B.

Manisfestations of a Democratic and Rebuplican State

i. Test if it is a suit against the state

G.R. No. 142396             February 11, 2003
KHOSROW MINUCHER, petitioner, 
vs.
HON. COURT OF APPEALS and ARTHUR SCALZO, respondents.
DECISION
VITUG, J.:
Sometime in May 1986, an Information for violation of Section 4 of Republic Act No. 6425, otherwise also
known as the "Dangerous Drugs Act of 1972," was filed against petitioner Khosrow Minucher and one Abbas
Torabian with the Regional Trial Court, Branch 151, of Pasig City. The criminal charge followed a "buy-bust
operation" conducted by the Philippine police narcotic agents in the house of Minucher, an Iranian national,
where a quantity of heroin, a prohibited drug, was said to have been seized. The narcotic agents were
accompanied by private respondent Arthur Scalzo who would, in due time, become one of the principal witnesses
for the prosecution. On 08 January 1988, Presiding Judge Eutropio Migrino rendered a decision acquitting the two
accused.
On 03 August 1988, Minucher filed Civil Case No. 88-45691 before the Regional Trial Court (RTC), Branch 19,
of Manila for damages on account of what he claimed to have been trumped-up charges of drug trafficking made
by Arthur Scalzo. The Manila RTC detailed what it had found to be the facts and circumstances surrounding the
case.
"The testimony of the plaintiff disclosed that he is an Iranian national. He came to the Philippines to study in the
University of the Philippines in 1974. In 1976, under the regime of the Shah of Iran, he was appointed Labor
Attaché for the Iranian Embassies in Tokyo, Japan and Manila, Philippines. When the Shah of Iran was deposed
by Ayatollah Khomeini, plaintiff became a refugee of the United Nations and continued to stay in the Philippines.
He headed the Iranian National Resistance Movement in the Philippines.
"He came to know the defendant on May 13, 1986, when the latter was brought to his house and introduced to
him by a certain Jose Iñigo, an informer of the Intelligence Unit of the military. Jose Iñigo, on the other hand, was
met by plaintiff at the office of Atty. Crisanto Saruca, a lawyer for several Iranians whom plaintiff assisted as
head of the anti-Khomeini movement in the Philippines.
"During his first meeting with the defendant on May 13, 1986, upon the introduction of Jose Iñigo, the defendant
expressed his interest in buying caviar. As a matter of fact, he bought two kilos of caviar from plaintiff and paid
P10,000.00 for it. Selling caviar, aside from that of Persian carpets, pistachio nuts and other Iranian products was
his business after the Khomeini government cut his pension of over $3,000.00 per month. During their
introduction in that meeting, the defendant gave the plaintiff his calling card, which showed that he is working at
the US Embassy in the Philippines, as a special agent of the Drug Enforcement Administration, Department of
Justice, of the United States, and gave his address as US Embassy, Manila. At the back of the card appears a
telephone number in defendant’s own handwriting, the number of which he can also be contacted.
"It was also during this first meeting that plaintiff expressed his desire to obtain a US Visa for his wife and the
wife of a countryman named Abbas Torabian. The defendant told him that he [could] help plaintiff for a fee of
$2,000.00 per visa. Their conversation, however, was more concentrated on politics, carpets and caviar.
Thereafter, the defendant promised to see plaintiff again.
"On May 19, 1986, the defendant called the plaintiff and invited the latter for dinner at Mario's Restaurant at
Makati. He wanted to buy 200 grams of caviar. Plaintiff brought the merchandize but for the reason that the
defendant was not yet there, he requested the restaurant people to x x x place the same in the refrigerator.
Defendant, however, came and plaintiff gave him the caviar for which he was paid. Then their conversation was
again focused on politics and business.
"On May 26, 1986, defendant visited plaintiff again at the latter's residence for 18 years at Kapitolyo, Pasig. The
defendant wanted to buy a pair of carpets which plaintiff valued at $27,900.00. After some haggling, they agreed
at $24,000.00. For the reason that defendant did not yet have the money, they agreed that defendant would come
back the next day. The following day, at 1:00 p.m., he came back with his $24,000.00, which he gave to the
plaintiff, and the latter, in turn, gave him the pair of carpets.1awphi1.nét
"At about 3:00 in the afternoon of May 27, 1986, the defendant came back again to plaintiff's house and directly
proceeded to the latter's bedroom, where the latter and his countryman, Abbas Torabian, were playing chess.
Plaintiff opened his safe in the bedroom and obtained $2,000.00 from it, gave it to the defendant for the latter's fee
in obtaining a visa for plaintiff's wife. The defendant told him that he would be leaving the Philippines very soon
and requested him to come out of the house for a while so that he can introduce him to his cousin waiting in a cab.
Without much ado, and without putting on his shirt as he was only in his pajama pants, he followed the defendant
where he saw a parked cab opposite the street. To his complete surprise, an American jumped out of the cab with
a drawn high-powered gun. He was in the company of about 30 to 40 Filipino soldiers with 6 Americans, all
armed. He was handcuffed and after about 20 minutes in the street, he was brought inside the house by the
defendant. He was made to sit down while in handcuffs while the defendant was inside his bedroom. The
defendant came out of the bedroom and out from defendant's attaché case, he took something and placed it on the
table in front of the plaintiff. They also took plaintiff's wife who was at that time at the boutique near his house
and likewise arrested Torabian, who was playing chess with him in the bedroom and both were handcuffed
together. Plaintiff was not told why he was being handcuffed and why the privacy of his house, especially his
bedroom was invaded by defendant. He was not allowed to use the telephone. In fact, his telephone was
unplugged. He asked for any warrant, but the defendant told him to `shut up.’ He was nevertheless told that he
would be able to call for his lawyer who can defend him.
"The plaintiff took note of the fact that when the defendant invited him to come out to meet his cousin, his safe
was opened where he kept the $24,000.00 the defendant paid for the carpets and another $8,000.00 which he also
placed in the safe together with a bracelet worth $15,000.00 and a pair of earrings worth $10,000.00. He also
discovered missing upon his release his 8 pieces hand-made Persian carpets, valued at $65,000.00, a painting he
bought for P30,000.00 together with his TV and betamax sets. He claimed that when he was handcuffed, the
defendant took his keys from his wallet. There was, therefore, nothing left in his house.
"That his arrest as a heroin trafficker x x x had been well publicized throughout the world, in various newspapers,
particularly in Australia, America, Central Asia and in the Philippines. He was identified in the papers as an
international drug trafficker. x x x
In fact, the arrest of defendant and Torabian was likewise on television, not only in the Philippines, but also in
America and in Germany. His friends in said places informed him that they saw him on TV with said news.
"After the arrest made on plaintiff and Torabian, they were brought to Camp Crame handcuffed together, where
they were detained for three days without food and water." 1
During the trial, the law firm of Luna, Sison and Manas, filed a special appearance for Scalzo and moved for
extension of time to file an answer pending a supposed advice from the United States Department of State and
Department of Justice on the defenses to be raised. The trial court granted the motion. On 27 October 1988,
Scalzo filed another special appearance to quash the summons on the ground that he, not being a resident of the
Philippines and the action being one in personam, was beyond the processes of the court. The motion was denied
by the court, in its order of 13 December 1988, holding that the filing by Scalzo of a motion for extension of time
to file an answer to the complaint was a voluntary appearance equivalent to service of summons which could
likewise be construed a waiver of the requirement of formal notice. Scalzo filed a motion for reconsideration of
the court order, contending that a motion for an extension of time to file an answer was not a voluntary
appearance equivalent to service of summons since it did not seek an affirmative relief. Scalzo argued that in
cases involving the United States government, as well as its agencies and officials, a motion for extension was
peculiarly unavoidable due to the need (1) for both the Department of State and the Department of Justice to agree
on the defenses to be raised and (2) to refer the case to a Philippine lawyer who would be expected to first review
the case. The court a quo denied the motion for reconsideration in its order of 15 October 1989.
Scalzo filed a petition for review with the Court of Appeals, there docketed CA-G.R. No. 17023, assailing the
denial. In a decision, dated 06 October 1989, the appellate court denied the petition and affirmed the ruling of the
trial court. Scalzo then elevated the incident in a petition for review on certiorari, docketed G.R. No. 91173, to
this Court. The petition, however, was denied for its failure to comply with SC Circular No. 1-88; in any event,
the Court added, Scalzo had failed to show that the appellate court was in error in its questioned judgment.
Meanwhile, at the court a quo, an order, dated 09 February 1990, was issued (a) declaring Scalzo in default for his
failure to file a responsive pleading (answer) and (b) setting the case for the reception of evidence. On 12 March
1990, Scalzo filed a motion to set aside the order of default and to admit his answer to the complaint. Granting the
motion, the trial court set the case for pre-trial. In his answer, Scalzo denied the material allegations of the
complaint and raised the affirmative defenses (a) of Minucher’s failure to state a cause of action in his complaint
and (b) that Scalzo had acted in the discharge of his official duties as being merely an agent of the Drug
Enforcement Administration of the United States Department of Justice. Scalzo interposed a counterclaim of
P100,000.00 to answer for attorneys' fees and expenses of litigation.
Then, on 14 June 1990, after almost two years since the institution of the civil case, Scalzo filed a motion to
dismiss the complaint on the ground that, being a special agent of the United States Drug Enforcement
Administration, he was entitled to diplomatic immunity. He attached to his motion Diplomatic Note No. 414 of
the United States Embassy, dated 29 May 1990, addressed to the Department of Foreign Affairs of the Philippines
and a Certification, dated 11 June 1990, of Vice Consul Donna Woodward, certifying that the note is a true and
faithful copy of its original. In an order of 25 June 1990, the trial court denied the motion to dismiss.
On 27 July 1990, Scalzo filed a petition for certiorari with injunction with this Court, docketed G.R. No. 94257
and entitled "Arthur W. Scalzo, Jr., vs. Hon. Wenceslao Polo, et al.," asking that the complaint in Civil Case No.
88-45691 be ordered dismissed. The case was referred to the Court of Appeals, there docketed CA-G.R. SP No.
22505, per this Court’s resolution of 07 August 1990. On 31 October 1990, the Court of Appeals promulgated its
decision sustaining the diplomatic immunity of Scalzo and ordering the dismissal of the complaint against him.
Minucher filed a petition for review with this Court, docketed G.R. No. 97765 and entitled "Khosrow Minucher
vs. the Honorable Court of Appeals, et. al." (cited in 214 SCRA 242), appealing the judgment of the Court of
Appeals. In a decision, dated 24 September 1992, penned by Justice (now Chief Justice) Hilario Davide, Jr., this
Court reversed the decision of the appellate court and remanded the case to the lower court for trial. The remand
was ordered on the theses (a) that the Court of Appeals erred in granting the motion to dismiss of Scalzo for lack
of jurisdiction over his person without even considering the issue of the authenticity of Diplomatic Note No. 414
and (b) that the complaint contained sufficient allegations to the effect that Scalzo committed the imputed acts in
his personal capacity and outside the scope of his official duties and, absent any evidence to the contrary, the issue
on Scalzo’s diplomatic immunity could not be taken up.
The Manila RTC thus continued with its hearings on the case. On 17 November 1995, the trial court reached a
decision; it adjudged:
"WHEREFORE, and in view of all the foregoing considerations, judgment is hereby rendered for the plaintiff,
who successfully established his claim by sufficient evidence, against the defendant in the manner following:
"`Adjudging defendant liable to plaintiff in actual and compensatory damages of P520,000.00; moral damages in
the sum of P10 million; exemplary damages in the sum of P100,000.00; attorney's fees in the sum of P200,000.00
plus costs.
`The Clerk of the Regional Trial Court, Manila, is ordered to take note of the lien of the Court on this judgment to
answer for the unpaid docket fees considering that the plaintiff in this case instituted this action as a pauper
litigant.’"2
While the trial court gave credence to the claim of Scalzo and the evidence presented by him that he was a
diplomatic agent entitled to immunity as such, it ruled that he, nevertheless, should be held accountable for the
acts complained of committed outside his official duties. On appeal, the Court of Appeals reversed the decision of
the trial court and sustained the defense of Scalzo that he was sufficiently clothed with diplomatic immunity
during his term of duty and thereby immune from the criminal and civil jurisdiction of the "Receiving State"
pursuant to the terms of the Vienna Convention.
Hence, this recourse by Minucher. The instant petition for review raises a two-fold issue: (1) whether or not the
doctrine of conclusiveness of judgment, following the decision rendered by this Court in G.R. No. 97765, should
have precluded the Court of Appeals from resolving the appeal to it in an entirely different manner, and (2)
whether or not Arthur Scalzo is indeed entitled to diplomatic immunity.
The doctrine of conclusiveness of judgment, or its kindred rule of res judicata, would require 1) the finality of the
prior judgment, 2) a valid jurisdiction over the subject matter and the parties on the part of the court that renders
it, 3) a judgment on the merits, and 4) an identity of the parties, subject matter and causes of action. 3 Even while
one of the issues submitted in G.R. No. 97765 - "whether or not public respondent Court of Appeals erred in
ruling that private respondent Scalzo is a diplomat immune from civil suit conformably with the Vienna
Convention on Diplomatic Relations" - is also a pivotal question raised in the instant petition, the ruling in G.R.
No. 97765, however, has not resolved that point with finality. Indeed, the Court there has made this observation -
"It may be mentioned in this regard that private respondent himself, in his Pre-trial Brief filed on 13 June 1990,
unequivocally states that he would present documentary evidence consisting of DEA records on his investigation
and surveillance of plaintiff and on his position and duties as DEA special agent in Manila. Having thus reserved
his right to present evidence in support of his position, which is the basis for the alleged diplomatic immunity, the
barren self-serving claim in the belated motion to dismiss cannot be relied upon for a reasonable, intelligent and
fair resolution of the issue of diplomatic immunity." 4
Scalzo contends that the Vienna Convention on Diplomatic Relations, to which the Philippines is a signatory,
grants him absolute immunity from suit, describing his functions as an agent of the United States Drugs
Enforcement Agency as "conducting surveillance operations on suspected drug dealers in the Philippines believed
to be the source of prohibited drugs being shipped to the U.S., (and) having ascertained the target, (he then) would
inform the Philippine narcotic agents (to) make the actual arrest." Scalzo has submitted to the trial court a number
of documents -
1. Exh. '2' - Diplomatic Note No. 414 dated 29 May 1990;
2. Exh. '1' - Certification of Vice Consul Donna K. Woodward dated 11 June 1990;
3. Exh. '5' - Diplomatic Note No. 757 dated 25 October 1991;
4. Exh. '6' - Diplomatic Note No. 791 dated 17 November 1992; and
5. Exh. '7' - Diplomatic Note No. 833 dated 21 October 1988.
6. Exh. '3' - 1st Indorsement of the Hon. Jorge R. Coquia, Legal Adviser, Department of Foreign Affairs, dated 27
June 1990 forwarding Embassy Note No. 414 to the Clerk of Court of RTC Manila, Branch 19 (the trial court);
7. Exh. '4' - Diplomatic Note No. 414, appended to the 1st Indorsement (Exh. '3'); and
8. Exh. '8' - Letter dated 18 November 1992 from the Office of the Protocol, Department of Foreign Affairs,
through Asst. Sec. Emmanuel Fernandez, addressed to the Chief Justice of this Court. 5
The documents, according to Scalzo, would show that: (1) the United States Embassy accordingly advised the
Executive Department of the Philippine Government that Scalzo was a member of the diplomatic staff of the
United States diplomatic mission from his arrival in the Philippines on 14 October 1985 until his departure on 10
August 1988; (2) that the United States Government was firm from the very beginning in asserting the diplomatic
immunity of Scalzo with respect to the case pursuant to the provisions of the Vienna Convention on Diplomatic
Relations; and (3) that the United States Embassy repeatedly urged the Department of Foreign Affairs to take
appropriate action to inform the trial court of Scalzo’s diplomatic immunity. The other documentary exhibits were
presented to indicate that: (1) the Philippine government itself, through its Executive Department, recognizing and
respecting the diplomatic status of Scalzo, formally advised the "Judicial Department" of his diplomatic status and
his entitlement to all diplomatic privileges and immunities under the Vienna Convention; and (2) the Department
of Foreign Affairs itself authenticated Diplomatic Note No. 414. Scalzo additionally presented Exhibits "9" to
"13" consisting of his reports of investigation on the surveillance and subsequent arrest of Minucher, the
certification of the Drug Enforcement Administration of the United States Department of Justice that Scalzo was a
special agent assigned to the Philippines at all times relevant to the complaint, and the special power of attorney
executed by him in favor of his previous counsel6 to show (a) that the United States Embassy, affirmed by its Vice
Consul, acknowledged Scalzo to be a member of the diplomatic staff of the United States diplomatic mission
from his arrival in the Philippines on 14 October 1985 until his departure on 10 August 1988, (b) that, on May
1986, with the cooperation of the Philippine law enforcement officials and in the exercise of his functions as
member of the mission, he investigated Minucher for alleged trafficking in a prohibited drug, and (c) that the
Philippine Department of Foreign Affairs itself recognized that Scalzo during his tour of duty in the Philippines
(14 October 1985 up to 10 August 1988) was listed as being an Assistant Attaché of the United States diplomatic
mission and accredited with diplomatic status by the Government of the Philippines. In his Exhibit 12, Scalzo
described the functions of the overseas office of the United States Drugs Enforcement Agency, i.e., (1) to provide
criminal investigative expertise and assistance to foreign law enforcement agencies on narcotic and drug control
programs upon the request of the host country, 2) to establish and maintain liaison with the host country and
counterpart foreign law enforcement officials, and 3) to conduct complex criminal investigations involving
international criminal conspiracies which affect the interests of the United States.
The Vienna Convention on Diplomatic Relations was a codification of centuries-old customary law and, by the
time of its ratification on 18 April 1961, its rules of law had long become stable. Among the city states of ancient
Greece, among the peoples of the Mediterranean before the establishment of the Roman Empire, and among the
states of India, the person of the herald in time of war and the person of the diplomatic envoy in time of peace
were universally held sacrosanct.7 By the end of the 16th century, when the earliest treatises on diplomatic law
were published, the inviolability of ambassadors was firmly established as a rule of customary international
law.8Traditionally, the exercise of diplomatic intercourse among states was undertaken by the head of state
himself, as being the preeminent embodiment of the state he represented, and the foreign secretary, the official
usually entrusted with the external affairs of the state. Where a state would wish to have a more prominent
diplomatic presence in the receiving state, it would then send to the latter a diplomatic mission. Conformably with
the Vienna Convention, the functions of the diplomatic mission involve, by and large, the representation of the
interests of the sending state and promoting friendly relations with the receiving state. 9
The Convention lists the classes of heads of diplomatic missions to include (a) ambassadors or nuncios accredited
to the heads of state,10 (b) envoys,11 ministers or internuncios accredited to the heads of states; and (c) charges d'
affairs12 accredited to the ministers of foreign affairs. 13 Comprising the "staff of the (diplomatic) mission" are the
diplomatic staff, the administrative staff and the technical and service staff. Only the heads of missions, as well as
members of the diplomatic staff, excluding the members of the administrative, technical and service staff of the
mission, are accorded diplomatic rank. Even while the Vienna Convention on Diplomatic Relations provides for
immunity to the members of diplomatic missions, it does so, nevertheless, with an understanding that the same be
restrictively applied. Only "diplomatic agents," under the terms of the Convention, are vested with blanket
diplomatic immunity from civil and criminal suits. The Convention defines "diplomatic agents" as the heads of
missions or members of the diplomatic staff, thus impliedly withholding the same privileges from all others. It
might bear stressing that even consuls, who represent their respective states in concerns of commerce and
navigation and perform certain administrative and notarial duties, such as the issuance of passports and visas,
authentication of documents, and administration of oaths, do not ordinarily enjoy the traditional diplomatic
immunities and privileges accorded diplomats, mainly for the reason that they are not charged with the duty of
representing their states in political matters. Indeed, the main yardstick in ascertaining whether a person is a
diplomat entitled to immunity is the determination of whether or not he performs duties of diplomatic nature.
Scalzo asserted, particularly in his Exhibits "9" to "13," that he was an Assistant Attaché of the United States
diplomatic mission and was accredited as such by the Philippine Government. An attaché belongs to a category of
officers in the diplomatic establishment who may be in charge of its cultural, press, administrative or financial
affairs. There could also be a class of attaches belonging to certain ministries or departments of the government,
other than the foreign ministry or department, who are detailed by their respective ministries or departments with
the embassies such as the military, naval, air, commercial, agricultural, labor, science, and customs attaches, or
the like. Attaches assist a chief of mission in his duties and are administratively under him, but their main function
is to observe, analyze and interpret trends and developments in their respective fields in the host country and
submit reports to their own ministries or departments in the home government. 14 These officials are not generally
regarded as members of the diplomatic mission, nor are they normally designated as having diplomatic rank.
In an attempt to prove his diplomatic status, Scalzo presented Diplomatic Notes Nos. 414, 757 and 791, all issued
post litem motam, respectively, on 29 May 1990, 25 October 1991 and 17 November 1992. The presentation did
nothing much to alleviate the Court's initial reservations in G.R. No. 97765, viz:
"While the trial court denied the motion to dismiss, the public respondent gravely abused its discretion in
dismissing Civil Case No. 88-45691 on the basis of an erroneous assumption that simply because of the
diplomatic note, the private respondent is clothed with diplomatic immunity, thereby divesting the trial court of
jurisdiction over his person.
"x x x x x x x x x
"And now, to the core issue - the alleged diplomatic immunity of the private respondent. Setting aside for the
moment the issue of authenticity raised by the petitioner and the doubts that surround such claim, in view of the
fact that it took private respondent one (1) year, eight (8) months and seventeen (17) days from the time his
counsel filed on 12 September 1988 a Special Appearance and Motion asking for a first extension of time to file
the Answer because the Departments of State and Justice of the United States of America were studying the case
for the purpose of determining his defenses, before he could secure the Diplomatic Note from the US Embassy in
Manila, and even granting for the sake of argument that such note is authentic, the complaint for damages filed by
petitioner cannot be peremptorily dismissed.
"x x x x x x x x x
"There is of course the claim of private respondent that the acts imputed to him were done in his official capacity.
Nothing supports this self-serving claim other than the so-called Diplomatic Note. x x x. The public respondent
then should have sustained the trial court's denial of the motion to dismiss. Verily, it should have been the most
proper and appropriate recourse. It should not have been overwhelmed by the self-serving Diplomatic Note whose
belated issuance is even suspect and whose authenticity has not yet been proved. The undue haste with which
respondent Court yielded to the private respondent's claim is arbitrary."
A significant document would appear to be Exhibit No. 08, dated 08 November 1992, issued by the Office of
Protocol of the Department of Foreign Affairs and signed by Emmanuel C. Fernandez, Assistant Secretary,
certifying that "the records of the Department (would) show that Mr. Arthur W. Scalzo, Jr., during his term of
office in the Philippines (from 14 October 1985 up to 10 August 1988) was listed as an Assistant Attaché of the
United States diplomatic mission and was, therefore, accredited diplomatic status by the Government of the
Philippines." No certified true copy of such "records," the supposed bases for the belated issuance, was presented
in evidence.
Concededly, vesting a person with diplomatic immunity is a prerogative of the executive branch of the
government. In World Health Organization vs. Aquino,15 the Court has recognized that, in such matters, the hands
of the courts are virtually tied. Amidst apprehensions of indiscriminate and incautious grant of immunity,
designed to gain exemption from the jurisdiction of courts, it should behoove the Philippine government,
specifically its Department of Foreign Affairs, to be most circumspect, that should particularly be no less than
compelling, in its post litem motam issuances. It might be recalled that the privilege is not an immunity from the
observance of the law of the territorial sovereign or from ensuing legal liability; it is, rather, an immunity from the
exercise of territorial jurisdiction.16 The government of the United States itself, which Scalzo claims to be acting
for, has formulated its standards for recognition of a diplomatic agent. The State Department policy is to only
concede diplomatic status to a person who possesses an acknowledged diplomatic title and "performs duties of
diplomatic nature."17 Supplementary criteria for accreditation are the possession of a valid diplomatic passport or,
from States which do not issue such passports, a diplomatic note formally representing the intention to assign the
person to diplomatic duties, the holding of a non-immigrant visa, being over twenty-one years of age, and
performing diplomatic functions on an essentially full-time basis. 18 Diplomatic missions are requested to provide
the most accurate and descriptive job title to that which currently applies to the duties performed. The Office of
the Protocol would then assign each individual to the appropriate functional category. 19
But while the diplomatic immunity of Scalzo might thus remain contentious, it was sufficiently established that,
indeed, he worked for the United States Drug Enforcement Agency and was tasked to conduct surveillance of
suspected drug activities within the country on the dates pertinent to this case. If it should be ascertained that
Arthur Scalzo was acting well within his assigned functions when he committed the acts alleged in the complaint,
the present controversy could then be resolved under the related doctrine of State Immunity from Suit.
The precept that a State cannot be sued in the courts of a foreign state is a long-standing rule of customary
international law then closely identified with the personal immunity of a foreign sovereign from suit 20 and, with
the emergence of democratic states, made to attach not just to the person of the head of state, or his representative,
but also distinctly to the state itself in its sovereign capacity. 21 If the acts giving rise to a suit are those of a foreign
government done by its foreign agent, although not necessarily a diplomatic personage, but acting in his official
capacity, the complaint could be barred by the immunity of the foreign sovereign from suit without its consent.
Suing a representative of a state is believed to be, in effect, suing the state itself. The proscription is not accorded
for the benefit of an individual but for the State, in whose service he is, under the maxim - par in parem, non habet
imperium - that all states are sovereign equals and cannot assert jurisdiction over one another. 22 The implication,
in broad terms, is that if the judgment against an official would require the state itself to perform an affirmative
act to satisfy the award, such as the appropriation of the amount needed to pay the damages decreed against him,
the suit must be regarded as being against the state itself, although it has not been formally impleaded. 23
In United States of America vs. Guinto,24 involving officers of the United States Air Force and special officers of
the Air Force Office of Special Investigators charged with the duty of preventing the distribution, possession and
use of prohibited drugs, this Court has ruled -
"While the doctrine (of state immunity) 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. x x x. It cannot for a moment be imagined that they were acting in their private or
unofficial capacity when they apprehended and later testified against the complainant. It follows that for
discharging their duties as agents of the United States, they cannot be directly impleaded for acts imputable to
their principal, which has not given its consent to be sued. x x x As they have acted on behalf of the government,
and within the scope of their authority, it is that government, and not the petitioners personally, [who were]
responsible for their acts."25
This immunity principle, however, has its limitations. Thus, Shauf vs. Court of Appeals 26 elaborates:
"It is a different matter where the public official is made to account in his capacity as such for acts contrary to law
and injurious to the rights of the plaintiff. As was clearly set forth by Justice Zaldivar in Director of the Bureau of
Telecommunications, et al., vs. Aligaen, et al. (33 SCRA 368): `Inasmuch as the State authorizes only legal acts
by its officers, unauthorized acts of government officials or officers are not acts of the State, and an action against
the officials or officers by one whose rights have been invaded or violated by such acts, for the protection of his
rights, is not a suit against the State within the rule of immunity of the State from suit. In the same tenor, it has
been said that an action at law or suit in equity against a State officer or the director of a State department on the
ground that, while claiming to act for the State, he violates or invades the personal and property rights of the
plaintiff, under an unconstitutional act or under an assumption of authority which he does not have, is not a suit
against the State within the constitutional provision that the State may not be sued without its consent. The
rationale for this ruling is that the doctrine of state immunity cannot be used as an instrument for perpetrating an
injustice.
"x x x x x x x x x
"(T)he doctrine of immunity from suit will not apply and may not be invoked where the public official is being
sued in his private and personal capacity as an ordinary citizen. The cloak of protection afforded the officers and
agents of the government is removed the moment they are sued in their individual capacity. This situation usually
arises where the public official acts without authority or in excess of the powers vested in him. It is a well-settled
principle of law that a public official may be liable in his personal private capacity for whatever damage he may
have caused by his act done with malice and in bad faith or beyond the scope of his authority and jurisdiction." 27
A foreign agent, operating within a territory, can be cloaked with immunity from suit but only as long as it can be
established that he is acting within the directives of the sending state. The consent of the host state is an
indispensable requirement of basic courtesy between the two sovereigns. Guinto and Shauf both involve officers
and personnel of the United States, stationed within Philippine territory, under the RP-US Military Bases
Agreement. While evidence is wanting to show any similar agreement between the governments of the
Philippines and of the United States (for the latter to send its agents and to conduct surveillance and related
activities of suspected drug dealers in the Philippines), the consent or imprimatur of the Philippine government to
the activities of the United States Drug Enforcement Agency, however, can be gleaned from the facts heretofore
elsewhere mentioned. The official exchanges of communication between agencies of the government of the two
countries, certifications from officials of both the Philippine Department of Foreign Affairs and the United States
Embassy, as well as the participation of members of the Philippine Narcotics Command in the "buy-bust
operation" conducted at the residence of Minucher at the behest of Scalzo, may be inadequate to support the
"diplomatic status" of the latter but they give enough indication that the Philippine government has given
its imprimatur, if not consent, to the activities within Philippine territory of agent Scalzo of the United States
Drug Enforcement Agency. The job description of Scalzo has tasked him to conduct surveillance on suspected
drug suppliers and, after having ascertained the target, to inform local law enforcers who would then be expected
to make the arrest. In conducting surveillance activities on Minucher, later acting as the poseur-buyer during the
buy-bust operation, and then becoming a principal witness in the criminal case against Minucher, Scalzo hardly
can be said to have acted beyond the scope of his official function or duties.
All told, this Court is constrained to rule that respondent Arthur Scalzo, an agent of the United States Drug
Enforcement Agency allowed by the Philippine government to conduct activities in the country to help contain
the problem on the drug traffic, is entitled to the defense of state immunity from suit.
WHEREFORE, on the foregoing premises, the petition is DENIED. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio and Azcuna, JJ., concur

Footnotes
1 
Rollo, pp. 39-42.
2 
Rollo. p. 51.
3 
Linzag vs. CA, 291 SCRA 304.
4 
Minucher vs. Court of Appeals, 214 SCRA 242.
5 
For documentary Exhibits Nos. 1-8, see Rollo, pp. 143-155.
6 
For Documentary Exhibits Nos. 9-13, See Rollo, pp. 156-168.
7 
Eileen Denza, "Diplomatic Law, A Commentary on the Vienna Convention on Diplomatic Relations," 2nd
Edition, Claredon Press, Oxford, 1998, at 210.
8 
Ibid.
9 
Article 3 of the Vienna Convention enumerates the functions of the diplomatic mission as
(a) representing the sending State in the receiving State;
(b) protecting in the receiving State the interests of the sending State and of its nationals, within the limits
permitted by international law;
(c) negotiating with the Government of the receiving State;
(d) ascertaining by all lawful means conditions and developments in the receiving State, and reporting thereon to
the Government of the sending State;
(e) promoting friendly relations between the sending State and the receiving State, and developing their economic,
cultural and scientific relations.
10 
Ambassadors are diplomatic agents of the first class, who deal, as a rule with the Minister of Foreign Affairs or
the Secretary of State, as the case may be. (Melquiades J. Gamboa, "Elements of Diplomatic and Consular
Practice, A Glossary," Central Lawbook Publishing, Co., 1966, p. 19.)
11 
Envoys are diplomatic agents of the second class. This is the title of the head of legation as distinguished from
an embassy, the head of which is called Ambassador Extraordinary and Plenipotentiary. Like the Ambassador, the
envoy is also accredited to the Head of State. (Gamboa, p. 190.)
12 
Charges d' Affairs are either en titre or ad interim. Charges d' Affairs en titre are appointed on a permanent basis
and belong to the fourth class of diplomatic envoys, the other three being ambassadors, ministers plenipotentiary
and envoys extraordinary, and ministers resident. He is the head of the legation in his own right and is not
accredited to the head of State but to the foreign office. According to Radloric, charges d' affairs are sometimes
used to described a person who has been placed in custody of the archives and other property of a mission in a
country with which formal diplomatic relations are not maintained. Charges d' affairs ad interim, in contrast are
usually those second in command of the diplomatic mission – minister, counselor or first secretary, who are only
temporarily in charge of the mission during the absence of the head of the mission. He is not accredited either to
the Head of State or the Foreign Office. (Gamboa, Ibid., pp. 51-52.)
13 
The classification of diplomatic representatives was considered significant before because direct communication
with the head of state depended on the rank of the diplomat and, moreover, only powerful states were regarded as
entitled to send envoys of the highest rank. At present however, diplomatic matters are usually discussed not with
the head of state but with the foreign secretary regardless of the diplomat's rank. Moreover, it has become the
practice now for even the smallest and the weakest states to send diplomatic representatives of the highest rank,
even to the major powers. (Cruz, International Law, 1985 Edition, p. 145.)
14 
Gamboa, supra., pp. 32-33.
15 
48 SCRA 242.
16 
J.L. Brierly, "The Law of Nations," Oxford University Press, 6th Edition, 1963, p. 244.
17 
Denza, supra., at 16.
18 
Ibid.
19 
Ibid., at 55.
20 
Charles G. Fenwick, "International Law," Appleton-Century-Crofts, Inc., New York, 1948, p. 307-308.
21 
The international law on sovereign immunity of states from suit in the courts of another state has evolved from
national court decisions with good deal of variance in perspectives. Even though national cases have been the
major source of pronouncements on sovereign immunity, it should be noted that these constitute evidence of
customary international law now widely recognized. In the latter half of the 20th century, a great deal of
consensus on what is covered by sovereign immunity appears to be emerging, i.e., that state immunity covers only
acts which deal with the government functions of a state, and excludes, any of its commercial activities, or
activities not related to "sovereign acts." The consensus involves a more defined differentiation between public
acts (juri imperii) and private acts (jure gestionis). (Gary L. Maris, "International Law, An Introduction,"
University Press of America, 1984, p. 119; D.W. Grieg, "International Law," London Butterworths, 1970, p. 221.)
The United States for example, does not claim immunity for its publicly owned or operated merchant vessels. The
Italian courts have rejected claims of immunity from the US Shipping Board, although a state body, as it could not
be identified with the American government on the ground that undertaking maritime navigation and business as a
commercial enterprise do not constitute a sovereign act. (D.W. Grieg, "International Law," London Butterworths,
1970, p. 221.)
22 
See Schooner Exchange vs. McFaddon, 7 Cranch 116 (1812), cited in Charles G. Fenwick, "International Law,"
New York, 3rd Edition (1948), p. 307.
23 
United States of America, et al. vs. Guinto, etc., et al., G.R. No. 76607, 26 February 1990.
24 
182 SCRA 644.
25 
At pp. 653-659.
26 
191 SCRA 713
27 
At pp. 727-728.

[G.R. No. 155108. June 26, 2006]

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY DEPARTMENT OF PUBLIC WORKS AND
HIGHWAYS (DPWH) UNDER SECRETARY SIMEON DATUMANONG AND UNDERSECRETARY
EDMUNDO V. MIR, THEN CHAIRMAN OF BID AND AWARDS COMMITTEE (BAC), ASSISTANT
SECRETARY BASHIR D. RASUMAN, BAC VICE-CHAIRMAN, DIRECTOR OSCAR D. ABUNDO,
BAC MEMBER DIRECTOR OIC-DIRECTOR ANTONIO V. MALANO, JR., BAC MEMBER AND
PROJECT DIRECTOR PHILIP F. MENEZ v. EMILIANO R. NOLASCO
Second Division
Sirs/Mesdames:
Quoted hereunder, for your information, is a resolution of this Court dated JUNE 26, 2006
G.R. No. 155108 (Republic of the Philippines, Represented By Department of Public Works and Highways
(DPWH) Under Secretary Simeon Datumanong and Undersecretary Edmundo V. Mir, then Chairman of Bid and
Awards Committee (BAC), Assistant .Secretary Bashir D. Rasuman, BAC Vice-Chairman, Director Oscar D.
Abundo, BAC Member Director OIC-Director Antonio V. Malano, Jr., BAC Member and Project Director Philip
F. Menez v. Emiliano R. Nolasco)
This dispenses with the motion filed by private respondent Emiliano Nolasco (Nolasco) seeking to cite in direct
contempt Solicitor General Alfredo Benipayo (Solicitor General) [1]cralaw and Associate Solicitor Rebecca
Dacanay (Dacanay), who both represented the Office of the Solicitor General, counsel for petitioner in this case.
The case itself, which involved the review of orders promulgated by the Regional Trial Court (RTC) of Manila,
Branch 32, in Civil Case No. 02-102923, was decided in a Decision [2]cralaw dated 27 April 2005, and has since
become final after neither party opted to file a Motion for Reconsideration thereto.
This present motion is premised on the allegation that the Solicitor General and Dacanay have somehow
committed "falsification, manipulation, subversion and fraud" in a letter to the Secretary of the Department of
Public Works and Highways (DPWH), Hermogenes Ebdane, dated 8 June 2005. The letter, signed by the Solicitor
General, advised the DPWH Secretary that "based on [this Court's] Decision, there is no more legal impediment at
this point in time, in the award of the subject [Project Contract] to DAEWOO Engineering & Construction Co.
Ltd."[3]cralaw Nolasco argues that contrary to this opinion of the Solicitor General, the Decision instead held that
China International Water & Electric Corporation (CIWEC) "must be awarded the project", since respect must be
accorded to the alleged factual findings of the Regional Trial Court (RTC) of Manila, Branch 32, that CIWEC had
"the lowest evaluated responsive bid."[4]cralaw
In their Comment, the Solicitor General and Dacanay argue that Nolasco's own interpretation of the Court's
Decision is in "blatant disregard, if not [misrepresentation] of what [the Court] clearly pronounced." They point
out that the Court had declared as obiter dictum the portion in the challenged RTC Order, which had been the
subject of this petition, that the DPWH Secretary should consider awarding the Project to CIWEC. They argue
that the motion to cite them in direct contempt is actually a ploy to re-open the issue of whether the RTC validly
decided in favor of Nolasco and CIWEC.
For certain, direct contempt cannot be a viable penalty against the Solicitor General and Dacanay even if their
behavior can be considered as contemptuous. Direct contempt, which is adjudged summarily, applies only to
persons "guilty of misbehavior in the presence of or so near a court as to obstruct or interrupt the proceedings
before the same."[5]cralaw The act complained of consisted of the writing of a letter by the Solicitor General to the
DPWH Secretary, an act that cannot be deemed as "in the presence of or so near a court as to obstruct or interrupt
the proceedings before the same."
Nolasco claims that the letter of the Solicitor General to the DPWH Secretary was "unsolicited," thus implying
that there was a tinge of malice in the very act of sending the letter. The implication is material especially
considering that two days before the date of the letter, the Chief of the Legal Affairs Service of the DPWH wrote
a Memorandum opining that the Court's Decision was "to award the contract x x x of the Agno Flood Control
Project to [CIWEC],"[6]cralaw a position clearly contrary to that of the Solicitor General. Nonetheless, it should be
noted that the first paragraph of the Solicitor General's letter stated that the purpose of such letter was "to inform
[the DPWH Secretary] of the [OSG's] receipt of the Supreme Court Decision promulgated April 27, 2005 in the
above-stated case."[7]cralaw It is certainly the duty of the OSG, as statutory counsel of the DPWH, to advise its
clients of any developments on the case, including its ultimate resolution and the effects thereof. The Court sees
nothing sinister or contemptuous in the very act of sending the letter.
Moreover, the letter itself is signed only by the Solicitor General, and not Dacanay. Nolasco alleges that the letter
was obviously written by Dacanay "because of the English terminology being used," [8]cralaw but that reasoning is
just plain silly and cannot be accorded any weight to support the conclusion that the letter links Dacanay to any
contemptuous act.
Nolasco does further allege, in relation to a spurious RTC Order which the Court adverted to in its Decision,
[9]
cralaw that "[i]t is now clear that the one who manufactured the alleged [M]arch 22, 200[2] RTC Order was
[Dacanay]." That conclusion is apparently derived from a Resolution issued by Assistant Investigating Prosecutor
Wilfredo B. Lasala of the Manila City Prosecutor's Office dismissing a complaint for falsification filed by
Daewoo accusing Nolasco of authoring the spurious RTC order. The Resolution opined that "the complainant
who was in possession of the order in question may be presumed to be the author of the falsification
thereof."[10]cralaw Even if that statement could be considered imputative against Dacanay, who was not the
complainant in the said complaint, such conclusion is hardly binding on the Court, nor definitive as proof that
Dacanay had indeed forged the RTC order. The incidents relating to the spurious RTC Order cannot serve as basis
for the present contempt charge against Dacanay.
Even though the charges for contempt are palpably unmeritorious the Court considers it useful to dwell in brief
upon what obviously is at the heart of these pending incidents - the effect of the Court's Decision promulgated
on 27 April 2005. There is no ambiguity to the said decision, but it is clear that both sides have been utilizing
competing interpretations to their respective advantages. The dispute is particularly embarrassing as the matter
concerns a necessary public works project involving foreign investors who, as with the Court, could not be too
happy seeing the parties carrying on their dispute at a level that barely rises above the heights of schoolyard
taunts.
The Decision had affirmed the Order dated 6 September 2002 of the Regional Trial Court (RTC) of Manila,
Branch 32, the dispositive portion of which read: "WHEREFORE, in view of all the foregoing, the Motion for
Reconsideration of the Petition is hereby DISMISSED." The motion for reconsideration adverted to was the one
filed by Nolasco, seeking reconsideration of the RTC Order dated 27 March 2002 which dismissed Nolasco's
"petition" before the RTC. Thus, the 6 September 2002 RTC Order, as affirmed by this Court, simply had the
effect of finally dismissing Nolasco's "petition," and nothing more. The RTC Order was nonetheless subject of
some controversy as it intimated that the DPWH should consider awarding the project to CIWEC, yet the Court
ruled that the portion of the RTC Order concerning such discussion was obiter dicta, and hence of no binding
force.[11]cralaw
Accordingly, the effect of the Court's Decision was simply to confirm Civil Case No. 02-102923, initiated by
Nolasco, as dismissed, closed and terminated. The Court's Decision does not compel any party, whether it be
Nolasco, the OSG, the DPWH, Daewoo or CIWEC, towards any act or behavior except to desist from any further
action in Civil Case No. 02-102923. If despite the Court's Decision, Which is now final and executory, litigation
of Civil Case No. 02-102923 has persisted, such action directly contravenes the decision of the Court. Any other
reactive step of the parties not connected to the pursuit of litigation of Civil Case No. 02-102923 is not barred by
the Court's Decision.
To be emphatic about it, the Court's Decision does not compel, or in any way even suggest, the DPWH award the
project to either Daewoo or CIWEC. Per the Decision's, statement of facts, it appears that in 2002, then DPWH
Secretary Simeon Datumanong approved the recommendation of the Bids and Awards Committee that the project
be awarded to Daewoo, and that such recommendation was then furnished to the foreign investor, Japan Bank for
International Cooperation, for review and concurrence. [12]cralaw The Court's Decision does not affirm or reverse
that particular act of the DPWH, or any subsequent act of the DPWH relating to the Agno River project. If any
party wishes to seek judicial review of whatever actions of the DPWH concerning the Agno River project, the
proper case should be filed before the proper tribunal. What the Court's Decision precludes is the utilization of
Civil Case No. 02-102923, or Nolasco's "petition" therein, for such purposes, as that case is now closed and
terminated, with Nolasco's initiatory pleading therein irrevocably dismissed. Indeed, the Court took pains in
pointing put the multiple defects of Nolasco's "petition," and it could hardly be given credence as the source of
any viable cause of action.
A final note. The subject matters involve an essential public works project to be funded by foreign investors. As
such, it stands as an area of concern within the populace and the foreign financial community. It goes Without
saying that the involved or concerned government agencies, the prospective bidders, and interested citizens such
as Nolasco who choose to involve themselves in the matter are expected to behave, within the confines of the law,
especially as close scrutiny bears upon them. Any delay or problems caused by chicanery or inefficiency will not
only embarrass the Philippine government in the eyes of the foreign community; it will also do a massive
disservice to the Filipino people.
WHEREFORE, private respondent's motion dated 5 September 2005 is DENIED for LACK OF MERIT.
Considering that the Decision of the Court dated 27 April 2005, affirming the dismissal of Civil Case No. 02-
102923 has already become final and executory, NO FURTHER PLEADINGS shall be entertained by this Court.
Very truly yours,
(Sgd.) LUDICHI YASAY-NUNAG
Clerk of Court

Endnotes:
[1]
cralaw Who has since resigned the post of Solicitor General.
[2]
cralaw Republic v. Nolasco, G.R. No 155108, 27 April 2005, 457 SCRA 400.
[3]
cralaw Rollo, p. 1643.
[4]
cralaw Id. at 1619.
[5]
cralaw See Section 1, Rule 71, Rules of Court.
[6]
cralaw See rollo, p. 1619.
[7]
cralaw Rollo, p. 1636.
[8]
cralaw Id. at 1620.
[9]
cralaw Supra note 2, at 411, 436.
[10]
cralaw Rollo, p. 1624.
[11]
cralaw The Court likewise pointed out that if the controversial portion of the RTC Order were somehow
deemed executory, such disposition would be contrary to law.
[12]
cralaw See Republic v. Nolasco, supra note 2 at 411.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
 
G.R. No. 84607 March 19, 1993
REPUBLIC OF THE PHILIPPINES, GEN. RAMON MONTANO, GEN. ALFREDO LIM, GEN.
ALEXANDER AGUIRRE, COL. EDGAR DULA TORRES, COL. CEZAR NAZARENO, MAJ.
FILEMON GASMEN, PAT. NICANOR ABANDO, PFC SERAFIN CEBU, JR., GEN. BRIGIDO
PAREDES, COL. ROGELIO MONFORTE, PFC ANTONIO LUCERO, PAT. JOSE MENDIOLA, PAT.
NELSON TUASON, POLICE CORPORAL PANFILO ROGOS, POLICE LT. JUAN B. BELTRAN, PAT.
NOEL MANAGBAO, MARINE THIRD CLASS TRAINEE (3CT) NOLITO NOGATO, 3CT
ALEJANDRO B. NAGUIO, JR., EFREN ARCILLAS, 3CT AGERICO LUNA, 3CT BASILIO BORJA,
3CT MANOLITO LUSPO, 3CT CRISTITUTO GERVACIO, 3CT MANUEL DELA CRUZ, JR.,
MARINE (CDC) BN., (CIVIL DISTURBANCE CONTROL), MOBILE DISPERSAL TEAM (MDT), LT.
ROMEO PAQUINTO, LT. LAONGLAANG GOCE, MAJ. DEMETRIO DE LA CRUZ, POLICE
CAPTAIN RODOLFO NAVAL, JOHN DOE, RICHARD DOE, ROBERTO DOE AND OTHER
DOES, petitioners, 
vs.
HON. EDILBERTO G. SANDOVAL, Regional Trial Court of Manila, Branch IX, ERLINDA C.
CAYLAO, ANATALIA ANGELES PEREZ, MYRNA BAUTISTA, CIPRIANA EVANGELIO, ELMA
GRAMPA, AMELIA GUTIERREZ, NEMESIO LAKINDANUM, PURITA YUMUL, MIGUEL ARABE,
TERESITA ARJONA, RONALDO CAMPOMANES AND CARMENCITA ARDONI VDA. DE
CAMPOMANES, ROGELIO DOMUNICO, in their capacity as heirs of the deceased (ROBERTO C.
CAYLAO, SONNY "BOY" PEREZ, DIONESIO BAUTISTA, DANTE EVANGELIO, ADELFA ARIBE,
DANILO ARJONA, VICENTE CAMPOMANES, RONILO DOMUNICO) respectively; and (names of
sixty-two injured victims) EDDIE AGUINALDO, FELICISIMO ALBASIA, NAPOLEON BAUTISTA,
DANILO CRUZ, EDDIE MENSOLA, ALBERT PITALBO, VICENTE ROSEL, RUBEN CARRIEDO,
JOY CRUZ, HONORIO LABAMBA, JR., EFREN MACARAIG, SOLOMON MANALOTO, ROMEO
DURAN, NILO TAGUBAT, JUN CARSELLAR, JOEY CLEMENTE, GERARDO COYOCA, LUISITO
DACO, BENJAMIN DELA CRUZ, ARTHUR FONTANILLA, WILSON GARCIA, CARLOS SIRAY,
JOSE PERRAS, TOMAS VALLOS, ARNOLD ENAJE, MARIANITA DIMAPILIS, FRANCISCO
ANGELES, MARCELO ESGUERRA, JOSE FERRER, RODEL DE GUIA, ELVIS MENDOZA,
VICTORIANO QUIJANO, JOEY ADIME, RESIENO ADUL, ALBERTO TARSONA, CARLOS
ALCANTARA, MAMERTO ALIAS, EMELITO ALMONTE, BENILDA ALONUEVO, EMMA
ABADILLO, REYNALDO CABALLES, JR., JAIME CALDETO, FABIAN CANTELEJO, RODRIGO
CARABARA, ENRIQUE DELGADO, JUN DELOS SANTOS, MARIO DEMASACA, FRANCISCO
GONZALES, ERNESTO GONZALES, RAMIRO JAMIL, JUAN LUCENA, PERLITO SALAYSAY,
JOHNNY SANTOS, MARCELO SANTOS, EMIL SAYAO, BAYANI UMALI, REMIGIO MAHALIN,
BONG MANLULO, ARMANDO MATIENZO, CARLO MEDINA, LITO NOVENARIO, and ROSELLA
ROBALE, respondents.
G.R. No. 84645 March 19, 1993
ERLINDA C. CAYLAO, ANATALIA ANGELES PEREZ, MYRNA BAUTISTA, CIPRIANA
EVANGELIO, ELMA GRAMPA, AMELIA GUTIERREZ, NEMESIO LAKINDANUM, PURITA
YUMUL, MIGUEL ARABE, TERESITA ARJONA, RONALDO CAMPOMANES AND CARMENCITA
ARDONI VDA. DE CAMPOMANES, ROGELIO DOMUNICO, in their capacity as heirs of the deceased
(ROBERTO C. CAYLAO, SONNY "BOY" PEREZ, DIONESIO GRAMPA, ANGELITO GUTIERREZ,
BERNABE LAKINDANUM, ROBERTO YUMUL, LEOPOLDO ALONZO, ADELFA ARIBE, DANILO
ARJONA, VICENTE CAMPOMANES, RONILO DOMUNICO) respectively; and (names of sixty-two
injured victims) EDDIE AGUINALDO, FELICISIMO ALBASIA, NAPOLEON BAUTISTA, DANILO
CRUZ, EDDIE MENSOLA, ALBERT PITALBO, VICENTE ROSEL, RUBEN CARRIEDO, JOY CRUZ,
HONORIO LABAMBA, JR. EFREN MACARAIG, SOLOMON MANALOTO, ROMEO DURAN, NILO
TAGUBAT, JUN CARSELLAR, JOEY CLEMENTE, GERARDO COYOCA, LUISITO DACO,
BENJAMIN DELA CRUZ, ARTHUR FONTANILLA, WILSON GARCIA, CARLOS SIRAY, JOSE
PERRAS TOMAS VALLOS, ARNOLD ENAJE, MARIANITA DIMAPILIS, FRANCISCO ANGELES,
MARCELO ESGUERRA, JOSE FERRER, RODEL DE GUIA, ELVIS MENDOZA, VICTORINO
QUIJANO, JOEY ADIME, RESIENO ADUL, ALBERTO TARSONA, CARLOS ALCANTARA,
MAMERTO ALIAS, EMELITO ALMONTE, BENILDA ALONUEVO, EMMA ABADILLO,
REYNALDO CABALLES, JR., JAIME CALDETO, FABIAN CANTELEJO, RODRIGO CARABARA,
ENRIQUE DELGADO, JUN DELOS SANTOS, MARIO DEMASACA, FRANCISCO GONZALES,
ERNESTO GONZALES, RAMIRO JAMIL, JUAN LUCENA, PERLITO SALAYSAY, JOHNNY
SANTOS, MARCELO SANTOS, EMIL SAYAO, BAYANI UMALI, REMIGIO MAHALIN, BONG
MANLULO, ARMANDO MATIENZO, CARLO MEDINA, LITO NOVENARIO, ROSELLA ROBALE,
petitioners, 
vs.
REPUBLIC OF THE PHILIPPINES, and HONORABLE EDILBERTO G. SANDOVAL, Regional Trial
Court of Manila, Branch 9, respondents.
The Solicitor General for the Republic of the Philippines.
Structural Alternative Legal Assistance for Grassroots for petitioners in 84645 & private respondents in 84607.

