Air Transportation Office vs. Spouses Ramos

Factual Background

The respondents discovered that a portion of their titled land (T-58894), measuring approximately 985 square meters, was being used as part of the runway and running shoulder of Loakan Airport operated by the ATO. After negotiations, the respondents executed a deed of sale on August 11, 1995 conveying the affected portion to the ATO for P778,150.00. The ATO failed to pay the agreed purchase price despite repeated verbal and written demands, prompting the respondents to file an action for collection in the Regional Trial Court, Branch 61, Baguio City on April 29, 1998.

Trial Court Proceedings

In its answer, the ATO and named officials raised as an affirmative defense that the affected land had been reserved by Proclamation No. 1358 for use of Loakan Airport and that the deed of sale was entered into in the performance of governmental functions; hence the RTC purportedly lacked jurisdiction absent the State’s consent. The RTC denied the ATO’s motion for preliminary hearing of that defense and also denied reconsideration. On February 21, 2001, the RTC rendered judgment ordering the ATO to pay P778,150.00 with annual interest of 12% from August 11, 1995 until paid; moral damages P150,000.00 and exemplary damages P150,000.00; attorney’s fees P50,000.00 plus P15,000.00 for court appearances; and costs of suit.

Interlocutory Appeal and Court of Appeals Ruling

The ATO sought certiorari in the Court of Appeals to review the RTC’s interlocutory orders, but the CA dismissed that special civil action for lack of grave abuse of discretion. On appeal from the RTC’s judgment, the Court of Appeals, by decision promulgated May 14, 2003, affirmed with modification the RTC judgment: it deleted the award of costs, reduced moral and exemplary damages to P30,000.00 each, and lowered attorney’s fees to P10,000.00. The CA expressly held that the ATO did not enjoy sovereign immunity because its management and maintenance of airport operations involved proprietary functions not exclusive to the State.

Issue Presented

The sole issue presented to the Supreme Court was whether the Air Transportation Office could be sued without the State’s consent, i.e., whether the doctrine of sovereign immunity prevented the respondents’ action against the ATO.

Parties’ Contentions

The ATO contended that it and its officials were immune from suit under the doctrine of sovereign immunity, as set forth in Art. XVI, Sec. 3, 1987 Constitution, because the deed of sale and its acts were done in performance of governmental functions or under a reservation made by Proclamation No. 1358. The respondents maintained that the ATO performed proprietary, businesslike functions in operating and maintaining airport facilities, that the taking and nonpayment constituted a deprivation without just compensation, and that an unincorporated agency performing proprietary acts is suable.

Supreme Court Ruling

The Supreme Court denied the petition for review on certiorari and affirmed the decision of the Court of Appeals. The Court held that the ATO could be sued without the State’s consent because it engaged in activities of a proprietary character in the management and maintenance of Loakan Airport, an enterprise that is not the exclusive prerogative of the State. The Court further declared that sovereign immunity could not be invoked to defeat valid claims for compensation where property was taken without just compensation or without proper expropriation proceedings. Finally, the Court observed that the passage of Republic Act No. 9497 (Civil Aviation Authority Act of 2008) abolished the ATO and created the Civil Aviation Authority of the Philippines (CAAP), which succeeded to the ATO’s powers, assets, rights and liabilities and was expressly given corporate powers including the power to sue and be sued and to settle claims.

Legal Basis and Reasoning

The Court began from the constitutional rule that the State may not be sued without its consent and explained the rationales for the doctrine of sovereign immunity, including preservation of governmental efficiency. The Court then applied the long-established distinction between governmental (jus imperii) and proprietary or business (jus gestionis) functions. Citing the Court of Appeals’ analysis and prior jurisprudence, the Court noted that in National Airports Corporation v. Teodoro the management and maintenance of airport operations were characterized as proprietary, and that the later decision in Civil Aeronautics Administration v. Court of Appeals reaffirmed that the CAA (ATO’s predecessor) engaged in private or non-governmental functions and therefore was not immune from suit. The Court recognized that an unincorporated government agency performing governmental functions enjoys immunity, but where the entity’s obj