659 Phil.

104

THIRD DIVISION
[ G.R. No. 159402, February 23, 2011 ]
AIR TRANSPORTATION OFFICE, PETITIONER, VS. SPOUSES
DAVID* AND ELISEA RAMOS, RESPONDENTS.
DECISION

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 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 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 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 attorney's fees plus P15,000.00
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
P30,000.00 each, and attorney's 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 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 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 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 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 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.

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.

Brion, (Acting Chairperson),**  Abad,*** Villarama, Jr., and Sereno, JJ., concur.