CAMPOS, JR., J.:
People may have already forgotten the tragedy that transpired on January 22, 1987. It is quite ironic that
then, some journalists called it a Black Thursday, as a grim reminder to the nation of the misfortune that
befell twelve (12) rallyists. But for most Filipinos now, the Mendiola massacre may now just as well be a
chapter in our history books. For those however, who have become widows and orphans, certainly they
would not settle for just that. They seek retribution for the lives taken that will never be brought back to
life again.
Hence, the heirs of the deceased, together with those injured (Caylao group), instituted this petition,
docketed as G.R. No. 84645, under Section 1 of Rule 65 of the Rules of Court, seeking the reversal and
setting aside of the Orders of respondent Judge 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. vs. Republic of the Philippines, et al."
The pertinent portion of the questioned Order2 dated May 31, 1988, reads as follows:
With respect however to the other defendants, the impleaded Military Officers, since they are being charged in
their personal and official capacity, and holding them liable, if at all, would not result in financial responsibility of
the government, the principle of immunity from suit can not conveniently and correspondingly be applied to
them.
WHEREFORE, the case as against the defendant Republic of the Philippines is hereby dismissed. As against the
rest of the defendants the motion to dismiss is denied. They are given a period of ten (10) days from receipt of this
order within which to file their respective pleadings.
On the other hand, the Order3 , 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:
(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 Franciscoas negotiators with the marchers. Police General Lim
then proceeded to the WPD CDC elements already positioned at the foot of Mendiola bridge to relay to Police
Colonel Torres and Police Major Francisco the instructions that the latter would negotiate with the
marchers.5 (Emphasis supplied)
The marchers, at around 4:30 p.m., numbered about 10,000 to 15,000. From C.M. Recto Avenue, they proceeded
toward the police lines. No dialogue took place between the marchers and the anti-riot squad. It was at this
moment that a clash occurred and, borrowing the words of the Commission "pandemonium broke loose". The
Commission stated in its findings, to wit:
. . . There was an explosion followed by throwing of pillboxes, stones and bottles. Steel bars, wooden clubs and
lead pipes were used against the police. The police fought back with their shields and truncheons. The police line
was breached. Suddenly shots were heard. The demonstrators disengaged from the government forces and
retreated towards C.M. Recto Avenue. But sporadic firing continued from the government forces.
After the firing ceased, two MDTs headed by Lt. Romeo Paquinto and Lt. Laonglaan Goce sped towards Legarda
Street and lobbed tear gas at the remaining rallyist still grouped in the vicinity of Mendiola. After dispersing the
crowd, the two MDTs, together with the two WPD MDTs, proceeded to Liwasang Bonifacio upon order of
General 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:
(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. . .
(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.
The last and the most significant recommendation of the Commission was for the deceased and wounded victims
of the Mendiola incident to be compensated by the government. It was this portion that petitioners (Caylao group)
invoke in their claim for damages from the government.
Notwithstanding such recommendation, no concrete form of compensation was received by the victims. Thus, on
July 27, 1987, herein petitioners, (Caylao group) filed a formal letter of demand for compensation from the
Government. 10 This formal demand was indorsed by the office of the Executive Secretary to the Department of
Budget and Management (DBM) on August 13, 1987. The House Committee on Human Rights, on February 10,
1988, recommended the expeditious payment of compensation to the Mendiola victims. 11
After almost a year, on January 20, 1988, petitioners (Caylao group) were constrained to institute an action for
damages against the Republic of the Philippines, together with the military officers, and personnel involved in the
Mendiola incident, before the trial court. The complaint was docketed as Civil Case No. 88-43351.
On February 23, 1988, the Solicitor General filed a Motion to Dismiss on the ground that the State cannot be sued
without its consent. Petitioners opposed said motion on March 16, 1988, maintaining that the State has waived its
immunity from suit and that the dismissal of the instant action is contrary to both the Constitution and the
International Law on Human Rights.
Respondent Judge Sandoval, in his first questioned Order, dismissed the complaint as against the Republic of the
Philippines on the ground that there was no waiver by the State. Petitioners (Caylao group) filed a Motion for
Reconsideration therefrom, but the same was denied by respondent judge in his Order dated August 8, 1988.
Consequently, Caylao and her co-petitioners filed the instant petition.
On the other hand, the Republic of the Philippines, together with the military officers and personnel impleaded as
defendants in the court below, filed its petition for certiorari.
Having arisen from the same factual beginnings and raising practically identical issues, the two (2) petitions were
consolidated and will therefore be jointly dealt with and resolved in this Decision.
The resolution of both petitions revolves around the main issue of whether or not the State has waived its
immunity from suit.
Petitioners (Caylao group) advance the argument that the State has impliedly waived its sovereign immunity from
suit. It is their considered view that by the recommendation made by the Commission for the government to
indemnify the heirs and victims of the Mendiola incident and by the public addresses made by then President
Aquino in the aftermath of the killings, the State has consented to be sued.
Under our Constitution the principle of immunity of the government from suit is expressly provided in Article
XVI, Section 3. The principle is based on the very essence of sovereignty, and on the practical ground that there
can be no legal right as against the authority that makes the law on which the right depends. 12 It also rests on
reasons of public policy — that public service would be hindered, and the public endangered, if the sovereign
authority could be subjected to law suits at the instance of every citizen and consequently controlled in the uses
and dispositions of the means required for the proper administration of the government. 13
This is not a suit against the State with its consent.
Firstly, the recommendation made by the Commission regarding indemnification of the heirs of the deceased and
the victims of the incident by the government does not in any way mean that liability automatically attaches to the
State. It is important to note that A.O. 11 expressly states that the purpose of creating the Commission was to have
a body that will conduct an "investigation of the disorder, deaths and casualties that took place." 14 In the exercise
of its functions, A.O. 11 provides guidelines, and what is relevant to Our discussion reads:
1 Its conclusions regarding the existence of probable cause for the commission of any offense and of the persons
probably guilty of the same shall be sufficient compliance with the rules on preliminary investigation and the
charges arising therefrom may be filed directly with the proper court. 15
In effect, whatever may be the findings of the Commission, the same shall only serve as the cause of action in the
event that any party decides to litigate his/her claim. Therefore, the Commission is merely a preliminary venue.
The Commission is not the end in itself. Whatever recommendation it makes cannot in any way bind the State
immediately, such recommendation not having become final and, executory. This is precisely the essence of it
being a fact-finding body.
Secondly, whatever acts or utterances that then President Aquino may have done or said, the same are not
tantamount to the State having waived its immunity from suit. The President's act of joining the marchers, days
after the incident, does not mean that there was an admission by the State of any liability. In fact to borrow the
words of petitioners (Caylao group), "it was an act of solidarity by the government with the people". Moreover,
petitioners rely on President Aquino's speech promising that the government would address the grievances of the
rallyists. By this alone, it cannot be inferred that the State has admitted any liability, much less can it be inferred
that it has consented to the suit.
Although consent to be sued may be given impliedly, still it cannot be maintained that such consent was given
considering the circumstances obtaining in the instant case.
Thirdly, the case does not qualify as a suit against the State.
Some instances when a suit against the State is proper are: 16
(1) When the Republic is sued by name;
(2) When the suit is against an unincorporated government agency;
(3) When the, suit is on its face against a government officer but the case is such that ultimate liability will belong
not to the officer but to the government.
While the Republic in this case is sued by name, the ultimate liability does not pertain to the government.
Although the military officers and personnel, then party defendants, were discharging their official functions
when the incident occurred, their functions ceased to be official the moment they exceeded their authority. Based
on the Commission findings, there was lack of justification by the government forces in the use of
firearms. 17 Moreover, the members of the police and military crowd dispersal units committed a prohibited act
under B.P. Blg. 880 18 as there was unnecessary firing by them in dispersing the marchers. 19
As early as 1954, this Court has pronounced that an officer cannot shelter himself by the plea that he is a public
agent acting under the color of his office when his acts are wholly without authority. 20 Until recently in
1991, 21 this doctrine still found application, this Court saying that immunity from suit cannot institutionalize
irresponsibility and non-accountability nor grant a privileged status not claimed by any other official of the
Republic. The military and police forces were deployed to ensure that the rally would be peaceful and orderly as
well as to guarantee the safety of the very people that they are duty-bound to protect. However, the facts as found
by the trial court showed that they fired at the unruly crowd to disperse the latter.
While it is true that nothing is better settled than the general rule that a sovereign state and its political
subdivisions cannot be sued in the courts except when it has given its consent, it cannot be invoked by both the
military officers to release them from any liability, and by the heirs and victims to demand indemnification from
the government. The principle of state immunity from suit does not apply, as in this case, when the relief
demanded by the suit requires no affirmative official action on the part of the State nor the affirmative discharge
of any obligation which belongs to the State in its political capacity, even though the officers or agents who are
made defendants claim to hold or act only by virtue of a title of the state and as its agents and servants. 22 This
Court has made it quite clear that even a "high position in the government does not confer a license to persecute
or recklessly injure another." 23
The inescapable conclusion is that the State cannot be held civilly liable for the deaths that followed the incident.
Instead, the liability should fall on the named defendants in the lower court. In line with the ruling of this court
in Shauf vs. Court of Appeals, 24 herein public officials, having been found to have acted beyond the scope of their
authority, may be held liable for damages.
WHEREFORE, finding no reversible error and no grave abuse of discretion committed by respondent Judge in
issuing the questioned orders, the instant petitions are hereby DISMISSED.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Griño-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo,
Melo and Quiason, JJ., concur.
Gutierrez, Jr., J., is on leave.
 
# Footnotes
1 Judge Edilberto G. Sandoval was the presiding judge of Branch 9 of Regional Trial Court, Manila.
2 Rollo of G.R. No. 84607, p. 65.
3 Ibid., pp. 73-76.
4 Ibid., p. 80.
5 Ibid., pp. 82-84.
6 Ibid., pp. 84-85.
7 Ibid., p. 158.
8 Ibid., pp. 102-103.
9 Ibid., pp. 107-109.
10 Rollo, G.R. No. 84645, pp. 36-38.
11 Ibid., pp. 125-126.
12 Kawananakoa vs. Polyblank, 205 U.S. 349-353, 51 L. Ed. 834 (1907).
13 The Siren vs. United States, 7 Wall. 152, 19 L. Ed. 129 (1869).
14 Supra, note 7.
15 Ibid.
16 J.G. BERNAS, CONSTITUTIONAL STRUCTURE AND POWERS OF GOVERNMENT, NOTES AND
CASES 414 (1st ed., 1991).
17 Rollo of G.R. No. 84607, pp. 196-197.
18 Sec. 13. Prohibited Acts. — The following shall constitute violations of this Act:
xxx xxx xxx
(e) The unnecessary firing of firearms by a member of any law enforcement agency or any person to disperse the
public assembly;
xxx xxx xxx
19 Supra, note 17 at p. 102.
20 Festejo vs. Fernando, 94 Phil. 504 (1954) citing 43 Am. Jur. 86-90.
21 Chavez vs. Sandiganbayan, 193 SCRA 282 (1991).
22 Ruiz vs. Cabahug, 102 Phil. 110 (1957).
23 Supra, note 19.
24 191 SCRA 713 (1990).

G.R. No. 142362             May 3, 2006

PHILIPPINE AGILA SATELLITE INC. and MICHAELC. U. DE GUZMAN, Complainants, 
vs.
JOSEFINA TRINIDAD-LICHAUCO Undersecretary for Communications, Department of Transportation
and Communication (DOTC), Respondents.
DECISION
TINGA, J.:
This Petition for Review on Certiorari seeks the reversal of the Decision 1 dated 21 February 2000 of the Court of
Appeals in C.A. G.R. No. SP 49422. The assailed Decision authorized the dismissal of a civil complaint against
respondent Josefina Trinidad-Lichauco (Lichauco), former Undersecretary for Communications of the
Department of Transportation and Communication (DOTC), on the premise that the complaint constituted a suit
against the State.
A brief rundown of the relevant facts is in order.
Petitioner Philippine Agila Satellite Inc. (PASI) is a duly organized corporation, whose President and Chief
Executive Officer is co-petitioner Michael C.U. De Guzman. PASI was established by a consortium of private
telecommunications carriers2 which in 1994 had entered into a Memorandum of Understanding (MOU) with the
DOTC, through its then Secretary Jesus Garcia, concerning the planned launch of a Philippine-owned satellite
into outer space. Under the MOU, the launch of the satellite was to be an endeavor of the private sector, and the
satellite itself to be owned by the Filipino-owned consortium (subsequently organized as PASI). 3 The consortium
was to grant the Philippine government one (1) transponder free of charge for the government's exclusive use for
non-commercial purpose, as well as the right of first refusal to another one (1) transponder in the Philippine
satellite, if available.4 The Philippine government, through the DOTC, was tasked under the MOU to secure from
the International Telecommunication Union the required orbital slot(s) and frequency assignment(s) for the
Philippine satellite.
PASI itself was organized by the consortium in 1996. The government, together with PASI, coordinated through
the International Telecommunication Union two (2) orbital slots, designated as 161º East Longitude and 153º East
Longitude, for Philippine satellites. On 28 June 1996, PASI wrote then DOTC Secretary Amado S. Lagdameo, Jr.,
seeking for official Philippine government confirmation on the assignment of the two aforementioned Philippine
orbital slots to PASI for its satellites, which PASI had designated as the Agila satellites. 5 Secretary Lagdameo, Jr.
replied in a letter dated 3 July 1996, confirming "the Philippine Government's assignment of Philippine orbital
slots 161E and 153E to [PASI] for its [Agila] satellites." 6
PASI avers that after having secured the confirmation from the Philippine government, it proceeded with
preparations for the launching, operation and management of its satellites, including the availment of loans, the
increase in its capital, negotiation with business partners, and an initial payment of US$3.5 Million to the French
satellite manufacturer. However, respondent Lichauco, then DOTC Undersecretary for Communications,
allegedly "embarked on a crusade to malign the name of [Michael de Guzman] and sabotage the business of
PASI." Lichauco's purported efforts against PASI culminated allegedly in her offering orbital slot 153º East
Longitude
for bidding to other parties sometime in December 1997, despite the prior assignment to PASI of the said slot. 7 It
was later claimed by PASI that Lichauco subsequently awarded the orbital slot to an entity whose indentity was
unknown to PASI.8
Aggrieved by Lichauco's actions, PASI and De Guzman instituted on 23 January 1998 a civil complaint against
Lichauco, by then the Acting Secretary of the DOTC, and the "Unknown Awardee" who was to be the recipient of
orbital slot 153º East Longitude. The complaint, alleging three (3) causes of action, was for injunction, declaration
of nullity of award, and damages. The first cause of action, for injunction, sought to establish that the award of
orbital slot 153º East Longitude should be enjoined since the DOTC had previously assigned the same orbital slot
to PASI. The second cause of action, for declaration of nullity of award, averred that the award to the unknown
bidder is null and void, as it was rendered by Lichauco beyond her authority. 9
The third cause of action, for damages, imputed several acts to Lichauco as part of her alleged "crusade" to
malign the name of plaintiff [D]e Guzman and sabotage the business of [PASI]:
12. xxx
(a) On 4 December 1996, in a meeting with the members of the Board of Directors of plaintiff corporation,
defendant Lichauco then uttered disparaging and defamatory comments against plaintiff de Guzman. These
defamatory remarks triggered efforts from within the plaintiff corporation aimed at ousting plaintiff de Guzman
from his position.
(b) Defendant Lichauco, then an undersecretary of DOTC, wrote Mr. Jesli Lapuz on 5 December 1996 (barely
two days after plaintiff de Guzman wrote him) to deny that the DOTC has assigned the two (2) Philippine orbital
slots to plaintiff corporation. Defendant Lichauco falsely asserted that only orbital slot 161 E was assigned to
plaintiff, orbital slot 153 E was not.
In the same letter, defendant Lichauco branded as FALSE plaintiff de Guzman's claim that "Agila" is a registered
corporate name of plaintiff corporation.
A copy of the letter is attached as Annex E.
(c) Not contented, defendant Lichauco, again for reasons known only to her, and with malice aforethought, made
defamatory remarks against plaintiffs during a telecommunications forum held in Makati City sometime in
October 1997 in the presence of public officials and business executives.
(d) Defendant Lichauco did not spare plaintiff corporation from her unprovoked defamation. Defendant Lichauco
arrogantly said that she had asked President Fidel V. Ramos to sue plaintiff Michael de Guzman. With the same
degree of arrogance she threatened plaintiff corporation not to use the name "Agila", otherwise she would fight
plaintiff corporation and would make sure that the name of Agila would never be given back to plaintiff
corporation.
(e) To top it all, defendant Lichauco without basis and with evident bad faith, said that plaintiff corporation will
never pay its contractors.
(f) In December 1997, defendant Lichauco delivered the coup de' grace. Again, acting unilaterally, without prior
notice to plaintiff corporation and in gross violation of DOTC's earlier assignment to plaintiff corporation of
orbital slot 153 E, defendant Lichauco offered said slot to interested applicants. A copy of the notice of offer is
attached as Annex F.
13. Plaintiffs learned of defendant Lichauco's acts after orbital slot 153 E was offered for bidding. To plaintiff
coproration's knowledge, the orbital slot was eventually awarded to defendant Unknown Awardee.
x x x x10
The complaint alleged that since Lichauco's act of offering and awarding orbital slot 153º East Longitude was
patently illegal and violative of DOTC's prior commitment to PASI, Lichauco should be enjoined from
performing any acts and entering into or executing any agreement or arrangement of whatever nature in
connection with the said orbital slot. The complaint also averred that the purported award of the orbital slot to the
"Unknown Awardee was illegal, and thus should be declared null and void. Finally, the complaint alleged a cause
of action for damages against Lichauco, cast in the following manner:
xxxx
21. Defendant Lichauco attacked the good name and reputation of plaintiffs.
22. She willfully caused damage to plaintiffs by orchestrating the above-described acts which are contrary to law;
morals and basic norms of good faith.
23. She interefered with and violated plaintiff corporation's contract with DOTC by offering and awarding orbital
slot 153 E to defendant Unknown Awardee.
24. Because of defendant Lichauco's reprehensible acts, plaintiffs suffered actual damages of at least P10 million
each, for all of which defendant Lichauco should be held liable to pay.
25. By reason of defendant Lichauco's illegal and malicious acts, plaintiff corporation's business name and
goodwill was tarnished, for which plaintiff corporation should be indemnified by way of moral damages in the
amount of at least P10 million.
26. For the same reasons, plaintiff de Guzman suffered and continue to suffer extreme mental anguish, serious
anxiety, wounded feelings, moral shock and besmirched reputation, for all of which plaintiff de Guzman should
be indemnified in the amount of at least P10 million.
27. Defendant Lichauco should also be sanctioned, as a deterrent for public good, to pay each plaintiff exemplary
damages in the amount of at least P5 million.
28. In order to protect and enforce their rights, plaintiffs were compelled to institute this suit, engage the services
of counsel and incur litigation expenses, for all of which plaintiffs should be indemnified in the amount of at least
P500 Thousand each.11
xxxx
In sum, petitioners sought the following reliefs for the three (3) causes of action:
xxxx
3. After trial of the issues, render judgment as follows:
[a] On the first cause of action, making permanent the writ of preliminary injunction;
[b] On the second cause of action, declaring the offer and award of orbital slot 153 E to defendant Unknown
Awardee null and void.
[c] On the third cause of action, directing defendant Lichauco to pay the following sums:
i. P10 million each to plaintiffs as actual damages;
ii. P10 million to plaintiff corporation as moral damages;
iii. P10 million to plaintiff de Guzman as moral damages;
iv. P5 million each to plaintiffs as exemplary damages;
v. P500 Thousand each to plaintiffs as attorney's fees and litigation expenses.
x x x x12
The complaint was filed before the Regional Trial Court (RTC) of Mandaluyong City, and subsequently raffled to
Branch 214. On 2 February 1998, the RTC issued a temporary restraining order against Lichauco, who received
the summons together with the complaint on 28 January 1998. Lichauco failed to file an answer within the
reglementary period, but eight (8) days after the lapse thereof, she filed a Manifestation and Motion asking for a
new five (5)-day period, or until 25 February 1998, to file a responsive pleading to the complaint. However, she
filed instead a Motion to Admit with attached Motion to Dismiss on 27 February 1998. She rooted her prayer for
the dismissal of the complaint primarily on the grounds that the suit is a suit against the State which may not be
sued without its consent; that the complaint stated no cause of action; and that the petitioners had failed to exhaust
administrative remedies by failing to seek recourse with the Office of the President.
In an order13 dated 14 August 1998, the RTC denied the motion to dismiss. It characterized the defense of state
immunity as "at very least a contentious issue which can not be resolved by mere allegations in the pleadings but
which can be best threshed out in a litig[i]ous forum where parties are accorded enormous (sic) opportunity to
argue for the ascertainment of whether the act complained of are indeed within the parameters and prerogatives of
the authority exercising the same."14 The RTC also noted that the allegations in the complaint regarding the
ultimate facts sufficiently presented an ultra vires act of Lichauco, and that she was being sued in her personal
capacity. As to the argument pertaining to the non-exhaustion of administrative remedies, the RTC noted that the
principle is not an inflexible rule, and may be dispensed with when its application would cause great and
irreparable damage or when it would not constitute a plain, speedy and adequate remedy. 15
Lichauco assailed the RTC order through a Petition for Certiorari under Rule 65 before the Court of Appeals,
which subsequently nullified the RTC order in the Decision now assailed before us. The Court of Appeals
sustained the contention that the complaint is a suit against the State with the following ratiocination:
The suit is to the mind of this court a suit against the [Link]
The notice of offer signed by herein petitioner allegedly tainted with bad faith was done in the exercise of and in
pursuance of an official duty. Her duties are as follows:
SEC. 10. Powers and Duties of the Undersecretary. The Undersecretary shall:
(1) Advise and assist the Secretary in the formulation and implementation of department objectives and policies;
(2) Oversee all the operational activities of the department for which he shall be responsible to the Secretary;
(3) Coordinate the programs and projects of the department and be responsible for its economical, efficient and
effective administration:
xxxxxxxxx
It is apparent from the above enumeration that the petitioner is directly under and answerable to the DOTC
Secretary. We can therefore conclude that her official acts such as the said "notice of offer" was with the blessing
and prior approval of the DOTC Secretary himself.
Being an official act, it is also protected by the presumption that the same was performed in good faith and in the
regular performance of official duty.
"Acts in Line of Duty or under Color of Authority. - As a rule, a public officer, whether judicial, quasi-judicial,
or executive, is not personally liable to one injured in consequence of an act performed within the scope of his
official authority, and in the line of his official duty. In order that acts may be done within the scope of official
authority, it is not necessary that they be prescribed by statute, or even that they be specifically directed or
requested by a superior officer, but it is sufficient if they are done by an officer in relation to matters committed
by law to his control or supervision, or that they have more or less connection with such matters, or that they are
governed by a lawful requirement of the department under whose authority the officer is acting. Under this
principle, state building commissioners who, in obedience to a stature, discharge one who has been employed to
construct a state building, take possession of the work, and place it in the hands of another contractor, are not
liable to the former contractor in damages, since in so doing they are merely acting in the line of their duty. An
officer is not personally responsible for the necessary and unavoidable destruction of goods stored in buildings,
when such buildings were destroyed by him in the lawful performance of a public duty imposed on him by a valid
and constitutional statute."
xxxxxxxxx
Error or Mistake in Exercise of Authority. - Where an officer is invested with discretion and is empowered to
exercise his judgment in matters brought before him he is sometimes called a quasi-judicial officer, and when so
acting he is usually given immunity from liability to persons who may be injured as the result of an erroneous or
mistaken decision, however, erroneous judgment may be, provided the acts complained of are done within the
scope of the officer's authority, and without willfulness, malice, or corruption." (43 Am. Jur., pp. 85-86).
In Sanders vs. Veridiano[16], the Supreme Court held:
"Given the official character of the above-described letters, we have to conclude that the petitioners were, legally
speaking, being sued as officers of the United States government. As they have acted on behalf of that
government, and within the scope of their authority, it is that government and not the petitioners personally, that is
responsible for their acts. Assuming that the trial can proceed and it is proved that the claimants have a right to the
payment of damages, such award will have to be satisfied not by the petitioners in their personal capacities but by
the United States government as their principal. This will require that government, viz.: the appropriation of the
necessary amount to cover the damages awarded, thus making the action a suit against that government without
its consent.
There should be no question by now that such complaint cannot prosper unless the government sought to be held
ultimately liable has given its consent to be sued. So we have ruled not only in Baer but in many other decisions
where we upheld the doctrine of state immunity as applicable not only to our own government but also to foreign
States sought to be subjected to the jurisdiction of our courts.
xxxxxxxxx
The Court finds that, even under the law of public officers, the acts of the petitioners are protected by the
presumption of good faith, which has not been overturned by the private respondents. Even mistakes concededly
committed by such public officers are not actionable as long as it is not shown that they were motivated by malice
or gross negligence amounting to bad faith. This too is well-settled." 17
Preliminarily, we discuss the procedural grounds cited by petitioners which they assert are sufficient to have
caused the dismissal of Lichauco's petition before the Court of Appeals. Petitioners claim that contrary to Section
1, Rule 65 of the 1997 Rules of Civil Procedure, Lichauco failed to attach all pleadings and documents relevant to
her petition, and that those that were attached were merely "duplicate original copies." Lichauco counters that for
the viability of her petition for certiorari, all that she needed to attach were her motion to dismiss, the RTC orders
acting on such motion, her motion for reconsideration of the denial of her motion to dismiss, and petitioners'
opposition to said motion for reconsideration. She claims that only these motions and submission were relevant to
the resolution of her petition.18
In her comment, Lichaucho claims that she did not have to attach the complaint to the copy of the petition she
sent to the petitioners herein, since the latter obviously retained the original copy of the complaint they
filed.19 However, her petition before the appellate court does not indicate that the same complaint was included as
an attachment, and indeed, there is a curious absence of any averment on Lichuaco's part that she indeed attached
the said complaint to her petition.20 Certainly, in a petition for certiorari assailing the denial of a motion to dismiss
a complaint, the very complaint itself is a document relevant and pertinent to the special civil action. It should be
remembered that unlike in an ordinary appeal that is given due course, 21 the case record is not automatically
elevated to the court exercising jurisdiction over a special civil action for certiorari; hence there is an even more
impelling need to attach all pleadings and documents to the special civil action, as mandated under Section 1,
Rule 65 of the 1997 Rules of Civil Procedure. After all, how could the court a quo properly ascertain whether or
not the motion to dismiss itself should have been granted if it did not have a copy of the complaint sought to be
dismissed itself.
Nonetheless, the requirement to attach such relevant pleadings under Section 1, Rule 65 is read in relation to
Section 3, Rule 46, which states that the failure of the petitioner to comply with any of the documentary
requirements, such as the attachment of such relevant pleadings, "shall be sufficient ground for the dismissal of
the petition." The procedural rule accords sufficient discretion to the court hearing the special civil action whether
or not to dismiss the petition outright for failure to comply with said requirement. If the court does dismiss the
petition on that ground, the dismissal would be justifiable under Section 3, Rule 46, and generally such action of
the court cannot be assailed as constituting either grave abuse of discretion or reversible error of law. If the court,
on the other hand, takes cognizance of the petition despite such lapses, the phrasing of Section 3, Rule 46
sufficiently justifies such adjudicative recourse. Indeed, the ultimate logic behind rules of procedure being the
promotion of the objective of securing a just, speedy and inexpensive disposition of every action and
proceeding,22 the higher interests of justice may at times sufficiently warrant the allowance of the petition for
certiorari despite such lapses, especially if they are nonetheless correctible through subsequent submissions.
In any event, the Court is willing to overlook Lichauco's failure to attach the complaint in her petition for
certiorari before the Court of Appeals, an oversight sadly ignored by the appellate court. There are weighty issues
at hand relating to the doctrine of state immunity from suit and the requisites of a motion to dismiss.
There is a connective issue between these two aspects in that if the State is sued without its consent, the
corresponding suit must be dismissed. At times, it would be teasingly obvious, even from the moment of the filing
of the complaint, that the suit is one against the State. A cursory examination of the caption of the complaint can
sometimes betray such proscribed intent, as when the suit is directly initiated against the Republic of the
Philippines, any foreign government, or an unincorporated government agency as the named respondents. In such
cases, obviously there is need for immediate caution, although if it is somehow established that those respondents
had given their consent to be sued, the suit may nonetheless prosper.
The present action was denominated against Lichauco and the unknown awardee, Lichauco was identified in the
complaint as "acting Secretary of the [DOTC]." 23 The hornbook rule is that a suit for acts done in the performance
of official functions against an officer of the government by a private citizen which would result in a charge
against or financial liability to the government must be regarded as a suit against the State itself, although it has
not been formally impleaded.24 However, government immunity from suit will not shield the public official being
sued if the government no longer has an interest to protect in the outcome of a suit; or if the liability of the officer
is personal because it arises from a tortious act in the performance of his/her duties.
Petitioner insists that Lichauco is being sued for her acts committed in excess of her authority, ultra vires
in nature, and tortious in character. The Court of Appeals responded that such acts fell within Lichauco's official
duties as DOTC Undersecretary, thus enjoying the presumption that they were performed in good faith and in the
regular performance of official duty. This rationale is pure sophistry and must be rejected outright.
We do not doubt the existence of the presumptions of "good faith" or "regular performance of official duty", yet
these presumptions are disputable25 and may be contradicted and overcome by other evidence. 26 Many civil
actions are oriented towards overcoming any number of these presumptions, and a cause of action can certainly be
geared towards such effect. The very purpose of trial is to allow a party to present evidence overcome the
disputable presumptions involved. Otherwise, if trial is deemed irrelevant or unnecessary, owing to the perceived
indisputability of the presumptions, the judicial exercise would be relegated to a mere ascertainment of what
presumptions apply in a given case, nothing more. Consequently, the entire Rules of Court is rendered as excess
verbiage, save perhaps for the provisions laying down the legal presumptions.
If this reasoning of the Court of Appeals were ever adopted as a jurisprudential rule, no public officer could ever
be sued for acts executed beyond their official functions or authority, or for tortious conduct or behavior, since
such acts would "enjoy the presumption of good faith and in the regular performance of official duty". Indeed,
few civil actions of any nature would ever reach the trial stage, if a case can be adjudicated by a mere
determination from the complaint or answer as to which legal presumptions are applicable. For example, the
presumption that a person is innocent of a wrong is a disputable presumption on the same level as that of the
regular performance of official duty. 27 A civil complaint for damages necessarily alleges that the defendant
committed a wrongful act or omission that would serve as basis for the award of damages. With the rationale of
the Court of Appeals, such complaint can be dismissed upon a motion to dismiss solely on the ground that the
presumption is that a person is innocent of a wrong.
So obviously, the Decision of the Court of Appeals cannot receive the imprimatur of this Court. Still, the question
of whether Lichauco may validly invoke state immunity from suit to secure the outright dismissal of petitioners'
complaint warrants closer examination.
As earlier noted, the complaint alleges three (3) causes of action against Lichauco: one for injunction against her
performing any act in relation to orbital slot 153º East Longitude; one for declaration of nullity of award, seeking
to nullify the alleged award of orbital slot 153º East Longitude; and one for damages against Lichauco herself.
Evidently, the first two causes of action stem from Lichauco's act of offering orbital slot 153º East Longitude for
bidding, through the Notice of Offer which was attached to the complaint.
In her Motion to Dismiss, Lichauco asserts that she is being sued for issuing the aforementioned Notice of Offer,
which fell within her official functions as DOTC Undersecretary for Communications. She claims that it was
Secretary Lagdameo who authorized her to offer orbital slot 153º East Longitude for bidding, and she thus acted
well within the scope of her authority to advise and assist the DOTC Secretary in the formulation and
implementation of department objectives and policies.
The Notice of Offer cites Department Circular 97-01, signed by then DOTC Secretary Arturo Enrile, as authority
for it. The Court has examined the aforementioned Department Circular, issued on 17 October 1997, which
establishes the "Guidelines on the Procurement of Orbital Slots and Frequency Registration of Philippine
Satellites". Therein, the DOTC is mandated "to conduct a bidding process in case there are competing applications
for any one of the assigned or applied-for-orbital slots" 28. Further, the Department Circular states that "the DOTC
shall publish in three newspapers of general circulation a notice of offer for the government assigned, initiated
and applied for orbital slots."29
Thus, insofar as the first two causes of action are concerned, Lichauco may have a point when she asserts that
they were based on acts which she performed in her capacity as DOTC Undersecretary. But does this necessarily
mean that these two causes of action may thus be dismissed on the basis of state immunity of suit?
As stated earlier, it is when the acts done in the performance of official functions by an officer of the government
will result in a charge against or financial liability to the government that the complaint must be regarded as a suit
against the State itself. However, the distinction must also be raised between where the government official
concerned performs an act in his/her official and jurisdictional capacity and where he performs an act that
constitutes grave abuse of discretion tantamount to lack of jurisdiction. In the latter case, the Constitution itself
assures the availability of judicial review, and it is the official concerned who should be impleaded as the proper
party- defendant or respondent.
On this point, our ruling in J.M. Tuazon & Co. v. Land Tenure Administration 30 is material. Petitioners therein
had filed a special civil action for prohibition to nullify Republic Act No. 2616, or law that directed the
expropriation of the Tatalon Estate in Quezon City. Impleaded as respondents were the officials and government
agency tasked to undertake such expropriation. The respondents alleged that the petition for prohibition was
actually a suit against the State without its consent. The Court, through then Associate Justice (later Chief Justice)
Enrique Fernando, debunked the argument, ruling instead that the petition was within the ambit of judicial review:
[T]he power of judicial review is granted, if not expressly, at least by clear implication from the relevant
provisions of the Constitution. This power may be exercised when the party adversely affected by either a
legislative or executive act, or a municipal ordinance for that matter, files the appropriate suit to test its validity.
The special civil action of prohibition has been relied upon precisely to restrain the enforcement of what is alleged
to be an unconstitutional statute. As it is a fundamental postulate that the Constitution as the supreme law is
binding on all governmental agencies, failure to observe the limitations found therein furnishes a sufficient
ground for a declaration of nullity of the government measure challenged. The argument then that the government
is the adverse party and that, therefore, must consent to its being sued certainly is far from persuasive. x x x x 31
The Court further noted that it was well-settled for the purpose of obtaining a judicial declaration of nullity, "it is
enough if the respondents or defendants named be the government officials who would give operation and effect
to official action allegedly tainted with unconstitutionality." 32
Unlike in J.M. Tuason, the case at bar does not seek to nullify an unconstitutional law or measure. However, the
first two causes of action do sufficiently impute grave abuse of discretion against Lichauco in her official
capacity. Since judicial review of acts alleged to have been tainted with grave abuse of discretion is guaranteed by
the Constitution, it necessarily follows in such instances that it is the official concerned who should be impleaded
as defendant or respondent in the appropriate suit.
Moreover, if the suit had been directed against Lichauco alone, and in her personal capacity, yet it sought, as it
now does, the nullification of the Notice of Offer or the awards thereon, such remedy could not avail even if
granted. Lichauco, in her personal capacity, cannot be directed to set aside the Notice of Offer, the award of the
bid, or to issue a new award herself. It is only because Lichauco was sued in her official capacity as the DOTC
Undersecretary that she, or her successors in office, could be judicially compelled to act in such fashion.
As to the first two (2) causes of action, the Court rules that the defense of state immunity from suit do not apply
since said causes of action cannot be properly considered as suits against the State in constitutional contemplation.
These causes of action do not seek to impose a charge or financial liability against the State, but merely the
nullification of state action. The prayers attached to these two causes of action are for the revocation of the Notice
of Bid and the nullification of the purported award, nothing more. Had it been so that petitioner additionally
sought damages in relation to said causes of action, the suit would have been considered as one against the State.
Had the petitioner impleaded the DOTC itself, an unincorporated government agency, and not Lichauco herself,
the suit would have been considered as one against the State. But neither circumstance obtains in this case.
Parenthetically, it may be noted that at the time of the filing of the complaint, Lichauco herself was already the
acting head of the DOTC, owing to the sudden death of then Secretary Enrile a few days before. At that stage, any
suit seeking to nullify the Notice of Bid and the alleged award to the "Unknown Bidder" should have properly
denominated Lichauco as the respondent, and not the DOTC.
Nonetheless, as to the first two causes of action, there was a viable ground to dismiss the complaint: the non-
exhaustion of administrative remedies. Indeed, such ground was alleged by Lichauco in her Motion to Dismiss.
Yet the principle of non-exhaustion of administrative remedies admits to several exceptions. In its Order denying
the motion to dismiss the complaint, the RTC adequately dispensed with the objection, applying the established
exceptions to the rule of non-exhaustion of administrative remedies. To wit:
Turning to the matter pertaining to non-exhaustion of administrative remedies, it is fundamental that this principle
is not an inflexible rule. It yields to many accepted exceptions. (Rocamora vs. RTC - Cebu, G.R. No. 65307). As
in this case, this principle can be dispensed with when its application would cause great and irreparable damage
and when it does not provide a plain, speedy and adequate remedy.
When the subject orbital slot 153 E was bidded out to other applicants, the damage and injury plaintiffs stand to
suffer was clear, present, and substantiated that this Court was impelled to provide urgent needed measure such as
the issuance of writ of injunction against the public defendant. Indeed, under the circumstances then obtaining it
was impractical for the plaintiffs to first proceed to the administrative official concerned before taking court
action.33
A different set of principles applies to the third cause of action, anchored as it is on alleged acts that are tortious in
character or otherwise beyond the scope of Lichauco's official duties. The complaint alleges that Lichauco uttered
several disparaging and defamatory remarks against petitioners and made false assertions against them in her
letter to the Land Bank President.
The veracity of those allegations is of course presented at the trial to be determined on the basis of the evidence.
However, if proven, they would establish liability on the part of Lichauco that is not shielded by the doctrine of
state immunity from suit. The doctrine, as summarized in Shauf v. Court of Appeals :34
While the doctrine appears to prohibit only suits against the state without its consent, it is also applicable to
complaints filed against officials of the state for acts allegedly performed by them in the discharge of their duties.
The rule is that if the judgment against such officials will require the state itself to perform an affirmative act to
satisfy the same, such as the appropriation of the amount needed to pay the damages awarded against them, the
suit must be regarded as against the state itself although it has not been formally impleaded. It must be noted,
however, that the rule is not so all-encompassing as to be applicable under all circumstances.
It is a different matter where the public official is made to account in his capacity as such for acts contrary
to law and injurious to the rights of plaintiff. As was clearly set forth by Justice Zaldivar in Director of the
Bureau of Telecommunications, et al. vs. Aligaen, etc., et al. 'Inasmuch as the State authorizes only legal
acts by its officers, unauthorized acts of government officials or officers are not acts of the State, and an
action against the officials or officers by one whose rights have been invaded or violated by such acts, for
the protection of his rights, is not a suit against the State within the rule of immunity of the State from
[Link] the same tenor, it has been said that an action at law or suit in equity against a State officer or the director
of a State department on the ground that, while claiming to act for the State, he violates or invades the personal
and property rights or the plaintiff, under an unconstitutional act or under an assumption of authority which he
does not have, is not a suit against the State within the constitutional provision that the State may not be sued
without its consent.' The rationale for this ruling is that the doctrine of state immunity cannot be used as an
instrument for perpetrating an injustice.35
The doctrine poses no controversy if after trial on the merits, it is established that the public official concerned
had committed illegal or tortious acts against the plaintiff. How does it apply in relation to a motion to dismiss on
the ground of state immunity from suit, necessarily lodged before trial on the merits?
Our ruling in United States of America v. Reyes36 warrants due consideration. The Court therein, through then
Associate Justice (later Chief Justice) Hilario G. Davide, Jr., ruled that a motion to dismiss averring immunity
from suit of a State and its functionaries was actually grounded on the specific ground for dismissal of the lack of
cause of action, for even assuming that the defendants had committed the injurious acts complained of, "no action
may be maintained thereon, because of the principle of state immunity." 37 Pertinently, the Court noted that "a
motion to dismiss on the ground of failure to state a cause of action hypothetically admits the truth of the
allegations in the complaint."
Thus, Lichauco, in alleging in her Motion to Dismiss that she is shielded by the State's immunity from suit, to
hypothetically admitted the truth of the allegations in the complaint. Such hypothetical admission has to be
deemed a concession on her part that she had performed the tortious or damaging acts against the petitioners,
which if true, would hold her liable for damages.
Of course, Lichauco could very well raise the defense of state immunity from suit in regard to the third cause of
action with the assertion that the acts complained of constituting said cause of action fell within her official
functions and were not tortuous in character. Still, to establish such assertions of fact, a full-blown trial on the
merits would be necessary, as would the case be if Lichauco raised the defense that she did not commit these acts
complained of. Certainly, these defenses cannot be accorded merit before trial, factual as they are in character.
All told, contrary to the ruling of the Court of Appeals, we find no grave abuse of discretion on the part of the
RTC in denying Lichauco's Motion to Dismiss.
WHEREFORE, the PETITION is GRANTED. The Decision of the Court of Appeals dated 21 February 2000 is
SET ASIDE and the Order dated 14 August 1998 of the Regional Trial Court of Mandaluyong City is
REINSTATED. The Regional Trial Court is ordered to try and decide the case on the merits with deliberate
dispatch. No costs.
SO ORDERED.
DANTE O. TINGA
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairman

