Republic of the Philippines

Supreme Court
Manila
 
THIRD DIVISION
 
 
AIR TRANSPORTATION G.R. No. 159402
OFFICE,  
Petitioner, Present:
   
  BRION, Acting Chairperson,**
  BERSAMIN,
- versus - ABAD,***
 
VILLARAMA, JR., and
 
  SERENO, JJ.
SPOUSES DAVID* and  
ELISEA RAMOS, Promulgated:
Respondents. February 23, 2011
x-----------------------------------------------------------------------------------------x
 
RESOLUTION
 
BERSAMIN, J.:
 
The States immunity from suit does not extend to the petitioner because it is an
agency of the State engaged in an enterprise that is far from being the States
exclusive prerogative.
 
Under challenge is the decision promulgated on May 14, 2003,[1] by
which the Court of Appeals (CA) affirmed with modification the decision
rendered on February 21, 2001 by the Regional Trial Court, Branch 61 (RTC),
in Baguio City in favor of the respondents.[2]
Antecedents
 
Spouses David and Elisea Ramos (respondents) discovered that a portion of
their land registered under Transfer Certificate of Title No. T-58894 of
the Baguio City land records with an area of 985 square meters, more or less,
was being used as part of the runway and running shoulder of
the Loakan Airport being operated by petitioner Air Transportation Office
(ATO). On August 11, 1995, the respondents agreed after negotiations to
convey the affected portion by deed of sale to the ATO in consideration of the
amount of P778,150.00. However, the ATO failed to pay despite repeated verbal
and written demands.
 
Thus, on April 29, 1998, the respondents filed an action for collection
against the ATO and some of its officials in the RTC (docketed as Civil Case
No. 4017-R and entitled Spouses David and Elisea Ramos v. Air Transportation
Office, Capt. Panfilo Villaruel, Gen. Carlos Tanega, and Mr. Cesar de Jesus).
 
In their answer, the ATO and its co-defendants invoked as an affirmative
defense the issuance of Proclamation No. 1358, whereby President Marcos had
reserved certain parcels of land that included the respondents affected portion
for use of the Loakan Airport. They asserted that the RTC had no jurisdiction to
entertain the action without the States consent considering that the deed of sale
had been entered into in the performance of governmental functions.
On November 10, 1998, the RTC denied the ATOs motion for a
preliminary hearing of the affirmative defense.
 
After the RTC likewise denied the ATOs motion for reconsideration
on December 10, 1998, the ATO commenced a special civil action
for certiorari in the CA to assail the RTCs orders. The CA dismissed the
petition for certiorari, however, upon its finding that the assailed orders were
not tainted with grave abuse of discretion.[3]
 
Subsequently, February 21, 2001, the RTC rendered its decision on the merits,
[4]
 disposing:
 
WHEREFORE, the judgment is rendered ORDERING the defendant Air
Transportation Office to pay the plaintiffs DAVID and ELISEA RAMOS the
following: (1) The amount of P778,150.00 being the value of the parcel of
land appropriated by the defendant ATO as embodied in the Deed of Sale, plus
an annual interest of 12% from August 11, 1995, the date of the Deed of Sale
until fully paid; (2) The amount of P150,000.00 by way of moral damages
and P150,000.00 as exemplary damages; (3) the amount of P50,000.00 by way
of attorneys fees plus P15,000.00 representing the 10, more or less, court
appearances of plaintiffs counsel; (4) The costs of this suit.
 
SO ORDERED.
 
In due course, the ATO appealed to the CA, which affirmed the RTCs decision
on May 14, 2003,[5] viz:
 
IN VIEW OF ALL THE FOREGOING, the appealed decision is
hereby AFFIRMED, with MODIFICATION that the awarded cost therein
is deleted, while that of moral and exemplary damages is reduced
to P30,000.00 each, and attorneys fees is lowered to P10,000.00.
 No cost.
SO ORDERED.
 
Hence, this appeal by petition for review on certiorari.
 
