WILLIAM C. REAGAN, ETC.

, petitioner, 
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

Quasha, Asperilla, Blanco, Zafra and Tayag for petitioner.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete,
Solicitor Lolita O. Gal-lang and Special Attorney Gamaliel H. Mantolino for respondent.

FERNANDO, J.:

A question novel in character, the answer to which has far-reaching implications, is raised by
petitioner William C. Reagan, at one time a civilian employee of an American corporation providing
technical assistance to the United States Air Force in the Philippines. He would dispute the payment
of the income tax assessed on him by respondent Commissioner of Internal Revenue on an amount
realized by him on a sale of his automobile to a member of the United States Marine Corps, the
transaction having taken place at the Clark Field Air Base at Pampanga. It is his contention,
seriously and earnestly expressed, that in legal contemplation the sale was made outside Philippine
territory and therefore beyond our jurisdictional power to tax.

Such a plea, far-fetched and implausible, on its face betraying no kinship with reality, he would
justify by invoking, mistakenly as will hereafter be more fully shown an observation to that effect in
a 1951 opinion, 1 petitioner ignoring that such utterance was made purely as a flourish of rhetoric
and by way of emphasizing the decision reached, that the trading firm as purchaser of army goods
must respond for the sales taxes due from an importer, as the American armed forces being exempt
could not be taxed as such under the National Internal Revenue Code.2 Such an assumption,
inspired by the commendable aim to render unavailing any attempt at tax evasion on the part of
such vendee, found expression anew in a 1962 decision,3 coupled with the reminder however, to
render the truth unmistakable, that "the areas covered by the United States Military Bases are not
foreign territories both in the political and geographical sense."

As thus clarified, it is manifest that such a view amounts at most to a legal fiction and is
moreover obiter. It certainly cannot control the resolution of the specific question that confronts us.
We declare our stand in an unequivocal manner. The sale having taken place on what indisputably
is Philippine territory, petitioner's liability for the income tax due as a result thereof was
unavoidable. As the Court of Tax Appeals reached a similar conclusion, we sustain its decision now
before us on appeal.

In the decision appealed from, the Court of Tax Appeals, after stating the nature of the case, started
the recital of facts thus: "It appears that petitioner, a citizen of the United States and an employee of
Bendix Radio, Division of Bendix Aviation Corporation, which provides technical assistance to the
United States Air Force, was assigned at Clark Air Base, Philippines, on or about July 7, 1959 ... .
Nine (9) months thereafter and before his tour of duty expired, petitioner imported on April 22,
1960 a tax-free 1960 Cadillac car with accessories valued at $6,443.83, including freight, insurance
and other charges."4 Then came the following: "On July 11, 1960, more than two (2) months after
the 1960 Cadillac car was imported into the Philippines, petitioner requested the Base Commander,
Clark Air Base, for a permit to sell the car, which was granted provided that the sale was made to a
member of the United States Armed Forces or a citizen of the United States employed in the U.S.
military bases in the Philippines. On the same date, July 11, 1960, petitioner sold his car for
$6,600.00 to a certain Willie Johnson, Jr. (Private first class), United States Marine Corps, Sangley
Point, Cavite, Philippines, as shown by a Bill of Sale . . . executed at Clark Air Base. On the same date,
Pfc. Willie (William) Johnson, Jr. sold the car to Fred Meneses for P32,000.00 as evidenced by a deed
of sale executed in Manila."5

As a result of the transaction thus made, respondent Commissioner of Internal Revenue, after
deducting the landed cost of the car as well as the personal exemption to which petitioner was
entitled, fixed as his net taxable income arising from such transaction the amount of P17,912.34,
rendering him liable for income tax in the sum of P2,979.00. After paying the sum, he sought a
refund from respondent claiming that he was exempt, but pending action on his request for refund,
he filed the case with the Court of Tax Appeals seeking recovery of the sum of P2,979.00 plus the
legal rate of interest.

As noted in the appealed decision: "The only issue submitted for our resolution is whether or not
the said income tax of P2,979.00 was legally collected by respondent for petitioner."6 After
discussing the legal issues raised, primarily the contention that the Clark Air Base "in legal
contemplation, is a base outside the Philippines" the sale therefore having taken place on "foreign
soil", the Court of Tax Appeals found nothing objectionable in the assessment and thereafter the
payment of P2,979.00 as income tax and denied the refund on the same. Hence, this appeal
predicated on a legal theory we cannot accept. Petitioner cannot make out a case for reversal.

1. Resort to fundamentals is unavoidable to place things in their proper perspective, petitioner

apparently feeling justified in his refusal to defer to basic postulates of constitutional and
international law, induced no doubt by the weight he would accord to the observation made by this
Court in the two opinions earlier referred to. To repeat, scant comfort, if at all is to be derived from
such an obiter dictum, one which is likewise far from reflecting the fact as it is.

Nothing is better settled than that the Philippines being independent and sovereign, its authority
may be exercised over its entire domain. There is no portion thereof that is beyond its power.
Within its limits, its decrees are supreme, its commands paramount. Its laws govern therein, and
everyone to whom it applies must submit to its terms. That is the extent of its jurisdiction, both
territorial and personal. Necessarily, likewise, it has to be exclusive. If it were not thus, there is a
diminution of its sovereignty.

It is to be admitted that any state may, by its consent, express or implied, submit to a restriction of
its sovereign rights. There may thus be a curtailment of what otherwise is a power plenary in
character. That is the concept of sovereignty as auto-limitation, which, in the succinct language of
Jellinek, "is the property of a state-force due to which it has the exclusive capacity of legal self-
determination and self-restriction."7 A state then, if it chooses to, may refrain from the exercise of
what otherwise is illimitable competence.