ANTONIO T. CARPIO CONCHITA CARPIO MORALES

Associate Justice Asscociate Justice
PRESBITERO J. VELASCO, JR.
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court's Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairman, Third Division
CERTIFICATION
Pursuant to Section 13, Article VII of the Constitution, and the Division Chairman's Attestation, it is hereby
certified that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court's Division,
ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes
1
 Penned by Associate Justice Eugenio Labotoria, concurred in by Associate Justices Jesus Elbinias and Marina
Buzon.
2
 Particularly consisting of Capitol Wireless, Inc.; Clavecilla Electronics and Telecom Corporation; Digital
Telecommunications Philippines; Domestic Satellite Phils.; Eastern Telecommunications Philippines, Inc.;
Express Telecommunications Company; GMCR, Inc; International Communications Corporation; Isla
Communications Company, Inc.; Liberty Broadcasting Network, Inc; Philippine Communications Satellite
Corporation; Philippine Global Communications, Inc.; Philippine Long Distance Telephone Company; Pilipino
Telephone Corporation; Radio Communications of the Philippines, Inc.; and Smart Communications, Inc. See
rollo, pp. 57-59.
3
 Id. at 60.
4
 Id. at 61.
5
 Id. at 64.
6
 Id. at 65.
7
 The assignment of the other orbital slot, 161º East Longitude, was previously affirmed by the DOTC to PASI
and formally effected through an Agreement on Transponder Agreement dated 16 June 1997. See rollo, p. 89.
8
 See id. at 50.
9
 Id. at 50-51.
10
 Rollo, pp. 49-50.
11
 Id. at 51-52.
12
 Id. at 53.
13
 Penned by Judge Edwin D. Sorongon.
14
 Rollo, p. 112.
15
 Id. at 113.
16
 Cited as 162 SCRA 88.
17
 Rollo, pp. 39-42.
18
 Id. at 214.
19
 See id. at 215.
20
 In her Comment, the Office of the Solicitor General, in behalf of Lichauco, states: "Respondent [Lichauco]
attached the following to her petition filed before the Court of Appeals, to wit: (a) Original copies of the assailed
orders as Annexes "A" and "B"; (b) [respondent]'s motion to dismiss as Annex "C"; (c) Copy of [respondent]'s
motion for reconsideration as Annex "D"; and (d) [petitioner]'s opposition to the motion for reconsideration as
Annex "E." See id. at 214.
21
 See Section 8, Rule 45, 1997 Rules of Civil Procedure.
22
 See Section 6, Rule 1, 1997 Rules of Civil Procedure.
23
 Rollo, p. 46.
24
 See e.g., Isberto v. Raquiza, G.R. No. L-35001, 25 September 1975, 67 SCRA 116, 119 (1975).
25
 See e.g., Section 3(m), Rule 131, Rules of Court.
26
 See Section 3, Rule 131, Rules of Court.
27
 See Section 3(a), Rule 131, Rules of Court.
28
 Article III, sec. 6, DOTC Department Circular No. 97-01 (17 October 1997).
29
 Article III, sec. 7, id.
30
 G.R. No. L-21064, 18 February 1970, 31 SCRA 413.
31
 Id. at 421-422.
32
 Id. at 422.
33
 Rollo, p. 113.
34
 G.R. No. 90314, 27 November 1990, 191 SCRA 713.
35
 Id. at 726-727. Citations omitted.
36
 Id. at 206.
37
 G.R. No. 79253, 1 March 1993, 219 SCRA 192.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 182358               February 20, 2013
DEPARTMENT OF HEALTH, THE SECRETARY OF HEALTH, and MA. MARGARITA M.
GALON, Petitioners, 
vs.
PHIL PHARMA WEALTH, INC., Respondent.
DECISION
DEL CASTILLO, J.:
The state may not be sued without its consent. Likewise, public officials may not be sued for acts done in the
perfom1ance of their official functions or within the scope of their authority.
This Petition for Review on Certiorari1 assails the October 25, 2007 Decision2 of the Court of Appeals (CA) in
CA-G.R. CV No. 85670, and its March 31, 2008 Reso1ution3 denying petitioners' Motion for Reconsideration.4
Factual Antecedents
On December 22, 1998, Administrative Order (AO) No. 27 series of 1998 5 was issued by then Department of
Health (DOH) Secretary Alfredo G. Romualdez (Romualdez). AO 27 set the guidelines and procedure for
accreditation of government suppliers of pharmaceutical products for sale or distribution to the public, such
accreditation to be valid for three years but subject to annual review.
On January 25, 2000, Secretary Romualdez issued AO 10 series of 2000 6 which amended AO 27. Under Section
VII7 of AO 10, the accreditation period for government suppliers of pharmaceutical products was reduced to two
years. Moreover, such accreditation may be recalled, suspended or revoked after due deliberation and proper
notice by the DOH Accreditation Committee, through its Chairman.
Section VII of AO 10 was later amended by AO 66 series of 2000, 8 which provided that the two-year
accreditation period may be recalled, suspended or revoked only after due deliberation, hearing and notice by the
DOH Accreditation Committee, through its Chairman.
On August 28, 2000, the DOH issued Memorandum No. 171-C9 which provided for a list and category of
sanctions to be imposed on accredited government suppliers of pharmaceutical products in case of adverse
findings regarding their products (e.g. substandard, fake, or misbranded) or violations committed by them during
their accreditation.
In line with Memorandum No. 171-C, the DOH, through former Undersecretary Ma. Margarita M. Galon (Galon),
issued Memorandum No. 209 series of 2000,10 inviting representatives of 24 accredited drug companies, including
herein respondent Phil Pharmawealth, Inc. (PPI) to a meeting on October 27, 2000. During the meeting,
Undersecretary Galon handed them copies of a document entitled "Report on Violative Products" 11 issued by the
Bureau of Food and Drugs12 (BFAD), which detailed violations or adverse findings relative to these accredited
drug companies’ products. Specifically, the BFAD found that PPI’s products which were being sold to the public
were unfit for human consumption.
During the October 27, 2000 meeting, the 24 drug companies were directed to submit within 10 days, or until
November 6, 2000, their respective explanations on the adverse findings covering their respective products
contained in the Report on Violative Products.
Instead of submitting its written explanation within the 10-day period as required, PPI belatedly sent a
letter13 dated November 13, 2000 addressed to Undersecretary Galon, informing her that PPI has referred the
Report on Violative Products to its lawyers with instructions to prepare the corresponding reply. However, PPI
did not indicate when its reply would be submitted; nor did it seek an extension of the 10-day period, which had
previously expired on November 6, 2000, much less offer any explanation for its failure to timely submit its reply.
PPI’s November 13, 2000 letter states:
Madam,
This refers to your directive on 27 October 2000, on the occasion of the meeting with selected accredited
suppliers, during which you made known to the attendees of your requirement for them to submit their individual
comments on the Report on Violative Products (the "Report") compiled by your office and disseminated on that
date.
In this connection, we inform you that we have already instructed our lawyers to prepare on our behalf the
appropriate reply to the Report furnished to us. Our lawyers in time shall revert to you and furnish you the said
reply.
Please be guided accordingly.
Very truly yours,
(signed)
ATTY. ALAN A.B. ALAMBRA
Vice-President for Legal and Administrative Affairs 14
In a letter-reply15 dated November 23, 2000 Undersecretary Galon found "untenable" PPI’s November 13, 2000
letter and therein informed PPI that, effective immediately, its accreditation has been suspended for two years
pursuant to AO 10 and Memorandum No. 171-C.
In another December 14, 2000 letter16 addressed to Undersecretary Galon, PPI through counsel questioned the
suspension of its accreditation, saying that the same was made pursuant to Section VII of AO 10 which it claimed
was patently illegal and null and void because it arrogated unto the DOH Accreditation Committee powers and
functions which were granted to the BFAD under Republic Act (RA) No. 3720 17 and Executive Order (EO) No.
175.18 PPI added that its accreditation was suspended without the benefit of notice and hearing, in violation of its
right to substantive and administrative due process. It thus demanded that the DOH desist from implementing the
suspension of its accreditation, under pain of legal redress.
On December 28, 2000, PPI filed before the Regional Trial Court of Pasig City a Complaint 19 seeking to declare
null and void certain DOH administrative issuances, with prayer for damages and injunction against the DOH,
former Secretary Romualdez and DOH Undersecretary Galon. Docketed as Civil Case No. 68200, the case was
raffled to Branch 160. On February 8, 2002, PPI filed an Amended and Supplemental Complaint, 20 this time
impleading DOH Secretary Manuel Dayrit (Dayrit). PPI claimed that AO 10, Memorandum No. 171-C,
Undersecretary Galon’s suspension order contained in her November 23, 2000 letter, and AO 14 series of
200121 are null and void for being in contravention of Section 26(d) of RA 3720 as amended by EO 175, which
states as follows:
SEC. 26. x x x
(d) When it appears to the Director [of the BFAD] that the report of the Bureau that any article of food or any
drug, device, or cosmetic secured pursuant to Section twenty-eight of this Act is adulterated, misbranded, or not
registered, he shall cause notice thereof to be given to the person or persons concerned and such person or persons
shall be given an opportunity to be heard before the Bureau and to submit evidence impeaching the correctness of
the finding or charge in question.
For what it claims was an undue suspension of its accreditation, PPI prayed that AO 10, Memorandum No. 171-C,
Undersecretary Galon’s suspension order contained in her November 23, 2000 letter, and AO 14 be declared null
and void, and that it be awarded moral damages of ₱5 million, exemplary damages of ₱1 million, attorney’s fees
of ₱1 million, and costs of suit. PPI likewise prayed for the issuance of temporary and permanent injunctive relief.
In their Amended Answer,22 the DOH, former Secretary Romualdez, then Secretary Dayrit, and Undersecretary
Galon sought the dismissal of the Complaint, stressing that PPI’s accreditation was suspended because most of the
drugs it was importing and distributing/selling to the public were found by the BFAD to be substandard for
human consumption. They added that the DOH is primarily responsible for the formulation, planning,
implementation, and coordination of policies and programs in the field of health; it is vested with the
comprehensive power to make essential health services and goods available to the people, including accreditation
of drug suppliers and regulation of importation and distribution of basic medicines for the public.
Petitioners added that, contrary to PPI’s claim, it was given the opportunity to present its side within the 10-day
period or until November 6, 2000, but it failed to submit the required comment/reply. Instead, it belatedly
submitted a November 13, 2000 letter which did not even constitute a reply, as it merely informed petitioners that
the matter had been referred by PPI to its lawyer. Petitioners argued that due process was afforded PPI, but
because it did not timely avail of the opportunity to explain its side, the DOH had to act immediately – by
suspending PPI’s accreditation – to stop the distribution and sale of substandard drug products which posed a
serious health risk to the public. By exercising DOH’s mandate to promote health, it cannot be said that
petitioners committed grave abuse of discretion.
In a January 8, 2001 Order,23 the trial court partially granted PPI’s prayer for a temporary restraining order, but
only covering PPI’s products which were not included in the list of violative products or drugs as found by the
BFAD.
In a Manifestation and Motion24 dated July 8, 2003, petitioners moved for the dismissal of Civil Case No. 68200,
claiming that the case was one against the State; that the Complaint was improperly verified; and lack of authority
of the corporate officer to commence the suit, as the requisite resolution of PPI’s board of directors granting to the
commencing officer – PPI’s Vice President for Legal and Administrative Affairs, Alan Alambra, – the authority
to file Civil Case No. 68200 was lacking. To this, PPI filed its Comment/Opposition. 25
Ruling of the Regional Trial Court
In a June 14, 2004 Order,26 the trial court dismissed Civil Case No. 68200, declaring the case to be one instituted
against the State, in which case the principle of state immunity from suit is applicable.
PPI moved for reconsideration,27 but the trial court remained steadfast.28
PPI appealed to the CA.
Ruling of the Court of Appeals
Docketed as CA-G.R. CV No. 85670, PPI’s appeal centered on the issue of whether it was proper for the trial
court to dismiss Civil Case No. 68200.
The CA, in the herein assailed Decision,29 reversed the trial court ruling and ordered the remand of the case for the
conduct of further proceedings. The CA concluded that it was premature for the trial court to have dismissed the
Complaint. Examining the Complaint, the CA found that a cause of action was sufficiently alleged – that due to
defendants’ (petitioners’) acts which were beyond the scope of their authority, PPI’s accreditation as a
government supplier of pharmaceutical products was suspended without the required notice and hearing as
required by Section 26(d) of RA 3720 as amended by EO 175. Moreover, the CA held that by filing a motion to
dismiss, petitioners were deemed to have hypothetically admitted the allegations in the Complaint – which state
that petitioners were being sued in their individual and personal capacities – thus negating their claim that Civil
Case No. 68200 is an unauthorized suit against the State.
The CA further held that instead of dismissing the case, the trial court should have deferred the hearing and
resolution of the motion to dismiss and proceeded to trial. It added that it was apparent from the Complaint that
petitioners were being sued in their private and personal capacities for acts done beyond the scope of their official
functions. Thus, the issue of whether the suit is against the State could best be threshed out during trial on the
merits, rather than in proceedings covering a motion to dismiss.
The dispositive portion of the CA Decision reads:
WHEREFORE, the appeal is hereby GRANTED. The Order dated June 14, 2004 of the Regional Trial Court of
Pasig City, Branch 160, is hereby REVERSED and SET-ASIDE. ACCORDINGLY, this case is REMANDED
to the trial court for further proceedings.
SO ORDERED.30
Petitioners sought, but failed, to obtain a reconsideration of the Decision. Hence, they filed the present Petition.
Issue
Petitioners now raise the following lone issue for the Court’s resolution:
Should Civil Case No. 68200 be dismissed for being a suit against the State? 31
Petitioners’ Arguments
Petitioners submit that because PPI’s Complaint prays for the award of damages against the DOH, Civil Case No.
68200 should be considered a suit against the State, for it would require the appropriation of the needed amount to
satisfy PPI’s claim, should it win the case. Since the State did not give its consent to be sued, Civil Case No.
68200 must be dismissed. They add that in issuing and implementing the questioned issuances, individual
petitioners acted officially and within their authority, for which reason they should not be held to account
individually.
Respondent’s Arguments
Apart from echoing the pronouncement of the CA, respondent insists that Civil Case No. 68200 is a suit against
the petitioners in their personal capacity for acts committed outside the scope of their authority.
Our Ruling
The Petition is granted.
The doctrine of non-suability.
The discussion of this Court in Department of Agriculture v. National Labor Relations Commission32 on the
doctrine of non-suability is enlightening.
The basic postulate enshrined in the constitution that ‘(t)he State may not be sued without its consent,’ reflects
nothing less than a recognition of the sovereign character of the State and an express affirmation of the unwritten
rule effectively insulating it from the jurisdiction of courts. It is based on the very essence of sovereignty. x x x
[A] sovereign is exempt from suit, not because of any formal conception or obsolete theory, but on the logical and
practical ground that there can be no legal right as against the authority that makes the law on which the right
depends. True, the doctrine, not too infrequently, is derisively called ‘the royal prerogative of dishonesty’ because
it grants the state the prerogative to defeat any legitimate claim against it by simply invoking its nonsuability. We
have had occasion to explain in its defense, however, that a continued adherence to the doctrine of non-suability
cannot be deplored, for the loss of governmental efficiency and the obstacle to the performance of its multifarious
functions would be far greater in severity than the inconvenience that may be caused private parties, if such
fundamental principle is to be abandoned and the availability of judicial remedy is not to be accordingly
restricted.
The rule, in any case, is not really absolute for it does not say that the state may not be sued under any
circumstance. On the contrary, as correctly phrased, the doctrine only conveys, ‘the state may not be sued without
its consent;’ its clear import then is that the State may at times be sued. The State’s consent may be given either
expressly or impliedly. Express consent may be made through a general law or a special law. x x x Implied
consent, on the other hand, is conceded when the State itself commences litigation, thus opening itself to a
counterclaim or when it enters into a contract. In this situation, the government is deemed to have descended to
the level of the other contracting party and to have divested itself of its sovereign immunity. This rule, x x x is
not, however, without qualification. Not all contracts entered into by the government operate as a waiver of its
non-suability; distinction must still be made between one which is executed in the exercise of its sovereign
function and another which is done in its proprietary capacity. 33
As a general rule, a state may not be sued. However, if it consents, either expressly or impliedly, then it may be
the subject of a suit.34 There is express consent when a law, either special or general, so provides. On the other
hand, there is implied consent when the state "enters into a contract or it itself commences litigation." 35 However,
it must be clarified that when a state enters into a contract, it does not automatically mean that it has waived its
non-suability. 36 The State "will be deemed to have impliedly waived its non-suability [only] if it has entered into
a contract in its proprietary or private capacity. [However,] when the contract involves its sovereign or
governmental capacity[,] x x x no such waiver may be implied." 37 "Statutory provisions waiving [s]tate immunity
are construed in strictissimi juris. For, waiver of immunity is in derogation of sovereignty."38
The DOH can validly invoke state immunity.
a) DOH is an unincorporated agency which performs sovereign or governmental functions.
In this case, the DOH, being an "unincorporated agency of the government" 39 can validly invoke the defense of
immunity from suit because it has not consented, either expressly or impliedly, to be sued. Significantly, the DOH
is an unincorporated agency which performs functions of governmental character.
The ruling in Air Transportation Office v. Ramos40 is relevant, viz:
An unincorporated government agency without any separate juridical personality of its own enjoys immunity
from suit because it is invested with an inherent power of sovereignty. Accordingly, a claim for damages against
the agency cannot prosper; otherwise, the doctrine of sovereign immunity is violated. However, the need to
distinguish between an unincorporated government agency performing governmental function and one performing
proprietary functions has arisen. The immunity has been upheld in favor of the former because its function is
governmental or incidental to such function; it has not been upheld in favor of the latter whose function was not in
pursuit of a necessary function of government but was essentially a business. 41
b) The Complaint seeks to hold the DOH solidarily and jointly liable with the other defendants for damages
which constitutes a charge or financial liability against the state.
Moreover, it is settled that if a Complaint seeks to "impose a charge or financial liability against the state," 42 the
defense of non-suability may be properly invoked. In this case, PPI specifically prayed, in its Complaint and
Amended and Supplemental Complaint, for the DOH, together with Secretaries Romualdez and Dayrit as well as
Undersecretary Galon, to be held jointly and severally liable for moral damages, exemplary damages, attorney’s
fees and costs of suit.43 Undoubtedly, in the event that PPI succeeds in its suit, the government or the state through
the DOH would become vulnerable to an imposition or financial charge in the form of damages. This would
require an appropriation from the national treasury which is precisely the situation which the doctrine of state
immunity aims to protect the state from.
The mantle of non-suability extends to complaints filed against public officials for acts done in the
performance of their official functions.
As regards the other petitioners, to wit, Secretaries Romualdez and Dayrit, and Undersecretary Galon, it must be
stressed that the doctrine of state immunity extends its protective mantle also to complaints filed against state
officials for acts done in the discharge and performance of their duties. 44 "The suability of a government official
depends on whether the official concerned was acting within his official or jurisdictional capacity, and whether
the acts done in the performance of official functions will result in a charge or financial liability against the
government."45 Otherwise stated, "public officials can be held personally accountable for acts claimed to have
been performed in connection with official duties where they have acted ultra vires or where there is showing of
bad faith."46 Moreover, "[t]he rule is that if the judgment against such officials will require the state itself to
perform an affirmative act to satisfy the same, such as the appropriation of the amount needed to pay the damages
awarded against them, the suit must be regarded as against the state x x x. In such a situation, the state may move
to dismiss the [C]omplaint on the ground that it has been filed without its consent." 47
It is beyond doubt that the acts imputed against Secretaries Romualdez and Dayrit, as well as Undersecretary
Galon, were done while in the performance and discharge of their official functions or in their official capacities,
and not in their personal or individual capacities. Secretaries Romualdez and Dayrit were being charged with the
issuance of the assailed orders. On the other hand, Undersecretary Galon was being charged with implementing
the assailed issuances. By no stretch of imagination could the same be categorized as ultra vires simply because
the said acts are well within the scope of their authority. Section 4 of RA 3720 specifically provides that the
BFAD is an office under the Office of the Health Secretary. Also, the Health Secretary is authorized to issue rules
and regulations as may be necessary to effectively enforce the provisions of RA 3720. 48 As regards
Undersecretary Galon, she is authorized by law to supervise the offices under the DOH’s authority, 49 such as the
BFAD. Moreover, there was also no showing of bad faith on their part. The assailed issuances were not directed
only against PPI. The suspension of PPI’s accreditation only came about after it failed to submit its comment as
directed by Undersecretary Galon. It is also beyond dispute that if found wanting, a financial charge will be
imposed upon them which will require an appropriation from the state of the needed amount. Thus, based on the
foregoing considerations, the Complaint against them should likewise be dismissed for being a suit against the
state which absolutely did not give its consent to be sued. Based on the foregoing considerations, and regardless
of the merits of PPI’s case, this case deserves a dismissal. Evidently, the very foundation of Civil Case No. 68200
has crumbled at this initial juncture.
PPI was not denied due process.
However, we cannot end without a discussion of PPI’s contention that it was denied due process when its
accreditation was suspended "without due notice and hearing." It is undisputed that during the October 27, 2000
meeting, Undersecretary Galon directed representatives of pharmaceutical companies, PPI included, to submit
their comment and/or reactions to the Report on Violative Products furnished them within a period of 10 days.
PPI, instead of submitting its comment or explanation, wrote a letter addressed to Undersecretary Galon
informing her that the matter had already been referred to its lawyer for the drafting of an appropriate reply. Aside
from the fact that the said letter was belatedly submitted, it also failed to specifically mention when such reply
would be forthcoming. Finding the foregoing explanation to be unmeritorious, Undersecretary Galon ordered the
suspension of PPI’s accreditation for two years. Clearly these facts show that PPI was not denied due process. It
was given the opportunity to explain its side. Prior to the suspension of its accreditation, PPI had the chance to
rebut, explain, or comment on the findings contained in the Report on Violative Products that several of PPI’s
products are not fit for human consumption. However, PPI squandered its opportunity to explain. Instead of
complying with the directive of the DOH Undersecretary within the time allotted, it instead haughtily informed
Undersecretary Galon that the matter had been referred to its lawyers. Worse, it impliedly told Undersecretary
Galon to just wait until its lawyers shall have prepared the appropriate reply. PPI however failed to mention when
it will submit its "appropriate reply" or how long Undersecretary Galon should wait. In the meantime, PPI’s drugs
which are included in the Report on Violative Products are out and being sold in the market. Based on the
foregoing, we find PPI’s contention of denial of due process totally unfair and absolutely lacking in basis. At this
juncture, it would be trite to mention that "[t]he essence of due process in administrative proceedings is the
opportunity to explain one’s side or seek a reconsideration of the action or ruling complained of. As long as the
parties are given the opportunity to be heard before judgment is rendered, the demands of due process are
sufficiently met. What is offensive to due process is the denial of the opportunity to be heard. The Court has
repeatedly stressed that parties who chose not to avail themselves of the opportunity to answer charges against
them cannot complain of a denial of due process."50
Incidentally, we find it inieresting that in the earlier case of Department q( Health v. Phil Pharmawealth,
Inc.  51respondent filed a Complaint against DOH anchored on the same issuances which it assails in the present
case. In the earlier case of Department of Health v. Phil Pharmawealth, Jnc.,  52 PPI submitted to the DOH a
request for the inclusion of its products in the list of accredited drugs as required by AO 27 series of 1998 which
was later amended by AO 10 series of 2000. In the instant case, however, PPI interestingly claims that these
issuances are null and void.
WHEREFORE, premises considered, the Petition is GRANTED. Civil Case No. 68200 is ordered DISMISSED.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
 ARTURO D. BRION DIOSDADO M. PERALTA*
Associate Justice Associate Justice
JOSE PORTUGAL PEREZ
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VII of the Constitution and the Division Chairperson's Attestation, I certify that
the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer
of the opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice

Footnotes
* Per Raffle dated February 4, 2013.
1
 Rollo, pp. 27-44.
2
 Id. at 7-21; penned by Associate Justice Monina Arevalo-Zenarosa and concurred in by Presiding Justice
Conrado M. Vasquez, Jr. and Associate Justice Edgardo F. Sundiam.
3
 Id. at 22-23.
4
 CA rolla, pp. 156-164.
5
 Records, pp. 16-17.
6
 Id. at 19-25.
7
 Id. at 24.
8
 Id. at 26.
9
 Id. at 111.
10
 Id. at 27.
11
 Id. at 28-40.
12
 Per Republic Act No. 9711 or the Food and Drug Administration (FDA) Act of 2009 which was signed by the
President on August 18, 2009, the Bureau of Food and Drugs (BFAD) was renamed and is now called the Food
and Drug Administration (FDA).
13
 Records, p. 41.
14
 Id.
15
 Id. at 42.
16
 Id. at 43-44.
17
 FOOD, DRUG, AND COSMETIC ACT. June 22, 1963.
18
 FURTHER AMENDING REPUBLIC ACT NO 3720, ENTITLED "AN ACT TO ENSURE THE SAFETY
AND PURITY OF FOODS, DRUGS, AND COSMETICS BEING MADE AVAILABLE TO THE PUBLIC BY
CREATING THE FOOD AND DRUG ADMINISTRATION WHICH SHALL ADMINISTER AND ENFORCE
THE LAWS PERTAINING THERETO", AS AMENDED, AND FOR OTHER PURPOSES. May 22, 1987.
19
 Records, pp. 2-15.
20
 Id. at 400-424.
21
 Id. at 454-457. Administrative Order No. 14 was a later issuance by DOH Secretary Dayrit which was
subsequently included in PPI’s amended and supplemental complaint as one of the issuances sought to be
nullified. It provided for new accreditation guidelines and granted the Accreditation Committee the power to
suspend or revoke a supplier’s accreditation after deliberation and notice, and without need of a hearing.
22
 Id. at 489-505.
23
 Id. at 124.
24
 Id. at 500-513.
25
 Id. at 532-541.
26
 Id. at 555-561; penned by Judge Amelia A. Fabros.
27
 Id. at 562-569.
28
 See Order dated April 19, 2005, id. at 593.
29
 Rollo, pp. 7-21.
30
 Id. at 21. Emphases in the original.
31
 Id. at 730.
32
 G.R. No. 104269, November 11, 1993, 227 SCRA 693.
33
 Id. at 698-699. Citations omitted.
34
 United States of America v. Judge Guinto, 261 Phil. 777, 790 (1990).
35
 Id. at 792.
36
 Id. at 793.
37
 Id. at 795.
38
 Equitable Insurance and Casualty Co., Inc. v. Smith, Bell & Co. (Phils.), Inc., 127 Phil. 547, 549 (1967).
39
 Department of Health v. Phil Pharmawealth, Inc., 547 Phil. 148, 154 (2007).
40
 G.R. No. 159402, February 23, 2011, 644 SCRA 36.
41
 Id. at 42-43. Citations omitted.
42
 Department of Health v. Phil Pharmawealth, Inc., supra at 154.
43
 See Complaint, pp. 12-13, records, pp. 13-14; Amended and Supplemental Complaint, p. 13, records, p. 422.
44
 United States of America v. Judge Guinto, supra note 34 at 791.
45
 Department of Health v. Phil Pharmawealth, Inc., supra note 39 at 153.
46
 M. H. Wylie v. Rarang, G.R. No. 74135, May 28, 1992, 209 SCRA 357, 368. Citation omitted. See also United
States of America v. Reyes, G.R. No. 79253, March 1, 1993, 219 SCRA 192, 209 where the Court held:
x x x The doctrine of immunity from suit will not apply and may not be invoked where the public official is being
sued in his private and personal capacity as an ordinary citizen. The cloak of protection afforded the officers and
agents of the government is removed the moment they are sued in their individual capacity. This situation usually
arises where the public official acts without authority or in excess of the powers vested in him. It is a well-settled
principle of law that a public official may be liable in his personal private capacity for whatever damage he may
have caused by his act done with malice and in bad faith, or beyond the scope of his authority or jurisdiction.
(Citations omitted)
47
 United States of America v. Judge Guinto, supra note 34 at 791-792. See also Department of Health v. Phil
Pharmawealth, Inc., supra note 39 at 155.
48
 See Section 26, Republic Act No. 3720.
49
 See Section 12, Chapter 3, Title IX, Book IV, Administrative Code of 1987.
50
 Flores v. Montemavor, Ci.R. No. 170146. llll''~ 1' .. 20 i i, 651 SCEA 396, 406-407. Citations omitted
51
 Supranote39.
52
 ld
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 203834               July 9, 2014
HEIRS OF DIOSDADO M. MENDOZA, namely: LICINIA V. MENDOZA, PETER VAL V. MENDOZA,
CONSTANCIA V. MENDOZA YOUNG, CRISTINA V. MENDOZA FIGUEROA, DIOSDADO V.
MENDOZA, JR., JOSEPHINE V. MENDOZA JASA, and RIZALINA V. MENDOZA PUSO, Petitioners, 
vs.
DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS and the DPWH SECRETARY, Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review on certiorari 1 assailing the 20 June 2012 Decision2 and the 15 October
2012 Resolution3 of the Court of Appeals in CA-G.R. CV No. 86433. The Court of Appeals set aside the 29
October 2001 Decision4 of the [Link] Court of Manila, Branch 36, in Civil Case No. 90-53649.
The Antecedent Facts
The case stemmed from an action for specific performance and damages, with prayer for preliminary injunction,
filed by Diosdado M. Mendoza (Mendoza), doing businessunder the name and style of D’ Superior Builders
(Superior Builders) against the defendants Department of Public Works and Highways (DPWH), then DPWH
Secretary Fiorello R. Estuar (Estuar), Undersecretary Edmundo V. Mir (Mir), Nestor Abarca (Abarca), United
Technologies, Inc. (UTI), 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 court) issued a Temporary Restraining
Order enjoining the defendants from rebidding Package VI and fromawarding Package IX to another contractor,
and to cease and desistfrom withholding the equipment of Superior Builders.
On 20 August 1990, the DPWH, Estuar, Mir and Abarca filed an opposition to the prayer for the issuance of a
preliminary injunction, citing Section 1 of Presidential Decree No. 1818 that the trial court has no jurisdiction to
issue a writ of preliminary injunction. They likewise alleged that Superior Builders failed to exhaust its
administrative remedies. They further alleged that the owner of the road, GregorioAbalos (Abalos) issued a
certification that he never disallowed passage to Superior Builders’ vehicles and equipment and road right-of-way
was never a problem. They also alleged that Superior Builders started mobilization from 12 to 15 July 1989 and
resumed its operationsfor one week in December 1989. They also alleged that on 20 November 1989, the Office
of the Sangguniang Panlalawiganof Benguet passed Resolution No. 1176 recommending the termination of the
contract between the DPWH and Superior Builders. They reiterated the allegations in their Opposition in their
Answer.
For their part, UTI, Templo and Samonte alleged that Superior Builders had 10 calendar days to commence with
the project from the time it received the Notice to Proceed on 2 March 1989 or until 12 March 1989 but it failed to
do so. They alleged that Superior Builders only mobilized one bulldozer and one loader out of the 47 units
required in the contract. They alleged that at the time of the filing of the case, Superior Builders had only
mobilized eight units, a majority of which were not working. They alleged that Superior Builders failed to
mobilize sufficient number of materials, equipment and personnel and that by 25 October 1989, it already
incurred negative slippage of 27.97% that they were compelled to recommend the termination of the contract for
Package VI and rebidding of Package IX.
The Decision of the Trial Court
In its 29 October 2001 Decision, the trial court ruled that the termination of the contract over Package VI and the
non-award of Package IX to Superior Builders were arbitrary and unjustified. The trial court ruled that under the
original plan, Package VI was inaccessible from the starting point which is a privately-owned road. The trial court
ruled that there was no showing of any attempt by the government to secure right-of-way by expropriation or
other legal means. The trial court held that Superior Builders could not be faulted for its failure to perform the
obligation within the stipulated period because the DPWH made it impossible by its failure to acquire the
necessary right-of-way and as such, nonegative slippage could be attributed to Superior Builders. The trial court
further ruled that inentering into a contract, the DPWH divested itself of immunity from suit and assumed the
character of an ordinary litigant.
The dispositive portion of the trial 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), 8 states:
1. Whenever a contractor is behind schedule in its contract work and incur 15% or more negative slippage based
on its approved PERT/CPM, the implementing agency, at the discretion of the Minister concerned, may undertake
by administration the whole ora portion of the unfinished work, or have the whole or a portion of such unfinished
work done by another qualified contractor through negotiated contract at the current valuation price.
Undeniably, the negative slippage incurred by Superior Builders, which reached 31.852%, far exceeded the
allowable slippage under PD 1870.
Under Department Order No. 102,series of 1988 (DO 102), 9 the following calibrated actions are required to be
done for infrastructure projects that reached certain levels of negative slippage:
1. Negative slippage of 5% ("Early Warning" Stage): The contractor shall be given a warning and required to
submit a "catch-up" program to eliminate the slippage. The PM/RD/DE 10 shall provide thorough supervision and
monitoring of the work.
2. Negative slippage of 10% ("ICU" Stage): The contractor shall be given a second warning and required to
submit a detailed action program on a fortnightly (two weeks) basis which commits him to accelerate the work
and accomplish specific physical targets which will reduce the slippage over a defined time period. Furthermore,
the contractor shall be instructed to specify the additional input resources – money, manpower, materials,
machines, and management – which he should mobilize for this action program. The PM/RD/DE shall exercise
closer supervision and meet the contractor every other week toevaluate the progress of work and resolve any
problems and bottlenecks.
3. Negative slippage of 15% ("Make-or-Break" Stage): The contractor shall be issued a final warning and required
to come up with a more detailed program of activities with weekly physical targets, together with the required
additional input resources. On-site supervision shall be done at least once a week. At the sametime, the
PM/RD/DE shall prepare contingency plans for the termination/rescission of the contract and/or take-over of the
work by administration or contract.
4. Negative slippage beyond 15% ("Terminal" Stage): The PM/RD/DE shall initiate termination/rescission of the
contract and/or take-over of the remaining work byadministration orassignment to another contractor/appropriate
agency. Proper transitory measures shall be taken to minimize work disruptions, e.g., take-over by administration
while rebidding is going on. The discretion of the DPWH to terminate or rescind the contract comes into play
when the contractor shall have incurreda negative slippage of 15% or more. 11
In this case, Superior Builders was warned of its considerable delay in the implementation of the project as early
as 29 April 198912 when the progress slippage reached 4.534% due to the late implementation of the project.
Thereafter, Superior Builders received the first, 13 second14 and final15 warnings when the negative slippages
reached 7.648%, 11.743% and 16.32%, respectively. By the time the contract was terminated, the negative
slippage already reached 31.852% or more than twice the terminal stage under DO 102.
Petitioners claimed that the negative slippages were attributable to the government. Petitioners cited the right-of-
way problem because the construction site was privately [Link] construction of the building for the field
office laboratory and engineers’ quarters was also delayed because it took months for the DPWH to approve the
revision of the building layout.
We note that Superior Builders received the Notice to Proceed dated 22 February 1989 on 2 March 1989. 16 The
Notice to Proceed stated that "the number of days allowable under [the] contract will be counted from the date
[the contractor] commence[s] work or not later than the 8th of March 1989." 17 On 17 April 1989, more thana
month after the project was supposed to start, Mendoza wrote Templo that Superior Builders would start the
construction of Package VI and that their "Survey Team [would] immediately start the preconstruction survey of
the project x x x."18In two separate letters dated 27April 1989, both addressed to Samonte, Mendoza informed
UTI that: (1) there was an existing building on the site where the bunkhouse was supposed to be constructed,
which had to be cleared and demolished first; and (2) the first fivekilometers of Package VI allegedly belonged to
private residents who were asking for compensation before they could proceed with the road construction. 19
The right-of-way problem was confirmed in a letter dated 2 May 1989 sent by Vinson to DPWH Director Heraldo
B. Daway of the Cordillera Administrative Region. 20 In a letter dated 9 May 1989 addressed to "The Project
Manager," Mendoza requested for the temporary suspension of work effective 22 April 1989 due to the right-of-
way problem regarding the first five kilometers of the project. 21 Samonte denied the request in a letter dated 24
May 1989 on the ground that Superior Builders can carry out work in sections without right-of-way conflict.
Samonte likewise reminded Superior Builders to mobilize all the required construction resources in order not to
prejudice its performance on the project. 22
Apparently, despite the denial of its request for temporary suspension of work, Superior Builders did not mobilize
all the required resources as directed by Samonte. In a letter dated 15 June 1989 to Mir, Mendoza stated that
Superior Builders had started the "mobilization of equipment and personnel since last week," 23 meaning, the
mobilization of the construction resources started on the first week ofJune. However, in a letter dated 24 June
1989, Vinson called the Superior Builders’ attention that as of 21 June 1989, it only mobilized one dozer and one
loader at the jobsite.24
The Minutes of the Meeting dated 7 July 198925 showed that Gloria Areniego (Areniego), the Superior Builders’
representative, assured the delivery of additional equipment on site"next week" or the second week of July. The
minutes also showed that Superior Builders was again advised to start working on the sections not affected by the
right-of-way problem.26 In addition, Samonte asked Areniego for the time when Superior Builders would start the
demolition of the building where the engineers’ office and quarters would be built. Areniego promised that it
would start on July 14.27 However, Superior Builders still failed to comply, prompting Vinson to send another
letter dated 22 July 1989 to Superior Builders, noting that "since the arrival of your One (1) unit Dozer and One
(1) unit Loader last 21 June 1989, no other construction equipment had been mobilized on site to date." 28
The right-of-way problem turned out to affect only the first 3.2 kilometers of the project. However, as the Court
of Appeals pointed out, Superior Builders was not able to go beyond the 3.2 kilometers because of the limited
equipment it mobilized on the project site. Further, the Court of Appeals noted that Superior Builders’ bulldozer
broke down after three days of work, proving that Superior Builders had been remiss in its responsibilities as a
contractor. In addition, Abalos denied in a certification that he disallowed the passage of Superior Builders’
vehicles and equipment on the road within his property from the time of the commencement of the contract in
March 1989.29
In short, Superior Builders could have proceeded with the project, as it was constantly reminded to do so, but it
capitalized on the right-of-way problem to justify its delays.
In a letter30 dated 2 October 1989 by Bial A. Palaez (Palaez), Provincial Planning and Development Coordinator,
addressed to Benguet Provincial Governor Andres R. Bugnosen (Bugnosen), Palaez informed Bugnosen that
when he visited the project with Kibungan Mayor Albert Mayamnes on 14 July 1989, they observed the
following: (1) Superior Builders only constructed 100linear meters of road at Masala; (2) there was no sign of
work activity; and (3) there were only one bulldozer, one payloader and a fiera on the project site, which were all
under repair and not functional. When they visited the project on 31 August 1989, there were no activities and
they were not able to meet the project engineer or the workers on the project site. In addition, the construction of
the building for engineering purposes had not started as of 27 September 1989. Thus, the Provincial Government
of Benguet passed Resolution No. 117631 on 20 November 1989 recommending to the DPWH the "Termination of
Contract or Disqualification of Contractor Pertinent to HADP Project."
Given the foregoing, the DPWH was justified in forfeiting Package VI for Superior Builders’ failure to comply
with its contractual obligations. We also note that Package IX of the HADP was tied to the completion of Package
VI because the Asian Development Bank could not approve the award of Package IX to Superior Builders unless
its work on Package VI was satisfactory to the DPWH. 32 This explains why Package IX had to be rebid despite
the initial award of the project to Superior Builders.
The Court of Appeals likewise correctly ruled that the DPWH should not be made to pay for the rental of the
unserviceable equipment of Superior Builders. The Court of Appeals noted that (1) Superior Builders failed to
mobilize its equipment despite having the first 7.5% advance payment under the contract, and (2) even when the
trial court issueda temporary restraining order on 2 August 1990 in favor of Superior Builders, it failed to remove
the equipment from the project site. As regards the delivery and value of the materials, the Court of Appeals
found that the supposed delivery was only signed by Areniego without verification from 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.33 There is express consent when a law so provides, while there is implied consent when
the State enters into a contract or it itself commences litigation. 34 This Court explained that in order to determine
implied waiver when the State or its agency entered into a contract, there is a need to distinguish whether the
contract was entered into in its governmental or proprietary capacity, thus:
x x x. However, it must be clarified that when a state enters into a contract, it does not automatically mean that it
has waived its nonsuability. The State "will be deemedto have impliedly waived its nonsuability [only] if it has
entered into a contract in its proprietary or private capacity. [However,] when the contract involves its sovereign
or governmental capacity[,] x x x no suchwaiver may be implied." Statutory provisions waiving [s]tate immunity
are construed in strictissimi juris. For, waiver of immunity is in derogation of sovereignty. 35
In Air Transportation Office v. Ramos,36 the Court expounded:
An unincorporated agency without any separate juridical personality of its own enjoys immunityfrom suit because
it is invested with an inherent power of sovereignty. x x x. However, the need to distinguish between an
unincorporated government agency performing governmental function and one performing proprietary functions
has arisen. The immunity has been upheld in favor of the former because its function is governmental or
incidentalto such function; it has not been upheld in favor of the latter whose function was not in pursuit of a
necessary function of government but was essentially a business. 37
Having made this distinction, wereiterate that the DPWH is an unincorporated government agency without any
separate juridical personality of its own and it enjoys immunity from suit. 38 The then Ministry of Public Works
and Highways, now DPWH, was created under Executive Order No. 710, series of 1981 (EO 710). EO 710
abolished the old Ministry of PublicWorks and the Ministry of Public Highways and transferred their functions to
the newly-created Ministry of Public Works of Highways. Section 4 of EO 710 provides:
SECTION 4. The Ministry shall exercise supervision and control over the following staff bureaus which are
created in the Ministry:
(1) Bureau of Construction, which shall provide technical services on the construction, rehabilitation, betterment,
and improvement of infrastructure facilities;
(2) Bureau of Design, which shall undertake project development, engineering surveys, and designs of
infrastructure facilities;
(3) Bureau of Equipment, which shall provide technical services on the management of construction and
maintenance equipment and ancillary facilities;
(4) Bureau of Maintenance, which shall provide technical services on the maintenance and repair of infrastructure
facilities; and
(5) Bureau of Materials and Quality Control, which shall provide research and technical services on quality
control and on the management of materials plants and ancillary facilities for the production and processing of
construction materials.
The Ministry of Public Works and Highways was later reorganized under Executive Order No. 124, series of 1987
(EO 124). Under Section 5 of EO 124, the Ministry shall have the following powersand functions:
Sec. 5. Powers and Functions. — The Ministry, in order to carry out its mandate, shall have the following powers
and functions:
(a) Provide technical services for the planning, design, construction, maintenance, and/or operation of
infrastructure facilities;
(b) Develop and implement effective codes, standards, and reasonable guidelines to ensure the safety of all public
and private structures in the country and assure efficiency and proper quality in the construction of public works;
(c) Ascertain that all public works plans and project implementation designs are consistent with current standards
and guidelines;
(d) Identify, plan, secure funding for, program, design, construct or undertake prequalification, bidding, and
award of contracts of public works projects with the exception only of specialized projects undertaken by
Government corporate entities withestablished technical capability and as directed by the President of the
Philippines or as provided by law;
(e) Provide the works supervision function for all public works construction and ensure that actual construction is
done in accordance with approved government plans and specifications;
(f) Assist other agencies, including the local governments, in determining the most suitable entity to undertake the
actual construction of public works and projects;
(g) Maintain or cause to be maintained all highways, flood control, and other public works throughout the country
except those that are the responsibility of other agencies as directed by the President of the Philippines as
provided by law;
(h) Provide an integrated planning for highways, flood control and water resource development systems, and other
public works;
(i) Classify roads and highways intonational, regional, provincial, city, municipal, and barangay roads and
highways, based on objective criteria it shall adopt; provide or authorize the conversion of roads and highways
from one category to another;
(j) Delegate, to any agency it determines to have the adequate technical capability, any of the foregoing powers
and functions.
It is clear from the enumeration of its functions that the DPWH performs governmental functions. Section 5(d)
states that it has the power to "[i]dentify, plan, secure funding for, program, design, construct or undertake
prequalification, bidding, and award of contracts of public works projects x x x" while Section 5(e) states that
itshall "[p]rovide the works supervision function for all public works constructionand ensure that actual
construction is done in accordance with approved government plans and specifications."
The contracts that the DPWH entered into with Mendoza for the construction of Packages VI and IX of the HADP
were done in the exercise of its governmental functions. Hence, petitioners cannot claim that there was an implied
waiver by the DPWH simply by entering into a contract.1âwphi1 Thus, the Court of Appeals correctly ruled that
the DPWH enjoys immunity from suit and may not be sued without its consent.
WHEREFORE, we DENY the petition. We AFFIRM the 20 June 2012 Decision and the 15 October 2012
Resolution of the Court of Appeals in CA-G.R. CV. No. 86433.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
ARTURO D. BRION
Associate Justice

MARIANO C. DEL CASTILLO JOSE PORTUGAL PEREZ

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

Footnotes
1
 Under Rule 45 of the 1997 Rules of Civil Procedure.
2
 Rollo, pp. 26-54. Penned by Associate Justice Remedios A. Salazar-Fernando with Associate Justices Ramon M.
Bato, Jr. and Fiorito S. Macalino, concurring.
3
 Id. at 56-62.
4
 CA rollo, pp. 148-162. Penned by Judge Wilfredo D. Reyes.
5
 Id. at 161-162.
6
 Rollo, pp. 39-41. Footnotes omitted.
7
 Id. at 54.
8
 Authorizing the Government’s Take Over by Administration of Delayed Infrastructure Projects or Awarding of
the Contract to Other Qualified Contractors, dated 12 July 1983.
9
 Calibrated Actions on Contracts with Negative Slippages, dated 8 November 1988.
10
 Project Managers/Regional Directors/District Engineers.
11
 Genaro R. Reyes Construction, Inc. v. Court of Appeals, G.R. No. 108718, 14 July 1994, 234 SCRA 116.
12
 Records, Vol. 1, p. 745.
13
 Id. at 748.
14
 Id. at 86-87.
15
 Id. at 91-92.
16
 Plaintiff’s Folder of Exhibits, Vol. 3, no pagination.
17
 Id.
18
 Id.
19
 Id.
20
 Id.
21
 Id.
22
 Id.
23
 Id.
24
 Records, Vol. 1, p. 84.
25
 Plaintiff’s Folder of Exhibits, Vol. 3, no pagination.
26
 Id.
27
 Id.
28
 Records, Vol. 1, p. 85.
29
 Id. at 35.
30
 Plaintiff’s Folder of Exhibits, Vol. 3, no pagination.
31
 Id.
32
 Records, Vol. 1, pp. 639-640.
33
 Department of Health v. Phil. Pharmawealth, Inc., G.R. No. 182358, 20 February 2013, 691 SCRA 421.
34
 Id.
35
 Id. at 434.
36
 G.R. No. 159402, 23 February 2011, 644 SCRA 36.
37
 Id. at 42-43.
38
 See Republic of the Phils. v. Nolasco, 496 Phil. 853 (2005); Farolan, Jr. v. Court of Tax Appeals, [Link].
42204, 21 January 1993, 217 SCRA 298; Pacific Products, Inc. v. Ong, G.R. No. 33777, 30 January 1990, 181
SCRA 536.

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 Decision1 dated
February 27, 2009 and the Resolution2 dated October 27, 2009 of the Court of 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, 2007.5 In the meantime, 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.7 In the course of the summary 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, 9 as follows:
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.11 However, petitioners found discrepancies in 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, 13 which declares unlawful for any
person to operate any business in the City of Bacolod without 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 Decision16 dated March 20, 2007, the R TC denied the prayer for the issuance of a temporary 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, 2007.18 Thus, respondent elevated the matter to 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, 23 protesting the CA's order to remand the 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. 24 Moreover,
petitioners maintain that they were merely performing governmental or sovereign acts and exercised their legal
rights and duties to implement the provisions of the City Ordinance. 25 Finally, petitioners contend that the 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,27 respondent Phuture argues that the grounds raised by petitioners should not be 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.29 The State and its political subdivisions are open to 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. 30 In the present case, respondent 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),31 which also vests local government units with corporate powers, one of
which is the power to 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.33 Moreover, it deserves mentioning that the City of Bacolod as a government agency or
instrumentality cannot be estopped by the omission, mistake or error of its officials or agents. 34 Estoppel does not
also lie against the government or any of its agencies arising from unauthorized or illegal acts of public
officers.35 Hence, we cannot hold petitioners estopped from 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 Kaisha36 is 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.37 Such 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.40 This 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,42 citing Spouses Custodio v. Court of Appeals,43 is instructive, 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.1âwphi1 There must be damnum et injuria. If, as may happen in many cases, a 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.
PRESBITERO J. VELASCO, JR.
Associate Justice
WE CONCUR:
LUCAS P. BERSAMIN
Associate Justice

MARVIC M.V.F. LEONEN SAMUEL R. MARTIRES

Associate Justice Associate Justice

ALEXANDER G. GESMUNDO
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decisionhad been reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson
CERTIFICATION
Pursuant to the Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
MARIA LOURDES P.A. SERENO
Chief Justice
Footnotes
1
 Rollo, pp. 45-62. Penned by Associate Justice Rodil V. Zalameda and concurred in by Associate Justices Amy
C. Lazaro-Javier and Francisco P. Acosta.
2
 Id. at 82-87.
3
 Records, pp. 1-23.
4
 Rollo, pp. 101-104.
5
 Id. at 104-105.
6
 Id. at 106.
7
 Id. at 149.
8
 Id. at 152.
9
 Id. at 121-142.
10
 Id. at 47-48.
11
 Id. at 24.
12
 Id. at 24-25.
13
 Enacted on December 22, 1993, its pertinent portions read:
Section 47. Imposition of Fee. It shall be unlawful for any person or juridical entity to conduct or engage in any of
the business, trade or occupation enumerated in this Code, and other business, trade or occupation for which a
permit is required without first obtaining a permit therefore from the City Mayor and paid the necessary permit
fee and other charges to the City Treasurer. x x x
Section 48. Imposition of Fee. The fee imposed in the preceding section shall be paid to the City Treasurer upon
application for a Mayor's Permit before any business or activity can commence and within the first twenty (20)
days of January of each year in case of renewal thereof.
14
 Rollo, p. 27.
15
 Id. at 48.
16
 Id. at 143-160. Rendered by Presiding Judge Ramon D. Delariarte.
17
 Id. at 159.
18
 Id. at 160.
19
 Id. at 161-162.
20
 Id. at 61.
21
 Id. at 53-54.
22
 Id. at 55-61.
23
 Id. at 63-80.
24
 Id. at 34-36.
25
 Id. at 36-38.
26
 Id. at 39-40.
27
 Id. at 168-188.
28
 Id. at 191-197.
29
 Providence Washington Insurance Co. v. Republic of the Philippines, No. L-26386, September 1969, 29 SCRA
598, 601-602.
30
 The Municipality of Hagonoy, Bulacan v. Dumdum, Jr., G.R. No. 168289, March 22, 2010, 616 SCRA 315.
31
 Sec. 171, par. 2 (n) of the LGC reads: The City Mayor shall: x x x x n) Grant or refuse to grant, pursuant to law,
city licenses or permits, and revoke the same for violation of law or ordinance or the conditions upon which they
are granted.
32
 G.R. No. 100152, March 31, 2000, 329 SCRA 314, 335.
33
 Universal Mills Corp. v. Bureau of Customs, 150 Phil. 57, 66 (1972); Union Insurance Society of Canton, Ltd.
v. Republic, 150-B Phil. 107, 116 (1972); Mobil Philippines Exploration, Inc. v. Customs Arrastre Service,125
Phil. 270, 279 (1966).
34
 Republic v. Galena, G.R. No. 215009, January 23, 2017.
35
 Intra-Strata Assurance Corp. v. Republic, 579 Phil. 631, 648 (2008).
36
 137 Phil. 194, 203 (1969).
37
 Records, p. 71.
38
 Rollo, p. 157.
39
 Id.
40
 Seastar Marine Services, Inc. v Bui-an, Jr., 486 Phil. 330, 347 (2004).
41
 Danilo A. Du v. Venancio R. Jayoma, then Municipal Mayor of Mabini, Bohol, Vicente Gulle, Jr., Joveniano
Miano, Wilfredo Mendez, Agapito Vallespin, Rene Bucio, Jesus Tutor, Crescencio Bernales, Edgardo Ybanez,
and Rey Pagalan, then members of the Sangguniang Bayan (SB) of Mabini, Bohol, G.R. No. 175042, April 23,
2012, 670 SCRA 333.
42
 G.R. No. 191033, January 11, 2016, 778 SCRA 404, 421.
43
 G.R. No. 116100, February 9, 1996, 253 SCRA 483.

