City of Bacolod vs. Phuture Visions Co., Inc.

The issuance of business licenses and permits by a local government unit is an exercise of police power — a governmental function — and not a proprietary function, such that no consent to be sued or held liable for damages can be implied from the Local Government Code's grant of corporate powers to LGUs. Where the plaintiff had no clear legal right to operate the business that was closed, any damage suffered is damnum absque injuria and does not give rise to a cause of action for damages.

Phuture Visions Co., Inc. (Phuture) was incorporated in 2004 and later amended its Articles of Incorporation to include the operation of lotto betting stations and bingo games among its corporate purposes. Its bingo operations at SM City Bacolod were authorized by a provisional Grant of Authority from the Philippine Amusement and Gaming Corporation (PAGCOR), but local business permits issued by the City Mayor of Bacolod were required under City Tax Ordinance No. 93-001, which declares it unlawful for any person to engage in any business without first obtaining a permit from the City Mayor and paying the necessary fees. The City Mayor's power to grant or refuse licenses and permits is conferred by Section 171(n) of the Local Government Code.

Phuture Visions Co., Inc. was incorporated in 2004. In May 2005, its Articles of Incorporation (AOI) was amended to include the operation of lotto betting stations and/or other gaming outlets as a secondary purpose. Phuture applied with PAGCOR for authority to operate bingo games at the SM City Bacolod Mall and with SM Prime Holdings for the lease of a space in the same building. PAGCOR issued a provisional Grant of Authority (GOA) on December 5, 2006, subject to compliance with certain requirements, and SM Prime issued an Award Notice on January 10, 2007.

According to Phuture, it thereafter processed, completed, and submitted to the Permits and Licensing Division of the City Mayor of Bacolod its Application for Permit to Engage in Business to operate bingo games at SM Bacolod and paid the corresponding fees. It was issued a claim slip on February 19, 2007, indicating that the actual permit could be claimed on March 16, 2007. On February 27, 2007, Phuture further amended its AOI to reflect bingo operations as its primary purpose. It commenced bingo operations at SM Bacolod on March 2, 2007, before the actual hard copy of the mayor's permit was released. At around 6:10 a.m. on March 3, 2007, Phuture discovered that its bingo outlet had been padlocked by agents of the Office of the City Legal Officer, with a Closure Order dated March 2, 2007 posted at the entrance.

Petitioners presented a different version of events. They asserted that on January 10, 2007, Phuture applied for the renewal of its mayor's permit with "professional services, band/entertainment services" as its declared line of business, listing the address as "RH Building, 26 Lacson Street, Barangay 5" — not SM Bacolod. Upon submission of requirements on February 19, 2007, and while the application was being processed, Phuture was issued a claim slip to claim the actual permit on March 16, 2007 if the requirements were found in order. Petitioners discovered discrepancies in Phuture's submitted requirements: the application form was notarized earlier than the amendment of its AOI to reflect bingo operations as the company's primary purpose, and respondent had failed to pay the necessary permit fee and assessment fee under the applicable tax ordinances. Without waiting for the release of the mayor's permit, Phuture began operating its bingo outlet at SM Bacolod. The former City Legal Officer, Atty. Allan Zamora, issued a Closure Order on March 2, 2007 pursuant to City Tax Ordinance No. 93-001, which declares it unlawful to operate any business without first obtaining a permit from the City Mayor and paying the necessary fees. Petitioners' representative presented the Closure Order to Phuture's lawyers to negotiate a peaceful solution before implementation, but respondent ignored the information. The Composite Enforcement Unit under the Office of the City Legal Officer implemented the Closure Order at around 6:00 a.m. on March 3, 2007. Petitioners contended that the claim slip relied upon by respondent was a mere oversight or human error by a City Government employee, who was duped by tampered entries making it appear that the application was for bingo operations when it was actually for the renewal of a permit for "professional services, band/entertainment services."

During the summary hearing before the RTC on March 9, 2007, petitioners released in open court the hard copy of the Mayor's Permit dated February 19, 2007, which indicated the kind of business allowed as "Professional Services, Band/Entertainment Services." Phuture's counsel refused to receive it, protesting that it was not the permit respondent had applied for. The RTC ultimately found that Phuture had no right to operate bingo games at SM Bacolod because it did not have a business permit for bingo operations and had not paid the assessment for bingo operation, and that petitioners acted lawfully in stopping and closing the establishment. The trial court also found that the application form submitted by respondent pertained to a renewal of its business for "Professional Services, Band/Entertainment Services" located at "RH Bldg., 26th Lacson St." and not at SM Bacolod, and that respondent's reliance on the GOA, the SM Award Notice, and the "questionable" claim slip did not establish a clear and unmistakable right.

