waive its cloak of immunity and the waiver may be made
expressly or by implication.

Over the years, the State's participation in economic and commercial activities
gradually expanded beyond its sovereign function as regulator and governor. The
evolution of the State's activities and degree of participation in commerce
demanded a parallel evolution in the traditional rule of state immunity. Thus, it
became necessary to distinguish between the State's sovereign and
governmental acts (jure imperii) and its private, commercial, and proprietary
acts (jure gestionis). Presently, state immunity restrictively extends only to
 acts jure imperii while acts jure gestionis are considered as a waiver of
immunity.29 chanrobleslaw

The Philippines recognizes the vital role of information and communication in

nation building.30 As a consequence, we have adopted a policy environment that
aspires for the full development of communications infrastructure to facilitate the
flow of information into, out of, and across the country. 31 To this end, the DOTC
has been mandated with the promotion, development, and regulation of
dependable and coordinated networks of communication. 32 chanrobleslaw

The DOTC encroached on the respondents' properties when it constructed the

local telephone exchange in Daet, Camarines Norte. The exchange was part of
the RTDP pursuant to the National Telephone Program. We have no doubt that
when the DOTC constructed the encroaching structures and subsequently
entered into the FLA with Digitel for their maintenance, it was carrying out a
sovereign function. Therefore, we agree with the DOTC's contention that these
are acts jure imperii that fall within the cloak of state immunity.

However, as the respondents repeatedly pointed out, this Court has long
established in Ministerio v CFI,33Amigable v. Cuenca,34 the 2010 case Heirs of
Pidacan v. ATO,35 and more recently in Vigilar v. Aquino36 that the doctrine of
state immunity cannot serve as an instrument for perpetrating an injustice to a
citizen.

The Constitution identifies the limitations to the awesome and near-limitless

powers of the State. Chief among these limitations are the principles that no
person shall be deprived of life, liberty, or property without due process of law
and that private property shall not be taken for public use without just
compensation.37 These limitations are enshrined in no less than the Bill of Rights
that guarantees the citizen protection from abuse by the State.

Consequently, our laws38 require that the State's power of eminent domain shall
be exercised through expropriation proceedings in court. Whenever private
property is taken for public use, it becomes the ministerial duty of the concerned
office or agency to initiate expropriation proceedings. By necessary implication,
the filing of a complaint for expropriation is a waiver of State immunity.

If the DOTC had correctly followed the regular procedure upon discovering that it
had encroached on the respondents' property, it would have initiated
expropriation proceedings instead of insisting on its immunity from suit. The
petitioners would not have had to resort to filing its complaint for reconveyance.
As this Court said in Ministerio:
ChanRoblesVirtualawlibrary

O. It is unthinkable then that precisely because there was a failure to abide

by what the law requires, the government would stand to benefit. It is
just as important, if not more so, that there be fidelity to legal norms on
the part of officialdom if the rule of law were to be maintained. It is not
too much to say that when the government takes any property for
public use, which is conditioned upon the payment of just
compensation, to be judicially ascertained, it makes manifest that
it submits to the jurisdiction of a court. There is no thought then that
 the doctrine of immunity from suit could still be appropriately
invoked.39 [Emphasis supplied]
P. We hold, therefore, that the Department's entry into and taking of possession of
the respondents' property amounted to an implied waiver of its governmental
immunity from suit.

We also find no merit in the DOTC's contention that the RTC should not have
ordered the reconveyance of the respondent spouses' property because the
property is being used for a vital governmental function, that is, the operation
and maintenance of a safe and efficient communication system. 40 chanrobleslaw

The exercise of eminent domain requires a genuine necessity to take the

property for public use and the consequent payment of just compensation. The
property is evidently being used for a public purpose. However, we also note that
the respondent spouses willingly entered into a lease agreement with Digitel for
the use of the subject properties.

If in the future the factual circumstances should change and the respondents
refuse to continue the lease, then the DOTC may initiate expropriation
proceedings. But as matters now stand, the respondents are clearly willing to
lease the property. Therefore, we find no genuine necessity for the DOTC to
actually take the property at this point.

Lastly, we find that the CA erred when it affirmed the RTC's decision without
deleting the forfeiture of the improvements made by the DOTC through Digitel.
Contrary to the RTC's findings, the DOTC was not a builder in bad faith when the
improvements were constructed. The CA itself found that the Department's
encroachment over the respondents' properties was a result of a mistaken
implementation of the donation from the municipality of Jose Panganiban. 41 chanrobleslaw

Good faith consists in the belief of the builder that the land he is building on is
his and [of] his ignorance of any defect or flaw in his title. 42 While the DOTC later
realized its error and admitted its encroachment over the respondents' property,
there is no evidence that it acted maliciously or in bad faith when the
construction was done.

Article 52743 of the Civil Code presumes good faith. Without proof that the
Department's mistake was made in bad faith, its construction is presumed to
have been made in good faith. Therefore, the forfeiture of the improvements in
favor of the respondent spouses is unwarranted.

WHEREFORE, we hereby DENY the petition for lack of merit. The May 20, 2009
decision of the Regional Trial Court in Civil Case No. 7355, as modified by the
March 20, 2013 decision of the Court of Appeals in CA-G.R. CV No. 93795,
is AFFIRMED with further MODIFICATION that the forfeiture of the
improvements made by the DOTC in favor of the respondents is DELETED. No
costs.

SO ORDERED. chanRoblesvirtualLawlibrary
G.R. No. 85284 February 28, 1990

REPUBLIC OF THE PHILIPPINES, petitioner

vs.
SANDIGANBAYAN, Third Division, SIMPLICIO A. PALANCA in his own behalf as a
stockholder of Bacolod Real Estate Development Corporation (BREDCO), and other
stockholders similarly situated, respondents.

Hilado, Hagad & Hilado for private respondents.

RESOLUTION

PADILLA, J.:

This is a petition for certiorari to annul and set aside the resolution of the Sandiganbayan (Third
Division), dated 3 June 1988, granting the private respondents' motion to intervene in Civil Case
No. 0025 and admitting their answer in intervention, as well as its resolution, dated 25 August
1988, denying the petitioner's motion for reconsideration; PROHIBITION to order the respondent
court to cease and desist from proceeding with the intervention filed with it; and alternatively,
mandamus to compel the respondent court to dismiss the intervention case.

The antecedents are as follows:

On 29 July 1987, the Republic of the Philippines, as Plaintiff, through its governmental
instrumentality the Presidential Commission on Good Government (PCGG) filed with the
respondent Sandiganbayan a complaint against Ferdinand E. Marcos, et al. for reconveyance,
reversion, accounting, restitution and damages, docketed therein as Civil Case No. 0025 (PCGG
No. 26). 1

On or about 3 September 1987, before the said Civil Case No. 0025 could be set for hearing,
private respondent Simplicio A. Palanca in his own behalf as a stockholder of Bacolod Real
Estate Development Corporation (BREDCO) and other stockholders similarly situated, filed with
the respondent Sandiganbayan a "Motion For Leave To Intervene"   attaching thereto their
2

"Answer in Intervention ."  3

In their motion, private respondents alleged that they be —

... allowed to intervene in the present action and to file the Answer in intervention hereto
attached as Annex 'A', the said stockholders having a legal interest in the matter in litigation and
in the disposition of the properties listed in Annex 'A' of the Complaint as BREDCO LOTS and
shares of stock in Bacolod Real Estate Development Corporation.

In justification, it is further respectfully alleged that.

1. Close examination of the Complaint, in particular par. 12 thereto under 'V. SPECIFIC
AVERMENTS OF DEFENDANTS' ILLEGAL ACTS', makes no mention at all about BREDCO
being the subject of any anomalous transaction engaged in by any of the defendants, in
consequence of which the listed BREDCO lots could have been gotten illegally. It is to be
observed, on the other hand, that the titles mentioned in aforesaid Annex of the complaint
covering the lots in question are not registered in the names of any of the defendants but in the
name of Bacolod Real Estate Development Corporation.

2. Similarly, the shares of stock in Bacolod Real Estate Development Corporation appealing
under PERSONAL PROPERTY on page two of Annex A of the complaint t are ' carried not in the
names of any of the defendants, but in the name of Marsteel Consolidated Inc. and were
acquired under the circumstances averred more in detail in the accompanying Answer in
Intervention by reason of which detail shares should not be involved in the present action.

3. If intervention is allowed, intervenors are prepared to prove that if ever any of the defendants
through Marsteel Consolidated, Inc. and Marsteel Corporation came to have any interest in
Bacolod Real Estate Development Corporation, it was only by way of accommodation on the
part of BREDCO stockholders who transferred their shareholdings aggregating 70% of the
subscribed capital to enable Marsteel Consolidated to secure adequate financing for the
reclamation and port development project .  4

The foregoing allegations were further expanded and elaborated in the private respondents'
Answer in Intervention.

On 2 December 1987, petitioner filed its Reply   to Answer In Intervention, while private
5

respondents filed a "Rejoinder to Reply With Motion To Release BREDCO Lots   and also a
6

"Motion To Calendar For Hearing" the motion to release BREDCO lots.  7

On 22 January 1988, respondent court promulgated a resolution   holding in abeyance action on

8

the private respondents' "Rejoinder to Reply with Motion to Release BREDCO lots", and set the
Motion for Leave to Intervene for hearing on 2 February 1988.

On 11 March 1988, respondent court issued an order   giving petitioner fifteen (1 5) days from 11
9

March 1988 within which to file its opposition and/or comment on the motion to intervene and
giving the private respondents in turn ten (10) days within which to file their reply thereto.

On 23 March 1988, petitioner filed its Motion to Dismiss "Answer In Intervention," on the grounds
that; (1) respondent court lacks jurisdiction and (2) intervenors have no legal interest in the
matter in litigation,   which the private respondents opposed. 
10 11

On 6 June 1988, respondent court promulgated a Resolution dated 3 June 1988   granting the
12

private respondents' motion to intervene and admitting their Answer in Intervention.

Petitioner moved for reconsideration but this was denied by respondent court in its resolution of
25 August 1989. 13

Hence, the instant petition.

The petitioner, through the Solicitor General, contends that in issuing the questioned resolutions
granting the Motion to Intervene and admitting the Answer-in-Intervention, respondent
Sandiganbayan acted in contravention of a national or public policy embedded in Executive
Order Nos. 1, 2, 4 and related issuances, or otherwise acted in a way not in accord with law or
with the applicable decisions of this Court, because:
(a) Petitioner, being the sovereign state, cannot be sued without its consent, and the Intervention
is, in legal effect, a suit or counter- suit against the sovereign state, the Republic of the
Philippines;

(b) The cause of action of intervenors does not fall within the jurisdiction of the Sandiganbayan
as expressly spelled out in P.D. No. 1606 and Executive Order No. 14;

(c) Intervenors have no legal interest in the matter in litigation, and the subject matter is not in
custodia legis of respondent court; and

(d) Intervenors' claims, as contained in their Motion for Intervention and Answer-in-Intervention,
are claims between and/or among Ferdinand and Imelda Marcos and their cronies, i.e.,
"members of their immediate family close relatives, subordinates, and/or business associates,
dummies, agents and nominees" and are cognizable not by respondent court but by the regular
courts or other for a Even if there would be multiple litigations, as among themselves, the legal
effect remains, i.e., that there is only one case filed by the Republic against the named
defendants in Civil Case No. 0025, grounded on causes of action entirely distinct from any cause
of action which intervenors may have against Mr. Marcos and his cronies.

The petition is not impressed with merit.

The Rules of Court permit an aggrieved party, generally, to take a cause and apply for relief with
the appellate courts by way of either of two distinct and dissimilar modes through the broad
process of appeal or the limited special civil action of certiorari. An appeal brings up for
review errors of judgment committed by a court of competent jurisdiction over the subject of the
suit or the persons of the parties or any such error committed by the court in the exercise of its
jurisdiction amounting to nothing more than an error of judgment. On the other hand, the writ of
certiorari issues for the correction of errors of jurisdiction only or grave abuse of discretion
amounting to lack or excess of jurisdiction. The writ of certiorari cannot legally be used for any
other purpose. In terms of its function, the writ of certiorari serves to keep a lower court within
the bounds of its jurisdiction or to prevent it from committing such a grave abuse of discretion
amounting to excess of jurisdiction or to relieve parties from arbitrary acts of courts — acts which
courts have no power or authority in law to perform.  14

Hence, the main issue to be resolved in the present case, which is principally a petition for
certiorari to annul and set aside the questioned resolutions of respondent court is, whether or not
the Sandiganbayan has jurisdiction over the action for intervention, or if it has, whether
respondent court acted with grave abuse of discretion amounting to lack or excess of its
jurisdiction in rendering the questioned resolutions.

In the present case, petitioner merely contends that the cause of action of intervenors does not
fall within the jurisdiction of the Sandiganbayan as expressly spelled out in Presidential Decree
No. 1606 and Executive Order No. 14; it does not claim that respondent court committed grave
abuse of discretion amounting to lack or excess of its jurisdiction in rendering the questioned
resolutions.

The jurisdiction of the Sandiganbayan has already been settled in Presidential Commission on
Good Government vs. Hon. Emmanuel G. Penal, etc., et al.   where the Court held that —
15

... Under Section 2 of the President's Executive Order No. 14 issued on May 7, 1986, all cases of
the Commission regarding 'the funds, Moneys, Assets, and Properties Illegally Acquired or I
Misappropriated by Former President Ferdinand Marcos, Mrs. Imelda Romualdez Marcos, their
Close Relatives, Subordinates, Business Associates, Dummies, Agents, or Nominees whether
civil or criminal, are lodged within the 'exclusive and original jurisdiction of the Sandiganbayan'
and all incidents arising from, incidental to, or related to, such cases necessarily fall likewise
under the Sandiganbayan's exclusive and original jurisdiction, subject to review on certiorari
exclusively by the Supreme Court. (emphasis supplied)

In reiterating the aforequoted ruling in six (6) subsequent cases   which were decided jointly,
16

again, the Court held that-

... the exclusive jurisdiction conferred on the Sandiganbayan would evidently extend not only to
the principal causes of action, i.e., the recovery of alleged ill-gotten wealth, but also to 'all
incidents arising from, incidental to, or related to, such cases,' such as the dispute over the sale
of the shares, the propriety of the issuance of ancillary writs or provisional remedies relative
thereto, the sequestration thereof, which may not be made the subject of separate actions or
proceedings in another forum.

Intervention is not an independent action, but is ancillary and supplemental to an existing

litigation.   Hence, the private respondents' action for intervention in Civil Case No. 0025, not
17

being an independent action, is merely incidental to, or related to, the said civil case. Since the
respondent Sandiganbayan has the exclusive and original jurisdiction over Civil Case No. 0025,
it has likewise original and exclusive jurisdiction over the private respondents' action for
intervention therein.

Now, considering that respondent Sandiganbayan has jurisdiction not only over Civil Case No.
0025 but also over the private respondents' action for intervention, any error or irregularity that it
may have committed in rendering its questioned resolutions, in the exercise of its jurisdiction,
amounts to an error of judgment, which is not correctable in the present petition for certiorari but
by appeal.

Accordingly, this case may be dismissed outright without the Court having to pass upon the
other issues raised in the petition. However, considering that the litigation below is of great public
interest and involves a matter of public policy, the Court has decided to review the other errors
allegedly committed by respondent court in rendering its questioned resolutions.

In this jurisdiction, the law on "intervention" is found in the Rules of Court.   Thus, a person may,
18

before or during a trial, be permitted by the court, in its discretion, to intervene in an action, if he
has legal interest in the matter in litigation, or in the success of either of the parties or an interest
against both, or when he is so situated as to be adversely affected by a distribution or other
disposition of property in the custody of the court or of an officer thereof.  19

The Court is not impressed with the contention of petitioner that the intervenors have no legal
interest in the matter in litigation. In this connection, it would suffice to quote what the respondent
court said in holding that the intervenors have a legal interest in the matter in litigation. Thus —

Has Palanca shown a proper case for intervention by him and his co-stockholders who are
similarly situated as he is?

A narration of the pertinent facts alleged by Palanca and the plaintiff indicates the answer.
In 1961, BREDCO was awarded by Bacolod City a contract to undertake the reclamation and
port development of the city. As of 1975, a sizeable portion of land had already been reclaimed
from the sea and corresponding torrens titles issued in BREDCO's name.

In that year, BREDCO engaged MARSTEEL as a contractor to complete the project with power
to negotiate in its name or jointly and/or severally with BREDCO for loans to finance the
reclamation and port development, and to mortgage all reclaimed lots and other assets of the
project as security. For its services, MARSTEEL shall receive 65% of the excess of all revenues
over all disbursements. Accordingly, BREDCO conveyed to MARSTEEL 65% of each lot already
reclaimed and that to be reclaimed.

In 1977, MARSTEEL assigned to MCI, which owned 100% of its capital stock, all its rights,
interests, obligations, and undertakings in the project. To enable MCI to expand its base of
negotiation for loans needed in the reclamation and port development the BREDCO
stockholders transferred to MCI their respective shares of stock amounting to 70% of the capital
stock of BREDCO. In return, they 'shall be entitled to a share of 35% in excess of all revenues
over all disbursements of the projects,' it being understood that payment of the corresponding
share shall be due to BREDCO stockholders as owners of existing interests in the project,
regardless of the fact that by implementation of this AGREEMENT, they ceased to be
stockholders of BREDCO.

In September 1986, the Presidential Commission on Good Government (PCGG) sequestered all
assets, properties, records and documents' of MARSTEEL, MCI, and BREDCO'. In July 1987,
the complaint at bar was filed and expanded in March 1988. The pleadings, original and
expanded, allege that the defendants, acting singly or collectively, amassed ill-gotten wealth
listed in Annex 'A' thereof, among which are the BREDCO lots and shares of stock, and pray that
the ill-gotten wealth be reconveyed to the plaintiff, plus damages. Significantly, however, the
bodies of the complaints do not mention anything about BREDCO, its project, lots, and stocks,
nor about MCI.

Under these alleged facts, Palanca has established a proper case for intervention. Firstly, he
and his co-stockholders have a legal interest in the matter in litigation, namely, their 70% of the
capital stock of BREDCO, which they transferred to MCI by way of alleged accommodation, or
its equivalent of 35% of the excess of all revenues over all disbursements, to which they are
entitled 'as owners of existing interests in the project.' Section 2, Rule 12, Revised Rules of
Court, provides that a person may be permitted 'to intervene in an action, if he has legal interest
in the matter in litigation.'

As a general rule the right to intervene exists in favor of one who claims to be the owner or to
have some interest in the property which is the subject of litigation, and this without particular
regard to the value of the property or the right claimed therein. A third party may intervene in a
sequestration suit involving title to personal property, and have his claims to the possession of
the property vindicated therein So, in an action for possession of real or personal property, an
intervenor may be admitted on the ground that he is an owner thereof, either to assist in the
defense, or to claim the property for himself, or to obtain some other relief germane to the
action.' (59 Am Jur 2d, Parties, Sec. 152, p. 585,

Secondly, the same Section 2, Rule 12, further provides that intervention by a person may be
permitted 'when he is so situated as to be adversely affected by a distribution or other disposition
of property in the custody of the court or of an officer thereof.' On this point, the Supreme Court
observed:
We shall now speak of the case where the stranger desires to intervene for the purpose of
asserting a property right in the res, or thing, which is the subject-matter of the ligitation, without
becoming a formal plaintiff or defendant, and without acquiring the control over the course of a
litigation, which is conceded to the main actions (sic) therein. The mode of intervention to which
reference is now made is denominated in equity procedure the intervention pro interesse suo
and is somewhat analogous to the trial of a right of property in an action of law, its purpose being
to enable a person whose property gets into the clutches of a court, in a controversy between
others, to go into court and to procure it or its proceeds to be surrendered to him. It often
happens that a person who really owns property, or has a superior lien or other interest in it,
sees a litigation spring up between others who assert rights in or concerning it. If the court takes
possession of the res, or otherwise gets jurisdiction over it in such a controversy, the real owner
is not compelled to stand Idly by and see the property disposed of without asserting his rights.
Though it be granted that the litigation would not be technically binding on him, because of his
not being a party, yet it might well happen that complications would ensue whereby his rights
would be materially prejudiced. For instance, the subject-matter of the litigation might consist of
a fund to he distributed, and the conditions might be such that if it were turned over to the
particular litigant who should appear to have the better right in the original action, the person
really having a superior title might be left without redress. Accordingly provision is made whereby
persons who have not been joined as parties in the original proceedings may intervene and
assert a right antagonistic or superior to that of one or both of the parties. (Bosworth vs. Terminal
etc. Assoc. of St. Louis, 174 U.S. 182,187, 43 L. ed., 941, 943). As regards the right to intervene
in this manner, it may be stated that if the party desiring to intervene shows a legitimate and
proper interest in the fund or property in question, the motion to intervene should be granted,
especially if such interest cannot be otherwise properly protected. (Joaquin v. Herrera, 37 Phil.
705, 722-724)

Here, the BREDCO lots and stocks were sequestered and are now in custodia legis (Bernas,
The Constitution of the Republic of the Philippines, An Annotated Text, 1987 ed., p. 129,
footnote 42). From the facts averred by Palanca and the plaintiff, it is easy to see that in the
event We decide to order the reconveyance of those assets to the plaintiff, Palanca and his co-
stockholders in BREDCO stand to be adversely affected.

And thirdly, the legal interest of Palanca and his co-stockholders in the matter in litigation and
the possibility of a judgment ordering reconveyance in favor of the plaintiff, invest them with legal
interest in the success of the defendants, at least insofar as the BREDCO lots and shares are
concerned. Section 2, Rule 12, also permits intervention by a person who has legal interest in
the success of either of the parties. 20

The petitioner's contention that the State cannot be sued without its consent and that private
respondents' action for intervention is, in legal effect, a suit or counter-suit against the sovereign
is also untenable.

The Rules of Court   provide that the intervention shall be made by complaint filed and served in
21

regular form, and may be answered as if it where an original complaint; but where the intervenor
unites with the defendant in resisting the claims of the plaintiff, the intervention may be made in
the form of an answer to the complaint. In order words, a third person who makes himself a party
to an existing litigation, may either join the plaintiff in claiming what is sought in the filing a
complaint in intervention, or by uniting with the defendant in resisting the claims of the plaintiff,
by filing an answer in intervention.

In Froilan v. Pan Oriental Shipping Co.,   the plaintiff therein Fernando A. Froilan filed a
22

complaint against the defendant, Pan Oriental Shipping Co. The Republic of the Philippines
intervened by filing a complaint in intervention. Thereafter, the defendant filed its answer to the
complaint in intervention, and set up a counterclaim against the Republic of the Philippines. The
trial court dismissed the defendants counterclaim against the Republic on the ground, among
others, that the state is immune from suit. On appeal, this Court held that the dismissal of the
counterclaim was untenable, because by filing its complaint in intervention the Government in
effect waived its right to non-suability.

In another case, Lim vs. Brownell, Jr. and Kagawa,   the plaintiff Benito E. Lim, as administrator
23

of the intestate estate of Arsenia Enriquez, filed a complaint in the Court of First Instance of
Manila against the Alien Property Administrator (later substituted by the Attorney General of the
United States) for the recovery of four (4) parcels of land (which were subsequently transferred
to the Republic of the Philippines) with a prayer for the payment of back rentals. The Republic of
the Philippines intervened in the case. The defendant Attorney General of the United States and
the defendant- intervenor Republic of the Philippines each filed an answer, alleging by way of
affirmative defense, among others, that the lower court had no jurisdiction over the claim for
rentals since the action in that regard constituted a suit against the Republic to which it had not
given its consent. The trial court dismissed the complaint for lack of jurisdiction. On appeal, this
Court affirmed, with the following reasons:

The claim for damages for the use of the property against the intervenor defendant Republic of
the Philippines to which it was transferred, likewise, cannot be maintained because of the
immunity of the state from suit. The claim obviously constitutes a charge against, or financial
liability to, the Government and consequently cannot be entertained by the courts except with
the consent of said government. (Syquia vs. Almeda Lopez, 84 Phil. 312; 47 Off. Gaz., 665;
Compania General de Tabacos vs. Govt. of the PI 45 Phil., 663). Plaintiff argues that by its
intervention, the Republic of the Philippines, in effect, waived its right of non-suability, but it will
be remembered that the Republic intervened in the case merely to unite with the defendant
Attorney General of the United States in resisting plaintiffs claims, and for that reason asked no
affirmative relief against any party in the answer in intervention. x x x. Clearly, this is not a case
where the State takes the initiative in an action against a private party by filing a complaint in
intervention, thereby surrendering its privileged position and coming down to the level of the
defendants what happened in the case of Froilan vs. Pan Oriental Shipping Co., et al.-95 Phil.
905 cited by the plaintiff but one where the State, as one of the defendants merely resisted a
claim against it precisely on the ground, among others, of its privileged position which exempts it
from suit. (emphasis supplied).

In the present case, the private respondents intervened in Civil Case No. 0025 merely to unite
with the defendants therein in resisting the claims of petitioner, as plaintiff, and for that reason
asked for no affirmative relief against any party in their answer in intervention. In other words,
this is not a case where the private respondents take the initiative in an action against petitioner
by filing a complaint in intervention or a complaint. As observed by respondent Sandiganbayan:

In intervening, Palanca and his co-stockholders have for their purpose to exclude the BREDCO
lots and stocks or, at least, their 35% interest in the BREDCO project from any possible
judgment directing reconveyance of the alleged ill-gotten wealth to the plaintiff. They do not pray
for damages against the latter. In effect, they occupy a defensive position as regards those
shares of stock or interest. The fact that they interjected themselves into his litigation at their own
initiative does not alter the essential nature of their intervention." 
24

Private respondents' action for intervention in Civil Case No. 0025 is not, therefore, a suit or
counter-suit against petitioner Republic of the Philippines.
 Having arrived at the above conclusions, the Court finds no need to further discuss the
petitioner's pretense that the private respondents' claims are claims as between and/or among
Ferdinand and Imelda Marcos, et al., and that the same is not cognizable by respondent
Sandiganbayan but by the regular courts. It suffices to state that, as already stated, in
intervening in Civil Case No. 0025, private respondents merely joined the defendants therein in
resisting the claims of petitioner, as plaintiff, and that they asked no affirmative relief against any
party in their answer in intervention. They do not appear to have any controversy with the
defendants, Ferdinand and Imelda Marcos, et al.

ACCORDINGLY, the petition in the present case is hereby DISMISSED.

SO ORDERED.

G.R. No. L-48214 December 19, 1978

ILDEFONSO SANTIAGO, represented by his Attorney-in-Fact, ALFREDO T.

SANTIAGO, petitioner,
vs.
THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, represented by the Director,
Bureau of Plant Industry, and the Regional Director, Region IX, Zamboanga City, respondent,

Ahmad D. Sahak for petitioner.

Solicitor General Estelito P. Mendoza, Assistant Solicitor General Octavio R. Ramirez and Solicitor
Mariano M. Martinez for respondents.

FERNANDO, J.:

The first impression yielded by a perusal of this petition for certiorari is its inherent weakness
considering the explicit provision in the present Constitution prohibiting a suit against the Republic
without its consent.   Here petitioner Ildefonso Santiago   filed on August 9, 1976 an action in the
1 2

Court of First Instance of Zamboanga City naming as defendant the government of the Republic of
the Philippines represented by the Director of the Bureau of Plant Industry.   His plea was for the
3

revocation of a deed of donation executed by him and his spouse in January of 1971,   with the
4

Bureau of Plant Industry as the donee. As alleged in such complaint, such Bureau, contrary to the
terms of the donation, failed to "install lighting facilities and water system on the property donated
and to build an office building and parking [lot] thereon which should have been constructed and
ready for occupancy on or before December 7, 1974.   That led him to conclude that under the
5

circumstances, he was exempt from compliance with such an explicit constitutional command. The
lower court, in the order challenged in this petition, was of a different view. It sustained a motion to
dismiss on the part of the defendant Republic of the Philippines, now named as one of the
respondents, the other respondent being the Court of First Instance of Zamboanga City, Branch II. It
premised such an order on the settled "rule that the state cannot be sued without its consent. This is
so, because the New Constitution of the Philippines expressly provides that the state may not be
sued without its consent.   Solicitor General Estelito P. Mendoza,   in the com ment on the petition
6 7

filed with this Court, is for the affirmance of the order of dismissal of respondent Court precisely to
accord deference to the above categorical constitutional mandate.
On its face, such a submission carries persuasion. Upon further reflection, this Tribunal is impressed
with the unique aspect of this petition for certiorari, dealing as it does with a suit for the revocation of
a donation to the Republic, which allegedly fatted to conform with what was agreed to by the donee.
If an order of dismissal would suffice, then the element of unfairness enters, the facts alleged being
hypothetically admitted. It is the considered opinion of this Court then that to conform to the high
dictates of equity and justice, the presumption of consent could be indulged in safely. That would
serve to accord to petitioner as plaintiff, at the very least, the right to be heard. certiorari lies.

1. This is not to deny the obstacle posed by the constitutional provision. It is expressed in language
plain and unmistakable: "The State may not be sued without its consent.   The Republic cannot be
8

proceeded against unless it allows itself to be sued. Neither can a department, bureau, agency,
office, or instrumentality of the government where the suit, according to the then Justice, now Chief
Justice, Castro in Del Mar v. Philippine Veterans Administration,   may result "in adverse
9

consequences to the public treasury, whether in the disbursements of funds or loss of

property.   Such a doctrine was reiterated in the following cases: Republic v. Villasor,   Sayson v.
10 11

Singson,   Director of the Bureau of Printing v. Francisco,   and Republic v. Purisima. 

12 13 14

2. It is contended by counsel for petitioner that the above constitutional provision would be given a
retroactive application in this case if the suit for the revocation of donation were dismissed. That is
not the case at all. In Republic v. Purisima, this Court made clear that such a basic postulate is part
and parcel of the system of government implanted in the Philippines from the time of the acquisition
of sovereignty by the United States, and therefore, was implicit in the 1935 Constitution even in the
absence of any explicit language to that effect. This it did in a citation from Switzerland General
Insurance Co., Ltd. v. Republic of the Philippines:   "The doctrine of non-suability recognized in this
15

jurisdiction even prior to the effectivity of the [1935] Constitution is a logical corollary of the positivist
concept of law which, to paraphrase Holmes, negates the assertion of any legal right as against the
state, in itself the source of the law on which such a right may be predicated. Nor is this all. Even if
such a principle does give rise to problems, considering the vastly expanded role of government
enabling it to engage in business pursuits to promote the general welfare, it is not obeisance to the
analytical school of thought alone that calls for its continued applicability.   That is the teaching of the
16

leading case of Mobil Philippines Exploration, Inc. v. Customs Arrastre Service,   promulgated in
17

December of 1966. As a matter of fact, the Switzerland General Insurance Co. decision was the
thirty-seventh of its kind after Mobil. Clearly, then, the contention that to dismiss the suit would be to
give the applicable constitutional provision a retroactive effect is, to put it at its mildest, untenable.

3. Petitioner's counsel invoked Santos v. Santos,   a 1952 decision. A more thorough analysis ought
18

to have cautioned him against reliance on such a case. It was therein clearly pointed out that the
government entity involved was originally the National Airports Corporation. Thereafter, it "was
abolished by Executive Order No. 365, series of 1950, and in its place and stead the Civil
Aeronautics Administration was created and took over all the assets and assumed all the liabilities of
the abolished corporation. The Civil Aeronautics Administration, even if it is not a juridical entity,
cannot legally prevent a party or parties from enforcing their proprietary rights under the cloak or
shield of lack of juridical personality, because to took over all the powers and assumed all the
obligations of the defunct corporation which had entered into the contract in question."   Then 19

came National Shipyard and Steel Corporation v. Court of Industrial Relations,   a 1963 decision,
20

where the then Justice, later Chief Justice, Concepcion, as ponente, stated that a government-
owned and controlled corporation "has a personality of its own distinct and separate from that of the
government. ... Accordingly, it may sue and be sued and may be subjected to court processes just
like any other corporation. (Section 13, Act 1459, as amended).   In three recent
21

decisions, Philippine National Bank v. Court of Industrial Relations,   Philippine National Bank v.

22

Honorable Judge Pabalan,   and Philippine National Railways v. Union de Maquinistas,   this

23 24

constitutional provision on non-suability was unavailing in view of the suit being against a
government-owned or controlled corporation. That point apparently escaped the attention of counsel
for petitioner. Hence Santos v. Santos is hardly controlling.

4. It is to be noted further that the trend against the interpretation sought to be fastened in the broad
language of Santos v. Santos is quite discernible. Not long after, in Araneta v. Hon. M.
Gatmaitan,   decided in 1957, it was held that an action [against] Government officials, is essentially
25

one against the Government, ... .   In the same year, this Court, in Angat River Irrigation System v.
26

Angat River Workers   Union, after referring to the "basic and fundamental principle of the law that
27

the Government cannot be sued before courts of justice without its consent," pointed out that "this
privilege of non-suability of the Government" covers with the mantle of its protection "an entity," in
this case, the Angat River Irrigation System.   Then, in 1960, came Lim v. Brownell, Jr.,   where
28 29

there was a reaffirmation of the doctrine that a "claim [constituting] a charge against, or financial
liability to, the Government cannot be entertained by the courts except with the consent of said
government.   Bureau of Printing v. Bureau of Printing Employees Association   came a year later; it
30 31

reiterated such a doctrine. It was not surprising therefore that in 1966, Mobil Philippines Exploration,
Inc. was decided the way it was. The remedy, where the liability is based on contract, according to
this Court, speaking through Justice J. P. Bengzon, is for plaintiff to file a claim with the general
office in accordance with the controlling statute, Commonwealth Act No. 327.   To repeat, that
32

doctrine has been adhered to ever since. The latest case in point is Travelers Indemnity Company v.
Barber Steamship Lines, Inc.   Justice Aquino's opinion concluded with this paragraph: "It is settled
33

that the Bureau of Customs, acting as part of the machinery of the national government in the
operation of the arrastre service, is immune from suit under the doctrine of non-suability of the State.
The claimant's remedy to recover the loss or damage to the goods under the custody of the customs
arrastre service is to file a claim with the Commission in Audit as contemplated in Act No. 3083 and
Commonwealth Act No. 327.   With the explicit provision found in the present Constitution, the
34

fundamental principle of non-suability becomes even more exigent in its command.

