Digest by Ace, Cedie, Kim and Maia

Consti1 Sovereignty Digest by Ace, Cedie, Kim and Maia

Sovereign Immunity

China National Machinery vs Santamaria

CHINA NATIONAL MACHINERY & EQUIPMENT CORP. (GROUP), Petitioner, vs.HON. CESAR D. SANTAMARIA, et al.

FACTS:

On 14 September 2002, petitioner China National Machinery & Equipment Corp. (Group) (CNMEG), represented by its chairperson, Ren Hongbin, entered into a Memorandum of Understanding with the North Luzon Railways Corporation (Northrail), represented by its president, Jose L. Cortes, Jr. for the conduct of a feasibility study on a possible railway line from Manila to San Fernando, La Union (the Northrail Project).

On 30 August 2003, the Export Import Bank of China (EXIM Bank) and the Department of Finance of the Philippines (DOF) entered into a Memorandum of Understanding (Aug 30 MOU), wherein China agreed to extend Preferential Buyers Credit to the Philippine government to finance the Northrail Project. The Chinese government designated EXIM Bank as the lender, while the Philippine government named the DOF as the borrower. Under the Aug 30 MOU, EXIM Bank agreed to extend an amount not exceeding USD 400,000,000 in favor of the DOF, payable in 20 years, with a 5-year grace period, and at the rate of 3% per annum. On 30 December 2003, Northrail and CNMEG executed a Contract Agreement for the construction of Section I, Phase I of the North Luzon Railway System from Caloocan to Malolos on a turnkey basis (the Contract Agreement). The contract price for the Northrail Project was pegged at USD 421,050,000.

On 13 February 2006, respondents filed a Complaint for Annulment of Contract and Injunction with Urgent Motion for Summary Hearing to Determine the Existence of Facts and Circumstances. However, petitioner alleged that contract was between the sovereign of the Phils and China, thus, it should be entitled for immunity.

ISSUE:

Whether or not CNMEG is immune from Philippine laws.

HELD

There are two conflicting concepts of sovereign immunity, each widely held and firmly established. According to the classical or absolute theory, a sovereign cannot, without its consent, be made a respondent in the courts of another sovereign. According to the newer or restrictive theory, the immunity of the sovereign is recognized only with regard to public acts or acts jure imperii of a state, but not with regard to private acts or acts jure gestionis. Since the Philippines adheres to the restrictive theory, it is crucial to ascertain the legal nature of the act involved whether the entity claiming immunity performs governmental, as opposed to proprietary, functions.

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.

The Contract Agreement, however, does not on its own reveal whether the construction of the Luzon railways was meant to be a proprietary endeavor but clearly, it was CNMEG that initiated the undertaking, and not the Chinese government.

Also, despite petitioners claim that the EXIM Bank extended financial assistance to Northrail because the bank was mandated by the Chinese government, and not because of any motivation to do business in the Philippines,38 it is clear from the foregoing provisions that the Northrail Project was a purely commercial transaction.

The Contract Agreement was not concluded between the Philippines and China, but between Northrail and CNMEG. By the terms of the Contract Agreement, Northrail is a government-owned or -controlled corporation, while CNMEG is a corporation duly organized and created under the laws of the Peoples Republic of China. Thus, both Northrail and CNMEG entered into the Contract Agreement as entities with personalities distinct and separate from the Philippine and Chinese governments, respectively.

Thus, the instant Petition is DENIED by the SC. Petitioner China National Machinery & Equipment Corp. (Group) is not entitled to immunity from suit, and the Contract Agreement is not an executive agreement.

Classical or Absolute Theory - a sovereign cannot, without its consent, be made a respondent in the courts of another sovereign

Newer or Restrictive theory, the immunity of the sovereign is recognized only with regard to public acts or acts jure imperii of a state, but not with regard to private acts or acts jure gestionis.