Issue
 
The only issue presented for resolution is whether the ATO could be sued
without the States consent.
 
 
Ruling
 
The petition for review has no merit.
 
The immunity of the State from suit, known also as the doctrine of sovereign
immunity or non-suability of the State, is expressly provided in Article XVI of
the 1987 Constitution, viz:
 
Section 3. The State may not be sued without its consent.
 
The immunity from suit is based on the political truism that the State, as a
sovereign, can do no wrong. Moreover, as the eminent Justice Holmes said
in Kawananakoa v. Polyblank:[6]
 
The territory [of Hawaii], of course, could waive its exemption (Smith v.
Reeves, 178 US 436, 44 L ed 1140, 20 Sup. Ct. Rep. 919), and it took no
objection to the proceedings in the cases cited if it could have done so.
xxx But in the case at bar it did object, and the question raised is whether the
plaintiffs were bound to yield. Some doubts have been expressed as to the
source of the immunity of a sovereign power from suit without its own
permission, but the answer has been public property since before the days of
Hobbes. Leviathan, chap. 26, 2. A sovereign is exempt from suit, not
because of any formal conception or obsolete theory, but on the logical
and practical ground that there can be no legal right as against the
authority that makes the law on which the right depends. Car on peut bien
recevoir loy d'autruy, mais il est impossible par nature de se donner
loy. Bodin, Republique, 1, chap. 8, ed. 1629, p. 132; Sir John Eliot, De Jure
Maiestatis, chap. 3. Nemo suo statuto ligatur necessitative. Baldus, De Leg. et
Const. Digna Vox, 2. ed. 1496, fol. 51b, ed. 1539, fol. 61.[7]
 
Practical considerations dictate the establishment of an immunity from
suit in favor of the State. Otherwise, and the State is suable at the instance of
every other individual, government service may be severely obstructed and
public safety endangered because of the number of suits that the State has to
defend against.[8] Several justifications have been offered to support the adoption
of the doctrine in the Philippines, but that offered in Providence Washington
Insurance Co. v. Republic of the Philippines[9] is the most acceptable
explanation, according to Father Bernas, a recognized commentator on
Constitutional Law,[10] to wit:
 
[A] continued adherence to the doctrine of non-suability is not to be
deplored for as against the inconvenience that may be caused private parties,
the loss of governmental efficiency and the obstacle to the performance of its
multifarious functions are far greater if such a fundamental principle were
abandoned and the availability of judicial remedy were not thus restricted.
With the well-known propensity on the part of our people to go to court, at the
least provocation, the loss of time and energy required to defend against law
suits, in the absence of such a basic principle that constitutes such an effective
obstacle, could very well be imagined.
 
An unincorporated government agency without any separate juridical
personality of its own enjoys immunity from suit because it is invested with an
inherent power of sovereignty. Accordingly, a claim for damages against the
agency cannot prosper; otherwise, the doctrine of sovereign immunity is
violated.[11] However, the need to distinguish between an unincorporated
government agency performing governmental function and one performing
proprietary functions has arisen. The immunity has been upheld in favor of the
former because its function is governmental or incidental to such function; [12] it
has not been upheld in favor of the latter whose function was not in pursuit of a
necessary function of government but was essentially a business.[13]
 
Should the doctrine of sovereignty immunity or non-suability of the State
be extended to the ATO?
 
In its challenged decision,[14] the CA answered in the negative, holding:
 
On the first assignment of error, appellants seek to impress upon Us that
the subject contract of sale partook of a governmental character. Apropos, the
lower court erred in applying the High Courts ruling in National Airports
Corporation vs. Teodoro (91 Phil. 203 [1952]), arguing that in Teodoro, the
matter involved the collection of landing and parking fees which is a
proprietary function, while the case at bar involves the maintenance and
operation of aircraft and air navigational facilities and services which are
governmental functions.
 
We are not persuaded.
 
