Republic of the Philippines vs. Philippine National Bank

A government-owned or controlled corporation endowed with proprietary functions, such as the Philippine National Bank, has a juridical personality separate from the Republic; the Republic may therefore sue it, and the statute of limitations does not run against the State where the funds deposited were those of a governmental instrumentality.

The Republic of the Philippines, through the Armed Forces of the Philippines, maintained a current account with the Philippine National Bank, a banking corporation 97% of whose stocks belonged to the Government. The AFP is an instrumentality through which the Republic exercises governmental functions, while PNB was authorized by Republic Act 1300, effective June 16, 1955, to engage in the business of general banking.

The Republic of the Philippines, through the Armed Forces of the Philippines, maintained a current account with the Philippine National Bank. The account was opened in July 1947. PNB was a banking corporation 97% of whose stocks belonged to the Government. The AFP was an instrumentality of the Republic through which the Government exercised functions for the preservation of the State against dangers to its security.

According to the complaint, on December 27, 1949, PNB paid out P37,553.32 from that account. The payment was covered by two checks drawn against the account. The checks bore fictitious names as payees and forged signatures of the officers authorized to make withdrawals. The complaint alleged that PNB made the payment through negligence to an unnamed person.

When one of the authorized officers noticed from the statement sent by PNB that the value of the checks had been charged against the account, he called PNB’s attention to the mistake by letter dated April 15, 1950. Despite repeated demands, PNB refused to refund the value of the two checks.

Because no refund was made, the Republic filed this action on November 6, 1959. It prayed that PNB be sentenced to pay the amount involved to the Republic, with costs.

• Identity of Parties / Propriety of Suit: Petitioner assigned as its sole error the trial court’s ruling that “plaintiff and defendant are the same” and that a suit by the former against the latter is only a waste of time. Petitioner maintained that the dismissal on that ground was erroneous.

• Prescription: Respondent prayed for affirmance of the order of dismissal on the ground that the action had prescribed.
• Real Party in Interest: Respondent additionally argued that the real party in interest is the Armed Forces of the Philippines and not the Republic of the Philippines.

• Identity of Parties / Propriety of Suit: Whether the trial court erred in dismissing the complaint on the ground that the Republic and PNB are the same and that a suit by the former against the latter is only a waste of time.
• Real Party in Interest: Whether the Republic of the Philippines or the Armed Forces of the Philippines is the proper party-plaintiff.
• Prescription: Whether the action had prescribed.

• Identity of Parties / Propriety of Suit: No. The Republic and PNB are distinct juridical entities; PNB has its own personality and may sue and be sued. The dismissal on the ground that they are the same cannot stand.
• Real Party in Interest: Yes, the Republic. The AFP is an instrumentality through which the Republic exercises governmental functions, while PNB is a government-owned corporation with proprietary functions.
• Prescription: No. The statute of limitations does not run against the State, and it was neither alleged nor shown that the Republic deposited the funds other than as an instrumentality of the Republic.

• Identity of Parties / Propriety of Suit: The trial court’s premise that the Republic and PNB are the same because 97% of PNB’s stocks belonged to the Government is incorrect. PNB is one of the corporations and entities owned or controlled by the Government and endowed with proprietary functions which have nothing to do with the exercise of political authority. Such entities are governed by the Corporation Law and/or by their individual charters; PNB is governed by Republic Act 1300, which took effect on June 16, 1955, authorizing it, among other purposes, to engage in the business of general banking. Thus PNB has a personality of its own and may sue and be sued as an entity entirely distinct from the Republic. The order of dismissal on the ground of identity of parties was therefore set aside.
• Real Party in Interest: The Republic is the proper party-plaintiff. The Army is one of its instrumentalities through which its governmental functions are exercised, specifically the preservation of the State against any danger to its security, whether from within or from outside. These functions are compulsory and essential to sovereignty, constituent in character as distinguished from ministrant and hence optional functions which are undertaken only in order to advance the general interests of society. Bacani vs. National Coconut Corporation, 53 O.G. 2798, was cited for this distinction. Because the AFP is an instrumentality of the Republic, the Republic, not the AFP, is the proper party to sue on the deposit.
• Prescription: The statute of limitations does not run against the State. It was neither alleged nor shown that the plaintiff, in making the deposit of its funds in question with the defendant, did so other than as an instrumentality of the Republic. The plea of prescription therefore cannot be maintained.

• Statute of limitations does not run against the State — This doctrine bars a defendant from defeating an action brought by the State on the ground of prescription. The Court applied it because the Republic deposited its funds with PNB as an instrumentality of the Republic; since no contrary fact was alleged or shown, the action was not barred by prescription.
• Separate juridical personality of government-owned or controlled corporations — A government-owned or controlled corporation endowed with proprietary functions and governed by the Corporation Law and/or its charter has a personality of its own, distinct from the Republic, and may sue and be sued. The Court applied this to PNB, which was authorized by Republic Act 1300 to engage in general banking, and held that the Republic could sue it as a separate entity.
• Constituent vs. ministrant functions — Constituent functions are compulsory and essential to sovereignty, while ministrant or optional functions are undertaken only to advance the general interests of society. The Court characterized the AFP’s functions as constituent and PNB’s as proprietary, using the distinction to identify the Republic as the proper party-plaintiff.
• Proper party-plaintiff / real party in interest — The Republic is the proper party to sue for funds deposited by an instrumentality through which it exercises governmental functions. The Court applied this by holding that the Republic, not the AFP, was the proper party-plaintiff in the action against PNB.

• "We hold that the Republic of the Philippines is the proper party-plaintiff in this case." — This states the core holding on the proper party-plaintiff, rejecting the trial court’s identity-of-parties theory.
• "The Army is one of its instrumentalities through which its governmental functions are exercised, specifically the preservation of the State against any danger to its security, whether from within or from outside. These functions are compulsory and essential to sovereignty constituent in character as distinguished from those ministrant and hence optional functions which are undertaken only in order to advance the general interests of society." — This articulates the constituent-versus-ministrant distinction used to explain why the AFP is an instrumentality of the Republic and why the Republic is the proper party.
• "Thus it has a personality of its own and may sue and be sued as an entity entirely distinct from the Republic." — This defines the separate juridical personality of PNB notwithstanding government ownership or control.
• "Since the statute of limitations does not run against the State and it is neither alleged nor shown that plaintiff, in making the deposit of its funds in question with defendant, did so other than as an instrumentality of the Republic, the plea of prescription cannot be maintained." — This is the ratio for rejecting the defense of prescription.

• Bacani vs. National Coconut Corporation, 53 O.G. 2798 — Cited by the Court for the distinction between constituent functions, which are compulsory and essential to sovereignty, and ministrant or optional functions undertaken to advance the general interests of society. The citation supported the characterization of the AFP’s functions and the holding that the Republic was the proper party-plaintiff.

• Republic Act 1300 — Effective June 16, 1955, authorized the Philippine National Bank to engage in the business of general banking, among other purposes. The Court cited it to show that PNB is governed by its own charter and exercises proprietary functions, hence has a separate juridical personality from the Republic.
• Corporation Law (as cited in the text) — The Court stated that government-owned or controlled corporations with proprietary functions are governed by the Corporation Law and/or their individual charters. This supported the conclusion that PNB is a distinct juridical entity.

Concurring: Chief Justice Bengzon; Justices Bautista Angelo, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, Bengzon, J.P., and Zaldivar. Justice Concepcion took no part.