Suits Against Government Instrumentalities

Professional Video Inc. vs TESDA

PROVI entity engaged in the sale of high technology equipment, information technology products and broadcast devices TESDA is an instrumentality of the government established under RA 7796 (TESDA Act of 1994) attached to DOLE. Provides skills standardization, testing and certification To fulfil the mandate of TESDA, it sought to issue security-printed certification and/or PVC cards to trainees who passed the certification TESDA Pre-qualification Bids Committee (PBAC) conducted 2 public biddings for the printing and encoding of PVC card. PBAC recommended that TESDA enter into a negotiated contract with PROVI PROVI signed and executed their Contract Agreement Project: PVD ID Card amounting to P39,475,00 Both parties executed an Addendum to the contract agreement. TESDA paid 30% of the total cost of the materials 30 days after the receipt and acceptance of the contracted supplies with the balance payable within 30days Despite the two demand letters sent by POVI, TESDA failed to pay their balance P35,735,500. This prompted PROVI to file writ of preliminary attachment/garnishment against TESDA. RTC favored the garnishment and ordered the manager of the Land Bank of the Philippines to produce TESDAs bank statement CA set aside the RTCs orders after finding out the following: A) TESDAs funds are public in nature and therefore exempt from garnishment B) TESDAs purchase of the PVC cards was necessary from garnishment

Issue:

1. Whether or not the writ of attachment against TESDA and its funds, to cover PROVIs claim against TESDA is valid?

2. Whether or not TESDA is covered by the principle of State Immunity?

Holding:

1. No2. Yes

Ruling:1. Public funds cannot be the object of garnishment proceedings even if the consent to be sued had been previously granted and the state liability adjudged.

Even assuming that TESDA entered into an implied consent with PROVI to be sued, the funds are still public in nature.

2. TESDA is an unincorporated instrumentally of the government, directly attached to the DOLE through the participation of the Secretary of Labor as the Chairman. As an unincorporated instrumentality operating under a specific charter, it is equipped with both express and implied powers and all STATE IMMUNITIES FULLY APPLY TO IT.

Principle of Sec 3 Art 16 (State Immunity Principle)- the principle is based on the very essence of SOVEREIGNTY and PUBLIC POLICY.

Sovereignty there can be no legal right as against the authority that makes the law on which the right depends Public Policy 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 disposition of the means required for the proper administration of the government.

Forms of State Immunity1. Suit against the Republic by name2. Suit against an unincorporated government agency3. Suit against a government agency covered by a charter with respect to the agencys performance of governmental functions4. Suit that on its face is against a government officer

Suits Against Government Instrumentalities

REPUBLIC OF THE PHILIPPINES, represented by ASSET PRIVATIZATION TRUST, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION, HON. EDUARDO J. CARPIO, and PANTRANCO ASSOCIATION OF CONCERNED EMPLOYEES UNION, respondents.

FACTS:

In December of 1978, the full ownership of PNEI was transferred to its creditor, the National Investment Development Corporation ("NIDC"), a subsidiary of the Philippine National Bank ("PNB"), following the latter's foreclosure of PNEI assets. PNEI was one among several companies placed under sequestration by the Presidential Commission on Good Government ("PCGG") shortly after the historic 1986 events in EDSA. Some time in January, 1988, the sequestration order was lifted to give way to the sale of PNEI by the APT which, in the meanwhile, had taken over the management of the company.

The continuing deterioration of its financial condition prompted PNEI to lodge, on 07 May 1992, a Petition for Suspension of Payments with the Securities and Exchange Commission ("SEC"), a move calculated to prevent further dissipation of PNEI's assets and to make PNEI a viable source of income for the government. As a cost saving measure, the management committee also recommended to the SEC the retrenchment of some 500 employees of PNEI. The retrenchment was carried out during the months of November and December of 1992 and January of 1993.

The filing of various labor complaints against PNEI was the immediate result.

(A) NLRC NCR Case No. 00-08-05380-93 was started by PEA-PTGWO on 27 August 1993 in the Arbitration Branch of the NLRC-NCR against PNEI and Asset Privatization Trust (APT) for unfair labor practice, for non-payment of 13th month pay, and various other claims.

(B) NLRC-NCR-00-05-03587-93, the second labor case, involved a claim for separation pay, 13th month pay and other benefits lodged by PANTRANCO ASSOCIATION OF CONCERNED EMPLOYEES UNION (PACEU) against PNEI, APT and DOTC.

