4) United States v. Ruiz

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    No. L35645. May 22, 1985.*

    UNITED STATES OF AMERICA, CAPT. JAMES E,GALLOWAY, WILLIAM I. COLLINS and ROBERTGOHIER, petitioners, vs. HON. V.M. RUIZ, PresidingJudge of Branch XV, Court of First Instance of Rizal andELIGIO DE GUZMAN & CO., INC., respondents.

    Actions Public Corporations Constitutional Law ContractsIn suits against a foreign government, a distinction must he madebetween acts jure imperil and acts jure gestionis. As to the former,the State immunity prevails.The traditional rule of Stateimmunity exempts a State from being sued in the courts ofanother State without its consent or waiver. This rule is anecessary consequence of the principles of independence andequality of States. However, the rules of International Law arenot petrified they are constantly developing and evolving. Andbecause the activities of states have multiplied, it has beennecessary to distinguish thembetween sovereign andgovernmental acts (jure imperii) and private, commercial andproprietary acts (jure gestionis). The result is that State immunitynow extends only to acts jure imperii. The restrictive applicationof State immunity is now the rule in the United States, theUnited Kingdom and other states in western Europe. (See Coquiaand DefensorSantiago, Public International Law, pp. 207209[1984]).

    Judgments An obiter has no value as an imperativeauthority.It can thus be seen that the statement in respect ofthe waiver of State immunity from suit was purely gratuitousand, therefore, obiter so that it has no value as an imperativeauthority.

    Actions Public Corporations Constitutional Law ContractsStates may be sued only when the proceedings arise out ofcommercial transactions. Infrastructure projects of U.S. NavalBase in Subic involve governmental functions.The restrictiveapplication of State immunity is proper only when theproceedings arise out of commercial transactions of the foreign

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    sovereign, its commercial activities or economic affairs. Stateddifferently, a State may be said to have descended to the level ofan individual and can thus be deemed to have tacitly given itsconsent to be sued only when it enters into

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    * EN BANC.

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    United States of America vs. Ruiz

    business contracts, It does not apply where the contract relates tothe exercise of its sovereign functions. In this case the projects arean integral part of the naval base which is devoted to the defenseof both the United States and the Philippines, indisputably afunction of the government of the highest order they are notutilized for nor dedicated to commercial or business purposes.

    MAKASIAR, J., dissenting:

    Actions Public Corporations Contracts After U.S. Navalauthorities accepted the bid for repair of the wharves at Subic BayNaval Base, it waived the mantle of State immunity from suits.When the U.S. Government, through its agency at Subic Bay,confirmed the acceptance of a bid of a private company for therepair of wharves or shoreline in the Subic Bay area, it is deemedto have entered into a contract and thus waived the mantle ofsovereign immunity from suit and descended to the level of theordinary citizen. Its consent to be sued, therefore, is implied fromits act of entering into a contract (Santos vs. Santos, 92 Phil. 281,284).

    Same Same Same Same Military Bases Treaties Themajority opinion seems to mock the joint statement of Pres. Marcosand VicePresident Mondale that Philippine sovereignty extends toU.S. bases here.The majority opinion seems to mock theprovision of paragraph 1 of the joint statement of PresidentMarcos and VicePresident Mondale of the United States datedMay 4, 1978 that the United States reaffirms that Philippine

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    1.

    2.

    sovereignty extends over the bases and that Its base shall be underthe command of a Philippine Base Commander, which issupposed to underscore the joint Communique of PresidentMarcos and U.S. President Ford of December 7, 1975, underwhich they affirm that sovereign equality, territorial integrity andpolitical independence of all States are fundamental principleswhich both countries scrupulously respect and that they confirmthat mutual respect for the dignity of each nation shallcharacterize their friendship as well as the alliance between theirtwo countries.

    PETITION to review the orders of the Court of FirstInstance of Rizal, Br. XV. Ruiz, J.

    The facts are stated in the opinion of the Court. Sycip, Salazar, Luna & Manalo & Feliciano Law

    Office for petitioners.

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    for respondents.

    ABAD SANTOS, J.:

    This is a petition to review, set aside certain orders andrestrain the respondent judge from trying Civil Case No.779M of the defunct Court of First Instance of Rizal.