Republic of the Philippines

SUPREME COURT
Baguio
FIRST DIVISION
G.R. No. 185918               April 18, 2012
LOCKHEED DETECTIVE AND WATCHMAN AGENCY, INC., Petitioner, 
vs.
UNIVERSITY OF THE PHILIPPINES, Respondent.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended,
assailing the August 20, 2008 Amended Decision1 and December 23, 2008 Resolution2 of the Court of Appeals
(CA) in CA-G.R. SP No. 91281.
The antecedent facts of the case are as follows:
Petitioner Lockheed Detective and Watchman Agency, Inc. (Lockheed) entered into a contract for security
services with respondent University of the Philippines (UP).
In 1998, several security guards assigned to UP filed separate complaints against Lockheed and UP for payment
of underpaid wages, 25% overtime pay, premium pay for rest days and special holidays, holiday pay, service
incentive leave pay, night shift differentials, 13th month pay, refund of cash bond, refund of deductions for the
Mutual Benefits Aids System (MBAS), unpaid wages from December 16-31, 1998, and attorney’s fees.
On February 16, 2000, the Labor Arbiter rendered a decision as follows:
WHEREFORE, premises considered, respondents Lockheed Detective and Watchman Agency, Inc. and UP as job
contractor and principal, respectively, are hereby declared to be solidarily liable to complainants for the following
claims of the latter which are found meritorious.
Underpaid wages/salaries, premium pay for work on rest day and special holiday, holiday pay, 5 days service
incentive leave pay, 13th month pay for 1998, refund of cash bond (deducted at P50.00 per month from January to
May 1996, P100.00 per month from June 1996 and P200.00 from November 1997), refund of deduction for
Mutual Benefits Aids System at the rate of P50.00 a month, and attorney’s fees; in the total amount of
P1,184,763.12 broken down as follows per attached computation of the Computation and [E]xamination Unit of
this Commission, which computation forms part of this Decision:

1. JOSE SABALAS P77,983.62

2. TIRSO DOMASIAN 76,262.70

3. JUAN TAPEL 80,546.03

4. DINDO MURING 80,546.03

5. ALEXANDER ALLORDE 80,471.78

6. WILFREDO ESCOBAR 80,160.63

7. FERDINAND VELASQUEZ 78,595.53

 8. ANTHONY GONZALES 76,869.97

9. SAMUEL ESCARIO 80,509.78

10. PEDRO FAILORINA 80,350.87

11. MATEO TANELA 70,590.58

12. JOB SABALAS 59,362.40

13. ANDRES DACANAYAN 77,403.73

14. EDDIE OLIVAR 77,403.73

P1,077,057.38

plus 10% attorney’s fees 107,705.74

GRAND TOTAL AWARD P1,184,763.12

Third party respondent University of the Philippines is hereby declared to be liable to Third Party Complainant
and cross claimant Lockheed Detective and Watchman Agency for the unpaid legislated salary increases of the
latter’s security guards for the years 1996 to 1998, in the total amount of P13,066,794.14, out of which amount
the amounts due complainants here shall be paid.
The other claims are hereby DISMISSED for lack of merit (night shift differential and 13th month pay) or for
having been paid in the course of this proceedings (salaries for December 15-31, 1997 in the amount of
P40,140.44).
The claims of Erlindo Collado, Rogelio Banjao and Amor Banjao are hereby DISMISSED as amicably settled for
and in consideration of the amounts of P12,315.72, P12,271.77 and P12,819.33, respectively.
SO ORDERED.3
Both Lockheed and UP appealed the Labor Arbiter’s decision. By Decision 4 dated April 12, 2002, the NLRC
modified the Labor Arbiter’s decision. The NLRC held:
WHEREFORE, the decision appealed from is hereby modified as follows:
1. Complainants’ claims for premium pay for work on rest day and special holiday, and 5 days service incentive
leave pay, are hereby dismissed for lack of basis.
2. The respondent University of the Philippines is still solidarily liable with Lockheed in the payment of the rest
of the claims covering the period of their service contract.
The Financial Analyst is hereby ordered to recompute the awards of the complainants in accordance with the
foregoing modifications.
SO ORDERED.5
The complaining security guards and UP filed their respective motions for reconsideration. On August 14, 2002,
however, the NLRC denied said motions.
As the parties did not appeal the NLRC decision, the same became final and executory on October 26, 2002. 6 A
writ of execution was then issued but later quashed by the Labor Arbiter on November 23, 2003 on motion of UP
due to disputes regarding the amount of the award. Later, however, said order quashing the writ was reversed by
the NLRC by Resolution7 dated June 8, 2004, disposing as follows:
WHEREFORE, premises considered, we grant this instant appeal. The Order dated 23 November 2003 is hereby
reversed and set aside. The Labor Arbiter is directed to issue a Writ of Execution for the satisfaction of the
judgment award in favor of Third-Party complainants.
SO ORDERED.8
UP moved to reconsider the NLRC resolution. On December 28, 2004, the NLRC upheld its resolution but with
modification that the satisfaction of the judgment award in favor of Lockheed will be only against the funds of UP
which are not identified as public funds.
The NLRC order and resolution having become final, Lockheed filed a motion for the issuance of an alias writ of
execution. The same was granted on May 23, 2005. 9
On July 25, 2005, a Notice of Garnishment10 was issued to Philippine National Bank (PNB) UP Diliman Branch
for the satisfaction of the award of ₱12,142,522.69 (inclusive of execution fee).
In a letter11 dated August 9, 2005, PNB informed UP that it has received an order of release dated August 8, 2005
issued by the Labor Arbiter directing PNB UP Diliman Branch to release to the NLRC Cashier, through the
assigned NLRC Sheriff Max L. Lago, the judgment award/amount of ₱12,142,522.69. PNB likewise reminded
UP that the bank only has 10 working days from receipt of the order to deliver the garnished funds and unless it
receives a notice from UP or the NLRC before the expiry of the 10-day period regarding the issuance of a court
order or writ of injunction discharging or enjoining the implementation and execution of the Notice of
Garnishment and Writ of Execution, the bank shall be constrained to cause the release of the garnished funds in
favor of the NLRC.
On August 16, 2005, UP filed an Urgent Motion to Quash Garnishment. 12 UP contended that the funds being
subjected to garnishment at PNB are government/public funds. As certified by the University Accountant, the
subject funds are covered by Savings Account No. 275-529999-8, under the name of UP System Trust Receipts,
earmarked for Student Guaranty Deposit, Scholarship Fund, Student Fund, Publications, Research Grants, and
Miscellaneous Trust Account. UP argued that as public funds, the subject PNB account cannot be disbursed
except pursuant to an appropriation required by law. The Labor Arbiter, however, dismissed the urgent motion for
lack of merit on August 30, 2005.13
On September 2, 2005, the amount of ₱12,062,398.71 was withdrawn by the sheriff from UP’s PNB account. 14
On September 12, 2005, UP filed a petition for certiorari before the CA based on the following grounds:
I.
The concept of "solidary liability" by an indirect employer notwithstanding, respondent NLRC gravely abused its
discretion in a manner amounting to lack or excess of jurisdiction by misusing such concept to justify the
garnishment by the executing Sheriff of public/government funds belonging to UP.
II.
Respondents NLRC and Arbiter LORA acted without jurisdiction or gravely abused their discretion in a manner
amounting to lack or excess of jurisdiction when, by means of an Alias Writ of Execution against petitioner UP,
they authorized respondent Sheriff to garnish UP’s public funds. Similarly, respondent LORA gravely abused her
discretion when she resolved petitioner’s Motion to Quash Notice of Garnishment addressed to, and intended for,
the NLRC, and when she unilaterally and arbitrarily disregarded an official Certification that the funds garnished
are public/government funds, and thereby allowed respondent Sheriff to withdraw the same from PNB.
III.
Respondents gravely abused their discretion in a manner amounting to lack or excess of jurisdiction when they,
despite prior knowledge, effected the execution that caused paralyzation and dislocation to petitioner’s
governmental functions.15
On March 12, 2008, the CA rendered a decision16 dismissing UP’s petition for certiorari. Citing Republic v.
COCOFED,17 which defines public funds as moneys belonging to the State or to any political subdivisions of the
State, more specifically taxes, customs, duties and moneys raised by operation of law for the support of the
government or the discharge of its obligations, the appellate court ruled that the funds sought to be garnished do
not seem to fall within the stated definition.
On reconsideration, however, the CA issued the assailed Amended Decision. It held that without departing from
its findings that the funds covered in the savings account sought to be garnished do not fall within the
classification of public funds, it reconsiders the dismissal of the petition in light of the ruling in the case of
National Electrification Administration v. Morales 18 which mandates that all money claims against the
government must first be filed with the Commission on Audit (COA).
Lockheed moved to reconsider the amended decision but the same was denied in the assailed CA Resolution
dated December 23, 2008. The CA cited Manila International Airport Authority v. Court of Appeals 19 which held
that UP ranks with MIAA, a government instrumentality exercising corporate powers but not organized as a stock
or non-stock corporation. While said corporations are government instrumentalities, they are loosely called
government corporate entities but not government-owned and controlled corporations in the strict sense.
Hence this petition by Lockheed raising the following arguments:
1. RESPONDENT UP IS A GOVERNMENT ENTITY WITH A SEPARATE AND DISTINCT PERSONALITY
FROM THE NATIONAL GOVERNMENT AND HAS ITS OWN CHARTER GRANTING IT THE RIGHT TO
SUE AND BE SUED. IT THEREFORE CANNOT AVAIL OF THE IMMUNITY FROM SUIT OF THE
GOVERNMENT. NOT HAVING IMMUNITY FROM SUIT, RESPONDENT UP CAN BE HELD LIABLE
AND EXECUTION CAN THUS ENSUE.
2. MOREOVER, IF THE COURT LENDS IT ASSENT TO THE INVOCATION OF THE DOCTRINE OF
STATE IMMUNITY, THIS WILL RESULT [IN] GRAVE INJUSTICE.
3. FURTHERMORE, THE PROTESTATIONS OF THE RESPONDENT ARE TOO LATE IN THE DAY, AS
THE EXECUTION PROCEEDINGS HAVE ALREADY BEEN TERMINATED. 20
Lockheed contends that UP has its own separate and distinct juridical entity from the national government and has
its own charter. Thus, it can be sued and be held liable. Moreover, Executive Order No. 714 entitled "Fiscal
Control and Management of the Funds of UP" recognizes that "as an institution of higher learning, UP has always
granted full management and control of its affairs including its financial affairs." 21 Therefore, it cannot shield
itself from its private contractual liabilities by simply invoking the public character of its funds. Lockheed also
cites several cases wherein it was ruled that funds of public corporations which can sue and be sued were not
exempt from garnishment.
Lockheed likewise argues that the rulings in the NEA and MIAA cases are inapplicable. It contends that UP is not
similarly situated with NEA because the jurisdiction of COA over the accounts of UP is only on a post-audit
basis. As to the MIAA case, the liability of MIAA pertains to the real estate taxes imposed by the City of
Paranaque while the obligation of UP in this case involves a private contractual obligation. Lockheed also argues
that the declaration in MIAA specifically citing UP was mere obiter dictum.
Lockheed moreover submits that UP cannot invoke state immunity to justify and perpetrate an injustice. UP itself
admitted its liability and thus it should not be allowed to renege on its contractual obligations. Lockheed contends
that this might create a ruinous precedent that would likely affect the relationship between the public and private
sectors.
Lastly, Lockheed contends that UP cannot anymore seek the quashal of the writ of execution and notice of
garnishment as they are already fait accompli.
For its part, UP contends that it did not invoke the doctrine of state immunity from suit in the proceedings a quo
and in fact, it did not object to being sued before the labor department. It maintains, however, that suability does
not necessarily mean liability. UP argues that the CA correctly applied the NEA ruling when it held that all money
claims must be filed with the COA.
As to alleged injustice that may result for invocation of state immunity from suit, UP reiterates that it consented to
be sued and even participated in the proceedings below. Lockheed cannot now claim that invocation of state
immunity, which UP did not invoke in the first place, can result in injustice.
On the fait accompli argument, UP argues that Lockheed cannot wash its hands from liability for the
consummated garnishment and execution of UP’s trust fund in the amount of ₱12,062,398.71. UP cites that
damage was done to UP and the beneficiaries of the fund when said funds, which were earmarked for specific
educational purposes, were misapplied, for instance, to answer for the execution fee of ₱120,123.98 unilaterally
stipulated by the sheriff. Lockheed, being the party which procured the illegal garnishment, should be held
primarily liable. The mere fact that the CA set aside the writ of garnishment confirms the liability of Lockheed to
reimburse and indemnify in accordance with law.
The petition has no merit.
We agree with UP that there was no point for Lockheed in discussing the doctrine of state immunity from suit as
this was never an issue in this case. Clearly, UP consented to be sued when it participated in the proceedings
below. What UP questions is the hasty garnishment of its funds in its PNB account.
This Court finds that the CA correctly applied the NEA case. Like NEA, UP is a juridical personality separate and
distinct from the government and has the capacity to sue and be sued. Thus, also like NEA, it cannot evade
execution, and its funds may be subject to garnishment or levy. However, before execution may be had, a claim
for payment of the judgment award must first be filed with the COA. Under Commonwealth Act No. 327, 22 as
amended by Section 26 of P.D. No. 1445,23 it is the COA which has primary jurisdiction to examine, audit and
settle "all debts and claims of any sort" due from or owing the Government or any of its subdivisions, agencies
and instrumentalities, including government-owned or controlled corporations and their subsidiaries. With respect
to money claims arising from the implementation of Republic Act No. 6758, 24 their allowance or disallowance is
for COA to decide, subject only to the remedy of appeal by petition for certiorari to this Court. 25 1âwphi1
We cannot subscribe to Lockheed’s argument that NEA is not similarly situated with UP because the COA’s
jurisdiction over the latter is only on post-audit basis. A reading of the pertinent Commonwealth Act provision
clearly shows that it does not make any distinction as to which of the government subdivisions, agencies and
instrumentalities, including government-owned or controlled corporations and their subsidiaries whose debts
should be filed before the COA.
As to the fait accompli argument of Lockheed, contrary to its claim that there is nothing that can be done since the
funds of UP had already been garnished, since the garnishment was erroneously carried out and did not go
through the proper procedure (the filing of a claim with the COA), UP is entitled to reimbursement of the
garnished funds plus interest of 6% per annum, to be computed from the time of judicial demand to be reckoned
from the time UP filed a petition for certiorari before the CA which occurred right after the withdrawal of the
garnished funds from PNB.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. Petitioner Lockheed Detective
and Watchman Agency, Inc. is ordered to REIMBURSE respondent University of the Philippines the amount of
₱12,062,398.71 plus interest of 6% per annum, to be computed from September 12, 2005 up to the finality of this
Decision, and 12% interest on the entire amount from date of finality of this Decision until fully paid.
No pronouncement as to costs.
SO ORDERED.
MARTIN S. VILLARAMA, JR.
Associate Justice
WE CONCUR:
TERESITA J. LEONARDO-DE CASTRO
Acting Chairperson

DIOSDADO M. PERALTA* LUCAS P. BERSAMIN

Associate Justice Associate Justice
BIENVENIDO L. REYES**
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.
RENATO C. CORONA
Chief Justice

Footnotes
* Designated additional member per Raffle dated April 2, 2012.
** Designated additional member per Raffle dated April 16, 2012.
1 
Rollo, pp. 47-50. Penned by Associate Justice Arcangelita M. Romilla-Lontok with Associate Justices Mariano
C. Del Castillo (now a member of this Court) and Romeo F. Barza concurring.
2 
Id. at 52-53.
3 
CA rollo, pp. 23-24.
4 
Id. at 22-38.
5 
Id. at 37.
6 
Id. at 44, citing NLRC records, p. 868.
7 
Id. at 39-56.
8 
Id. at 55.
9 
Id. at 57-64.
10 
Id. at 65.
11 
Id. at 74.
12 
Id. at 66-73.
13 
Id. at 79-81.
14 
Id. at 10.
15 
Id.
16 
Id. at 122-134.
17 
G.R. Nos. 147062-64, December 14, 2001, 372 SCRA 462, 481.
18 
G.R. No. 154200, June 24, 2007, 528 SCRA 79, 90-91.
19 
G.R. No. 155650, July 20, 2006, 495 SCRA 591, 618-619.
20 
Rollo, p. 17.
21 
Id. at 24-25.
22 
An Act Fixing the Time Within Which the Auditor General Shall Render His Decisions and Prescribing the
Manner of Appeal Therefrom.
23 
Ordaining And Instituting A Government Auditing Code Of The Philippines. Section 26 thereof provides:
Section 26. General jurisdiction. – The authority and powers of the Commission shall extend to and comprehend
all matters relating to auditing procedures, systems and controls, the keeping of the general accounts of the
Government, the preservation of vouchers pertaining thereto for a period of ten years, the examination and
inspection of the books, records, and papers relating to those accounts; and the audit and settlement of the
accounts of all persons respecting funds or property received or held by them in an accountable capacity, as well
as the examination, audit, and settlement of all debts and claims of any sort due from or owing to the Government
or any of its subdivisions, agencies and instrumentalities. The said jurisdiction extends to all government-owned
or controlled corporations, including their subsidiaries, and other self-governing boards, commissions, or agencies
of the Government, and as herein prescribed, including non-governmental entities subsidized by the government,
those funded by donations through the government, those required to pay levies or government share, and those
for which the government has put up a counterpart fund or those partly funded by the government.
24 
Compensation and Position Classification Act of 1989.
25 
National Electrification Administration v. Morales, supra note 18, at 89-91.

ii. Entering into a contract

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
 
G.R. No. 104269 November 11, 1993
DEPARTMENT OF AGRICULTURE, petitioner, 
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, et al., respondents.
Roy Lago Salcedo for private respondents.

VITUG, J.:
For consideration are the incidents that flow from the familiar doctrine of non-suability of the state.
In this petition for certiorari, the Department of Agriculture seeks to nullify the Resolution, 1 dated 27 November
1991, of the National Labor Relations Commission (NLRC), Fifth Division, Cagayan de Oro City, denying the
petition for injunction, prohibition and mandamus that prays to enjoin permanently the NLRC's Regional
Arbitration Branch X and Cagayan de Oro City Sheriff from enforcing the decision 2 of 31 May 1991 of the
Executive Labor Arbiter and from attaching and executing on petitioner's property.
The Department of Agriculture (herein petitioner) and Sultan Security Agency entered into a contract 3 on 01 April
1989 for security services to be provided by the latter to the said governmental entity. Save for the increase in the
monthly rate of the guards, the same terms and conditions were also made to apply to another contract, dated 01
May 1990, between the same parties. Pursuant to their arrangements, guards were deployed by Sultan Agency in
the various premises of the petitioner.
On 13 September 1990, several guards of the Sultan Security Agency filed a complaint for underpayment of
wages, non-payment of 13th month pay, uniform allowances, night shift differential pay, holiday pay and
overtime pay, as well as for damages,4 before the Regional Arbitration Branch X of Cagayan de Oro City,
docketed as NLRC Case No. 10-09-00455-90 (or 10-10-00519-90, its original docket number), against the
Department of Agriculture and Sultan Security Agency.
The Executive Labor Arbiter rendered a decision on 31 May finding herein petitioner
and jointly and severally liable with Sultan Security Agency for the payment of money claims, aggregating
P266,483.91, of the complainant security guards. The petitioner and Sultan Security Agency did not appeal the
decision of the Labor Arbiter. Thus, the decision became final and executory.
On 18 July 1991, the Labor Arbiter issued a writ of execution. 5 commanding the City Sheriff to enforce and
execute the judgment against the property of the two respondents. Forthwith, or on 19 July 1991, the City Sheriff
levied on execution the motor vehicles of the petitioner, i.e. one (1) unit Toyota Hi-Ace, one (1) unit Toyota Mini
Cruiser, and one (1) unit Toyota Crown.6 These units were put under the custody of Zacharias Roa, the property
custodian of the petitioner, pending their sale at public auction or the final settlement of the case, whichever
would come first.
A petition for injunction, prohibition and mandamus, with prayer for preliminary writ of injunction was filed by
the petitioner with the National Labor Relations Commission (NLRC), Cagayan de Oro, alleging, inter alia, that
the writ issued was effected without the Labor Arbiter having duly acquired jurisdiction over the petitioner, and
that, therefore, the decision of the Labor Arbiter was null and void and all actions pursuant thereto should be
deemed equally invalid and of no legal, effect. The petitioner also pointed out that the attachment or seizure of its
property would hamper and jeopardize petitioner's governmental functions to the prejudice of the public good.
On 27 November 1991, the NLRC promulgated its assailed resolution; viz:
WHEREFORE, premises considered, the following orders are issued:
1. The enforcement and execution of the judgments against petitioner in NLRC RABX Cases Nos. 10-10-00455-
90; 10-10-0481-90 and 10-10-00519-90 are temporarily suspended for a period of two (2) months, more or less,
but not extending beyond the last quarter of calendar year 1991 to enable petitioner to source and raise funds to
satisfy the judgment awards against it;
2. Meantime, petitioner is ordered and directed to source for funds within the period above-stated and to deposit
the sums of money equivalent to the aggregate amount. it has been adjudged to pay jointly and severally with
respondent Sultan Security Agency with the Regional Arbitration Branch X, Cagayan de Oro City within the
same period for proper dispositions;
3. In order to ensure compliance with this order, petitioner is likewise directed to put up and post
sufficient surety and supersedeas bond equivalent to at least to fifty (50%) percent of the total monetary award
issued by a reputable bonding company duly accredited by the Supreme Court or by the Regional Trial Court of
Misamis Oriental to answer for the satisfaction of the money claims in case of failure or default on the part of
petitioner to satisfy the money claims;
4. The City Sheriff is ordered to immediately release the properties of petitioner levied on execution within ten
(10) days from notice of the posting of sufficient surety or supersedeas bond as specified above. In the
meanwhile, petitioner is assessed to pay the costs and/or expenses incurred by the City Sheriff, if any, in
connection with the execution of the judgments in the above-stated cases upon presentation of the appropriate
claims or vouchers and receipts by the city Sheriff, subject to the conditions specified in the NLRC Sheriff,
subject to the conditions specified in the NLRC Manual of Instructions for Sheriffs;
5. The right of any of the judgment debtors to claim reimbursement against each other for any payments made in
connection with the satisfaction of the judgments herein is hereby recognized pursuant to the ruling in the Eagle
Security case, (supra). In case of dispute between the judgment debtors, the Executive Labor Arbiter of the
Branch of origin may upon proper petition by any of the parties conduct arbitration proceedings for the purpose
and thereby render his decision after due notice and hearings;
7. Finally, the petition for injunction is Dismissed for lack of basis. The writ of preliminary injunction previously
issued is Lifted and Set Aside and in lieu thereof, a Temporary Stay of Execution is issued for a period of two (2)
months but not extending beyond the last quarter of calendar year 1991, conditioned upon the posting of a surety
or supersedeas bond by petitioner within ten (10) days from notice pursuant to paragraph 3 of this disposition. The
motion to admit the complaint in intervention is Denied for lack of merit while the motion to dismiss the petition
filed by Duty Sheriff is Noted
SO ORDERED.
In this petition for certiorari, the petitioner charges the NLRC with grave abuse of discretion for refusing to quash
the writ of execution. The petitioner faults the NLRC for assuming jurisdiction over a money claim against the
Department, which, it claims, falls under the exclusive jurisdiction of the Commission on Audit. More
importantly, the petitioner asserts, the NLRC has disregarded the cardinal rule on the non-suability of the State.
The private respondents, on the other hand, argue that the petitioner has impliedly waived its immunity from suit
by concluding a service contract with Sultan Security Agency.
The basic postulate enshrined in the constitution that "(t)he State may not be sued without its consent," 7 reflects
nothing less than a recognition of the sovereign character of the State and an express affirmation of the unwritten
rule effectively insulating it from the jurisdiction of courts. 8 It is based on the very essence of sovereignty. As has
been aptly observed, by Justice Holmes, a sovereign is exempt from suit, not because of any formal conception or
obsolete theory, but on the logical and practical ground that there can be no legal right as against the authority that
makes the law on which the right depends. 9 True, the doctrine, not too infrequently, is derisively called "the royal
prerogative of dishonesty" because it grants the state the prerogative to defeat any legitimate claim against it by
simply invoking its non-suability. 10 We have had occasion, to explain in its defense, however, that a continued
adherence to the doctrine of 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. 12 The States' consent may be
given expressly or impliedly. Express consent may be made through a general law 13 or a special law. 14 In this
jurisdiction, the general law waiving the immunity of the state from suit is found in Act No. 3083, where the
Philippine government "consents and submits to be sued upon any money claims involving liability arising from
contract, express or implied, which could serve as a basis of civil action between private parties." 15 Implied
consent, on the other hand, is conceded when the State itself commences litigation, thus opening itself to a
counterclaim16 or when it enters into a contract. 17 In this situation, the government is deemed to have descended
to the level of the other contracting party and to have divested itself of its sovereign immunity. This rule, relied
upon by the NLRC and the private respondents, is not, however, without qualification. Not all contracts entered
into by the government operate as a waiver of its non-suability; distinction must still be made between one which
is executed in the exercise of its sovereign function and another which is done in its proprietary capacity. 18
In the Unites States of America vs. Ruiz, 19 where the questioned transaction dealt with improvements on the
wharves in the naval installation at Subic Bay, we held:
The traditional rule of immunity exempts a State from being sued in the courts of another State without its consent
or waiver. This rule is a necessary consequence of the principles of independence and equality of States.
However, the rules of International Law are not petrified; they are constantly developing and evolving. And
because the activities of states have multiplied, it has been necessary to distinguish them — between sovereign
and governmental acts ( jure imperii) and private, commercial and proprietary act ( jure gestionisis). The result is
that State immunity now extends only to acts jure imperii. The restrictive application of State immunity is now
the rule in the United States, the United Kingdom and other states in Western Europe.
xxx xxx xxx
The restrictive application of State immunity is proper only when the proceedings arise out of commercial
transactions of the foreign sovereign, its commercial activities or economic affairs. Stated differently, a state may
be said to have descended to the level of an individual and can this be deemed to have actually given its consent
to be sued only when it enters into business contracts. It does not apply where the contracts relates to the exercise
of its sovereign functions. In this case the projects are an integral part of the naval base which is devoted to the
defense of both the United States and the Philippines, indisputably a function of the government of the highest
order; they are not utilized for not dedicated to commercial or business purposes.
In the instant case, the Department of Agriculture has not pretended to have assumed a capacity apart from its
being a governmental entity when it entered into the questioned contract; nor that it could have, in fact, performed
any act proprietary in character.
But, be that as it may, the claims of private respondents, i.e. for underpayment of wages, holiday pay, overtime
pay and similar other items, arising from the Contract for Service, clearly constitute money claims. Act No. 3083,
aforecited, gives the consent of the State to be "sued upon any moneyed claim involving liability arising from
contract, express or implied, . . . Pursuant, however, to Commonwealth Act ("C.A.") No. 327, as amended by
Presidential Decree ("P.D.") No. 1145, the money claim first be brought to the Commission on Audit. Thus,
in Carabao, Inc., vs. Agricultural Productivity Commission, 20 we ruled:
(C)laimants have to prosecute their money claims against the Government under Commonwealth Act 327, stating
that Act 3083 stands now merely as the general law waiving the State's immunity from suit, subject to the general
limitation expressed in Section 7 thereof that "no execution shall issue upon any judgment rendered by any Court
against the Government of the (Philippines), and that the conditions provided in Commonwealth Act 327 for
filing money claims against the Government must be strictly observed."
We fail to see any substantial conflict or inconsistency between the provisions of C.A. No. 327 and the Labor
Code with respect to money claims against the State. The Labor code, in relation to Act No. 3083, provides the
legal basis for the State liability but the prosecution, enforcement or satisfaction thereof must still be pursued in
accordance with the rules and procedures laid down in C.A. No. 327, as amended by P.D. 1445.
When the state gives its consent to be sued, it does thereby necessarily consent to unrestrained execution against
it. tersely put, when the State waives its immunity, all it does, in effect, is to give the other party an opportunity to
prove, if it can, that the State has a liability. 21 In Republic vs. Villasor 22 this Court, in nullifying the issuance of
an alias writ of execution directed against the funds of the Armed Forces of the Philippines to satisfy a final and
executory judgment, has explained, thus —
The universal rule that where the State gives its consent to be sued by private parties either by general or special
law, it may limit the claimant's action "only up to the completion of proceedings anterior to the stage of
execution" and that the power of the Courts ends when the judgment is rendered, since government funds and
properties may not be seized under writs or execution or garnishment to satisfy such judgments, is based on
obvious considerations of public policy. Disbursements of public funds must be covered by the correspondent
appropriation as required by law. The functions and public services rendered by the State cannot be allowed to be
paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects, as appropriated
by law.23
WHEREFORE, the petition is GRANTED. The resolution, dated 27 November 1991, is hereby REVERSED and
SET ASIDE. The writ of execution directed against the property of the Department of Agriculture is nullified, and
the public respondents are hereby enjoined permanently from doing, issuing and implementing any and all writs
of execution issued pursuant to the decision rendered by the Labor Arbiter against said petitioner.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ., concur.
 
# Footnotes
1 Annex "A", Rollo, 23-52.
2 Annex "C", Ibid., 57-68.
3 Rollo, 59.
4 Ibid., 57.
5 Annex "D", Petition, Rollo, 69.
6 Annex "E", Ibid., ibid., p. 70.
7 Article XVI, Section 3 of the Constitution.
8 Isagani Cruz, Philippine Political Law, 1991, p. 29.
9 Kawananakoa vs. Polyblank, 205 U.S. 353, 51 L. ed. 834.
10 U.S.A. vs. Guinto, 182 SCRA 644,654 (1990).
11 Providence Washington Ins. Co. vs. Republic, 29 SCRA 598
12 Ibid.
13 i.e. Commonwealth Act No. 327, as amended by Presidential Decree No. 1445 (Sections 49-50), which
requires that all money claims against the government must first be filed with the Commission on Audit which
must act upon it within sixty-days. Rejection of the claim will authorize the claimant to elevate the matter to the
Supreme Court on certiorari and, in effect, sue the State thereby.
14 Merritt vs. Government of the Philippines, 34 Phil. 311.
15 See United States vs. Guinto, 182 SCRA 644, 654, supra.
16 Froilan vs. Pan Oriental Shipping, G.R. No. 6060, 30 September 1950.
17 Santos vs. Santos, 92 Phil. 281; Lyons vs. United States of America, 104 SCRA 593.
18 United States of America vs. Guinto, 182 SCRA 644; United States of America vs. Ruiz, 136 SCRA 487
(195).
19 136 SCRA 487.
20 35 SCRA 224, 229 (1970).
21 Cruz, supra., 44-45.
22 54 SCRA 84 (1973).
23 See also Commissioner of Public Highways vs. San Diego, 31 SCRA 616 (1970) citing others the following
decisions: Merritt vs. Government, 34 Phil. 311 (1916); Visayan Refining Co. vs. Camus, 40 Phil. 550 (1919);
Director of Commerce vs. Concepcion, 43 Phil. 384 (1922); Belleng vs. Republic, 9 SCRA 6 (1963); Republic vs.
Palacio, 23 SCRA 899 (1968).

iii. Incorporate Government Agencies

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-32667 January 31, 1978
PHILIPPINE NATIONAL BANK, petitioner, 
vs.
COURT OF INDUSTRIAL RELATIONS, GABRIEL V. MANANSALA and GILBERT P. LORENZO, in
his official capacity as authorized Deputy sheriff, respondents.
Conrado E. Medina for petitioner.
Gabriel V. Manansala in his own behalf.
Jose K. Manguiat, Jr. for respondent Court.

FERNANDO, J.:
The issue raised in this certiorari proceeding is whether or not an order of the now defunct respondent Court of
Industrial Relations denying for lack of merit petitioner's motion to quash a notice of garnishment can be
stigmatized as a grave abuse of discretion. What was sought to be garnished was the money of the People's
Homesite and Housing Corporation deposited at petitioner's branch in Quezon City, to satisfy a decision of
respondent Court which had become final and executory. 1 A writ of execution in favor of private respondent
Gabriel V. Manansala had previously been issued. 2 He was the counsel of the prevailing party, the United
Homesite Employees and Laborers Association, in the aforementioned case. The validity of the order assailed is
challenged on two grounds: (1) that the appointment of respondent Gilbert P. Lorenzo as authorized deputy sheriff
to serve the writ of execution was contrary to law and (2) that the funds subject of the garnishment "may be public
in character." 3 In thus denying the motion to quash, petitioner contended that there was on the part of respondent
Court a failure to abide by authoritative doctrines amounting to a grave abuse of discretion. After a careful
consideration of the matter, it is the conclusion of this Tribunal that while the authorization of respondent Lorenzo
to act as special deputy sheriff to serve the notice of garnishment may be open to objection, the more basic ground
that could have been relied upon — not even categorically raised, petitioner limiting itself to the assertion that the
funds "could be public" in character, thus giving rise to the applicability of the fundamental concept of non-
suability — is hardly persuasive. The People's Homesite and Housing Corporation had a juridical existence
enabling it sue and be sued. 4 Whatever defect could be attributed therefore to the order denying the motion to
quash could not be characterized as a grave abuse of discretion. Moreover, with the lapse of time during which
private respondent had been unable to execute a judgment in his favor, the equities are on his side. Accordingly,
this petition must be dismissed.
The order of August 26, 1970 of respondent Court denying the motion to quash, subject of this certiorari
proceeding, reads as follows: "The Philippine National Bank moves to quash the notice of garnishment served
upon its branch in Quezon City by the authorized deputy sheriff of this Court. It contends that the service of the
notice by the authorized deputy sheriff of the court contravenes Section 11 of Commonwealth Act No. 105, as
amended which reads:" 'All writs and processes issued by the Court shall be served and executed free of charge
by provincial or city sheriffs, or by any person authorized by this Court, in the same manner as writs and
processes of Courts of First Instance.' Following the law, the Bank argues that it is the Sheriff of Quezon City,
and not the Clerk of this Court who is its Ex-Officio Sheriff, that has the authority to serve the notice of
garnishment, and that the actual service by the latter officer of said notice is therefore not in order. The Court
finds no merit in this argument. Republic Act No. 4201 has, since June 19, 1965, already repealed
Commonwealth Act No. 103, and under this law, it is now the Clerk of this Court that is at the same time the Ex-
Officio Sheriff. As such Ex-Officio Sheriff, the Clerk of this Court has therefore the authority to issue writs of
execution and notices of garnishment in an area encompassing the whole of the country, including Quezon City,
since his area of authority is coterminous with that of the Court itself, which is national in nature. ... At this stage,
the Court notes from the record that the appeal to the Supreme Court by individual employees of PHHC which
questions the award of attorney's fees to Atty. Gabriel V.
Manansala, has already been dismissed and that the same became final and executory on August 9, 1970. There is
no longer any reason, therefore, for withholding action in this case. [Wherefore], the motion to quash filed by the
Philippine National Bank is denied for lack of merit. The said Bank is therefore ordered to comply within five
days from receipt with the 'notice of Garnishment' dated May 6, 1970." 5 There was a motion for reconsideration
filed by petitioner, but in a resolution dated September 22, 1970, it was denied. Hence, this certiorari petition.
As noted at the outset, the petition lacks merit.
1. The plea for setting aside the notice of garnishment was promised on the funds of the People's homesite and
Housing Corporation deposited with petitioner being "public in character." There was not even a categorical
assertion to that effect. It is only the possibility of its being "public in character." The tone was thus irresolute,the
approach difficult The premise that the funds could be spoken of as public in character may be accepted in the
sense that the People's Homesite and Housing Corporation was a government-owned entity It does not follow
though that they were exempt from garnishment. National Shipyard and Steel Corporation v. court of Industrial
Relations  6 is squarely in point. As was explicitly stated in the opinion of the then Justice, later Chief Justice,
Concepcion: "The allegation to the effect that the funds of the NASSCO are public funds of the government, and
that, as such, the same may not be garnished, attached or levied upon, is untenable for, as a government owned
and controlled corporation. the NASSCO has a personality of its own, distinct and separate from that of the
Government. It has pursuant to Section 2 of Executive Order No. 356, dated October 23, 1950 ..., pursuant to
which the NASSCO has been established — 'all the powers of a corporation under the Corporation Law ...'
Accordingly, it may sue and be sued and may be subjected to court processes just like any other corporation
(Section 13, Act No. 1459), as amended." 7 The similarities between the aforesaid case and the present litigation
are patent. Petitioner was similarly a government-owned corporation. The principal respondent was the Court of
Industrial Relations. The prevailing parties were the employees of petitioner. There was likewise a writ of
execution and thereafter notices of garnishment served on several banks. There was an objection to such a move
and the ruling was adverse to the National Shipyard and Steel Corporation. Hence the filing of a petition
for certiorari. To repeat, the ruling was quite categorical Garnishment was the appropriate remedy for the
prevailing party which could proceed against the funds of a corporate entity even if owned or controlled by the
government. In a 1941 decision, Manila Hotel Employees Association v. Manila Hotel Company, 8 this Court,
through Justice Ozaeta, held: "On the other hand, it is well settled that when the government enters into
commercial business, it abandons its sovereign capacity and is to be treated like any other corporation. (Bank of
the United States v. Planters' Bank, 9 Wheat, 904, 6 [Link]. 244). By engaging in a particular business thru the
instrumentality of a corporation, the governmnent divests itself pro hac vice of its sovereign character, so as to
render the corporation subject to the rules of law governing private corporations."
2. It is worth noting that the decision referred to, the Bank of the United States v. Planters' Bank, 10 was
promulgated by the American Supreme Court as early as 1824, the opinion being penned by the great Chief
Justice Marshall. As was pointed out by him: "It is, we think, a sound principle, that when a government becomes
a partner in any trading company, it divests itself, so far as concerns the transactions of that company, of its
sovereign character, and takes that of a private citizen. Instead of communicating to the company its privileges
and its prerogatives, it descends to a level with those with whom it associates itself, and takes the character which
belongs to its associates, and to the business which is to be transacted. Thus, many states of this Union who have
an interest in banks, are not suable even in their own courts; yet they never exempt the corporation from being
sued. The state of Georgia, by giving to the bank the capacity to sue and be sued, voluntarily strips itself of its
sovereign character, so far as respects the transactions of the bank, and waives an the privileges of that character.
As a member of a corporation, a government never exercises its sovereignty. It acts merely as a corporator, and
exercises no other power in the management of the affairs of the corporation, that are expressly given by the
incorporating act." 11 The National Shipyard and Steel Corporation case, therefore, merely reaffirmed one of the
oldest and soundest doctrines in this branch of the law.
3. The invocation of Republic v. Palacio, 12 as well as Commissioner of Public Highways v. San Diego, 13 did not
help the cause of petitioner at all The decisions are not applicable. If properly understood they can easily be
distinguished. As is clear in the opinion of Justice J.B.L. Reyes in Republic v. Palacio, the Irrigation Service Unit
which was sued was an office and agency under the Department of Public Works and Communications. The
Republic of the Philippines, through the then Solicitor General, moved for the dismissal of such complaint,
alleging that it "has no juridical personality to sue and be sued." 14 Such a motion to dismiss was denied. The case
was tried and plaintiff Ildefonso Ortiz, included as private respondent in the Supreme Court proceeding, obtained
a favorable money judgment. It became final and executory. Thereafter, it appeared that the Solicitor General was
served with a copy of the writ of execution issued by the lower court followed by an order of
garnishment 15 Again, there was an urgent motion to lift such order, but it was denied. A certiorari and
prohibition proceeding was then filed with the Court of Appeals. The legality of the issuance of such execution
and punishment was upheld, and the matter was elevated to this Tribunal The Republic was sustained. The
infirmity of the decision reached by the Court of Appeals, according to the opinion, could be traced to the belief
that there was a waiver of "governmental immunity and, by implication, consent to the suit." 16 There was no such
waiver. Even if there were, it was stressed by justice J.B.L. Reyes: "It is apparent that this decision of the Court of
Appeals suffers from the erroneous assumption that because the State has waived its immunity, its property and
funds become liable to seizure under the legal process. This emphatically is not the law. (Merritt v. Insular
Government, 34 Phil 311)." 17 To levy the execution of such funds, according to him, would thus "amount to a
disbursement without any proper appropriation as required by law " 18 In Commissioner of Public Highways v.
San Diego, the opening paragraph of Justice Teehankee was quite specific as to why there could be neither
execution nor garnishment of the money of petitioner Bureau of Public Highways: "In this special civil action for
certiorari and prohibition, the Court declares null and void the two questioned orders of respondent Court levying
upon funds of petitioner Bureau of Public Highways on deposit with the Philippine National Bank, by virtue of
the fundamental precept that government funds are not subject to execution or garnishment." 19The funds
appertained to a governmental office, not to a government-owned or controlled corporation with a separate
juridical personality. In neither case therefore was there an entity with the capacity to sue and be sued, the funds
of which could thereafter be held liable to execution and garnishment in the event of an adverse judgment.
4. Both the Palacio and the Commissioner of Public Highways decisions, insofar as they reiterate the doctrine that
one of the coronaries of the fundamental concept of non-suability is that governmental funds are immune from
garnishment, refer to Merritt v. Insular Government, a 1916 decision 20 Since then such a principle has been
followed with undeviating rigidity, the latest case in point being Republic v. Villasor, 21 promulgated in 1973. It is
an entirely different matter if, according to Justice Sanchez in Ramos v. Court of Industrial Relations, 22 the office
or entity is "possessed of a separate and distinct corporate existence." 23 Then it can sue and be sued. Thereafter,
its funds may be levied upon or garnished. That is what happened in this case.
5. With the crucial issue thus resolved in favor of the correctness of the order assailed, the other objection raised,
namely that respondent Court acted erroneously in having a special sheriff serve to the writ of execution, hardly
needs any extensive decision. It is true that in the aforesaid Commissioner of Public Highways opinion, this Court
held that there is no authorization in law for the appointment of special sheriffs for the service of writs of
execution. 24 In the order sought to be nullified, the then Judge Joaquin M. Salvador of respondent Court pointed
out that under a later Act, 25 the Court of Industrial Relations Act was amended with the proviso that its Clerk of
Court was the ex-oficio sheriff. The point raised in the petition that it should be the sheriff of Quezon City that
ought to have served the writ of execution would thus clearly appear to be inconclusive. There is to be sure no
thought of deviating from the principle announced in the Commissioner of Public Highways case. That is as it
ought to be. Even if, however, there is sufficient justification for the infirmity attributed to respondent Court by
virtue of such a ruling, still considering all the circumstances of this case, it clearly does not call for the
nullification of the order in question. What cannot be denied is that the writ of execution was issued as far back as
May 5, 1970 by the then Clerk of Court of respondent Tribunal as the authorized sheriff. It would be, to say the
least, unfair and unequitable if, on the assumption that such Clerk of Court lacked such competence, a new writ of
execution had to be issued by the proper official At any rate, what is important is that the judgment be executed.
That is to achieve justice according to law. It would be to carry technicality, therefore, to an absurd length if just
because of such a mistake, assuming that it is, but undoubtedly one committed in good faith, further delay would
get be imposed on private respondent by characterizing the order sought to be nullified amounting to a grave
abuse of discretion.
WHEREFORE, the petition for certiorari is dismissed. No costs.
Barredo, Antonio and Concepcion, Jr., JJ., concur.
Aquino, J., concurs in the result.
Santos J., is on leave.
 
Footnotes
1 Case No. 2810-V of the Court of Industrial Relations.
2 Petition, Annex A.
3 Ibid, 13.
4 Under Presidential Decree No 757 (1975), the People's Homesite and Housing Corporation was dissolved and
the National Housing Authority created.
5 Petition, Annex F.
6 118 Phil. 782 (1963).
7 Ibid, 788.
8 73 Phil. 374.
9 Ibid, 388-389.
10 9 Wheat, 904, 6 [Link] 244.
11 Ibid, 907-908.
12 L-20322, May 29, 1968, 23 SCRA 899.
13 L-30098, February 18,1970, 31 SCRA 616.
14 23 SCRA 899, 901. The other defendant was the Handog Irrigation, Inc.
15 Ibid, 901.
16 Ibid, 905.
17 Ibid.
18 Ibid, 906.
19 31 SCRA 616, 618.
20 34 SCRA 311.
21 L-30671, November 28, 1973, 54 SCRA 83.
22 L-22753, December 18, 1967, 21 SCRA 1283.
23 Ibid, 1287.
24 31 SCRA 616, 631.
25 Republic Act No. 4201(1965).
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 85279 July 28, 1989
SOCIAL SECURITY SYSTEM EMPLOYEES ASSOCIATION (SSSEA), DIONISION T. BAYLON,
RAMON MODESTO, JUANITO MADURA, REUBEN ZAMORA, VIRGILIO DE ALDAY, SERGIO
ARANETA, PLACIDO AGUSTIN, VIRGILIO MAGPAYO, petitioner, 
vs.
THE COURT OF APPEALS, SOCIAL SECURITY SYSTEM (SSS), HON. CEZAR C. PERALEJO, RTC,
BRANCH 98, QUEZON CITY, respondents.
Vicente T. Ocampo & Associates for petitioners.
CORTES, J:
Primarily, the issue raised in this petition is whether or not the Regional Trial Court can enjoin the Social Security
System Employees Association (SSSEA) from striking and order the striking employees to return to work.
Collaterally, it is whether or not employees of the Social Security System (SSS) have the right to strike.
The antecedents are as follows:
On June 11, 1987, the SSS filed with the Regional Trial Court of Quezon City a complaint for damages with a
prayer for a writ of preliminary injunction against petitioners, alleging that on June 9, 1987, the officers and
members of SSSEA staged an illegal strike and baricaded the entrances to the SSS Building, preventing non-
striking employees from reporting for work and SSS members from transacting business with the SSS; that the
strike was reported to the Public Sector Labor - Management Council, which ordered the strikers to return to
work; that the strikers refused to return to work; and that the SSS suffered damages as a result of the strike. The
complaint prayed that a writ of preliminary injunction be issued to enjoin the strike and that the strikers be
ordered to return to work; that the defendants (petitioners herein) be ordered to pay damages; and that the strike
be declared illegal.
It appears that the SSSEA went on strike after the SSS failed to act on the union's demands, which included:
implementation of the provisions of the old SSS-SSSEA collective bargaining agreement (CBA) on check-off of
union dues; payment of accrued overtime pay, night differential pay and holiday pay; conversion of temporary or
contractual employees with six (6) months or more of service into regular and permanent employees and their
entitlement to the same salaries, allowances and benefits given to other regular employees of the SSS; and
payment of the children's allowance of P30.00, and after the SSS deducted certain amounts from the salaries of
the employees and allegedly committed acts of discrimination and unfair labor practices [Rollo, pp. 21-241].
The court a quo, on June 11, 1987, issued a temporary restraining order pending resolution of the application for a
writ of preliminary injunction [Rollo, p. 71.] In the meantime, petitioners filed a motion to dismiss alleging the
trial court's lack of jurisdiction over the subject matter [Rollo, pp. 72-82.] To this motion, the SSS filed an
opposition, reiterating its prayer for the issuance of a writ of injunction [Rollo, pp. 209-222]. On July 22,1987, in
a four-page order, the court a quo denied the motion to dismiss and converted the restraining order into an
injunction upon posting of a bond, after finding that the strike was illegal [Rollo, pp. 83- 86]. As petitioners'
motion for the reconsideration of the aforesaid order was also denied on August 14, 1988 [Rollo, p. 94],
petitioners filed a petition for certiorari and prohibition with preliminary injunction before this Court. Their
petition was docketed as G.R. No. 79577. In a resolution dated October 21, 1987, the Court, through the Third
Division, resolved to refer the case to the Court of Appeals. Petitioners filed a motion for reconsideration thereof,
but during its pendency the Court of Appeals on March 9,1988 promulgated its decision on the referred case
[Rollo, pp. 130-137]. Petitioners moved to recall the Court of Appeals' decision. In the meantime, the Court on
June 29,1988 denied the motion for reconsideration in G.R. No. 97577 for being moot and academic. Petitioners'
motion to recall the decision of the Court of Appeals was also denied in view of this Court's denial of the motion
for reconsideration [Rollo, pp. 141- 143]. Hence, the instant petition to review the decision of the Court of
Appeals [Rollo, pp. 12-37].
Upon motion of the SSS on February 6,1989, the Court issued a temporary restraining order enjoining the
petitioners from staging another strike or from pursuing the notice of strike they filed with the Department of
Labor and Employment on January 25, 1989 and to maintain the status quo [Rollo, pp. 151-152].
The Court, taking the comment as answer, and noting the reply and supplemental reply filed by petitioners,
considered the issues joined and the case submitted for decision.
The position of the petitioners is that the Regional Trial Court had no jurisdiction to hear the case initiated by the
SSS and to issue the restraining order and the writ of preliminary injunction, as jurisdiction lay with the
Department of Labor and Employment or the National Labor Relations Commission, since the case involves a
labor dispute.
On the other hand, the SSS advances the contrary view, on the ground that the employees of the SSS are covered
by civil service laws and rules and regulations, not the Labor Code, therefore they do not have the right to strike.
Since neither the DOLE nor the NLRC has jurisdiction over the dispute, the Regional Trial Court may enjoin the
employees from striking.
In dismissing the petition for certiorari and prohibition with preliminary injunction filed by petitioners, the Court
of Appeals held that since the employees of the SSS, are government employees, they are not allowed to strike,
and may be enjoined by the Regional Trial Court, which had jurisdiction over the SSS' complaint for damages,
from continuing with their strike.
Thus, the sequential questions to be resolved by the Court in deciding whether or not the Court of Appeals erred
in finding that the Regional Trial Court did not act without or in excess of jurisdiction when it took cognizance of
the case and enjoined the strike are as follows:
1. Do the employees of the SSS have the right to strike?
2. Does the Regional Trial Court have jurisdiction to hear the case initiated by the SSS and to enjoin the strikers
from continuing with the strike and to order them to return to work?
These shall be discussed and resolved seriatim
I
The 1987 Constitution, in the Article on Social Justice and Human Rights, provides that the State "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" [Art. XIII, Sec. 31].
By itself, this provision would seem to recognize the right of all workers and employees, including those in the
public sector, to strike. But the Constitution itself fails to expressly confirm this impression, for in the Sub-Article
on the Civil Service Commission, it provides, after defining the scope of the civil service as "all branches,
subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled
corporations with original charters," that "[t]he right to self-organization shall not be denied to government
employees" [Art. IX(B), Sec. 2(l) and (50)]. Parenthetically, the Bill of Rights also provides that "[tlhe right of the
people, including those employed in the public and private sectors, to form unions, associations, or societies for
purposes not contrary to law shall not abridged" [Art. III, Sec. 8]. Thus, while there is no question that the
Constitution recognizes the right of government employees to organize, it is silent as to whether such recognition
also includes the right to strike.
Resort to the intent of the framers of the organic law becomes helpful in understanding the meaning of these
provisions. A reading of the proceedings of the Constitutional Commission that drafted the 1987 Constitution
would show that in recognizing the right of government employees to organize, the commissioners intended to
limit the right to the formation of unions or associations only, without including the right to strike.
Thus, Commissioner Eulogio R. Lerum, one of the sponsors of the provision that "[tlhe right to self-organization
shall not be denied to government employees" [Art. IX(B), Sec. 2(5)], in answer to the apprehensions expressed
by Commissioner Ambrosio B. Padilla, Vice-President of the Commission, explained:
MR. LERUM. I think what I will try to say will not take that long. When we proposed this amendment providing
for self-organization of government employees, it does not mean that because they have the right to organize, they
also have the right to strike. That is a different matter. We are only talking about organizing, uniting as a union.
With regard to the right to strike, everyone will remember that in the Bill of Rights, there is a provision that the
right to form associations or societies whose purpose is not contrary to law shall not be abridged. Now then, if the
purpose of the state is to prohibit the strikes coming from employees exercising government functions, that could
be done because the moment that is prohibited, then the union which will go on strike will be an illegal union.
And that provision is carried in Republic Act 875. In Republic Act 875, workers, including those from the
government-owned and controlled, are allowed to organize but they are prohibited from striking. So, the fear of
our honorable Vice- President is unfounded. It does not mean that because we approve this resolution, it carries
with it the right to strike. That is a different matter. As a matter of fact, that subject is now being discussed in the
Committee on Social Justice because we are trying to find a solution to this problem. We know that this problem
exist; that the moment we allow anybody in the government to strike, then what will happen if the members of the
Armed Forces will go on strike? What will happen to those people trying to protect us? So that is a matter of
discussion in the Committee on Social Justice. But, I repeat, the right to form an organization does not carry with
it the right to strike. [Record of the Constitutional Commission, vol. 1, p. 569].
It will be recalled that the Industrial Peace Act (R.A. No. 875), which was repealed by the Labor Code (P.D. 442)
in 1974, expressly banned strikes by employees in the Government, including instrumentalities exercising
governmental functions, but excluding entities entrusted with proprietary functions:
.Sec. 11. Prohibition Against Strikes in the Government. — The terms and conditions of employment in the
Government, including any political subdivision or instrumentality thereof, are governed by law and it is declared
to be the policy of this Act that employees therein shall not strike for the purpose of securing changes or
modification in their terms and conditions of employment. Such employees may belong to any labor organization
which does not impose the obligation to strike or to join in strike: Provided, however, That this section shall apply
only to employees employed in governmental functions and not those employed in proprietary functions of the
Government including but not limited to governmental corporations.
No similar provision is found in the Labor Code, although at one time it recognized the right of employees of
government corporations established under the Corporation Code to organize and bargain collectively and those
in the civil service to "form organizations for purposes not contrary to law" [Art. 244, before its amendment by
B.P. Blg. 70 in 1980], in the same breath it provided that "[t]he terms and conditions of employment of all
government employees, including employees of government owned and controlled corporations, shall be
governed by the Civil Service Law, rules and regulations" [now Art. 276]. Understandably, the Labor Code is
silent as to whether or not government employees may strike, for such are excluded from its coverage [Ibid]. But
then the Civil Service Decree [P.D. No. 807], is equally silent on the matter.
On June 1, 1987, to implement the constitutional guarantee of the right of government employees to organize, the
President issued E.O. No. 180 which provides guidelines for the exercise of the right to organize of government
employees. In Section 14 thereof, it is provided that "[t]he Civil Service law and rules governing concerted
activities and strikes in the government service shall be observed, subject to any legislation that may be enacted
by Congress." The President was apparently referring to Memorandum Circular No. 6, s. 1987 of the Civil
Service Commission under date April 21, 1987 which, "prior to the enactment by Congress of applicable laws
concerning strike by government employees ... enjoins under pain of administrative sanctions, all government
officers and employees from staging strikes, demonstrations, mass leaves, walk-outs and other forms of mass
action which will result in temporary stoppage or disruption of public service." The air was thus cleared of the
confusion. At present, in the absence of any legislation allowing government employees to strike, recognizing
their right to do so, or regulating the exercise of the right, they are prohibited from striking, by express provision
of Memorandum Circular No. 6 and as implied in E.O. No. 180. [At this juncture, it must be stated that the
validity of Memorandum Circular No. 6 is not at issue].
But are employees of the SSS covered by the prohibition against strikes?
The Court is of the considered view that they are. Considering that under the 1987 Constitution "[t]he civil service
embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including government-
owned or controlled corporations with original charters" [Art. IX(B), Sec. .2(l) see also Sec. 1 of E.O. No. 180
where the employees in the civil service are denominated as "government employees"] and that the SSS is one
such government-controlled corporation with an original charter, having been created under R.A. No. 1161, its
employees are part of the civil service [NASECO v. NLRC, G.R. Nos. 69870 & 70295, November 24,1988] and
are covered by the Civil Service Commission's memorandum prohibiting strikes. This being the case, the strike
staged by the employees of the SSS was illegal.
The statement of the Court in Alliance of Government Workers v. Minister of Labor and Employment [G.R. No.
60403, August 3, 1:983, 124 SCRA 11 is relevant as it furnishes the rationale for distinguishing between workers
in the private sector and government employees with regard to the right to strike:
The general rule in the past and up to the present is that 'the terms and conditions of employment in the
Government, including any political subdivision or instrumentality thereof are governed by law" (Section 11, the
Industrial Peace Act, R.A. No. 875, as amended and Article 277, the Labor Code, P.D. No. 442, as
amended). Since the terms and conditions of government employment are fixed by law, government workers
cannot use the same weapons employed by workers in the private sector to secure concessions from their
employers. The principle behind labor unionism in private industry is that industrial peace cannot be secured
through compulsion by law. Relations between private employers and their employees rest on an essentially
voluntary basis. Subject to the minimum requirements of wage laws and other labor and welfare legislation, the
terms and conditions of employment in the unionized private sector are settled through the process of collective
bargaining. In government employment, however, it is the legislature and, where properly given delegated power,
the administrative heads of government which fix the terms and conditions of employment. And this is effected
through statutes or administrative circulars, rules, and regulations, not through collective bargaining agreements.
[At p. 13; Emphasis supplied].
Apropos is the observation of the Acting Commissioner of Civil Service, in his position paper submitted to the
1971 Constitutional Convention, and quoted with approval by the Court in Alliance, to wit:
It is the stand, therefore, of this Commission that by reason of the nature of the public employer and the peculiar
character of the public service, it must necessarily regard the right to strike given to unions in private industry as
not applying to public employees and civil service employees. It has been stated that the Government, in contrast
to the private employer, protects the interest of all people in the public service, and that accordingly, such
conflicting interests as are present in private labor relations could not exist in the relations between government
and those whom they employ. [At pp. 16-17; also quoted in National Housing Corporation v. Juco, G.R. No.
64313, January 17,1985,134 SCRA 172,178-179].
E.O. No. 180, which provides guidelines for the exercise of the right to organize of government employees, while
clinging to the same philosophy, has, however, relaxed the rule to allow negotiation where the terms and
conditions of employment involved are not among those fixed by law. Thus:
.SECTION 13. Terms and conditions of employment or improvements thereof, except those that are fixed by law,
may be the subject of negotiations between duly recognized employees' organizations and appropriate government
authorities.
The same executive order has also provided for the general mechanism for the settlement of labor disputes in the
public sector to wit:
.SECTION 16. The Civil Service and labor laws and procedures, whenever applicable, shall be followed in the
resolution of complaints, grievances and cases involving government employees. In case any dispute remains
unresolved after exhausting all the available remedies under existing laws and procedures, the parties may jointly
refer the dispute to the [Public Sector Labor- Management] Council for appropriate action.
Government employees may, therefore, through their unions or associations, either petition the Congress for the
betterment of the terms and conditions of employment which are within the ambit of legislation or negotiate with
the appropriate government agencies for the improvement of those which are not fixed by law. If there be any
unresolved grievances, the dispute may be referred to the Public Sector Labor - Management Council for
appropriate action. But employees in the civil service may not resort to strikes, walk-outs and other temporary
work stoppages, like workers in the private sector, to pressure the Govemment to accede to their demands. As
now provided under Sec. 4, Rule III of the Rules and Regulations to Govern the Exercise of the Right of
Government- Employees to Self- Organization, which took effect after the instant dispute arose, "[t]he terms and
conditions of employment in the government, including any political subdivision or instrumentality thereof and
government- owned and controlled corporations with original charters are governed by law and employees therein
shall not strike for the purpose of securing changes thereof."
II
The strike staged by the employees of the SSS belonging to petitioner union being prohibited by law, an
injunction may be issued to restrain it.
It is futile for the petitioners to assert that the subject labor dispute falls within the exclusive jurisdiction of the
NLRC and, hence, the Regional Trial Court had no jurisdiction to issue a writ of injunction enjoining the
continuance of the strike. The Labor Code itself provides that terms and conditions of employment of government
employees shall be governed by the Civil Service Law, rules and regulations [Art. 276]. More importantly, E.O.
No. 180 vests the Public Sector Labor - Management Council with jurisdiction over unresolved labor disputes
involving government employees [Sec. 16]. Clearly, the NLRC has no jurisdiction over the dispute.
This being the case, the Regional Trial Court was not precluded, in the exercise of its general jurisdiction under
B.P. Blg. 129, as amended, from assuming jurisdiction over the SSS's complaint for damages and issuing the
injunctive writ prayed for therein. Unlike the NLRC, the Public Sector Labor - Management Council has not been
granted by law authority to issue writs of injunction in labor disputes within its jurisdiction. Thus, since it is the
Council, and not the NLRC, that has jurisdiction over the instant labor dispute, resort to the general courts of law
for the issuance of a writ of injunction to enjoin the strike is appropriate.
Neither could the court a quo be accused of imprudence or overzealousness, for in fact it had proceeded with
caution. Thus, after issuing a writ of injunction enjoining the continuance of the strike to prevent any further
disruption of public service, the respondent judge, in the same order, admonished the parties to refer the
unresolved controversies emanating from their employer- employee relationship to the Public Sector Labor -
Management Council for appropriate action [Rollo, p. 86].
III
In their "Petition/Application for Preliminary and Mandatory Injunction," and reiterated in their reply and
supplemental reply, petitioners allege that the SSS unlawfully withheld bonuses and benefits due the individual
petitioners and they pray that the Court issue a writ of preliminary prohibitive and mandatory injunction to
restrain the SSS and its agents from withholding payment thereof and to compel the SSS to pay them. In their
supplemental reply, petitioners annexed an order of the Civil Service Commission, dated May 5, 1989, which
ruled that the officers of the SSSEA who are not preventively suspended and who are reporting for work pending
the resolution of the administrative cases against them are entitled to their salaries, year-end bonuses and other
fringe benefits and affirmed the previous order of the Merit Systems Promotion Board.
The matter being extraneous to the issues elevated to this Court, it is Our view that petitioners' remedy is not to
petition this Court to issue an injunction, but to cause the execution of the aforesaid order, if it has already
become final.
WHEREFORE, no reversible error having been committed by the Court of Appeals, the instant petition for
review is hereby DENIED and the decision of the appellate court dated March 9, 1988 in CA-G.R. SP No. 13192
is AFFIRMED. Petitioners' "Petition/Application for Preliminary and Mandatory Injunction" dated December
13,1988 is DENIED.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