5. The reliance on Santos v. Santos as a prop for this petition having failed, it would ordinarily follow
that this suit cannot prosper. Nonetheless, as set forth at the outset, there is a novel aspect that
suffices to call for a contrary conclusion. It would be manifestly unfair for the Republic, as donee,
alleged to have violated the conditions under which it received gratuitously certain property,
thereafter to put as a barrier the concept of non-suitability. That would be a purely one-sided
arrangement offensive to one's sense of justice. Such conduct, whether proceeding from an
individual or governmental agency, is to be condemned. As a matter of fact, in case it is the latter
that is culpable, the affront to decency is even more manifest. The government, to paraphrase
Justice Brandeis, should set the example. If it is susceptible to the charge of having acted
dishonorably, then it forfeits public trust-and rightly so.

6. Fortunately, the constitutional provision itself snows a waiver. Where there is consent, a suit may
be filed. Consent need not be express. It can be implied. So it was more than implied in Ministerio v.
Court of First Instance of Cebu:   "The doctrine of governmental immunity from suit cannot serve as
35

an instrument for perpetrating an injustice on a citizen.   The fact that this decision arose from a suit
36

against the Public Highways Commissioner and the Auditor General for failure of the government to
pay for land necessary to widen a national highway, the defense of immunity without the consent
proving unavailing, is not material. The analogy is quite obvious. Where the government ordinarily
benefited by the taking of the land, the failure to institute the necessary condemnation proceedings
should not be a bar to an ordinary action for the collection of the just compensation due. Here, the
alleged failure to abide by the conditions under which a donation was given should not prove an
insuperable obstacle to a civil action, the consent likewise being presumed. This conclusion is
strengthened by the fact that while a donation partakes of a contract, there is no money claim, and
therefore reliance on Commonwealth Act No. 327 would be futile.
7. Our decision, it must be emphasized, goes no further than to rule that a donor, with the Republic
or any of its agency being the donee, is entitled to go to court in case of an alleged breach of the
conditions of such donation. He has the right to be heard. Under the circumstances, the fundamental
postulate of non-suability cannot stand in the way. It is made to accommodate itself to the demands
of procedural due process, which is the negation of arbitrariness and inequity. The government, in
the final analysis, is the beneficiary. It thereby manifests its adherence to the highest ethical
standards, which can only be ignored at the risk of losing the confidence of the people, the
repository of the sovereign power. The judiciary under this circumstance has the grave responsibility
of living up to the ideal of objectivity and impartiality, the very essence of the rule of law. Only by
displaying the neutrality expected of an arbiter, even if it happens to be one of the departments of a
litigant, can the decision arrived at, whatever it may be, command respect and be entitled to
acceptance.

WHEREFORE, the writ of certiorari prayed for is granted and the order of dismissal of October 20,
1977 is nullified, set aside and declared to be without force and effect. The Court of First Instance of
Zamboanga City, Branch II, is hereby directed to proceed with this case, observing the procedure
set forth in the Rules of Court. No costs.

Barredo, Antonio, Aquino, Concepcion, Jr. and Santos, JJ., concur.

[G.R. No. L-6060. September 30, 1954.]

FERNANDO A. FROILAN, Plaintiff-Appellee, v. PAN ORIENTAL SHIPPING

CO., Defendant-Appellant, REPUBLIC OF THE PHILIPPINES, Intervenor-
Appellee.

Quisumbing, Sycip, Quisumbing & Salazar, for Appellant.

Ernesto Zaragoza, for Appellee.

Hilarion U. Jarencio, for the intervenor.

SYLLABUS

1. PLEADING AND PRACTICE; COMPLAINT IN INTERVENTION; COUNTERCLAIM NOT

BARRED BY PRIOR JUDGMENT FOR FAILURE TO APPEAL FROM DISMISSAL OF
COMPLAINT IN INTERVENTION WITH RESERVATION. — An order dismissing the
complaint in intervention after a counterclaim has been filed but reserving the right of
the defendant as against the intervenor, does not bar at the defendant from proceeding
with its counterclaim against the intervenor, notwithstanding the failure of the
defendant to appeal from said order.

2. ID.; ID.; ID.; COUNTERCLAIM FOR SPECIFIC PERFORMANCE STATES A CAUSE OF

ACTION. — The complaint in the intervention sought to recover possession of the vessel
in question from the plaintiff, which claim is adverse to the position assumed by the
defendant that it has a better right to said possession than the plaintiff, on the theory
that the latter had already lost his rights over the same, and that, on the other hand,
the defendant is relying on the charter contract executed in its favor by the intervenor.
Held: The counterclaim calls for specific performance on the part of the intervenor and
therefore states a cause of action.

3. ID.; ID.; ID.; ID.; FILING OF COMPLAINT N INTERVENTION BY THE GOVERNMENT IS

WAIVER OF NONSUABILITY. — The filing by the Government of a complaint in
intervention is in effect a wavier of its right of nonsuability.

DECISION

PARAS, C.J. :

The factual antecedents of this case are sufficiently recited in the brief filed by the
intervenor-appellee as follows: jgc:chanrobles.com.ph

"1. On February 3, 1951, plaintiff-appellee, Fernando A. Froilan, filed a complaint

against the defendant-appellant, Pan Oriental Shipping Co., alleging that he purchased
from the Shipping Commission the vessel FS-197 for P200,000, paying P50,000 down
and agreeing to pay the balance in installments; that to secure the payment of the
balance of the purchase price, he executed a chattel mortgage of said vessel in favor of
the Shipping Commission; that for various reasons, among them the non-payment of
the installments, the Shipping Commission tool possession of said vessel and
considered the contract of sale cancelled; that the Shipping Commission chartered and
delivered said vessel to the defendant-appellant Pan Oriental Shipping Co. subject to
the approval of the President of the Philippines; that he appealed the action of the
Shipping Commission to the President of the Philippines and, in its meeting on August
25, 1950, the Cabinet restored him to all his rights under his original contract with the
Shipping Commission; that he had repeatedly demanded from the Pan Oriental
Shipping Co. the possession of the vessel in question but the latter refused to do so.
He, therefore, prayed that, upon the approval of the bond accompanying his complaint,
a writ of replevin be issued for the seizure of said vessel with all its equipment and
appurtenances, and that after hearing, he be adjudged to have the rightful possession
thereof (Rec. on App. pp. 2-8).

"2. On February 3, 1951, the lower court issued the writ of replevin prayed for by
Froilan and by virtue thereof the Pan Oriental Shipping Co. was divested of its
possession of said vessel (Rec. on App. p. 47).

"3. On March 1, 1951, Pan Oriental Shipping Co. filed its answer denying the right of
Froilan to the possession of the said vessel; it alleged that the action of the Cabinet on
August 25, 1950, restoring Froilan to his rights under his original contract with the
Shipping Commission was null and void; that, in any event, Froilan had not complied
with the condition precedent imposed by the Cabinet for the restoration of his rights to
the vessel under the original contract; that it suffered damages in the amount of P22,
764.59 for wrongful replevin in the month of February, 1951, and the sum of
P17,651.84 a month as damages suffered for wrongful replevin from March 1, 1951; it
is alleged that it has incurred necessary and useful expenses on the vessel amounting
to P127,057.31 and claimed the right to retain said vessel until its useful and necessary
expenses had been reimbursed (Rec. on App. pp. 8-53).

"4. On November 10, 1951, after the leave of the lower court had been obtained, the
intervenor-appellee, Government of the Republic of the Philippines, filed a complaint in
intervention alleging that Froilan had failed to pay to the Shipping Commission (which
name was later changed to Shipping Administration) the balance due on the purchase
price of the vessel in question, the interest excluding the dry-docking expenses incurred
on said vessel by the session of the said vessel either under the terms of the original
contract as supplemented by Froilan’s letter dated January 28, 1949, or in order that it
may cause the extrajudicial sale thereof under the Chattel Mortgage Law. It, therefore,
prayed that Froilan be declared to be without any rights on said vessel and the amounts
he paid thereon forfeited or alternately that the said vessel be delivered to the Board of
Liquidators in order that the intervenor may have its chattel mortgage extrajudicially
foreclosed in accordance with the provisions of the Chattel Mortgage Law; and that
pending the hearing on the merits, the said vessel be delivered to its (Rec. on App. pp.
54-66).

"5. On November 29, 1951, the Pan Oriental Shipping Co. filed an answer to the
complaint in intervention alleging that the Government of the Republic of the
Philippines was obligated to deliver the vessel in question to it by virtue of a contract of
bareboat charter with option to purchase executed on June 16, 1949, by the latter in
favor of the former; it also alleged that it had made necessary and useful expenses of
the vessel and claimed the right of retention of the vessel. It, therefore, prayed that, if
the Republic vessel, to comply with its obligations of delivering to it (Pan Oriental
Shipping Co.) or causing its delivery by recovering it from Froilan (Rec. on App. pp. 69-
81).

"6. On November 29, 1951, Froilan tendered to the Board of Liquidators, which was
liquidating the affairs of the Shipping Administration, a check in the amount of
P162,576.96 in payment of his obligation to the Shipping Administration for the said
vessel as claimed in the complaint in intervention of the Government of the Republic of
the Philippines. The Board of Liquidators issued an official report therefor stating that it
was a ’deposit pending the issuance of an order of the Court of First Instance of Manila’
(Rec. on App. pp. 92-93).

"7. On December 7, 1951, the Government of the Republic of the Philippines brought
the matter of said payment and the circumstances surrounding it to the attention of the
lower court ’in order that they may be taken into account by this Honorable Court in
connection with question that are now pending before it for determination’ (Rec. on
App. pp. 82-86).

"8. On February 3, 1952, the lower court held that the payment by Froilan of the
amount of P162,576.96 On November 29, 1951, to the Board of Liquidators constituted
a payment and a discharge of Froilan’s obligation to the Government of the Republic of
the Philippines and ordered the dismissal of the latter’s complaint in intervention. In the
same order, the lower court made it very clear that said order did not pre-judge the
question involved between Froilan and the Oriental Shipping Co. which was also
pending determination in said court (Rec. on App. pp. 92-93). This order dismissing the
complaint in intervention, but reserving for future adjudication the controversy between
Froilan and the Pan Oriental Shipping Co. had already become final since neither the
Government of the Republic of the Philippines nor the Pan Oriental Shipping Co. had
appealed therefrom.

"9. On May 10, 1952, the Government of the Republic of the Philippines filed a motion
to dismiss the counterclaim of the Pan Oriental Shipping Co. against it on the ground
that the purpose of said counterclaim was to compel the Government of the Republic of
the Philippines to deliver the vessel to it (Pan Oriental Shipping Co.) in the event that
the Government of the Republic of the Philippines recovers the vessel in question from
Froilan. In view, however, of the order of the order of the lower court dated February 3,
1952, holding that the payment made by Froilan’s obligation to the Shipping
Administration, which order had already become final, the counterclaim of the Pan
Oriental Shipping Co. against the Republic of the Philippines was no longer feasible, said
counterclaim was barred by prior judgment and stated no cause of action. It was also
alleged that movant was not subject to the jurisdiction of the court in connection with
the counterclaim. (Rec. on App. pp. 94-97). This motion was opposed by the Pan
Oriental Shipping Co. in its written opposition dated June 4, 1952 (Rec. on App. pp. 19-
104).

"10. In an order dated July 1, 1952, the lower court dismissed the counterclaim of the
Pan Oriental Shipping Co. as prayed for by the Republic of the Philippines (Rec. App.
pp. 104-106).

"11. It is from this order of the lower court dismissing its counterclaim against the
Government of the Republic of the Philippines that Pan Oriental Shipping Co. has
perfected the present appeal (Rec. App. pp. 107)." cralaw virtua1aw library

The order of the Court of First Instance of Manila, dismissing the counterclaim of the
defendant Pan Oriental Shipping Co., from which the latter has appealed, reads as
follows:jgc:chanrobles.com.ph

"This is a motion to dismiss the counterclaim interposed by the defendant in its answer
to the complaint in intervention.

"The counterclaim stated as follows: chanrob1es virtual 1aw library

‘COUNTERCLAIM

‘As counterclaim against the intervenor Republic of the Philippines, the defendant
alleges:chanrob1es virtual 1aw library

‘1. That the defendant reproduces herein all the pertinent allegations of the foregoing
answer to the complaint in intervention.

‘2. That, as shown by the allegations of the foregoing answer to the complaint in
intervention, the defendant Pan Oriental Shipping Company is entitled to the possession
of the vessel and the intervenor Republic of the Philippines is bound under the contract
of charter with option to purchase it entered into with the defendant to deliver that
possession to the defendant — whether it actually has the said possession from the
plaintiff Fernando A. Froilan and deliver the same to the defendant;
‘3. That, notwithstanding demand, the intervenor Republic of the Philippines has not to
date complied with its obligation of delivering or causing the delivery of the vessel to
the defendant Pan Oriental Shipping Company.

‘RELIEF

‘WHEREFORE, the defendant respectfully prays that judgment be rendered ordering the
intervenor Republic of the Philippines alternatively to deliver to the defendants the
possession of the said vessel, or to comply with its obligation to the defendant causing
the delivery to the latter of the said vessel by recovering the same from plaintiff, with
costs.

‘The defendant prays for such other remedy as the Court may deem just and equitable
in the premises."cralaw virtua1aw library

"The ground of the motion to dismiss are (a) That the cause of action is barred by prior
judgment; (b) That the counterclaim stated no cause of action; (c) That this Honorable
Court has no jurisdiction over the intervenor government of the Republic of the
Philippines in connection with the counterclaim of the defendant Pan Oriental Shipping
Co.

"The intervenor contends that the complaint in intervention having been dismissed and
no appeal having been taken, the dismissal of said complaint is tantamount to a
judgment.

"The complaint in intervention did not contain any claim whatsoever against the
defendant Pan Oriental Shipping Co.; hence, the counterclaim has no foundation.

"The question as to whether the Court has jurisdiction over the intervenor with regard
to the counterclaim, the Court is of the opinion that it has no jurisdiction over said
intervenor.

"It appearing, therefore, that the grounds of the motion to dismiss are well taken, the
counterclaim of the defendant is dismissed, without pronouncement as to costs." cralaw virtua1aw library

The defendant’s appeal is predicated upon the following assignments of error: jgc:chanrobles.com.ph

"I. The lower court erred in dismissing the counterclaim on the ground of prior
judgment.

II. The lower court erred in dismissing the counterclaim on the ground that the
counterclaim had no foundation because made to a complaint in intervention that over
the intervenor Republic of the Philippines.

III. The lower court erred in dismissing the counterclaim on the ground of alleged lack
of jurisdiction over the intervenor Republic of the Philippines."
cralaw virtua1aw library

We agree with appellant’s contention that its counterclaim is not barred by prior
judgment (order of February 8, 1952, dismissing the complaint in intervention), first,
because said counterclaim was filed on November 29, 1951, before the issuance of the
order invoked; and, secondly, because in said order of February 8, the court dismissed
the complaint in intervention, "without, of course, precluding the determination of the
right of the defendant in the instant case," and subject to the condition that the
"release and cancellation of the chattel mortgage does not, however, prejudge the
question involved between the plaintiff and the defendant which is still the subject of
determination in this case." It is to be noted that the first condition referred to the right
of the defendant, as distinguished from the second condition that expressly specified
the controversy between the plaintiff and the defendant. That the first condition
reserved the right of the defendant as against the intervenor, is clearly to be deduced
from the fact that the order of February 8 mentioned the circumstance that "the
question of the expenses of drydocking incurred by the counterclaim against the
plaintiff," apparently as one of the grounds for granting the motion to dismiss the
complaint in intervention.

The defendant’s failure to appeal from the order of February 8 cannot, therefore, be
held as barring the defendant from proceeding with its counterclaim, since, as already
stated, said order preserved its right as against the intervenor. Indeed, the
maintenance of said right is in consonance with Rule 30, section 2, of the Rules of Court
providing that "if a counterclaim has been pleaded by a defendant prior to the service
upon him of the plaintiff’s motion to dismiss, the action shall not be dismissed against
the defendant’s objection unless the counterclaim can remain pending for independent
adjudication by the court." cralaw virtua1aw library

The lower court also erred in holding that, as the intervenor had not made any claim
against the defendant, the latter’s counterclaim had no foundation. The complaint in
intervention sought to recover possession of the vessel in question from the plaintiff,
and this claim is logically adverse to the position assumed by the defendant that it has
a better right to said possession than the plaintiff who alleges in his complaint that he is
entitled to recover the vessel from the defendant. At any rate a counterclaim should
judge by its own allegations, and not by the averments of the adverse party. It should
be recalled that the defendant’s theory is that the plaintiff had already lost his rights
under the contract with the Shipping Administration and that, on the other hand, the
defendant is relying on the charter contract executed in its favor by the intervenor
which is bound to protect the defendant in its possession of the vessel. In other words,
the counter-claim calls for specific performance on the part of the intervenor. As to
whether this counterclaim is meritorious is another question is not now before us.

The other ground for dismissing the defendant’s counterclaim is that the State is
immune from suit. This is untenable, because by filing its complaint in intervention the
Government in effect waived its right of nonsuability.

"The immunity of the state from the suits does not deprive it of the right to sue private
parties in its own courts. The state as plaintiff may avail itself of the different forms of
actions open to private litigants. In short, by taking the initiative in an action against a
private party, the state surrenders its privileged position and comes down to the level
of the defendant. The latter automatically acquires, within certain limits, the right to set
up whatever claims and other defense he might have against the state. The United
States Supreme Court thus explains: chanrob1es virtual 1aw library

‘No direct suit can be maintained against the United States. But when an action is
brought by the United States to recover money in the hands of a party who has a legal
claim against them, it would be a very rigid principle to deny to him the right of setting
up such claim in a court of justice, and turn him around to an application to
Congress.’." (Sinco, Philippine Political Law, Tenth Ed., pp. 36-37. citing U.S. v.
Ringgold, 8 Pet. 150, 8 L. ed. 899.)

It is however, contended for the intervenor that, if there was at all any waiver, it was in
favor of the plaintiff against whom the complainant in intervention was directed. This
contention is untenable. As already stated, the complaint in intervention was in a sense
in derogation of the defendant’s claim over the possession of the vessel in question.

Wherefore, the appealed order is hereby reversed and set aside and the case remanded
to the lower court for further proceedings. So ordered, without costs.

Pablo, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo, Concepcion and Reyes,
J.B.L., JJ., concur.

G.R. No. 70853 March 12, 1987

REPUBLIC OF THE PHILIPPINES, petitioner-appellee,

vs.
PABLO FELICIANO and INTERMEDIATE APPELLATE COURT, respondents-appellants.

YAP, J.:

Petitioner seeks the review of the decision of the Intermediate Appellate Court dated April 30, 1985
reversing the order of the Court of First Instance of Camarines Sur, Branch VI, dated August 21,
1980, which dismissed the complaint of respondent Pablo Feliciano for recovery of ownership and
possession of a parcel of land on the ground of non-suability of the State.

The background of the present controversy may be briefly summarized as follows:

On January 22, 1970, respondent Feliciano filed a complaint with the then Court of First Instance of
Camarines Sur against the Republic of the Philippines, represented by the Land Authority, for the
recovery of ownership and possession of a parcel of land, consisting of four (4) lots with an
aggregate area of 1,364.4177 hectares, situated in the Barrio of Salvacion, Municipality of
Tinambac, Camarines Sur. Plaintiff alleged that he bought the property in question from Victor
Gardiola by virtue of a Contract of Sale dated May 31, 1952, followed by a Deed of Absolute Sale on
October 30, 1954; that Gardiola had acquired the property by purchase from the heirs of Francisco
Abrazado whose title to the said property was evidenced by an informacion posesoria that upon
plaintiff's purchase of the property, he took actual possession of the same, introduced various
improvements therein and caused it to be surveyed in July 1952, which survey was approved by the
Director of Lands on October 24, 1954; that on November 1, 1954, President Ramon Magsaysay
issued Proclamation No. 90 reserving for settlement purposes, under the administration of the
National Resettlement and Rehabilitation Administration (NARRA), a tract of land situated in the
Municipalities of Tinambac and Siruma, Camarines Sur, after which the NARRA and its successor
agency, the Land Authority, started sub-dividing and distributing the land to the settlers; that the
property in question, while located within the reservation established under Proclamation No. 90,
was the private property of plaintiff and should therefore be excluded therefrom. Plaintiff prayed that
he be declared the rightful and true owner of the property in question consisting of 1,364.4177
hectares; that his title of ownership based on informacion posesoria of his predecessor-in-interest
be declared legal valid and subsisting and that defendant be ordered to cancel and nullify all awards
to the settlers.

The defendant, represented by the Land Authority, filed an answer, raising by way of affirmative
defenses lack of sufficient cause of action and prescription.

On August 29, 1970, the trial court, through Judge Rafael S. Sison, rendered a decision declaring
Lot No. 1, with an area of 701.9064 hectares, to be the private property of the plaintiff, "being
covered by a possessory information title in the name of his predecessor-in-interest" and declaring
said lot excluded from the NARRA settlement reservation. The court declared the rest of the property
claimed by plaintiff, i.e. Lots 2, 3 and 4, reverted to the public domain.

A motion to intervene and to set aside the decision of August 29, 1970 was filed by eighty-six (86)
settlers, together with the barrio council of Pag-asay, alleging among other things that intervenors
had been in possession of the land in question for more than twenty (20) years under claim of
ownership.

On January 25, 1971, the court a quo reconsidered its decision, reopened the case and directed the
intervenors to file their corresponding pleadings and present their evidence; all evidence already
presented were to remain but plaintiff, as well as the Republic of the Philippines, could present
additional evidence if they so desire. The plaintiff presented additional evidence on July 30, 1971,
and the case was set for hearing for the reception of intervenors' evidence on August 30 and August
31, 1971.

On August 30, 1971, the date set for the presentation of the evidence for intervenors, the latter did
not appear but submitted a motion for postponement and resetting of the hearing on the next day,
August 31, 1971. The trial court denied the motion for postponement and allowed plaintiff to offer his
evidence "en ausencia," after which the case would be deemed submitted for decision. On the
following day, August 31, 1971, Judge Sison rendered a decision reiterating his decision of August
29, 1970.

A motion for reconsideration was immediately filed by the intervenors. But before this motion was
acted upon, plaintiff filed a motion for execution, dated November 18, 1971. On December 10, 1971,
the lower court, this time through Judge Miguel Navarro, issued an order denying the motion for
execution and setting aside the order denying intervenors' motion for postponement. The case was
reopened to allow intervenors to present their evidence. Unable to secure a reconsideration of Judge
Navarro's order, the plaintiff went to the Intermediate Appellate Court on a petition for certiorari. Said
petition was, however, denied by the Intermediate Appellate Court, and petitioners brought the
matter to this Court in G.R. No. 36163, which was denied on May 3, 1973 Consequently, the case
was remanded to the court a quo for further proceedings.

On August 31, 1970, intervenors filed a motion to dismiss, principally on the ground that the
Republic of the Philippines cannot be sued without its consent and hence the action cannot prosper.
The motion was opposed by the plaintiff.

On August 21, 1980, the trial court, through Judge Esteban Lising, issued the questioned order
dismissing the case for lack of jurisdiction. Respondent moved for reconsideration, while the Solicitor
General, on behalf of the Republic of the Philippines filed its opposition thereto, maintaining that the
dismissal was proper on the ground of non-suability of the State and also on the ground that the
existence and/or authenticity of the purported possessory information title of the respondents'
predecessor-in-interest had not been demonstrated and that at any rate, the same is not evidence of
title, or if it is, its efficacy has been lost by prescription and laches.

Upon denial of the motion for reconsideration, plaintiff again went to the Intermediate Appellate
Court on petition for certiorari. On April 30, 1985, the respondent appellate court rendered its
decision reversing the order of Judge Lising and remanding the case to the court a quo for further
proceedings. Hence this petition.

We find the petition meritorious. The doctrine of non-suability of the State has proper application in
this case. The plaintiff has impleaded the Republic of the Philippines as defendant in an action for
recovery of ownership and possession of a parcel of land, bringing the State to court just like any
private person who is claimed to be usurping a piece of property. A suit for the recovery of property
is not an action in rem, but an action in personam. 1 It is an action directed against a specific party or parties, and any
judgment therein binds only such party or parties. The complaint filed by plaintiff, the private respondent herein, is directed against the
Republic of the Philippines, represented by the Land Authority, a governmental agency created by Republic Act No. 3844.

By its caption and its allegation and prayer, the complaint is clearly a suit against the State, which
under settled jurisprudence is not permitted, except upon a showing that the State has consented to
be sued, either expressly or by implication through the use of statutory language too plain to be
misinterpreted.  There is no such showing in the instant case. Worse, the complaint itself fails to
2

allege the existence of such consent. This is a fatal defect,   and on this basis alone, the complaint
3

should have been dismissed.

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

Private respondent contends that the consent of petitioner may be read from the Proclamation itself,
when it established the reservation " subject to private rights, if any there be. " We do not agree. No
such consent can be drawn from the language of the Proclamation. The exclusion of existing private
rights from the reservation established by Proclamation No. 90 can not be construed as a waiver of
the immunity of the State from suit. Waiver of immunity, being a derogation of sovereignty, will not
be inferred lightly. but must be construed in strictissimi juris.   Moreover, the Proclamation is not a
5

legislative act. The consent of the State to be sued must emanate from statutory authority. Waiver of
State immunity can only be made by an act of the legislative body.

Neither is there merit in respondent's submission, which the respondent appellate court sustained,
on the basis of our decision in the Begosa case,   that the present action is not a suit against the
6

State within the rule of State immunity from suit, because plaintiff does not seek to divest the
Government of any of its lands or its funds. It is contended that the complaint involves land not
owned by the State, but private land belonging to the plaintiff, hence the Government is not being
divested of any of its properties. There is some sophistry involved in this argument, since the
character of the land sought to be recovered still remains to be established, and the plaintiff's action
is directed against the State precisely to compel the latter to litigate the ownership and possession of
the property. In other words, the plaintiff is out to establish that he is the owner of the land in
question based, incidentally, on an informacion posesoria of dubious value, and he seeks to
establish his claim of ownership by suing the Republic of the Philippines in an action in personam.

The inscription in the property registry of an informacion posesoria under the Spanish Mortgage Law
was a means provided by the law then in force in the Philippines prior to the transfer of sovereignty
from Spain to the United States of America, to record a claimant's actual possession of a piece of
land, established through an ex parte proceeding conducted in accordance with prescribed
rules.   Such inscription merely furnishes, at best, prima facie evidence of the fact that at the time the
7
proceeding was held, the claimant was in possession of the land under a claim of right as set forth in
his application.   The possessory information could ripen into a record of ownership after the lapse of
8

20 years (later reduced to 10 years), upon the fulfillment of the requisites prescribed in Article 393 of
the Spanish Mortgage Law.

There is no showing in the case at bar that the informacion posesoria held by the respondent had
been converted into a record of ownership. Such possessory information, therefore, remained at
best mere prima facie evidence of possession. Using this possessory information, the respondent
could have applied for judicial confirmation of imperfect title under the Public Land Act, which is an
action in rem. However, having failed to do so, it is rather late for him to pursue this avenue at this
time. Respondent must also contend, as the records disclose, with the fact admitted by him and
stated in the decision of the Court a quo that settlers have been occupying and cultivating the land in
question since even before the outbreak of the war, which puts in grave doubt his own claim of
possession.

Worthy of note is the fact, as pointed out by the Solicitor General, that the informacion
posesoria registered in the Office of the Register of Deed of Camarines Sur on September 23, 1952
was a "reconstituted" possessory information; it was "reconstituted from the duplicate presented to
this office (Register of Deeds) by Dr. Pablo Feliciano," without the submission of proof that the
alleged duplicate was authentic or that the original thereof was lost. Reconstitution can be validly
made only in case of loss of the original. 10 These circumstances raise grave doubts as to the authenticity and validity of the
"informacion posesoria" relied upon by respondent Feliciano. Adding to the dubiousness of said document is the fact that "possessory
information calls for an area of only 100 hectares," 11 whereas the land claimed by respondent Feliciano comprises 1,364.4177 hectares,
later reduced to 701-9064 hectares. Courts should be wary in accepting "possessory information documents, as well as other purportedly old
Spanish titles, as proof of alleged ownership of lands.

WHEREFORE, judgment is hereby rendered reversing and setting aside the appealed decision of
the Intermediate Appellate Court, dated April 30, 1985, and affirming the order of the court a quo,
dated August 21, 1980, dismissing the complaint filed by respondent Pablo Feliciano against the
Republic of the Philippines. No costs.

SO ORDERED.

WHEN THE STATE ENTERS INTO CONTRACT

i. Jure Imperii
ii. Jure Gestionis
iii. DOTC vs. Sps. Abecina (G.R. No. 206484, January 29, 2016)

G.R. No. 90478 November 21, 1991

REPUBLIC OF THE PHILIPPINES (PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT), petitioner,
vs.
SANDIGANBAYAN, BIENVENIDO R. TANTOCO, JR. and DOMINADOR R.
SANTIAGO, respondents.
Dominador R. Santiago for and in his own behalf and as counsel for respondent Tantoco, Jr.

NARVASA, J.:

Private respondents Bienvenido R. Tantoco, Jr. and Dominador R. Santiago — together with
Ferdinand E. Marcos, Imelda R. Marcos, Bienvenido R. Tantoco, Sr., Gliceria R. Tantoco, and Maria
Lourdes Tantoco-Pineda-are defendants in Civil Case No. 0008 of the Sandiganbayan. The case
was commenced on July 21, 1987 by the Presidential Commission on Good Government (PCGG) in
behalf of the Republic of the Philippines. The complaint which initiated the action was denominated
one "for reconveyance, reversion, accounting, restitution and damages," and was avowedly filed
pursuant to Executive Order No. 14 of President Corazon C. Aquino.

After having been served with summons, Tantoco, Jr. and Santiago, instead of filing their answer,
jointly filed a "MOTION TO STRIKE OUT SOME PORTIONS OF THE COMPLAINT AND FOR BILL
OF PARTICULARS OF OTHER PORTIONS" dated Nov. 3, 1987.   The PCGG filed an opposition 1

thereto,   and the movants, a reply to the opposition.   By order dated January 29, 1988, the
2 3

Sandiganbayan, in order to expedite proceedings and accommodate the defendants, gave the
PCGG forty-five (45) days to expand its complaint to make more specific certain allegations.  4

 Basically, they sought an

Tantoco and Santiago then presented a "motion for leave to file interrogatories under Rule 25 of the Rules of Court" dated February 1, 1988, and "Interrogatories under Rule 25." 5

answer to the question: "Who were the Commissioners of the PCGG (aside from its Chairman, Hon.
Ramon Diaz, who verified the complaint) who approved or authorized the inclusion of Messrs.
Bienvenido R. Tantoco, Jr. and Dominador R. Santiago as defendants in the . . case?"   The PCGG 6

responded by filing a motion dated February 9, 1988 to strike out said motion and interrogatories as
being impertinent, "queer," "weird," or "procedurally bizarre as the purpose thereof lacks merit as it is
improper, impertinent and irrelevant under any
guise."  7

 As this expanded complaint, Tantoco and Santiago

On March 18, 1988, in compliance with the Order of January 29, 1988, the PCGG filed an Expanded Complaint. 8

reiterated their motion for bill of particulars, through a Manifestation dated April 11, 1988.  9

 the Sandiganbayan denied the motion to strike out, for bill of particulars, and for
Afterwards, by Resolution dated July 4, 1988, 10

leave to file interrogatories, holding them to be without legal and factual basis. Also denied was the
PCGG's motion to strike out impertinent pleading dated February 9, 1988. The Sandiganbayan
declared inter alia the complaint to be "sufficiently definite and clear enough," there are adequate
allegations . . which clearly portray the supposed involvement and/or alleged participation of
defendants-movants in the transactions described in detail in said Complaint," and "the other matters
sought for particularization are evidentiary in nature which should be ventilated in the pre-trial or trial
proper . ." It also opined that "(s)ervice of interrogatories before joinder of issue and without leave of
court is premature . . (absent) any special or extraordinary circumstances . . which would justify . .
(the same)."

Tantoco and Santiago then filed an Answer with Compulsory Counterclaim under date of July 18,
1988.   In response, the PCGG presented a "Reply to Answer with Motion to Dismiss Compulsory
11

Counterclaim "  12

 On July 25, 1989, the PCGG submitted its PRE-TRIAL.   The pre-trial was
The case was set for pre-trial on July 31, 1989. 13 14

however reset to September 11, 1989, and all other parties were required to submit pre-trial briefs
on or before that date.  15
  and on August 2, 1989, an "Amended
On July 27, 1989 Tantoco and Santiago filed with the Sandiganbayan a pleading denominated "Interrogatories to Plaintiff," 16

Interrogatories to Plaintiff"'   as well as a Motion for Production and Inspection of Documents. 
17 18

The amended interrogatories chiefly sought factual details relative to specific averments of PCGG's amended complaint, through such questions, for instance, as—

1. In connection with the allegations . . in paragraph 1 . ., what specific property or properties does the plaintiff claim it has the right to recover from defendants
Tantoco, Jr. and Santiago for being ill-gotten?

3. In connection with the allegations . . in paragraph 10 (a) . . what specific act or acts . . were committed by defendants Tantoco, Jr. and Santiago in "concert
with" defendant Ferdinand Marcos and in furtherance or pursuit, of the alleged systematic plan of said defendant Marcos to accumulate ill-gotten wealth ?"

5. In connection with . . paragraph 13 . ., what specific act or acts of the defendants Tantoco, Jr. and Santiago . . were committed by said defendants as part, or
in furtherance, of the alleged plan to conceal assets of defendants Ferdinand and Imelda Marcos?

7. In connection with . . paragraph 15(c) . . is it plaintiff's position or theory of the case that Tourist Duty Free Shops, Inc., including all the assets of said
corporation, are beneficially owned by either or both defendants Ferdinand and Imelda Marcos and that the defendants Tantoco, Jr. and Santiago, as well as, the
other stockholders of record of the same corporation are mere "dummies" of said defendants Ferdinand and /or Imelda R. Marcos?

On the other hand, the motion for production and inspection of documents prayed for examination and copying of—

1) the "official records and other evidence" on the basis of which the verification of the Amended Complaint asserted that the allegations thereof are "true and
correct;"

2) the documents listed in PCGG's Pre-Trial Brief as those "intended to be presented and . . marked as exhibits for the plaintiff;" and

3) "the minutes of the meeting of the PCGG which chronicles the discussion (if any) and the decision (of the Chairman and members) to file the complaint" in the
case at bar.