Its laws may as to some persons found within its territory no longer control. Nor does the matter
end there. It is not precluded from allowing another power to participate in the exercise of
jurisdictional right over certain portions of its territory. If it does so, it by no means follows that
such areas become impressed with an alien character. They retain their status as native soil. They
are still subject to its authority. Its jurisdiction may be diminished, but it does not disappear. So it is
with the bases under lease to the American armed forces by virtue of the military bases agreement
of 1947. They are not and cannot be foreign territory.
Decisions coming from petitioner's native land, penned by jurists of repute, speak to that effect with
impressive unanimity. We start with the citation from Chief Justice Marshall, announced in the
leading case of Schooner Exchange v. M'Faddon,8 an 1812 decision: "The jurisdiction of the nation
within its own territory is necessarily exclusive and absolute. It is susceptible of no limitation not
imposed by itself. Any restriction upon it, deriving validity from an external source, would imply a
diminution of its sovereignty to the extent of the restriction, and an investment of that sovereignty
to the same extent in that power which could impose such restriction." After which came this
paragraph: "All exceptions, therefore, to the full and complete power of a nation within its own
territories, must be traced up to the consent of the nation itself. They can flow from no other
legitimate source."

Chief Justice Taney, in an 1857 decision,9 affirmed the fundamental principle of everyone within the
territorial domain of a state being subject to its commands: "For undoubtedly every person who is
found within the limits of a government, whether the temporary purposes or as a resident, is bound
by its laws." It is no exaggeration then for Justice Brewer to stress that the United States
government "is one having jurisdiction over every foot of soil within its territory, and acting
directly upon each [individual found therein]; . . ."10

Not too long ago, there was a reiteration of such a view, this time from the pen of Justice Van
Devanter. Thus: "It now is settled in the United States and recognized elsewhere that the territory
subject to its jurisdiction includes the land areas under its dominion and control the ports, harbors,
bays, and other in closed arms of the sea along its coast, and a marginal belt of the sea extending
from the coast line outward a marine league, or 3 geographic miles."11 He could cite moreover, in
addition to many American decisions, such eminent treatise-writers as Kent, Moore, Hyde, Wilson,
Westlake, Wheaton and Oppenheim.

As a matter of fact, the eminent commentator Hyde in his three-volume work on International Law,
as interpreted and applied by the United States, made clear that not even the embassy premises of a
foreign power are to be considered outside the territorial domain of the host state. Thus: "The
ground occupied by an embassy is not in fact the territory of the foreign State to which the
premises belong through possession or ownership. The lawfulness or unlawfulness of acts there
committed is determined by the territorial sovereign. If an attache commits an offense within the
precincts of an embassy, his immunity from prosecution is not because he has not violated the local
law, but rather for the reason that the individual is exempt from prosecution. If a person not so
exempt, or whose immunity is waived, similarly commits a crime therein, the territorial sovereign,
if it secures custody of the offender, may subject him to prosecution, even though its criminal code
normally does not contemplate the punishment of one who commits an offense outside of the
national domain. It is not believed, therefore, that an ambassador himself possesses the right to
exercise jurisdiction, contrary to the will of the State of his sojourn, even within his embassy with
respect to acts there committed. Nor is there apparent at the present time any tendency on the part
of States to acquiesce in his exercise of it."12

2. In the light of the above, the first and crucial error imputed to the Court of Tax Appeals to the
effect that it should have held that the Clark Air Force is foreign soil or territory for purposes of
income tax legislation is clearly without support in law. As thus correctly viewed, petitioner's hope
for the reversal of the decision completely fades away. There is nothing in the Military Bases
Agreement that lends support to such an assertion. It has not become foreign soil or territory. This
country's jurisdictional rights therein, certainly not excluding the power to tax, have been
preserved. As to certain tax matters, an appropriate exemption was provided for.
Petitioner could not have been unaware that to maintain the contrary would be to defy reality and
would be an affront to the law. While his first assigned error is thus worded, he would seek to
impart plausibility to his claim by the ostensible invocation of the exemption clause in the
Agreement by virtue of which a "national of the United States serving in or employed in the
Philippines in connection with the construction, maintenance, operation or defense of the bases and
residing in the Philippines only by reason of such employment" is not to be taxed on his income
unless "derived from Philippine source or sources other than the United States sources." 13 The
reliance, to repeat, is more apparent than real for as noted at the outset of this opinion, petitioner
places more faith not on the language of the provision on exemption but on a sentiment given
expression in a 1951 opinion of this Court, which would be made to yield such an unwarranted
interpretation at war with the controlling constitutional and international law principles. At any
rate, even if such a contention were more adequately pressed and insisted upon, it is on its face
devoid of merit as the source clearly was Philippine.

In Saura Import and Export Co. v. Meer,14 the case above referred to, this Court affirmed a decision
rendered about seven months previously,15 holding liable as an importer, within the contemplation
of the National Internal Revenue Code provision, the trading firm that purchased army goods from
a United States government agency in the Philippines. It is easily understandable why. If it were not
thus, tax evasion would have been facilitated. The United States forces that brought in such
equipment later disposed of as surplus, when no longer needed for military purposes, was beyond
the reach of our tax statutes.

Justice Tuason, who spoke for the Court, adhered to such a rationale, quoting extensively from the
earlier opinion. He could have stopped there. He chose not to do so. The transaction having
occurred in 1946, not so long after the liberation of the Philippines, he proceeded to discuss the role
of the American military contingent in the Philippines as a belligerent occupant. In the course of
such a dissertion, drawing on his well-known gift for rhetoric and cognizant that he was making
an as if statement, he did say: "While in army bases or installations within the Philippines those
goods were in contemplation of law on foreign soil."