iv. Implied Consent

G.R. No. 129406             March 6, 2006
REPUBLIC OF THE PHILIPPINES represented by the PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG), Petitioner, 
vs.
SANDIGANBAYAN (SECOND DIVISION) and ROBERTO S. BENEDICTO, Respondents.
DECISION
GARCIA, J.:
Before the Court is this petition for certiorari under Rule 65 of the Rules of Court to nullify and set aside the
March 28, 19951 and March 13, 19972 Resolutions of the Sandiganbayan, Second Division, in Civil Case No.
0034, insofar as said resolutions ordered the Presidential Commission on Good Government (PCGG) to pay
private respondent Roberto S. Benedicto or his corporations the value of 227 shares of stock of the Negros
Occidental Golf and Country Club, Inc. (NOGCCI) at P150,000.00 per share, registered in the name of said
private respondent or his corporations.
The facts:
Civil Case No. 0034 entitled Republic of the Philippines, plaintiff, v. Roberto S. Benedicto, et al., defendants, is a
complaint for reconveyance, reversion, accounting, reconstitution and damages. The case is one of several suits
involving ill-gotten or unexplained wealth that petitioner Republic, through the PCGG, filed with the
Sandiganbayan against private respondent Roberto S. Benedicto and others pursuant to Executive Order (EO) No.
14,3 series of 1986.
Pursuant to its mandate under EO No. 1,4 series of 1986, the PCGG issued writs placing under sequestration all
business enterprises, entities and other properties, real and personal, owned or registered in the name of private
respondent Benedicto, or of corporations in which he appeared to have controlling or majority interest. Among
the properties thus sequestered and taken over by PCGG fiscal agents were the 227 shares in NOGCCI owned by
private respondent Benedicto and registered in his name or under the names of corporations he owned or
controlled.
Following the sequestration process, PCGG representatives sat as members of the Board of Directors of
NOGCCI, which passed, sometime in October 1986, a resolution effecting a corporate policy change. The change
consisted of assessing a monthly membership due of P150.00 for each NOGCCI share. Prior to this resolution, an
investor purchasing more than one NOGCCI share was exempt from paying monthly membership due for the
second and subsequent shares that he/she owned.
Subsequently, on March 29, 1987, the NOGCCI Board passed another resolution, this time increasing the monthly
membership due from P150.00 to P250.00 for each share.
As sequestrator of the 227 shares of stock in question, PCGG did not pay the corresponding monthly membership
due thereon totaling P2,959,471.00. On account thereof, the 227 sequestered shares were declared delinquent to
be disposed of in an auction sale.
Apprised of the above development and evidently to prevent the projected auction sale of the same shares, PCGG
filed a complaint for injunction with the Regional Trial Court (RTC) of Bacolod City, thereat docketed as Civil
Case No. 5348. The complaint, however, was dismissed, paving the way for the auction sale for the delinquent
227 shares of stock. On August 5, 1989, an auction sale was conducted.
On November 3, 1990, petitioner Republic and private respondent Benedicto entered into a Compromise
Agreement in Civil Case No. 0034. The agreement contained a general release clause 5 whereunder petitioner
Republic agreed and bound itself to lift the sequestration on the 227 NOGCCI shares, among other Benedicto’s
properties, petitioner Republic acknowledging that it was within private respondent Benedicto’s capacity to
acquire the same shares out of his income from business and the exercise of his profession. 6 Implied in this
undertaking is the recognition by petitioner Republic that the subject shares of stock could not have been ill-
gotten.
In a decision dated October 2, 1992, the Sandiganbayan approved the Compromise Agreement and accordingly
rendered judgment in accordance with its terms.
In the process of implementing the Compromise Agreement, either of the parties would, from time to time, move
for a ruling by the Sandiganbayan on the proper manner of implementing or interpreting a specific provision
therein.
On February 22, 1994, Benedicto filed in Civil Case No. 0034 a "Motion for Release from Sequestration and
Return of Sequestered Shares/Dividends" praying, inter alia, that his NOGCCI shares of stock be specifically
released from sequestration and returned, delivered or paid to him as part of the parties’ Compromise Agreement
in that case. In a Resolution7 promulgated on December 6, 1994, the Sandiganbayan granted Benedicto’s
aforementioned motion but placed the subject shares under the custody of its Clerk of Court, thus:
WHEREFORE, in the light of the foregoing, the said "Motion for Release From Sequestration and Return of
Sequestered Shares/Dividends" is hereby GRANTED and it is directed that said shares/dividends be
delivered/placed under the custody of the Clerk of Court, Sandiganbayan, Manila subject to this Court’s
disposition.
On March 28, 1995, the Sandiganbayan came out with the herein first assailed Resolution, 8 which clarified its
aforementioned December 6, 1994 Resolution and directed the immediate implementation thereof by requiring
PCGG, among other things:
(b) To deliver to the Clerk of Court the 227 sequestered shares of [NOGCCI] registered in the name of nominees
of ROBERTO S. BENEDICTO free from all liens and encumbrances, or in default thereof, to pay their value at
P150,000.00 per share which can be deducted from [the Republic’s] cash share in the Compromise Agreement.
[Words in bracket added] (Emphasis Supplied).
Owing to PCGG’s failure to comply with the above directive, Benedicto filed in Civil Case No. 0034 a Motion for
Compliance dated July 25, 1995, followed by an Ex-Parte Motion for Early Resolution dated February 12, 1996.
Acting thereon, the Sandiganbayan promulgated yet another Resolution 9 on February 23, 1996, dispositively
reading:
WHEREFORE, finding merit in the instant motion for early resolution and considering that, indeed, the PCGG
has not shown any justifiable ground as to why it has not complied with its obligation as set forth in the Order of
December 6, 1994 up to this date and which Order was issued pursuant to the Compromise Agreement and has
already become final and executory, accordingly, the Presidential Commission on Good Government is hereby
given a final extension of fifteen (15) days from receipt hereof within which to comply with the Order of
December 6, 1994 as stated hereinabove.
On April 1, 1996, PCGG filed a Manifestation with Motion for Reconsideration, 10 praying for the setting aside of
the Resolution of February 23, 1996. On April 11, 1996, private respondent Benedicto filed a Motion to Enforce
Judgment Levy. Resolving these two motions, the Sandiganbayan, in its second assailed Resolution 11 dated March
13, 1997, denied that portion of the PCGG’s Manifestation with Motion for Reconsideration concerning the
subject 227 NOGCCI shares and granted Benedicto’s Motion to Enforce Judgment Levy.
Hence, the Republic’s present recourse on the sole issue of whether or not the public respondent Sandiganbayan,
Second Division, gravely abused its discretion in holding that the PCGG is at fault for not paying the membership
dues on the 227 sequestered NOGCCI shares of stock, a failing which eventually led to the foreclosure sale
thereof.
The petition lacks merit.
To begin with, PCGG itself does not dispute its being considered as a receiver insofar as the sequestered 227
NOGCCI shares of stock are concerned.12 PCGG also acknowledges that as such receiver, one of its functions is
to pay outstanding debts pertaining to the sequestered entity or property, 13 in this case the 227 NOGCCI shares in
question. It contends, however, that membership dues owing to a golf club cannot be considered as an outstanding
debt for which PCGG, as receiver, must pay. It also claims to have exercised due diligence to prevent the loss
through delinquency sale of the subject NOGCCI shares, specifically inviting attention to the injunctive suit, i.e.,
Civil Case No. 5348, it filed before the RTC of Bacolod City to enjoin the foreclosure sale of the shares.
The filing of the injunction complaint adverted to, without more, cannot plausibly tilt the balance in favor of
PCGG. To the mind of the Court, such filing is a case of acting too little and too late. It cannot be over-
emphasized that it behooved the PCGG’s fiscal agents to preserve, like a responsible father of the family, the
value of the shares of stock under their administration. But far from acting as such father, what the fiscal agents
did under the premises was to allow the element of delinquency to set in before acting by embarking on a tedious
process of going to court after the auction sale had been announced and scheduled.
The PCGG’s posture that to the owner of the sequestered shares rests the burden of paying the membership dues
is untenable. For one, it lost sight of the reality that such dues are basically obligations attached to the shares,
which, in the final analysis, shall be made liable, thru delinquency sale in case of default in payment of the dues.
For another, the PCGG as sequestrator-receiver of such shares is, as stressed earlier, duty bound to preserve the
value of such shares. Needless to state, adopting timely measures to obviate the loss of those shares forms part of
such duty and due diligence.
The Sandiganbayan, to be sure, cannot plausibly be faulted for finding the PCGG liable for the loss of the 227
NOGCCI shares. There can be no quibbling, as indeed the graft court so declared in its assailed and related
resolutions respecting the NOGCCI shares of stock, that PCGG’s fiscal agents, while sitting in the NOGCCI
Board of Directors agreed to the amendment of the rule pertaining to membership dues. Hence, it is not amiss to
state, as did the Sandiganbayan, that the PCGG-designated fiscal agents, no less, had a direct hand in the loss of
the sequestered shares through delinquency and their eventual sale through public auction. While perhaps anti-
climactic to so mention it at this stage, the unfortunate loss of the shares ought not to have come to pass had those
fiscal agents prudently not agreed to the passage of the NOGCCI board resolutions charging membership dues on
shares without playing representatives.
Given the circumstances leading to the auction sale of the subject NOGCCI shares, PCGG’s lament about public
respondent Sandiganbayan having erred or, worse still, having gravely abused its discretion in its determination as
to who is at fault for the loss of the shares in question can hardly be given cogency.
For sure, even if the Sandiganbayan were wrong in its findings, which does not seem to be in this case, it is a
well-settled rule of jurisprudence that certiorari will issue only to correct errors of jurisdiction, not errors of
judgment. Corollarily, errors of procedure or mistakes in the court’s findings and conclusions are beyond the
corrective hand of certiorari.14 The extraordinary writ of certiorari may be availed only upon a showing, in the
minimum, that the respondent tribunal or officer exercising judicial or quasi-judicial functions has acted without
or in excess of its or his jurisdiction, or with grave abuse of discretion. 15
The term "grave abuse of discretion" connotes capricious and whimsical exercise of judgment as is equivalent to
excess, or a lack of jurisdiction.16 The abuse must be so patent and gross as to amount to an evasion of a positive
duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law as where the
power is exercised in an arbitrary and despotic manner by reason of passion or hostility. 17 Sadly, this is
completely absent in the present case. For, at bottom, the assailed resolutions of the Sandiganbayan did no more
than to direct PCGG to comply with its part of the bargain under the compromise agreement it freely entered into
with private respondent Benedicto. Simply put, the assailed resolutions of the Sandiganbayan have firm basis in
fact and in law.
Lest it be overlooked, the issue of liability for the shares in question had, as both public and private respondents
asserted, long become final and executory. Petitioner’s narration of facts in its present petition is even misleading
as it conveniently fails to make reference to two (2) resolutions issued by the Sandiganbayan. We refer to that
court’s resolutions of December 6, 199418 and February 23, 199619 as well as several intervening pleadings which
served as basis for the decisions reached therein. As it were, the present petition questions only and focuses on the
March 28, 199520 and March 13, 199721 resolutions, which merely reiterated and clarified the graft court’s
underlying resolution of December 6, 1994. And to place matters in the proper perspective, PCGG’s failure to
comply with the December 6, 1994 resolution prompted the issuance of the clarificatory and/or reiteratory
resolutions aforementioned.
In a last-ditch attempt to escape liability, petitioner Republic, through the PCGG, invokes state immunity from
suit.22As argued, the order for it to pay the value of the delinquent shares would fix monetary liability on a
government agency, thus necessitating the appropriation of public funds to satisfy the judgment claim. 23 But, as
private respondent Benedicto correctly countered, the PCGG fails to take stock of one of the exceptions to the
state immunity principle, i.e., when the government itself is the suitor, as in Civil Case No. 0034. Where, as here,
the State itself is no less the plaintiff in the main case, immunity from suit cannot be effectively invoked. 24 For, as
jurisprudence teaches, when the State, through its duly authorized officers, takes the initiative in a suit against a
private party, it thereby descends to the level of a private individual and thus opens itself to whatever
counterclaims or defenses the latter may have against it. 25 Petitioner Republic’s act of filing its complaint in Civil
Case No. 0034 constitutes a waiver of its immunity from suit. Being itself the plaintiff in that case, petitioner
Republic cannot set up its immunity against private respondent Benedicto’s prayers in the same case.
In fact, by entering into a Compromise Agreement with private respondent Benedicto, petitioner Republic thereby
stripped itself of its immunity from suit and placed itself in the same level of its adversary. When the State enters
into contract, through its officers or agents, in furtherance of a legitimate aim and purpose and pursuant to
constitutional legislative authority, whereby mutual or reciprocal benefits accrue and rights and obligations arise
therefrom, the State may be sued even without its express consent, precisely because by entering into a contract
the sovereign descends to the level of the citizen. Its consent to be sued is implied from the very act of entering
into such contract,26 breach of which on its part gives the corresponding right to the other party to the agreement.
Finally, it is apropos to stress that the Compromise Agreement in Civil Case No. 0034 envisaged the immediate
recovery of alleged ill-gotten wealth without further litigation by the government, and buying peace on the part of
the aging Benedicto.27 Sadly, that stated objective has come to naught as not only had the litigation continued to
ensue, but, worse, private respondent Benedicto passed away on May 15, 2000, 28 with the trial of Civil Case No.
0034 still in swing, so much so that the late Benedicto had to be substituted by the administratrix of his estate. 29
WHEREFORE, the instant petition is hereby DISMISSED.
SO ORDERED.
CANCIO C. GARCIA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Associate Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Asscociate Justice
ADOLFO S. AZCUNA
Associate Justice
ATTESTATION
I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
REYNATO S .PUNO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman's Attestation, it is hereby
certified that the conclusions in the above decision were reached in consultation before the case was assigned to
the writer of the opinion of the Court.
ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes
1
 Penned by Associate Justice Romeo M. Escareal, with Associate Justices Minita Chico-Nazario (now a member
of this Court) and Roberto M. Lagman, concurring; Rollo, pp. 14-27.
2
 Rollo, pp. 28-43.
3
 Issued by then Pres. Corazon C. Aquino investing the Sandiganbayan exclusive and original jurisdiction over
cases involving the ill-gotten wealth of former President Ferdinand E. Marcos, members of his immediate family,
close relatives, subordinates, close and/or business associates, dummies, agents and nominees.
4
 Creating the PCGG to assist the President in the recovery of vast government resources allegedly amassed by
then former President Marcos, his immediate family, relatives and close associates and defining its powers.
5
 Par. II (a).
6
 Petition, Rollo, p. 6.
7
 Rollo, pp. 127-132, Annex 6 of Comment.
8
 Rollo, pp. 14-27, Annex "A" of the Petition.
9
 Rollo, pp. 138-139, Annex 9 of Comment.
10
 Rollo, pp. 44-46, Annex "C" of the Petition.
11
 Rollo, pp. 28-43, Annex "B" of the Petition.
12
 Petition, Rollo, p. 7.
13
 Id. at pp. 7-8, Petition, citing Bataan Shipyard & Engineering Co. v. PCGG, 150 SCRA 181 (1987).
14
 Lee v. People, 393 SCRA 397 (2002).
15
 Camacho v. Coresis, Jr., 387 SCRA 628 (2002).
16
 Litton Mills, Inc. v. Galleon Trader, Inc., 163 SCRA 489 (1988).
17
 Duero v. Court of Appeals, 373 SCRA 11 (2002).
18
 See Note #7, supra.
19
 See Note #9, supra.
20
 See Note # 1, supra.
21
 See Note #2, supra.
22
 Reply, Rollo, p. 160; and Memorandum, Rollo, pp. 260-261.
23
 Id., citing Garcia v. Chief of Staff, 16 SCRA 120 (1966).
24
 Rejoinder, Rollo, pp. 169-170.
25
 Froilan v. Pan Oriental Shipping Co., 95 Phil. 905, 912 (1954).
26
 Santos v. Santos, 92 Phil. 281, 284 (1952).
27
 March 28, 1995 Resolution of the Sandiganbayan; Rollo, p. 20.
28
 Notice of death, Rollo, pp. 210-212.
29
 Rollo, p. 228.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
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 Teodorocase 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.
LUCAS P. BERSAMIN
Associate Justice
WE CONCUR:
ARTURO D. BRION**
Associate Justice
Acting Chairperson

ROBERTO A. ABAD*** MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice
MARIA LOURDES P. A. SERENO
Associate Justice
ATTESTATION
I attest that the conclusions in the above Resolution had been reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.
ARTURO D. BRION
Associate Justice
Acting Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that
the conclusions in the above Resolution had been reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
RENATO C. CORONA
Chief Justice

Footnotes
* David Ramos died on October 14, 2001, before the assailed decision was promulgated. He was substituted by
his children Cherry Ramos, Joseph David Ramos and Elsie Grace R. Dizon pursuant to a resolution of the CA
promulgated on April 23, 2003 (see rollo, p. 136).
** Acting Chairperson in lieu of Justice Conchita Carpio Morales who is on leave per Special Order No. 925
dated January 24, 2011.
*** Additional member per Special Order No. 926 dated January 24, 2011.
1
 Rollo, pp. 25-35; penned by Associate Justice Conrado M. Vasquez (later Presiding Justice, now retired), and
concurred in by Associate Justice Mercedes Gozo-Dadole (retired) and Associate Justice Rosmari D. Carandang,
2
 Id., pp. 80-87; penned by Judge Antonio C. Reyes.
3
 Id.
4
 Id.
5
 Id., pp. 25-35.
6
 205 US 349, 353 (1907).
7
 Bold emphasis supplied.
8
 Veterans Manpower and Protective Services, Inc. v. Court of Appeals, G.R. No. 91359, Sept. 25, 1992, 214
SCRA 286, 294; Republic v. Purisima, No. L-36084, Aug. 31, 1977, 78 SCRA 470, 473.
9
 L-26386, Sept. 30, 1969, 29 SCRA 598, 601-602.
10
 Bernas, The 1987 Constitution of the Republic of the Philippines: A Commentary, 2003 Edition, p. 1269.
11
 Metropolitan Transportation Service v. Paredes, 79 Phil. 819 (1948).
12
 E.g., Angat River Irrigation System, et. al. v. Angat River Worker’s Union, et. al., 102 Phil. 789 (1957).
13
 E.g., National Airports Corporation v. Teodoro, Sr. and Phil. Airlines Inc., 91 Phil. 203 (1952).
14
 Rollo, pp. 25-35.
15
 Id., pp. 29-32.
16
 Republic v. Sandiganbayan, G.R. No. 90478, Nov. 2, 1991, 204 SCRA 212, 231; Ministerio v. Court of First
Instance of Cebu, No. L-31635, Aug. 31, 1971, 40 SCRA 464; Santiago v. Republic, No. L-48214, Dec. 19, 1978,
87 SCRA 294.
17
 G.R. Nos. 71998-99, June 2, 1993, 223 SCRA 11.
18
 Section 23. Corporate Powers. – The Authority, acting through the Board, shall have the following
corporate powers:
(a) To succeed in its corporate name, to sue and be sued in such corporate name xxx.
xxx
(c) To enter into, make, perform and carry out contracts of every class, kind and description,which are
necessary or incidental to the realization of its purposes, with any person, domestic or foreign private firm, or
corporation, local or national government office, agency and with international institutions or foreign government;
xxx
(e) To construct, acquire, own, hold, operate, maintain, administer and lease personal and real properties,
including buildings, machinery, equipment, other infrastructure, agricultural land, and its improvements, property
rights, and interest therein x x x
xxx
(i) To settle, under such terms and conditions most advantageous to it, any claim by or against it;
xxx
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 180388               January 18, 2011
GREGORIO R. VIGILAR, SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND
HIGHWAYS (DPWH), DPWH UNDERSECRETARIES TEODORO E. ENCARNACION AND
EDMUNDO E. ENCARNACION AND EDMUNDO V. MIR, DPWH ASSISTANT SECRETARY JOEL L.
ALTEA, DPWH REGIONAL DIRECTOR VICENTE B. LOPEZ, DPWH DISTRICT ENGINEER
ANGELITO M. TWAÑO, FELIX A. DESIERTO OF THE TECHNICAL WORKING GROUP
VALIDATION AND AUDITING TEAM, AND LEONARDO ALVARO, ROMEO N. SUPAN,
VICTORINO C. SANTOS OF THE DPWH PAMPANGA 2ND ENGINEERING DISTRICT, Petitioners, 
vs.
ARNULFO D. AQUINO, Respondent.
DECISION
SERENO, J.:
Before the Court is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court, assailing the
Decision2of the Court of Appeals in C.A.-G.R. CV No. 82268, dated 25 September 2006.
The antecedent facts are as follows:
On 19 June 1992, petitioner Angelito M. Twaño, then Officer-in-Charge (OIC)-District Engineer of the
Department of Public Works and Highways (DPWH) 2nd Engineering District of Pampanga sent an Invitation to
Bid to respondent Arnulfo D. Aquino, the owner of A.D. Aquino Construction and Supplies. The bidding was for
the construction of a dike by bulldozing a part of the Porac River at Barangay Ascomo-Pulungmasle, Guagua,
Pampanga.
Subsequently, on 7 July 1992, the project was awarded to respondent, and a "Contract of Agreement" was
thereafter executed between him and concerned petitioners for the amount of PhP1,873,790.69, to cover the
project cost.
By 9 July 1992, the project was duly completed by respondent, who was then issued a Certificate of Project
Completion dated 16 July 1992. The certificate was signed by Romeo M. Yumul, the Project Engineer; as well as
petitioner Romeo N. Supan, Chief of the Construction Section, and by petitioner Twaño.
Respondent Aquino, however, claimed that PhP1,262,696.20 was still due him, but petitioners refused to pay the
amount. He thus filed a Complaint3 for the collection of sum of money with damages before the Regional Trial
Court of Guagua, Pampanga. The complaint was docketed as Civil Case No. 3137.
Petitioners, for their part, set up the defense4 that the Complaint was a suit against the state; that respondent failed
to exhaust administrative remedies; and that the "Contract of Agreement" covering the project was void for
violating Presidential Decree No. 1445, absent the proper appropriation and the Certificate of Availability of
Funds.5
On 28 November 2003, the lower court ruled in favor of respondent, to wit:
WHEREFORE, premises considered, defendant Department of Public Works and Highways is hereby ordered to
pay the plaintiff Arnulfo D. Aquino the following:
1. PhP1,873,790.69, Philippine Currency, representing actual amount for the completion of the project done by
the plaintiff;
2. PhP50,000.00 as attorney’s fee and
3. Cost of this suit.
SO ORDERED. 6
It is to be noted that respondent was only asking for PhP1,262,696.20; the award in paragraph 1 above, however,
conforms to the entire contract amount.
On appeal, the Court of Appeals reversed and set aside the Decision of the lower court and disposed as follows:
WHEREFORE, premises considered, the appeal is GRANTED. The "CONTRACT AGREEMENT" entered into
between the plaintiff-appellee’s construction company, which he represented, and the government, through the
Department of Public Works and Highway (DPWH) – Pampanga 2nd Engineering District, is declared null and
void ab initio.
The assailed decision of the court a quo is hereby REVERSED AND SET ASIDE.
In line with the pronouncement in Department of Health vs. C.V. Canchela & Associates, Architects, 7 the
Commission on Audit (COA) is hereby ordered to determine and ascertain with dispatch, on a quantum meruit
basis, the total obligation due to the plaintiff-appellee for his undertaking in implementing the subject contract of
public works, and to allow payment thereof, subject to COA Rules and Regulations, upon the completion of the
said determination.
No pronouncement as to costs.
SO ORDERED.8
Dissatisfied with the Decision of the Court of Appeals, petitioners are now before this Court, seeking a reversal of
the appellate court’s Decision and a dismissal of the Complaint in Civil Case No. G-3137. The Petition raises the
following issues:
1. WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT THE DOCTRINE OF
NON-SUABILITY OF THE STATE HAS NO APPLICATION IN THIS CASE.
2. WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT DISMISSING THE COMPLAINT FOR
FAILURE OF RESPONDENT TO EXHAUST ALL ADMINISTRATIVE REMEDIES.
3. WHETHER OR NOT THE COURT OF APPEALS ERRED IN ORDERING THE COA TO ALLOW
PAYMENT TO RESPONDENT ON A QUANTUM MERUIT BASIS DESPITE THE LATTER’S FAILURE
TO COMPLY WITH THE REQUIREMENTS OF PRESIDENTIAL DECREE NO. 1445.
After a judicious review of the case, the Court finds the Petition to be without merit.
Firstly, petitioners claim that the Complaint filed by respondent before the Regional Trial Court was done without
exhausting administrative remedies. Petitioners aver that respondent should have first filed a claim before the
Commission on Audit (COA) before going to the courts. However, it has been established that the doctrine of
exhaustion of administrative remedies and the doctrine of primary jurisdiction are not ironclad rules. In Republic
of the Philippines v. Lacap,9 this Court enumerated the numerous exceptions to these rules, namely: (a) where
there is estoppel on the part of the party invoking the doctrine; (b) where the challenged administrative act is
patently illegal, amounting to lack of jurisdiction; (c) where there is unreasonable delay or official inaction that
will irretrievably prejudice the complainant; (d) where the amount involved is relatively so small as to make the
rule impractical and oppressive; (e) where the question involved is purely legal and will ultimately have to be
decided by the courts of justice; (f) where judicial intervention is urgent; (g) where the application of the doctrine
may cause great and irreparable damage; (h) where the controverted acts violate due process; (i) where the issue
of non-exhaustion of administrative remedies has been rendered moot; (j) where there is no other plain, speedy
and adequate remedy; (k) where strong public interest is involved; and (l) in quo warranto proceedings. In the
present case, conditions (c) and (e) are present.
The government project contracted out to respondent was completed almost two decades ago. To delay the
proceedings by remanding the case to the relevant government office or agency will definitely prejudice
respondent. More importantly, the issues in the present case involve the validity and the enforceability of the
"Contract of Agreement" entered into by the parties. These are questions purely of law and clearly beyond the
expertise of the Commission on Audit or the DPWH. In Lacap, this Court said:
... It does not involve an examination of the probative value of the evidence presented by the parties. There is a
question of law when the doubt or difference arises as to what the law is on a certain state of facts, and not as to
the truth or the falsehood of alleged facts. Said question at best could be resolved only tentatively by the
administrative authorities. The final decision on the matter rests not with them but with the courts of justice.
Exhaustion of administrative remedies does not apply, because nothing of an administrative nature is to be or can
be done. The issue does not require technical knowledge and experience but one that would involve the
interpretation and application of law. (Emphasis supplied.)
Secondly, in ordering the payment of the obligation due respondent on a quantum meruit basis, the Court of
Appeals correctly relied on Royal Trust Corporation v. COA, 10 Eslao v. COA,11 Melchor v. COA,12 EPG
Construction Company v. Vigilar,13 and Department of Health v. C.V. Canchela & Associates, Architects. 14 All
these cases involved government projects undertaken in violation of the relevant laws, rules and regulations
covering public bidding, budget appropriations, and release of funds for the projects. Consistently in these cases,
this Court has held that the contracts were void for failing to meet the requirements mandated by law; public
interest and equity, however, dictate that the contractor should be compensated for services rendered and work
done.
Specifically, C.V. Canchela & Associates is similar to the case at bar, in that the contracts involved in both cases
failed to comply with the relevant provisions of Presidential Decree No. 1445 and the Revised Administrative
Code of 1987. Nevertheless, "(t)he illegality of the subject Agreements proceeds, it bears emphasis, from an
express declaration or prohibition by law, not from any intrinsic illegality. As such, the Agreements are not
illegal per se, and the party claiming thereunder may recover what had been paid or delivered." 15
The government project involved in this case, the construction of a dike, was completed way back on 9 July 1992.
For almost two decades, the public and the government benefitted from the work done by respondent. Thus, the
Court of Appeals was correct in applying Eslao to the present case. In Eslao, this Court stated:
...the Court finds that the contractor should be duly compensated for services rendered, which were for the benefit
of the general public. To deny the payment to the contractor of the two buildings which are almost fully
completed and presently occupied by the university would be to allow the government to unjustly enrich itself at
the expense of another. Justice and equity demand compensation on the basis of quantum meruit. (Emphasis
supplied.)
Neither can petitioners escape the obligation to compensate respondent for services rendered and work done by
invoking the state’s immunity from suit. This Court has long established in Ministerio v. CFI of Cebu, 16 and
recently reiterated in Heirs of Pidacan v. ATO, 17 that the doctrine of governmental immunity from suit cannot
serve as an instrument for perpetrating an injustice to a citizen. As this Court enunciated in EPG
Construction:181avvphi1
To our mind, it would be the apex of injustice and highly inequitable to defeat respondent’s right to be duly
compensated for actual work performed and services rendered, where both the government and the public
have for years received and accepted benefits from the project and reaped the fruits of respondent’s honest
toil and labor.
x x x           x x x          x x x
Under these circumstances, respondent may not validly invoke the Royal Prerogative of Dishonesty and
conveniently hide under the State's cloak of invincibility against suit, considering that this principle yields to
certain settled exceptions. True enough, the rule, in any case, is not absolute for it does not say that the state
may not be sued under any circumstance.
x x x           x x x          x x x
Although the Amigable and Ministerio cases generously tackled the issue of the State's immunity from suit vis a
vis the payment of just compensation for expropriated property, this Court nonetheless finds the doctrine
enunciated in the aforementioned cases applicable to the instant controversy, considering that the ends of justice
would be subverted if we were to uphold, in this particular instance, the State's immunity from suit.
To be sure, this Court — as the staunch guardian of the citizens' rights and welfare — cannot sanction an
injustice so patent on its face, and allow itself to be an instrument in the perpetration thereof. Justice and
equity sternly demand that the State's cloak of invincibility against suit be shred in this particular instance,
and that petitioners-contractors be duly compensated — on the basis of quantum meruit — for
construction done on the public works housing project. (Emphasis supplied.)
WHEREFORE, in view of the foregoing, the Petition is DENIED for lack of merit. The assailed Decision of the
Court of Appeals in CA-G.R. No. 82268 dated 25 September 2006 is AFFIRMED.
SO ORDERED.
MARIA LOURDES P. A. SERENO
Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice

ANTONIO T. CARPIO CONCHITA CARPIO MORALES

Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR. ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO ARTURO D. BRION

Associate Justice Associate Justice

DIOSDADO M. PERALTA LUCAS P. BERSAMIN

Associate Justice Associate Justice

MARIANO C. DEL CASTILLO ROBERTO A. ABAD

Associate Justice Associate Justice

MARTIN S. VILLARAMA, JR. JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

JOSE CATRAL MENDOZA

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

Footnotes
1
 Rollo at 10-32.
2
 Penned by Associate Justice Amelita G. Tolentino, with Associate Justices Portia Aliño-Hormachuelos and
Arcangelita Romilla-Lontok concurring, rollo at 33-48.
3
 Rollo at 51-55.
4
 Petitioners’ Answer, rollo at 56-59.
5
 Sections 85-87, Ordaining and Instituting a Government Auditing Code of the Philippines (1978).
6
 Rollo at 60-64.
7
G.R. Nos. 151373-74, November 17, 2005, 475 SCRA 218.
8
 Rollo at 47.
9
 G.R. No. 158253, March 2, 2007, 517 SCRA 255.
10
Supreme Court Resolution En Banc, G.R. No. 84202, November 22, 1988, cited in Eslao v. COA, 195 SCRA
730.
11
 G.R. No. 89745, April 8, 1991, 195 SCRA 730.
12
 G.R. No. 95938, August 16, 1991, 200 SCRA 705.
13
 G.R. 131544, March 16, 2001, 354 SCRA 566.
14
 Supra at note 7.
15
 DOH v. C.V. Canchela Associates, Architects, G.R. Nos. 151373-74, November 17, 2005, 475 SCRA 218.
16
 G.R. No. L-31635, August 31, 1971, 40 SCRA 464.
17
 G.R. No. 186192, August 25, 2010.
18
 G.R. No. 131544, March 16, 2001, 354 SCRA 566.

G.R. No. 206484

DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS (DOTC), Petitioner, 
vs.
SPOUSES VICENTE ABECINA and MARIA CLEOFE ABECINA, Respondents.
DECISION
BRION, J.:
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. 93795 1 affirming the decision of the Regional Trial Court (RTC) of Daet,
Camarines Norte, Branch 39, in Civil Case No. 7355.2The RTC ordered the Department of Transportation and
Communications (DOTC) to vacate the respondents' properties and to pay them actual and moral damages.
ANTECEDENTS
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
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
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
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
(₱1,200,000.00). Neither the DOTC nor Digitel complied with the demand.
On September 3, 2003, the respondent spouses filed an accion publiciana complaint 6 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
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
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 Instance11and Amigable v. Cuenca,12it held that government
immunity from suit could not be used as an instrument to perpetuate an injustice on a citizen. 13
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 ₱1,200,000.00 as actual damages, ₱200,000.00 as moral damages,
and ₱200,000.00 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 ₱20,000.00. 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
On April 16, 2013, the DOTC filed the present petition for review on certiorari.
THE PARTIES’ ARGUMENTS
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
Citing the 2007 case of Heirs of Mateo Pidacan v. Air Transportation Office (ATO),22the 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
OUR RULING
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.1âwphi1 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
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
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,33 Amigable v. Cuenca,  34the 2010 case Heirs of Pidacan v. ATO,  35and more recently in Vigilar v.
Aquino36that 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:
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]
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
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
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.
ARTURO D. BRION
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson

(On Leave)  
MARIANO C. DEL CASTILLO*  JOSE CATRAL MENDOZA 
Associate Justice Associate Justice

MARVIC M.V.F. LEONEN 

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to the Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
MARIA LOURDES P.A. SERENO
Chief Justice

Footnotes
*
 On Leave.
1
 Penned by Associate Justice Apolinario D. Bruselas, Jr. and concurred in by Associate Justices Rebecca De
Guia-Salvador and Samuel H. Gaerlan.
2
 Penned by Judge Winston S. Racoma.
3
 Rollo, pp. 47.
4
 Id. at 10.
5
 Id. at 12, 34.
6
 Id. at 61
7
 Id. at 46.
8
 Id. at 47.
9
 Id. at 67.
10
 Id. at 46.
11
 148-B Phil. 474, 480 (1971).
12
 150 Phil. 422, 425 (1972).
13
 Rollo, p. 48.
14
 Id. at 37.
15
 P50,000.00 if filed in Metro Manila.
16
 Rollo, p. 40.
17
 Id. at 41.
18
 Id. at 43.
19
 Id. at 18-20.
20
 Id. at 24.
21
 Id. at 24.
22
 552 Phil. 48 (2007).
23
 Id. at 49.
24
 Rollo, p. 82
25
 Id. at 84.
26
 Art. XVI, Sec. 3, CONSTITUTION.
27
 Republic v. Villasor, 153 Phil. 356, 360 (1973) and United States of America v. Hon. Guinto, 261 Phil. 777,
791(1990) both citing Justice Oliver Wendell Holmes in Kawananakoa v. Polyblank, 205 U.S. 349, 353 (1907).
28
 Art. XV, Sec. 16, 1973 CONSTITUTION.
29
 United States v. Ruiz, 221 Phil. 179, 183 (1985).
30
 Art. II, Sec. 24, CONSTITUTION.
31
 Art. XVI, Sec. 10, CONSTITUTION.
32
 Executive Order No. 292 [ADMINISTRATIVE CODE OF 1987], Title XV, Chap. 1, Sec. 1.
33
 Supra note 11.
34
 Supra note 12.
35
 643 Phil. 657, 665 (2010) citing EPG Construction v. Vigilar, 407 Phil. 53, 64-66 (2001).
36
 654 Phil. 755, 763 (2011).
37
 Art. III, Sec. 1 and 9, CONSTITUTION
38
 Book III, Title I, Chap. 4., Sec. 12, ADMINISTRATIVE CODE OF 1987; Republic Act No. 8974, Sec. 4; Rule
67, Sec. 1, RULES OF COURT.
39
 Supra note 11, at 480-481
40
 Rollo, p. 24.
41
 Id. at 43.
42
 Pleasantville Development Corp. v. Court of Appeals, 323 Phil. 12, 22 (1996); Art. 526, CIVIL CODE.
43
 Art. 527. Good faith is always presumed, and upon him who alleges bad faith on the part of a possessor rests the
burden of proof.

v. Execution
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 164196              June 22, 2007
CONSTANTINO T. GUMARU, petitioner, 
vs.
QUIRINO STATE COLLEGE, respondent.
DECISION
PUNO, C.J.:
Assailed in this petition for review is the Decision1 dated November 25, 2003 of the Court of Appeals in CA-G.R.
SP No. 72603, which reversed and set aside the Order dated June 26, 2002 of the Regional Trial Court (RTC) of
Quezon City, Branch 88, denying the motion to quash the writ of execution issued in Civil Case No. Q-97-32470,
as well as its Resolution dated June 17, 2004, which denied petitioner’s motion for reconsideration.
The facts are as follows:
On June 25, 1985, C.T. Gumaru Construction and Quirino State College, an educational institution organized and
existing under Batas 
Pambansa (B.P.) Blg. 440,2 through its president, Julian A. Alvarez, entered into an Agreement 3 for the
construction of the state college’s building in Diffun, Quirino Province. Construction was done in stages and was
covered by supplemental agreements, because funding depended on the state college’s annual budget allocation
and fund releases from the government.
On October 17, 1997, Constantino T. Gumaru, owner and proprietor of C.T. Gumaru Construction, filed a
complaint for damages4 before the RTC of Quezon City against the state college and Julian A. Alvarez, asking for
(1) ₱368,493.35, the expected profits which he would have realized from the construction of an unfinished portion
of the project which was allegedly awarded by the defendants to another contractor in violation of his preferential
right to finish the project; (2) ₱592,136.51, the escalation costs of construction materials and supplies; (3)
₱50,000.00, the value of plaintiff’s bodega allegedly demolished by the defendants; and (4), ₱200,000.00 for
moral and exemplary damages, attorney’s fees and costs of litigation. 5
On May 8, 1998, Atty. Carlos T. Aggabao, purportedly acting as counsel for the defendants, moved to dismiss the
complaint on the ground of improper venue. The motion was denied. Defendants were directed to file an answer.
When they failed to answer within the prescribed period, they were declared in default and plaintiff was allowed
to present evidence ex parte.
On February 22, 2001, the trial court decided the case in favor of the plaintiff, viz:
WHEREFORE, x x x judgment is rendered in favor of the plaintiff Gumaru and against the defendants College
and Alvarez directing the latter to JOINTLY and SEVERALLY pay the former as follows:
1. The sum ₱368,493.35 for the First Cause of action;
2. The amount of ₱592,136.51 for the Second Cause of action;
3. The amount of ₱50,000.00 for the Third Cause of action;
4. ₱100,000.00 for moral damages and ₱100,000 for attorney’s fees, plus costs.
5. The first three awards are with legal interests reckoned
from the filing of this case until the amounts are paid in
full.6
Defendants failed to appeal from the decision, a copy of which was duly served on Atty. Aggabao on March 6,
2001.7 The decision became final and executory, and plaintiff moved for the issuance of a writ of execution. On
December 5, 2001, a Writ of Execution8 was issued, directing the Ex-Officio Provincial Sheriff of Quirino
Province to seize the personal properties or, if insufficient, the real properties of the defendants to satisfy the
judgment awards. The awards amounted to ₱1,739,725.30, inclusive of interests and sheriff’s fees.
On January 11, 2002, the Office of the Solicitor General (OSG) entered its appearance for the first time as counsel
for the defendants. At the same time, it filed a "Motion to Quash Writ of Execution" on the following grounds: (a)
defendants were not duly represented in court, since the OSG was not notified of the proceedings; and (b) writs of
execution may not be issued against government funds and properties to satisfy court judgments.
Meanwhile, a Sheriff’s Notice of Levy and Auction Sale 9 was issued against two (2) parcels of land in the name
of Quirino State College,10 viz:
WHEREAS, by virtue of a Writ of Execution issued by the Hon. Abednego O. Adre, Presiding Judge of the
Regional Trial Court, x x x Branch 38, Quezon City x x x the undersigned provincial Sheriff of Quirino in order
to satisfy the amount of ONE MILLION SEVEN HUNDRED THIRTY NINE THOUSAND SEVEN HUNDRED
TWENTY FIVE AND 30/100 PESOS (₱1,739,725.30) with interest thereon from the date of execution until fully
paid aside from other incidental expenses incurred in connection with enforcement of this Writ of Execution is
HEREBY LEVIED upon all rights, interest and participation of the defendant over the property described below,
to wit:
LAND
A parcel of land under ARP. No. 00411-15003 in the name of Quirino State College, Diffun, Quirino of which
land is situated at Bonifacio, Diffun, Quirino, Philippines, containing an area of THIRTY THOUSAND (30,000)
SQM. more or less.
LAND
A portion of land under ARP. No. 00415-16002 in the name of Quirino State College, Diffun, Quirino of which
land situated at Bonifacio, Diffun, Quirino, Philippines, containing an area of 11.13110161 HA. more or less.
In an "Urgent Motion" dated March 13, 2002,11 the OSG reiterated its plea for the quashal of the writ of execution
and asked the court to take judicial notice of Supreme Court Administrative Circular No. 10-2000, 12 as well as
Commission on Audit (COA) Resolution No. 2000-36613 dated December 19, 2000, which finally adjudged
plaintiff liable to the state college for ₱4,681,670.00 in overpayments, and liquidated damages for delay in the
construction of the college building.
The trial court denied the motion to quash the writ of execution. 14 Without ruling on the issue of the defendants’
alleged lack of legal representation, the court ruled that the properties of the state college may be seized under the
writ of execution, since it is an incorporated agency of the government given specific powers to sue and be sued.
A separate appropriation to satisfy the judgment awards was not considered necessary, because the state college’s
charter provides that funds for the construction and repair of its buildings, machinery, equipment, and facilities
shall be taken from its annual appropriation.
The OSG filed a petition for certiorari before the Court of Appeals. On November 25, 2003, the Court of Appeals
granted the petition.15 In quashing the writ of execution, the Court of Appeals ruled that although the funds and
properties of government agencies with personalities separate and distinct from the government are not exempt
from execution or garnishment, the rule does not apply where the incorporated government agency concerned is
performing a vital governmental function, like herein state college. In such cases, the money claim should be filed
first with the COA as provided in Presidential Decree No. 1445, otherwise known as the Government Auditing
Code of the Philippines.
Gumaru’s motion for reconsideration was denied. Hence, this petition raising the following issues:
I. Whether or not, upon the facts and circumstances obtaining herein, the consent given by the State to respondent
to sue and be sued is plenary and not limited only to proceedings anterior to the stage of execution;
II. Whether or not the money claim subject of the case below is required to be filed first with the Commission on
Audit (COA);
III. Whether or not the enforcement of the money judgment here involved is subject to rules and procedures under
Sections 49-50 of Presidential Decree No. 1445;
IV. Whether or not, being an incorporated agency of the Government, respondent’s liability is controlled by the
rulings on incorporated or chartered government agencies;
V. Whether or not further appropriation is required for the enforcement of the money judgment against respondent
herein; and
VI. Whether or not respondent’s representation below by counsel of its own choice instead of by the OSG was
proper.
Stated differently, the proper issues to be resolved are: (a) whether respondent state college was properly
represented before the trial court; (b) if in the negative, whether the lack of proper legal representation was
enough to nullify the proceedings; and (c) whether the properties of respondent state college may be seized under
the writ of execution issued by the trial court.
On the issue of legal representation, Section 35, Chapter 12, Title III, Book IV of Executive Order No. 292,
otherwise known as the Administrative Code of 1987, provides:
The Office of the Solicitor General shall represent the Government of the Philippines, its agencies and
instrumentalities and its officials and agents in any litigation, proceeding, investigation or matter requiring the
services of lawyers. When authorized by the President or head of the office concerned, it shall also represent
government owned or controlled corporations. The Office of the Solicitor General shall constitute the law office
of the Government and, as such, shall discharge duties requiring the services of lawyers. x x x x
Under the foregoing, the OSG is mandated to act as the law office of the government, its agencies,
instrumentalities, officials and agents in any litigation or proceeding requiring the services of a lawyer. 16 With
respect to government-owned or controlled corporations (GOCCs), the OSG shall act as counsel only when
authorized by the President or by the head of the office concerned. The principal law office of GOCCs, as
provided in Section 10, Chapter 3, Title III, Book IV, of the Administrative Code of 1987, 17 is the Office of the
Government Corporate Counsel (OGCC).
In the case at bar, respondent state college is classified under the Code as a chartered institution, 18 viz:
(12) Chartered institution refers to any agency organized or operating under a special charter, and vested by law
with functions relating to specific constitutional policies or objectives. This term includes the state universities
and colleges and the monetary authority of the State. (emphasis ours)
as opposed to a GOCC defined in the following segment,19 viz:
(13) A government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the
case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: Provided, That
government-owned or controlled corporations may be further categorized by the Department of the Budget, the
Civil Service Commission, and the Commission on Audit for purposes of the exercise and discharge of their
respective powers, functions and responsibilities with respect to such corporations.
Therefore, the proper statutory counsel of respondent state college is the OSG. Legal representation by Atty.
Carlos T. Aggabao, a private lawyer, was clearly improper. In Gonzales v. Chavez, 20 we traced the statutory
origins of the OSG and ruled that its mandate to act as the principal law office of the government is compulsory,
viz:
In x x x tracing the origins of the Office of the Solicitor General to gain a clear understanding of the nature of the
functions and extent of [its] powers x x x, it is evident that a policy decision was made in the early beginnings to
consolidate in one official the discharge of legal functions and services of the government. x x x
x x x           x x x          x x x
x x x [T]he intent of the lawmaker was to give the designated official, the Solicitor General, x x x the unequivocal
mandate to appear for the government in legal proceedings. Spread out in the laws creating the office is the
discernible intent which may be gathered from the term "shall," which is invariably employed, from Act No. 136
(1901) to the more recent Executive Order No. 292 (1987).
Under the principles of statutory construction, so familiar even to law students, the term "shall" is nothing if not
mandatory.21 (emphases ours)
Thus, the Solicitor General cannot refuse to represent the government, its agencies, instrumentalities, officials and
agents without a just and valid reason. He should not desist from appearing before the Court even in those cases
where his opinions may be inconsistent with the government or any of its agents he is expected to represent. 22 As
in the case of fiscals or prosecutors, bias or prejudice and animosity or hostility do not constitute legal and valid
excuses for inhibition.23 Unlike a practicing lawyer who has the right to decline employment, a fiscal or
prosecutor, or the Solicitor General in the case at bar, cannot refuse to perform his functions without violating his
oath of office.24 Refusal to perform the duty is compellable by a writ of mandamus. 25 On the other hand,
government agencies were admonished not to reject the services of the Solicitor General, or otherwise fail or
refuse to forward the papers of a case to the OSG for appropriate action. 26 Actions filed in the name of the
Republic that are not initiated by the OSG will be summarily dismissed. 27 Moreover, the fee of the lawyer who
rendered legal service to the government in lieu of the OSG or the OGCC is the personal liability of the
government official who hired his services without the prior written conformity of the OSG or the OGCC, as the
case may be.28 We explained the rationale for the compulsory nature of the OSG’s mandate, in this wise:
The rationale x x x is not difficult to comprehend. Sound government operations require consistency in legal
policies and practices among the instrumentalities of the State. x x x [A]n official learned in the law and skilled in
advocacy could best plan and coordinate the strategies and moves of the legal battles of the different arms of the
government. Surely, the economy factor, too, must have weighed heavily in arriving at such a decision.
x x x           x x x          x x x
Sound management policies require that the government’s approach to legal problems and policies formulated on
legal issues be harmonized and coordinated by a specific agency. The government owes it to its officials and their
respective offices, the political units at different levels, the public and the various sectors, local and international,
that have dealings with it, to assure them of a degree of certitude and predictability in matters of legal import.
From the historical and statutory perspectives x x x it is beyond cavil that it is the Solicitor General who has been
conferred the singular honor and privilege of being the "principal law officer and legal defender of the
Government." One would be hard put to name a single legal group or law firm that can match the expertise,
experience, resources, staff and prestige of the OSG which were painstakingly built up for almost a century.
x x x [E]ndowed with a broad perspective that spans the legal interests of virtually the entire government
officialdom, the OSG may be expected to transcend the parochial concerns of a particular client agency and
instead, promote and protect the public weal. Given such objectivity, it can discern, metaphorically speaking, the
panoply that is the forest and not just the individual trees. Not merely will it strive for a legal victory
circumscribed by the narrow interests of the client office or official, but as well, the vast concerns of the sovereign
which it is committed to serve.29
The Solicitor General is thus expected to be the official who would best uphold and protect the legal interests of
the government.30 His non-representation of the government is dangerous and should not be allowed.
The magnitude of the non-representation by the OSG is nowhere more apparent than in the case at bar. Instead of
having been represented by an "official learned in the law" who will "promote and protect the public weal" taking
into consideration the "vast concerns of the sovereign which it is committed to serve," respondent state college
was instead represented by a private lawyer who made no move to protect its interests except to file a motion to
dismiss the complaint filed against the state college, which was eventually denied by the trial court. No answer to
the complaint was filed notwithstanding due receipt of the order directing its filing, as a consequence of which the
state college was declared in default. The order of default itself was not reconsidered, no move whatsoever having
been made in that direction. The plaintiff was allowed to present its evidence ex-parte. When the decision was
rendered adjudging the state college and its co-defendant, Julian A. Alvarez, liable to the plaintiff, no effort was
made to appeal the decision notwithstanding due receipt of a copy thereof by Atty. Aggabao on March 6, 2001.
Thus, a writ of execution was issued against the properties of the state college, which by this time remained as the
sole defendant, Julian A. Alvarez having died during the pendency of the case and no proper substitution of
parties having been made at the instance of Atty. Aggabao. Clear, therefore, was the utter failure of justice insofar
as respondent state college is concerned. It was as if it was not represented by counsel at all. While it may be
argued that the officials of respondent state college should have informed the OSG of the suit filed against the
state college, and that it was their fault or negligence that the OSG was not informed in the first place, it is settled,
however, that the principle of estoppel does not operate against the government for the act of its agents or their
inaction.31 The State has to protect its interests and cannot be bound by, or estopped by the mistakes or negligent
acts of its officials or agents, much more, non-suited as a result thereof. 32 The legality of legal representation can
be raised and questioned at any stage of the proceedings. 33
The circumstances of this case, therefore, justify the nullification of the proceedings before the trial court, and the
writ of execution issued as a consequence thereof. The state college should be given the opportunity to present its
defenses with the benefit of its statutory counsel, the OSG. A new trial would best serve the interests of justice.
With this disquisition, discussion of the other issues is not necessary.
IN VIEW WHEREOF, the petition is DENIED. This case is REMANDED to the trial court for trial anew, with
the Office of the Solicitor General appearing as counsel for respondent Quirino State College. The Decision dated
February 22, 2001 of the Regional Trial Court of Quezon City, Branch 88, in Civil Case No. Q-97-32470, and the
assailed Decision dated November 25, 2003 and Resolution dated June 17, 2004 of the Court of Appeals in CA-
G.R. SP No. 72603 are, for this reason, VACATED and SET ASIDE.
SO ORDERED.
REYNATO S. PUNO
Chief Justice
WE CONCUR:
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

