G.R. No.

182358 February 20, 2013

DEPARTMENT OF HEALTH, THE SECRETARY OF HEALTH, and MA. MARGARITA M. GALON, Petitioners,
vs.
PHIL PHARMA WEALTH, INC., Respondent.

DECISION

DEL CASTILLO, J.:

The state may not be sued without its consent. Likewise, public officials may not be sued for acts done in
the perfomance of their official functions or within the scope of their authority.

This Petition for Review on Certiorari1 assails the October 25, 2007 Decision2 of the Court of Appeals
(CA) in CA-G.R. CV No. 85670, and its March 31, 2008 Reso1ution3 denying petitioners' Motion for
Reconsideration.4

Factual Antecedents

On December 22, 1998, Administrative Order (AO) No. 27 series of 19985 was issued by then
Department of Health (DOH) Secretary Alfredo G. Romualdez (Romualdez). AO 27 set the guidelines and
procedure for accreditation of government suppliers of pharmaceutical products for sale or distribution
to the public, such accreditation to be valid for three years but subject to annual review.

On January 25, 2000, Secretary Romualdez issued AO 10 series of 20006 which amended AO 27. Under
Section VII7 of AO 10, the accreditation period for government suppliers of pharmaceutical products was
reduced to two years. Moreover, such accreditation may be recalled, suspended or revoked after due
deliberation and proper notice by the DOH Accreditation Committee, through its Chairman.

Section VII of AO 10 was later amended by AO 66 series of 2000,8 which provided that the two-year
accreditation period may be recalled, suspended or revoked only after due deliberation, hearing and
notice by the DOH Accreditation Committee, through its Chairman.

On August 28, 2000, the DOH issued Memorandum No. 171-C9 which provided for a list and category of
sanctions to be imposed on accredited government suppliers of pharmaceutical products in case of
adverse findings regarding their products (e.g. substandard, fake, or misbranded) or violations
committed by them during their accreditation.

In line with Memorandum No. 171-C, the DOH, through former Undersecretary Ma. Margarita M. Galon
(Galon), issued Memorandum No. 209 series of 2000,10 inviting representatives of 24 accredited drug
companies, including herein respondent Phil Pharmawealth, Inc. (PPI) to a meeting on October 27, 2000.
During the meeting, Undersecretary Galon handed them copies of a document entitled "Report on
Violative Products"11 issued by the Bureau of Food and Drugs12 (BFAD), which detailed violations or
adverse findings relative to these accredited drug companies’ products. Specifically, the BFAD found that
PPI’s products which were being sold to the public were unfit for human consumption.
During the October 27, 2000 meeting, the 24 drug companies were directed to submit within 10 days, or
until November 6, 2000, their respective explanations on the adverse findings covering their respective
products contained in the Report on Violative Products.

Instead of submitting its written explanation within the 10-day period as required, PPI belatedly sent a
letter13 dated November 13, 2000 addressed to Undersecretary Galon, informing her that PPI has
referred the Report on Violative Products to its lawyers with instructions to prepare the corresponding
reply. However, PPI did not indicate when its reply would be submitted; nor did it seek an extension of
the 10-day period, which had previously expired on November 6, 2000, much less offer any explanation
for its failure to timely submit its reply. PPI’s November 13, 2000 letter states:

Madam,

This refers to your directive on 27 October 2000, on the occasion of the meeting with selected
accredited suppliers, during which you made known to the attendees of your requirement for them to
submit their individual comments on the Report on Violative Products (the "Report") compiled by your
office and disseminated on that date.

In this connection, we inform you that we have already instructed our lawyers to prepare on our behalf
the appropriate reply to the Report furnished to us. Our lawyers in time shall revert to you and furnish
you the said reply.

Please be guided accordingly.