By Resolutions dated August 21, 1989 and August 25, 1989, the Sandiganbayan admitted the Amended Interrogatories and granted the motion for production and inspection
of documents (production being scheduled on September 14 and 15, 1989), respectively.

On September 1, 1989, the PCGG filed a Motion for Reconsideration of the Resolution of August 25, 1989 (allowing production and inspection of documents). It argued that

1) since the documents subject thereof would be marked as exhibits during the pre-trial on September 11, 1989 anyway, the order for "their production and inspection on
September 14 and 15, are purposeless and unnecessary;"

2) movants already know of the existence and contents of the document which "are clearly described . . (in) plaintiff's Pre-Trial Brief;"

3) the documents are "privileged in character" since they are intended to be used against the PCGG and/or its Commissioners in violation of Section 4, Executive Order No.
1, viz.:

(a) No civil action shall lie against the Commission or any member thereof for anything done or omitted in the discharge of the task contemplated by this Order.

(b) No member or staff of the Commission shall be required to testify or produce evidence in any judicial, legislative, or administrative proceeding concerning
matters within its official cognizance.
  which the Sandiganbayan treated as a motion for reconsideration of
It also filed on September 4, 1989 an opposition to the Amended Interrogatories, 19

the Resolution of August 21, 1989 (admitting the Amended Interrogatories). The opposition alleged
that —

1) the interrogatories "are not specific and do not name the person to whom they are
propounded . .," or "who in the PCGG, in particular, . . (should) answer the interrogatories;"

2) the interrogatories delve into "factual matters which had already been decreed . . as part of the
proof of the Complaint upon trial . .;"

3) the interrogatories "are frivolous" since they inquire about "matters of fact . . which defendants . .
sought to . . (extract) through their aborted Motion for Bill of Particulars;"

4) the interrogatories "are really in the nature of a deposition, which is prematurely filed and
irregularly utilized . . (since) the order of trial calls for plaintiff to first present its evidence."

Tantoco and Santiago filed a reply and opposition on September 18, 1989.

After hearing, the Sandiganbayan promulgated two (2) Resolutions on September 29, 1989, the first,
denying reconsideration (of the Resolution allowing production of documents), and the second,
reiterating by implication the permission to serve the amended interrogatories on the plaintiff
(PCGG).  20

Hence, this petition for certiorari.

The PCGG contends that said orders, both dated September 29, 1989, should be nullified because rendered with grave abuse of discretion amounting to excess of
jurisdiction. More particularly, it claims —

a) as regards the order allowing the amended interrogatories to the plaintiff PCGG:

1) that said interrogatories are not specific and do not name the particular individuals to whom they are propounded, being addressed only to the PCGG;

2) that the interrogatories deal with factual matters which the Sandiganbayan (in denying the movants' motion for bill of particulars) had already declared to be
part of the PCGG's proof upon trial; and

3) that the interrogatories would make PCGG Commissioners and officers witnesses, in contravention of Executive Order No. 14 and related issuances; and

b) as regards the order granting the motion for production of documents:

1) that movants had not shown any good cause therefor;

2) that some documents sought to be produced and inspected had already been presented in Court and marked preliminarily as PCGG's exhibits, and the
movants had viewed, scrutinized and even offered objections thereto and made comments thereon; and
3) that the other documents sought to be produced are either —

(a) privileged in character or confidential in nature and their use is proscribed by the immunity provisions of Executive Order No. 1, or

(b) non-existent, or mere products of the movants' suspicion and fear.

This Court issued a temporary restraining order on October 27, 1989, directing the Sandiganbayan to desist from enforcing its questioned resolutions of September 29, 1989 in Civil Case No. 0008. 21

After the issues were delineated and argued at no little length by the parties, the Solicitor General withdrew "as counsel for plaintiff . . with the reservation, however, conformably with Presidential Decree No. 478, the provisions of Executive

 to submit his comment/observation on

Order No. 292, as well as the decisional law of 'Orbos v. Civil Service Commission, et al.,' (G.R. No. 92561, September 12, 1990) 22

incidents/matters pending with this . . Court if called for by circumstances in the interest of
the Government or if he is so required by the Court."   This, the Court allowed by Resolution 23

dated January 21, 1991.  24

Subsequently, PCGG Commissioner Maximo A. Maceren advised the Court that the cases from which the Solicitor General had withdrawn would henceforth be under his (Maceren's) charge "and/or any of the following private attorneys:
Eliseo B. Alampay, Jr., Mario E. Ongkiko, Mario Jalandoni and such other attorneys as it may later authorize." 25

The facts not being in dispute, and it appearing that the parties have fully ventilated their respective positions, the Court now proceeds to decide the case.

 and production and inspection of

Involved in the present proceedings are two of the modes of discovery provided in the Rules of Court: interrogatories to parties , 26

documents and things.   Now, it appears to the Court that among far too many lawyers (and
27

not a few judges), there is, if not a regrettable unfamiliarity and even outright ignorance
about the nature, purposes and operation of the modes of discovery, at least a strong yet
unreasoned and unreasonable disinclination to resort to them — which is a great pity for the
intelligent and adequate use of the deposition-discovery mechanism, coupled with pre-trial
procedure, could, as the experience of other jurisdictions convincingly demonstrates,
effectively shorten the period of litigation and speed up adjudication.   Hence, a few words 28

about these remedies is not at all inappropriate.

The resolution of controversies is, as everyone knows, the raison d'etre of courts. This
essential function is accomplished by first, the ascertainment of all the material and relevant
facts from the pleadings and from the evidence adduced by the parties, and second, after
that determination of the facts has been completed, by the application of the law thereto to
the end that the controversy may be settled authoritatively, definitely and finally.

It is for this reason that a substantial part of the adjective law in this jurisdiction is occupied
with assuring that all the facts are indeed presented to the Court; for obviously, to the extent
that adjudication is made on the basis of incomplete facts, to that extent there is faultiness in
the approximation of objective justice. It is thus the obligation of lawyers no less than of
judges to see that this objective is attained; that is to say, that there no suppression,
obscuration, misrepresentation or distortion of the facts; and that no party be unaware of any
fact material a relevant to the action, or surprised by any factual detail suddenly brought to
his attention during the trial.  29
  this Court described the nature and object of litigation and in the process
Seventy-one years ago, in Alonso v. Villamor, 30

laid down the standards by which judicial contests are to be conducted in this jurisdiction. It
said:

A litigation is not a game of technicalities in which one, more deeply schooled and
skilled in the subtle art of movement and position, entraps and destroys the other. It
is, rather a contest in which each contending party fully and fairly lays before the
court the facts in issue and then brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that justice be done on
the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts. There should be no
vested right in technicalities. . . .

The message is plain. It is the duty of each contending party to lay before the court the facts
in issue-fully and fairly; i.e., to present to the court all the material and relevant facts known
to him, suppressing or concealing nothing, nor preventing another party, by clever and adroit
manipulation of the technical rules of pleading and evidence, from also presenting all the
facts within his knowledge.

Initially, that undertaking of laying the facts before the court is accomplished by the pleadings
filed by the parties; but that, only in a very general way. Only "ultimate facts" are set forth in
the pleadings; hence, only the barest outline of the facfual basis of a party's claims or
defenses is limned in his pleadings. The law says that every pleading "shall contain in a
methodical and logical form, a plain, concise and direct statement of the ultimate facts on
which the party pleading relies for his claim or defense, as the case may be, omitting the
statement of mere evidentiary facts."  31

Parenthetically, if this requirement is not observed, i.e., the ultimate facts are alleged too generally or "not averred with sufficient definiteness or particularity to
enable . . (an adverse party) properly to prepare his responsive pleading or to prepare for trial," a bill of particulars seeking a "more definite statement" may be
ordered by the court on motion of a party. The office of a bill of particulars is, however, limited to making more particular or definite the ultimate facts in a pleading
It is not its office to supply evidentiary matters. And the common perception is that said evidentiary details are made known to the parties and the court only
during the trial, when proof is adduced on the issues of fact arising from the pleadings.

The truth is that "evidentiary matters" may be inquired into and learned by the parties before the trial. Indeed, it is the purpose and policy of the law that the parties — before the trial if not indeed even before the pre-trial — should discover or
inform themselves of all the facts relevant to the action, not only those known to them individually, but also those known to adversaries; in other words, the desideratum is that civil trials should not be carried on in the dark; and the Rules of
Court make this ideal possible through the deposition-discovery mechanism set forth in Rules 24 to 29. The experience in other jurisdictions has been that ample discovery before trial, under proper regulation, accomplished one of the most
necessary of modern procedure: it not only eliminates unessential issue from trials thereby shortening them considerably, but also requires parties to play the game with the cards on the table so that the possibility of fair settlement before trial
is measurably increased. . ." 32

As just intimated, the deposition-discovery procedure was designed to remedy the conceded inadequacy and cumbersomeness of the pre-trial functions of
notice-giving, issue-formulation and fact revelation theretofore performed primarily by the pleadings.
The various modes or instruments of discovery are meant to serve (1) as a device, along with the pre-trial hearing under Rule 20, to narrow and clarify the basic issues between the parties, and (2) as a device for ascertaining the facts relative
to those issues. The evident purpose is, to repeat, to enable parties, consistent with recognized privileges, to obtain the fullest possible knowledge of the issues and facts before trials and thus prevent that said trials are carried on in the
dark. 33

To this end, the field of inquiry that may be covered by depositions or interrogatories is as broad as when the interrogated party is called as a witness to testify orally at trial. The inquiry extends to all facts which are relevant, whether they be
ultimate or evidentiary, excepting only those matters which are privileged. The objective is as much to give every party the fullest possible information of all the relevant facts before the trial as to obtain evidence for use upon said trial. The

principle is reflected in Section 2, Rule 24 (governing depositions) 34

 which generally allows the examination of a deponent —

1) "regarding any matter, not privileged, which is relevant to the subject of the

pending action, whether relating to the claim or defense of any other party;"

2) as well as:

(a) "the existence, description, nature, custody, condition and location of any books,
documents, or other tangible things" and

(b) "the identity and location of persons having knowledge of relevant facts."

What is chiefly contemplated is the discovery of every bit of information which may be useful
in the preparation for trial, such as the identity and location of persons having knowledge of
relevant facts; those relevant facts themselves; and the existence, description, nature,
custody, condition, and location of any books, documents, or other tangible things. Hence,
"the deposition-discovery rules are to be accorded a broad and liberal treatment. No longer
can the time-honored cry of "fishing expedition" serve to preclude a party from inquiring into
the facts underlying his opponent's case. Mutual knowledge of all the relevant facts gathered
by both parties is essential to proper litigation. To that end, either party may compel the other
to disgorge whatever facts he has in his possession. The deposition-discovery procedure
simply advances the stage at which the disclosure can be compelled from the time of trial to
the period preceding it, thus reducing the possibility, of surprise, . . .  35

In line with this principle of according liberal treatment to the deposition-discovery mechanism, such modes of discovery as (a) depositions (whether by oral examination or written interrogatories) under Rule 24, (b) interrogatories to parties
under Rule 25, and (c) requests for admissions under Rule 26, may be availed of without leave of court, and generally, without court intervention. The Rules of Court explicitly provide that leave of court is not necessary to avail of said modes

 It is only when an answer has not yet been filed (but after
of discovery after an answer to the complaint has been served. 36

jurisdiction has been obtained over the defendant or property subject of the action) that prior
leave of court is needed to avail of these modes of discovery, the reason being that at that
time the issues are not yet joined and the disputed facts are not clear.  37

On the other hand, leave of court is required as regards discovery by (a) production or inspection of documents or things in accordance with Rule 27, or (b)
physical and mental examination of persons under Rule 28, which may be granted upon due application and a showing of due cause.

To ensure that availment of the modes of discovery is otherwise untrammeled and efficacious, the law imposes serious sanctions on the party who refuses to make discovery, such as dismissing the action or proceeding or part thereof, or
rendering judgment by default against the disobedient party; contempt of court, or arrest of the party or agent of the party; payment of the amount of reasonable expenses incurred in obtaining a court order to compel discovery; taking the
matters inquired into as established in accordance with the claim of the party seeking discovery; refusal to allow the disobedient party support or oppose designated claims or defenses; striking out pleadings or parts thereof; staying further
proceedings. 38

Of course, there are limitations to discovery, even when permitted to be undertaken without leave and without judicial intervention. "As indicated by (the) Rules . . ., limitations inevitably arise when it can be shown that the examination is being

 And . . . further limitations come into existence

conducted in bad faith or in such a manner as to annoy, embarass, or oppress the person subject to the inquiry. 39

when the inquiry touches upon the irrelevant or encroaches upon the recognized domains of
privilege."  40
In fine, the liberty of a party to make discovery is well nigh unrestricted if the matters inquired into are otherwise relevant and not privileged, and the inquiry is
made in good faith and within the bounds of the law.

It is in light of these broad principles underlying the deposition-discovery mechanism, in relation of course to the particular rules directly involved, that the issues
in this case will now be resolved.

The petitioner's objections to the interrogatories served on it in accordance with Rule 25 of the Rules of Court cannot be sustained.

 — that it was correct for them to seek

It should initially be pointed out — as regards the private respondents "Motion for Leave to File Interrogatories" dated February 1, 1988 41

leave to serve interrogatories, because discovery was being availed of before an answer had
been served. In such a situation, i.e., "after jurisdiction has been obtained over any
defendant or over property subject of the action" but before answer, Section 1 of Rule 24
(treating of depositions), in relation to Section 1 of Rule 25 (dealing with interrogatories to
parties) explicitly requires "leave of court."   But there was no need for the private 42

respondents to seek such leave to serve their "Amended Interrogatories to Plaintiff" (dated
August 2, 1989  ) after they had filed their answer to the PCGG's complaint, just as there
43

was no need for the Sandiganbayan to act thereon.

1. The petitioner's first contention — that the interrogatories in question are defective
because they (a) do not name the particular individuals to whom they are propounded, being
addressed only to the PCGG, and (b) are "fundamentally the same matters . . (private
respondents) sought to be clarified through their aborted Motion . . for Bill of Particulars" —
are untenable and quickly disposed of.

The first part of petitioner's submission is adequately confuted by Section 1, Rule 25 which
states that if the party served with interrogatories is a juridical entity such as "a public or
private corporation or a partnership or association," the same shall be "answered . . by any
officer thereof competent to testify in its behalf." There is absolutely no reason why this
proposition should not be applied by analogy to the interrogatories served on the PCGG.
That the interrogatories are addressed only to the PCGG, without naming any specific
commissioner o officer thereof, is utterly of no consequence, and may not be invoked as a
reason to refuse to answer. As the rule states, the interrogatories shall be answered "by any
officer thereof competent to testify in its behalf."

That the matters on which discovery is desired are the same matters subject of a prior
motion for bill of particulars addressed to the PCGG's amended complaint — and denied for
lack of merit — is beside the point. Indeed, as already pointed out above, a bill of particulars
may elicit only ultimate facts, not so-called evidentiary facts. The latter are without doubt
proper subject of discovery.  44

Neither may it be validly argued that the amended interrogatories lack specificity. The merest glance at them disproves the argument. The interrogatories are made to relate to individual paragraphs of the PCGG's expanded complaint and
inquire about details of the ultimate facts therein alleged. What the PCGG may properly do is to object to specific items of the interrogatories, on the ground of lack of relevancy, or privilege, or that the inquiries are being made in bad faith, or

 But until such an objection is presented and sustained, the obligation to

simply to embarass or oppress it. 45

answer subsists.

2. That the interrogatories deal with factual matters which will be part of the PCGG's proof
upon trial, is not ground for suppressing them either. As already pointed out, it is the precise
purpose of discovery to ensure mutual knowledge of all the relevant facts on the part of all
parties even before trial, this being deemed essential to proper litigation. This is why either
party may compel the other to disgorge whatever facts he has in his possession; and the
stage at which disclosure of evidence is made is advanced from the time of trial to the period
preceding it.

3. Also unmeritorious is the objection that the interrogatories would make PCGG
Commissioners and officers witnesses, in contravention of Executive Order No. 14 and
related issuances. In the first place, there is nothing at all wrong in a party's making his
adversary his witness .   This is expressly allowed by Section 6, Rule 132 of the Rules of
46

Court, viz.:

Sec. 6. Direct examination of unwilling or hostile witnesses. — A party may . . . call

an adverse party or an officer, director, or managing agent of a public or private
corporation or of a partnership or association which is an adverse party, and
interrogate him by leading questions and contradict and impeach him in all respects
as if he had been called by the adverse party, and the witness thus called may be
contradicted and impeached by or on behalf of the adverse party also, and may be
cross-examined by the adverse party only upon the subject-matter of his examination
in chief.

The PCGG insinuates that the private respondents are engaged on a "fishing expedition,"
apart from the fact that the information sought is immaterial since they are evidently meant to
establish a claim against PCGG officers who are not parties to the action. It suffices to point
out that "fishing expeditions" are precisely permitted through the modes of
discovery.   Moreover, a defendant who files a counterclaim against the plaintiff is allowed by
47

the Rules to implead persons (therefore strangers to the action) as additional defendants on
said counterclaim. This may be done pursuant to Section 14, Rule 6 of the Rules, to wit:

Sec. 14. Bringing new parties. — When the presence of parties other than those to
the original action is required for the granting of complete relief in the determination
of a counterclaim or cross-claim, the court shall order them to be brought in as
defendants, if jurisdiction over them can be obtained."

The PCGG's assertion that it or its members are not amenable to any civil action "for
anything done or omitted in the discharge of the task contemplated by . . (Executive) Order
(No. 1)," is not a ground to refuse to answer the interrogatories. The disclosure of facto
relevant to the action and which are not self-incriminatory or otherwise privileged is one
thing; the matter of whether or not liability may arise from the facts disclosed in light of
Executive Order
No. 1, is another. No doubt, the latter proposition may properly be set up by way of defense
in the action.

The apprehension has been expressed that the answers to the interrogatories may be
utilized as foundation for a counterclaim against the PCGG or its members and officers. They
will be. The private respondents have made no secret that this is in fact their intention.
Withal, the Court is unable to uphold the proposition that while the PCGG obviously feels
itself at liberty to bring actions on the basis of its study and appreciation of the evidence in its
possession, the parties sued should not be free to file counterclaims in the same actions
against the PCGG or its officers for gross neglect or ignorance, if not downright bad faith or
malice in the commencement or initiation of such judicial proceedings, or that in the actions
that it may bring, the PCGG may opt not to be bound by rule applicable to the parties it has
sued, e.g., the rules of discovery.
So, too, the PCGG's postulation that none of its members may be "required to testify or
produce evidence in any judicial . . proceeding concerning matters within its official
cognizance," has no application to a judicial proceeding it has itself initiated. As just
suggested, the act of bringing suit must entail a waiver of the exemption from giving
evidence; by bringing suit it brings itself within the operation and scope of all the rules
governing civil actions, including the rights and duties under the rules of discovery.
Otherwise, the absurd would have to be conceded, that while the parties it has impleaded as
defendants may be required to "disgorge all the facts" within their knowledge and in their
possession, it may not itself be subject to a like compulsion.

The State is, of course, immune from suit in the sense that it cannot, as a rule, be sued
without its consent. But it is axiomatic that in filing an action, it divests itself of its sovereign
character and sheds its immunity from suit, descending to the level of an ordinary litigant.
The PCGG cannot claim a superior or preferred status to the State, even while assuming to
represent or act for the State.  48

 that the State makes no implied waiver of immunity by filing suit except when in so
The suggestion 49

doing it acts in, or in matters concerning, its proprietary or non-governmental capacity, is

unacceptable; it attempts a distinction without support in principle or precedent. On the
contrary —

The consent of the State to be sued may be given expressly or impliedly. Express
consent may be manifested either through a general law or a special law. Implied
consent is given when the State itself commences litigation or when it enters into a
contract.  50

The immunity of the State from suits does not deprive it of the right to sue private parties in its own courts. The state as plaintiff may avail itself of the different forms of actions open to private litigants. In short, by taking the
initiative in an action against the private parties, the state surrenders its privileged position and comes down to the level of the defendant. The latter automatically acquires, within certain limits, the right to set up whatever
claims and other defenses he might have against the state. . . . (Sinco, Philippine Political Law, Tenth E., pp. 36-37, citing U.S. vs. Ringgold, 8 Pet. 150, 8 L. ed. 899)" 51

It can hardly be doubted that in exercising the right of eminent domain, the State exercises its  jus imperii, as distinguished from its proprietary rights or jus gestionis. Yet, even in that area, it has been held that where private property has been
taken in expropriation without just compensation being paid, the defense of immunity from suit cannot be set up by the State against an action for payment by the owner. 52

The Court also finds itself unable to sustain the PCGG's other principal contention, of the nullity of the Sandiganbayan's Order for the production and inspection
of specified documents and things allegedly in its possession.

The Court gives short shrift to the argument that some documents sought to be produced and inspected had already been presented in Court and marked
preliminarily as PCGG's exhibits, the movants having in fact viewed, scrutinized and even offered objections thereto and made comments thereon. Obviously,
there is nothing secret or confidential about these documents. No serious objection can therefore be presented to the desire of the private respondents to have
copies of those documents in order to study them some more or otherwise use them during the trial for any purpose allowed by law.

The PCGG says that some of the documents are non-existent. This it can allege in response to the corresponding question in the interrogatories, and it will incur
no sanction for doing so unless it is subsequently established that the denial is false.

The claim that use of the documents is proscribed by Executive Order No. 1 has already been dealt with. The PCGG is however at liberty to allege and prove that
said documents fall within some other privilege, constitutional or statutory.
  Some of the
The Court finally finds that, contrary to the petitioner's theory, there is good cause for the production and inspection of the documents subject of the motion dated August 3, 1989. 53

documents are, according to the verification of the amended complaint, the basis of several
of the material allegations of said complaint. Others, admittedly, are to be used in evidence
by the plaintiff. It is matters such as these into which inquiry is precisely allowed by the rules
of discovery, to the end that the parties may adequately prepare for pre-trial and trial. The
only other documents sought to be produced are needed in relation to the allegations of the
counterclaim. Their relevance is indisputable; their disclosure may not be opposed.

One last word. Due no doubt to the deplorable unfamiliarity respecting the nature, purposes
and operation of the modes of discovery earlier
mentioned,   there also appears to be a widely entertained idea that application of said
54

modes is a complicated matter, unduly expensive and dilatory. Nothing could be farther from
the truth. For example, as will already have been noted from the preceding discussion, all
that is entailed to activate or put in motion the process of discovery by interrogatories to
parties under Rule 25 of the Rules of Court, is simply the delivery directly to a party of a letter
setting forth a list of least questions with the request that they be answered
individually.   That is all. The service of such a communication on the party has the effect of
55

imposing on him the obligation of answering the questions "separately and fully in writing
underoath," and serving "a copy of the answers on the party submitting the interrogatories
within fifteen (15) days after service of the interrogatories . . ."   The sanctions for refusing to 56

make discovery have already been mentioned.   So, too, discovery under Rule 26 is begun 57

by nothing more complex than the service on a party of a letter or other written
communication containing a request that specific facts therein set forth and/or particular
documents copies of which are thereto appended, be admitted in writing.   That is all. Again, 58

the receipt of such a communication by the party has the effect of imposing on him the
obligation of serving the party requesting admission with "a sworn statement either denying
specifically the matters of which an admission is requested or setting forth in detail the
reasons why he cannot truthfully either admit or deny those matters," failing in which "(e)ach
of the matters of which admission is requested shall be deemed admitted."   The taking of 59

depositions in accordance with Rule 24 (either on oral examination or by written

interrogatories) while somewhat less simple, is nonetheless by no means as complicated as
seems to be the lamentably extensive notion.

WHEREFORE, the petition is DENIED, without pronouncement as to costs. The temporary

restraining order issued on October 27, 1989 is hereby LIFTED AND SET ASIDE.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin, Griño-Aquino, Medialdea,
Regalado and Davide, Jr., JJ., concur.
Melencio-Herrera, J., I also join Justice Cruz's concurrence.

Romero, J., took no part.

Separate Opinions
  

CRUZ, J., concurring:

I am delighted to concurr with Mr. Justice Andres R. Narvasa in his

scholarly ponencia which, besides reaching a conclusion sustained by the applicable law
and jurisprudence, makes for reading both pleasurable and instructive. One function of the
court not generally appreciated is to educate the reader on the intricacies and even the
mustique of the law. The opinion performs this function with impressive expertise and makes
the modes of discovery less esoteric or inaccessible to many members of the bar.

# Separate Opinions

CRUZ, J., concurring:

I am delighted to concurr with Mr. Justice Andres R. Narvasa in his scholarly ponencia
which, besides reaching a conclusion sustained by the applicable law and jurisprudence,
makes for coding both pleasurable and instructive. One function of the court not generally
appreciated is to educate the reader on the intricacies and even the mustique of the law. The
opinion performs this function with impressive expertise and makes the modes of discovery
less esoteric or inaccessible to many members of the bar.

When it is Inequitable for the State to Claim Immunity

Amigable vs. Cuenca (G.R. No. L-26400, February 29, 1972)

Suits against Public Officer

G.R. No. L-46930 June 10, 1988

DALE SANDERS, AND A.S. MOREAU, JR, petitioners,

vs.
HON. REGINO T. VERIDIANO II, as Presiding Judge, Branch I, Court of First Instance of
Zambales, Olongapo City, ANTHONY M. ROSSI and RALPH L. WYERS, respondents.

CRUZ, J.:

The basic issue to be resolved in this case is whether or not the petitioners were performing their official duties when they did the acts for
which they have been sued for damages by the private respondents. Once this question is decided, the other answers will fall into place and
this petition need not detain us any longer than it already has.

Petitioner Sanders was, at the time the incident in question occurred, the special services director of
the U.S. Naval Station (NAVSTA) in Olongapo City.   Petitioner Moreau was the commanding officer
1

of the Subic Naval Base, which includes the said station.   Private respondent Rossi is an American
2

citizen with permanent residence in the Philippines,  as so was private respondent Wyer, who died
3

two years ago.   They were both employed as gameroom attendants in the special services
4

department of the NAVSTA, the former having been hired in 1971 and the latter in 1969.  5
On October 3, 1975, the private respondents were advised that their employment had been
converted from permanent full-time to permanent part-time, effective October 18, 1975.   Their6

reaction was to protest this conversion and to institute grievance proceedings conformably to the
pertinent rules and regulations of the U.S. Department of Defense. The result was a
recommendation from the hearing officer who conducted the proceedings for the reinstatement of
the private respondents to permanent full-time status plus backwages. The report on the hearing
contained the observation that "Special Services management practices an autocratic form of
supervision." 7

In a letter addressed to petitioner Moreau on May 17, 1976 (Annex "A" of the complaint), Sanders
disagreed with the hearing officer's report and asked for the rejection of the abovestated
recommendation. The letter contained the statements that: a ) "Mr. Rossi tends to alienate most co-
workers and supervisors;" b) "Messrs. Rossi and Wyers have proven, according to their immediate
supervisors, to be difficult employees to supervise;" and c) "even though the grievants were under
oath not to discuss the case with anyone, (they) placed the records in public places where others not
involved in the case could hear."

On November 7, 1975, before the start of the grievance hearings, a-letter (Annex "B" of the
complaint) purportedly corning from petitioner Moreau as the commanding general of the U.S. Naval
Station in Subic Bay was sent to the Chief of Naval Personnel explaining the change of the private
respondent's employment status and requesting concurrence therewith. The letter did not carry his
signature but was signed by W.B. Moore, Jr. "by direction," presumably of Moreau.

On the basis of these antecedent facts, the private respondent filed in the Court of First Instance of
Olongapo City a for damages against the herein petitioners on November 8, 1976.  The plaintiffs
8

claimed that the letters contained libelous imputations that had exposed them to ridicule and caused
them mental anguish and that the prejudgment of the grievance proceedings was an invasion of their
personal and proprietary rights.

The private respondents made it clear that the petitioners were being sued in their private or
personal capacity. However, in a motion to dismiss filed under a special appearance, the petitioners
argued that the acts complained of were performed by them in the discharge of their official duties
and that, consequently, the court had no jurisdiction over them under the doctrine of state immunity.

After extensive written arguments between the parties, the motion was denied in an order dated
March 8, 1977,   on the main ground that the petitioners had not presented any evidence that their
9

acts were official in nature and not personal torts, moreover, the allegation in the complaint was that
the defendants had acted maliciously and in bad faith. The same order issued a writ of preliminary
attachment, conditioned upon the filing of a P10,000.00 bond by the plaintiffs, against the properties
of petitioner Moreau, who allegedly was then about to leave the Philippines. Subsequently, to make
matters worse for the defendants, petitioner Moreau was declared in a default by the trial court in its
order dated August 9, 1977. The motion to lift the default order on the ground that Moreau's failure to
appear at the pre-trial conference was the result of some misunderstanding, and the motion for
reconsideration of the denial of the motion to dismiss, which was filed by the petitioner's new
lawyers, were denied by the respondent court on September 7, 1977.

This petition for certiorari, prohibition and preliminary injunction was thereafter filed before this Court,
on the contention that the above-narrated acts of the respondent court are tainted with grave abuse
of discretion amounting to lack of jurisdiction.
We return now to the basic question of whether the petitioners were acting officially or only in their
private capacities when they did the acts for which the private respondents have sued them for
damages.

It is stressed at the outset that the mere allegation that a government functionary is being sued in his
personal capacity will not automatically remove him from the protection of the law of public officers
and, if appropriate, the doctrine of state immunity. By the same token, the mere invocation of official
character will not suffice to insulate him from suability and liability for an act imputed to him as a
personal tort committed without or in excess of his authority. These well-settled principles are
applicable not only to the officers of the local state but also where the person sued in its courts
pertains to the government of a foreign state, as in the present case.

The respondent judge, apparently finding that the complained acts were prima facie personal and
tortious, decided to proceed to trial to determine inter alia their precise character on the strength of
the evidence to be submitted by the parties. The petitioners have objected, arguing that no such
evidence was needed to substantiate their claim of jurisdictional immunity. Pending resolution of this
question, we issued a temporary restraining order on September 26, 1977, that has since then
suspended the proceedings in this case in the court a quo.

In past cases, this Court has held that where the character of the act complained of can be
determined from the pleadings exchanged between the parties before the trial, it is not necessary for
the court to require them to belabor the point at a trial still to be conducted. Such a proceeding would
be superfluous, not to say unfair to the defendant who is subjected to unnecessary and avoidable
inconvenience.

Thus, in Baer v. Tizon,   we held that a motion to dismiss a complaint against the commanding
10

general of the Olongapo Naval Base should not have been denied because it had been sufficiently
shown that the act for which he was being sued was done in his official capacity on behalf of the
American government. The United States had not given its consent to be sued. It was the reverse
situation in Syquia v. Almeda Lopez," where we sustained the order of the lower court granting a
where we motion to dismiss a complaint against certain officers of the U.S. armed forces also shown
to be acting officially in the name of the American government. The United States had also not
waived its immunity from suit. Only three years ago, in United States of America v. Ruiz,   we set
12

aside the denial by the lower court of a motion to dismiss a complaint for damages filed against the
United States and several of its officials, it appearing that the act complained of was governmental
rather than proprietary, and certainly not personal. In these and several other cases   the Court
13

found it redundant to prolong the other case proceedings after it had become clear that the suit could
not prosper because the acts complained of were covered by the doctrine of state immunity.

It is abundantly clear in the present case that the acts for which the petitioners are being called to
account were performed by them in the discharge of their official duties. Sanders, as director of the
special services department of NAVSTA, undoubtedly had supervision over its personnel, including
the private respondents, and had a hand in their employment, work assignments, discipline,
dismissal and other related matters. It is not disputed that the letter he had written was in fact a reply
to a request from his superior, the other petitioner, for more information regarding the case of the
private respondents.  Moreover, even in the absence of such request, he still was within his rights in
14

reacting to the hearing officer's criticism—in effect a direct attack against him—-that Special
Services was practicing "an autocratic form of supervision."

As for Moreau,what he is claimed to have done was write the Chief of Naval Personnel for
concurrence with the conversion of the private respondents' type of employment even before the
grievance proceedings had even commenced. Disregarding for the nonce the question of its
timeliness, this act is clearly official in nature, performed by Moreau as the immediate superior of
Sanders and directly answerable to Naval Personnel in matters involving the special services
department of NAVSTA In fact, the letter dealt with the financial and budgetary problems of the
department and contained recommendations for their solution, including the re-designation of the
private respondents. There was nothing personal or private about it.

Given the official character of the above-described letters, we have to conclude that the petitioners
were, legally speaking, being sued as officers of the United States government. As they have acted
on behalf of that government, and within the scope of their authority, it is that government, and not
the petitioners personally, that is responsible for their acts. Assuming that the trial can proceed and it
is proved that the claimants have a right to the payment of damages, such award will have to be
satisfied not by the petitioners in their personal capacities but by the United States government as
their principal. This will require that government to perform an affirmative act to satisfy the
judgment, viz, the appropriation of the necessary amount to cover the damages awarded, thus
making the action a suit against that government without its consent.

There should be no question by now that such complaint cannot prosper unless the government
sought to be held ultimately liable has given its consent to' be sued. So we have ruled not only in
Baer but in many other decisions where we upheld the doctrine of state immunity as applicable not
only to our own government but also to foreign states sought to be subjected to the jurisdiction of our
courts. 
15

The practical justification for the doctrine, as Holmes put it, is that "there can be no legal right against
the authority which makes the law on which the right depends.  In the case of foreign states, the rule
16

is derived from the principle of the sovereign equality of states which wisely admonishes that par in
parem non habet imperium and that a contrary attitude would "unduly vex the peace of
nations."   Our adherence to this precept is formally expressed in Article II, Section 2, of our
17

Constitution, where we reiterate from our previous charters that the Philippines "adopts the generally
accepted principles of international law as part of the law of the land.