RENATO C. CORONA ADOLFO S. AZCUNA

Associate Justice Associate Justice
CANCIO C. GARCIA
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision had
been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1
 Rollo, pp. 27-39.
2
 Entitled "An Act Converting the Quirino National Agricultural School in the Municipality of
Diffun, Province of Quirino, into a State College to be Known as the Quirino State College, and Appropriating
Funds Therefor."
3
 Original Records, pp. 12-22.
4
 Id. at 2-39.
5
 Docketed as Civil Case No. Q-97-32470.
6
 Decision dated February 22, 2001; original records, pp. 168-169.
7
 See registry return receipt attached at the back of p. 169, id.
8
 Id. at 187-188.
9
 Id. at 221-222.
10
 By this time, only Quirino State College remained as the sole defendant, Julian A. Alvarez having
died during the pendency of the case and no substitution of parties having been made; see Sheriff’s Return dated
January 30, 1992, id. at 210.
11
 Id. at 215-226.
12
 Re: Exercise of Utmost Caution, Prudence and Judiciousness in the Issuance of Writs of
Execution to Satisfy Money Judgments Against Government Agencies and Local Government Units.
13
 CA rollo, pp. 47-50.
14
 Original Records, pp. 240-241.
15
 Supra note 1.
16
 However, the OSG shall not represent government officials or agents in cases where they are
charged criminally or are sued civilly for damages arising from a felony. See Orbos v. Civil Service Commission,
G.R. No. 92561, September 12, 1990, 189 SCRA 459 and Urbano v. Chavez, G.R. No. 87977, March 19, 1990,
183 SCRA 347.
17
 The Office of the Government Corporate Counsel (OGCC) shall act as the principal law office of
all government-owned or controlled corporations, their subsidiaries, other corporate offsprings and government
acquired asset corporations and shall exercise control and supervision over all legal departments or divisions
maintained separately and such powers and functions as are now or may hereafter be provided by law. In the
exercise of such control and supervision, the Government Corporate Counsel shall promulgate rules and
regulations to effectively implement the objectives of the Office. x x x x
18
 Sec. 2 (12), Introductory Provisions.
19
 Sec. 2 (13), Id.
20
 G.R. No. 97351, February 4, 1992, 205 SCRA 816.
21
 Id. at 836.
22
 Orbos v. Civil Service Commission, supra at 467.
23
 See Enriquez, Sr. v. Hon. Gimenez, 107 Phil. 932 (1960).
24
 Id. at 937.
25
 Gonzales v. Chavez, supra at 836.
26
 Orbos v. Civil Service Commission, supra at 466-467. Also Gonzales v. Chavez, supra.
27
 Cooperative Development Authority v. Dolefil Agrarian Reform Beneficiaries Cooperative, Inc.,
432 Phil. 290 (2002) citing People v. Nano, G.R. No. 94639, January 13, 1992, 205 SCRA 155 and Republic of
the Philippines v. Partisala, 203 Phil. 750 (1982). See also Civil Service Commission v. Asensi, G.R. No. 160657,
December 17, 2004, 447 SCRA 356 and Phividec Industrial Authority v. Capitol Steel Corporation, G.R. No.
155692, October 23, 2003, 414 SCRA 327.
28
 See Polloso v. Gangan, 390 Phil. 1101 (2000).
29
 Gonzales v. Chavez, supra at 836, 846-847.
30
 See Orbos v. Civil Service Commission, supra at 466.
31
 National Housing Authority v. Grace Baptist Church, G.R. No. 156437, March 1, 2004, 424
SCRA 147; see also La Bugal-B’Laan Tribal Association, Inc. v. Ramos, G.R. No. 127882, December 1, 2004,
445 SCRA 1; Argana v. Republic, G.R. No. 147227, November 19, 2004, 443 SCRA 184; Philippine Ports
Authority v. Sargasso Construction and Development Corporation, G.R. No. 146478, July 30, 2004, 435 SCRA
512.
32
 Republic v. Court of Appeals, G.R. No. 126316, June 25, 2004, 432 SCRA 593.
33
 See Municipality of Pililla, Rizal v. Court of Appeals, G.R. No. 105909, June 28, 1994, 233 SCRA
484.

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 Agreement 13 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 Resolution 32 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.
I

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.58ChanRoblesVirtualawlibrary
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. 62ChanRoblesVirtualawlibrary
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.
V

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." 77The 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." 83Their 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-complainants84 were able to collect their checks for their separation benefits
during the pendency of the Complaint85 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:
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 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:
chanRoblesvirtualLawlibrary
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. 10-2000 86states the
rationale for requiring claimants to file their money judgments before the Commission on Audit:
chanRoblesvirtualLawlibrary
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 [Link]

WHEREFORE, the Petition is DENIED.

SO [Link]

Carpio, (Chairperson), Del Castillo, and Mendoza, JJ., concur.

Brion, J., on leavechanroblesvirtuallawlibrary
Endnotes:

1
 Entitled "Proclaiming and Launching a Program for the Expeditious Disposition and Privatization of Certain
Government Corporations and/or the Assets thereof, and Creating the Committee on Privatization and the Asset
Privatization Trust."

2
 LABOR CODE, art. 291 provides:

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.
3
Rollo, pp. 13-38.

4
 Id. at 39-43.

5
 Id. at 44-48.

6
 Id. at 49-51.

7
 Id. at 52-53.

8
 Id. at 298, Labor Arbiter's Decision.

9
 Id. at 298-299.

10
 Id. at 299.

11
 Id. at 17, Petition.

12
 Id.

13
 Id. at 112-118.

14
 Id. at 88, Department of Labor and Employment Order dated October 15, 1992. The Supervision and Financing
Agreement actually sets the term only up to the 1988-1989 milling season, but both the Department of Labor and
Employment and Barayoga v. Asset Privatization Trust (510 Phil. 452 (2005) [Per J. Panganiban, Third
Division]) found that the agreement would commence on August 28, 1992 and end on August 31, 1992.

15
 Id. at 299, Labor Arbiter's Decision.

16
 Id.

17
 Id.

18
 Id.

19
 Id. at 300.

20
 Id. at 123. These members were: Donald B. Domulot, Rodolfo Parro, Antonio T. Falcon, Manuel Aguilar, Gil
Gomez, Jr., Jorge Emata, Bienvenido S. Felina, Domingo Rebancos, Jr., Nelson Berina, Pelecio de Jesus, Antonio
Abonite, Necito Ramos, Ernesto de Luna, Domingo Arao, Armando Villote, Pablo San Buenaventura, Roberto
Tirao, Mariano Pelo, Eutiquio Enfeliz, Reynaldo Ragay, Onofre Gallarte, Jaime Vinas, and Lydio Bomanlag.

21
 Id. at 300.

22
 Id. at 298-305. The Decision was penned by Executive Labor Arbiter Gelacio L. Rivera. Jr.
23
 Id. at 301-302.

24
 Id. at [Link]

25
 Id. at 130. 

26
 Id. at 304,

27
 LABOR CODE, art. 291 provides:

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.

28
Rollo, p. 305.

29
 Id.

30
 Id. at 21, Petition.

31
 Id. at 14, Petition.

32
 Id. at 49-51. The Resolution was penned by Presiding Commissioner Lourdes C. Javier and concurred in by
Commissioners Ireneo B. Bernardo and Tito F. Genilo of the Third Division. 

33
 Id. at 52-53. The Resolution was penned by Presiding Commissioner Lourdes C. Javier and concurred in by
Commissioners Ireneo B. Bernardo and Tito F. Genilo of the Third Division.

34
 Id. at 155-191.

35
 Id. at 39-43. The Decision was penned by Associate Justice Aurora Santiago-Lagman and concurred in by
Associate Justices Marina L. Buzon (Chair) and Sergio L. Pestano of the Fourteenth Division.

36
 Id. at 42.

37
 Id. at 44-48. The Decision was penned by Associate Justice Aurora Santiago-Lagman and concurred in by
Associate Justices Marina L. Buzon (Chair) and Regalado E. Maambong of the Special Former Fourteenth
Division.

38
 Id. at 13-38.

39
 Id. at [Link]

40
 LABOR CODE, art. 291 provides:

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.

All money claims accruing prior to the effectivity of this Code shall be filed with the appropriate entities
established under this Code within one (1) year from the date of effectivity, and shall be processed or determined
in accordance with the implementing rules and regulations of the Code; otherwise, they shall be forever barred[.]

41
Rollo, pp. 27-28.

42
 Id. at 29-31.

43
 Id. at 30-32.

44
 Entitled "An Act Fixing the Time within which the Auditor General shall Render his Decisions and Prescribing
the Manner of Appeal Therefrom."

45
 Rollo, pp. 33-34, Petition. See Pres. Decree No. 1445, State Audit Code of the Philippines (1978).

46
 Id. at 411, Comment.

47
 Id. at 412.

48
 Id. at 431-432, Reply.

49
See Lepanto Consolidated Mining v. Icao, G.R. No. 196047, January 15, 2014, 714 SCRA 1, 11 [Per C.J.
Sereno, First Division], citing BPI Family Scnnngs Bank, Inc., v. Pryce Gases, Inc., 668 Phil. 206 (2011) [Per J.
Carpio, Second Division]; National Power Corporation v. Spouses Laohoo, 611 Phil. 194 (2009) [Per J. Peralta,
Third Division]; Philux, Inc. v. National Labor Relations Commission, 586 Phil. 19 (2008) [Per J. Leonardo-De
Castro, First Division]; Cu-unjieng v. Court of Appeals, 515 Phil. 568 (2006) [Per J, Garcia, Second
Division]; Stolt-Nielsen Services, Inc. v. NLRC, 513 Phil. 642 (2005) [Per J. Garcia, Third Division]; Producers
Bank of the Philippines v. Court of Appeals, 430 Phil 812 (2002) [Per J. Carpio, Third Division]; Villanueva v.
Court of Appeals, G.R. No, 99357, 27 January 1992, 205 SCRA 537 [Per J. Regalado, Second Division]; Trans
International v. Court of Appeals, 348 Phil. 830 (1998) [Per J. Martinez, Second Division]; Acme Shoe, Rubber &
Plastic Corporation v. Court of Appeals, 329 Phil. 531 (1996) [Per J. Vitug, First Division); and Ozaeta v. Court
of Appeals, 259 Phil. 428 (1989) [Per J. Gancayco, First Division]. 

50
Rollo, p. 50, National Labor Relations Commission Resolution.

51
 The actual last day of filing, February 5, 2000, fell on a Saturday.

52
Rollo, p, 50, National Labor Relations Commission Resolution.

53
Tres Reyes v. Maxims Tea House, 446 Phil. 388, 400 (2003) [Per J. Quisumbing, Second Division], citing
Lopez, Jr. v. National Labor Relations Commission, 315 Phil. 717 (1995) [Per J. Puno, Second Division].

54
 Id., citing Kunting v. National Labor Relations Commission, G.R. No. 101427, November 8, 1993, 227 SCRA
571, 581 [Per J. Bidin, Third Division].
55
 Id., citing Lopez, Jr. v. National Labor Relations Commission, 315 Phil. 717 (1995) [Per J. Puno, Second
Division].

56
See LABOR CODE, art. 4.

57
 331 Phil. 608 (1996) [Per J. Vitug, First Division],

58
 Id. at 621.

59
 510 Phil. 452 (2005) [Per J. Panganiban, Third Division].

60
 Id. at 461.

61
 Id.

62
Rollo, p. 129.

63
 Proc No. 50 (1986), sec. 12(6) provides:

Section 12. POWERS. The Trust shall, in the discharge of its responsibilities, have the following powers:

....

(6) To lease or own real and personal property to the extent required or entailed by its functions; to borrow money
and incur such liabilities as may be reasonably necessary to permit it to carry out the responsibilities imposed
upon it under this Proclamation; to receive and collect interest, rent and other income from the corporations and
assets held by it and to exercise in behalf of the National Government and to the extent authorized by the
Committee, in respect of such corporations and assets, all rights, powers and privileges of ownership including the
ability to compromise and release claims or settle liabilities, and otherwise to do and perform any and all acts that
may be necessary or proper to carry out the purposes of this Proclamation: Provided, however, that any borrowing
by the Trust shall be subject to the prior approval by the majority vote of the members of the Committee[.]

64
 Article 283 of the Labor Code has since been re-numbered to Article 298 by virtue of Rep. Act No. 10151,
approved June 21, 2011, and DOLE Department Advisory No. 1, Series of 2015.

65
 See GJT Rebuilders Machine Shop v. Ambos, G.R. No. 174184, January 28, 2015
<[Link] 7 [Per J.
Leonen, Second Division].

66
 Id.

67
 G.R. No. 200746, August 6, 2014, 732 SCRA 318 [Per J. Perlas-Bernabe, Second Division].

68
 Id. at 327.

69
 Id. at 130.
70
 G.R. No. 175689, August 13, 2014, 732 SCRA 656 [Per J. Leonen, Third Division].

71
 CIVIL CODE, art. 1146 provides:

Article 1146. The following actions must be instituted within four years:

(1) Upon injury to the rights of the plaintiff[.]

72
Arriola v. National Labor Relations Commission, G.R. No. 175689, August 13, 2014, 732 SCRA 656, 667 [Per
J. Leonen, Third Division], citing Callanta v. Carnation Philippines, Inc., 22 Phil. 279 (1986) [Per J. Fernan,
Second Division].

73
Rollo, p. 70.

74
 Id. at 82, Opposition to the Motion to Dismiss.

75
 Id. at 127, Labor Arbiter's Decision.

76
Auto Bus Transport Systems v. Bautista, 497 Phil. 863, 875-876 (2005) [Per J. Chico-Nazario, Second Division].

77
Barayoga v. Asset Privatization Trust, 510 Phil. 452, 461 (2005) [Per J. Panganiban, Third Division].

78
Rollo, p. 130.

79
Auto Bus Transport Systems v. Bautista, 497 Phil. 863, 875-876 (2005) [Per J. Chico-Nazario, Second Division].

80
 2011 NLRC Rules of Procedure, rule VII, sec. 14 provides:

SECTION 14. Finality of Decision of the Commission and Entry of Judgment. - (a) Finality of the Decisions,
Resolutions or Orders of the Commission. Except as provided in Rule XI, Section 9, the decisions, resolutions or
orders of the Commission/Division shall become executory after ten (10) calendar days from receipt of the same.

81
 As amended by NLRC Resolution No. 01-02, Series of 2002. The current rules of procedure are the 2011 Rules
of Procedure of the National Labor Relations Commission.

82
Serrano v. Gallant Maritime Services, Inc., 601 Phil. 245, 281 (2009) [Per J. Austria-Martinez, En Banc].

83
Rollo, p. 130.

84
 Id. at 123 and 129. These co-complainants were: Donald B. Domulot, Rodolfo Parro, Antonio T. Falcon,
Manuel Aguilar, Gil Gomez, Jr., Pelecio de Jesus, Antonio Abonite, Necito Ramos, Ernesto de Luna, Domingo
Arao, Pablo San Buenaventura, Mariano Pelo, Eutiquio Enfeliz, Reynaldo Ragay, Onofre Gallarte, Jaime Vinas,
and Lydio Bomanlag.

85
 Id. at 129. 

86
 Dated October 25, 2000.
87
 555 Phil 74 (2007) [Per J. Austria-Martinez, Third Division]. 

88
 686 Phil. 191 (2012) [Per J. Villarama, Jr., First Division].

89
See Barayoga v. Asset Privatization Trust, 510 Phil. 452 (2005) [Per J. Panganiban, Third Division].

90
Rollo, p. 129.

2. Section 2: The Doctrine of Incorporation

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 173034             October 9, 2007
PHARMACEUTICAL AND HEALTH CARE ASSOCIATION OF THE PHILIPPINES, petitioner, 
vs.
HEALTH SECRETARY FRANCISCO T. DUQUE III; HEALTH UNDER SECRETARIES DR.
ETHELYN P. NIETO, DR. MARGARITA M. GALON, ATTY. ALEXANDER A. PADILLA, & DR.
JADE F. DEL MUNDO; and ASSISTANT SECRETARIES DR. MARIO C. VILLAVERDE, DR. DAVID
J. LOZADA, AND DR. NEMESIO T. GAKO,respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
The Court and all parties involved are in agreement that the best nourishment for an infant is mother's milk. There
is nothing greater than for a mother to nurture her beloved child straight from her bosom. The ideal is, of course,
for each and every Filipino child to enjoy the unequaled benefits of breastmilk. But how should this end be
attained?
Before the Court is a petition for certiorari under Rule 65 of the Rules of Court, seeking to nullify Administrative
Order (A.O.) No. 2006-0012 entitled, Revised Implementing Rules and Regulations of Executive Order No. 51,
Otherwise Known as The "Milk Code," Relevant International Agreements, Penalizing Violations Thereof,
and for Other Purposes (RIRR). Petitioner posits that the RIRR is not valid as it contains provisions that are not
constitutional and go beyond the law it is supposed to implement.
Named as respondents are the Health Secretary, Undersecretaries, and Assistant Secretaries of the Department of
Health (DOH). For purposes of herein petition, the DOH is deemed impleaded as a co-respondent since
respondents issued the questioned RIRR in their capacity as officials of said executive agency. 1
Executive Order No. 51 (Milk Code) was issued by President Corazon Aquino on October 28, 1986 by virtue of
the legislative powers granted to the president under the Freedom Constitution. One of the preambular clauses of
the Milk Code states that the law seeks to give effect to Article 11 2 of the International Code of Marketing of
Breastmilk Substitutes (ICMBS), a code adopted by the World Health Assembly (WHA) in 1981. From 1982 to
2006, the WHA adopted several Resolutions to the effect that breastfeeding should be supported, promoted and
protected, hence, it should be ensured that nutrition and health claims are not permitted for breastmilk substitutes.
In 1990, the Philippines ratified the International Convention on the Rights of the Child. Article 24 of said
instrument provides that State Parties should take appropriate measures to diminish infant and child mortality, and
ensure that all segments of society, specially parents and children, are informed of the advantages of
breastfeeding.
On May 15, 2006, the DOH issued herein assailed RIRR which was to take effect on July 7, 2006.
However, on June 28, 2006, petitioner, representing its members that are manufacturers of breastmilk substitutes,
filed the present Petition for Certiorari and Prohibition with Prayer for the Issuance of a Temporary Restraining
Order (TRO) or Writ of Preliminary Injunction.
The main issue raised in the petition is whether respondents officers of the DOH acted without or in excess of
jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and in violation of the
provisions of the Constitution in promulgating the RIRR.3
On August 15, 2006, the Court issued a Resolution granting a TRO enjoining respondents from implementing the
questioned RIRR.
After the Comment and Reply had been filed, the Court set the case for oral arguments on June 19, 2007. The
Court issued an Advisory (Guidance for Oral Arguments) dated June 5, 2007, to wit:
The Court hereby sets the following issues:
1. Whether or not petitioner is a real party-in-interest;
2. Whether Administrative Order No. 2006-0012 or the Revised Implementing Rules and Regulations (RIRR)
issued by the Department of Health (DOH) is not constitutional;
2.1 Whether the RIRR is in accord with the provisions of Executive Order No. 51 (Milk Code);
2.2 Whether pertinent international agreements 1 entered into by the Philippines are part of the law of the land and
may be implemented by the DOH through the RIRR; If in the affirmative, whether the RIRR is in accord with the
international agreements;
2.3 Whether Sections 4, 5(w), 22, 32, 47, and 52 of the RIRR violate the due process clause and are in restraint of
trade; and
2.4 Whether Section 13 of the RIRR on Total Effect provides sufficient standards.
_____________
1 (1) United Nations Convention on the Rights of the Child; (2) the WHO and Unicef "2002 Global Strategy on
Infant and Young Child Feeding;" and (3) various World Health Assembly (WHA) Resolutions.
The parties filed their respective memoranda.
The petition is partly imbued with merit.
On the issue of petitioner's standing
With regard to the issue of whether petitioner may prosecute this case as the real party-in-interest, the Court
adopts the view enunciated in Executive Secretary v. Court of Appeals, 4 to wit:
The modern view is that an association has standing to complain of injuries to its members. This view fuses the
legal identity of an association with that of its members. An association has standing to file suit for its workers
despite its lack of direct interest if its members are affected by the action. An organization has standing to
assert the concerns of its constituents.
xxxx
x x x We note that, under its Articles of Incorporation, the respondent was organized x x x to act as the
representative of any individual, company, entity or association on matters related to the manpower recruitment
industry, and to perform other acts and activities necessary to accomplish the purposes embodied therein.
The respondent is, thus, the appropriate party to assert the rights of its members, because it and its
members are in every practical sense identical. x x x The respondent [association] is but the medium
through which its individual members seek to make more effective the expression of their voices and the
redress of their grievances. 5 (Emphasis supplied)
which was reasserted in Purok Bagong Silang Association, Inc. v. Yuipco,6 where the Court ruled that an
association has the legal personality to represent its members because the results of the case will affect their vital
interests.7
Herein petitioner's Amended Articles of Incorporation contains a similar provision just like in Executive
Secretary, that the association is formed "to represent directly or through approved representatives the
pharmaceutical and health care industry before the Philippine Government and any of its agencies, the medical
professions and the general public."8 Thus, as an organization, petitioner definitely has an interest in fulfilling its
avowed purpose of representing members who are part of the pharmaceutical and health care industry. Petitioner
is duly authorized9 to take the appropriate course of action to bring to the attention of government agencies and
the courts any grievance suffered by its members which are directly affected by the RIRR. Petitioner, which is
mandated by its Amended Articles of Incorporation to represent the entire industry, would be remiss in its duties
if it fails to act on governmental action that would affect any of its industry members, no matter how few or
numerous they are. Hence, petitioner, whose legal identity is deemed fused with its members, should be
considered as a real party-in-interest which stands to be benefited or injured by any judgment in the present
action.
On the constitutionality of the provisions of the RIRR
First, the Court will determine if pertinent international instruments adverted to by respondents are part of the law
of the land.
Petitioner assails the RIRR for allegedly going beyond the provisions of the Milk Code, thereby amending and
expanding the coverage of said law. The defense of the DOH is that the RIRR implements not only the Milk Code
but also various international instruments10 regarding infant and young child nutrition. It is respondents' position
that said international instruments are deemed part of the law of the land and therefore the DOH may implement
them through the RIRR.
The Court notes that the following international instruments invoked by respondents, namely: (1) The United
Nations Convention on the Rights of the Child; (2) The International Covenant on Economic, Social and Cultural
Rights; and (3) the Convention on the Elimination of All Forms of Discrimination Against Women, only provide
in general terms that steps must be taken by State Parties to diminish infant and child mortality and inform society
of the advantages of breastfeeding, ensure the health and well-being of families, and ensure that women are
provided with services and nutrition in connection with pregnancy and lactation. Said instruments do not contain
specific provisions regarding the use or marketing of breastmilk substitutes.
The international instruments that do have specific provisions regarding breastmilk substitutes are the ICMBS and
various WHA Resolutions.
Under the 1987 Constitution, international law can become part of the sphere of domestic law either
by transformation or incorporation.11 The transformation method requires that an international law be
transformed into a domestic law through a constitutional mechanism such as local legislation. The incorporation
method applies when, by mere constitutional declaration, international law is deemed to have the force of
domestic law.12
Treaties become part of the law of the land through transformation pursuant to Article VII, Section 21 of the
Constitution which provides that "[n]o treaty or international agreement shall be valid and effective unless
concurred in by at least two-thirds of all the members of the Senate." Thus, treaties or conventional international
law must go through a process prescribed by the Constitution for it to be transformed into municipal law that can
be applied to domestic conflicts.13
The ICMBS and WHA Resolutions are not treaties as they have not been concurred in by at least two-thirds of all
members of the Senate as required under Section 21, Article VII of the 1987 Constitution.
However, the ICMBS which was adopted by the WHA in 1981 had been transformed into domestic law through
local legislation, the Milk Code. Consequently, it is the Milk Code that has the force and effect of law in this
jurisdiction and not the ICMBS per se.
The Milk Code is almost a verbatim reproduction of the ICMBS, but it is well to emphasize at this point that the
Code did not adopt the provision in the ICMBS absolutely prohibiting advertising or other forms of promotion
to the general public of products within the scope of the ICMBS. Instead, the Milk Code expressly provides that
advertising, promotion, or other marketing materials may be allowed if such materials are duly authorized
and approved by the Inter-Agency Committee (IAC).
On the other hand, Section 2, Article II of the 1987 Constitution, to wit:
SECTION 2. The Philippines renounces war as an instrument of national policy, adopts the generally accepted
principles of international law as part of the law of the land and adheres to the policy of peace, equality, justice,
freedom, cooperation and amity with all nations. (Emphasis supplied)
embodies the incorporation method.14
In Mijares v. Ranada,15 the Court held thus:
[G]enerally accepted principles of international law, by virtue of the incorporation clause of the Constitution,
form part of the laws of the land even if they do not derive from treaty obligations. The classical formulation in
international law sees those customary rules accepted as binding result from the combination [of] two elements:
the established, widespread, and consistent practice on the part of States; and a psychological element known as
the opinion juris sive necessitates (opinion as to law or necessity). Implicit in the latter element is a belief that the
practice in question is rendered obligatory by the existence of a rule of law requiring it. 16 (Emphasis supplied)
"Generally accepted principles of international law" refers to norms of general or customary international law
which are binding on all states,17 i.e., renunciation of war as an instrument of national policy, the principle of
sovereign immunity,18 a person's right to life, liberty and due process, 19 and pacta sunt servanda,20 among others.
The concept of "generally accepted principles of law" has also been depicted in this wise:
Some legal scholars and judges look upon certain "general principles of law" as a primary source of international
law because they have the "character of jus rationale" and are "valid through all kinds of human
societies."(Judge Tanaka in his dissenting opinion in the 1966 South West Africa Case, 1966 I.C.J. 296).
O'Connell holds that certain priniciples are part of international law because they are "basic to legal systems
generally" and hence part of the jus gentium. These principles, he believes, are established by a process of
reasoning based on the common identity of all legal systems. If there should be doubt or disagreement, one must
look to state practice and determine whether the municipal law principle provides a just and acceptable solution. x
x x 21 (Emphasis supplied)
Fr. Joaquin G. Bernas defines customary international law as follows:
Custom or customary international law means "a general and consistent practice of states followed by them from
a sense of legal obligation [opinio juris]." (Restatement) This statement contains the two basic elements of
custom: the material factor, that is, how states behave, and the psychological or subjective factor, that is,
why they behave the way they do.
xxxx
The initial factor for determining the existence of custom is the actual behavior of states. This includes several
elements: duration, consistency, and generality of the practice of states.
The required duration can be either short or long. x x x
xxxx
Duration therefore is not the most important element. More important is the consistency and the generality of the
practice. x x x
xxxx
Once the existence of state practice has been established, it becomes necessary to determine why states behave the
way they do. Do states behave the way they do because they consider it obligatory to behave thus or do they do
it only as a matter of courtesy? Opinio juris, or the belief that a certain form of behavior is obligatory, is
what makes practice an international rule. Without it, practice is not law.22(Underscoring and Emphasis
supplied)
Clearly, customary international law is deemed incorporated into our domestic system. 23
WHA Resolutions have not been embodied in any local legislation. Have they attained the status of customary
law and should they then be deemed incorporated as part of the law of the land?
The World Health Organization (WHO) is one of the international specialized agencies allied with the United
Nations (UN) by virtue of Article 57,24 in relation to Article 6325 of the UN Charter. Under the 1946 WHO
Constitution, it is the WHA which determines the policies of the WHO, 26 and has the power to adopt regulations
concerning "advertising and labeling of biological, pharmaceutical and similar products moving in international
commerce,"27and to "make recommendations to members with respect to any matter within the competence of the
Organization."28 The legal effect of its regulations, as opposed to recommendations, is quite different.
Regulations, along with conventions and agreements, duly adopted by the WHA bind member states thus:
Article 19. The Health Assembly shall have authority to adopt conventions or agreements with respect to any
matter within the competence of the Organization. A two-thirds vote of the Health Assembly shall be required for
the adoption of such conventions or agreements, which shall come into force for each Member when
accepted by it in accordance with its constitutional processes.
Article 20. Each Member undertakes that it will, within eighteen months after the adoption by the Health
Assembly of a convention or agreement, take action relative to the acceptance of such convention or
agreement. Each Member shall notify the Director-General of the action taken, and if it does not accept such
convention or agreement within the time limit, it will furnish a statement of the reasons for non-acceptance. In
case of acceptance, each Member agrees to make an annual report to the Director-General in accordance with
Chapter XIV.
Article 21. The Health Assembly shall have authority to adopt regulations concerning: (a) sanitary and quarantine
requirements and other procedures designed to prevent the international spread of disease; (b) nomenclatures with
respect to diseases, causes of death and public health practices; (c) standards with respect to diagnostic procedures
for international use; (d) standards with respect to the safety, purity and potency of biological, pharmaceutical and
similar products moving in international commerce; (e) advertising and labeling of biological, pharmaceutical and
similar products moving in international commerce.
Article 22. Regulations adopted pursuant to Article 21 shall come into force for all Members after due notice has
been given of their adoption by the Health Assembly except for such Members as may notify the Director-General
of rejection or reservations within the period stated in the notice. (Emphasis supplied)
On the other hand, under Article 23, recommendations of the WHA do not come into force for members, in
the same way that conventions or agreements under Article 19 and regulations under Article 21 come into force.
Article 23 of the WHO Constitution reads:
Article 23. The Health Assembly shall have authority to make recommendations to Members with respect to any
matter within the competence of the Organization. (Emphasis supplied)
The absence of a provision in Article 23 of any mechanism by which the recommendation would come into force
for member states is conspicuous.
The former Senior Legal Officer of WHO, Sami Shubber, stated that WHA recommendations are generally not
binding, but they "carry moral and political weight, as they constitute the judgment on a health issue of the
collective membership of the highest international body in the field of health." 29 Even the ICMBS itself was
adopted as a mere recommendation, as WHA Resolution No. 34.22 states:
"The Thirty-Fourth World Health Assembly x x x adopts, in the sense of Article 23 of the Constitution, the
International Code of Marketing of Breastmilk Substitutes annexed to the present resolution." (Emphasis
supplied)
The Introduction to the ICMBS also reads as follows:
In January 1981, the Executive Board of the World Health Organization at its sixty-seventh session, considered
the fourth draft of the code, endorsed it, and unanimously recommended to the Thirty-fourth World Health
Assembly the text of a resolution by which it would adopt the code in the form of a recommendation rather
than a regulation. x x x (Emphasis supplied)
The legal value of WHA Resolutions as recommendations is summarized in Article 62 of the WHO Constitution,
to wit:
Art. 62. Each member shall report annually on the action taken with respect to recommendations made to it by the
Organization, and with respect to conventions, agreements and regulations.
Apparently, the WHA Resolution adopting the ICMBS and subsequent WHA Resolutions urging member states
to implement the ICMBS are merely recommendatory and legally non-binding. Thus, unlike what has been
done with the ICMBS whereby the legislature enacted most of the provisions into law which is the Milk
Code, the subsequent WHA Resolutions,30 specifically providing for exclusive breastfeeding from 0-6
months, continued breastfeeding up to 24 months, and absolutely prohibiting advertisements and
promotions of breastmilk substitutes, have not been adopted as a domestic law.
It is propounded that WHA Resolutions may constitute "soft law" or non-binding norms, principles and practices
that influence state behavior.31
"Soft law" does not fall into any of the categories of international law set forth in Article 38, Chapter III of the
1946 Statute of the International Court of Justice.32 It is, however, an expression of non-binding norms, principles,
and practices that influence state behavior. 33 Certain declarations and resolutions of the UN General Assembly fall
under this category.34 The most notable is the UN Declaration of Human Rights, which this Court has enforced in
various cases, specifically, Government of Hongkong Special Administrative Region v. Olalia,35 Mejoff v.
Director of Prisons,36 Mijares v. Rañada37 and Shangri-la International Hotel Management, Ltd. v. Developers
Group of Companies, Inc..38
The World Intellectual Property Organization (WIPO), a specialized agency attached to the UN with the mandate
to promote and protect intellectual property worldwide, has resorted to soft law as a rapid means of norm creation,
in order "to reflect and respond to the changing needs and demands of its constituents." 39 Other international
organizations which have resorted to soft law include the International Labor Organization and the Food and
Agriculture Organization (in the form of the Codex Alimentarius).40
WHO has resorted to soft law. This was most evident at the time of the Severe Acute Respiratory Syndrome
(SARS) and Avian flu outbreaks.
Although the IHR Resolution does not create new international law binding on WHO member states, it
provides an excellent example of the power of "soft law" in international relations. International lawyers
typically distinguish binding rules of international law-"hard law"-from non-binding norms, principles, and
practices that influence state behavior-"soft law." WHO has during its existence generated many soft law
norms, creating a "soft law regime" in international governance for public health.
The "soft law" SARS and IHR Resolutions represent significant steps in laying the political groundwork for
improved international cooperation on infectious diseases. These resolutions clearly define WHO member states'
normative duty to cooperate fully with other countries and with WHO in connection with infectious disease
surveillance and response to outbreaks.
This duty is neither binding nor enforceable, but, in the wake of the SARS epidemic, the duty is powerful
politically for two reasons. First, the SARS outbreak has taught the lesson that participating in, and enhancing,
international cooperation on infectious disease controls is in a country's self-interest x x x if this warning is
heeded, the "soft law" in the SARS and IHR Resolution could inform the development of general and consistent
state practice on infectious disease surveillance and outbreak response, perhaps crystallizing eventually into
customary international law on infectious disease prevention and control. 41
In the Philippines, the executive department implemented certain measures recommended by WHO to address the
outbreaks of SARS and Avian flu by issuing Executive Order (E.O.) No. 201 on April 26, 2003 and E.O. No. 280
on February 2, 2004, delegating to various departments broad powers to close down schools/establishments,
conduct health surveillance and monitoring, and ban importation of poultry and agricultural products.
It must be emphasized that even under such an international emergency, the duty of a state to implement the IHR
Resolution was still considered not binding or enforceable, although said resolutions had great political influence.
As previously discussed, for an international rule to be considered as customary law, it must be established that
such rule is being followed by states because they consider it obligatory to comply with such rules (opinio juris).
Respondents have not presented any evidence to prove that the WHA Resolutions, although signed by most of the
member states, were in fact enforced or practiced by at least a majority of the member states; neither have
respondents proven that any compliance by member states with said WHA Resolutions was obligatory in nature.
Respondents failed to establish that the provisions of pertinent WHA Resolutions are customary international law
that may be deemed part of the law of the land.
Consequently, legislation is necessary to transform the provisions of the WHA Resolutions into domestic
law. The provisions of the WHA Resolutions cannot be considered as part of the law of the land that can be
implemented by executive agencies without the need of a law enacted by the legislature.
Second, the Court will determine whether the DOH may implement the provisions of the WHA Resolutions by
virtue of its powers and functions under the Revised Administrative Code even in the absence of a domestic law.
Section 3, Chapter 1, Title IX of the Revised Administrative Code of 1987 provides that the DOH shall define the
national health policy and implement a national health plan within the framework of the government's general
policies and plans, and issue orders and regulations concerning the implementation of established health
policies.
It is crucial to ascertain whether the absolute prohibition on advertising and other forms of promotion of
breastmilk substitutes provided in some WHA Resolutions has been adopted as part of the national health policy.
Respondents submit that the national policy on infant and young child feeding is embodied in A.O. No. 2005-
0014, dated May 23, 2005. Basically, the Administrative Order declared the following policy guidelines: (1) ideal
breastfeeding practices, such as early initiation of breastfeeding, exclusive breastfeeding for the first six months,
extended breastfeeding up to two years and beyond; (2) appropriate complementary feeding, which is to start at
age six months; (3) micronutrient supplementation; (4) universal salt iodization; (5) the exercise of other feeding
options; and (6) feeding in exceptionally difficult circumstances. Indeed, the primacy of breastfeeding for children
is emphasized as a national health policy. However, nowhere in A.O. No. 2005-0014 is it declared that as part
of such health policy, the advertisement or promotion of breastmilk substitutes should be absolutely
prohibited.
The national policy of protection, promotion and support of breastfeeding cannot automatically be equated with a
total ban on advertising for breastmilk substitutes.
In view of the enactment of the Milk Code which does not contain a total ban on the advertising and promotion of
breastmilk substitutes, but instead, specifically creates an IAC which will regulate said advertising and promotion,
it follows that a total ban policy could be implemented only pursuant to a law amending the Milk Code passed
by the constitutionally authorized branch of government, the legislature.
Thus, only the provisions of the Milk Code, but not those of subsequent WHA Resolutions, can be validly
implemented by the DOH through the subject RIRR.
Third, the Court will now determine whether the provisions of the RIRR are in accordance with those of the Milk
Code.
In support of its claim that the RIRR is inconsistent with the Milk Code, petitioner alleges the following:
1. The Milk Code limits its coverage to children 0-12 months old, but the RIRR extended its coverage to "young
children" or those from ages two years old and beyond:
 MILK CODE RIRR

WHEREAS, in order to ensure Section 2. Purpose – These

that safe and adequate Revised Rules and Regulations
nutrition for infants is provided, are hereby promulgated to
there is a need to protect and ensure the provision of safe and
promote breastfeeding and to adequate nutrition for infants and
inform the public about the young children by the
proper use of breastmilk promotion, protection and
substitutes and supplements and support of breastfeeding and by
related products through ensuring the proper use of
adequate, consistent and breastmilk substitutes,
objective information and breastmilk supplements and
appropriate regulation of the related products when these are
marketing and distribution of the medically indicated and only
said substitutes, supplements and when necessary, on the basis of
related products; adequate information and
through appropriate marketing
SECTION 4(e). "Infant" means
and distribution.
a person falling within the age
bracket of 0-12 months. Section 5(ff). "Young Child"
means a person from the age
of more than twelve (12) months
up to the age of three (3) years
(36 months).
2. The Milk Code recognizes that infant formula may be a proper and possible substitute for breastmilk in certain
instances; but the RIRR provides "exclusive breastfeeding for infants from 0-6 months" and declares that "there is
no substitute nor replacement for breastmilk":

MILK CODE RIRR

WHEREAS, in order to ensure Section 4. Declaration of

that safe and adequate nutrition Principles – The following are
for infants is provided, there is a the underlying principles from
need to protect and promote which the revised rules and
breastfeeding and to inform the regulations are premised upon:
public about the proper use of
a. Exclusive breastfeeding is for
breastmilk substitutes and
infants from 0 to six (6) months.
supplements and related
products through adequate, b. There is no substitute or
consistent and objective replacement for breastmilk.
information and appropriate
regulation of the marketing and
distribution of the said
substitutes, supplements and
related products;
3. The Milk Code only regulates and does not impose unreasonable requirements for advertising and promotion;
RIRR imposes an absolute ban on such activities for breastmilk substitutes intended for infants from 0-24 months
old or beyond, and forbids the use of health and nutritional claims. Section 13 of the RIRR, which provides for a
"total effect" in the promotion of products within the scope of the Code, is vague:

MILK CODE RIRR

SECTION 6. The General Section 4. Declaration of

Public and Mothers. – Principles – The following are
the underlying principles from
(a) No advertising, promotion or
which the revised rules and
other marketing materials,
regulations are premised upon:
whether written, audio or visual,
for products within the scope of x x x x
this Code shall be printed,
f. Advertising, promotions, or
published, distributed, exhibited
sponsor-ships of infant formula,
and broadcast unless such
breastmilk substitutes and other
materials are duly authorized and
related products are prohibited.
approved by an inter-agency
committee created herein Section 11. Prohibition – No
pursuant to the applicable advertising, promotions,
standards provided for in this sponsorships, or marketing
Code. materials and activities for
breastmilk substitutes
intended for infants and young
children up to twenty-four (24)
months, shall be allowed,
because they tend to convey or
give subliminal messages or
impressions that undermine
breastmilk and breastfeeding or
otherwise exaggerate breastmilk
substitutes and/or replacements,
as well as related products
covered within the scope of this
Code.
Section 13. "Total Effect" -
Promotion of products within the
scope of this Code must be
objective and should not equate
or make the product appear to be
as good or equal to breastmilk or
breastfeeding in the advertising
concept. It must not in any case
undermine breastmilk or
breastfeeding. The "total effect"
should not directly or indirectly
suggest that buying their product
would produce better
individuals, or resulting in
greater love, intelligence, ability,
harmony or in any manner bring
better health to the baby or other
such exaggerated and
unsubstantiated claim.
Section 15. Content of
Materials. - The following shall
not be included in advertising,
promotional and marketing
materials:
a. Texts, pictures, illustrations or
information which discourage or
tend to undermine the benefits or
superiority of breastfeeding or
which idealize the use of
breastmilk substitutes and milk
supplements. In this connection,
no pictures of babies and
children together with their
mothers, fathers, siblings,
grandparents, other relatives or
caregivers (or yayas) shall be
used in any advertisements for
infant formula and breastmilk
supplements;
b. The term "humanized,"
"maternalized," "close to
mother's milk" or similar words
in describing breastmilk
substitutes or milk supplements;
c. Pictures or texts that idealize
the use of infant and milk
formula.
Section 16. All health and
nutrition claims for products
within the scope of the Code are
absolutely prohibited. For this
purpose, any phrase or words
that connotes to increase
emotional, intellectual abilities
of the infant and young child and
 other like phrases shall not be
allowed.
4. The RIRR imposes additional labeling requirements not found in the Milk Code:

MILK CODE RIRR

SECTION 10. Section 26. Content – Each

Containers/Label. – container/label shall contain
such message, in both Filipino
(a) Containers and/or labels shall
and English languages, and
be designed to provide the
which message cannot be readily
necessary information about the
separated therefrom, relative the
appropriate use of the products,
following points:
and in such a way as not to
discourage breastfeeding. (a) The words or phrase
"Important Notice" or
(b) Each container shall have a
"Government Warning" or their
clear, conspicuous and easily
equivalent;
readable and understandable
message in Pilipino or English (b) A statement of the
printed on it, or on a label, which superiority of breastfeeding;
message can not readily become
(c) A statement that there is no
separated from it, and which
substitute for breastmilk;
shall include the following
points: (d) A statement that the product
shall be used only on the advice
(i) the words "Important Notice"
of a health worker as to the need
or their equivalent;
for its use and the proper
(ii) a statement of the superiority methods of use;
of breastfeeding;
(e) Instructions for appropriate
(iii) a statement that the product prepara-tion, and a warning
shall be used only on the advice against the health hazards of
of a health worker as to the need inappropriate preparation; and
for its use and the proper
(f) The health hazards of
methods of use; and
unnecessary or improper use of
(iv) instructions for appropriate infant formula and other related
preparation, and a warning products including information
against the health hazards of that powdered infant formula
inappropriate preparation. may contain pathogenic
microorganisms and must be
prepared and used appropriately.
5. The Milk Code allows dissemination of information on infant formula to health professionals; the RIRR totally
prohibits such activity:

MILK CODE RIRR

SECTION 7. Health Care Section 22. No manufacturer,

 System. – distributor, or representatives of
products covered by the Code
(b) No facility of the health care
shall be allowed to conduct or be
system shall be used for the
involved in any activity on
purpose of promoting infant
breastfeeding promotion,
formula or other products within
education and production of
the scope of this Code. This
Information, Education and
Code does not, however,
Communication (IEC) materials
preclude the dissemination of
on breastfeeding, holding of or
information to health
participating as speakers in
professionals as provided in
classes or seminars for women
Section 8(b).
and children activities and to
SECTION 8. Health avoid the use of these venues to
Workers. - market their brands or company
names.
(b) Information provided by
manufacturers and distributors to SECTION 16. All health and
health professionals regarding nutrition claims for products
products within the scope of this within the scope of the Code are
Code shall be restricted absolutely prohibited. For this
to scientific and factual purpose, any phrase or words
matters and such information that connotes to increase
shall not imply or create a belief emotional, intellectual abilities
that bottle-feeding is equivalent of the infant and young child and
or superior to breastfeeding. It other like phrases shall not be
shall also include the allowed.
information specified in Section
5(b).
6. The Milk Code permits milk manufacturers and distributors to extend assistance in research and continuing
education of health professionals; RIRR absolutely forbids the same.

