Republic of the Philippines from suit was purely gratuitous and, therefore, obiter so that it has no

SUPREME COURT value as an imperative authority.

Manila Actions; Public Corporations; Constitutional Law; Contracts; States
may be sued only when the proceedings arise out of commercial transactions.
EN BANC Infrastructure projects of U.S. Naval Base in Subic involve governmental
functions.The restrictive application of State immunity is proper only
G.R. No. L-35645 May 22, 1985 when the proceedings arise out of commercial transactions of the foreign
sovereign, its commercial activities or economic affairs. Stated differently,
UNITED STATES OF AMERICA, CAPT. JAMES E. GALLOWAY, WILLIAM I. a State may be said to have descended to the level of an individual and can
COLLINS and ROBERT GOHIER, petitioners,
thus be deemed to have tacitly given its consent to be sued only when it
vs.
HON. V. M. RUIZ, Presiding Judge of Branch XV, Court of First Instance of enters into
_______________
Rizal and ELIGIO DE GUZMAN & CO., INC., respondents.
* EN BANC.
Sycip, Salazar, Luna & Manalo & Feliciano Law for petitioners.
488
Albert, Vergara, Benares, Perias & Dominguez Law Office for respondents.
488 SUPREME COURT REPORTS
ANNOTATED
Actions; Public Corporations; Constitutional Law; Contracts; In suits
against a foreign government, a distinction must he made between acts jure United States of America vs. Ruiz
imperil and acts jure gestionis. As to the former, the State immunity business contracts, It does not apply where the contract relates to the
prevails.The traditional rule of State immunity exempts a State from exercise of its sovereign functions. In this case the projects are an integral
being sued in the courts of another State without its consent or waiver. This part of the naval base which is devoted to the defense of both the United
rule is a necessary consequence of the principles of independence and States and the Philippines, indisputably a function of the government of
equality of States. However, the rules of International Law are not the highest order; they are not utilized for nor dedicated to commercial or
petrified; they are constantly developing and evolving. And because the business purposes.
activities of states have multiplied, it has been necessary to distinguish
thembetween sovereign and governmental acts (jure imperii) and MAKASIAR, J., dissenting:
private, commercial and proprietary acts (jure gestionis). The result is that
State immunity now extends only to acts jure imperii. The restrictive Actions; Public Corporations; Contracts; After U.S. Naval authorities
application of State immunity is now the rule in the United States, the accepted the bid for repair of the wharves at Subic Bay Naval Base, it
United Kingdom and other states in western Europe. (See Coquia and waived the mantle of State immunity from suits.When the U.S.
Defensor-Santiago, Public International Law, pp. 207-209 [1984]). Government, through its agency at Subic Bay, confirmed the acceptance of
Judgments; An obiter has no value as an imperative authority.It can a bid of a private company for the repair of wharves or shoreline in the
thus be seen that the statement in respect of the waiver of State immunity Subic Bay area, it is deemed to have entered into a contract and thus
waived the mantle of sovereign immunity from suit and descended to the

1
level of the ordinary citizen. Its consent to be sued, therefore, is implied Sometime in May, 1972, the United States invited the submission of bids for the
from its act of entering into a contract (Santos vs. Santos, 92 Phil. 281, 284). following projects
Same; Same; Same; Same; Military Bases; Treaties; The majority
opinion seems to mock the joint statement of Pres. Marcos and Vice- 1. Repair offender system, Alava Wharf at the U.S. Naval Station Subic Bay,
President Mondale that Philippine sovereignty extends to U.S. bases here. Philippines.
The majority opinion seems to mock the provision of paragraph 1 of the
joint statement of President Marcos and Vice-President Mondale of the 2. Repair typhoon damage to NAS Cubi shoreline; repair typhoon damage to
shoreline revetment, NAVBASE Subic; and repair to Leyte Wharf approach,
United States dated May 4, 1978 that the United States re-affirms that
NAVBASE Subic Bay, Philippines.
Philippine sovereignty extends over the bases and that Its base shall be
under the command of a Philippine Base Commander, which is supposed
Eligio de Guzman & Co., Inc. responded to the invitation and submitted bids.
to underscore the joint Communique of President Marcos and U.S. Subsequent thereto, the company received from the United States two telegrams
President Ford of December 7, 1975, under which they affirm that requesting it to confirm its price proposals and for the name of its bonding
sovereign equality, territorial integrity and political independence of all company. The company complied with the requests. [In its complaint, the
States are fundamental principles which both countries scrupulously company alleges that the United States had accepted its bids because "A
respect; and that they confirm that mutual respect for the dignity of each request to confirm a price proposal confirms the acceptance of a bid pursuant to
nation shall characterize their friendship as well as the alliance between defendant United States' bidding practices." (Rollo, p. 30.) The truth of this
their two countries. allegation has not been tested because the case has not reached the trial stage.]