    The factual background is as follows:At times material to this case, the United States of

    America had a naval base in Subic, Zambales. The basewas one of those provided in the Military Bases Agreementbetween the Philippines and the United States.

    Sometime in May, 1972, the United States invited thesubmission of bids for the following projects:

    Repair fender system, Alava Wharf at the U.S.Naval Station Subic Bay, Philippines.Repair typhoon damage to NAS Cubi shorelinerepair typhoon damage to shoreline revetment,NAVBASE Subic and repair to Leyte Wharfapproach, NAVBASE Subic Bay, Philippines.

    Eligio de Guzman & Co., Inc. responded to the invitation

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    and submitted bids. Subsequent thereto, the companyreceived from the United States two telegrams requestingit to confirm its price proposals and for the name of itsbonding company. The company complied with therequests. [In its complaint, the company alleges that theUnited States had accepted its bids because A request toconfirm a price proposal confirms the acceptance of a bidpursuant to defendant United States bidding practices.(Rollo, p. 30.) The truth of this allegation has not beentested because the case has not reached the trial stage.]

    In June, 1972, the company received a letter which wassigned by William I. Collins, Director, Contracts Division,Naval Facilities Engineering Command, Southwest Pacific,Department of the Navy of the United States, who is one ofthe 489

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    petitioners herein. The letter said that the company did notqualify to receive an award for the projects because of itsprevious unsatisfactory performance rating on a repaircontract for the sea wall at the boat landings of the U.S.Naval Station in Subic Bay. The letter further said that theprojects had been awarded to third parties.

    In the abovementioned Civil Case No. 779M, thecompany sued the United States of America and Messrs.James E. Galloway, William I. Collins and Robert Gohierall members of the Engineering Command of the (U.S.Navy. The complaint in to order the defendants to allow theplaintiff to perform the work on the projects and, in theevent that specific performance was no longer possible, toorder the defendants to pay damages. The company alsoasked for the issuance of a writ of preliminary injunction torestrain the defendants from entering into contracts withthird parties for work on the projects.

    The defendants entered their special appearance for thepurpose only of questioning the jurisdiction of this courtover the subject matter of the complaint and the persons ofdefendants, the subject matter of the complaint being actsand omissions of the individual defendants as agents ofdefendant United States of America, a foreign sovereignwhich has not given her consent to this suit or any other

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    suit for the causes of action asserted in the complaint.(Rollo, p. 50.)

    Subsequently the defendants filed a motion to dismissthe complaint which included an opposition to the issuanceof the writ of preliminary injunction. The company opposedthe motion. The trial court denied the motion and issuedthe writ. The defendants moved twice to reconsider but tono avail. Hence the instant petition which seeks to restrainperpetually the proceedings in Civil Case No. 779M forlack of jurisdiction on the part of the trial court.

    The petition is highly impressed with merit.The traditional rule of State immunity exempts a State

    from being sued in the courts of another State without itsconsent or waiver. This rule is a necessary consequence ofthe principles of independence and equality of States.However, the rules of International Law are not petrifiedthey are constantly developing and evolving. And becausethe activities of states

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    have multiplied, it has been necessary to distinguish thembetween sovereign and governmental acts (jure imperii)and private, commercial and proprietary acts (juregestionis). The result is that State immunity now extendsonly to acts jure imperii. The restrictive application of Stateimmunity is now the rule in the United States, the UnitedKingdom and other states in western Europe. (See Coquiaand DefensorSantiago, Public International Law, pp. 207209 [1984].)

    The respondent judge recognized the restrictive doctrineof State immunity when he said in his Order denying thedefendants (now petitioners) motion: A distinction shouldbe made between a strictly governmental function of thesovereign state from its private, proprietary or nongovernmental acts. (Rollo, p. 20.) However, the respondentjudge also said: It is the Courts considered opinion thatentering into a contract for the repair of wharves orshoreline is certainly not a governmental function altho itmay partake of a public nature or character. As aptlypointed out by plaintiffs counsel in his reply citing theruling in the case of Lyons, Inc., [104 Phil. 594 (1958)], and

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    which this Court quotes with approval, viz.:

    It is however contended that when a sovereign state enters into acontract with a private person, the state can be sued upon thetheory that it has descended to the level of an individual fromwhich it can be implied that it has given its consent to be suedunder the contract. x x x.

    x x x x x x x x xWe agree to the above contention, and considering that the

    United States government, through its agency at Subic Bay,entered into a contract with appellant for stevedoring andmiscellaneous labor services within the Subic Bay Area, a U.S.Naval Reservation, it is evident that it can bring an action beforeour courts for any contractual liability that that political entitymay assume under the contract. The trial court, therefore, hasjurisdiction to entertain this case x x x. (Rollo, pp. 2021.)