All this is not to say that in no case may a public officer be sued as such without the previous
consent of the state. To be sure, there are a number of well-recognized exceptions. It is clear that a
public officer may be sued as such to compel him to do an act required by law, as where, say, a
register of deeds refuses to record a deed of sale;   or to restrain a Cabinet member, for example,
18

from enforcing a law claimed to be unconstitutional;   or to compel the national treasurer to pay
19

damages from an already appropriated assurance fund;   or the commissioner of internal revenue to
20

refund tax over-payments from a fund already available for the purpose;   or, in general, to secure a
21

judgment that the officer impleaded may satisfy by himself without the government itself having to do
a positive act to assist him. We have also held that where the government itself has violated its own
laws, the aggrieved party may directly implead the government even without first filing his claim with
the Commission on Audit as normally required, as the doctrine of state immunity "cannot be used as
an instrument for perpetrating an injustice." 22

This case must also be distinguished from such decisions as Festejo v. Fernando,   where the Court
23

held that a bureau director could be sued for damages on a personal tort committed by him when he
acted without or in excess of authority in forcibly taking private property without paying just
compensation therefor although he did convert it into a public irrigation canal. It was not necessary
to secure the previous consent of the state, nor could it be validly impleaded as a party defendant,
as it was not responsible for the defendant's unauthorized act.

The case at bar, to repeat, comes under the rule and not under any of the recognized exceptions.
The government of the United States has not given its consent to be sued for the official acts of the
petitioners, who cannot satisfy any judgment that may be rendered against them. As it is the
American government itself that will have to perform the affirmative act of appropriating the amount
that may be adjudged for the private respondents, the complaint must be dismissed for lack of
jurisdiction.

The Court finds that, even under the law of public officers, the acts of the petitioners are protected by
the presumption of good faith, which has not been overturned by the private respondents. Even
mistakes concededly committed by such public officers are not actionable as long as it is not shown
that they were motivated by malice or gross negligence amounting to bad faith.  This, to, is well
24

settled .  Furthermore, applying now our own penal laws, the letters come under the concept of
25

privileged communications and are not punishable,   let alone the fact that the resented remarks are
26

not defamatory by our standards. It seems the private respondents have overstated their case.

A final consideration is that since the questioned acts were done in the Olongapo Naval Base by the
petitioners in the performance of their official duties and the private respondents are themselves
American citizens, it would seem only proper for the courts of this country to refrain from taking
cognizance of this matter and to treat it as coming under the internal administration of the said base.

The petitioners' counsel have submitted a memorandum replete with citations of American cases, as
if they were arguing before a court of the United States. The Court is bemused by such attitude.
While these decisions do have persuasive effect upon us, they can at best be invoked only to
support our own jurisprudence, which we have developed and enriched on the basis of our own
persuasions as a people, particularly since we became independent in 1946.

We appreciate the assistance foreign decisions offer us, and not only from the United States but also
from Spain and other countries from which we have derived some if not most of our own laws. But
we should not place undue and fawning reliance upon them and regard them as indispensable
mental crutches without which we cannot come to our own decisions through the employment of our
own endowments We live in a different ambience and must decide our own problems in the light of
our own interests and needs, and of our qualities and even idiosyncrasies as a people, and always
with our own concept of law and justice.

The private respondents must, if they are still sominded, pursue their claim against the petitioners in
accordance with the laws of the United States, of which they are all citizens and under whose
jurisdiction the alleged offenses were committed. Even assuming that our own laws are applicable,
the United States government has not decided to give its consent to be sued in our courts, which
therefore has not acquired the competence to act on the said claim,.

WHEREFORE, the petition is GRANTED. The challenged orders dated March 8,1977, August
9,1977, and September 7, 1977, are SET ASIDE. The respondent court is directed to DISMISS Civil
Case No. 2077-O. Our Temporary restraining order of September 26,1977, is made PERMANENT.
No costs.

SO ORDERED.

EN BANC

[G.R. No. 84607. March 19, 1993.]

REPUBLIC OF THE PHILIPPINES, GEN. RAMON MONTANO, GEN. ALFREDO LIM,

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

[G.R. No. 84645. March 19, 1993.]

ERLINDA C. CAYLAO, ANATALIA ANGELES PEREZ, MYRNA BAUTISTA,

CIPRIANA EVANGELIO, ELMA GRAMPA, AMELIA GUTIERREZ, NEMESIO
LAKINDANUM, PURITA YUMUL, MIGUEL ARABE, TERESITA ARJONA, RONALDO
CAMPOMANES AND CARMENCITA ARDONI VDA. DE CAMPOMANES, ROGELIO
DOMUNICO, in their capacity as heirs of the deceased (ROBERTO C. CAYLAO,
SONNY "BOY" PEREZ, DIONESIO BAUTISTA, DANTE EVANGELIO, RODRIGO
GRAMPA, ANGELITO GUTIERREZ, BERNABE LAKINDANUM, ROBERTO YUMUL,
LEOPOLDO ALONZO, ADELFA ARIBE, DANILO ARJONA, VICENTE CAMPOMANES,
RONILO DOMUNICO) respectively; and (names of sixty-two injured victims)
EDDIE AGUINALDO, FELICISIMO ALBASIA, NAPOLEON BAUTISTA, DANILO
CRUZ, EDDIE MENSOLA, ALBERT PITALBO, VICENTE ROSEL, RUBEN CARRIEDO,
JOY CRUZ, HONORIO LABAMBA, JR. EFREN MACARAIG, SOLOMON MANALOTO,
ROMEO DURAN, NILO TAGUBAT, JUN CARSELLAR, JOEY CLEMENTE, GERARDO
COYOCA, LUISITO DACO, BENJAMIN DELA CRUZ, ARTHUR FONTANILLA,
WILSON GARCIA, CARLOS SIRAY, JOSE PERRAS, TOMAS VALLOS, ARNOLD
ENAJE, MARIANITA DIMAPILIS, FRANCISCO ANGELES, MARCELO ESGUERRA,
JOSE FERRER, RODEL DE GUIA, ELVIS MENDOZA, VICTORINO QUIJANO, JOEY
ADIME, RESIENO ADUL, ALBERTO TARSONA, CARLOS ALCANTARA, MAMERTO
ALIAS, EMELITO ALMONTE, BENILDA ALONUEVO, EMMA ABADILLO, REYNALDO
CABALLES, JR., JAIME CALDETO, FABIAN CANTELEJO, RODRIGO CARABARA,
ENRIQUE DELGADO, JUN DELOS SANTOS, MARIO DEMASACA, FRANCISCO
GONZALES, ERNESTO GONZALES, RAMIRO JAMIL, JUAN LUCENA, PERLITO
SALAYSAY, JOHNNY SANTOS, MARCELO SANTOS, EMIL SAYAO, BAYANI UMALI,
REMIGIO MAHALIN, BONG MANLULO, ARMANDO MATIENZO, CARLO MEDINA,
LITO NOVENARIO, ROSELLA ROBALE, Petitioners, v. REPUBLIC OF THE
PHILIPPINES, and HONORABLE EDILBERTO G. SANDOVAL, Regional Trial Court
of Manila, Branch 9, Respondents.

SYLLABUS

1. POLITICAL LAW; PRINCIPLE OF STATE’S IMMUNITY FROM SUIT; CONSTRUED. —

Under our Constitution the principle of immunity of the government from suit is
expressly provided in Article XVI, Section 3. The principle is based on the very essence
of sovereignty, and on the practical ground that there can be no legal right as against
the authority that makes the law on which the right depends. It also rests on reasons of
public policy — that public service would be hindered, and the public endangered, if the
sovereign authority could be subjected to law suits at the instance of every citizen and
consequently controlled in the uses and dispositions of the means required for the
proper administration of the government.

2. ID.; ID.; NOT DEEMED WAIVED WHEN THE GOVERNMENT AUTHORIZES THE
INDEMNIFICATION FOR THE VICTIM OR THROUGH PUBLIC ADDRESSES MADE BY THE
PRESIDENT. — Petitioners (Caylao group) advance the argument that the State has
impliedly waived its sovereign immunity from suit. It is their considered view that by
the recommendation made by the Commission for the government to indemnity the
heirs and victims of the Mendiola incident and by the public addresses made by then
President Aquino in the aftermath of the killings, the State has consented to be sued.
This is not a suit against the State with its consent. Firstly, the recommendation made
by the Commission regarding indemnification of the heirs of the deceased and the
victims of the incident by the government does not in any way mean that liability
automatically attaches to the State. It is important to note that A.O. 11 expressly
states that the purpose of creating the Commission was to have a body that will
conduct an "investigation of the disorder, deaths and casualties that took place." In the
exercise of its functions, A.O. 11 provides guidelines, and what is relevant to Our
discussion reads: "1. Its conclusions regarding the existence of probable cause for the
commission of any offense and of the persons probably guilty of the same shall be
sufficient compliance with the rules on preliminary investigation and the charges arising
therefrom may be filed directly with the proper court." In effect, whatever may be the
findings of the Commission, the same shall only serve as the cause of action in the
event that any party decides to litigate his/her claim. Therefore, the Commission is
merely a preliminary venue. The Commission is not the end in itself. Whatever
recommendation it makes cannot in any way bind the State immediately, such
recommendation not having become final and executory. This is precisely the essence
of it being a fact-finding body. Secondly, whatever acts or utterances that then
President Aquino may have done or said, the same are not tantamount to the State
having waived its immunity from suit. The President’s act of joining the marchers, days
after the incident, does not mean that there was an admission by the State of any
liability. In fact to borrow the words of petitioners (Caylao group), "it was an act of
solidarity by the government with the people." Moreover, petitioners rely on President
Aquino’s speech promising that the government would address the grievances of the
rallyists. By this alone, it cannot be inferred that the State has admitted any liability,
much less can it be inferred that it has consented to the suit.

3. ID.; ID.; WHEN AVAILABLE; RULE; CASE AT BAR. — Some instances when a suit
against the State is proper are" (1) When the Republic is sued by name; (2) When the
suit is against an unincorporated government agency; (3) When the suit is on its face
against a government officer but the case is such that ultimate liability will belong not
to the officer but to the government. While the Republic in this case is sued by name,
the ultimate liability does not pertain to the government. Although the military officers
and personnel, then party defendants, were discharging their official functions when the
incident occurred, their functions ceased to be official the moment they exceeded their
authority. Based on the Commission findings, there was lack of justification by the
government forces in the use of firearms. Moreover, the members of the police and
military crowd dispersal units committed a prohibited act under B.P. Blg. 880 as there
was unnecessary firing by them in dispersing the marchers.

4. ID.; ID.; CANNOT INSTITUTIONALIZE IRRESPONSIBILITY AND NON-

ACCOUNTABILITY NOR GRANT A PRIVILEGE STATUS NOT CLAIMED BY ANY OTHER
OFFICIAL OF THE REPUBLIC. — As early as 1954, this Court has pronounced that an
officer cannot shelter himself by the plea that he is a public agent acting under the
color of his office when his acts are wholly without authority. Until recently in 1991, this
doctrine still found application, this Court saying that immunity from suit cannot
institutionalize irresponsibility and non-accountability nor grant a privileged status not
claimed by any other official of the Republic. The military and police forces were
deployed to ensure that the rally would be peaceful and orderly as well as to guarantee
the safety of the very people that they are duty-bound to protect. However, the facts as
found by the trial court showed that they fired at the unruly crowd to disperse the
latter.

5. ID.; ID.; DOES NOT APPLY WHEN THE RELIEF DEMANDED BY THE SUIT REQUIRES
NO AFFIRMATIVE OFFICIAL ACTION ON THE PART OF THE STATE NOR THE
AFFIRMATIVE DISCHARGE OF ANY OBLIGATION WHICH BELONGS TO THE STATE IN
ITS POLITICAL CAPACITY. — While it is true that nothing is better settled than the
general rule that a sovereign state and its political subdivisions cannot be sued in the
courts except when it has given its consent, it cannot be invoked by both the military
officers to release them from any liability, and by the heirs and victims to demand
indemnification from the government. The principle of state immunity from suit does
not apply, as in this case, when the relief demanded by the suit requires no affirmative
official action on the part of the State nor the affirmative discharge of any obligation
which belongs to the State in its political capacity, even though the officers or agents
who are made defendants claim to hold or act only by virtue of a title of the state and
as its agents and servants. This Court has made it quite clear that even a "high position
in the government does not confer a license to persecute or recklessly injure another."

DECISION

CAMPOS, JR., J.:

People may have already forgotten the tragedy that transpired on January 22, 1987. It
is quite ironic that then, some journalists called it a Black Thursday, as a grim reminder
to the nation of the misfortune that befell twelve (12) rallyists. But for most Filipinos
now, the Mendiola massacre may now just as well be a chapter in our history books.
For those however, who have become widows and orphans, certainly they would not
settle for just that. They seek retribution for the lives taken that will never be brought
back to life again. chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

Hence, the heirs of the deceased, together with those injured(Caylao group), instituted
this petition, docketed as G.R. No. 84645, under Section 1 of Rule 65 of the Rules of
Court, seeking the reversal and setting aside of the Orders of respondent Judge
Sandoval, 1 dated May 31 and August 8, 1988, dismissing the complaint for damages of
herein petitioners against the Republic of the Philippines in Civil Case. No. 88-43351.

Petitioner, the Republic of the Philippines, through a similar remedy, docketed as G.R.
No. 84607, seeks to set aside the Order of respondent Judge dated May 31, 1988, in
Civil Case No. 88-43351 entitled "Erlinda Caylao, Et. Al. v. Republic of the Philippines,
Et. Al."
cralaw virtua1aw library

The pertinent portion of the questioned Order 2 dated May 31, 1988, reads as
follows: jgc:chanrobles.com.ph

"With respect however to the other defendants, the impleaded Military Officers, since
they are being charged in their personal and official capacity, and holding them liable, if
at all, would not result in financial responsibility of the government, the principle of
immunity from suit can not conveniently and correspondingly be applied to them.

WHEREFORE, the case as against the defendant Republic of the Philippines is hereby
dismissed. As against the rest of the defendants the motion to dismiss is denied. They
are given a period of ten (10) days from receipt of this order within which to file their
respective pleadings." cralaw virtua1aw library

On the other hand, the Order 3 , dated August 8, 1988, denied the motions filed by
both parties, for a reconsideration of the abovecited Order, respondent Judge finding no
cogent reason to disturb the said order.

The massacre was the culmination of eight days and seven nights of encampment by
members of the militant Kilusang Magbubukid sa Pilipinas (KMP) at the then Ministry
(now Department) of Agrarian Reform (MAR) at the Philippine Tobacco Administration
Building along Elliptical Road in Diliman, Quezon City.

The farmers and their sympathizers presented their demands for what they called
"genuine agrarian reform." The KMP, led by its national president, Jaime Tadeo,
presented their problems and demands, among which were: (a) giving lands for free to
farmers; (b) zero retention of lands by landlords; and (c) stop amortizations of land
payments.

The dialogue between the farmers and the MAR officials began on January 15, 1987.
The two days that followed saw a marked increase in people at the encampment. It was
only on January 19, 1987 that Jaime Tadeo arrived to meet with then Minister Heherson
Alvarez, only to be informed that the Minister can only meet with him the following day.
On January 20, 1987, the meeting was held at the MAR conference room. Tadeo
demanded that the minimum comprehensive land reform program be granted
immediately. Minister Alvarez, for his part, can only promise to do his best to bring the
matter to the attention of then President Aquino, during the cabinet meeting on January
21, 1987.

Tension mounted the following day. The farmers, now on their seventh day of
encampment, barricaded the MAR premises and prevented the employees from going
inside their offices. They hoisted the KMP flag together with the Philippine flag.

At around 6:30 p.m. of the same day, Minister Alvarez, in a meeting with Tadeo and his
leaders, advised the latter to instead wait for the ratification of the 1987 Constitution
and just allow the government to implement its comprehensive land reform program.
Tadeo, however, countered by saying that he did not believe in the Constitution and
that a genuine land reform cannot be realized under a landlord-controlled Congress. A
heated discussion ensued between Tadeo and Minister Alvarez. This notwithstanding,
Minister Alvarez suggested a negotiating panel from each side to meet again the
following day.

On January 22, 1987, Tadeo’s group instead decided to march to Malacañang to air
their demands. Before the march started, Tadeo talked to the press and TV media. He
uttered fiery words, the most telling of which were: ". . . inalis namin ang barikada
bilang kahilingan ng ating Presidente, pero kinakailangan alisin din niya ang barikada sa
Mendiola sapagkat bubutasin din namin iyon at dadanak ang dugo . . ." 4

The farmers then proceeded to march to Malacañang, from Quezon Memorial Circle, at
10:00 a.m. They were later joined by members of other sectoral organizations such as
the Kilusang Mayo Uno (KMU), Bagong Alyansang Makabayan (BAYAN), League of
Filipino Students (LFS) and Kongreso ng Pagkakaisa ng Maralitang Lungsod (KPML).

At around 1:00 p.m., the marchers reached Liwasang Bonifacio where they held a brief
program. It was at this point that some of the marchers entered the eastern side of the
Post Office Building, and removed the steel bars surrounding the garden. Thereafter,
they joined the march to Malacañang. At about 4:30 p.m., they reached C.M. Recto
Avenue.
In anticipation of a civil disturbance, and acting upon reports received by the Capital
Regional Command (CAPCOM) that the rallyists would proceed to Mendiola to break
through the police lines and rush towards Malacañang, CAPCOM Commander General
Ramon E. Montaño inspected the preparations and adequacy of the government forces
to quell impending attacks.

OPLAN YELLOW (Revised) was put into effect. Task Force Nazareno under the command
of Col. Cesar Nazareno was deployed at the vicinity of Malacañang. The civil
disturbance control units of the Western Police District under Police Brigadier General
Alfredo S. Lim were also activated.

Intelligence reports were also received that the KMP was heavily infiltrated by CPP/NPA
elements and that an insurrection was impending. The threat seemed grave as there
were also reports that San Beda College and Centro Escolar University would be forcibly
occupied.

In its report, the Citizens’ Mendiola Commission (a body specifically tasked to

investigate the facts surrounding the incident, Commission for short) stated that the
government anti-riot forces were assembled at Mendiola in a formation of three
phalanges, in the following manner: jgc:chanrobles.com.ph

"(1) The first line was composed of policemen from police stations Nos. 3, 4, 6, 7, 8, 9
and 10 and the Chinatown detachment of the Western Police District. Police Colonel
Edgar Dula Torres, Deputy Superintendent of the Western Police District, was
designated as ground commander of the CDC first line of defense. The WPD CDC
elements were positioned at the intersection of Mendiola and Legarda Streets after they
were ordered to move forward from the top of Mendiola bridge. The WPD forces were in
khaki uniform and carried the standard CDC equipment — aluminum shields,
truncheons and gas masks.

(2) At the second line of defense about ten (10) yards behind the WPD policemen were
the elements of the Integrated National Police (INP) Field Force stationed at Fort
Bonifacio from the 61st and 62nd INP Field Force, who carried also the standard CDC
equipment — truncheons, shields and gas masks. The INP Field Force was under the
command of Police Major Demetrio dela Cruz.

(3) Forming the third line was the Marine Civil Disturbance Control Battalion composed
of the first and second companies of the Philippine Marines stationed at Fort Bonifacio.
The marines were all equipped with shields, truncheons and M-16 rifles (armalites)
slung at their backs, under the command of Major Felimon B. Gasmin. The Marine CDC
Battalion was positioned in line formation ten (10) yards farther behind the INP Field
Force.

At the back of the marines were four (4) 6 x 6 army trucks, occupying the entire width
of Mendiola street, followed immediately by two water cannons, one on each side of the
street and eight fire trucks, four trucks on each side of the street. The eight fire trucks
from Fire District I of Manila under Fire Superintendent Mario C. Tanchanco, were to
supply water to the two water cannons.

Stationed farther behind the CDC forces were the two Mobile Dispersal Teams (MDT)
each composed of two tear gas grenadiers, two spotters, an assistant grenadier, a
driver and the team leader.

In front of the College of the Holy Spirit near Gate 4 of Malacañang stood the VOLVO
Mobile Communications Van of the Commanding General of CAPCOM/INP, General
Ramon E. Montaño. At this command post, after General Montaño had conferred with
TF Nazareno Commander, Colonel Cezar Nazareno, about the adequacy and readiness
of his forces, it was agreed that Police General Alfredo S. Lim would designate Police
Colonel Edgar Dula Torres and Police Major Conrado Francisco as negotiators with the
marchers. Police General Lim then proceeded to the WPD CDC elements already
positioned at the foot of Mendiola bridge to relay to Police Colonel Torres and Police
Major Francisco the instructions that the latter would negotiate with the marchers." 5
(Emphasis supplied)

The marchers, at around 4:30 p.m., numbered about 10,000 to 15,000. From C.M.
Recto Avenue, they proceeded toward the police lines. No dialogue took place between
the marchers and the anti-riot squad. It was at this moment that a clash occurred and,
borrowing the words of the Commission "pandemonium broke loose." The Commission
stated in its findings, to wit:
jgc:chanrobles.com.ph

". . . There was an explosion followed by throwing of pillboxes, stones and bottles. Steel
bars, wooden clubs and lead pipes were used against the police. The police fought back
with their shields and truncheons. The police line was breached. Suddenly shots were
heard. The demonstrators disengaged from the government forces and retreated
towards C.M. Recto Avenue. But sporadic firing continued from the government forces.

After the firing ceased, two MDTs headed by Lt. Romeo Paguinto and Lt. Laonglaan
Goce sped towards Legarda Street and lobbed tear gas at the remaining rallyist still
grouped in the vicinity of Mendiola. After dispersing the crowd, the two MDTs, together
with the two WPD MDTs, proceeded to Liwasang Bonifacio upon order of General
Montaño to disperse the rallyists assembled thereat. Assisting the MDTs were a number
of policemen from the WPD, attired in civilian clothes with white head bands, who were
armed with long firearms." 6 (Emphasis ours)

After the clash, twelve (12) marchers were officially confirmed dead, although
according to Tadeo, there were thirteen (13) dead, but he was not able to give the
name and address of said victim. Thirty-nine (39) were wounded by gunshots and
twelve (12) sustained minor injuries, all belonging to the group of the marchers.

Of the police and military personnel, three (3) sustained gunshot wounds and twenty
(20) suffered minor physical injuries such as abrasions, contusions and the like.

In the aftermath of the confrontation, then President Corazon C. Aquino issued

Administrative Order No. 11, 7 (A.O. 11, for brevity) dated January 22, 1987, which
created the Citizens’ Mendiola Commission. The body was composed of retired Supreme
Court Justice Vicente Abad Santos as Chairman, retired Supreme Court Justice Jose Y.
Feria and Mr. Antonio U. Miranda, both as members. A.O. 11 stated that the
Commission was created precisely for the "purpose of conducting an investigation of the
disorder, deaths, and casualties that took place in the vicinity of Mendiola Bridge and
Mendiola Street and Claro M. Recto Avenue, Manila, in the afternoon of January 22,
1987." The Commission was expected to have submitted its findings not later than
February 6, 1987. But it failed to do so. Consequently, the deadline was moved to
February 16, 1987 by Administrative Order No. 13. Again, the Commission was unable
to meet this deadline. Finally, on February 27, 1987, it submitted its report, in
accordance with Administrative Order No. 17, issued on February 11, 1987.

In its report, the Commission recapitulated its findings, to wit: jgc:chanrobles.com.ph

"(1) The march to Mendiola of the KMP led by Jaime Tadeo, together with the other
sectoral groups, was not covered by any permit as required under Batas Pambansa Blg.
880, the Public Assembly Act of 1985, in violation of paragraph (a) Section 13,
punishable under paragraph (a), Section 14 of said law.

(2) The crowd dispersal control units of the police and the military were armed with .38
and .45 caliber handguns, and M-16 armalites, which is a prohibited act under
paragraph 4(g), Section 13, and punishable under paragraph (b), Section 14 of Batas
Pambansa Blg. 880.

(3) The security men assigned to protect the WPD, INP Field Force, the Marines and
supporting military units, as well as the security officers of the police and military
commanders were in civilian attire in violation of paragraph (a), Section 10, Batas
Pambansa 880.

(4) There was unnecessary firing by the police and military crowd dispersal control units
in dispersing the marchers, a prohibited act under paragraph (e), Section 13, and
punishable under paragraph (b), Section 14, Batas Pambansa Blg. 880.

(5) The carrying and use of steel bars, pillboxes, darts, lead pipe, wooden clubs with
spikes, and guns by the marchers as offensive weapons are prohibited acts punishable
under paragraph (g), Section 13, and punishable under paragraph (e), Section 14 of
Batas Pambansa Blg. 880.

(6) The KMP farmers broke off further negotiations with the MAR officials and were
determined to march to Malacañang, emboldened as they are, by the inflammatory and
incendiary utterances of their leader, Jaime Tadeo — "bubutasin namin ang barikada.
Dadanak and dugo . . . Ang nagugutom na magsasaka ay gagawa ng sariling
butas . . ."
cralaw virtua1aw library

(7) There was no dialogue between the rallyists and the government forces. Upon
approaching the intersections of Legarda and Mendiola, the marchers began pushing
the police lines and penetrated and broke through the first line of the CDC contingent.

(8) The police fought back with their truncheons and shields. They stood their ground
but the CDC line was breached. There ensued gunfire from both sides. It is not clear
who started the firing.

(9) At the onset of the disturbance and violence, the water cannons and tear gas were
not put into effective use to disperse the rioting crowd.

(10) The water cannons and fire trucks were not put into operation because (a) there
was no order to use them; (b) they were incorrectly prepositioned; and (c) they were
out of range of the marchers.

(11) Tear gas was not used at the start of the disturbance to disperse the rioters. After
the crowd had dispersed and the wounded and dead were being carried away, the MDTs
of the police and the military with their tear gas equipment and components conducted
dispersal operations in the Mendiola area and proceeded to Liwasang Bonifacio to
disperse the remnants of the marchers.

(12) No barbed wire barricade was used in Mendiola but no official reason was given for
its absence." 8

From the results of the probe, the Commission recommended 9 the criminal prosecution
of four unidentified, uniformed individuals, shown either on tape or in pictures, firing at
the direction of the marchers. In connection with this, it was the Commission’s
recommendation that the National Bureau of Investigation (NBI) be tasked to
undertake investigations regarding the identities of those who actually fired their guns
that resulted in the death of or injury to the victims of the incident. The Commission
also suggested that all the commissioned officers of both the Western Police District and
the INP Field Force, who were armed during the incident, be prosecuted for violation of
paragraph 4(g) of Section 13, Batas Pambansa Blg. 880, the Public Assembly Act of
1985. The Commission’s recommendation also included the prosecution of the
marchers, for carrying deadly or offensive weapons, but whose identities have yet to be
established. As for Jaime Tadeo, the Commission said that he should be prosecuted
both for violation of paragraph (a), Section 13, Batas Pambansa Blg. 880 for holding
the rally without a permit and for violation of Article 142, as amended, of the Revised
Penal Code for inciting to sedition. As for the following officers, namely: (1) Gen.
Ramon E. Montaño; (2) Police Gen. Alfredo S. Lim; (3) Police Gen. Edgar Dula Torres;
(4) Police Maj. Demetrio dela Cruz; (5) Col. Cezar Nazareno; and (5) Maj. Felimon
Gasmin, for their failure to make effective use of their skill and experience in directing
the dispersal operations in Mendiola, administrative sanctions were recommended to be
imposed. chanrobles law library : red

The last and the most significant recommendation of the Commission was for the
deceased and wounded victims of the Mendiola incident to be compensated by the
government. It was this portion that petitioners (Caylao group) invoke in their claim for
damages from the government.

Notwithstanding such recommendation, no concrete form of compensation was received

by the victims. Thus, on July 27, 1987, herein petitioners, (Caylao group) filed a formal
letter of demand for compensation from the Government. 10 This formal demand was
indorsed by the office of the Executive Secretary to the Department of Budget and
Management (DBM) on August 13, 1987. The House Committee on Human Rights, on
February 10, 1988, recommended the expeditious payment of compensation to the
Mendiola victims. 11

After almost a year, on January 20, 1988, petitioners (Caylao group) were constrained
to institute an action for damages against the Republic of the Philippines, together with
the military officers, and personnel involved in the Mendiola incident, before the trial
court. The complaint was docketed as Civil Case No. 88-43351.
On February 23, 1988, the Solicitor General filed a Motion to Dismiss on the ground
that the State cannot be sued without its consent. Petitioners opposed said motion on
March 16, 1988, maintaining that the State has waived its immunity from suit and that
the dismissal of the instant action is contrary to both the Constitution and the
International Law on Human Rights.

Respondent Judge Sandoval, in his first questioned Order, dismissed the complaint as
against the Republic of the Philippines on the ground that there was no waiver by the
State. Petitioners (Caylao group) filed a Motion for Reconsideration therefrom, but the
same was denied by respondent judge in his Order dated August 8, 1988.
Consequently, Caylao and her co-petitioners filed the instant petition.

On the other hand, the Republic of the Philippines, together with the military officers
and personnel impleaded as defendants in the court below, filed its petition
for certiorari.

Having arisen from the same factual beginnings and raising practically identical issues,
the two (2) petitions were consolidated and will therefore be jointly dealt with and
resolved in this Decision.

The resolution of both petitions revolves around the main issue of whether or not the
State has waived its immunity from suit.

Petitioners (Caylao group) advance the argument that the State has impliedly waived
its sovereign immunity from suit. It is their considered view that by the
recommendation made by the Commission for the government to indemnify the heirs
and victims of the Mendiola incident and by the public addresses made by then
President Aquino in the aftermath of the killings, the State has consented to be sued.

Under our Constitution the principle of immunity of the government from suit is
expressly provided in Article XVI, Section 3. The principle is based on the very essence
of sovereignty, and on the practical ground that there can be no legal right as against
the authority that makes the law on which the right depends. 12 It also rests on
reasons of public policy — that public service would be hindered, and the public
endangered, if the sovereign authority could be subjected to law suits at the instance of
every citizen and consequently controlled in the uses and dispositions of the means
required for the proper administration of the government. 13

This is not a suit against the State with its consent.

Firstly, the recommendation made by the Commission regarding indemnification of the

heirs of the deceased and the victims of the incident by the government does not in any
way mean that liability automatically attaches to the State. It is important to note that
A.O. 11 expressly states that the purpose of creating the Commission was to have a
body that will conduct an "investigation of the disorder, deaths and casualties that took
place." 14 In the exercise of its functions, A.O. 11 provides guidelines, and what is
relevant to Our discussion reads: jgc:chanrobles.com.ph

"1. Its conclusions regarding the existence of probable cause for the commission of any
offense and of the persons probably guilty of the same shall be sufficient compliance
with the rules on preliminary investigation and the charges arising therefrom may be
filed directly with the proper court." 15

In effect, whatever may be the findings of the Commission, the same shall only serve
as the cause of action in the event that any party decides to litigate his/her claim.
Therefore, the Commission is merely a preliminary venue. The Commission is not the
end in itself. Whatever recommendation it makes cannot in any way bind the State
immediately, such recommendation not having become final and executory. This is
precisely the essence of it being a fact-finding body.

Secondly, whatever acts or utterances that then President Aquino may have done or
said, the same are not tantamount to the State having waived its immunity from suit.
The President’s act of joining the marchers, days after the incident, does not mean that
there was an admission by the State of any liability. In fact to borrow the words of
petitioners (Caylao group), "it was an act of solidarity by the government with the
people." Moreover, petitioners rely on President Aquino’s speech promising that the
government would address the grievances of the rallyists. By this alone, it cannot be
inferred that the State has admitted any liability, much less can it be inferred that it has
consented to the suit.

Although consent to be sued may be given impliedly, still it cannot be maintained that
such consent was given considering the circumstances obtaining in the instant case.

Thirdly, the case does not qualify as a suit against the State.

Some instances when a suit against the State is proper are: 16

(1) When the Republic is sued by name;

(2) When the suit is against an unincorporated government agency;

(3) When the suit is on its face against a government officer but the case is such that
ultimate liability will belong not to the officer but to the government.

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

As early as 1954, this Court has pronounced that an officer cannot shelter himself by
the plea that he is a public agent acting under the color of his office when his acts are
wholly without authority. 20 Until recently in 1991, 21 this doctrine still found
application, this Court saying that immunity from suit cannot institutionalize
irresponsibility and non-accountability nor grant a privileged status not claimed by any
other official of the Republic. The military and police forces were deployed to ensure
that the rally would be peaceful and orderly as well as to guarantee the safety of the
very people that they are duty-bound to protect. However, the facts as found by the
trial court showed that they fired at the unruly crowd to disperse the latter.

While it is true that nothing is better settled than the general rule that a sovereign state
and its political subdivisions cannot be sued in the courts except when it has given its
consent, it cannot be invoked by both the military officers to release them from any
liability, and by the heirs and victims to demand indemnification from the government.
The principle of state immunity from suit does not apply, as in this case, when the relief
demanded by the suit requires no affirmative official action on the part of the State nor
the affirmative discharge of any obligation which belongs to the State in its political
capacity, even though the officers or agents who are made defendants claim to hold or
act only by virtue of a title of the state and as its agents and servants. 22 This Court
has made it quite clear that even a "high position in the government does not confer a
license to persecute or recklessly injure another." 23

The inescapable conclusion is that the State cannot be held civilly liable for the deaths
that followed the incident. Instead, the liability should fall on the named defendants in
the lower court. In line with the ruling of this court in Shauf v. Court of Appeals, 24
herein public officials, having been found to have acted beyond the scope of their
authority, may be held liable for damages.

WHEREFORE, finding no reversible error and no grave abuse of discretion committed by

respondent Judge in issuing the questioned orders, the instant petitions are hereby
DISMISSED.

SO ORDERED.

SUITS AGAINST MUNICIPAL CORPORATIONS

G.R. No. L-61744 June 25, 1984

MUNICIPALITY OF SAN MIGUEL, BULACAN, petitioner,

vs.
HONORABLE OSCAR C. FERNANDEZ, in his capacity as the Presiding Judge, Branch IV,
Baliuag, Bulacan, The PROVINCIAL SHERIFF of Bulacan, MARGARITA D. VDA. DE IMPERIO,
ADORACION IMPERIO, RODOLFO IMPERIO, CONRADO IMPERIO, ERNESTO IMPERIO,
ALFREDO IMPERIO, CARLOS IMPERIO, JR., JUAN IMPERIO and SPOUSES MARCELO
PINEDA and LUCILA PONGCO, respondents.

Pascual C. Liatchko for petitioner.

The Solicitor General and Marcelo Pineda for respondents.

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

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

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

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

2. ordering the defendant to execute the corresponding Deed of Reconveyance over

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

3. ordering the defendant municipality to pay to the plaintiffs in the proportion

mentioned in the immediately preceding paragraph the sum of P64,440.00
corresponding to the rentals it has collected from the occupants for their use and
occupation of the premises from 1970 up to and including 1975, plus interest thereon
at the legal rate from January 1970 until fully paid;

4. ordering the restoration of ownership and possession over the five lots in question
in favor of the plaintiffs in the same proportion aforementioned;

5. ordering the defendant to pay the plaintiffs the sum of P3,000.00 for attomey's
fees; and to pay the cost of suit.

