De Facto and De Jure Government

 Co Kim Cham v. Valdez, 75 Phil 113 (1946)

CO KIM CHAM VS. EUSEBIO VALDEZ TAN KEH and ARSENIO P. DIZON
FACTS:
Petitioner Co Kim Cham had a pending Civil Case with the Court of First Instance of Manila
initiated during the time of the Japanese occupation.
After the Liberation of the Manila and the American occupation, the respondent judge,
Judge Arsenio Dizon refused to take cognizance of and continue the proceedings in said case
on the ground that the proclamation issued on October 23, 1944, by General Douglas
MacArthur which states:
“All laws, regulations and processes of any other government in the Philippines than that of
the said Commonwealth are null and void and without legal effect in areas of the Philippines
free of enemy occupation and control”
Had the effect of invalidating and nullifying all judicial proceedings and judgements of the
court of the Philippines under the Philippine Executive Commission and the Republic of the
Philippines established during the Japanese military occupation, and that, furthermore, the
lower courts have no jurisdiction to take cognizance of and continue judicial proceedings
pending in the courts of the defunct Republic of the Philippines in the absence of an
enabling law granting such authority. And the same respondent, in his answer and
memorandum filed in this Court, contends that the government established in the
Philippines during the Japanese occupation were no de facto governments
Petitioner filed a motion for mandamus which prays that the respondent judge be ordered
to continue the proceeding in civil case No. 3012 which was initiated under the regime of
the so-called Republic of the Philippines established during the Japanese military
occupation. It is based on the proclamation issued by Gen. Douglas McArthur which had the
effect of invalidating and nullifying all judicial proceedings and judgments of the courts of
the Philippines. Furthermore, it was contended that the lower courts have no jurisdiction to
take cognizance of and continue judicial proceedings pending the court of the defunct
republic in the absence of enabling law.
ISSUE:
Whether or not the government established in the said Japanese occupation is in fact a de
facto government? YES
Whether or not the judicial acts and proceedings of the courts existing in the Philippines
under the Philippine Executive Commission were good and valid even after the liberation or
reoccupation of the Philippines by the US Forces? YES
HELD:
In political and international law, all acts and proceedings of the legislative, executive and
judicial department of a de facto government is valid. Being a de facto government, judicial
acts done under its control, when they are not political in nature, to the extent that they
effect during the continuance and control of said government remain good.
There are several kinds of de facto governments:

 The first, or government de facto in a proper legal sense, is that government that
gets possession and control of, or usurps, by force or by the voice of the majority,
the rightful legal governments and maintains itself against the will of the latter.
 The second is that which is established and maintained by military forces who invade
and occupy a territory of the enemy in the course of war, and which is denominated
a government of paramount force.
 And the third is that established as an independent government by the inhabitants
of a country who rise in insurrection against the parent state.
As courts are creatures of statutes and their existence defends upon that of the laws which
create and confer upon them their jurisdiction, it is evident that such laws, not being a
political nature, are not abrogated by a change of sovereignty, and continue in force "ex
proprio vigore" unless and until repealed by legislative acts.
It is, therefore, obvious that the present courts have jurisdiction to continue, to final
judgment, the proceedings in cases, not of political complexion, pending therein at the time
of the restoration of the Commonwealth Government.
Having arrived at the above conclusions, it follows that the Court of First Instance of Manila
has jurisdiction to continue to final judgment the proceedings in civil case No. 3012, which
involves civil rights of the parties under the laws of the Commonwealth Government,
pending in said court at the time of the restoration of the said Government; and that the
respondent judge of the court, having refused to act and continue him does a duty resulting
from his office as presiding judge of that court, mandamus is the speedy and adequate
remedy in the ordinary course of law, especially taking into consideration the fact that the
question of jurisdiction herein involved does affect not only this particular case, but many
other cases now pending in all the courts of these Islands.
In view of all the foregoing it is adjudged and decreed that a writ of mandamus issue,
directed to the respondent judge of the Court of First Instance of Manila, ordering him to
take cognizance of and continue to final judgment the proceedings in civil case No. 3012 of
said court.
Waiver of Immunity

 China National Machinery vs. Sta Maria, G.R.No.185572, 7 February 2012.