Contrary to appellants conclusions, it was not merely the collection of
landing and parking fees which was declared as proprietary in nature by the
High Court in Teodoro, but management and maintenance of airport
operations as a whole, as well. Thus, in the much later case of Civil
Aeronautics Administration vs. Court of Appeals (167 SCRA 28 [1988]), the
Supreme Court, reiterating the pronouncements laid down in Teodoro,
declared that the CAA (predecessor of ATO) is an agency not immune from
suit, it being engaged in functions pertaining to a private entity. It went on to
explain in this wise:
 
xxx
 
The Civil Aeronautics Administration comes under the
category of a private entity. Although not a body corporate it
was created, like the National Airports Corporation, not to
maintain a necessary function of government, but to run what is
essentially a business, even if revenues be not its prime objective
but rather the promotion of travel and the convenience of the
travelling public. It is engaged in an enterprise which, far from
being the exclusive prerogative of state, may, more than the
construction of public roads, be undertaken by private concerns.
[National Airports Corp. v. Teodoro, supra, p. 207.]
 
xxx
 
True, the law prevailing in 1952 when the Teodoro case
was promulgated was Exec. Order 365 (Reorganizing the Civil
Aeronautics Administration and Abolishing the National
Airports Corporation). Republic Act No. 776 (Civil Aeronautics
Act of the Philippines), subsequently enacted on June 20, 1952,
did not alter the character of the CAAs objectives under Exec.
Order 365. The pertinent provisions cited in the Teodoro case,
particularly Secs. 3 and 4 of Exec. Order 365, which led the
Court to consider the CAA in the category of a private entity
were retained substantially in Republic Act 776, Sec. 32(24) and
(25). Said Act provides:
 
Sec. 32. Powers and Duties of the Administrator. Subject to
the general control and supervision of the Department Head, the
Administrator shall have among others, the following powers and
duties:
 
xxx
(24) To administer, operate, manage, control, maintain and
develop the Manila International Airport and all government-
owned aerodromes except those controlled or operated by the
Armed Forces of the Philippines including such powers and duties
as: (a) to plan, design, construct, equip, expand, improve, repair or
alter aerodromes or such structures, improvement or air
navigation facilities; (b) to enter into, make and execute contracts
of any kind with any person, firm, or public or private corporation
or entity;
 
 (25) To determine, fix, impose, collect and receive landing
fees, parking space fees, royalties on sales or deliveries, direct or
indirect, to any aircraft for its use of aviation gasoline, oil and
lubricants, spare parts, accessories and supplies, tools, other
royalties, fees or rentals for the use of any of the property under
its management and control.
 
xxx
 
From the foregoing, it can be seen that the CAA is tasked
with private or non-governmental functions which operate to
remove it from the purview of the rule on State immunity from
suit. For the correct rule as set forth in the Teodoro case states:
 
xxx
 
Not all government entities, whether corporate or non-
corporate, are immune from suits. Immunity from suits is
determined by the character of the objects for which the entity
was organized. The rule is thus stated in Corpus Juris:
 
Suits against State agencies with relation to
matters in which they have assumed to act in private
or non-governmental capacity, and various suits
against certain corporations created by the state for
public purposes, but to engage in matters partaking
more of the nature of ordinary business rather than
functions of a governmental or political character,
are not regarded as suits against the state. The latter
is true, although the state may own stock or property
of such a corporation for by engaging in business
operations through a corporation, the state divests
itself so far of its sovereign character, and by
implication consents to suits against the corporation.
(59 C.J., 313) [National Airports Corporation v.
Teodoro, supra, pp. 206-207; Italics supplied.]
 
