EN BANC Engineering Command of the U.S. Navy.

The complaint is to
order the defendants to allow the plaintiff to perform the
G.R. No. L-35645 May 22, 1985 work 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 issuance of
UNITED STATES OF AMERICA, CAPT. JAMES E.
a writ of preliminary injunction to restrain the defendants
GALLOWAY, WILLIAM I. COLLINS and ROBERT from entering into contracts with third parties for work on
GOHIER, petitioners,
the projects.
vs.
HON. V. M. RUIZ, Presiding Judge of Branch XV, Court
of First Instance of Rizal and ELIGIO DE GUZMAN & The defendants entered their special appearance for the
CO., INC., respondents. purpose only of questioning the jurisdiction of this court over
the subject matter of the complaint and the persons of
defendants, the subject matter of the complaint being acts
Sycip, Salazar, Luna & Manalo & Feliciano Law for and omissions of the individual defendants as agents of
petitioners. defendant United States of America, a foreign sovereign
which has not given her consent to this suit or any other suit
Albert, Vergara, Benares, Perias & Dominguez Law Office for for the causes of action asserted in the complaint." (Rollo, p.
respondents. 50.)

ABAD SANTOS, J.: Subsequently the defendants filed a motion to dismiss the

complaint which included an opposition to the issuance of
This is a petition to review, set aside certain orders and the writ of preliminary injunction. The company opposed the
restrain the respondent judge from trying Civil Case No. motion. The trial court denied the motion and issued the
779M of the defunct Court of First Instance of Rizal. writ. The defendants moved twice to reconsider but to no
avail. Hence the instant petition which seeks to restrain
perpetually the proceedings in Civil Case No. 779-M for lack
The factual background is as follows:
of jurisdiction on the part of the trial court.