Very truly yours,

(signed)
ATTY. ALAN A.B. ALAMBRA

Vice-President for Legal and Administrative Affairs14

In a letter-reply15 dated November 23, 2000 Undersecretary Galon found "untenable" PPI’s November
13, 2000 letter and therein informed PPI that, effective immediately, its accreditation has been
suspended for two years pursuant to AO 10 and Memorandum No. 171-C.

In another December 14, 2000 letter16 addressed to Undersecretary Galon, PPI through counsel
questioned the suspension of its accreditation, saying that the same was made pursuant to Section VII of
AO 10 which it claimed was patently illegal and null and void because it arrogated unto the DOH
Accreditation Committee powers and functions which were granted to the BFAD under Republic Act
(RA) No. 372017 and Executive Order (EO) No. 175.18 PPI added that its accreditation was suspended
without the benefit of notice and hearing, in violation of its right to substantive and administrative due
process. It thus demanded that the DOH desist from implementing the suspension of its accreditation,
under pain of legal redress.
On December 28, 2000, PPI filed before the Regional Trial Court of Pasig City a Complaint19 seeking to
declare null and void certain DOH administrative issuances, with prayer for damages and injunction
against the DOH, former Secretary Romualdez and DOH Undersecretary Galon. Docketed as Civil Case
No. 68200, the case was raffled to Branch 160. On February 8, 2002, PPI filed an Amended and
Supplemental Complaint,20 this time impleading DOH Secretary Manuel Dayrit (Dayrit). PPI claimed that
AO 10, Memorandum No. 171-C, Undersecretary Galon’s suspension order contained in her November
23, 2000 letter, and AO 14 series of 200121 are null and void for being in contravention of Section 26(d)
of RA 3720 as amended by EO 175, which states as follows:

SEC. 26. x x x

(d) When it appears to the Director [of the BFAD] that the report of the Bureau that any article of food
or any drug, device, or cosmetic secured pursuant to Section twenty-eight of this Act is adulterated,
misbranded, or not registered, he shall cause notice thereof to be given to the person or persons
concerned and such person or persons shall be given an opportunity to be heard before the Bureau and
to submit evidence impeaching the correctness of the finding or charge in question.

For what it claims was an undue suspension of its accreditation, PPI prayed that AO 10, Memorandum
No. 171-C, Undersecretary Galon’s suspension order contained in her November 23, 2000 letter, and AO
14 be declared null and void, and that it be awarded moral damages of ₱5 million, exemplary damages
of ₱1 million, attorney’s fees of ₱1 million, and costs of suit. PPI likewise prayed for the issuance of
temporary and permanent injunctive relief.

In their Amended Answer,22 the DOH, former Secretary Romualdez, then Secretary Dayrit, and
Undersecretary Galon sought the dismissal of the Complaint, stressing that PPI’s accreditation was
suspended because most of the drugs it was importing and distributing/selling to the public were found
by the BFAD to be substandard for human consumption. They added that the DOH is primarily
responsible for the formulation, planning, implementation, and coordination of policies and programs in
the field of health; it is vested with the comprehensive power to make essential health services and
goods available to the people, including accreditation of drug suppliers and regulation of importation
and distribution of basic medicines for the public.

Petitioners added that, contrary to PPI’s claim, it was given the opportunity to present its side within the
10-day period or until November 6, 2000, but it failed to submit the required comment/reply. Instead, it
belatedly submitted a November 13, 2000 letter which did not even constitute a reply, as it merely
informed petitioners that the matter had been referred by PPI to its lawyer. Petitioners argued that due
process was afforded PPI, but because it did not timely avail of the opportunity to explain its side, the
DOH had to act immediately – by suspending PPI’s accreditation – to stop the distribution and sale of
substandard drug products which posed a serious health risk to the public. By exercising DOH’s mandate
to promote health, it cannot be said that petitioners committed grave abuse of discretion.