This doctrine has been reaffirmed in the recent case
of Malong v. Philippine National Railways [G.R. No. L-49930,
August 7, 1985, 138 SCRA 63], where it was held that the
Philippine National Railways, although owned and operated by
the government, was not immune from suit as it does not
exercise sovereign but purely proprietary and business
functions. Accordingly, as the CAA was created to undertake the
management of airport operations which primarily involve
proprietary functions, it cannot avail of the immunity from suit
accorded to government agencies performing strictly
governmental functions.[15]
 
 In our view, the CA thereby correctly appreciated the juridical character
of the ATO as an agency of the Government not performing a purely
governmental or sovereign function, but was instead involved in the
management and maintenance of the Loakan Airport, an activity that was not
the exclusive prerogative of the State in its sovereign capacity. Hence, the ATO
had no claim to the States immunity from suit. We uphold the CAs aforequoted
holding.
 
We further observe the doctrine of sovereign immunity cannot be
successfully invoked to defeat a valid claim for compensation arising from the
taking without just compensation and without the proper expropriation
proceedings being first resorted to of the plaintiffs property. [16] Thus, in De los
Santos v. Intermediate Appellate Court,[17] the trial courts dismissal based on the
doctrine of non-suability of the State of two cases (one of which was for
damages) filed by owners of property where a road 9 meters wide and 128.70
meters long occupying a total area of 1,165 square meters and an artificial creek
23.20 meters wide and 128.69 meters long occupying an area of 2,906 square
meters had been constructed by the provincial engineer of Rizal and a private
contractor without the owners knowledge and consent was reversed and the
cases remanded for trial on the merits. The Supreme Court ruled that the
doctrine of sovereign immunity was not an instrument for perpetrating any
injustice on a citizen. In exercising the right of eminent domain, the Court
explained, the State exercised its jus imperii, as distinguished from its
proprietary rights, or jus gestionis; yet, even in that area, where private property
had been taken in expropriation without just compensation being paid, the
defense of immunity from suit could not be set up by the State against an action
for payment by the owners.
 
Lastly, the issue of whether or not the ATO could be sued without the
States consent has been rendered moot by the passage of Republic Act No.
9497, otherwise known as the Civil Aviation Authority Act of 2008.
 
R.A. No. 9497 abolished the ATO, to wit:
 
Section 4. Creation of the Authority. There is hereby created an
independent regulatory body with quasi-judicial and quasi-legislative powers
and possessing corporate attributes to be known as the Civil Aviation
Authority of the Philippines (CAAP), herein after referred to as the Authority
attached to the Department of Transportation and Communications (DOTC)
for the purpose of policy coordination. For this purpose, the existing Air
transportation Office created under the provisions of Republic Act No.
776, as amended is hereby abolished.
xxx
 
Under its Transitory Provisions, R.A. No. 9497 established in place of the ATO
the Civil Aviation Authority of the Philippines (CAAP), which thereby assumed
all of the ATOs powers, duties and rights, assets, real and personal properties,
funds, and revenues, viz:
 
CHAPTER XII
TRANSITORTY PROVISIONS
Section 85. Abolition of the Air Transportation Office. The Air
Transportation Office (ATO) created under Republic Act No. 776, a sectoral
office of the Department of Transportation and Communications (DOTC), is
hereby abolished.
 
All powers, duties and rights vested by law and exercised by the
ATO is hereby transferred to the Authority.
 
 
All assets, real and personal properties, funds and revenues owned by
or vested in the different offices of the ATO are transferred to the
Authority. All contracts, records and documents relating to the
operations of the abolished agency and its offices and branches are
likewise transferred to the Authority. Any real property owned by the
national government or government-owned corporation or
authority which is being used and utilized as office or facility by the
ATO shall be transferred and titled in favor of the Authority.
Section 23 of R.A. No. 9497 enumerates the corporate powers vested in
the CAAP, including the power to sue and be sued, to enter into contracts of
every class, kind and description, to construct, acquire, own, hold, operate,
maintain, administer and lease personal and real properties, and to settle, under
such terms and conditions most advantageous to it, any claim by or against it.[18]
 
With the CAAP having legally succeeded the ATO pursuant to R.A. No. 9497,
the obligations that the ATO had incurred by virtue of the deed of sale with the
Ramos spouses might now be enforced against the CAAP.
 