    The reliance placed on Lyons by the respondent judge ismisplaced for the following reasons:

    In Harry Lyons, Inc. vs. The United States of America,supra, plaintiff brought suit in the Court of First Instanceof

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    Manila to collect several sums of money on account of acontract between plaintiff and defendant. The defendantfiled a motion to dismiss on the ground that the court hadno jurisdiction over defendant and over the subject matterof the action. The court granted the motion on the groundsthat: (a) it had no jurisdiction over the defendant who didnot give its consent to the suit and (b) plaintiff failed toexhaust the administrative remedies provided in thecontract. The order of dismissal was elevated to this Courtfor review.

    In sustaining the action of the lower court, this Courtsaid:

    It appearing in the complaint that appellant has not compliedwith the procedure laid down in Article XXI of the contractregarding the prosecution of its claim against the United StatesGovernment, or, stated differently, it has failed to first exhaust itsadndnistrative remedies against said Government, the lower

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    court acted properly in dismissing this case. (At p. 598.)

    It can thus be seen that the statement in respect of thewaiver of State immunity from suit was purely gratuitousand, therefore, obiter so that it has no value as animperative authority.

    The restrictive application of State immunity is properonly when the proceedings arise out of commercialtransactions of the foreign sovereign, its commercialactivities or economic affairs. Stated differently, a Statemay be said to have descended to the level of an individualand can thus be deemed to have tacitly given its consent tobe sued only when it enters into business contracts. It doesnot apply where the contract relates to the exercise of itssovereign functions. In this case the projects are anintegral part of the naval base which is devoted to thedefense of both the United States and the Philippines,indisputably a function of the government of the highestorder they are not utilized for nor dedicated to commercialor business purposes.

    That the correct test for the application of Stateimmunity is not the conclusion of a contract by a State butthe legal nature of the act is shown in Syquia vs. Lopez, 84Phil. 312 (1949). In that case the plaintiffs leased threeapartment buildings to the United States of America forthe use of its

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    military officials. The plaintiffs sued to recover possessionof the premises on the ground that the term of the leaseshad expired. They also asked for increased rentals until theapartments shall have been vacated.

    The defendants who were armed forces officers of theUnited States moved to dismiss the suit for lack ofjurisdiction on the part of the court. The Municipal Court ofManila granted the motion to dismiss sustained by theCourt of First Instance, the plaintiffs went to this Court forreview on certiorari. In denying the petition, this Courtsaid:

    On the basis of the foregoing considerations we are of the belief

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    and we hold that the real party defendant in interest is theGovernment of the United States of America that any judgmentfor back or increased rentals or damages will have to be paid notby defendants Moore and Tillman and their 64 codefendants butby the said U.S. Government. On the basis of the ruling in thecase of Land vs. Dollar already cited, and on what we havealready stated, the present action must be considered as oneagainst the U.S. Government. It is clear that the courts of thePhilippines including the Municipal Court of Manila have nojurisdiction over the present case for unlawful detainer. Thequestion of lack of jurisdiction was raised and interposed at thevery beginning of the action. The U.S. Government has not givenits consent to the filing of this suit which is essentially againsther, though not in name. Moreover, this is not only a case of acitizen filing a suit against his own Government without thelatters consent but it is of a citizen filing an action against aforeign government without said governments consent, whichrenders more obvious the lack of jurisdiction of the courts of hiscountry. The principles of law behind this rule are so elementaryand of such general acceptance that we deem it unnecessary tocite authorities in support thereof. (At p. 323.)

    In Syquia, the United States concluded contracts withprivate individuals but the contracts notwithstanding theUnited States was not deemed to have given or waived itsconsent to be sued for the reason that the contracts werefor jure imperii and not for jure gestionis.