MILK CODE RIRR

SECTION 8. Health Section 4. Declaration of

Workers – Principles –
(e) Manufacturers and The following are the underlying
distributors of products within principles from which the
the scope of this Code may assist revised rules and regulations are
in the research, scholarships and premised upon:
continuing education, of health
i. Milk companies, and their
professionals, in accordance
representatives, should not form
with the rules and regulations
part of any policymaking body
promulgated by the Ministry of
or entity in relation to the
Health.
advancement of breasfeeding.
SECTION 22. No manufacturer,
distributor, or representatives of
 products covered by the Code
shall be allowed to conduct or be
involved in any activity on
breastfeeding promotion,
education and production of
Information, Education and
Communication (IEC) materials
on breastfeeding, holding of or
participating as speakers in
classes or seminars for women
and children activitiesand to
avoid the use of these venues to
market their brands or company
names.
SECTION 32. Primary
Responsibility of Health
Workers - It is the primary
responsibility of the health
workers to promote, protect and
support breastfeeding and
appropriate infant and young
child feeding. Part of this
responsibility is to continuously
update their knowledge and
skills on breastfeeding. No
assistance, support, logistics or
training from milk companies
shall be permitted.
7. The Milk Code regulates the giving of donations; RIRR absolutely prohibits it.

MILK CODE RIRR

SECTION 6. The General Section 51. Donations Within

Public and Mothers. – the Scope of This Code -
Donations of products, materials,
(f) Nothing herein contained
defined and covered under the
shall prevent donations from
Milk Code and these
manufacturers and distributors of
implementing rules and
products within the scope of this
regulations, shall be strictly
Code upon request by or with
prohibited.
the approval of the Ministry of
Health. Section 52. Other Donations
By Milk Companies Not
Covered by this Code. -
Donations of products,
equipments, and the like, not
otherwise falling within the
 scope of this Code or these
Rules, given by milk companies
and their agents, representatives,
whether in kind or in cash, may
only be coursed through the Inter
Agency Committee (IAC),
which shall determine whether
such donation be accepted or
otherwise.
8. The RIRR provides for administrative sanctions not imposed by the Milk Code.

MILK CODE RIRR

  Section 46. Administrative

Sanctions. – The following
administrative sanctions shall be
imposed upon any person,
juridical or natural, found to
have violated the provisions of
the Code and its implementing
Rules and Regulations:
a) 1st violation – Warning;
b) 2nd violation – Administrative
fine of a minimum of Ten
Thousand (P10,000.00) to Fifty
Thousand (P50,000.00) Pesos,
depending on the gravity and
extent of the violation, including
the recall of the offending
product;
c) 3rd violation – Administrative
Fine of a minimum of Sixty
Thousand (P60,000.00) to One
Hundred Fifty Thousand
(P150,000.00) Pesos, depending
on the gravity and extent of the
violation, and in addition
thereto, the recall of the
offending product, and
suspension of the Certificate of
Product Registration (CPR);
d) 4th violation –Administrative
Fine of a minimum of Two
Hundred Thousand
(P200,000.00) to Five Hundred
 (P500,000.00) Thousand Pesos,
depending on the gravity and
extent of the violation; and in
addition thereto, the recall of the
product, revocation of the CPR,
suspension of the License to
Operate (LTO) for one year;
e) 5th and succeeding repeated
violations – Administrative Fine
of One Million (P1,000,000.00)
Pesos, the recall of the offending
product, cancellation of the
CPR, revocation of the License
to Operate (LTO) of the
company concerned, including
the blacklisting of the company
to be furnished the Department
of Budget and Management
(DBM) and the Department of
Trade and Industry (DTI);
f) An additional penalty of Two
Thou-sand Five Hundred
(P2,500.00) Pesos per day shall
be made for every day the
violation continues after having
received the order from the IAC
or other such appropriate body,
notifying and penalizing the
company for the infraction.
For purposes of determining
whether or not there is
"repeated" violation, each
product violation belonging or
owned by a company, including
those of their subsidiaries, are
deemed to be violations of the
concerned milk company and
shall not be based on the specific
violating product alone.
9. The RIRR provides for repeal of existing laws to the contrary.
The Court shall resolve the merits of the allegations of petitioner seriatim.
1. Petitioner is mistaken in its claim that the Milk Code's coverage is limited only to children 0-12 months old.
Section 3 of the Milk Code states:
SECTION 3. Scope of the Code – The Code applies to the marketing, and practices related thereto, of the
following products: breastmilk substitutes, including infant formula; other milk products, foods and beverages,
including bottle-fed complementary foods, when marketed or otherwise represented to be suitable, with or
without modification, for use as a partial or total replacement of breastmilk; feeding bottles and teats. It also
applies to their quality and availability, and to information concerning their use.
Clearly, the coverage of the Milk Code is not dependent on the age of the child but on the kind of product being
marketed to the public. The law treats infant formula, bottle-fed complementary food, and breastmilk substitute as
separate and distinct product categories.
Section 4(h) of the Milk Code defines infant formula as "a breastmilk substitute x x x to satisfy the normal
nutritional requirements of infants up to between four to six months of age, and adapted to their physiological
characteristics"; while under Section 4(b), bottle-fed complementary food refers to "any food, whether
manufactured or locally prepared, suitable as a complement to breastmilk or infant formula, when either becomes
insufficient to satisfy the nutritional requirements of the infant." An infant under Section 4(e) is a person falling
within the age bracket 0-12 months. It is the nourishment of this group of infants or children aged 0-12 months
that is sought to be promoted and protected by the Milk Code.
But there is another target group. Breastmilk substitute is defined under Section 4(a) as "any food being marketed
or otherwise presented as a partial or total replacement for breastmilk, whether or not suitable for that
purpose." This section conspicuously lacks reference to any particular age-group of children. Hence, the
provision of the Milk Code cannot be considered exclusive for children aged 0-12 months. In other words,
breastmilk substitutes may also be intended for young children more than 12 months of age. Therefore, by
regulating breastmilk substitutes, the Milk Code also intends to protect and promote the nourishment of children
more than 12 months old.
Evidently, as long as what is being marketed falls within the scope of the Milk Code as provided in Section 3,
then it can be subject to regulation pursuant to said law, even if the product is to be used by children aged over 12
months.
There is, therefore, nothing objectionable with Sections 242 and 5(ff)43 of the RIRR.
2. It is also incorrect for petitioner to say that the RIRR, unlike the Milk Code, does not recognize that breastmilk
substitutes may be a proper and possible substitute for breastmilk.
The entirety of the RIRR, not merely truncated portions thereof, must be considered and construed together. As
held in De Luna v. Pascual,44 "[t]he particular words, clauses and phrases in the Rule should not be studied as
detached and isolated expressions, but the whole and every part thereof must be considered in fixing the meaning
of any of its parts and in order to produce a harmonious whole."
Section 7 of the RIRR provides that "when medically indicated and only when necessary, the use of breastmilk
substitutes is proper if based on complete and updated information." Section 8 of the RIRR also states that
information and educational materials should include information on the proper use of infant formula when the
use thereof is needed.
Hence, the RIRR, just like the Milk Code, also recognizes that in certain cases, the use of breastmilk
substitutes may be proper.
3. The Court shall ascertain the merits of allegations 3 45 and 446 together as they are interlinked with each other.
To resolve the question of whether the labeling requirements and advertising regulations under the RIRR are
valid, it is important to deal first with the nature, purpose, and depth of the regulatory powers of the DOH, as
defined in general under the 1987 Administrative Code, 47 and as delegated in particular under the Milk Code.
Health is a legitimate subject matter for regulation by the DOH (and certain other administrative agencies) in
exercise of police powers delegated to it. The sheer span of jurisprudence on that matter precludes the need to
further discuss it..48 However, health information, particularly advertising materials on apparently non-toxic
products like breastmilk substitutes and supplements, is a relatively new area for regulation by the DOH. 49
As early as the 1917 Revised Administrative Code of the Philippine Islands, 50 health information was already
within the ambit of the regulatory powers of the predecessor of DOH. 51 Section 938 thereof charged it with the
duty to protect the health of the people, and vested it with such powers as "(g) the dissemination of hygienic
information among the people and especially the inculcation of knowledge as to the proper care of infants and
the methods of preventing and combating dangerous communicable diseases."
Seventy years later, the 1987 Administrative Code tasked respondent DOH to carry out the state policy
pronounced under Section 15, Article II of the 1987 Constitution, which is "to protect and promote the right to
health of the people and instill health consciousness among them."52 To that end, it was granted under Section 3
of the Administrative Code the power to "(6) propagate health information and educate the population on
important health, medical and environmental matters which have health implications." 53
When it comes to information regarding nutrition of infants and young children, however, the Milk Code
specifically delegated to the Ministry of Health (hereinafter referred to as DOH) the power to ensure that there is
adequate, consistent and objective information on breastfeeding and use of breastmilk substitutes, supplements
and related products; and the power to control such information. These are expressly provided for in Sections 12
and 5(a), to wit:
SECTION 12. Implementation and Monitoring –
xxxx
(b) The Ministry of Health shall be principally responsible for the implementation and enforcement of the
provisions of this Code. For this purpose, the Ministry of Health shall have the following powers and functions:
(1) To promulgate such rules and regulations as are necessary or proper for the implementation of this Code and
the accomplishment of its purposes and objectives.
xxxx
(4) To exercise such other powers and functions as may be necessary for or incidental to the attainment of the
purposes and objectives of this Code.
SECTION 5. Information and Education –
(a) The government shall ensure that objective and consistent information is provided on infant feeding, for use
by families and those involved in the field of infant nutrition. This responsibility shall cover the planning,
provision, design and dissemination of information, and the control thereof, on infant nutrition. (Emphasis
supplied)
Further, DOH is authorized by the Milk Code to control the content of any information on breastmilk vis-à-
visbreastmilk substitutes, supplement and related products, in the following manner:
SECTION 5. x x x
(b) Informational and educational materials, whether written, audio, or visual, dealing with the feeding of infants
and intended to reach pregnant women and mothers of infants, shall include clear information on all the following
points: (1) the benefits and superiority of breastfeeding; (2) maternal nutrition, and the preparation for and
maintenance of breastfeeding; (3) the negative effect on breastfeeding of introducing partial bottlefeeding; (4) the
difficulty of reversing the decision not to breastfeed; and (5) where needed, the proper use of infant formula,
whether manufactured industrially or home-prepared. When such materials contain information about the use
of infant formula, they shall include the social and financial implications of its use; the health hazards of
inappropriate foods or feeding methods; and, in particular, the health hazards of unnecessary or improper use
of infant formula and other breastmilk substitutes. Such materials shall not use any picture or text which may
idealize the use of breastmilk substitutes.
SECTION 8. Health Workers –
xxxx
(b) Information provided by manufacturers and distributors to health professionals regarding products within the
scope of this Code shall be restricted to scientific and factual matters, and such information shall not imply
or create a belief that bottlefeeding is equivalent or superior to breastfeeding. It shall also include the
information specified in Section 5(b).
SECTION 10. Containers/Label –
(a) Containers and/or labels shall be designed to provide the necessary information about the appropriate use of
the products, and in such a way as not to discourage breastfeeding.
xxxx
(d) The term "humanized," "maternalized" or similar terms shall not be used. (Emphasis supplied)
The DOH is also authorized to control the purpose of the information and to whom such information may be
disseminated under Sections 6 through 9 of the Milk Code54 to ensure that the information that would reach
pregnant women, mothers of infants, and health professionals and workers in the health care system is restricted
to scientific and factual matters and shall not imply or create a belief that bottlefeeding is equivalent or superior to
breastfeeding.
It bears emphasis, however, that the DOH's power under the Milk Code to control information regarding
breastmilk vis-a-vis breastmilk substitutes is not absolute as the power to control does not encompass the power
to absolutely prohibit the advertising, marketing, and promotion of breastmilk substitutes.
The following are the provisions of the Milk Code that unequivocally indicate that the control over information
given to the DOH is not absolute and that absolute prohibition is not contemplated by the Code:
a) Section 2 which requires adequate information and appropriate marketing and distribution of breastmilk
substitutes, to wit:
SECTION 2. Aim of the Code – The aim of the Code is to contribute to the provision of safe and adequate
nutrition for infants by the protection and promotion of breastfeeding and by ensuring the proper use of breastmilk
substitutes and breastmilk supplements when these are necessary, on the basis of adequate information and
through appropriate marketing and distribution.
b) Section 3 which specifically states that the Code applies to the marketing of and practices related to breastmilk
substitutes, including infant formula, and to information concerning their use;
c) Section 5(a) which provides that the government shall ensure that objective and consistent information is
provided on infant feeding;
d) Section 5(b) which provides that written, audio or visual informational and educational materials shall not use
any picture or text which may idealize the use of breastmilk substitutes and should include information on the
health hazards of unnecessary or improper use of said product;
e) Section 6(a) in relation to Section 12(a) which creates and empowers the IAC to review and examine
advertising, promotion, and other marketing materials;
f) Section 8(b) which states that milk companies may provide information to health professionals but such
information should be restricted to factual and scientific matters and shall not imply or create a belief that
bottlefeeding is equivalent or superior to breastfeeding; and
g) Section 10 which provides that containers or labels should not contain information that would discourage
breastfeeding and idealize the use of infant formula.
It is in this context that the Court now examines the assailed provisions of the RIRR regarding labeling and
advertising.
Sections 1355 on "total effect" and 2656 of Rule VII of the RIRR contain some labeling requirements, specifically:
a) that there be a statement that there is no substitute to breastmilk; and b) that there be a statement that powdered
infant formula may contain pathogenic microorganisms and must be prepared and used appropriately. Section
1657of the RIRR prohibits all health and nutrition claims for products within the scope of the Milk Code, such as
claims of increased emotional and intellectual abilities of the infant and young child.
These requirements and limitations are consistent with the provisions of Section 8 of the Milk Code, to wit:
SECTION 8. Health workers -
xxxx
(b) Information provided by manufacturers and distributors to health professionals regarding products within the
scope of this Code shall be restricted to scientific and factual matters, and such information shall notimply or
create a belief that bottlefeeding is equivalent or superior to breastfeeding. It shall also include the information
specified in Section 5.58 (Emphasis supplied)
and Section 10(d)59 which bars the use on containers and labels of the terms "humanized," "maternalized," or
similar terms.
These provisions of the Milk Code expressly forbid information that would imply or create a belief that there is
any milk product equivalent to breastmilk or which is humanized or maternalized, as such information would be
inconsistent with the superiority of breastfeeding.
It may be argued that Section 8 of the Milk Code refers only to information given to health workers regarding
breastmilk substitutes, not to containers and labels thereof. However, such restrictive application of Section 8(b)
will result in the absurd situation in which milk companies and distributors are forbidden to claim to health
workers that their products are substitutes or equivalents of breastmilk, and yet be allowed to display on the
containers and labels of their products the exact opposite message. That askewed interpretation of the Milk Code
is precisely what Section 5(a) thereof seeks to avoid by mandating that all information regarding breastmilk vis-a-
vis breastmilk substitutes be consistent, at the same time giving the government control over planning, provision,
design, and dissemination of information on infant feeding.
Thus, Section 26(c) of the RIRR which requires containers and labels to state that the product offered is not a
substitute for breastmilk, is a reasonable means of enforcing Section 8(b) of the Milk Code and deterring
circumvention of the protection and promotion of breastfeeding as embodied in Section 2 60 of the Milk Code.
Section 26(f)61 of the RIRR is an equally reasonable labeling requirement. It implements Section 5(b) of the Milk
Code which reads:
SECTION 5. x x x
xxxx
(b) Informational and educational materials, whether written, audio, or visual, dealing with the feeding of infants
and intended to reach pregnant women and mothers of infants, shall include clear information on all the following
points: x x x (5) where needed, the proper use of infant formula, whether manufactured industrially or home-
prepared. When such materials contain information about the use of infant formula, they shall include the social
and financial implications of its use; the health hazards of inappropriate foods or feeding methods; and, in
particular, the health hazards of unnecessary or improper use of infant formula and other breastmilk
substitutes. Such materials shall not use any picture or text which may idealize the use of breastmilk substitutes.
(Emphasis supplied)
The label of a product contains information about said product intended for the buyers thereof. The buyers of
breastmilk substitutes are mothers of infants, and Section 26 of the RIRR merely adds a fair warning about the
likelihood of pathogenic microorganisms being present in infant formula and other related products when these
are prepared and used inappropriately.
Petitioner’s counsel has admitted during the hearing on June 19, 2007 that formula milk is prone to
contaminations and there is as yet no technology that allows production of powdered infant formula that
eliminates all forms of contamination.62
Ineluctably, the requirement under Section 26(f) of the RIRR for the label to contain the message regarding health
hazards including the possibility of contamination with pathogenic microorganisms is in accordance with Section
5(b) of the Milk Code.
The authority of DOH to control information regarding breastmilk vis-a-vis breastmilk substitutes and
supplements and related products cannot be questioned. It is its intervention into the area of advertising,
promotion, and marketing that is being assailed by petitioner.
In furtherance of Section 6(a) of the Milk Code, to wit:
SECTION 6. The General Public and Mothers. –
(a) No advertising, promotion or other marketing materials, whether written, audio or visual, for products within
the scope of this Code shall be printed, published, distributed, exhibited and broadcast unless such materials are
duly authorized and approved by an inter-agency committee created herein pursuant to the applicable standards
provided for in this Code.
the Milk Code invested regulatory authority over advertising, promotional and marketing materials to an IAC,
thus:
SECTION 12. Implementation and Monitoring -
(a) For purposes of Section 6(a) of this Code, an inter-agency committee composed of the following members is
hereby created:
 Minister of Health ------------------ Chairman
-

Minister of Trade and ------------------ Member

Industry -

Minister of Justice ------------------ Member

-

Minister of Social Services ------------------ Member

and Development -

The members may designate their duly authorized representative to every meeting of the Committee.
The Committee shall have the following powers and functions:
(1) To review and examine all advertising. promotion or other marketing materials, whether written, audio or
visual, on products within the scope of this Code;
(2) To approve or disapprove, delete objectionable portions from and prohibit the printing, publication,
distribution, exhibition and broadcast of, all advertising promotion or other marketing materials, whether written,
audio or visual, on products within the scope of this Code;
(3) To prescribe the internal and operational procedure for the exercise of its powers and functions as well as the
performance of its duties and responsibilities; and
(4) To promulgate such rules and regulations as are necessary or proper for the implementation of Section
6(a) of this Code. x x x (Emphasis supplied)
However, Section 11 of the RIRR, to wit:
SECTION 11. Prohibition – No advertising, promotions, sponsorships, or marketing materials and activities for
breastmilk substitutes intended for infants and young children up to twenty-four (24) months, shall be allowed,
because they tend to convey or give subliminal messages or impressions that undermine breastmilk and
breastfeeding or otherwise exaggerate breastmilk substitutes and/or replacements, as well as related products
covered within the scope of this Code.
prohibits advertising, promotions, sponsorships or marketing materials and activities for breastmilk substitutes in
line with the RIRR’s declaration of principle under Section 4(f), to wit:
SECTION 4. Declaration of Principles –
xxxx
(f) Advertising, promotions, or sponsorships of infant formula, breastmilk substitutes and other related products
are prohibited.
The DOH, through its co-respondents, evidently arrogated to itself not only the regulatory authority given to the
IAC but also imposed absolute prohibition on advertising, promotion, and marketing.
Yet, oddly enough, Section 12 of the RIRR reiterated the requirement of the Milk Code in Section 6 thereof for
prior approval by IAC of all advertising, marketing and promotional materials prior to dissemination.
Even respondents, through the OSG, acknowledged the authority of IAC, and repeatedly insisted, during the oral
arguments on June 19, 2007, that the prohibition under Section 11 is not actually operational, viz:
SOLICITOR GENERAL DEVANADERA:
xxxx
x x x Now, the crux of the matter that is being questioned by Petitioner is whether or not there is an absolute
prohibition on advertising making AO 2006-12 unconstitutional. We maintained that what AO 2006-12 provides
is not an absolute prohibition because Section 11 while it states and it is entitled prohibition it states that no
advertising, promotion, sponsorship or marketing materials and activities for breast milk substitutes intended for
infants and young children up to 24 months shall be allowed because this is the standard they tend to convey or
give subliminal messages or impression undermine that breastmilk or breastfeeding x x x.
We have to read Section 11 together with the other Sections because the other Section, Section 12, provides for
the inter agency committee that is empowered to process and evaluate all the advertising and promotion materials.
xxxx
What AO 2006-12, what it does, it does not prohibit the sale and manufacture, it simply regulates the
advertisement and the promotions of breastfeeding milk substitutes.
xxxx
Now, the prohibition on advertising, Your Honor, must be taken together with the provision on the Inter-Agency
Committee that processes and evaluates because there may be some information dissemination that are straight
forward information dissemination. What the AO 2006 is trying to prevent is any material that will undermine the
practice of breastfeeding, Your Honor.
xxxx
ASSOCIATE JUSTICE SANTIAGO:
Madam Solicitor General, under the Milk Code, which body has authority or power to promulgate Rules and
Regulations regarding the Advertising, Promotion and Marketing of Breastmilk Substitutes?
SOLICITOR GENERAL DEVANADERA:
Your Honor, please, it is provided that the Inter-Agency Committee, Your Honor.
xxxx
ASSOCIATE JUSTICE SANTIAGO:
x x x Don't you think that the Department of Health overstepped its rule making authority when it totally banned
advertising and promotion under Section 11 prescribed the total effect rule as well as the content of materials
under Section 13 and 15 of the rules and regulations?
SOLICITOR GENERAL DEVANADERA:
Your Honor, please, first we would like to stress that there is no total absolute ban. Second, the Inter-Agency
Committee is under the Department of Health, Your Honor.
xxxx
ASSOCIATE JUSTICE NAZARIO:
x x x Did I hear you correctly, Madam Solicitor, that there is no absolute ban on advertising of breastmilk
substitutes in the Revised Rules?
SOLICITOR GENERAL DEVANADERA:
Yes, your Honor.
ASSOCIATE JUSTICE NAZARIO:
But, would you nevertheless agree that there is an absolute ban on advertising of breastmilk substitutes intended
for children two (2) years old and younger?
SOLICITOR GENERAL DEVANADERA:
It's not an absolute ban, Your Honor, because we have the Inter-Agency Committee that can evaluate some
advertising and promotional materials, subject to the standards that we have stated earlier, which are- they should
not undermine breastfeeding, Your Honor.
xxxx
x x x Section 11, while it is titled Prohibition, it must be taken in relation with the other Sections, particularly 12
and 13 and 15, Your Honor, because it is recognized that the Inter-Agency Committee has that power to evaluate
promotional materials, Your Honor.
ASSOCIATE JUSTICE NAZARIO:
So in short, will you please clarify there's no absolute ban on advertisement regarding milk substitute regarding
infants two (2) years below?
SOLICITOR GENERAL DEVANADERA:
We can proudly say that the general rule is that there is a prohibition, however, we take exceptions and standards
have been set. One of which is that, the Inter-Agency Committee can allow if the advertising and promotions will
not undermine breastmilk and breastfeeding, Your Honor. 63
Sections 11 and 4(f) of the RIRR are clearly violative of the Milk Code.
However, although it is the IAC which is authorized to promulgate rules and regulations for the approval or
rejection of advertising, promotional, or other marketing materials under Section 12(a) of the Milk Code, said
provision must be related to Section 6 thereof which in turn provides that the rules and regulations must be
"pursuant to the applicable standards provided for in this Code." Said standards are set forth in Sections 5(b), 8(b),
and 10 of the Code, which, at the risk of being repetitious, and for easy reference, are quoted hereunder:
SECTION 5. Information and Education –
xxxx
(b) Informational and educational materials, whether written, audio, or visual, dealing with the feeding of infants
and intended to reach pregnant women and mothers of infants, shall include clear information on all the following
points: (1) the benefits and superiority of breastfeeding; (2) maternal nutrition, and the preparation for and
maintenance of breastfeeding; (3) the negative effect on breastfeeding of introducing partial bottlefeeding; (4) the
difficulty of reversing the decision not to breastfeed; and (5) where needed, the proper use of infant formula,
whether manufactured industrially or home-prepared. When such materials contain information about the use of
infant formula, they shall include the social and financial implications of its use; the health hazards of
inappropriate foods of feeding methods; and, in particular, the health hazards of unnecessary or improper use of
infant formula and other breastmilk substitutes. Such materials shall not use any picture or text which may
idealize the use of breastmilk substitutes.
xxxx
SECTION 8. Health Workers. –
xxxx
(b) Information provided by manufacturers and distributors to health professionals regarding products within the
scope of this Code shall be restricted to scientific and factual matters and such information shall not imply or
create a belief that bottle feeding is equivalent or superior to breastfeeding. It shall also include the information
specified in Section 5(b).
xxxx
SECTION 10. Containers/Label –
(a) Containers and/or labels shall be designed to provide the necessary information about the appropriate use of
the products, and in such a way as not to discourage breastfeeding.
(b) Each container shall have a clear, conspicuous and easily readable and understandable message in Pilipino or
English printed on it, or on a label, which message can not readily become separated from it, and which shall
include the following points:
(i) the words "Important Notice" or their equivalent;
(ii) a statement of the superiority of breastfeeding;
(iii) a statement that the product shall be used only on the advice of a health worker as to the need for its use and
the proper methods of use; and
(iv) instructions for appropriate preparation, and a warning against the health hazards of inappropriate
preparation.
Section 12(b) of the Milk Code designates the DOH as the principal implementing agency for the enforcement of
the provisions of the Code. In relation to such responsibility of the DOH, Section 5(a) of the Milk Code states
that:
SECTION 5. Information and Education –
(a) The government shall ensure that objective and consistent information is provided on infant feeding, for use
by families and those involved in the field of infant nutrition. This responsibility shall cover the planning,
provision, design and dissemination of information, and the control thereof, on infant nutrition. (Emphasis
supplied)
Thus, the DOH has the significant responsibility to translate into operational terms the standards set forth
in Sections 5, 8, and 10 of the Milk Code, by which the IAC shall screen advertising, promotional, or other
marketing materials.
It is pursuant to such responsibility that the DOH correctly provided for Section 13 in the RIRR which reads as
follows:
SECTION 13. "Total Effect" - Promotion of products within the scope of this Code must be objective and should
not equate or make the product appear to be as good or equal to breastmilk or breastfeeding in the advertising
concept. It must not in any case undermine breastmilk or breastfeeding. The "total effect" should not directly or
indirectly suggest that buying their product would produce better individuals, or resulting in greater love,
intelligence, ability, harmony or in any manner bring better health to the baby or other such exaggerated and
unsubstantiated claim.
Such standards bind the IAC in formulating its rules and regulations on advertising, promotion, and marketing.
Through that single provision, the DOH exercises control over the information content of advertising,
promotional and marketing materials on breastmilk vis-a-vis breastmilk substitutes, supplements and other related
products. It also sets a viable standard against which the IAC may screen such materials before they are made
public.
In Equi-Asia Placement, Inc. vs. Department of Foreign Affairs,64 the Court held:
x x x [T]his Court had, in the past, accepted as sufficient standards the following: "public interest," "justice and
equity," "public convenience and welfare," and "simplicity, economy and welfare." 65
In this case, correct information as to infant feeding and nutrition is infused with public interest and welfare.
4. With regard to activities for dissemination of information to health professionals, the Court also finds that there
is no inconsistency between the provisions of the Milk Code and the RIRR. Section 7(b) 66 of the Milk Code, in
relation to Section 8(b)67 of the same Code, allows dissemination of information to health professionals but
such information is restricted to scientific and factual matters.
Contrary to petitioner's claim, Section 22 of the RIRR does not prohibit the giving of information to health
professionals on scientific and factual matters. What it prohibits is the involvement of the manufacturer and
distributor of the products covered by the Code in activities for the promotion, education and production of
Information, Education and Communication (IEC) materials regarding breastfeeding that are intended
for women and children. Said provision cannot be construed to encompass even the dissemination of
information to health professionals, as restricted by the Milk Code.
5. Next, petitioner alleges that Section 8(e)68 of the Milk Code permits milk manufacturers and distributors to
extend assistance in research and in the continuing education of health professionals, while Sections 22 and 32 of
the RIRR absolutely forbid the same. Petitioner also assails Section 4(i) 69 of the RIRR prohibiting milk
manufacturers' and distributors' participation in any policymaking body in relation to the advancement of
breastfeeding.
Section 4(i) of the RIRR provides that milk companies and their representatives should not form part of any
policymaking body or entity in relation to the advancement of breastfeeding. The Court finds nothing in said
provisions which contravenes the Milk Code. Note that under Section 12(b) of the Milk Code, it is the DOH
which shall be principally responsible for the implementation and enforcement of the provisions of said Code. It
is entirely up to the DOH to decide which entities to call upon or allow to be part of policymaking bodies on
breastfeeding. Therefore, the RIRR's prohibition on milk companies’ participation in any policymaking body in
relation to the advancement of breastfeeding is in accord with the Milk Code.
Petitioner is also mistaken in arguing that Section 22 of the RIRR prohibits milk companies from giving reasearch
assistance and continuing education to health professionals. Section 2270 of the RIRR does not pertain to
research assistance to or the continuing education of health professionals; rather, it deals with breastfeeding
promotion and education for women and children. Nothing in Section 22 of the RIRR prohibits milk companies
from giving assistance for research or continuing education to health professionals; hence, petitioner's argument
against this particular provision must be struck down.
It is Sections 971 and 1072 of the RIRR which govern research assistance. Said sections of the RIRR provide
that research assistance for health workers and researchers may be allowed upon approval of an ethics
committee, and with certain disclosure requirements imposed on the milk company and on the recipient of
the research award.
The Milk Code endows the DOH with the power to determine how such research or educational assistance may
be given by milk companies or under what conditions health workers may accept the assistance. Thus, Sections 9
and 10 of the RIRR imposing limitations on the kind of research done or extent of assistance given by milk
companies are completely in accord with the Milk Code.
Petitioner complains that Section 3273 of the RIRR prohibits milk companies from giving assistance, support,
logistics or training to health workers. This provision is within the prerogative given to the DOH under Section
8(e)74of the Milk Code, which provides that manufacturers and distributors of breastmilk substitutes may assist in
researches, scholarships and the continuing education, of health professionals in accordance with the rules and
regulations promulgated by the Ministry of Health, now DOH.
6. As to the RIRR's prohibition on donations, said provisions are also consistent with the Milk Code. Section 6(f)
of the Milk Code provides that donations may be made by manufacturers and distributors of breastmilk
substitutes upon the request or with the approval of the DOH. The law does not proscribe the refusal of
donations. The Milk Code leaves it purely to the discretion of the DOH whether to request or accept such
donations. The DOH then appropriately exercised its discretion through Section 51 75 of the RIRR which sets forth
its policy not to request or approve donations from manufacturers and distributors of breastmilk substitutes.
It was within the discretion of the DOH when it provided in Section 52 of the RIRR that any donation from milk
companies not covered by the Code should be coursed through the IAC which shall determine whether such
donation should be accepted or refused. As reasoned out by respondents, the DOH is not mandated by the Milk
Code to accept donations. For that matter, no person or entity can be forced to accept a donation. There is,
therefore, no real inconsistency between the RIRR and the law because the Milk Code does not prohibit the DOH
from refusing donations.
7. With regard to Section 46 of the RIRR providing for administrative sanctions that are not found in the Milk
Code, the Court upholds petitioner's objection thereto.
Respondent's reliance on Civil Aeronautics Board v. Philippine Air Lines, Inc.76 is misplaced. The glaring
difference in said case and the present case before the Court is that, in the Civil Aeronautics Board, the Civil
Aeronautics Administration (CAA) was expressly granted by the law (R.A. No. 776) the power to impose fines
and civil penalties, while the Civil Aeronautics Board (CAB) was granted by the same law the power to review on
appeal the order or decision of the CAA and to determine whether to impose, remit, mitigate, increase or
compromise such fine and civil penalties. Thus, the Court upheld the CAB's Resolution imposing administrative
fines.
In a more recent case, Perez v. LPG Refillers Association of the Philippines, Inc.,77 the Court upheld the
Department of Energy (DOE) Circular No. 2000-06-10 implementing Batas Pambansa (B.P.) Blg. 33. The
circular provided for fines for the commission of prohibited acts. The Court found that nothing in the circular
contravened the law because the DOE was expressly authorized by B.P. Blg. 33 and R.A. No. 7638 to impose
fines or penalties.
In the present case, neither the Milk Code nor the Revised Administrative Code grants the DOH the authority to
fix or impose administrative fines. Thus, without any express grant of power to fix or impose such fines, the DOH
cannot provide for those fines in the RIRR. In this regard, the DOH again exceeded its authority by providing for
such fines or sanctions in Section 46 of the RIRR. Said provision is, therefore, null and void.
The DOH is not left without any means to enforce its rules and regulations. Section 12(b) (3) of the Milk Code
authorizes the DOH to "cause the prosecution of the violators of this Code and other pertinent laws on products
covered by this Code." Section 13 of the Milk Code provides for the penalties to be imposed on violators of the
provision of the Milk Code or the rules and regulations issued pursuant to it, to wit:
SECTION 13. Sanctions –
(a) Any person who violates the provisions of this Code or the rules and regulations issued pursuant to this
Code shall, upon conviction, be punished by a penalty of two (2) months to one (1) year imprisonment or a fine of
not less than One Thousand Pesos (P1,000.00) nor more than Thirty Thousand Pesos (P30,000.00) or both.
Should the offense be committed by a juridical person, the chairman of the Board of Directors, the president,
general manager, or the partners and/or the persons directly responsible therefor, shall be penalized.
(b) Any license, permit or authority issued by any government agency to any health worker, distributor,
manufacturer, or marketing firm or personnel for the practice of their profession or occupation, or for the pursuit
of their business, may, upon recommendation of the Ministry of Health, be suspended or revoked in the event of
repeated violations of this Code, or of the rules and regulations issued pursuant to this Code. (Emphasis supplied)
8. Petitioner’s claim that Section 57 of the RIRR repeals existing laws that are contrary to the RIRR is frivolous.
Section 57 reads:
SECTION 57. Repealing Clause - All orders, issuances, and rules and regulations or parts thereof inconsistent
with these revised rules and implementing regulations are hereby repealed or modified accordingly.
Section 57 of the RIRR does not provide for the repeal of laws but only orders, issuances and rules and
regulations. Thus, said provision is valid as it is within the DOH's rule-making power.
An administrative agency like respondent possesses quasi-legislative or rule-making power or the power to make
rules and regulations which results in delegated legislation that is within the confines of the granting statute and
the Constitution, and subject to the doctrine of non-delegability and separability of powers. 78 Such express grant
of rule-making power necessarily includes the power to amend, revise, alter, or repeal the same. 79 This is to allow
administrative agencies flexibility in formulating and adjusting the details and manner by which they are to
implement the provisions of a law,80 in order to make it more responsive to the times. Hence, it is a standard
provision in administrative rules that prior issuances of administrative agencies that are inconsistent therewith are
declared repealed or modified.
In fine, only Sections 4(f), 11 and 46 are ultra vires, beyond the authority of the DOH to promulgate and in
contravention of the Milk Code and, therefore, null and void. The rest of the provisions of the RIRR are in
consonance with the Milk Code.
Lastly, petitioner makes a "catch-all" allegation that:
x x x [T]he questioned RIRR sought to be implemented by the Respondents is unnecessary and oppressive, and
is offensive to the due process clause of the Constitution, insofar as the same is in restraint of trade and
because a provision therein is inadequate to provide the public with a comprehensible basis to determine whether
or not they have committed a violation.81 (Emphasis supplied)
Petitioner refers to Sections 4(f),82 4(i),83 5(w),84 11,85 22,86 32,87 46,88 and 5289 as the provisions that suppress the
trade of milk and, thus, violate the due process clause of the Constitution.
The framers of the constitution were well aware that trade must be subjected to some form of regulation for the
public good. Public interest must be upheld over business interests. 90 In Pest Management Association of the
Philippines v. Fertilizer and Pesticide Authority,91 it was held thus:
x x x Furthermore, as held in Association of Philippine Coconut Desiccators v. Philippine Coconut
Authority, despite the fact that "our present Constitution enshrines free enterprise as a policy, it
nonetheless reserves to the government the power to intervene whenever necessary to promote the general
welfare." There can be no question that the unregulated use or proliferation of pesticides would be hazardous to
our environment. Thus, in the aforecited case, the Court declared that "free enterprise does not call for removal
of ‘protective regulations’." x x x It must be clearly explained and proven by competent evidence just
exactly how such protective regulation would result in the restraint of trade. [Emphasis and underscoring
supplied]
In this case, petitioner failed to show that the proscription of milk manufacturers’ participation in any
policymaking body (Section 4(i)), classes and seminars for women and children (Section 22); the giving of
assistance, support and logistics or training (Section 32); and the giving of donations (Section 52) would
unreasonably hamper the trade of breastmilk substitutes. Petitioner has not established that the proscribed
activities are indispensable to the trade of breastmilk substitutes. Petitioner failed to demonstrate that the
aforementioned provisions of the RIRR are unreasonable and oppressive for being in restraint of trade.
Petitioner also failed to convince the Court that Section 5(w) of the RIRR is unreasonable and oppressive. Said
section provides for the definition of the term "milk company," to wit:
SECTION 5 x x x. (w) "Milk Company" shall refer to the owner, manufacturer, distributor of infant formula,
follow-up milk, milk formula, milk supplement, breastmilk substitute or replacement, or by any other description
of such nature, including their representatives who promote or otherwise advance their commercial interests in
marketing those products;
On the other hand, Section 4 of the Milk Code provides:
(d) "Distributor" means a person, corporation or any other entity in the public or private sector engaged in the
business (whether directly or indirectly) of marketing at the wholesale or retail level a product within the scope of
this Code. A "primary distributor" is a manufacturer's sales agent, representative, national distributor or broker.
xxxx
(j) "Manufacturer" means a corporation or other entity in the public or private sector engaged in the business or
function (whether directly or indirectly or through an agent or and entity controlled by or under contract with it)
of manufacturing a products within the scope of this Code.
Notably, the definition in the RIRR merely merged together under the term "milk company" the entities defined
separately under the Milk Code as "distributor" and "manufacturer." The RIRR also enumerated in Section 5(w)
the products manufactured or distributed by an entity that would qualify it as a "milk company," whereas in the
Milk Code, what is used is the phrase "products within the scope of this Code." Those are the only differences
between the definitions given in the Milk Code and the definition as re-stated in the RIRR.
Since all the regulatory provisions under the Milk Code apply equally to both manufacturers and distributors, the
Court sees no harm in the RIRR providing for just one term to encompass both entities. The definition of "milk
company" in the RIRR and the definitions of "distributor" and "manufacturer" provided for under the Milk Code
are practically the same.
The Court is not convinced that the definition of "milk company" provided in the RIRR would bring about any
change in the treatment or regulation of "distributors" and "manufacturers" of breastmilk substitutes, as defined
under the Milk Code.
Except Sections 4(f), 11 and 46, the rest of the provisions of the RIRR are in consonance with the objective,
purpose and intent of the Milk Code, constituting reasonable regulation of an industry which affects public health
and welfare and, as such, the rest of the RIRR do not constitute illegal restraint of trade nor are they violative of
the due process clause of the Constitution.
WHEREFORE, the petition is PARTIALLY GRANTED. Sections 4(f), 11 and 46 of Administrative Order No.
2006-0012 dated May 12, 2006 are declared NULL and VOID for being ultra vires. The Department of Health
and respondents are PROHIBITED from implementing said provisions.
The Temporary Restraining Order issued on August 15, 2006 is LIFTED insofar as the rest of the provisions of
Administrative Order No. 2006-0012 is concerned.
SO ORDERED.
Puno, (Chief Justice), Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Corona, Carpio-Morales,
Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr., Nachura, Reyes, JJ., concur.

