China National Machinery v. Santamaria

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.3 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 CNMEGs 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).7 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 Buyers 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; (c) Presidential Decree No. 1445, otherwise known as the Government Auditing Code; and (d) Executive Order No. 292, otherwise known as the Administrative Code.

On 15 May 2007, RTC Br. 145 issued an Omnibus Order denying CNMEGs 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.

Issues: 1. Whether or not petitioner CNMEG is an agent of the sovereign Peoples Republic of China.

2.Whether or not the Northrail contracts are products of an executive agreement between two sovereign states.

Ruling:

The instant Petition is DENIED. Petitioner China National Machinery & Equipment Corp. (Group) is not entitled to immunity from suit, and the Contract Agreement is not an executive agreement. CNMEGs prayer for the issuance of a TRO and/or Writ of Preliminary Injunction is DENIED for being moot and academic. The Court explained the doctrine of sovereign immunity in Holy See v. Rosario, to wit:

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. (Emphasis supplied; citations omitted.)

As it stands now, the application of the doctrine of immunity from suit has been restricted to sovereign or governmental activities (jure imperii). The mantle of state immunity cannot be extended to commercial, private and proprietary 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. As held in United States of America v. Ruiz

Admittedly, the Loan Agreement was entered into between EXIM Bank and the Philippine government, while the Contract Agreement was between Northrail and CNMEG. Although the Contract Agreement is silent on the classification of the legal nature of the transaction, the foregoing provisions of the Loan Agreement, which is an inextricable part of the entire undertaking, nonetheless reveal the intention of the parties to the Northrail Project to classify the whole venture as commercial or proprietary in character.

Thus, piecing together the content and tenor of the Contract Agreement, the Memorandum of Understanding dated 14 September 2002, Amb. Wangs letter dated 1 October 2003, and the Loan Agreement would reveal the desire of CNMEG to construct the Luzon Railways in pursuit of a purely commercial activity performed in the ordinary course of its business. NPC Drivers and Mechanics Association v. NPC: NPC Drivers and Mechanics Association v. NPC

Facts:

On June 8, 2001, Republic Act 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA Law), was approved and signed into law by President Gloria Macapagal-Arroyo. It took effect on 26 June 2001.

Under Section 48 of the EPIRA Law,[2] a new National Power Board (NPB) of Directors was formed. An energy restructuring committee (Restructuring Committee) was also created to manage the privatization and the restructuring of the National Power Corporation (NPC), the National Transmission Corporation (TRANSCO), and the Power Sector Assets and Liabilities Corporation (PSALC).

On November 18 , 2002, pursuant to Section 63[3] of the EPIRA Law and Rule 33[4] of the Implementing Rules and Regulations (IRR), the NPB passed NPB Resolution No. 2002-124, which provided for Guidelines on the Separation Program of the NPC and the Selection and Placement of Personnel.

Under this Resolution, the services of all NPC personnel shall be legally terminated on January 31, 2003, and shall be entitled to separation benefits provided therein.

On the same day, the NPB approved NPB Resolution 2002-125, constituting a Transition Team to manage and implement the NPCs Separation Program.

Contending that the assailed NPB Resolutions were void, petitioners filed, in their individual and representative capacities, the present Petition for Injunction to restrain respondents from implementing NPB Resolution Nos. 2002-124 and 2002- 125.

Petitioners maintain that said Resolutions were not passed and issued by a majority of the members of the duly constituted Board of Directors since only three of its members, as provided under Section 48of the EPIRA Law, were present, namely: DOE Secretary Vincent S. Perez, Jr.; Department of Budget and Management Secretary Emilia T. Boncodin; and NPC OIC-President Rolando S. Quilala.

According to petitioners, the other four members who were present at the meeting and signed the Resolutions were not the secretaries of their respective departments but were merely representatives or designated alternates of the officials who were named under the EPIRA Law to sit as members of the NPB.

Petitioners claim that the acts of these representatives are violative of the well-settled principle that "delegated power cannot be further delegated." Thus, petitioners conclude that the questioned Resolutions have been illegally issued as it were not issued by a duly constituted board since no quorum existed because only three of the nine members, as provided under Section 48 of the EPIRA Law, were present and qualified to sit and vote.

Respondents, on the other hand, uphold the validity of the assailed Resolutions by arguing that while it is true that four members of the National Power Board of Directors, particularly the respective Secretaries of the Department of Interior and Local Government, the Department of Trade and Industry, and the Department of Finance, as well as the Director-General of the National Economic and Development Authority, were not the actual signatories in NPB Resolutions No. 2002-124 and No. 2002-125, they were, however, ably represented by their respective alternates.

Respondents claim that the validity of such administrative practice whereby an authority is exercised by persons or subordinates appointed by the responsible official has long been settled. Respondents further contend that Section 48 of the EPIRA Law does not in any way prohibit any member of the NPB from authorizing his representative to sign resolutions adopted by the Board.

Petitioners maintain that there was undue delegation of delegated power when only the representatives of certain members of the NPB attended the board meetings and passed and signed the questioned Resolutions.It is petitioners' submission that even assumingarguendothat there was no undue delegation of power to the four representatives who signed the assailed Resolutions, said Resolutions cannot still be given legal effect because the same did not comply with the mandatory requirement of endorsement by the Joint Congressional Power Commission and approval of the President of the Philippines

Issue:

Whether or not department secretaries can delegate their duties as members of the NPB.

Ruling:

Under Section 48, the power to exercise judgment and discretion in running the affairs of the NPC was vested by the legislature upon the persons composing the National Power Board of Directors. When applied to public functionaries, discretion refers to a power or right conferred upon them by law, consisting of acting officially in certain circumstances, according to the dictates of their own judgment and conscience, and uncontrolled by the judgment or conscience of others.

Presumably, in naming the respective department heads as members of the board of directors, the legislature chose these secretaries of the various executive departments on the basis of their personal qualifications and acumen that had made them eligible to occupy their present positions as department heads. Thus, the department secretaries cannot delegate their duties as members of the NPB, much less their power to vote and approve board resolutions. Their personal judgments are what they must exercise in the fulfillment of their responsibilities.

There was no question that the enactment of the assailed Resolutions involved the exercise of discretion, not merely a ministerial act that could be validly performed by a delegate.

Respondents reliance on American Tobacco Company v. Director of Patents was misplaced. The Court explicitly stated in that case that, in exercising their own judgment and discretion, administrative officers were not prevented from using the help of subordinates as a matter of practical administrative procedure. Officers could seek such aid, as long as the legally authorized official was the one who would make the final decision through the use of personal judgment.

In the present case, it is not difficult to comprehend that in approving NPB Resolutions 2002-124 and 2002-125, it is the representatives of the secretaries of the different executive departments and not the secretaries themselves who exercised judgment in passing the assailed Resolution. This action violates the duty imposed upon the specifically enumerated department heads to employ their own sound discretion in exercising the corporate powers of the NPC.