    WHEREFORE, the petition is granted the questionedorders of the respondent judge are set aside and Civil CaseNo. 779M is dismissed. Costs against the privaterespondent.

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    SO ORDERED.

    Teehankee, Aquino, Concepcion, Jr., MelencioHerrera, Plana,** Escolin, Relova, Gutierrez, Jr., De laFuente, Cuevas and Alampay, JJ., concur.

    Fernando, C.J., did not take part.Makasiar, J., see dissent.

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    MAKASIAR, J., dissents:

    The petition should be dismissed and the proceedings inCivil Case No. 779M in the defunct CFI (now RTC) of Rizalbe allowed to continue therein.

    In the case of Lyons vs. the United States of America(104 Phil. 593), where the contract entered into betweenthe plaintiff (Harry Lyons, Inc.) and the defendant (U.S.Government) involved stevedoring and labor serviceswithin the Subic Bay area, this Court further stated thatinasmuch as x x x the United States Government, throughits agency at Subic Bay, entered into a contract withappellant for stevedoring and miscellaneous labor serviceswithin the Subic Bay area, a U.S. Navy Reservation, it isevident that it can bring an action before our courts for anycontractual liability that that political entity may assumeunder the contract.

    When the U.S. Government, through its agency at SubicBay, confirmed the acceptance of a bid of a privatecompany for the repair of wharves or shoreline in the SubicBay area, it is deemed to have entered into a contract andthus waived the mantle of sovereign immunity from suitand descended to the level of the ordinary citizen. Itsconsent to be sued, therefore, is implied from its act ofentering into a contract (Santos vs. Santos, 92 Phil. 281,284).

    Justice and fairness dictate that a foreign governmentthat commits a breach of its contractual obligationin thecase at bar by the unilateral cancellation of the award forthe project by the United States government, through itsagency at Subic Bayshould not be allowed to take undueadvantage of a par

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    ** He signed before he left.

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    ty who may have legitimate claims against it by seekingrefuge behind the shield of nonsuability. A contrary viewwould render a Filipino citizen, as in the instant case,

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    helpless and without redress in his own country forviolation of his rights committed by the agents of theforeign government professing to act in its name.

    Appropriate are the words of Justice Perfecto in hisdissenting opinion in Syquia vs. Almeda Lopez, 84 Phil.312, 325:

    Although, generally, foreign governments are beyond thejurisdiction of domestic courts of justice, such rule is inapplicableto cases in which the foreign government enters into privatecontracts with the citizens of the courts jurisdiction. A contraryview would simply run against all principles of decency andviolative of all tenets of morals.

    Moral principles and principles of justice are as valid andapplicable as well with regard to private individuals as withregard to governments either domestic or foreign. Once a foreigngovernment enters into a private contract with the privatecitizens of another country, such foreign government cannotshield its nonperformance or contravention of the terms of thecontract under the cloak of non jurisdiction. To place such foreigngovernment beyond the jurisdition of the domestic courts is togive approval to the execution of unilateral contracts, graphicallydescribed in Spanish as Contratos leoninos, because one partygets the lions share to the detriment of the other. To give validityto such contract is to sanctify bad faith, deceit, fraud. We prefer toadhere to the thesis that all parties in a private contract,including governments and the most powerful of them, areamenable to law, and that such contracts are enforceable throughthe help of the courts of justice with jurisdiction to takecognizance of any violation of such contracts if the same had beenentered into only by private individuals.

    Constant resort by a foreign state or its agents to thedoctrine of State immunity in this jurisdiction impingesunduly upon our sovereignty and dignity as a nation, Itsapplication will particularly discourage Filipino or domesticcontractors from transacting business and entering intocontracts with United States authorities or facilities in thePhilippineswhether naval, air or ground forcesbecausethe difficulty, if not impossibility, of enforcing a validlyexecuted

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    United States of America vs. Ruiz

    contract and of seeking judicial remedy in our own courtsfor breaches of contractual obligation committed by agentsof the United States government, always looms large,thereby hampering the growth of Filipino enterprises andcreating a virtual monopoly in our own country by UnitedStates contractors of contracts for services or supplies withthe various U.S. offices and agencies operating in thePhilippines.