(C) The complaint in NLRC CASE NO. SUB-RAB-01-12-7-0225-93 was initiated by respondent Antonio Cabugao before the Sub-Regional Arbitration Branch of NLRC in Dagupan City against PNEI and APT similarly involving claims for separation pay, 13th month pay and other benefits. However, the Solicitor-General initially points out that APT, being an agency or instrumentality of the Republic of the Philippines, is immune from suit.

ISSUES: Whether or not PNEI and APT are liable to the complainantsWhether or not APT is immune from suit.

HELD:A. The court On 14 February 1994, Labor Arbiter Eduardo Carpio rendered a decision holding PNEI and APT jointly and solidarily liable, viz:WHEREFORE, premises considered, judgment is hereby rendered ordering respondents to jointly and severally pay all the covered employees and became final and executory since no appeal was interposed by either the PNEI or the APT.

B. On 21 July 1993, Labor Arbiter Aquino rendered a decision, the decretal portion of which read:WHEREFORE, premises considered judgment is hereby rendered ordering respondent Pantranco North Express, Inc. to pay individual complainants the following amount as computed.In addition, respondent company is further directed to pay individual complainants. Respondent is likewise directed to pay the attorney's fees equivalent to 10% of the total monetary award of THIRTY NINE MILLION SEVEN HUNDRED THIRTY SIX THOUSAND FOUR HUNDRED FIFTY NINE PESOS AND THIRTEEN CENTAVOS (P39,736,459.13) Since none of the parties appealed, the aforequoted decision eventually became final and executory.

C. The Court is not persuaded even as it is cognizant of the doctrine that "(t)he State may not be sued without its consent," for as the Court has so stressed in Department of Agriculture vs. NLRC, the rule is not really absolute for it does not say that the state may not be sued under any circumstance. On the contrary, as correctly phrased, the doctrine only conveys, "the state may not be sued without its consent;" its clear import then is that the State may at times be sued. The States' consent may be given either expressly or impliedly. Express consent may be made through a general law or a special law. 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 claim involving liability arising from contract, express or implied, which could serve as a basis of civil action between private parties." Implied consent, on the other hand, is conceded when the State itself commences litigation, thus opening itself to a counter-claim, or when it enters into a contract.

A matter that must not be overlooked is the fact that the inclusion of APT as a respondent in the monetary claims against PNEI 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. PNEI's assets obviously remain to be subject to execution by judgment creditors of PNEI. Express Consent vs Implied Consent

Express consent may be made through a general law or a special law

Implied consent, on the other hand, is conceded when the State itself commences litigation, thus opening itself to a counter-claim, or when it enters into a contract.

Suits against Government Instrumentalities / Suits against officers

Department f Health vs. Phil Pharmawealth, Inc.

Facts:

Secretary of Health Alberto Romualdez R. issued Administrative Order No. 27 series of 1998, outlining the guidelines and procedure on the accreditation of government suppliers for pharmaceutical products. It was later amended by A.O. no. 10 series 2000. On May 9, 2000 and May 29, 2000

respondent submitted to the petitioner DOH a request for the inclusion of additional items in its list of accredited drug products, including the antibiotic Penicillin G Benzathine.It appears that processing of and the release of the result of respondents request was due on September 2000, the last month of the quarter following the date of its filing. Despite the lack of response from petitioner DOH regarding respondents request for inclusion of additional items in its list of accredited products, respondent submitted its bid for Penicillin G Benzathine contract.

Only two companies participated with respondent submitting the lower bid. In view, however, of the non-accreditation of respondents Penicillin G Benzathine product, the contract was awarded to YSS depite the fact that Philpharma wealth is the lowest bidder.

The respondent filed a complaint for injunction, mandamus and damages with prayer for the issuance of writ preliminary injunction and/or temporary restraining order with the RTC praying the trial court to nullify the ward of the Penicillin G Bezathine contract and award the same to the plaintiff as the lowest complying responsible bidder for the said contract.