CHINA NATIONAL MACHINERY & EQIUPMENT CORP VS. HON. CESAR D. SANTAMARIA
FACTS:
On September 14, 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),
Definition of MOU: A memorandum of understanding (MOU) is a nonbinding
agreement between two or more parties outlining the terms and details of an understanding,
including each parties' requirements and responsibilities. An MOU is often the first stage in
the formation of a formal contract. A memorandum of understanding (MOU) is not legally
binding but is viewed as a serious document by the law.

Wherein China agreed to extend Preferential Buyer‘s 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 1
October 2003, the Chinese Ambassador to the Philippines, Wang Chungui (Amb. Wang),
wrote a letter to DOF Secretary Jose Isidro Camacho (Sec. Camacho) informing him of
CNMEG‘s designation as the Prime Contractor for the Northrail Project. 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 26 February
2004, the Philippine government and EXIM Bank entered into a counterpart financial
agreement – Buyer Credit Loan Agreement No. BLA 04055 (the Loan Agreement).
In the Loan Agreement, EXIM Bank agreed to extend Preferential Buyer‘s Credit in the
amount of USD 400,000,000 in favor of the Philippine government in order to finance the
construction of Phase I of the Northrail Project. 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 Justifying the Issuance of
Writs of Preliminary Prohibitory and Mandatory Injunction and/or TRO against CNMEG, the
Office of the Executive Secretary, the DOF, the Department of Budget and Management, the
National Economic Development Authority and Northrail.
 The case was filed before the Regional Trial Court, National Capital Judicial Region, Makati
City, Branch 145 (RTC Br. 145). In the Complaint, respondents alleged that the Contract
Agreement and the Loan Agreement were void for being contrary to (a) the Constitution;
(b) Republic Act No. 9184 (R.A. No. 9184), otherwise known as the Government
Procurement Reform Act;
- This 2016 Revised Implementing Rules and Regulations, hereinafter called the IRR, is
promulgated pursuant to Section 75 of Republic Act No. (R.A.) 9184, otherwise known as the
“Government Procurement Reform Act,” for the purpose of prescribing the necessary rules
and regulations for the modernization, standardization, and regulation of the procurement
activities of the Government of the Philippines

(c) Presidential Decree No. 1445, otherwise known as the Government Auditing Code;
- It is the declared policy of the State that all resources of the government shall be
managed, expended or utilized in accordance with law and regulations, and
safeguard against loss or wastage through illegal or improper disposition, with a view
to ensuring efficiency, economy and effectiveness in the operations of government.
The responsibility to take care that such policy is faithfully adhered to rests directly
with the chief or head of the government agency concerned.
And (d) Executive Order No. 292, otherwise known as the Administrative Code.
- (1) Government of the Republic of the Philippines refers to the corporate
governmental entity through which the functions of government are exercised
throughout the Philippines, including, save as the contrary appears from the context,
the various arms through which political authority is made effective in the
Philippines, whether pertaining to the autonomous regions, the provincial, city,
municipal or barangay subdivisions or other forms of local government.
- (2) National Government refers to the entire machinery of the central government,
as distinguished from the different forms of local governments. […]
On 15 May 2007, RTC Br. 145 issued an Omnibus Order denying CNMEG‘s Motion to Dismiss
and setting the case for summary hearing to determine whether the injunctive reliefs
prayed for should be issued. CNMEG then filed a Motion for Reconsideration, which was
denied by the trial court in an Order dated 10 March 2008. Thus, CNMEG filed before the CA
a Petition for Certiorari with Prayer for the Issuance of TRO and/or Writ of Preliminary
Injunction dated 4 April 2008. The appellate court dismissed the Petition for Certiorari.
Subsequently, CNMEG filed a Motion for Reconsideration, which was denied by the CA in a
Resolution dated 5 December 2008.

Petitioners Argument: Petitioner claims 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, it is clear from the foregoing provisions
that the Northrail Project was a purely commercial transaction.
Respondents Argument: respondents alleged that the Contract Agreement and the Loan
Agreement were void for being contrary to (a) the Constitution; (b) Republic Act No. 9184
(R.A. No. 9184), otherwise known as the Government Procurement Reform Act; (c)
Presidential Decree No. 1445, otherwise known as the Government Auditing Code; and (d)
Executive Order No. 292, otherwise known as the Administrative Code.