    The sanctity of upholding agreements freely entered intoby the parties cannot be over emphasized. Whether theparties are nations or private individuals, it is to bereasonably assumed and expected that the undertakings inthe contract will be complied with in good faith.

    One glaring fact of modern day civilization is that a bigand powerful nation, like the United States of America, canalways overwhelm small and weak nations. Thedeclaration in the United Nations Charter that its memberstates are equal and sovereign, becomes hollow andmeaningless because big nations wielding economic andmilitary superiority impose upon and dictate to smallnations, subverting their sovereignty and dignity asnations. Thus, more often than not, when U.S. interestclashes with the interest of small nations, the Americangovernmental agencies or its citizens invoke principles ofinternational law for their own benefit.

    In the case at bar, the efficacy of the contract betweenthe U.S. Naval authorities at Subic Bay on one hand, andherein private respondent on the other, was honored morein the breach than in the compliance. The opinion of themajority will certainly open the floodgates of moreviolations of contractual obligations, American authoritiesor any foreign government in the Philippines for thatmatter, dealing with the citizens of this country, canconveniently seek protective cover under the majorityopinion. The result is disastrous to the Philippines.

    This opinion of the majority manifests a neocolonialmentality. It fosters economic imperialism and foreignpolitical ascendancy in our Republic.

    The doctrine of government immunity from suit cannotand should not serve as an instrument for perpetrating aninjustice on a citizen (Amigable vs. Cuenca, L26400,February 29, 1972, 43 SCRA 360 Ministerio vs. Court ofFirst Instance, L31635,

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    August 31, 1971, 40 SCRA 464).Under the doctrine of implied waiver of its nonsuability,

    the United States government, through its navalauthorities at Subic Bay, should be held amenable tolawsuits in our country like any other juristic person.

    The invocation by the petitioner United States ofAmerica is not in accord with paragraph 3 of Article III ofthe original RPUS Military Bases Agreement of March 14,1947, which states that in the exercise of the abovementioned rights, powers and authority, the United Statesagrees that the powers granted to it will not be usedunreasonably. x x x (italics supplied).

    Nor is such posture of the petitioners herein in harmonywith the amendment dated May 27, 1968 to the aforesaidRPUS Military Bases Agreement, which recognizes theneed to promote and maintain sound employment practiceswhich will assure equality of treatment of all employees x xx and continuing favorable employeremployee relations x xx and (B)elieving that an agreement will be mutuallybeneficial and will strengthen the democratic institutionscherished by both Governments, x x x the United StatesGovernment agrees to accord preferential employment ofFilipino citizens in the Bases, thus (1) the U.S. Forces inthe Philippines shall fill the needs for civilian employmentby employing Filipino citizens, etc. (Par. 1, Art. I of theAmendment of May 27, 1968).

    Neither does the invocation by petitioners of stateimmunity from suit express fidelity to paragraph 1 ofArticle IV of the aforesaid amendment of May 27, 1968which directs that contractors and concessionairesperforming work for the U.S. Armed Forces shall berequired by their contract or concession agreements tocomply with all applicable Philippine labor laws andregulations, even though paragraph 2 thereof affirms thatnothing in this Agreement shall imply any waiver byeither of the two Governments of such immunity underInternational law.

    Reliance by petitioners on the nonsuability of theUnited States Government before the local courts, actually

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    clashes with No. III on respect for Philippine law of theMemorandum

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    of Agreement signed on January 7, 1979, also amendingRPUS Military Bases Agreement, which stresses that it isthe duty of members of the United States Forces, the civiliancomponent and their dependents, to respect the laws of theRepublic of the Philippines and to abstain from any activityinconsistent with the spirit of the Military Bases Agreementand, in particular, from any political activity in thePhilippines. The United States shall take all measureswithin its authority to insure that they adhere to them(italics supplied).

    The foregoing duty imposed by the amendment to theAgreement is further emphasized by No. IV on theeconomic and social improvement of areas surrounding thebases, which directs that moreover, the United StatesForces shall procure goods and services in the Philippines tothe maximum extent feasible (italics supplied).