It is thus evident that the first, and thereafter the controlling, decision as to the liability for sales
taxes as an importer by the purchaser, could have been reached without any need for such
expression as that given utterance by Justice Tuason. Its value then as an authoritative doctrine
cannot be as much as petitioner would mistakenly attach to it. It was clearly obiter not being
necessary for the resolution of the issue before this Court.16 It was an opinion "uttered by the
way."17 It could not then be controlling on the question before us now, the liability of the petitioner
for income tax which, as announced at the opening of this opinion, is squarely raised for the first
time.18

On this point, Chief Justice Marshall could again be listened to with profit. Thus: "It is a maxim, not
to be disregarded, that general expressions, in every opinion, are to be taken in connection with the
case in which those expressions are used. If they go beyond the case, they may be respected, but
ought not to control the judgment in a subsequent suit when the very point is presented for
decision."19

Nor did the fact that such utterance of Justice Tuason was cited in Co Po v. Collector of Internal
Revenue,20 a 1962 decision relied upon by petitioner, put a different complexion on the matter.
Again, it was by way of pure embellishment, there being no need to repeat it, to reach the
conclusion that it was the purchaser of army goods, this time from military bases, that must
respond for the advance sales taxes as importer. Again, the purpose that animated the reiteration of
such a view was clearly to emphasize that through the employment of such a fiction, tax evasion is
precluded. What is more, how far divorced from the truth was such statement was emphasized by
Justice Barrera, who penned the Co Po opinion, thus: "It is true that the areas covered by the United
States Military Bases are not foreign territories both in the political and geographical sense."21

Justice Tuason moreover made explicit that rather than corresponding with reality, what was said
by him was in the way of a legal fiction. Note his stress on "in contemplation of law." To lend further
support to a conclusion already announced, being at that a confirmation of what had been arrived
at in the earlier case, distinguished by its sound appreciation of the issue then before this Court and
to preclude any tax evasion, an observation certainly not to be taken literally was thus given
utterance.

This is not to say that it should have been ignored altogether afterwards. It could be utilized again,
as it undoubtedly was, especially so for the purpose intended, namely to stigmatize as without
support in law any attempt on the part of a taxpayer to escape an obligation incumbent upon him.
So it was quoted with that end in view in the Co Po case. It certainly does not justify any effort to
render futile the collection of a tax legally due, as here. That was farthest from the thought of Justice
Tuason.

What is more, the statement on its face is, to repeat, a legal fiction. This is not to discount the uses of
a fictio juris in the science of the law. It was Cardozo who pointed out its value as a device "to
advance the ends of justice" although at times it could be "clumsy" and even "offensive". 22 Certainly,
then, while far from objectionable as thus enunciated, this observation of Justice Tuason could be
misused or misconstrued in a clumsy manner to reach an offensive result. To repeat, properly used,
a legal fiction could be relied upon by the law, as Frankfurter noted, in the pursuit of legitimate
ends.23 Petitioner then would be well-advised to take to heart such counsel of care and
circumspection before invoking not a legal fiction that would avoid a mockery of the law by
avoiding tax evasion but what clearly is a misinterpretation thereof, leading to results that would
have shocked its originator.

The conclusion is thus irresistible that the crucial error assigned, the only one that calls for
discussion to the effect that for income tax purposes the Clark Air Force Base is outside Philippine
territory, is utterly without merit. So we have said earlier.

3. To impute then to the statement of Justice Tuason the meaning that petitioner would fasten on it
is, to paraphrase Frankfurter, to be guilty of succumbing to the vice of literalness. To so conclude is,
whether by design or inadvertence, to misread it. It certainly is not susceptible of the mischievous
consequences now sought to be fastened on it by petitioner.

That it would be fraught with such peril to the enforcement of our tax statutes on the military bases
under lease to the American armed forces could not have been within the contemplation of Justice
Tuason. To so attribute such a bizarre consequence is to be guilty of a grave disservice to the
memory of a great jurist. For his real and genuine sentiment on the matter in consonance with the
imperative mandate of controlling constitutional and international law concepts was categorically
set forth by him, not as an obiter but as the rationale of the decision, in People v. Acierto24 thus: "By
the [Military Bases] Agreement, it should be noted, the Philippine Government merely consents that
the United States exercise jurisdiction in certain cases. The consent was given purely as a matter of
comity, courtesy, or expediency over the bases as part of the Philippine territory or divested itself
completely of jurisdiction over offenses committed therein."

Nor did he stop there. He did stress further the full extent of our territorial jurisdiction in words
that do not admit of doubt. Thus: "This provision is not and can not on principle or authority be
construed as a limitation upon the rights of the Philippine Government. If anything, it is an
emphatic recognition and reaffirmation of Philippine sovereignty over the bases and of the truth
that all jurisdictional rights granted to the United States and not exercised by the latter are reserved
by the Philippines for itself."25

It is in the same spirit that we approach the specific question confronting us in this litigation. We
hold, as announced at the outset, that petitioner was liable for the income tax arising from a sale of
his automobile in the Clark Field Air Base, which clearly is and cannot otherwise be other than,
within our territorial jurisdiction to tax.

4. With the mist thus lifted from the situation as it truly presents itself, there is nothing that stands
in the way of an affirmance of the Court of Tax Appeals decision. No useful purpose would be served
by discussing the other assigned errors, petitioner himself being fully aware that if the Clark Air
Force Base is to be considered, as it ought to be and as it is, Philippine soil or territory, his claim for
exemption from the income tax due was distinguished only by its futility.

There is further satisfaction in finding ourselves unable to indulge petitioner in his plea for
reversal. We thus manifest fealty to a pronouncement made time and time again that the law does
not look with favor on tax exemptions and that he who would seek to be thus privileged must
justify it by words too plain to be mistaken and too categorical to be misinterpreted. 26 Petitioner
had not done so. Petitioner cannot do so.

WHEREFORE, the decision of the Court of Tax Appeals of May 12, 1966 denying the refund of
P2,979.00 as the income tax paid by petitioner is affirmed. With costs against petitioner.