The counterclaim of the defendant is hereby ordered dismissed for lack of evidence
presented to substantiate the same.

SO ORDERED. (pp. 11-12, Rollo)

The foregoing judgment became final when herein petitioner's appeal was dismissed due to its
failure to file the record on appeal on time. The dismissal was affirmed by the then Court of Appeals
in CA-G.R. No. SP-12118 and by this Court in G.R. No. 59938. Thereafter, herein private
respondents moved for issuance of a writ of execution for the satisfaction of the judgment.
Respondent judge, on July 27, 1982, issued an order, to wit:

Considering that an entry of judgment had already been made on June 14, 1982 in
G. R. No. L-59938 and;

Considering further that there is no opposition to plaintiffs' motion for execution dated
July 23, 1983;
 Let a writ of execution be so issued, as prayed for in the aforestated motion. (p. 10,
Rollo)

Petitioner, on July 30, 1982, filed a Motion to Quash the writ of execution on the ground that the
municipality's property or funds are all public funds exempt from execution. The said motion to quash
was, however, denied by the respondent judge in an order dated August 23, 1982 and the alias writ
of execution stands in full force and effect.

On September 13, 1982, respondent judge issued an order which in part, states:

It is clear and evident from the foregoing that defendant has more than enough funds
to meet its judgment obligation. Municipal Treasurer Miguel C, Roura of San Miguel,
Bulacan and Provincial Treasurer of Bulacan Agustin O. Talavera are therefor hereby
ordered to comply with the money judgment rendered by Judge Agustin C. Bagasao
against said municipality. In like manner, the municipal authorities of San Miguel,
Bulacan are likewise ordered to desist from plaintiffs' legal possession of the property
already returned to plaintiffs by virtue of the alias writ of execution.

Finally, defendants are hereby given an inextendible period of ten (10) days from
receipt of a copy of this order by the Office of the Provincial Fiscal of Bulacan within
which to submit their written compliance, (p. 24, Rollo)

When the treasurers (provincial and municipal) failed to comply with the order of September 13,
1982, respondent judge issued an order for their arrest and that they will be release only upon
compliance thereof.

Hence, the present petition on the issue whether the funds of the Municipality of San Miguel,
Bulacan, in the hands of the provincial and municipal treasurers of Bulacan and San Miguel,
respectively, are public funds which are exempt from execution for the satisfaction of the money
judgment in Civil Case No. 604-B.

Well settled is the rule that public funds are not subject to levy and execution. The reason for this
was explained in the case of Municipality of Paoay vs. Manaois, 86 Phil. 629 "that they are held in
trust for the people, intended and used for the accomplishment of the purposes for which municipal
corporations are created, and that to subject said properties and public funds to execution would
materially impede, even defeat and in some instances destroy said purpose." And, in Tantoco vs.
Municipal Council of Iloilo, 49 Phil. 52, it was held that "it is the settled doctrine of the law that not
only the public property but also the taxes and public revenues of such corporations Cannot be
seized under execution against them, either in the treasury or when in transit to it. Judgments
rendered for taxes, and the proceeds of such judgments in the hands of officers of the law, are not
subject to execution unless so declared by statute." Thus, it is clear that all the funds of petitioner
municipality in the possession of the Municipal Treasurer of San Miguel, as well as those in the
possession of the Provincial Treasurer of Bulacan, are also public funds and as such they are
exempt from execution.

Besides, Presidential Decree No. 477, known as "The Decree on Local Fiscal Administration",
Section 2 (a), provides:

SEC. 2. Fundamental Principles. — Local government financial affairs, transactions,

and operations shall be governed by the fundamental principles set forth hereunder:
 (a) No money shall be paid out of the treasury except in pursuance of a lawful
appropriation or other specific statutory authority.

xxx xxx xxx

Otherwise stated, there must be a corresponding appropriation in the form of an ordinance duly
passed by the Sangguniang Bayan before any money of the municipality may be paid out. In the
case at bar, it has not been shown that the Sangguniang Bayan has passed an ordinance to this
effect.

Furthermore, Section 15, Rule 39 of the New Rules of Court, outlines the procedure for the
enforcement of money judgment:

(a) By levying on all the property of the debtor, whether real or personal, not
otherwise exempt from execution, or only on such part of the property as is sufficient
to satisfy the judgment and accruing cost, if he has more than sufficient property for
the purpose;

(b) By selling the property levied upon;

(c) By paying the judgment-creditor so much of the proceeds as will satisfy the
judgment and accruing costs; and

(d) By delivering to the judgment-debtor the excess, if any, unless otherwise, directed
by judgment or order of the court.

The foregoing has not been followed in the case at bar.

ACCORDINGLY, the petition is granted and the order of respondent judge, dated July 27, 1982,
granting issuance of a writ of execution; the alias writ of execution, dated July 27, 1982; and the
order of respondent judge, dated September 13, 1982, directing the Provincial Treasurer of Bulacan
and the Municipal Treasurer of San Miguel, Bulacan to comply with the money judgments, are SET
ASIDE; and respondents are hereby enjoined from implementing the writ of execution.

SO ORDERED.

G.R. No. 190289

THE CITY OF BACOLOD, HON. MAYOR EVELIO R. LEONARDIA, ATTY. ALLAN L. ZAMORA
and ARCH. LEMUEL D. REYNALDO, in their personal capacities and in their capacities as
Officials of the City of Bacolod, Petitioners
vs.
PHUTURE VISIONS CO., INC., Respondent

DECISION

VELASCO, JR., J.:

Nature of the Case

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court of the
Decision  dated February 27, 2009 and the Resolution  dated October 27, 2009 of the Court of
1 2

Appeals (CA) in CAG. R. SP No. 03322. The assailed rulings reversed the dismissal of
respondent's Petition for Mandamus and Damages with Prayer for Issuance of a Temporary
Mandatory Order and/or Writ of Preliminary Mandatory Injunction (Petition for Mandamus and
Damages) by the Regional Trial Court of Bacolod City, Branch 49. 3

The Facts

The instant case stems from the Petition for Mandamus and Damages filed by respondent Phuture
Visions Co., Inc. (Phuture) on March 5, 2007 against petitioners City of Bacolod, Hon. Mayor Evelio
R. Leonardia, Atty. Allan L. Zamora (now deceased) and Arch. Lemuel D. Reynaldo. In the Petition
for Mandamus and Damages, Phuture alleged the following:

Phuture was incorporated in 2004. In May 2005, its Articles of Incorporation (AOI) was amended to,
among others, include the operation of lotto betting stations and/or other gaming outlets as one of its
secondary purposes. Eventually, it applied with the Philippine Amusement and Gaming Corporation
(P AGCOR) for an authority to operate bingo games at the SM City Bacolod Mall (SM Bacolod), as
well as with SM Prime Holdings (SM Prime) for the lease of a space in the said building. Phuture
was issued a provisional Grant of Authority (GOA) on December 5, 2006 by P AGCOR, subject to
compliance with certain requirements, and received an Award Notice from SM Prime on January 10,
2007.4

Thereafter, Phuture processed, completed and submitted to the Permits and Licensing Division of
the City Mayor of Bacolod City its Application for Permit to Engage in Business, Trade or Occupation
to operate bingo games at SM Bacolod and paid the fees therefor. It was then issued a claim slip for
its permit on February 19, 2007, which was to be claimed on March 16, 2007.  In the meantime,
5

Phuture further amended its AOI on February 27, 2007 to reflect its engagement in bingo operations
as its primary purpose.

Phuture commenced bingo operations at SM Bacolod on March 2, 2007, prior to the issuance of the
actual hard copy of the mayor's permit. However, at around 6:10 a.m. of March 3, 2007, respondent
learned that its bingo outlet was padlocked by agents of the Office of the City Legal Officer and that
a copy of a Closure Order dated March 2, 2007 was posted at the entrance of the bingo outlet. 6

Phuture claimed that the closure of its bingo outlet at SM Bacolod is tainted with malice and bad faith
and that petitioners did not have the legal authority to shut down said bingo operations, especially
since PAGCOR itself had already issued a provisional GOA in its favor.

On March 7, 2007, the RTC conducted a summary hearing to determine the sufficiency of the form
and substance of the application for the issuance of a temporary mandatory order and/or preliminary
mandatory injunction to remove the padlock installed at respondent's place of business at SM
Bacolod and allow it to conduct unhampered bingo operations.  In the course of the summary
7

hearing, specifically on March 9, 2007, petitioners released in open court to respondent's counsel
the hard copy of the Mayor's Permit dated February 19, 2007 which indicated the kind of business
allowed is "Professional Services, Band/Entertainment Services." Phuture's counsel, however,
refused to receive the same, protesting that it was not the Mayor's Permit which respondent had
applied for. 8

On March 19, 2007, petitioners filed their Comment and Answer with Counterclaim, denying the
allegations set forth in the Petition for Mandamus and Damages and presenting a slightly different
set of facts,  as follows:
9
On January 10, 2007, Phuture applied for the renewal of its mayor's permit with "professional
services, band/entertainment services" as its declared line of business, providing the address of the
business as "RH Building, 26 Lacson Street, Barangay 5" instead of SM Bacolod where
respondent's bingo operations was located. 10

Upon submission of the requirements on February 19, 2007 and while the application was being
processed, Phuture was issued a "claim slip" for it to claim the actual mayor's permit on March 16,
2007 if the requirements were found to be in order.  However, petitioners found discrepancies in
11

Phuture's submitted requirements, wherein the application form was notarized earlier than the
amendment of its AOI to reflect the company's primary purpose for bingo operations. Aside from this,
respondent failed to pay the necessary permit fee/assessment fee under the applicable tax
ordinances of the City of Bacolod. 12

Also, without waiting for the release of the mayor's permit, respondent started the operation of its
bingo outlet at SM Bacolod. This prompted the former City Legal Officer, Atty. Allan Zamora, to issue
a Closure Order dated March 2, 2007, pursuant to City Tax Ordinance No. 93- 001, Series of
1993,  which declares unlawful for any person to operate any business in the City of Bacolod without
13

first obtaining a permit therefor from the City Mayor and paying the necessary permit fee and other
charges to the City Treasurer.

The Closure Order was presented by petitioners' representative to respondent's lawyers to negotiate
a possible peaceful solution before its implementation. However, respondent simply ignored the
information relayed to them and thus, at around 6:00 a.m. on March 3, 2007, the Composite
Enforcement Unit under the Office of the City Legal Officer implemented the Closure Order. 14

Petitioners contended that the claim slip so heavily relied upon by respondent was a mere oversight
or human error of the City Government's employee who processed the same, who was likewise
duped by the tampered entries that respondent's application was for a permit for bingo operations
when, in tn1th, it was only for the renewal of a previously-issued permit albeit for a different line of
business, i.e., "professional services, band/entertainment services." 15

Ruling of the Regional Trial Court

In a Decision  dated March 20, 2007, the R TC denied the prayer for the issuance of a temporary
16

mandatory order and dismissed the case for lack of merit, to wit:

In view of the foregoing disquisitions, it follows that the prayer for issuance of a temporary
mandatory order prayed for must be denied.

WHEREFORE, in the light of all the foregoing discussions, the instant petition is ordered
DISMISSED for lack of merit, without prejudice to filing an application of a Mayor's Permit specifically
for bingo operation. Respondents' counterclaim is ordered DISMISSED, without prejudice to filing
appropriate action with a court of competent jurisdiction.

Without pronouncement as to costs.

SO ORDERED. 17

Phuture filed an Urgent Motion for Partial Reconsideration on April 2, 2007, but the same was
denied by the RTC in its Order dated September 6, 2007.  Thus, respondent elevated the matter to
18

the CA on appeal. 19
Ruling of the Court of Appeals

In the assailed Decision dated February 27, 2009, the CA partially granted the appeal by affirming
the trial court's denial of the application for a temporary mandatory order but reversing the dismissal
of the suit for damages and ordering the case to be reinstated and remanded to the court of origin
for further proceedings. The dispositive portion of the assailed Decision reads:

WHEREFORE, based on the foregoing premises, the appeal is PARTLY GRANTED. The Decision
of Branch 49 of the Regional Trial Court of Bacolod City dated 20 March 2007 and Order dated 06
September 2007, denying the application for a Temporary Mandatory Order is AFFIRMED. The
dismissal of the main action is REVERSED and is hereby REINSTATED and REMANDED to the
court of origin for further proceedings.

SO ORDERED. 20

The CA pronounced that the issue of whether the RTC erred in dismissing the prayer for temporary
mandatory order for the removal of the padlock allegedly installed illegally at respondent's place of
business at SM Bacolod, as well as the prayer ordering petitioners to allow respondent to conduct
unhampered bingo operations during the pendency of the case, had already been rendered moot
since, with the onset of another year, it was necessary to apply for another business permit with the
Mayor's Office.21

Nevertheless, the CA proceeded to rule on the issue on whether the closure of respondent's bingo
operations at SM Bacolod was effected in a manner consistent with law. While it ruled that the
Mayor's power to issue licenses and permits is discretionary, and thus, cannot be compelled by
mandamus, it found that respondent was not given due notice and hearing as to the closure of its
business establishment at SM Bacolod. Based on the CA's finding on the manner by which the
closure of the bingo operations was effected, it concluded that respondent was denied its proprietary
right without due process of law. Accordingly, the CA ordered the case to be reinstated and
remanded to the RTC to determine if damages should be awarded. 22

Petitioners timely interposed a Motion for Reconsideration,  protesting the CA's order to remand the
23

case to the R TC for trial on the aspect of damages. The CA, however, maintained its position,
issuing the now assailed Resolution. Agggrieved, petitioners brought the matter before this Court
through the present recourse.

The Petition

Petitioners again limit their argument to the CA's order to remand the case to the R TC for trial on
the aspect of damages. According to petitioners, hearing the action for damages effectively violates
the City's immunity from suit since respondent had not yet obtained the consent of the City
Government of Bacolod to be included in the claim for damages. They also argue that the other
petitioners, the City Mayor and other officials impleaded, are similarly immune from suit since the
acts they performed were within their lawful duty and functions.  Moreover, petitioners maintain that
24

they were merely performing governmental or sovereign acts and exercised their legal rights and
duties to implement the provisions of the City Ordinance.  Finally, petitioners contend that the
25

assailed Decision contained inconsistencies such that the CA declared mandamus to be an

inappropriate remedy, yet allowed the case for damages to prosper. 26

In its Comment,  respondent Phuture argues that the grounds raised by petitioners should not be
27

considered since these were only invoked for the first time on appeal. Aside from this, respondent
asserts that the case for damages should proceed since petitioners allegedly caused the illegal
closure of its bingo outlet without proper notice and hearing and with obvious discrimination.

In their Reply to the Comment dated August 26, 2010, petitioners oppose respondent's arguments,
saying that the issues they raised in the instant petition cannot be considered as having been raised
for the first time since they are intertwined and bear relevance and close relation to the issues
resolved by the trial court. They further reiterate that they cannot be held liable for damages since
they were merely performing governmental or sovereign acts in the issuance of a mayor's permit.
Thus, they argue that whatever damages that respondent may have incurred belong to the concept
of damnum absque injuria for which the law provides no remedy. 28

The Issues

Stripped of the verbiage, the sole issue in this case is whether petitioners can be made liable to pay
respondent damages.

The Court's Ruling

The petition is meritorious.

Petitioners have not given their

consent to be sued

The principle of immunity from suit is embodied in Section 3, Article XVI of the 1987 Philippine
Constitution which states that "[t]he State cannot be sued without its consent." The purpose behind
this principle is to prevent the loss of governmental efficiency as a result of the time and energy it
would require to defend itself against lawsuits.  The State and its political subdivisions are open to
29

suit only when they consent to it.

Consent may be express or implied, such as when the government exercises its proprietary
functions, or where such is embodied in a general or special law.  In the present case, respondent
30

sued petitioners for the latter's refusal to issue a mayor's permit for bingo operations and for closing
its business on account of the lack of such permit. However, while the authority of city mayors to
issue or grant licenses and business permits is granted by the Local Government Code
(LGC),  which also vests local government units with corporate powers, one of which is the power to
31

sue and be sued, this Court has held that the power to issue or grant licenses and business permits
is not an exercise of the government's proprietary function. Instead, it is in an exercise of the police
power of the State, ergo a governmental act. This is clearly elucidated by the Court in Acebedo
Optical Company, Inc. v. The Honorable Court of Appeals: 32

The Court of Appeals erred in adjudging subject business permit as having been issued by
respondent City Mayor in the performance of proprietary functions of Iligan City. As hereinabove
elaborated upon, the issuance of business licenses and permits by a municipality or city is
essentially regulatory in nature. The authority, which devolved upon local government units to issue
or grant such licenses or permits, is essentially in the exercise of the police power of the State within
the contemplation of the general welfare clause of the Local Government Code. (emphasis supplied)

No consent to be sued and be liable for damages can thus be implied from the mere conferment and
exercise of the power to issue business permits and licences. Accordingly, there is merit in
petitioners' argument that they cannot be sued by respondent since the City's consent had not been
secured for this purpose. This is notwithstanding petitioners' failure to raise this exculpatory defense
at the first instance before the trial court or even before the appellate court.

As this Court has repeatedly held, waiver of immunity from suit, being in derogation of sovereignty,
will not be lightly inferred.  Moreover, it deserves mentioning that the City of Bacolod as a
33

government agency or instrumentality cannot be estopped by the omission, mistake or error of its
officials or agents.  Estoppel does not also lie against the government or any of its agencies arising
34

from unauthorized or illegal acts of public officers.  Hence, we cannot hold petitioners estopped from
35

invoking their immunity from suit on account of having raised it only for the first time on appeal. On
this score, Justice Barredo's Opinion in Insurance Co. of North America v. Osaka Shosen Kaisha  is 36

particularly illuminating:

x x x [T]he real reason why, from the procedural point of view, a suit against the state filed without its
consent must be dismissed is because, necessarily, any such complaint cannot state a cause of
action, since, as the above decision confirms, "there can be no legal right as against the authority
that makes the law on which the right depends." x x x

The question that arises now is, may failure to state a cause of action be alleged as a ground of
dismissal for the first-time on appeal?

xxx

x x x The requirement that this defense should be raised at the trial is only to give the plaintiff a
chance to cure the defect of his complaint, but if, as in this case, the lack of consent of the state
cannot be cured because it is a matter of judicial notice that there is no law allowing the present suit,
(only Congress that can give such consent) the reason for the rule cannot obtain, hence it is clear
that such non-suability may be raised even on appeal. After all, the record on appeal can be
examined to find out if the consent of the state is alleged in the complaint.

xxxx

x x x It is plain, however, that as far as the date is concerned, this rule of waiver cannot apply, for the
simple reason that in the case of the state as already stated, the waiver may not be made by anyone
other than Congress, so any appearance in any form made on its behalf would be ineffective and
invalid if not authorized by a law duly passed by Congress. Besides, the state has to act thru
subalterns who are not always prepared to act in the premises with the necessary capability, and
instances there can be when thru ignorance, negligence or malice, the interest of the state may not
be properly protected because of the erroneous appearance made on its behalf by a government
lawyer or some other officer, hence, as a matter of public policy, the law must be understood as
insulating the state from such undesirable contingencies and leaving it free to invoke its sovereign
attributes at any time and at any stage of a judicial proceeding, under the principle that the mistakes
and ommissions of its officers do not bind it.

Petitioners are not liable for damages

As to the primary issue of whether petitioners are liable to respondent for damages, respondent
Phuture alleged that petitioners are guilty of surreptitiously padlocking its SM bingo outlet in a
"patently arbitrary, whimsical, capricious, oppressive, irregular, immoral and shamelessly politically
motivated" manner and with clear discrimination since the majority owners of the company are the
sons of petitioner Mayor Leonardia's political rival, then Congressman Monico Puentevella.  Such37

contention is clearly but non sequitur, grounded as it is in pure conjecture.

Sticking closely to the facts, it is best to recapitulate that while the CA ruled that respondent was not
given due notice and hearing as to the closure of its business establishment at SM Bacolod, it
nevertheless remanded the issue of the award of damages to the trial court for further proceedings.
Such action would only be an exercise in futility, as the trial court had already ruled in its September
6, 2007 Decision that respondent Phuture had no right and/or authority to operate bingo games at
SM Bacolod because it did not have a Business Permit and has not paid assessment for bingo
operation. Thus, it held that petitioners acted lawfully in stopping respondent's bingo operation on
March 2, 2007 and closing its establishment for lack of any business permit.

The trial court further found that the Mayor's Office had already decided and released a Business
Permit for "Professional Services, Band/Entertainment Services" dated January 19, 2007 to
respondent, which cannot reasonably expect to receive a Mayor's Permit for "Bingo Operations"
unless and until it files a new application for bingo operations, submit the necessary requirements
therefor, and pay the corresponding assessment. 38

Aside from this, the R TC had also found that respondent's reliance on the GOA issued by
PAGCOR, the SM Award Notice, and the "questionable" Claim Slip and Application paper tainted
with alteration/falsification did not appear to be a right that is clear and unmistakable. From this, the
trial court concluded that the right being claimed by respondent to operate bingo games at SM
Bacolod was, at the very least, doubtful. 39

Based on the above observations made by the trial court, it appears that respondent had no clear
and unmistakable legal right to operate its bingo operations at the onset. Respondent failed to
establish that it had duly applied for the proper permit for bingo operations with the Office of the
Mayor and, instead, merely relied on the questionable claim stub to support its claim. The trial court
also found that the application form submitted by respondent pertained to a renewal of respondent's
business for "Professional Services, Band/Entertainment Services" located at "RH Bldg., 26th
Lacson St." and not at SM Bacolod. These factual findings by the trial court belie respondent's claim
that it had the right to operate its bingo operations at SM Bacolod.

Certainly, respondent's claim that it had applied for a license for bingo operations is questionable
since, as it had admitted in its Petition for Mandamus and Damages, the primary purpose in its AOI
was only amended to reflect bingo operations on February 14, 2007 or more than a month after it
had supposedly applied for a license for bingo operations with the Office of the Mayor. It is settled
that a judicial admission is binding on the person who makes it, and absent any showing that it was
made through palpable mistake, no amount of rationalization can offset such admission.  This 40

admission clearly casts doubt on respondent's so-called right to operate its business of bingo
operations.

Petitioners, in ordering the closure of respondent's bingo operations, were exercising their duty to
implement laws and ordinances which include the local government's authority to issue licenses and
permits for business operations in the city. This authority is granted to them as a delegated exercise
of the police power of the State. It must be emphasized that the nature of bingo operations is a form
of gambling; thus, its operation is a mere privilege which could not only be regulated, but may also
very well be revoked or closed down when public interests so require. 41

In this jurisdiction, we adhere to the principle that injury alone does not give respondent the right to
recover damages, but it must also have a right of action for the legal wrong inflicted by petitioners. In
order that the law will give redress for an act causing damage, there must be damnum et injuria that
act must be not only hurtful, but wrongful. The case of The Orchard Golf & Country Club, Inc., et al.
v. Ernesto V Yu and Manuel C. Yuhico,  citing Spouses Custodio v. Court of Appeals,  is instructive,
42 43

to wit:
x x [T]he mere fact that the plaintiff suffered losses does not give rise to a right to recover damages.
To warrant the recovery of damages, there must be both a right of action for a legal wrong inflicted
by the defendant, and damage resulting to the plaintiff therefrom. Wrong without damage, or
damage without wrong, does not constitute a cause of action, since damages are merely part of the
remedy allowed for the injury caused by a breach or wrong.

xxxx

In order that a plaintiff may maintain an action for the injuries of which he complains, he must
establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff -
a concurrence of injury to the plaintiff and legal responsibility by the person causing it. The
underlying basis for the award of tort damages is the premise that an individual was injured in
contemplation of law. Thus, there must first be the breach of some duty and the imposition of liability
for that breach before damages may be awarded; it is not sufficient to state that there should be tort
liability merely because the plaintiff suffered some pain and suffering.

xxxx

In other words, in order that the law will give redress for an act causing damage, that act must be not
only hurtful, but wrongful.  There must be damnum et injuria. If, as may happen in many cases, a
1âwphi1

person sustains actual damage, that is, harm or loss to his person or property, without sustaining
any legal injury, that is, an act or omission which the law does not deem an injury, the damage is
regarded as damnum absque injuria.

Considering that respondent had no legal right to operate the bingo operations at the outset, then it
is not entitled to the damages which it is demanding from petitioners.

WHEREFORE, the petition is hereby GRANTED. The Decision dated February 27, 2009 and the
Resolution dated October 27, 2009 of the Court of Appeals in CA-G.R. SP No. 03322 are
hereby ANNULLED and SET ASIDE. The Decision dated March 20, 2007 of the Regional Trial
Court of Bacolod City, Branch 49 is hereby REINSTATED.

SO ORDERED.

SUABILITY, LIABILITY AND EXECUTION

G.R. No. 174747, March 09, 2016

REPUBLIC OF THE PHILIPPINES REPRESENTED BY PRIVATIZATION AND

MANAGEMENT OFFICE, Petitioners, v. NATIONAL LABOR RELATIONS
COMMISSION (THIRD DIVISION) AND NACUSIP/BISUDECO CHAPTER/GEORGE
EMATA, DOMINGO REBANCOS, NELSON BERINA, ROBERTO TIRAO, AMADO
VILLOTE, AND BIENVENIDO FELINA, Respondents.

DECISION

LEONEN, J.:
Under Proclamation No. 50, Series of 1986,1 no employer-employee relationship is
created by the acquisition of Asset Privatization Trust (now Privatization and
Management Office) of government assets for privatization. It is not obliged to pay for
any money claims arising from employer-employee relations except when it voluntarily
holds itself liable to pay. These money claims, however, must be filed within the three-
year period under Article 2912 of the Labor Code. Once liability is determined, a
separate money claim must be brought before the Commission on Audit, unless the
funds to be used have already been previously appropriated and disbursed.

This resolves a Petition for Review on Certiorari 3 assailing the Decision4 dated February
27, 2004 and Resolution5 dated September 19, 2006 of the Court of Appeals. The
Decision and Resolution affirmed the National Labor Relations Commission Resolutions
dated May 10, 20026 and June 21, 20027 dismissing petitioner's appeal for failure to file
the appeal within the reglementary period.

Asset Privatization Trust was a government entity created under Proclamation No. 50
dated December 8, 1986 for the purpose of conserving, provisionally managing, and
disposing of assets that have been identified for privatization or disposition.
NACUSIP/BISUDECO Chapter is the exclusive bargaining agent for the rank-and-file
employees of Bicolandia Sugar Development Corporation, a corporation engaged in
milling and producing sugar.8 Since the 1980s, Bicolandia Sugar Development
Corporation had been incurring heavy losses. 9 It obtained loans from Philippine Sugar
Corporation and Philippine National Bank, secured by its assets and properties. 10

Under Proclamation No. 50, as amended, Administrative Order No. 14 dated February
3, 1987, the Deed of Transfer dated February 27, 1987, and the Trust Agreement dated
February 27, 1987,11 Philippine National Bank ceded its rights and interests over
Bicolandia Sugar Development Corporation's loans to the government through Asset
Privatization Trust.12

On November 18, 1988, Bicolandia Sugar Development Corporation, with the

conformity of Asset Privatization Trust, entered into a Supervision and Financing
Agreement13 with Philippine Sugar Corporation for the latter to operate and manage the
mill until August 31, 1992.14

Due to Bicolandia Sugar Development Corporation's continued failure to pay its loan
obligations, Asset Privatization Trust filed a Petition for Extrajudicial Foreclosure of
Bicolandia Sugar Development Corporation's mortgaged properties on March 26, 1990.
There being no other qualified bidder, Asset Privatization Trust was issued a certificate
of sale upon payment of P1,725,063,044.00.15

On December 15, 1990, NACUSIP/BISUDECO Chapter and Bicolandia Sugar

Development Corporation entered into a Collective Bargaining Agreement to be in effect
until December 15, 1996.16 Asset Privatization Trust and Philippine Sugar Corporation
were also joined as parties.17

Sometime in 1992, the Asset Privatization Trust, pursuant to its mandate to dispose of
government properties for privatization, decided to sell the assets and properties of
Bicolandia Sugar Development Corporation. On September 1, 1992, it issued a Notice of
Termination to Bicolandia Sugar Development Corporation's employees, advising them
that their services would be terminated within 30 days. NASUCIP/BISUDECO Chapter
received the Notice under protest.18

After the employees' dismissal from service, Bicolandia Sugar Development

Corporation's assets and properties were sold to Bicol Agro-Industrial Producers
Cooperative, Incorporated-Peñafrancia Sugar Mill.19

As a result, several members of the NACUSIP/BISUDECO Chapter 20 filed a Complaint

dated April 24, 1996 charging Asset Privatization Trust, Bicolandia Sugar Development
Corporation, Philippine Sugar Corporation, and Bicol Agro-Industrial Producers
Cooperative, Incorporated-Peñafrancia Sugar Mill with unfair labor practice, union
busting, and claims for labor standard benefits.21

On January 14, 2000, the Labor Arbiter rendered the Decision 22 dismissing the
Complaint for lack of merit. The Labor Arbiter found that there was no union busting
when Asset Privatization Trust and Philippine Sugar Corporation disposed of Bicolandia
Sugar Development Corporation's assets and properties since Asset Privatization Trust
was merely disposing of a non-performing asset of government, pursuant to its
mandate under Proclamation No. 50.23

However, the Labor Arbiter found that although Asset Privatization Trust previously
released funds for separation pay, 13th month pay, and accrued vacation and sick leave
credits for 1992, George Emata, Bienvenido Felina, Domingo Rebancos, Jr., Nelson
Berina, Armando Villote, and Roberto Tirao (Emata, et al.) refused to receive their
checks24 "on account of their protested dismissal." 25 Their refusal to receive their checks
was premised on their Complaint that Asset Privatization Trust's sale of Bicolandia
Sugar Development Corporation violated their Collective Bargaining Agreement and was
a method of union busting. 26

While the Labor Arbiter acknowledged that Emata, et al.'s entitlement to these benefits
had already prescribed under Article 29127 of the Labor Code,28 he nevertheless ordered
Asset Privatization Trust to pay Emata, et al. their benefits since their co-complainants
were able to claim their checks.29

Pursuant to the Decision, Asset Privatization Trust deposited with the National Labor
Relations Commission a Cashier's Check in the amount of P116,182.20, the equivalent
of the monetary award in favor of Emata, et al. On February 8, 2000, it filed a Notice of
Partial Appeal, together with a Memorandum of Partial Appeal, before the National
Labor Relations Commission.30

Under Executive Order No. 323 dated December 6, 2000, Asset Privatization Trust was
succeeded by Privatization and Management Office.31

On May 10, 2002, the National Labor Relations Commission issued the
Resolution32 dismissing the Partial Appeal for failure to perfect the appeal within the
statutory period of appeal. Privatization and Management Office moved for
reconsideration, but its Motion was denied in the National Labor Relations Commission's
June 21, 2002 Resolution.33

Aggrieved, Privatization and Management Office filed before the Court of Appeals a
Petition for Certiorari34 arguing that its appeal should have been decided on the merits
in the interest of substantial justice.

On February 27, 2004, the Court of Appeals rendered its Decision 35 denying the
Petition. According to the Court of Appeals, Privatization and Management Office failed
to show that it falls under the exemption for strict compliance with procedural rules. It
ruled that the grant of separation pay to Emata, et al. was anchored on the finding that
Privatization and Management Office had already granted the same benefits to the
other complainants in the labor case.36

Privatization and Management Office moved for reconsideration, but the Motion was
denied in the Resolution37 dated September 19, 2006.

Hence, this Petition38 was filed.

Privatization and Management Office argues that there should have been a liberal
application of the procedural rules since the dismissal of its appeal would cause grave
and irreparable damage to government.39 It alleges that the money claims of the
employees had already prescribed since their Complaint for illegal dismissal was filed
beyond the three-year prescriptive period under Article 291 40 of the Labor Code.41

Privatization and Management Office argues further that even assuming that the action
had not yet prescribed, it would still not be liable to pay separation pay and other
benefits since the closure of the business was due to serious losses and financial
reverses.42 It also argues that the transfer of Bicolandia Sugar Development
Corporation's assets and properties to it, by virtue of a foreclosure sale, did not create
an employer-employee relationship with Bicolandia Sugar Development Corporation's
employees.43 Moreover, since Privatization and Management Office is an instrumentality
of government, any money claim against it should first be brought before the
Commission on Audit in view of Commonwealth Act No. 327, 44 as amended by
Presidential Decree No. 1445.45

On the other hand, Emata, et al. allege that the Petition did not raise any new issue
that had not already been addressed by the Labor Arbiter, the National Labor Relations
Commission, and the Court of Appeals.46 They argue that the issues raised involve the
exercise of discretion by the Court of Appeals and the quasi-judicial agencies. They
further argue that the Petition does not specifically mention any law relied upon by
Privatization and Management Office to support its arguments. 47

In rebuttal, Privatization and Management Office insists that it was able to point out
laws and jurisprudence that the Court of Appeals and the National Labor Relations
Commission failed to take into consideration when it dismissed the appeal on a
technicality.48

For this Court's resolution are the following issues:

First, whether there was an employer-employee relationship between petitioner

Privatization and Management Office (then Asset Privatization Trust) and private
respondents NACUSIP/BISUDECO Chapter employees, and thus, whether petitioner is
liable to pay the separation benefits of private respondents George Emata, Bienvenido
Felina, Domingo Rebancos, Jr., Nelson Berina, Armando Villote, and Roberto Tirao;

Second, whether Bicolandia Sugar Development Corporation's closure could be

considered serious business losses that would exempt petitioner from payment of
separation benefits; and

Lastly, whether private respondents' claim for labor standard benefits had already
prescribed under Article 291 of the Labor Code.

Before proceeding to the substantive issues of the case, petitioner's procedural misstep
before the National Labor Relations Commission must first be addressed.

It is settled that appeal is not a right but a mere statutory privilege. It may only be
exercised within the manner provided by law.49 In labor cases, the perfection of an
appeal is governed by the Labor Code. Article 223 provides:
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Art. 223. Appeal. Decisions, awards, or orders of the Labor Arbiter are final and
executory unless appealed to the Commission by any or both parties within ten (10)
calendar days from receipt of such decisions, awards, or orders. Such appeal may be
entertained only on any of the following grounds:

....
Petitioner received a copy of the Labor Arbiter's Decision on January 26, 2000. 50 It had
10 days, or until February 7, 2000,51 to file its appeal. However, it filed its
Memorandum of Appeal only on February 8, 2000.52 Petitioner did not explain the
reason for its delay.