In a January 8, 2001 Order,23 the trial court partially granted PPI’s prayer for a temporary restraining
order, but only covering PPI’s products which were not included in the list of violative products or drugs
as found by the BFAD.
In a Manifestation and Motion24 dated July 8, 2003, petitioners moved for the dismissal of Civil Case No.
68200, claiming that the case was one against the State; that the Complaint was improperly verified;
and lack of authority of the corporate officer to commence the suit, as the requisite resolution of PPI’s
board of directors granting to the commencing officer – PPI’s Vice President for Legal and Administrative
Affairs, Alan Alambra, – the authority to file Civil Case No. 68200 was lacking. To this, PPI filed its
Comment/Opposition.25

Ruling of the Regional Trial Court

In a June 14, 2004 Order,26 the trial court dismissed Civil Case No. 68200, declaring the case to be one
instituted against the State, in which case the principle of state immunity from suit is applicable.

PPI moved for reconsideration,27 but the trial court remained steadfast.28

PPI appealed to the CA.

Ruling of the Court of Appeals

Docketed as CA-G.R. CV No. 85670, PPI’s appeal centered on the issue of whether it was proper for the
trial court to dismiss Civil Case No. 68200.

The CA, in the herein assailed Decision,29 reversed the trial court ruling and ordered the remand of the
case for the conduct of further proceedings. The CA concluded that it was premature for the trial court
to have dismissed the Complaint. Examining the Complaint, the CA found that a cause of action was
sufficiently alleged – that due to defendants’ (petitioners’) acts which were beyond the scope of their
authority, PPI’s accreditation as a government supplier of pharmaceutical products was suspended
without the required notice and hearing as required by Section 26(d) of RA 3720 as amended by EO 175.
Moreover, the CA held that by filing a motion to dismiss, petitioners were deemed to have
hypothetically admitted the allegations in the Complaint – which state that petitioners were being sued
in their individual and personal capacities – thus negating their claim that Civil Case No. 68200 is an
unauthorized suit against the State.

The CA further held that instead of dismissing the case, the trial court should have deferred the hearing
and resolution of the motion to dismiss and proceeded to trial. It added that it was apparent from the
Complaint that petitioners were being sued in their private and personal capacities for acts done beyond
the scope of their official functions. Thus, the issue of whether the suit is against the State could best be
threshed out during trial on the merits, rather than in proceedings covering a motion to dismiss.

The dispositive portion of the CA Decision reads:

WHEREFORE, the appeal is hereby GRANTED. The Order dated June 14, 2004 of the Regional Trial Court
of Pasig City, Branch 160, is hereby REVERSED and SET-ASIDE. ACCORDINGLY, this case is REMANDED to
the trial court for further proceedings.

SO ORDERED.30
Petitioners sought, but failed, to obtain a reconsideration of the Decision. Hence, they filed the present
Petition.

Issue

Petitioners now raise the following lone issue for the Court’s resolution:

Should Civil Case No. 68200 be dismissed for being a suit against the State?31

Petitioners’ Arguments

Petitioners submit that because PPI’s Complaint prays for the award of damages against the DOH, Civil
Case No. 68200 should be considered a suit against the State, for it would require the appropriation of
the needed amount to satisfy PPI’s claim, should it win the case. Since the State did not give its consent
to be sued, Civil Case No. 68200 must be dismissed. They add that in issuing and implementing the
questioned issuances, individual petitioners acted officially and within their authority, for which reason
they should not be held to account individually.

Respondent’s Arguments

Apart from echoing the pronouncement of the CA, respondent insists that Civil Case No. 68200 is a suit
against the petitioners in their personal capacity for acts committed outside the scope of their authority.

Our Ruling

The Petition is granted.

The doctrine of non-suability.

The discussion of this Court in Department of Agriculture v. National Labor Relations Commission32 on
the doctrine of non-suability is enlightening.