Petitioner DOH, secretary Rumualdez, succeeded by petitioner Dayrit, and individual petitioners Undersecretary Galon and Lopez argued for dismissal of the complaint for the lack of merit in view of the express reservation made by the petitioner to accept or reject any or all bids without incurring liability to the bidders, they positing that government agencies have such full discretion. Petitioner subsequently filed a motion to dismiss praying for the outright dismissal of the complaint based on the doctrine of state immunity.

Issue: Is the doctrine of state immunity applicable?

Ruling:1. STATE IMMUNITY OF DOHThe defense of immunity from suit will not avail despite its being an unincorporated agency of the government for the only causes of action directed against it are preliminary injunction and mandamus. Preliminary injunction may be directed to a party. Court or person.

The defense of state immunity from suit does not apply in causes of action which do not seek to impose charge or financial liability against the State.

2. State immunity of public officersAn officer who exceeds the power conferred on him by law cannot hide behind the plea of sovereign immunity and must bear the liability personally.

The mere allegation that a government official is being sued in his personal capacity does not automatically remove the same from the protection of the doctrine of state immunity, and neither does the mere invocation of official character suffice to insulate such official from suability and liability of an act committed without or in excess of his or her authority

Public Officers qualified immunitySuability of a government official depends on whether the official concerned was acting with his official or jurisdictional capacity, and whether the acts done in the performance of the official functions will result in a charge of financial liability against the government.

State ImmunityThe defense of state immunity from suit does not apply n causes of action, which do not seek to impose charge or financial liability against the state.

Calub vs CA

Facts:On Jan 28, 1992 Forest protection and Law enforcement Team of CENRO of the DENR apprehended 2 motor vehicles loaded with illegally sourced lumber. Constancio Abuganda and Pio Gabon, the drivers of the vehicles, failed to present proper documents and/or licensed. Thus, the apprehending team seized and impounded the vehicles and its load of lumber. Felipe Calub, Provincial Environment and Natural resource Officer, then filed a criminal complaint against Abuganda for violation of the Revised Forestry Code.

On February 11, 1992 one of the two vehicles was again apprehended by a composite team of the DENR-CENR. Calub duly filed criminal complaint against Constancio Abuganda, a certain Abegonia, and several John Does for violation of Revised forestry act.

Private respondent Manula Balabcon, the vehicle owner, and Constancio Abuganda, the driver filed a complaint for the recovery of the possession of the 2 impounded vehicles with an application of replevin against the petitioner.

Issue: Whether or not the complaint for the recovery of possession of impounded vehicles, with an application for replevin, is suit against the state?

Ruling:

Well established is the doctrine that the state may not be sued without its consent. And suit against the public officer for his official acts, is in effect, a suit against the state if its purpose is to hold the State ultimate liable.

However, the protection afforded the public officers this doctrine generally applies only to the activities within the scope of their authority in good faith and without willfulness, malice and corruption.

In the present case, the acts for which the petitioners are being called to account were performed by them in the discharge of their official duties. The acts in question are clearly official in nature. In implementing and enforcing Section 78-A and 89 of the Forestry Code through the seizure carried out, petitioners were performing their duties and functions as officers of the DENR, and did so within the limits of their authority. There was no malice nor bad faith on their part. Hence, a suit against the petitioners who represent the DENR is a suit against the State. It cannot prosper without the States consent given the circumstances in this case. The Writ of replevin is annulled.

Philippine Agila Satellite Inc. (PASI) vs. Trinidad-Lichauco (DOTC, Acting Sec.)

Facts:Michael de Guzman, President and Chairman of Philippine Agila Satellite, Inc. (PASI) entered into a Memorandum of Understanding (MOU) with DOTC that they will launch a Filipino-owned satellite into outer space. Under the MOU, the satellite will be privately owned by PASI, which will grant the PH govt one free transponder and another one, subject to availability. The govt, through the Intl Telecommunications Union designated 2 orbital slots for PASI. They have secured the confirmation from govt and was about to proceed with launching preparations when respondent Trinidad-Lichauco held a series of sabotage to te business of PASI.Among the things Lichauco did was 1) offering the other orbital slot to Unknown Awardee, 2) utter disparaging and defamatory remarks about petitioners in a meeting and then later at a telcomm forum, 3) unprovoked defamation when she threatened petitioner not to use the Agila name, and 4) that petitioner will never pay its contractors.Aggrieved by Lichaucos actions, petitioner sought for the injuction (establish that orbital slot should have been awarded to PASI under the MOU), declaration of nullity of award (awarding of the other orbital slot to Unknown Awardee) and damages (for sabotage of business).