WHEREFORE, the Court denies the petition for review on certiorari, and
affirms the decision promulgated by the Court of Appeals.
 
No pronouncement on costs of suit.
 
SO ORDERED.
 
 
 
LUCAS P. BERSAMIN
Associate Justice
 
 
 
WE CONCUR:
 
ARTURO D. BRION
Associate Justice
Acting Chairperson
 
 
 
 
ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.
Associate Justice Associate Justice
 
 
 
 
MARIA LOURDES P. A. SERENO
Associate Justice
 
 
ATTESTATION
 
I attest that the conclusions in the above Resolution had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.
 
 
ARTURO D. BRION
Associate Justice
Acting Chairperson
 
CERTIFICATION
 
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above Resolution
had been reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.
 
 
 
RENATO C. CORONA
Chief Justice
 

*
 David Ramos died on October 14, 2001, before the assailed decision was promulgated. He was substituted by
his children Cherry Ramos, Joseph David Ramos and Elsie Grace R. Dizon pursuant to a resolution of the CA
promulgated on April 23, 2003 (see rollo, p. 136).
**
 Acting Chairperson in lieu of Justice Conchita Carpio Morales who is on leave per Special Order No. 925
dated January 24, 2011.
***
 Additional member per Special Order No. 926 dated January 24, 2011.
[1]
 Rollo, pp. 25-35; penned by Associate Justice Conrado M. Vasquez (later Presiding Justice, now retired), and
concurred in by Associate Justice Mercedes Gozo-Dadole (retired) and Associate Justice Rosmari D.
Carandang,
[2]
 Id., pp. 80-87; penned by Judge Antonio C. Reyes.
[3]
 Id.
[4]
 Id.
[5]
 Id., pp. 25-35.
[6]
 205 US 349, 353 (1907).
[7]
 Bold emphasis supplied.
[8]
 Veterans Manpower and Protective Services, Inc. v. Court of Appeals, G.R. No. 91359, Sept. 25, 1992, 214
SCRA 286, 294; Republic v. Purisima, No. L-36084, Aug. 31, 1977, 78 SCRA 470, 473.
[9]
 L-26386, Sept. 30, 1969, 29 SCRA 598, 601-602.
[10]
 Bernas, The 1987 Constitution of the Republic of the Philippines: A Commentary, 2003 Edition, p. 1269.
[11]
 Metropolitan Transportation Service v. Paredes, 79 Phil. 819 (1948).
[12]
 E.g., Angat River Irrigation System, et. al. v. Angat River Workers Union, et. al., 102 Phil. 789 (1957).
[13]
 E.g., National Airports Corporation v. Teodoro, Sr. and Phil. Airlines Inc., 91 Phil. 203 (1952).
[14]
 Rollo, pp. 25-35.
[15]
 Id., pp. 29-32.
[16]
 Republic v. Sandiganbayan, G.R. No. 90478, Nov. 2, 1991, 204 SCRA 212, 231; Ministerio v. Court of First
Instance of Cebu, No. L-31635, Aug. 31, 1971, 40 SCRA 464; Santiago v. Republic, No. L-48214, Dec. 19,
1978, 87 SCRA 294.
[17]
 G.R. Nos. 71998-99, June 2, 1993, 223 SCRA 11.
[18]
 Section 23. Corporate Powers. The Authority, acting through the Board, shall have the following
corporate powers:
 
(a) To succeed in its corporate name, to sue and be sued in such corporate name xxx.
xxx
(c) To enter into, make, perform and carry out contracts of every class, kind and description, which
are necessary or incidental to the realization of its purposes, with any person, domestic or foreign private firm,
or corporation, local or national government office, agency and with international institutions or foreign
government;
xxx
(e) To construct, acquire, own, hold, operate, maintain, administer and lease personal and real properties,
including buildings, machinery, equipment, other infrastructure, agricultural land, and its improvements,
property rights, and interest therein x x x
xxx
(i) To settle, under such terms and conditions most advantageous to it, any claim by or against it;
xxx