The Joint United States Military Assistance Group to the Republic of the Philippines (JUSMAG-Philippines), when performing governmental functions pursuant to the Military Assistance Agreement between the Philippines and the United States, is immune from suit, and such immunity is not waived by entering into employment contracts related to these sovereign functions.

JUSMAG-Philippines was created pursuant to the Military Assistance Agreement of March 21, 1947, between the Philippines and the United States, with the primary task of advising and assisting the Philippines on military matters. Initially, the costs of locally employed personnel were borne by the Republic of the Philippines, but this changed in 1991 when the US Government offered to provide funds for the salaries of security assistance support personnel (SASP) and other operational costs.

• Florencio Sacramento was a security assistance support personnel (SASP) at JUSMAG-Philippines from December 18, 1969, until his dismissal on April 27, 1992.
• At the time of dismissal, Sacramento held the position of Illustrator 2 and was the President of JUSMAG PHILIPPINES-FILIPINO CIVILIAN EMPLOYEES ASSOCIATION (JPFCEA).
• His services were terminated allegedly due to the abolition of his position, and he was placed on administrative leave until April 27, 1992.
• On March 31, 1992, Sacramento filed a complaint for illegal suspension and dismissal with the Department of Labor and Employment, seeking reinstatement.
• JUSMAG filed a Motion to Dismiss, invoking immunity from suit as an agency of the United States, lack of employer-employee relationship, and lack of juridical personality.
• A Memorandum of Agreement between the Armed Forces of the Philippines (AFP) and JUSMAG-Philippines, effective 1991, stipulated that SASP are employees of the AFP, although JUSMAG would have total operational control and pay their payroll costs under an exceptional funding agreement.
• The agreement also stated that the AFP agrees to assume severance pay/retirement pay liability for all appointed SASP.

• JUSMAG is immune from suit as an agency of the United States Government, and the suit is effectively against the United States, which has not given its consent to be sued.
• JUSMAG did not waive its immunity from suit by hiring Sacramento, as this was done in the performance of its governmental functions.
• There was no employer-employee relationship between JUSMAG and Sacramento, as SASP, including Sacramento, are employees of the Armed Forces of the Philippines.
• JUSMAG has no juridical personality to sue and be sued.

• JUSMAG committed illegal suspension and dismissal.
• JUSMAG lost its right not to be sued based on the principle of estoppel, as it failed to refute the existence of an employer-employee relationship under the "control test."
• JUSMAG waived its right to immunity from suit when it hired the services of Sacramento on December 18, 1969, thereby submitting itself to the jurisdiction of local courts, similar to the ruling in Harry Lyons vs. United States of America.

• Whether JUSMAG-Philippines is immune from suit for illegal dismissal filed by a former employee.
• Whether JUSMAG-Philippines waived its immunity from suit by hiring private respondent Florencio Sacramento.
• Whether an employer-employee relationship existed between JUSMAG-Philippines and private respondent Florencio Sacramento.
• Whether the NLRC committed grave abuse of discretion in reversing the Labor Arbiter's decision and finding that JUSMAG waived its immunity and was estopped from denying an employer-employee relationship.

• The petition for certiorari is GRANTED. The impugned Resolution of the NLRC is REVERSED and SET ASIDE.
• JUSMAG was performing a governmental function on behalf of the United States pursuant to the Military Assistance Agreement when it took the services of private respondent; thus, the suit is, in effect, one against the United States Government.
• The United States has not waived or consented to the suit, so the complaint against JUSMAG cannot prosper.
• The doctrine of state immunity applies to sovereign or governmental activities (jure imperii) and not to commercial, private, and proprietary acts (jure gestionis).
• The hiring of Sacramento by JUSMAG was in the discharge of its governmental functions, not proprietary functions, so immunity was not waived.
• The Court found no basis for the NLRC's ruling that JUSMAG was estopped from denying an employer-employee relationship, as JUSMAG consistently contended that SASP are employees of the AFP, supported by the Military Assistance Agreement, diplomatic notes, and the AFP-JUSMAG Agreement.

• State Immunity from Suit — A universally recognized principle of international law, forming part of the law of the land, which exempts a state and its organs from the judicial jurisdiction of another state, anchored on the principle of sovereign equality (par in parem non habet imperium). The Court held that JUSMAG, as an agency of the US government performing governmental functions, is covered by this immunity.
• Restrictive Application of State Immunity (Jure Imperii vs. Jure Gestionis) — State immunity is generally limited to sovereign or governmental acts (jure imperii) and does not extend to commercial, private, or proprietary acts (jure gestionis). The Court found that JUSMAG's engagement of Sacramento was related to its sovereign functions (military assistance), thus falling under jure imperii and entitling it to immunity.
• Waiver of State Immunity — A state may waive its immunity from suit. However, entering into a contract does not per se mean waiver; waiver applies only when a state enters into business contracts (jure gestionis), not contracts related to its sovereign functions. The Court ruled that JUSMAG's employment contract with Sacramento, being in furtherance of its governmental functions, did not constitute a waiver of immunity.
• Estoppel — A principle whereby a party is precluded from denying or asserting something contrary to what has been established as the truth by his own deeds or representations. The Court found no basis for applying estoppel against JUSMAG regarding the employer-employee relationship, as JUSMAG consistently maintained that SASP were AFP employees.

• "The restrictive application of State immunity is proper when the proceedings arise out of commercial transactions of the foreign sovereign, its commercial activities or economic affairs. Stated differently, a State may be said to have descended to the level of an individual and thus can be deemed to have tacitly given its consent to be sued only when it enters into business contracts. It does not apply where the contract relates to the exercise of its sovereign functions.”
• "Conversely, if the contract was entered into in the discharge of its governmental functions, the sovereign state cannot be deemed to have waived its immunity from suit."

• Harry Lyons vs. United States of America (104 SCRA 593) — Cited by the NLRC to support the argument that the US government waived immunity by entering into a contract. The Supreme Court clarified that the pronouncement in Lyons regarding waiver of State immunity by contract was obiter dictum and not an imperative authority, especially in light of the restrictive application of state immunity.
• Santos, et al., vs. Santos, et al. (92 Phil 281) — Cited for the exception to state immunity where a state, by entering into a contract, descends to the level of a citizen and implies consent to be sued. The Supreme Court, however, emphasized the evolution of this doctrine towards a more restrictive application.
• United States of America vs. Ruiz (136 SCRA 487) — Cited to clarify that the pronouncement in Harry Lyons regarding waiver of state immunity was obiter and that the restrictive application of state immunity (jure imperii vs. jure gestionis) is the prevailing rule. This case established that immunity applies to sovereign functions, not business contracts.
• United States vs. Hon. Rodrigo, et al. (182 SCRA 644) — Cited as an example where state immunity was not applicable because the US government, in operating a restaurant at John Hay Air Station, engaged in proprietary functions. This was distinguished from the present case where JUSMAG performed governmental functions.

• Section 2, Article II of the 1987 Constitution — "The Philippines renounces war as an instrument of national policy, adopts the generally accepted principles of international law as part of the law of the land..." This was invoked to affirm that state immunity is part of Philippine law.
• Military Assistance Agreement dated March 21, 1947, between the Government of the Republic of the Philippines and the Government of the United States of America — This agreement established JUSMAG and defined its purpose. It was central to determining the governmental nature of JUSMAG's functions and the employment status of SASP.
• Memorandum of Agreement (between AFP and JUSMAG-Philippines) — This agreement, detailing terms of assistance-in-kind for 1991, was cited to show that SASP were considered employees of the AFP, with JUSMAG having operational control and providing funding under specific arrangements.