Issue: Is the suit considered against the State and therefore can invoke the nonsuability principle of the PH?Is petitioner right in seeking for the three mentioned causes of action?

Ruling:

NO. Lichauco was being sued in her personal capacity. But because some of the events that led to this case arose from a grave abuse of discretion tantamount to lack of jurisdiction in the fulfilling her official duties as Undersecretary (and now Acting Secretary) of DOTC, she is considered not under the State and therefore suable. YES. But the first two will not apply as they only seek to reverse a state action, which Lichauco was within her rights to do as acting head of DOTC at the time. As for the third, Court has recommended a full blown trial for both parties to present their evidences to support/counter the claim.The order is REINSTATED in the Regional Trial Court for further submission of evidence.

Implied ConsentRepublic (PCGG) vs. Sandiganbayan (Second Division) and Benedicto

Facts:This involves the 227 shares of stock from Negros Occidental Golf and Country Club, Inc. owned by respondent Benedicto, thought to have been ill-gotten, which the PCGG fiscal agents sequestered and took over.The PCGG and Benedicto entered into a Compromise Agreement of lifting the sequestration of the shares and implying that they were not ill-gotten and Benedicto was well within his financial capacity to purchase them.Benedicto filed a Motion for Release and return of stocks, which the Sandiganbayan approved, plus PCGGs payment of the membership fee, whose noncompliance (or delay of compliance) thereof resulted in the foreclosure of the stocks and its consequent public sale.

Issue/Ruling:

Is PCGG responsible for the payment of membership fees for the sequestered shares of stock?

YES. PCGG is the sequestrator of the shares, so he is duty-bound to preserve it. Paying for the membership is one of the duties/obligations to preserve them.

Did Sandiganbayan err in identifying PCGG as the responsible party for payment of the shares?

NO. Sandiganbayan did not mistake in determining that PCGG was responsible. There was no grave abuse of discretion involved as Sandiganbayan never interfered, only directed the PCGG to comply with its part of the bargain under their Compromise Agreement.

Is PCGG immune from this suit?

NO. When the government itself is the suitor, it exempts itself from the state immunity principle. By taking initiative of the suit against a private party, it descends to the level of a private individual as well and opens itself to whatever counterclaims the other party may apply. Its consent to be sued is implied from the very act of entering into such contract, their Compromise Agreement as an example.Petition (of petitioner PCGG) is DISMISSED.

Implied ConsentEPG Construction Co. vs Vigilar

Facts:

In 1983, the Ministry of Human Settlement (MHS), through the BLISS Development Corporation, intiated a housing project on a government property along the east bank of Manggahan Floodway in Pasig The MHS entered into a Memorandum of Agreement (MOA) with Ministry of Public Works and Highways (MPWH) where the latter undertook to develop the housing site and construct thereon 145 housing units By virtue of the MOA, MPWH forged individual contracts with petitioners EPG, Ciper, Septa, Phil. Plumbing, Home Construction, World Builders, Glass World, Performance Builders, and De Leon Araneta Construction for the construction of the housing units Under the contracts, the scope of construction and funding covered only around "2/3 of each housing unit" Petitioners agreed to undertake and perform "additional constructions" for the completion of the housing units despite the fact that there was only a verbal promise, and not a written contract, by the MPWH Undersecretary Aber Canlas that additional funds will be available and forthcoming Unpaid balance for the additional constructions amounted to P5,918,315.63 Upon a demand letter from the petitioners, on November 14, 1988, DPWH Asst. Secretary Madamba opined that payment of petitioners' money claims should be based on quantum meruit (what one has earned) and should be forwarded to the Commission on Audit (COA) In a Letter of the Undersecretary of Budget and Management dated December 20, 1994, the amount of P5,819,316.00 was then released for the payment of the petitioners' money claims under Advise of Allotment No. A4-1303-04-41-303 In an indorsement dated December 27, 1995, the COA referred anew the money claims to the DPWH In a letter dated August 26, 1996, respondent Secretary Gregorio Vigilar denied the subject money claims Petitioners filed before the RTC of QC, Branch 226 a Petition for Mandamus to order the respondent to pay petitioners their money claims plus damages and attorney's fees. Lower court denied the petition on February 18, 1997