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, 

vs.
LORETA GOZO, defendant-appellant.

Office of the Solicitor General Felix Q. Antonio, Assistant Solicitor General Jaime M. Lantin and Solicitor
Norberto P. Eduardo for plaintiff-appellee.

Jose T. Nery for defendant-appellant.

FERNANDO, J.:

Appellant seeks to set aside a judgment of the Court of First Instance of Zambales, convicting her of
a violation of an ordinance of Olongapo, Zambales, requiring a permit from the municipal mayor for
the construction or erection of a building, as well as any modification, alteration, repair or
demolition thereof. She questions its validity, or at the very least, its applicability to her, by
invoking due process,1 a contention she would premise on what for her is the teaching of People v.
Fajardo.2 If such a ground were far from being impressed with solidity, she stands on quicksand
when she would deny the applicability of the ordinance to her, on the pretext that her house was
constructed within the naval base leased to the American armed forces. While yielding to the well-
settled doctrine that it does not thereby cease to be Philippine territory, she would, in effect, seek to
emasculate our sovereign rights by the assertion that we cannot exercise therein administrative
jurisdiction. To state the proposition is to make patent how much it is tinged with unorthodoxy.
Clearly then, the lower court decision must be affirmed with the sole modification that she is given
thirty days from the finality of a judgment to obtain a permit, failing which, she is required to
demolish the same.

The facts are undisputed. As set forth in the decision of the lower court: "The accused bought a
house and lot located inside the United States Naval Reservation within the territorial jurisdiction
of Olongapo City. She demolished the house and built another one in its place, without a building
permit from the City Mayor of Olongapo City, because she was told by one Ernesto Evalle, an
assistant in the City Mayor's office, as well as by her neighbors in the area, that such building permit
was not necessary for the construction of the house. On December 29, 1966, Juan Malones, a
building and lot inspector of the City Engineer's Office, Olongapo City, together with Patrolman
Ramon Macahilas of the Olongapo City police force apprehended four carpenters working on the
house of the accused and they brought the carpenters to the Olongapo City police headquarters for
interrogation. ... After due investigation, Loreta Gozo was charged with violation of Municipal
Ordinance No. 14, S. of 1964 with the City Fiscal's Office."3 The City Court of Olongapo City found
her guilty of violating Municipal Ordinance No. 14, Series of 1964 and sentenced her to an
imprisonment of one month as well as to pay the costs. The Court of Instance of Zambales, on
appeal, found her guilty on the above facts of violating such municipal ordinance but would
sentence her merely to pay a fine of P200.00 and to demolish the house thus erected. She elevated
the case to the Court of Appeals but in her brief, she would put in issue the validity of such an
ordinance on constitutional ground or at the very least its applicability to her in view of the location
of her dwelling within the naval base. Accordingly, the Court of Appeals, in a resolution of January
29, 1973, noting the constitutional question raised, certified the case to this Court.

There is, as mentioned in the opening paragraph of this petition, no support in law for the stand
taken by appellant.

1. It would be fruitless for her to assert that local government units are devoid of authority to
require building permits. This Court, from Switzer v. Municipality of 
Cebu,4 decided in 1911, has sanctioned the validity of such measures. It is much too late in the day
to contend that such a requirement cannot be validly imposed. Even appellant, justifiably
concerned about the unfavorable impression that could be created if she were to deny that such
competence is vested in municipal corporations and chartered cities, had to concede in her brief:
"If, at all; the questioned ordinance may be predicated under the general welfare clause ... ." 5 Its
scope is wide, well-nigh all embracing, covering every aspect of public health, public morals, public
safety, and the well being and good order of the community.6

It goes without saying that such a power is subject to limitations. Certainly, if its exercise is violative
of any constitutional right, then its validity could be impugned, or at the very least, its applicability
to the person adversely affected could be questioned. So much is settled law. Apparently, appellant
has adopted the view that a due process question may indeed be raised in view of what for her is its
oppressive character. She is led to such a conclusion, relying on People v. Fajardo.7 A more careful
scrutiny of such a decision would not have led her astray, for that case is easily distinguishable. The
facts as set forth in the opinion follow: "It appears that on August 15, 1950, during the incumbency
of defendant-appellant Juan F. Fajardo as mayor of the municipality of Baao, Camarines Sur, the
municipal council passed the ordinance in question providing as follows: "... 1. Any person or
persons who will construct or repair a building should, before constructing or repairing, obtain a
written permit from the Municipal Mayor. ... 2. A fee of not less than P2.00 should be charged for
each building permit and P1.00 for each repair permit issued. ... 3. [Penalty]-Any violation of the
provisions of the above, this ordinance, shall make the violator liable to pay a fine of not less than
P25 nor more than P50 or imprisonment of not less than 12 days nor more than 24 days or both, at
the discretion of the court. If said building destroys the view of the Public Plaza or occupies any
public property, it shall be removed at the expense of the owner of the building or house. ... ." Four
years later, after the term of appellant Fajardo as mayor had expired, he and his son-in-law,
appellant Babilonia, filed a written request with the incumbent municipal mayor for a permit to
construct a building adjacent to their gasoline station on a parcel of land registered in Fajardo's
name, located along the national highway and separated from the public plaza by a creek ... . On
January 16, 1954, the request was denied, for the reason among others that the proposed building
would destroy the view or beauty of the public plaza ... . On January 18, 1954, defendants reiterated
their request for a building permit ..., but again the request was turned down by the mayor.
Whereupon, appellants proceeded with the construction of the building without a permit, because
they needed a place of residence very badly, their former house having been destroyed by a
typhoon and hitherto they had been living on leased property."8