The basic postulate enshrined in the constitution that ‘(t)he State may not be sued without its consent,’
reflects nothing less than a recognition of the sovereign character of the State and an express
affirmation of the unwritten rule effectively insulating it from the jurisdiction of courts. It is based on the
very essence of sovereignty. x x x [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. True, the doctrine, not too
infrequently, is derisively called ‘the royal prerogative of dishonesty’ because it grants the state the
prerogative to defeat any legitimate claim against it by simply invoking its nonsuability. We have had
occasion to explain in its defense, however, that a continued adherence to the doctrine of non-suability
cannot be deplored, for the loss of governmental efficiency and the obstacle to the performance of its
multifarious functions would be far greater in severity than the inconvenience that may be caused
private parties, if such fundamental principle is to be abandoned and the availability of judicial remedy is
not to be accordingly restricted.
The rule, in any case, is not really absolute for it does not say that the state may not be sued under any
circumstance. On the contrary, as correctly phrased, the doctrine only conveys, ‘the state may not be
sued without its consent;’ its clear import then is that the State may at times be sued. The State’s
consent may be given either expressly or impliedly. Express consent may be made through a general law
or a special law. x x x Implied consent, on the other hand, is conceded when the State itself commences
litigation, thus opening itself to a counterclaim or when it enters into a contract. In this situation, the
government is deemed to have descended to the level of the other contracting party and to have
divested itself of its sovereign immunity. This rule, x x x is not, however, without qualification. Not all
contracts entered into by the government operate as a waiver of its non-suability; distinction must still
be made between one which is executed in the exercise of its sovereign function and another which is
done in its proprietary capacity.33

As a general rule, a state may not be sued. However, if it consents, either expressly or impliedly, then it
may be the subject of a suit.34 There is express consent when a law, either special or general, so
provides. On the other hand, there is implied consent when the state "enters into a contract or it itself
commences litigation."35 However, it must be clarified that when a state enters into a contract, it does
not automatically mean that it has waived its non-suability. 36 The State "will be deemed to have
impliedly waived its non-suability [only] if it has entered into a contract in its proprietary or private
capacity. [However,] when the contract involves its sovereign or governmental capacity[,] x x x no such
waiver may be implied."37 "Statutory provisions waiving [s]tate immunity are construed in strictissimi
juris. For, waiver of immunity is in derogation of sovereignty."38

The DOH can validly invoke state immunity.

a) DOH is an unincorporated agency which performs sovereign or governmental functions.

In this case, the DOH, being an "unincorporated agency of the government"39 can validly invoke the
defense of immunity from suit because it has not consented, either expressly or impliedly, to be sued.
Significantly, the DOH is an unincorporated agency which performs functions of governmental character.

The ruling in Air Transportation Office v. Ramos40 is relevant, viz:

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.
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; 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.41

b) The Complaint seeks to hold the DOH solidarily and jointly liable with the other defendants for
damages which constitutes a charge or financial liability against the state.
Moreover, it is settled that if a Complaint seeks to "impose a charge or financial liability against the
state,"42 the defense of non-suability may be properly invoked. In this case, PPI specifically prayed, in its
Complaint and Amended and Supplemental Complaint, for the DOH, together with Secretaries
Romualdez and Dayrit as well as Undersecretary Galon, to be held jointly and severally liable for moral
damages, exemplary damages, attorney’s fees and costs of suit.43 Undoubtedly, in the event that PPI
succeeds in its suit, the government or the state through the DOH would become vulnerable to an
imposition or financial charge in the form of damages. This would require an appropriation from the
national treasury which is precisely the situation which the doctrine of state immunity aims to protect
the state from.

The mantle of non-suability extends to complaints filed against public officials for acts done in the
performance of their official functions.