Issue: Whether or not the implied, verbal contracts between the petitioners and then Undersecretary Canlas should be upheld? Whether or not the State is immune from suit?

Holding:Yes.No.

Ruling:

1. While the court agrees with the respondent that the implied contracts are void, in view of violation of applicable laws, auditing rules, and lack of legal requirements, it still finds merit in the instant petitionThe illegality of the implied contracts proceeds from an express declaration or prohibition by law, not from any intrinsic illegality"In the interest of substantial justice," petitioners-contractors' right to be compensated is upheld, applying the principle of quantum meruitEven the DPWH Asst. Sec. for Legal Affairs recommends their compensation; even the DPWH Auditor did not object to the payment of the money claims

2. The respondent may not conveniently hide under the State's cloak of invincibility against suit, considering that this principle yields to certain settled exceptions.

The State's immunity cannot serve as an instrument perpetrating injusticePetition granted. RTC decision reversed and set aside.

Quantum meruit the amount of recovery would only be the reasonable value of the thing or services rendered regardless of any agreement as to value.

Royal Prerogative of Dishonesty and hide under the States cloak of immunity

Dept. of Education, Albay vs. Onate

Facts:Spouses Claro Onate and Gregoria Los Banos owns the disputed lot Lot No. 6849 (27,907 sqm) registered under the Torrens System of land registration with an Original Certificate of Title (OCT). This lot was already settled through a Deed of Extrajudicial Settlement of Estate and Cession in 1991, in favor of respondent as his three sisters waived their rights to the property.It turns out that the same land was where the Daraga North Central Elementary School was built and had been operating since 1940, then named Bagumbayan Elementary School of Daraga. The Municipality of Daraga gave that land to Dept. of Education, Culture and Sports (DECS), now Dept. of Education (DepEd) through a Deed of Donation, confident that the municipality owned the land through buying it from Claro Onate, the respondents grandfather, sometime in 1940.Respondent testified that he only knew of the dispute on 1973, from which he took possession of the lot the same year; that he knew only of the schools occupation on a portion of the land on 1991 and knew of the Deed of Donation on 1992. The petitioner then claimed that respondent was guilty of laches.

Issue:Is the respondent guilty of laches? Will it be applied to him in this case?Is the State immune from this case? Can DECS be sued independently from the State?

Ruling:

YES. Laches is defined as the failure or neglect, or an unreasonable and unexplained length of time, to do that which could or should have been done earlier. Elements of laches have set in: 1) disputed land has been used for public education since 1940, 2) respondent failed to prove that him and his predecessors undertook steps to regain the use of their land, to protest the building of the school as early as 1940, 3) petitioner DECS did not anticipate that their occupancy of the land would be later questioned, and 4) preliminary facts show grave prejudice to the petitioner DECS as they have made major changes in construction and expansion of the school. The laches, however, apply only to disputed Lot No. 6849-A. By virtue of laches, respondent Onate cannot claim Lot No. 6849-A anymore.NO. DECS can be sued as a result of being privy to the Deed of Donation executed by the Municipality of Daraga (as its recipient) over disputed property. By giving its consent to the donation, it brings DECS down to level of ordinary citizen. YES, DECS can be sued independently from the State as it gave its authority to continue with the donation, which carries with it the full responsibility of suing or being sued.Therefore, DepEd (formerly DECS) now has the rights of possession and property over Lot No. 6849-A. Onarte cannot sell, mortgage or encumber said Lot while still being used by DepEd. The lots rights will be returned to respondents the moment DECS no longer needs it. DECS being nonsuable has become moot.