• Immunity from Suit: Petitioners argued that hearing the action for damages would violate the City's immunity from suit, since respondent had not obtained the consent of the City Government of Bacolod to be sued for damages. They maintained that the City Mayor and other officials impleaded were similarly immune because the acts they performed were within their lawful duty and functions.
• Governmental or Sovereign Acts: Petitioners maintained that they were merely performing governmental or sovereign acts and exercised their legal rights and duties to implement the provisions of the City Ordinance, and that whatever damages respondent may have incurred belonged to the concept of damnum absque injuria for which the law provides no remedy.
• Inconsistency in the CA Ruling: Petitioners contended that the assailed CA Decision contained inconsistencies, declaring mandamus to be an inappropriate remedy yet allowing the case for damages to prosper.
• Issues Not Raised for First Time on Appeal: Petitioners opposed respondent's assertion that the immunity-from-suit issue was raised for the first time on appeal, arguing that the issues were intertwined with and bore close relation to the issues resolved by the trial court.

• Issues Raised for First Time on Appeal: Respondent argued that the grounds raised by petitioners should not be considered since these were only invoked for the first time on appeal.
• Illegal Closure Without Due Process: Respondent asserted that the case for damages should proceed since petitioners caused the illegal closure of its bingo outlet without proper notice and hearing and with obvious discrimination, noting that the majority owners of Phuture are the sons of petitioner Mayor Leonardia's political rival, then Congressman Monico Puentevella.

• Liability for Damages: Whether petitioners — the City of Bacolod, its Mayor, and other city officials — can be made liable to pay respondent damages for the closure of respondent's bingo operations at SM Bacolod.

• Liability for Damages: No. Petitioners cannot be held liable for damages. The issuance of business permits is an exercise of police power — a governmental function — to which State immunity from suit attaches, and no consent to be sued can be implied from the Local Government Code's grant of corporate powers. Moreover, respondent had no clear legal right to operate bingo operations, rendering any injury damnum absque injuria.

• Liability for Damages: The Court resolved the issue on two grounds. First, the principle of State immunity from suit, embodied in Section 3, Article XVI of the 1987 Constitution, bars the suit against the City of Bacolod and its officials. While the Local Government Code vests local government units with corporate powers including the power to sue and be sued, the Court held in Acebedo Optical Company, Inc. vs. The Honorable Court of Appeals that the issuance of business licenses and permits is essentially regulatory in nature and constitutes an exercise of police power, not a proprietary function. No consent to be sued and held liable for damages can be implied from the mere conferment and exercise of the power to issue business permits. The immunity-from-suit defense was properly raised for the first time on appeal, because the lack of State consent is a matter of judicial notice that cannot be cured in the trial court; waiver of immunity, being in derogation of sovereignty, will not be lightly inferred, and the State cannot be estopped by the omissions or errors of its officers. Second, even apart from immunity, respondent had no clear and unmistakable legal right to operate bingo operations. The RTC found that respondent never applied for a permit for bingo operations but instead applied for a renewal of a permit for "Professional Services, Band/Entertainment Services" at a different address. Respondent's AOI was amended to reflect bingo operations as its primary purpose only on February 27, 2007 — more than a month after it had supposedly applied for a bingo license — a judicial admission binding on respondent. Because respondent had no legal right to operate bingo operations at the outset, petitioners' closure of the outlet was a lawful exercise of their duty to implement laws and ordinances. The nature of bingo operations as a form of gambling means its operation is a mere privilege that may be regulated, revoked, or closed down. Since there was no legal wrong inflicted by petitioners, the damage suffered by respondent is damnum absque injuria — injury without legal wrong — which does not give rise to a cause of action for damages. The Court cited The Orchard Golf & Country Club, Inc. vs. Yu in holding that there must be both damnum et injuria: the act must be not only hurtful but wrongful.

• State Immunity from Suit — The State cannot be sued without its consent, as embodied in Section 3, Article XVI of the 1987 Constitution. The purpose is to prevent the loss of governmental efficiency from the time and energy required to defend against lawsuits. Consent may be express or implied, such as when the government exercises proprietary functions or when embodied in a general or special law. In this case, the Court held that the issuance of business permits by a city mayor is an exercise of police power — a governmental, not proprietary, function — so no consent to be sued could be implied from the LGC's grant of corporate powers to LGUs.
• Governmental vs. Proprietary Functions of LGUs — The distinction determines whether an LGU's immunity from suit is waived. Governmental functions (exercise of police power, regulation of businesses) do not waive immunity; proprietary functions (commercial or business-like activities) may imply consent to be sued. The issuance of business licenses and permits is essentially regulatory in nature and constitutes an exercise of police power, making it a governmental act.
• Damnum Absque Injuria — Injury alone does not give the plaintiff a right to recover damages; there must be both a right of action for a legal wrong inflicted by the defendant and damage resulting therefrom (damnum et injuria). Where the plaintiff had no clear legal right to the activity that was stopped, any loss suffered is damnum absque injuria — damage without legal wrong — and does not constitute a cause of action.
• Immunity from Suit May Be Raised at Any Stage — The defense of lack of State consent to suit may be raised even for the first time on appeal, because the lack of consent is a matter of judicial notice that cannot be cured in the trial court. The State must act through subalterns who may not always protect its interests properly, and as a matter of public policy, the law insulates the State from such contingencies, allowing it to invoke sovereign attributes at any time and at any stage of a judicial proceeding.
• Estoppel Does Not Lie Against the Government — The government or any of its agencies cannot be estopped by the omission, mistake, or error of its officials or agents, nor by unauthorized or illegal acts of public officers.