As regards the other petitioners, to wit, Secretaries Romualdez and Dayrit, and Undersecretary Galon, it
must be stressed that the doctrine of state immunity extends its protective mantle also to complaints
filed against state officials for acts done in the discharge and performance of their duties.44 "The
suability of a government official depends on whether the official concerned was acting within his
official or jurisdictional capacity, and whether the acts done in the performance of official functions will
result in a charge or financial liability against the government."45 Otherwise stated, "public officials can
be held personally accountable for acts claimed to have been performed in connection with official
duties where they have acted ultra vires or where there is showing of bad faith."46 Moreover, "[t]he rule
is that if the judgment against such officials will require the state itself to perform an affirmative act to
satisfy the same, such as the appropriation of the amount needed to pay the damages awarded against
them, the suit must be regarded as against the state x x x. In such a situation, the state may move to
dismiss the [C]omplaint on the ground that it has been filed without its consent." 47

It is beyond doubt that the acts imputed against Secretaries Romualdez and Dayrit, as well as
Undersecretary Galon, were done while in the performance and discharge of their official functions or in
their official capacities, and not in their personal or individual capacities. Secretaries Romualdez and
Dayrit were being charged with the issuance of the assailed orders. On the other hand, Undersecretary
Galon was being charged with implementing the assailed issuances. By no stretch of imagination could
the same be categorized as ultra vires simply because the said acts are well within the scope of their
authority. Section 4 of RA 3720 specifically provides that the BFAD is an office under the Office of the
Health Secretary. Also, the Health Secretary is authorized to issue rules and regulations as may be
necessary to effectively enforce the provisions of RA 3720.48 As regards Undersecretary Galon, she is
authorized by law to supervise the offices under the DOH’s authority,49 such as the BFAD. Moreover,
there was also no showing of bad faith on their part. The assailed issuances were not directed only
against PPI. The suspension of PPI’s accreditation only came about after it failed to submit its comment
as directed by Undersecretary Galon. It is also beyond dispute that if found wanting, a financial charge
will be imposed upon them which will require an appropriation from the state of the needed amount.
Thus, based on the foregoing considerations, the Complaint against them should likewise be dismissed
for being a suit against the state which absolutely did not give its consent to be sued. Based on the
foregoing considerations, and regardless of the merits of PPI’s case, this case deserves a dismissal.
Evidently, the very foundation of Civil Case No. 68200 has crumbled at this initial juncture.

PPI was not denied due process.

However, we cannot end without a discussion of PPI’s contention that it was denied due process when
its accreditation was suspended "without due notice and hearing." It is undisputed that during the
October 27, 2000 meeting, Undersecretary Galon directed representatives of pharmaceutical
companies, PPI included, to submit their comment and/or reactions to the Report on Violative Products
furnished them within a period of 10 days. PPI, instead of submitting its comment or explanation, wrote
a letter addressed to Undersecretary Galon informing her that the matter had already been referred to
its lawyer for the drafting of an appropriate reply. Aside from the fact that the said letter was belatedly
submitted, it also failed to specifically mention when such reply would be forthcoming. Finding the
foregoing explanation to be unmeritorious, Undersecretary Galon ordered the suspension of PPI’s
accreditation for two years. Clearly these facts show that PPI was not denied due process. It was given
the opportunity to explain its side. Prior to the suspension of its accreditation, PPI had the chance to
rebut, explain, or comment on the findings contained in the Report on Violative Products that several of
PPI’s products are not fit for human consumption. However, PPI squandered its opportunity to explain.
Instead of complying with the directive of the DOH Undersecretary within the time allotted, it instead
haughtily informed Undersecretary Galon that the matter had been referred to its lawyers. Worse, it
impliedly told Undersecretary Galon to just wait until its lawyers shall have prepared the appropriate
reply. PPI however failed to mention when it will submit its "appropriate reply" or how long
Undersecretary Galon should wait. In the meantime, PPI’s drugs which are included in the Report on
Violative Products are out and being sold in the market. Based on the foregoing, we find PPI’s
contention of denial of due process totally unfair and absolutely lacking in basis. At this juncture, it
would be trite to mention that "[t]he essence of due process in administrative proceedings is the
opportunity to explain one’s side or seek a reconsideration of the action or ruling complained of. As long
as the parties are given the opportunity to be heard before judgment is rendered, the demands of due
process are sufficiently met. What is offensive to due process is the denial of the opportunity to be
heard. The Court has repeatedly stressed that parties who chose not to avail themselves of the
opportunity to answer charges against them cannot complain of a denial of due process."50