At times material to this case, the United States of America

The petition is highly impressed with merit.
had a naval base in Subic, Zambales. The base was one of
those provided in the Military Bases Agreement between the
Philippines and the United States. The traditional rule of State immunity exempts a State from
being sued in the courts of another State without its consent
or waiver. This rule is a necessary consequence of the
Sometime in May, 1972, the United States invited the
principles of independence and equality of States. However,
submission of bids for the following projects
the rules of International Law are not petrified; they are
constantly developing and evolving. And because the
1. Repair offender system, Alava Wharf at the U.S. Naval activities of states have multiplied, it has been necessary to
Station Subic Bay, Philippines. distinguish them-between sovereign and governmental acts
(jure imperii) and private, commercial and proprietary acts
2. Repair typhoon damage to NAS Cubi shoreline; repair (jure gestionis). The result is that State immunity now
typhoon damage to shoreline revetment, NAVBASE Subic; extends only to acts jure imperil The restrictive application of
and repair to Leyte Wharf approach, NAVBASE Subic Bay, State immunity is now the rule in the United States, the
Philippines. United Kingdom and other states in western Europe. (See
Coquia and Defensor Santiago, Public International Law, pp.
Eligio de Guzman & Co., Inc. responded to the invitation and 207-209 [1984].)
submitted bids. Subsequent thereto, the company received
from the United States two telegrams requesting it to The respondent judge recognized the restrictive doctrine of
confirm its price proposals and for the name of its bonding State immunity when he said in his Order denying the
company. The company complied with the requests. [In its defendants' (now petitioners) motion: " A distinction should
complaint, the company alleges that the United States had be made between a strictly governmental function of the
accepted its bids because "A request to confirm a price sovereign state from its private, proprietary or non-
proposal confirms the acceptance of a bid pursuant to governmental acts (Rollo, p. 20.) However, the respondent
defendant United States' bidding practices." (Rollo, p. 30.) judge also said: "It is the Court's considered opinion that
The truth of this allegation has not been tested because the entering into a contract for the repair of wharves or
case has not reached the trial stage.] shoreline is certainly not a governmental function although it
may partake of a public nature or character. As aptly pointed
In June, 1972, the company received a letter which was out by plaintiff's counsel in his reply citing the ruling in the
signed by Wilham I. Collins, Director, Contracts Division, case of Lyons, Inc., [104 Phil. 594 (1958)], and which this
Naval Facilities Engineering Command, Southwest Pacific, Court quotes with approval, viz.:
Department of the Navy of the United States, who is one of
the petitioners herein. The letter said that the company did It is however contended that when a
not qualify to receive an award for the projects because of sovereign state enters into a contract with
its previous unsatisfactory performance rating on a repair a private person, the state can be sued
contract for the sea wall at the boat landings of the U.S. upon the theory that it has descended to
Naval Station in Subic Bay. The letter further said that the the level of an individual from which it can
projects had been awarded to third parties. In the be implied that it has given its consent to
abovementioned Civil Case No. 779-M, the company sued be sued under the contract. ...
the United States of America and Messrs. James E. Galloway,
William I. Collins and Robert Gohier all members of the
 xxx xxx xxx military officials. The plaintiffs sued to recover possession of
the premises on the ground that the term of the leases had
We agree to the above contention, and expired. They also asked for increased rentals until the
considering that the United States apartments shall have been vacated.
government, through its agency at Subic
Bay, entered into a contract with appellant The defendants who were armed forces officers of the
for stevedoring and miscellaneous labor United States moved to dismiss the suit for lack of
services within the Subic Bay Area, a U.S. jurisdiction in the part of the court. The Municipal Court of
Naval Reservation, it is evident that it can Manila granted the motion to dismiss; sustained by the Court
bring an action before our courts for any of First Instance, the plaintiffs went to this Court for review
contractual liability that that political entity on certiorari. In denying the petition, this Court said:
may assume under the contract. The trial
court, therefore, has jurisdiction to On the basis of the foregoing
entertain this case ... (Rollo, pp. 20-21.) considerations we are of the belief and we
hold that the real party defendant in
The reliance placed on Lyons by the respondent judge is interest is the Government of the United
misplaced for the following reasons: States of America; that any judgment for
back or Increased rentals or damages will
In Harry Lyons, Inc. vs. The United States of America, have to be paid not by defendants Moore
supra, plaintiff brought suit in the Court of First Instance of and Tillman and their 64 co-defendants
Manila to collect several sums of money on account of a but by the said U.S. Government. On the
contract between plaintiff and defendant. The defendant basis of the ruling in the case of Land vs.
filed a motion to dismiss on the ground that the court had no Dollar already cited, and on what we have
jurisdiction over defendant and over the subject matter of already stated, the present action must be
the action. The court granted the motion on the grounds considered as one against the U.S.
that: (a) it had no jurisdiction over the defendant who did Government. It is clear hat the courts of
not give its consent to the suit; and (b) plaintiff failed to the Philippines including the Municipal
exhaust the administrative remedies provided in the Court of Manila have no jurisdiction over
contract. The order of dismissal was elevated to this Court the present case for unlawful detainer.
for review. The question of lack of jurisdiction was
raised and interposed at the very
beginning of the action. The U.S.
In sustaining the action of the lower court, this Court said: Government has not , given its consent to
the filing of this suit which is essentially
It appearing in the complaint that against her, though not in name.
appellant has not complied with the Moreover, this is not only a case of a
procedure laid down in Article XXI of the citizen filing a suit against his own
contract regarding the prosecution of its Government without the latter's consent
claim against the United States but it is of a citizen filing an action against
Government, or, stated differently, it has a foreign government without said
failed to first exhaust its administrative government's consent, which renders
remedies against said Government, the more obvious the lack of jurisdiction of the
lower court acted properly in dismissing courts of his country. The principles of law
this case.(At p. 598.) behind this rule are so elementary and of
such general acceptance that we deem it
It can thus be seen that the statement in respect of the unnecessary to cite authorities in support
waiver of State immunity from suit was purely gratuitous thereof. (At p. 323.)
and, therefore, obiter so that it has no value as an
imperative authority. In Syquia,the United States concluded contracts with private
individuals but the contracts notwithstanding the States was
The restrictive application of State immunity is proper only not deemed to have given or waived its consent to be sued
when the proceedings arise out of commercial transactions for the reason that the contracts were for  jure imperii and
of the foreign sovereign, its commercial activities or not for jure gestionis.
economic affairs. Stated differently, a State may be said to
have descended to the level of an individual and can thus be WHEREFORE, the petition is granted; the questioned orders
deemed to have tacitly given its consent to be sued only of the respondent judge are set aside and Civil Case No. is
when it enters into business contracts. It does not apply dismissed. Costs against the private respondent.
where the contract relates to the exercise of its sovereign
functions. In this case the projects are an integral part of the
Teehankee, Aquino, Concepcion, Jr., Melencio-Herrera,
naval base which is devoted to the defense of both the Plana,  * Escolin, Relova, Gutierrez, Jr., De la Fuente,
United States and the Philippines, indisputably a function of
Cuevas and Alampay, JJ., concur.
the government of the highest order; they are not utilized
for nor dedicated to commercial or business purposes.
Fernando, C.J., took no part.
That the correct test for the application of State immunity is
not the conclusion of a contract by a State but the legal  
nature of the act is shown in Syquia vs. Lopez,  84 Phil. 312
(1949). In that case the plaintiffs leased three apartment
buildings to the United States of America for the use of its