PETITION to review the orders of the Court of First Instance of In June, 1972, the company received a letter which was signed by Wilham I.
Rizal, Br. XV. Ruiz, J. Collins, Director, Contracts Division, Naval Facilities Engineering Command,
Southwest Pacific, Department of the Navy of the United States, who is one of
the petitioners herein. The letter said that the company did not qualify to receive
The facts are stated in the opinion of the Court. an award for the projects because of its previous unsatisfactory performance
rating on a repair contract for the sea wall at the boat landings of the U.S. Naval
Station in Subic Bay. The letter further said that the projects had been awarded
ABAD SANTOS, J.: to third parties. In the abovementioned Civil Case No. 779-M, the company sued
the United States of America and Messrs. James E. Galloway, William I. Collins
This is a petition to review, set aside certain orders and restrain the respondent and Robert Gohier all members of the Engineering Command of the U.S. Navy.
judge from trying Civil Case No. 779M of the defunct Court of First Instance of The complaint is to order the defendants to allow the plaintiff to perform the work
Rizal. on the projects and, in the event that specific performance was no longer
possible, to order the defendants to pay damages. The company also asked for
The factual background is as follows: the issuance of a writ of preliminary injunction to restrain the defendants from
entering into contracts with third parties for work on the projects.
At times material to this case, the United States of America had a naval base in
Subic, Zambales. The base was one of those provided in the Military Bases The defendants entered their special appearance for the purpose only of
Agreement between the Philippines and the United States. questioning the jurisdiction of this court over the subject matter of the complaint

2
and the persons of defendants, the subject matter of the complaint being acts It is however contended that when a sovereign state enters into a
and omissions of the individual defendants as agents of defendant United States contract with a private person, the state can be sued upon the
of America, a foreign sovereign which has not given her consent to this suit or theory that it has descended to the level of an individual from
any other suit for the causes of action asserted in the complaint." (Rollo, p. 50.) which it can be implied that it has given its consent to be sued
under the contract. ...
Subsequently the defendants filed a motion to dismiss the complaint which
included an opposition to the issuance of the writ of preliminary injunction. The xxx xxx xxx
company opposed the motion. The trial court denied the motion and issued the
writ. The defendants moved twice to reconsider but to no avail. Hence the instant We agree to the above contention, and considering that the
petition which seeks to restrain perpetually the proceedings in Civil Case No. United States government, through its agency at Subic Bay,
779-M for lack of jurisdiction on the part of the trial court. entered into a contract with appellant for stevedoring and
miscellaneous labor services within the Subic Bay Area, a U.S.
The petition is highly impressed with merit. Naval Reservation, it is evident that it can bring an action before
our courts for any contractual liability that that political entity may
The traditional rule of State immunity exempts a State from being sued in the assume under the contract. The trial court, therefore, has
courts of another State without its consent or waiver. This rule is a necessary jurisdiction to entertain this case ... (Rollo, pp. 20-21.)
consequence of the principles of independence and equality of States. However,
the rules of International Law are not petrified; they are constantly developing The reliance placed on Lyons by the respondent judge is misplaced for the
and evolving. And because the activities of states have multiplied, it has been following reasons:
necessary to distinguish them-between sovereign and governmental acts (jure
imperii) and private, commercial and proprietary acts (jure gestionis). The result In Harry Lyons, Inc. vs. The United States of America, supra, plaintiff brought suit
is that State immunity now extends only to acts jure imperil The restrictive in the Court of First Instance of Manila to collect several sums of money on
application of State immunity is now the rule in the United States, the United account of a contract between plaintiff and defendant. The defendant filed a
Kingdom and other states in western Europe. (See Coquia and Defensor motion to dismiss on the ground that the court had no jurisdiction over defendant
Santiago, Public International Law, pp. 207-209 [1984].) and over the subject matter of the action. The court granted the motion on the
grounds that: (a) it had no jurisdiction over the defendant who did not give its
The respondent judge recognized the restrictive doctrine of State immunity when consent to the suit; and (b) plaintiff failed to exhaust the administrative remedies
he said in his Order denying the defendants' (now petitioners) motion: " A provided in the contract. The order of dismissal was elevated to this Court for
distinction should be made between a strictly governmental function of the review.
sovereign state from its private, proprietary or non- governmental acts (Rollo, p.
20.) However, the respondent judge also said: "It is the Court's considered In sustaining the action of the lower court, this Court said:
opinion that entering into a contract for the repair of wharves or shoreline is
certainly not a governmental function altho it may partake of a public nature or It appearing in the complaint that appellant has not complied with
character. As aptly pointed out by plaintiff's counsel in his reply citing the ruling in the procedure laid down in Article XXI of the contract regarding
the case of Lyons, Inc., [104 Phil. 594 (1958)], and which this Court quotes with the prosecution of its claim against the United States
approval, viz.: Government, or, stated differently, it has failed to first exhaust its