Clearly then, the application of such an ordinance to Fajardo was oppressive. A conviction therefore
for a violation thereof both in the justice of the peace court of Baao, Camarines Sur as well as in the
Court of First Instance could not be sustained. In this case, on the contrary, appellant never
bothered to comply with the ordinance. Perhaps aware of such a crucial distinction, she would
assert in her brief: "The evidence showed that even if the accused were to secure a permit from the
Mayor, the same would not have been granted. To require the accused to obtain a permit before
constructing her house would be an exercise in futility. The law will not require anyone to perform
an impossibility, neither in law or in fact: ... ."9 It would be from her own version, at the very least
then, premature to anticipate such an adverse result, and thus to condemn an ordinance which
certainly lends itself to an interpretation that is neither oppressive, unfair, or unreasonable. That
kind of interpretation suffices to remove any possible question of its validity, as was expressly
announced in Primicias v. Fugoso. 10 So it appears from this portion of the opinion of Justice Feria,
speaking for the Court: "Said provision is susceptible of two constructions: one is that the Mayor of
the City of Manila is vested with unregulated discretion to grant or refuse to grant permit for the
holding of a lawful assembly or meeting, parade, or procession in the streets and other public
places of the City of Manila; and the other is that the applicant has the right to a permit which shall
be granted by the Mayor, subject only to the latter's reasonable discretion to determine or specify
the streets or public places to be used for the purpose, with a view to prevent confusion by
overlapping, to secure convenient use of the streets and public places by others, and to provide
adequate and proper policing to minimize the risk of disorder. After a mature deliberation, we have
arrived at the conclusion that we must adopt the second construction, that is, construe the
provisions of the said ordinance to mean that it does not confer upon the Mayor the power to refuse
to grant the permit, but only the discretion, in issuing the permit, to determine or specify the streets
or public places where the parade or procession may pass or the meeting may be held." 11 If, in a
case affecting such a preferred freedom as the right to assembly, this Court could construe an
ordinance of the City of Manila so as to avoid offending against a constitutional provision, there is
nothing to preclude it from a similar mode of approach in order to show the lack of merit of an
attack against an ordinance requiring a permit. Appellant cannot therefore take comfort from any
broad statement in the Fajardo opinion, which incidentally is taken out of context, considering the
admitted oppressive application of the challenged measure in that litigation. So much then for the
contention that she could not have been validly convicted for a violation of such ordinance. Nor
should it be forgotten that she did suffer the same fate twice, once from the City Court and
thereafter from the Court of First Instance. The reason is obvious.Such ordinance applies to her.

2. Much less is a reversal indicated because of the alleged absence of the rather novel concept of
administrative jurisdiction on the part of Olongapo City. Nor is novelty the only thing that may be
said against it. Far worse is the assumption at war with controlling and authoritative doctrines that
the mere existence of military or naval bases of a foreign country cuts deeply into the power to
govern. Two leading cases may be cited to show how offensive is such thinking to the juristic
concept of sovereignty, People v. Acierto, 12 and Reagan v. Commissioner of Internal Revenue. 13 As
was so emphatically set forth by Justice Tuason in Acierto: "By the Agreement, it should be noted,
the Philippine Government merely consents that the United States exercise jurisdiction in certain
cases. The consent was given purely as a matter of comity, courtesy, or expediency. The Philippine
Government has not abdicated its sovereignty over the bases as part of the Philippine territory or
divested itself completely of jurisdiction over offenses committed therein. Under the terms of the
treaty, the United States Government has prior or preferential but not exclusive jurisdiction of such
offenses. The Philippine Government retains not only jurisdictional rights not granted, but also all
such ceded rights as the United States Military authorities for reasons of their own decline to make
use of. The first proposition is implied from the fact of Philippine sovereignty over the bases; the
second from the express provisions of the treaty." 14 There was a reiteration of such a view in
Reagan. Thus: "Nothing is better settled than that the Philippines being independent and sovereign,
its authority may be exercised over its entire domain. There is no portion thereof that is beyond its
power. Within its limits, its decrees are supreme, its commands paramount. Its laws govern therein,
and everyone to whom it applies must submit to its terms. That is the extent of its jurisdiction, both
territorial and personal. Necessarily, likewise, it has to be exclusive. If it were not thus, there is a
diminution of sovereignty." 15 Then came this paragraph dealing with the principle of auto-
limitation: "It is to be admitted any state may, by its consent, express or implied, submit to a
restriction of its sovereign rights. There may thus be a curtailment of what otherwise is a
power plenary in character. That is the concept of sovereignty as auto-limitation, which, in
the succinct language of Jellinek, "is the property of a state-force due to which it has the
exclusive capacity of legal self-determination and self-restriction." A state then, if it chooses
to, may refrain from the exercise of what otherwise is illimitable competence." 16 The opinion
was at pains to point out though that even then, there is at the most diminution of jurisdictional
rights, not its disappearance. The words employed follow: "Its laws may as to some persons found
within its territory no longer control. Nor does the matter end there. It is not precluded from
allowing another power to participate in the exercise of jurisdictional right over certain portions of
its territory. If it does so, it by no means follows that such areas become impressed with an alien
character. They retain their status as native soil. They are still subject to its authority. Its
jurisdiction may be diminished, but it does not disappear. So it is with the bases under lease to the
American armed forces by virtue of the military bases agreement of 1947. They are not and cannot
be foreign territory." 17