Petitioner's disregard of procedural rules resulted in the denial of its appeal before the
National Labor Relations Commission and its subsequent Petition for Certiorari before
the Court of Appeals. In its Petition for Review before this Court, petitioner still did not
explain its delay in filing the Memorandum of Appeal. It merely insisted that its case
should have been resolved on the merits.

Procedural rules are designed to facilitate the orderly administration of justice. 53 In
labor cases, however, procedural rules are not to be applied "in a very rigid and
technical sense"54 if its strict application will frustrate, rather than promote, substantial
justice.55

Liberality favors the laborer.56 However, this case is also brought against a government
entity. If the government entity is found liable, its liability will necessarily entail the
dispensation of public funds. Thus, its basis for liability must be subjected to strict
scrutiny.

Even assuming that we grant the plea of liberality, the Petition will still be denied.

II

Initially, petitioner was not liable for the Union's claims for labor standard benefits. Its
acquisition of Bicolandia Sugar Development Corporation's assets was not for the
purpose of continuing its business. It was to conserve the assets in order to prepare it
for privatization.

When Philippine National Bank ceded its rights and interests over Bicolandia Sugar
Development Corporation's loan to petitioner in 1987, it merely transferred its rights
and interests over Bicolandia's outstanding loan obligations. The transfer was not for
the purpose of continuing Bicolandia Sugar Development Corporation's business. Thus,
petitioner never became the substitute employer of Bicolandia Sugar Development
Corporation's employees. It would not have been liable for any money claim arising
from an employer-employee relationship.

Section 24 of Proclamation No. 50 states:

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The transfer of any asset of government directly to the national government as

mandated herein shall be for the purpose of disposition, liquidation and/or privatization
only, any import in the covering deed of assignment to the contrary
notwithstanding. Such transfer, therefore, shall not operate to revert such assets
automatically to the general fund or the national patrimony, and shall not require
specific enabling legislation to authorize their subsequent disposition, but shall remain
as duly appropriated public properties earmarked for assignment, transfer or
conveyance under the signature of the Minister of Finance or his duly authorized
representative, who is hereby authorized for this purpose, to any disposition entity
approved by the Committee pursuant to the provisions of this Proclamation. (Emphasis
supplied)
This Court explained in Republic v. National Labor Relations Commission, et al. 57 that
the Asset Privatization Trust is usually joined as a party respondent due to its role as
the conservator of assets of the corporation undergoing privatization:
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A matter that must not be overlooked is the fact that the inclusion of APT as a
respondent in the monetary claims against [Pantranco North Express, Inc.] is merely
the consequence of its being a conservator of assets, a role that APT normally plays in,
or the relationship that ordinarily it maintains with, corporations identified for and while
under privatization. The liability of APT under this particular arrangement, nothing else
having been shown, should be co-extensive with the amount of assets taken over from
the privatized firm.58 ChanRoblesVirtualawlibrary

Pursuant to its mandate under Proclamation No. 50, petitioner provisionally took
possession of assets and properties only for the purpose of privatization or disposition.
Its interest over Bicolandia Sugar Development Corporation was not the latter's
continued business operations.

The issue of petitioner's role in the money claims of Bicolandia Sugar Development
Corporation's employees was already settled in Barayoga v. Asset Privatization Trust.59

In Barayoga, BISUDECO-PHILSUCOR Corfarm Workers Union alleged that when

Philippine Sugar Corporation took over Bicolandia Sugar Development Corporation's
operations in 1988, it retained the Corporation's existing employees until the start of
the season sometime in May 1991. At the start of the 1991 season, Philippine Sugar
Corporation failed to recall some of the union's members back to work. For this reason,
it filed a Complaint on July 23, 1991 for unfair labor practice, illegal dismissal, illegal
deduction, and underpayment of wages and other labor standard benefits against
Bicolandia Sugar Development Corporation, Asset Privatization Trust, and Philippine
Sugar Corporation. Of the three respondents, only Asset Privatization Trust was held
liable by the Labor Arbiter and the National Labor Relations Commission for the union
members' money claims.

The Court of Appeals reversed the Labor Arbiter's and the National Labor Relations
Commission's rulings and held that Asset Privatization Trust did not become the
employer of Bicolandia Sugar Development Corporation's employees. The terminated
employees appealed to this Court, arguing that their claims against Asset Privatization
Trust were recognized under the law.

This Court, however, denied their Petition and held that the Asset Privatization Trust
could not be held liable for any money claims arising from an employer-employee
relationship. Asset Privatization Trust, being a mere transferee of Bicolandia Sugar
Development Corporation's assets for the purpose of conservation, never became the
union's employer. Hence, it could not be liable for their money claims:
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The duties and liabilities of BISUDECO, including its monetary liabilities to its
employees, were not all automatically assumed by APT as purchaser of the foreclosed
properties at the auction sale. Any assumption of liability must be specifically and
categorically agreed upon. In Sundowner Development Corp. v. Drilon, the Court ruled
that, unless expressly assumed, labor contracts like collective bargaining agreements
are not enforceable against the transferee of an enterprise. Labor contracts are in
personam and thus binding only between the parties.

No succession of employment rights and obligations can be said to have taken place
between the two. Between the employees of BISUDECO and APT, there is no privity of
contract that would make the latter a substitute employer that should be burdened with
the obligations of the corporation. To rule otherwise would result in unduly imposing
upon APT an unwarranted assumption of accounts not contemplated in Proclamation
No. 50 or in the Deed of Transfer between the national government and
PNB.60 (Emphasis supplied)
For petitioner to be liable for private respondents' money claims arising from an
employer-employee relationship, it must specifically and categorically agree to be liable
for these claims.

III

While petitioner per se is not liable for private respondents' money claims arising from
an employer-employee relationship, it voluntarily obliged itself to pay Bicolandia Sugar
Development Corporation's terminated employees separation benefits in the event of
the Corporation's privatization.

In Barayoga, the aggrieved union members were those who were not recalled back to
work by Philippine Sugar Corporation during the start of the season in May 1991. The
union members in this case were those who were recalled back to work in May 1991
but were eventually served with a Notice of Termination on September 1, 1992.

The timeline of events in this case mirror that of Barayoga. In Barayoga, Asset
Privatization Trust's Board of Trustees issued the Resolution dated September 23, 1992
authorizing the payment of separation pay and other benefits to Bicolandia Sugar
Development Corporation's employees in the event of its privatization:
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In the present case, petitioner-unions members who were not recalled to work by
Philsucor in May 1991 seek to hold APT liable for their monetary claims and allegedly
illegal dismissal. Significantly, prior to the actual sale of BISUDECO assets to BAPCI on
October 30, 1992, the APT board of trustees had approved a Resolution on September
23, 1992. The Resolution authorized the payment of separation benefits to the
employees of the corporation in the event of its privatization. Not included in the
Resolution, though, were petitioner-unions members who had not been recalled to work
in May 1991.61 (Emphasis supplied)
This Resolution was not made part of the records of this case. However, it is not
disputed that the union members here were Bicolandia Sugar Development
Corporation's employees at the time the Corporation was sold to Bicol Agro-Industrial
Producers Cooperative, Incorporated-Peñafrancia Sugar Mill. The Labor Arbiter also
found that:
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With respect to complainants['] claim for labor standard benefits, records show that
they were paid separation pay including 13th month pay for the year 1992 as well as
conversion of their accrued vacation and sick leave (pp. 698 to 763, rollo) except that
some complainants refused to collect their checks representing said benefits whereas
the payments due complainants Domulot, de Luna, Falcon, Aguilar, Gomez, Ramos,
Arao, de Jesus, Abonite, Bomanlag, and Parro were released by APT to this Arbitration
Branch (p. 764), rollo) in compliance with the Alias Writ of Execution issued by then
Executive Labor Arbiter Vito C. Bose.62 ChanRoblesVirtualawlibrary

Under Section 27 of Proclamation No. 50, the employer-employee relationship is

severed upon the sale or disposition of assets of a company undergoing privatization.
This, however, is without prejudice to "benefits incident to their employment or
attaching to termination under applicable employment contracts, collective bargaining
agreements, and applicable legislation":
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SECTION 27. AUTOMATIC TERMINATION OF EMPLOYER-EMPLOYEE RELATIONS. Upon

the sale or other disposition of the ownership and/or controlling interest of the
government in a corporation held by the Trust, or all or substantially all of the assets of
such corporation, the employer-employee relations between the government and the
officers and other personnel of such corporations shall terminate by operation of law.
None of such officers or employees shall retain any vested right to future employment
in the privatized or disposed corporation, and the new owners or controlling interest
holders thereof shall have full and absolute discretion to retain or dismiss said officers
and employees and to hire the replacement or replacements of any one or all of them
as the pleasure and confidence of such owners or controlling interest holders may
dictate.

Nothing in this section, however, be construed to deprive said officers and employees
of their vested entitlements in accrued or due compensation and other benefits incident
to their employment or attaching to termination under applicable employment
contracts, collective bargaining agreements, and applicable legislation. (Emphasis
supplied)
When petitioner's Board of Trustees issued the Resolution dated September 23, 1992, it
acknowledged its contractual obligation to be liable for benefits arising from an
employer-employee relationship even though, as a mere conservator of assets, it was
not supposed to be liable. Under Article III, Section 12(6) of Proclamation No.
50,63 Asset Privatization Trust had the power to release claims or settle liabilities, as in
this case. When it issued its Resolution dated September 23, 1992, petitioner
voluntarily bound itself to be liable for separation benefits to Bicolandia Sugar
Development Corporation's terminated employees.

IV

Petitioner proposes that even if it is found liable for separation benefits, it cannot be
made to pay since Bicolandia Sugar Development Corporation's closure was due to
serious business losses.

An employer may terminate employment to prevent business losses. Article 298 64 of the
Labor Code allows the termination of employees provided that the employer pays the
affected employees separation pay of one month or at least one-half month for every
month of pay, whichever is higher. The provision states:
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Art. 298. Closure of establishment and reduction of personnel. The employer

may also terminate the employment of any employee due to the installation of labor-
saving devices, redundancy, retrenchment to prevent losses or the closing or cessation
of operation of the establishment or undertaking unless the closing is for the purpose of
circumventing the provisions of this Title, by serving a written notice on the workers
and the Ministry of Labor and Employment at least one (1) month before the intended
date thereof. In case of termination due to the installation of labor-saving devices or
redundancy, the worker affected thereby shall be entitled to a separation pay
equivalent to at least his one (1) month pay or to at least one (1) month pay for every
year of service, whichever is higher. In case of retrenchment to prevent losses and in
cases of closures or cessation of operations of establishment or undertaking not due to
serious business losses or financial reverses, the separation pay shall be equivalent to
one (1) month pay or at least one-half (1/2) month pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be considered one (1)
whole year.
The employer is exempted from having to pay separation pay if the closure was due to
serious business losses.65 A business suffers from serious business losses when it has
operated at a loss for such a period of time that its financial standing is unlikely to
improve in the future.66

Bicolandia Sugar Development Corporation incurred heavy loans from Philippine

National Bank in the 1980s to cover its losses. The Corporation's losses were
substantial. When Philippine National Bank transferred its interests over the
Corporation's loans to petitioner, it effectively transferred all of the Corporation's
assets. Petitioner eventually sold these assets and properties to a private company,
pursuant to its mandate to dispose of government's non-performing assets.

Bicolandia Sugar Development Corporation's financial standing when petitioner took

over as its conservator clearly showed that it was suffering from serious business losses
and would have been exempted from paying its terminated employees their separation
pay. This exemption, however, only applies to employers. It does not apply to
petitioner.

Even assuming that petitioner became NACUSIP/BISUDECO's substitute employer, the

exemption would still not apply if the employer voluntarily assumes the obligation to
pay terminated employees, regardless of the employer's financial situation. In Benson
Industries Employees Union-ALU-TUCP v. Benson Industries, Inc.:67
To reiterate, an employer which closes shop due to serious business losses is exempt
from paying separation benefits under Article 297 of the Labor Code for the reason that
the said provision explicitly requires the same only when the closure is not due to
serious business losses; conversely, the obligation is maintained when the employer's
closure is not due to serious business losses. For a similar exemption to obtain against
a contract, such as a CBA, the tenor of the parties' agreement ought to be similar to
the law's tenor. When the parties, however, agree to deviate therefrom, and
unqualifiedly covenant the payment of separation benefits irrespective of the
employer's financial position, then the obligatory force of that contract prevails and its
terms should be carried out to its full effect.68(Emphasis supplied)
Petitioner's Board of Trustees issued the Resolution dated September 23, 1992
authorizing the payment of separation benefits to Bicolandia Sugar Development
Corporation's terminated employees in the event of the Corporation's privatization. It
voluntarily bound itself to pay separation benefits regardless of the Corporation's
financial standing. It cannot now claim that it was exempted from paying such benefits
due to serious business losses.

Private respondents' claim to their separation benefits has not yet prescribed under
Article 291 of the Labor Code.69 Article 291 provides:
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Art. 291. Money claims. All money claims arising from employer- employee relations
accruing during the effectivity of this Code shall be filed within three (3) years from the
time the cause of action accrued; otherwise they shall be forever barred[.]
In Arriola v. National Labor Relations Commission,70 we have distinguished a money
claim arising from an employer-employee relationship and a money claim as reparation
for illegal acts done by an employer in violation of the Labor Code. The prescriptive
period for the former is three (3) years under Article 291 of the Labor Code while the
prescriptive period of the latter is four (4) years under Article 1146 71 of the Civil Code.
We also reiterated that the three-year prescriptive period under Article 290 of the Labor
Code refers to "illegal acts penalized under the Labor Code, including committing any of
the prohibited activities during strikes and lockouts, unfair labor practices, and illegal
recruitment activities."72 Article 290 provides:
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Art. 290. Offenses. Offenses penalized under this Code and the rules and regulations
pursuant thereto shall prescribe in three (3) years.

All unfair labor practice arising from Book V shall be filed within one (1) year from
accrual of such unfair labor practice; otherwise, they shall be forever barred.
Private respondents filed their Complaint for unfair labor practices, union busting, and
labor standard benefits on April 24, 1996,73 or three (3) years, seven (7) months and
24 days after their termination on September 30, 1992. Their Complaint essentially
alleged that their termination was illegal because it was made prior to Bicolandia Sugar
Development Corporation's sale to Bicol Agro-Industrial Producers Cooperative,
Incorporated-Peñafrancia Sugar Mill.74 They also alleged that the sale was illegal since it
was made for the purpose of removing NACUSIP/BISUDECO Chapter as the sugar mill's
Union.75
Under the prescriptive periods stated in the Labor Code and Arriola, private
respondents' cause of action and any subsequent money claim for illegal termination
has not yet prescribed. Their Complaint dated April 24, 1996 before the Labor Arbiter
was filed within the prescriptive period.

The claim for separation pay, 13th month pay, and accrued vacation and sick leaves are
incidental to employer-employee relations. Under Article 291 of the Labor Code, these
claims prescribe within three (3) years from the accrual of the cause of action:
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Art. 291. Money Claims. All money claims arising from employer-employee relations
accruing during the effectivity of this Code shall be filed within three (3) years from the
time the cause of action accrued; otherwise they shall be barred forever.
This Court has stated that "in the computation of the three-year prescriptive period, a
determination must be made as to the period when the act constituting a violation of
the workers' right to the benefits being claimed was committed." 76 In Barayoga, the
September 23, 1992 Resolution "authorized the payment of separation benefits to the
employees of the corporation in the event of its privatization." 77 The payment of these
benefits, however, to private respondents was mandated by the Labor Arbiter in his
Decision dated January 14, 2000.78 It was only then that private respondents' right to
these benefits was determined. Since the case was appealed to the National Labor
Relations Commission, the prescriptive period to claim these benefits began to run only
after the Commission's Decision had become final and executory. The refusal to pay
these benefits after the Commission's Decision had become final and executory would
be "the act constituting a violation of the worker's right to the benefits being claimed." 79

Under Rule VII, Section 1480 of the New Rules of Procedure of the National Labor
Relations Commission,81 decisions of the Commission become final and executory 10
days after the receipt of the notice of decision, order, or resolution. The three-year
prescriptive period, therefore, begins from private respondents' receipt of the National
Labor Relations Commission Resolution dated June 21, 2002 denying petitioner's Motion
for Reconsideration.

Since the Complaint, which included the claim for labor benefits, was filed on April 24,
1996, private respondents' claims did not prescribe.

Further, the Labor Arbiter did not err in ordering the release of separation benefits to
private respondents despite their initial refusal to receive them. The Constitution
guarantees workers full protection of their rights, including that of "economic security
and parity."82 Article II, Section 18 and Article XIII, Section 3 state:
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Article II
State Policies

SECTION 18. The State affirms labor as a primary social economic force. It shall protect
the rights of workers and promote their welfare.

Article XIII
Labor

SECTION 3. The State shall afford full protection to labor, local and overseas, organized
and unorganized, and promote full employment and equality of employment
opportunities for all.
It shall guarantee the rights of all workers to self-organization, collective bargaining
and negotiations, and peaceful concerted activities, including the right to strike in
accordance with law. They shall be entitled to security of tenure, humane conditions of
work, and a living wage. They shall also participate in policy and decision-making
processes affecting their rights and benefits as may be provided by law.

The State shall promote the principle of shared responsibility between workers and
employers and the preferential use of voluntary modes in settling disputes, including
conciliation, and shall enforce their mutual compliance therewith to foster industrial
peace.

The State shall regulate the relations between workers and employers, recognizing the
right of labor to its just share in the fruits of production and the right of enterprises to
reasonable returns on investments, and to expansion and growth.
Under these provisions, workers should be granted all rights, including monetary
benefits, enjoyed by other workers who are similarly situated. Thus, the separation
benefits granted to Bicolandia Sugar Development Corporation's terminated employees
as of September 30, 1992 must be enjoyed by all, including private respondents.

This case is unique, however, in that though private respondents' separation benefits
were already released by petitioner, they refused to collect their checks "on account of
their protested dismissal."83 Their refusal to receive their checks was premised on their
Complaint that petitioner's sale of Bicolandia Sugar Development Corporation violated
their Collective Bargaining Agreement and was a method of union busting. It was not
because of negligence or malice. It was because of their honest belief that their rights
as laborers were violated and the grant of separation benefits would not be enough
compensation for it. While private respondents' allegations have not been properly
substantiated, it would be unjust to deprive them of their rightful claim to their
separation benefits.

Moreover, private respondents' co-complainants 84 were able to collect their checks for
their separation benefits during the pendency of the Complaint 85 without having to go
through the Commission on Audit.

Under Section 26 of the State Auditing Code, the Commission on Audit has jurisdiction
over the settlement of debts and claims "of any sort" against government:
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Section 26. General jurisdiction. The authority and powers of the Commission shall
extend to and comprehend all matters relating to auditing procedures, systems and
controls, the keeping of the general accounts of the Government, the preservation of
vouchers pertaining thereto for a period of ten years, the examination and inspection of
the books, records, and papers relating to those accounts; and the audit and settlement
of the accounts of all persons respecting funds or property received or held by them in
an accountable capacity, as well as the examination, audit, and settlement of all debts
and claims of any sort due from or owing to the Government or any of its subdivisions,
agencies and instrumentalities. The said jurisdiction extends to all government-owned
or controlled corporations, including their subsidiaries, and other selfgoverning [sic]
boards, commissions, or agencies of the Government, and as herein prescribed,
including non-governmental entities subsidized by the government, those funded by
donation through the government, those required to pay levies or government share,
and those for which the government has put up a counterpart fund or those partly
funded by the government. (Emphasis supplied)
The purpose of requiring a separate process with the Commission on Audit for money
claims against government is under the principle that public funds may only be released
upon proper appropriation and disbursement:
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Section 4. Fundamental principles. Financial transactions and operations of any

government agency shall be governed by the fundamental principles set forth
hereunder, to wit:

(1) No money shall be paid out of any public treasury or depository except in pursuance
of an appropriation law or other specific statutory authority.

(2) Government funds or property shall be spent or used solely for public purposes.

(3) Trust funds shall be available and may be spent only for the specific purpose for
which the trust was created or the funds received.

(4) Fiscal responsibility shall, to the greatest extent, be shared by all those exercising
authority over the financial affairs, transactions, and operations of the government
agency.

(5) Disbursements or disposition of government funds or property shall invariably bear

the approval of the proper officials.

(6) Claims against government funds shall be supported with complete documentation.

(7) All laws and regulations applicable to financial transactions shall be faithfully
adhered to.

(8) Generally accepted principles and practices of accounting as well as of sound

management and fiscal administration shall be observed, provided that they do not
contravene existing laws and regulations.
Money claims against government include money judgments by courts, which must be
brought before the Commission on Audit before it can be satisfied. Supreme Court
Administrative Circular No. 10-200086 states the rationale for requiring claimants to file
their money judgments before the Commission on Audit:
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Republic of the Philippines

Supreme Court
Manila

ADMINISTRATIVE CIRCULAR NO. 10-2000

TO : All Judges of Lower Courts
SUBJECT : Exercise of Utmost Caution, Prudence and Judiciousness in the Issuance of
Writs of Execution to Satisfy Money Judgments Against Government Agencies and Local
Government Units

In order to prevent possible circumvention of the rules and procedures of the

Commission on Audit, judges are hereby enjoined to observe utmost caution, prudence
and judiciousness in the issuance of writs of execution to satisfy money judgments
against government agencies and local government units.

Judges should bear in mind that in Commissioner of Public Highways v. San Diego (31
SCRA 617, 625 [1970]), this Court explicitly stated:

The universal rule that where the State gives its consent to be sued by private parties
either by general or special law, it may limit claimant's action 'only up to the
completion of proceedings anterior to the stage of execution' and that the power of the
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.

Moreover, it is settled jurisprudence that upon determination of State liability, the

prosecution, enforcement or satisfaction thereof must still be pursued in accordance
with the rules and procedures laid down in P.D. No. 1445, otherwise known as the
Government Auditing Code of the Philippines (Department of Agriculture v. NLRC, 227
SCRA 693, 701-02 [1993] citing Republic vs. Villasor, 54 SCRA 84 [1973]). All money
claims against the Government must first be filed with the Commission on Audit which
must act upon it within sixty days. Rejection of the claim will authorize the claimant to
elevate the matter to the Supreme Court on certiorari and in effect sue the State
thereby (P.D. 1445, Sections 49-50). . . . (Emphasis supplied)
Thus, in National Electrification Administration v. Morales,87 while entitlement to claims
for rice allowance, meal allowance, medical/dental/optical allowance, children's
allowance, and longevity pay under Republic Act No. 6758 may be adjudicated by the
trial court, a separate action must be filed before the Commission on Audit for the
satisfaction of the judgment award.

Similarly, in Lockheed Detective and Watchman Agency v. University of the

Philippines,88 this Court reimbursed to the University of the Philippines its funds that
were garnished upon orders of the National Labor Relations Commission for the
satisfaction of a judgment award. The reimbursement was on the ground that the
money claim must first be filed before the Commission on Audit.

The situation in this case, however, is different from these previous cases. Petitioner's
Board of Trustees already issued the Resolution on September 23, 1992 for the release
of funds to pay separation benefits to terminated employees of Bicolandia Sugar
Development Corporation.89 Private respondents' checks were released by petitioner to
the Arbitration Branch of the Labor Arbiter in 1992.90 Under these circumstances, it is
presumed that the funds to be used for private respondents' separation benefits have
already been appropriated and disbursed. This would account for why private
respondents' co-complainants were able to claim their checks without need of filing a
separate claim before the Commission on Audit.

In this instance, private respondents' separation benefits may be released to them

without filing a separate money claim before the Commission on Audit. It would be
unjust and a violation of private respondents' right to equal protection if they were not
allowed to claim, under the same conditions as their fellow workers, what is rightfully
due to them. chanrobleslaw

WHEREFORE, the Petition is DENIED.

G.R. No. 171953, October 21, 2015

NATIONAL HOUSING AUTHORITY, Petitioner, v. ERNESTO ROXAS, Respondent.

DECISION

BERSAMIN, J.:

The National Housing Authority (NHA), a government-owned and -controlled

corporation created and existing under Presidential Decree No. 757, 1 may sue and be
sued. However, no court should issue a writ of execution upon any monetary judgment
rendered against the NHA unless such monetary judgment is first submitted to and
passed upon by the Commission on Audit (COA).

The Case

Being challenged on appeal by the NHA is the adverse decision promulgated on

February 20, 2006,2 whereby the Court of Appeals (CA) dismissed the NHA's petition
for certiorari brought to nullify the orders issued in Special Civil Action No. 93-060-MN
entitled Ernesto Roxas v. National Housing Authority, et al. by the Regional Trial Court
(RTC), Branch 72, in Malabon City. The first order, dated May 3, 2002, had granted the
motion for the issuance of the writ of execution filed by respondent Ernesto Roxas. 3 The
other order, dated January 6, 2003, had denied the NHA's motion for
reconsideration.4 The NHA had also thereby assailed the writ of execution consequently
issued on February 24, 2003.5 In its petition for certiorari, the NHA insisted that the
RTC had thereby committed grave abuse of discretion amounting to lack or excess of
jurisdiction.

Antecedents

The NHA is charged, among others, with the development of the Dagat-dagatan
Development Project (project) situated in Navotas, Metro Manila. 6 On December 4,
1985, Roxas applied for commercial lots in the project, particularly Lot 9 and Lot 10 in
Block 11, Area 3, Phase III A/B, with an area of 176 square meters, for the use of his
business of buying and selling gravel, sand and cement products. 7 The NHA approved
his application, and issued on December 6, 1985 the order of payment respecting the
lots. On December 27, 1985, the NHA issued the notice of award for the lots in favor of
Roxas,8 at P1,500.00/square meter.9 On the basis of the order of payment and the
notice of award, Roxas made his downpayment of P79,200.00. 10 A relocation/reblocking
survey resulted in the renumbering of Lot 9 to Lot 5 and Lot 10 to Lot 6 (subject
lots).11 He completed his payment for the subject lots on December 20, 1991.

In the meanwhile, the NHA conducted a final subdivision project survey, causing the
increase in the area of the subject lots from 176 to 320 square meters. The NHA
informed Roxas about the increase in the area of the subject lots, and approved the
award of the additional area of 144 square meters to him at P3,500.00/square
meter.12 Although manifesting his interest in acquiring the additional area, he appealed
for the reduction of the price to Pl,500.00/square meter, 13 pointing out that Lot 5 and
Lot 6 were a substitution unilaterally imposed by the NHA that resulted in the increase
of 144 square meters based on the technical description, and that although he desired
to purchase the increased area, the purchase must be in accordance with the terms and
conditions contained in the order of payment and notice of award issued to him. After
the NHA rejected his appeal,14 he commenced in the RTC this action for specific
performance and damages, with prayer for the issuance of a writ of preliminary
injunction. He amended the complaint15 to compel the NHA to comply with the terms
and conditions of the order of payment and the notice of award.

The NHA countered in its answer16 that Roxas' prayer to include in the original contract
the increase in lot measurement of 144 square meters was contrary to its existing rules
and regulation; that he could not claim more than what had been originally awarded to
him; and that at the very least, his right in the additional area was limited only to first
refusal.

On July 15, 1994, after trial, the RTC rendered judgment against the
NHA,17 decreeing: chanRoblesvirtualLawlibrary

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

Ernesto Roxas and against defendant NHA, represented by its General Manager and its
Dagat-dagatan Development Project Manager, as follows:
1. Declaring plaintiff Ernesto Roxas the legal awardee of subject lots 5 and 6 in the full
total area thereof of 320 sq. meters;

2. Ordering defendant NHA, thru its General Manager Robert P.  Balao  and the project
Manager for its  Dagat-dagatan Development Project Evelyn V. Ramos, or whoever shall
be the incumbents of the positions at the time of the enforcement hereof to execute the
corresponding Contract to Sell for the entire area of subject lots 5 and 6 totaling to 320
sq. meters at the cost of PI,500.00 per sq. meter under the same terms and conditions
as that provided for in the Order of Payment and Notice of Award (Exhs. B and D),
respectively, deducting whatever has already been paid by plaintiff;

3. Ordering defendant NHA to pay plaintiff P30,000.00 by way of reasonable Attorney's

Fees.
The Writ of Preliminary Injunction issued in this case on January 31, 1994 is hereby
made permanent.

Costs against defendant NHA.

SO ORDERED. cralawlawlibrary

The NHA appealed in due course, but the CA affirmed the judgment of the RTC,
prompting the NHA to seek to undo the adverse decision of the CA through its petition
for certiorari. On July 5, 2000, however, the Court dismissed the petition for certiorari.
It later denied the NHA's motion for reconsideration.18
On July 27, 2001, Roxas filed his motion for the issuance of the writ of
execution,19 which the RTC granted on May 3, 2002.20 The NHA sought reconsideration,
but its motion was denied on January 6, 2003. Accordingly, on February 24, 2003, the
RTC issued the writ of execution to enforce the final and executory decision of July 15,
1994.21

In order to prevent the execution, the NHA brought another petition for certiorari in the
CA, docketed as C.A.-G.R. SP No. 76468, imputing to the RTC grave abuse of discretion
amounting to lack or excess of jurisdiction for ordering the execution of the judgment.

On February 20, 2006, the CA dismissed the NFIA's petition for certiorari  through the
presently assailed decision because it found that the RTC did not gravely abuse its
discretion amounting to lack or excess of jurisdiction in granting Roxas' motion for the
issuance of the writ of execution and in issuing the writ of execution. 22 The CA observed
that the NHA was a government-owned and -controlled corporation whose funds were
not exempt from garnishment or execution; and ruled that Roxas did not need to first
file his claim in the COA.

Issues

The NHA insists that the judgment of the RTC did not lie against it because its
submission to the litigation did not necessarily imply that the Government had thereby
given its consent to liability; and that the money judgment awarded to Roxas could not
be recovered by motion for execution but should have been first filed in the COA. 23

Roxas counters that the main relief under the final and executory judgment of the RTC
directed the NHA to execute the contract to sell the subject lots at the rate of
P1,500.00/square meter as provided for in the order of payment and the notice of
award. He claims that the award of attorney's fees in his favor was only incidental to
the main relief of specific performance; and argues that the Government abandons its
sovereign capacity and is treated like any other corporations whenever it enters into a
commercial transaction.24

Ruling of the Court

The appeal is partly meritorious.

First of all, the mantle of the State's immunity from suit did not extend to the NHA
despite its being a government-owned and -controlled corporation. Under Section 6(i)
of Presidential Decree No. 757, which was its charter, the NHA could sue and be sued.
As such, the NHA was not immune from the suit of Roxas.

And, secondly, for purposes of the implementation of the writ of execution, it is

necessary to distinguish between, on the one hand, the main relief adjudicated in the
judgment of July 15, 1994, which was the decree of specific performance as to the right
of Roxas to acquire the subject lots at Pl,500.00/square meter as stated in the original
agreement between the parties, and, on the other, the secondary relief for the
attorney's fees of P30,000.00 to be paid by the NHA to Roxas.

Section 12 of Presidential Decree No. 757 has authorized the NHA to "determine,
establish and maintain the most feasible and effective program for the management or
disposition of specific housing or resettlement projects undertaken by [it]", and
"[u]nless otherwise decided by the Board, completed housing or resettlement projects
shall be managed and administered by [it]." The execution of the contract to sell by the
NHA conformably with the main relief under the judgment would be in the ordinary
course of the management or disposition of the Dagat-dagatan Development Project
undertaken by the NHA. In other words, the NHA possessed the legal competence and
authority to directly afford the main relief without Roxas needing to first submit to the
COA the contract to sell for review and approval. To maintain otherwise is to
unconstitutionally grant to the COA the power of judicial review in respect of the
decision of a court of law.

However, settling or paying off the secondary relief for the attorney's fees of
£30,000.00, being a monetary obligation of the NHA, would not be in the usual course
of the activities of the NHA under its charter. That such relief was the consequence of
the suit that granted the main relief did not matter. Pursuant to Section 26 of
Presidential Decree No. 1445, Roxas should first bring it to the COA prior to its
enforcement against the NHA.25 Indeed, Section 26 specifically vested in the COA the
power, authority and duty to examine, audit and settle "all debts and claims of any
sort" due from or owing to the Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned and controlled corporations with original
charters, viz.: chanRoblesvirtualLawlibrary

Section 26. General jurisdiction. The authority and powers of the Commission shall

extend to and comprehend all matters relating to auditing procedures, systems and
controls, the keeping of the general accounts of the Government, the preservation of
vouchers pertaining thereto for a period of ten years, the examination and inspection of
the books, records, and papers relating to those accounts; and the audit
and settlement of the accounts of all persons respecting funds or property
received or held by them in an accountable capacity, as well as the
examination, audit, and settlement of all debts and claims of any sort due from
or owing to the Government or any of its subdivisions, agencies and
instrumentalities. The said jurisdiction extends to all government-owned or
controlled corporations, including their subsidiaries, and other self-governing
boards, commissions, or agencies of the Government, and as herein
prescribed, including nongovernmental entities subsidized by the government,
those funded by donations through the government, those required to pay
levies or government share, and those for which the government has put up a
counterpart fund or those partly funded by the government, (bold underscoring
supplied for emphasis)
cralawlawlibrary

As the text of the legal provision plainly shows, the audit jurisdiction of the COA
extends to all government-owned or -controlled corporations, their subsidiaries, and
other self-governing boards, commissions, or agencies of the Government, as well as to
all non-governmental entities subsidized by the Government, or funded by donations
through the Government, or required to pay levies or government share, or for which
the Government has put up a counterpart fund, or those partly funded by the
Government. There is no distinction as to the class of claims. Ubi lex non distinguish
nee nos distinguere debemos.26 Indeed, a general term or phrase should not be
reduced into parts and one part distinguished from the other so as to justify its
exclusion from the operation of the law. In other words, there should be no distinction
in the application of a statute where none is indicated. Corollary to this rule is the
principle that where the law does not make any exception, the courts may not exempt
something therefrom, unless there is compelling reason to the contrary. 27

There is no question that the NHA could sue or be sued, and thus could be held liable
under the judgment rendered against it. But the universal rule remains to be that the
State, although it gives its consent to be sued either by general or special law, may
limit the claimant's action only up to the completion of proceedings anterior to the
stage of execution. In other words, the power of the court ends when the judgment is
rendered because government funds and property may not be seized pursuant to writs
of execution or writs of garnishment to satisfy such judgments. The functions and
public services of the State cannot be allowed to be paralyzed or disrupted by the
diversion of public fund from their legitimate and specific objects, and as appropriated
by law. The rule is based on obvious considerations of public policy. Indeed, the
disbursements of public funds must be covered by the corresponding appropriation as
required by law.28

WHEREFORE, the Court PARTLY GRANTS the petition for review on certiorari;

and MODIFIES the writ of execution dated February 24, 2003 by enjoining the
respondent to file his claim for attorney's fees with the Commission on Audit pursuant
to Presidential Decree No. 1445.