Footnotes
1
 Section 11, Rule 3, 1997 Rules of Civil Procedure which provides:
Section 11. Misjoinder and non-joinder of parties. - Neither misjoinder nor non-joinder of parties is ground for
dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or on its
own initiative at any stage of the action and on such terms as are just. x x x (Emphasis supplied)
2
 Article 11. Implementation and monitoring
11.1 Governments should take action to give effect to the principles and aim of this Code, as appropriate to their
social and legislative framework, including the adoption of national legislation, regulations or other suitable
measures. For this purpose, governments should seek, when necessary, the cooperation of WHO, UNICEF and
other agencies of the United Nations system. National policies and measures, including laws and regulations,
which are adopted to give effect to the principles and aim of this Code should be publicly stated, and should apply
on the same basis to all those involved in the manufacture and marketing of products within the scope of this
Code.
xxxx
3
 Petition, rollo, p. 12.
4
 G.R. No. 131719, May 25, 2004, 429 SCRA 81.
5
 Id. at 96-97.
6
 G.R. No. 135092, May 4, 2006, 489 SCRA 382.
7
 Id. at 396.
8
 Annex "G", Petitioner's Memorandum dated July 19, 2007.
9
 Annexes "H", "I", and "J" of Petitioner's Memorandum executed by Wyeth Philippines, Inc., Bristol Myers
Squibb (Phil.), Inc., and Abbott Laboratories, Inc., respectively.
10
 a) The UN Convention on the Rights of the Child (CRC); b) the International Code of Marketing Breastmilk
Substitutes (ICMBS); c) the International Covenant on Economic, Social and Cultural Rights (CSCR); d) the
Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW); e) the Global Strategy
for Infant and Young Child Nutrition (Global Strategy); and f) various resolutions adopted by the World Health
Assembly.
11
 Joaquin G. Bernas, S.J., Constitutional Structure and Powers of Government (Notes and Cases) Part I ( 2005).
12
 Id.
13
 Joaquin G. Bernas, S.J., An Introduction to Public International Law, 2002 Ed., p. 57.
14
 According to Fr. Bernas, the Austrian Constitution (Art. 9) and the Constitution of the Federal Republic of
Germany (Art. 25) also use the incorporation method.
15
 G.R. No. 139325, April 12, 2005, 455 SCRA 397.
16
 Id. at 421.
17
 Merlin M. Magallona, Fundamentals of Public International Law, 2005 Ed., p. 526.
18
 Id. at 525.
19
 Government of Hong Kong Special Administrative Region v. Olalia, G.R. No. 153675, April 19, 2007.
20
 Tañada v. Angara, 338 Phil. 546, 592 (1997).
21
 Louis Henkin, Richard C. Pugh, Oscar Schachter, Hans Smit, International Law, Cases and Materials, 2ndEd., p.
96.
22
 Supra note 13, at 10-13.
23
 Minucher v. Court of Appeals, 445 Phil. 250, 269 (2003).
24
 Article 57. The various specialized agencies, established by intergovernmental agreement and having wide
international responsibilities, as defined in their basic instruments, in economic, social, cultural, educational,
health, and related fields, shall be brought into relationship with the United Nations in accordance with the
provisions of Article 63.
Such agencies thus brought into relationship with the United Nations are hereinafter referred to as specialized
agencies.
25
 Article 63. The Economic and Social Council may enter into agreements with any of the agencies referred to in
Article 57, defining the terms on which the agency concerned shall be brought into relationship with the United
Nations. Such agreements shall be subject to approval by the General Assembly.
It may coordinate the activities of the specialized agencies through consultation with and recommendations to
such agencies and through recommendations to the General Assembly and to the Members of the United Nations.
26
 Article 18. The functions of the Health Assembly shall be: (a) to determine the policies of the Organization x
x x. (Emphasis supplied)
27
 Article 21. The Health Assembly shall have authority to adopt regulations concerning: x x x (e) advertising and
labeling of biological, pharmaceutical and similar products moving in international commerce. (Emphasis
supplied)
28
 Article 23. The Health Assembly shall have authority to make recommendations to Members with respect to
any matter within the competence of the Organization. (Emphasis supplied)
29
 See David Fidler, Developments Involving SARS, International Law, and Infectious Disease Control at the
Fifty-Sixth Meeting of the World Health Assembly, June 2003, ASIL.
30
 In Resolution No. 34.22 (May 21, 1981), the WHA, acting under Article 23 of the WHO Constitution, adopted
the ICBMS.
(a) In Resolution No. 35.26 (May 1982), the WHA urged member states to implement the ICBMS as a
"minimum requirement".
(b) In Resolution No. 39.28 (May 16, 1986), the WHA requested the WHO Director General to direct the
attention of member states to the fact that any food or drink given before complementary feeding is nutritionally
required may interfere with the initiation or maintenance of breastfeeding and therefore should neither be
promoted nor encouraged for us by infants during this period.
(c) In Resolution No. 43.3 (May 14, 1990), the WHA urged member states to protect and promote breastfeeding
as an essential component of nutrition policies so as to enable infants to be exclusively breastfed during the first
four to six months of life.
(d) In Resolution No. 45.34 (May 14, 1992), the WHA urged member states to implement the targets of the
Innocenti Declaration specifically, to give effect to the ICMBS.
(e) In Resolution No. 46.7 (May 10, 1993), the WHA urged member states to strive to eliminate under-nutrition,
malnutrition and nutritional deficiency among children.
(f) In Resolution No. 47.5 (May 9, 1994), the WHA urged member states to ensure that there are no donations of
supplies of breastmilk substitutes and other products covered by the ICMBS in any part of the health care system.
(g) In Resolution No. 49.15 (May 25, 1996), the WHA urged member states to ensure that complementary foods
are not marketed for or used in ways that undermine exclusive and sustained breastfeeding.
(h) In Resolution No. 54.2 (May 2002), the WHA, noting that "despite the fact that the International Code of
Marketing of Breastmilk Substitutes and relevant subsequent World Health Assembly resolutions state that there
should be no advertising or other forms of promotion of products within its scope, new modern communication
methods including electronic means, are currently increasingly being used to promote such products; and
conscious of the need for the Codex Alimentarius Commission to take the International Code and subsequent
relevant Health Assembly resolutions into consideration in dealing with health claims in the development of food
standards and guidelines x x x," urged member states to develop new approaches to protect, promote and support
exclusive breastfeeding for six months as a global public health recommendation.
(i) In Resolution No. 55.25 (May 15, 2002), the WHA requested the Codex Alimentarius Commission to ensure
that labelling of processed foods for infants and young children be consistent with the WHO policy under the
ICBMS.
(j) In Resolution No. 58.32 (May 25, 2005), the WHA urged member states to continue to protect and promote
exclusive breastfeeding for six months.
(k) In Resolution No. 59.21 (May 27, 2006), the WHA reiterated its support for the Gobal strategy for Infant and
Young Child Feeding.
31
 David Fidler, supra note 29.
32
 Article 38. 1. The Court, whose function is to decide in accordance with international law such disputes as are
submitted to it, shall apply: a) international conventions, whether general or particular, establishing rules
expressly recognized by the contesting states; b) international custom, as evidence of a general practice accepted
as law; c) the general principles of law recognized by civilized nations; d) subject to the provisions of Article 59,
judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary
means for the determination of rules of law.
33
 Supra note 29.
34
 Louis Henkin, et al., International Law, Cases and Materials, 2nd Ed., supra note 21, at 114-136.
35
 Supra note 19.
36
 90 Phil. 70 (1951).
37
 Supra note 15.
38
 G.R. No. 159938, March 31, 2006, 486 SCRA 405.
39
 Edward Kwakwa, Some Comments on Rulemaking at the World Intellectual Property
Organization, [Link]/shell/cite; September 13, 2007, 12:33, citing the 1999 WIPO Resolution
Concerning Provisions on the Protection of Well-Known Marks, 2000 WIPO Recommendation Concerning
Trademark Licenses, and 2001 WIPO Recommendation Concerning Provisions on the Protection of Marks and
other Industrial Property Rights in Signs on the Internet.
40
 Id.
41
 Supra note 29.
42
 Section 2. Purpose – These Revised Rules and Regulations are hereby promulgated to ensure the provision of
safe and adequate nutrition for infants and young children by the promotion, protection and support of
breastfeeding and by ensuring the proper use of breastmilk substitutes, breastmilk supplements and related
products when these are medically indicated and only when necessary, on the basis of adequate information and
through appropriate marketing and distribution. (Underscoring supplied)
43
 Section 5(ff). "Young Child" means a person from the age of more than twelve (12) months up to the age of
three (3) years (36 months). (Underscoring supplied)
44
 G.R. No. 144218, July 14, 2006, 495 SCRA 42, 55.
45
 See pp. 19-21.
46
 See p. 21.
47
 Executive Order No. 292, made effective on November 23, 1989 by Proclamation No. 495.
48
 Jacobson v. Massachusetts, 197 US 11 (1905); Beltran v. Secretary of Health G.R. No. 133640, November 25,
2005, 476 SCRA 168, 196; St. Lukes’s Medical Center Employees Association- AFW v. National Labor Relations
Commission, G.R. No. 162053, March 7, 2007; Tablarin v. Gutierrez, G.R. No. L-78164, July 31, 1987, 152
SCRA 730, 741; Pollution Adjudication Board v. Court of Appeals, G.R. No. 93891, March 11, 1991, 195 SCRA
112, 123-124; Rivera v. Campbell, 34 Phil. 348, 353-354 (1916); Lorenzo v. Director of Health, 50 Phil. 595, 597
(1927).
49
 As early as People v. Pomar, 46 Phil. 440, 445 (1924), we already noted that "advancing civilization is
bringing within the scope of police power of the state today things which were not thought of as being with in
such power yesterday. The development of civilization, the rapidly increasing population, the growth of public
opinion, with [an increasing] desire on the part of the masses and of the government to look after and care for the
interests of the individuals of the state, have brought within the police power of the state many questions for
regulation which formerly were not so considered."
50
 Act No. 2711, approved on March 10, 1917.
51
 Known then as Public Health Service
52
 Section 1, Chapter I, Title IX, Executive Order No. 292.
53
 Id. at Section 3.
54
 SECTION 6. The General Public and Mothers –
(a) No advertising, promotion or other marketing materials, whether written, audio or visual, for products within
the scope of this Code shall be printed, published, distributed, exhibited and broadcast unless such materials are
duly authorized and approved by an inter-agency committee created herein pursuant to the applicable standards
provided for in this Code.
(b) Manufacturers and distributors shall not be permitted to give, directly or indirectly, samples and supplies of
products within the scope of this Code or gifts of any sort to any member of the general public, including
members of their families, to hospitals and other health institutions, as well as to personnel within the health care
system, save as otherwise provided in this Code.
(c) There shall be no point-of-sale advertising, giving of samples or any other promotion devices to induce sales
directly to the consumers at the retail level, such as special displays, discount coupons, premiums, special sales,
bonus and tie-in sales for the products within the scope of this Code. This provision shall not restrict the
establishment of pricing policies and practices intended to provide products at lower prices on a long-term basis.
(d) Manufactures and distributors shall not distribute to pregnant women or mothers of infants any gifts or articles
or utensils which may promote the use of breastmilk substitutes or bottlefeeding, nor shall any other groups,
institutions or individuals distribute such gifts, utensils or products to the general public and mothers.
(e) Marketing personnel shall be prohibited from advertising or promoting in any other manner the products
covered by this Code, either directly or indirectly, to pregnant women or with mother of infants, except as
otherwise provided by this Code.
(f) Nothing herein contained shall prevent donations from manufacturers and distributors or products within the
scope of this Code upon request by or with the approval of the Ministry of Health.
SECTION 7. Health Care System –
(a) The Ministry of Health shall take appropriate measures to encourage and promote breastfeeding. It shall
provide objective and consistent information, training and advice to health workers on infant nutrition, and on
their obligations under this Code.
(b) No facility of the health care system shall be used for the purpose of promoting infant formula or other
products within the scope of this Code. This Code does not, however, preclude the dissemination of information
to health professionals as provided in Section 8(b).
(c) Facilities of the health care system shall not be used for the display of products within the scope of this Code,
or for placards or posters concerning such products.
(d) The use by the health care system of "professional service" representatives, "mothercraft nurses" or similar
personnel, provided or paid for by manufacturers or distributors, shall not be permitted.
(e) In health education classes for mothers and the general public, health workers and community workers shall
emphasize the hazards and risks of the improper use of breastmilk substitutes particularly infant formula. Feeding
with infant formula shall be demonstrated only to mothers who may not be able to breastfeed for medical or other
legitimate reasons.
SECTION 8. Health Workers –
(a) Health workers shall encourage and promote breastfeeding and shall make themselves familiar with objectives
and consistent information on maternal and infant nutrition, and with their responsibilities under this Code.
(b) Information provided by manufacturers and distributors to health professionals regarding products within the
scope of this Code shall be restricted to scientific and factual matters and such information shall not imply or
create a belief that bottlefeeding is equivalent or superior to breastfeeding. It shall also include the information
specified in Section 5(b).
(c) No financial or material inducements to promote products within the scope of this Code shall be offered by
manufacturers or distributors to health workers or members of their families, nor shall these be accepted by the
health workers or members of their families, except as otherwise provided in Section 8(e).
(d) Samples of infant formula or other products within the scope of this Code, or of equipment or utensils for their
preparation or use, shall not be provided to health workers except when necessary for the purpose of professional
evaluation or research in accordance with the rules and regulations promulgated by the Ministry of Health. No
health workers shall give samples of infant formula to pregnant women and mothers of infants or members of
their families.
(e) Manufacturers and distributors of products within the scope of this Code may assist in the research,
scholarships and continuing education, of health professionals, in accordance with the rules and regulations
promulgated by the Ministry of Health.
SECTION 9. Persons employed by Manufacturers and Distributors – Personnel employed in marketing products
within the scope of this Code shall not, as part of their job responsibilities, perform educational functions in
relation to pregnant women or mothers of infants.
55
 See p. 20.
56
 See p. 21.
57
 SECTION 16. All health and nutrition claims for products within the scope of the Code are absolutely
prohibited. For this purpose, any phrase or words that connotes to increase emotional, intellectual abilities of the
infant and young child and other like phrases shall not be allowed.
58
 See p. 30.
59
 SECTION 10. Containers/Label –
xxxx
(d) The term "humanized", "maternalized" or similar terms shall not be used.
60
 SECTION 2. Aim of the Code – The aim of the Code is to contribute to the provision of safe and adequate
nutrition for infants by the protection and promotion of breastfeeding and by ensuring the proper use of breastmilk
substitutes and breastmilk supplements when these are necessary, on the basis of adequate information and
through appropriate marketing and distribution.
61
 SECTION 26. Content – Each container/label shall contain such message, in both Filipino and English
languages, and which message cannot be readily separated therefrom, relative the following points:
xxxx
(f) The health hazards of unnecessary or improper use of infant formula and other related products including
information that powdered infant formula may contain pathogenic microorganisms and must be prepared and used
appropriately.
62
 TSN of the hearing of June 19, 2007, pp. 114-120.
63
 TSN of June 19, 2007 hearing, pp. 193-194, 198, 231, 237-240, 295-300.
64
 G.R. No. 152214, September 19, 2006, 502 SCRA 295.
65
 Id. at 314.
66
 SECTION 7. Health Care System –
xxxx
(b) No facility of the health care system shall be used for the purpose of promoting infant formula or other
products within the scope of this Code. This Code does not, however, preclude the dissemination of information
to health professionals as provided in Section 8(b).
67
 SECTION 8. Health Workers. -
xxxx
(b) Information provided by manufacturers and distributors to health professionals regarding products within the
scope of this Code shall be restricted to scientific and factual matters and such information shall not imply or
create a belief that bottlefeeding is equivalent or superior to breastfeeding. It shall also include the information
specified in Section 5(b).
68
 SECTION 8. Health Workers -
xxxx
(e) Manufacturers and distributors of products within the scope of this Code may assist in the research,
scholarships and continuing education, of health professionals, in accordance with the rules and regulations
promulgated by the Ministry of Health.
69
 SECTION 4. Declaration of Principles – The following are the underlying principles from which the revised
rules and regulations are premised upon:
xxxx
(i) Milk companies, and their representatives, should not form part of any policymaking body or entity in relation
to the advancement of breastfeeding.
70
 SECTION 22. No manufacturer, distributor, or representatives of products covered by the Code shall be
allowed to conduct or be involved in any activity on breastfeeding promotion, education and production of
Information, Education and Communication (IEC) materials on breastfeeding, holding of or participating as
speakers in classes or seminars for women and children activities and to avoid the use of these venues to market
their brands or company names.
71
 SECTION 9. Research, Ethics Committee, Purpose - The DOH shall ensure that research conducted for public
policy purposes, relating to infant and young child feeding should, at all times, be free form any commercial
influence/bias; accordingly, the health worker or researcher involved in such must disclose any actual or potential
conflict of interest with the company/person funding the research. In any event, such research and its findings
shall be subjected to independent peer review. x x x.
72
 SECTION 10. Public Disclosure – For transparency purposes, a disclosure and/or disclaimer of the sponsoring
company should be done by the company itself, health worker, researcher involved through verbal declaration
during the public presentation of the research and in print upon publication.
73
 SECTION 32. Primary Responsibility of Health Workers – It is the primary responsibility of the health workers
to promote, protect and support breastfeeding and appropriate infant and young child feeding. Part of this
responsibility is to continuously update their knowledge and skills on breastfeeding. No assistance, support,
logistics or training from milk companies shall be permitted.
74
 Supra note 68.
75
 SECTION 51. Donations Within the Scope of This Code - Donations of products, materials, defined and
covered under the Milk Code and these implementing rules and regulations, shall be strictly prohibited.
76
 159-A Phil. 142 (1975).
77
 G.R. No. 159149, June 26, 2006, 492 SCRA 638.
78
 Smart Communications, Inc. v. National Telecommunications Commission, 456 Phil. 145, 155-156 (2003).
79
 Yazaki Torres Manufacturing, Inc. v. Court of Appeals, G.R. No. 130584, June 27, 2006, 493 SCRA 86, 97.
80
 Supra note 78, at 156.
81
 Petitioner's Memorandum.
82
 SECTION 4. Declaration of Principles – The following are the underlying principles from which the revised
rules and regulations are premised upon:
xxxx
(f) Advertising, promotions, or sponsorships of infant formula, breastmilk substitutes and other related products
are prohibited.
83
 SECTION 4. Declaration of Principles – x x x
(i) Milk companies, and their representatives, should not form part of any policymaking body or entity in relation
to the advancement of breastfeeding.
84
 SECTION 5. x x x x (w) "Milk Company" shall refer to the owner, manufacturer, distributor, of infant formula,
follow-up milk, milk formula, milk supplement, breastmilk substitute or replacement, or by any other description
of such nature, including their representatives who promote or otherwise advance their commercial interests in
marketing those products; x x x.
85
 SECTION 11. Prohibition – No advertising, promotions, sponsorships, or marketing materials and activities for
breastmilk substitutes intended for infants and young children up to twenty-four (24) months, shall be allowed,
because they tend to convey or give subliminal messages or impressions that undermine breastmilk and
breastfeeding or otherwise exaggerate breastmilk substitutes and/or replacements, as well as related products
covered within the scope of this Code.
86
 Supra note 70.
87
 Supra note 73.
88
 SECTION 46. Administrative Sanctions. – The following administrative sanctions shall be imposed upon any
person, juridical or natural, found to have violated the provisions of the Code and its implementing Rules and
Regulations:
(a) 1st violation – Warning;
(b) 2nd violation – Administrative fine of a minimum of Ten Thousand (P10,000.00) to Fifty Thousand
(P50,000.00) Pesos, depending on the gravity and extent of the violation, including the recall of the offending
product;
(c) 3rd violation – Administrative Fine of a minimum of Sixty Thousand (P60,000.00) to One Hundred Fifty
Thousand (P150,000.00) Pesos, depending on the gravity and extent of the violation, and in addition thereto, the
recall of the offending product, and suspension of the Certificate of Product Registration (CPR);
(d) 4th violation –Administrative Fine of a minimum of Two Hundred Thousand (P200,000.00) to Five Hundred
(P500,000.00) Thousand Pesos, depending on the gravity and extent of the violation; and in addition thereto, the
recall of the product, revocation of the CPR, suspension of the License to Operate (LTO) for one year;
(e) 5th and succeeding repeated violations – Administrative Fine of One Million (P1,000,000.00) Pesos, the recall
of the offending product, cancellation of the CPR, revocation of the License to Operate (LTO) of the company
concerned, including the blacklisting of the company to be furnished the Department of Budget and Management
(DBM) and the Department of Trade and Industry (DTI);
(f) An additional penalty of Two Thou-sand Five Hundred (P2,500.00) Pesos per day shall be made for every day
the violation continues after having received the order from the IAC or other such appropriate body, notifying and
penalizing the company for the infraction.
For purposes of determining whether or not there is "repeated" violation, each product violation belonging or
owned by a company, including those of their subsidiaries, are deemed to be violations of the concerned milk
company and shall not be based on the specific violating product alone.
89
 SECTION 52. Other Donations By Milk Companies Not Covered by this Code - Donations of products,
equipments, and the like, not otherwise falling within the scope of this Code or these Rules, given by milk
companies and their agents, representatives, whether in kind or in cash, may only be coursed through the Inter
Agency Committee (IAC), which shall determine whether such donation be accepted or otherwise.
90
 Eastern Assurance & Surety Corporation v. Land Transportation Franchising and Regulatory Board, 459 Phil.
395, 399 (2003).
91
 G.R. No. 156041, February 21, 2007.

Republic of the Philippines

SUPREME COURT
Manila
G.R. No. 158589             June 27, 2006
PHILIP MORRIS, INC., BENSON & HEDGES (CANADA), INC., and FABRIQUES DE TABAC
REUNIES, S.A., (now known as PHILIP MORRIS PRODUCTS S.A.), Petitioners, 
vs.
FORTUNE TOBACCO CORPORATION, Respondent.
DECISION
GARCIA, J.:
Via this petition for review under Rule 45 of the Rules of Court, herein petitioners Philip Morris, Inc., Benson &
Hedges (Canada) Inc., and Fabriques de Tabac Reunies, S.A. (now Philip Morris Products S.A.) seek the reversal
and setting aside of the following issuances of the Court of Appeals (CA) in CA-G.R. CV No. 66619, to wit:
1. Decision dated January 21, 20031 affirming an earlier decision of the Regional Trial Court of Pasig City,
Branch 166, in its Civil Case No. 47374, which dismissed the complaint for trademark infringement and damages
thereat commenced by the petitioners against respondent Fortune Tobacco Corporation; and
2. Resolution dated May 30, 20032 denying petitioners’ motion for reconsideration.
Petitioner Philip Morris, Inc., a corporation organized under the laws of the State of Virginia, United States of
America, is, per Certificate of Registration No. 18723 issued on April 26, 1973 by the Philippine Patents Office
(PPO), the registered owner of the trademark "MARK VII" for cigarettes. Similarly, petitioner Benson & Hedges
(Canada), Inc., a subsidiary of Philip Morris, Inc., is the registered owner of the trademark "MARK TEN" for
cigarettes as evidenced by PPO Certificate of Registration No. 11147. And as can be seen in Trademark
Certificate of Registration No. 19053, another subsidiary of Philip Morris, Inc., the Swiss company Fabriques de
Tabac Reunies, S.A., is the assignee of the trademark "LARK," which was originally registered in 1964 by Ligget
and Myers Tobacco Company. On the other hand, respondent Fortune Tobacco Corporation, a company
organized in the Philippines, manufactures and sells cigarettes using the trademark "MARK."
The legal dispute between the parties started when the herein petitioners, on the claim that an infringement of
their respective trademarks had been committed, filed, on August 18, 1982, a Complaint for Infringement of
Trademark and Damages against respondent Fortune Tobacco Corporation, docketed as Civil Case No. 47374 of
the Regional Trial Court of Pasig, Branch 166.
The decision under review summarized what happened next, as follows:
In the Complaint xxx with prayer for the issuance of a preliminary injunction, [petitioners] alleged that they are
foreign corporations not doing business in the Philippines and are suing on an isolated transaction. xxx they
averred that the countries in which they are domiciled grant xxx to corporate or juristic persons of the Philippines
the privilege to bring action for infringement, xxx without need of a license to do business in those countries.
[Petitioners] likewise manifested [being registered owners of the trademark "MARK VII" and "MARK TEN" for
cigarettes as evidenced by the corresponding certificates of registration and an applicant for the registration of the
trademark "LARK MILDS"]. xxx. [Petitioners] claimed that they have registered the aforementioned trademarks
in their respective countries of origin and that, by virtue of the long and extensive usage of the same, these
trademarks have already gained international fame and acceptance. Imputing bad faith on the part of the
[respondent], petitioners claimed that the [respondent], without any previous consent from any of the [petitioners],
manufactured and sold cigarettes bearing the identical and/or confusingly similar trademark "MARK" xxx
Accordingly, they argued that [respondent’s] use of the trademark "MARK" in its cigarette products have caused
and is likely to cause confusion or mistake, or would deceive purchasers and the public in general into buying
these products under the impression and mistaken belief that they are buying [petitioners’] products.
Invoking the provisions of the Paris Convention for the Protection of Industrial and Intellectual Property (Paris
Convention, for brevity), to which the Philippines is a signatory xxx, [petitioners] pointed out that upon the
request of an interested party, a country of the Union may prohibit the use of a trademark which constitutes a
reproduction, imitation, or translation of a mark already belonging to a person entitled to the benefits of the said
Convention. They likewise argued that, in accordance with Section 21-A in relation to Section 23 of Republic Act
166, as amended, they are entitled to relief in the form of damages xxx [and] the issuance of a writ of preliminary
injunction which should be made permanent to enjoin perpetually the [respondent] from violating [petitioners’]
right to the exclusive use of their aforementioned trademarks.
[Respondent] filed its Answer xxx denying [petitioners’] material allegations and xxx averred [among other
things] xxx that "MARK" is a common word, which cannot particularly identify a product to be the product of the
[petitioners] xxx
xxx xxx xxx.
[Link]
Meanwhile, after the [respondent] filed its Opposition (Records, Vo. I, p. 26), the matter of the [petitioners’]
prayer for the issuance of a writ of preliminary injunction was negatively resolved by the court in an Order xxx
dated March 28, 1973. [The incidental issue of the propriety of an injunction would eventually be elevated to the
CA and would finally be resolved by the Supreme Court in its Decision dated July 16, 1993 in G.R. No. 91332].
xxx.
xxx xxx xxx
After the termination of the trial on the merits xxx trial court rendered its Decision xxx dated November 3, 1999
dismissing the complaint and counterclaim after making a finding that the [respondent] did not commit trademark
infringement against the [petitioners]. Resolving first the issue of whether or not [petitioners] have capacity to
institute the instant action, the trial court opined that [petitioners’] failure to present evidence to support their
allegation that their respective countries indeed grant Philippine corporations reciprocal or similar privileges by
law xxx justifies the dismissal of the complaint xxx. It added that the testimonies of [petitioners’] witnesses xxx
essentially declared that [petitioners] are in fact doing business in the Philippines, but [petitioners] failed to
establish that they are doing so in accordance with the legal requirement of first securing a license. Hence, the
court declared that [petitioners] are barred from maintaining any action in Philippine courts pursuant to Section
133 of the Corporation Code.
The issue of whether or not there was infringement of the [petitioners’] trademarks by the [respondent] was
likewise answered xxx in the negative. It expounded that "in order for a name, symbol or device to constitute a
trademark, it must, either by itself or by association, point distinctly to the origin or ownership of the article to
which it is applied and be of such nature as to permit an exclusive appropriation by one person". Applying such
principle to the instant case, the trial court was of the opinion that the words "MARK", "TEN", "LARK" and the
Roman Numerals "VII", either alone or in combination of each other do not by themselves or by association point
distinctly to the origin or ownership of the cigarettes to which they refer, such that the buying public could not be
deceived into believing that [respondent’s] "MARK" cigarettes originated either from the USA, Canada, or
Switzerland.
Emphasizing that the test in an infringement case is the likelihood of confusion or deception, the trial court stated
that the general rule is that an infringement exists if the resemblance is so close that it deceives or is likely to
deceive a customer exercising ordinary caution in his dealings and induces him to purchase the goods of one
manufacturer in the belief that they are those of another. xxx. The trial court ruled that the [petitioners] failed to
pass these tests as it neither presented witnesses or purchasers attesting that they have bought [respondent’s]
product believing that they bought [petitioners’] "MARK VII", "MARK TEN" or "LARK", and have also failed
to introduce in evidence a specific magazine or periodical circulated locally, which promotes and popularizes
their products in the Philippines. It, moreover, elucidated that the words consisting of the trademarks allegedly
infringed by [respondent] failed to show that they have acquired a secondary meaning as to identify them as
[petitioners’] products. Hence, the court ruled that the [petitioners] cannot avail themselves of the doctrine of
secondary meaning.
As to the issue of damages, the trial court deemed it just not to award any to either party stating that, since the
[petitioners] filed the action in the belief that they were aggrieved by what they perceived to be an infringement of
their trademark, no wrongful act or omission can be attributed to them. xxx. 3 (Words in brackets supplied)
Maintaining to have the standing to sue in the local forum and that respondent has committed trademark
infringement, petitioners went on appeal to the CA whereat their appellate recourse was docketed as CA-G.R. CV
No. 66619.
Eventually, the CA, in its Decision dated January 21, 2003, while ruling for petitioners on the matter of their legal
capacity to sue in this country for trademark infringement, nevertheless affirmed the trial court’s decision on the
underlying issue of respondent’s liability for infringement as it found that:
xxx the appellants’ [petitioners’] trademarks, i.e., "MARK VII", "MARK TEN" and "LARK", do not qualify as
well-known marks entitled to protection even without the benefit of actual use in the local market and that the
similarities in the trademarks in question are insufficient as to cause deception or confusion tantamount to
infringement. Consequently, as regards the third issue, there is likewise no basis for the award of damages prayed
for by the appellants herein.4 (Word in bracket supplied)
With their motion for reconsideration having been denied by the CA in its equally challenged Resolution of May
30, 2003, petitioners are now with this Court via this petition for review essentially raising the following issues:
(1) whether or not petitioners, as Philippine registrants of trademarks, are entitled to enforce trademark rights in
this country; and (2) whether or not respondent has committed trademark infringement against petitioners by its
use of the mark "MARK" for its cigarettes, hence liable for damages.
In its Comment,5 respondent, aside from asserting the correctness of the CA’s finding on its liability for trademark
infringement and damages, also puts in issue the propriety of the petition as it allegedly raises questions of fact.
The petition is bereft of merit.
Dealing first with the procedural matter interposed by respondent, we find that the petition raises both questions
of fact and law contrary to the prescription against raising factual questions in a petition for review on certiorari
filed before the Court. A question of law exists when the doubt or difference arises as to what the law is on a
certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or falsity of
alleged facts.6
Indeed, the Court is not the proper venue to consider factual issues as it is not a trier of facts. 7 Unless the factual
findings of the appellate court are mistaken, absurd, speculative, conflicting, tainted with grave abuse of
discretion, or contrary to the findings culled by the court of origin, 8 we will not disturb them.
It is petitioners’ posture, however, that their contentions should
be treated as purely legal since they are assailing erroneous conclusions deduced from a set of undisputed facts.
Concededly, when the facts are undisputed, the question of whether or not the conclusion drawn therefrom by the
CA is correct is one of law.9 But, even if we consider and accept as pure questions of law the issues raised in this
petition, still, the Court is not inclined to disturb the conclusions reached by the appellate court, the established
rule being that all doubts shall be resolved in favor of the correctness of such conclusions. 10
Be that as it may, we shall deal with the issues tendered and determine whether the CA ruled in accordance with
law and established jurisprudence in arriving at its assailed decision.
A "trademark" is any distinctive word, name, symbol, emblem, sign, or device, or any combination thereof
adopted and used by a manufacturer or merchant on his goods to identify and distinguish them from those
manufactured, sold, or dealt in by others.11 Inarguably, a trademark deserves protection. For, as Mr. Justice
Frankfurter observed in Mishawaka Mfg. Co. v. Kresge Co.: 12
The protection of trademarks is the law’s recognition of the psychological function of symbols. If it is true that we
live by symbols, it is no less true that we purchase goods by them. A trade-mark is a merchandising short-cut
which induces a purchaser to select what he wants, or what he has been led to believe what he wants. The owner
of a mark exploits this human propensity by making every effort to impregnate the atmosphere of the market with
the drawing power of a congenial symbol. Whatever the means employed, the aim is the same - to convey through
the mark, in the minds of potential customers, the desirability of the commodity upon which it appears. Once this
is attained, the trade-mark owner has something of value. If another poaches upon the commercial magnetism of
the symbol he has created, the owner can obtain legal redress.
It is thus understandable for petitioners to invoke in this recourse their entitlement to enforce trademark rights in
this country, specifically, the right to sue for trademark infringement in Philippine courts and be accorded
protection against unauthorized use of their Philippine-registered trademarks.
In support of their contention respecting their right of action, petitioners assert that, as corporate nationals of
member-countries of the Paris Union, they can sue before Philippine courts for infringement of trademarks, or for
unfair competition, without need of obtaining registration or a license to do business in the Philippines, and
without necessity of actually doing business in the Philippines. To petitioners, these grievance right and
mechanism are accorded not only by Section 21-A of Republic Act (R.A.) No. 166, as amended, or the Trademark
Law, but also by Article 2 of the Paris Convention for the Protection of Industrial Property, otherwise known as
the Paris Convention.
In any event, petitioners point out that there is actual use of their trademarks in the Philippines as evidenced by
the certificates of registration of their trademarks. The marks "MARK TEN" and "LARK" were registered on the
basis of actual use in accordance with Sections 2-A13 and 5(a)14 of R.A. No. 166, as amended, providing for a 2-
month pre-registration use in local commerce and trade while the registration of "MARK VII" was on the basis of
registration in the foreign country of origin pursuant to Section 37 of the same law wherein it is explicitly
provided that prior use in commerce need not be alleged. 15
Besides, petitioners argue that their not doing business in the Philippines, if that be the case, does not mean that
cigarettes bearing their trademarks are not available and sold locally. Citing Converse Rubber Corporation v.
Universal Rubber Products, Inc.,16 petitioners state that such availability and sale may be effected through the acts
of importers and distributors.
Finally, petitioners would press on their entitlement to protection even in the absence of actual use of trademarks
in the country in view of the Philippines’ adherence to the Trade Related Aspects of Intellectual Property Rights
or the TRIPS Agreement and the enactment of R.A. No. 8293, or the Intellectual Property Code (hereinafter the
"IP Code"), both of which provide that the fame of a trademark may be acquired through promotion or advertising
with no explicit requirement of actual use in local trade or commerce.
Before discussing petitioners’ claimed entitlement to enforce trademark rights in the Philippines, it must be
emphasized that their standing to sue in Philippine courts had been recognized, and rightly so, by the CA. It ought
to be pointed out, however, that the appellate court qualified its holding with a statement, following G.R. No.
91332, entitled Philip Morris, Inc., et al. v. The Court of Appeals and Fortune Tobacco Corporation, 17 that such
right to sue does not necessarily mean protection of their registered marks in the absence of actual use in the
Philippines.
Thus clarified, what petitioners now harp about is their entitlement to protection on the strength of registration of
their trademarks in the Philippines.
As we ruled in G.R. No. 91332,18 supra, so it must be here.
Admittedly, the registration of a trademark gives the registrant, such as petitioners, advantages denied non-
registrants or ordinary users, like respondent. But while petitioners enjoy the statutory presumptions arising from
such registration,19 i.e., as to the validity of the registration, ownership and the exclusive right to use the registered
marks, they may not successfully sue on the basis alone of their respective certificates of registration of
trademarks. For, petitioners are still foreign corporations. As such, they ought, as a condition to availment of the
rights and privileges vis-à-vis their trademarks in this country, to show proof that, on top of Philippine
registration, their country grants substantially similar rights and privileges to Filipino citizens pursuant to Section
21-A20 of R.A. No. 166.
In Leviton Industries v. Salvador,21 the Court further held that the aforementioned reciprocity requirement is a
condition sine qua non to filing a suit by a foreign corporation which, unless alleged in the complaint, would
justify dismissal thereof, a mere allegation that the suit is being pursued under Section 21-A of R.A. No. 166 not
being sufficient. In a subsequent case,22 however, the Court held that where the complainant is a national of a
Paris Convention- adhering country, its allegation that it is suing under said Section 21-A would suffice, because
the reciprocal agreement between the two countries is embodied and supplied by the Paris Convention which,
being considered part of Philippine municipal laws, can be taken judicial notice of in infringement suits. 23
As well, the fact that their respective home countries, namely, the United States, Switzerland and Canada, are,
together with the Philippines, members of the Paris Union does not automatically entitle petitioners to the
protection of their trademarks in this country absent actual use of the marks in local commerce and trade.
True, the Philippines’ adherence to the Paris Convention24 effectively obligates the country to honor and enforce
its provisions25 as regards the protection of industrial property of foreign nationals in this country. However, any
protection accorded has to be made subject to the limitations of Philippine laws. 26 Hence, despite Article 2 of the
Paris Convention which substantially provides that (1) nationals of member-countries shall have in this country
rights specially provided by the Convention as are consistent with Philippine laws, and enjoy the privileges that
Philippine laws now grant or may hereafter grant to its nationals, and (2) while no domicile requirement in the
country where protection is claimed shall be required of persons entitled to the benefits of the Union for the
enjoyment of any industrial property rights,27 foreign nationals must still observe and comply with the conditions
imposed by Philippine law on its nationals.
Considering that R.A. No. 166, as amended, specifically Sections 2 28 and 2-A29 thereof, mandates actual use of the
marks and/or emblems in local commerce and trade before they may be registered and ownership thereof
acquired, the petitioners cannot, therefore, dispense with the element of actual use. Their being nationals of
member-countries of the Paris Union does not alter the legal situation.
In Emerald Garment Mfg. Corporation v. Court of Appeals, 30 the Court reiterated its rulings in Sterling Products
International, Inc. v. Farbenfabriken Bayer Aktiengesellschaft, 31 Kabushi Kaisha Isetan v. Intermediate Appellate
Court,32 and Philip Morris v. Court of Appeals and Fortune Tobacco Corporation 33 on the importance of actual
commercial use of a trademark in the Philippines notwithstanding the Paris Convention:
The provisions of the 1965 Paris Convention … relied upon by private respondent and Sec. 21-A of the
Trademark Law were sufficiently expounded upon and qualified in the recent case of Philip Morris, Inc., et. al. vs.
Court of Appeals:
xxx xxx xxx
Following universal acquiescence and comity, our municipal law on trademarks regarding the requirements of
actual use in the Philippines must subordinate an international agreement inasmuch as the apparent clash is being
decided by a municipal tribunal. Xxx. Withal, the fact that international law has been made part of the law of the
land does not by any means imply the primacy of international law over national law in the municipal sphere.
Under the doctrine of incorporation as applied in most countries, rules of International Law are given a standing
equal, not superior, to national legislative enactments.
xxx xxx xxx
In other words, (a foreign corporation) may have the capacity to sue for infringement … but the question of
whether they have an exclusive right over their symbol as to justify issuance of the controversial writ will depend
on actual use of their trademarks in the Philippines in line with Sections 2 and 2-A of the same law. It is thus
incongruous for petitioners to claim that when a foreign corporation not licensed to do business in the Philippines
files a complaint for infringement, the entity need not be actually using its trademark in commerce in the
Philippines. Such a foreign corporation may have the personality to file a suit for infringement but it may not
necessarily be entitled to protection due to absence of actual use of the emblem in the local market.
Contrary to what petitioners suggest, the registration of trademark cannot be deemed conclusive as to the actual
use of such trademark in local commerce. As it were, registration does not confer upon the registrant an absolute
right to the registered mark. The certificate of registration merely constitutes prima facie evidence that the
registrant is the owner of the registered mark. Evidence of non-usage of the mark rebuts the presumption of
trademark ownership,34 as what happened here when petitioners no less admitted not doing business in this
country.35
Most importantly, we stress that registration in the Philippines of trademarks does not ipso facto convey an
absolute right or exclusive ownership thereof. To borrow from Shangri-La International Hotel Management, Ltd.
v. Development Group of Companies, Inc.36 trademark is a creation of use and, therefore, actual use is a pre-
requisite to exclusive ownership; registration is only an administrative confirmation of the existence of the right
of ownership of the mark, but does not perfect such right; actual use thereof is the perfecting ingredient. 37
Petitioners’ reliance on Converse Rubber Corporation38 is quite misplaced, that case being cast in a different
factual milieu. There, we ruled that a foreign owner of a Philippine trademark, albeit not licensed to do, and not so
engaged in, business in the Philippines, may actually earn reputation or goodwill for its goods in the country. But
unlike in the instant case, evidence of actual sales of Converse rubber shoes, such as sales invoices, receipts and
the testimony of a legitimate trader, was presented in Converse.
This Court also finds the IP Code and the TRIPS Agreement to be inapplicable, the infringement complaint herein
having been filed in August 1982 and tried under the aegis of R.A. No. 166, as amended. The IP Code, however,
took effect only on January 1, 1998 without a provision as to its retroactivity. 39 In the same vein, the TRIPS
Agreement was inexistent when the suit for infringement was filed, the Philippines having adhered thereto only
on December 16, 1994.
With the foregoing perspective, it may be stated right off that the registration of a trademark unaccompanied by
actual use thereof in the country accords the registrant only the standing to sue for infringement in Philippine
courts. Entitlement to protection of such trademark in the country is entirely a different matter.
This brings us to the principal issue of infringement.
Section 22 of R.A. No. 166, as amended, defines what constitutes trademark infringement, as follows:
Sec. 22. Infringement, what constitutes. – Any person who shall use, without the consent of the registrant, any
reproduction, counterfeit, copy or colorable imitation of any registered mark or tradename in connection with the
sale, offering for sale, or advertising of any goods, business or services on or in connection with which such use is
likely to cause confusion or mistake or to deceive purchasers or others as to the source or origin of such goods or
services, or identity of such business; or reproduce, counterfeit, copy of color ably imitate any such mark or
tradename and apply such reproduction, counterfeit, copy or colorable imitation to labels, signs, prints, packages,
wrappers, receptacles or advertisements intended to be used upon or in connection with such goods, business, or
services, shall be liable to a civil action by the registrant for any or all of the remedies herein provided.
Petitioners would insist on their thesis of infringement since respondent’s mark "MARK" for cigarettes is
confusingly or deceptively similar with their duly registered "MARK VII," "MARK TEN" and "LARK" marks
likewise for cigarettes. To them, the word "MARK" would likely cause confusion in the trade, or deceive
purchasers, particularly as to the source or origin of respondent’s cigarettes.
The "likelihood of confusion" is the gravamen of trademark infringement. 40 But likelihood of confusion is a
relative concept, the particular, and sometimes peculiar, circumstances of each case being determinative of its
existence. Thus, in trademark infringement cases, more than in other kinds of litigation, precedents must be
evaluated in the light of each particular case. 41
In determining similarity and likelihood of confusion, jurisprudence has developed two tests: the dominancy test
and the holistic test.42 The dominancy test43 sets sight on the similarity of the prevalent features of the competing
trademarks that might cause confusion and deception, thus constitutes infringement. Under this norm, the question
at issue turns on whether the use of the marks involved would be likely to cause confusion or mistake in the mind
of the public or deceive purchasers.44
In contrast, the holistic test45 entails a consideration of the entirety of the marks as applied to the products,
including the labels and packaging, in determining confusing similarity.
Upon consideration of the foregoing in the light of the peculiarity of this case, we rule against the likelihood of
confusion resulting in infringement arising from the respondent’s use of the trademark "MARK" for its particular
cigarette product.
For one, as rightly concluded by the CA after comparing the trademarks involved in their entirety as they appear
on the products,46 the striking dissimilarities are significant enough to warn any purchaser that one is different
from the other. Indeed, although the perceived offending word "MARK" is itself prominent in petitioners’
trademarks "MARK VII" and "MARK TEN," the entire marking system should be considered as a whole and not
dissected, because a discerning eye would focus not only on the predominant word but also on the other features
appearing in the labels. Only then would such discerning observer draw his conclusion whether one mark would
be confusingly similar to the other and whether or not sufficient differences existed between the marks. 47
This said, the CA then, in finding that respondent’s goods cannot be mistaken as any of the three cigarette brands
of the petitioners, correctly relied on the holistic test.
But, even if the dominancy test were to be used, as urged by the petitioners, but bearing in mind that a trademark
serves as a tool to point out distinctly the origin or ownership of the goods to which it is affixed, 48 the likelihood
of confusion tantamount to infringement appears to be farfetched. The reason for the origin and/or ownership
angle is that unless the words or devices do so point out the origin or ownership, the person who first adopted
them cannot be injured by any appropriation or imitation of them by others, nor can the public be deceived. 49
Since the word "MARK," be it alone or in combination with the word "TEN" and the Roman numeral "VII," does
not point to the origin or ownership of the cigarettes to which they apply, the local buying public could not
possibly be confused or deceived that respondent’s "MARK" is the product of petitioners and/or originated from
the U.S.A., Canada or Switzerland. And lest it be overlooked, no actual commercial use of petitioners’ marks in
local commerce was proven. There can thus be no occasion for the public in this country, unfamiliar in the first
place with petitioners’ marks, to be confused.
For another, a comparison of the trademarks as they appear on the goods is just one of the appreciable
circumstances in determining likelihood of confusion. Del Monte Corp. v. CA 50 dealt with another, where we
instructed to give due regard to the "ordinary purchaser," thus:
The question is not whether the two articles are distinguishable by their label when set side by side but whether
the general confusion made by the article upon the eye of the casual purchaser who is unsuspicious and off his
guard, is such as to likely result in his confounding it with the original. As observed in several cases, the general
impression of the ordinary purchaser, buying under the normally prevalent conditions in trade and giving the
attention such purchasers usually give in buying that class of goods is the touchstone.
When we spoke of an "ordinary purchaser," the reference was not to the "completely unwary customer" but to the
"ordinarily intelligent buyer" considering the type of product involved. 51
It cannot be over-emphasized that the products involved are addicting cigarettes purchased mainly by those who
are already predisposed to a certain brand. Accordingly, the ordinary buyer thereof would be all too familiar with
his brand and discriminating as well. We, thus, concur with the CA when it held, citing a definition found in Dy
Buncio v. Tan Tiao Bok,52 that the "ordinary purchaser" in this case means "one accustomed to buy, and therefore
to some extent familiar with, the goods in question."
Pressing on with their contention respecting the commission of trademark infringement, petitioners finally point
to Section 22 of R.A. No. 166, as amended. As argued, actual use of trademarks in local commerce is, under said
section, not a requisite before an aggrieved trademark owner can restrain the use of his trademark upon goods
manufactured or dealt in by another, it being sufficient that he had registered the trademark or trade-name with the
IP Office. In fine, petitioners submit that respondent is liable for infringement, having manufactured and sold
cigarettes with the trademark "MARK" which, as it were, are identical and/or confusingly similar with their duly
registered trademarks "MARK VII," "MARK TEN" and "LARK".
This Court is not persuaded.
In Mighty Corporation v. E & J Gallo Winery,53 the Court held that the following constitute the elements of
trademark infringement in accordance not only with Section 22 of R.A. No. 166, as amended, but also Sections 2,
2-A, 9-A54and 20 thereof:
(a) a trademark actually used in commerce in the Philippines and registered in the principal register of the
Philippine Patent Office,
(b) is used by another person in connection with the sale, offering for sale, or advertising of any goods, business
or services or in connection with which such use is likely to cause confusion or mistake or to deceive purchasers
or others as to the source or origin of such goods or services, or identity of such business; or such trademark is
reproduced, counterfeited, copied or colorably imitated by another person and such reproduction, counterfeit,
copy or colorable imitation is applied to labels, signs, prints, packages, wrappers, receptacles or advertisements
intended to be used upon or in connection with such goods, business or services as to likely cause confusion or
mistake or to deceive purchasers,
(c) the trademark is used for identical or similar goods, and
(d) such act is done without the consent of the trademark registrant or [Link]
As already found herein, while petitioners have registered the trademarks "MARK VII," "MARK TEN" and
"LARK" for cigarettes in the Philippines, prior actual commercial use thereof had not been proven. In fact,
petitioners’ judicial admission of not doing business in this country effectively belies any pretension to the
contrary.
Likewise, we note that petitioners even failed to support their claim that their respective marks are well-known
and/or have acquired goodwill in the Philippines so as to be entitled to protection even without actual use in this
country in accordance with Article 6bis55 of the Paris Convention. As correctly found by the CA, affirming that of
the trial court:
xxx the records are bereft of evidence to establish that the appellants’ [petitioners’] products are indeed well-
known in the Philippines, either through actual sale of the product or through different forms of advertising. This
finding is supported by the fact that appellants admit in their Complaint that they are not doing business in the
Philippines, hence, admitting that their products are not being sold in the local market. We likewise see no cogent
reason to disturb the trial court’s finding that the appellants failed to establish that their products are widely
known by local purchasers as "(n)o specific magazine or periodical published in the Philippines, or in other
countries but circulated locally" have been presented by the appellants during trial. The appellants also were not
able to show the length of time or the extent of the promotion or advertisement made to popularize their products
in the Philippines.56
Last, but not least, we must reiterate that the issue of trademark infringement is factual, with both the trial and
appellate courts having peremptorily found allegations of infringement on the part of respondent to be without
basis. As we said time and time again, factual determinations of the trial court, concurred in by the CA, are final
and binding on this Court.57
For lack of convincing proof on the part of the petitioners of actual use of their registered trademarks prior to
respondent’s use of its mark and for petitioners’ failure to demonstrate confusing similarity between said
trademarks, the dismissal of their basic complaint for infringement and the concomitant plea for damages must be
affirmed. The law, the surrounding circumstances and the equities of the situation call for this disposition.
WHEREFORE, the petition is hereby DENIED. Accordingly, the assailed decision and resolution of the Court of
Appeals are AFFIRMED.
Costs against the petitioners.
SO ORDERED.
CANCIO C. GARCIA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Associate Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Asscociate Justice
ADOLFO S. AZCUNA
Associate Justice
ATTESTATION
I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it is hereby
certified that the conclusions in the above decision were reached in consultation before the case was assigned to
the writer of the opinion of the Court.
ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes
1
 Penned by Associate Justice Mercedes Gozo-Dadole (ret.) and concurred in by Associate Justices Bennie
Adefuin-Dela Cruz (ret.) and Mariano C. del Castillo; Rollo, pp. 9-34.
2
 Id. at 36.
3
 CA Decision; Id. at 10-19.
4
 CA Decision; Id. at 33.
5
 Id. at 228-296.
6
 Ramos v. Pepsi-Cola Bottling Co. of the Phils., L-22533, February 9, 1967, 19 SCRA 289, 292.
7
 Moomba Mining Exploration Co. v. CA, G.R. No. 108846, October 26, 99, 317 SCRA 388, 397.
8
 Smith Kline Beckman Corporation v. CA, G.R. No. 126627, August 14, 2003, 409 SCRA 33, 39.
9
 F. D. Regalado, REMEDIAL LAW COMPENDIUM, Vol. 1, 1999 ed., p. 541.
10
 Ibid., citing Pilar Dev. Corp. v. IAC, et al., G.R. No. 72283, December 12, 1986, 146 SCRA 215.
11
 Sec. 38 of R.A. No. 166.
12
 316 U.S. 203, 53 USPQ 323 [1942] cited in Societe Des Produits Nestle, S.A. v. Court of Appeals, G.R. No.
112012, April 4, 2001, 356 SCRA 207, 215.
13
 Sec. 2-A. Ownership of trademarks, trade names and servicemarks; how acquired. – Anyone who lawfully
produces or deals in merchandise of any kind or who engages in any lawful business, xxx, by actual use thereof in
manufacture or trade, in business, xxx, may appropriate to his exclusive use a trademark, a trade name, or a
servicemark not so appropriated by another, to distinguish his merchandise, [or] business xxx from the
merchandise, business or service of others. The ownership or possession of a trademark, trade name, servicemark,
heretofore or hereafter appropriated, as in this section provided, shall be recognized and protected in the same
manner and to the same extent as are other property rights known to the law.
14
 SEC. 5. Requirements of the application. – xxx
(a) Sworn statement of the applicant’s domicile and citizenship, the date of the applicant’s first use of the mark or
trade-name, the date of the applicant’s first use of the mark or trade-name in commerce or business, the goods,
business or services in connection with which the mark or trade-name is used and the mode or manner in which
the mark is used in connection with such goods, business or services, and that the person making the application
believes himself, or the firm, corporation or association on whose behalf he makes the verification, to be the
owner of the mark or trade-name sought to be registered, that the mark or trade-name is in use in commerce or
business, and that to be best of his knowledge no person, firm, corporation or association has the right to use such
mark or trade-name in commerce or business either in the identical form thereof or in such near resemblance
thereto as might be calculated to deceive; xxx.
15
 Sec. 37. Rights of Foreign Registrants-Persons who are nationals of, domiciled in, or have a bona fide or
effective business or commercial establishment in any foreign country, which is a party to an international
convention or treaty relating to marks or tradenames on the repression of unfair competition to which the
Philippines may be a party, shall be entitled to the benefits and subject to the provisions of this Act . . . x x x
"Tradenames of persons described in the first paragraph of this section shall be protected without the obligation of
filing or registration (sic) whether or not they form parts of marks."
16
 G.R. No. L-27906, January 8, 1987, 147 SCRA 154.
17
 Philip Morris, Inc., et al. vs. CA, et al., July 16, 1993, 224 SCRA 576, 595.
18
 Superseded by R.A. No. 8293 which took effect on January 1, 1998.
19
 SEC. 20. Certificate of registration prima facie evidence of validity. - A certificate of registration of a mark or
trade name shall be prima facie evidence of the validity of the registration, the registrant’s ownership of the mark
xxx, and of the registrant’s exclusive right to use the same xxx, subject to any conditions and limitations stated
therein. (Superseded by Sec. 138 of R.A. No. 8293).
20
 SECTION 21-A. Any foreign corporation or juristic person to which a mark or trade-name has been registered
or assigned under this Act may bring an action hereunder for infringement, xxx, whether or not it has been
licensed to do business in the Philippines under Act [No. 1495] or the Corporation Law, at the time it brings
complaint: Provided, That the country of which the said foreign corporation or juristic person is a citizen or in
which it is domiciled, by treaty, convention or law, grants a similar privilege to corporate or juristic persons of the
Philippines. (Superseded by Section 160 of R.A. No. 8293)
21
 G.R. No. L-40163, June 19, 1982, 114 SCRA 420.
22
 Puma Sportschufabriken Rudolf Dassler, K.G. v. IAC., G.R. No. 75067, February 26, 1988, 158 SCRA 233.
23
 Agpalo, The Law on Trademark, Infringement and Unfair Competition, 2000 ed., pp. 209-210.
24
 The Paris Convention is essentially a compact among the various member countries to accord in their own
countries to citizens of the other contracting parties’ trademarks and other rights comparable to those accorded
their own citizens by their domestic laws. The underlying principle is that foreign nationals should be given the
same treatment in each of the member countries as that country makes available to its own citizens. (La Chemise
Lacoste, S.A. v. Fernandez, G.R. No. L-63796-97, May 21, 1984, 129 SCRA 373.)
25
 See La Chemise Lacoste S.A. v. Fernandez, supra at pp. 386-387.
26
 Agpalo, The Law on Trademark, Infringement and Unfair Competition, supra at p. 199.
27
 ART. 2. Nationals of each of the countries of the Union shall, as regards the protection of industrial property,
enjoy in all the other countries of the Union the advantages that their respective laws now grant, or may hereafter
grant, to nationals, without prejudice to the rights specially provided by the present Convention. Consequently,
they shall have the same protection as the latter, and the same legal remedy against any infringement of their
rights, provided they observe the conditions and formalities imposed upon nationals.
28
 Sec. 2. What are registrable. – Trademarks, tradenames and service marks owned by persons, corporations,
partnerships or associations domiciled in the Philippines and by persons, corporations, partnerships or
associations domiciled in any foreign country may be registered in accordance with the provisions of this Act;
Provided, That said trademarks, tradenames, or service marks are actually in use in commerce and services not
less than two months in the Philippines before the time the applications for registration are filed; And provided,
further, That the country of which the applicant for registration is a citizen grants by law substantially similar
privileges to citizens of the Philippines, and such fact is officially certified, …. (As amended by R.A. No. 865).
29
 Sec. 2-A. Ownership of trademarks, trade names and servicemarks; how acquired. – Anyone who lawfully
produces or deals in merchandise of any kind or who engages in any lawful business, or who renders any lawful
service in commerce, by actual use thereof in manufacture or trade, in business, and in the service rendered, may
appropriate to his exclusive use a trademark, a trade name, or a servicemark not so appropriated by another, to
distinguish his merchandise, business or service from the merchandise, business or service of others. The
ownership or possession of a trademark, trade name, servicemark, heretofore or hereafter appropriated, as in this
section provided, shall be recognized and protected in the same manner and to the same extent as are other
property rights known to the law. (Now Sec. 122 of R.A. No. 8293.)
30
 G.R. No. 100098, December 29, 1995, 251 SCRA 600, 619-621.
31
 L-19906, April 30, 1969, 27 SCRA 1214.
32
 G.R. No. 75420, November 15, 1991, 203 SCRA 583.
33
 Supra.
34
 Emerald Garment Mfg. Corp. supra at p. 623.
35
 Petitioners’ Complaint in the RTC; Rollo, p. 207.
36
 G.R. No. 159938, March 31, 2006.
37
 Supra note 32.
38
 Supra note 16.
39
 Sec. 241 of IP Code.
40
 McDonald’s Corp. v. L.C. Big Mak Burger, Inc., G.R. No. 143993, August 18, 2004, 437 SCRA 10.
41
 Emerald Garment Mfg. Corporation v. CA, supra, citing Esso Standard Eastern Inc. v. CA, L-29971, August 31,
1982, 116 SCRA 336; also in Mighty Corporation v. E & J Gallo Winery, G.R. No. 154342, July 14, 2004, 434
SCRA 473, 504.
42
 Id. at p. 506.
43
 Applied in McDonald’s Corp. v. L.C. Big Mak Burger, Inc., supra; Asia Brewery, Inc. v. CA, G.R. No. 103543,
July 5, 1993, 224 SCRA 437; Converse Rubber Corp. v. Universal Rubber Products, Inc., supra; Phil. Nut
Industry Inc. v. Standard Brands, Inc., et al., L-23035, July 31, 1975, 65 SCRA 575.
44
 Emerald Garment Mfg. Corporation v. Court of Appeals, supra at p. 615.
45
 Applied in Emerald Garment Mfg. Corporation v. Court of Appeals, supra; Del Monte Corp. v. CA, G.R. No.
78325, January 25, 1990, 181 SCRA 410; Fruit of the Loom, Inc. v. CA, et al., L-32747, September 29, 1984, 133
SCRA 405; Bristol Myers Co. v. Dir. of Patents, et al., L-21587, May 19, 1966, 17 SCRA 128.
46
 See CA Decision; Rollo, pp. 28-30.
47
 Mead Johnson & Co. v. N.V.J. Van Dorp. Ltd., et al., L-17501, April 27, 1963, 7 SCRA 768, 771.
48
 Gabriel v. Perez, et al., L-24075, January 31, 1974, 55 SCRA 406.
49
 74 Am. Jur. 2d, Trademarks and Tradenames, Sec. 5.
50
 Supra at p. 417.
51
 Emerald Garment Mfg. Corp. v. CA, supra at p. 618.
52
 42 Phil. 190 (1921).
53
 G.R. No. 154342, July 14, 2004, 434 SCRA 473, 496-497.
54
 Sec. 9-A. Equitable principles to govern proceedings. – In opposition proceedings and in all other inter partes
proceedings … under this Act, equitable principles of laches, estoppel, and acquiescence where applicable, may
be considered and applied. (As added by R.A. No. 638.)
55
 Art. 6bis provides: x x x the countries of the Union undertakes, either administratively if their legislation so
permits, or at the request of an interested party, to refuse or to cancel the registration and to prohibit the use of a
trademark which constitutes a reproduction, imitation or translation, liable to create confusion, of a mark
considered by the competent authority of the country of registration or use to be well-known in that country as
being already the mark of a person entitled to the benefits of the present Convention and used for identical or
similar goods. These provisions shall also apply when the essential part of the mark constitutes a reproduction of
any of such well-known mark or an imitation liable to create confusion therewith.
56
 Rollo, p. 179.
57
 Sambar v. Levi Strauss & Co., G.R. No. 132604, March 6, 2002, 378 SCRA 364, 370.

3. Section 3: Civilian Supremacy over the Military