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659 Phil. 104

THIRD DIVISION

[ G.R. No. 159402, February 23, 2011 ]

AIR TRANSPORTATION OFFICE, PETITIONER, VS. SPOUSES DAVID* AND ELISEA RAMOS, RESPONDENTS.

D EC I S I O N
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.

*
David Ramos died on October 14, 2001, before the assailed decision was promulgated. He was substituted by his children
Cherry Ramos, Joseph David Ramos and Elsie Grace R. Dizon pursuant to a resolution of the CA promulgated on April 23, 2003
(see rollo, p. 136).

**
Acting Chairperson in lieu of Justice Conchita Carpio Morales who is on leave per Special Order No. 925 dated January 24,
2011.

***
Additional member per Special Order No. 926 dated January 24, 2011.

Rollo, pp. 25-35; penned by Associate Justice Conrado M. Vasquez (later Presiding Justice, now retired), and concurred in
[1]
by Associate Justice Mercedes Gozo-Dadole (retired) and Associate Justice Rosmari D. Carandang,

[2]
Id., pp. 80-87; penned by Judge Antonio C. Reyes.

[3] Id.

[4] Id.

[5]
Id., pp. 25-35.

[6]
205 US 349, 353 (1907).

[7]
Bold emphasis supplied.

[8]
Veterans Manpower and Protective Services, Inc. v. Court of Appeals, G.R. No. 91359, Sept. 25, 1992, 214 SCRA 286, 294;
Republic v. Purisima, No. L-36084, Aug. 31, 1977, 78 SCRA 470, 473.

[9]
L-26386, Sept. 30, 1969, 29 SCRA 598, 601-602.

[10]
Bernas, The 1987 Constitution of the Republic of the Philippines: A Commentary, 2003 Edition, p. 1269.

[11]
Metropolitan Transportation Service v. Paredes, 79 Phil. 819 (1948).

[12]
E.g., Angat River Irrigation System, et. al. v. Angat River Worker's Union, et. al., 102 Phil. 789 (1957).

[13]
E.g., National Airports Corporation v. Teodoro, Sr. and Phil. Airlines Inc., 91 Phil. 203 (1952).

[14]
Rollo, pp. 25-35.

[15]
Id., pp. 29-32.

Republic v. Sandiganbayan, G.R. No. 90478, Nov. 2, 1991, 204 SCRA 212, 231; Ministerio v. Court of First Instance of Cebu, No.
[16]
L-31635, Aug. 31, 1971, 40
SCRA 464; Santiago v. Republic, No. L-48214, Dec. 19, 1978, 87 SCRA 294.

[17]
G.R. Nos. 71998-99, June 2, 1993, 223 SCRA 11.

[18]
Section 23. Corporate Powers. - The Authority, acting through the Board, shall have the following corporate
powers:

(a) To succeed in its corporate name, to sue and be sued in such

corporate name xxx. x x x

(c) To enter into, make, perform and carry out contracts of every class, kind and description, which are necessary or
incidental to the realization of its purposes, with any person, domestic or foreign private firm, or corporation, local or
national government office, agency and with international institutions or foreign government;

xxx

(e) To construct, acquire, own, hold, operate, maintain, administer and lease personal and real properties, including
buildings, machinery, equipment, other infrastructure, agricultural land, and its improvements, property rights, and
interest therein x x x

xxx

(i) To settle, under such terms and conditions most advantageous to it, any claim by or against it;

xxx
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