3
 administrative remedies against said Government, the lower court by the said U.S. Government. On the basis of the ruling in the
acted properly in dismissing this case.(At p. 598.) case of Land vs. Dollar already cited, and on what we have
already stated, the present action must be considered as one
It can thus be seen that the statement in respect of the waiver of State immunity against the U.S. Government. It is clear hat the courts of the
from suit was purely gratuitous and, therefore, obiter so that it has no value as an Philippines including the Municipal Court of Manila have no
imperative authority. jurisdiction over the present case for unlawful detainer. The
question of lack of jurisdiction was raised and interposed at the
The restrictive application of State immunity is proper only when the proceedings very beginning of the action. The U.S. Government has not ,
arise out of commercial transactions of the foreign sovereign, its commercial given its consent to the filing of this suit which is essentially
activities or economic affairs. Stated differently, a State may be said to have against her, though not in name. Moreover, this is not only a case
descended to the level of an individual and can thus be deemed to have tacitly of a citizen filing a suit against his own Government without the
given its consent to be sued only when it enters into business contracts. It does latter's consent but it is of a citizen filing an action against a
not apply where the contract relates to the exercise of its sovereign functions. In foreign government without said government's consent, which
this case the projects are an integral part of the naval base which is devoted to renders more obvious the lack of jurisdiction of the courts of his
the defense of both the United States and the Philippines, indisputably a function country. The principles of law behind this rule are so elementary
of the government of the highest order; they are not utilized for nor dedicated to and of such general acceptance that we deem it unnecessary to
commercial or business purposes. cite authorities in support thereof. (At p. 323.)

That the correct test for the application of State immunity is not the conclusion of In Syquia,the United States concluded contracts with private individuals but the
a contract by a State but the legal nature of the act is shown in Syquia vs. contracts notwithstanding the States was not deemed to have given or waived its
Lopez, 84 Phil. 312 (1949). In that case the plaintiffs leased three apartment consent to be sued for the reason that the contracts were for jure imperii and not
buildings to the United States of America for the use of its military officials. The for jure gestionis.
plaintiffs sued to recover possession of the premises on the ground that the term
of the leases had expired. They also asked for increased rentals until the WHEREFORE, the petition is granted; the questioned orders of the respondent
apartments shall have been vacated. judge are set aside and Civil Case No. is dismissed. Costs against the private
respondent.
The defendants who were armed forces officers of the United States moved to
dismiss the suit for lack of jurisdiction in the part of the court. The Municipal Court Teehankee, Aquino, Concepcion, Jr., Melencio-Herrera, Plana, * Escolin, Relova,
Gutierrez, Jr., De la Fuente, Cuevas and Alampay, JJ., concur.
of Manila granted the motion to dismiss; sustained by the Court of First Instance,
the plaintiffs went to this Court for review on certiorari. In denying the petition,
this Court said: Fernando, C.J., took no part.

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

and we hold that the real party defendant in interest is the
Government of the United States of America; that any judgment
for back or Increased rentals or damages will have to be paid not
by defendants Moore and Tillman and their 64 co-defendants but