704 Phil.

432

SECOND DIVISION
[ G.R. No. 182358, February 20, 2013 ]
THE SECRETARY OF HEALTH, AND MA. MARGARITA M. GALON,
PETITIONERS, VS. PHIL PHARMAWEALTH, 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 performance of their official functions or within the
scope of their authority.

This Petition for Review on Certiorari[1] assails the October 25, 2007 Decision[2]
of the Court of Appeals (CA) in CA-G.R. CV No. 85670, and its March 31, 2008
Resolution[3] denying petitioners’ Motion for Reconsideration.[4]

Factual Antecedents

On December 22, 1998, Administrative Order (AO) No. 27 series of 1998[5] 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 2000[6] which

amended AO 27.  Under Section VII[7] 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-C[9] 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
Drugs[12] (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 letter[13] 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 Affairs[14]

In a letter-reply[15] 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 letter[16] 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. 3720[17] 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
Complaint[19] 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 2001[21] 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 P5 million, exemplary damages of P1
million, attorney’s fees of P1 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 Motion[24] 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 Commission[32] 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 non-suability.  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. Ramos[40] 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 interesting that in the earlier case of Department of Health

v. Phil Pharmawealth, Inc.[51] respondent 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, Inc.,[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.

Carpio, (Chairperson), Brion, Peralta,* and Perez, JJ., concur.

* Per Raffle dated February 4, 2013.

[1] Rollo, pp. 27-44.