Can there be anything clearer, therefore, than that only a turnabout, unwarranted and unjustified,
from what is settled and orthodox law can lend the slightest degree of plausibility to the contention
of absence of administrative jurisdiction. If it were otherwise, what was aptly referred to by Justice
Tuason "as a matter of comity, courtesy, or expediency" becomes one of obeisance and submission.
If on a concern purely domestic in its implications, devoid of any connection with national security,
the Military-Bases Agreement could be thus interpreted, then sovereignty indeed becomes a
mockery and an illusion. Nor does appellant's thesis rest on less shaky foundation by the mere fact
that Acierto and Reagan dealt with the competence of the national government, while what is
sought to be emasculated in this case is the so-called administrative jurisdiction of a municipal
corporation. Within the limits of its territory, whatever statutory powers are vested upon it may be
validly exercised. Any residual authority and therein conferred, whether expressly or impliedly,
belongs to the national government, not to an alien country. What is even more to be deplored in
this stand of appellant is that no such claim is made by the American naval authorities, not that it
would do them any good if it were so asserted. To quote from Acierto anew: "The carrying out of
the provisions of the Bases Agreement is the concern of the contracting parties alone. Whether,
therefore, a given case which by the treaty comes within the United States jurisdiction should be
transferred to the Philippine authorities is a matter about which the accused has nothing to do or
say. In other words, the rights granted to the United States by the treaty insure solely to that
country and can not be raised by the offender." 18 If an accused would suffer from such disability,
even if the American armed forces were the beneficiary of a treaty privilege, what is there for
appellant to take hold of when there is absolutely no showing of any alleged grant of what is
quaintly referred to as administrative jurisdiction? That is all, and it is more than enough, to make
manifest the futility of seeking a reversal.

WHEREFORE, the appealed decision of November 11, 1969 is affirmed insofar as it found the
accused, Loreta Gozo, guilty beyond reasonable doubt of a violation of Municipal Ordinance No. 14,
series of 1964 and sentencing her to pay a fine of P200.00 with subsidiary imprisonment in case of
insolvency, and modified insofar as she is required to demolish the house that is the subject matter
of the case, she being given a period of thirty days from the finality of this decision within which to
obtain the required permit. Only upon her failure to do so will that portion of the appealed decision
requiringdemolition be enforced. Costs against the accused.

AIR TRANSPORTATION OFFICE, Petitioner, 

vs.
SPOUSES DAVID* ELISEA RAMOS, Respondents.

RESOLUTION

BERSAMIN, J.:

The State’s 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 State’s 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 ₱778,150.00. 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 State’s 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 ATO’s motion for a preliminary hearing of the
affirmative defense.

After the RTC likewise denied the ATO’s motion for reconsideration on December 10, 1998, the ATO
commenced a special civil action for certiorari in the CA to assail the RTC’s 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 ₱778,150.00 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 ₱150,000.00 by way of moral damages and ₱150,000.00 as exemplary damages; (3)
the amount of ₱50,000.00 by way of attorney’s fees plus ₱15,000.00 representing the 10, more or
less, court appearances of plaintiff’s counsel; (4) The costs of this suit.

SO ORDERED.

In due course, the ATO appealed to the CA, which affirmed the RTC’s 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 ₱30,000.00 each, and attorney’s fees is lowered to ₱10,000.00.

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 State’s
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 Philippines9 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 Court’s
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 CAA’s 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 Teodorocase 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
State’s immunity from suit. We uphold the CA’s 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 court’s 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 State’s 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 ATO’s 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.1avvphi1

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.

CALTEX (PHILIPPINES), INC., plaintiff-appellant, 

vs.
CUSTOMS ARRASTRE SERVICE, ET AL., defendants-appellees.

Ross, Selph, Salcedo, Del Rosario, Bito & Misa for plaintiff-appellant.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Isidro G. Borromeo,
Tomas M. Dilig and Felipe T. Cuison for defendants-appellees.

FERNANDO, J.:

Had plaintiff-appellant Caltex (Philippines), Inc. been aware that four days prior to the filing of its
brief seeking a reversal of an order of the lower court of March 9, 1966 dismissing its complaint
against the Customs Arrastre Service, the Bureau of Customs, and the Republic of the Philippines
for lost or undelivered cargo in the amount of P9, 859.49 intended for it as consignee, more
specifically on December 19, 1966, this Court in Mobil Philippines Exploration, Inc. v. Customs
Arrastre Service1 held that the doctrine of non-suability of the government without its consent bars
such an action, it would likely have desisted from pursuing its appeal. For since then, a similar fate
was visited on other litigants, the latest decision, the forty-first, having been promulgated only the
other month.2 The efforts of appellant to reverse the order of dismissal are thus in vain. We affirm.
All that the lower court did in sustaining the motion to dismiss of January 18, 1966 was to submit to
the binding force of a fundamental postulate in constitutional law.

The Mobil Philippines doctrine cannot be indicted for unorthodoxy. It represents a continuing
manifestation of our commitment, in this respect at least, to the Austinian or positivist concept of
law. Under this view, it can be created only by the state. It can flow from no other source. Since
without law, there can be no legal right, the state itself is immune from suit unless there be a
manifestation of its will through the appropriate mode conferring such a right to sue. To so view the
matter, according to Holmes, is both "logical and practical."3

That there are practical, as distinguished from merely logical, reasons in support of such a view
should be apparent from the recognition of the likelihood that the government would ever so often
be hailed into court considering that engaged as it has lately been in varied activities, appropriate to
a welfare state the probability of private parties being adversely affected by action taken by it is not
remote. A loss of property rights could always be plausibly alleged. A claim for money could as
easily be conjured. Thus the demands on the governments time and energy could reach limits well-
nigh intolerable. After all, it is an admitted fact that our people display no hesitancy in going to
court whenever they feel aggrieved, even if the injury is more fancied than real. Thus the functional
or sociological approach to law would seem to call for a similar conclusion.

It might be argued however that precisely because the government is now committed to so many
undertakings, it would be an injustice to those who feel adversely the pinch of its actuations if they
cannot vindicate whatever legal rights they may have in court. Providence Washington Insurance Co.
v. Republic4 supplies the answer: At any rate, in case of a money claim arising from contract, express
or implied, which could serve as a basis for civil action between private parties, such a consent has
been given by a statute enacted by the Philippine legislature, even before the Constitution took
effect and still applicable at present. The procedure provided for in such a statute was made more
expeditious by a Commonwealth Act, enabling the party or entity, who feels aggrieved by the final
decision of the Auditor General required to decide the claim within sixty days, having the right to go
to this Court for final adjudication. It is worthy of note likewise that in the pursuit of its activities
affecting business, the government has increasingly relied on private corporations possessing the
power to sue and be sued."