• "the issuance of business licenses and permits by a municipality or city is essentially regulatory in nature. The authority, which devolved upon local government units to issue or grant such licenses or permits, is essentially in the exercise of the police power of the State within the contemplation of the general welfare clause of the Local Government Code." — This passage, quoted from Acebedo Optical, establishes the controlling distinction between governmental and proprietary functions in the context of business permit issuance, determining the applicability of State immunity from suit.

• "in order that the law will give redress for an act causing damage, that act must be not only hurtful, but wrongful. There must be damnum et injuria. If, as may happen in many cases, a person sustains actual damage, that is, harm or loss to his person or property, without sustaining any legal injury, that is, an act or omission which the law does not deem an injury, the damage is regarded as damnum absque injuria." — This passage articulates the canonical formulation of the damnum absque injuria doctrine as applied to defeat respondent's claim for damages, since respondent had no legal right to operate bingo operations.

• "waiver of immunity from suit, being in derogation of sovereignty, will not be lightly inferred." — This statement encapsulates the principle that State immunity is the default and its waiver requires clear and convincing grounds, supporting the Court's conclusion that the LGC's corporate-power grant did not impliedly waive immunity for governmental acts.

• Acebedo Optical Company, Inc. vs. The Honorable Court of Appeals, G.R. No. 100152, March 31, 2000, 329 SCRA 314 — Controlling authority for the proposition that the issuance of business licenses and permits by a municipality or city is essentially regulatory in nature and constitutes an exercise of police power, not a proprietary function. The Court relied on this case to conclude that no consent to be sued could be implied from the LGC's grant of corporate powers.
• Insurance Co. of North America vs. Osaka Shosen Kaisha, 137 Phil. 194 (1969) — Cited for Justice Barreda's opinion that the defense of lack of State consent to suit may be raised for the first time on appeal, because the lack of consent is a matter of judicial notice that cannot be cured in the trial court, and the mistakes and omissions of State officers do not bind the State.
• The Orchard Golf & Country Club, Inc. vs. Ernesto V. Yu and Manuel C. Yuhico, G.R. No. 191033, January 11, 2016, 778 SCRA 404 — Instructive authority on the requirement of damnum et injuria for the recovery of damages, cited to support the holding that respondent's claim failed because there was no legal wrong inflicted by petitioners.
• Spouses Custodio vs. Court of Appeals, G.R. No. 116100, February 9, 1996, 253 SCRA 483 — Cited within the Orchard Golf quotation for the principle that wrong without damage, or damage without wrong, does not constitute a cause of action.
• Republic vs. Galeno, G.R. No. 215009, January 23, 2017 — Cited for the principle that a government agency or instrumentality cannot be estopped by the omission, mistake, or error of its officials or agents.
• Intra-Strata Assurance Corp. vs. Republic, 579 Phil. 631 (2008) — Cited for the principle that estoppel does not lie against the government arising from unauthorized or illegal acts of public officers.

• Section 3, Article XVI, 1987 Philippine Constitution — Provides that "[t]he State cannot be sued without its consent." Applied as the constitutional basis for dismissing the claim for damages against the City of Bacolod and its officials, on the ground that no consent to be sued was given for governmental acts.
• Section 171, paragraph 2(n), Local Government Code — Empowers the City Mayor to "grant or refuse to grant, pursuant to law, city licenses or permits, and revoke the same for violation of law or ordinance or the conditions upon which they are granted." Applied to confirm that the authority to issue business permits is a delegated exercise of police power, and thus a governmental function.
• City Tax Ordinance No. 93-001, Series of 1993 (City of Bacolod) — Sections 47 and 48 declare it unlawful for any person to conduct or engage in any business without first obtaining a permit from the City Mayor and paying the necessary permit fee and other charges to the City Treasurer. Applied as the legal basis for the Closure Order issued against respondent's bingo operations.

Justices Bersamin, Leonen, Martires, and Gesmundo concurred.