National Airports Corp. v. Teodoro
REITERATIONFacts
The Antecedents: The National Airports Corporation (NAC) was organized under Republic Act No. 224 and made subject to the Corporation Law. Philippine Airlines, Inc. (PAL) paid NAC P65,245 for landing and parking fees at Bacolod Airport No. 2 for the period up to July 31, 1948. These fees were allegedly due to Capitol Subdivision, Inc. (CSI), the owner of the land used as the airport. CSI filed an action against PAL in 1951 to recover these fees. Procedural History: PAL filed a third-party complaint against NAC, which had been abolished by Executive Order No. 365 on November 10, 1950, and replaced by the Civil Aeronautics Administration (CAA). Summons was served on the CAA. PAL alleged that it paid NAC based on the belief that NAC was the lessee and operator of the airport and would pay the landowners. The Petition: The Solicitor General, representing the NAC (through the CAA), moved to dismiss the third-party complaint, arguing that NAC had lost its juridical personality and that an unincorporated agency of the Republic without juridical personality cannot sue or be sued.
Issue(s)
Whether the Civil Aeronautics Administration (CAA) can be sued as a successor to the National Airports Corporation (NAC) despite being an unincorporated agency. Whether the operation of an airport by a government agency is a governmental or a proprietary function.
Ruling
The petition is denied. The Civil Aeronautics Administration may be sued on behalf of the dissolved National Airports Corporation.
Ratio Decidendi
On Issue 1: The Supreme Court held that the Civil Aeronautics Administration (CAA) can be sued because the power to sue and be sued is implied from the power to transact private business. Under Executive Order (EO) No. 365, all records, properties, and, most importantly, the liabilities and contracts of the abolished National Airports Corporation (NAC) were assumed by the CAA. The Court reasoned that to deny creditors access to the courts against the CAA would allow the government to impair the obligation of its corporations by the simple expedient of converting them into unincorporated agencies. By operation of law, the CAA became the 'heir' or legal representative of the NAC for all practical legal intents. While the NAC technically stands abolished, the CAA is acting in its own name upon the rights and obligations it inherited. Therefore, the CAA is the proper party to defend against claims arising from the NAC's prior business dealings. On Issue 2: The Court ruled that the CAA performs proprietary functions that divest it of sovereign immunity. Citing established jurisprudence, the Court noted that immunity is determined by the character of the obligations; if a state agency acts in a private or non-governmental capacity, it is not regarded as the state for immunity purposes. Running an airport is essentially a business enterprise aimed at promoting travel and convenience, which can be—and often is—undertaken by private concerns rather than being an exclusive prerogative of the state. Because the CAA was created to run a business-like operation similar to the NAC, it cannot claim the privileges and immunities of the sovereign state. The Court distinguished this from labor disputes like National Airports Corporation v. Jimenez Yanzon, noting that the present case involves a commercial liability rather than civil service regulations which apply once an entity becomes a purely governmental office.
Main Doctrine
A government agency created to operate a business, even if not a body corporate, cannot claim sovereign immunity from suits when it has taken over all assets and liabilities of a dissolved corporation and is engaged in activities partaking of a private or non-governmental character. The power to sue and be sued is implied from the power to transact private business.