It could be correctly concluded then, to quote anew from the same case; "Thus the doctrine of non-
suability of the government without its consent, as it has operated in practice, hardly lends itself to
the charge that it could be the fruitful parent of injustice, considering the vast and ever-widening
scope of state activities at present being undertaken. Whatever difficulties for private claimants
may still exist, is from an objective appraisal of all factors, minimal. In the balancing of interests, so
unavoidable in the determination of what principles must prevail if government is to satisfy the
public weal, the verdict must be, as it has been these so many years, for its continuing recognition
as a fundamental postulate of constitutional law."

WHEREFORE, the order of dismissal of March 9, 1966 is affirmed, with costs against plaintiff-
appellant.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Teehankee and Villamor, JJ., concur.

Barredo, J., took no part.

MOBIL PHILIPPINES EXPLORATION, INC., plaintiff-appellant, 

vs.
CUSTOMS ARRASTRE SERVICE and BUREAU of CUSTOMS, defendants-appellees.

Alejandro Basin, Jr. and Associates for plaintiff-appellant.

Felipe T. Cuison for defendants-appellees.

BENGZON, J.P., J.:

Four cases of rotary drill parts were shipped from abroad on S.S. "Leoville" sometime in November
of 1962, consigned to Mobil Philippines Exploration, Inc., Manila. The shipment arrived at the Port
of Manila on April 10, 1963, and was discharged to the custody of the Customs Arrastre Service, the
unit of the Bureau of Customs then handling arrastre operations therein. The Customs Arrastre
Service later delivered to the broker of the consignee three cases only of the shipment.

On April 4, 1964 Mobil Philippines Exploration, Inc., filed suit in the Court of First Instance of
Manila against the Customs Arrastre Service and the Bureau of Customs to recover the value of the
undelivered case in the amount of P18,493.37 plus other damages.

On April 20, 1964 the defendants filed a motion to dismiss the complaint on the ground that not
being persons under the law, defendants cannot be sued.

After plaintiff opposed the motion, the court, on April 25, 1964, dismissed the complaint on the
ground that neither the Customs Arrastre Service nor the Bureau of Customs is suable. Plaintiff
appealed to Us from the order of dismissal.

Raised, therefore, in this appeal is the purely legal question of the defendants' suability under the
facts stated.

Appellant contends that not all government entities are immune from suit; that defendant Bureau
of Customs as operator of the arrastre service at the Port of Manila, is discharging proprietary
functions and as such, can be sued by private individuals.

The Rules of Court, in Section 1, Rule 3, provide:

SECTION 1. Who may be parties.—Only natural or juridical persons or entities authorized by

law may be parties in a civil action.

Accordingly, a defendant in a civil suit must be (1) a natural person; (2) a juridical person or (3) an
entity authorized by law to be sued. Neither the Bureau of Customs nor (a fortiori) its function unit,
the Customs Arrastre Service, is a person. They are merely parts of the machinery of Government.
The Bureau of Customs is a bureau under the Department of Finance (Sec. 81, Revised
Administrative Code); and as stated, the Customs Arrastre Service is a unit of the Bureau of Custom,
set up under Customs Administrative Order No. 8-62 of November 9, 1962 (Annex "A" to Motion to
Dismiss, pp. 13-15, Record an Appeal). It follows that the defendants herein cannot he sued under
the first two abovementioned categories of natural or juridical persons.

Nonetheless it is urged that by authorizing the Bureau of Customs to engage in arrastre service, the
law thereby impliedly authorizes it to be sued as arrastre operator, for the reason that the nature of
this function (arrastre service) is proprietary, not governmental. Thus, insofar as arrastre operation
is concerned, appellant would put defendants under the third category of "entities authorized by
law" to be sued. Stated differently, it is argued that while there is no law expressly authorizing the
Bureau of Customs to sue or be sued, still its capacity to be sued is implied from its very power to
render arrastre service at the Port of Manila, which it is alleged, amounts to the transaction of a
private business.

The statutory provision on arrastre service is found in Section 1213 of Republic Act 1937 (Tariff
and Customs Code, effective June 1, 1957), and it states:

SEC. 1213. Receiving, Handling, Custody and Delivery of Articles.—The Bureau of Customs
shall have exclusive supervision and control over the receiving, handling, custody and
 delivery of articles on the wharves and piers at all ports of entry and in the exercise of its
functions it is hereby authorized to acquire, take over, operate and superintend such plants
and facilities as may be necessary for the receiving, handling, custody and delivery of
articles, and the convenience and comfort of passengers and the handling of baggage; as
well as to acquire fire protection equipment for use in the piers: Provided, That whenever in
his judgment the receiving, handling, custody and delivery of articles can be carried on by
private parties with greater efficiency, the Commissioner may, after public bidding and
subject to the approval of the department head, contract with any private party for the
service of receiving, handling, custody and delivery of articles, and in such event, the
contract may include the sale or lease of government-owned equipment and facilities used
in such service.

In Associated Workers Union, et al. vs. Bureau of Customs, et al., L-21397, resolution of August 6,
1963, this Court indeed held "that the foregoing statutory provisions authorizing the grant by
contract to any private party of the right to render said arrastre services necessarily imply that the
same is deemed by Congress to be proprietary or non-governmental function." The issue in said
case, however, was whether laborers engaged in arrastre service fall under the concept of
employees in the Government employed in governmental functions for purposes of the prohibition in
Section 11, Republic Act 875 to the effect that "employees in the Government . . . shall not strike,"
but "may belong to any labor organization which does not impose the obligation to strike or to join
in strike," which prohibition "shall apply only to employees employed in governmental functions of
the Government . . . .