SO ORDERED. chanroblesvirtuallawlibrary

G.R. No. 171182               August 23, 2012

UNIVERSITY OF THE PHILIPPINES, JOSE V. ABUEVA, RAUL P. DE GUZMAN, RUBEN P.

ASPIRAS, EMMANUEL P. BELLO, WILFREDO P. DAVID, CASIANO S. ABRIGO, and JOSEFINA
R. LICUANAN, Petitioners,
vs.
HON. AGUSTIN S. DIZON, his capacity as Presiding Judge of the Regional Trial Court of
Quezon City, Branch 80, STERN BUILDERS, INC., and SERVILLANO DELA
CRUZ, Respondents.

DECISION

BERSAMIN, J.:

Trial judges should not immediately issue writs of execution or garnishment against the Government
or any of its subdivisions, agencies and instrumentalities to enforce money judgments. They should
1 

bear in mind that the primary jurisdiction to examine, audit and settle all claims of any sort due from
the Government or any of its subdivisions, agencies and instrumentalities pertains to the
Commission on Audit (COA) pursuant to Presidential Decree No. 1445 (Government Auditing Code
of the Philippines).

The Case

On appeal by the University of the Philippines and its then incumbent officials (collectively, the UP) is
the decision promulgated on September 16, 2005, whereby the Court of Appeals (CA) upheld the
2 
order of the Regional Trial Court (RTC), Branch 80, in Quezon City that directed the garnishment of
public funds amounting to ₱ 16,370,191.74 belonging to the UP to satisfy the writ of execution
issued to enforce the already final and executory judgment against the UP.

Antecedents

On August 30, 1990, the UP, through its then President Jose V. Abueva, entered into a General
Construction Agreement with respondent Stern Builders Corporation (Stern Builders), represented
by its President and General Manager Servillano dela Cruz, for the construction of the extension
building and the renovation of the College of Arts and Sciences Building in the campus of the
University of the Philippines in Los Baños (UPLB). 3

In the course of the implementation of the contract, Stern Builders submitted three progress billings
corresponding to the work accomplished, but the UP paid only two of the billings. The third billing
worth ₱ 273,729.47 was not paid due to its disallowance by the Commission on Audit (COA).
Despite the lifting of the disallowance, the UP failed to pay the billing, prompting Stern Builders and
dela Cruz to sue the UP and its co-respondent officials to collect the unpaid billing and to recover
various damages. The suit, entitled Stern Builders Corporation and Servillano R. Dela Cruz v.
University of the Philippines Systems, Jose V. Abueva, Raul P. de Guzman, Ruben P. Aspiras,
Emmanuel P. Bello, Wilfredo P. David, Casiano S. Abrigo, and Josefina R. Licuanan, was docketed
as Civil Case No. Q-93-14971 of the Regional Trial Court in Quezon City (RTC). 4

After trial, on November 28, 2001, the RTC rendered its decision in favor of the plaintiffs, viz:
5 

Wherefore, in the light of the foregoing, judgment is hereby rendered in favor of the plaintiff and
against the defendants ordering the latter to pay plaintiff, jointly and severally, the following, to wit:

1. ₱ 503,462.74 amount of the third billing, additional accomplished work and retention
money

2. ₱ 5,716,729.00 in actual damages

3. ₱ 10,000,000.00 in moral damages

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

5. Costs of suit.

SO ORDERED.

Following the RTC’s denial of its motion for reconsideration on May 7, 2002, the UP filed a notice of
6 

appeal on June 3, 2002. Stern Builders and dela Cruz opposed the notice of appeal on the ground of
7 

its filing being belated, and moved for the execution of the decision. The UP countered that the
notice of appeal was filed within the reglementary period because the UP’s Office of Legal Affairs
(OLS) in Diliman, Quezon City received the order of denial only on May 31, 2002. On September 26,
2002, the RTC denied due course to the notice of appeal for having been filed out of time and
granted the private respondents’ motion for execution. 8

The RTC issued the writ of execution on October 4, 2002, and the sheriff of the RTC served the writ
9 

of execution and notice of demand upon the UP, through its counsel, on October 9, 2002. The UP 10 

filed an urgent motion to reconsider the order dated September 26, 2002, to quash the writ of
execution dated October 4, 2002, and to restrain the proceedings. However, the RTC denied the
11 

urgent motion on April 1, 2003. 12

On June 24, 2003, the UP assailed the denial of due course to its appeal through a petition
for certiorari in the Court of Appeals (CA), docketed as CA-G.R. No. 77395. 13

On February 24, 2004, the CA dismissed the petition for certiorari upon finding that the UP’s notice
of appeal had been filed late, stating:
14 

Records clearly show that petitioners received a copy of the Decision dated November 28, 2001 and
January 7, 2002, thus, they had until January 22, 2002 within which to file their appeal. On January
16, 2002 or after the lapse of nine (9) days, petitioners through their counsel Atty. Nolasco filed a
Motion for Reconsideration of the aforesaid decision, hence, pursuant to the rules, petitioners still
had six (6) remaining days to file their appeal. As admitted by the petitioners in their petition (Rollo,
p. 25), Atty. Nolasco received a copy of the Order denying their motion for reconsideration on May
17, 2002, thus, petitioners still has until May 23, 2002 (the remaining six (6) days) within which to file
their appeal. Obviously, petitioners were not able to file their Notice of Appeal on May 23, 2002 as it
was only filed on June 3, 2002.

In view of the said circumstances, We are of the belief and so holds that the Notice of Appeal filed by
the petitioners was really filed out of time, the same having been filed seventeen (17) days late of
the reglementary period. By reason of which, the decision dated November 28, 2001 had already
become final and executory. "Settled is the rule that the perfection of an appeal in the manner and
within the period permitted by law is not only mandatory but jurisdictional, and failure to perfect that
appeal renders the challenged judgment final and executory. This is not an empty procedural rule
but is grounded on fundamental considerations of public policy and sound practice." (Ram’s Studio
and Photographic Equipment, Inc. vs. Court of Appeals, 346 SCRA 691, 696). Indeed, Atty. Nolasco
received the order of denial of the Motion for Reconsideration on May 17, 2002 but filed a Notice of
Appeal only on June 3, 3003. As such, the decision of the lower court ipso facto became final when
no appeal was perfected after the lapse of the reglementary period. This procedural caveat cannot
be trifled with, not even by the High Court.15

The UP sought a reconsideration, but the CA denied the UP’s motion for reconsideration on April 19,
2004.16

On May 11, 2004, the UP appealed to the Court by petition for review on certiorari (G.R. No.
163501).

On June 23, 2004, the Court denied the petition for review. The UP moved for the reconsideration of
17 

the denial of its petition for review on August 29, 2004, but the Court denied the motion on October
18 

6, 2004. The denial became final and executory on November 12, 2004.
19  20

In the meanwhile that the UP was exhausting the available remedies to overturn the denial of due
course to the appeal and the issuance of the writ of execution, Stern Builders and dela Cruz filed in
the RTC their motions for execution despite their previous motion having already been granted and
despite the writ of execution having already issued. On June 11, 2003, the RTC granted another
motion for execution filed on May 9, 2003 (although the RTC had already issued the writ of
execution on October 4, 2002). 21

On June 23, 2003 and July 25, 2003, respectively, the sheriff served notices of garnishment on the
UP’s depository banks, namely: Land Bank of the Philippines (Buendia Branch) and the
Development Bank of the Philippines (DBP), Commonwealth Branch. The UP assailed the
22 
garnishment through an urgent motion to quash the notices of garnishment; and a motion to quash
23 

the writ of execution dated May 9, 2003. 24

On their part, Stern Builders and dela Cruz filed their ex parte motion for issuance of a release
order. 25

On October 14, 2003, the RTC denied the UP’s urgent motion to quash, and granted Stern Builders
and dela Cruz’s ex parte motion for issuance of a release order. 26

The UP moved for the reconsideration of the order of October 14, 2003, but the RTC denied the
motion on November 7, 2003. 27

On January 12, 2004, Stern Builders and dela Cruz again sought the release of the garnished
funds. Despite the UP’s opposition, the RTC granted the motion to release the garnished funds on
28  29 

March 16, 2004. On April 20, 2004, however, the RTC held in abeyance the enforcement of the
30 

writs of execution issued on October 4, 2002 and June 3, 2003 and all the ensuing notices of
garnishment, citing Section 4, Rule 52, Rules of Court, which provided that the pendency of a timely
motion for reconsideration stayed the execution of the judgment. 31

On December 21, 2004, the RTC, through respondent Judge Agustin S. Dizon, authorized the
release of the garnished funds of the UP, to wit: 32 

WHEREFORE, premises considered, there being no more legal impediment for the release of the
garnished amount in satisfaction of the judgment award in the instant case, let the amount garnished
be immediately released by the Development Bank of the Philippines, Commonwealth Branch,
Quezon City in favor of the plaintiff.

SO ORDERED.

The UP was served on January 3, 2005 with the order of December 21, 2004 directing DBP to
release the garnished funds. 33

On January 6, 2005, Stern Builders and dela Cruz moved to cite DBP in direct contempt of court for
its non-compliance with the order of release. 34

Thereupon, on January 10, 2005, the UP brought a petition for certiorari in the CA to challenge the
jurisdiction of the RTC in issuing the order of December 21, 2004 (CA-G.R. CV No. 88125). Aside
35 

from raising the denial of due process, the UP averred that the RTC committed grave abuse of
discretion amounting to lack or excess of jurisdiction in ruling that there was no longer any legal
impediment to the release of the garnished funds. The UP argued that government funds and
properties could not be seized by virtue of writs of execution or garnishment, as held in Department
of Agriculture v. National Labor Relations Commission, and citing Section 84 of Presidential Decree
36 

No. 1445 to the effect that "revenue funds shall not be paid out of any public treasury or depository
except in pursuance of an appropriation law or other specific statutory authority;" and that the order
of garnishment clashed with the ruling in University of the Philippines Board of Regents v. Ligot-
Telan to the effect that the funds belonging to the UP were public funds.
37 

On January 19, 2005, the CA issued a temporary restraining order (TRO) upon application by the
UP.38
On March 22, 2005, Stern Builders and dela Cruz filed in the RTC their amended motion for sheriff’s
assistance to implement the release order dated December 21, 2004, stating that the 60-day period
of the TRO of the CA had already lapsed. The UP opposed the amended motion and countered that
39 

the implementation of the release order be suspended. 40

On May 3, 2005, the RTC granted the amended motion for sheriff’s assistance and directed the
sheriff to proceed to the DBP to receive the check in satisfaction of the judgment. 41

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

On May 16, 2005, DBP filed a motion to consign the check representing the judgment award and to
dismiss the motion to cite its officials in contempt of court. 43

On May 23, 2005, the UP presented a motion to withhold the release of the payment of the judgment
award. 44

On July 8, 2005, the RTC resolved all the pending matters, noting that the DBP had already
45 

delivered to the sheriff Manager’s Check No. 811941 for ₱ 16,370,191.74 representing the
garnished funds payable to the order of Stern Builders and dela Cruz as its compliance with the
RTC’s order dated December 21, 2004. However, the RTC directed in the same order that Stern
46 

Builders and dela Cruz should not encash the check or withdraw its amount pending the final
resolution of the UP’s petition for certiorari, to wit:
47

To enable the money represented in the check in question (No. 00008119411) to earn interest
during the pendency of the defendant University of the Philippines application for a writ of injunction
with the Court of Appeals the same may now be deposited by the plaintiff at the garnishee Bank
(Development Bank of the Philippines), the disposition of the amount represented therein being
subject to the final outcome of the case of the University of the Philippines et al., vs. Hon. Agustin S.
Dizon et al., (CA G.R. 88125) before the Court of Appeals.

Let it be stated herein that the plaintiff is not authorized to encash and withdraw the amount
represented in the check in question and enjoy the same in the fashion of an owner during the
pendency of the case between the parties before the Court of Appeals which may or may not be
resolved in plaintiff’s favor.

With the end in view of seeing to it that the check in question is deposited by the plaintiff at the
Development Bank of the Philippines (garnishee bank), Branch Sheriff Herlan Velasco is directed to
accompany and/or escort the plaintiff in making the deposit of the check in question.

SO ORDERED.

On September 16, 2005, the CA promulgated its assailed decision dismissing the UP’s petition for
certiorari, ruling that the UP had been given ample opportunity to contest the motion to direct the
DBP to deposit the check in the name of Stern Builders and dela Cruz; and that the garnished funds
could be the proper subject of garnishment because they had been already earmarked for the
project, with the UP holding the funds only in a fiduciary capacity, viz: 48 

Petitioners next argue that the UP funds may not be seized for execution or garnishment to satisfy
the judgment award. Citing Department of Agriculture vs. NLRC, University of the Philippines Board
of Regents vs. Hon. Ligot-Telan, petitioners contend that UP deposits at Land Bank and the
Development Bank of the Philippines, being government funds, may not be released absent an
appropriations bill from Congress.

The argument is specious. UP entered into a contract with private respondents for the expansion
and renovation of the Arts and Sciences Building of its campus in Los Baños, Laguna. Decidedly,
there was already an appropriations earmarked for the said project. The said funds are retained by
UP, in a fiduciary capacity, pending completion of the construction project.

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

"4. Executive Order No. 109 (Directing all National Government Agencies to Revert Certain
Accounts Payable to the Cumulative Result of Operations of the National Government and
for Other Purposes) Section 9. Reversion of Accounts Payable, provides that, all 1995 and
prior years documented accounts payable and all undocumented accounts regardless of the
year they were incurred shall be reverted to the Cumulative Result of Operations of the
National Government (CROU). This shall apply to accounts payable of all funds, except
fiduciary funds, as long as the purpose for which the funds were created have not been
accomplished and accounts payable under foreign assisted projects for the duration of the
said project. In this regard, the Department of Budget and Management issued Joint-Circular
No. 99-6 4.0 (4.3) Procedural Guidelines which provides that all accounts payable that
reverted to the CROU may be considered for payment upon determination thru
administrative process, of the existence, validity and legality of the claim. Thus, the allegation
of the defendants that considering no appropriation for the payment of any amount awarded
to plaintiffs appellee the funds of defendant-appellants may not be seized pursuant to a writ
of execution issued by the regular court is misplaced. Surely when the defendants and the
plaintiff entered into the General Construction of Agreement there is an amount already
allocated by the latter for the said project which is no longer subject of future appropriation." 49

After the CA denied their motion for reconsideration on December 23, 2005, the petitioners appealed
by petition for review.

Matters Arising During the Pendency of the Petition

On January 30, 2006, Judge Dizon of the RTC (Branch 80) denied Stern Builders and dela Cruz’s
motion to withdraw the deposit, in consideration of the UP’s intention to appeal to the CA, stating:
50 

Since it appears that the defendants are intending to file a petition for review of the Court of Appeals
resolution in CA-G.R. No. 88125 within the reglementary period of fifteen (15) days from receipt of
resolution, the Court agrees with the defendants stand that the granting of plaintiffs’ subject motion is
premature.

Let it be stated that what the Court meant by its Order dated July 8, 2005 which states in part that
the "disposition of the amount represented therein being subject to the final outcome of the case of
the University of the Philippines, et. al., vs. Hon. Agustin S. Dizon et al., (CA G.R. No. 88125 before
the Court of Appeals) is that the judgment or resolution of said court has to be final and executory,
for if the same will still be elevated to the Supreme Court, it will not attain finality yet until the highest
court has rendered its own final judgment or resolution. 51

However, on January 22, 2007, the UP filed an Urgent Application for A Temporary Restraining
Order and/or A Writ of Preliminary Injunction, averring that on January 3, 2007, Judge Maria
52 

Theresa dela Torre-Yadao (who had meanwhile replaced Judge Dizon upon the latter’s appointment
to the CA) had issued another order allowing Stern Builders and dela Cruz to withdraw the
deposit, to wit:
53 

It bears stressing that defendants’ liability for the payment of the judgment obligation has become
indubitable due to the final and executory nature of the Decision dated November 28, 2001. Insofar
as the payment of the [sic] judgment obligation is concerned, the Court believes that there is nothing
more the defendant can do to escape liability. It is observed that there is nothing more the defendant
can do to escape liability. It is observed that defendant U.P. System had already exhausted all its
legal remedies to overturn, set aside or modify the decision (dated November 28, 2001( rendered
against it. The way the Court sees it, defendant U.P. System’s petition before the Supreme Court
concerns only with the manner by which said judgment award should be satisfied. It has nothing to
do with the legality or propriety thereof, although it prays for the deletion of [sic] reduction of the
award of moral damages.

It must be emphasized that this Court’s finding, i.e., that there was sufficient appropriation
earmarked for the project, was upheld by the Court of Appeals in its decision dated September 16,
2005. Being a finding of fact, the Supreme Court will, ordinarily, not disturb the same was said Court
is not a trier of fact. Such being the case, defendants’ arguments that there was no sufficient
appropriation for the payment of the judgment obligation must fail.

While it is true that the former Presiding Judge of this Court in its Order dated January 30, 2006 had
stated that:

Let it be stated that what the Court meant by its Order dated July 8, 2005 which states in part that
the "disposition of the amount represented therein being subject to the final outcome of the case of
the University of the Philippines, et. al., vs. Hon. Agustin S. Dizon et al., (CA G.R. No. 88125 before
the Court of Appeals) is that the judgment or resolution of said court has to be final and executory,
for if the same will still be elevated to the Supreme Court, it will not attain finality yet until the highest
court has rendered its own final judgment or resolution.

it should be noted that neither the Court of Appeals nor the Supreme Court issued a preliminary
injunction enjoining the release or withdrawal of the garnished amount. In fact, in its present petition
for review before the Supreme Court, U.P. System has not prayed for the issuance of a writ of
preliminary injunction. Thus, the Court doubts whether such writ is forthcoming.

The Court honestly believes that if defendants’ petition assailing the Order of this Court dated
December 31, 2004 granting the motion for the release of the garnished amount was meritorious,
the Court of Appeals would have issued a writ of injunction enjoining the same. Instead, said
appellate court not only refused to issue a wit of preliminary injunction prayed for by U.P. System but
denied the petition, as well. 54

The UP contended that Judge Yadao thereby effectively reversed the January 30, 2006 order of
Judge Dizon disallowing the withdrawal of the garnished amount until after the decision in the case
would have become final and executory.

Although the Court issued a TRO on January 24, 2007 to enjoin Judge Yadao and all persons acting
pursuant to her authority from enforcing her order of January 3, 2007, it appears that on January 16,
55 

2007, or prior to the issuance of the TRO, she had already directed the DBP to forthwith release the
garnished amount to Stern Builders and dela Cruz;  and that DBP had forthwith complied with the
56 

order on January 17, 2007 upon the sheriff’s service of the order of Judge Yadao. 57
These intervening developments impelled the UP to file in this Court a supplemental petition on
January 26, 2007, alleging that the RTC (Judge Yadao) gravely erred in ordering the immediate
58 

release of the garnished amount despite the pendency of the petition for review in this Court.

The UP filed a second supplemental petition after the RTC (Judge Yadao) denied the UP’s motion
59 

for the redeposit of the withdrawn amount on April 10, 2007, to wit:
60 

This resolves defendant U.P. System’s Urgent Motion to Redeposit Judgment Award praying that
plaintiffs be directed to redeposit the judgment award to DBP pursuant to the Temporary Restraining
Order issued by the Supreme Court. Plaintiffs opposed the motion and countered that the
Temporary Restraining Order issued by the Supreme Court has become moot and academic
considering that the act sought to be restrained by it has already been performed. They also alleged
that the redeposit of the judgment award was no longer feasible as they have already spent the
same.

It bears stressing, if only to set the record straight, that this Court did not – in its Order dated January
3, 2007 (the implementation of which was restrained by the Supreme Court in its Resolution dated
January 24, 2002) – direct that that garnished amount "be deposited with the garnishee bank
(Development Bank of the Philippines)". In the first place, there was no need to order DBP to make
such deposit, as the garnished amount was already deposited in the account of plaintiffs with the
DBP as early as May 13, 2005. What the Court granted in its Order dated January 3, 2007 was
plaintiff’s motion to allow the release of said deposit. It must be recalled that the Court found
plaintiff’s motion meritorious and, at that time, there was no restraining order or preliminary injunction
from either the Court of Appeals or the Supreme Court which could have enjoined the release of
plaintiffs’ deposit. The Court also took into account the following factors:

a) the Decision in this case had long been final and executory after it was rendered on
November 28, 2001;

b) the propriety of the dismissal of U.P. System’s appeal was upheld by the Supreme Court;

c) a writ of execution had been issued;

d) defendant U.P. System’s deposit with DBP was garnished pursuant to a lawful writ of
execution issued by the Court; and

e) the garnished amount had already been turned over to the plaintiffs and deposited in their
account with DBP.

The garnished amount, as discussed in the Order dated January 16, 2007, was already owned by
the plaintiffs, having been delivered to them by the Deputy Sheriff of this Court pursuant to par. (c),
Section 9, Rule 39 of the 1997 Rules of Civil Procedure. Moreover, the judgment obligation has
already been fully satisfied as per Report of the Deputy Sheriff.

Anent the Temporary Restraining Order issued by the Supreme Court, the same has become
functus oficio, having been issued after the garnished amount had been released to the plaintiffs.
The judgment debt was released to the plaintiffs on January 17, 2007, while the Temporary
Restraining Order issued by the Supreme Court was received by this Court on February 2, 2007. At
the time of the issuance of the Restraining Order, the act sought to be restrained had already been
done, thereby rendering the said Order ineffectual.
After a careful and thorough study of the arguments advanced by the parties, the Court is of the
considered opinion that there is no legal basis to grant defendant U.P. System’s motion to redeposit
the judgment amount. Granting said motion is not only contrary to law, but it will also render this
Court’s final executory judgment nugatory. Litigation must end and terminate sometime and
somewhere, and it is essential to an effective administration of justice that once a judgment has
become final the issue or cause involved therein should be laid to rest. This doctrine of finality of
judgment is grounded on fundamental considerations of public policy and sound practice. In fact,
nothing is more settled in law than that once a judgment attains finality it thereby becomes
immutable and unalterable. It may no longer be modified in any respect, even if the modification is
meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of
whether the modification is attempted to be made by the court rendering it or by the highest court of
the land.

WHEREFORE, premises considered, finding defendant U.P. System’s Urgent Motion to Redeposit
Judgment Award devoid of merit, the same is hereby DENIED.

SO ORDERED.

Issues

The UP now submits that:

THE COURT OF APPEALS COMMITTED GRAVE ERROR IN DISMISSING THE PETITION,

ALLOWING IN EFFECT THE GARNISHMENT OF UP FUNDS, WHEN IT RULED THAT FUNDS
HAVE ALREADY BEEN EARMARKED FOR THE CONSTRUCTION PROJECT; AND THUS,
THERE IS NO NEED FOR FURTHER APPROPRIATIONS.

II

THE COURT OF APPEALS COMMITTED GRAVE ERROR IN ALLOWING GARNISHMENT OF A

STATE UNIVERSITY’S FUNDS IN VIOLATION OF ARTICLE XIV, SECTION 5(5) OF THE
CONSTITUTION.

III

IN THE ALTERNATIVE, THE UNIVERSITY INVOKES EQUITY AND THE REVIEW POWERS OF
THIS HONORABLE COURT TO MODIFY, IF NOT TOTALLY DELETE THE AWARD OF ₱ 10
MILLION AS MORAL DAMAGES TO RESPONDENTS.

IV

THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE IMMEDIATE RELEASE

OF THE JUDGMENT AWARD IN ITS ORDER DATED 3 JANUARY 2007 ON THE GROUND OF
EQUITY AND JUDICIAL COURTESY.

THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING THE IMMEDIATE RELEASE

OF THE JUDGMENT AWARD IN ITS ORDER DATED 16 JANUARY 2007 ON THE GROUND
THAT PETITIONER UNIVERSITY STILL HAS A PENDING MOTION FOR RECONSIDERATION OF
THE ORDER DATED 3 JANUARY 2007.

VI

THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN NOT ORDERING THE REDEPOSIT OF

THE GARNISHED AMOUNT TO THE DBP IN VIOLATION OF THE CLEAR LANGUAGE OF THE
SUPREME COURT RESOLUTION DATED 24 JANUARY 2007.

The UP argues that the amount earmarked for the construction project had been purposely set aside
only for the aborted project and did not include incidental matters like the awards of actual damages,
moral damages and attorney’s fees. In support of its argument, the UP cited Article 12.2 of the
General Construction Agreement, which stipulated that no deductions would be allowed for the
payment of claims, damages, losses and expenses, including attorney’s fees, in case of any
litigation arising out of the performance of the work. The UP insists that the CA decision was
inconsistent with the rulings in Commissioner of Public Highways v. San Diego and Department of
61 

Agriculture v. NLRC to the effect that government funds and properties could not be seized under
62 

writs of execution or garnishment to satisfy judgment awards.

Furthermore, the UP contends that the CA contravened Section 5, Article XIV of the Constitution by
allowing the garnishment of UP funds, because the garnishment resulted in a substantial reduction
of the UP’s limited budget allocated for the remuneration, job satisfaction and fulfillment of the best
available teachers; that Judge Yadao should have exhibited judicial courtesy towards the Court due
to the pendency of the UP’s petition for review; and that she should have also desisted from
declaring that the TRO issued by this Court had become functus officio.

Lastly, the UP states that the awards of actual damages of ₱ 5,716,729.00 and moral damages of ₱
10 million should be reduced, if not entirely deleted, due to its being unconscionable, inequitable and
detrimental to public service.

In contrast, Stern Builders and dela Cruz aver that the petition for review was fatally defective for its
failure to mention the other cases upon the same issues pending between the parties (i.e., CA-G.R.
No. 77395 and G.R No. 163501); that the UP was evidently resorting to forum shopping, and to
delaying the satisfaction of the final judgment by the filing of its petition for review; that the ruling in
Commissioner of Public Works v. San Diego had no application because there was an appropriation
for the project; that the UP retained the funds allotted for the project only in a fiduciary capacity; that
the contract price had been meanwhile adjusted to ₱ 22,338,553.25, an amount already more than
sufficient to cover the judgment award; that the UP’s prayer to reduce or delete the award of
damages had no factual basis, because they had been gravely wronged, had been deprived of their
source of income, and had suffered untold miseries, discomfort, humiliation and sleepless years; that
dela Cruz had even been constrained to sell his house, his equipment and the implements of his
trade, and together with his family had been forced to live miserably because of the wrongful
actuations of the UP; and that the RTC correctly declared the Court’s TRO to be already functus
officio by reason of the withdrawal of the garnished amount from the DBP.

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

(a) whether the funds of the UP were the proper subject of garnishment in order to satisfy the
judgment award; and (b) whether the UP’s prayer for the deletion of the awards of actual damages
of ₱ 5,716,729.00, moral damages of ₱ 10,000,000.00 and attorney’s fees of ₱ 150,000.00 plus ₱
1,500.00 per appearance could be granted despite the finality of the judgment of the RTC.
 Ruling

The petition for review is meritorious.

I.
UP’s funds, being government funds,
are not subject to garnishment

The UP was founded on June 18, 1908 through Act 1870 to provide advanced instruction in
literature, philosophy, the sciences, and arts, and to give professional and technical training to
deserving students. Despite its establishment as a body corporate, the UP remains to be a
63  64 

"chartered institution" performing a legitimate government function. It is an institution of higher

65 

learning, not a corporation established for profit and declaring any dividends. In enacting Republic
66 

Act No. 9500 (The University of the Philippines Charter of 2008), Congress has declared the UP as
the national university "dedicated to the search for truth and knowledge as well as the development
67 

of future leaders." 68

Irrefragably, the UP is a government instrumentality, performing the State’s constitutional mandate

69 

of promoting quality and accessible education. As a government instrumentality, the UP administers

70 

special funds sourced from the fees and income enumerated under Act No. 1870 and Section 1 of
Executive Order No. 714, and from the yearly appropriations, to achieve the purposes laid down by
71 

Section 2 of Act 1870, as expanded in Republic Act No. 9500. All the funds going into the
72 

possession of the UP, including any interest accruing from the deposit of such funds in any banking
institution, constitute a "special trust fund," the disbursement of which should always be aligned with
the UP’s mission and purpose, and should always be subject to auditing by the COA.
73  74

Presidential Decree No. 1445 defines a "trust fund" as a fund that officially comes in the possession
of an agency of the government or of a public officer as trustee, agent or administrator, or that is
received for the fulfillment of some obligation. A trust fund may be utilized only for the "specific
75 

purpose for which the trust was created or the funds received." 76

The funds of the UP are government funds that are public in character. They include the income
accruing from the use of real property ceded to the UP that may be spent only for the attainment of
its institutional objectives. Hence, the funds subject of this action could not be validly made the
77 

subject of the RTC’s writ of execution or garnishment. The adverse judgment rendered against the
UP in a suit to which it had impliedly consented was not immediately enforceable by execution
against the UP, because suability of the State did not necessarily mean its liability.
78  79

A marked distinction exists between suability of the State and its liability. As the Court succinctly
stated in Municipality of San Fernando, La Union v. Firme: 80

A distinction should first be made between suability and liability. "Suability depends on the consent
of the state to be sued, liability on the applicable law and the established facts. The circumstance
that a state is suable does not necessarily mean that it is liable; on the other hand, it can never be
held liable if it does not first consent to be sued. Liability is not conceded by the mere fact that the
state has allowed itself to be sued. When the state does waive its sovereign immunity, it is only
giving the plaintiff the chance to prove, if it can, that the defendant is liable.

Also, in Republic v. Villasor, where the issuance of an alias writ of execution directed against the
81 

funds of the Armed Forces of the Philippines to satisfy a final and executory judgment was nullified,
the Court said:
xxx The universal rule that where the State gives its consent to be sued by private parties either by
general or special law, it may limit claimant’s action "only up to the completion of proceedings
anterior to the stage of execution" and that the power of the Courts ends when the judgment is
rendered, since government funds and properties may not be seized under writs of execution or
garnishment to satisfy such judgments, is based on obvious considerations of public policy.
Disbursements of public funds must be covered by the corresponding appropriation as required by
law. The functions and public services rendered by the State cannot be allowed to be paralyzed or
disrupted by the diversion of public funds from their legitimate and specific objects, as appropriated
by law.

The UP correctly submits here that the garnishment of its funds to satisfy the judgment awards of
actual and moral damages (including attorney’s fees) was not validly made if there was no special
appropriation by Congress to cover the liability. It was, therefore, legally unwarranted for the CA to
agree with the RTC’s holding in the order issued on April 1, 2003 that no appropriation by Congress
to allocate and set aside the payment of the judgment awards was necessary because "there (were)
already an appropriations (sic) earmarked for the said project." The CA and the RTC thereby
82 

unjustifiably ignored the legal restriction imposed on the trust funds of the Government and its
agencies and instrumentalities to be used exclusively to fulfill the purposes for which the trusts were
created or for which the funds were received except upon express authorization by Congress or by
the head of a government agency in control of the funds, and subject to pertinent budgetary laws,
rules and regulations.83

Indeed, an appropriation by Congress was required before the judgment that rendered the UP liable
for moral and actual damages (including attorney’s fees) would be satisfied considering that such
monetary liabilities were not covered by the "appropriations earmarked for the said project." The
Constitution strictly mandated that "(n)o money shall be paid out of the Treasury except in pursuance
of an appropriation made by law." 84

II
COA must adjudicate private respondents’ claim
before execution should proceed

The execution of the monetary judgment against the UP was within the primary jurisdiction of the
COA. This was expressly provided in Section 26 of Presidential Decree No. 1445, to wit:

Section 26. General jurisdiction. - The authority and powers of the Commission shall extend to and
comprehend all matters relating to auditing procedures, systems and controls, the keeping of the
general accounts of the Government, the preservation of vouchers pertaining thereto for a period of
ten years, the examination and inspection of the books, records, and papers relating to those
accounts; and the audit and settlement of the accounts of all persons respecting funds or property
received or held by them in an accountable capacity, as well as the examination, audit, and
settlement of all debts and claims of any sort due from or owing to the Government or any of its
subdivisions, agencies and instrumentalities. The said jurisdiction extends to all government-owned
or controlled corporations, including their subsidiaries, and other self-governing boards,
commissions, or agencies of the Government, and as herein prescribed, including non governmental
entities subsidized by the government, those funded by donations through the government, those
required to pay levies or government share, and those for which the government has put up a
counterpart fund or those partly funded by the government.

It was of no moment that a final and executory decision already validated the claim against the UP.
The settlement of the monetary claim was still subject to the primary jurisdiction of the COA despite
the final decision of the RTC having already validated the claim. As such, Stern Builders and dela
85 
Cruz as the claimants had no alternative except to first seek the approval of the COA of their
monetary claim.

On its part, the RTC should have exercised utmost caution, prudence and judiciousness in dealing
with the motions for execution against the UP and the garnishment of the UP’s funds. The RTC had
no authority to direct the immediate withdrawal of any portion of the garnished funds from the
depository banks of the UP. By eschewing utmost caution, prudence and judiciousness in dealing
with the execution and garnishment, and by authorizing the withdrawal of the garnished funds of the
UP, the RTC acted beyond its jurisdiction, and all its orders and issuances thereon were void and of
no legal effect, specifically: (a) the order Judge Yadao issued on January 3, 2007 allowing Stern
Builders and dela Cruz to withdraw the deposited garnished amount; (b) the order Judge Yadao
issued on January 16, 2007 directing DBP to forthwith release the garnish amount to Stern Builders
and dela Cruz; (c) the sheriff’s report of January 17, 2007 manifesting the full satisfaction of the writ
of execution; and (d) the order of April 10, 2007 deying the UP’s motion for the redeposit of the
withdrawn amount. Hence, such orders and issuances should be struck down without exception.