Incidentally, we find it inieresting that in the earlier case of Department q( Health v. Phil Pharmawealth,
Inc. 51respondent filed a Complaint against DOH anchored on the same issuances which it assails in the
present case. In the earlier case of Department of Health v. Phil Pharmawealth, Jnc., 52 PPI submitted to
the DOH a request for the inclusion of its products in the list of accredited drugs as required by AO 27
series of 1998 which was later amended by AO 10 series of 2000. In the instant case, however, PPI
interestingly claims that these issuances are null and void.

WHEREFORE, premises considered, the Petition is GRANTED. Civil Case No. 68200 is ordered DISMISSED.

SO ORDERED.
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.

G.R. No. L-27058 January 17, 1973

AMERICAN EXPRESS COMPANY, INC., plaintiff-appellee,
vs.
CIRIO H. SANTIAGO, defendant-appellant.

William H. Quasha and Associates for plaintiff-appellee.

Ernesto T. Zschornack, Jr. for defendant-appellant.

MAKALINTAL, J.:

This case is on appeal directly to this Court by the defendant from the decision of the Court of First
Instance of Manila in its Civil Case No. 48318, sentencing him to pay the plaintiff the amount of
$15,297.53, plus interest at the legal rate from the date the complaint was filed and 25% of the amount
due by way of attorneys fees.

The essential facts were the subject of stipulation in court below after the parties had filed their
respective pleadings and the court had scheduled the case for pre-trial.

The plaintiff is a foreign corporation with main office in New York City and a branch office in the
Philippines which is duly registered and licensed to transact business as a travel agent. As part of such
business and for convenience of its customers the plaintiff has adopted a credit system known as the
American Express Credit Card whereby upon application of a customer the plaintiff may issue to him a
credit card by means of which he may enjoy charge privileges in establishments all over the world listed
in directories issued periodically by the company for the guidance of its card holders. On November 6,
1959 the defendant applied for one such card to the plaintiff at the latter's office in New York City and
upon such application the corresponding American Express Credit Card was issued to him. Thereafter
and before the card expired was cancelled as of June 20, 1961 the defendant used it in making
purchases and obtaining services on credit in various foreign countries, such as Hongkong in June of
1960, and France, Switzerland, Germany, Spain, Italy and HongKong in May and June of 1961. The credit
charges he obtained ran up to a total of $15,297.53. In September 1961 the plaintiff made demands for
payment upon the defendant, and after the latter refused to pay filed the presented suit for collection.

The main defense raised by the defendant in his answer to the complaint and now reiterated in his brief
as appellant before this Court is that the appellee has no cause of action against him, not being the real
party in interest, the allegation that the credit card issued by the appellee was merely to introduce the
appellant to the different establishments from which he made purchases and obtained services on
credit and that it was these establishments who should properly have brought the suit.

The court below, however, found as a fact — and this is not disputed here — that the stores or
establishments which sold goods and services to the appellant on credit "bills the American Express
Corporation which settles the accounts directly and, in turn bills the customers who possess the credit
cards." The court added: "in other words, with the possession of the credit card, the possessor could
purchase on credit from any store, and he could do that because the purchases on credit are backed-up
by the American Express Corporation thru the credit card. This corporation pays for the purchase and
the defendant has to reimburse such payment to the owner of the credit card; in this case to the
plaintiff."

The appellant presented no evidence in his behalf, only relying on the stipulation of facts. On the other
hand the appellee presented as evidence not only the application signed by the appellant for the
issuance of the credit card, manifesting conformity to the condition therein stated but also the
testimony, in the form of deposition upon written interrogatories, of its employee, George R. de Salvio,
who described the operation of the company's credit card system as follows:

A.-6: We appoint service establishments who accept our credit card. They perform services or deliver
goods to our cardholders and in turn they bill American Express Company for these goods and services.
The American Express Company reimburses the establishments and in turn bills the credit card holders
for whom the goods were delivered or services performed. The credit card holders are sent a statement
once a month supported by all original charge forms.

xxx xxx xxx

A.-8 The service establishments submit charges and summaries to the American Express Company and
we pay for these summaries, less the discount, once a week.