Thus, the ruling therein was that the Court of Industrial Relations had jurisdiction over the subject
matter of the case, but not that the Bureau of Customs can be sued. Said issue of suability was not
resolved, the resolution stating only that "the issue on the personality or lack of personality of the
Bureau of Customs to be sued does not affect the jurisdiction of the lower court over the subject
matter of the case, aside from the fact that amendment may be made in the pleadings by the
inclusion as respondents of the public officers deemed responsible, for the unfair labor practice acts
charged by petitioning Unions".

Now, the fact that a non-corporate government entity performs a function proprietary in nature
does not necessarily result in its being suable. If said non-governmental function is undertaken as
an incident to its governmental function, there is no waiver thereby of the sovereign immunity from
suit extended to such government entity. This is the doctrine recognized in Bureau of Printing, et al.
vs. Bureau of Printing Employees Association, et al., L-15751, January 28, 1961:

The Bureau of Printing is an office of the Government created by the Administrative Code of
1916 (Act No. 2657). As such instrumentality of the Government, it operates under the
direct supervision of the Executive Secretary, Office of the President, and is "charged with
the execution of all printing and binding, including work incidental to those processes,
required by the National Government and such other work of the same character as said
Bureau may, by law or by order of the (Secretary of Finance) Executive Secretary, be
authorized to undertake . . . ." (Sec. 1644, Rev. Adm. Code.) It has no corporate existence,
and its appropriations are provided for in the General Appropriations Act. Designed to meet
the printing needs of the Government, it is primarily a service bureau and, obviously, not
engaged in business or occupation for pecuniary profit.

xxx      xxx      xxx
 . . . Clearly, while the Bureau of Printing is allowed to undertake private printing jobs, it
cannot be pretended that it is thereby an industrial or business concern. The additional
work it executes for private parties is merely incidental to its function, and although such
work may be deemed proprietary in character, there is no showing that the employees
performing said proprietary function are separate and distinct from those emoloyed in its
general governmental functions.

xxx      xxx      xxx

Indeed, as an office of the Government, without any corporate or juridical personality, the
Bureau of Printing cannot be sued (Sec. 1, Rule 3, Rules of Court.) Any suit, action or
proceeding against it, if it were to produce any effect, would actually be a suit, action or
proceeding against the Government itself, and the rule is settled that the Government
cannot be sued without its consent, much less over its objection. (See Metran vs. Paredes, 45
Off. Gaz. 2835; Angat River Irrigation System, et al. vs. Angat River Workers Union, et al.,
G.R. Nos. L-10943-44, December 28, 1957.)

The situation here is not materially different. The Bureau of Customs, to repeat, is part of the
Department of Finance (Sec. 81, Rev. Adm. Code), with no personality of its own apart from that of
the national government. Its primary function is governmental, that of assessing and collecting
lawful revenues from imported articles and all other tariff and customs duties, fees, charges, fines
and penalties (Sec. 602, R.A. 1937). To this function, arrastre service is a necessary incident. For
practical reasons said revenues and customs duties can not be assessed and collected by simply
receiving the importer's or ship agent's or consignee's declaration of merchandise being imported
and imposing the duty provided in the Tariff law. Customs authorities and officers must see to it
that the declaration tallies with the merchandise actually landed. And this checking up requires that
the landed merchandise be hauled from the ship's side to a suitable place in the customs premises
to enable said customs officers to make it, that is, it requires arrastre operations.1

Clearly, therefore, although said arrastre function may be deemed proprietary, it is a necessary
incident of the primary and governmental function of the Bureau of Customs, so that engaging in
the same does not necessarily render said Bureau liable to suit. For otherwise, it could not perform
its governmental function without necessarily exposing itself to suit. Sovereign immunity, granted
as to the end, should not be denied as to the necessary means to that end.

And herein lies the distinction between the present case and that of National Airports Corporation
vs. Teodoro, 91 Phil. 203, on which appellant would rely. For there, the Civil Aeronautics
Administration was found have for its prime reason for existence not a governmental but a
proprietary function, so that to it the latter was not a mere incidental function:

Among the general powers of the Civil Aeronautics Administration are, under Section 3, to
execute contracts of any kind, to purchase property, and to grant concessions rights, and
under Section 4, to charge landing fees, royalties on sales to aircraft of aviation gasoline,
accessories and supplies, and rentals for the use of any property under its management.

These provisions confer upon the Civil Aeronautics Administration, in our opinion, the
power to sue and be sued. The power to sue and be sued is implied from the power to
transact private business. . . .
 xxx      xxx      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. . . .

Regardless of the merits of the claim against it, the State, for obvious reasons of public policy,
cannot be sued without its consent. Plaintiff should have filed its present claim to the General
Auditing Office, it being for money under the provisions of Commonwealth Act 327, which state the
conditions under which money claims against the Government may be filed.

It must be remembered that statutory provisions waiving State immunity from suit are strictly
construed and that waiver of immunity, being in derogation of sovereignty, will not be lightly
inferred. (49 Am. Jur., States, Territories and Dependencies, Sec. 96, p. 314; Petty vs. Tennessee-
Missouri Bridge Com., 359 U.S. 275, 3 L. Ed. 804, 79 S. Ct. 785). From the provision authorizing the
Bureau of Customs to lease arrastre operations to private parties, We see no authority to sue the
said Bureau in the instances where it undertakes to conduct said operation itself. The Bureau of
Customs, acting as part of the machinery of the national government in the operation of the arrastre
service, pursuant to express legislative mandate and as a necessary incident of its prime
governmental function, is immune from suit, there being no statute to the contrary.

WHEREFORE, the order of dismissal appealed from is hereby affirmed, with costs against appellant.
So ordered.