Nothing extenuated Judge Yadao’s successive violations of Presidential Decree No. 1445. She was
aware of Presidential Decree No. 1445, considering that the Court circulated to all judges its
Administrative Circular No. 10-2000, issued on October 25, 2000, enjoining them "to observe utmost
86 

caution, prudence and judiciousness in the issuance of writs of execution to satisfy money
judgments against government agencies and local government units" precisely in order to prevent
the circumvention of Presidential Decree No. 1445, as well as of the rules and procedures of the
COA, to wit:

In order to prevent possible circumvention of the rules and procedures of the Commission on
Audit, judges are hereby enjoined to observe utmost caution, prudence and judiciousness in
the issuance of writs of execution to satisfy money judgments against government agencies
and local government units.

Judges should bear in mind that in Commissioner of Public Highways v. San Diego (31 SCRA 617,
625 1970), this Court explicitly stated:

"The universal rule that where the State gives its consent to be sued by private parties either by
general or special law, it may limit claimant’s action ‘only up to the completion of proceedings
anterior to the stage of execution’ and that the power of the Court ends when the judgment is
rendered, since government funds and properties may not be seized under writs of execution or
garnishment to satisfy such judgments, is based on obvious considerations of public policy.
Disbursements of public funds must be covered by the corresponding appropriation as required by
law. The functions and public services rendered by the State cannot be allowed to be paralyzed or
disrupted by the diversion of public funds from their legitimate and specific objects, as appropriated
by law.

Moreover, it is settled jurisprudence that upon determination of State liability, the

prosecution, enforcement or satisfaction thereof must still be pursued in accordance with the
rules and procedures laid down in P.D. No. 1445, otherwise known as the Government
Auditing Code of the Philippines (Department of Agriculture v. NLRC, 227 SCRA 693, 701-02
1993 citing Republic vs. Villasor, 54 SCRA 84 1973). All money claims against the
Government must first be filed with the Commission on Audit which must act upon it within
sixty days. Rejection of the claim will authorize the claimant to elevate the matter to the
Supreme Court on certiorari and in effect, sue the State thereby (P.D. 1445, Sections 49-50).
However, notwithstanding the rule that government properties are not subject to levy and execution
unless otherwise provided for by statute (Republic v. Palacio, 23 SCRA 899 1968; Commissioner of
Public Highways v. San Diego, supra) or municipal ordinance (Municipality of Makati v. Court of
Appeals, 190 SCRA 206 1990), the Court has, in various instances, distinguished between
government funds and properties for public use and those not held for public use. Thus, in Viuda de
Tan Toco v. Municipal Council of Iloilo (49 Phil 52 1926, the Court ruled that "where property of a
municipal or other public corporation is sought to be subjected to execution to satisfy judgments
recovered against such corporation, the question as to whether such property is leviable or not is to
be determined by the usage and purposes for which it is held." The following can be culled from
Viuda de Tan Toco v. Municipal Council of Iloilo:

1. Properties held for public uses – and generally everything held for governmental purposes
– are not subject to levy and sale under execution against such corporation. The same rule
applies to funds in the hands of a public officer and taxes due to a municipal corporation.

2. Where a municipal corporation owns in its proprietary capacity, as distinguished from its public or
government capacity, property not used or used for a public purpose but for quasi-private purposes,
it is the general rule that such property may be seized and sold under execution against the
corporation.

3. Property held for public purposes is not subject to execution merely because it is temporarily used
for private purposes. If the public use is wholly abandoned, such property becomes subject to
execution.

This Administrative Circular shall take effect immediately and the Court Administrator shall see to it
that it is faithfully implemented.

Although Judge Yadao pointed out that neither the CA nor the Court had issued as of then any writ
of preliminary injunction to enjoin the release or withdrawal of the garnished amount, she did not
need any writ of injunction from a superior court to compel her obedience to the law. The Court is
disturbed that an experienced judge like her should look at public laws like Presidential Decree No.
1445 dismissively instead of loyally following and unquestioningly implementing them. That she did
so turned her court into an oppressive bastion of mindless tyranny instead of having it as a true
haven for the seekers of justice like the UP.

III
Period of appeal did not start without effective
service of decision upon counsel of record;
Fresh-period rule announced in
Neypes v. Court of Appeals
can be given retroactive application

The UP next pleads that the Court gives due course to its petition for review in the name of equity in
order to reverse or modify the adverse judgment against it despite its finality. At stake in the UP’s
plea for equity was the return of the amount of ₱ 16,370,191.74 illegally garnished from its trust
funds. Obstructing the plea is the finality of the judgment based on the supposed tardiness of UP’s
appeal, which the RTC declared on September 26, 2002. The CA upheld the declaration of finality
on February 24, 2004, and the Court itself denied the UP’s petition for review on that issue on May
11, 2004 (G.R. No. 163501). The denial became final on November 12, 2004.

It is true that a decision that has attained finality becomes immutable and unalterable, and cannot be
modified in any respect, even if the modification is meant to correct erroneous conclusions of fact
87 
and law, and whether the modification is made by the court that rendered it or by this Court as the
highest court of the land. Public policy dictates that once a judgment becomes final, executory and
88 

unappealable, the prevailing party should not be deprived of the fruits of victory by some subterfuge
devised by the losing party. Unjustified delay in the enforcement of such judgment sets at naught the
role and purpose of the courts to resolve justiciable controversies with finality. Indeed, all litigations
89 

must at some time end, even at the risk of occasional errors.

But the doctrine of immutability of a final judgment has not been absolute, and has admitted several
exceptions, among them: (a) the correction of clerical errors; (b) the so-called nunc pro tunc entries
that cause no prejudice to any party; (c) void judgments; and (d) whenever circumstances transpire
after the finality of the decision that render its execution unjust and inequitable. Moreover, in Heirs
90 

of Maura So v. Obliosca, we stated that despite the absence of the preceding circumstances, the
91 

Court is not precluded from brushing aside procedural norms if only to serve the higher interests of
justice and equity. Also, in Gumaru v. Quirino State College, the Court nullified the proceedings and
92 

the writ of execution issued by the RTC for the reason that respondent state college had not been
represented in the litigation by the Office of the Solicitor General.

We rule that the UP’s plea for equity warrants the Court’s exercise of the exceptional power to
disregard the declaration of finality of the judgment of the RTC for being in clear violation of the UP’s
right to due process.

Both the CA and the RTC found the filing on June 3, 2002 by the UP of the notice of appeal to be
tardy. They based their finding on the fact that only six days remained of the UP’s reglementary 15-
day period within which to file the notice of appeal because the UP had filed a motion for
reconsideration on January 16, 2002 vis-à-vis the RTC’s decision the UP received on January 7,
2002; and that because the denial of the motion for reconsideration had been served upon Atty.
Felimon D. Nolasco of the UPLB Legal Office on May 17, 2002, the UP had only until May 23, 2002
within which to file the notice of appeal.

The UP counters that the service of the denial of the motion for reconsideration upon Atty. Nolasco
was defective considering that its counsel of record was not Atty. Nolasco of the UPLB Legal Office
but the OLS in Diliman, Quezon City; and that the period of appeal should be reckoned from May 31,
2002, the date when the OLS received the order. The UP submits that the filing of the notice of
appeal on June 3, 2002 was well within the reglementary period to appeal.

We agree with the submission of the UP.

Firstly, the service of the denial of the motion for reconsideration upon Atty. Nolasco of the UPLB
Legal Office was invalid and ineffectual because he was admittedly not the counsel of record of the
UP. The rule is that it is on the counsel and not the client that the service should be made. 93

That counsel was the OLS in Diliman, Quezon City, which was served with the denial only on May
31, 2002. As such, the running of the remaining period of six days resumed only on June 1,
2002, rendering the filing of the UP’s notice of appeal on June 3, 2002 timely and well within the
94 

remaining days of the UP’s period to appeal.

Verily, the service of the denial of the motion for reconsideration could only be validly made upon the
OLS in Diliman, and no other. The fact that Atty. Nolasco was in the employ of the UP at the UPLB
Legal Office did not render the service upon him effective. It is settled that where a party has
appeared by counsel, service must be made upon such counsel. Service on the party or the party’s
95 

employee is not effective because such notice is not notice in law. This is clear enough from Section
96 

2, second paragraph, of Rule 13, Rules of Court, which explicitly states that: "If any party has
appeared by counsel, service upon him shall be made upon his counsel or one of them, unless
service upon the party himself is ordered by the court. Where one counsel appears for several
parties, he shall only be entitled to one copy of any paper served upon him by the opposite side." As
such, the period to appeal resumed only on June 1, 2002, the date following the service on May 31,
2002 upon the OLS in Diliman of the copy of the decision of the RTC, not from the date when the UP
was notified. 97

Accordingly, the declaration of finality of the judgment of the RTC, being devoid of factual and legal
bases, is set aside.

Secondly, even assuming that the service upon Atty. Nolasco was valid and effective, such that the
remaining period for the UP to take a timely appeal would end by May 23, 2002, it would still not be
correct to find that the judgment of the RTC became final and immutable thereafter due to the notice
of appeal being filed too late on June 3, 2002.

In so declaring the judgment of the RTC as final against the UP, the CA and the RTC applied the
rule contained in the second paragraph of Section 3, Rule 41 of the Rules of Court to the effect that
the filing of a motion for reconsideration interrupted the running of the period for filing the appeal;
and that the period resumed upon notice of the denial of the motion for reconsideration. For that
reason, the CA and the RTC might not be taken to task for strictly adhering to the rule then
prevailing.

However, equity calls for the retroactive application in the UP’s favor of the fresh-period rule that the
Court first announced in mid-September of 2005 through its ruling in Neypes v. Court of
Appeals, viz:
98 

To standardize the appeal periods provided in the Rules and to afford litigants fair opportunity to
appeal their cases, the Court deems it practical to allow a fresh period of 15 days within which to file
the notice of appeal in the Regional Trial Court, counted from receipt of the order dismissing a
motion for a new trial or motion for reconsideration.

The retroactive application of the fresh-period rule, a procedural law that aims "to regiment or make
the appeal period uniform, to be counted from receipt of the order denying the motion for new trial,
motion for reconsideration (whether full or partial) or any final order or resolution," is impervious to
99 

any serious challenge. This is because there are no vested rights in rules of procedure. A law or100 

regulation is procedural when it prescribes rules and forms of procedure in order that courts may be
able to administer justice. It does not come within the legal conception of a retroactive law, or is not
101 

subject of the general rule prohibiting the retroactive operation of statues, but is given retroactive
effect in actions pending and undetermined at the time of its passage without violating any right of a
person who may feel that he is adversely affected.

We have further said that a procedural rule that is amended for the benefit of litigants in furtherance
of the administration of justice shall be retroactively applied to likewise favor actions then pending,
as equity delights in equality. We may even relax stringent procedural rules in order to serve
102 

substantial justice and in the exercise of this Court’s equity jurisdiction. Equity jurisdiction aims to
103 

do complete justice in cases where a court of law is unable to adapt its judgments to the special
circumstances of a case because of the inflexibility of its statutory or legal jurisdiction.
104

It is cogent to add in this regard that to deny the benefit of the fresh-period rule to the UP would
amount to injustice and absurdity – injustice, because the judgment in question was issued on
November 28, 2001 as compared to the judgment in Neypes that was rendered in 1998; absurdity,
because parties receiving notices of judgment and final orders issued in the year 1998 would enjoy
the benefit of the fresh-period rule but the later rulings of the lower courts like that herein would not. 105

Consequently, even if the reckoning started from May 17, 2002, when Atty. Nolasco received the
denial, the UP’s filing on June 3, 2002 of the notice of appeal was not tardy within the context of the
fresh-period rule. For the UP, the fresh period of 15-days counted from service of the denial of the
motion for reconsideration would end on June 1, 2002, which was a Saturday. Hence, the UP had
until the next working day, or June 3, 2002, a Monday, within which to appeal, conformably with
Section 1 of Rule 22, Rules of Court, which holds that: "If the last day of the period, as thus
computed, falls on a Saturday, a Sunday, or a legal holiday in the place where the court sits, the
time shall not run until the next working day."

IV
Awards of monetary damages,
being devoid of factual and legal bases,
did not attain finality and should be deleted

Section 14 of Article VIII of the Constitution prescribes that express findings of fact and of law should
be made in the decision rendered by any court, to wit:

Section 14. No decision shall be rendered by any court without expressing therein clearly and
distinctly the facts and the law on which it is based.

No petition for review or motion for reconsideration of a decision of the court shall be refused due
course or denied without stating the legal basis therefor.

Implementing the constitutional provision in civil actions is Section 1 of Rule 36, Rules of Court, viz:

Section 1. Rendition of judgments and final orders. — A judgment or final order determining the
merits of the case shall be in writing personally and directly prepared by the judge, stating clearly
and distinctly the facts and the law on which it is based, signed by him, and filed with the clerk of the
court. (1a)

The Constitution and the Rules of Court apparently delineate two main essential parts of a judgment,
namely: the body and the decretal portion. Although the latter is the controlling part, the importance
106 

of the former is not to be lightly regarded because it is there where the court clearly and distinctly
states its findings of fact and of law on which the decision is based. To state it differently, one
without the other is ineffectual and useless. The omission of either inevitably results in a judgment
that violates the letter and the spirit of the Constitution and the Rules of Court.

The term findings of fact that must be found in the body of the decision refers to statements of fact,
not to conclusions of law. Unlike in pleadings where ultimate facts alone need to be stated, the
107 

Constitution and the Rules of Court require not only that a decision should state the ultimate facts
but also that it should specify the supporting evidentiary facts, for they are what are called the
findings of fact.

The importance of the findings of fact and of law cannot be overstated. The reason and purpose of
the Constitution and the Rules of Court in that regard are obviously to inform the parties why they
win or lose, and what their rights and obligations are. Only thereby is the demand of due process
met as to the parties. As Justice Isagani A. Cruz explained in Nicos Industrial Corporation v. Court of
Appeals: 108
It is a requirement of due process that the parties to a litigation be informed of how it was decided,
with an explanation of the factual and legal reasons that led to the conclusions of the court. The
court cannot simply say that judgment is rendered in favor of X and against Y and just leave it at that
without any justification whatsoever for its action. The losing party is entitled to know why he lost, so
he may appeal to a higher court, if permitted, should he believe that the decision should be reversed.
A decision that does not clearly and distinctly state the facts and the law on which it is based leaves
the parties in the dark as to how it was reached and is especially prejudicial to the losing party, who
is unable to pinpoint the possible errors of the court for review by a higher tribunal.

Here, the decision of the RTC justified the grant of actual and moral damages, and attorney’s fees in
the following terse manner, viz:

xxx The Court is not unmindful that due to defendants’ unjustified refusal to pay their outstanding
obligation to plaintiff, the same suffered losses and incurred expenses as he was forced to re-
mortgage his house and lot located in Quezon City to Metrobank (Exh. "CC") and BPI Bank just to
pay its monetary obligations in the form of interest and penalties incurred in the course of the
construction of the subject project. 109

The statement that "due to defendants’ unjustified refusal to pay their outstanding obligation to
plaintiff, the same suffered losses and incurred expenses as he was forced to re-mortgage his house
and lot located in Quezon City to Metrobank (Exh. "CC") and BPI Bank just to pay its monetary
obligations in the form of interest and penalties incurred in the course of the construction of the
subject project" was only a conclusion of fact and law that did not comply with the constitutional and
statutory prescription. The statement specified no detailed expenses or losses constituting the ₱
5,716,729.00 actual damages sustained by Stern Builders in relation to the construction project or to
other pecuniary hardships. The omission of such expenses or losses directly indicated that Stern
Builders did not prove them at all, which then contravened Article 2199, Civil Code, the statutory
basis for the award of actual damages, which entitled a person to an adequate compensation only
for such pecuniary loss suffered by him as he has duly proved. As such, the actual damages allowed
by the RTC, being bereft of factual support, were speculative and whimsical. Without the clear and
distinct findings of fact and law, the award amounted only to an ipse dixit on the part of the
RTC, and did not attain finality.
110 

There was also no clear and distinct statement of the factual and legal support for the award of
moral damages in the substantial amount of ₱ 10,000,000.00. The award was thus also speculative
and whimsical. Like the actual damages, the moral damages constituted another judicial ipse dixit,
the inevitable consequence of which was to render the award of moral damages incapable of
attaining finality. In addition, the grant of moral damages in that manner contravened the law that
permitted the recovery of moral damages as the means to assuage "physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury." The contravention of the law was manifest considering that Stern
111 

Builders, as an artificial person, was incapable of experiencing pain and moral sufferings. Assuming
112 

that in granting the substantial amount of ₱ 10,000,000.00 as moral damages, the RTC might have
had in mind that dela Cruz had himself suffered mental anguish and anxiety. If that was the case,
then the RTC obviously disregarded his separate and distinct personality from that of Stern
Builders. Moreover, his moral and emotional sufferings as the President of Stern Builders were not
113 

the sufferings of Stern Builders. Lastly, the RTC violated the basic principle that moral damages
were not intended to enrich the plaintiff at the expense of the defendant, but to restore the plaintiff to
his status quo ante as much as possible. Taken together, therefore, all these considerations
exposed the substantial amount of ₱ 10,000,000.00 allowed as moral damages not only to be
factually baseless and legally indefensible, but also to be unconscionable, inequitable and
unreasonable.
Like the actual and moral damages, the ₱ 150,000.00, plus ₱ 1,500.00 per appearance, granted as
attorney’s fees were factually unwarranted and devoid of legal basis. The general rule is that a
successful litigant cannot recover attorney’s fees as part of the damages to be assessed against the
losing party because of the policy that no premium should be placed on the right to litigate. Prior to
114 

the effectivity of the present Civil Code, indeed, such fees could be recovered only when there was a
stipulation to that effect. It was only under the present Civil Code that the right to collect attorney’s
fees in the cases mentioned in Article 2208 of the Civil Code came to be recognized. Nonetheless,
115  116 

with attorney’s fees being allowed in the concept of actual damages, their amounts must be
117 

factually and legally justified in the body of the decision and not stated for the first time in the
decretal portion. Stating the amounts only in the dispositive portion of the judgment is not
118 

enough; a rendition of the factual and legal justifications for them must also be laid out in the body
119 

of the decision. 120

That the attorney’s fees granted to the private respondents did not satisfy the foregoing requirement
suffices for the Court to undo them. The grant was ineffectual for being contrary to law and public
121 

policy, it being clear that the express findings of fact and law were intended to bring the case within
the exception and thereby justify the award of the attorney’s fees. Devoid of such express findings,
the award was a conclusion without a premise, its basis being improperly left to speculation and
conjecture. 122

Nonetheless, the absence of findings of fact and of any statement of the law and jurisprudence on
which the awards of actual and moral damages, as well as of attorney’s fees, were based was a fatal
flaw that invalidated the decision of the RTC only as to such awards. As the Court declared in
Velarde v. Social Justice Society, the failure to comply with the constitutional requirement for a
123 

clear and distinct statement of the supporting facts and law "is a grave abuse of discretion
amounting to lack or excess of jurisdiction" and that "(d)ecisions or orders issued in careless
disregard of the constitutional mandate are a patent nullity and must be struck down as void." The 124 

other item granted by the RTC (i.e., ₱ 503,462.74) shall stand, subject to the action of the COA as
stated herein.

WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS

ASIDE the decision of the Court of Appeals under review; ANNULS the orders for the garnishment
of the funds of the University of the Philippines and for the release of the garnished amount to Stern
Builders Corporation and Servillano dela Cruz; and DELETES from the decision of the Regional Trial
Court dated November 28, 2001 for being void only the awards of actual damages of ₱
5,716,729.00, moral damages of ₱ 10,000,000.00, and attorney's fees of ₱ 150,000.00, plus ₱
1,500.00 per appearance, in favor of Stern Builders Corporation and Servillano dela Cruz.

The Court ORDERS Stem Builders Corporation and Servillano dela Cruz to redeposit the amount of
₱ 16,370,191.74 within 10 days from receipt of this decision.

Costs of suit to be paid by the private respondents.

SO ORDERED.

G.R. No. 161657               October 4, 2007

REPUBLIC OF THE PHILIPPINES, Petitioner,

vs.
HON. VICENTE A. HIDALGO, in his capacity as Presiding Judge of the Regional Trial Court of
Manila, Branch 37, CARMELO V. CACHERO, in his capacity as Sheriff IV, Regional Trial Court
of Manila, and TARCILA LAPERAL MENDOZA, Respondents.
 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 Court’s 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.

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 Malacañang 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 State’s 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 Mendoza’s complaint. The court would
also deny, in another order dated May 12, 2000, Mendoza’s 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 court’s 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 CA’s 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 Republic’s 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 owner’s 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 Owner’s 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.

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 plaintiff’s 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 Mendoza’s 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 court’s 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
[Mendoza’s 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 plaintiff’s TCT No. 118527 and to issue, in lieu
thereof, a new Transfer Certificate of Title in favor of the defendant Republic;

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 attorney’s 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 - - Order15 granting the private respondent’s motion for execution.

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

Hence, this petition for certiorari.

By Resolution17 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 court’s 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.

Petitioner’s posture is simply without merit.

Deprivation of procedural due process is obviously the petitioner’s 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:
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 Republic’s 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 petitioner’s 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 petitioner’s 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
petitioner’s 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:

In the case at bar, it is clear that the motion for new trial filed on the fifteenth (15th) 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 forma motion. 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
petitioner’s 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 respondent’s 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 court’s 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 respondent’s 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
₱2,388,990.00. 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 ₱500,000.00 a month, or
₱6 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 respondent’s total
rental claim would, per the OSG’s computation, only amount to ₱371,440,426.00. In its assailed
decision, however, the trial court ordered the petitioner to pay private respondent the total amount of
over ₱1.48 Billion or the mind-boggling amount of ₱1,480,627,688.00, 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 ₱143,600,000.00 which represents the acquisition cost of the disputed
property. All told, the trial court would have the Republic pay the total amount of about ₱1.624
Billion, exclusive of interest, for the taking of a property with a declared assessed value of
₱2,388,900.00. This is not to mention the award of attorney’s 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 Court30 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 ₱500,000.00 or ₱6,000,000.00 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 ₱20,000.00 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 attorney’s 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 court’s 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. Palacio38 teaches
that a judgment against the State generally operates merely to liquidate and establish the plaintiff’s
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 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.
1âwphi1

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. Mendoza’s 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 ₱20,000.00 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 court’s 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 (₱1,480,627,688.00) 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.

G.R. No. L-52179             April 8, 1991

MUNICIPALITY OF SAN FERNANDO, LA UNION, petitioner

vs.
HON. JUDGE ROMEO N. FIRME, JUANA RIMANDO-BANIÑA, IAUREANO BANIÑA, JR., SOR
MARIETA BANIÑA, MONTANO BANIÑA, ORJA BANIÑA, AND LYDIA R. BANIÑA, respondents.

Mauro C. Cabading, Jr. for petitioner.

Simeon G. Hipol for private respondent.

MEDIALDEA, J.:

This is a petition for certiorari with prayer for the issuance of a writ of preliminary mandatory
injunction seeking the nullification or modification of the proceedings and the orders issued by the
respondent Judge Romeo N. Firme, in his capacity as the presiding judge of the Court of First
Instance of La Union, Second Judicial District, Branch IV, Bauang, La Union in Civil Case No. 107-
BG, entitled "Juana Rimando Baniña, et al. vs. Macario Nieveras, et al." dated November 4, 1975;
July 13, 1976; August 23,1976; February 23, 1977; March 16, 1977; July 26, 1979; September 7,
1979; November 7, 1979 and December 3, 1979 and the decision dated October 10, 1979 ordering
defendants Municipality of San Fernando, La Union and Alfredo Bislig to pay, jointly and severally,
the plaintiffs for funeral expenses, actual damages consisting of the loss of earning capacity of the
deceased, attorney's fees and costs of suit and dismissing the complaint against the Estate of
Macario Nieveras and Bernardo Balagot.

The antecedent facts are as follows:

Petitioner Municipality of San Fernando, La Union is a municipal corporation existing under and in
accordance with the laws of the Republic of the Philippines. Respondent Honorable Judge Romeo
N. Firme is impleaded in his official capacity as the presiding judge of the Court of First Instance of
La Union, Branch IV, Bauang, La Union. While private respondents Juana Rimando-Baniña,
Laureano Baniña, Jr., Sor Marietta Baniña, Montano Baniña, Orja Baniña and Lydia R. Baniña are
heirs of the deceased Laureano Baniña Sr. and plaintiffs in Civil Case No. 107-Bg before the
aforesaid court.
At about 7 o'clock in the morning of December 16, 1965, a collision occurred involving a passenger
jeepney driven by Bernardo Balagot and owned by the Estate of Macario Nieveras, a gravel and
sand truck driven by Jose Manandeg and owned by Tanquilino Velasquez and a dump truck of the
Municipality of San Fernando, La Union and driven by Alfredo Bislig. Due to the impact, several
passengers of the jeepney including Laureano Baniña Sr. died as a result of the injuries they
sustained and four (4) others suffered varying degrees of physical injuries.

On December 11, 1966, the private respondents instituted a compliant for damages against the
Estate of Macario Nieveras and Bernardo Balagot, owner and driver, respectively, of the passenger
jeepney, which was docketed Civil Case No. 2183 in the Court of First Instance of La Union, Branch
I, San Fernando, La Union. However, the aforesaid defendants filed a Third Party Complaint against
the petitioner and the driver of a dump truck of petitioner.

Thereafter, the case was subsequently transferred to Branch IV, presided over by respondent judge
and was subsequently docketed as Civil Case No. 107-Bg. By virtue of a court order dated May 7,
1975, the private respondents amended the complaint wherein the petitioner and its regular
employee, Alfredo Bislig were impleaded for the first time as defendants. Petitioner filed its answer
and raised affirmative defenses such as lack of cause of action, non-suability of the State,
prescription of cause of action and the negligence of the owner and driver of the passenger jeepney
as the proximate cause of the collision.

In the course of the proceedings, the respondent judge issued the following questioned orders, to
wit:

(1) Order dated November 4, 1975 dismissing the cross-claim against Bernardo Balagot;

(2) Order dated July 13, 1976 admitting the Amended Answer of the Municipality of San
Fernando, La Union and Bislig and setting the hearing on the affirmative defenses only with
respect to the supposed lack of jurisdiction;

(3) Order dated August 23, 1976 deferring there resolution of the grounds for the Motion to
Dismiss until the trial;

(4) Order dated February 23, 1977 denying the motion for reconsideration of the order of
July 13, 1976 filed by the Municipality and Bislig for having been filed out of time;

(5) Order dated March 16, 1977 reiterating the denial of the motion for reconsideration of the
order of July 13, 1976;

(6) Order dated July 26, 1979 declaring the case deemed submitted for decision it appearing
that parties have not yet submitted their respective memoranda despite the court's direction;
and

(7) Order dated September 7, 1979 denying the petitioner's motion for reconsideration and/or
order to recall prosecution witnesses for cross examination.

On October 10, 1979 the trial court rendered a decision, the dispositive portion is hereunder quoted
as follows:

IN VIEW OF ALL OF (sic) THE FOREGOING, judgment is hereby rendered for the plaintiffs,
and defendants Municipality of San Fernando, La Union and Alfredo Bislig are ordered to
 pay jointly and severally, plaintiffs Juana Rimando-Baniña, Mrs. Priscilla B. Surell, Laureano
Baniña Jr., Sor Marietta Baniña, Mrs. Fe B. Soriano, Montano Baniña, Orja Baniña and Lydia
B. Baniña the sums of P1,500.00 as funeral expenses and P24,744.24 as the lost expected
earnings of the late Laureano Baniña Sr., P30,000.00 as moral damages, and P2,500.00 as
attorney's fees. Costs against said defendants.

The Complaint is dismissed as to defendants Estate of Macario Nieveras and Bernardo

Balagot.

SO ORDERED. (Rollo, p. 30)

Petitioner filed a motion for reconsideration and for a new trial without prejudice to another motion
which was then pending. However, respondent judge issued another order dated November 7, 1979
denying the motion for reconsideration of the order of September 7, 1979 for having been filed out of
time.

Finally, the respondent judge issued an order dated December 3, 1979 providing that if defendants
municipality and Bislig further wish to pursue the matter disposed of in the order of July 26, 1979,
such should be elevated to a higher court in accordance with the Rules of Court. Hence, this petition.

Petitioner maintains that the respondent judge committed grave abuse of discretion amounting to
excess of jurisdiction in issuing the aforesaid orders and in rendering a decision. Furthermore,
petitioner asserts that while appeal of the decision maybe available, the same is not the speedy and
adequate remedy in the ordinary course of law.

On the other hand, private respondents controvert the position of the petitioner and allege that the
petition is devoid of merit, utterly lacking the good faith which is indispensable in a petition
for certiorari and prohibition. (Rollo, p. 42.) In addition, the private respondents stress that petitioner
has not considered that every court, including respondent court, has the inherent power to amend
and control its process and orders so as to make them conformable to law and justice. (Rollo, p. 43.)

The controversy boils down to the main issue of whether or not the respondent court committed
grave abuse of discretion when it deferred and failed to resolve the defense of non-suability of the
State amounting to lack of jurisdiction in a motion to dismiss.

In the case at bar, the respondent judge deferred the resolution of the defense of non-suability of the
State amounting to lack of jurisdiction until trial. However, said respondent judge failed to resolve
such defense, proceeded with the trial and thereafter rendered a decision against the municipality
and its driver.

The respondent judge did not commit grave abuse of discretion when in the exercise of its judgment
it arbitrarily failed to resolve the vital issue of non-suability of the State in the guise of the
municipality. However, said judge acted in excess of his jurisdiction when in his decision dated
October 10, 1979 he held the municipality liable for the quasi-delict committed by its regular
employee.

The doctrine of non-suability of the State is expressly provided for in Article XVI, Section 3 of the
Constitution, to wit: "the State may not be sued without its consent."

Stated in simple parlance, the general rule is that the State may not be sued except when it gives
consent to be sued. Consent takes the form of express or implied consent.
Express consent may be embodied in a general law or a special law. The standing consent of the
State to be sued in case of money claims involving liability arising from contracts is found in Act No.
3083. A special law may be passed to enable a person to sue the government for an alleged quasi-
delict, as in Merritt v. Government of the Philippine Islands (34 Phil 311). (see United States of
America v. Guinto, G.R. No. 76607, February 26, 1990, 182 SCRA 644, 654.)

Consent is implied when the government enters into business contracts, thereby descending to the
level of the other contracting party, and also when the State files a complaint, thus opening itself to a
counterclaim. (Ibid)

Municipal corporations, for example, like provinces and cities, are agencies of the State when they
are engaged in governmental functions and therefore should enjoy the sovereign immunity from suit.
Nevertheless, they are subject to suit even in the performance of such functions because their
charter provided that they can sue and be sued. (Cruz, Philippine Political Law, 1987 Edition, p. 39)

A distinction should first be made between suability and liability. "Suability depends on the consent
of the state to be sued, liability on the applicable law and the established facts. The circumstance
that a state is suable does not necessarily mean that it is liable; on the other hand, it can never be
held liable if it does not first consent to be sued. Liability is not conceded by the mere fact that the
state has allowed itself to be sued. When the state does waive its sovereign immunity, it is only
giving the plaintiff the chance to prove, if it can, that the defendant is liable." (United States of
America vs. Guinto, supra, p. 659-660)

Anent the issue of whether or not the municipality is liable for the torts committed by its employee,
the test of liability of the municipality depends on whether or not the driver, acting in behalf of the
municipality, is performing governmental or proprietary functions. As emphasized in the case of
Torio vs. Fontanilla (G. R. No. L-29993, October 23, 1978. 85 SCRA 599, 606), the distinction of
powers becomes important for purposes of determining the liability of the municipality for the acts of
its agents which result in an injury to third persons.

Another statement of the test is given in City of Kokomo vs. Loy, decided by the Supreme Court of
Indiana in 1916, thus:

Municipal corporations exist in a dual capacity, and their functions are twofold. In one they
exercise the right springing from sovereignty, and while in the performance of the duties
pertaining thereto, their acts are political and governmental. Their officers and agents in such
capacity, though elected or appointed by them, are nevertheless public functionaries
performing a public service, and as such they are officers, agents, and servants of the state.
In the other capacity the municipalities exercise a private, proprietary or corporate right,
arising from their existence as legal persons and not as public agencies. Their officers and
agents in the performance of such functions act in behalf of the municipalities in their
corporate or individual capacity, and not for the state or sovereign power." (112 N.E., 994-
995) (Ibid, pp. 605-606.)

It has already been remarked that municipal corporations are suable because their charters grant
them the competence to sue and be sued. Nevertheless, they are generally not liable for torts
committed by them in the discharge of governmental functions and can be held answerable only if it
can be shown that they were acting in a proprietary capacity. In permitting such entities to be sued,
the State merely gives the claimant the right to show that the defendant was not acting in its
governmental capacity when the injury was committed or that the case comes under the exceptions
recognized by law. Failing this, the claimant cannot recover. (Cruz, supra, p. 44.)
In the case at bar, the driver of the dump truck of the municipality insists that "he was on his way to
the Naguilian river to get a load of sand and gravel for the repair of San Fernando's municipal
streets." (Rollo, p. 29.)

In the absence of any evidence to the contrary, the regularity of the performance of official duty is
presumed pursuant to Section 3(m) of Rule 131 of the Revised Rules of Court. Hence, We rule that
the driver of the dump truck was performing duties or tasks pertaining to his office.

We already stressed in the case of Palafox, et. al. vs. Province of Ilocos Norte, the District Engineer,
and the Provincial Treasurer (102 Phil 1186) that "the construction or maintenance of roads in which
the truck and the driver worked at the time of the accident are admittedly governmental activities."

After a careful examination of existing laws and jurisprudence, We arrive at the conclusion that the
municipality cannot be held liable for the torts committed by its regular employee, who was then
engaged in the discharge of governmental functions. Hence, the death of the passenger –– tragic
and deplorable though it may be –– imposed on the municipality no duty to pay monetary
compensation.

All premises considered, the Court is convinced that the respondent judge's dereliction in failing to
resolve the issue of non-suability did not amount to grave abuse of discretion. But said judge
exceeded his jurisdiction when it ruled on the issue of liability.

ACCORDINGLY, the petition is GRANTED and the decision of the respondent court is hereby
modified, absolving the petitioner municipality of any liability in favor of private respondents.

SO ORDERED.