    Under No. VI on labor and taxation of the saidamendment of January 6, 1979 in connection with thediscussions on possible revisions or alterations of theAgreement of May 27, 1968, the discussions shall beconducted on the basis of the principles of equality oftreatment, the right to organize, and bargain collectively,and respect for the sovereignty of the Republic of thePhilippines (italics supplied)

    The majority opinion seems to mock the provision ofparagraph 1 of the joint statement of President Marcos andVicePresident Mondale of the United States dated May 4,1978 that the United States reaffirms that Philippinesovereignty extends over the bases and that Its base shall beunder the command of a Philippine Base Commander,which is supposed to underscore the joint Communique ofPresident Marcos and U.S. President Ford of December 7,1975, under which they affirm that sovereign equality,territorial integrity and political independence of all Statesare fundamental principles which both countriesscrupulously respect and that they confirm that mutualrespect for the dignity of each nation shall characterize their

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    friendship as well as the alliance between their twocountries.

    The majority opinion negates the statement on thedelineation of the powers, duties and responsibilities ofboth the

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    Philippine and American Base Commanders that in theperformance of their duties, the Philippine BaseCommander and the American Base Commander shall beguided by full respect for Philippine sovereignty on the onehand and the assurance of unhampered U.S. militaryoperations on the other hand and that they shall promotecooperation, understanding and harmonious relationswithin the Base and with the general public in theproximate vicinity thereof (par. 2 & par. 3 of the Annexcovered by the exchange of notes, January 7, 1979, betweenAmbassador Richard W, Murphy and Minister of ForeignAffairs Carlos P. Romulo, italics supplied).

    Petition granted orders set aside.

    Notes.The principle that the state or its governmentcannot be sued without its consent has its root in thejuridical and practical notion that the state can do nowrong. Demandable and enforceable obligations which maybe the subject of judicial action come into being either bylaw, contract, quasicontracts, acts or omissions punishableby law, acts which do not constitute or amount to a crimeor a misdemeanor known at common law as torts and incivil law as culpa aquiliana or extra contractual. Anobligation or liability of the state created by statute isenforceable against the officer or agent charged with theduty to execute the law. If there should be anythingdemandable which had been paid or delivered to orcollected by officers or agents of the state without theauthority of law, the action would not be against the statebut against the responsible officers or agents who receivedwhat was not due the state or made the unauthorizedcollection, Punishable acts or omissions committed byofficers or agents of the state are crimes and violations oflaw are perpetrated by such officers or agents and not by

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    the state. The same postulate may be applied to tortscommitted by officers or agents of the State. Nevertheless,if, where and when the state or its government enters intoa contract, through its officers or agents, in furtherance of alegitimate aim and purpose and pursuant to constitutionalor legislative authority, whereby mutual or reciprocalbenefits accrue and rights and obligations arise therefrom,and if the law granting the authority to enter into

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    such contract does not provide for or name the officeragainst whom action may be brought in the event of abreach thereof, the state itself may be sued even withoutits consent, because by entering into a contract thesovereign state has descended to the level of the citizen andits consent to be sued is implied from the very act ofentering into such contract. If the dignity of the state, thesacredness of the institution, the respect for thegovernment are to be preserved and the dragging of itsname in a suit to be prevented, the legislative departmentshould name the officer or agent against whom the actionmay be brought in the event of breach of the contractentered into under its name and authority. And theomission or failure of the legislative department to do so isno obstacle or impediment for an individual or citizen, whois aggrieved by the breach of the contract, to bring anaction against the state itself for the reasons alreadyadverted to, to wit: the descent of the sovereign state to thelevel of the individual or citizen with whom it entered intoa contract and its consent to be sued implied from the act ofentering into such contract. (See Santos vs. Santos, L4699,Nov. 26, 1952 Moreno vs. Macadaeg, 7 SCRA 700 Ruiz vs.Cabahug, 54 O.G. 351.)

    The Court of Claims of the United States made a similarruling to the effect that, when the United States, throughtheir duly authorized agents and officers, enter intocontract arrangements and stipulations with their citizens,in matters pertaining to the public service, and in the modeprovided by law, they, pro hoc vice relinquish theirsovereign charter and subject themselves to those rules ofjustice and right which all just governments administer

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    and enforce between man and man. (Mann vs. UnitedStates, 3 Ct. Cl. 404, 411 Wentworth vs. United States, 5Ct. Cl. 302.)

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