[G.R. No.

 159402. February 23, 2011.]

AIR TRANSPORTATION OFFICE, petitioner, vs. SPOUSES

DAVID * and ELISEA RAMOS, respondents.

DECISION

BERSAMIN, J  : p

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 THIECD

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. . . . 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.  cDCEHa

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 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. 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 xxx 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 xxx 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 xxx 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: 
aSEHDA

xxx xxx 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.  SDTaHc

xxx xxx 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
TRANSITORY 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,  ** Abad, *** Villarama, Jr. and Sereno, JJ., concur.
 
Footnotes
*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. 
1.Rollo, pp. 25-35; penned by Associate Justice Conrado M. Vasquez (later Presiding
Justice, now retired), and concurred in 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.
16.Republic v. Sandiganbayan, G.R. No. 90478, Nov. 2, 1991, 204 SCRA 212,
231; Ministerio v. Court of First Instance of Cebu, No. 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 xxx xxx
(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 xxx 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 . . .;
xxx xxx xxx
 (i) To settle, under such terms and conditions most advantageous to it,
any claim by or against it;
xxx xxx xxx
 (Air Transportation Office v. Spouses Ramos, G.R. No. 159402, [February 23,
|||

2011], 659 PHIL 104-117)