ISSUE:
1.) WON CNMEG is entitled to immunity
2.) WON the contract agreement is an executive agreement

HELD:
FIRST ISSUE: No. CNMEG is engaged in proprietary activity Theories on Sovereign Immunity:
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.
CAB: The Memorandum of Understanding dated 14 September 2002 between Northrail and
CNMEG; the letter of Amb. Wang dated 1 October 2003 addressed to Sec. Camacho; and the
Loan Agreement show that CNMEG is engaged in a proprietary activity.
1. The Memorandum of Understanding dated 14 September 2002 shows that CNMEG
sought the construction of the Luzon Railways as a proprietary venture. (Whereas clauses).
It was CNMEG that initiated the undertaking, and not the Chinese government. The
Feasibility Study was conducted not because of any diplomatic gratuity from or exercise of
sovereign functions by the Chinese government, but was plainly a business strategy
employed by CNMEG with a view to securing this commercial enterprise.
2. The desire of CNMEG to secure the Northrail Project was in the ordinary or regular course
of its business as a global construction company. The implementation of the Northrail
Project was intended to generate profit for CNMEG, with the Contract Agreement placing a
contract price of USD 421,050,000 for the venture. The use of the term "state corporation"
to refer to CNMEG was only descriptive of its nature as a government-owned and/or -
controlled corporation, and its assignment as the Primary Contractor did not imply that it
was acting on behalf of China in the performance of the latter’s sovereign functions
3. The Loan agreement specifically states that the execution of the contract agreement
constitutes private and commercial acts done and performed for commercial purposes
under Philippine laws even assuming arguendo that CNMEG performs
governmental functions, such claim does not automatically vest it with immunity. The
logical question is whether the foreign state is engaged in the activity in the regular course
of business. If the foreign state is not engaged regularly in a business or trade, the particular
act or transaction must then be tested by its nature. If the act is in pursuit of a sovereign
activity, or an incident thereof, then it is an act jure imperii, especially when it is not
undertaken for gain or profit.
APPLICATION OF GTZ CASE: it is readily apparent that CNMEG cannot claim immunity from
suit, even if it contends that it performs governmental functions. Its designation as the
Primary Contractor does not automatically grant it immunity, just as the term
"implementing agency" has no precise definition for purposes of ascertaining whether
GTZ was immune from suit. Although CNMEG claims to be a government-owned
corporation, it failed to adduce evidence that it has not consented to be sued under Chinese
law. Thus, following this Court’s ruling in Deutsche Gesellschaft, in the absence of evidence
to the contrary, CNMEG is to be presumed to be a government-owned and -controlled
corporation without an original charter. As a result, it has the capacity to sue and be sued
under Section 36 of the Corporation Code.
CNMEG failed to present a certification from DFA: In Public International Law,
when a state or international agency wishes to plead sovereign or diplomatic immunity
in a foreign court, it requests the Foreign Office of the state where it is sued to convey to
the court that said defendant is entitled to immunity.
CAB: CNMEG offers the Certification executed by the Economic and Commercial Office of
the Embassy of the People’s Republic of China, stating that the Northrail Project is in pursuit
of a sovereign activity. Surely, this is not the kind of certification that can establish CNMEG’s
entitlement to immunity from suit, as Holy See unequivocally refers to the determination of
the "Foreign Office of the state where it is sued.”
SECOND ISSUE: Article 2(1) of the Vienna Convention on the Law of Treaties (Vienna
Convention)defines a treaty as follows: An international agreement concluded between
States in written form and governed by international law, whether embodied in a single
instrument or in two or more related instruments and whatever its particular designation.
An executive agreement is similar to a treaty, except that the former (a) does not
require legislative concurrence; (b) is usually less formal; and (c) deals with a narrower
range of subject matters.
To be considered an executive agreement, the following three requisites provided under the
Vienna Convention must nevertheless concur: (a) the agreement must be between states;
(b) it must be written; and (c) it must governed by international law. The first and the third
requisites do not obtain in the case at bar.