Question 9: After the cardholder's accounts are paid to the establishments concerned by plaintiff, what
obligation, if any, has the cardholder to plaintiff concerning the accounts thus paid by plaintiff?

A.-9 He is obligated to pay the American Express Company upon receipt of this monthly billing.

On the same point the witness also stated that the charge orders of the appellant were in due course of
business submitted by the establishments concerned to the appellee for payment and paid by the latter.
There can be no doubt, therefore, that the appellee is the creditor of the appellant and as such is the
proper party to file this suit for collection.

The other points raised by the appellant in his brief have to do with certain objections of his to a number
of questions directed by the appellee to its employee and witness, George R. de Salvio, in the latter's
deposition taken upon written interrogatories. The objections were mostly on technical grounds, such
as, for example, that the matter sought to be elicited from the witness had already been admitted in the
stipulation of facts, or that it was irrelevant and immaterial; that the question was leading, or vague, or
sought to obtain from the witness a conclusion. We have considered the nature and the phrasing of the
questions objected to and We find that the objections are either groundless or have no material bearing
on the merits of the case.

The appellant also objected to the admission of the aforesaid deposition as a whole on the ground that
the procedure prescribed in Section 20 of Rule 24 was not followed, particularly that portion which
states that the officer who took the deposition shall "promptly file it with the court in which the action is
pending or send it by registered mail to the Clerk of Court thereof for filing." The non-compliance with
this rule, according to the appellant, consists in the fact that it was the appellee's counsel who picked up
the deposition from the Department of Foreign Affairs and delivered it to the Clerk of Court instead of
its being filed directly with the latter.

The appellee's explanation in this regard, which stands uncontradicted and which the trial court
considered satisfactory, is as follows:

xxx xxx xxx

... . The Philippine Consulate in New York by letter dated October 8, 1965 notified the undersigned of
the transmission on said date of the deposition "through the Department of Foreign Affairs to the Clerk
of Court; yet, it was verified from the Clerk of Court that as of November 19, 1965 the deposition was
not yet received. Upon inquiry with the Department of Foreign Affairs, the latter advised the
undersigned that it received the sealed envelope from the consulate on October 20, 1965 and turned it
over on October 25, 1965, to its record section, which until November 19, 1965, had done nothing
towards transmitting the deposition to the court. This prompted the Department of Foreign Affairs to
request the undersigned to take care of having the deposition filed with the court, which the
undersigned consented to do, and did by means of their letter to the Clerk of Court dated November 19,
1965 (Exh. G-1) only to expedite filing of the deposition and "to accommodate the Department of
Foreign Affairs." The undersigned received the sealed envelope from the Department of Foreign Affairs
and delivered it in exactly the same condition to the Clerk of Court.

xxx xxx xxx

We do not believe that the manner, in which the deposition was delivered to the Clerk of Court, as
above related, so affected its integrity as to render it inadmissible. After all there is no pretense here
that the appellant did not contract the indebtedness for the collection of which he is being sued or that
the same has been paid, the only important issue posed in this appeal being whether or not the appellee
is the real party in interest. On this score the finding of the lower court, supported as it is by the
evidence before it, is conclusive.

WHEREFORE, the judgment appealed from is affirmed, with modification as to the principal amount to
be paid by the appellant, which is reduced to US $14,952.31 in view of the waiver by the appellee of its
claim to US $345.22, and the further modification that payment of the said amount, together with the
attorneys fees and costs, both in this instance and below, should be made in Philippine currency
according to the prevailing rate of exchange at the time of such payment.